-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N/3ytcd18nvkqEqGKAXPjfGq5/L2kQKbjoi2jAel241wivP/SpOMDfD82GO1htbG 45f3paJrT0+Ae98LkoGeMQ== 0000912057-00-014815.txt : 20000331 0000912057-00-014815.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014815 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIONBANCORP INC CENTRAL INDEX KEY: 0001019650 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 363145350 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-28846 FILM NUMBER: 585636 BUSINESS ADDRESS: STREET 1: 122 W MADISON ST CITY: OTTAWA STATE: IL ZIP: 61350 BUSINESS PHONE: 8154343900 MAIL ADDRESS: STREET 1: 122 WEST MADISON STREET CITY: OTTAWA STATE: IL ZIP: 61350 10-K405 1 10-K405 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 Commission File Number: 0-28846 UNIONBANCORP, INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-3145350 (State or other jurisdiction (I.R.S. Employer Identification of incorporation or organization) Number) 122 WEST MADISON STREET, OTTAWA, ILLINOIS 61350 (Address of principal executive offices) (Zip Code) (815) 433-7030 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Exchange Class On Which Registered NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK ($1.00 PAR VALUE) (Title of Class) PREFERRED PURCHASE RIGHTS (Title of Class) 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 such 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 or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ As of March 3, 2000, the Registrant had issued and outstanding 4,047,309 shares of the Registrant's Common Stock. The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 3, 2000, was $22,579,490.* * Based on the last reported price $12.125 of an actual transaction in the Registrant's Common Stock on March 3, 2000, and reports of beneficial ownership filed by directors and executive officers of the Registrant and by beneficial owners of more than 5% of the outstanding shares of Common Stock of the Registrant; however, such determination of shares owned by affiliates does not constitute an admission of affiliate status or beneficial interest in shares of the Registrant's Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the Company's 1999 Annual Report to Stockholders (the "1999 Annual Report") are incorporated by reference into Part II of this Form 10-K. Certain portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement") are incorporated by reference into Part III of this Form 10-K. UNIONBANCORP, INC. Form 10-K Table of Contents Part I Item 1. Description of Business.................................................. 1 A. The Company B. Regulation and Supervision Item 2. Properties............................................................... 10 Item 3. Legal Proceedings........................................................ 11 Item 4. Submission of Matters to a Vote of Security Holders...................... 11 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................................... 11 Item 6. Selected Consolidated Financial Data..................................... 12 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition.................................................. 12 Item 7A. Quantitative and Qualitative Disclosure about Market Risk................ 12 Item 8. Financial Statements and Supplementary Data.............................. 12 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................................................... 13 Part III Item 10. Directors and Executive Officers of the Registrant....................... 13 Item 11. Executive Compensation................................................... 13 Item 12. Security Ownership of Certain Beneficial Owners and Management........... 13 Item 13. Certain Relationships and Related Transactions........................... 13 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................................... 14
PART I ITEM 1. DESCRIPTION OF BUSINESS THE COMPANY GENERAL The Company, a Delaware corporation, is a regional financial services company based in Ottawa, Illinois, which has four bank subsidiaries (the "Banks"). The Banks serve communities throughout Central and Northern Illinois through twenty-nine locations, including its newest branch opened in Rushville, Illinois during the fourth quarter of 1999. The Company also has three non-bank subsidiaries, UnionData Corp., Inc. ("UnionData"), which provides data processing services; UnionTrust Corporation ("UnionTrust", formerly known as Union Corporation), a trust company which also serves as an owner and lessor of banking offices to certain of the Banks; and Union Financial Services, Inc., an insurance/brokerage agency with its headquarters located in Peru, Illinois. The Banks and the three non-bank subsidiaries are collectively referred to as the "Subsidiaries." At December 31, 1999, the Company had consolidated assets of approximately $704.1 million, deposits of approximately $594.2 million and stockholders' equity of approximately $56.3 million. HISTORICAL The Company was originally formed in 1982 as the bank holding company for UnionBank, an Illinois state bank with its main office located in Streator, Illinois ("UnionBank"). In 1984, UnionBank/Sandwich, an Illinois state bank with its main office located in Sandwich, Illinois ("Sandwich"), became a subsidiary of the Company. In 1991, the Ottawa National Bank, Ottawa, Illinois, was acquired and merged into UnionBank. During 1996, the Company acquired all of the issued and outstanding capital stock of Prairie Bancorp, Inc. ("Prairie"), a multi-bank holding company with six bank subsidiaries located in the Illinois communities of Carthage, Hanover, Ladd, Manlius, Tampico and Tiskilwa, and also acquired Country Bancshares, Inc. ("Country"), a one-bank holding company with an Illinois bank subsidiary located in Macomb, Illinois. In 1997, the Company acquired the remaining minority stock ownership interests in and consolidated the operations of certain of the Banks. Also in 1997, Sandwich was merged with and into UnionBank; Tampico National Bank and The First National Bank of Manlius were merged with and into Tiskilwa State Bank under the name "UnionBank/Central"; and the Farmers State Bank of Ferris was merged with and into Omni Bank under the name "UnionBank/West." The Company's other banking subsidiary is UnionBank/Northwest, an Illinois state bank with its main office located in Hanover, Illinois ("UnionBank/Northwest"). During 1998, the Company, through its wholly-owned subsidiary UnionFinancial Services, Inc., acquired the Mercier Insurance Agency, an insurance/brokerage firm. Also, during the first quarter of 1998, UnionData Corp, Inc., a wholly-owned electronic data processing subsidiary of the Company, acquired Sainet, an Internet Service Provider. Both of these endeavors are a part of the transformation of the Company's internal structure that is intended to create a much more efficient organization capable of generating sustained revenue and earnings growth. In addition, during 1998 the Company sold its 81.7% ownership of the outstanding stock of the Bank of Ladd, an Illinois state bank with its main office located in Ladd, Illinois ("Ladd"). The Company also sold Credit Recovery, Inc., a small collection agency subsidiary acquired in 1996. OPERATIONS The Company's strategic plan contemplates an increase in profitability and stockholder value through a significant expansion of the Company's market area, substantial growth in its asset size and improved operational efficiencies. In 1993, the Company began implementing this plan by realigning its management structure through the redefinition of certain officers' duties and functions, hiring additional experienced senior executives and developing among its employees an aggressive sales culture. The acquisitions of Prairie and Country significantly increased the 1 presence of the Company within the region's banking industry. Because of the reputations of the Company and its executive officers in the banking industry, the Company believes that it will be an attractive alternative to future sellers of community banks and thrifts. The Company believes that it can successfully manage these community-based institutions to increase their profitability by expanding cross-selling efforts and emphasizing those products and services offering the highest return on investment. The Company's operating strategy is to provide customers with the business sophistication and breadth of products of a regional financial services company, while retaining the special attention to personal service and the local appeal of a community bank. Decentralized decision making authority vested in the presidents and senior officers of the Banks allows for rapid response time and flexibility in dealing with customer requests and credit needs. The participation of the Company's directors, officers and employees in area civic and service organizations demonstrates the Company's continuing commitment to the communities it serves. Management believes that these qualities distinguish the Company from its competitors and will allow the Company to compete successfully in its market area against larger regional and out-of-state institutions. The Company serves the banking needs of LaSalle and contiguous counties located in north central Illinois (LaSalle and portions of Livingston, Grundy, Bureau, Kane, Kendall and DeKalb Counties) through the Banks. The Company has recently expanded its lending and deposit gathering activities from north central Illinois into certain of the counties surrounding the Chicago metropolitan area, including Kane and Kendall Counties, as well as into additional areas of Northern and Western Illinois. The Banks provide a range of commercial and retail lending services to corporations, partnerships and individuals, including, but not limited to, commercial business loans, commercial and residential real estate construction and mortgage loans, loan participations, consumer loans, revolving lines of credit and letters of credit. The Banks make direct and indirect installment loans to consumers and commercial customers, and originate and service residential mortgages and handle the secondary marketing of those mortgages. Agricultural loans also play a role in the Company's overall lending portfolio, although most of this lending activity is based in the north central portion of the Company's market area. The Company has centralized the lending policies of the Banks as part of the process of integrating the operations of acquired banks into this organization. It is anticipated that the lending policies of any banks acquired in the future would also be centralized, although the Company strives to have its bank subsidiaries retain their local focus. The Company also provides a variety of additional services and financial products, including trust and asset management services through UnionTrust, a full line of insurance and investment opportunities through UnionFinancial Services, MasterCard and Visa credit cards, and a debit card program inaugurated in 1994. An automated payment option called Direct Payment, which is an efficient, electronic payment alternative to paper checks, is offered through UnionData. The Company also conducts all of its own data processing for the Banks through UnionData. COMPETITION The Company's market area is highly competitive. Within the thirteen Illinois counties served by the Company's banking offices, many commercial banks, savings and loan associations and credit unions currently operate offices. In addition, many other financial institutions based in surrounding communities and in Chicago, Illinois, actively compete for customers within the Company's market area. The Company also faces competition from finance companies, insurance companies, mortgage companies, securities brokerage firms, money market funds, loan production offices and other providers of financial services. The Company competes for loans principally through the range and quality of the services it provides and through competitive interest rates and loan fees. The Company believes that its long-standing presence in the communities it serves and personal service philosophy enhance its ability to compete favorably in attracting and 2 retaining individual and business customers. The Company actively solicits deposit-related customers and competes for deposits by offering customers personal attention, professional service and competitive interest rates. Under the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, securities firms and insurance companies that elect to become financial holding companies may acquire banks and other financial institutions. The Gramm-Leach-Bliley Act may significantly change the competitive environment in which the Company and the Bank conduct business. The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services. These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties. EMPLOYEES At December 31, 1999, the Company employed 370 full-time equivalent employees. The Company places high priority on staff development which involves extensive training, including customer service training. New employees are selected on the basis of both technical skills and customer service capabilities. None of the Company's employees are covered by a collective bargaining agreement with the Company. The Company offers a variety of employee benefits and management considers its employee relations to be excellent. SUPERVISION AND REGULATION GENERAL Financial institutions and their holding companies are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company can be affected not only by management decisions and general economic conditions, but also by the requirements of applicable state and federal statutes and regulations and the policies of various governmental regulatory authorities, including the Illinois Commissioner of Banks and Real Estate (the "Commissioner"), the Board of Governors of the Federal Reserve System (the "Federal Reserve"), the Federal Deposit Insurance Corporation (the "FDIC"), the Internal Revenue Service and state taxing authorities and the Securities and Exchange Commission (the "SEC"). The effect of applicable statutes, regulations and regulatory policies can be significant, and cannot be predicted with a high degree of certainty. Federal and state laws and regulations generally applicable to financial institutions, such as the Company and its subsidiaries, regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and its subsidiaries establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC's deposit insurance funds and the depositors, rather than the shareholders, of financial institutions. The following is a summary of the material elements of the regulatory framework that applies to the Company and its subsidiaries. It does not describe all of the statutes, regulations and regulatory policies that apply to the Company and its subsidiaries, nor does it restate all of the requirements of the statutes, regulations and regulatory policies that are described. As such, the following is qualified in its entirety by reference to the applicable statutes, regulations and regulatory policies. Any change in applicable law, regulations or regulatory policies may have a material effect on the business of the Company and its subsidiaries. RECENT REGULATORY DEVELOPMENTS On November 12, 1999, President Clinton signed legislation that will allow bank holding companies to engage in a wider range of nonbanking activities, including greater authority to engage in securities and insurance activities. Under the Gramm-Leach-Bliley Act (the "Act"), a bank holding company that elects to become a financial holding company may engage in any activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is (i) financial in nature, (ii) incidental to any such financial activity, or 3 (iii) complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. The Act specifies certain activities that are deemed to be financial in nature, including lending, exchanging, transferring, investing for others, or safeguarding money or securities; underwriting and selling insurance; providing financial, investment, or economic advisory services; underwriting, dealing in or making a market in, securities; and any activity currently permitted for bank holding companies by the Federal Reserve under section 4(c)(8) of the Bank Holding Company Act. A bank holding company may elect to be treated as a financial holding company only if all depository institution subsidiaries of the holding company are well-capitalized, well-managed and have at least a satisfactory rating under the Community Reinvestment Act. National banks are also authorized by the Act to engage, through "financial subsidiaries," in any activity that is permissible for a financial holding company (as described above) and any activity that the Secretary of the Treasury, in consultation with the Federal Reserve, determines is financial in nature or incidental to any such financial activity, except (i) insurance underwriting, (ii) real estate development or real estate investment activities (unless otherwise permitted by law), (iii) insurance company portfolio investments and (iv) merchant banking. The authority of a national bank to invest in a financial subsidiary is subject to a number of conditions, including, among other things, requirements that the bank must be well-managed and well-capitalized (after deducting from capital the bank's outstanding investments in financial subsidiaries). The Act provides that state banks may invest in financial subsidiaries (assuming they have the requisite investment authority under applicable state law) subject to the same conditions that apply to national bank investments in financial subsidiaries. At this time, it is not possible to predict the impact the Act may have on the Company. Various bank regulatory agencies have just begun issuing regulations as mandated by the Act. The Federal Reserve has issued an interim rule that sets forth procedures by which bank holding companies may become financial holding companies, the criteria necessary for such a conversion, and the Federal Reserve's enforcement powers should a holding company fail to maintain compliance with the criteria. The Office of the Comptroller of the Currency has issued a final rule discussing the procedures by which national banks may establish financial subsidiaries as well as the qualifications and safeguards that will be required. In addition, in February, 2000, all federal bank regulatory agencies jointly issued a proposed rule that would implement the financial privacy provisions of the Act. THE COMPANY GENERAL. The Company, as the sole shareholder of UnionBancorp, Prairie, as the sole or controlling shareholder of UnionBancorp/Northwest and UnionBancorp/Central and Country, as the sole shareholder of UnionBancorp/West, are each bank holding companies. As bank holding companies, the Company, Prairie and Country are registered with, and are subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the Company, Prairie and Country are expected to act as a source of financial strength to their respective bank subsidiaries and to commit resources to support their respective bank subsidiaries in circumstances where the Company, Prairie or Country might not do so absent such policy. Under the BHCA, the Company, Prairie and Country are subject to periodic examination by the Federal Reserve and are required to file with the Federal Reserve periodic reports of their respective operations and such additional information as the Federal Reserve may require. The Company, Prairie and Country are also subject to regulation by the Commissioner under the Illinois Bank Holding Company Act, as amended. INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after the acquisition, it would own or control more than 5% of the shares of the other bank or bank holding company (unless it already owns or controls the majority of such shares); (ii) acquiring all or substantially all of the assets of another bank; or (iii) merging or consolidating with another bank holding company. Subject to certain conditions (including certain deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States without regard to whether the acquisition is prohibited by the law of the state in which the target bank is located. In approving interstate acquisitions, however, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository 4 institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws which require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. The BHCA also generally prohibits the Company, Prairie and Country from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve to be "so closely related to banking ... as to be a proper incident thereto." Under current regulations of the Federal Reserve, the Company and its non-bank subsidiaries are permitted to engage in a variety of banking-related businesses, including the operation of a thrift, sales and consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of non-bank subsidiaries of bank holding companies. Federal law also prohibits any person or company from acquiring "control" of a bank or bank holding company without prior notice to the appropriate federal bank regulator. "Control" is defined in certain cases as the acquisition of 10% of the outstanding shares of a bank or bank holding company. CAPITAL REQUIREMENTS. Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines. If capital falls below minimum guideline levels, a bank holding company, among other things, may be denied approval to acquire or establish additional banks or non-bank businesses. The Federal Reserve's capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: a risk-based requirement expressed as a percentage of total risk-weighted assets, and a leverage requirement expressed as a percentage of total assets. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. The leverage requirement consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly rated companies, with a minimum requirement of 4% for all others. For purposes of these capital standards, Tier 1 capital consists primarily of permanent stockholders' equity less intangible assets (other than certain mortgage servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus certain other debt and equity instruments which do not qualify as Tier 1 capital and a portion of the company's allowance for loan and lease losses. The risk-based and leverage standards described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve's capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels. As of December 31, 1999, the Company, Prairie and Country each had regulatory capital in excess of the Federal Reserve's minimum requirements, as follows:
RISK-BASED LEVERAGE CAPITAL RATIO CAPITAL RATIO ------------- ------------- Company 11.04% 7.20% 5 Prairie 13.98% 8.61% Country 12.98% 7.57%
DIVIDENDS. The Delaware General Corporation Law (the "DGCL") allows the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Further, the Illinois Business Corporation Act, as amended, prohibits an Illinois corporation, such as Prairie or Country, from paying a dividend if, after giving effect to the dividend: (i) the corporation would be insolvent; or (ii) the net assets of the corporation would be less than zero; or (iii) the net assets of the corporation would be less than the maximum amount then payable to shareholders of the corporation who would have preferential distribution rights if the corporation were liquidated. Additionally, the Federal Reserve has issued a policy statement with regard to the payment of cash dividends by bank holding companies. The policy statement provides that a bank holding company should not pay cash dividends which exceed its net income or which can only be funded in ways that weaken the bank holding company's financial health, such as by borrowing. The Federal Reserve also possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. FEDERAL SECURITIES REGULATION. The Company's common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act. THE BANKS All of the Banks are Illinois-chartered banks, the deposit accounts of which are insured by the FDIC's Bank Insurance Fund ("BIF"). The Banks are also members of the Federal Reserve System ("member banks"). As Illinois-chartered, FDIC-insured member banks, the Banks are subject to the examination, supervision, reporting and enforcement requirements of the Commissioner, as the chartering authority for Illinois banks, the Federal Reserve, as the primary federal regulator of member banks, and the FDIC, as administrator of the BIF. DEPOSIT INSURANCE. As FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums based upon their respective levels of capital and results of supervisory evaluations. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. During the year ended December 31, 1999, BIF assessments ranged from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period beginning January 1, 2000, BIF assessment rates will continue to range from 0% of deposits to 0.27% of deposits. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution (i) has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe or unsound condition to continue operations or (iii) has violated any applicable law, regulation, order, or any condition 6 imposed in writing by, or written agreement with, the FDIC. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. Management of the Company is not aware of any activity or condition that could result in termination of the deposit insurance of the Banks. FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments paid by members of the FDIC's Savings Association Insurance Fund ("SAIF") has been used to cover interest payments due on the outstanding obligations of the Financing Corporation ("FICO"). FICO was created in 1987 to finance the recapitalization of the Federal Savings and Loan Insurance Corporation, the SAIF's predecessor insurance fund. As a result of federal legislation enacted in 1996, beginning as of January 1, 1997, both SAIF members and BIF members became subject to assessments to cover the interest payments on outstanding FICO obligations. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. Between January 1, 2000 and the final maturity of the outstanding FICO obligations in 2019, BIF members and SAIF members will share the cost of the interest on the FICO bonds on a PRO RATA basis. During the year ended December 31, 1999, the FICO assessment rate for SAIF members ranged between approximately 0.058% of deposits and approximately 0.061% of deposits, while the FICO assessment rate for BIF members ranged between approximately 0.0116% of deposits and approximately 0.0122% of deposits. During the year ended December 31, 1999, the Banks paid FICO assessments totaling $109,830. SUPERVISORY ASSESSMENTS. All Illinois banks are required to pay supervisory assessments to the Commissioner to fund the operations of the Commissioner. The amount of the assessment is calculated based on the institution's total assets, including consolidated subsidiaries, as reported to the Commissioner. During the year ended December 31, 1999, the Banks paid supervisory assessments to the Commissioner totaling $100,073. CAPITAL REQUIREMENTS. The Federal Reserve has established the following minimum capital standards for state-chartered Federal Reserve System member banks, such as the Banks: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others, and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital. For purposes of these capital standards, Tier 1 capital and total capital consist of substantially the same components as Tier 1 capital and total capital under the Federal Reserve's capital guidelines for bank holding companies (SEE "--The Company--Capital Requirements"). The capital requirements described above are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. For example, the regulations of the Federal Reserve provide that additional capital may be required to take adequate account of, among other things, interest rate risk or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. During the year ended December 31, 1999, none of the Banks was required by the Federal Reserve to increase its capital to an amount in excess of the minimum regulatory requirement. As of December 31, 1999, each of the Banks exceeded its minimum regulatory capital requirements, as follows:
RISK-BASED LEVERAGE CAPITAL RATIO CAPITAL RATIO ------------- ------------- UnionBank 11.13% 7.88% UnionBank/ Central 13.67% 8.37% UnionBank/ West 13.05% 7.61%
Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators' powers depends on whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly 7 undercapitalized" or "critically undercapitalized," in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the institution to submit a capital restoration plan; limiting the institution's asset growth and restricting its activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions between the institution and its affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. As of December 31, 1999, each of the Banks was well capitalized, as defined by Federal Reserve regulations. Additionally, institutions insured by the FDIC may be liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with the default of commonly controlled FDIC insured depository institutions or any assistance provided by the FDIC to commonly controlled FDIC insured depository institutions in danger of default. DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks may not pay, without prior regulatory approval, dividends in excess of their net profits. The Federal Reserve Act also imposes limitations on the amount of dividends that may be paid by state member banks, such as the Banks. Generally, a member bank may pay dividends out of its undivided profits, in such amounts and at such times as the bank's board of directors deems prudent. Without prior Federal Reserve approval, however, a state member bank may not pay dividends in any calendar year which, in the aggregate, exceed the bank's calendar year-to-date net income plus the bank's retained net income for the two preceding calendar years. The payment of dividends by any financial institution or its holding company is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, each of the Banks exceeded its minimum capital requirements under applicable guidelines as of December 31, 1999. As of December 31, 1999, approximately $5.5 million was available to be paid as dividends to the Company by the Banks. Notwithstanding the availability of funds for dividends, however, the Federal Reserve may prohibit the payment of any dividends by the Banks if the Federal Reserve determines such payment would constitute an unsafe or unsound practice. INSIDER TRANSACTIONS. The Banks are subject to certain restrictions imposed by federal law on extensions of credit to the Company and its subsidiaries, on investments in the stock or other securities of the Company and its subsidiaries and the acceptance of the stock or other securities of the Company or its subsidiaries as collateral for loans. Certain limitations and reporting requirements are also placed on extensions of credit by the Banks to their respective directors and officers, to directors and officers of the Company and its subsidiaries, to principal stockholders of the Company, and to "related interests" of such directors, officers and principal stockholders. In addition, federal law and regulations may affect the terms upon which any person becoming a director or officer of the Company or one of its subsidiaries or a principal stockholder of the Company may obtain credit from banks with which one of the Banks maintains a correspondent relationship. SAFETY AND SOUNDNESS STANDARDS. The federal banking agencies have adopted guidelines which establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings. Since the fourth quarter of 1998, and through the first quarter of 2000, the federal banking regulators have issued safety and soundness standards for achieving Year 2000 compliance, including standards for developing and managing Year 2000 project plans, testing remediation efforts and planning for contingencies. In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution's primary federal regulator may require the 8 institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator's order is cured, the regulator may restrict the institution's rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments. BRANCHING AUTHORITY. Illinois banks, such as the Banks, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), both state and national banks are allowed to establish interstate branch networks through acquisitions of other banks, subject to certain conditions, including certain limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if specifically authorized by state law. The legislation allowed individual states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997. Illinois has enacted legislation permitting interstate mergers beginning on June 1, 1997, subject to certain conditions, including a prohibition against interstate mergers involving an Illinois bank that has been in existence and continuous operation for fewer than five years. STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Banks. FEDERAL RESERVE SYSTEM. Federal Reserve regulations, as presently in effect, require depository institutions to maintain non-interest earning reserves against their transaction accounts (primarily NOW and regular checking accounts), as follows: for transaction accounts aggregating $44.3 million or less, the reserve requirement is 3% of total transaction accounts; and for transaction accounts aggregating in excess of $44.3 million, the reserve requirement is $1.329 million plus 10% of the aggregate amount of total transaction accounts in excess of $44.3 million. The first $5.0 million of otherwise reservable balances are exempted from the reserve requirements. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Banks are in compliance with the foregoing requirements. INSURANCE SUBSIDIARY UnionBank is the sole shareholder of UnionFinancial Services, Inc. ("UFS"), an Illinois corporation licensed as a general insurance agency by the Illinois Department of Insurance (the "Department"). UFS is subject to supervision and regulation by the Department with regard to compliance with the laws and regulations governing insurance agents and by the Commissioner and the Federal Reserve with regard to compliance with banking laws and regulations applicable to subsidiaries of Illinois-chartered member banks. THE TRUST COMPANY The Company is the sole shareholder of UnionTrust Corporation (the "Trust Company"), an Illinois corporation which conducts a full service trust business in the State of Illinois pursuant to a certificate of authority issued to it be the Commissioner under the Illinois Corporate Fiduciaries Act (the "Fiduciaries Act"). The 9 Fiduciaries Act requires the Trust Company, among other things, to maintain a minimum level of capital, as determined by the Commissioner, and to obtain the approval of the Commissioner before opening branch offices or acquiring another trust company. The Trust Company is subject to periodic examination by the Commissioner and the Commissioner has the authority to take action against it to enforce compliance with the laws applicable to its operations. The Trust Company is also subject to supervision and regulation by the Federal Reserve under the BHCA. ITEM 2. PROPERTIES At December 31, 1999, the Company operated 29 banking offices in Illinois. The principal offices of the Company are located in Ottawa, Illinois. All of the Company's offices are owned either by one of the Banks or by UnionTrust Corporation and are not subject to any mortgage or material encumbrance. The Company believes that its current facilities are adequate for its existing business. During the fourth quarter of 1999, the Company opened a branch located in Rushville, Illinois.
