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United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1999
Commission File Number 000-22523
UNION NATIONAL BANCORP, INC.
Maryland 52-1862338
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
117 East Main Street, Westminster, MD 21157 (410) 848-7200
(Address of principal executive offices) (Telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy of information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K [ X ]
The aggregate market value of common stock of Union National Bancorp as
February 5, 2000 is $55,601,544.
As of February 5, 2000, Union National Bancorp had 1,965,349 shares of
common stock outstanding, par value $.01.
Documents Incorporated by Reference
Portions of the Union National Bancorp Inc. 1999 Annual Stockholders
Report for the year ended December 31, 1999, Parts II and IV
PART I
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ITEM 1. BUSINESS
GENERAL
Union National Bancorp, Inc. was incorporated under the laws of the
State of Maryland on January 19, 1994, and is a one-bank holding company
headquartered in Westminster, Maryland.
Union National Bancorp is primarily engaged in commercial and retail
banking services and in business related to banking services through its
subsidiary, The Union National Bank of Westminster. Union National Bank was
founded in Westminster in 1816 under the name of Bank of Westminster, and was
briefly known during the period of 1821 to 1830 as a branch of the Farmers &
Mechanics of Frederick. In 1865, Union National Bank became known as "The Union
National Bank of Westminster". Union National Bank is currently in its 183rd
year of operation.
Union National Bank has nine full service banking offices in Carroll
County, four of which are located in Westminster, one in Finksburg, one in
Hampstead, one in Eldersburg, one in Sykesville, and one in Mount Airy. Union
National Bank also has one loan production office, which is located in the same
building as Union National Bank's office headquarters in Westminster, Maryland.
Union National Bank through its affiliate Barnes-Bollinger Insurance Services,
Inc., offers a full line of insurance products.
LENDING, DEPOSIT AND INVESTMENT ACTIVITIES
LENDING ACTIVITIES. Union National Bank provides a full range of
commercial and consumer loan products designed to meet the borrowing needs of
businesses and consumers in our market. The majority of loans are to customers
serviced by our nine branch locations in Carroll County. Union National Bank
conducts lending related activities pursuant to credit policies, lending
guidelines and a structured loan approval process adopted by its Board of
Directors. Union National Bank's credit policies establish broad parameters that
reflect the Board's appetite for risk and how that risk should be managed; its
lending guidelines provide the specific parameters used in the underwriting
process for individual loans. Commercial loans are approved under a system of
dual credit authority up to designated limits with committee approval required
on larger loans. Residential and consumer loans are approved under designated
single authorities with higher authority required on exceptions. Union National
Bank has no foreign loans or highly leveraged transactions as defined by the
Federal Reserve Board. Union National Bank has limited purchases of loans
originated by other banks. Union National Bank has an extensive management
information system and credit review process for monitoring compliance with
credit processes and the quality of the loan portfolio.
Commercial loans offered by Union National Bank include (i) seasonal
lines of credit, (ii) revolving credit facilities including floor plan
facilities, (iii) real estate construction and mortgage loans, (iv) term loans,
(v) residential builder lines and (vi) SBA-guaranteed loans. Seasonal lines of
credit provide funds for temporary fluctuations in working assets and are
committed for periods of one year while revolving credit facilities provide
permanent working capital for periods up to three years. Real estate
construction and mortgage loans provide funding for the construction and
permanent financing for a variety of investment and owner occupied commercial
properties. These facilities are generally written for a term not to exceed
seven years based on an amortization period of 20 years. Term loans provide
funds for equipment purchases and permanent working capital for a term and
amortization generally not to exceed seven years. Builder lines are tailored
credit facilities for residential builders. Union National Bank's market
consists mostly of owner managed business, and the personal guarantees of the
principals of those businesses are generally required. An experienced credit
analysis and extensive underwriting process coupled with a well defined risk
management program and early recognition of deteriorating credits minimizes any
potential for losses. Union National Bank employs three full-time commercial
relationship managers supported by an experienced credit staff.
Consumer loans offered by Union National Bank include (i) residential
real estate loans, (ii) personal lines of credit, (iii) installment loans and
(iv) term and revolving home equity loans.
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Residential mortgage products include adjustable rate, balloon and
fixed rate loans secured by a first lien on residential property. The majority
of loans are underwritten for sale in the secondary market and comply with
investor guidelines published by organizations such as FNMA and FREDDIE MAC. The
largest segment of Union National Bank's consumer installment loan portfolio is
secured by automobiles and includes indirect lending through selected auto
dealers. Credit scores and debt service coverage are the major components
impacting installment loan decisions. Home equity products include both fixed
term loans and revolving lines of credit. A variety of structures are available
based on credit scores, debt service coverage and the loan to value.
DEPOSIT ACTIVITIES. Union National Bank also offers a full range of
deposit and personal banking services insured by the Federal Deposit Insurance
Corporation ("FDIC"), including (i) commercial checking and small business
checking products, (ii) trust and cash management services, (iii) retirement
accounts such as Individual Retirement Accounts ("IRA") and Simplified Employee
Pension accounts, retail deposit services such as certificates of deposit, money
market, savings accounts, checking account products and Automated Teller
Machines ("ATM"), Point of Sale and other electronic services, and (iv) other
personal miscellaneous services such as safe deposit boxes, foreign draft,
foreign currency exchanges, night depository services, travelers checks,
merchant credit cards, debit card services, direct deposit of payroll, U.S.
savings bonds, official bank checks and money orders. Union National Bank now
provides 24-hour access to customer information through its automated voice
response system. This system provides customers with balances, recent
transactions, pending transactions, the ability to transfer funds between
accounts, and receive facsimile statements. Union National Bank offers credit
cards and a full range of trust services through one of its correspondent
banking relationships.
The principal sources of funds for Union National Bank are core
deposits (demand deposits, interest-bearing transaction accounts, money market
accounts, savings accounts and certificates of deposits). Union National Bank
solicits these deposits from individuals, businesses, foundations and government
authorities. Substantially all of Union National Bank's deposits are from the
local market areas surrounding each of its offices.
INVESTMENT PORTFOLIO ACTIVITIES. Union National Bank's investment
portfolio has several objectives. A key objective is to provide a balance in
Union National Bank's asset mix of loans and investments that is consistent with
its liability structure, and to assist in management of interest rate risk. The
investments augment Union National Bank's capital position in the risk based
capital formula, providing the necessary liquidity to meet fluctuations in
credit demands of the community and fluctuations in deposit levels. In view of
the above objectives, the portfolio is treated conservatively by management, and
only securities that pass conservative investment criteria are purchased. Union
National Bank does not engage in any derivatives trading. The portfolio will
commonly fluctuate between 30% and 40% of Union National Bank's assets. In May
of 1998 Union National Bank formed a passive investment company in Wilmington
Delaware, Union National Delaware Holdings, Incorporated. Union National
Delaware Holdings is administered by Delaware Trust Capital Management, a
subsidiary of First Union. As of December 31,1999, 61% of the total security
portfolio was at Union National Delaware Holdings.
ADDITIONAL ACTIVITIES. Union National Bank provides its customers with
access to investment products through a third party vendor, PrimeVest Financial
Services, Inc., which offers annuities and mutual fund products and is based in
Minnesota. Union National Bank's wholly owned subsidiary, Barnes-Bollinger
Insurance Services, Inc., offers a full range of business, personal, life, group
medical, disability, and long term care insurance products.
COMPETITION
Union National Bank operates in a highly competitive environment,
competing for deposits and loans with commercial banks, savings banks, thrift
institutions, credit unions, and finance and mortgage companies. Some of these
competitors possess substantially greater financial resources than those
available to Union National Bank. Also, certain of these institutions have
significantly higher lending limits than Union National Bank, and may provide
various services for their customers, such as trust services, which Union
National Bank does offer directly to its customers.
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Union National Bank does not maintain data concerning its competitive
position within its market area. Occasionally, limited market share data is
produced by third parties. According to a 1999 publication by the FDIC, at June
30, 1999, Union National Bank had 13.62% market share of deposits held by the
Carroll County branches of banks, savings associations, and credit unions. Only
one other institution had larger deposit market share (26.04%) for their Carroll
County branches.
Financial institutions compete generally on the basis of rate and
service. In its lending business, Union National Bank is subject to increasing
competition from consumer finance companies.
RECENT DEVELOPMENTS
While Union National Bank will seek to remain competitive with the
interest rate that it charges on loans and offers on deposits, Union National
Bank believes that its success has been and will continue to be due to its
emphasis on its community banking, customer service and relationships. With the
continuing consolidation in the banking industry, particularly in Union National
Bank's markets, Union National Bancorp has entered into a definitive agreement
to the merger of Union National Bancorp with Mercantile Bankshares Corporation,
and, immediately thereafter, be merged with and into Mercantile Bankshares
Corporation (Nasdaq: MRBK). The agreement provides for the merger of Union
National Bank with Westminster Bank and Trust Company, a wholly owned subsidiary
of Mercantile Bankshares Corporation. Management of Union National Bancorp
believes it can utilize this opportunity to establish a greater local presence
in the Carroll County area while still providing community-banking services.
SUPERVISION AND REGULATION
GENERAL. Union National Bancorp and Union National Bank are extensively
regulated under federal and state law. Generally, these laws and regulations are
intended to protect depositors, not stockholders. The following is a summary
description of certain provisions of certain laws that affect the regulation of
banks and bank holding companies. The discussion is qualified in its entirety by
reference to applicable laws and regulations. Changes in such laws and
regulations may have a material effect on the business and prospects of the
Union National Bancorp and Union National Bank.
FEDERAL BANK HOLDING COMPANY REGULATION AND STRUCTURE. Union National
Bancorp is a bank holding company within the meaning of the Bank Holding Company
Act of 1956, as amended, and as such, it is subject to regulation, supervision,
and examination by the Federal Reserve Board. Union National is required to file
annual and quarterly reports with Federal Reserve Board and to provide the
Federal Reserve Board with such additional information as the Federal Reserve
Board may require. The Federal Reserve Board may conduct examinations of Union
National Bancorp and its subsidiaries.
With certain limited exceptions, Union National Bancorp is required to
obtain prior approval from the Federal Reserve Board before acquiring direct or
indirect ownership or control of more than 5% of any voting securities or
substantially all of the assets of a bank or bank holding company, or before
merging or consolidating with another bank holding company. Additionally, with
certain exceptions, any person proposing to acquire control through direct or
indirect ownership of 25% or more of any voting securities of Union National
Bancorp is required to give 60 day written notice of the acquisition to Federal
Reserve Board, which may prohibit the transaction, and to publish notice to the
public.
Generally, a bank holding company may not engage in any activities
other than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the Federal Reserve Board, Union National Bancorp may acquire more than 5% of
the assets or outstanding shares of a company engaging in non-bank activities
determined by the Federal Reserve Board to be closely related to the business of
banking or of managing or controlling banks. The Federal Reserve Board provides
expedited procedures for expansion into approved categories of non-bank
activities.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries, on investments in their securities and on
the
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use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit Union National Bancorp's ability to
obtain funds from Union National Bank for its cash needs, including funds for
the payment of dividends, interest and operating expenses. Further, subject to
certain exceptions, a bank holding company and its subsidiaries are prohibited
from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale or property of furnishing of services. For example, Union
National Bank may not generally require a customer to obtain other services from
itself or Union National Bancorp, and may not require that a customer promise
not to obtain other services from a competitor as a condition to and extension
of credit to the customer.
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to its subsidiary banks and to make
capital injections into a troubled subsidiary bank, and Federal Reserve Board
may charge the bank holding company with engaging in unsafe and unsound
practices for failure to commit resources to a subsidiary bank when required. A
required capital injection may be called for at a time when the holding company
does not have the resources to provide it. In addition, depository institutions
insured by the FDIC can be held liable for any losses incurred by, or reasonably
anticipated to be incurred by, the FDIC in connection with the default of, or
assistance provided to, a commonly controlled FDIC-insured depository
institution. Accordingly, in the event that any insured subsidiary of Union
National Bancorp causes a loss to FDIC, other insured subsidiaries of Union
National Bancorp could be required to compensate FDIC by reimbursing it for the
estimated amount of such loss. Such cross guaranty liabilities generally are
superior in priority to the obligations of the depository institution to its
stockholders due solely to their status as stockholders and obligations to other
affiliates.
STATE BANKING HOLDING COMPANY REGULATIONS. As a Maryland bank holding
company, Union National Bancorp is subject to various restrictions on its
activities as set forth in Maryland law, in addition to those restrictions set
forth in federal law above. Under Maryland law, a bank holding company that
desires to acquire a bank or bank holding company that has its principal place
of business in Maryland must obtain approval from the Maryland Commissioner of
Financial Regulation (the "Commissioner"). Also, a bank holding company and its
Maryland State chartered bank or trust company cannot directly or indirectly
acquire banking or non-banking subsidiaries or affiliates until the bank or
trust company receives the approval of the Commissioner.
FEDERAL BANK REGULATION. Union National Bancorp's banking subsidiary is
a federally-chartered national bank regulated by the Office of Comptroller of
the Currency ("OCC"). The Office of Comptroller of the Currency may prohibit the
institution over which it has supervisory authority from engaging in activities
or investments that the agency believes constitutes unsafe or unsound banking
practices. Federal banking regulators have extensive enforcement authority over
the institution they regulate to prohibit or correct activities that violate
law, regulation or a regulatory agreement or which are deemed to constitute
unsafe or unsound practices. Enforcement actions may include the appointment of
a conservator or receiver, the issuance of a cease and desist order, the
termination of deposit insurance, the imposition of civil money penalties on the
institution, its directors, officers, employees and institution-affiliated
parties, and the enforcement of any such mechanisms through restraining orders
or other court actions.
Union National Bank is subject to certain restrictions on extensions of
credit to executive officers, directors, principal stockholders or any related
interest of such persons which generally require that such credit extensions be
made on substantially the same terms as are available to third persons dealing
with Union National Bank and not involve more than the normal risk of repayment.
Other laws tie maximum amount that may be loaned to any one customer and its
related interests to capital levels.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), described in more detail below, each federal banking agency is
required to prescribe, by regulation, non-capital safety and soundness standards
for institutions under its authority. The federal banking agencies, including
the OCC, have adopted standards covering internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits. An institution,
which fails to meet those standards, may be required by the agency to develop a
plan acceptable to the agency, specifying the steps that the institution will
take to meet the standards. Failure to submit or implement such a plan may
subject the institution to regulatory sanctions. Union National Bancorp, on
behalf of Union National Bank, believes that it
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meets substantially all standards that have been adopted. FDICIA also imposed
new capital standards on insured depository institutions.
Before establishing new branch offices, Union National Bank must meet
certain minimum capital stock and surplus requirements and Union National Bank
must obtain OCC approval.
DEPOSIT INSURANCE. As a FDIC member institution, Union National Bank's
deposits are insured to a maximum of $100,000 per depositor through the Bank
Insurance Fund ("BIF"), administered by the FDIC, and each institution is
required to pay semi-annual deposit insurance premium assessments to the FDIC.
The BIF assessment rates have a range of 0 to 27 cents for every $100 in
assessable deposits. Banks with no premium are subject to an annual statutory
minimum assessment.
CAPITAL REQUIREMENTS. The federal banking regulators have adopted
certain risk-based capital guidelines to assist in the assessment of the capital
adequacy of a banking organization's operations for both transactions reported
on the balance sheet as assets and transactions, such as letters of credit, and
recourse agreements, which are recorded as off balance sheet items. Under these
guidelines, nominal dollar amounts of asset and credit equivalent amounts of off
balance sheet items are multiplied by one of several risk adjustment
percentages, which range from 0% for assets with low credit risk, such as
certain U.S. Treasury securities, to 100% for assets with relatively high credit
risk, such as business loans. For bank holding companies with less than
$150,000,000 in consolidated assets, the guidelines are applied on a bank-only
basis.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which include off balance sheet items,
against both total qualifying capital (the sum to Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. "Tier 1", or core capital,
include, common equity, perpetual preferred stock (excluding auction rate
issues) and minority interest in equity accounts of consolidated subsidiaries,
less goodwill and other intangibles, subject to certain exceptions. "Tier 2", or
supplementary capital, includes, among other things, limited-life preferred
stock, hybrid capital instruments, mandatory convertible securities, qualifying
subordinated debt, and the allowance for loan and lease losses, subject to
certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of
federal banking agencies. Banks and bank holding companies subject to the risk
based capital guidelines are required to maintain a ratio of Tier 1 capital to
risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. As of
December 31,1999 Union National Bank's ratio of Tier 1 to risk-weighted assets
stood at 13.0% and its ratio of total capital to risk weighted assets stood at
14.0%. In addition to risk-based capital, banks and bank holding companies are
required to maintain a minimum amount of Tier 1 capital to total assets,
referred to as the leverage capital ratio, of at least 3%. As of December 31,
1999, Union National Bank's leverage capital ratio was 8.6%
In August, 1995 and May, 1996 the federal banking agencies adopted
final regulations specifying that the agencies will include, in their
evaluations of a bank's capital adequacy, an assessment of each bank's interest
rate risk ("IRR") exposure. The standards for measuring the adequacy and
effectiveness of a banking organization's interest rate risk management included
a measurement of board of director and senior management oversight, and a
determination of whether a banking organization's procedures for comprehensive
risk management are appropriate to the circumstances of the specific banking
organization. Union National Bank has internal interest rate risk models that
are used to measure and monitor interest rate risk. Additionally, the regulatory
agencies have been assessing interest rate risk on an informal basis for several
years. For these reasons, Union National Bancorp does not expect the addition of
interest rate risk evaluation to the agencies' capital guidelines to result in
significant changes in capital requirements for Union National Bank.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy.
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Such a change could affect the ability of Union National Bank to grow and could
restrict the amount of profits, if any, available for payment of dividends to
Union National Bancorp.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. In
December, 1991, Congress enacted FDICIA, which substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
significant revisions to several other federal banking statutes. FDICIA provides
for, among other things, (i) publicly available annual financial condition and
management reports for financial institutions, including audits by independent
accountants, (ii) the establishment of uniform accounting standards by federal
banking agencies, (iii) the establishment of a "prompt corrective action" system
of regulatory supervision intervention, based on capitalization levels, with
more scrutiny and restrictions placed on depository institutions with lower
levels of capital, (iv) additional grounds for the appointment of a conservator
or receiver, and (v) restrictions or prohibitions on accepting brokered
deposits, except for institutions which significantly exceed minimum capital
requirements. FDICIA also provides for increased funding of FDIC insurance funds
and the implementation of risk-based premiums. See "Deposit Insurance."
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a six-tiered
system for measuring the capital adequacy of the depository institution that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," " significantly undercapitalized" and "
critically undercapitalized." Union National Bank is currently classified as
"well-capitalized." An institution may be deemed by regulators to be in a
capitalization category that is lower than is indicated by its actual capital
position if, among other things, it receives an unsatisfactory examination
rating with respect to asset quality, management, earnings or liquidity.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of cash dividend) or paying any
management fees to its holding company if the depository institution would
thereafter be undercapitalized. Undercapitalized depository institutions are
subjected to growth limitations and are required to submit capital restoration
plans. If a depository institution fails to submit an acceptable plan, it is
treated as if it is significantly undercapitalized. Significantly
undercapitalized depository institutions may be subject to a number of other
requirements and restrictions, including orders to sell sufficient voting stock
to become adequately capitalized, requirements to reduce total assets and stop
accepting deposits from correspondent banks. Critically undercapitalized
institutions are subject to the appointment of a receiver or conservator,
generally within 90 days of the date such institution is determined to be
critically undercapitalized.
FDICIA provides the federal banking agencies with significantly
expanded powers to take enforcement action against institutions that fail to
comply with capital or other standards. Such action may include the termination
of deposit insurance by the FDIC or the appointment of a receiver or conservator
for the institution. FDICIA also limits the circumstances under which FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
INTERSTATE BANKING LEGISLATION. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 was enacted into law on September 29, 1994. The
law provides that, among other things, substantially all state law barriers to
the acquisition of banks by out-of-state bank holding companies were eliminated
effective on September 29, 1995. The law also permits interstate branching by
banks effective as of June 1,1997, subject to the ability of the state to
opt-out completely or to set an earlier effective date. Maryland generally
established an earlier effective date of September 29, 1995.
FINANCIAL MODERNIZATION. In November, 1999, the Gramm-Leach-Bliley Act
("GLB") was signed into law. Effective in pertinent part on March 11, 2000, GLB
revises the Bank Holding Company Act of 1956 and repeals the affiliation
provisions of the Glass-Steagall Act of 1933, which, taken together, limited the
securities, insurance and other non-banking activities of any company that
controls a FDIC insured financial institution. Under GLB, bank holding
companies, such as Union National Bancorp, can elect, subject to certain
qualifications, to become a "financial holding company." GLB provides that a
financial holding company may engage in a full range of financial activities,
including, insurance and securities sales and underwriting activities, and real
estate development,
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with new expedited notice procedures. GLB also permits certain qualified
national bank subsidiaries to form financial subsidiaries, which have broad
authority to engage in all financial activities except insurance underwriting,
insurance investments, real estate investment or development, or merchant
banking.
NASDAQ SMALLCAP MARKET REQUIREMENTS. "The Nasdaq Stock Market" or
"Nasdaq" is a highly-regulated electronic securities market comprised of
competing Market Makers whose trading is supported by a communications network
linking them to quotation dissemination, trade reporting, and order execution
systems. The Nasdaq Stock Market consists of two distinct market tiers: the
Nasdaq National Market and The SmallCap Market. The Nasdaq stock market is
operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the
National Association of Securities Dealers, Inc. Companies who publicly trade
stock on the Nasdaq SmallCap market are required to submit certain financial
documents, in conjunction with forms required by regulatory authorities. All
reports and other documents must be provided to Nasdaq on or before the date
they are required to be filed with the Securities Exchange Commission or another
regulatory authority. Any company listing on Nasdaq SmallCap Market must meet
minimum financial qualification and must continue to meet financial
qualifications to maintain its listing. The Nasdaq Stock Market also requires
listing companies meet certain standards of corporate governance.
MONETARY POLICY. The earnings of a bank holding company are affected by
the policies of regulatory authorities, including the Federal Reserve Board, in
connection with the Federal Reserve Board's regulation of the money supply.
Various methods employed by the Federal Reserve Board are open market operations
in United States Government securities, changes in the discount rate on member
bank borrowings and changes in reserve requirements against member bank
deposits. These methods are used in varying combinations to influence overall
growth and distribution of bank loans, investments and deposits, and their use
may also affect interest rates charged on loans or paid on deposits. The
monetary policies of the Federal Reserve Board have had a significant effect on
the operating results of commercial banks in the past and are expected to
continue to do so in the future.
EMPLOYEES
As of December 31,1999, Union National Bank had the equivalent of 118
full-time employees.
