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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission File Number 0-13270
UNB Corp.
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(Exact name of Registrant as specified in its charter)
Ohio 34-1442295
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
220 Market Avenue South, Canton, Ohio 44701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 454-5821
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Stated Value
--------------------------------
(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
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1997: $185,548,573.
The number of shares outstanding of each of the Registrant's common stock, as of
March 15, 1997: 5,798,393 shares of $1.00 per share stated value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 UNB Corp. Annual Report to Shareholders (Exhibit 13) is
incorporated into Part I, Item 1(c), 1(e) and, Part II, Items 5, 6, 7, and 8.
Portions of the Definitive Proxy Statement of UNB Corp. dated February 21, 1997,
for the Annual Shareholders Meeting to be held on April 15, 1997, are
incorporated into Part III, Items 10, 11, 12, and 13.
Total Number of Pages is 90
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Exhibit Index is on Page 21
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UNB CORP.
FORM 10-K
1996
PART I
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Page
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Item 1 Business 3
Item 2 Properties 16
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
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Item 5 Market Price of and Dividends on the Common Equity and Related
Shareholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
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Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and Management 19
Item 13 Certain Relationships and Related Transactions 19
PART IV
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Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
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PART I
Item 1 - Business
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a. General Development of Business
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UNB Corp. (Registrant) was incorporated under the laws of the State of
Ohio during 1983. Its principal business is to act as a bank holding
company for the United National Bank & Trust Company (Bank). Effective
October 1, 1984, in a transaction accounted for as an internal
reorganization, the Registrant acquired all of the outstanding stock of
the United National Bank & Trust Company. The Corporation exchanged two
shares of common stock for each previously outstanding share of the
United National Bank & Trust Company. The Registrant did not have any
operations prior to the business combination. UNB Corp. is registered
under the Bank Holding Company Act of 1956, as amended. A substantial
portion of UNB Corp.'s revenue is derived from cash dividends paid by
the Bank.
b. Financial Information About Industry Segments
---------------------------------------------
The Registrant and its subsidiary bank are engaged in commercial and
retail banking. Reference is hereby made to Item 1(e), "Statistical
Disclosure", and Item 8 of this Form 10-K for financial information
pertaining to the Registrant's banking business.
c. Description of UNB Corp.'s Business
-----------------------------------
The Bank is a full-service bank offering a wide range of commercial and
personal banking services primarily to customers in northern Stark and
southern Summit Counties of Ohio. These services include a broad range
of loan, deposit and trust products and various miscellaneous services.
Loan products include commercial and commercial real estate loans, a
variety of mortgage and construction loan products, installment loans,
home equity lines of credit, MasterCard lines of credit, accounts
receivable, lease and floor plan financing. Deposit products include
interest and non-interest bearing checking accounts, various savings
accounts, certificates of deposit, and IRAs. The Trust Department
provides fiduciary services in the areas of employee benefit trusts,
personal trusts and investment management services. Miscellaneous
services offered include safe deposit boxes, night depository, United
States savings bonds, traveler's checks, money orders and cashier
checks, bank-by-mail and bank-by-phone services, wire transfer service,
utility bill payments and collections and notary services. Services
provided for Bank customers through third party vendors include those of
discount brokerage and the sale of mutual funds, annuities and life
insurance. In addition, the Bank has correspondent relationships with
major banks in New York, Pittsburgh and Detroit pursuant to which the
Bank receives various financial services.
The Bank's primary lending area consists of Stark County, Ohio, and its
contiguous counties. Loans outside the primary lending area are
considered for creditworthy applicants. Lending decisions are made in
accordance with written loan policies designed to maintain loan quality.
Retail lending products are comprised of credit card loans, overdraft
lines, personal lines of credit and installment loans. Credit cards are
unsecured credit accounts, on which the credit limits are determined by
analysis of two primary criteria, the borrowers debt service and gross
income. Overdraft lines of credit are lines attached to checking
accounts to cover overdrafts and/or allow customers to write themselves
a loan. Credit limits are based on
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a percentage of gross income and average deposits. Personal lines of
credit include lines secured by junior mortgages (home equity) and
Private Banking lines which are generally secured by junior mortgages
but may be unsecured or secured by other collateral. The lines have a
five year draw period and may then be renewed or amortized over ten
years. Credit limits are determined by comparing three criteria,
appraised value, debt service and gross income. Criteria for determining
credit limits on private banking products also consider the applicant's
annual income, net worth and average deposits. Installment loans include
both direct and indirect loans. The term can range from three to 180
months, depending upon the collateral which includes new and used
automobiles, boats and recreational vehicles as well as junior mortgages
and unsecured personal loans. Retail lending underwriting guidelines
include evaluating the entire credit using the Five C's of Credit,
character, capacity, capital, condition and collateral. Credit scoring,
analysis of credit bureau ratings and debt to income ratios are the
major tools used by the lender in the underwriting process.
The Bank offers several mortgage loan programs, including a variety of
fixed and adjustable rate mortgages with maturities ranging from 120 to
360 months. The Bank also offers some specialty products such as jumbo
mortgages, Mortgage Assistance Programs for low income individuals,
construction and bridge loans. The underwriting guidelines include those
for consumer loans and those necessary to meet secondary market
guidelines. The Bank may originate loans for sale to the secondary
market when it deems it profitable and desirable to do so. Residential
real estate decisions focus on loan to value limits, debt to income
ratio, housing to income ratio, credit history, and in some cases,
whether private mortgage insurance is obtained.