AFFILIATE MARKETS SERVED PROPERTY/TYPE LOCATION --------- -------------- ---------------------- The Company Administrative Office: Ottawa, IL UnionBank LaSalle, Grundy, Main Office: Streator, IL Livingston, Kane, Kendall Thirteen banking offices located and DeKalb Counties in markets served. UnionBank/Central Bureau and LaSalle Main Office: Princeton, IL Counties Five banking offices located in markets served. UnionBank/West McDonough, Adams, Main Office: Macomb, IL Hancock, Pike, and Nine banking offices located in Schuyler Counties markets served. UnionBank/Northwest Jo Davies County Main Office: Hanover, IL Two banking offices located in markets served. UnionData Corp, Inc. LaSalle and McDonough Main Office: Streator, IL Counties Additional office located in Macomb, IL UnionFinancial Services, Inc. LaSalle and Adams Main Office: Peru, IL Counties Additional offices located in Mendota, Spring Valley, and Quincy, IL UnionTrust Corporation Bureau, LaSalle and Main Office: Ottawa, IL McDonough Counties Additional offices located in Streator, Princeton and Macomb
In addition to the banking locations listed above, the Banks own 30 automatic teller machines, some of which are housed within a banking office and some of which are independently located. At December 31, 1999, the properties and equipment of the Company had an aggregate net book value of approximately $13.4 million. 10 ITEM 3. LEGAL PROCEEDINGS Neither the Company nor any of its subsidiaries are involved in any pending legal proceedings other than routine legal proceedings occurring in the normal course of business, which, in the opinion of management, in the aggregate, are not material to the Company's consolidated financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no items submitted to a vote of security holders in the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock was held by approximately 640 stockholders of record as of March 3, 2000, and is traded on The Nasdaq Stock Market under the symbol "UBCD." The table below indicates the high and low sales prices of the Common Stock for transactions of which the Company is aware, and the dividends declared per share for the Common Stock during the periods indicated. Because the Company is not aware of the price at which certain private transactions in the Common Stock have occurred, the prices shown may not necessarily represent the complete range of prices at which transactions in the Common Stock have occurred during such periods.
STOCK SALES ---------------------- CASH HIGH LOW DIVIDENDS -------- ------- ----------- 1998 First Quarter..................................... 21.13 18.13 0.035 Second Quarter.................................... 21.00 18.50 0.035 Third Quarter..................................... 18.88 13.75 0.035 Fourth Quarter.................................... 17.00 11.75 0.040 1999 First Quarter..................................... 17.00 13.75 0.040 Second Quarter.................................... 16.50 12.50 0.040 Third Quarter..................................... 18.13 14.50 0.050 Fourth Quarter.................................... 18.00 12.50 0.050
The holders of the Common Stock are entitled to receive dividends as declared by the Board of Directors of the Company, which considers payment of dividends quarterly. Upon the consummation of the acquisition of Prairie in 1996, preferential dividends were required to be paid or accrued quarterly with respect to the outstanding shares of Preferred Stock. The ability of the Company to pay dividends in the future will be primarily dependent upon its receipt of dividends from the Banks. In determining cash dividends, the Board of Directors considers the earnings, capital requirements, debt and dividend servicing requirements, financial ratio guidelines it has established, financial condition of the Company and other relevant factors. The Banks' ability to pay dividends to the Company and the Company's ability to pay dividends to its stockholders are also subject to certain regulatory restrictions. The Company has paid regular cash dividends on the Common Stock since it commenced operations in 1982. There can be no assurance, however, that any such dividends will be paid by the Company or that such dividends will not be reduced or eliminated in the future. The timing and amount of dividends will depend upon the earnings, capital requirements and financial condition of the Company and the Banks as well as the general economic 11 conditions and other relevant factors affecting the Company and the Banks. The Company entered into a new loan agreement in connection with the 1996 acquisition of Prairie and Country, replacing the Company's prior loan agreement. The new loan agreement contains no direct prohibitions against the payment by the Company of dividends, but indirectly restricts such dividends through the required maintenance of minimum capital ratios. In addition, the terms of the Series A Preferred Stock, and the Series B Preferred Stock issued to certain of Prairie's preferred stockholders, prohibit the payment of dividends by the Company on the Common Stock during any period for which dividends on the respective series of Preferred Stock are in arrears. Except in connection with stock dividends and stock splits, and as described herein, the Company has not issued any securities in the past three years which were not registered for sale under the Securities Act of 1933, as amended. As consideration for the acquisition of Credit Recovery, consummated on August 1, 1996, the Company issued 9,090 shares of Common Stock to the sole stockholder of Credit Recovery. As partial consideration for the acquisition of Prairie, which was consummated on August 6, 1996, the Company issued 710,576 shares of Common Stock and 2,762.24 shares of Series A Preferred Stock to the holders of shares of Prairie Common Stock, and issued 857 shares of Series B Preferred Stock to the holders of Prairie's Series A Preferred Stock electing to receive securities in lieu of cash. The Company also issued an aggregate of 19,829 shares of its Common Stock during 1997 in connection with the acquisition of minority interests of certain of the Banks Subsidiaries. Also, as partial consideration for the acquisition of the Mercier Insurance Agency, which was consummated on October 30, 1998, the Company issued 123,529 shares of Common Stock. The Company believes all of the securities issued in connection with the acquisitions of Prairie, Credit Recovery, Mercier, and minority interests in the Banks Subsidiaries were issued in transactions exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA Selected consolidated financial data for the five years ended December 31, 1999, consisting of data captioned "Selected Consolidated Financial Data" on page 1 of the Company's 1999 Annual Report to Stockholders filed as an exhibit hereto is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information beginning on page 2 of the Company's 1999 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition of the Company" is incorporated by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to pages 2 through 27 of the Company's 1999 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition of the Company," which is incorporated by reference pursuant to Item 7 above. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Balance Sheets of the Company and Subsidiaries as of December 31, 1999 and the related Consolidated Statements of Income, Stockholders' Equity and Cash Flows for the year ended December 31, 1999, together with the related notes and the report of Crowe, Chizek and Company LLP, independent auditors, on pages 28 to 64 of the Company's 1999 Annual Report to Stockholders filed as an exhibit hereto, is incorporated herein by reference. 12 ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information beginning on page 2 of the Company's 2000 Proxy Statement under the caption "Election of Directors" and on pages 4 through 7 of the 2000 Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated by reference. The information regarding executive officers not provided in the 2000 Proxy Statement is noted below. EXECUTIVE OFFICERS The term of office for the executive officers of the Company is from the date of election until the next annual organizational meeting of the Board of Directors. In addition to the information provided in the 2000 Proxy Statement, the names and ages of the executive officers of the Company as of December 31, 1999, as well as the offices of the Company and the Subsidiaries held by these officers on that date, and principal occupations for the past five years are set forth below. CHARLES J. GRAKO, 46, has been the President of the Company since 1999. He also serves as Chief Financial Officer, a position which he has held since 1990. Mr. Grako was the Executive Vice President of the Company until becoming President in 1999. He also serves as Secretary of the Company and Assistant Secretary of UnionBank. Mr. Grako is a Certified Public Accountant and has spent the majority of his career in the banking industry. He first joined the Company as Controller in 1986. WAYNE L. BISMARK, 55, is the Executive Vice President and Chief Credit Officer of the Company. Mr. Bismark joined the Company in 1994. Prior to joining the Company, Mr. Bismark had been employed since 1983 in the Financial Institutions Division of the LaSalle National Bank in Chicago, Illinois. He is responsible for the overall performance of the Company's lending activities. Mr. Bismark has worked in the banking industry for almost 25 years, with extensive experience in lending and product sales at both the wholesale and retail levels. Mr. Bismark serves as a director of a local social service agency and is active in many civic organizations. He is also active in regional economic development associations and professional banking organizations. ITEM 11. EXECUTIVE COMPENSATION The information on pages 7 and 8 of the 2000 Proxy Statement under the caption "Executive Compensation" is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information on pages 4 through 7 of the 2000 Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management" is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information on pages 13 through 14 of the 2000 Proxy Statement under the caption "Transactions with Management" is incorporated by reference. 13 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) Index to Financial Statements N/A (a)(2) Financial Statement Schedules N/A (a)(3) Schedule of Exhibits The Exhibit Index which immediately follows the signature pages to this Form 10-K is incorporated by reference. (b) Reports on Form 8-K The Company did not file any Current Reports on Form 8-K during the fourth quarter of 1999. (c) Exhibits The exhibits required to be filed with this Form 10-K are included with this Form 10-K and are located immediately following the Exhibit Index to this Form 10-K. (d) Financial Data Schedule Exhibit 27.1 14 SIGNATURES Pursuant to the requirements of Section 13 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 on March 28, 2000. UnionBancorp, Inc. /s/ Charles J. Grako -------------------------------------- Charles J. Grako President and Principal Financial and Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on March 28, 2000.
SIGNATURE TITLE --------- ----- /s/ Richard J. Berry Director - ------------------------------- Richard J. Berry /s/ Walter E. Breipohl Director - ------------------------------- Walter E. Breipohl /s/ L. Paul Broadus Director - ------------------------------- L. Paul Broadus /s/ John Michael Daw Director - ------------------------------- John Michael Daw /s/ Robert J. Doty Director - ------------------------------- Robert J. Doty /s/ Charles J. Grako President, Chief Financial and Accounting Officer - ------------------------------- and Director Charles J. Grako /s/ Jimmie D. Lansford Director - ------------------------------- Jimmie D. Lansford /s/ Lawrence J. McGrogan Director - ------------------------------- Lawrence J. McGrogan /s/ I. J. Reinhardt, Jr. Director - ------------------------------- I. J. Reinhardt, Jr. /s/ Joseph D. O'Brien, Jr. Director - ------------------------------- Joseph D. O'Brien, Jr. /s/ Scott C. Sullivan Director - ------------------------------- Scott C. Sullivan /s/ John A. Shinkle Director - ------------------------------- John A. Shinkle /s/ John A. Trainor Chairman of the Board and Director - ------------------------------- John A. Trainor
UNIONBANCORP, INC. EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
INCORPORATED EXHIBIT HEREIN BY FILED NO. DESCRIPTION REFERENCE TO HEREWITH --- ----------- ------------ -------- 3.1 Restated Certificate of Incorporated by reference from Incorporation of Exhibit 3.1 to the Registration UnionBancorp, Inc., as amended Statement on Form S-1 filed by the Company on August 19, 1996 (SEC File No. 33-9891), as amended 3.2 Bylaws of UnionBancorp, Inc. Incorporated by reference from Exhibit 3.2 to the Registration Statement on Form R-1 filed by the Company on August 19, 1996 (SEC File No. A3-9891), as amended 4.1 Certificate of Designation, Incorporated by reference from Preferences and Rights of Exhibit 4.3 to the Registration Series A Convertible Statement on Form S-1 filed by the Preferred Stock of Company on August 19, 1996 (SEC UnionBancorp, Inc. File No. 33-9891), as amended 4.2 Certificate of Designation, Incorporated by reference from Preferences and Rights of Exhibit 4.4 to the Registration Series B Preferred Stock of Statement on Form S-1 filed by the UnionBancorp, Inc. Company on August 19, 1996 (SEC File No. 33-9891), as amended 4.3 Certificate of Designation, Incorporated by reference from Preferences and Rights of Exhibit 4.5 to the Registration Series C Junior Participating Statement on Form S-1 filed by the Preferred Stock Company on August 19, 1996 (SEC File No. 33-9891), as amended 4.4 Specimen Common Stock Incorporated by reference from Certificate of UnionBancorp, Exhibit 4.6 to the Registration Inc. Statement on Form S-1 filed by the Company on August 19, 1996 (SEC File No. 33-9891), as amended 4.5 Rights Agreement between Incorporated by reference from UnionBancorp, Inc. and Exhibit 4.7 to the Registration INCORPORATED EXHIBIT HEREIN BY FILED NO. DESCRIPTION REFERENCE TO HEREWITH --- ----------- ------------ -------- Harris Trust and Savings Statement on Form S-1 filed by the Bank, dated August 5, 1996 Company on August 19, 1996 (SEC File No. 33-9891), as amended 10.2 Employment Agreement dated Incorporated by reference from March 1, 1994, among Exhibit 10.2 to the Registration UnionBank, UnionBancorp, Inc. Statement on Form S-1 filed by the and Wayne L. Bismark, as Company on August 19, 1996 (SEC amended on April 4, 1996 File No. 33-9891), as amended 10.4 Employment Agreement dated Incorporated by reference from January 1, 1992, by and among Exhibit 10.4 to the Registration UnionBank, UnionBancorp, Inc. Statement on Form S-1 filed by the and Everett J. Solon, as Company on August 19, 1996 (SEC amended on October 1, 1993, File No. 33-9891), as amended April 11, 1996 and August 5, 1996 10.5 Employment Agreement dated Incorporated by reference from June 3, 1996, between Exhibit 10.5 to the Registration UnionBancorp, Inc. and John Statement on Form S-1 filed by the M. Daw Company on August 19, 1996 (SEC File No. 33-9891), as amended 10.8 Registration Agreement dated Incorporated by reference from August 6, 1996, between Exhibit 10.10 to the Registration UnionBancorp, Inc. and each Statement on Form S-1 filed by the of Wayne W. Whalen and Dennis Company on August 19, 1996 (SEC J. McDonnell File No. 33-9891), as amended 10.9 Loan Agreement between Incorporated by reference from UnionBancorp, Inc. and Exhibit 10.11 to the Registration LaSalle National Bank dated Statement on Form S-1 filed by the August 2, 1996 Company on August 19, 1996 (SEC File No. 33-9891), as amended 10.10 UnionBancorp, Inc. Employee Incorporated by reference from Stock Ownership Plan Exhibit 10.12 to the Registration Statement on Form S-1 filed by the Company on August 19, 1996 (SEC File No. 33-9891), as amended INCORPORATED EXHIBIT HEREIN BY FILED NO. DESCRIPTION REFERENCE TO HEREWITH --- ----------- ------------ -------- 10.11 UnionBancorp, Inc. 1993 Stock Incorporated by reference from Option Plan, as amended Exhibit 10.13 to the Registration Statement on Form S-1 filed by the Company on August 19, 1996 (SEC File No. 33-9891), as amended 13.1 1999 Annual Report to * Stockholders (as incorporated by reference into this Form 10-K) 21.1 Subsidiaries of UnionBancorp, Inc. * 23.1 Consent of Crowe, Chizek and * Company LLP 27.1 Financial Data Schedule * 99.1 2000 Proxy Statement (as Incorporated by reference from Incorporated by reference the Schedule 14A filed by the into this Form 10-K) Company on March 17, 2000 (SEC File No. 0-28846)
EX-13 2 EXHIBIT 13 UNIONBANCORP, INC. SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended December 31, ------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ------------ ------------ ------------ (Dollars in Thousands, Except Per Share Data) STATEMENT OF INCOME DATA Interest income $ 48,549 $ 47,720 $ 46,039 $ 31,037 $ 21,368 Interest expense 24,897 25,258 24,435 17,003 11,249 ------------ ------------ ------------ ------------ ------------ Net interest income 23,652 22,462 21,604 14,034 10,119 Provision for loan losses 1,522 1,635 1,079 1,178 684 ------------ ------------ ------------ ------------ ------------ Net interest income after provision for loan losses 22,130 20,827 20,525 12,856 9,435 Noninterest income 9,488 8,071 5,182 3,222 2,570 Noninterest expense 23,597 20,733 18,764 12,248 8,771 ------------ ------------ ------------ ------------ ------------ Net income before income taxes and minority interest 8,021 8,165 6,943 3,830 3,234 Minority interest - 53 73 27 - Provision for income taxes 2,514 2,723 2,105 969 881 ------------ ------------ ------------ ------------ ------------ Net income $ 5,507 $ 5,389 $ 4,765 $ 2,834 $ 2,353 ============ ============ ============ ============ ============ Net income on common stock $ 5,248 $ 5,130 $ 4,506 $ 2,729 $ 2,353 ============ ============ ============ ============ ============ PER SHARE DATA (1) Basic earnings per common shares (2) $ 1.28 $ 1.23 $ 1.09 $ 1.00 $ 1.10 Diluted earnings per common shares (2) 1.27 1.22 1.08 0.99 1.09 Cash dividends on common stock 0.19 0.15 0.18 0.14 0.13 Dividend payout ratio for common stock 14.65% 12.34% 12.83% 11.58% 12.06% Year-end book value per common share $ 13.80 $ 13.28 $ 12.35 $ 11.20 $ 11.01 Basic weighted average common shares outstanding (2) 4,085,286 4,157,745 4,125,902 2,730,600 2,131,737 Diluted weighted average common shares outstanding (2) 4,133,554 4,210,739 4,167,764 2,756,806 2,165,428 Period-end common shares outstanding 4,047,309 4,262,359 4,135,830 4,114,801 2,131,737 BALANCE SHEET DATA Securities and federal funds sold $ 173,918 $ 176,069 $ 202,142 $ 233,822 $ 95,182 Loans 472,395 398,388 370,985 346,496 180,819 Allowance for loan losses 3,691 3,858 3,188 3,068 2,014 Total assets 704,077 627,194 625,460 642,024 303,533 Total deposits 594,198 517,638 527,747 543,744 261,727 Stockholders' equity 56,341 57,091 51,581 46,583 22,975 EARNINGS PERFORMANCE DATA Return on average total assets 0.83% 0.84% 0.77% 0.66% 0.83% Return on average stockholders' equity 9.83 9.98 9.78 9.32 10.83 Return on average total assets, including mandatory redeemable preferred stock 0.83 0.84 0.77 0.66 N/A Return on average equity, including mandatory redeemable preferred stock 9.68 9.83 9.61 9.21 N/A Net interest margin ratio 4.03 4.01 3.95 3.72 4.12 Efficiency ratio (3) 67.11 63.49 65.29 66.70 68.35 ASSET QUALITY RATIOS Nonperforming assets to total assets 0.57% 0.46% 0.49% 0.44% 0.95% Nonperforming loans to total loans 0.74 0.65 0.74 0.65 1.22 Net loan charge-offs to average loans 0.38 0.20 0.27 0.58 0.22 Allowance for loan losses to total loans 0.78 0.97 0.86 0.89 1.11 Allowance for loan losses to nonperforming loans 105.01 148.50 116.91 135.75 90.93 CAPITAL RATIOS Average equity to average assets 8.42% 8.44% 8.00% 7.14% 7.67% Total capital to risk adjusted assets 11.04 12.23 11.86 10.87 12.35 Tier 1 leverage ratio 7.20 7.66 6.76 7.76 7.95