ITEM 2. PROPERTIES
Union National Bank owns the following properties:
OFFICES LOCATION ADDITIONAL SERVICES
-------------------- --------------------- ---------------------
Corporate Headquarters 117 East Main Street
Westminster, MD 21157
Loan Operations 118 East Main Street
Westminster, MD 21157
East Main Street 111 East Main Street Drive-Up Window
Westminster, MD 21157 Automatic Teller
Machine
Sykesville 7564 Main Street Automatic Teller
Machine
Sykesville, MD 21784
Union National Bank leases the following properties:
BRANCH LOCATION ADDITIONAL SERVICES
- ----------------------- -------------------- ---------------------
West Main Street 132 West Main Street Drive-Up Window
Westminster, MD 21157 Automatic Teller
Machine
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Finksburg 2926 Baltimore Blvd. Drive-Up Window
Finksburg, MD 21048 Automatic Telle
Machine
140 Village 588 Baltimore Blvd. Drive-Up Window
140 Village Shopping Center Automatic Teller
Westminster, MD 21157 Machine
Eldersburg 5420 Klee Mill Road Drive-Up Window
Eldersburg, MD 21784 Automatic Teller
Machine
Hampstead 1631 North Main Street Drive-Up Window
Hampstead, MD 21102 Automatic Teller
Machine
Cranberry 400 North Center Street
Westminster, MD 21157 Automatic Teller
(within shopping mall) Machine
Mount Airy 400 E. Ridgeville Blvd. Drive-Up Window
Mt. Airy, MD 21771 Automatic Teller
Machine
REMOTE ATM LOCATION
----------------------------- -----------------------
Eagle Oil 8 Sullivan Rd.
Westminster Exxon Westminster, MD 21157
Eagle Oil 822 South Main St.
Hampstead Exxon Hampstead, MD 21074
Eagle Oil 251 E. Baltimore Ave.
Taneytown Exxon Taneytown, MD 21787
Carroll Community College 1601 Washington Rd.
Westminster, MD 21157
Emmitsburg Exxon 110 Silo Hill Rd.
Emmitsburg, MD 21727
Cranberry Food Court 400 North Center Street
Westminster, MD 21157
(within shopping mall)
ITEM 3. LEGAL PROCEEDINGS
Union National Bancorp and Union National Bank are subject to various
legal proceedings which are incidental to their business. In the opinion of
management, the liabilities (if any) resulting from such legal proceedings will
not have a material effect on the consolidated financial statements or
consolidated ratios of Union National Bancorp and Union National Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
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There were no matters that were submitted to a vote of the security
holders during the fourth quarter of 1999.
Due to the proposed merger of Union National Bancorp with Mercantile
Bankshares Corporation, the Annual Meeting of Stockholders, originally scheduled
for April 18, 2000, has been postponed. It is anticipated that the next
stockholders' meeting will be held on a date in late spring or early summer of
2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
Union National Bancorp has been traded publicly on the Nasdaq Small Cap
Market as of April, 1998. It is listed under the trading symbol UNNL. The low
and high ranges presented in the table below prior to this date are based on
trades reported through the over the counter bulletin board. Since this date,
price information is reflected of actual sale price quoted on the Nasdaq
SmallCap Market. On January 27, 1998, Union National Bancorp's Board of
Directors authorized a two-for-one stock split, effected in the form of a 100%
stock dividend, thereby increasing the number of shares authorized on that date
to 1,674,870, and in September, 1998 authorized a 10% stock dividend. The
following table reflects stock prices for Union National Bancorp's shares to the
extent such information is available, and dividends declared with respect
thereto during the preceding two years. The number of common shares and per
share amounts have been restated to reflect the stock split and 10% stock
dividend.
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- -------------------------------- --------------------------------
Price Range Dividends Price Range Dividends Price Range Dividends
-------------------- --------------------- ---------------------
Low High Declared Low High Declared Low High Declared
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $29.50 $38.50 $0.110 $16.82 $22.75 $0.091 $14.55 $16.82 $0.068
2nd Quarter 26.25 32.75 0.115 19.09 30.45 0.095 15.00 16.93 0.073
3rd Quarter 26.00 28.50 0.115 25.45 28.18 0.100 15.11 16.82 0.082
4th Quarter 27.00 29.25 0.120 29.00 32.00 0.110 15.11 17.27 0.086
</TABLE>
As of February 5, 2000, the approximate number of holders of record of
Union National Bancorp's shares was 451. At such date, 1,965,349 shares were
outstanding. Dividends are paid quarterly.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS. Union National Bancorp's
current ability to pay dividends is largely dependent upon the receipt of
dividends from its banking subsidiary, Union National Bank. Federal laws impose
restrictions on the ability of Union National Bancorp to pay dividends. Federal
Reserve Board has issued a policy statement that provides that, as a general
matter, insured banks and bank holding companies may pay dividends only out of
prior operating earnings. The National Bank Act prohibits a national bank from
paying a dividend greater than the bank's undivided profits. In addition to
these specific restrictions, bank regulatory agencies, in general, also have the
ability to prohibit proposed dividends by a financial institution which would
otherwise be permitted under applicable regulations of the regulatory body
determines that such distribution would constitute an unsafe or unsound
practice.
ITEM 6. SELECTED FINANCIAL DATA.
Union National Bancorp's 1999 Annual Stockholders Report, attached
hereto as Exhibit 13, is incorporated by reference herein.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS.
Union National Bancorp's 1999 Annual Stockholders Report, attached
hereto as Exhibit 13, is incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Union National Bancorp's 1999 Annual Stockholders Report, attached
hereto as Exhibit 13, is incorporated by reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Union National Bancorp's 1999 Annual Stockholders Report, attached
hereto as Exhibit 13, is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
WESLEY D. BLAKESLEE, 52, a director since 1988, is an attorney in private
practice in Westminster, Maryland. He is a member of the Carroll County and
Maryland Bar Associations. He is also President of Will Plan Corporation.
DAVID L. BRAUNING, SR., 62, a director since 1988, is a longtime representative
of Nationwide Insurance located in Finksburg, Maryland. Mr. Brauning is a member
of the Board of the Maryland State Fair. He has been active in local 4H Club
activities, and serves on the Maryland State Appraisers Commission.
ROBERT L. BULLOCK, 63, a director since 1983, is the owner of Bullock's Country
Meats in Smallwood, Maryland. He is a longtime member of Hoffman Home in
Gettysburg, Pennsylvania and serves on the Board of Governors of the Carroll
County Farm Museum.
DONALD C. ESSICH, 67, a director since 1983, is Vice Chairman of the Board of
Union National Bank and Union National Bancorp. He is currently involved in real
estate development. He is retired from actively farming, continuing to be
involved in agriculture related and community organizations. He is a Past
President of the Carroll County Farm Bureau.
DEAN H. GRIFFIN, M.D., 65, a director since 1984, is a family practice medical
doctor in Westminster, Maryland. He serves as a Board of Director of Maryland
Family Health Foundation.
BERNARD L. JONES, SR., 58, a director since 1991, is a senior engineer/systems
technologist for BAE Systems in Rockville, Maryland. Mr. Jones is the President
of HOPE, Inc., a local developer of low cost housing. Mr. Jones is a director
for the Maryland Affordable Housing Trust.
<PAGE>
WILLIAM R. KLINGER, 44, a director since 1988, is the owner and general manager
of Star Vending Service. Prior to starting his own business, Mr. Klinger was a
sales manager for Mid-Atlantic Coca-Cola Company and Vice President of
Westminster Coca-Cola Bottling Company.
K. WAYNE LOCKARD, 66, a director since 1973, is the Chairman of the Board of
Union National Bank and Union National Bancorp. He is a self employed real
estate consultant and partner in "Lockard Properties", developers and investors
of commercial and residential real estate. He actively serves on numerous
Boards, and on committees at Carroll County General Hospital, and he is a member
of the Board of Trustees of Lancaster Theological Seminary.
ELLEN MILLER, 52, a director since 1995, is Assistant Secretary for Employment &
Training for the Maryland Department of Labor, Licensing & Regulation. Prior to
joining the State Department, she was the Director of Business and Industry
Training at Carroll Community College in Westminster, and owned and operated her
own small business. Mrs. Miller is active in numerous non-profit organizations.
ROBERT T. SCOTT D.D.S., 56, a director since 1990, is an orthodontist practicing
as Senior Partner of Scott, Lawyer & Lu Orthodontics, LLC with offices
throughout Carroll County. His family is developing Manchester Manor, an
independent living community. He is also a member of the Carroll County Economic
Development Committee and a member of the Westminster Rotary Club.
ETHAN A. SEIDEL, 57, a director since 1995, is the Vice President of
Administration and Finance at Western Maryland College. Dr. Seidel also teaches
economics at the college. He has received numerous awards for teaching
excellence and has been very instrumental in the success of the Junior
Achievement Economics Program.
VIRGINIA W. SMITH, 50, a director since 1996, was elected President and Chief
Executive Officer of Union National Bancorp and of Union National Bank on
January 12, 1996. She served as Executive Vice President of Union National Bank
from August 1995 to January 1996. Prior to joining Union National Bank she had
12 years experience as a Senior Executive for Bank of Baltimore and Signet. She
is President of the Carroll County General Hospital Foundation Board, Vice
Chairman of Carroll County United Way Partnership and serves on the Board of
Directors of the Baltimore Branch of the Federal Reserve Bank.
LARRY A. VAN SANT, SR., 47, a director since 1998, is President and owner of Van
Sant Plumbing & Heating, Inc. in Mount Airy, Maryland. Mr. Van Sant currently
serves on the Board of Trustees of Frederick Memorial Hospital. He is a member
of the Mt. Airy Rotary Club and various trade associations related to his
business.
KENNETH B. WRIGHT, 57, a director since 1986, is the owner and President of
Towne Pride Interiors in Hampstead, Maryland. Mr. Wright has served on the
Carroll County Chamber of Commerce, has been a board member of the Carroll
County YMCA, Hampstead Business Association and various trade associations
related to his business.
GABRIELLE M. PEREGOY, 42, has been Treasurer of Union National Bancorp since
August 1997 and Vice President of Union National Bank since April 1997. Mrs.
Peregoy oversees all financial aspects of Union National Bancorp: accounting,
tax liabilities and investments. Mrs. Peregoy joined Union National Bank in 1984
as Administrative Assistant, promoted to Investment Manager in 1993 and promoted
to Funds Manager in 1996.
DENISE L. BAKER, 46, has been Secretary to Union National Bancorp since 1994 and
Vice President of Union National Bancorp since April 1997. Cashier and Secretary
to the Board of Directors of Union National Bank since 1989. Mrs. Baker has held
numerous positions with Union National Bank since she joined Union National Bank
in 1972.
STEVEN L WANTZ, 41, has been Senior Vice President and Chief Operating Officer
of Union National Bank since April 1997. Mr. Wantz joined Union National Bank in
1976 and held the position of Auditor from 1978 to 1985 when he was promoted to
Officer in Charge of Operations and currently oversees all aspects of
operations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 requires Union
National Bancorp's directors, executive officers and persons who own more than
ten percent of Union National Bancorp's Common Stock to file monthly and annual
reports of ownership and changes in ownership of their shares with the
Securities and Exchange Commission, the National Association of Securities
Dealers, Inc with a copy to Union National Bancorp. To Union National Bancorp's
knowledge, based solely on review of the copies of such reports furnished to
Union National Bancorp, all Section 16 filing requirements applicable to Union
National Bancorp's executive officers, directors and greater than ten percent
beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain information concerning
compensation of Union National Bancorp's Chief Executive Officer and other
executive officers who earned more than $100,000 in the fiscal year ended
December 31, 1999.
<TABLE>
<CAPTION>
Summary Compensation Table
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------ -----------------------------
<S> <C> <C> <C> <C>
Other Annual Securities
NAME & PRINCIPAL POSITION YEAR SALARY COMPENSATION(1) UNDERLYING OPTIONS
- ------------------------ ---- ------ -------------- ------------------
Virginia W. Smith 1999 153,587.00 18,677.45 0
President and Chief
Executive Officer 1998 144,487.00 18,677.51 825
1997 137,100.00 17,255.00 9,240 (2)
</TABLE>
(1) For 1999, includes automobile allowance of $7,199.92, deferred director
fees of $7,200.00 and matching contributions by Union National Bank under
the Employee Savings & Benefit Plan. For 1998, includes automobile
allowance of $7,199.92, deferred director fees of $7,200.00 and matching
contributions by Union National Bank under the Employee Savings & Benefit
Plan. For 1997, includes automobile allowance of $7,199.92, deferred
director fees of $6,000 and matching contributions by Union National Bank
under the Employee Savings & Benefit Plan.
(2) Share amounts have been adjusted to reflect the 2-for-1 stock split
effected in the form of a 100% stock dividend declared on January 27, 1998
and 10% stock dividend declared on September 22, 1998.
<PAGE>
STOCK OPTIONS
No stock options were granted to the President and Chief Executive
Officer of Union National Bancorp. The following table sets forth information
regarding stock options exercises and values during 1999.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUES AT DECEMBER 31, 1999
----------------------------------
VALUE OF UNEXERCISED
SHARES ACQUIRED NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
NAME ON EXERCISE VALUE REALIZED UNEXERCISED OPTIONS AT 12-31-99 OPTIONS AT 12-31-99
- ---- ---------- ------------- ---------------------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Virginia W. Smith -0- -0- 3861 6204 29,235.36 43,853.04
</TABLE>
PENSION PLAN & THRIFT PLAN
Employee benefits are administered through plans sponsored by Union
National Bank rather than Union National Bancorp. Union National Bank sponsors a
defined benefit pension plan covering substantially all employees. Benefits are
based on years of service and the employee's compensation. Union National Bank's
funding strategy has been to contribute the maximum amount deductible for income
tax purposes. Contributions provide not only for benefits attributed to service
to date, but also for those expected to be earned in the future. Net pension
cost for 1999, 1998 and 1997 includes the following components:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned during the year $105,323 $72,280 $83,251
Interest cost on projected benefit obligation 70,736 60,149 65,815
Less: Actual return on plan assets (126,069) (50,921) (93,269
Net amortization and deferral 67,254 10,982 61,321
------ ------ ------
$117,244 $92,490 $117,118
Additional expense related to settlement of
pension obligations --- --- 88,718
-------- --------
Net pension cost $117,244 $92,490 $205,836
</TABLE>
During 1997, Union National Bank's defined benefit pension plan made
lump sum payments to plan participants which met the criteria for a settlement
of pension obligations as defined in SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Plans and for Termination
Benefits". This settlement resulted in additional pension expense of $88,718 for
the year ended December 31, 1997.
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.25% for 1999, 7.50% for
1998 & 1997. The expected long-term rate of return on assets was 7.50% for 1999,
1998 and 1997.
Union National Bank has an Employee Savings and Investment Plan,
401(k), in which substantially all employees are eligible to participate. Under
the terms of the Plan, Union National Bank may match employee contributions up
to 6% of compensation. Union National Bank's contributions to the Plan were
$76,457 for 1999, $79,388 for 1998 and $62,564 for 1997.
Union National Bank had also made agreements with certain officers to
provide additional retirement benefits under a Supplemental Executive Retirement
Plan. This program was designed to, when combined with
<PAGE>
Social Security and Union National Bank's defined benefit plan, give those
officers covered approximately 60% of final salary. The plan is unfunded so that
amounts payable represent unsecured liabilities of Union National Bank, subject
to claims of secured creditors. At this time the plan is no longer actively
offered and the single remaining participant in the plan has retired and begun
receiving benefits. The amount included in operating expenses was $12,187 for
1999, $12,884 for 1998 and ($9,754) for 1997.
COMPENSATION OF DIRECTORS
Directors of Union National Bancorp do not receive compensation in that
capacity. However, as directors of Union National Bank they receive compensation
for serving on the Board of Directors in the following amounts: $1,000 per month
for the Chairman of the Board, $700 per month for the Vice Chairman of the
Board, and $600 per month for all other directors. In addition, all directors of
Union National Bank receive $100 for each special meeting of the Board of
Directors which they attend. During 1992 Union National Bank entered into an
agreement with members of its Board of Directors to allow director fees to be
deferred until retirement. The director may defer a portion or all of their fee
until retirement. Those fees deferred will be paid either in a lump sum or over
a pre-determined period of up to fifteen years at retirement or separation from
Union National Bancorp.
EMPLOYMENT CONTRACT
Virginia W. Smith entered into an employment contract with Union
National Bank effective August 9, 1995 ("Employment Contract") by which she was
made Executive Vice President of Union National Bank. Ms. Smith became President
of Union National Bank on January 12, 1996. Under the Employment Contract, her
term as President is for one year, which term and the Employment Contract are
automatically renewed each year unless either party provides 120 days advance
notice to the contrary. The Employment Contract further provides that if Ms.
Smith's employment is terminated for a reason other than for cause, she will be
paid her then-current salary and benefits for 12 months thereafter ("Severance
Pay"). In addition, if following a merger or other corporate reorganization in
which Union National Bank is not the survivor, Ms. Smith's duties and
authorities are diminished or her salary is decreased or she is forced to
relocate, Ms. Smith can make a claim for Severance Pay. If Union National Bank
disagrees that Severance Pay is owing, the dispute is subject to binding
arbitration.
KEY EMPLOYEE RETENTION PLAN
In December 1997 Union National Bank adopted a Key Employee Retention
Plan to provide incentives to attract and retain key employees. The plan is
administered by the board of directors and is subject to the provisions of the
plan and applicable law. Participation in the plan is restricted to key
employees and approved by the board of directors. The plan provides severance
benefits in the event a participant's employment is terminated as a result of a
change of control of Union National Bancorp. The plan generally defines change
of control as a change of beneficial ownership of 50% or more of Union National
Bancorp's common stock. The plan provides that participants may receive from a
minimum of 3 months base salary to a maximum of 30 months based on level in the
organization and years of service. Severance payments will be reduced by any
amounts granted under any other contract with Union National Bancorp. Severance
will also be adjusted based on any amount received from other employment during
the severance period.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Management Oversight Committee of the Board of Directors serves as
compensation committee of Union National Bancorp and Union National Bank. The
current members of the Management Oversight Committee in 1999 were Virginia W.
Smith, Donald C. Essich, K. Wayne Lockard, Ethan A. Seidel, Kenneth B. Wright,
David L. Brauning and Dean H. Griffin. Ms. Smith is the current CEO and
President of Union National Bancorp and Union National Bank. While Ms. Smith was
specifically excluded from any committee discussion concerning her own
compensation, she did participate in the committee's discussion concerning other
key executive compensation.
CORPORATE COMPENSATION POLICY
<PAGE>
The Management Oversight Committee of the Board of Directors sets
compensation guidelines for the Chief Executive Officer and other executive
officers of Union National Bancorp and Union National Bank. Such guidelines are
intended to provide suitable rewards for individual performance and to tie such
performance to increased stockholder value. While stock performance may be one
indicator of stockholder value, several factors such as regulatory capital
strength, asset quality, and other factors also represent valid bases on which
to judge management's performance. Total compensation includes base salary,
benefits, short and long term incentives and perquisites.
MANAGEMENT OVERSIGHT COMMITTEE REPORT
The guidelines used by the Committee involve the following factors:
corporate profitability measured by return on assets (ROA), stock price, asset
quality, loss reserve levels, market-share, regulatory capital strength, cost
control, and regulatory examinations.
Annually, at year-end, the Committee reviews the base compensation and
benefit levels of the CEO, and other executive officers. Each officer's
compensation is based on their contribution to Union National Bancorp and Union
National Bank, and their meeting of the goals and objectives as set forth in the
Strategic Plan. To verify that the compensation and benefits are reasonable and
competitive, they are compared with those of executive officers of similarly
sized financial services companies in the Mid-Atlantic region. These companies
are other banks and thrift institutions. The objective is to set base pay at a
level comparable to that being paid by other successful community banking
organizations. Such compensation must be maintained at a level sufficient to
attract and retain qualified executives. These surveys are readily available in
the marketplace and are relied upon by the industry.
The individual components of Union National Bancorp's compensation
program include:
(a) BASE SALARY. Base salary levels are established for senior officers
primarily based upon the valuation of historical performance, degree of
responsibility and level of expertise. In addition, the Management Oversight
Committee considers compensation data available through various surveys
including the Sheshunoff Bank Executive & Director Compensation Survey, Bank
Administration Institute Key Executive Compensation Surveys and Starkey & Beall
Regional Financial Industry Salary Survey.
(b) ANNUAL INCENTIVES/BONUSES (SHORT-TERM INCENTIVE). In 1996 Union
National Bank adopted a Management Incentive Compensation Program ("MIP") for
key officers other than the Chief Executive Officer. The MIP was designed to be
similar to existing plans of other banks and financial service companies. The
MIP, like these plans in general, requires a considerable degree of specificity
with regard to the performance measures and evaluations, which are benchmarked
to industry incentive practices. MIP allows the Management Oversight Committee
to establish annual performance measures to be used in conjunction with the
goals in Union National Bancorp's strategic plan. Executives are eligible for
incentive compensation expressed as a percentage of their base salaries for
meeting established performance measures. In addition to the MIP Union National
Bank has an annual Profit Sharing Bonus Program which has a targeted payout of 0
to 5% of profits. The level of payout is determined by the Board of Directors
based on performance versus pre-determined net income targets. All employees
that meet the seniority and performance requirements are eligible to
participate.
(c) STOCK OPTION AWARD (LONG-TERM INCENTIVE). The Management Oversight
Committee believes that the granting of stock options is the most appropriate
form of long-term compensation for key officers, since awards of equity
encourage ownership in the success of Union National Bancorp. Stock option
grants are discretionary and are limited by the terms and conditions of Union
National Bancorp's 1997 Stock Option Plan, which was approved by the
shareholders at the 1997 annual meeting. In 1997 a total of 21,890 options were
granted as adjusted for stock splits. In 1998 a total of 18,982 options were
granted. In 1999 a total of 21,483 options were granted.
Management Oversight Committee
By: Kenneth B. Wright K. Wayne Lockard
David L. Brauning Ethan A. Seidel
<PAGE>
Donald C. Essich Virginia W. Smith
Dean H. Griffin
PERFORMANCE GRAPH
[GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Union National Bancorp, Inc. $100 $113.04 $126.49 $145.71 $256.52 $238.78
NASDAQ Composite $100 $139.91 $171.68 $208.82 $291.58 $541.13
NASDAQ Bank Index $100 $144.82 $182.70 $298.87 $263.69 $242.64
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the ownership of
Union National Bancorp's common stock by directors, each executive officer of
Union National Bancorp and Union National Bank and each person who was known to
own beneficially, directly or indirectly, more than 5% of Union National
Bancorp's common stock outstanding on February 5, 2000. The term "beneficial
ownership" includes common stock that may be acquired within 60 days upon the
exercise of options, warrants, and other rights. The address of each person
below is the address of Union National Bancorp.