Business credit products include commercial loans and commercial real
estate loans, Business Manager and leases. Commercial loans include
lines and letters of credit, fixed, and adjustable rate term loans,
demand and time notes. Commercial real estate loans include fixed and
adjustable mortgages. Loans are generally to owner occupied businesses.
The portfolio also includes loans to churches, residential rental
property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of
repayment is typically dependent upon adequate cash flow. Cash flow of a
business can be subject to adverse conditions in the economy or a
specific industry. Should cash flow fail, the lender looks to the assets
of the business and/or the ability of the comakers to support the debt.
Commercial lenders consider the Five C's of Credit, character, capacity,
capital, condition and collateral in making commercial credit decisions.
Business Manager is a system which the Bank uses to assist creditworthy
businesses with accounts receivable management. It is a hybrid program
combining funding and billing with cash management, monitoring and
reporting functions. The Bank purchases creditworthy receivables at full
recourse with a flexible reserve. The Bank may earn a discount, interest
and/or fees. The Bank has provided both direct and indirect leasing on a
limited basis. The direct leases are for specific equipment and may be
open-end or closed-end. Indirect leases are established by granting a
lease line to a dealer, while the Bank holds title and files a UCC lien
for an assignment of the lease. Each vehicle has its own amortization.
In addition to the underwriting guidelines followed for specific loan
types, the Bank has underwriting guidelines common to all loan types.
With regard to collateral, the Bank follows supervisory limits set forth
in Regulation H for transactions secured by real estate. Loans in excess
of these guidelines are reported to the Board of Directors on a monthly
basis. Loans not secured by real estate are analyzed on a loan by loan
basis, based on collateral type guidelines set forth in the loan policy.
Appraisal policies follow and comply
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with provisions outlined under Title XI of FIRREA. All appraisals are
done by outside independent appraisers approved by the Board of
Directors. The Bank, as a general rule, gets an appraisal on all real
estate transactions even when not required by Title XI. The Bank may
occasionally rely on a tax appraisal. Senior Loan Committee has the
option of requiring equipment appraisals. Approval procedures include
loan authorities approved by the Board of Directors for individual
lenders and loan committees. Retail and residential loans are centrally
underwritten by their respective departments. Business credits can be
approved by the individual commercial lender or taken to Loan Committee
if it exceeds individual approval limits. Senior Loan Committee approves
aggregate loan commitments in excess of the lender's authority up to $1
million. Executive Loan Committee approves aggregate loan commitments in
excess of $1 million up to the Bank's legal lending limit. Loans to
Directors and Executive Officers are approved by the Board of Directors.
Business loans within a lender's authority are reported in the Senior
Loan Committee minutes. Retail and residential real estate loan
transactions are also reported to Senior Loan Committee at certain
dollar limits. Exceptions and/or overrides are tracked and reported to
Senior Loan Committee.
The Loan Quality Review Committee meets on a monthly basis. The
Committee reviews Bank lending trends, the Past Due Report, the Watch
List and various other reports in order to monitor and maintain credit
quality. The Committee also reviews on a relationship basis, customers
on the Bank's Watch List and credits with aggregate commitments in
excess of $1 million.
Revenues from loans accounted for 78%, 75%, and 73% of consolidated
revenues in 1996, 1995, and 1994, respectively. Revenues from interest
and dividends on investment and mortgage-backed securities accounted for
11%, 14%, and 13%, of consolidated revenues in 1996, 1995, and 1994,
respectively.
The Registrant formed the United Credit Life Insurance Company (United
Credit Life) to engage in the underwriting of credit life and credit
accident and health insurance directly related to the extension of
credit by the Bank to its customers. United Credit Life commenced
business in May, 1986. The insurance is currently written by Union
Fidelity Life Insurance Company; however, United Credit Life has entered
into reinsurance treaties with Union Fidelity Life Insurance Company
whereby United Credit Life assumes up to $25,000 of liability on each
life policy.
In September, 1994, the Bank purchased four branch offices of the former
TransOhio Federal Savings Bank headquartered in Cleveland, Ohio, from
the Resolution Trust Corporation (RTC). Included in this purchase were
$70.4 million in deposits and other liabilities assumed and $0.6 million
in cash, premises and equipment, and other assets. The intangible assets
acquired in the transaction amounted to $6.6 million.
During 1996, Management evaluated the benefits attributable to operating
a finance company as an affiliate of the Corporation. Upon Board of
Director approval, application was made in November with the State of
Ohio, Department of Commerce, Division of Consumer Finance for a license
to operate a finance company. Management believes that the addition of a
finance company will contribute to its continuing efforts to maximize
shareholder value. It is anticipated that the finance company will not
have a material impact on earnings in 1997.
The business of the Registrant is not seasonal to any material degree,
nor is it dependent upon a single or small group of customers whose loss
would result in a material adverse effect on the Registrant or its
subsidiaries.
