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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
For the fiscal year ended December 31, 1997
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 44702
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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
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(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
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1998: $227,078,795.
The number of shares outstanding of each of the Registrant's common stock, as of
March 15, 1998: 5,785,447 shares of $1.00 per share stated value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1997 UNB Corp. Annual Report to Shareholders (Exhibit 13) is
incorporated into Part I, Item 1(c), 1(e), Item 2, and Part II, Items 5, 6, 7,
and 8.
Portions of the Definitive Proxy Statement of UNB Corp. dated February 20, 1998
and Notice of Annual Meeting of Shareholders to be held on April 21, 1998, are
incorporated into Part III, Items 10, 11, 12, and 13.
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UNB CORP.
FORM 10-K
1997
PART I
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Page
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Item 1 Business 3
Item 2 Properties 17
Item 3 Legal Proceedings 17
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
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Item 5 Market for Registrant's Common Equity and Related Shareholder
Matters 18
Item 6 Selected Financial Data 18
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 7A Quantitative and Qualitative Disclosures About Market Risk 18
Item 8 Financial Statements and Supplementary Data 22
Item 9 Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 22
PART III
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Item 10 Directors and Executive Officers of the Registrant 22
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners and Management 22
Item 13 Certain Relationships and Related Transactions 22
PART IV
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Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 23
Signatures 24
Exhibit Index 26
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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. At December 31, 1997, UNB Corp. and its affiliates had total
consolidated assets of $826.3 million and total consolidated
shareholders' equity of $76.5 million.
b. Financial Information About Industry Segments
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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
-----------------------------------
UNB Corp.'s main affiliate, the United National Bank & Trust Company, is
a full-service banking organization with 22 banking offices offering a
wide range of commercial and retail and fiduciary 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 and VISA business lines of credit, accounts
receivable, lease and floor plan financing. Deposit products include
interest and non-interest bearing checking products, various savings
products, 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, bank-by-phone and bank by personal computer
services, wire transfer service, selected utility bill payments,
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 and provides
to its customers 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
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written loan policies designed to maintain loan quality.
Retail lending products are comprised of credit card loans, demand
deposit lines of credit (overdraft protection), 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. Demand deposit
lines of credit are lines attached to checking accounts to cover
overdrafts and/or allow customers to write themselves a loan within an
approved credit limit. Credit limits are based on 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 a wide variety of mortgage loan products and services,
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 financing 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
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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 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, obtains 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 $2.5 million.
Executive Loan Committee approves aggregate loan commitments in excess
of $2.5 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 Loan Quality
Review 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% of consolidated revenues in 1997
and 1996, and 75% in 1995. Revenues from interest and dividends on
investment and mortgage-backed securities accounted for 11% of
consolidated revenues in 1997 and 1996, and 14% in 1995.
In the first half of 1997, UNB Corp. received permission from the State
of Ohio Department of Commerce, Division of Consumer Finance, for a
license to establish and operate a consumer finance company, regulated
under the Ohio Mortgage Loan Act, as a wholly owned subsidiary of the
Corporation. Management believes that the addition of a finance company
will contribute to its continuing efforts to maximize shareholder value.
United Banc Financial Services, Inc. was capitalized with a $500,000
investment in June, 1997 and began operations on July 1, 1997. Its
products include real estate and non-real estate secured loans, as well
as personal note loans and indirect, retail loans. Underwriting and
pricing standards are determined by credit
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risk scores, credit bureau ratings, debt to income ratios and assets of
the consumer. Minimum credit risk scores and maximum debt to income
ratios have been established for all products. Loan to value ratios for
real estate secured loans are determined by amount financed and credit
risk scores. Generally, a higher risk loan will reflect a higher
interest rate, lower loan to value ratio and greater required equity
investment on the part of the borrower. Amortization terms on real
estate secured loans may extend up to 360 months. Personal, unsecured,
non-real estate and indirect, retail loans may amortize up to 60 months.
