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 SEPTEMBER 30, 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: 000-23543
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 September 30, 2001 was 2,100,000.
Union Community Bancorp
Form 10-Q
Index
Page No.
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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. 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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)
September 30, December 31,
2001 2000
-----------------------------------------------
Assets
Cash $ 339,645 $ 210,601
Interest-bearing demand deposits 1,848,309 4,544,085
-----------------------------------------------
Cash and cash equivalents 2,187,954 4,754,686
Investment securities held to maturity 4,514,435 7,567,432
Loans, net of allowance for loan losses of $509,554 and $479,554 119,864,135 109,505,174
Premises and equipment 409,036 373,986
Federal Home Loan Bank stock 1,180,700 1,043,700
Investment in limited partnership 866,609 911,609
Interest receivable 863,657 958,450
Other assets 262,998 238,453
-----------------------------------------------
Total assets $ 130,149,524 $ 125,383,490
===============================================
Liabilities
Deposits
Noninterest-bearing $ 1,035,371 $ 1,769,103
Interest-bearing 78,443,847 71,047,357
-----------------------------------------------
Total deposits 79,479,218 72,816,460
Federal Home Loan Bank advances 15,405,633 14,534,893
Note payable 477,142 654,542
Interest payable 198,348 196,223
Dividends payable 292,183 326,783
Other liabilities 830,671 666,655
-----------------------------------------------
Total liabilities 96,683,195 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 - 2,100,000 and 2,341,000 shares 20,537,252 22,868,943
Retained earnings 15,382,324 16,025,304
Unearned employee stock ownership plan (ESOP) shares (1,445,864) (1,521,125)
Unearned recognition and retention plan (RRP) shares (1,007,383) (1,185,188)
-----------------------------------------------
Total shareholders' equity 33,466,329 36,187,934
-----------------------------------------------
Total liabilities and shareholders' equity $ 130,149,524 $ 125,383,490
===============================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------------------------------------------------
2001 2000 2001 2000
--------------------------------------------------------------------
Interest and Dividend Income
Loans $ 2,289,124 $ 2,117,128 $ 6,682,248 $ 6,331,818
Investment securities 85,859 154,266 298,169 419,532
Dividends on Federal Home Loan Bank stock 21,576 22,300 67,380 63,820
Deposits with financial institutions 13,850 17,989 134,137 54,944
--------------------------------------------------------------------
Total interest and dividend income 2,410,409 2,311,683 7,181,934 6,870,114
--------------------------------------------------------------------
Interest Expense
Deposits 1,026,265 985,976 3,086,361 2,816,628
Federal Home Loan Bank advances 164,416 203,062 544,882 547,856
--------------------------------------------------------------------
Total interest expense 1,190,681 1,189,038 3,631,243 3,364,484
--------------------------------------------------------------------
Net Interest Income 1,219,728 1,122,645 3,550,691 3,505,630
Provision for loan losses 15,000 30,000 45,000
--------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 1,219,728 1,107,645 3,520,691 3,460,630
--------------------------------------------------------------------
Other Income (Losses)
Equity in losses of limited partnerships (10,000) (25,000) (45,000) (80,000)
Net realized gains on sales of available for sale
securities 8,331
Other income 41,976 41,976 126,160 93,303
--------------------------------------------------------------------
Total other income (losses) 31,976 6,440 81,160 21,634
--------------------------------------------------------------------
Other Expenses
Salaries and employee benefits 329,412 277,294 947,473 810,248
Net occupancy expenses 16,524 11,672 46,402 28,081
Equipment expenses 9,865 6,122 25,701 16,219
Legal and professional fees 22,107 19,934 102,922 58,974
Data processing fees 24,569 19,865 73,099 91,191
Other expenses 94,380 83,058 329,369 242,320
--------------------------------------------------------------------
Total other expenses 496,857 417,945 1,524,966 1,247,033
--------------------------------------------------------------------
Income Before Income Tax 754,847 696,140 2,076,885 2,235,231
Income tax expense 255,867 224,559 692,325 734,032
--------------------------------------------------------------------
Net Income $ 498,980 $ 471,581 $ 1,384,560 $ 1,501,199
====================================================================
Basic Earnings per Share $ .25 $ .22 $ .68 $ .67
====================================================================