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Regulation and Supervision
--------------------------
UNB Corp. is a bank holding company under the Bank Holding Company Act
of 1956, as amended, which restricts the activities of the Corporation
and the acquisition by the Corporation of voting stock or assets of any
bank, savings association or other company. The Corporation is also
subject to the reporting requirements of, and examination and regulation
by, the Board of Governors of the Federal Reserve system (Federal
Reserve Board). Subsidiary banks of a bank holding company are subject
to certain restrictions imposed by the Federal Reserve Act on
transactions with affiliates, including any loans or extensions of
credit to the bank holding company or any of its subsidiaries,
investments in the stock or other securities thereof and the taking of
such stock or securities as collateral for loans to any borrower; the
issuance of guarantees, acceptances or letters of credit on behalf of
the bank holding company and its subsidiaries; purchases or sales of
securities or other assets; and the payment of money or furnishing of
services to the bank holding company and other subsidiaries. Banks and
bank holding companies are prohibited from engaging in certain tie-in
arrangements in connection with extensions of credit or provision of
property or services.
Bank holding companies are prohibited from acquiring direct or indirect
control of more than 5% of any class of voting stock or substantially
all of the assets of any bank holding company without the prior approval
of the Federal Reserve. In addition, acquisitions across state lines are
limited to acquiring banks in those states specifically authorizing such
interstate acquisitions. However, in September 1995, federal law
permitted interstate acquisitions of banks, if the acquired bank retains
its separate charter.
As a national bank, United National Bank & Trust Co. is supervised and
regulated by the Comptroller of the Currency (Comptroller). The deposits
of the Bank are insured by the Bank Insurance Fund (BIF) while deposits
purchased from savings and loans in 1994 and 1991 are insured by the
Savings Association Insurance Fund (SAIF) of the Federal Deposit
Insurance Corporation (FDIC). The Bank is subject to the applicable
provisions of the Federal Deposit Insurance Act. Various requirements
and restrictions under the laws of the United States and the State of
Ohio affect the operations of the Bank, including requirements to
maintain reserves against deposits, restrictions on the nature and
amount of loans which may be made and the interest which may be charged
thereon, restrictions relating to investments and other activities,
limitations on credit exposure to correspondent banks, limitations on
activities based on capital and surplus, limitations on payment of
dividends, and limitations on branching. Under current laws, the Bank
may establish branch offices throughout the State of Ohio. Pursuant to
recent federal legislation, the Bank may branch across state lines, if
permitted by the law of the other state. In addition, effective June
1997, such interstate branching by the Bank will be authorized, unless
the law of the other state specifically prohibits the interstate
branching authority granted by federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-based assets
by assigning assets and off-balance sheet items to broad risk
categories. The required minimum ratio of capital to risk-weighted
assets (including certain off-balance sheet items, such as standby
letters of credit) was 8.00% at December 31, 1996 as disclosed in Note
15 of UNB Corp.'s 1996 Annual Report (See Exhibit 13). At least half of
the total regulatory capital is to be comprised of common stockholders'
equity, including retained earnings, noncumulative perpetual preferred
stock, a limited amount of cumulative
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perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries less goodwill (Tier 1 capital). The remainder
(Tier 2 capital) may consist of, among other things, mandatory
convertible debt securities, a limited amount of subordinated debt,
other preferred stock and a limited amount of allowance for loan and
lease losses. The Federal Reserve Board has also imposed a minimum
leverage ratio (Tier 1 capital to total assets) of 4% for bank holding
companies that meet certain specified conditions, including no
operational, financial or supervisory deficiencies, and including those
having the highest regulatory (CAMEL) rating. The minimum leverage ratio
is 1.0-2.0% higher for other holding companies based on their particular
circumstances and risk profiles and those experiencing or anticipating
significant growth. National banks are subject to similar capital
requirements adopted by the Comptroller.
UNB Corp. and its subsidiaries currently satisfy all regulatory capital
requirements. Failure to meet the capital guidelines could subject a
banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including dividend restrictions and the
termination of deposit insurance by the FDIC.
Under an outstanding proposal of the Comptroller and the FDIC, the Bank
may be required to have additional capital if its interest rate risk
exposure exceeds acceptable levels provided for in the regulation. In
addition, those regulators have established regulations governing prompt
corrective action to resolve capital deficient banks. Under these
regulations, banks which become undercapitalized become subject to
mandatory regulatory scrutiny and limitations, which increase as capital
continues to decrease. Such banks are also required to file capital
plans with their primary federal regulator, and their holding companies
must guarantee the capital shortfall up to 5% of the assets of the
capital deficient bank at the time it becomes undercapitalized.
The ability of UNB Corp. to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of
dividends which may be declared by the Bank. However, the Federal
Reserve expects UNB Corp. to serve as a source of strength to its
subsidiaries, which may require it to retain capital for further
investment in the subsidiaries, rather than for dividends for
shareholders of the Corporation. Generally, United National Bank & Trust
Co. must have the approval of its regulatory authority if a dividend in
any year would cause the total dividends for that year to exceed the sum
of current year's net profits and retained net profits for the preceding
two years, less required transfers to surplus. A national bank may not
pay a dividend in an amount greater than its net profits then on hand
after deducting its losses and bad debts or, if less than 1/10 of net
profits for the preceding six months, for a quarterly or semiannual
dividend, or the preceding year for an annual dividend, was transferred
to surplus. The Bank may not pay dividends to the Corporation if, after
such payment, it would fail to meet the required minimum levels under
the risk-based capital guidelines and the minimum leverage ratio
requirements. Payment of dividends by the Bank may be restricted at any
time at the discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice or if
necessary to maintain adequate capital for the bank. These provisions
could have the effect of limiting the Corporation's ability to pay
dividends on its outstanding common shares.