- ---------- (1) Restated to reflect the three-for-one stock split which took effect May 20, 1996. (2) Restated in accordance with Statement of Financial Accounting Standards No. 128 which took effect December 31, 1997. (3) Calculated as noninterest expense less amortization of intangibles and expenses related to other real estate owned divided by the sum of net interest income before provisions for loan losses and total noninterest income excluding securities gains and losses and gain on sale of subsidiaries. 1. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY The following discussion provides additional information regarding the operations and financial condition of UnionBancorp, Inc. (the "Company") for the three years ended December 31, 1999. This discussion should be read in conjunction with "Selected Consolidated Financial Data," the consolidated financial statements of the Company, and the accompanying notes thereto. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report, including the Letter to the Stockholders, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1993 as amended and Section 21E of the Securities Act of 1934 as amended. The Company intends such forward- looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identified by the use of words "believe," "expect," "intend," "anticipate," "estimate," or "project" or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and the subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory changes; monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality and composition of the loan or securities portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market areas; and accounting principles, policies, and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the Company's filings with the Securities and Exchange Commission. GENERAL The Company derives most of its revenues and income from the operations of its banking subsidiaries (the "Banks"), but also derives revenue from its nonbank subsidiaries, UnionFinancial Services, UnionData and UnionTrust. The Banks provide a full range of commercial and consumer banking services to businesses and individuals, primarily in north central and west central Illinois, while the nonbanks provide insurance, brokerage, asset management, trust and data processing service to the same regions. As of December 31, 1999, the Company had total assets of $704,077,000, net loans of $468,704,000, total deposits of $594,198,000, and total stockholders' equity of $56,341,000. Total 2. assets increased by 12.3% from year-end 1998 or a $76,883,000 increase. Total net loans increased by 18.8% from year-end 1998 or a $74,174,000 increase. This loan growth was primarily funded by a $76,560,000 or 14.8% increase in deposits. The increases in both loans and deposits reflect the continued strength of the regional economy, increased market share and the expansion of the Company's delivery systems. During the first quarter of 1999, UnionBank/West opened a branch office in Quincy, Illinois, and in the second quarter UnionBank opened a branch office in Mendota, Illinois. Both of these banking centers were established in order to further invest in growth markets. In addition, the Company announced that it had purchased 220,000 of its own shares in a privately negotiated transaction during the first quarter of 1999. During the fourth quarter of 1999, UnionBank/West acquired approximately $28,900,000 in deposits from the Rushville branch of Associated Bank, Illinois. The addition of the Rushville branch was intended to extend UnionBank/West operations into adjacent markets. RESULTS OF OPERATIONS NET INCOME Net income was $5,507,000, or $1.27 per share (diluted), for the year ended December 31, 1999 compared with net income of $5,389,000, or $1.22 per share (diluted), for the year ended December 31, 1998. This represents a 4.1% increase in per share earnings and a 2.2% increase in net income. Cash earnings per share (diluted) equaled $1.39 for the year ended December 31, 1999. Cash earnings consist of the Company's earnings plus the income statement impact of the purchase accounting adjustments, tax affected where appropriate. The net income improvement in 1999 as compared to 1998 was the result of higher levels of noninterest income attributable primarily to insurance commissions and fees, an increase in net interest income driven by the loan portfolio and a decrease in taxes due to lower taxable income. Return on average assets was 0.83% for the period compared to the 0.84% for the same period in 1998. Cash return on average assets for the period was 0.92%. Cash return on average assets consists of the cash earnings described above divided by average assets less intangibles. Return on average stockholders' equity was 9.83% for the period compared to 9.98% for the same period in 1998. Return on average tangible equity capital for the period equaled 12.4%. Net income was $5,389,000 for the year ended December 31, 1998 compared with net income of $4,765,000 for the year ended December 31, 1997, an increase of $624,000 or 13.1%. The increase in earnings per share in 1998 compared with 1997 was primarily attributed to the sustained growth in core noninterest income coupled with the continued growth in net interest income driven by the loan portfolio and various nonrecurring transactions. NET INTEREST INCOME Net interest income is the difference between income earned on interest-earning assets and the interest expense incurred for the funding sources used to finance these assets. Changes in net interest income generally occur due to fluctuations in the volume of earning assets and paying 3. liabilities and rates earned and paid, respectively, on those assets and liabilities. The net yield on total interest-earning assets, also referred to as interest rate margin or net interest margin, represents net interest income divided by average interest-earning assets. The Company's long term objective is to manage those assets and liabilities to provide the largest possible amount of income while balancing interest rate, credit, liquidity and capital risks. For purposes of this discussion, both net interest income and margin have been adjusted to a fully tax equivalent basis for certain tax-exempt securities and loans. Net interest income was $24,802,000 for 1999, an increase of $1,167,000 or 4.9%, compared with net interest income of $23,635,000 for 1998. Net interest income increased in 1999 due to a $48,000,000 increase in the volume of average loan balances outstanding accompanied by a reduction in the cost of funds of 27 basis points. The net interest margin increased to 4.03% at December 31, 1999 from 4.01% at December 31, 1998. This was due to the interest rates on average earning assets decreasing to 8.07% in 1999 from 8.29% in 1998, while rates on average interest-bearing liabilities decreased to 4.60% in 1999 from 4.87% in 1998. The Company's average total interest-earning assets increased from $590,008,000 for 1998 to $615,730,000 for 1999, representing a 4.4% increase. The growth in interest-earning assets was primarily funded by internally generated deposits attributed to increased market share during 1999. Net interest income was $23,635,000 for 1998, an increase of $1,074,000 or 4.8%, compared with net interest income of $22,561,000 for 1997. The Company's average total interest-earning assets increased from $571,626,000 for 1997 to $590,008,000 for 1998 representing a 3.2% increase resulting primarily from the growth attributed to efforts to increase market share during 1998. The net interest margin increased to 4.01% at December 31, 1998 from 3.95% at December 31, 1997. The interest rates on average earning assets increased to 8.29% in 1998 from 8.22% in 1997, while rates on average interest-bearing liabilities increased to 4.87% in 1998 from 4.83% in 1997. The following table sets forth for each category of interest-earning assets and interest-bearing liabilities the average amounts outstanding, the interest earned or paid on such amounts, and the average rate paid for the years ended December 31, 1999, 1998, and 1997. The table also sets forth the average rate earned on all interest-earning assets, the average rate paid on all interest-bearing liabilities, and the net yield on average interest-earning assets for the same period. 4. AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME (DOLLARS IN THOUSANDS)
For the Years Ended December 31, ----------------------------------------------------------------- 1999 1998 ------------------------------ ------------------------------ Interest Interest Average Income/ Average Average Income/ Average Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ASSETS INTEREST-EARNING ASSETS Interest-earning deposits $ 1,801 $ 92 5.11% $ 1,568 $ 142 9.06% Securities (1) Taxable 133,156 8,060 6.05% 149,807 9,016 6.02% Nontaxable (2) 40,963 3,034 7.41% 42,131 3,225 7.65% ---------- --------- ------- ----------- -------- ------- Total securities (tax equivalent) 174,119 11,094 6.37% 191,938 12,241 6.38% ---------- --------- ------- ----------- -------- ------- Federal funds sold 1,244 73 5.87% 5,942 333 5.60% ---------- --------- ------- ----------- -------- ------- Loans (3)(4) Commercial 128,008 11,343 8.86% 109,685 10,377 9.46% Real estate 269,840 22,181 8.22% 239,780 20,632 8.60% Installment and other 40,718 3,681 9.04% 41,095 3,892 9.47% Fees on loans - 1,235 - - 1,276 - ---------- --------- ------- ----------- -------- ------- Net loans (tax equivalent) 438,566 38,440 8.76% 390,560 36,177 9.26% ---------- --------- ------- ----------- -------- ------- Total interest-earning assets 615,730 49,699 8.07% 590,008 48,893 8.29% ---------- --------- ------- ----------- -------- ------- NON-INTEREST-EARNING ASSETS Cash and cash equivalents 20,801 17,436 Premises and equipment, net 13,729 14,680 Other assets 15,090 17,208 ---------- ----------- Total non-interest-earning assets 49,620 49,324 ---------- ----------- Total assets $ 665,350 $ 639,332 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST-BEARING LIABILITIES NOW accounts $ 55,888 1,281 2.29% $ 56,668 1,353 2.39% Money market accounts 33,864 1,189 3.51% 29,300 1,040 3.55% Savings deposits 57,240 1,543 2.70% 61,740 1,848 2.99% Time $100,000 and over 128,090 6,569 5.13% 106,187 5,809 5.47% Other time deposits 215,918 11,430 5.29% 215,478 12,288 5.70% Federal funds purchased and repurchase agreements 13,050 679 5.20% 16,773 953 5.68% Advances from FHLB 27,636 1,526 5.52% 21,727 1,226 5.64% Notes payable 9,530 680 7.14% 11,024 741 6.72% ---------- --------- ------- ----------- -------- ------- Total interest-bearing liabilities 541,216 24,897 4.60% 518,897 25,258 4.87% ---------- --------- ------- ----------- -------- ------- NON-INTEREST-BEARING LIABILITIES Non-interest-bearing deposits 61,458 59,885 Other liabilities 6,656 6,569 ---------- ----------- Total non-interest-bearing liabilities 68,114 66,454 ---------- ----------- Stockholders' equity 56,020 53,981 ---------- ----------- Total liabilities and stockholders' equity $ 665,350 $ 639,332 ========== =========== Net interest income (tax equivalent) $ 24,802 $ 23,635 ========= ========= Net interest income (tax equivalent) to total earning assets 4.03% 4.01% ======= ======= Interest-bearing liabilities to earning assets 87.90% 87.95% ========== =========== For the Years Ended December 31, ------------------------------ 1997 ------------------------------ Interest Average Income/ Average Balance Expense Rate ------- ------- ---- ASSETS INTEREST-EARNING ASSETS Interest-earning deposits $ 353 $ 28 7.93% Securities (1) Taxable 173,190 10,838 6.26% Nontaxable (2) 32,618 2,566 7.87% --------- --------- ------- Total securities (tax equivalent) 205,808 13,404 6.51% --------- --------- ------- Federal funds sold 6,845 381 5.56% --------- --------- ------- Loans (3)(4) Commercial 97,407 9,274 9.52% Real estate 216,911 18,693 8.62% Installment and other 44,302 4,124 9.31% Fees on loans - 1,092 - --------- --------- ------- Net loans (tax equivalent) 358,620 33,183 9.25% --------- --------- ------- Total interest-earning assets 571,626 46,996 8.22% --------- --------- ------- NON-INTEREST-EARNING ASSETS Cash and cash equivalents 17,248 Premises and equipment, net 14,397 Other assets 16,245 --------- Total non-interest-earning assets 47,890 --------- Total assets $ 619,516 ========= LIABILITIES AND STOCKHOLDERS' EQUITY INTEREST-BEARING LIABILITIES NOW accounts $ 55,883 1,396 2.50% Money market accounts 31,433 1,028 3.27% Savings deposits 62,316 1,758 2.82% Time $100,000 and over 81,612 4,622 5.66% Other time deposits 231,766 12,860 5.55% Federal funds purchased and repurchase agreements 20,683 1,171 5.66% Advances from FHLB 8,783 543 6.18% Notes payable 13,247 1,057 7.98% --------- --------- ------- Total interest-bearing liabilities 505,723 24,435 4.83% --------- --------- ------- NON-INTEREST-BEARING LIABILITIES Non-interest-bearing deposits 57,623 Other liabilities 6,596 --------- Total non-interest-bearing liabilities 64,219 --------- Stockholders' equity 49,574 --------- Total liabilities and stockholders' equity $ 619,516 ========= Net interest income (tax equivalent) $ 22,561 ========= Net interest income (tax equivalent) to total earning assets 3.95% ======= Interest-bearing liabilities to earning assets 88.47% =========
- ---------- (1) Average balance and average rate on securities classified as available-for-sale are based on historical amortized cost balances. (2) Interest income and average rate on non-taxable securities are reflected on a tax equivalent basis based upon a statutory federal income tax rate of 34%. (3) Nonaccrual loans are included in the average balances. (4) Overdraft loans are excluded in the average balances. 5. The Company's net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as "volume change." It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing deposits and other borrowed funds referred to as "rate change." The following table reflects the changes in net interest income stemming from changes in interest rates and from asset and liability volume, including mix. The change in interest attributable to both rate and volume has been allocated to the changes in the rate and the volume on a pro rata basis. RATE/VOLUME ANALYSIS OF NET INTEREST INCOME (DOLLARS IN THOUSANDS)
For the Years Ended December 31, ---------------------------------------------------------------------- 1999 Compared to 1998 1998 Compared to 1997 --------------------------------- --------------------------------- Change Due to Change Due to --------------------------------- --------------------------------- Volume Rate Net Volume Rate Net --------- --------- --------- --------- --------- -------- INTEREST INCOME: Interest-earning deposits $ 19 $ (69) $ (50) $ 109 $ 5 $ 114 Investment securities: Taxable (1,001) 45 (956) (1,437) (385) (1,822) Nontaxable (127) (64) (191) 732 (73) 659 Federal funds sold (275) 15 (260) (50) 2 (48) Loans 4,286 (2,023) 2,263 2,958 36 2,994 --------- --------- --------- --------- --------- -------- Total interest income 2,902 (2,096) 806 2,312 (415) 1,897 --------- --------- --------- --------- --------- -------- INTEREST EXPENSE: NOW accounts (18) (54) (72) 19 (62) (43) Money market accounts 161 (12) 149 (73) 85 12 Savings deposits (131) (174) (305) (16) 106 90 Time, $100,000 and over 1,139 (379) 760 1,347 (160) 1,187 Other time 25 (883) (858) (915) 343 (572) Federal funds purchased and repurchase agreements (198) (76) (274) (222) 4 (218) Advances from FHLB 327 (27) 300 734 (51) 683 Notes payable (105) 44 (61) (213) (103) (316) --------- --------- ---------- --------- --------- -------- Total interest expense 1,200 (1,561) (361) 661 162 823 --------- --------- --------- --------- --------- -------- Net interest margin $ 1,702 $ (535) $ 1,167 $ 1,651 $ (577) $ 1,074 ========= ========= ========= ========= ========= ========
PROVISION FOR LOAN LOSSES The amount of the provision for loan losses is based on monthly evaluations of the loan portfolio, with particular attention directed toward nonperforming and other potential problem loans. During these evaluations, consideration is also given to such factors as management's evaluation of specific loans, the level and composition of impaired and other nonperforming loans, historical loss experience, results of examinations by regulatory agencies, an internal asset quality review process, the market value of collateral, the estimate of discounted cash flows, the strength and availability of guaranties, concentrations of credits, and other factors. 6. The 1999 provision for loan losses totaled $1,522,000 compared with $1,635,000 in 1998. In addition to its regular provision to the allowance for loan losses, the Company made a special fourth quarter provision in the amount of $300,000. In 1999, the additional provision related to one $857,000 general contractor loan where the debtor filed for protection under Chapter 7 of the Bankruptcy Code on September 22, 1999. Approximately 76% of the outstanding balance was charged off due to management's investigation of likely collectibility. Net charge-offs in 1999 were approximately $1,689,000 compared with $789,000 in 1998. The provision for loan losses of $1,522,000 was made to bring the allowance for loan losses to the level management deemed adequate as of December 31, 1999. The 1998 provision for loan losses was $1,635,000 compared with $1,079,000 in 1997. Net charge-offs in 1998 were approximately $789,000 as compared to $959,000 in 1997. The provision for loan losses of $1,635,000 was made to bring the allowance for loan losses to the level management deemed adequate as of December 31, 1998. NONINTEREST INCOME The following table shows the Company's noninterest income: NONINTEREST INCOME (DOLLARS IN THOUSANDS)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Service charges $ 2,259 $ 2,251 $ 1,854 Merchant fee income 1,116 833 670 Trust income 711 590 516 Mortgage banking operations 1,301 1,518 751 Securities gains, net 45 56 193 Insurance commissions and fees 2,595 317 - Gain on sale of subsidiaries, net - 820 - Other noninterest income 1,461 1,686 1,198 ----------- ----------- ----------- Total noninterest income $ 9,488 $ 8,071 $ 5,182 =========== =========== ===========
Noninterest income consists of a wide variety of fee generating services viewed as traditional banking services as well as revenues earned by its insurance/brokerage, trust and data processing business segments. Noninterest income totaled $9,488,000 for the year ended December 31, 1999, as compared to $8,071,000 in 1998. This represents an increase of $1,417,000 or 17.56%. As a percentage of total income, noninterest income increased to 28.6% versus the 26.4% that existed at 1998. The majority of the increase was related to insurance commissions and fees and merchant fee income. The Company, through its wholly owned subsidiary UnionFinancial Services, provides 7. a full range of insurance and brokerage services to its customers. The $2,278,000 year over year increase was attributable to a full year of policies sold and brokerage services provided. Merchant fee income consists of transaction, processing, and rental fees related to the Company's credit card portfolio and ancillary products. A majority of the $283,000 increase was due to higher interchange fees and merchant discounts related to retail processing. The Company, through its wholly owned subsidiary UnionTrust Corporation, provides trust services to its customers by acting as executor, administrator, trustee, or agent and in various other fiduciary capacities for client accounts. Total assets under management at December 31, 1999 and 1998 were approximately $145,582,000 and $143,574,000, respectively. Trust income, which is predominately comprised of assessed fees based on the market value of managed client portfolios, increased by $121,000 during 1999. Service charges consist of fees on both interest bearing and noninterest bearing deposit accounts as well as charges for items such as insufficient funds and overdrafts. The increase of $8,000 was due to higher volumes of business checking accounts and the resulting higher service charges offset by lower overdraft and insufficient fund fees. These improvements were offset by a $217,000 decline in mortgage banking income, as rising interest rates resulted in a reduction in the rate of mortgage refinancing and slowed real estate activity in general. Noninterest income totaled $8,071,000 for the year ended December 31, 1998, as compared to $5,182,000 for 1997. Exclusive of net securities gains, which totaled $56,000 during 1998 as compared to net securities gains of $193,000 in 1997, noninterest income increased by $3,026,000 or a 60.7% improvement. All categories of operating income contributed to the increase with the majority of the increase related to the growth in mortgage banking income, service charge income, and insurance commissions along with the $820,000 net gain relating to the divestitures recorded during the year. Specifically, mortgage banking income increased $767,000 during the year due to gains on sales of loans, which was the result of increased loan originations due to refinancings because of lower interest rates. These operations increased by over 102% from the prior year as the Company originated and sold in excess of $100 million of loans during the year. This growth was due to the low interest rate environment and aggressive sales force. Service charges on deposit accounts, one of the major components of noninterest income, consist of fees on both interest-bearing and non-interest-bearing deposit accounts as well as charges for items such as insufficient funds, overdrafts, and stop payment requests. The increase in service charge income to $2,251,000 for 1998 from $1,854,000 for 1997 was related to increases in deposit account balances and increases in the service charge schedule during 1998. 8. NONINTEREST EXPENSE The following table shows the Company's noninterest expense: NONINTEREST EXPENSE (DOLLARS IN THOUSANDS)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Salaries and employee benefits $ 12,244 $ 10,557 $ 9,231 Occupancy expense, net 1,594 1,520 1,532 Furniture and equipment expenses 1,888 1,788 1,599 Supplies and printing 538 563 602 Telephone 677 576 472 Amortization of intangible assets 897 940 903 Other noninterest expense 5,759 4,789 4,425 ----------- ----------- ----------- Total noninterest expense $ 23,597 $ 20,733 $ 18,764 =========== =========== ===========