<TABLE>
<CAPTION>
Name of Common Stock Percent of Class
DIRECTOR/EXECUTIVE OFFICER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED
- ------------------------- --------------------- ------------------
<S> <C> <C>
Baker, Denise L 9,598 * (2)
Blakeslee, Wesley D 4,355 * (3)
Brauning, David L. 24,026 1.2 (4)
Bullock, Robert L. 17,891 * (5)
Essich, Donald C. 5,921 *
Griffin, Dean H., M.D. 13,430 * (6)
Jones, Bernard L., Sr. 660 *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Klinger, William R. 862 *
Lockard, K. Wayne 11,520 * (7)
Miller, Ellen 220 *
Peregoy, Gabrielle M. 2,643 * (8)
Scott, Robert T., D.D.S. 2,615 * (9)
Seidel, Ethan A. 1,386 *
Smith, Virginia W. 64,718 3.4 (10)
Van Sant, Larry A., Sr. 1,398 * (11)
Wantz, Steven L. 14,521 * (12)
Wright, Kenneth B. 3,190 * (13)
All directors and executive officers
as a group ( 17 persons) 178,954 12.2
NAME OF BENEFICIAL OWNERS
- -------------------------
Union National 401(k) plan 121,280 6.5 (14)
Virginia C. Wantz 140,395 7.6 (15)
</TABLE>
* Less than 1% of Union National Bancorp's outstanding common stock.
1) Except as otherwise indicated and except for shares held by members of an
individual's family or in trust, all shares are held with sole investment
and voting power. Fractional shares resulting from participation in the
dividend reinvestment plan have been rounded to the nearest whole share.
2) Includes 8,482 shares held in the Union National 401(k) Plan and 888 shares
that may be purchased upon the exercise of stock options.
3) Includes 3,349 shares held in an IRA.
4) Includes 5,190 shares held in his spouse's 401(k) Plan.
5) Includes 1,000 shares in name of a company he controls.
6) Includes 685 shares owned by John W. Griffin & Dean H. Griffin, Jt. Ten.,
and 430 shares owned by Mr. Griffin's spouse, as to which Mr. Griffin
disclaims beneficial ownership.
7) Includes 2,728 shares owned by Mr. Lockard's spouse, as to which Mr.
Lockard disclaims beneficial ownership
8) Includes 2,082 shares held by the reporting person in the Union National
401(k) Plan and includes 165 shares held jointly by Ms. Peregoy and her
spouse and 396 shares that may be purchased upon the exercise of stock
options.
9) Includes 365 shares held jointly by Mr. Scott and his spouse and 880 shares
held by Mr. Scott under the Robert T. Scott, DDS PTA Pension Plan.
10) Includes 670 shares held by the reporting person in the Union National
401(k) Plan and 3,861 shares that may be purchased upon the exercise of
stock options.
11) Includes 786 shares held by Mr. Van Sant and his spouse.
12) Includes 492 shares held jointly by Mr. Wantz and his spouse and 11,701
shares held by Mr. Wantz in the Union National 401(k) Plan and 1800 shares
that may be purchased upon the exercise of stock options.
13) Includes 793 shares held jointly by Mr. Wright and his spouse.
<PAGE>
14) The Union National 401(k) plan, while owning 6.5% of the outstanding stock
of Union National Bancorp, does not control the voting of those shares.
Participants are forwarded a proxy statement and cast their vote according
to the same rules as any other stockholder.
15) Includes 70,699 shares held by trustees for the benefit of Virginia C.
Wantz.
DEFINITIVE CHANGE IN CONTROL AGREEMENT
On January 21, 2000, Union National Bancorp and Union National Bank
announced that they had entered into a definitive agreement for the merger of
Union National Bancorp into Mercantile Bankshares Corporation, and the merger of
Union National Bank with Westminster Bank and Trust Company, a subsidiary of
Mercantile Bankshares Corporation. The agreement provides for an exchange of
1.15 shares of Mercantile common stock for each share of common stock of Union
National Bancorp, and is subject to customary closing conditions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT.
During the past year Union National Bancorp has had, and expects to
have in the future, banking transactions in the ordinary course of its business
through Union National Bank, its wholly owned banking subsidiary, with its
directors and executive officers and with their associates. Such transactions
are on substantially the same terms, including interest rates, collateral, and
repayment terms on loans, as those prevailing at the same time for comparable
transactions with others. The extensions of credit by Union National Bank to
these persons have not, and do not currently, involve more than the normal risk
of collectibility or present other unfavorable features. At December 31, 1999,
the outstanding principal balance of loans as well as credit available, but
unused under line of credit agreements to directors and executive officers and
their associates, including loans guaranteed by any such person, aggregated
$4,534,777 which represented approximately 19% of Union National Bank's equity
capital accounts.
LEASE AGREEMENTS.
In 1996, Union National Bank entered into a lease involving 2,400
square feet of office space in Hampstead Maryland, at a monthly rental of
$3,150, which Union National Bank uses as its Hampstead branch office. The
lessor of the property is K. Wayne Lockard, Chairman of the Board, and his wife,
Bonnie M. Lockard, both of whom are stockholders of Union National Bank. In
1992, Union National Bank entered into a lease involving 3,076 square feet of
office space in Finksburg Maryland, with a current monthly rental of $1,944.33,
which Union National Bank uses as its Finksburg branch office. The lessor of the
property is Finksburg Shopping Center Partnership of which David L. Brauning,
Director is a 25% partner and stockholder of Union National Bank.
The leases were negotiated on an arm's-length basis, and are subject to
terms that are generally prevailing in the area for comparable properties. In
the opinion of Union National Bancorp's Board, the terms of the leases are at
least as favorable to Union National Bank as could have been obtained from
unaffiliated third parties and the leases are fair and reasonable to Union
National Bank.
CERTAIN BUSINESS RELATIONSHIPS.
Union National Bank has retained, among others, Wesley D. Blakeslee,
P.C., the law firm of Director Wesley D. Blakeslee, on an at-will basis to
perform collection work. Fees for collection work are assessed on an hourly
basis for consumer loans and on a percentage of the amount collected for
residential mortgages and commercial loans. Union National Bank paid $5,646.87
in 1999 for these services. The retention of Mr. Blakeslee's firm was negotiated
on an arm's-length basis, and is subject to terms that are within the range
generally prevailing in this area for collection work. In the opinion of Union
National Bancorp's Board of Directors, the terms are at least
<PAGE>
as favorable to Union National Bank as could have been obtained from
unaffiliated third parties and are fair and reasonable to Union National Bank.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTED OF FORM 8-K
(a) Documents filed as part of this report:
(1), (2)The following financial statements are included in Exhibit 13
of the Union National's 1999 Annual report to Stockholders:
INDEPENDENT AUDITOR'S REPORT
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(3) Exhibits filed herewith or incorporated by reference
herein as set forth in the following table prepared in accordance with Item 601
of Regulation S-K.
EXHIBIT INDEX
(3) CHARTER AND BYLAWS
(3a.) Articles of Incorporation of Union National Bancorp is
incorporated by reference from Union National Bancorp's Form 10, filed with the
Commission of May 5, 1997, and Form 10/A, filed with the Commission on August
21,1997 (Registration No. 0-22523)
(3b.) Bylaws of Union National Bancorp, as amended, is filed
herewith
(10) MATERIAL CONTRACTS
(10a.) Employment Agreement between the Union National Bank of
Westminster and Virginia W. Smith, President, is incorporated by reference from
Union National Bancorp's Form 10, filed with the Commission on May 5, 1997, and
Form 10/A, filed with the Commission on August 21,1997 (Registration No.
0-22523)
(10b.) 1997 Stock Option Plan is incorporated by reference
from Union National Bancorp's Form 10, filed with the Commission of May 5, 1997,
and Form 10/A, filed with the Commission on August 21,1997 (Registration No.
0-22523)
(10c.) Leases between The Union National Bank of Westminster
and K. Wayne Lockard, Director, dated October 1, 1997, is incorporated by
reference from Union National's Form 10, filed with the Commission of May 5,
1997, and Form 10/A, filed with the Commission on August 21,1997 (Registration
No. 0-22523)
<PAGE>
(10d.) Amendment to employment agreement between the Union
National Bank of Westminster and Virginia W. Smith, President, is incorporated
by reference from Union National Bancorp's Form 8-K, filed with the Commission
on October 26, 1998
(10e.) Key Employee Retention Plan is incorporated by
reference from Union National's Form 10-K, filed with the Commission on March
25, 1999
(11) STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Union National Bancorp's 1999 Annual Stockholders Report,
Exhibit 13, incorporated herein by reference.
(12) STATEMENTS RE COMPUTATION OF RATIOS
a. The percentage ratio of net income to average total assets
is calculated by dividing net income for 1999 of $3,203,094 , by the average
total assets for 1999 of 297,245,000. For 1998 by dividing net income of
$2,637,824, by the average totals assets for 1998 of $268,614,000
b. The percentage ratio of net income to average shareholders'
equity is calculated by dividing net income for 1999 of $3,203,094, by the
average shareholders' equity for 1999 of $24,085,000. For 1998 by dividing net
income for 1998 of $2,637,824, by the average shareholders' equity for 1998 of
$21,165,000.
c. The percentage ratio of shareholders' equity to total
assets is calculated by dividing shareholders' equity for 1999 of $25,582,882,
by the total assets for 1999 of $302,928,108. For 1998 by dividing shareholders'
equity for 1998 of $22,236,679, by the total assets for 1998 of $283,913,435.
d. The percentage ratio of cash dividends declared to net
income on a per share basis is calculated by dividing the cash dividend per
share for 1999 of $0.46, by net earnings per share for 1999 of $1.68. For 1998
by dividing the cash dividend per share for 1998 of $0.40, by net earnings per
share for 1998 of $1.43.
(13) ANNUAL REPORT TO STOCKHOLDERS
1999 Annual Stockholders Report is filed herewith.
(21) SUBSIDIARIES OF THE REGISTRANT
Union National Bancorp wholly owns The Union National Bank of
Westminster, a national banking association. The Union National Bank of
Westminster wholly owns Barnes-Bollinger Insurance Services, Inc., a Maryland
corporation and licensed insurance agency, and Union National Delaware Holdings,
Incorporated, a Delaware corporation.
(23) CONSENTS OF EXPERTS & COUNSEL
(23a.) Consent of Keller Bruner & Co. L.L.P. is filed herewith.
(27) FINANCIAL DATA SCHEDULE
Filed electronically herewith via EDGAR.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Union National Bancorp, Inc.
Date: March 28, 2000 By: /s/ VIRGINIA W. SMITH
----------------------------------------
President and Chief Executive Officer
Date: March 28, 2000 By: /s/ GABRIELLE M. PEREGOY
----------------------------------------
Vice President & Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 28, 2000 by: /s/ K. Wayne Lockard
Director & Chairman of the Board
Date: March 28, 2000 by: /s/ Donald C. Essich
Director & Vice Chairman
Date: March 28, 2000 by: /s/ Kenneth B. Wright
Director
Date: March 28, 2000 by: /s/ Robert T. Scott
Director
Date: March 28, 2000 by: /s/ Larry A. Van Sant, Sr.
Director
Date: March 28, 2000 by: /s/ Virginia W. Smith
Director
Date: March 28, 2000 by: /s/ Wesley D. Blakeslee
Director
Date: March 28, 2000 by: /s/ Dean H. Griffin
Director
Date: March 28, 2000 by: /s/ Ethan A. Seidel
Director
Date: March 28, 2000 by: /s/ Ellen Willis Miller
Director
Date: March 28, 2000 by: /s/ William R. Klinger
Director
Date: March 28, 2000 by: /s/ Bernard L. Jones, Sr.
<PAGE>
Director
Date: March 28, 2000 by: /s/ Robert L. Bullock
Director
Date: March 28, 2000 by: /s/ David L. Brauning
Director
<PAGE>
EXHIBIT 3b
UNION NATIONAL BANCORP, INC.
BYLAWS
As Adopted on February 15, 1994,
and Amended on December 30, 1999.
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the corporation in
the State of Maryland shall be located at such place or places as the board of
directors may designate.
Section 2. ADDITIONAL OFFICES. The corporation may have additional
offices at such places as the board of directors may from time to time determine
or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the corporation shall be held during the month of April in each year on a
date and at the time set by the board of directors, beginning with the year
1995.
Section 3. SPECIAL MEETINGS. The president or board of directors may
call special meetings of the stockholders. Special meetings of stockholders
shall also be called by the secretary upon the written request of the holders of
shares entitled to cast not less than 25% of all the votes entitled to be cast
at such meeting. Such request shall state the purpose of such meeting and the
matters proposed to be acted on at such meeting. The secretary shall inform such
stockholders of the reasonably estimated cost of preparing and mailing notice of
the meeting and, upon payment to the corporation of such costs, the secretary
shall give notice to each stockholder entitled to notice of the meeting. Unless
requested by stockholders entitled to cast a majority of all the votes entitled
to be cast at such meeting, a special meeting need not be called to consider any
matter which is substantially the same as a matter voted on at any regular or
special meeting of the stockholders held during the preceding twelve months.
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting, written or printed notice stating the time
and place of the meeting and, in the case of a special meeting or as otherwise
may be required by statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. No business shall be transacted at a
special meeting of stockholders except that specifically designated in the
notice. Any business of the corporation may be transacted at the annual meeting
without being specifically designated in the notice, except such business as is
required by statute to be stated in such notice.
<PAGE>
Section 6. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter for the vote
necessary for the adoption of any measure. If, however, such quorum shall not be
present at any meeting of the stockholders, the stockholders entitled to vote at
such meeting, present in person or by proxy, shall have power to adjourn the
meeting from time to time to a date not more than 120 days after the original
record date without notice other than announcement at the meeting until such
quorum shall be present. At such adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been transacted at the
meeting as originally notified.
Section 7. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share of stock may be voted for as many individuals as
there are directors to be elected and for whose election the share is entitled
to be voted. A majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient to approve any other
matter which may properly come before the meeting, unless more than a majority
of the votes cast is required by statute or by the charter. Unless otherwise
provided in the charter, each outstanding share of stock, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 8. PROXIES. A stockholder may vote the shares of stock owned of
record by him, either in person or by proxy executed in writing by the
stockholder or by his duly authorized attorney in fact. Such proxy shall be
filed with the secretary of the corporation before or at the time of the
meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise Provided in the proxy.
Section 9. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in
the name of-another corporation, if entitled to be voted, may be voted by the
president, a vice president or a proxy appointed by the president or a vice
president of such other corporation, unless some other person who has been
appointed to vote such shares pursuant to a bylaw or a resolution of the board
of directors of such other corporation presents a certified copy of such bylaw
or resolution, in which case such person may vote such shares. Any fiduciary may
vote shares registered in his name as such fiduciary, either in person or by
proxy.
Shares of its own stock indirectly owned by this corporation shall not
be voted at any meeting and shall not be counted in determining the total number
of outstanding shares entitled to be voted at any given time, unless they are
held by it in a fiduciary capacity, in which case they may be voted and shall be
counted in determining the total number of outstanding shares at any given time.
The board of directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the corporation; and any other provisions with respect to the procedure which
the board of directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may, or upon the request of any stockholder shall, appoint one or
more persons as inspectors for such meeting. Such inspectors shall ascertain and
report the number of shares represented at the meeting based upon their
determination of the validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct the election and
voting with impartiality and fairness to all the stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
<PAGE>
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 11. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by each
stockholder entitled to vote on the matter and any other stockholder entitled to
notice of a meeting of stockholders (but not to vote thereat) has waived in
writing any right to dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the stockholders.
Section 12. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
Section 13. EXEMPTION FROM SUBTITLE 7 OF TITLE 3 OF THE MARYLAND
GENERAL CORPORATION LAW. The acquisition of shares of common stock of the
corporation pursuant to the transactions contemplated by the Agreement and Plan
of Affiliation and Merger by and among the corporation, The Union National Bank
of Westminster, Mercantile Bankshares Corporation, and Westminster Bank and
Trust Company of Carroll County, and the Support Agreement among Mercantile
Bankshares Corporation and each director and certain executive officers of the
corporation, and any agreements related thereto, is exempt from Subtitle 7 of
Title 3 of the Maryland General Corporation Law.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation
shall be managed under the direction of its board of directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
of the corporation shall be not less than the minimum number required by the
applicable provisions of the Maryland General Corporation Law and shall not be
more than 25. At any regular meeting or at any special meeting called for that
purpose, a majority of the entire board of directors may establish, increase or
decrease the number of directors, provided that the number thereof shall never
be less than the minimum number required by the Maryland General Corporation
Law, nor more than 25, and further provided that the tenure of office of a
director shall not be affected by any decrease in the number of directors.
The directors shall be divided into three classes, as nearly equal in
number as possible, with a term of three years each, and the term of office of
one class shall expire each year. One class shall hold office initially for a
term expiring at the annual meeting of stockholders in 1995, another class shall
hold office initially for a term expiring at the annual meeting of stockholders
in 1996 and another class shall hold office initially for a term expiring at the
annual meeting of stockholders in 1997. Beginning with the annual meeting of
stockholders in 1995 and at each succeeding annual meeting of stockholders, the
directors of the class of directors whose term expires will be elected to hold
office for a term expiring at the third succeeding annual meeting.
Each director will hold office for the term for which he or she is
elected and until his or her successor is duly elected and qualifies. Every
director shall be required to retire from the board on the date of the annual
meeting of stockholders next occurring after a director has reached the age of
70.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the board
of directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this bylaw being necessary. The
board of directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for the holding of regular meetings of the
board of directors without other notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the board of directors
may be called by or at the request of the president or by a majority of the
directors then in office. The person or persons authorized to call
<PAGE>
special meetings of the board of directors may fix any place, either within or
without the State of Maryland, as the place for holding any special meeting of
the board of directors called by them.
Section 5. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each director at
his business or residence address. Personally delivered or telegraphed notices
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. If given by telegram, such notice shall be deemed
to be given when the telegram is delivered to the telegraph company. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the board of directors need be stated in the notice, unless
specifically required by statute or these bylaws.
Section 6. QUORUM. A majority of the entire board of directors shall
constitute a quorum for transaction of business at any meeting of the board of
directors, provided that, if less than a majority of such number of directors
are present at said meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors present
at a meeting at which a quorum is present shall be the action of the board of
directors, unless the concurrence of a greater proportion is required for such
action by applicable statute.
Section 8. TELEPHONE MEETINGS. Members of the board of directors may
participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the board of directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the board of directors.
Section 10. VACANCIES. Any vacancy on the board of directors for any
cause other than an increase in the number of directors may be filled by a
majority of the remaining directors, although such majority is less than a
quorum. Any vacancy on the board of directors by reason of an increase in the
number of directors may be filled by a majority vote of the entire board of
directors. A director elected by the board of directors to fill a vacancy shall
serve until the next annual meeting of stockholders and until his successor is
elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the board of directors, a
fixed sum and expenses of attendance, if any, may be allowed to directors for
attendance at each annual, regular or special meeting of the board of directors
or of any committee thereof and may be paid quarterly, monthly or at such time
or times as the Board may by resolution specify; but nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
ARTICLE IV
COMMITTEES
<PAGE>
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The board of directors
may appoint from among its members an Executive Committee and other committees,
composed of two or more directors, to serve at the pleasure of the board of
directors.
Section 2. POWERS. The board of directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the board of
directors, except as prohibited by law.
Section 3. MEETINGS. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a director to act in the place of such absent
member.
Section 4. TELEPHONE MEETINGS. Members of a committee of the board of
directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the board of directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the corporation may
consist of a chairman of the board, a vice chairman of the board, a president,
one or more vice presidents, a treasurer, one or more assistant treasurers, a
secretary, one or more assistant secretaries and such other officers as may be
elected in accordance with this Article. The officers of the corporation shall
be elected annually by the board of directors at the first meeting of the board
of directors held after each annual meeting of stockholders. If the election of
officers shall not be held at such meeting, such election shall be held as soon
thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the board of
directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
corporation may be removed by the board of directors if in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. Any
officer of the corporation may resign at any time by giving written notice of
his resignation to the board of directors, the chairman of the board, the
president or the secretary. Any resignation shall take effect at the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
board of directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The board of directors may
designate a chief executive officer from among the elected officers. The chief
executive officer shall have responsibility for implementation of the policies
of the corporation, as determined by the board of directors, and for the
administration of the business affairs of the corporation.
<PAGE>
Section 5. CHIEF OPERATING OFFICER. The board of directors may
designate a chief operating officer from among the elected officers. Said
officer will have the responsibility and duties as set forth by the board of
directors or the chief executive officer.
Section 6. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The chairman of the
board shall preside over the meetings of the board of directors and of the
stockholders at which he shall be present. In the absence of the chairman of the
board, the vice chairman of the board shall preside at such meetings at which he
shall be present. The chairman of the board and the vice chairman of the board
shall, respectively, perform such other duties as may be assigned to him or them
by the board of directors.
Section 7. PRESIDENT. The president shall in general supervise and
control all of the business and affairs of the corporation. Unless the president
is not a member of the board of directors, in the absence of both the chairman
and vice chairman of the board, he shall preside at all meetings of the board of
directors and of the stockholders at which he shall be present. In the absence
of a designation of a chief executive officer by the board of directors, the
president shall be the chief executive officer and shall be ex officio a member
of all committees that may, from time to time, be constituted by the board of
directors. He may execute any deed, mortgage, bond, contract or other instrument
which the board of directors has authorized to be executed, except in cases
where the execution thereof shall be expressly delegated by the board of
directors or by these bylaws to some other officer or agent of the corporation
or shall be required by law to be otherwise executed; and in general shall
perform all duties incident to the office of president and such other duties as
may be prescribed by the board of directors from time to time.
Section 8. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice president, the vice presidents in the order designated at the
time of their election or, in the absence of any designation, then in the order
of their election) shall perform the duties of the president and when so acting
shall have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the board of directors. The board of
directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 9. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the board of directors and committees of the
board of directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the stock transfer books of the corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the president or by the board of directors.
Section 10. TREASURER. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the corporation in such depositories as may be designated by the board of
directors.
He shall disburse the funds of the corporation as may be ordered by the
board of directors, taking proper vouchers for such disbursements, and shall
render to the president and board of directors, at the regular meetings of the
board of directors or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the corporation.
If required by the board of directors, he shall give the corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the board of directors for the faithful performance of the duties of his office
and for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, all books, papers, vouchers, moneys and other
property of whatever kind in his possession or under his control belonging to
the corporation.
<PAGE>
Section 11. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the board of directors. The assistant treasurers shall,
if required by the board of directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the board of directors.
Section 12. ANNUAL REPORT. The president or other executive officer of
the corporation shall prepare or cause to be prepared annually a full and
correct statement of the affairs of the corporation, including a balance sheet
and a statement of the results of operations for the preceding fiscal year,
which shall be submitted at the annual meeting of the stockholders and filed
within 20 days thereafter at the principal office of the corporation in the
State of Maryland.