Management is not aware of any recommendations by regulatory authorities
which, if they were to be implemented, would have a material effect on
the Registrant.
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Government Monetary Policies
----------------------------
The earnings and growth of UNB Corp. are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the
federal government and its agencies and regulatory authorities,
particularly the Federal Reserve Board. Its policies influence the
growth and mix of bank loans, investments and deposits and the interest
rates earned and paid thereon, and thus have an effect on earnings of
the Corporation.
Due to the changing conditions in the economy and the activities of
monetary and fiscal authorities, no predictions can be made regarding
future changes in interest rates, credit availability or deposit levels.
Competition
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The Bank competes with eight state and national banks located in Stark
and Summit Counties as well as an additional four in Summit County
alone. The Bank also competes with a large number of other financial
institutions, such as savings and loan associations, savings banks,
insurance companies, consumer finance companies, credit unions, mortgage
banking companies, and commercial finance and leasing companies, for
deposits, loans and financial services business. Mergers between
financial institutions have added to the competitive pressure. In
addition, money market mutual funds, brokerage houses, and similar
organizations provide many of the financial services offered by the
Bank. Many competitors have substantially greater resources than the
Bank. In the opinion of management, the principal methods of competition
are the rates of interest charged for loans, the rates of interest paid
for deposits and borrowing, the fees charged for services, the
availability and quality of services provided and the convenience of its
branch locations.
Effects of Compliance with Environmental Regulations
----------------------------------------------------
Compliance with Federal, State and local provisions regulating the
discharge of materials into the environment, or otherwise relating to
the protection of the environment has not had a material effect upon the
capital expenditures, earnings or competitive position of the Registrant
or its subsidiaries. The Registrant anticipates, based on the nature of
its business, that it will have no material capital expenditures for the
purpose of protecting the environment in the foreseeable future. From
time to time the Bank may be required to make capital expenditures for
environmental control facilities related to properties acquired through
foreclosure proceedings. Currently the Bank owns such a parcel, 7.62
acres of OREO property located in the northwest quadrant of Stark
County. A large national petroleum company, owner of the facility at the
date it was taken out of service, is the party responsible for the
contamination cleanup according to the State of Ohio's Bureau of
Underground Storage Tanks (BUSTER) regulations. Several environmental
assessments by the Bank and the petroleum company have been filed with
the State agency. A remediation plan was prepared by the petroleum
company's engineering consultants, however it was not released to the
Bank or filed with BUSTER by the required due date of November 1, 1996.
A decision by BUSTER was anticipated after the filing of the plan,
however cutbacks in the agency's staffing levels have added to the delay
in the resolution of this matter. The Bank, through legal counsel, has
made numerous unsuccessful attempts to contact the petroleum company to
move forward with its responsibility to clean up the site. The Bank is
considering filing some form of legal action in an effort to gain the
company's attention and prioritize this project. In the interim, the
Bank has listed the property for sale. The estimated cleanup costs,
should they become the responsibility of the Bank, are not material to
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the business or financial condition of the Registrant and have been set
up as an allowance against the property's value on the Bank's
Consolidated Balance Sheet.
Employees
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As of December 31, 1996, UNB Corp. and its subsidiaries had 274
full-time employees and 59 part-time employees. UNB Corp. and its
subsidiaries are not a party to any collective bargaining agreement and
management considers its relationship with its employees to be good.
d. Financial Information About Foreign and Domestic Operations and Export
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Sales
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The Registrant and its subsidiaries do not have any offices located in
foreign countries and they have no foreign assets, liabilities, or
related income and expense for the years presented.
e. Statistical Disclosure
----------------------
The following section contains certain financial disclosures related to
the Registrant as required under the Securities and Exchange
Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding
Companies", or a specific reference as to the location of the required
disclosures in the Registrant's 1996 Annual Report to Shareholders,
portions of which are incorporated in this Form 10-K by reference.
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UNB CORP.'S STATISTICAL INFORMATION
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I. DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY; INTEREST
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RATES AND INTEREST DIFFERENTIAL
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A. The average balance sheet information and the related analysis of net
& interest earnings for the years ending December 31, 1996, 1995, and 1994
B. are included in Table 4 - "Average Balance Sheet and Related Yields",
within Management's Discussion and Analysis of Financial Condition and
Results of Operations found on page 37 of the Registrant's 1996 Annual
Report to Shareholders and is incorporated into this Item I by
reference.
All interest is reported on a fully taxable equivalent basis using a
marginal tax rate of 35%. Nonaccruing loans, for the purpose of the
computations, are included in the daily average loan amounts
outstanding. Loan fees in the amount of $3,477,766, $2,901,438 and
$2,535,284 are included in interest on loans for the years ended
December 31, 1996, 1995, and 1994.
C. Tables setting forth the effect of volume and rate changes on interest
income and expense for the years ended December 31, 1996 and 1995 are
included in Table 2 - "Changes in Net Interest Differential -
Rate/Volume Analysis", within Management's Discussion and Analysis of
Financial Condition and Results of Operations found on Page 35 of the
Registrant's 1996 Annual Report to Shareholders and is incorporated into
this Item I by reference. For purposes of these tables, changes in
interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous
year's rate.
