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, 2002
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, 2002 was 2,443,897.
Union Community Bancorp
Form 10-Q
Index
Page No.
--------
FORWARD LOOKING STATEMENT 3
PART I. FINANCIAL INFORMATION 4
Item 1. Financial Statements 4
Consolidated Condensed Balance Sheets 4
Consolidated Condensed Statements of Income 5
Consolidated Condensed Statement of Shareholders' Equity 6
Consolidated Condensed Statements 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 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
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 Sheets
March 31, December 31,
2002 2001
--------------------------------
(Unaudited)
Assets
Cash $ 1,017,050 $ 375,349
Interest-bearing demand deposits 19,387,553 13,189,553
--------------------------------
Cash and cash equivalents 20,404,603 13,564,902
Interest-bearing deposits 139,628
Investment securities
Available for sale 23,120
Held to maturity 2,626,225 2,848,411
--------------------------------
Total investment securities 2,649,345 2,848,411
Loans, net of allowance for loan losses of $938,554 and $519,554 237,881,050 121,749,210
Premises and equipment 2,860,264 398,857
Federal Home Loan Bank stock 3,423,600 1,530,300
Investment in limited partnership 851,609 856,609
Foreclosed assets and real estate held for development, net 1,868,285 8,500
Goodwill 2,260,044
Interest receivable 1,553,449 903,040
Other assets 1,725,389 531,599
--------------------------------
Total assets $ 275,617,266 $ 142,391,428
================================
Liabilities
Deposits
Noninterest-bearing $ 3,807,417 $ 1,397,380
Interest-bearing 187,791,497 80,304,133
--------------------------------
Total deposits 191,598,914 81,701,513
Federal Home Loan Bank advances 42,830,062 25,405,633
Note payable 302,892 477,142
Interest payable 495,022 186,119
Dividends payable 253,200 292,183
Other liabilities 1,898,926 588,685
--------------------------------
Total liabilities 237,379,016 108,651,275
--------------------------------
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 - 2,443,897 and 2,100,000 shares 25,673,779 20,547,581
Retained earnings 14,817,931 15,556,661
Accumulated other comprehensive income 975
Unearned employee stock ownership plan (ESOP) shares (1,396,433) (1,420,777)
Unearned recognition and retention plan (RRP) shares (858,002) (943,312)
--------------------------------
Total shareholders' equity 38,238,250 33,740,153
--------------------------------
Total liabilities and shareholders' equity $ 275,617,266 $ 142,391,428
================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Income
(Unaudited)
Three Months Ended
March 31
----------------------------
2002 2001
----------------------------
Interest and Dividend Income
Loans $ 4,425,209 $ 2,171,769
Investment securities 48,890 119,196
Dividends on Federal Home Loan Bank stock 50,651 22,990
Deposits with financial institutions 68,524 77,877
----------------------------
Total interest and dividend income 4,593,274 2,391,832
----------------------------
Interest Expense
Deposits 1,695,338 1,031,349
Federal Home Loan Bank advances 412,062 219,022
----------------------------
Total interest expense 2,107,400 1,250,371
----------------------------
Net Interest Income 2,485,874 1,141,461
Provision for loan losses 40,000 15,000
----------------------------
Net Interest Income After Provision for Loan Losses 2,445,874 1,126,461
----------------------------
Other Income (Losses)
Equity in losses of limited partnerships (5,000) (25,000)
Net realized gains on sales of available for sale securities 5,960
Other income 102,898 44,148
----------------------------
Total other income 103,858 19,148
----------------------------
Other Expenses
Salaries and employee benefits 710,834 310,530
Net occupancy expenses 57,465 11,538
Equipment expenses 71,487 6,472
Legal and professional fees 40,518 31,375
Data processing fees 480,041 18,289
Other expenses 239,984 118,531
----------------------------
Total other expenses 1,600,329 496,735
----------------------------
Income Before Income Tax 949,403 648,874
Income tax expense 302,480 213,028
----------------------------
Net Income $ 646,923 $ 435,846
============================
Basic Earnings per Share $ .30 $ .21
Diluted Earnings per Share .30 .21
Weighted-Average Shares Outstanding 2,166,623 2,077,406
Dividends per Share .11 .15
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, 2002
(Unaudited)
Common Stock Accumulated
--------------------- Other Unearned
Shares Comprehensive Retained Comprehensive ESOP Unearned