Section 13. SALARIES. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The board of directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the corporation and such authority may be general
or confined to specific instances.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by such officer or officers, agent or
agents of the corporation and in such manner as shall from time to time be
determined by the board of directors.
Section 3. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may designate.
ARTICLE VII
SHARES OF STOCK
Section 1. CERTIFICATES OF STOCK. Each stockholder shall be entitled to
a certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the corporation. Each certificate
shall be signed by the president or a vice president and countersigned by the
secretary or an assistant secretary or the treasurer or an assistant treasurer
and may be sealed with the corporate seal. The signatures may be either manual
or facsimile. Certificates shall be consecutively numbered; and if the
corporation shall, from time to time, issue several classes of stock, each class
may have its own number series. A certificate is valid and may be issued whether
or not an officer who signed it is still an officer when it is issued. Each
certificate representing stock which is restricted as to its transferability or
voting powers, which is preferred or limited as to its dividends or as to its
share of the assets upon liquidation or which is redeemable at the option of the
corporation, shall have a statement of such restriction, limitation, preference
or redemption provision, or a summary thereof, plainly stated on the
certificate. In lieu of such statement or summary, the corporation may set forth
upon the face or back of the certificate a statement that the corporation will
furnish to any stockholder, upon request and without charge, a full statement of
such information.
Section 2. TRANSFERS OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate of stock duly endorsed or
accompanied by proper evidence of succession, assignment
<PAGE>
or authority to transfer, the corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Section 3. LOST CERTIFICATE. The board of directors may direct a new
certificate to be issued in place of any certificate previously issued by the
corporation alleged to have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing the issuance of a new certificate,
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or his legal representative to advertise the same in such manner as
it shall require and/or to give bond, with sufficient surety, to the corporation
to indemnify it against any loss or claim which may arise as a result of the
issuance of a new certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
board of directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders, or stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days, and in the case of a meeting of stockholders not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders is to be held or taken.
In lieu of fixing a record date, the board of directors may provide
that the stock transfer books shall be closed for a stated period but not longer
than 20 days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not closed
for the determination of stockholders, (a) the record date for the determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall be at the close of business on the day on which the notice of meeting is
mailed or the 30th day before the meeting, whichever is the closer date to the
meeting; and (b) the record date for the determination of stockholders entitled
to receive payment of a dividend or an allotment of any other rights shall be
the close of business on the day on which the resolution of the board of
directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination shall
apply to any adjournment thereof, except where the determination has been made
through the closing of the stock transfer books and the stated period of closing
has expired.
Section 5. STOCK LEDGER. The corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate stock ledger containing the name and address of each
stockholder and the number of shares of stock of each class held by such
stockholder.
ARTICLE VIII
ACCOUNTING YEAR
The board of directors shall have the power, from time to time, to fix
the accounting year of the corporation by a duly adopted resolution.
<PAGE>
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION. Dividends upon the shares of stock of the
corporation may be declared by the board of directors, subject to the provisions
of law and the charter. Dividends may be paid in cash, property or shares of the
corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the board of directors may from time to time, in its absolute
discretion, think proper as a reserve fund for contingencies, for repairing or
maintaining any property of the corporation or for such other purpose as the
board of directors shall determine to be in the best interest of the
corporation, and the board of directors may modify or abolish any such reserve
in the manner in which it was created.
ARTICLE X
SEAL
Section 1. SEAL. The corporate seal shall have inscribed thereon the
name of the corporation, the year of its organization and the words
"Incorporated Maryland." The board of directors may authorize one or more
duplicate seals and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the corporation is required to place
its corporate seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a corporate seal to
place the word "(SEAL)" adjacent to the signature of the person authorized to
execute the document on behalf of the corporation.
ARTICLE XI
INDEMNIFICATION
To the maximum extent permitted by Maryland law in effect from time to
time, the corporation, without requiring a preliminary determination of the
ultimate entitlement to indemnification, shall indemnify and shall pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(i) any individual who is a present or former director or officer of the
corporation or (ii) any individual who, while a director of the corporation and
at the request of the corporation, serves or has served another corporation,
partnership, joint venture, trust, employee benefit plan or any other enterprise
as a director, officer, partner or trustee of such corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The corporation
may, with the approval of its board of directors, provide such indemnification
and advancement of expenses to a person who served a predecessor of the
corporation in any of the capacities described in (i) or (ii) above and to any
employee or agent of the corporation or a predecessor of the corporation.
Neither the amendment nor repeal of this Article, nor the adoption or
amendment of any other provision of the bylaws or charter of the corporation
inconsistent with this Section, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XII
WAIVER OF NOTICE
<PAGE>
Whenever any notice is required to be given pursuant to the charter or
bylaws of the corporation or pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at nor the purpose of any
meeting need be set forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting shall constitute a
waiver of notice of such meeting, except where such person attends a meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
The board of directors shall have the exclusive power to adopt, alter
or repeal any bylaws of the corporation and to make new bylaws.
<PAGE>
Exhibit 13
1999 ANNUAL REPORT
UNION NATIONAL BANCORP, INC.
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED DECEMBER 31:
<TABLE>
<CAPTION>
% CHANGE FROM
PRIOR YEAR
-------------------
(IN 1999 THOUSANDS EXCEPT PER SHARE DATA) 1999 1998 1997 1999/98 1998/97
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 3,203 $ 2,638 $ 2,400 21.4% 9.9%
Net Interest Income 11,195 10,541 9,821 6.2 7.3
Noninterest Income 2,499 1,554 1,327 60.8 17.1
Noninterest Expense (9,007) (8,157) (7,309) 10.4 11.6
Provision for Loan Losses (255) (246) (275) 3.7 (10.5)
Return on Average Assets 1.08% 0.98% 1.02%
Return on Average Equity 13.30% 12.46% 12.71%
AVERAGE BALANCES:
Assets $ 297,245 $ 268,614 $ 234,206 10.7% 14.7%
Deposits 228,869 214,380 199,435 6.8 7.5
Gross Loans 171,273 160,168 148,586 6.9 7.8
Stockholders' Equity 24,085 21,165 18,884 13.8 12.1
AT DECEMBER 31:
Assets $ 302,928 $ 283,913 $ 250,781 6.7% 13.2%
Deposits 232,178 226,337 205,639 2.6 10.1
Gross Loans 179,721 163,465 158,348 9.9 3.2
Stockholders' Equity 25,583 22,237 20,064 15.0 10.8
PER SHARE DATA:
Net Income $ 1.68 $ 1.43 $ 1.30 17.5% 10.0%
Dividends 0.460 0.400 0.309 15.0 29.4
Stockholders' Equity 13.03 12.01 10.89 8.5 10.3
RATIOS AND KEY DATA
Loans (% of Deposits) 77.41% 72.22% 77.00%
Allowance for Credit Losses (% of Loans) 1.00% 1.08% 1.13%
Net Charge-Offs (% of Average Loans) 0.14% 0.17% 0.17%
Offices at year end 9 9 8
Employees (Full-time equivalent) 133 125 118 6.4% 5.9%
Shares Outstanding 1,964,128 1,851,458 1,674,800
Shareholders 463 473 442
Average Equity to Average Assets 8.10% 7.88% 8.06%
Total Risk-based Capital Ratio 13.95% 13.12% 12.78%
</TABLE>
1
<PAGE>
UNION NATIONAL BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Union National Bancorp earnings for 1999 were $3,203,094 or 21.4% over 1998. Net
interest income was up $653,492 or 6.2% due to strong performance in investments
and loans. Noninterest income was up $945,185 or 60.8% over 1998 while
noninterest expense was up $850,991, only 10.4% over last year. Both increases
were primarily due the operating income and expense of our insurance subsidiary.
Total assets were $302.9 million at December 31, 1999, an increase of
$19.0 million or 6.7% over the previous year. We experienced strong growth in
investments from our customers in Sweep accounts, Savings, Super NOW's, and
CD's.
Return on average assets in 1999 was 1.08% as compared to .98% in 1998, and
1.02% in 1997. The return on average equity was 13.30% in 1999 as compared to
12.46% in 1998 and 12.71% in 1997.
Dividends on common stock rose to $.46 in 1999 from $.40 in 1998 and from $.31
in 1997. This represents a 15.0% rise over 1998.
NET INTEREST INCOME
Net interest income is the major component of the Company's earnings and
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 change in yields earned and rates paid, are
determinants of the changes in net interest income.
Net interest income was $11,194,770 in 1999, $10,541,278 in 1998, and $9,821,344
in 1997. The trend has shown continual improvement due to loan and investment
income growth. Net interest income on a tax-equivalent basis was $
11,796,000 in 1999, $10,965,000 in 1998, and $10,080,000 in 1997. The net
interest spread, the difference between the yield on earning assets and the cost
of interest bearing liabilities, fell slightly to 3.64% in 1999, from 3.69% in
1998 and from 3.92% in 1997. The net interest margin as a percentage of earning
assets was 4.18% in 1999, compared to 4.29% in 1998 and 4.53% in 1997.
Average earning assets were $281,928,000 in 1999 up 10.2%, from $255,843,000 in
1998, up 15.1% from $222,332,000 in 1997. Total interest income on a
tax-equivalent basis was up 5.9% to $22,028,000 in 1999 over $20,801,000 in
1998, which moved up 12.6% from 1997 at $18,473,000. Tax-equivalent yield on
earning assets fell in 1999 to 7.81% from 8.13% in 1998 and 8.31% in 1997.
Nonperforming assets were down significantly to $2,298,407 by year-end and
several are in the process of resolution and are well secured.
Average interest-bearing liabilities were $245,381,000 in 1999 up 10.7%, from
$221,609,000 in 1998 up 16.0% from $191,091,000 in 1997. These funds made up
82.6% of average assets in 1999 compared to 82.5% in 1998 and 81.6% in 1997.
Total interest expense on a tax-equivalent basis was $10,232,312 in 1999, up
$396,424 or 4.03%, from $9,835,888 in 1998, up $1,443,101 or 17.2% from
$8,392,787 in 1997.
The following table illustrates average balances of assets, liabilities, and
stockholders' equity, as well as the related income and expense for each item
and the average yields and costs for the years 1997 through 1999:
2
<PAGE>
1999 ANNUAL REPORT
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------- --------------------------------- --------
Average Yield/ Average Yield/ Average
(IN THOUSANDS-TAX EQUIVALENT BASIS) Balance Interest(3) Rate Balance Interest(3) Rate Balance
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
ASSETS
Loans(1,2):
Real estate:
Construction $ 3,760 $ 323 9.36% $ 5,802 $ 543 9.36% $ 3,653
Mortgage 104,591 9,238 8.83 103,520 9,622 9.29 94,804
Installment 29,688 2,406 8.10 21,872 1,901 8.69 24,190
Commercial 28,651 2,443 8.53 25,100 2,257 8.99 22,718
Tax-exempt 4,583 406 8.86 3,874 356 9.19 3,221
-------- ------- -------- ------- --------
TOTAL LOANS 171,273 14,816 8.65 160,168 14,679 9.16 148,586
-------- ------- -------- ------- --------
Investment securities available for sale:
Taxable 76,070 4,965 6.53 63,668 4,106 6.45 49,233
Non-taxable 551 73 13.25 593 73 12.31 591
-------- ------- -------- ------- --------
TOTAL SECURITIES AVAILABLE FOR SALE 76,621 5,038 6.58 64,261 4,179 6.50 49,824
-------- ------- -------- ------- --------
Investment securities held to maturity:
Taxable 10,389 586 5.64 6,438 388 6.03 9,985
Non-taxable 18,242 1,286 7.05 11,542 817 7.08 5,275
-------- ------- -------- ------- --------
TOTAL SECURITIES HELD TO MATURITY 28,631 1,872 6.54 17,980 1,205 6.70 15,260
-------- ------- -------- ------- --------
Interest-bearing deposits in other banks 34 2 5.88 41 4 9.76 58
Federal funds sold 5,369 300 5.59 13,393 734 5.48 8,604
-------- ------- -------- ------- --------
TOTAL EARNING ASSETS 281,928 22,028 7.81% 255,843 20,801 8.13% 222,332
-------- ------- -------- ------- --------
Less: allowance for credit losses (1,791) (1,784) (1,832)
Cash and due from banks 7,084 6,857 5,850
Bank premises and equipment, net 4,099 4,226 3,980
Other Assets 5,925 3,472 3,876
-------- -------- --------
TOTAL ASSETS $297,245 $268,614 $234,206
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits $ 30,827 $ 482 1.56% $ 25,107 $ 491 1.96% $ 19,787
Regular savings deposits 33,381 751 2.25 33,274 904 2.72 31,470
Money market savings deposits 16,351 445 2.72 18,075 553 3.06 17,919
Time deposits 122,198 6,445 5.27 113,554 6,264 5.52 107,410
-------- ------- -------- ------- --------
TOTAL INTEREST-BEARING DEPOSITS 202,757 8,123 4.01 190,010 8,212 4.32 176,586
Other borrowings 42,349 2,109 4.98 31,599 1,624 5.14 14,505
-------- ------- -------- ------- --------
TOTAL INTEREST-BEARING LIABILITIES 245,106 10,232 4.17 221,609 9,836 4.44 191,091
------- ------ ------- ------
NET INTEREST SPREAD $11,796 3.64% $10,965 3.69%
======= ====== ======= ======
Noninterest-bearing demand deposits 26,112 24,370 22,849
Accrued expenses and other liabilities 1,942 1,470 1,382
Stockholders' equity 24,085 21,165 18,884
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $297,245 $268,614 $234,206
======== ======== ========
Net interest income / earning assets 7.81% 8.13%
Net interest expense / earning assets 3.63 3.84
------ ------
NET INTEREST MARGIN 4.18% 4.29%
====== ======
<CAPTION>
1997
----------------------
Yield/
(IN THOUSANDS-TAX EQUIVALENT BASIS) Interest(3) Rate
<S> <C> <C>
----------------------
- -------------------------------------------
ASSETS
Loans(1,2):
Real estate:
Construction $ 351 9.60%
Mortgage 8,997 9.49
Installment 2,039 8.43
Commercial 2,063 9.08
Tax-exempt 306 9.50
-------
TOTAL LOANS 13,756 9.26
-------
Investment securities available for sale:
Taxable 3,235 6.57
Non-taxable 73 12.35
-------
TOTAL SECURITIES AVAILABLE FOR SALE 3,308 6.64
-------
Investment securities held to maturity:
Taxable 559 5.60
Non-taxable 387 7.34
-------
TOTAL SECURITIES HELD TO MATURITY 946 6.20
-------
Interest-bearing deposits in other banks 4 6.90
Federal funds sold 459 5.33
-------
TOTAL EARNING ASSETS 18,473 8.31%
-------
Less: allowance for credit losses
Cash and due from banks
Bank premises and equipment, net
Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits $ 403 2.04%
Regular savings deposits 859 2.73
Money market savings deposits 566 3.16
Time deposits 5,872 5.47
-------
TOTAL INTEREST-BEARING DEPOSITS 7,700 4.36
Other borrowings 693 4.78
-------
TOTAL INTEREST-BEARING LIABILITIES 8,393 4.39
------- ------
NET INTEREST SPREAD $10,080 3.92%
======= ======
Noninterest-bearing demand deposits
Accrued expenses and other liabilities
Stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY
Net interest income / earning assets 8.31%
Net interest expense / earning assets 3.78
------
NET INTEREST MARGIN 4.53%
======
</TABLE>
1. Loan fee income of $423,000, $449,000 and $410,000 in 1999, 1998 and 1997,
respectively, has been included in interest income, and yields
2. Balances of nonaccrual loans and related income have been included for
computational purposes.
3. Tax-exempt income has been converted to a tax-equivalent basis using an
incremental rate of 34%.
3
<PAGE>
UNION NATIONAL BANCORP, INC.
RATE AND VOLUME ANALYSIS
The following table reflects the impact on net interest income caused by changes
in average balances and rates.
<TABLE>
<CAPTION>
1999 compared to 1998 1998 compared to 1997
-------------------------------- --------------------------------
Change Due to(1) Change Due to(1)
Increase ------------------- Increase -------------------
(IN THOUSANDS-TAX EQUIVALENT BASIS) (Decrease) Rate Volume (Decrease) Rate Volume
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Interest Income:
Loans:
Real estate:
Construction $ (220) $ (29) $ (191) $ 192 $ (14) $ 206
Mortgage (384) (484) 100 625 (202) 827
Installment 505 (174) 679 (138) 57 (195)
Commercial 186 (133) 319 194 (22) 216
Tax-exempt(2,4) 50 (15) 65 50 (12) 62
------ ----- ------ ------ ----- ------
TOTAL LOANS 137 (835) 972 923 (193) 1,116
------ ----- ------ ------ ----- ------
Investment securities available
for sale:
Taxable 859 59 800 871 (77) 948
Non-taxable (2,3) 0 5 (5) 0 0 0
------ ----- ------ ------ ----- ------
TOTAL SECURITIES AVAILABLE FOR
SALE 859 64 795 871 (77) 948
------ ----- ------ ------ ----- ------
Investment securities held to
maturity:
Taxable 198 (40) 238 (171) 28 (199)
Non-taxable (2,3) 469 (5) 474 430 (30) 460
------ ----- ------ ------ ----- ------
TOTAL SECURITIES HELD TO
MATURITY 667 (45) 712 259 (2) 261
------ ----- ------ ------ ----- ------
Interest-bearing deposits in
other banks (2) (1) (1) 0 1 (1)
Federal funds sold (434) 6 (440) 275 20 255
------ ----- ------ ------ ----- ------
TOTAL INTEREST INCOME 1,227 (811) 2,038 2,328 (251) 2,579
------ ----- ------ ------ ----- ------
Interest Expense:
Interest-bearing demand deposits (9) (121) 112 88 (20) 108
Regular savings deposits (153) (156) 3 45 (4) 49
Money market savings deposits (108) (55) (53) (13) (18) 5
Time deposits 181 (296) 477 392 56 336
------ ----- ------ ------ ----- ------
TOTAL INTEREST-BEARING DEPOSITS (89) (628) 539 512 14 498
Other borrowings 485 (67) 552 931 114 817
------ ----- ------ ------ ----- ------
TOTAL INTEREST EXPENSE 396 (695) 1,091 1,443 128 1,315
------ ----- ------ ------ ----- ------
NET INTEREST INCOME $ 831 $(116) $ 947 $ 885 $(379) $1,264
====== ===== ====== ====== ===== ======
<CAPTION>
1997 compared to 1996
--------------------------------
Change Due
to(1)
Increase -------------------
(IN THOUSANDS-TAX EQUIVALENT BASIS) (Decrease) Rate Volume
<S> <C> <C> <C>
--------------------------------
- -----------------------------------
Interest Income:
Loans:
Real estate:
Construction $ 167 $ (14) $ 181
Mortgage 269 (152) 421
Installment 136 (50) 186
Commercial (720) (11) (709)
Tax-exempt(2,4) 142 (10) 152
----- ----- -----
TOTAL LOANS (6) (237) 231
----- ----- -----
Investment securities available
for sale:
Taxable 1,293 210 1,083
Non-taxable (2,3) 8 9 (1)
----- ----- -----
TOTAL SECURITIES AVAILABLE FOR
SALE 1,301 219 1,082
----- ----- -----
Investment securities held to
maturity:
Taxable (300) (5) (295)
Non-taxable (2,3) (95) (13) (82)
----- ----- -----
TOTAL SECURITIES HELD TO
MATURITY (395) (18) (377)
----- ----- -----
Interest-bearing deposits in
other banks (57) 1 (58)
Federal funds sold 29 2 27
----- ----- -----
TOTAL INTEREST INCOME 872 (33) 905
----- ----- -----
Interest Expense:
Interest-bearing demand deposits 24 (3) 27
Regular savings deposits (50) (3) (47)
Money market savings deposits (20) (1) (19)
Time deposits 43 (222) 265
----- ----- -----
TOTAL INTEREST-BEARING DEPOSITS (3) (229) 226
Other borrowings 297 52 245
----- ----- -----
TOTAL INTEREST EXPENSE 294 (177) 471
----- ----- -----
NET INTEREST INCOME $ 578 $ 144 $ 434
===== ===== =====
</TABLE>
1. The change in interest due to both volume and rate has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
2. Tax-exempt income has been converted to a tax-equivalent basis using an
incremental rate of 34%.
3. Tax-equivalent adjustments of $463,000 for 1999, $303,000 for 1998 and
$157,000 for 1997 are included in the calculation of tax-exempt investment
securities rate variances.
4. Tax-equivalent adjustments of $138,000 for 1999, $121,000 for 1998 and
$103,000 for 1997 are included in the calculation of tax-exempt loan rate
variances.
4
<PAGE>
1999 ANNUAL REPORT
NONINTEREST INCOME
Noninterest income is derived from service charges, and service fees. Service
charge income includes account charges and automatic teller machine income.
Service fee income is mostly made up of commissions and gains.
For the year ended December 31, 1999, noninterest income was $2,499,639. This is
an increase of $945,185 or 60.8% from $1,554,454 at December 31, 1998. The
increase is mainly due to insurance service commissions from our new wholly
owned subsidiary Barnes Bollinger Insurance Services, Inc. as well as increased
activity in debit card services. Total insurance services commissions of
$903,046, for the year ended December 31, 1999, represented 72.9% of service
fees income.
For the year ended December 31, 1998, noninterest income increased $227,754 or
17.2% as compared to the previous year. The increase was due to full year of
revenue from additional automatic teller machines, increased activity on the
secondary mortgage market, and gains from the sale of securities.
NONINTEREST EXPENSE
Noninterest expense is composed of salaries and benefits, occupancy and
equipment, and other operating expenses. For the year ended December 31, 1999,
noninterest expense was $9,007,492. This is an increase of $850,991 or 10.4%
from $8,156,501 at December 31, 1998. This increase is a reflection of expenses
related to insurance operations plus a minimal increase of only 2.0% related to
bank asset growth and operating costs.
Salaries and benefits represent the largest portion of total noninterest expense
at 56.4%. Full time equivalent employees increased to 133 in 1999 from 125 in
1998. Salaries and benefits totaled $5,086,178 in 1999, up $563,548 or 12.5%
from $4,522,630 the previous year. Insurance services made up $522,220 of this
increase, while bank operations employee expenses increased only $41,328. This
modest increase in expense enabled the Bank to grow average assets per employee
to $2.23 million in 1999, from $2.15 million in 1998.
Occupancy and equipment expense totaled $1,596,786 in 1999, up $312,430 from
$1,284,356 in 1998. Technological advances as well as additional fixed assets
needed for expansion and year 2000 technologies are reflected in this increase.