Rate Variance - change in rate multiplied by the previous year's
volume.
Rate/Volume Variance - change in volume multiplied by the change in
rate.
The rate/volume variance was allocated to volume variance and rate
variance in proportion to the relationship of the absolute dollar amount
of the change in each.
II. INVESTMENT PORTFOLIO
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A. Investment Securities
The carrying value of investment and mortgage-backed securities at the
dates indicated are summarized below:
December 31,
(Dollars in thousands) 1996 1995 1994
---- ---- ----
U.S. Treasury securities and securities
of U.S. government agencies and corporations $ 75,817 $ 53,991 $ 63,070
Obligations of states and political subdivisions 1,051 1,238 3,439
Mortgage-backed securities 42,907 63,087 61,586
Other securities 13,111 9,900 11,414
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Total investment and mortgage-backed securities $132,886 $128,216 $139,509
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B. The carrying value and weighted average interest yield for each
investment category listed in Part A at December 31, 1996 which are due
(1) in one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years are
presented in Note 3 - Securities, found on page 23 in the Notes to
Consolidated Financial Statements in the Registrant's 1996 Annual Report
to Shareholders and is incorporated herein by reference. The weighted
average yields have been computed by dividing the total interest income
adjusted for amortization of premiums or accretion of discount over the
life of the security by the par value of the securities outstanding. The
weighted average yields of tax exempt obligations are presented on a
non-taxable basis, prior to adjustment to a fully taxable equivalent
basis or consideration of related non-deductible interest expense.
C. Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. government,
there were no investments in securities of any one issuer which exceeded
10% of the consolidated shareholder's equity of the Registrant at
December 31, 1996.
III. LOAN PORTFOLIO
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A. Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at December 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial $ 78,293 $ 64,811 $ 61,094 $ 61,209 $ 69,935
Commercial real estate 65,875 60,478 53,252 46,723 n/a
Residential real estate 242,652 172,283 115,354 81,495 110,957
Consumer loans 230,782 221,158 182,822 161,041 140,046
------- ------- ------- ------- -------
Total loans $617,602 $518,730 $412,522 $350,468 $320,938
======= ======= ======= ======= =======
The dollar amounts of loans contained in the Commercial real estate
category are not available for the year ending December 31, 1992.
Balances for this category of loans are included in the Commercial and
Residential real estate loan categories for that year.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates - The
following is a schedule of contractual maturities and repayments
excluding residential real estate mortgage and consumer loans, as of
December 31, 1996:
(Dollars in thousands)
Commercial and
Commercial Real Estate
----------------------
Due in one year or less $ 31,388
Due after one year, but within five years 68,122
Due after five years 44,658
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Total $144,168
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The following is a schedule of fixed rate and variable rate commercial
and commercial real estate loans due after one year (variable rate loans
are those loans with floating or adjustable interest rates):
(Dollars in thousands)
Fixed Variable
Interest Rates Interest Rates
-------------- --------------
Total commercial, and commercial real estate
loans due after one year $70,501 $42,279
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following
schedule summarizes nonaccrual, past due, and restructured loans:
(Dollars in thousands) 1996 1995 1994 1993 1992
----- ---- ---- ---- ----
Nonaccrual loans $ 709 $1,066 $1,039 $ 605 $ 29
Accrual loans past due 90 days 130 254 19 40 200
Restructured loans 237 212 375 689 530
------ ------ ------ ------- ------
Total 1,076 1,532 1,433 1,334 759
Potential problem loans 1,699 1,075 5,386 5,521 2,855
----- ----- ------ ----- -----
Total $2,775 $2,607 $6,819 $ 6,855 $ 3,614
====== ====== ====== ======= =======
For the year ended December 31, 1996, $8,754 of interest income
would have been earned under the original terms of those loans
classified as nonaccrual. The policy for placing loans on
nonaccrual status is to cease accruing interest on loans when
management believes that the collection of interest is doubtful,
or when loans are past due as to principal or interest ninety days
or more. The loans must be brought current and kept current for
six consecutive months before being removed from nonaccrual
status. When loans are charged-off, any accrued interest recorded
in the current fiscal year is charged against interest income. The
remaining balance is treated as a loan charge-off.
The Corporation adopted Statements of Financial Accounting
Standards (SFAS) No. 114 and SFAS No. 118 effective January 1,
1995. At December 31, 1996, loans totaling $268 thousand were
classified as impaired. All loans classified as impaired at
December 31, 1996 were also classified as nonaccrual loans, and
therefore the adoption of SFAS No. 114 and SFAS NO. 118 had no
effect on the comparability of non-performing assets at December
31, 1996 to prior periods.
2. Potential Problem Loans - As shown in the table above, at December
31, 1995, there are approximately $1.7 million of loans not
otherwise identified which are included on management's watch
list. Management's watch list includes both loans which management
has some doubt as to the borrowers' ability to comply with the
present repayment terms and loans which management is actively
monitoring due to changes in the borrowers financial condition.
These loans and their potential loss exposure have been considered
in management's analysis of the adequacy of the allowance for loan
losses.
3. Foreign Outstandings - There were no foreign outstandings at
December 31, 1996, 1995, or 1994.