Diluted Earnings per Share $ .25 $ .22 $ .68 $ .67
====================================================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Shareholders' Equity
For the Nine Months Ended September 30, 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 1,384,560 1,384,560
Cash dividends ($.45 per share) (927,549) (927,549)
Purchase of common stock (241,000) (2,356,034) (1,099,991) (3,456,025)
Amortization of unearned
compensation expense 177,805 177,805
ESOP shares earned 24,343 75,261 99,604
----------------------------------------------------------------------------------------------
Balances, September 30, 2001 2,100,000 $20,537,252 $ 15,382,324 $(1,445,864) $(1,007,383) $33,466,329
==============================================================================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
-------------------------------
2001 2000
-------------------------------
Operating Activities
Net income $ 1,384,560 $1,501,199
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 30,000 45,000
Depreciation and amortization 27,927 20,820
Investment securities accretion, net (2,489) (33,671)
Gain on sale of investment securities available for sale (8,331)
Equity in losses of limited partnerships 45,000 80,000
Amortization of unearned compensation expense 177,805 170,600
ESOP shares earned 99,604 86,788
Net change in:
Interest receivable 94,793 (27,621)
Interest payable 2,125 88,907
Other assets (24,545) 95,472
Other liabilities (33) 50,691
-------------------------------
Net cash provided by operating activities 1,834,747 2,069,854
-------------------------------
Investing Activities
Purchases of Federal Home Loan Bank stock (137,000)
Purchase of securities held to maturity (300,000)
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 3,085,486 211,966
Net changes in loans (10,388,961) (1,955,826)
Purchases of property and equipment (62,977) (19,820)
-------------------------------
Net cash used by investing activities (7,503,452) (1,975,683)
-------------------------------
Financing Activities
Net change in
Interest-bearing demand and savings deposits 4,997,774 544,943
Certificates of deposit 1,664,984 3,060,201
Proceeds from borrowings 9,000,000 14,000,000
Repayment of borrowings (8,306,660) (13,306,533)
Cash dividends (962,149) (989,397)
Repurchase of common stock (3,456,025) (2,584,847)
Net change in advances by borrowers for taxes and insurance 164,049 126,624
-------------------------------
Net cash provided (used) by financing activities 3,101,973 850,991
-------------------------------
Net Change in Cash and Cash Equivalents (2,566,732) 945,162
Cash and Cash Equivalents, Beginning of Period 4,754,686 3,117,024
-------------------------------
Cash and Cash Equivalents, End of Period $ 2,187,954 $4,062,186
===============================
Additional Cash Flows Information
Interest paid $ 3,629,118 $3,275,577
Income tax paid 786,000 724,025
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 (the "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 September 30, 2001, and for the
three and nine months ended September 30, 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 has 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
September 30, 2001 September 30, 2000
------------------ ------------------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic earnings per share
Income available to common
shareholders $498,980 1,991,166 $ .25 $ 471,581 2,184,351 $ .22
=========== ===========
Effect of dilutive RRP awards
and stock options
----------------------------- -------------------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $498,980 1,991,166 $ .25 $ 471,581 2,184,351 $ .22
========================================== ========================================
Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2000
------------------ ------------------
Weighted Weighted
Average Per Share Average Per Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
Basic earnings per share
Income available to common
shareholders $1,384,560 2,033,036 $ .68 $1,501,199 2,256,188 $ .67
=========== ==========
Effect of dilutive RRP awards
and stock options
----------------------------- --------------------------
Diluted earnings per share
Income available to common
shareholders and assumed
conversions $1,384,560 2,033,036 $ .68 $ 1,501,199 2,256,188 $ .67
=========================================== ==========================================
Note 3: Business Combinations
On July 23, 2001, the Company signed a definitive agreement to acquire
Montgomery Financial Corporation ("Montgomery"), Crawfordsville, Indiana. The
acquisition will be accounted for under the purchase method of accounting. Under
the terms of the agreement, shareholders of Montgomery have the right to elect
to receive either 1.1244 shares of the Company's common stock or $15.00 in cash.