Depreciation and maintenance expenses represent 68.4% of occupancy and
equipment.
Other operating expense totaled $2,324,528 in 1999, down from $2,349,515 the
previous year. In 1998, other operating expenses were higher due to the one-time
legal and professional expenses related to becoming a public company.
For the year ended December 31, 1998, noninterest expense increased $847,457 or
11.6% from $7,309,044 at December 31, 1997. The increase was a result of growth,
expansion of facilities, and one-time expenses of becoming a public company.
INCOME TAXES
Income tax expense increased to $1,228,823 in 1999 due to the higher level of
pre-tax income. However the effective tax rate of income before taxes continues
to decrease as the passive investment company in Delaware continues to have a
positive impact on state income tax expense. In 1998 income tax expensed
decreased to $1,055,407 from $1,163,898 in 1997 as a result of lower Maryland
state tax. See note 11 to the consolidated financial statements for a
reconciliation of expected income taxes at statutory rates to actual income
taxes and effective tax rates for the past three years.
5
<PAGE>
UNION NATIONAL BANCORP, INC.
INCOME TAXES
<TABLE>
<S> <C> <C>
EFFECTIVE TAX RATE
INCOME TAX OF
EXPENSES INCOME BEFORE TAXES
- -----------------------------------------------------------------------------------------------
1999 $1,228,823 27.7%
1998 $1,055,407 28.6%
1997 $1,163,898 32.7%
</TABLE>
INVESTMENT SECURITIES PORTFOLIO COMPOSITION--BOOK VALUE (AMORTIZED COST)
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of U.S.
government agencies $ 36,123,114 $28,277,413 $37,796,602
Obligations of states and political subdivisions 18,844,666 18,375,549 5,733,663
Mortgage-backed securities 48,783,384 47,939,626 26,990,405
Other securities 2,547,788 2,556,632 6,956
------------ ----------- -----------
TOTAL INVESTMENT SECURITIES $106,298,952 $97,149,220 $70,527,626
============ =========== ===========
Available for Sale $ 73,679,865 $75,143,025 $57,107,787
Held to Maturity 32,619,087 22,006,195 13,419,839
------------ ----------- -----------
TOTAL INVESTMENT SECURITIES $106,298,952 $97,149,220 $70,527,626
============ =========== ===========
</TABLE>
1. Reflects the cost of securities purchased, adjusted for premium amortization
and discount accretion, which differs from the amounts reflected in the
consolidated balance sheets due to fair value adjustments.
6
<PAGE>
1999 ANNUAL REPORT
SECURITIES PORTFOLIO
The total carrying value of holdings in the investment portfolio at year-end
were $102,999,989 in 1999 and $97,560,157 in 1998. In 1998, the investment
portfolio growth was due to increases in deposits, slower loan demand and
borrowings from the Federal Home Loan Bank. In 1999, the slight growth in the
investment portfolio was due to increases in deposits. Our strategy was to stay
as fully invested as possible and increase income. The total portfolio had a
duration of 5.02 years on December 31, 1999 compared to 3.7 years on
December 31, 1998. These maturities represent estimates of the actual life of
the instruments considering mortgage-back pay downs and calls for tax-free
securities.
In 1999, there were $70,380,902 classified as available for sale and $32,619,087
as held to maturity, compared with $75,553,962 available for sale and
$22,006,195 held to maturity in 1998. In 1998, declining rates caused an
increase in values, and the fair value was $786,980 above amortized cost by
year-end. In 1999 the exact opposite was true, rising rates had a detrimental
effect of values and the fair value was $4,657,382 below amortized cost by
year-end.
7
<PAGE>
UNION NATIONAL BANCORP, INC.
MATURITY OF THE INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years
--------------------- ---------------------- ---------------------- ----------------------
Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S.Treasury securities and
obligations of U.S. government
agencies $ - - $ 3,498,959 6.42% $ 8,994,997 6.40% $ - -
Obligations of states and
political subdivisions(1) 252,677 6.51% 3,331,806 7.15% 3,710,792 6.95% 11,049,391 7.00%
Mortgage-backed Securities - - - - 996,103 5.91% 784,362 5.98%
---------- ----------- ----------- -----------
TOTAL HELD TO MATURITY 252,677 6.51% 6,830,765 6.78% 13,701,892 6.51% 11,833,753 6.93%
---------- ----------- ----------- -----------
Available for Sale:
U.S.Treasury securities and
obligations of U.S. government
agencies - - 14,881,018 6.02% 8,748,140 6.27% - -
Obligations of states and
political subdivisions(1) - - - - 500,000 14.58 - -
Mortgage-backed Securities 467,888 6.00 898,880 6.21 1,638,025 6.80 43,998,126 6.51%
Equity Securities - - 1,532,573 5.88 1,010,668 6.02 4,547
---------- ----------- ----------- -----------
TOTAL AVAILABLE FOR SALE 467,888 6.00% 17,312,471 6.02% 11,896,833 6.67% 44,002,673 6.51%
---------- ----------- ----------- -----------
TOTAL SECURITIES $ 720,565 6.18% $24,143,236 6.23% $25,598,725 6.59% $55,836,426 6.60%
========== =========== =========== ===========
<CAPTION>
Totals
-----------------------
Book Average
Value Yield
- --------------------------------- -----------------------
<S> <C> <C>
Held to Maturity:
U.S.Treasury securities and
obligations of U.S. government
agencies $ 12,493,956 6.41%
Obligations of states and
political subdivisions(1) 18,344,666 7.01%
Mortgage-backed Securities 1,780,465 5.94%
------------
TOTAL HELD TO MATURITY 32,619,087 6.72%
------------
Available for Sale:
U.S.Treasury securities and
obligations of U.S. government
agencies 23,629,158 6.11%
Obligations of states and
political subdivisions(1) 500,000 14.58
Mortgage-backed Securities 47,002,919 6.51
Equity Securities 2,547,788 5.93
------------
TOTAL AVAILABLE FOR SALE 73,679,865 6.42%
------------
TOTAL SECURITIES $106,298,952 6.51%
============
</TABLE>
(1) Yields, calculated using amortized cost book values, are presented on a
fully taxable equivalent basis using the federal statutory rate of 34%.
8
<PAGE>
1999 ANNUAL REPORT
LOAN PORTFOLIO
Total loans outstanding on December 31, 1999 were $179,720,903 compared with
$163,464,538 in 1998. The increase of $16,256,365 or 9.9% from the previous year
is reflective of increased activity in consumer lending as well as growth in the
residential mortgage portfolio. The portfolio represented 59.3% of total assets
on December 31, 1999 compared with 57.6% in 1998.
The Company's loan portfolio mix has remained relatively constant over the years
and is composed of commercial loans, residential loans, and consumer installment
loans. At December 31, 1999 the commercial portfolio (including commercial real
estate) represents 59.2% of the total portfolio and is comprised of commercial
real estate mortgages, lines of credit, tax-exempt loans through local
municipalities, and demand notes for various purposes, including but not limited
to, working capital and equipment purchases. Some form of real estate
collateralizes the majority of commercial loans. The residential portfolio at
December 31, 1999 represents 18.3% of the overall loan portfolio and is a mix of
well-seasoned mortgages along with more recent loans. Only a minimal number of
these loans have a loan to value greater than 80%. Most residential mortgages
are kept "in house", however the Company is involved in selling mortgages on the
secondary market. The consumer portfolio at December 31, 1999 makes up the
remaining 22.5%. Included in the consumer portfolio are direct installment loans
for purposes such as vehicle purchases, debt consolidation, home improvements,
and indirect installment loans purchased from approximately six auto
dealerships, both new and used, and one farm equipment dealer. Unsecured
personal lines of credit and personal time and demand loans comprise the
remainder of the portfolio. The Company does not engage in foreign lending, and
involvement in speculative real estate and land development is minimal. It is
the Company's practice to lend primarily in the Carroll County market area and
to meet the needs of the community.
Some risk is involved in all types of lending. The Company, however, attempts to
minimize potential losses in all portfolios. Concentrations in commercial loans
continue to be minimal except in the general area of real estate secured loans.
The Company continues to expand the financial analysis and credit functions to
enhance the capability of identifying potential risk in the commercial
portfolio. Residential loans are generally well secured. Standard debt to income
ratios are adhered to, and loan to value ratios greater than 80% require private
mortgage insurance to reduce risk. The largest segment of the consumer portfolio
is secured by motor vehicles. Use of debt to income ratios and recent Credit
Bureau scores have assisted in the approval process. The collection department
works delinquent accounts quickly and attempts to minimize losses in the
consumer portfolio. Net Charge-offs were reduced in 1999 as a result of these
efforts.
9
<PAGE>
UNION NATIONAL BANCORP, INC.
The following table summarizes the composition of the loan portfolio at the
periods indicated:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Commercial $ 33,422,696 $ 31,170,049 $ 27,239,983 $ 27,563,398 $ 28,929,165
Real Estate-Construction 4,400,853 4,646,007 5,893,105 1,842,538 2,494,150
Real Estate-Mortgage 115,656,109 109,948,918 103,041,363 91,262,059 89,709,340
Installment 26,513,020 18,020,174 22,609,757 27,219,780 26,368,732
------------ ------------ ------------ ------------ ------------
GROSS LOANS 179,992,678 163,785,148 158,784,208 147,887,775 147,501,387
Net deferred loan fees and costs (271,775) (320,610) (436,521) (537,235) (679,793)
------------ ------------ ------------ ------------ ------------
GROSS LOANS (NET OF DEFERRED FEES AND
COSTS) 179,720,903 163,464,538 158,347,687 147,350,540 146,821,594
Allowance for loan losses (1,792,921) (1,772,895) (1,793,112) (1,772,433) (1,769,077)
------------ ------------ ------------ ------------ ------------
NET LOANS $177,927,982 $161,691,643 $156,554,575 $145,578,107 $145,052,517
============ ============ ============ ============ ============
</TABLE>
MATURITY SCHEDULE OF LOANS
<TABLE>
<CAPTION>
Over One
One year or less Within Five years Over Five years Total
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Commercial $9,323,653 $11,625,568 $12,473,475 $33,422,696
Real Estate-Construction 110,164 803,459 3,487,230 4,400,853
Real Estate-Mortgage 2,940,697 24,752,652 87,962,760 115,656,109
Installment 3,666,883 21,011,985 1,834,152 26,513,020
---------------- ---------------- ---------------- ----------------
TOTAL $16,041,397 $58,193,664 $105,757,617 $179,992,678
================ ================ ================ ================
Total Loans with Predetermined
Rates $4,829,778 $49,285,070 $36,218,542 $90,333,390
Total Loans with Variable rates $11,211,619 $8,908,594 $69,539,075 $89,659,288
---------------- ---------------- ---------------- ----------------
TOTAL $16,041,397 $58,193,664 $105,757,617 $179,992,678
================ ================ ================ ================
</TABLE>
10
<PAGE>
1999 ANNUAL REPORT
The following table allocates the allowance for credit losses by loan type. This
allocation does not limit the amount of the allowance available to absorb losses
from any type of loan and should not be viewed as an indicator of the specific
amount or specific categories in which future charge-offs may ultimately occur:
ALLOWANCE FOR CREDIT LOSSES AND MANAGEMENT OF CREDIT RISK
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Average total loans $171,272,762 $160,168,014 $148,586,476 $146,478,690 $144,641,805
============ ============ ============ ============ ============
Balance, beginning of period $ 1,772,895 $ 1,793,112 $ 1,772,433 $ 1,769,077 $ 1,670,940
------------ ------------ ------------ ------------ ------------
Less charge-offs:
Commercial 78,484 265,953 174,899 263,682 84,063
Installment 172,128 90,772 127,434 123,050 122,824
Residential real estate 17,452 15,000 9,047 -- --
------------ ------------ ------------ ------------ ------------
TOTAL CHARGE-OFFS 268,064 371,725 311,380 386,732 206,887
------------ ------------ ------------ ------------ ------------
Plus recoveries:
Commercial 9,453 17,225 21,891 17,051 2,668
Installment 23,637 83,850 35,160 44,037 37,356
Residential real estate -- 4,433 8 -- 53,000
------------ ------------ ------------ ------------ ------------
TOTAL RECOVERIES 33,090 105,508 57,059 61,088 93,024
------------ ------------ ------------ ------------ ------------
Net charge-offs 234,974 266,217 254,321 325,644 113,863
------------ ------------ ------------ ------------ ------------
Provision for credit losses 255,000 246,000 275,000 329,000 212,000
============ ============ ============ ============ ============
Balance, end of period $ 1,792,921 $ 1,772,895 $ 1,793,112 $ 1,772,433 $ 1,769,077
============ ============ ============ ============ ============
Allowance for credit losses
to period-end gross
loans--net 1.00% 1.08% 1.13% 1.20% 1.21%
Allowance for credit losses
to nonaccrual loans 800.41 349.61 252.78 140.72 322.48
Net charge-offs to average
total loans 0.14 0.17 0.17 0.22 0.08
</TABLE>
11
<PAGE>
UNION NATIONAL BANCORP, INC.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Commercial $1,354,620 $1,016,957 $1,140,580 $ 853,418 $ 455,916
Real Estate-mortgage 131,951 163,516 160,978 302,760 110,694
Real Estate-construction -- 102,515 -- -- 4,095
Installment 290,404 312,936 271,757 309,883 355,320
Unallocated portion 15,946 176,971 219,797 306,372 843,052
---------- ---------- ---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES $1,792,921 $1,772,895 $1,793,112 $1,772,433 $1,769,077
========== ========== ========== ========== ==========
</TABLE>
LOAN CATAGORIES BY PERCENTAGES
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Commercial 59% 65% 60% 57% 57%
Residential Real Estate 18 17 19 22 22
Installment 23 18 21 21 21
--- --- --- --- ---
TOTAL 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
12
<PAGE>
1999 ANNUAL REPORT
A decrease in the level of the allowance as a percentage of loans is warranted
because of improvement in the quality of the loan portfolio and the reduced risk
factors of the loans. Management uses a detailed analysis of the portfolio to
determine the adequacy of the allowance for credit losses. Prior loss history
along with current trends, both nationally and locally, is taken into
consideration. Additionally: (i) specific reserves are established on all
classified loans where a loss seems imminent; (ii) a general reserve is
established on identified problem loans where specific potential losses are not
yet determined, but likely; (iii) smaller reserves are also established on
criticized loans that have identifiable weaknesses but are not yet classified;
and (iv) a general overall reserve is calculated on the entire remainder of the
portfolio by loan type and included as an unallocated reserve allowance. It is
the Company's practice to manage the risk elements of lending through rigorous
credit evaluation of prospective borrowers, continuous review of the portfolio,
diversification of the types of borrowers, and by maintaining a
well-collateralized portfolio.
The following table details information concerning nonaccrual, restructured, and
past due loans, as well as foreclosed assets. It is the policy of the Company to
consider a loan not in the process of collection when there is doubt of the full
repayment of the principal and interest when the loan is 90 days past due. When
either event occurs, the loan is placed on nonaccrual status, any previously
accrued income is charged against income, and no future income is accrued until
performance is restored.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Nonaccrual loans $ 224,000 $ 507,105 $ 709,348 $1,259,558 $548,578
Restructured loans 2,036,123 1,836,186 -- 123,940 --
Loans past due 90 or more days accruing
interest 38,284 726,647 545,854 40,192 --
---------- ---------- ---------- ---------- --------
TOTAL NONPERFORMING LOANS 2,298,407 3,069,938 1,255,202 1,423,690 548,578
Foreclosed assets -- -- 215,000 391,236 183,067
---------- ---------- ---------- ---------- --------
TOTAL NONPERFORMING ASSETS $2,298,407 $3,069,938 $1,470,202 $1,814,926 $731,645
========== ========== ========== ========== ========
Nonperforming loans to gross loans at
period-end 1.28% 1.88% 0.79% 0.97% 0.37%
Nonperforming assets to period-end gross
loans plus foreclosed assets 1.28% 1.88% 0.93% 1.23% 0.50%
</TABLE>
NONPERFORMING ASSETS
The loans listed above as nonaccrual are significantly past due and not
considered to be in the process of collection. Income recorded on these loans as
compared to income expected under the original loan agreements for the years
ended December 31, 1999, 1998 and 1997 is detailed in the following table.
<TABLE>
<CAPTION>
INCOME RECORDED INCOME EXPECTED
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
1999 -- 17,366
1998 29,598 43,440
1997 38,709 132,144
</TABLE>
Once the collection is deemed to be unlikely over the foreseeable future, a loan
is charged-off. Even though a loan is charged-off, the Company continues to work
with a borrower to collect the entire balance whenever possible. In addition to
the above loans, certain other loans, estimated to aggregate $132,862 at
December 31, 1999, are currently being paid out in accordance with their terms
but, in the opinion of management, there is doubt as to the ability of the
borrowers to comply with the repayment terms in the
13
<PAGE>
UNION NATIONAL BANCORP, INC.
future. As evidenced by the 1999 and 1998 figures, management continues to focus
effort on improving the quality of the loan portfolio by working on problem
loans. While management does not anticipate any loss not previously provided for
on these loans, changes in the financial condition of these borrowers may
necessitate future modifications in the repayment terms.
DEPOSITS
The Company uses deposits as the primary source of funding of its assets. The
Company has experienced continuous growth of deposits, especially in
certificates of deposit. The Company offers individuals, businesses and
non-profit organizations a variety of accounts. These accounts, including
checking, savings, money market, and certificates of deposit are obtained
primarily from the communities which the Company services. The following table
details the average amount, the average rate paid on, and the percent of the
total, of the following primary deposit categories for the past three years:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average % of Average % of Average % of
(IN THOUSANDS) Balance Rate Total Balance Rate Total Balance Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING DEMAND
DEPOSITS $ 26,112 - 11.41% $ 24,370 - 11.37% $ 22,849 - 11.46%
--------- ------- -------- ------- -------- -------
Interest-bearing demand
deposits 30,827 1.56% 13.47% 25,107 1.96% 11.71 19,787 2.04% 9.92
Regular savings deposits 33,381 2.25 14.59 33,274 2.72 15.52 31,470 2.73 15.78
Money market savings deposits 16,351 2.72 7.14 18,075 3.06 8.43 17,919 3.16 8.98
Time deposits 122,198 5.27 53.39 113,554 5.52 52.97 107,410 5.47 53.86
--------- ------- -------- ------- -------- -------
TOTAL INTEREST-BEARING
DEPOSITS $ 202,757 4.01 88.59 $190,010 4.32 88.63 $176,586 4.36 88.54
--------- ------- -------- ------- -------- -------
TOTAL DEPOSITS $ 228,869 3.55% 100.00% $214,380 3.83% 100.00% $199,435 3.86% 100.00%
========= ======= ======= ======== ======= ======= ======== ======= =======
</TABLE>
Total deposits were $232,177,952 on December 31, 1999 as compared to
$226,337,379 on December 31, 1999. The main source of deposits in 1999 was time
deposits which grew $6.4 million or 5.5% to $123,286,039. In addition, checking
accounts, regular savings and money market accounts rose slightly to
$108,891,913, an decrease of $553,503 or 0.5%.
The following is a summary of the maturity distribution of certificates of
deposit in the amount of $100,000 or more as of December 31, 1999:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS) Amount Percent Amount Percent Amount Percent
- --------------------------------------------------------------------------------------------------------------------
Maturing in:
Three months or less $ 3,973 17.57% $ 4,250 18.77% $ 4,689 23.42%
Over three months through six months 5,576 24.66 3,406 15.04 2,559 12.78
Over six months through twelve months 5,822 25.75 5,376 23.74 3,692 18.44
Over twelve months 7,238 32.01 9,615 42.45 9,084 45.36
------- ------ ------- ------ ------- ------
$22,609 100.00% $22,647 100.00% $20,024 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
14
<PAGE>
1999 ANNUAL REPORT
OTHER BORROWINGS
Short-term borrowings consist of Federal Funds purchased, repurchase agreements,
and borrowings from the Federal Reserve Bank and correspondent banks.
In September of 1999, management borrowed an additional $5,000,000 from the
Federal Home Loan Bank to fund loans. At the same time, management rolled over
$10,000,000 on a called note. In June of 1998, management drew on $10,000,000 of
its line of credit with the Federal Home Loan Bank to fund securities purchases.
Borrowings from the Federal Home Loan Bank averaged $21,342,466 during 1999 and
$15,000,000 during 1998.
Repurchase agreements averaged $19,051,891 during 1999 compared to $16,362,656
during 1998. At year-end, they were $16,269,157 in 1999 and $13,577,689 in 1998.
These funds included customer repurchase agreements in addition to those funds
that were obtained solely to provide liquidity.
Federal Funds purchased average $1,954,822 during 1999 and were $2,000,000 at
year-end. These funds were not utilized in 1998 and were used in 1999 to provide
short term liquidity when needed.
FED FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
Total outstanding at year end $16,269,157 $13,577,656 $13,776,373
Average amount outstanding during the year 19,051,891 16,362,656 11,771,647
Maximum outstanding at any month-end 33,755,079 30,005,162 21,670,304
Weighted-average interest rate at year-end 4.44% 3.92% 5.02%
Weighted-average interest rate during the year 4.03% 4.71% 4.56%
FED FUNDS PURCHASED
Total outstanding at year end $ 2,000,000 -- --
Average amount outstanding during the year 1,954,822 -- --
Maximum outstanding at any month-end 7,000,000 -- --
Weighted-average interest rate at year-end 4.79% -- --
Weighted-average interest rate during the year 6.21% -- --
</TABLE>
15
<PAGE>
UNION NATIONAL BANCORP, INC.
LIQUIDITY
Assuring adequate liquidity involves meeting future cash flow needs. Reducing
asset balances, increasing deposits and short term borrowings can provide this
liquidity, or a combination of both may be employed. Traditionally, the Company
has maintained a strong liquidity position because core deposit growth has been
able to match loan growth. Federal Funds sold is the Bank's most liquid earning
asset. Other sources include money market instruments and securities classified
as available for sale. In addition to these sources, the Bank has total credit
lines of $52 million available from correspondent banks of which $27 million
were in use at year-end.
On December 31, 1999 securities available for sale and federal funds sold
totaled $71,180,775, compared with $84,520,602 in 1998. These funds averaged
$81,990,016 in 1999 and $77,653,773 in 1998. Managing the maturities of loans,
securities, and certificates of deposit also provides asset liquidity.
INTEREST RATE SENSITIVITY
An important element of both earnings performance and the maintenance of
sufficient liquidity is maintaining an appropriate balance between
rate-sensitive assets and rate-sensitive liabilities. Interest rate sensitivity
analysis is a measure of the vulnerability of net interest income to changes in
the level of rates. An interest rate sensitivity gap results when assets and
liabilities reprice at different intervals. If the gap is negative or liability
sensitive, the impact on earnings is negative if rates rise. A positive or asset
sensitive gap implies the risk of lower earnings if rates decline. To offset
this risk, the Company regularly forecasts its exposure to rate changes and
monitors its performance. In addition, the net interest margin is calculated
weekly so that interest rate changes and asset restructuring may be made as
needed.