4. Loan Concentrations - As of December 31, 1996, indirect
installment loans comprise 33.4% of loans. The dealer network from
which indirect loans were purchased in 1996 included 127 dealers
in a 15 county area, the largest of
12
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which was responsible for 6% of total indirect volume for 1996.
There are no additional concentrations of loans greater than 10%
of total loans which are not otherwise disclosed as a category of
loans pursuant to Item III. A. above. Also refer to the Note 1,
Concentrations of Credit Risk, found on Page 21 of the 1996 Annual
Report incorporated herein by reference.
5. No material amount of loans that have been classified by
regulatory examiners as loss, substandard, doubtful, or special
mention have been excluded from the amounts disclosed as
nonaccrual, past due 90 days or more, restructured, or potential
problem loans.
D. Other Interest Bearing Assets - As of December 31, 1996, there are no
other interest bearing assets that would be required to be disclosed
under Item III C.1 or 2 if such assets were loans. The Registrant had
Other Real Estate Owned at December 31, 1996, in the amount of $529,841.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
A. The following schedule presents an analysis of the allowance for loan
losses, average loan data, and related ratios for the years ended
December 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Average loans outstanding during the
period (net of unearned income) $582,418 $464,314 $385,618 $339,468 $306,718
======== ======== ======== ======== ========
Allowance for loan losses
at beginning of year $ 7,242 $ 6,348 $ 6,056 $ 4,355 $ 3,221
Loans charged off:
Commercial 106 26 13 37 518
Commercial real estate 0 20 52 11 n/a
Residential real estate 156 71 3 11 37
Consumer loans 2,900 1,441 1,095 822 1,313
-------- -------- -------- -------- --------
Total charge-offs 3,162 1,558 1,163 881 1,868
Recoveries:
Commercial 5 29 52 69 187
Commercial real estate 39 26 7 -- n/a
Residential real estate 71 71 11 7 --
Consumer loans 1,000 576 365 311 315
-------- -------- -------- -------- --------
Total recoveries 1,115 702 435 387 502
-------- -------- -------- -------- --------
Net charge-offs 2,047 856 728 494 1,366
Additions from loans acquired - - - - -
Addition to provision for loan
loss charged to operations 3,140 1,750 1,020 2,195 2,500
-------- -------- -------- -------- --------
Allowance for loan losses at end of year $ 8,335 $ 7,242 $ 6,348 $ 6,056 $ 4,355
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans, net of unearned income 0.35% 0.18% 0.19% 0.15% 0.45%
======== ======== ======== ======== ========
The allowance for loan losses balance and the provision charged to
expense are judgmentally determined by management based upon the
periodic review of the loan portfolio, an analysis of impaired loans,
past loan loss experience, economic conditions, anticipated loan
portfolio growth, and various other circumstances which are subject to
change over time. In making this judgment, management reviews selected
large loans as well as delinquent loans, nonaccrual loans, problem
loans, and loans to industries experiencing economic difficulties. The
collectibility of these loans is evaluated after considering the
current financial position of the borrower, the estimated market value
of the collateral, guarantees, and the Company's collateral position
versus other creditors. Judgments, which are necessarily subjective, as
to the probability of loss and the amount of such loss, are formed on
these loans, as well as
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other loans in the aggregate.
B. The following schedule is a breakdown of the allowance for loan losses
allocated by type of loan and related ratios:
Allocation of the Allowance for Loan Losses
---------------------------------------------------------------------
Percentage Percentage
of Loans of Loans
in Each in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
December 31, 1996 December 31, 1995
------------------------------ -----------------------------
Commercial $2,064 12.7% $ 2,160 12.5%
Commercial real estate 663 10.7 782 11.7
Residential real estate 244 39.3 129 33.2
Consumer 4,420 37.3 2,174 42.6
Unallocated 944 -- 1,997 --
------- ------ ------- ------
Total $8,335 100.0% $ 7,242 100.0%
====== ====== ======= ======
December 31, 1994 December 31, 1993
------------------------- --------------------------
Commercial $1,660 14.9% $1,638 17.5%
Commercial real estate 840 13.0 701 13.3
Residential real estate 1,257 28.2 1,230 23.2
Consumer 2,129 43.9 1,412 46.0
Unallocated 462 -- 1,075 -
------ ------ ----- ------
Total $6,348 100.0% $6,056 100.0%
===== ====== ===== ======
December 31, 1992
--------------------------
Commercial $ 877 21.8%
Commercial real estate N/A N/A
Residential real estate 953 34.6
Consumer 1,490 43.6
Unallocated 1,035 -
----- ------
Total $4,355 100.0%
===== ======
A comparison of allocations of the allowance for loan losses between
December 31, 1996 and prior year ends shows a significant shift in the
dollars allocated to each of the four loan categories. During the third
quarter of 1995, a change in the methodology used to determine the
allocation of the allowance for loan losses among the various loan
categories was approved by the Executive Committee of the Board of
Directors and instituted by management. Management will continue to use
the same three methodologies it has historically used to determine the
allocation of the allowance, however, it will select the single
methodology that results in the highest aggregate calculation for
allocation of the allowance among the various loan categories, and not
the highest specific allocation for each loan category from among the
three methodologies. Management believes this change reflects a more
reliable analysis of the Bank's risk of loan loss.
