SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission file number: 333-35799
UNION COMMUNITY BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-2025237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
221 East Main Street
Crawfordsville, Indiana 47933
(Address of principal executive offices,
including Zip Code)
(765) 362-2400
(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of March 31, 2001 was 2,270,000.
Union Community Bancorp
Form 10-Q
Index
Page No.
--------
FORWARD LOOKING STATEMENT 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 4
Consolidated Condensed Statement of Income 5
Consolidated Condensed Statement of Shareholders' Equity 6
Consolidated Condensed Statement of Cash Flows 7
Notes to Unaudited Consolidated Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
FORWARD LOOKING STATEMENT
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined in the notes to the
consolidated condensed financial statements), its directors or its officers
primarily with respect to future events and the future financial performance of
the Company. Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors include changes in
interest rates; loss of deposits and loan demand to other financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; or regulatory changes.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheet
(Unaudited)
March 31, December 31,
2001 2000
--------------------------------------------------
Assets
Cash $ 195,446 $ 210,601
Interest-bearing demand deposits 6,160,598 4,544,085
--------------------------------------------------
Cash and cash equivalents 6,356,044 4,754,686
Investment securities held to maturity 5,723,177 7,567,432
Loans, net of allowance for loan losses of $494,554 and $479,554 109,477,011 109,505,174
Premises and equipment 406,946 373,986
Federal Home Loan Bank stock 1,180,700 1,043,700
Investment in limited partnership 886,609 911,609
Interest receivable 884,379 958,450
Other assets 149,667 238,453
--------------------------------------------------
Total assets $ 125,064,533 $ 125,383,490
==================================================
Liabilities
Deposits
Noninterest-bearing $ 1,802,914 $ 1,769,103
Interest-bearing 73,840,317 71,047,357
--------------------------------------------------
Total deposits 75,643,231 72,816,460
Federal Home Loan Bank advances 12,405,633 14,534,893
Note payable 477,142 654,542
Interest payable 142,139 196,223
Dividends payable 317,683 326,783
Other liabilities 659,610 666,655
--------------------------------------------------
Total liabilities 89,645,438 89,195,556
--------------------------------------------------
Commitments and Contingent Liabilities
Shareholders' Equity
Preferred stock, no par value
Authorized and unissued - 2,000,000 shares
Common stock, no-par value
Authorized - 5,000,000 shares
Issued and outstanding - 2,270,000 and 2,341,000 shares 22,183,045 22,868,943
Retained earnings 15,860,409 16,025,304
Unearned employee stock ownership plan (ESOP) shares (1,496,038) (1,521,125)
Unearned recognition and retention plan (RRP) shares (1,128,321) (1,185,188)
--------------------------------------------------
Total shareholders' equity 35,419,095 36,187,934
--------------------------------------------------
Total liabilities and shareholders' equity $ 125,064,533 $ 125,383,490
==================================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended
March 31
---------------------------------------
2001 2000
---------------------------------------
Interest and Dividend Income
Loans $ 2,171,769 $ 2,106,274
Investment securities 119,196 131,531
Dividends on Federal Home Loan Bank stock 22,990 20,760
Deposits with financial institutions 77,877 23,296
--------------------------------------
Total interest and dividend income 2,391,832 2,281,861
--------------------------------------
Interest Expense
Deposits 1,031,349 897,382
Federal Home Loan Bank advances 219,022 171,180
--------------------------------------
Total interest expense 1,250,371 1,068,562
--------------------------------------
Net Interest Income 1,141,461 1,213,299
Provision for loan losses 15,000 15,000
--------------------------------------
Net Interest Income After Provision for Loan Losses 1,126,461 1,198,299
--------------------------------------
Other Income (Losses)
Equity in losses of limited partnerships (25,000) (30,000)
Net realized gains on sales of available for sale securities 8,331
Other income 44,148 33,096
--------------------------------------
Total other income (losses) 19,148 11,427
--------------------------------------
Other Expenses
Salaries and employee benefits 310,530 266,106
Net occupancy expenses 11,538 5,914
Equipment expenses 6,472 4,978
Deposit insurance expense 3,644 3,840
Legal and professional fees 31,375 22,805
Data processing fees 18,289 19,502
Other expenses 114,887 69,470
--------------------------------------
Total other expenses 496,735 392,615
--------------------------------------
Income Before Income Tax 648,874 817,111
Income tax expense 213,028 281,889
--------------------------------------
Net Income $ 435,846 $ 535,222
======================================
Basic Earnings per Share $ .21 $ .23