Outstanding Amount Income Earnings Income Shares Compensation Total
-------------------------------------------------------------------------------------------------
Balances, January 1, 2002 2,100,000 $20,547,581 $15,556,661 $(1,420,777) $ (943,312) $33,740,153
Comprehensive income
Net income for the period $ 646,923 646,923 646,923
Other comprehensive
income, net of tax
Unrealized gains on
securities, net of
reclassification
adjustment 975 $ 975 975
------------
Comprehensive income $ 647,898
============
Cash dividends ($.11 per share) (253,200) (253,200)
Shares issued in acquisition, net
of cost 678,897 8,954,487 8,954,487
Shares cancelled in acquisition (20,000) (257,111) (257,111)
Purchase of common stock (315,000) (3,581,547) (1,132,453) (4,714,000)
Amortization of unearned
compensation expense 85,310 85,310
ESOP shares earned 10,369 24,344 34,713
------------------------ ---------------------------------------------------------------
Balances, March 31, 2002 2,443,897 $25,673,779 $14,817,931 $ 975 (1,396,433) $(858,002) $38,238,250
======================== ===============================================================
See notes to consolidated condensed financial statements.
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
------------------------------
2002 2001
------------------------------
Operating Activities
Net income $ 646,923 $ 435,846
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses 40,000 15,000
Depreciation and amortization 76,871 7,468
Investment securities accretion, net (825) (840)
Gain on sale of investment securities available for sale (5,960)
Loss on sale of real estate owned 10,938
Equity in losses of limited partnerships 5,000 25,000
Amortization of purchase accounting adjustments (226,668)
Amortization of unearned compensation expense 85,310 56,867
ESOP shares earned 34,713 32,906
Net change in:
Interest receivable 24,255 74,071
Interest payable (207,500) (54,084)
Other adjustments 1,537,446 (72,550)
------------------------------
Net cash provided by operating activities 2,020,503 519,684
------------------------------
Investing Activities
Net change in interest-bearing deposits 100,000
Investment securities
Proceeds from sales of investment securities available for sale 51,534
Proceeds from maturities of securities held to maturity and paydowns of mortgage-
backed securities 223,011 1,875,095
Net changes in loans 774,316 13,163
Net cash received in acquisition 15,866,825
Additions to real estate owned (34,584)
Proceeds from real estate sales 92,812
Purchases of property and equipment (4,702) (40,428)
Purchases of Federal Home Loan Bank of Indianapolis stock (137,000)
------------------------------
Net cash provided by investing activities 17,069,212 1,710,830
------------------------------
Financing Activities
Net change in
Interest-bearing demand and savings deposits 8,863,199 1,593,375
Certificates of deposit (16,125,199) 1,233,396
Proceeds from borrowings 20,000,000 4,000,000
Repayment of borrowings (20,311,993) (6,306,660)
Cash dividends (292,183) (326,783)
Repurchase of common stock (4,714,000) (976,775)
Net change in advances by borrowers for taxes and insurance 330,162 154,291
------------------------------
Net cash used by financing activities (12,250,014) (629,156)
------------------------------
Net Change in Cash and Cash Equivalents 6,839,701 1,601,358
Cash and Cash Equivalents, Beginning of Period 13,564,902 4,754,686
------------------------------
Cash and Cash Equivalents, End of Period $ 20,404,603 $ 6,356,044
==============================
Additional Cash Flows Information
Interest paid $ 2,314,900 $ 1,304,455
Income tax paid 62,000 287,000
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, an Indiana corporation (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, 2001 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, 2002, and for the
three months ended March 31, 2002 and 2001, 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. The
results of operations for the three-month period ended March 31, 2002, are not
necessarily indicative of the results which may be expected for the entire year.
The consolidated condensed balance sheet of the Company as of December 31, 2001
has been derived from the audited consolidated balance sheet of the Company as
of that date.
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. Options to
purchase 186,000 shares of common stock were excluded from the computation of
diluted earnings per share because the options' exercise price was greater than
or equal to the average prices of common shares.