14
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At December 31, 1996, and 1995, $135,000 and $188,000, respectively,
was specifically allocated to commercial loans in connection with the
adoption of SFAS No. 114. Because management's analysis of problem
loans would have provided a similar allocation prior to adopting SFAS
No. 114, the adoption of SFAS No. 114 had no impact on the
comparability of the December 31, 1996 and 1995 allowance for loan loss
allocation to prior periods.
While management's periodic analysis of the adequacy of the allowance
for loan loss may allocate portions of the allowance for specific
problem loan situations, the entire allowance is available for any loan
charge-offs that occur.
V. DEPOSITS
--------
The following is a schedule of average deposit amounts and average
rates paid on each category for the periods included:
(Dollars in thousands) Years Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Noninterest bearing
demand deposits $ 71,263 - $ 66,329 - $ 58,788 -
Interest bearing
demand deposits 71,078 1.98% 68,361 1.92% 66,667 1.91%
Savings 157,662 2.85 151,229 2.63 151,768 2.47
Certificates and other
time deposits 271,351 5.73 216,187 5.67 149,771 4.40
------- ------- -------
$571,354 $502,106 $426,994
======= ======= =======
The following table summarizes time deposits issued in amounts of
$100,000 or more as of December 31, 1996 by time remaining until
maturity:
(Dollars in thousands)
Maturing in:
Under 3 months $ 10,272
Over 3 to 6 months 10,914
Over 6 to 12 months 7,212
Over 12 months 8,081
--------
$ 36,479
========
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VI. RETURN ON EQUITY AND ASSETS
---------------------------
Information required by this section is incorporated by reference to
the information appearing in the table under the caption "Five-Year
Summary of Selected Data" located on Page 44 of the Registrant's 1996
Annual Report to Shareholders.
VII. SHORT-TERM BORROWING
--------------------
Information required by this section is incorporated by reference to
Note 8 - "Short-term Borrowing" on Page 25 of the 1996 Annual Report to
Shareholders incorporated herein by reference.
Item 2 - Properties
- -------------------
UNB Corp.'s executive offices as well as the executive offices and the
main branch office of United National Bank are located in the United
Bank Building at 220 Market Avenue South, Canton, Ohio. This property
is leased through 2003 with five three-year options extending through
the year 2018. The properties occupied by thirteen of the Bank's
branches are owned by the Bank, while properties occupied by its
remaining seven branches are leased with various expiration dates
running through the year 2017 with renewal options. In March of 1996,
the Bank's Hartville South Prospect Branch location was sold with a
lease back arrangement in effect until the completion of a new Bank
owned, branch facility in Hartville into which the two existing
Hartville branch facilities would be consolidated. The new branch was
occupied in February, 1997.
The Bank's Operations Center, at 624 Market Avenue North, Canton, Ohio,
is owned by the Bank which leases approximately 13,000 square feet of
this facility to a law firm. There is no mortgage debt owing on any of
the above property owned by the Bank. A listing of all branch offices
is located under the caption "Banking Centers" found on page 14 of the
Registrant's 1996 Annual Report to Shareholders, and is incorporated
herein by reference. With the new Hartville facility, relocation of the
Amherst Branch to a more accessible leased facility within the Amherst
Shopping Center, the anticipated opening of the new leased Portage and
Frank Branch in mid-1997 and two planned in-store leased branch
facilities in the Green and Alliance communities scheduled for opening
in the late third quarter of 1997, management considers its properties
to be satisfactory for its current operations.
Item 3 - Legal Proceedings
- --------------------------
The nature of UNB Corp.'s business results in a certain amount of
litigation. Accordingly, the corporation and its subsidiaries are
subject to various pending and threatened lawsuits in which claims for
monetary damages are asserted in the ordinary course of business. While
any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from such litigation or threat
thereof will not have a material effect on the Company.
In June 1996, as a result of threats to block and barricade ingress and
egress to the Lake Cable branch of the Bank by the partnership which
then owned the Cable Shores Shopping Center, the Bank and other
adjacent property owners commenced an action in the Stark County Common
Pleas Court for a temporary restraining order and an injunction
prohibiting the threatened interference and for a court declaration
that the Bank, other property owners, and their
16
17
customers have the right to such access. The temporary restraining
order was granted. A counterclaim was filed against the Bank by the
partnership which seeks compensatory damages of one million dollars and
punitive damages of two million dollars from the Bank for alleged
trespass arising from the use of the entrance driveway by the Bank and
its customers. Although this matter remains in litigation and the
issues have not yet been resolved at trial, it is the position of
management and counsel that the Bank has defenses to the counterclaim
and that the Bank's use of the driveway does not constitute trespass.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of the year ended December 31, 1996, there
were no matters submitted to a vote of security holders.
PART II
Item 5 - Market Price of and Dividends on the Common Equity and Related
- -----------------------------------------------------------------------
Shareholder Matters
- -------------------
The information required under this item is incorporated by reference
to the information appearing under the caption "Market Price Ranges for
Common Stock" located on Page 43 of the Registrant's 1996 Annual Report
to Shareholders. In addition, attention is directed to the caption
"Capital Resources" within Management's Discussion and Analysis located
on page 40 of the Registrant's 1996 Annual Report to Shareholders and
to Note 15 "Dividend and Regulatory Capital Requirements" located on
page 29 therein. Such information is incorporated herein by reference.