However, fifty percent of the aggregate consideration must be paid in shares of
common stock and there may be pro rata allocations of cash or stock made to
shareholders to ensure that this requirement is satisfied. The transaction is
subject to approval by shareholders of the Company and Montgomery and
appropriate regulatory agencies. As of June 30, 2001, Montgomery had total
assets and shareholders' equity of $136.9 million and $16.9 million,
respectively.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
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 of
the Federal Deposit Insurance Corporation. 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; (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 increased approximately $4.8 million, or 3.8%, to $130.2 million at
September 30, 2001, from $125.4 million at December 31, 2000. The increase was
primarily due to loan growth of $10.4 million offset by decreases in cash and
cash equivalents and investment securities held to maturity. Net loans increased
by 9.5% to $119.9 million due to an increase in customer demand. Cash and cash
equivalents decreased by $2.6 million from December 31, 2000 to September 30,
2001. Investment securities held to maturity decreased $3.1 million during the
nine months ended September 30, 2001 primarily due to $2.8 million received on
investment securities that were called prior to their scheduled maturity dates.
Deposits increased by $6.7 million to $79.5 million during the nine months ended
September 30, 2001. The increase in deposits was primarily used to fund loan
growth. Borrowed funds increased by $693,000, or 4.6%, from December 31, 2000 to
September 30, 2001. The increase in total borrowed funds resulted from an
increase in Federal Home Loan Bank advances of $871,000 and a decrease in the
note payable to a limited partnership of $178,000.
Stockholder's equity decreased approximately $2.7 million to $33.5 million at
September 30, 2001. The decrease was primarily due to stock repurchases of $3.5
million and cash dividends of $928,000. These decreases were offset by net
income for the nine months ended September 30, 2001 of $1.4 million, Employee
Stock Ownership Plan shares earned of $100,000 and unearned compensation
amortization of $178,000.
Comparison of Operating Results for the Three Months Ended September 31, 2001
and 2000
Net income increased approximately $27,000 from $472,000 for the three months
ended September 30, 2000 to $499,000 for the three months ended September 30,
2001. The return on average assets was 1.55% and 1.54% for the three months
ended September 30, 2001 and 2000, respectively.
Interest income increased $98,000, or 4.2%, from $2,312,000 for the three months
ended September 30, 2000 to $2,410,000 for the comparable period in 2001.
Interest expense increased approximately $1,000 from $1,189,000 for the three
months ended September 30, 2000 to $1,190,000 for the same period in 2001. As a
result, net interest income for the three months ended September 30, 2001
amounted to $1,220,000, a $97,000 increase from the third quarter of 2000.
No provision for loan losses made for the three months ended September 30, 2001
as compared to a provision of $15,000 for the third quarter of 2000. The
allowance for loan losses at September 30, 2001 was considered adequate, based
on the 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) was $32,000 for the three months ended September 30, 2001
compared to $7,000 for the same period in 2000. Other income (losses) includes
the equity in losses of the Company's investment in a limited partnership,
Pedcor. The Company recorded $10,000 in equity losses during the third quarter
of 2001 as compared to $25,000 during the same period in 2000. In addition to
recording the equity in the losses of Pedcor, a benefit of low-income housing
income tax credits in the amount of $45,000 was recorded for the three months
ended September 30, 2001 and 2000. Other income also increased during the three
months ended September 30, 2001 as compared to the same period in 2000 due to
nominal increases in a variety of income categories.
Other expenses increased approximately $79,000 from $418,000 for the three
months ended September 30, 2000 to $497,000 for the comparable period in 2001.
The increase was primarily due to the opening of Union Federal's branch office
in Crawfordsville, Indiana on April 2, 2001.
