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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2006
Commission File Number: 0-28846
UnionBancorp, Inc.
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(Exact name of Registrant as specified in its charter)
Delaware 36-3145350
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
122 West Madison Street Ottawa, Illinois 61350
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(Address of principal executive offices including zip code)
(815) 431-2720
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(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 reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X].
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b of the Exchange Act). Yes [ ] No [X].
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at May 12, 2006
----------------------------- ---------------------------------------
Common Stock, Par Value $1.00 3,742,751
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UnionBancorp, Inc.
Form 10-Q Index
March 31, 2006
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
o Unaudited Consolidated Balance Sheets........................1
o Unaudited Consolidated Statements of Income and
Comprehensive Income ....................................2
o Unaudited Consolidated Statements of Cash Flows..............3
o Notes to Unaudited Consolidated Financial Statements.........4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................12
Item 3. Quantitative and Qualitative Disclosures
About Market Risk..............................................26
Item 4. Controls and Procedures .........................................26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................28
Item 1A. Risk Factors.....................................................28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......28
Item 3. Defaults Upon Senior Securities..................................29
Item 4. Submission of Matters to a Vote of Security Holders..............29
Item 5. Other Information................................................29
Item 6. Exhibits.........................................................29
SIGNATURES...................................................................30
UNIONBANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEETS
March 31, 2006 and December 31, 2005 (In Thousands, Except Share Data)
-----------------------------------------------------------------------------------------------------------
March 31, December 31,
2006 2005
------------ ------------
ASSETS
Cash and cash equivalents $ 15,751 $ 24,358
Securities available-for-sale 201,195 196,440
Loans 406,617 417,525
Allowance for loan losses (7,506) (8,362)
------------ ------------
Net loans 399,111 409,163
Cash surrender value of life insurance 15,638 15,498
Mortgage servicing rights 2,454 2,533
Premises and equipment, net 13,778 13,908
Goodwill 6,963 6,963
Intangible assets, net 489 533
Other real estate 536 203
Other assets 5,792 6,623
------------ ------------
Total assets $ 661,707 $ 676,222
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing $ 54,353 $ 57,832
Interest-bearing 476,575 486,009
------------ ------------
Total deposits 530,928 543,841
Federal funds purchased and securities sold
under agreements to repurchase 1,515 612
Advances from the Federal Home Loan Bank 47,300 50,000
Notes payable 10,846 9,468
Series B mandatory redeemable preferred stock 831 831
Other liabilities 4,918 5,395
------------ ------------
Total liabilities 596,338 610,147
------------ ------------
Stockholders' equity
Preferred stock; 200,000 shares authorized; none issued -- --
Series A convertible preferred stock; 2,765 shares authorized, 2,762.24
shares outstanding (aggregate liquidation preference of $2,762) 500 500
Series C preferred stock; 4,500 shares authorized; none issued -- --
Common stock, $1 par value; 10,000,000 shares authorized;
4,697,793 shares issued at March 31, 2006 and
4,684,393 shares issued at December 31, 2005 4,698 4,684
Additional paid-in capital 23,296 23,167
Retained earnings 49,982 48,837
Accumulated other comprehensive income (261) 95
------------ ------------
78,215 77,283
Treasury stock, at cost; 955,142 shares at March 31, 2006
and 877,517 at December 31, 2005 (12,846) (11,208)
------------ ------------
Total stockholders' equity 65,369 66,075
------------ ------------
Total liabilities and stockholders' equity $ 661,707 $ 676,222
============ ============
See Accompanying Notes to Unaudited Financial Statements
1.
UNIONBANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended March 31, 2006 and 2005 (In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Interest income
Loans $ 7,155 $ 6,450
Securities
Taxable 1,995 1,425
Exempt from federal income taxes 216 258
Federal funds sold and other 17 9
------------ ------------
Total interest income 9,383 8,142
Interest expense
Deposits 3,479 2,319
Federal funds purchased and securities sold
under agreements to repurchase 72 74
Advances from the Federal Home Loan Bank 482 583
Series B mandatory redeemable preferred stock 12 12
Notes payable 155 69
------------ ------------
Total interest expense 4,200 3,057
------------ ------------
Net interest income 5,183 5,085
Provision for loan losses (800) 100
------------ ------------
Net interest income after
provision for loan losses 5,983 4,985
Noninterest income
Service charges 440 483
Trust income 219 215
Mortgage banking income 246 340
Insurance commissions and fees 379 421
Banked owned life insurance 140 134
Gain on sale of assets, net -- 2
Other income 336 255
------------ ------------
1,760 1,850
Noninterest expenses
Salaries and employee benefits 3,314 3,476
Occupancy expense, net 443 394
Furniture and equipment expense 512 424
Marketing 111 96
Supplies and printing 97 77
Telephone 117 107
Other real estate owned expense 6 --
Amortization of intangible assets 44 44
Other expenses 690 928
------------ ------------
5,334 5,546
------------ ------------
Income before income taxes 2,409 1,289
Income taxes 763 325
------------ ------------
Net income 1,646 964
Preferred stock dividends 52 52
------------ ------------
Net income for common stockholders $ 1,594 $ 912
============ ============
Basic earnings per common share $ 0.42 $ 0.23
============ ============
Diluted earnings per common share $ 0.42 $ 0.22
============ ============
Total comprehensive income $ 1,290 $ 539
============ ============
See Accompanying Notes to Unaudited Financial Statements
2.
UNIONBANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2006 and 2005 (In Thousands)
------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2006 2005
------------ ------------
Cash flows from operating activities
Net income $ 1,646 $ 964
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 464 418
Amortization of intangible assets 44 44
Amortization of mortgage servicing rights 79 142
Amortization of bond premiums, net 132 278
Stock Option Expense 35 --
Federal Home Loan Bank stock dividend (46) (65)
Provision for loan losses (800) 100
Provision for deferred income taxes -- 466
Net change in BOLI (140) (134)
Net change in OREO (380) (11)
Gain on sale of assets -- (2)
Gain on sale of loans (154) (236)
Gain on sale of real estate acquired in settlement of loans 1 (6)
Proceeds from sales of loans held for sale 11,158 10,262
Origination of loans held for sale (11,352) (9,011)
Change in assets and liabilities
Decrease in other assets 788 156
Increase (decrease) in other liabilities (240) (837)
------------ ------------
Net cash provided by operating activities 1,235 2,528
Cash flows from investing activities
Securities available-for-sale
Proceeds from maturities and paydowns 9,687 14,818
Proceeds from sales -- --
Purchases (15,103) (9,837)
Purchase of loans -- (3,275)
Net decrease in loans 11,202 128
Purchase of premises and equipment (265) (782)
Sale of branch (6,054) --
Proceeds from sale of real estate acquired in settlement of loans 46 26
------------ ------------
Net cash provided by (used in) investing activities (487) 1,078
Cash flows from financing activities
Net decrease in deposits (6,905) (9,176)
Net increase in federal funds purchased
and securities sold under agreements to repurchase 903 6,575
Payments on notes payable (22) --
Proceeds from notes payable 1,400 250
Net increase (decrease) in other borrowed funds -- (21)
Net increase (decrease) in advances from the Federal Home Loan Bank (2,700) (4,800)
Dividends on common stock (449) (445)
Dividends on preferred stock (52) (52)
Proceeds from exercise of stock options 108 364
Purchase of treasury stock (1,638) (243)
------------ ------------
Net cash provided by financing activities (9,355) (7,548)
------------ ------------
Net decrease in cash and cash equivalents (8,607) (3,942)
Cash and cash equivalents
Beginning of period 24,358 22,802
------------ ------------
End of period $ 15,751 $ 18,860
============ ============
Supplemental disclosures of cash flow information
Cash payments for
Interest $ 4,575 $ 3,413
Income taxes 0 311
See Accompanying Notes to Unaudited Financial Statements
3.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
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Note 1. Summary of Significant Accounting Policies
The accompanying unaudited interim consolidated financial statements of
UnionBancorp, Inc. (the "Company") have been prepared in accordance with U.S.
generally accepted accounting principles and with the rules and regulations of
the Securities and Exchange Commission for interim financial reporting.