Item 6 - Selected Financial Data
- --------------------------------
The information required under this item is incorporated by reference
to the information appearing under the caption "Five Year Summary of
Selected Data" located on page 44 of the 1996 Annual Report to
Shareholders. See Note 1 under the caption "Allowance for Loan Losses"
on page 20 and Note 4 - "Loans" on page 24 of the 1996 Annual Report to
Shareholders, incorporated herein by reference for a discussion of the
impact of the adoption on January 1, 1995 of SFAS No. 114 and No. 118,
"Accounting by Creditors for Impairment of a Loan". See Note 2,
"Acquisition and Intangible Assets" on page 22 of the 1996 Annual
Report to Shareholders for a discussion of the impact on the Registrant
of the acquisition of certain assets and assumption of certain deposits
and other liabilities of the former TransOhio Federal Savings Bank from
the Resolution Trust Company in 1994.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" appears on pages 33 through 42 of the
Registrant's 1996 Annual Report to Shareholders and is incorporated
herein by reference.
Item 8 - Financial Statements and Supplementary Financial Data
- --------------------------------------------------------------
The Registrant's Report of Independent Auditors and Consolidated
Financial Statements and accompanying notes are listed below and are
incorporated herein by reference to UNB Corp.'s 1996 Annual Report to
Shareholders (Exhibit 13), pages 15 through 32. The supplementary
financial information specified by Item 302 of Regulation S-K, selected
quarterly financial data, is included in Note
17
18
19 to the consolidated financial statements found on page 32.
Report of Independent Auditors
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Income
For the three years ended December 31, 1996
Consolidated Statements of Changes in Shareholders' Equity
For the three years ended December 31, 1996
Consolidated Statements of Cash Flows
For the three years ended December 31, 1996
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
Crowe, Chizek and Company LLP, Certified Public Accountants, served as
independent public accountants for the purpose of auditing the
Corporation's Annual Consolidated Financial Statements and for the
preparation of consolidated tax returns for the fiscal years ending
December 31, 1996, 1995, and 1994. The appointment of independent
public accountants is approved annually by the Board of Directors. For
the year 1997, the Board of Directors has again authorized the
engagement of Crowe, Chizek and Company LLP as independent auditors.
PART III
Information relating to the following items is included in the Registrant's
definitive proxy statement for the annual meeting of shareholders to be held
Tuesday, April 15, 1997, ("1996 Proxy Statement") filed with the Commission
pursuant to Section 14(A) of the Securities Exchange Act of 1934 and is
incorporated by reference into this Form 10-K Annual Report (Exhibit 22).
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Item 11 - Executive Compensation
- --------------------------------
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
A. Financial Statement Schedules
-----------------------------
1. Financial Statements
--------------------
The following consolidated financial statements of the Registrant
appear in the 1996 Annual Report to Shareholders (Exhibit 13) on
the pages referenced and are specifically incorporated by
reference under Item 8 of this Form 10-K:
18
19
Annual Report
Page Numbers
------------
Report of Independent Auditors 15
Consolidated Balance Sheets, December 31, 1996 and 1995 16
Consolidated Statements of Income,
For the three years ended December 31, 1996 17
Consolidated Statements of Changes in Shareholders' Equity,
For the three years ended December 31, 1996 18
Consolidated Statements of Cash Flows,
For the three years ended December 31, 1996 19
Notes to Consolidated Financial Statements 20-32
2. Financial Statement Schedules
-----------------------------
Financial statement schedules are omitted as they are not
required or are not applicable, or the required information is
included in the financial statements found in the Registrant's
1996 Annual Report to Shareholders.
3. Exhibits
--------
Reference is made to the Exhibit Index which is found on Page 22
of this Form 10-K.
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of the year
ending December 31, 1996.
19
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNB Corp.
By /s/ Robert L. Mang
----------------------------------
Robert L. Mang, President and CEO
Date March 26, 1997
--------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert L. Mang President, CEO March 26, 1997
- ---------------------------------- and Director ----------------------
Robert L. Mang (Principal Executive Officer)
/s/ James J. Pennetti Vice President March 26, 1997
- ---------------------------------- and Treasurer ----------------------
James J. Pennetti (Principal Financial
and Accounting Officer)
/s/ Donald W. Schneider Chairman of March 13, 1997
- ---------------------------------- the Board ----------------------
Donald W. Schneider
/s/ E. Lang D'Atri Director March 13, 1997
- ---------------------------------- ----------------------
E. Lang D'Atri
/s/ Edgar W. Jones, Jr. Director March 13, 1997
- ---------------------------------- ----------------------
Edgar W. Jones, Jr.
/s/ James A. O'Donnell Director March 13, 1997
- ---------------------------------- ----------------------
James A. O'Donnell
20
21
EXHIBIT INDEX
-------------
Exhibit Number Exhibit Description
- -------------- -----------------------------------------
11 Statement regarding Computation of Per
Share Earnings (included in Note 1 to the
Consolidated Financial Statements, 1996
Annual Report to Shareholders under the
caption "Earnings and Dividends Declared
Per Share").
13 Annual Report to Shareholders of UNB
Corp. for the Fiscal Year Ended December
31, 1996.
21 Subsidiaries of the Registrant (exhibit
is filed herewith).
22 Proxy Statement of UNB Corp. dated
February 21, 1997, for the Annual Meeting
of Shareholders on April 15, 1997.
27 Financial Data Schedule (submitted as
part of electronic filing only)
21