All real estate secured loans are interest bearing while non-real estate
loans have interest calculated under the Rule of 78s. Total loans
outstanding, net of unearned income, at December 31, 1997 is $841,000.
Real estate lien products accounted for 65.5% of outstandings while the
remaining 34.5% is derived from non-real estate loans. The results of
operations for United Banc Financial Services for 1997 did not have a
material impact on the earnings of UNB Corp. in 1997.
During the third quarter of 1997, the UNB Corp. Board of Directors
authorized the formation of United Mortgage Corporation, an affiliate of
UNB Corp. to operate as a mortgage banking organization. Management
believes consolidating elements of the Corporation's mortgage function
under a separate mortgage company will increase shareholder value by
leading to greater opportunities to increase fee income, expand the base
of mortgage products offered, expand in new geographic markets and
provide more accurate measurement of the profitability of the
Corporation's mortgage function. Operations of United Mortgage
Corporation are anticipated to begin in the third quarter of 1998.
In the fourth quarter of 1997, the Registrant liquidated its affiliate,
the United Credit Life Insurance Company (United Credit Life). United
Credit Life was originally formed 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. Prior to the liquidation, insurance was
underwritten by Union Fidelity Life Insurance Company with which United
Credit Life entered into reinsurance treaties whereby United Credit Life
assumed up to $25,000 of liability on each life policy. Income and
expenses related to the liquidation had no material effect of the
earnings of the Registrant in 1997.
Also in the fourth quarter of 1997, UNB Corp. took steps to activate its
affiliate, the United Insurance Agency, Inc., which was chartered on
August 23, 1990 and is currently licensed to issue life, accident and
health, and variable annuity insurance. The Registrant has also filed
with the State of Ohio to obtain an amendment to this affiliate's
charter to be licensed to issue property and casualty insurance.
Operations are expected to begin in the first quarter of 1998 and are
anticipated to aid UNB Corp. in its ability to compete with other
providers of financial services in offering its customers a wide variety
of products to fulfill their financial needs.
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.
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
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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 five percent 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. The Federal Reserve is authorized
to approve the ownership of shares by a bank holding company in any
company the activities of which the Federal Reserve has determined to be
so closely related to banking or to managing or controlling banks as to
be a proper incident thereto. The Federal Reserve has by regulation
determined that certain activities are closely related to banking within
the meaning of the Bank Holding Company Act. These activities include
among others, operating a mortgage company or finance company;
performing certain data processing operations; providing investment and
financial advice and acting as an insurance agent for certain types of
credit-related insurance.
UNB Corp. is under the jurisdiction of the Securities and Exchange
Commission for matters relating to its securities and is subject to the
disclosure and regulatory requirements of the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, as
administered by the Commission regulation.
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.
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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, 1997 as disclosed in Note
14 of UNB Corp.'s 1997 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 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. 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
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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.
Government Monetary Policies
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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 effecting the 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 other state, regional and national banks which do
business within Stark and Summit Counties of Ohio. 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 and other affiliates of the
Corporation. 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 borrowings, the competitive prices
charged for and the availability and quality of products and services
provided and the convenience of its branch locations.
Effects of Compliance with Environmental Regulations
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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.
The Bank has continued involvement in legal proceedings concerning a
seven and one half acre parcel of property acquired through foreclosure
and located in the northwest quadrant of Stark County. A large national
petroleum company,
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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.
After several environmental assessments by the Bank and the petroleum
company were filed with the State agency, the State is now in agreement
with the petroleum company's findings, that the levels of contaminants
are such that immediate remediation is not required. The contamination
will remediate itself over time which is the method the petroleum
company wishes to pursue. The State will allow the site to sit for
another year and to re-measure the contamination level at that time in
the hope it will drop below state standards which require any
remediation activity. Counsel for the Bank is working with the petroleum
company to obtain a hold harmless agreement to help assist the Bank in
the sale of the property. The Bank continues to list the property for
sale and follows up on all inquiries which are made. Estimated cleanup
costs, should they become the responsibility of the Bank, are not
material to the business or financial condition of the Registrant and
have been set up as an allowance against the property's value on the
Corp.'s Consolidated Balance Sheet.