In 1999, noninterest expense increased $2,846,000 or 13.8%. Salaries and employee benefits accounted for $1,687,000 or 59.3% of the increase. The increase in salaries and employee benefits expense for 1999 was primarily due to the acquisition in 1998 and the new locations in 1999. Approximately 89% or $1,501,000 of the increase was related to a full year of UnionFinancial Services salary and commission costs. The remaining variance was due to regular merit increases, basic incentive compensation, and the initial staffing and related compensations costs of two new banking centers. The 4.9% increase in occupancy expense was largely related to operational costs of two new banking centers and a full year of UnionFinancial Services. Furniture and equipment costs increased 5.6% due to higher equipment depreciation expense as a result of purchases of furniture and equipment for the additional branches established in 1999 and a full year of UnionFinancial Services. Approximately 49.2% or $412,000 of the increase in other expense was primarily associated with a full year of expense related to UnionFinancial Services. The remaining variance was primarily attributable to advertising and promotion campaigns targeted in markets for UnionFinancial Services and the new banking centers and interchange fee expense due to increased debit and credit card activity. Noninterest expense was $20,733,000 in 1998, an increase of $1,969,000 or 10.5% compared with noninterest expense of $18,764,000 for 1997. The increase was reflected in several categories of noninterest expense. The increase in salaries and employee benefits accounted for a majority of the increase and primarily was directly related to merit increases along with incentive payments relating to the mortgage banking operations. The increase in furniture and equipment expenses 9. was largely related to the standardization of computer equipment in 1997 for the acquired entities. The increase in the other expense category was primarily associated with consulting fees, of which a significant portion of the expense was related to outsourcing the internal audit function, beginning in the second quarter of 1998. This increase was offset by a smaller increase in salaries and employee benefits as the Company reallocated the internal audit department to assist in other areas, coupled by the cost associated with the acquisition and divestitures recorded during the year. INCOME TAXES The Company recorded income tax expense of $2,514,000, $2,723,000, and $2,105,000, for the years ended December 31, 1999, 1998, and 1997, respectively, and effective tax rates were 31.3%, 33.6%, and 30.6%, respectively, for such periods. The Company's effective tax rate is lower than statutory rates because the Company derives interest income from municipal securities and loans, which are exempt from federal tax. PREFERRED STOCK DIVIDENDS The Company paid $259,000 of preferred stock dividends in 1999, 1998, and 1997. INTEREST RATE SENSITIVITY MANAGEMENT The business of the Company and the composition of its balance sheet consist of investments in interest-earning assets (primarily loans and securities) which are primarily funded by interest-bearing liabilities (deposits and borrowings). All of the financial instruments of the Company are for other than trading purposes. Such financial instruments have varying levels of sensitivity to changes in market rates of interest. The operating income and net income of the Banks depend, to a substantial extent, on "rate differentials," i.e., the differences between the income the Banks receive from loans, securities, and other earning assets and the interest expense they pay to obtain deposits and other liabilities. These rates are highly sensitive to many factors that are beyond the control of the Banks, including general economic conditions and the policies of various governmental and regulatory authorities. The objective of monitoring and managing the interest rate risk position of the balance sheet is to contribute to earnings and to minimize fluctuations in net interest income. The potential for earnings to be affected by changes in interest rates is inherent in a financial institution. Interest rate sensitivity is the relationship between changes in market interest rates and changes in net interest income due to the repricing characteristics of assets and liabilities. An asset sensitive position in a given period will result in more assets being subject to repricing; therefore, as interest rates rise, such a position will have a positive effect on net interest income. Conversely, in a liability sensitive position, where liabilities reprice more quickly than assets in a given period, a rise in interest rates will have an adverse effect on net interest income. The Company's exposure to interest rate risk is managed primarily through the Company's strategy of selecting the types and terms of interest-earning assets and interest-bearing liabilities which generate favorable earnings, while limiting the potential negative effects of changes in market interest rates. Since the Company's primary source of interest-bearing liabilities is customer 10. deposits, the Company's ability to manage the types and terms of such deposits may be somewhat limited by customer maturity preferences in the market areas in which the Company operates. The rates, terms, and interest rate indices of the Company's interest-earning assets result primarily from the Company's strategy of investing in loans and securities (a substantial portion of which have adjustable rate terms) which permit the Company to limit its exposure to interest rate risk, together with credit risk, while at the same time achieving a positive interest rate spread. One method of analyzing interest rate risk is to evaluate the balance of the Company's interest rate sensitivity position or "gap" analysis. Gap analysis is a static management tool used to identify mismatches or gaps in the repricing of assets and liabilities within specified periods of time. Any excess of assets or liabilities in a particular period results in an interest rate sensitivity gap. The following table presents the interest rate sensitivity for the Company's interest-earning assets and interest-bearing liabilities at December 31, 1999. The table was prepared assuming loans prepay at varying degrees, based on type, maturity, and rate. INTEREST RATE SENSITIVE ASSETS AND LIABILITIES (DOLLARS IN THOUSANDS)
December 31, 1999 ---------------------------------------------------------- 3 Months 3 Months to 6 Months 1 Year to or Less 6 Months to 1 Year 5 Years ------------ ------------ ------------ ------------ INTEREST-EARNING ASSETS Interest-bearing balances $ 1,998 $ - $ - $ - Federal funds sold 25 - - - Securities 57,471 8,914 17,922 42,190 Loans 115,201 45,033 53,534 212,175 ------------ ------------ ------------ ------------ Total interest-earning assets $ 174,695 $ 53,947 $ 71,456 $ 254,365 ============ ============ ============ ============ INTEREST-BEARING LIABILITIES NOW accounts $ 58,747 $ - $ - $ - Money market accounts 37,601 - - - Savings 52,249 - - - Time, $100,000 and over 48,618 48,289 36,359 16,727 Other time 58,676 48,388 49,656 70,641 ------------ ------------ ------------ ------------ Total interest-bearing deposits 225,891 96,677 86,015 87,368 Federal funds and repurchase agreements 3,792 481 559 476 Advances from FHLB - 9,000 525 20,908 Notes payable 9,500 - - - ------------ ------------ ------------ ------------ Total interest-bearing liabilities $ 269,183 $ 106,158 $ 87,099 $ 108,752 ============ ============ ============ ============ Period interest sensitivity gap $ (94,488) $ (52,211) $ (15,643) $ 145,613 Cumulative interest sensitivity gap (94,488) (146,699) (162,342) (16,729) Cumulative gap as a percent of total assets (13.42)% (20.84)% (23.06)% (2.38)% Cumulative interest-sensitive assets as a percent of cumulative interest-sensitive liabilities 64.90% 60.92% 64.89% 97.07% December 31, 1999 --------------------------- Over 5 Years Total ------------ ------------ INTEREST-EARNING ASSETS Interest-bearing balances $ - $ 1,998 Federal funds sold - 25 Securities 47,396 173,893 Loans 46,452 472,395 ------------ ------------ Total interest-earning assets $ 93,848 $ 648,311 ============ ============ INTEREST-BEARING LIABILITIES NOW accounts $ - $ 58,747 Money market accounts - 37,601 Savings - 52,249 Time, $100,000 and over - 149,993 Other time 613 227,974 ------------ ------------ Total interest-bearing deposits 613 526,564 Federal funds and repurchase agreements - 5,308 Advances from FHLB 2,300 32,733 Notes payable - 9,500 ------------ ------------ Total interest-bearing liabilities $ 2,913 $ 574,105 ============ ============ Period interest sensitivity gap $ 90,935 $ 74,206 Cumulative interest sensitivity gap 74,206 Cumulative gap as a percent of total assets 10.54% Cumulative interest-sensitive assets as a percent of cumulative interest-sensitive liabilities 112.93%
The preceding table reflects a cumulative liability-sensitive balance sheet over a one year time frame which likely will more positively affect net interest income if interest rates fall than if they rise. However, while the gap analysis is widely used in the industry, it is unable to capture other factors affecting the sensitivity of the balance sheet, such as the time lags required for 11. certain assets and liabilities to reprice because of their varying sensitivity to changes in market interest rats. Furthermore, included in the total for rate-sensitive liabilities are $148,597,000 in NOW, money market and savings accounts. While immediately repriceable, the rates paid on these deposit accounts will not change in direct correlation with changes in the general level of short-term interest rates. The Company undertakes this interest rate sensitivity analysis to monitor the potential risk to future earnings from the impact of possible future changes in interest rates on currently existing net asset or net liability positions. However, this type of analysis is as of a point-in-time, when in fact, the Company's interest rate sensitivity can quickly change as market conditions, customer needs, and management strategies change. Thus, the preceding table does not necessarily indicate the impact of general interest rate movements on the Company's net interest income because the repricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures. Pursuant to its investment policy, the Company does not purchase off-balance-sheet derivative financial instruments. As of December 31, 1999, the Banks held approximately $35,837,000 and $30,888,000 (at amortized cost) in collateralized mortgage obligations and mortgage-backed securities. Although the securities have various stated maturities, it is not uncommon for the securities to prepay outstanding principal prior to stated maturities. As a result, assets and liabilities indicated as repricing within the same period may, in fact, reprice at different times and at different rate levels. In addition to the interest rate sensitivity analysis, the Company also measures its overall interest rate sensitivity through a net interest income analysis. The net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates. This analysis assesses the risk of changes in net interest income in the event of a sudden and sustained 100 to 200 basis point increase or decrease in market interest rates. The assumption in this table is that liabilities will reprice faster than assets due to market constraints and management's assessment of their assets and liabilities. The tables below present the Company's projected changes in net interest income for 1999 and 1998 for the various rate shock levels.
December 31, 1999 Net Interest Income - ----------------- ------------------------------------------------ Amount Change Change --------- --------- -------- (Dollars in Thousands) +200 bp $ 24,241 $ (1,405) (5.48)% +100 bp 24,870 (776) (3.03) Base 25,646 - - -100 bp 26,178 532 2.07 -200 bp 25,647 1 0.00
Based upon the Company's model at December 31, 1999, the effect of an immediate 200 basis point increase in interest rates would decrease the Company's net interest income by 5.48% or approximately $1,405,000. The effect of an immediate 200 basis point decrease in rates would 12. increase the Company's net interest income by 0.00% or approximately $1,000. The reason for this is even though the preceding table shows the Company as having a negative gap, certain core deposits may not reprice when rates decrease depending on market conditions. This causes the decline in net interest income.
December 31, 1999 Net Interest Income - ----------------- ------------------------------------------------ Amount Change Change --------- --------- -------- (Dollars in Thousands) +200 bp $ 20,811 $ (652) (3.04)% +100 bp 21,155 (308) (1.43) Base 21,463 - - -100 bp 21,542 80 0.37 -200 bp 20,882 (580) (2.70)
Based upon the Company's model at December 31, 1998, the effect of an immediate 200 basis point increase in interest rates would decrease the Company's net interest income by 3.04% or approximately $652,000. The effect of an immediate 200 basis point decrease in rates would reduce the Company's net interest income by 2.70% or approximately $580,000. The reason for this is even though the preceding table shows the Company as having a negative gap, certain core deposits may not reprice when rates decrease depending on market conditions. This causes the decline in net interest income. 13. FINANCIAL CONDITION LOANS AND ASSET QUALITY The Company's loans are diversified by borrower and industry group. Loan growth has occurred every year over the past five years and can be attributed to increased loan demand, to the addition of new loan products, and to acquisitions. The growth in the loan portfolio in 1999 is primarily due to management's restructuring of the balance sheet to increase the net interest margin. The following table describes the composition of loans by major categories outstanding. LOAN PORTFOLIO (DOLLARS IN THOUSANDS)
Aggregate Principal Amount December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Commercial $ 103,842 $ 74,481 $ 62,936 $ 60,152 $ 38,298 Agricultural 38,328 41,821 39,431 43,500 17,079 Real estate: Commercial mortgages 126,645 99,872 72,730 63,254 44,393 Construction 15,786 13,935 14,393 13,549 7,437 Agricultural 38,847 35,790 27,955 29,185 10,229 1-4 family mortgages 102,695 96,921 109,411 91,697 36,637 Installment 43,644 32,714 41,210 42,320 24,072 Other 2,615 2,884 3,076 3,354 2,681 ----------- ----------- ----------- ----------- ----------- 472,402 398,418 371,142 347,011 180,826 Unearned income (7) (30) (157) (515) (7) ----------- ----------- ----------- ----------- ------------ Total loans 472,395 398,388 370,985 346,496 180,819 Allowance for loan losses (3,691) (3,858) (3,188) (3,068) (2,014) ----------- ----------- ----------- ----------- ------------ Loans, net $ 468,704 $ 394,530 $ 367,797 $ 343,428 $ 178,805 ============ =========== =========== =========== ===========
Aggregate Principal Amount December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Percentage of Total Loan Portfolio -------------------------------------------------------------------- Commercial 21.98% 18.69% 16.96% 17.33% 21.18% Agricultural 8.11 10.50 10.62 12.54 9.45 Real estate: Commercial mortgages 26.81 25.07 19.60 18.23 24.55 Construction 3.34 3.50 3.88 3.90 4.11 Agricultural 8.22 8.98 7.53 8.41 5.66 1-4 family mortgages 21.74 24.33 29.48 26.42 20.26 Installment 9.24 8.21 11.10 12.20 13.31 Other loans 0.56 0.72 0.83 0.97 1.48 ----------- ----------- ----------- ----------- ------------ Gross loans 100.00% 100.00% 100.00% 100.00% 100.00% =========== =========== =========== =========== ============
14. As of December 31, 1999 and 1998, commitments of the Banks under standby letters of credit and unused lines of credit totaled approximately $52,508 and $92,893, respectively. Stated loan maturities (including rate loans reset to market interest rates) of the total loan portfolio, net of unearned income, at December 31, 1999 were as follows: STATED LOAN MATURITIES (1) (DOLLARS IN THOUSANDS)
Within 1 to 5 After 5 1 Year Years Years Total ------------ ------------ ------------ ------------ Commercial $ 56,617 $ 34,689 $ 12,536 $ 103,842 Agricultural 26,730 10,146 1,452 38,328 Real estate 56,297 83,849 143,827 283,973 Installment 14,755 31,047 450 46,252 ------------ ------------ ------------ ------------ Total $ 154,399 $ 159,731 $ 158,265 $ 472,395 ============ ============ ============ ============
- ---------- (1) Maturities based upon contractual maturity dates The maturities presented above are based upon contractual maturities. Many of these loans are made on a short-term basis with the possibility of renewal at time of maturity. All loans, however, are reviewed on a continuous basis for creditworthiness. Rate sensitivities of the total loan portfolio, net of unearned income, at December 31, 1999 were as follows: LOAN REPRICING (DOLLARS IN THOUSANDS)
Within 1 to 5 After 5 1 Year Years Years Total ------------ ------------ ----------- ------------ Fixed rate $ 84,867 $ 85,653 $ 43,535 $ 214,055 Variable rate 126,823 125,667 2,901 255,391 Impaired and not accruing and nonaccrual 2,078 855 16 2,949 ------------ ------------ ----------- ------------ Total $ 213,768 $ 212,175 $ 46,452 $ 472,395 ============ ============ =========== ============
NONPERFORMING ASSETS The Company's financial statements are prepared on the accrual basis of accounting, including the recognition of interest income on its loan portfolio, unless a loan is placed on nonaccrual 15. status. Loans are placed on nonaccrual status when there are serious doubts regarding the collectibility of all principal and interest due under the terms of the loans. Amounts received on nonaccrual loans generally are applied first to principal and then to interest after all principal has been collected. It is the policy of the Company not to renegotiate the terms of a loan because of a delinquent status. Rather, a loan is generally transferred to nonaccrual status if it is not in the process of collection and is delinquent in payment of either principal or interest beyond 90 days. Loans which are 90 days delinquent but are well secured and in the process of collection are not included in nonperforming assets. Under Statement of Financial Accounting Standards No. 114 and No. 118, the Company defined loans that will be individually evaluated for impairment to include commercial loans and mortgages secured by commercial properties or five-plus family residences that are in nonaccrual status or were restructured. All other smaller balance homogeneous loans are evaluated for impairment in total. Other nonperforming assets consist of real estate acquired through loan foreclosures or other workout situations and other assets acquired through repossessions. Nonperforming loans totaled $3,515,000 at year end 1999 as compared to $2,598,000 at year end 1998, increasing as a percentage of total loans to 0.74% in 1999 from 0.65% in 1998. The increase in nonaccrual loans was primarily related to the inclusion of three credits during 1999. The following table summarizes nonperforming assets by category. NONPERFORMING ASSETS (DOLLARS IN THOUSANDS)
December 31, -------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- Nonaccrual and impaired loans not accruing $ 2,949 $ 1,487 $ 1,714 $ 1,774 $ 1,127 Impaired and other loans 90 days past due and still accruing interest 566 1,111 1,013 486 1,088 ---------- ---------- ---------- ---------- ---------- Total nonperforming loans 3,515 2,598 2,727 2,260 2,215 Other real estate owned 523 201 215 363 441 Other nonperforming assets (1) - 100 100 192 240 ---------- ---------- ---------- ---------- ---------- Total nonperforming assets $ 4,038 $ 2,899 $ 3,042 $ 2,815 $ 2,896 ========== ========== ========== ========== ========== Nonperforming loans to total loans 0.74% 0.65% 0.74% 0.65% 1.22% Nonperforming assets to total loans 0.85 0.73 0.82 0.81 1.60 Nonperforming assets to total assets 0.57 0.46 0.49 0.44 0.95
- ---------- (1) Represents a single municipal security in default status. 16. The classification of a loan as impaired or nonaccrual does not necessarily indicate that the principal is uncollectible, in whole or in part. The Banks make a determination as to collectibility on a case-by-case basis. The Banks consider both the adequacy of the collateral and the other resources of the borrower in determining the steps to be taken to collect impaired or nonaccrual loans. The final determination as to the steps taken is made based upon the specific facts of each situation. Alternatives that are typically considered to collect impaired or nonaccrual loans are foreclosure, collection under guarantees, loan restructuring, or judicial collection actions. Each of the Company's loans is assigned a rating based upon an internally developed grading system. A separate credit administration department also reviews grade assignments on an ongoing basis. Management continuously monitors nonperforming, impaired, and past due loans to prevent further deterioration of these loans. Management is not aware of any material loans classified for regulatory purposes as loss, doubtful, substandard, or special mention that have been excluded from classification under nonperforming assets or impaired loans. Management further believes that credits classified as nonperforming assets or impaired loans include any material loans as to which any doubts exist as to their collectibility in accordance with the contractual terms of the loan agreement. The Company has a loan review function which is separate from the lending function and is responsible for the review of new and existing loans. Potential problem credits are monitored by the loan review function and are submitted for review to the loan committee and audit committee members. The following table sets forth a summary of other real estate owned and other collateral acquired at December 31, 1999: OTHER REAL ESTATE OWNED (DOLLARS IN THOUSANDS)
Number Net Book of Carrying Parcels Value ----------- ----------- Developed property 7 $ 523 =========== ===========
ALLOWANCE FOR LOAN LOSSES In originating loans, the Company recognizes that credit losses will be experienced and the risk of loss will vary with, among other things, general economic conditions; the type of loan being made; the creditworthiness of the borrower over the term of the loan; and in the case of a collateralized loan, the quality of the collateral for such loan. The allowance for loan losses represents the Company's estimate of the allowance necessary to provide for possible losses in the loan portfolio. In making this determination, the Company analyzes the ultimate collectibility of the loans in its portfolio, incorporating feedback provided by internal loan staff, the loan review function, and information provided by examinations performed by regulatory 17. agencies. The Company makes an ongoing evaluation as to the adequacy of the allowance for loan losses. On a monthly basis, management of each of the subsidiary banks meets to review the adequacy of the allowance for loan losses. Commercial credits are graded by the loan officers and the Company's Loan Review Officer validates the officers' grades. In the event that the Loan Review Officer downgrades the loan, it is included in the allowance analysis at the lower grade. The grading system is in compliance with the regulatory classifications and the allowance is allocated to the loans based on the regulatory grading, except in instances where there are known differences (i.e., collateral value is nominal, etc.). To establish the appropriate level of the allowance, a sample of loans (including impaired and nonperforming loans) are reviewed and classified as to potential loss exposure. The analysis of the allowance for loan losses is comprised of three components: specific credit allocation, general portfolio allocation, and subjective determined allocation. Once these three components of the allowance are calculated, management calculates a historical component for each loan category based on the past five years of loan history and the Company's evaluation of qualitative factors including future economic and industry outlooks. The unallocated portion of the allowance is determined based on current economic conditions and trends in the portfolio including delinquencies and impairments, as well as changes in the composition of the portfolio. Commitments to extend credit and standby letters of credit are reviewed to determine whether credit risk exists. The determination by the Company of the appropriate level of its allowance for loan losses was $3,691,000 at December 31, 1999. The allowance for loan losses is based on estimates, and ultimate losses will vary from current estimates. These estimates are reviewed monthly, and as adjustments, either positive or negative, become necessary, a corresponding increase or decrease is made in the provision for loan losses. The composition of the loan portfolio did not significantly change in 1999. The methodology used to determine the adequacy of the allowance for loan losses is consistent with prior years and there were no reallocations. Despite the increase in nonperforming loans and net charge-offs in 1999, the Company decreased the provision for loan losses in 1999 in order to maintain the allowance for loan losses at a level deemed appropriate by management. The following table presents a detailed analysis of the Company's allowance for loan losses. 18. ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