======================================
Diluted Earnings per Share $ .21 $ .23
======================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Three Months Ended March 31, 2001
(Unaudited)
Common Stock
------------------------------ Unearned
Shares Retained ESOP Unearned
Outstanding Amount Earnings Shares Compensation Total
------------------------------------------------------------------------------------------------
Balances, January 1, 2001 2,341,000 $22,868,943 $ 16,025,304 $(1,521,125) $(1,185,188) $ 36,187,934
Net income for the period 435,846 435,846
Cash dividends ($.15 per share) (317,683) ` (317,683)
Purchase of common stock (71,000) (693,717) (283,058) (976,775)
Amortization of unearned
compensation expense 56,867 56,867
ESOP shares earned 7,819 25,087 32,906
------------------------------------------------------------------------------------------------
Balances, March 31, 2001 2,270,000 $22,183,045 $15,860,409 $(1,496,038) $(1,128,321) $ 35,419,095
================================================================================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Three Months Ended
March 31,
--------------------------------
2001 2000
--------------------------------
Operating Activities
Net income $ 435,846 $ 535,222
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 15,000 15,000
Depreciation and amortization 7,468 6,530
Investment securities accretion, net (840) (2,962)
Gain on sale of investment securities available for sale (8,331)
Equity in losses of limited partnerships 25,000 30,000
Amortization of unearned compensation expense 56,867 56,867
ESOP shares earned 32,906 27,792
Net change in:
Interest receivable 74,071 6,982
Interest payable (54,084) 15,515
Other assets 88,786 85,461
Other liabilities (161,336) 96,069
--------------------------------
Net cash provided by operating activities 519,684 864,145
--------------------------------
Investing Activities
Investment securities
Purchase FHLB stock (137,000)
Proceeds from sales of investment securities available for sale 87,997
Proceeds from maturities of securities held to maturity and paydowns
of mortgage-backed securities 1,875,095 62,985
Net changes in loans 13,163 (1,439,556)
Purchases of property and equipment (40,428) (2,396)
--------------------------------
Net cash provided (used) by investing activities 1,710,830 (1,290,970)
--------------------------------
Financing Activities
Net change in
Interest-bearing demand and savings deposits 1,593,375 1,016,740
Certificates of deposit 1,233,396 823,854
Proceeds from borrowings 4,000,000 6,000,000
Repayment of borrowings (6,306,660) (7,306,533)
Cash dividends (326,783) (315,591)
Repurchase of common stock (976,775) (344,763)
Net change in advances by borrowers for taxes and insurance 154,291 144,090
--------------------------------
Net cash provided (used) by financing activities (629,156) 17,797
--------------------------------
Net Change in Cash and Cash Equivalents 1,601,358 (409,028)
Cash and Cash Equivalents, Beginning of Period 4,754,686 3,117,025
--------------------------------
Cash and Cash Equivalents, End of Period $ 6,356,044 $ 2,707,997
================================
Additional Cash Flows Information
Interest paid $ 1,304,455 $ 1,053,047
Income tax paid 287,000 228,025
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1: Basis of Presentation
The consolidated financial statements include the accounts of Union Community
Bancorp (Company) and its wholly owned subsidiary, Union Federal Savings and
Loan Association, a federally chartered savings and loan association (Union
Federal). A summary of significant accounting policies is set forth in Note 1 of
Notes to Financial Statements included in the December 31, 2000 Annual Report to
Shareholders. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
The interim consolidated financial statements at March 31, 2001, and for the
three months ended March 31, 2001 and 2000, have not been audited by independent
accountants, but reflect, in the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for such periods.
Note 2: Earnings Per Share
Earnings per share have been computed based upon the weighted-average common
shares outstanding. Unearned Employee Stock Ownership Plan shares have been
excluded from the computation of average common shares outstanding.
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic earnings per share
Income available to common
shareholders $ 435,846 2,077,406 $ .21 $ 535,222 2,324,276 $ .23
=========== ===========
Effect of dilutive RRP awards
and stock options
------------------------------- ------------------------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $ 435,846 2,077,406 $ .21 $ 535,222 2,324,276 $ .23
========================================== =========================================
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Union Community Bancorp, an Indiana corporation (the "Company"), was organized
in September, 1997. On December 29, 1997, it acquired the common stock of Union
Federal Savings and Loan Association ("Union Federal") upon the conversion of
Union Federal from a federal mutual savings and loan association to a federal
stock savings and loan association.