Income tax expense increased $31,000, or 13.8%, for the three months ended
September 30, 2001 compared to the same period in 2000. The effective tax rates
for the three months ended September 30, 2001 and 2000 were approximately 34%
and 32%, respectively.
Comparison of Operating Results for the Nine Months Ended September 31, 2001 and
2000
Net income decreased $116,000, or 7.7%, from $1,501,000 for the nine months
ended September 30, 2000 to $1,385,000 for the nine months ended September 30,
2001. The return on average assets was 1.45% and 1.65% for the nine months ended
September 30, 2001 and 2000, respectively.
Interest income increased $312,000, or 4.5%, from $6,870,000 for the nine months
ended September 30, 2000 as compared to $7,182,000 for the nine months ended
September 30, 2001. Interest expense increased $267,000, or 7.9%, from
$3,364,000 for the nine months ended September 30, 2000 to $3,631,000 for the
same period in 2001. As a result, net interest income for the nine months ended
September 30, 2001 amounted to $3,551,000, a 1.3% increase from nine months
ended September 30, 2000. The interest rate spread for the nine months ended
September 30, 2001 was 2.28% compared to 2.15% for the same period in 2000.
The provisions for loan losses made for the nine months ended September 30, 2001
and 2000 were $30,000 and $45,000, respectively. The 2001 provision and the
allowance for loan losses were considered adequate, based on the 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) was $81,000 for the nine months ended September 30, 2001
compared to $21,000 for the same period in 2000. Other income (losses) includes
the equity losses of the Company's investment in a limited partnership, Pedcor.
The Company recorded $45,000 in equity losses during the nine months ended 2001
as compared to $80,000 during the same period in 2001. In addition to recording
the equity losses of Pedcor, a benefit of low-income housing income tax credits
in the amount of $134,000 was recorded for the nine months ended September 30,
2001 and 2000. Other income (losses) also increased during the nine months ended
September 30, 2001 as compared to the same period in 2000 due to nominal
increases in a variety of income categories.
Other expenses increased $278,000 from $1,247,000 for the nine months ended
September 30, 2000 to $1,525,000 for the comparable period in 2001. The increase
was primarily due to the opening of Union Federal's branch office as mentioned
above.
Income tax expense decreased approximately $42,000, or 5.7%, for the nine months
ended September 30, 2001 compared to the same period in 2000. The effective tax
rate was 33% for both nine-month periods ended September 30, 2001 and 2000.
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 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 are
characterized by the distinct possibility that some loss will be sustained if
deficiencies are not corrected. Doubtful loans possess the characteristics of
substandard loans, however, their 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 $454,000 and $461,000 of loans
classified as special mention as of September 30, 2001 and December 31, 2000,
respectively. In addition, Union Federal had $1.3 million and $1.4 million of
loans classified as substandard at September 30, 2001 and December 31, 2000,
respectively. At September 30, 2001 and December 31, 2000, no loans were
classified as doubtful or loss. At September 30, 2001, and December 31, 2000,
respectively, $306,000 and $406,000 of the substandard loans were non-accrual
loans. The allowance for loan losses was $510,000 or .42% of loans at September
30, 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 ("OTS") regulation at 4%. As
of September 30, 2001, Union Federal had liquid assets of $6.8 million and a
liquidity ratio of 7.0%.
Impact of New Accounting Standards
Accounting for a Business Combination. Statement of Financial Accounting
Standards ("SFAS") No. 141 requires that all business combinations should be
accounted for using the purchase method of accounting; use of the pooling method
is prohibited. A business combination occurs when an enterprise acquires all or
a portion of the net assets that constitutes a business or the equity interests
of one or more other enterprises and that enterprise obtains control over the
other enterprise or enterprises. All two-party and multi-party business
combinations, including "roll-up" and "put-together" transactions are included
in the scope of this Statement.
This Statement requires that goodwill be initially recognized as an asset in the
financial statement and measured as the excess of the cost of an acquired entity
over the net of the amounts assigned to identifiable assets acquired and
liabilities assumed. In addition, SFAS No. 141 requires all other intangibles,
such as core deposit intangibles for a financial institution, to be identified.