December 31, -------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Beginning balance $ 3,858 $ 3,188 $ 3,068 $ 2,014 $ 1,704 Charge-offs: Commercial 1,186 428 262 967 114 Real estate mortgages 346 169 386 181 173 Installment and other loans 340 435 559 366 250 ----------- ----------- ----------- ----------- ----------- Total charge-offs 1,872 1,032 1,207 1,514 537 ----------- ----------- ----------- ----------- ----------- Recoveries: Commercial 79 98 47 41 70 Real estate mortgages 22 37 88 - 56 Installment and other loans 82 108 113 57 37 ----------- ----------- ----------- ----------- ----------- Total recoveries 183 243 248 98 163 ----------- ----------- ----------- ----------- ----------- Net charge-offs 1,689 789 959 1,416 374 ----------- ----------- ----------- ----------- ----------- Provision for loan losses 1,522 1,635 1,079 1,178 684 Allowance associated with the Acquisitions (divestitures) - (176) - 1,292 - ----------- ----------- ----------- ----------- ----------- Ending balance $ 3,691 $ 3,858 $ 3,188 $ 3,068 $ 2,014 =========== =========== =========== =========== =========== Period end total loans, net of unearned interest $ 472,395 $ 398,388 $ 370,985 $ 346,496 $ 180,819 =========== =========== =========== =========== =========== Average loans $ 440,284 $ 390,560 $ 358,620 $ 243,978 $ 173,004 =========== =========== =========== =========== =========== Ratio of net charge-offs to average loans 0.38% 0.20% 0.27% 0.58% 0.22% Ratio of provision for loan losses to average loans 0.35 0.42 0.30 0.48 0.40 Ratio of allowance for loan losses to ending total loans 0.78 0.97 0.86 0.89 1.11 Ratio of allowance for loan losses to total nonperforming loans 105.01 148.99 116.91 135.75 90.93 Ratio of allowance at end of period to average loans 0.84 0.99 0.89 1.26 1.16
19. The following table sets forth an allocation of the allowance for loan losses among the various loan categories. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES (DOLLARS IN THOUSANDS)
December 31, ------------------------------------------------------------------------------------------- 1999 1998 1997 1996 ------------------ ------------------- ------------------- ------------------ Loan Loan Loan Loan Category Category Category Category to Gross to Gross to Gross to Gross Amount Loans Amount Loans Amount Loans Amount Loans --------- ------ --------- -------- --------- -------- --------- -------- Commercial $ 1,114 30.09% $ 1,213 29.19% $ 962 27.58% $ 776 29.87% Real estate 1,290 60.11 1,245 61.87 1,052 60.49 758 56.97 Installment and other loans 393 9.80 443 8.94 482 11.93 517 13.16 Unallocated 894 - 957 - 692 - 1,017 - --------- ------ --------- -------- --------- -------- --------- -------- Total $ 3,691 100.00% $ 3,858 100.00% $ 3,188 100.00% $ 3,068 100.00% ========= ====== ========= ======== ========= ======== ========= ====== December 31, ------------------- 1995 ------------------- Loan Category to Gross Amount Loans --------- -------- Commercial $ 800 30.62% Real estate 388 54.59 Installment and other loans 235 14.79 Unallocated 591 - --------- -------- Total $ 2,014 100.00% ========= ======
SECURITIES ACTIVITIES The Company's securities portfolio, which represented 26.7% of the Company's earning asset base as of December 31, 1999, is managed to minimize interest rate risk, maintain sufficient liquidity, and maximize return. The Company's financial planning anticipates income streams based on normal maturity and reinvestment. Securities classified as available-for-sale are purchased with the intent to provide liquidity and to increase returns. The securities classified as available-for-sale are carried at fair value. The Company does not have any securities classified as trading. Securities held-to-maturity, carried at amortized cost, were $0 at December 31, 1999 compared to $41,847,000 at December 31, 1998. The fair value of securities held-to-maturity was $0 at December 31, 1999 and $43,073,000 at December 31, 1998. Securities available-for-sale, carried at fair value, were $173,893,000 at December 31, 1999 compared to $133,772,000 at December 31, 1998. On July 1, 1999, the Company adopted Statement No. 133, which allows the Company a one-time reclassification of securities held-to-maturity to available-for-sale or trading. The Company transferred securities with an amortized cost of $44,350,000 previously classified as held-to-maturity to available-for-sale upon adoption. The unrealized gain on the securities transferred was $106,000 on July 1, 1999 and the Company's equity increased by $66,000 as a result of the transfer. The consolidated securities portfolio includes several callable agency debentures, adjustable rate mortgage pass-throughs, and collateralized mortgage obligations with implied calls. The exposure of capital to market valuation adjustments existing at the time of the Prairie acquisition has been reduced by the reduction in relative size of the portfolio, the shortening of the average life of the securities by the passage of time, and the sale of floating rate securities with lower lifetime caps or reset limits. In addition, some of the callable securities that have been purchased have shorter final maturities which also reduces the sensitivity of the Economic Value of Equity (EVE) to changes in the level of interest rates. 20. The following table describes the composition of securities by major category and maturity. SECURITIES PORTFOLIO (DOLLARS IN THOUSANDS)
December 31, --------------------------------------------------------------------------- 1999 1998 1997 --------------------- ---------------------- ---------------------- % of % of % of Amount Portfolio Amount Portfolio Amount Portfolio ---------- --------- ---------- --------- --------- --------- HELD-TO-MATURITY States and political subdivisions $ - -% $ 41,847 23.83% $ 37,170 18.52% ---------- ------- ---------- ------- ========== ------- Total $ - -% $ 41,847 23.83% $ 37,170 18.52% ========== ======= ========== ======= ========== ======= AVAILABLE-FOR-SALE U.S. Treasury $ 5,461 3.14% $ 6,891 3.92% $ 19,163 9.55% U.S. government agencies and corporations 56,305 32.38 49,330 28.09 59,315 29.54 U.S. government agency mortgage backed securities 29,962 17.23 31,005 17.66 22,695 11.31 States and political subdivisions 42,820 24.62 - - - - Collateralized mortgage obligations 35,481 20.40 43,208 24.60 58,300 29.04 Corporate bonds - - 100 0.06 100 0.05 Other securities 3,864 2.23 3,238 1.84 3,995 1.99 ---------- ---- ---------- ------- ---------- ------- Total $ 173,893 100.00% $ 133,772 76.17% $ 163,568 81.48% ========== ====== ========== ======= ========== =======
21. The following table sets forth the contractual, callable or estimated maturities and yields of the securities portfolio as of December 31, 1999. Mortgage backed and collateralized mortgage obligation securities are included at estimated maturity. MATURITY REPRICING SCHEDULE (DOLLARS IN THOUSANDS)
Maturing or Repricing -------------------------------------------------------------------------------------- After 1 But After 5 But Within 1 Year Within 5 Years Within 10 Years After 10 Years ---------------- ----------------- ---------------- ----------------- Total Amount Yield Amount Yield Amount Yield Amount Yield Amount -------- ----- -------- ----- -------- ----- -------- ----- --------- AVAILABLE-FOR-SALE U.S. Treasury $ 1,501 6.43% $ 3,960 5.37% $ - -% $ - -% $ 5,461 U.S. government agencies and corporations 25,584 7.00 26,844 5.94 3,877 6.99 - - 56,305 U.S. government agency mortgage backed securities 3 10.42 138 7.71 15,562 6.07 14,259 6.34 29,962 States and political Subdivisions (1) 4,110 6.41 15,107 6.69 21,928 6.70 1,675 8.40 42,820 Collateralized mortgage obligations - - - - 9,715 5.57 25,766 5.68 35,481 Equity securities 3,864 - - - - - - - 3,864 -------- -------- -------- -------- --------- Total $ 35,062 $ 46,049 $ 51,082 $ 41,700 $ 173,893 ======== ======== ======== ======== =========
- ---------- (1) Rates on obligations of states and political subdivisions have been adjusted to tax equivalent yields using a 34% income tax rate DEPOSIT ACTIVITIES Deposits are attracted through the offering of a broad variety of deposit instruments, including checking accounts, money market accounts, regular savings accounts, term certificate accounts (including "jumbo" certificates in denominations of $100,000 or more), and retirement savings plans. The Company's average balance of total deposits was $552,458,000 for 1999, representing an increase of $23,200,000 or 4.4% compared with the average balance of total deposits for the year ended December 31, 1998. The increase in deposits was primarily due to the growth attributed to efforts to increase market share in 1999. 22. The following table sets forth certain information regarding the Banks' average deposits. AVERAGE DEPOSITS (DOLLARS IN THOUSANDS)
For the Years Ended December 31, ----------------------------------------------------------------------------------------- 1999 1998 1997 -------------------------- ---------------------------- ---------------------------- % Average % Average % Average Average of Rate Average of Rate Average of Rate Amount Total Paid Amount Total Paid Amount Total Paid -------- ------ ------- --------- ------- ------- --------- ------ ------ Non-interest-bearing demand deposits $ 61,458 11.12% -% $ 59,885 11.32% -% $ 57,623 11.07% -% Savings accounts 57,240 10.36 2.70 61,740 11.67 2.99 62,316 11.97 2.82 Interest-bearing demand deposits 89,752 16.25 2.75 85,968 16.24 2.78 87,316 16.77 2.78 Time, less than $100,000 215,918 39.08 5.29 215,478 40.71 5.47 231,766 44.51 5.55 Time, $100,000 or more 128,090 23.19 5.13 106,187 20.06 5.70 81,612 15.68 5.66 -------- ------ ------- --------- ------- ------- --------- ------ ------ Total deposits $552,458 100.00% 3.98% $ 529,258 100.00% 4.22% $ 520,633 100.00% 4.16% ======== ====== ======= ========= ======= ======= ========= ====== ======
As of December 31, 1999, nonbrokered time deposits over $100,000 represented 23.2% of total deposits, compared with 20.1% of total deposits as of December 31, 1998. The Company's large denomination time deposits are generally from customers within the local market areas of its subsidiary banks and provide a greater degree of stability than is typically associated with this source of funds. The following table sets forth the remaining maturities for time deposits of $100,000 or more at December 31, 1999. TIME DEPOSITS OF $100,000 OR MORE (DOLLARS IN THOUSANDS)
MATURITY RANGE Three months or less $ 48,618 Over three months through six months 48,289 Over six months through twelve months 36,359 Over twelve months 16,727 --------- Total $ 149,993 =========
23. RETURN ON EQUITY AND ASSETS The following table presents various ratios for the Company. RETURN ON EQUITY AND ASSETS
For the Years Ended December 31, ------------------------------ 1999 1998 1997 ---- ---- ---- Return on average assets 0.83% 0.84% 0.77% Return on average equity 9.83 9.98 9.78 Average equity to average assets 8.42 8.44 8.00 Dividend payout ratio for common stock 14.65 12.34 12.83
The decrease in the return on average assets and return on average equity ratios is primarily related to average assets and equity growing at a faster pace than the net income necessary to increase these performance ratios. LIQUIDITY The Company manages its liquidity position with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. In addition to the normal inflow of funds from core-deposit growth together with repayments and maturities of loans and investments, the Company utilizes other short-term funding sources such as securities sold under agreements to repurchase, overnight federal funds purchased from correspondent banks, and the acceptance of short-term deposits from public entities and Federal Home Loan Bank advances. The Company monitors and manages its liquidity position on several bases, which vary depending upon the time period. As the time period is expanded, other data is factored in, including estimated loan funding requirements, estimated loan payoffs, investment portfolio maturities or calls, and anticipated depository buildups or runoffs. The Company classifies all of its investment securities as available-for-sale, thereby maintaining significant liquidity. The Company's liquidity position is further enhanced by structuring its loan portfolio interest payments as monthly and by the significant representation of retail credit and residential mortgage loans in the Company's loan portfolio, resulting in a steady stream of loan repayments. In managing its investment portfolio, the Company provides for staggered maturities so that cash flows are provided as such investments mature. 24. The Company's cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities was $3.8 million for 1999, $2.6 million for 1998, and $7.8 million for 1997. Net cash used by investing activities, consisting primarily of loan and investing funding, was $47.0 million for 1999. For the year ended December 31, 1998, net cash provided by investing activities was $35.8 million. For the year ended December 31, 1997, net cash used in investing activities was $9.3 million. Net cash provided by financing activities was $45.8 million for 1999 and $35.0 million for 1998, consisting primarily of increases in deposits and Federal Home Loan Bank advances. Net cash used by financing activities for 1997 was $23.5 million, consisting primarily of decreases in deposits and securities sold under agreements to repurchase. The Banks' investment securities portfolios, federal funds sold, and cash and due from bank deposit balances serve as the primary sources of liquidity for the Company. At December 31, 1999, 23.4% of the Banks' interest-bearing liabilities were in the form of time deposits of $100,000 and over. Management believes these deposits to be a stable source of funds. However, if a large number of these time deposits matured at approximately the same time and were not renewed, the Banks' liquidity could be adversely affected. At year end 1999, the maturities of the Banks' large time deposits were spread throughout the year, with 32.4% maturing in the first quarter of 2000, 32.2% maturing in the second quarter of 2000, 24.2% maturing in the third and fourth quarters of 2000, and the remaining 11.2% maturing thereafter. The Banks monitor those maturities in an effort to minimize any adverse effect on liquidity. The Company's borrowings included notes payable at December 31, 1999 in the principal amount of $9,500,000 payable to the Company's principal correspondent bank. The Company incurred approximately $2,500,000 of this debt in connection with the repurchase of 220,000 shares during the first quarter of 1999. The remaining balance was related to acquisitions. The note is renewable annually, requires quarterly interest payments, and is collateralized by the Company's stock in the Banks. The Company's principal source of funds for repayment of the indebtedness is dividends from the Banks. At December 31, 1999, approximately $5.5 million was available for dividends without regulatory approval. CAPITAL RESOURCES The Banks are expected to meet a minimum risk-based capital to risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss allowance that may be included in capital is limited to 1.25% of risk-weighted assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and Tier 2 (supplementary) capital to risk-weighted assets for the Company is 10.13% and 11.04%, respectively, at December 31, 1999. The Banks are currently, and expect to continue to be, in compliance with these guidelines. 25. The Board of Governors of the Federal Reserve Bank ("FRB") has announced a policy known as the "source of strength doctrine" that requires a bank holding company to serve as a source of financial and managerial strength for its subsidiary banks. The FRB has interpreted this requirement to require that a bank holding company, such as the Company, stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity. The FRB has stated that it would generally view a failure to assist a troubled or failing subsidiary bank in these circumstances as an unsound or unsafe banking practice or a violation of the FRB's Regulation Y or both, justifying a cease and desist order or other enforcement action, particularly if appropriate resources are available to the bank holding company on a reasonable basis. The following table sets forth an analysis of the Company's capital ratios: RISK-BASED CAPITAL RATIOS (DOLLARS IN THOUSANDS)
December 31, Minimum Well --------------------------------- Capital Capitalized 1999 1998 1997 Ratios Ratios -------- ------- --------- ------- ----------- Tier 1 risk-based capital $ 50,115 $ 47,297 $ 41,180 Tier 2 risk-based capital 4,548 5,215 4,545 Total capital 54,663 52,512 45,725 Risk-weighted assets 494,953 429,325 385,685 Capital ratios Tier 1 risk-based capital 10.13% 11.02% 10.68% 4.00% 6.00% Tier 2 risk-based capital 11.04 12.23 11.86 8.00 10.00 Leverage ratio 7.20 7.66 6.64 4.00 5.00
As of December 31, 1999, the Tier 2 risk-based capital was comprised of $3,691,000 in allowance for loan losses and $857,000 of Mandatory Redeemable Series B Preferred Stock. The Series A Preferred Stock is convertible into common stock, subject to certain adjustments intended to offset the amount of losses incurred by the Company upon the post-closing sale of certain securities acquired in conjunction with the 1996 acquisition of Prairie. ACCOUNTING MATTERS NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (Statement) No. 133 on derivatives will, in 2000, require all derivatives to be recorded at fair value in the balance sheet, with changes in fair value charged or credited to income. If derivatives are documented and effective as hedges, the change in the derivative fair value will be offset by an equal change in the fair value of the hedged item. Under the new standard, securities held-to-maturity can no longer be hedged, except for changes in the issuer's creditworthiness. Therefore, upon adoption of Statement No. 133, companies will have another one-time window of opportunity to reclassify held-to- 26. maturity securities to either trading or available-for-sale, provided certain criteria are met. This Statement may be adopted early at the start of a calendar quarter. The Company adopted Statement No. 133 on July 1, 1999 and it did not have a material impact on the Company's financial statements. YEAR 2000 COMPLIANCE The Year 2000 posed a unique set of challenges to those industries reliant on information technology. Financial institutions are particularly dependent on electronic data processing systems. In late 1996, the Company started the process of identifying the hardware and software issues required to be addressed to assure Year 2000 compliance. The Company began by assessing the issues related to the Year 2000 and the potential for those issues to adversely affect the Company's operations and those of its subsidiaries. While the Company did incur some expenses, it did not require material cost expenditures to become fully compliant. Overall, the Company feels that there were adequate sources available and that the costs associated with such sources did not have a material impact on the profits of the Company. As a result of the efforts of the Company's Year 2000 Committee, the Company and its subsidiaries experienced an uneventful transition from 1999 to 2000. There was no disruption of services to customers or with internal operations. Among the benefits derived from the time, effort and costs related to Year 2000 was a complete review and update of the Company's disaster recovery and contingency plans. As a result, the Company is now better prepared to deal with technical or natural disasters which could threaten the Company's operations. The Company will continue to remain aware of dates during 2000 which are considered critical, and will address issues, should they arise. IMPACT OF INFLATION, CHANGING PRICES, AND MONETARY POLICIES The financial statements and related financial data concerning the Company have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly sensitive to many factors which are beyond the control of the Company, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the FRB. 27. [LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors UnionBancorp, Inc. We have audited the accompanying consolidated balance sheets of UnionBancorp, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the 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 UnionBancorp, Inc. and Subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments on July 1, 1999 to conform with Statement of Financial Accounting Standards No. 133. /s/ Crowe, Chizek and Company LLP Crowe, Chizek and Company LLP Oak Brook, Illinois February 2, 2000 28. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
1999 1998 - ------------------------------------------------------------------------------------------------------------------- ASSETS Cash and cash equivalents $ 27,205 $ 24,613 Federal funds sold 25 450 Securities available-for-sale 173,893 133,772 Securities held-to-maturity (fair value of $43,073 in 1998) - 41,847 Loans 472,395 398,388 Allowance for loan losses (3,691) (3,858) ---------- ---------- Net loans 468,704 394,530 Premises and equipment, net 13,446 13,853 Intangible assets, net 10,862 9,099 Mortgage servicing rights 1,201 727 Other assets 8,741 8,303 ---------- ---------- TOTAL ASSETS $ 704,077 $ 627,194 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits Non-interest-bearing $ 67,634 $ 67,227 Interest-bearing 526,564 450,411 ---------- ---------- Total deposits 594,198 517,638 Federal funds purchased and securities sold under agreements to repurchase 5,308 14,855 Advances from the Federal Home Loan Bank 32,733 23,208 Notes payable 9,500 7,000 Other liabilities 5,140 6,545 ---------- ---------- TOTAL LIABILITIES 646,879 569,246 ---------- ---------- Mandatory redeemable preferred stock, Series B, no par value; 1,092 shares authorized; 857 shares issued and outstanding 857 857 ---------- ---------- Stockholders' equity Preferred stock; 200,000 shares authorized; none issued - - Series A Convertible Preferred Stock; 2,765 shares authorized, 2,762.24 shares outstanding (aggregate liquidation preference of $2,762) 500 500 Series C Preferred Stock; 4,500 shares authorized; none issued - - Common stock, $1 par value; 10,000,000 shares authorized; 4,538,572 and 4,533,622 shares outstanding in 1999 and 1998, respectively 4,539 4,534 Surplus 21,608 21,471 Retained earnings 35,743 31,262 Accumulated other comprehensive income (loss) (1,995) 31 Unearned compensation under stock option plans (204) (185) ---------- ---------- 60,191 57,613 Treasury stock, at cost; 491,263 and 271,263 shares in 1999 and 1998 (3,850) (522) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 56,341 57,091 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 704,077 $ 627,194 ========== ==========