Note 3: Other Comprehensive Income
Before-Tax Tax Net-of-Tax
For the Three Months Ended March 31, 2002 Amount Expense Amount
------ ------- ------
Unrealized gains on securities:
Unrealized holding gains arising during the year $ 7,575 $ (3,001) $ 4,574
Less: reclassification adjustments for gains realized
in net income 5,960 (2,361) 3,599
-------------------------------------------
Other comprehensive income $ 1,615 $ (640) $ 975
===========================================
Note 4: Business Combination
On January 2, 2002, the Company acquired Montgomery Financial Corporation a
federally chartered thrift ("Montgomery"), which is the holding company of
Montgomery Savings, a Federal Association ("Montgomery Savings"). Montgomery was
merged with and into the Company and immediately thereafter Montgomery Savings
was merged into Union Federal. MSA Service Corporation ("MSA"), an Indiana
corporation and wholly-owned subsidiary of Montgomery Savings, will continue as
a subsidiary of Union Federal.
On January 2, 2002, the company issued 678,897 shares of its common stock at a
cost of approximately $8,954,000, net of registration costs of $113,000, and
paid cash of approximately $9,059,000 to Montgomery's shareholders. As of the
merger date, Montgomery owned 20,000 shares of the Company's common stock with a
net book value of approximately $257,000. The shares were cancelled as part of
this transaction. The Company paid an additional $452,000 in merger related
expenses.
The acquisition was accounted for under the purchase method of accounting, and
accordingly, the net assets were recorded at their estimated fair values at the
date of acquisition. Fair value adjustments on the assets and liabilities
purchased are being amortized over the estimated useful lives of the related
assets and liabilities. The excess of the purchase price over the estimated fair
value of the underlying net assets of $2,260,000 was allocated to goodwill and
is not deductible for tax purposes. Additionally, core deposit intangibles of
$590,000 were recognized and are being amortized over seven years using the 125%
declining balance method. Montgomery's results of operations and financial
position were included in the Company's consolidated financial statements
beginning January 3, 2002. The following table summarizes the estimated fair
values of the assets acquired and liabilities assumed at the date of
acquisition.
(In thousands)
Cash and cash equivalents $ 25,490
Loans, net of allowance for loan losses 117,029
Premises and equipment 2,530
Goodwill 2,260
Core deposit intangible 590
Other assets 6,564
----------
Total assets acquired 154,463
----------
Deposits 117,390
Federal Home Loan Bank advances 17,607
Other liabilities 1,145
----------
Total liabilities acquired 136,142
----------
Net assets acquired $ 18,321
==========
The following pro forma information, including the effect of the purchase
accounting adjustments, depicts the results of operations as though the merger
had take place at the beginning of each period.
Three Months Ended
March 31,
2002 2001
---- ----
(In thousands)
Net Interest Income $ 2,486 $2,320
Net Income (Loss) (313) 678
Net Income (Loss) Per Share
Basic (.14) .25
Diluted (.14) .25
The pro forma results of operations do not purport to be indicative of the
results which would actually have been obtained had the merger occurred on the
date indicated or which may be obtain in the future.
The Financial Accounting Standards Board recently adopted Statement of Financial
Accounting Standards ("SFAS") 142, Goodwill and Other Intangible Assets. This
Statement establishes new financial accounting and reporting standards for
acquired goodwill and other intangible assets. The Statement addresses how
intangible assets that are acquired individually or with a group of other assets
(but not those acquired in a business combination) should be accounted for in
financial statements upon their acquisition. It also addresses how goodwill and
other intangible assets (including those acquired in a business combination)
should be accounted for after they have been initially recognized in the
financial statements. SFAS 142 was effective for fiscal years beginning after
December 15, 2001. In adopting SFAS 142, the goodwill recorded on January 2,
2002 from the acquisition of Montgomery will not be amortized but will subject
to testing for impairment.
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 upon the conversion of Union Federal from a
federal mutual savings and loan association to a federal stock savings and loan
association. The Company acquired Montgomery in a transaction that closed on
January 2, 2002. In the transaction, Montgomery was merged with and into the
Company, and Montgomery Savings was merged with and into Union Federal.
Following the merger, MSA became a subsidiary of Union Federal.