Accordingly, they do not include all of the information and footnotes required
for complete financial statements. In the opinion of management, all normal and
recurring adjustments which are necessary to fairly present the results for the
interim periods presented have been included. The preparation of financial
statements requires management to make estimates and assumptions that affect the
recorded amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reported period. Actual results could differ
from those estimates. For further information with respect to significant
accounting policies followed by the Company in the preparation of its
consolidated financial statements, refer to the Company's Annual Report on Form
10-K for the year ended December 31, 2005. The annualized results of operations
during the three months ended March 31, 2006 are not necessarily indicative of
the results expected for the year ending December 31, 2006. All financial
information is in thousands (000's), except per share data.
Note 2. Earnings Per Share
Basic earnings per share for the three months ended March 31, 2006 and
2005 were computed by dividing net income by the weighted average number of
shares outstanding. Diluted earnings per share for the three months ended March
31, 2006 and 2005 were computed by dividing net income by the weighted average
number of shares outstanding, adjusted for the dilutive effect of the stock
options. Computations for basic and diluted earnings per share are provided
below:
Basic Earnings Per Common Share
Three Months Ended
March 31,
---------------------------
2006 2005
------------ ------------
Net income
available to common shareholders $ 1,594 $ 912
Weighted average common shares outstanding 3,787 4,050
------------ ------------
Basic Earnings Per Common Share $ 0.42 $ 0.23
============ ============
Diluted Earnings Per Common Share
Weighted average common shares outstanding 3,787 4,050
Add: dilutive effect of assumed exercised
stock options 51 66
------------ ------------
Weighted average common and dilutive
Potential shares outstanding 3,838 4,116
============ ============
Diluted Earnings Per Common Share $ 0.42 $ 0.22
============ ============
There were approximately 60,000 and 40,000 options outstanding at March
31, 2006 and 2005, respectively, that were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common stock and were, therefore,
antidilutive.
4.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
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Note 3. Securities
The Company's consolidated securities portfolio, which represented
32.4% of the Company's 2006 first quarter average earning asset base, is managed
to minimize interest rate risk, maintain sufficient liquidity, and maximize
return. The portfolio includes several callable agency debentures, adjustable
rate mortgage pass-throughs, and collateralized mortgage obligations. Corporate
bonds consist of investment grade obligations of public corporations. Equity
securities consist of Federal Reserve stock, Federal Home Loan Bank stock, and
trust preferred stock. Securities classified as available-for-sale, carried at
fair value, were $201,621 at March 31, 2006 compared to $196,440 at December 31,
2005. The Company does not have any securities classified as trading or
held-to-maturity.
The following table describes the fair value, gross unrealized gains
and losses of securities available-for-sale at March 31, 2006 and December 31,
2005, respectively:
March 31, 2006
-------------------------------------------
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
------------ ------------ ------------
U.S. government agencies $ 36,715 $ -- $ (489)
States and political subdivisions 18,934 362 (54)
U.S. government mortgage-backed securities 95,922 736 (776)
Collateralized mortgage obligations 24,301 -- (320)
Equity securities 18,462 102 (8)
Corporate 6,861 38 (17)
------------ ------------ ------------
$ 201,195 $ 1,238 $ (1,664)
============ ============ ============
December 31, 2005
-------------------------------------------
Gross Gross
Fair Unrealized Unrealized
Value Gains Losses
------------ ------------ ------------
U.S. government agencies 30,857 8 (364)
States and political subdivisions 18,400 424 (16)
U.S. government mortgage-backed securities 101,022 854 (675)
Collateralized mortgage obligations 20,938 21 (157)
Equity securities 18,316 54 (49)
Corporate 6,907 62 (7)
------------ ------------ ------------
$ 196,440 $ 1,423 $ (1,268)
============ ============ ============
5.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 4. Loans
The Company offers a broad range of products, including agribusiness,
commercial, residential, and installment loans, designed to meet the credit
needs of its borrowers. The Company concentrates its lending activity in the
geographic market areas that it serves, generally lending to consumers and small
to mid-sized businesses from which deposits are garnered in the same market
areas. As a result, the Company strives to maintain a loan portfolio that is
diverse in terms of loan type, industry, borrower and geographic concentrations.