See Accompanying Notes to Consolidated Financial Statements. 29. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Interest income Loans $ 38,323 $ 36,102 $ 33,098 Securities Taxable 8,151 9,156 10,838 Exempt from federal income taxes 2,002 2,129 1,694 Federal funds sold and other 73 333 409 ---------- ---------- ---------- TOTAL INTEREST INCOME 48,549 47,720 46,039 ---------- ---------- ---------- Interest expense Deposits 22,012 22,338 21,664 Federal funds purchased and securities sold under agreements to repurchase 679 953 1,171 Advances from the Federal Home Loan Bank 1,526 1,226 543 Notes payable 680 741 1,057 ---------- ---------- ---------- TOTAL INTEREST EXPENSE 24,897 25,258 24,435 ---------- ---------- ---------- NET INTEREST INCOME 23,652 22,462 21,604 Provision for loan losses 1,522 1,635 1,079 ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 22,130 20,827 20,525 ---------- ---------- ---------- Noninterest income Service charges 2,259 2,251 1,854 Merchant fee income 1,116 833 670 Trust income 711 590 516 Mortgage banking income 1,301 1,518 751 Insurance commissions and fees 2,595 317 - Securities gains, net 45 56 193 Gain on sale of subsidiaries - 820 - Other income 1,461 1,686 1,198 ---------- ---------- ---------- 9,488 8,071 5,182 ---------- ---------- ---------- Noninterest expenses Salaries and employee benefits 12,244 10,557 9,231 Occupancy expense, net 1,594 1,520 1,532 Furniture and equipment expense 1,888 1,788 1,599 Supplies and printing 538 563 602 Telephone 677 576 472 Amortization of intangible assets 897 940 903 Other expenses 5,759 4,789 4,425 ---------- ---------- ---------- 23,597 20,733 18,764 ---------- ---------- ---------- 8,021 8,165 6,943 Minority interest - 53 73 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 8,021 8,112 6,870 Income taxes 2,514 2,723 2,105 ---------- ---------- ---------- NET INCOME 5,507 5,389 4,765 Preferred stock dividends 259 259 259 ---------- ---------- ---------- NET INCOME FOR COMMON STOCKHOLDERS $ 5,248 $ 5,130 $ 4,506 ========== ========== ========== BASIC EARNINGS PER COMMON SHARE $ 1.28 $ 1.23 $ 1.09 ========== ========== ========== DILUTED EARNINGS PER COMMON SHARE $ 1.27 $ 1.22 $ 1.08 ========== ========== ==========
See Accompanying Notes to Consolidated Financial Statements. 30. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------
Series A Accumulated Convertible Other Preferred Common Retained Comprehensive Stock Stock Surplus Earnings Income (Loss) ----------- ------- ------- -------- ------------- Balance, January 1, 1997 $ 500 $4,386 $19,403 $22,981 $ (74) Issuance of 19,829 shares of common stock - 20 214 - - Common stock dividend - - - (722) - Preferred stock dividends - - - (259) - Issuance of non- qualifying stock options - - 81 - - Exercise of stock options (1,200 shares) - 1 7 - - Amortization of un- earned compensation under stock option plans - - - - - Comprehensive income Net income - - - 4,765 - Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - - - 930 Total comprehensive income ----- ------ ------- ------- ----- Balance, December 31, 1997 500 4,407 19,705 26,765 856 Common stock dividends - - - (633) - Issuance of 123,529 shares of common stock - 124 1,621 - - Preferred stock dividends - - - (259) - Issuance of non- qualifying stock options - - 120 - - Exercise of stock options (3,000 shares) - 3 25 - - Amortization of un- earned compensation under stock option plans - - - - - Comprehensive income Net income - - - 5,389 - Net decrease in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - - - (825) Total comprehensive income ----- ------ ------- ------- ----- Balance, December 31, 1998 $ 500 $4,534 $21,471 $31,262 $ 31 ===== ====== ======= ======= ===== Unearned Compensation Under Stock Treasury Option Plans Stock Total ------------ -------- -------- Balance, January 1, 1997 $ (91) $(522) $46,583 Issuance of 19,829 shares of common stock - - 234 Common stock dividend - - (722) Preferred stock dividends - - (259) Issuance of non- qualifying stock options (81) - - Exercise of stock options (1,200 shares) - - 8 Amortization of un- earned compensation under stock option plans 42 - 42 Comprehensive income Net income - - 4,765 Net increase in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - 930 ------ Total comprehensive income 5,695 ------- -------- ------ Balance, December 31, 1997 (130) (522) 51,581 Common stock dividends - - (633) Issuance of 123,529 shares of common stock - - 1,745 Preferred stock dividends - - (259) Issuance of non- qualifying stock options (120) - - Exercise of stock options (3,000 shares) - - 28 Amortization of un- earned compensation under stock option plans 65 - 65 Comprehensive income Net income - - 5,389 Net decrease in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - (825) ------ Total comprehensive income 4,564 ------- -------- ------ Balance, December 31, 1998 $ (185) $(522) $57,091 ======= ======== =======
(Continued) 31. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------
Series A Accumulated Convertible Other Preferred Common Retained Comprehensive Stock Stock Surplus Earnings Income (Loss) ------------ ------ ------- -------- ------------- Balance, December 31, 1998 $500 $4,534 $21,471 $31,262 $ 31 Common stock dividends - - - (767) - Preferred stock dividends - - - (259) - Issuance of non- qualifying stock options - - 98 - - Exercise of stock options (4,950 shares) - 5 39 - - Amortization of un- earned compensation under stock option plans - - - - - Purchase 220,000 shares of treasury stock - - - - - Comprehensive income Net income - - - 5,507 - Effect of transfer of securities held-to- maturity to available-for- sale, net of income taxes - - - - 65 Net decrease in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - - - (2,091) Total comprehensive income ---- ------ ------- ------- --------- Balance, December 31, 1999 $500 $4,539 $21,608 $35,743 $(1,995) ==== ====== ======= ======= ========= Unearned Compensation Under Stock Treasury Option Plans Stock Total ------------ --------- -------- Balance, December 31, 1998 $(185) $ (522) $ 57,091 Common stock dividends - - (767) Preferred stock dividends - - (259) Issuance of non- qualifying stock options (98) - - Exercise of stock options (4,950 shares) 1 - 45 Amortization of un- earned compensation under stock option plans 78 - 78 Purchase 220,000 shares of treasury stock - (3,328) (3,328) Comprehensive income Net income - - 5,507 Effect of transfer of securities held-to- maturity to available-for- sale, net of income taxes - - 65 Net decrease in fair value of securities classified as available-for-sale, net of income taxes and reclassi- fication adjustments - - (2,091) -------- Total comprehensive income 3,481 ------- -------- -------- Balance, December 31, 1999 $(204) $(3,850) $56,341 ======= ======== ========
See Accompanying Notes to Consolidated Financial Statements. 32. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net income $ 5,507 $ 5,389 $ 4,765 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 1,650 1,679 1,474 Amortization of intangible assets 897 940 903 Amortization of unearned compensation under stock option plans 78 65 42 Amortization of bond premiums, net (127) 126 254 Provision for loan losses 1,522 1,635 1,079 Provision for deferred income taxes (255) (44) 287 Securities gains, net (45) (56) (193) Gain on sale of subsidiaries, net - (820) - Gain on sale of land and equipment - (143) (76) Gain on sale of real estate acquired in settlement of loans (39) (4) (51) Gain on sale of loans (944) (1,313) (546) Net loans originated for sale (5,015) (4,507) (527) Minority interest in net income of subsidiary - 53 73 Change in assets and liabilities (Increase) decrease in other assets 430 134 (165) Increase (decrease) in other liabilities 133 (516) 509 ---------- ---------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 3,792 2,618 7,828 Cash flows from investing activities Securities Held-to-maturity Proceeds from calls, maturities, and paydowns 1,167 6,333 3,108 Purchases (2,773) (13,208) (5,367) Available-for-sale Proceeds from maturities and paydowns 38,027 69,447 30,071 Proceeds from sales 5,655 7,453 28,773 Purchases (43,487) (58,782) (29,550) Net increase (decrease) in federal funds sold (425) (818) 8,863 Net increase in loans (70,467) (42,838) (24,831) Purchase of premises and equipment (1,140) (2,205) (2,630) Proceeds from sale of real estate acquired in settlement of loans 445 420 655 Proceeds from sale of land and equipment - 832 181 Bank and bank holding company acquisitions and sales, net of cash and cash equivalents received 25,988 (2,470) - ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (47,010) (35,836) 9,273
(Continued) 33. UNIONBANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997 (IN THOUSANDS)
1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Net increase (decrease) in deposits $ 47,641 $ 27,827 $ (15,997) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase (9,547) 3,705 (10,056) Net increase in advances from the Federal Home Loan Bank 9,525 7,598 6,434 Payments on notes payable - (3,261) (3,685) Proceeds from notes payable 2,500 - 766 Dividends on common stock (767) (633) (722) Dividends on preferred stock (259) (259) (259) Proceeds from exercise of stock options 45 28 8 Purchase of treasury stock (3,328) - - ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 45,810 35,005 (23,511) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,592 1,787 (6,410) Cash and cash equivalents Beginning of year 24,613 22,826 29,236 ---------- ---------- ---------- End of year $ 27,205 $ 24,613 $ 22,826 ========== ========== ========== Supplemental disclosures of cash flow information Cash payments for Interest $ 24,284 $ 25,591 $ 24,547 Income taxes 3,190 2,387 1,966
See Accompanying Notes to Consolidated Financial Statements. 34. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES UnionBancorp, Inc. (the "Company") is a bank holding company organized under the laws of the state of Delaware. Through its commercial bank and nonbank subsidiaries, the Company provides a full range of banking services to individual and corporate customers in the north central and west central Illinois areas. These services include demand, time, and savings deposits; lending; mortgage banking; insurance products; brokerage services; and trust services. The Company is subject to competition from other financial institutions and nonfinancial institutions providing financial services. Additionally, the Company and its bank subsidiaries (the "Banks") are subject to regulations of certain regulatory agencies and undergo periodic examinations by those regulatory agencies. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company; its bank subsidiaries, UnionBank, UnionBank/West, UnionBank/Central, UnionBank/Northwest; and its nonbank subsidiaries, UnionData Corp., Inc. and UnionTrust Corporation. In addition, UnionBank has a nonbank subsidiary, UnionFinancial Services, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying financial statements have been prepared in conformity with generally accepted accounting principles and with general practice in the banking industry. In preparing the financial statements, management makes 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 income and expenses during the reporting period. The allowance for loan losses, fair values of financial instruments, and status of contingencies are particularly subject to change. Assets held in an agency or fiduciary capacity, other than trust cash on deposit with the Banks, are not assets of the Company and, accordingly, are not included in the accompanying consolidated financial statements. SECURITIES Securities classified as held-to-maturity are those debt securities which the Company has the ability and management has the intent to hold to maturity. These securities are carried at cost adjusted for amortization of premium and accretion of discount, computed using the interest method over their contractual lives. Securities classified as available-for-sale are those debt securities which the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company's assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities (Continued) 35. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) available-for-sale are carried at fair value with unrealized gains or losses, net of the related deferred income tax effect, reported in other comprehensive income. Interest income, adjusted for amortization of premiums and accretion of discounts, is included in earnings. Gains or losses from the sale of securities are determined using the specific identification method. HEDGING ACTIVITIES All derivative instruments are recorded at fair value. Unless designated as hedges, changes in these fair values will be recorded in the income statement. Fair value changes involving hedges are recorded by offsetting gains and losses on the hedge and on the hedged item, even if the fair value of the hedged item is not otherwise recorded. LOANS Loans are stated at the principal amount outstanding. Interest on loans is included in interest income over the term of the loan based upon the principal balance outstanding. The accrual of interest on loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due (usually 90 days). When the accrual of interest is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received and the principal is considered fully collectible. The Banks originate certain loans for sale in the secondary market. These loans are recorded at the lower of aggregate cost or market value until they are sold. Net unrealized losses are recognized in a valuation allowance by charges to income. Gains or losses on sales of loans held for sale are computed using the specific-identification method and are reflected in income at the time of sale. MORTGAGE SERVICING RIGHTS The cost of mortgage servicing rights is amortized in proportion to and over the period of estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The amount of impairment is the excess of the capitalized mortgage servicing rights over fair value. Any impairment of a grouping is reported as a valuation allowance. (Continued) 36. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) ALLOWANCE FOR LOAN LOSSES An allowance for loan losses has been established to provide for the probability that some loans may not be repaid in their entirety. The allowance is increased by provisions for loan losses charged to expense and decreased by charge-offs, net of recoveries. Although a loan is charged off by management when deemed uncollectible, collection efforts may continue and future recoveries may occur. The allowance is maintained by management at a level considered adequate to cover losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations (including their financial position and collateral values), and other factors and estimates which are subject to change over time. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective and ultimate losses may vary from current estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which they become known. Loans are considered impaired if it is probable that full principal or interest payments will not be collected per the loan agreement. Each impaired loan is carried at the present value of expected cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. A portion of the allowance for loan losses is allocated to an impaired loan if the present value of cash flows or collateral value indicate the need for an allowance. Smaller balance homogeneous loans are evaluated for impairment in total. Such loans include residential first mortgage loans secured by one-to-four-family residences; residential construction loans; and automobile, home equity, and second mortgage loans. Commercial loans and mortgage loans secured by other properties are evaluated individually for impairment. (Continued) 37. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) PREMISES AND EQUIPMENT Premises and equipment are stated at cost, less accumulated depreciation and amortization. Provisions for depreciation and amortization, included in operating expenses, are computed on the straight-line method over the estimated useful lives of the assets. The cost of maintenance and repairs is charged to income as incurred; significant improvements are capitalized. INTANGIBLE ASSETS The excess of the purchase price over the fair value of assets acquired for acquisition transactions accounted for as purchases is recorded as an intangible asset. Fair value adjustments for identifiable tangible assets are accreted and amortized over the lives of the respective assets. Core deposit intangibles are amortized on a straight-line basis over ten years. Goodwill is amortized on a straight-line basis over fifteen years. INCOME TAXES Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities and expected benefits of operating loss carryforwards and credit carryforwards. Deferred taxes are recognized for the estimated taxes ultimately payable or recoverable based on enacted tax laws. Changes in enacted tax rates and laws are reflected in the financial statements in the periods they occur. EARNINGS PER SHARE Basic earnings per share is based on weighted-average common shares outstanding. Diluted earnings per share assumes the issuance of any dilutive potential common shares under stock options and Series A converted preferred shares using the treasury stock method. PREFERRED STOCK Terms of each class of preferred stock are as follows: PREFERRED STOCK: The Company's Certificate of Incorporation authorizes its Board of Directors to fix or alter the rights, preferences, privileges, and restrictions of 200,000 shares of Preferred Stock, including the dividend rights, original issue price, conversion rights, voting rights, terms of redemption, liquidation preferences, and sinking fund terms thereof, and the number of shares of each series subsequent to the issuance of shares of such series (but not below the number of shares outstanding). (Continued) 38. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) SERIES A CONVERTIBLE PREFERRED STOCK: The Company has issued 2,762.24 of the 2,765 authorized shares of Series A Convertible Preferred Stock. Preferential cumulative cash dividends are payable quarterly at an annual rate of $75.00 per share. Dividends accrue on each share of Series A Preferred Stock from the date of issuance and from day to day thereafter, whether or not earned or declared. The shares of Series A Preferred Stock are convertible into the number of shares of Common Stock that results from multiplying $1,000 by the number of shares of Series A Preferred Stock, subtracting from this product such realized after-tax loss of specified securities obtained in the acquisition of Prairie Bancorp, Inc. and dividing this result by the conversion price (1.075 times the Common Stock per share book value). Series A Preferred Stock is not redeemable for cash. Holders of shares of Series A Preferred Stock are not entitled to vote except: (i) as required by law; (ii) to approve the authorization or issuance of any shares of any class or series of stock which ranks senior or on a parity with the Series A Preferred Stock in respect of dividends and distributions upon the dissolution, liquidation, or winding up of the Company; (iii) during any period of time when two dividend payments on shares of Series A Preferred Stock have accrued but have not been paid; (iv) upon conversion of the shares of Series A Preferred Stock into shares of Common Stock; or (v) if the holders of Common Stock vote on a proposal to merge or otherwise enter into a transaction with a third party pursuant to which the Company is not the surviving entity. On dissolution, winding up, or liquidation of the Company, voluntary or otherwise, holders of Series A Preferred Stock will be entitled to receive, out of the assets of the Company available for distribution to stockholders, the amount of $1,000 per share, plus any accrued but unpaid dividends, before any payment or distribution may be made on shares of Common Stock or any other securities issued by the Company which rank junior to the Series A Preferred Stock. SERIES B MANDATORY REDEEMABLE PREFERRED STOCK: The Company has issued 857 of the 1,092 authorized shares of Series B Mandatory Redeemable Preferred Stock. Preferential cumulative cash dividends are payable quarterly at an annual rate of $60.00 per share. Dividends accrue on each share of Series B Preferred Stock from the date of issuance and from day to day, thereafter, whether or not earned or declared. Each original holder of Series B Preferred Stock (or upon such holder's deaths, their respective executors or personal representatives) will have the option, exercisable at their sole discretion, to sell and the Company will be obligated to redeem such holder's shares of Series B Preferred Stock upon the earlier to occur of the death of the respective original holder of Series B Preferred Stock or ten years after the original issuance date of the Series B Preferred Stock. The per share price payable by the Company for such shares of Series B Preferred Stock will be equal to $1,000 per share, plus any accrued but unpaid dividends. Notwithstanding the foregoing, the Company will not be obligated to redeem for cash any shares of Series B Preferred Stock if such redemption would cause it to be in violation of any statute, rule, or regulation or agreement to which it is a party relating to minimum capital requirements, provided that the Company is required to use its best efforts promptly to remedy any such violation and shall promptly complete the redemption of such shares after such violation has been cured. Holders of shares of Series B Preferred Stock are not entitled to vote except (Continued) 39. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) as required by law. On dissolution, wind up, or liquidation of the Company, voluntary or otherwise, holders of Series B Preferred Stock will be entitled to receive, out of the assets of the Company available for distribution to stockholders, the amount of $1,000 per share, plus any accrued but unpaid dividends, before any payment or distribution may be made on shares of Common Stock or any other securities issued by the Company which rank junior to the Series B Preferred Stock. SERIES C JUNIOR PARTICIPATING PREFERRED STOCK: The Company has authorized 4,500 shares of Series C Junior Participating Preferred Stock. The Series C Preferred Stock is only issuable upon exercise of rights issued pursuant to the Company's Stockholder Rights Plan. Each share of Series C Junior Participating Preferred Stock is entitled to, when, as, and if declared, a minimum preferential quarterly dividend payment of $3.00 per share but will be entitled to an aggregate dividend of 1,000 times the dividend declared per share of Common Stock. In the event of liquidation, dissolution, or winding up of the Company, the holders of the Series C Preferred Stock will be entitled to a minimum preferential payment of $1,000 per share (plus any accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times the payment made per share of Common Stock. Each share of Series C Preferred Stock will have 1,000 votes, voting together with the Common Stock. Finally, in the event of any merger, consolidation, or other transaction in which outstanding shares of Common Stock are converted or exchanged, each share of Series C Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions. STOCKHOLDER RIGHTS PLAN: On July 17, 1996, the Company declared a dividend of one preferred share purchase right ("Right") for each outstanding share of Common Stock. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series C Junior Participating Preferred Stock, no par value, of the Company at a price of $50.00 per one one-thousandth of a share of Preferred Stock ("Purchase Price"), subject to adjustment. The description and terms of the Rights are set forth in a Rights Agreement dated as of August 5, 1996, as the same may be amended from time to time ("Rights Agreement"), between the Company and Harris Trust and Savings Bank, as Rights Agent. The Rights are not exercisable until the earlier to occur of: (i) 10 days after a person or group ("Acquiring Person") has acquired beneficial ownership of 15% or more of the outstanding shares of Common Stock or (ii) 10 business days (or such later date as determined by the Board of Directors) following the commencement of a tender offer or exchange offer ("Distribution Date"). Unless extended, the Rights will expire on August 4, 2006. (Continued) 40. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In the event that any person(s) becomes an Acquiring Person, each holder of a Right, other than Rights beneficially owned by the Acquiring Person (which will thereupon become void), will thereafter have the right to receive upon exercise of a Right that number of shares of Common Stock having a market value of two times the exercise price of the Right. In the event that, after a person or group has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power are sold, proper provisions will be made so that each holder of a Right (other than Rights beneficially owned by an Acquiring Person which will have become void) will thereafter have the right to receive upon the exercise of a Right that number of shares of common stock of the person with whom the Company has engaged in the foregoing transaction (or its parent) that at the time of such transaction have a market value of two times the exercise price of the Right. At any time prior to the time an Acquiring Person becomes such, the Board of Directors of the Company may redeem the Rights in whole, but not in part, at a price of $.01 per Right. DIVIDEND RESTRICTION Banking regulations require the maintenance of certain capital levels and may limit the amount of dividends which may be paid by the subsidiary banks to the holding company or by the holding company to stockholders. LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements. COMPREHENSIVE INCOME Comprehensive income includes both net income and other comprehensive income elements, including the change in unrealized gains and losses on securities available-for-sale, net of tax. NOTE 2. BUSINESS ACQUISITIONS AND DIVESTITURES 1999 On December 10, 1999, the Company acquired the Rushville branch of Associated Bank Illinois, National Association. At the date of purchase, the branch had deposits of $28,900, premises and equipment of $103, and loans of $4. The total acquired cost of $2,800 resulted in goodwill of $2,700. This transaction was recorded using the purchase method of accounting. As such, the (Continued) 41. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 2. BUSINESS ACQUISITIONS AND DIVESTITURES (Continued) results of operations are excluded from the consolidated statements of income for periods prior to the acquisition date. The effects of this transaction are not material, and therefore, details of the previously separate entity have not been included. 1998 On October 30, 1998, the Company acquired Mercier Insurance Agency L.P. ("Mercier"), an insurance agency located in Spring Valley, Illinois. At the date of acquisition, Mercier had approximately $1,729 of total assets and $1,005 of liabilities. In conjunction with the acquisition, the Company issued 123,529 shares of Common Stock valued at $1,745 and paid cash of $1,000. The total acquisition cost of $2,745 resulted in goodwill of $2,021. This transaction was recorded using the purchase method of accounting. As such, the results of operations of Mercier are excluded from the consolidated statements of income for the periods prior to the acquisition date. The effects of this transaction are not material, and therefore, details of the previously separate entity have not been included. On November 30, 1998, the Company sold its 81.7% interest in one of its subsidiary banks, Bank of Ladd. At the date of sale, Bank of Ladd had approximately $33,782 in total assets and $29,619 in total liabilities. Earnings through November 30, 1998 approximated $291,000 and the sales price was $4,781. On December 17, 1998, the Company sold a UnionBank/West branch location. At the date of sale, the branch had approximately $3,467 in total assets and $10,009 in total liabilities. The sales price was $5,881. NOTE 3. SECURITIES Amortized costs and fair values of securities are summarized as follows:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- AVAILABLE-FOR-SALE December 31, 1999 U.S. Treasury $ 5,519 $ 7 $ (65) $ 5,461 U.S. government agencies 57,797 3 (1,495) 56,305 States and political subdivisions 43,245 260 (685) 42,820 U.S. government mortgage-backed securities 30,888 4 (930) 29,962 Collateralized mortgage obligations 35,837 30 (386) 35,481 Equity securities 3,864 - - 3,864 ------------ ----------- ----------- ------------ $ 177,150 $ 304 $ (3,561) $ 173,893 ============ =========== =========== ============
(Continued) 42. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 3. SECURITIES (Continued)
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---- ----- ------ ----- AVAILABLE-FOR-SALE December 31, 1998 U.S. Treasury $ 6,753 $ 138 $ - $ 6,891 U.S. government agencies 49,203 222 (95) 49,330 U.S. government mortgage-backed securities 31,111 52 (158) 31,005 Collateralized mortgage obligations 43,315 474 (581) 43,208 Corporate bonds 100 - - 100 Equity securities 3,238 - - 3,238 ------------ ----------- ----------- ------------ $ 133,720 $ 886 $ (834) $ 133,772 ============ =========== =========== ============ HELD-TO-MATURITY December 31, 1998 States and political subdivisions $ 41,847 $ 1,245 $ (19) $ 43,073 ============ =========== =========== ===========
The amortized cost and fair value of securities classified as available-for-sale at December 31, 1999, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair Cost Value ---- ----- Due in one year or less $ 31,711 $ 31,194 Due after one year through five years 46,848 45,911 Due after five years through ten years 26,336 25,805 Due after ten years 1,666 1,676 U.S. government mortgage-backed securities 30,888 29,962 Collateralized mortgage obligations 35,837 35,481 Equity securities 3,864 3,864 ------------ ------------ $ 177,150 $ 173,893 ============ ============
As of December 31, 1999, the Company held U.S. government agency structured notes and callable securities carried at fair values of $2,063 and $51,774, respectively. The amortized cost of these securities was $2,200 and $53,113, respectively, as of December 31, 1999. Securities with carrying values of approximately $144,000 and $123,000 at December 31, 1999 and 1998, respectively, were pledged to secure public deposits and securities sold under agreements to repurchase and for other purposes as required or permitted by law. (Continued) 43. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 3. SECURITIES (Continued) Effective July 1, 1999, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. As permitted by SFAS No. 133, the Company reclassified all of its securities held-to-maturity to securities available-for-sale. The securities which were reclassified had a book value of $44,350 and a fair value of $44,456 at July 1, 1999. Realized gains and losses from the sale of securities available-for-sale follow:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Proceeds $ 5,655 $ 7,453 $ 28,773 Realized gains 45 79 287 Realized losses - (23) (94)
NOTE 4. LOANS The major classifications of loans follow:
December 31, ---------------------------- 1999 1998 ------------ ------------ Commercial $ 142,170 $ 116,302 Real estate 283,973 246,518 Installment 43,644 32,714 Other 2,608 2,854 ------------ ------------ 472,395 398,388 ------------ ------------
The following table presents data on impaired loans:
December 31, ---------------------------------- 1999 1998 1997 ---------- --------- -------- Year-end impaired loans for which an allowance has been provided $ 1,063 $ 432 $ 1,714 Year-end impaired loans for which no allowance has been provided 1,886 1,105 - ---------- --------- -------- Total loans determined to be impaired $ 2,949 $ 1,537 $ 1,714 ========== ========= ======== Allowance for loan loss for impaired loans included in the allowance for loan losses $ 422 $ 289 $ 286 ========== ========= ======== Average recorded investment in impaired loans $ 2,991 $ 1,817 $ 2,375 ========== ========= ======== Interest income recognized from impaired loans $ 3 $ 94 $ 6 ========== ========= ======== Cash basis interest income recognized from impaired loans $ - $ - $ - ========== ========= ========
(Continued) 44. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 4. LOANS (Continued) The Company and its subsidiaries conduct most of their business activities, including granting agribusiness, commercial, residential, and installment loans, with customers in north central and west central Illinois. The Banks' loan portfolios include a concentration of loans to agricultural and agricultural-related industries amounting to approximately $77,175 and $77,611 as of December 31, 1999 and 1998, respectively. In addition, the Company has a concentration of commercial real estate loans of approximately $126,645 and $99,872 as of December 31, 1999 and 1998, respectively. Credit losses arising from lending transactions with agricultural entities compare favorably with the Banks' credit loss experience on the loan portfolio as a whole. In the normal course of business, loans are made to executive officers, directors, and principal stockholders of the Company and its subsidiaries and to parties which the Company or its directors, executive officers, and stockholders have the ability to significantly influence (related parties). In the opinion of management, the terms of these loans, including interest rates and collateral, are similar to those prevailing for comparable transactions with other customers and do not involve more than a normal risk of collectibility. Changes in such loans during the year ended December 31, 1999 follow: Balance at December 31, 1998 $ 12,649 New loans, extensions, and modifications 15,321 Repayments (12,673) ------------- Balance at December 31, 1999 $ 15,297 =============
NOTE 5. LOAN SERVICING The following summarizes the secondary mortgage market activities:
Years Ended December 31, ---------------------------------------------- 1999 1998 1997 ------------- ------------ ------------ Proceeds from sale of mortgage loans $ 60,145 $ 80,241 $ 31,485 ============= ============ ============ Gain on sale of mortgage loans $ 944 $ 1,313 $ 546 ============= ============ ============
(Continued) 45. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 5. LOAN SERVICING (Continued) Mortgage loans serviced for others are not included in the accompanying consolidated balance sheet. The unpaid principal balances of these loans are summarized as follows:
December 31, ---------------------------- 1999 1998 ----------- ------------ FHLMC $ 21,971 $ 28,780 FNMA 126,493 82,361 SBA 8,901 5,734 SW OHIO 303 718 IHDA 1,581 1,061 ------------ ------------ $ 159,249 $ 118,654 ============ ============
Custodial escrow balances maintained in connection with the foregoing loan servicing were approximately $590 and $406 at December 31, 1999 and 1998, respectively. Following is an analysis of the changes in originated mortgage servicing rights:
Originated Mortgage Servicing Rights ---------------- Balance at January 1, 1997 $ 33 Originated mortgage servicing rights 166 Amortization (7) ------------ Balance at December 31, 1997 192 Originated mortgage servicing rights 652 Amortization (117) ------------ Balance at December 31, 1998 727 Originated mortgage servicing rights 594 Amortization (120) ------------ Balance at December 31, 1999 $ 1,201 ============
Loans held for sale, which are included in real estate loans are summarized as follows:
December 31, ---------------------------- 1999 1998 ------------ ------------ Secured by one-to-four-family residences $ 1,460 $ 8,269 Small Business Administration loans 1,122 786 Unrealized loss - - ------------ ------------ $ 2,582 $ 9,055 ============ ============
(Continued) 46. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 6. ALLOWANCE FOR LOAN LOSSES An analysis of activity in the allowance for loan losses follows:
Years Ended December 31, ----------------------------------- 1999 1998 1997 ---- ---- ---- Balance at beginning of year $ 3,858 $ 3,188 $ 3,068 Balance acquired (divested) - (176) - Provision for loan losses 1,522 1,635 1,079 Recoveries 183 243 248 Loans charged off (1,872) (1,032) (1,207) ----------- ----------- ----------- Balance at end of year $ 3,691 $ 3,858 $ 3,188 =========== =========== ===========
NOTE 7. PREMISES AND EQUIPMENT Premises and equipment consisted of:
December 31, --------------------- 1999 1998 ---- ---- Land $ 1,122 $ 1,017 Buildings 13,245 11,901 Furniture and equipment 12,558 12,483 ----------- ----------- 26,925 25,401 Less accumulated depreciation 13,479 11,548 ----------- ----------- $ 13,446 $ 13,853 =========== ===========
(Continued) 47. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 8. DEPOSITS Deposit account balances by type are summarized as follows:
December 31, -------------------- 1999 1998 ---- ---- Non-interest-bearing demand deposits $ 67,634 $ 67,227 Savings, NOW, and money market accounts 148,597 144,861 Time deposits of $100 or more 149,993 132,235 Other time deposits 227,974 173,315 ------------ ------------ $ 594,198 $ 517,638 ============ ============
At December 31, 1999, the scheduled maturities of time deposits are as follows:
Year Amount ---- ------------ 2000 $ 291,685 2001 42,902 2002 28,367 2003 11,730 2004 and thereafter 3,283 ------------ $ 377,967 ============
Time certificates of deposit in denominations of $100 or more mature as follows:
December 31, --------------------------- 1999 1998 ------------ ----------- 3 months or less $ 48,618 $ 42,264 Over 3 months through 6 months 48,289 26,056 Over 6 months through 12 months 36,359 30,033 Over 12 months 16,727 33,882 ------------ ----------- $ 149,993 $ 132,235 ============ ===========
(Continued) 48. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 9. BORROWED FUNDS Borrowed funds include federal funds purchased and securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and notes payable to third parties. A summary of short-term borrowings follows:
December 31, -------------------------- 1999 1998 ---------- ----------- Federal funds purchased $ 3,000 $ 4,000 Securities sold under agreements to repurchase 2,308 10,855 ----------- ----------- $ 5,308 $ 14,855 =========== ===========
Federal funds purchased and securities sold under agreement to repurchase generally mature within one to ninety days from the transaction date. At December 31, 1999, $16.5 million of Federal Home Loan Bank advances were callable. The scheduled maturities of advances from the Federal Home Loan Bank at December 31, 1999 are as follows:
Average Year Interest Rate Amount ---- ------------- ----------- 2000 5.82% $ 9,525 2001 5.56 4,058 2002 7.43 350 2003 and Thereafter 5.70 18,800 ----------- $ 32,733 ===========
Where required, the FHLB advances are secured by mortgage loans. Notes payable consisted of the following at December 31, 1999 and 1998:
1999 1998 ---- ---- Line of credit loan ($7,000) to LaSalle National Bank; interest due quarterly at six-month LIBOR (7.145% at December 31, 1999); balance due on October 1, 2000; secured by 100% of the stock of the subsidiary banks. $ 7,000 $ 7,000 Revolving credit loan ($10,000) to LaSalle National Bank; interest due quarterly at three-month LIBOR (7.3563% at December 31, 1999); balance due at October 1, 2000; secured by 100% of the stock of the subsidiary banks. 2,500 - ------- ------- $ 9,500 $ 7,000 ======= =======
(Continued) 49. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) (CONTINUED) - -------------------------------------------------------------------------------- NOTE 9. BORROWED FUNDS (Continued) The note payable agreements contain certain covenants which limit the amount of dividends paid, the purchase of other banks and/or businesses, the purchase of investments not in the ordinary course of business, the changes in capital structure, and the guarantees of other liabilities and obligations. In addition, the Company must maintain certain financial ratios. The Company was in compliance with all covenants for the year ended December 31, 1999. Information concerning borrowed funds is as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- FEDERAL FUNDS PURCHASED Maximum month-end balance during the year $ 13,000 $ 6,050 $ 11,200 Average balance during the year $ 4,178 $ 1,312 $ 2,451 Weighted average interest rate for the year 5.33% 6.53% 6.58% Weighted average interest rate at year end 6.00% 6.00% - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Maximum month-end balance during the year $ 22,830 $ 23,844 $ 11,861 Average balance during the year $ 8,872 $ 15,461 $ 18,232 Weighted average interest rate for the year 5.22% 5.61% 5.53% Weighted average interest rate at year end 5.78% 5.25% 5.80% ADVANCES FROM THE FEDERAL HOME LOAN BANK Maximum month-end balance during the year $ 33,733 $ 25,955 $ 22,895 Average balance during the year $ 27,636 $ 21,727 $ 8,783 Weighted average interest rate for the year 5.52% 5.64% 6.18% Weighted average interest rate at year end 5.74% 5.48% 5.78% NOTES PAYABLE Maximum month-end balance during the year $ 10,000 $ 12,130 $ 17,419 Average balance during the year $ 9,530 $ 11,024 $ 13,247 Weighted average interest rate for the year 7.14% 7.14% 7.98% Weighted average interest rate at year end 7.20% 6.74% 7.40%
(Continued) 50. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 10. INCOME TAXES Income taxes consisted of:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Federal Current $ 2,394 $ 2,547 $ 1,818 Deferred 5 (138) 12 ----------- ----------- ----------- 2,399 2,409 1,830 State Current 375 220 - Deferred (260) 94 275 ----------- ----------- ----------- 115 314 275 ----------- ----------- ----------- $ 2,514 $ 2,723 $ 2,105 =========== =========== ===========
The Company's income tax expense differed from the statutory federal rate of 34% as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Expected income taxes $ 2,727 $ 2,758 $ 2,336 Income tax effect of Interest earned on tax-free investments and loans (757) (768) (632) Nondeductible interest expense incurred to carry tax-free investments and loans 112 115 87 Nondeductible amortization 164 659 199 State income taxes, net of federal tax benefit 245 252 220 Gain on sale of subsidiaries, net - (157) - Other 23 (136) (105) ----------- ----------- ----------- $ 2,514 $ 2,723 $ 2,105 =========== =========== ===========
(Continued) 51. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 10. INCOME TAXES (Continued) The significant components of deferred income tax assets and liabilities consisted of:
December 31, -------------------------- 1999 1998 -------------------------- Deferred tax assets Allowance for loan losses $ 1,210 $ 1,033 Deferred compensation 20 25 Securities available-for-sale 1,262 - ----------- ----------- TOTAL DEFERRED TAX ASSETS 2,492 1,058 Deferred tax liabilities Depreciation (573) (546) Basis adjustments arising from acquisitions (396) (360) Securities available-for-sale - (20) Other (747) (893) ----------- ----------- TOTAL DEFERRED TAX LIABILITIES (1,716) (1,819) ----------- ----------- Net deferred tax assets (liabilities) $ 776 $ (761) =========== ===========
NOTE 11. BENEFIT PLANS The Company's Employee Stock Ownership Plan (the "Plan") covers all full-time employees who have completed six months of service and have attained the minimum age of twenty and one-half years. Vesting in the Plan is based on years of continuous service. A participant is fully vested after seven years of credited service. The Plan owns 439,368 shares of the Company's Common Stock. All shares held by the Plan are allocated to plan participants. The Company expenses all cash contributions made to the Plan. Contributions were $512, $355, and $272 for the years ended December 31, 1999, 1998, and 1997, respectively. Effective January 1, 1998, the Company established a 401(k) salary reduction plan (the "401(k) plan") covering substantially all employees. Eligible employees may elect to make tax deferred contributions within a specified range of their compensation as defined in the 401(k) plan. The Company contributes at its discretion. Contributions to the 401(k) plan are expensed currently and approximated $132 and $145 for the years ended December 31, 1999 and 1998, respectively. Prior to January 1, 1998, one of the acquired entities maintained a 401(k) salary reduction plan covering substantially all employees. UnionBancorp, Inc. maintained this plan after the acquisitions and contributed at its discretion until the plan was merged with the Company's 401(k) plan on January 1, 1998. Contributions to the plans were expensed and approximated $93 for the year ended December 31, 1997. (Continued) 52. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 12. STOCK OPTION PLANS In April 1993, the Company adopted the UnionBancorp 1993 Stock Option Plan (the "1993 Option Plan"). Under the 1993 Option Plan, nonqualified options, incentive stock options, and/or stock appreciation rights may be granted to employees and outside directors of the Company and its subsidiaries to purchase the Company's Common Stock at an exercise price to be determined by the 1993 Option Plan's administrative committee. Pursuant to the 1993 Option Plan, 600,000 shares of the Company's unissued Common Stock have been reserved and are available for issuance upon the exercise of options and rights granted under the 1993 Option Plan. In 1999, the Company adopted the UnionBancorp, Inc. non-qualified Stock Option Plan (the "1999 Option Plan"). Under the 1999 Option Plan, nonqualified options may be granted to employees and eligible directors of the Company and its subsidiaries to purchase the Company's Common Stock at 100% of the fair market value on the date the option is granted. The Company has authorized 50,000 shares for issuance under the 1999 Option Plan. At December 31, 1999, 40,750 of the shares were granted and are exercisable in three years. A summary of the status of the option plans as of December 31, 1999, 1998, and 1997 and changes during the years ending on those dates is presented below.