The Company's rate-sensitivity position reflected in the following table,
"Interest Rate Sensitivity Analysis," shows a liability sensitive gap. This
analysis makes several assumptions. First, noninterest-bearing, money market,
and savings accounts are not rate sensitive. Convertible CD's are shown by their
maturity dates and in a rapidly rising rate environment, this category would
exhibit additional sensitivity. Second, mortgage-
16
<PAGE>
1999 ANNUAL REPORT
backed securities are projected at the average levels experienced over the most
recent three months. Finally, repayment of loan principal is projected at the
most recent level.
<TABLE>
<CAPTION>
MATURING OR REPRICING IN:
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-90 91-180 181-365 1-5 Over 5
(IN THOUSANDS) Days Days Days Years Years
- ------------------------------------------------------------------------------------------------------
RATE-SENSITIVE ASSETS
Loans $37,326 $ 8,947 $ 18,479 $105,927 $ 9,042
Securities 2,425 3,397 5,697 37,358 54,123
Federal funds sold 800 - - - -
------- -------- -------- -------- --------
TOTAL RATE-SENSITIVE ASSETS $40,551 $ 12,344 $ 24,176 $143,285 $ 63,165
======= ======== ======== ======== ========
Cumulative rate-sensitive assets $40,551 $ 52,895 $ 77,071 $220,356 $283,521
======= ======== ======== ======== ========
RATE-SENSITIVE LIABILITIES
Interest bearing checking $ -- $ - $ - $ - $ 32,909
Money market deposits -- - - - 14,981
Regular savings -- - - - 32,127
Certificates of deposits 22,732 24,647 38,309 35,718 2,228
Other borrowings 18,269 - - 25,000 -
------- -------- -------- -------- --------
TOTAL RATE-SENSITIVE LIABILITIES $41,001 $ 24,647 $ 38,309 $ 60,718 $ 82,245
======= ======== ======== ======== ========
Cumulative rate-sensitive liabilities $41,001 $ 65,648 $103,957 $164,675 $246,920
======= ======== ======== ======== ========
Period gap $ (450) $(12,303) $(14,133) $(82,567) $(19,080)
Cumulative gap $ (450) $(12,753) $(26,886) $(55,681) $(36,601)
Cumulative rate-sensitive assets to
rate-sensitive liabilities 98.90% 80.57% 74.14% 133.81% 114.82%
Cumulative gap to total assets (0.15)% (4.21)% (8.88)% 18.38% 12.08%
</TABLE>
17
<PAGE>
UNION NATIONAL BANCORP, INC.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. For loans,
securities, and liabilities with contractual maturities, the table presents
principal cash flows and related weighted-average interest rates by contractual
maturities. For core deposits (e.g. DDA, interest checking, savings and money
market deposits) that have no contractual maturity, the table presents principal
cash flows and, as applicable, related weighted-average interest rates in the
longest designated maturity classification.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNTS MATURING IN:
<S> <C> <C> <C> <C> <C> <C> <C>
FAIR
(IN THOUSANDS) VALUE 2000 2001 2002 2003 2004 THEREAFTER
- ------------------------------------------------------------------------------------------------------------
RATE-SENSITIVE ASSETS:
Fixed interest rate loans $ 91,458 $ 4,830 $ 5,416 $12,305 $ 9,808 $21,756 36,218
Average interest rate 8.63% 9.01% 8.92% 8.56% 8.41% 7.83%
Variable interest rate loans $ 79,923 $11,212 $ 3,548 $ 1,529 $ 1,005 $ 2,827 $69,539
Average interest rate 9.28% 9.71% 9.66% 9.48% 9.28% 8.16%
Fixed interest rate securities $100,344 $ 718 $ 3,433 $ 2,502 $ 8,647 $ 6,669 $79,710
Average interest rate 5.82% 5.33% 5.71% 5.83% 6.25% 6.04%
Variable interest rate
securities $ 1,298 $ - $ - $ - $ - $ - $ 1,321
Average interest rate - - - - - 6.24%
Other interest-bearing assets $ 800 $ 800 $ - $ - $ - $ - $ -
Average interest rate 5.21% - - - - -
<CAPTION>
FAIR VALUE 2000 2001 2002 2003 2004 THEREAFTER
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RATE-SENSITIVE LIABILITIES:
Noninterest-bearing checking $ 28,527 $ - $ - $ - $ - $ - $28,247
Average interest rate - - - - - -
Savings and interest-bearing
checking $ 86,877 $ - $ - $ - $ - $ - $80,365
Average interest rate - - - - - 2.03%
Time deposits $123,095 $86,729 $25,410 $ 7,453 $ 1,658 $ 1,832 $ 204
Average interest rate 5.13% 5.39% 5.84% 5.22% 4.91% 5.30%
Fixed interest rate borrowings $ 24,958 $ 2,000 $ - $ - $ - $15,000 $10,000
Average interest rate 5.88% - - - 5.54% 5.51%
Variable interest rate
borrowings $ 16,269 $16,269 $ - $ - $ - $ - $ -
Average interest rate 4.44% - - - - -
</TABLE>
18
<PAGE>
1999 ANNUAL REPORT
CAPITAL MANAGEMENT
Banking regulatory authorities have implemented strict capital guidelines
directly related to the credit risk associated with an institution's assets.
Banks and bank holding companies are required to maintain capital levels based
on their "risk-adjusted" assets so that categories of assets with higher
"defined credit risks" will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
Capital is classified as Tier I (common stockholders' equity less certain
intangible assets as defined in the regulations) and Total capital (Tier I plus
the allowance for credit losses). Minimum required levels must at least equal 4%
for Tier I capital and 8% for Total capital. In addition, institutions must
maintain a minimum of a 4% leverage capital ratio (Tier I capital to average
total assets).
The Company's capital position is presented in the following table:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- REGULATORY
1999 1998 REQUIREMENT
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Tier 1 capital to risk weighted assets...................... 13.0% 12.1% 4.0%
Total capital to risk weighted assets....................... 14.0% 13.1% 8.0%
Capital leverage ratio...................................... 8.6% 8.2% 4.0%
</TABLE>
RECENT STOCK PRICE RANGES AND DIVIDENDS
The Company's stock, although now publicly traded, is sold and exchanged
principally among area residents. There were 463 stockholders of record as of
December 31, 1999. The table below shows the range from the lowest price paid to
the highest along with dividend payments each quarter.
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------- ------------------------------- -------------------------------
PRICE RANGE PRICE RANGE PRICE RANGE
------------------- DIVIDENDS ------------------- DIVIDENDS ------------------- DIVIDENDS
LOW HIGH DECLARED LOW HIGH DECLARED LOW HIGH DECLARED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
1st Quarter $29.50 $38.50 $0.110 $16.82 $22.75 $0.091 $14.55 $16.82 $0.068
2nd Quarter 26.25 32.75 0.115 19.09 30.45 0.095 15.00 16.93 0.073
3rd Quarter 26.00 28.50 0.115 25.45 28.18 0.100 15.11 16.82 0.082
4th Quarter 27.00 29.25 0.120 29.00 32.00 0.110 15.11 17.27 0.086
</TABLE>
19
<PAGE>
UNION NATIONAL BANCORP, INC.
INFLATION
The effect of changing prices on financial institutions is typically different
than on non-banking companies since virtually all of a bank's assets and
liabilities are monetary in nature. In particular, interest rates are
significantly affected by inflation, but neither the timing nor magnitude of the
changes are directly related to price level indices; therefore, the Company can
best counter inflation over the long term by managing net interest income and
controlling net increases in noninterest income and expenses.
YEAR 2000 CONVERSION
Union National Bank's computer systems operated normally before, during and
after the Year 2000 event.
Over the course of the event, we methodically evaluated computers and other
equipment to ensure expected performance levels and accuracy were maintained. No
problems were encountered and at no time did management resort to Year 2000
contingency plans.
The Year 2000 Project team continues to monitor system performance and verify
the accuracy of information. This initiative will focus on various dates
throughout 2000, including February 29, 2000.
As of December 31, 1999, we spent $67,068 to evaluate, upgrade and test our
systems and to communicate Year 2000 progress to our customers. This expense did
not have, and will not have a material impact on past or future operating
results or our financial condition. The project is ongoing and actual results
could differ from what has been anticipated.
INSURANCE SUBSIDIARY ACQUISITION
In June 1999, Union National Bank acquired Barnes Bollinger Insurance Services
as a wholly owned subsidiary. Barnes Bollinger is a full service insurance
agency headquartered in Carroll County providing a full range of business,
personal, life, group medical, disability, and long term care coverages.
PROPOSED MERGER
On January 20, 2000 the Company entered into an agreement and plan of
affiliation merger with Mercantile Bancshares Corporation. Under the proposal,
the Company's shareholders will receive 1.15 shares of the Mercantile's $2.00
par common stock for each share of common stock of the Company. Consummation of
the proposed sale is subject to regulatory approval and approval of two-thirds
of the Company's shareholders.
SECURITIES AND EXCHANGE COMMISSION WEB SITE INFORMATION
The Securities and Exchange Commission maintains a web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission, including the Company;
that address is: HTTP:\\WWW.SEC.GOV.
20
<PAGE>
1999 ANNUAL REPORT
SELECTED FINANCIAL DATA 1995-1999
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
RESULTS FROM OPERATIONS
- --------------------------------------------------------------------------------------------------------------
Interest Income $ 21,427 $ 20,377 $ 18,214 $ 17,361 $ 17,091
Interest Expense 10,232 9,836 8,393 8,099 8,092
-------- -------- -------- -------- --------
Net Interest Income 11,195 10,541 9,821 9,262 8,999
Provision for Credit Losses 255 246 275 329 212
-------- -------- -------- -------- --------
Net Interest Income after Provision for Credit Losses 10,940 10,295 9,546 8,933 8,787
Noninterest Income 2,499 1,554 1,327 1,086 977
Noninterest Expense 9,007 8,156 7,309 7,255 7,114
-------- -------- -------- -------- --------
Income Before Income Taxes 4,432 3,693 3,564 2,764 2,650
Provision for Income Taxes 1,229 1,055 1,164 934 890
-------- -------- -------- -------- --------
NET INCOME $ 3,203 $ 2,638 $ 2,400 $ 1,830 $ 1,760
======== ======== ======== ======== ========
FINANCIAL CONDITION
- --------------------------------------------------------------------------------------------------------------
Total assets $302,928 $283,913 $250,781 $225,131 $218,891
Investment securities (including available for sale) 103,000 97,560 70,940 54,389 51,320
Loans, net of unearned income 179,721 163,465 158,348 147,351 146,822
Allowance for loan losses 1,793 1,773 1,793 1,772 1,769
Deposits 232,178 226,337 205,639 199,291 193,462
Long-term debt 25,000 20,000 10,000
Stockholders' Equity 25,583 22,237 20,064 17,900 16,421
PER SHARE DATA
- --------------------------------------------------------------------------------------------------------------
Net Income -- Basic $ 1.68 $ 1.43 $ 1.30 $ 1.00 $ 0.96
Diluted 1.67 1.43 1.30 1.00 0.96
Dividends 0.46 0.40 0.31 0.26 0.24
Stockholders' equity 13.03 12.01 10.89 9.75 8.95
PERFORMANCE RATIOS
- --------------------------------------------------------------------------------------------------------------
Return on average assets 1.08% 0.98% 1.02% 0.83% 0.82%
Return on average equity 13.30 12.46 12.71 10.61 11.34
Net interest margin on average earning assets 4.18 4.29 4.53 4.53 4.56
Efficiency (noninterest expense / (net interest income +
noninterest income)) 65.77 67.43 65.56 70.11 71.3
LIQUIDITY AND CAPITAL RATIOS
- --------------------------------------------------------------------------------------------------------------
Stockholders' equity (% assets) 8.44% 7.83% 8.00% 7.95% 7.50%
Risk-based:
Tier 1 Capital 13.03 12.14 11.73 11.60 10.78
Total Capital 13.95 13.12 12.78 12.80 11.92
Average Equity to Average Assets 8.10% 7.88% 8.06%
Dividends per share / earnings per share 27.38 27.97 23.84 26.00 25.00
Loans to deposits 77.41 72.22 77.00 73.94 75.89
ASSET QUALITY RATIOS
- --------------------------------------------------------------------------------------------------------------
Allowance for credit losses to total loans 1.00% 1.08% 1.13% 1.20% 1.21%
Allowance for credit losses to non-performing loans 78.01 57.75 142.85 124.50 322.24
Net loan charge-offs to average total loans 0.14 0.17 0.17 0.22 0.08
</TABLE>
21
<PAGE>
UNION NATIONAL BANCORP, INC.
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Union National Bancorp, Inc.
Westminster, Maryland
We have audited the accompanying consolidated balance sheets of Union National
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity, and cash flows for each of the years in the three year
period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Union National
Bancorp, Inc. and its subsidiary as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
Frederick, Maryland
January 21, 2000
22
<PAGE>
1999 ANNUAL REPORT
UNION NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
- -----------------------------------------------------------------------------------------
Cash and due from banks $ 7,496,284 $ 7,140,409
Interest bearing deposits with banks 23,983 8,037
Federal funds sold 799,873 7,716,140
Investment securities available for sale-at fair value 70,380,902 75,553,962
Investment securities held to maturity-at amortized
cost-fair value of $31,260,668 (1999) and $22,382,238
(1998) 32,619,087 22,006,195
Loans 179,720,903 163,464,538
Less: allowance for credit losses (1,792,921) (1,772,895)
------------ ------------
Loans-net 177,927,982 161,691,643
------------ ------------
Premises and equipment 4,059,081 4,326,226
Accrued interest receivable 2,000,671 1,699,794
Goodwill 2,204,923 -
Deferred tax 2,536,222 1,087,083
Other assets 2,879,100 2,683,946
------------ ------------
TOTAL ASSETS $302,928,108 $283,913,435
============ ============
LIABILITIES
- -----------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing deposits $ 28,526,731 $ 28,247,301
Interest-bearing deposits 203,651,221 198,090,078
------------ ------------
TOTAL DEPOSITS 232,177,952 226,337,379
Short-term borrowings 18,269,157 13,577,689
Federal Home Loan Bank borrowings 25,000,000 20,000,000
Accrued expenses and other liabilities 1,898,117 1,761,688
------------ ------------
TOTAL LIABILITIES 277,345,226 261,676,756
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 4 & 11)
STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------
Common stock-$.01 par; 10,000,000 shares authorized;
1,964,128 shares in 1999 and 1,851,458 shares in 1998
issued and outstanding 19,640 18,514
Capital surplus 16,831,138 13,570,913
Accumulated other comprehensive income (loss) (2,020,588) 203,833
Retained earnings 10,752,692 8,443,419
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 25,582,882 22,236,679
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $302,928,108 $283,913,435
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
23
<PAGE>
UNION NATIONAL BANCORP, INC.
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
- -----------------------------------------------------------------------------------------------------
Interest and fees on loans $14,677,761 $14,558,024 $13,652,870
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities 3,251,724 2,562,551 1,361,956
Other taxable interest and dividends 2,299,415 1,931,675 2,432,532
Nontaxable interest 896,689 586,900 303,532
Interest on deposits at other banks 1,659 3,568 3,762
Interest on federal funds sold 299,834 734,448 459,479
----------- ----------- -----------
TOTAL INTEREST INCOME 21,427,082 20,377,166 18,214,131
----------- ----------- -----------
INTEREST EXPENSE:
- -----------------------------------------------------------------------------------------------------
Interest on deposits:
Certificates of deposit of $100,000 and more 1,000,111 1,118,868 1,021,731
Other deposits 7,244,588 7,093,244 6,677,699
----------- ----------- -----------
TOTAL INTEREST ON DEPOSITS 8,244,699 8,212,112 7,699,430
Interest on short-term borrowings 768,086 770,918 537,058
Interest on Federal Home Loan Bank borrowings 1,219,527 852,858 156,299
----------- ----------- -----------
TOTAL INTEREST EXPENSE 10,232,312 9,835,888 8,392,787
----------- ----------- -----------
Net interest income 11,194,770 10,541,278 9,821,344
Provision for credit losses 255,000 246,000 275,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 10,939,770 10,295,278 9,546,344
----------- ----------- -----------
NONINTEREST INCOME:
- -----------------------------------------------------------------------------------------------------
Service charges on deposit accounts 1,261,106 1,105,455 1,023,404
Other service charges 230,208 205,089 162,104
Insurance services commissions 903,046 - -
Net gain on sale of securities - 107,111 -
Other income 105,279 136,799 141,192
----------- ----------- -----------
TOTAL NONINTEREST INCOME 2,499,639 1,554,454 1,326,700
----------- ----------- -----------
NONINTEREST EXPENSE:
- -----------------------------------------------------------------------------------------------------
Salaries and employee benefits 5,086,178 4,522,630 4,057,005
Occupancy expense 903,405 859,869 756,231
Equipment expense 693,381 424,487 430,638
Computer service fees 560,339 514,981 418,459
FDIC assessment 26,189 25,168 24,559
Legal and professional 177,303 266,407 173,399
Check clearing fees 77,223 59,827 71,031
Other expenses 1,483,474 1,483,132 1,377,722
----------- ----------- -----------
TOTAL NONINTEREST EXPENSES 9,007,492 8,156,501 7,309,044
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 4,431,917 3,693,231 3,564,000
PROVISION FOR INCOME TAXES 1,228,823 1,055,407 1,163,898
----------- ----------- -----------
NET INCOME $ 3,203,094 $ 2,637,824 $ 2,400,102
=========== =========== ===========
EARNINGS PER COMMON SHARE BASIC $ 1.68 $ 1.43 $ 1.30
=========== =========== ===========
DILUTED $ 1.67 $ 1.43 $ 1.30
=========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
24
<PAGE>
1999 ANNUAL REPORT
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Net Income $3,203,094 $2,637,824 $2,400,102
OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAXES
Unrealized holding gains (losses) arising during period (3,624,016) 196,223 338,419
Less: reclassification adjustment for gains included in
net income -- 107,111 --
---------- ---------- ----------
Other comprehensive income (loss), before tax (3,624,016) 89,112 338,419
Income tax benefit (expense) related to items of other
comprehensive income (loss) 1,399,595 (34,415) (130,697)
---------- ---------- ----------
Other comprehensive income (loss), net of taxes (2,224,421) 54,697 207,722
COMPREHENSIVE INCOME $ 978,673 $2,692,521 $2,607,824
========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
<PAGE>
UNION NATIONAL BANCORP, INC.
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND COMMON CAPITAL COMPREHENSIVE RETAINED
1997 STOCK SURPLUS INCOME EARNINGS TOTAL
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 $ 8,340 $ 8,342,055 $ (58,586) $ 9,608,531 $17,900,340
Net income -- -- -- 2,400,102 2,400,102
Cash dividends ($.31 per share) -- -- -- (567,120) (567,120)
Dividend reinvestment plan 34 127,060 -- (3,812) 123,282
Two-for-one stock split effected in the form
of a 100% stock dividend 8,374 -- -- (8,374) --
Unrealized appreciation on securities
available for sale (net of tax) -- -- 207,722 -- 207,722
------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 16,748 8,469,115 149,136 11,429,327 $20,064,326
Net income -- -- -- 2,637,824 2,637,824
Cash dividends ($.40 per share) -- -- -- (740,829) (740,829)
Dividend reinvestment plan 84 227,441 -- (6,864) 220,661
Stock dividend (10%) 1,682 4,874,357 -- (4,876,039) --
Unrealized appreciation on securities
available for sale (net of tax) -- -- 54,697 -- 54,697
------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 18,514 13,570,913 203,833 8,443,419 22,236,679
Net income -- -- -- 3,203,094 3,203,094
Cash dividends ($.46 per share) -- -- -- (887,607) (887,607)
Dividend reinvestment plan 70 208,507 -- (6,214) 202,363
Additional Shares issued for insurance agency
acquisition 1,056 3,051,718 -- -- 3,052,774
Unrealized depreciation on securities
available for sale (net of tax) -- -- (2,224,421) -- (2,224,421)
------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $19,640 $16,831,138 $(2,020,588) $10,752,692 $25,582,882
======= =========== =========== =========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
1999 ANNUAL REPORT
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,203,094 $ 2,637,824 $ 2,400,102
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for credit losses 255,000 246,000 275,000
Depreciation and amortization 845,369 663,236 641,442
Gain on sale of foreclosed real estate and other assets - (990) (21,128)
Net gain on sale of securities - (107,111) -
Provision for deferred income tax (benefits) (50,458) (15,494) (21,378)
Provision for foreclosed real estate - 85,160 75,000
Non-cash contribution 1,021 1,404 1,571
Net decrease (increase) in accrued interest receivable (300,877) 9,020 (416,620)
Net increase in accrued expenses and other liabilities 136,430 460,302 170,285
Other--net 935,002 (573,062) 26,689
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,024,581 3,406,289 3,130,963
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available for sale securities (19,237,610) (84,510,680) (34,962,184)
Proceeds from sale of available for sale securities - 15,997,507 -
Proceeds from maturities of available for sale securities 20,375,814 50,542,642 15,235,953
Purchase of held to maturity securities (12,994,387) (13,161,433) -
Proceeds from maturities of held to maturity securities 2,403,923 4,678,461 3,785,800
Proceeds from sale of other real estate and other assets - 349,550 537,364
Net increase in loans (16,524,430) (5,601,798) (11,666,468)
Premises and equipment acquired (439,133) (783,638) (918,705)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (26,415,823) (32,489,389) (27,988,240)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in noninterest-bearing deposits, NOW
accounts, money market accounts, and savings accounts 18,722,497 25,979,546 3,579,932
Net increase (decrease) in time deposits (12,881,925) (5,280,961) 2,767,428
Net increase (decrease) in short-term borrowings 4,691,468 (198,684) 6,967,776
Proceeds from Federal Home Loan Bank borrowings 5,000,000 10,000,000 10,000,000
Dividend reinvestment plan 202,363 220,661 123,282
Cash dividends paid (887,607) (740,829) (567,120)
------------ ------------ ------------
NET CASH PROVIDED BY FINACING ACTIVITIES 14,846,796 29,979,733 22,871,298
------------ ------------ ------------
Net Increase (Decrease) In Cash And Cash Equivalents (6,544,446) 896,633 (1,985,979)
Cash And Cash Equivalents At Beginning Of Year 14,864,586 13,967,953 15,953,932
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 8,320,140 $ 14,864,586 $ 13,967,953
============ ============ ============
Supplemental Disclosures Of Cash Flow Information:
Interest paid $ 10,201,001 $ 9,849,303 $ 8,367,151
============ ============ ============
Income taxes paid $ 1,125,000 $ 1,024,000 $ 1,490,000
============ ============ ============
Non-Cash Investing Activities
Purchased insurance subsidiary $ 3,052,774 $ - $ -
============ ============ ============
Transfer from loans to foreclosed real estate $ - $ 218,731 $ 415,000
============ ============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
Union National Bancorp, Inc.