Employees
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As of December 31, 1997, UNB Corp. and its subsidiaries had 285
full-time employees and 55 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 1997 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, 1997, 1996 and 1995
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 34 of the Registrant's 1997 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 $3,108,000, $3,478,000 and
$2,901,000 are included in interest on loans for the years ended
December 31, 1997, 1996, and 1995.
C. Tables setting forth the effect of volume and rate changes on interest
income and expense for the years ended December 31, 1997 and 1996 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 32 of the
Registrant's 1997 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) 1997 1996 1995
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U.S. Treasury securities and securities
of U.S. government agencies and corporations $ 53,637 $ 75,817 $ 53,991
Obligations of states and political subdivisions 951 1,051 1,238
Mortgage-backed securities 67,845 42,907 63,087
Other securities 18,405 13,111 9,900
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Total investment and mortgage-backed securities $140,838 $132,886 $128,216
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B. The carrying value and weighted average interest yield for each
investment category listed in Part A at December 31, 1997 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 19 in the Notes to
Consolidated Financial Statements in the Registrant's 1997 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, 1997.
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) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Commercial $ 85,102 $ 78,563 $ 64,811 $ 61,094 $ 61,209
Commercial real estate 70,896 65,875 60,478 53,252 46,723
Residential real estate 260,190 242,652 172,283 115,354 81,495
Consumer loans 214,230 230,512 221,158 182,822 161,041
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Total loans $630,418 $617,602 $518,730 $412,522 $350,468
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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, 1997:
(Dollars in thousands)
Commercial and
Commercial Real Estate
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Due in one year or less $ 38,794
Due after one year, but within five years 40,732
Due after five years 76,472
--------
Total $155,998
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):
12
13
(Dollars in thousands)
Fixed Variable
----- --------
Interest Rates Interest Rates
-------------- --------------
Total commercial, and commercial real estate
loans due after one year $26,528 $90,676
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following
schedule summarizes nonaccrual, past due, and restructured loans:
(Dollars in thousands) 1997 1996 1995 1994 1993
------ ------ ------ ------ ------
Nonaccrual loans $ 854 $ 708 $1,066 $1,039 $ 605
Accrual loans past due 90 days 91 130 254 19 40
Restructured loans 424 237 212 375 689
------ ------ ------ ------ ------
Total 1,369 1,075 1,532 1,433 1,334
Potential problem loans 1,722 1,699 1,075 5,386 5,521
------ ------ ------ ------ ------
Total $3,091 $2,774 $2,607 $6,819 $6,855
====== ====== ====== ====== ======
For the year ended December 31, 1997, $4,100 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, 1997, loans totaling $281 thousand were
classified as impaired. All loans classified as impaired at
December 31, 1997 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, 1997 to prior periods.
2. Potential Problem Loans - As shown in the table above, at
December 31, 1997, 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, 1997, 1996, or 1995.
4. Loan Concentrations - As of December 31, 1997, indirect
installment loans comprise 25.2% of loans outstanding. The dealer
network from which indirect loans were purchased in 1997 included
135 dealers, the largest of which was
13
14
responsible for 10% of total indirect volume for 1997. 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 17 of the 1997 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, 1997, 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, 1997, in the amount of $325,000.