Union Federal was organized as a state-chartered savings and loan association in
1913. Since then, Union Federal has conducted its business from its full-service
office located in Crawfordsville, Indiana. Union Federal opened its first branch
office in Crawfordsville on April 2, 2001. Union Federal's principal business
consists of attracting deposits from the general public and originating
fixed-rate and adjustable-rate loans secured primarily by first mortgage liens
on one- to four-family residential real estate. Union Federal's deposit accounts
are insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Union Federal
offers a number of financial services, including: (i) residential real estate
loans; (ii) multi-family loans; (iii) commercial real estate loans; (iv)
construction loans; (v) home improvement loans and consumer loans, including
single-pay loans, loans secured by deposits, installment loans and commercial
loans; (vi) money market demand accounts ("MMDAs"); (vii) passbook savings
accounts; and (viii) certificates of deposit.
Union Federal currently owns one subsidiary, UFS Service Corp. ("UFS"), whose
sole asset is its investment in Pedcor Investments 1993-XVI, L.P. ("Pedcor"),
which is an Indiana limited partnership that was established to organize, build,
own, operate and lease a 48-unit apartment complex in Crawfordsville, Indiana
known as Shady Knoll II Apartments (the "Project"). Union Federal owns the
limited partner interest in Pedcor. The general partner is Pedcor Investments
LLC. The Project, operated as a multi-family, low- and moderate-income housing
project, is completed and is performing as planned. Because UFS engages
exclusively in activities that are permissible for a national bank, OTS
regulations permit Union Federal to include its investment in UFS in its
calculation of regulatory capital.
Union Federal's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and investments, and costs incurred with
respect to interest-bearing liabilities, primarily deposits and borrowings.
Results of operations also depend upon the level of Union Federal's non-interest
income, including fee income and service charges, and the level of its
non-interest expenses, including general and administrative expenses.
Financial Condition
Total assets decreased $318,000, or 3%, to $125.1 million at March 31, 2001. Net
loans remained constant at $109.5 million at both December 31, 2000 and March
31, 2001. Investment securities held to maturity decreased $1.9 million during
the first quarter of 2001 primarily due to proceeds of $1.7 million received on
investment securities that were called prior to their scheduled maturity dates.
Cash and interest-bearing deposits in other banks increased $1.6 million during
the first quarter of 2001 due in part to the proceeds received on called
securities.
Deposits increased by $2.8 million to $75.6 million during the first quarter of
2001. Demand and savings deposits increased $1.6 million, or 7.2%, from December
31, 2000 to March 31, 2001 while certificates of deposit increased $1.2 million,
or 2.4%, during this period.
Borrowed funds decreased by $2.3 million, or 15.2%, from December 31, 2000 to
March 31, 2001. The decrease in total borrowed funds resulted from a decrease in
FHLB advances of $2.1 million and a decrease in the note payable to a limited
partnership of $178,000.
Stockholder's equity decreased $769,000 to $35.4 million at March 31, 2001. The
decrease was primarily due to stock repurchases of $977,000 and cash dividends
of $318,000. These decreases were offset by net income for three months ended
March 31, 2001 of $436,000, Employee Stock Ownership Plan shares earned of
$33,000 and unearned compensation amortization of $57,000.
Comparison of Operating Results for the Three Months Ended March 31, 2001 and
2000
Net income decreased $99,000, or 18.5%, from $535,000 for the three months ended
March 31, 2000 to $436,000 for the three months ended March 31, 2001. The
decrease were primarily attributable to a decrease in net interest income and an
increase in non-interest expense offset by a reduction in income tax expense.
The return on average assets for the three months ended March 31, 2001 was 1.37%
compared to 1.77% for the comparable period in 2000.
Interest income increased $110,000, or 4.8%, from $2.3 million for the three
months ended March 31, 2000 to $2.4 million for same period in 2001. Interest
expense increased $182,000, or 17.0%, from $1.1 million for the three months
ended March 31, 2000 to $1.3 million for the same period in 2001. As a result,
net interest income for the three months ended March 31, 2001 amounted to $1.1
million, a 5.9% decrease from the first quarter of 2000. The decrease in net
interest income was attributable to an increase in the cost of interest-bearing
liabilities from 5.30% for the first quarter of 2000 to 5.62% for the first
quarter to 2001.