Union Federal was organized as a state-chartered savings and loan association in
1913. Union Federal conducts its business from its main office located in
Crawfordsville, Indiana. In addition, Union Federal has three additional branch
offices in Crawfordsville and branch offices in Covington, Williamsport and
Lafayette, Indiana. Five of the above mentioned branch offices were added in
connection with the acquisition of Montgomery. 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 two subsidiaries, UFS Service Corp. ("UFS"), whose
sole asset is its investment in Pedcor Investments 1993-XVI, L.P. ("Pedcor") and
MSA, which is a real estate management and development company. Pedcor 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. At present, MSA owns a tract of land, which is being developed for the
construction of seven condominium units. Union Federal's investment in MSA is
excluded from 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 $133.2 million to $275.6 million at March 31, 2002
primarily due to the acquisition of Montgomery. Net loans increased $116.1
million to $237.9 million at March 31, 2002. During the first quarter of 2002,
net loans of $117.0 million were added as a result of the acquisition while loan
payoffs exceeded new loan production, net of other adjustments, by $897,000.
Cash and cash equivalents increased $6.8 million from December 31, 2001 to March
31, 2002. The increase was primarily due net cash received in the acquisition
offset by cash used for stock repurchases. Premises and equipment increased from
$399,000 at December 31, 2001 to $2.9 million at March 31, 2002 also due to the
acquisition. The acquisition of Montgomery increased Union Federal's
full-service offices from two to seven. Due to the transaction, foreclosed
assets and real estate held for development increased from $9,000 at December
31, 2001 to $1.9 million at March 31, 2002. In connection with the acquisition,
these properties were marked to market and are currently for sale. Also in
connection with the acquisition, goodwill of $2.3 million and core deposit
intangibles of $590,000 were recorded. Goodwill will be reviewed annually for
impairment and core deposit intangibles will be amortized over seven years.
Deposits increased by $106.9 million to $188.6 million during the first quarter
of 2002. $117.4 million were added as a result of the Montgomery acquisition.
Excluding the deposit acquired, deposits decreased $7.5 million with
certificates of deposits decreasing approximately $16.0 million and other
deposits increasing approximately $9.0 million.
Borrowed funds increased by $17.3 million from December 31, 2001 to March 31,
2002. $17.6 million were added as a result of the Montgomery acquisition.
Stockholders' equity increased $4.5 million to $38.2 million at March 31, 2002.
The increase was primarily due to shares issued in the acquisition, net of
costs, of $9.0 million, net income for three months ended March 31, 2002 of
$647,000, Employee Stock Ownership Plan shares earned of $35,000 and unearned
compensation amortization of $85,000. These increases were offset by stock
repurchases of $4.7 million, cancellation of shares of Company stock owned by
Montgomery of $257,000 and cash dividends of $253,000.
Comparison of Operating Results for the Three Months Ended March 31, 2002 and
2001
Net income increased $211,000, or 48.4%, from $436,000 for the three months
ended March 31, 2001 to $647,000 for the three months ended March 31, 2002. The
increase in net income was primarily attributable to the acquisition of
Montgomery on January 2, 2002 with an increase of $1.3 million in net interest
income offset by an increase of $1.1 million in total other expenses. The return
on average assets for the three months ended March 31, 2002 was .94% compared to
1.37% for the comparable period in 2001. The return on average equity for the
three months ended March 31, 2002 was 6.47% compared to 4.83% for the comparable
period in 2001.
For the three months ended March 31, 2002, interest income was $4.6 million as
compared to $2.4 million for the three months ended March 31, 2001. Interest
income increased primarily due to an increase in average interest-earning asset
from $124.7 million at March 31, 2001 to $263.3 million at March 31, 2002 offset
by a decrease in the yield on interest-earning assets from 7.67% during the 2001
period to 6.98% during the 2002 period. For the three months ended March 31,
2002, interest expense was $2.1 million as compared to $1.3 million for the
three months ended March 31, 2001. Interest expense increased primarily due to
an increase in average interest-bearing liabilities from $89.0 million at March
31, 2001 to $228.7 million at March 31, 2002 offset by a decrease in the cost of
interest-bearing liabilities from 5.62% during the 2001 period to 3.69% during
the 2002 period. The decrease in the cost of funds was due to the rate
environment during the first quarter of 2002 as compared to 2001 and
amortization of purchase accounting adjustments totaling $276,000 which
decreased interest expense during the first quarter of 2002.