1999 1998 1997 -------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price -------------------------------------------------------------------------- Outstanding at beginning of year 199,878 $ 10.73 137,878 $ 7.81 104,478 $ 6.87 Granted 116,250 14.53 65,000 16.65 34,600 10.65 Exercised (4,950) 5.88 (3,000) 5.04 (1,200) 6.75 Forfeited (500) 15.00 - - - - ---------- --------- ---------- ------- ---------- ------- Outstanding at end of year 310,678 12.22 199,878 10.73 137,878 7.81 ========== ========== ========== Options exercisable at year end 110,212 $ 8.69 71,895 $ 7.12 50,570 $ 6.58 ========== ========= ========== ======= ========== ======= Weighted-average fair value of options granted during the year $ 6.04 $ 6.93 $ 5.31 ========= ======= =======
(Continued) 53. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 12. STOCK OPTION PLANS (Continued) Options outstanding at year-end 1999 were as follows:
----OUTSTANDING------- ------EXERCISABLE------ Weighted Average Weighted Remaining Average Range of Contractual Exercise Exercise Prices Number Life Number Price --------------- ------ ---- ------ ----- $ 5.04 - $ 8.33 83,853 6 years 70,487 $ 6.51 9.67 - 13.00 72,075 8 years 25,125 10.34 13.88 - 18.50 154,750 9 years 14,600 16.35 ------- --------- ------ ------- Outstanding at year end 310,678 7.5 years 110,212 $ 8.69 ======= ========= ======= =======
Grants under the option plans are accounted for following APB Opinion No. 25 and related interpretations. Accordingly, no compensation cost has been recognized for incentive stock option grants under the option plans. Compensation cost charged to income for nonqualified stock option grants was $78, $65, and $42, for the years ended December 31, 1999, 1998, and 1997, respectively. Had the compensation cost for all of the stock-based compensation plans been determined based on the grant date using the estimated fair value under SFAS No. 123, reported income and earnings per common share would have been reduced to the pro forma amounts shown below:
1999 1998 1997 ---- ---- ---- Net income for common stockholders As reported $ 5,248 $ 5,130 $ 4,506 Pro forma 4,991 5,000 4,450 Basic earnings per common share As reported 1.28 1.23 1.09 Pro forma 1.22 1.20 1.08 Diluted earnings per common share As reported 1.27 1.22 1.08 Pro forma 1.21 1.19 1.07
The fair value of the options granted in 1999, 1998, and 1997 is estimated at $6.04, $6.93, and $5.31, as of the date of grant using the Black Scholes options value model with the following assumptions:
1999 1998 1997 ---- ---- ---- Dividend yield 1.23% .92% 1.34% Risk-free interest rate 5.50 4.60% 6.36% Assumed forfeiture rate - - - Average life 7 6 6 Expected volatility of stock price 28.69% 27.78% 24.04%
(Continued) 54. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 13. EARNINGS PER SHARE A reconciliation of the numerators and denominators for earnings per common share computations for the years ended December 31 is presented below (shares in thousands). The Convertible Preferred Stock is antidilutive for all years presented and has not been included in the diluted earnings per share calculation. In addition, options to purchase 79,750 shares of common stock were outstanding at December 31, 1999 but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price and, therefore, were antidilutive.
1999 1998 1997 ---- ---- ---- BASIC EARNINGS PER SHARE Net income available to common stockholders $ 5,248 $ 5,130 $ 4,506 =========== =========== =========== Weighted average common shares outstanding 4,085 4,158 4,126 =========== =========== =========== BASIC EARNINGS PER SHARE $ 1.28 $ 1.23 $ 1.09 =========== =========== =========== Weighted average common shares outstanding 4,085 4,158 4,126 Add: dilutive effect of assumed exercised stock options 48 53 42 ----------- ----------- ----------- Weighted average common and dilutive potential shares outstanding 4,133 4,211 4,168 =========== =========== =========== DILUTED EARNINGS PER SHARE $ 1.27 $ 1.22 $ 1.08 =========== =========== ===========
NOTE 14. REGULATORY MATTERS The Company and the Banks are subject to regulatory capital requirements administered by the federal banking agencies. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Banks must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 1999, that the Company and the Banks met all capital adequacy requirements to which they are subject. (Continued) 55. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 14. REGULATORY MATTERS (Continued) As of December 31, 1999, the most recent notification from the corresponding regulatory agency categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Banks' categories.
To be Well Capitalized Under To be Adequately Prompt Corrective Actual Capitalized Action Provisions -------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio -------------------------------------------------------------------------- As of December 31, 1999 Total capital (to risk-weighted assets) UnionBancorp, Inc. $ 54,663 11.04% $ 39,596 8.00% $ 49,495 10.00% UnionBank 33,606 11.13 24,163 8.00 30,204 10.00 UnionBank/Central 10,108 13.67 5,914 8.00 7,392 10.00 UnionBank/West 13,178 13.05 8,077 8.00 10,096 10.00 Tier I capital (to risk-weighted assets) UnionBancorp, Inc. $ 50,115 10.13% $ 19,798 4.00% $ 29,697 6.00% UnionBank 31,175 10.32 12,082 4.00 18,122 6.00 UnionBank/Central 9,595 12.98 2,957 4.00 4,435 6.00 UnionBank/West 12,576 12.46 4,038 4.00 6,058 6.00 Tier I leverage ratio (to average assets) UnionBancorp, Inc. $ 50,115 7.20% $ 27,834 4.00% $ 34,793 5.00% UnionBank 31,175 7.88 15,823 4.00 19,778 5.00 UnionBank/Central 9,595 8.37 4,583 4.00 5,729 5.00 UnionBank/West 12,576 7.61 6,606 4.00 8,258 5.00
(Continued) 56. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 14. REGULATORY MATTERS (Continued)
To be Well Capitalized Under To be Adequately Prompt Corrective Actual Capitalized Action Provisions -------------------------------------------------------------------------- Amount Ratio Amount Ratio Amount Ratio -------------------------------------------------------------------------- As of December 31, 1998 Total capital (to risk-weighted assets) UnionBancorp, Inc. $ 52,512 12.23% $ 34,346 8.00% $ 42,933 10.00% UnionBank 29,207 11.03 21,193 8.00 26,491 10.00 UnionBank/Central 9,338 14.38 5,196 8.00 6,495 10.00 UnionBank/West 12,569 15.30 6,574 8.00 8,217 10.00 Tier I capital (to risk-weighted assets) UnionBancorp, Inc. $ 47,297 11.02% $ 17,173 4.00% $ 25,760 6.00% UnionBank 26,797 10.12 10,596 4.00 15,895 6.00 UnionBank/Central 8,815 13.57 2,598 4.00 3,897 6.00 UnionBank/West 11,775 14.33 3,287 4.00 4,930 6.00 Tier I leverage ratio (to average assets) UnionBancorp, Inc. $ 47,297 7.66% $ 24,703 4.00% $ 30,879 5.00% UnionBank 26,797 7.32 14,636 4.00 18,295 5.00 UnionBank/Central 8,815 8.61 4,095 4.00 5,119 5.00 UnionBank/West 11,775 9.41 5,007 4.00 6,259 5.00
NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments. 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, may not be realized in immediate settlement of the instrument. CASH AND CASH EQUIVALENTS The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents approximate their fair values. (Continued) 57. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) FEDERAL FUNDS SOLD The stated carrying amounts of federal funds sold approximate their fair values. SECURITIES Fair values for 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. The carrying amount of accrued interest receivable approximates its fair value. LOANS 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 fixed-rate loans are estimated using discounted cash flow analyses, applying the interest rates currently offered to borrowers for loans of similar credit quality and comparable payment terms. The carrying amount of accrued interest receivable approximates its fair value. DEPOSITS The fair values disclosed for demand deposits equal their carrying amounts, which represents the amount payable on demand. The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest payable approximates its fair value. BORROWED FUNDS The stated carrying amounts of federal funds purchased and securities sold under agreements to repurchase, advances from the Federal Home Loan Bank, and notes payable approximate their fair values based on rates and terms currently available for borrowings with similar terms and maturities. OFF-BALANCE-SHEET INSTRUMENTS Fair values for the Company's off-balance-sheet instruments 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. The fair values of these items are not material. (Continued) 58. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued) The estimated fair values of the Company's financial instruments were as follows:
December 31, ----------------------------------------------------------- 1999 1998 ----------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------ ----- ------ ----- Financial assets Cash and cash equivalents $ 27,205 $ 27,205 $ 24,613 $ 24,613 Federal funds sold 25 25 450 450 Securities 173,893 173,893 175,619 176,845 Loans 468,704 468,570 394,530 395,776 Accrued interest receivable 6,560 6,560 6,549 6,549 Financial liabilities Deposits 594,198 594,632 517,638 518,518 Federal funds purchased and securities sold under agreements to repurchase 5,308 5,308 14,855 14,855 Advances from the Federal Home Loan Bank 32,733 32,625 23,208 23,208 Notes payable 9,500 9,500 7,000 7,000 Accrued interest payable 4,099 4,099 3,486 3,486
In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the above disclosures, such as property and equipment. Also, nonfinancial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposit accounts, the earnings potential of loan servicing rights, the earnings potential of the trust operations, the trained work force, customer goodwill, and similar items. NOTE 16. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK In the normal course of business, there are outstanding various contingent liabilities such as claims and legal actions, which are not reflected in the consolidated financial statements. In the opinion of management, no material losses are anticipated as a result of these actions or claims. The Banks are parties 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. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. (Continued) 59. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 16. COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (Continued) The contractual amounts of these instruments reflect the extent of involvement in particular classes of financial instruments. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. Financial instruments whose contract amounts represent credit risk are as follows:
Range of Rates Standby Letters Variable Rate Fixed Rate Total On Fixed Rate of Credit Commitments Commitments Commitments Commitments --------- ----------- ----------- ----------- ----------- Commitments to extend credit and standby letters of credit December 31, 1999 $ 2,004 $ 19,074 $ 31,430 $ 52,508 6.00% - 18.00% December 31, 1998 $ 2,680 $ 47,067 $ 43,146 $ 92,893 6.50% - 18.00%
The Company also had a firm commitment from the secondary market to purchase approximately $1,460 of mortgage loans held for sale at December 31, 1999. 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 amounts do not necessarily represent future cash requirements. For commitments to extend credit, the Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies, but may include accounts receivable; inventory; property, plant, and equipment; and income producing commercial properties. Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments to customers. The standby letters of credit are unsecured. The Company has employment agreements with its executive officers and certain other management personnel. These agreements generally continue until terminated by the executive or the Company and provide for continued salary and benefits to the executive under certain circumstances. The agreements provide the employees with additional rights after a change of control of the Company occurs. (Continued) 60. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 17. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY The primary source of funds for the Company is dividends from its subsidiaries. By regulation, the Banks are prohibited from paying dividends that would reduce regulatory capital below a specific percentage of assets without regulatory approval. As a practical matter, dividend payments are restricted to maintain prudent capital levels. Condensed financial information for UnionBancorp, Inc. follows: BALANCE SHEETS (PARENT COMPANY ONLY)
December 31, --------------------------- ASSETS 1999 1998 --------------------------- Cash and cash equivalents $ 497 $ 1,554 Investment in subsidiaries 65,836 63,591 Premises and equipment 497 515 Other assets 386 384 ----------- ----------- $ 67,216 $ 66,044 =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, --------------------------- Liabilities 1999 1998 --------------------------- Notes payable $ 9,500 $ 7,000 Other liabilities 518 1,096 ----------- ----------- 10,018 8,096 Mandatory redeemable preferred stock 857 857 Stockholders' equity 56,341 57,091 ----------- ----------- $ 67,216 $ 66,044 =========== ===========
(Continued) 61. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 17. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued) INCOME STATEMENTS (PARENT COMPANY ONLY)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Dividends from subsidiaries $ 3,346 $ 3,851 $ 6,244 Management fees and other 38 282 369 Gain on sale of subsidiaries - 1,580 - Interest expense 670 708 991 Other expenses 2,791 3,119 2,589 Income tax benefit (1,297) (1,156) (1,321) Equity in undistributed earnings of subsidiaries 4,287 2,347 411 ----------- ----------- ----------- NET INCOME 5,507 5,389 4,765 Less dividends on preferred stock 259 259 259 ----------- ----------- ----------- NET INCOME ON COMMON STOCK $ 5,248 $ 5,130 $ 4,506 =========== =========== ===========
STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Cash flows from operating activities Net income $ 5,507 $ 5,389 $ 4,765 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 121 107 90 Undistributed earnings of subsidiaries (4,287) (2,347) (411) Amortization of deferred compensation - stock options 78 65 42 Gain on sale of subsidiaries - (1,580) - (Increase) decrease in other assets (1) (106) 7 Increase (decrease) in other liabilities (563) 477 472 ----------- ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 855 2,005 4,965 ----------- ----------- ----------- Cash flows from investing activities Purchases of premises and equipment (103) (191) (185) Bank holding company acquisitions and sales - 2,971 - ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (103) 2,780 (185) ----------- ----------- -----------
(Continued) 62. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 17. CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (Continued)
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Cash flows from financing activities Net increase (decrease) in notes payable 2,500 (3,000) (3,180) Dividend paid on common stock (767) (633) (722) Dividends paid on preferred stock (259) (259) (259) Redemption of qualifying directors' shares and exercise of stock options 45 28 8 Purchase of treasury stock (3,328) - - ----------- ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (1,809) (3,864) (4,153) ----------- ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,057) 921 627 Cash and cash equivalents Beginning of year 1,554 633 6 ----------- ----------- ----------- End of year $ 497 $ 1,554 $ 633 =========== =========== ===========
NOTE 18. OTHER COMPREHENSIVE INCOME (LOSS) Changes in other comprehensive income (loss) components and related taxes are as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------------------------------------- Change in unrealized gains (losses) on securities available-for-sale $ (3,291) $ (1,350) $ 1,773 Reclassification adjustment for gains recognized in income (124) (56) (193) Reclassification adjustment for unrealized gains on securities held-to-maturity transferred to available-for-sale 106 - - ----------- ----------- ----------- Net unrealized gains (losses) (3,309) (1,406) 1,580 Tax expense (benefit) 1,283 581 (650) ----------- ----------- ----------- Other comprehensive income (loss) $ (2,026) $ (825) $ 930 =========== =========== ===========
(Continued) 63. UNIONBANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE DATA) - -------------------------------------------------------------------------------- NOTE 19. SEGMENT INFORMATION The reportable segments are determined by the products and services offered, primarily distinguished between banking and other operations. Loans, investments, and deposits provide the revenues in the banking segment, and mortgage banking, insurance, trust and holding company services are categorized as other segments. Prior to 1998, the Company did not offer insurance services. The accounting policies used are the same as those described in the summary of significant accounting policies. Segment performance is evaluated using net interest income. Information reported internally for performance assessment follows.
Banking Other Consolidated Segment Segments Totals ------- -------- ------ 1999 Net interest income (loss) $ 24,319 $ (667) $ 23,652 Other revenue 5,850 3,638 9,488 Other expense 17,852 3,198 21,050 Noncash items Depreciation 953 697 1,650 Provision for loan loss 1,522 - 1,522 Goodwill and other intangibles 702 195 897 Segment profit 9,140 (1,119) 8,021 Segment assets 695,795 8,212 704,007 1998 Net interest income (loss) $ 23,186 $ (724) $ 22,462 Other revenue 4,834 3,237 8,071 Other expense 15,438 2,729 18,167 Noncash items Depreciation 1,460 219 1,679 Provision for loan loss 1,635 - 1,635 Goodwill and other intangibles 877 63 940 Segment profit 8,610 (498) 8,112 Segment assets 618,156 9,038 627,194 1997 Net interest income (loss) $ 22,549 $ (945) $ 21,604 Other revenue 3,915 1,267 5,182 Other expense 14,857 1,603 16,460 Noncash items Depreciation 1,340 134 1,474 Provision for loan loss 1,079 - 1,079 Goodwill and other intangibles 864 39 903 Segment profit 8,324 (1,454) 6,870 Segment assets 623,875 1,585 625,460
64. EX-21.1 3 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT UnionBank, an Illinois state bank with its main office located in Streator, Illinois. UnionBank/West, an Illinois state bank with its main office located in Macomb, Illinois. UnionBank/Central, an Illinois state bank with its main office located Princeton, Illinois. UnionBank/Northwest, an Illinois state bank with its main office located in Hanover, Illinois. Prairie Bancorp, Inc., an Illinois corporaton located in Streator, Illinois. Country Bancshares, Inc., an Illinois corporation located in Streator, Illinois. UnionData Corp., Inc., an Illinois corporation located in Streator, Illinois. UnionTrust Corporation, an Illinois corporation located in Ottawa, Illinois. Union Financial Services, Inc., an Illinois corporation located in Ottawa, Illinois. EX-23.1 4 EXHIBIT 23.1 EXHIBIT 23.1 The Board of Directors UnionBancorp, Inc. We consent to the incorporation by reference of our report included herein, dated February 2, 2000, relating to the consolidated financial statements of UnionBancorp, Inc. ("the Company") as of December 31, 1999 and for the year then ended, in the Registration Statement on Form S-8 filed by the Company with the Securities and Exchange Commission on November 18, 1996. Crowe, Chizek and Company LLP Oak Brook, Illinois March 29, 2000 EX-27 5 EXHIBIT 27
9 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 25,027 1,998 25 0 173,893 0 0 472,395 3,691 704,077 594,198 14,808 5,140 32,733 857 500 4,539 51,302 704,077 38,323 10,153 73 48,549 22,012 24,897 23,652 1,522 45 23,597 8,021 8,021 0 0 5,507 1.28 1.27 8.07 2,949 566 0 0 3,858 1,872 183 3,691 3,691 0 894
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