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) 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Average loans outstanding during the
period (net of unearned income) $629,514 $582,418 $464,314 $385,618 $339,468
======== ======== ======== ======== ========
Allowance for loan losses
at beginning of year $ 8,335 $ 7,242 $ 6,348 $ 6,056 $ 4,355
Loans charged off:
Commercial 258 106 26 13 37
Commercial real estate - - 20 52 11
Residential real estate 15 156 71 3 11
Consumer loans 2,638 2,900 1,441 1,095 822
-------- -------- -------- -------- --------
Total charge-offs 2,911 3,162 1,558 1,163 881
Recoveries:
Commercial 190 5 29 52 69
Commercial real estate 8 39 26 7 -
Residential real estate 86 71 71 11 7
Consumer loans 1,013 1,000 576 365 311
-------- -------- -------- -------- --------
Total recoveries 1,297 1,115 702 435 387
-------- -------- -------- -------- --------
Net charge-offs 1,614 2,047 856 728 494
Provision for loan loss
charged to operations 2,929 3,140 1,750 1,020 2,195
-------- -------- -------- -------- --------
Allowance for loan losses at end of year $ 9,650 $ 8,335 $ 7,242 $ 6,348 $ 6,056
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans, net of unearned income 0.26% 0.35% 0.18% 0.19% 0.15%
======== ======== ======== ======== ========
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
14
15
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 other loans in the aggregate. The reduction in
provision from 1996 to 1997 was a result of slower, more selective loan
growth in 1997 coupled with the decrease in net charge-offs.
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, 1997 December 31, 1996
----------------------------- ---------------------------
Commercial $3,344 13.5% $2,064 12.7%
Commercial real estate 781 11.2 663 10.7
Residential real estate 261 41.3 244 39.3
Consumer 2,316 34.0 4,420 37.3
Unallocated 2,948 -- 944 --
------ ------ ------ ------
Total $9,650 100.0% $8,335 100.0%
====== ====== ====== ======
December 31, 1995 December 31, 1994
----------------------------- ---------------------------
Commercial $2,160 12.5% $1,660 14.9%
Commercial real estate 782 11.7 840 13.0
Residential real estate 129 33.2 1,257 28.2
Consumer 2,174 42.6 2,129 43.9
Unallocated 1,997 -- 462 -
------ ------ ------ ------
Total $7,242 100.0% $6,348 100.0%
====== ====== ====== ======
December 31, 1993
-----------------------------
Commercial $1,638 17.5%
Commercial real estate 701 13.3
Residential real estate 1,230 23.2
Consumer 1,412 46.0
Unallocated 1,075 -
------ ------
Total $6,056 100.0%
====== ======
A comparison of allocations of the allowance for loan losses between
the five years presented 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
15
16
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.
At December 31, 1997 there was no specific allocation to any loan
category in connection with the adoption of SFAS No. 114 due to the
adequacy of the collateral values relative to the balance of impaired
loans outstanding at year-end 1997. 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, 1997,
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,
------------------------------------------------------------------------
1997 1996 1995
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Noninterest bearing
demand deposits $ 76,523 - $ 71,263 - $ 66,329 -
Interest bearing
demand deposits 72,770 1.68% 71,078 1.98% 68,361 1.92%
Savings 174,789 3.14 157,662 2.85 151,229 2.63
Certificates and other
time deposits 290,854 5.76 271,351 5.73 216,187 5.67
-------- -------- --------
$614,936 $571,354 $502,106
======== ======== ========
The following table summarizes time deposits issued in amounts of
$100,000 or more as of December 31, 1997 by time remaining until
maturity:
(Dollars in thousands)
Maturing in:
Under 3 months $ 8,215
Over 3 to 6 months 7,483
Over 6 to 12 months 10,410
Over 12 months 22,360
-------
$48,468
16
17
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 42 of the Registrant's 1997
Annual Report to Shareholders.
VII. SHORT-TERM BORROWING
--------------------
Information required by this section is incorporated by reference to
Note 7 - "Short-term Borrowings" on Page 21 of the 1997 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 fourteen of the Bank's
branches are owned by the Bank, while properties occupied by its
remaining eight branches are leased with various expiration dates
running through the year 2021 with renewal options. In addition to the
leased branches, the Corporation is also leasing office space for the
operations of the Bank's mortgage loan department which will become UNB
Corp.'s affiliate United Mortgage Corporation in 1998 and the office of
United Banc Financial Services, Inc. These leases are for ten and five
years, respectively, with renewal options extending to the years 2007
and 2012, respectively.
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 10
of the Registrant's 1997 Annual Report to Shareholders, and is
incorporated herein by reference. 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 Corporation.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of the year ended December 31, 1997, there
were no matters submitted to a vote of security holders.