The provision for loan losses for the three months ended March 31, 2002 was
$40,000 as compared to $15,000 for the comparable period in 2001. A review is
performed quarterly to determine the adequacy of the current balance in the
allowance for loan losses.
Total other expenses increased from $497,000 for the three months ended March
31, 2001 to $1,601,000 for the comparable period in 2002. Expenses increased in
part due to the growth of the Company through the acquisition of Montgomery and
due to a one-time $411,000 termination fee for data processing services charged
to expense during the first quarter of 2002.
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 no loans classified as special mention as of March 31, 2002
and December 31, 2001 respectively. In addition, Union Federal had $4.3 million
and $1.6 million of loans classified as substandard at March 31, 2002 and
December 31, 2001, respectively. At March 31, 2002 and December 31, 2001, no
loans were classified as doubtful or loss. The increase in classified loans was
primarily due to the addition of $1.3 million in substandard loans from the
Montgomery acquisition and $1.2 million of additional substandard loans to a
single borrower secured by 11 properties with favorable loan to value ratios. At
March 31, 2002, and December 31, 2001, respectively, $3.1 million and $682,000
of the substandard loans were non-accrual loans. The allowance for loan losses
was $939,000 or .39% of loans at March 31, 2002 as compared to $520,000 or .43%
of loans at December 31, 2002.
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, 2002, Union Federal had liquid assets of $20.3 million and a liquidity ratio
of 8.9%.
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 December 31, 2001 and 2000, is the most recent available
analyses performed by the OTS of Union Federal's and Montgomery Savings'
interest rate risk as measured by changes in net portfolio value ("NPV") for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
point increments.
Union Federal:
At December 31, 2001 At December 31, 2000
-------------------- --------------------
Changes In Rates $ Change in NPV % Change in NPV $ Change in NPV % Change in NPV
---------------- --------------- --------------- --------------- ---------------
+300 bp $ (7,734) (31)% $ (7,835) (22)%
+200 bp (5,185) (20) (5,198) (14)
+100 bp (2,507) (10) (,2511) (7)
0 bp 0 0 0 0
-100 bp 1,424 6 1,897 5
-200 bp -- -- 3,226 9
-300 bp -- -- 4,780 13
Montgomery Savings:
At December 31, 2001 At December 31, 2000
-------------------- --------------------
Changes In Rates $ Change in NPV % Change in NPV $ Change in NPV % Change in NPV
---------------- --------------- --------------- --------------- ---------------
+300 bp $ (7,273) (32)% $ (5,549) (29)%
+200 bp (4,663) (20) (3,463) (18)
+100 bp (2,123) (9) (1,524) (8)
0 bp 0 0 0 0
-100 bp 1,134 5 1,571 8
-200 bp -- -- 2,678 14
-300 bp -- -- 3,630 19
As discussed in Note 4, Montgomery Savings was merged with and into Union
Federal on January 2, 2002. Presented below, as of December 31, 2001, is a
combination of the above analyses performed by the OTS for Union Federal and
Montgomery Savings.
December 31, 2001
-----------------
Net Portfolio Value NPV as % of PV of Assets
Changes
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
+300 bp 33,154 $ (15,006) (31)% 11.54% (411) bp
+200 bp 38,306 (9,854) (20) 13.03 (263) bp
+100 bp 43,529 (4,631) (10) 14.46 (120) bp
0 bp 48,160 -- -- 15.65
-100 bp 50,715 2,555 5 16.23 58 bp
Management believes that at March 31, 2002, 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, 2001.
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 Company filed a report on Form 8-K on January 15, 2002
reporting the consummation of the merger of Montgomery with and
into the Company on January 2, 2002, and which included as
Exhibit 99.2 thereto Unaudited Pro Forma Condensed Combined
Financial Information of the Company as of September 30, 2001 for
the nine-month period ended September 30, 2001 and for the year
ended December 31, 2000.
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 14, 2002 By: /s/ Joseph E. Timmons
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Joseph E. Timmons
President
Date: May 14, 2002 By: /s/ J. Lee Walden
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J. Lee Walden
Chief Financial Officer