The provisions of Statement No. 141 are effective for any business combination
that is initiated after June 30, 2001.
Accounting for Goodwill. Under the provisions of SFAS No. 142, goodwill should
not be amortized; instead, it should be tested for impairment at the reporting
unit level. An impairment test of goodwill should be done on an annual basis
unless events or circumstances indicate impairment has occurred in the interim
period. The annual impairment test can be performed at any time during the year
as long as the measurement date is used consistently from year to year.
Impairment testing is a two step process. The first step is a comparison of the
reporting unit's fair value to its carrying amount, including its goodwill. If
the reporting unit's fair value is greater than its carrying value, its goodwill
is not impaired and no further comparisons are required. Companies should
perform the first step of the impairment test on all goodwill within six months
of initially applying the Statement. If the reporting unit's fair value is less
than its carrying amount, the second step should be performed. The second step
is to compare the fair value of goodwill to the carrying amount. If the fair
value of goodwill is less than the carrying value, then the goodwill is deemed
impaired and a loss is recognized. Any impairment loss recognized as a result of
completing the transitional impairment test should be treated as a change in
accounting principle and recognized in the first interim period financial
statements.
The provisions of Statement No. 142 would be effective for fiscal years
beginning after December 15, 2001. Early adoption would be permitted for
companies with a fiscal year beginning after March 15, 2001, provided, that the
first quarter financial statements have not been previously issued. In all
cases, the Statement must be adopted as of the beginning of a fiscal year.
Goodwill and intangible assets acquired in a transaction completed after June
30, 2001, but before this Statement as initially applied would be accounted for
in accordance with the amortization and nonamortization provisions of this
Statement. The useful economic life of previously recognized intangible assets
should be reassessed upon adoption of this Statement, and remaining amortization
periods should be adjusted accordingly. Intangible assets deemed to have an
indefinite life would no longer be amortized.
At September 30, 2001, the Company has no legacy goodwill. The Company will
adopt these new accounting rules on January 1, 2002. As a result, the Company
will not amortize any future goodwill that it records, but will make an annual
assessment of any impairment in goodwill and, if necessary, recognize an
impairment loss at that time. On July 23, 2001, the Company signed a definitive
agreement to acquire Montgomery Financial Corporation. The proposed transaction
is expected to close during the first quarter of 2002.
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 September 30, 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.
September 30, 2001
------------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- --------- -------- --------- ------
+300 bp 28,162 -8,154 -22 22.63% -408 bp
+200 bp 30,967 -5,349 -15 24.13% -258 bp
+100 bp 33,799 -2,518 -7 25.55% -116 bp
0 bp 36,317 26.71%
- -100 bp 37,840 1,523 4 27.28% +57 bp
- -200 bp 38,983 2,667 7 27,62% +91 bp
- -300 bp 39,952 3,636 10 27.86% +115 bp
September 30, 2000
------------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- --------- -------- --------- ------
+300 bp 26,087 -8,728 -25 23.03% -518 bp
+200 bp 28,968 -5,847 -17 24.84% -337 bp
+100 bp 31,896 -2,919 -8 26.58% -163 bp
0 bp 34,815 28.21%
- -100 bp 37,363 2,548 7 29.55% +134bp
- -200 bp 39,185 4,370 13 30.44% +223bp
- -300 bp 40,948 6,133 18 31.27% +306bp
The analysis at September 30, 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) The following exhibits are included herein:
Exhibit 3.2 Code of Bylaws of Union Community Bancorp,
amended as of October 1, 2001.
(b) On July 24, 2001, the Company filed a current report on Form
8-K disclosing the merger between Union Community Bancorp
and Montgomery Financial Corporation the Agreement and Plan
of Reorganization attached to which is an exhibit thereto.
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: November 14, 2001 By: /s/ Joseph E. Timmons
----------------- -------------------------
Joseph E. Timmons
President and
Chief Executive Officer
Date: November 14, 2001 By: /s/ Denise E. Swearingen
----------------- ----------------------------
Denise E. Swearingen
Treasurer