The provision for loan losses made for the three months ended March 31, 2001 was
$15,000 as compared to $15,000 for the same period in 2000. The 2001 provision
and the allowance for loan losses were considered adequate, based on size,
condition and components of the loan portfolio. While management estimates loan
losses using the best available information, no assurance can be given that
future addition to the allowance will not be necessary based on changes in
economic and real estate market conditions, further information obtained
regarding problem loans, identification of additional problem loans and other
factors, both within and outside of management's control.
Other income (losses) increased from income of $11,000 for the three months
ended March 31, 2000 to income of $19,000 for the three months ended March 31,
2001.
Other expenses increased from $392,000 for the first quarter of 2000 to $497,000
for the first quarter of 2001, an increase of $105,000. This increase was
primarily due to increases in salaries and employee benefits and other expense
resulting from nominal increases in a variety of expense categories. In
addition, the Association opened a new branch office in Crawfordsville, Indiana,
on April 2, 2001. During the first quarter of 2001, the Company incurred
additional expense related to the preparation and staffing of this new branch
office.
Income tax expense decreased $69,000 or 24.4%, for the three months ended March
31, 2001 compared to the same period in 2000. The decrease was directly related
to the decrease in taxable income for the period.
Asset Quality
Union Federal currently classifies loans as special mention, substandard,
doubtful and loss to assist management in addressing collection risks and
pursuant to regulatory requirements which are not necessarily consistent with
generally accepted accounting principles. Special mention loans represent
credits that have potential weaknesses that deserve management's close
attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects or Union Federal's credit position at
some future date. Substandard loans represent credits characterized by the
distinct possibility that some loss will be sustained if deficiencies are not
corrected. Doubtful loans possess the characteristics of substandard loans, but
collection or liquidation in full is doubtful based upon existing facts,
conditions and values. A loan classified as a loss is considered uncollectible.
Union Federal had $458,000 and $461,000 of loans classified as special mention
as of March 31, 2001 and December 31, 2000 respectively. In addition, Union
Federal had $1.2 million and $1.4 million of loans classified as substandard at
March 31, 2001 and December 31, 2000, respectively. At March 31, 2001 and
December 31, 2000, no loans were classified as doubtful or loss. At March 31,
2001, and December 31, 2000, respectively, $264,000 and $406,000 of the
substandard loans were non-accrual loans. The allowance for loan losses was
$495,000 or .45% of loans at March 31, 2001 as compared to $480,000 or .44% of
loans at December 31, 2000.
Liquidity and Capital Resources
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision regulation at 4%. As of March
31, 2001, Union Federal had liquid assets of 12.2 million and a liquidity ratio
of 13.9%.
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including the Company.
The address is http://www.sec.gov.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Presented below, as of March 31, 2001 and 2000, is an analysis performed by the
OTS of Union Federal's interest rate risk as measured by changes in Union
Federal's net portfolio value ("NPV") for instantaneous and sustained parallel
shifts in the yield curve, in 100 basis point increments, up and down 300 basis
points.
March 31, 2001
--------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- --------- -------- --------- ------
+300 bp 31,999 -7,053 -18% 26.90% -331 bp
+200 bp 34,374 -4,678 -12% 28.09% -212 bp
+100 bp 36,831 -2,221 -6% 29.26% -96 bp
0 bp 39,052 30.21%
- -100 bp 40,390 1,338 3% 30.64% +43 bp
- -200 bp 41,234 2,183 6% 30.79% +57 bp
- -300 bp 42,161 3,109 8% 30.95% +74 bp
March 31, 2000
--------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
+300 bp 23,768 -9,236 -28% 21.64% -584 bp
+200 bp 26,777 -6,227 -19% 23.66% -383 bp
+100 bp 29,896 -3,107 -9% 25.63% -185 bp
0 bp 33,004 27.49%
- -100 bp 35,852 2,848 9% 29.09% +160 bp
- -200 bp 37,948 4,944 15% 30.19% +271 bp
- -300 bp 39,746 6,743 20% 31.10% +361 bp
The analysis at March 31, 2001 indicates that there have been no material
changes in market interest rates or in the Company's interest rate sensitive
instruments which would cause a material change in the market risk exposures
which affect the quantitative and qualitative risk disclosures as presented in
Item 7A of the Company's Annual Report on Form 10-K for the period ended
December 31, 2000.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) No reports on Form 8-K were filed during the quarter
ended March 31, 2001.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION COMMUNITY BANCORP
Date: May 2, 2001 By: /s/ Joseph E. Timmons
-------------------------
Joseph E. Timmons
President and
Chief Executive Officer
Date: May 2, 2001 By: /s/ Denise E. Swearingen
----------------------------
Denise E. Swearingen
Treasurer