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Union National Bancorp, Inc. (the "Parent Company") is a bank holding company
that provides a full range of banking and certain non-banking services to
individuals and businesses through its wholly owned subsidiary Union National
Bank (the Bank). The Bank's primary loan products include commercial and
consumer loans and real estate mortgages. The Bank's principal market area
encompasses Carroll County, Maryland and the surrounding region. Additionally,
the Bank maintains correspondent banking relationships and transacts daily
federal funds sales on an unsecured basis with regional correspondent banks.
The accounting and reporting policies of Union National Bancorp, Inc. and its
wholly owned subsidiary (collectively the "Company) conform to generally
accepted accounting principles and to general practices in the banking industry.
Certain reclassifications have been made to amounts previously reported to
conform with the classifications made in the current year. The following is a
summary of the Company's significant accounting polices.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Parent Company
and the Bank. All significant intercompany transactions and balances have been
eliminated in consolidation. In the Parent Company's unconsolidated financial
statements the investment in subsidiary is accounted for using the equity method
of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses and the valuation
allowances for real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of these allowances
management may obtain independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for credit losses and foreclosed real estate. Such agencies
may require the Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
28
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVESTMENT SECURITIES AVAILABLE FOR SALE
Securities 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. Investment securities
available for sale are carried at fair value, with any unrealized gains and
losses reported, net of related income tax effects, in stockholders' equity as a
component of comprehensive income. The cost of securities sold is recognized
using the specific identification method.
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are those that the Company has the
ability and intent to hold until maturity. These investments are carried at cost
adjusted for amortization of premiums and accretion of discounts.
INTEREST ON LOANS
Loans are carried at their current unpaid balance. Interest income on loans is
accrued at the contractual rate on the principal amount outstanding. Loan
origination and commitment fees and certain direct loan origination costs are
being deferred and the net amount amortized over the contractual life of the
loan as a yield adjustment.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on these loans is reversed from income.
Interest payments received on such loans generally are applied as a reduction of
the loan principal balance unless the likelihood of further loss is remote.
IMPAIRED LOANS
Loans are considered impaired when, based on current information, it is probable
that the Company will not collect all principal and interest payments according
to the loans' contractual terms. Generally, loans are considered impaired once
principal or interest payments become 90 days or more past due and they are
placed on nonaccrual. Management also considers the financial condition of the
borrower, loan cash flows and the value of the related collateral when
evaluating loan impairment. Impaired loans do not include large groups of
smaller balance homogeneous loans such as residential real estate and consumer
installment loans that are evaluated collectively for impairment. Loans
specifically reviewed for impairment are not considered impaired during periods
of "minimum delay" in payment (90 days or less) provided eventual collection of
all amounts due is expected. Impairment of a loan is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or the fair value of the collateral, if repayment is expected to
be provided by the collateral. The majority of the Company's impaired loans are
measured by reference to the fair value of the collateral. Interest income on
impaired loans is recognized on the cash basis when the likelihood of further
loss is remote.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
Management's evaluation of the loan portfolio considers the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired
29
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
loans, and economic conditions. The allowance is increased by a provision for
credit losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of properties are computed using the
straight-line method over the estimated useful lives of the properties.
Expenditures for maintenance and repairs are charged to operations. Expenditures
for improvements that extend the life of an asset are capitalized and
depreciated over the asset's remaining useful life.
INTANGIBLE ASSETS
Intangible assets consist only of goodwill related to the acquisition of the
insurance subsidiary. Goodwill represents the excess of the cost of the company
acquired over the fair value of assets at the date of acquisition and is being
amortized on a straight line basis over 25 years.
FORECLOSED REAL ESTATE
Real estate acquired through foreclosure of loans is carried at the lower of
cost or fair market value minus estimated cost of disposal. Fair market value is
based on independent appraisals and other relevant factors. At the time of
acquisition, any excess of the loan balance over fair market value is charged to
the allowance for credit losses. Gains and losses on sales of foreclosed real
estate are included in other income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred income taxes on temporary differences between the
amount of taxable income and pretax financial income and between tax bases of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
current enacted tax rates and represent the future tax return consequences of
temporary differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
BASIC AND DILUTED EARNINGS PER COMMON SHARE
In 1997 the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share." This Statement established new standards for
computing and presenting earnings per share ("EPS"). It replaced the former
presentation of primary EPS with a presentation of basic EPS and, when
applicable, requires the dual presentation of basic and diluted EPS. Basic EPS
is computed by dividing net income by the weighted-average number of common
shares outstanding during the period. Diluted EPS
30
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reflects the potential dilution that could occur if other contracts to issue
common stock were exercised. Per share amounts are based on weighted-average
number of shares outstanding during each year as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING 1,904,811 1,847,663 1,834,819
Effect of stock options 7,994 5,693 --
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 1,912,805 1,853,356 1,834,819
</TABLE>
CASH FLOWS
The Company has defined cash and cash equivalents as those amounts included in
the balance sheet captions: Cash and due from banks, Interest bearing deposits
with banks and Federal funds sold.
2. ACQUISITION OF INSURANCE SUBSIDIARY
On June 18, 1999, the Company acquired Barnes Bollinger Insurance
Services, Inc. (Barnes Bollinger) a local full service insurance agency
headquartered in Carroll County. The purchase price of approximately
$3.0 million was effected through the exchange of 105,633 shares of the
Company's common stock for all of the outstanding common stock of Barnes
Bollinger. The acquisition has been accounted for under the purchase method of
accounting and the results of operations of Barnes Bollinger have been included
in the consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair market value of net assets acquired,
of $2.3 million, was recognized as goodwill and is being amortized on a
straight-line basis over 25 years.
The following tables present the unaudited proforma separate and combined
results of operations of the Company and Barnes Bollinger as if its acquisition
had occurred on January 1, 1998:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENDED DECEMBER 31, 1998 TOTAL INCOME NET INCOME PER SHARE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Company $21,931,620 $2,637,824 $1.43
Barnes Bollinger 1,304,094 80,577 --
Proforma (unaudited) 23,235,714 2,718,401 1.39
Year ended December 31, 1999
Company $23,926,721 $3,203,094 $1.68
Barnes Bollinger 599,003 6,101 --
Proforma (unaudited) 24,525,724 3,209,195 1.64
</TABLE>
3. CASH AND DUE FROM BANKS
The Federal Reserve requires banks to maintain certain minimum cash balances
consisting of vault cash and deposits in the Federal Reserve Bank or in other
commercial banks. The amounts of such reserves totaled $2,044,000 at
December 31, 1999 and $1,662,000 at December 31, 1998. The average daily reserve
balance maintained during 1999 was $2,061,000 and 1998 was $1,539,000.
31
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale at
December 31, were as follows:
AVAILABLE FOR SALE:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1999 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
U.S. government agencies $23,629,158 $ -- $ 815,171 $22,813,987
Obligations of states and political
subdivisions 500,000 85,698 -- 585,698
Mortgage-backed securities 47,002,919 8,596 2,543,391 44,468,124
----------- -------- ---------- -----------
Total debt securities 71,132,077 94,294 3,358,562 67,867,809
Equity securities 2,547,788 96,805 131,500 2,513,093
----------- -------- ---------- -----------
TOTAL $73,679,865 $191,099 $3,490,062 $70,380,902
=========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
U.S. government agencies $28,103,821 $174,572 $14,092 $28,264,301
Obligations of states and political
subdivisions 500,000 56,250 -- 556,250
Mortgage-backed securities 43,982,572 118,166 54,091 44,046,647
----------- -------- ------- -----------
Total debt securities 72,586,393 348,988 68,183 72,867,198
Equity securities 2,556,632 130,132 -- 2,686,764
----------- -------- ------- -----------
TOTAL $75,143,025 $479,120 $68,183 $75,553,962
=========== ======== ======= ===========
</TABLE>
32
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair values of securities to be held to
maturity at December 31, were as follows:
HELD TO MATURITY:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1999 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
U.S. government agencies $12,493,956 $ -- $ 454,866 $12,039,090
Obligations of states and political
subdivisions 18,344,666 35,461 914,891 17,465,236
Mortgage-backed securities 1,780,465 -- 24,123 1,756,342
----------- -------- ---------- -----------
TOTAL $32,619,087 $ 35,461 $1,393,880 $31,260,668
=========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
1998 COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
U.S. Treasury securities and obligations of
U.S. government agencies $ 173,592 $ -- $ 203 $ 173,389
Obligations of states and political
subdivisions 17,875,549 363,947 42,207 18,197,289
Mortgage-backed securities 3,957,054 56,712 2,206 4,011,560
----------- -------- ------- -----------
TOTAL $22,006,195 $420,659 $44,616 $22,382,238
=========== ======== ======= ===========
</TABLE>
Gross realized gains and losses on sales of securities available for sale for
the years ended December 31, were:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
GROSS REALIZED GAINS: $ -- $126,727 $ --
======== ======== ========
GROSS REALIZED LOSSES: $ -- $ 19,616 $ --
======== ======== ========
</TABLE>
33
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The scheduled maturities of securities held to maturity and securities available
for sale at December 31,1999, were as follows:
<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY SECURITIES AVAILABLE FOR SALE
--------------------------- -----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Due in one year or less $ 252,677 $ 253,667 $ 467,888 $ 464,879
Due from one year to five years 6,830,765 6,757,607 15,779,898 15,355,859
Due from five to ten years 13,701,892 13,222,000 10,886,165 10,558,897
Due after ten years 11,833,753 11,027,394 43,998,126 41,488,174
----------- ----------- ----------- -----------
TOTAL DEBT SECURITIES $32,619,087 $31,260,668 $71,132,077 $67,867,809
TOTAL EQUITY SECURITIES -- -- $ 2,547,788 $ 2,513,093
----------- ----------- ----------- -----------
TOTAL $32,619,087 $31,260,668 $73,679,865 $70,380,902
=========== =========== =========== ===========
</TABLE>
For the purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Securities with a book value of $29,534,038 at December 31, 1999 and $23,736,391
at December 31, 1998 were pledged as collateral for certain deposits and
repurchase agreements as required or permitted by law.
There were no state, county and municipal securities whose book value, as to any
issuer, exceeded ten percent of stockholders' equity at December 31, 1999 or
1998.
5. LOANS AND ALLOWANCE FOR CREDIT LOSSES
At December 31 loans were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Real estate:
Construction $ 4,400,853 $ 4,646,007
Conventional mortgages 115,656,109 109,948,918
Loans to farmers 283,443 202,528
Commercial and industrial loans 28,450,629 26,151,033
Loans to individuals 26,424,317 18,020,174
Tax-exempt loans to political subdivisions 4,518,893 4,554,185
All other loans 258,434 262,303
------------ ------------
Gross loans 179,992,678 163,785,148
Net deferred loan fees and costs (271,775) (320,610)
------------ ------------
TOTAL LOANS $179,720,903 $163,464,538
============ ============
</TABLE>
34
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the allowance for credit losses for the years ended December 31,
1999, 1998, and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Balance at beginning of year $1,772,895 $1,793,112 $1,772,433
Provision charged to operating expenses 255,000 246,000 275,000
Recoveries 33,090 105,508 57,059
Loans charged off (268,064) (371,725) (311,380)
---------- ---------- ----------
BALANCE AT END OF YEAR $1,792,921 $1,772,895 $1,793,112
========== ========== ==========
</TABLE>
Information regarding impaired loans for the years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Impaired loans with a specific valuation allowance $ 395,145 $ 171,965 $ 5,625
Impaired loans without a specific valuation allowance -- 3,662,542 3,552,246
---------- ---------- ----------
TOTAL IMPAIRED LOANS $ 395,145 $3,834,507 $3,557,871
========== ========== ==========
Allowance for credit losses related to impaired loans $ 64,169 $ 70,000 $ 221,178
Allowance for credit losses related to other than
impaired loans 1,728,752 1,702,895 1,571,934
---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES $1,792,921 $1,772,895 $1,793,112
========== ========== ==========
Average impaired loans for the year $ 895,549 $3,219,507 $1,281,158
========== ========== ==========
Interest income on impaired loans recognized on a cash
basis $ 205 $ 23,717 $ 63,256
========== ========== ==========
</TABLE>
The Company's loans are widely dispersed among individuals and industries. On
December 31, 1999, with the exception of Commercial Real Estate Investment loans
at 15.4%, there was no concentration of loans in any single industry that
exceeded 10% of total loans.
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit.
The Company's exposure to credit loss in the event of nonperformance by the
other party to these financial instruments is represented by the contractual
amount of the instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
The Company generally requires collateral or other security to support financial
instruments with credit risk. The amount of collateral or other security is
determined based on management's credit evaluation of the counterparty.
35
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The contract amounts of financial instruments that represent credit risk at
December 31, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- --------------------------------------------------------------------------------------
Commitments to extend credit 23,623,256 28,008,885
Standby letters of credit 2,388,296 3,113,986
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
6. PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Land $ 260,085 $ 260,085
Buildings and leasehold improvements 5,295,013 5,231,962
Equipment 4,363,282 3,848,109
----------- -----------
9,918,380 9,340,156
Accumulated depreciation and amortization (5,859,299) (5,013,930)
----------- -----------
TOTAL $ 4,059,081 $ 4,326,226
=========== ===========
</TABLE>
Depreciation and amortization charged to operations amounted to $845,369 in
1999, $663,236 in 1998, and $641,442 in 1997.
7. DEPOSITS
Interest-bearing deposits include certificates of deposit and other time
deposits in denominations of $100,000 or more which totaled $22,609,102 at
December 31, 1999 and $22,646,924 at December 31,1998.
36
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 31,1999, the maturity distribution of certificates of deposit is as
follows:
<TABLE>
<S> <C>
Maturing in:
2000 $ 86,728,332
2001 25,410,010
2002 7,452,530
2003 1,658,430
2004 1,832,309
Thereafter 204,428
------------
TOTAL $123,286,039
============
</TABLE>
Interest on deposits for the years ended December 31, 1999, 1998, and 1997
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
Savings deposits $1,677,876 $1,947,767 $1,828,015
Certificates of deposit ($100,000 or more) 1,000,111 1,118,868 1,021,731
Other deposits 5,566,712 5,145,477 4,849,684
---------- ---------- ----------
TOTAL $8,244,699 $8,212,112 $7,699,430
========== ========== ==========
</TABLE>
37
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold under
agreements to repurchase.
Selected information at December 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS 1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Average amount outstanding during year $19,051,891 $16,362,656
Weighted-average interest rate during year 4.03% 4.71%
Amount outstanding at year end $16,269,157 $13,577,689
Weighted-average interest rate at year-end 4.44% 3.92%
Highest amount during year $33,755,079 $30,005,162
</TABLE>
<TABLE>
<CAPTION>
FEDERAL FUNDS PURCHASED 1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------------
Average amount outstanding during year $ 1,954,822 -
Weighted-average interest rate during year 6.21% -
Amount outstanding at year end $ 2,000,000 -
Weighted-average interest rate at year-end 5.88% -
Highest amount during year $ 7,000,000 -
</TABLE>
At December 31, 1999, the Company had unused lines of credit in the total amount
of $25,000,000.
9. FEDERAL HOME LOAN BANK BORROWINGS
At December 31,1999, the Company had received three separate advances totaling
$25,000,000 from the Federal Home Loan Bank. The first advance in the amount of
$7,500,000 is due September 28, 2004, callable in September 2001, with interest
at 5.71%. The second advance in the amount of $10,000,000 is due June 23, 2008
callable in June 2003, with interest at 5.51%. The third advance in the amount
of $7,500,000 is due September 29, 2004 callable in September 2000, with
interest at 5.36%. The Bank has pledged $37,000,000 of conventional mortgage
loans as collateral on advances from this source.
38
<PAGE>
Union National Bancorp, Inc.
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PENSION:
The Company sponsors a defined benefit pension plan covering substantially all
employees. Benefits are based on years of service and the employee's
compensation. The Company's funding policy is to contribute the maximum amount
deductible for income tax purposes. Contributions provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. The change in benefit obligation and change in plan assets for the years
ended December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
CHANGE IN BENEFIT OBLIGATION 1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------
Benefit obligation at beginning of year $1,133,429 $1,035,496
Service cost--benefits earned during the year 105,323 72,280
Interest cost on projected benefit obligation 70,736 60,149
Actuarial (gain) loss (143,363) (33,526)
Benefits paid (118,659) (970)
---------- ----------
Benefit obligation at end of year $1,047,466 $1,133,429
---------- ----------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 870,128 $ 688,437
Actual return on plan assets 126,069 50,921
Employer contribution 170,313 131,740
Benefits paid (118,659) (970)
---------- ----------
Fair value of plan assets at end of year $1,047,851 $ 870,128
---------- ----------
Funded status $ 385 $ (263,301)
Unrecognized net actuarial (gain) loss (37,967) 166,823
Unrecognized net obligation at December 15, 1988 being
recognized over 15 years 11,655 17,482
---------- ----------
Accrued benefit cost $ (25,927) $ (78,996)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 1999 1998
<S> <C> <C>
- -----------------------------------------------------------------------------------
Discount rate 7.25% 7.50%
Expected long-term return on assets 7.50 7.50
Rate of compensation increase 4.50 4.50
</TABLE>
39
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of net periodic benefit cost for the years ended December 31,
1999, 1998 and 1997 is detailed in the following table:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Service cost $105,323 $ 72,280 $ 83,251
Interest cost 70,736 60,149 65,815
Actual return on assets (126,069) (50,921) (93,269)
Net amortization and deferral 67,254 10,982 61,321
-------- -------- ---------
Net periodic benefit cost $117,244 92,490 117,118
Additional expense related to settlement of pension
obligation -- -- 88,718
-------- -------- ---------
Total $117,244 $ 92,490 $ 205,836
======== ======== =========
</TABLE>
During 1997, the Company's defined benefit pension plan made lump sum payments
to plan participants which met the criteria for a settlement of pension
obligations as defined in SFAS No. 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Plans and for Termination Benefits." This
settlement resulted in additional pension expense of $88,718 for the year ended
December 31, 1997.
40
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMPLOYEE SAVINGS AND INVESTMENT PLAN:
The Company has an Employee Savings and Investment Plan in which substantially
all employees are eligible to participate. Under the terms of the Plan, the
Company will match 50% of the employee contributions up to 6% of compensation.
The Company's contributions to the Plan were $76,457 for 1999, $79,388 for 1998,
and $62,564 for 1997.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:
The Company has entered into supplemental executive retirement agreements with
certain executive officers and members of its Board of Directors to provide
retirement benefits. The present value of the benefits to be paid by the Company
upon retirement is being accrued over the number of years remaining to the
retirement date of these individuals. The expense (income) recognized for this
plan was $12,187 in 1999, $12,884 in 1998, and ($9,754) in 1997.
STOCK OPTION PLAN:
On April 15, 1997 the Company established the 1997 Key Employee Stock Option
Plan (the "1997 Plan"). The 1997 Plan is accounted for in accordance with
Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations.
Had compensation expense for the 1997 Plan been determined based on the fair
value of each option on the date of grant using an option-pricing model as
prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation," there
would have an immaterial effect on the Company's net income and basic and
diluted earnings per share for the years ended December 31, 1999, 1998 and 1997.
The 1997 Plan provides that 66,000 shares of the Company's common stock will be
reserved for the granting of both incentive stock options (ISO) and
non-qualified stock options (NQSO) to purchase these shares. At December 31,
1999, reserved shares remaining for future grants under this 1997 Plan totaled
3,733. The exercise price per share for incentive stock options and
non-qualified stock options shall be equal to the fair market value on the date
the options are granted. However, in the case of incentive stock options, if at
the time the options are granted the participant owns shares possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, then the exercise price shall not be less than 110% of the fair market
value of the shares on the date the options are granted.
The options granted would become exercisable in increments of 20% on each
anniversary date of the grant of the options, so that the options will become
fully exercisable on the fifth anniversary of the date the options were granted.
41
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The fair value of each option is estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------
Dividend yield 3.00% 2.00%
Expected volatility 23.20% 24.10%
Risk free interest rate 6.48% 4.75%
Expected life, in years 10 years 10 years
Weighted-average fair value of options granted during the
year $8.11 $9.46
</TABLE>
During 1999, the Company granted options to purchase 21,483 shares with an
exercise price of $27.00. At December 31, 1999 options issued and outstanding
had exercise prices ranging from $19.09 to $29.50 and had a weighted- average
remaining contractual life of 8.99 years.
42
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
OPTIONS ISSUED WEIGHTED-AVERAGE
AND OUTSTANDING EXERCISE PRICE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------
Balance at January 1, 1997 -- $ --
Exercised -- --
Granted 21,890 19.09
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1997 21,890 $19.09
- ------------------------------------------------------------------------------------------------
Exercised -- --
Granted 18,982 29.50
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1998 40,872 $23.92
- ------------------------------------------------------------------------------------------------
Exercised 88 19.09
Granted 21,483 27.00
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1999 62,267 $24.99
- ------------------------------------------------------------------------------------------------
</TABLE>
As of December 31, 1999 exercisable options totaled 12,464 shares with a
weighted-average exercise price of $23.92.