17
18
PART II
Item 5 - Market Price of and Dividends on the Common Equity and Related
- -----------------------------------------------------------------------
Shareholder Matters
- -------------------
Shares of the Common Stock of the Registrant are traded on the
over-the-counter market primarily with brokers in the Corporation's
service area. 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 41 of the Registrant's
1997 Annual Report to Shareholders. In addition, attention is directed
to the caption "Capital Resources" within Management's Discussion and
Analysis located on page 38 of the Registrant's 1997 Annual Report to
Shareholders and to Note 14 - "Dividend and Regulatory Capital
Requirements" located on page 25 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 42 of the 1997 Annual Report to
Shareholders. See Note 1 under the caption "Allowance for Loan Losses"
on page 16 and Note 3 - "Loans" on page 20 of the 1997 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".
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 30 through 40 of the
Registrant's 1997 Annual Report to Shareholders and is incorporated
herein by reference.
Item 7A.- Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The Corporation's primary market risk exposure is interest rate risk,
which is defined as the potential loss of income or capital as a result
of changes in interest rates. The nature of the banking business means
that some level of interest rate risk will always be present, but the
Corporation has the responsibility to manage that risk to minimize the
negative impact on both the earnings and capital. Evaluating the
Corporation's exposure to changes in interest rates includes assessing
both the management process used to control interest rate risk and the
calculated level of risk. The Corporation maintains the appropriate
policies, procedures, management information systems and internal
controls as required by the Joint Agency Policy Statement on Risk. The
Corporation's exposure to interest rate risk is calculated on a monthly
basis and reviewed by Senior Management and the Board of Directors.
The Corporation uses a number of methods to calculate and measure
interest rate risk. The asset/liability gap compares the dollar amounts
of assets and liabilities that will mature or reprice in a given time
period to determine the level and direction of interest rate
sensitivity. The Corporation is considered asset sensitive if more
assets than liabilities mature or reprice in
18
19
the specified time frame and liability sensitive if more liabilities
than assets mature or reprice in that same period. Asset sensitivity,
or a positive gap, indicates that the Corporation's exposure is to
falling rates, since more assets than liabilities could reprice or be
reinvested at lower levels. Liability sensitivity, or a negative gap,
means that the Corporation's exposure is to rising rates since more
liabilities than assets could reprice at higher rates.
The Corporation makes a number of assumptions when calculating its gap
position. The most significant assumption is the assignment of deposit
balances without a stated maturity date to specific time frames. Since
these deposits are subject to withdrawal on demand, and have rates that
can be changed at any time, they could be considered immediately
repriceable and assigned to the shortest maturity, resulting in a
significant level of liability sensitivity. However, actual practice
indicates that balances are withdrawn and replaced over a much longer
time frame, and rates are modified less frequently and in smaller
increments than changes which occur in financial market rates. To
compensate for these extremes, the Corporation uses multiple deposit
distribution assumptions to provide a range of interest rate risk
measurements that it uses as a guide for managing various assets and
liabilities. At year-end the Corporation's modified twelve month
cumulative gap was 1.25%, indicating slight asset sensitivity. One of
the shortcomings of the gap analysis is that the use of a static
balance sheet results in a measure of interest rate risk at one
specific point in time. Another limitation is the implied assumption
that assets and liabilities in the same time period will reprice by the
same magnitude.
Simulation analysis provides a more dynamic interpretation of the
impact of rates on the Corporation's forecasted income and net present
value of assets, liabilities and capital. The Corporation makes certain
assumptions regarding the level of interest rates, prepayments on
assets with imbedded options including loans and asset backed
securities, and the behavior of deposits without contractual maturity
dates. These assumptions, in addition to actual rates and maturity and
repricing dates on loans, investments and deposits, are incorporated
into a computer model which calculates forecasted net income and
discounts the projected cash flows of rate sensitive assets and
liabilities to determine the present value of the Corporation's
capital. The model then applies a predetermined immediate parallel
increase or decrease in the level of interest rates to forecast the
impact on both net interest income and capital one year forward. At
year-end, the Corporation's interest rate shock forecasted a change in
net interest income of +3.21% to -3.39% based on a 200 basis point
change in rates. The forecasted change in the market value of equity
was -1.69% to 3.20% for the same period. While this methodology
provides a more comprehensive appraisal of interest rate risk, it is
not necessarily indicative of actual or expected financial performance.
Changes in interest rates that affect the entire yield curve equally at
a single point in time are not typical. The residential mortgage
prepayment assumptions are based on industry medians and could differ
from the Corporation's actual results due to non-financial prepayment
incentives and other local factors. Moreover, the model does not
include any interim changes in strategy the Corporation might undertake
in response to shifts in interest rates.
Interest rate risk can be managed by using a variety of techniques,
including selling existing assets or repaying liabilities, pricing
loans and deposits to attract preferred maturities, developing
alternative sources of funding or
19
20
structuring new products to hedge existing exposures. In addition to
these balance sheet strategies, the Corporation can also use derivative
financial instruments such as interest rate swaps, caps, and floors to
minimize the potential impact of adverse changes in interest rates.
The following table provides information about the Corporation's
financial instruments that are sensitive to changes in interest rates.
The expected maturity dates for residential mortgage loans and
securities backed by or indexed to residential mortgage loans were
calculated by adjusting the contractual maturity for prepayments
corresponding to median industry data. Installment loan prepayment
speeds were based on historical experience. Deposit accounts without
contractual maturity dates were stratified by expected decay rates
according to historical analysis. The Corporation has one pay fixed
amortizing interest rate swap that was executed in 1993 as hedge
against fixed rate mortgages held in the portfolio.
20
21
UNB CORP.
QUANTITATIVE DISCLOSURE OF MARKET RISK
ONE YEAR TWO YEARS THREE YEARS FOUR YEARS
BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE
ASSETS
- ------
Short Term Investments 8,642 5.50%
Securities 35,262 6.11% 12,595 6.60% 3,276 6.60% 1,791 6.62%
Collateralized Mortgage Obligations 11,836 6.96% 11,286 6.96% 12,143 6.84% 10,124 6.80%
and Mortgage Backed Securities (1)
Fixed Rate Loans (2) (3) 93,530 8.88% 60,875 9.06% 43,360 9.01% 31,100 8.64%
Variable Rate Loans (4) (5) (6) 40,685 8.45% 34,619 8.37% 29,231 8.29% 44,983 8.55%
LIABILITIES
- -----------
Interest Bearing Demand & Savings (7) 23,961 3.35% 25,570 3.36% 32,112 3.03% 23,994 3.39%
Time Deposits 164,246 5.50% 90,977 6.05% 26,638 6.20% 16,243 6.05%
Repurchase Agreements 51,289 4.78%
Short Term Borrowings 5,222 5.50%
FHLB Advances 7,498 6.04% 17,848 6.38% 6,226 6.31% 3,188 6.33%
OFF-BALANCE SHEET
- -----------------
Interest Rate Swap (8) 1,300 1,250 1,200
Average Pay Rate (Fixed) 2.88% 2.88% 2.88%
Average Receive Rate (Variable) 5.50% 5.50% 5.50%
FIVE YEARS MORE THAN 5 YEARS TOTAL FAIR
BALANCE RATE BALANCE RATE BALANCE RATE VALUE
ASSETS
- ------
Short Term Investments 8,642 0.055 8,642
Securities 1,354 6.69% 18,715 0.0622 72,993 0.0637 72,999
Collateralized Mortgage Obligations 5,659 6.84% 16,797 0.0639 67,845 0.0677 67,922
and Mortgage Backed Securities (1)
Fixed Rate Loans (2) (3) 18,487 8.61% 65,573 0.0842 312,925 0.0879 308,981
Variable Rate Loans (4) (5) (6) 20,062 8.15% 140,453 0.0801 310,033 0.0829 309,819
LIABILITIES
- -----------
Interest Bearing Demand & Savings (7) 41,524 2.95% 113,846 0.022 261,007 0.0288 261,007
Time Deposits 6,164 6.32% 2,033 0.0611 306,301 0.0578 303,710
Repurchase Agreements 51,289 0.0478 51,289
Short Term Borrowings 5,222 0.055 5,222
FHLB Advances 330 6.25% 350 0.0625 35,440 0.0629 35,736
OFF-BALANCE SHEET
- -----------------
Interest Rate Swap (8) 171
Average Pay Rate (Fixed)
Average Receive Rate (Variable)
(1) Expected cash flows on Collateralized Mortgage Obligations and Mortgage Backed Securities are revised monthly based on median
estimates of prepayment speeds developed by major broker dealers as published by Bloomberg Financial Markets.