11. INCOME TAXES
The provision for income taxes for the years ended December 31, 1999, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------- ------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL STATE TOTAL FEDERAL STATE TOTAL FEDERAL STATE
- -----------------------------------------------------------------------------------------------------------------------------
Currently payable $ 1,339,276 $ (59,995) $ 1,279,281 $ 1,077,537 $ (6,636) $ 1,070,901 $1,061,389 $ 123,887
Deferred tax expense
(benefits) (27,449) (23,009) $ (50,458) (10,680) (4,814) (15,494) (25,491) 4,113
----------- --------- ----------- ----------- --------- ----------- ---------- ---------
TOTAL $ 1,311,827 $ (83,004) $ 1,228,823 $ 1,066,857 $ (11,450) $ 1,055,407 $1,035,898 $ 128,000
=========== ========= =========== =========== ========= =========== ========== =========
<CAPTION>
1997
----------
<S> <C>
TOTAL
- --------------------- ----------
Currently payable $1,185,276
Deferred tax expense
(benefits) (21,378)
----------
TOTAL $1,163,898
==========
</TABLE>
43
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax benefits resulting from temporary differences in the tax bases of
assets and liabilities for tax and financial statement purposes for the years
ended December 31 1999, 1998, and 1997 are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Provision for credit losses $ (7,734) $ 7,808 $ (8,267)
Deferred loan fees 24,199 63,035 (3,918)
Depreciation and amortization (60,417) (68,152) (41,104)
Pension expense 19,202 (20,565) 9,664
Deferred compensation (60,830) (39,391) 3,071
Loan income (5,603) 31,945 9,770
Other 40,725 9,826 9,406
-------- -------- --------
TOTAL DEFERRED TAX BENEFIT $(50,458) $(15,494) $(21,378)
======== ======== ========
</TABLE>
44
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accumulated deferred income tax benefits of $2,536,222 at December 31, 1999 and
$1,087,083 at December 31, 1998 are included in other assets and consist of the
following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- -------------------------------------------------------------------------------------
Provision for credit losses $ 549,382 $ 541,648
Deferred loan fees 94,216 118,415
Unrealized gains on investment securities 1,271,344 (127,337)
Depreciation and amortization 346,307 285,890
Pension expense (25,000) (5,798)
Deferred compensation 341,551 280,721
Loan income 9,768 4,165
Other (51,346) (10,621)
---------- ----------
NET DEFERRED TAX ASSET $2,536,222 $1,087,083
========== ==========
</TABLE>
A reconciliation of the maximum statutory income tax to the provision for income
taxes in the consolidated statements of income for the years ended December 31,
1999, 1998, and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
PERCENT PERCENT PERCENT
OF OF OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
- ---------------------------------------------------------------------------------------------------------------
Computed tax at statutory rate $1,506,852 34.0% $1,255,698 34.0% $1,211,760 34.0%
Increases (decreases) in taxes resulting
from:
Tax exempt interest income (396,615) (8.9) (284,688) (7.7) (172,797) (4.8)
State income taxes, net of federal
income tax benefit (54,782) (1.2) 25,012 0.7 78,151 2.2
Nondeductible interest expense 83,668 1.9 54,233 1.6 37,166 1.1
Officers and directors life insurance 2,065 0.0 2,065 0.1 4,936 .1
Other 87,635 1.9 3,087 (0.1) 4,682 .1
---------- ----- ---------- ----- ---------- -----
$1,228,823 27.7% $1,055,407 28.6% $1,163,898 32.7%
========== ===== ========== ===== ========== =====
</TABLE>
45
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. LEASES
The Company is obligated under noncancelable lease agreements for certain bank
premises. The leases generally contain renewal options and provide that the
Company pays property taxes, insurance and maintenance costs.
Future minimum lease payments under leases having initial or remaining
noncancelable lease terms in excess of one year are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
<S> <C>
- ------------------------------------------------------------------------
2000 $ 255,032
2001 239,982
2002 211,726
2003 193,933
2004 199,719
Thereafter 612,618
----------
Total $1,713,010
==========
</TABLE>
The Company has entered into an agreement to lease a branch banking facility
from a director through 2001 at a minimum annual rental of $37,800. The lease
also contains one five-year renewal option. The Company also has an agreement
with an advisory board member to lease a branch facility through November 2002
at a minimum annual rental of $21,532.
13. STOCKHOLDERS' EQUITY
RESTRICTIONS ON DIVIDENDS:
The amount of dividends that the Bank can pay to the Company without approval is
limited to its net profits for the current year plus its retained net profits
for the preceding two years. Amounts available for the payment of dividends
during 1999 aggregated $6,928,628.
RESTRICTIONS ON LENDING FROM SUBSIDIARY TO PARENT:
Federal law imposes certain restrictions limiting the ability of the Bank to
transfer funds to the Parent Company in the form of loans or advances.
Section 23A of the Federal Reserve Act prohibits the Bank from making loans or
advances to the Parent Company in excess of 10 percent of its capital stock and
surplus, as defined therein. There were no material loans or advances
outstanding at December 31, 1999.
REPURCHASE PLAN:
On October 1, 1997, the Board of Directors authorized a stock repurchase
program. Pursuant to the terms of this program, the Company may repurchase up to
6% of its common stock during the ten year period ending September 31, 2007. As
of December 31, 1999 no shares had been purchased.
46
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIVIDEND REINVESTMENT PLAN:
The Company maintains a Dividend Reinvestment and Stock Purchase Plan for all
stockholders of the Company. This Plan provides that 330,000 shares, as adjusted
for stock splits and dividends, of the Company's common stock will be reserved
for issuance under the Plan. At December 31, 1999, reserved shares remaining for
future issuance under this Plan totaled 305,980. The terms of this Plan allow
participating shareholders to purchase additional shares of common stock in the
Company by reinvesting the dividends paid on shares registered in their name, by
making optional cash payments, or both. Shares purchased under the Plan with
reinvested dividends or optional cash payment can be acquired at 97% of current
market prices. Optional cash payments to this Plan are limited and may not
exceed $10,000 in any calendar quarter. The Company reserves the right to amend,
modify, suspend or terminate this Plan at any time at its discretion.
47
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CAPITAL:
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk-weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain amounts and ratios (set forth in
the table below) of Total and Tier 1 capital (as defined) to risk-weighted
assets (as defined) and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31 1999, that the Company and the
Bank meet all capital adequacy requirements to which they are subject.
As of December 31,1999, the most recent notification from the regulatory agency
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum Total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
48
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's and the Bank's actual capital amounts and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
---------------------- ---------------------- ----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
As of December 31,1999:
Total Capital (to risk-weighted assets)
Consolidated $27,191,468 14.0% $15,598,786 8.0% N/A
Union National Bank $26,500,047 13.6% $15,598,465 8.0% $19,498,081 10.0%
Tier 1 Capital (to risk-weighted assets)
Consolidated $25,398,547 13.0% $ 7,799,393 4.0% N/A
Union National Bank $24,707,126 12.7% $ 7,799,233 4.0% $11,698,849 6.0%
Tier 1 Capital (average assets)
Consolidated $25,398,547 8.6% $11,801,613 4.0% N/A
Union National Bank $24,707,126 8.4% $11,801,484 4.0% $14,751,855 5.0%
As of December 31,1998:
Total Capital (to risk-weighted assets)
Consolidated $23,805,741 13.1% $14,518,218 8.0% N/A
Union National Bank $23,314,982 12.9% $14,517,807 8.0% $18,147,259 10.0%
Tier 1 Capital (to risk-weighted assets)
Consolidated $22,032,846 12.1% $ 7,259,109 4.0% N/A
Union National Bank $21,542,087 11.9% $ 7,258,904 4.0% $10,888,356 6.0%
Tier 1 Capital (average assets)
Consolidated $22,032,846 8.2% $10,744,569 4.0% N/A
Union National Bank $21,542,087 8.0% $10,740,740 4.0% $13,425,925 5.0%
</TABLE>
N/A = NOT APPLICABLE
49
<PAGE>
Union National Bancorp, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "REPORTING COMPREHENSIVE INCOME".Comprehensive Income, as
defined by Statement 130, is the change in equity of a business enterprise
during a reporting period from transactions and other events and circumstances
from non-owner sources. In addition to the Company's net income, change in
equity components under comprehensive income reporting would also include such
items as the net change in unrealized gains and losses on available for sale
securities, foreign currency transactions and adjustments in minimum pension
liability. As required by Statement 130, prior year information has been
modified to conform to the new presentation. The following table details related
tax effects allocated to each component of other comprehensive income.
<TABLE>
<CAPTION>
BEFORE-TAX TAX NET-OF-TAX
1999 AMOUNT EXPENSE AMOUNT
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Unrealized holding gains (losses) arising during period $(3,624,016) $1,399,595 $(2,224,421)
Less: Realized gains on securities sold - - -
----------- ---------- -----------
Other comprehensive income $(3,624,016) $1,399,595 $(2,224,421)
=========== ========== ===========
1998
- ------------------------------------------------------------------------------------------------
Unrealized holding gains arising during period $ 196,223 $ (75,781) $ 120,442
Less: Realized gains on securities sold 107,111 (41,366) 65,745
----------- ---------- -----------
Other comprehensive income $ 89,112 $ (34,415) $ 54,697
=========== ========== ===========
1997
- ------------------------------------------------------------------------------------------------
Unrealized holding gains arising during period $ 338,419 $ (130,697) $ 207,722
Less: Realized gains on securities sold - - -
----------- ---------- -----------
Other comprehensive income $ 338,419 $ (130,697) $ 207,722
=========== ========== ===========
</TABLE>
15. RELATED PARTY TRANSACTIONS
Certain members of the Board of Directors and senior officers had loan
transactions with the Bank. Such loans were made in the ordinary course of
business on substantially the same terms as those prevailing at the time for
comparable transactions with outsiders
The following schedule summarizes changes in amounts of loans outstanding to
directors and senior officers, both direct and indirect, during 1999.
<TABLE>
<S> <C>
Balance at January 1,1999 $ 5,284,446
Additions 916,755
Repayments (3,202,966)
-----------
Balance at December 31,1999 $ 2,998,235
===========
</TABLE>
50
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments"' requires disclosure of fair value information
about financial instruments, whether or not recognized in the consolidated
balance sheets. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. This standard excludes all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amount presented does not represent the underlying value of the Company.
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as for December 31, 1999 and 1998:
Cash and due from banks: The carrying amounts reported in the balance sheets
approximate their fair values.
Investment securities: Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are estimated using discounted cash flow techniques,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Off-balance sheet instruments: Fair values for the Company's off-balance sheet
instruments, consisting entirely of lending commitments, are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow technique
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of short-term borrowings approximate
their fair values.
Federal Home Loan Bank Borrowings: Fair value for these borrowings is based on
quoted market price.
51
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of the Company's financial instruments were as follows
at:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Cash and due from banks, interest-
bearing deposits with banks, and
federal funds sold $ 8,320,140 $ 8,320,140 $ 14,864,586 $ 14,864,586
Investment securities available for
sale 70,380,902 70,380,902 75,553,962 75,553,962
Investment securities held to
maturity 32,619,087 31,260,668 22,006,195 22,382,238
Loans receivable 179,720,903 171,381,364 163,464,538 159,879,224
Accrued interest receivable 2,000,671 2,000,671 1,699,794 1,699,794
FINANCIAL LIABILITIES:
Deposit liabilities 232,177,952 238,499,240 226,337,379 205,741,056
Short-term borrowings 18,269,157 18,269,157 13,577,689 13,577,689
Federal Home Loan Bank borrowings 25,000,000 22,957,911 20,000,000 20,933,048
</TABLE>
17. PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements for Union National Bancorp, Inc. (Parent
Only) pertaining to the periods covered by the Company's consolidated financial
statement are presented below:
BALANCE SHEETS
<TABLE>
<CAPTION>
1999 1998
DECEMBER 31, ----------- -----------
<S> <C> <C>
ASSETS
- ---------------------------------------------------------------------------------------
Cash and due from banks $ 687,413 $ 485,620
Investment in subsidiary 24,891,461 21,745,921
Other assets 4,008 5,138
----------- -----------
TOTAL ASSETS $25,582,882 $22,236,679
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------
TOTAL LIABILITIES $ - $ -
----------- -----------
Common stock 19,640 18,514
Capital surplus 16,831,138 13,570,913
Accumulated other comprehensive income (loss) (2,020,588) 203,833
Retained earnings 10,752,692 8,443,419
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 25,582,882 22,236,679
----------- -----------
</TABLE>
52
<PAGE>
1998 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998
DECEMBER 31, ----------- -----------
<S> <C> <C>
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,582,882 $22,236,679
=========== ===========
</TABLE>
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Income
Dividends from subsidiary $ 887,607 $ 740,829 $ 592,120
Expenses 2,580 10,620 17,947
----------- ---------- ----------
Income before income taxes and equity in undistributed
income of subsidiary 885,027 730,209 574,173
Income tax expense (benefit) (877) (3,611) (6,102)
----------- ---------- ----------
Income before equity in undistributed income of
subsidiary 885,904 733,820 580,275
Equity in undistributed income of subsidiary 2,317,190 1,904,004 1,819,827
----------- ---------- ----------
NET INCOME $ 3,203,094 $2,637,824 $2,400,102
Other comprehensive income (loss), net of taxes (2,224,421) 54,697 207,722
----------- ---------- ----------
COMPREHENSIVE INCOME $ 978,673 $2,692,521 $2,607,824
=========== ========== ==========
</TABLE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net Income $ 3,203,094 $ 2,637,824 $ 2,400,102
Equity in undistributed income of subsidiary (2,317,190) (1,904,004) (1,819,827)
Amortization of organization cost 2,380 10,420 10,419
(Increase) Decrease in amount due from subsidiary (370) 122,952 (6,101)
(Increase) Decrease in other assets (877) 112,116 -
----------- ----------- -----------
Net cash provided by operating activities 887,037 979,308 584,593
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from Dividend reinvestment plan 202,363 220,661 -
Dividends paid (887,607) (740,829) (567,120)
----------- ----------- -----------
Net cash used in financing activities (685,244) (520,168) (567,120)
Net increase in cash and cash equivalents 201,793 459,140 17,473
Cash and Cash Equivalents at Beginning of Year 485,620 26,480 9,007
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 687,413 $ 485,620 $ 26,480
=========== =========== ===========
</TABLE>
53
<PAGE>
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED
--------------------------------------------------
1999 DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Interest income $5,515 $5,475 $5,340 $5,097
Net interest income 2,863 2,839 2,814 2,679
Net security gains - - - -
Provision for credit losses 76 105 15 59
Income before taxes 1,271 1,184 1,051 926
Net income 892 875 758 678
Earnings per share - Basic 0.46 0.45 0.40 0.37
- Diluted 0.45 0.45 0.40 0.37
</TABLE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
Three months ended
--------------------------------------------------
1998 December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Interest income $5,139 $5,263 $5,097 $4,878
Net interest income 2,612 2,623 2,711 2,595
Net security gains 86 - 21 -
Provision for credit losses 60 60 41 85
Income before taxes 998 803 968 924
Net income 688 631 679 640
Basic and diluted earnings per share 0.41 0.31 0.36 0.35
</TABLE>
19. PROPOSED MERGER
On January 20, 2000, the Company entered into an agreement and plan of
affiliation and merger with Mercantile Bancshares Corporation. Under the
proposal, the Company's shareholders will receive 1.15 shares of the
Mercantile's $2.00 par common stock for each share of common stock of the
Company.
No material legal obligations are created by the proposal and either party may
withdraw from the transaction until a definitive agreement is executed.
Consummation of the proposed sale is subject to regulatory approval and approval
of two-thirds of the Company's shareholders.
54
<PAGE>
1999 ANNUAL REPORT
UNION NATIONAL BANK
DIRECTORS
Wesley D. Blakeslee
Attorney at Law
David L. Brauning
Insurance, Real Estate, Agriculture
Robert L. Bullock
President
Bullock's Country Meats, Inc.
Donald C. Essich
Vice Chairman of the Board
Union National Bank
Agriculture and Real Estate Development
Dean H. Griffin, M.D.
Medicine
Bernard L. Jones, Sr.
Engineering Technologist
William R. Klinger
General Manager
Star Vending Service
K. Wayne Lockard
Chairman of the Board
Union National Bank
Real Estate Consultant
Ellen Miller
Assistant Secretary for Business and Training
Maryland Department of Labor, Liscensing
And Regulation
Robert T. Scott, D.D.S.
Orthodontics
Ethan A. Siedel
Vice President, Administration and
Finance, Western Maryland College
Virginia W. Smith
President and Chief Executive Officer
Union National Bank
Larry A. Van Sant, Sr.
President
Van Sant Plumbing and Heating, Inc.
Kenneth B. Wright
President
Towne Pride Interiors, Inc.
Director Emeritus
Joseph H. Beaver, Jr.
Retired President
Union National Bank
UNION NATIONAL BANK
EXECUTIVE MANAGEMENT
Virginia W. Smith
President and Chief Executive Officer
Steven L. Wantz
Senior Vice President and
Chief Operating Officer
Bradley T. Duggan
Senior Vice President and
Chief Lending Officer
Gabrielle M. Peregoy
Vice President/Funds Manager
UNION NATIONAL BANCORP, INC.
OFFICERS
K. Wayne Lockard
Chairman of the Board
Donald C. Essich
Vice Chairman
Virginia W. Smith
President
Denise L. Baker
Secretary
Gabrielle M. Peregoy
Treasurer
FINKSBURG ADVISORY BOARD
Melvin L. Anderson
55
<PAGE>
UNION NATIONAL BANCORP, INC.
Edwin R. Armacost
Francis H. Flater
Gregory C. Maier
Robert L. Moser
HAMPSTEAD ADVISORY BOARD
Ronald W. Cox
Margaret A. Miller
Lawrence R. Whitney, Jr. D.D.S.
SOUTH CARROLL ADVISORY BOARD
Dann J. Finch
Michelle L. Fleming
Holly J. Harrison Frey
Lawrence W. Helminiak
WESTMINSTER ADVISORY BOARD
David S. Bollinger
Linda C. Galvin
G. Melvin Mills
R. Kyle Pritts, Jr.
MT. AIRY ADVISORY BOARD
John E. Fleming, Jr.
Frank Illiano
Kenneth J. Lee
Ronald E. Miller, M.D.
Delores Wilson
ADMINISTRATION
Denise L. Baker
Vice President-Cashier
Brenda G. Boudreau
Vice President-
Risk Manager
Julie S. Frantz
Assistant Vice President-
Human Resources
Reynold R. Grove
Auditor
GENERAL BANKING
Steven L. Wantz
Senior Vice President/ Chief
Operating Officer
Mary E. Harris
Vice President
Market Manager
Cristina R. Moore
Vice President-
Operations Manager
Terry A. Williams
Vice President
Market Manager
James C. Wise
Vice President-
Director of Marketing
Barbara R. Burke
Assistant Vice President-
Investment and Retirement
Services Manager
Karen B. Corder
Assistant Vice President-
Information Technology
Stephanie C. Haines
Operations Officer-
Deposit Operations
LENDING
Bradley T. Duggan
Senior Vice President and Chief
Lending Officer
Robert A Holmes, Jr.
Vice President-Commercial
Lending Manager
Cynthia D. Irvin
Vice President--Loan Operations
Manager
56
<PAGE>
1999 ANNUAL REPORT
Patricia M. DeBone
Vice President-
Mortgage Lending Manager
Alice M. Denell
Assistant Vice President-
Consumer Lending Manager
Sharon L. Wenzing
Assistant Vice President-
Home Equity Manager
Gary A. Harris
Vice President-
Commercial Lender
Mark E. Blacksten
Assistant Vice President-
Commercial Lender
John E. Hilker
Vice President-
Chief Credit Officer/
Credit Manager
FINANCE
Gabrielle M. Peregoy
Vice President-
Funds Manager
Alan D. Bevard
Assistant Vice President-
Funds Management
Patricia L. Howard
Assistant Vice President-
Accounting Manager
UNION NATIONAL BANK
COMMUNITY BANKING
LOCATIONS AND MANAGEMENT
Northern Region
Mary E. Harris
Vice President
Market Area Manager
132 West Main Street
Westminster
Doreen Capece
Assistant Vice President-
Branch Manager
111 East Main Street
Westminster
140 Village Shopping Center
Westminster
Mary E. Harris
Vice President
Market Area Manager
Cranberry Mall
Westminster
Jill Cornwell
Branch Officer
Southern Region
Terry A. Williams
Vice President
Market Area Manager
Route 140 and 91
Finksburg
Jon M. Page
Branch Manager
7564 Main Street
Sykesville
(Satellite of the Eldersburg Office)
5420 Klee Mill Road
Eldersburg
Terry Williams
Vice President
Market Area Manager
400 Ridgeville Blvd
Mt. Airy
Linda E. Koons
Assistant Vice President-
Branch Manger
57
<PAGE>
UNION NATIONAL BANCORP, INC.
SHAREHOLDER
INFORMATION
CORPORATE HEADQUARTERS
Union National Bancorp, Inc.
117 East Main Street
Westminster, MD 21157
410-848-7200
GENERAL INFORMATION
For additional information about
Union National Bancorp, Inc.
Please contact:
Denise L. Baker, Secretary
Union National Bancorp, Inc.
117 East Main Street
Westminster, MD 21157
410-848-7200
TRANSFER AGENT
American Stock Transfer & Trust
Company
40 Wall Street
New York, NY 10005
(800) 937-5449
The following brokers are registered as market makers of Union National
Bancorp, Inc. Common Stock:
Ferris, Baker, Watts, Inc.
295 East Main Street
Westminster, MD 21157
410-848-9333
Legg Mason Wood Walker, Inc.
119 East Main Street
Westminster, MD 21157
Sandler O'Neiill & Partners, L.P.
Two World Trade Center
104(th) Floor
New York, NY 10048
(800) 635-6851
58
<PAGE>
EXHIBIT 23a
The Board of Directors
Union National Bancorp, Inc.
We consent to incorporation by reference of our report dated January 21, 2000
relating to the consolidated balance sheets of Union National Bancorp, Inc. and
its subsidiary as of December 31, 1999 and 1998, and the related consolidated
statements of income, comprehensive income, changes in stockholders' equity and
cash flows for each of the years in the three year period ended December 31,
1999, which report appears in the 1999 Union National Bancorp, Inc. Annual
Report to Stockholders, in this Annual Report on Form 10-K, and in the following
Registration Statement of Union National Bancorp, Inc.: Number 333-36767 on Form
S-3 and Number 333-58673 on Form S-8.
/s/ Keller Bruner & Company, L.L.P.
Frederick Maryland
March 28, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIN EXTRACTED FOR UNION NATIONAL
BANCORP'S DECEMBER 31, 1999 AND IS QUALIFIED IN IT'S ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,496,284
<INT-BEARING-DEPOSITS> 23,983
<FED-FUNDS-SOLD> 799,873
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 70,380,902
<INVESTMENTS-CARRYING> 32,619,087
<INVESTMENTS-MARKET> 0
<LOANS> 179,720,903
<ALLOWANCE> 1,792,921
<TOTAL-ASSETS> 302,928,108
<DEPOSITS> 232,177,952
<SHORT-TERM> 18,269,157
<LIABILITIES-OTHER> 1,898,177
<LONG-TERM> 25,000,000
0
0
<COMMON> 19,640
<OTHER-SE> 25,563,242
<TOTAL-LIABILITIES-AND-EQUITY> 302,928,108
<INTEREST-LOAN> 14,677,761
<INTEREST-INVEST> 6,447,828
<INTEREST-OTHER> 301,493
<INTEREST-TOTAL> 21,427,082
<INTEREST-DEPOSIT> 8,244,699
<INTEREST-EXPENSE> 10,232,312
<INTEREST-INCOME-NET> 11,194,770
<LOAN-LOSSES> 255,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,007,492
<INCOME-PRETAX> 4,431,917,
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,203,094
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
<YIELD-ACTUAL> 1.68
<LOANS-NON> 224,000
<LOANS-PAST> 38,284
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 959,971
<ALLOWANCE-OPEN> 1,772,895
<CHARGE-OFFS> 268,064
<RECOVERIES> 33,090
<ALLOWANCE-CLOSE> 1,792,921
<ALLOWANCE-DOMESTIC> 1,792,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