(2) For residential mortgage loans, prepayments are revised monthly based on the median prepayment speeds developed by major
broker dealers as published by Bloomberg Financial Markets. The prepayment rates are assigned based on the interest rate on
the loan and the number of months elapsed since the loan was originated.
(3) For installment loans, prepayments are revised monthly based on actual historical cash flow and equate to approximately 12% to
24%.
(4) Substantially all of the variable rate commercial loans are repriced based on the prime rate.
(5) Variable rate commercial real estate loans are based on prime or the three year constant maturity treasury rate.
(6) Substantially all the variable rate residential mortgage loans reprice based on the one year or three year constant maturity
treasury rate subject to various periodic and lifetime caps and floors.
(7) For deposits without contractual maturity dates, decay rates are calculated annually by individual product type based on the
current age of the accounts.
(8) At year end 1997, the notional principal amount of the interest rate swap was $1,350 and the market value was $171. The
notional amount will amortize quarterly according to a predetermined schedule until its maturity on 11/26/00. The Company pays
a fixed rate of 2.88% and receives a variable rate of three month LIBOR reset quarterly, which at year-end was 5.875%.
21
22
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 1997 Annual Report to
Shareholders (Exhibit 13, pages 11 through 29). The supplementary
financial information specified by Item 302 of Regulation S-K, selected
quarterly financial data, is included in Note 18 - "Quarterly Financial
Data (Unaudited)" to the consolidated financial statements found on
page 29.
Report of Independent Auditors
Consolidated Balance Sheets
December 31, 1997 and 1996
Consolidated Statements of Income
For the three years ended December 31, 1997
Consolidated Statements of Changes in Shareholders' Equity
For the three years ended December 31, 1997
Consolidated Statements of Cash Flows
For the three years ended December 31, 1997
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, 1997, 1996, and 1995. The appointment of independent
public accountants is approved annually by the Board of Directors. For
the year 1998, 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 and Notice of Annual Meeting of Shareholders to be
held Tuesday, April 21, 1998, ("1997 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
- ------------------------------------------------------------------------
22
23
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 1997 Annual Report to Shareholders (Exhibit 13) on
the pages referenced and are specifically incorporated by
reference under Item 8 of this Form 10-K:
Annual Report
Page Numbers
-------------
Report of Independent Auditors 11
Consolidated Balance Sheets, December 31, 1997 and 1996 12
Consolidated Statements of Income,
For the three years ended December 31, 1997 13
Consolidated Statements of Changes in Shareholders' Equity,
For the three years ended December 31, 1997 14
Consolidated Statements of Cash Flows,
For the three years ended December 31, 1997 15
Notes to Consolidated Financial Statements 16-29
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
1997 Annual Report to Shareholders.
3. Exhibits
--------
Reference is made to the Exhibit Index which is found on Page 26
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, 1997.
23
24
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/ Roger L. Mann
--------------------------------------
Roger L. Mann, President and CEO
Date March 12, 1998
------------------------------------
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/ Rober L. Mann President, CEO March 12, 1998
- ------------------------------ and Director -----------------------------
Roger L. Mann (Principal Executive Officer)
/s/ James J. Pennetti Vice President March 12, 1998
- ------------------------------ and Treasurer -----------------------------
James J. Pennetti (Principal Financial
and Accounting Officer)
/s/ Donald W. Schneider Chairman of March 13, 1998
- ------------------------------ the Board and -----------------------------
Donald W. Schneider Director
/s/ Louis V. Bockius III Director March 13, 1998
- ------------------------------ -----------------------------
Louis V. Bockius III
/s/ E. Lang D'Atri Director March 12, 1998
- ------------------------------ -----------------------------
E. Lang D'Atri
/s/ Edgar W. Jones, Jr. Director March 12, 1998
- ------------------------------ -----------------------------
Edgar W. Jones, Jr.
24
25
SIGNATURES(continued)
Absent Director
- ------------------------------ -----------------------------
Harold M. Kolenbrander, Ph.D.
/s/ Russell W. Maier Director March 12, 1998
- ------------------------------ -----------------------------
Russell W. Maier
/s/ Robert L. Mang Director March 12, 1998
- ------------------------------ -----------------------------
Robert L. Mang
/s/ James A. O'Donnell Director March 12, 1998
- ------------------------------ -----------------------------
James A. O'Donnell
/s/ Abner A. Yoder Director March 12, 1998
- ------------------------------ -----------------------------
Abner A. Yoder
25
26
EXHIBIT INDEX
-------------
Regulation S-K
Exhibit Number Exhibit Description
- -------------- ---------------------------------------------------------------------------
10.a Change of Control Agreement of Leo E. Doyle, dated November 16, 1995
10.b Change of Control Agreement of Robert L. Mang, dated November 16, 1995
10.c Change of Control Agreement of James J. Pennetti, dated November 16, 1995
10.d Change of Control Agreement of Robert M. Sweeney, dated November 16, 1995
10.e UNB Corp. 1997 Stock Option Plan (incorporated by reference from Exhibit 22
to the Form 10-K filed by the Registrant on March 27, 1997)
10.f Amendment to the Change of Control Agreement of Leo E. Doyle, dated January
16, 1997
10.g Amendment to the Change of Control Agreement of Robert L. Mang, dated
January 16, 1997
10.h Amendment to the Change of Control Agreement of James J. Pennetti, dated
January 16, 1997
10.i Amendment to the Change of Control Agreement of Robert M. Sweeney, dated
January 16, 1997
10.j Employment Contract by and between William J. Devolve and UNB Corp., dated
January 30, 1997
10.k Employment Contract by and between Roger L. Mann and UNB Corp. and United
National Bank and Trust Co., dated April 17, 1997
26
27
EXHIBIT INDEX(Continued)
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10.l Change of Control Agreement of Charles J. Berry, dated May 15, 1997
10.m Change of Control Agreement of Roger L. Mann, dated June 1, 1997
10.n Amendment to the Change of Control Agreement of Roger L. Mann, dated
December 10, 1997
10.o Amendment to the Change of Control Agreement of Leo E. Doyle, dated December
10, 1997
10.p Amendment to the Change of Control Agreement of James J. Pennetti, dated
December 10, 1997
10.q Amendment to the Change of Control Agreement of Robert M. Sweeney, dated
December 10, 1997
11 Statement regarding Computation of Per Share Earnings (included in Note 1 to
the Consolidated Financial Statements, 1997 Annual Report to Shareholders
under the caption "Earnings and Dividends Declared Per Share").
13 UNB Corp. Annual Report to Shareholders for the Fiscal Year Ended December
31, 1997.
21 Subsidiaries of the Registrant (exhibit is filed herewith).
22 Proxy Statement of UNB Corp. and Notice for the Annual Meeting of
Shareholders on April 21, 1998 (Incorporated by reference to Form Definitive 14.A
filed by the Registrant February 20, 1998)
27.a Financial Data Schedule for 1997(submitted as part of electronic filing
only)
27.b Restated Financial Data Schedule for Fiscal 1996(submitted as part of
electronic filing only)
27.c Restated Financial Data Schedule for Fiscal 1995(submitted as part of
electronic filing only)
27