The following table describes the composition of loans by major categories
outstanding as of March 31, 2006 and December 31, 2005, respectively:
March 31, 2006 December 31, 2005
------------------------ ------------------------
$ % $ %
---------- ---------- ---------- ----------
Commercial $ 92,665 22.79% $ 91,537 21.92%
Agricultural 21,090 5.19 26,694 6.39
Real estate:
Commercial mortgages 121,038 29.77 126,503 30.31
Construction 75,724 18.62 68,508 16.41
Agricultural 29,150 7.17 33,033 7.91
1-4 family mortgages 55,875 13.74 57,920 13.87
Installment 10,686 2.63 12,747 3.05
Other 389 0.09 583 0.14
---------- ---------- ---------- ----------
Total loans 406,617 100.00% 417,525 100.00%
========== ==========
Allowance for loan losses (7,506) (8,362)
---------- ----------
Loans, net $ 399,111 $ 409,163
========== ==========
The following table presents data on impaired loans:
March 31, December 31,
2006 2005
------------ ------------
Impaired loans for which an allowance has been provided $ 7,847 $ 12,585
Impaired loans for which no allowance has been provided 3,009 563
------------ ------------
Total loans determined to be impaired $ 10,856 $ 13,148
============ ============
Allowance for loan loss for impaired loans included
in the allowance for loan losses $ 3,158 $ 3,913
============ ============
Note 5. Allowance For Loan Losses
In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, current
economic conditions; the type of loan being made; the creditworthiness of the
borrower over the term of the loan; and in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents the Company's estimate of the allowance necessary to provide for
probable incurred losses in the loan portfolio. In making this determination,
the Company analyzes the ultimate collectibility of the loans in its portfolio,
incorporating feedback provided by internal loan staff, the independent loan
review function and information provided by examinations performed by regulatory
agencies. The Company makes an ongoing evaluation as to the adequacy of the
allowance for loan losses. Transactions in the allowance for loan losses for the
three months ended March 31, 2006 and 2005 are summarized below:
6.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 5. Allowance For Loan Losses (Continued)
Three Months Ended
March 31,
-----------------------------
2006 2005
------------ ------------
Beginning balance $ 8,362 $ 9,732
Charge-offs:
Commercial 20 --
Real estate mortgages 68 6
Installment and other loans 39 197
------------ ------------
Total charge-offs 127 203
------------ ------------
Recoveries:
Commercial 15 292
Real estate mortgages 41 16
Installment and other loans 15 11
------------ ------------
Total recoveries 71 319
------------ ------------
Net charge-offs 56 (116)
------------ ------------
Provision for loan losses (800) 100
------------ ------------
Ending balance $ 7,506 $ 9,948
============ ============
Period end total loans, net of
unearned interest $ 406,617 $ 421,523
============ ============
Average loans $ 414,237 $ 417,549
============ ============
Ratio of net charge-offs to
average loans 0.01% (0.03%)
Ratio of provision for loan losses
to average loans (0.19)% 0.02%
Ratio of allowance for loan losses
to ending total loans 1.85% 2.36%
Ratio of allowance for loan losses
to total nonperforming loans 223.93% 198.09%
Ratio of allowance at end of period
to average loans 1.81% 2.38%
Note 6. Stock Option Plans
In April 1993, the Company adopted the UnionBancorp 1993 Stock Option Plan ("the
1993 Option Plan"). A total of 490,206 shares were issued pursuant to stock
options issued to employees and outside directors under this plan. The 1993
Stock Option Plan was terminated on April 12, 2003.
In 1999, the Company adopted the UnionBancorp, Inc. Non-qualified Stock Option
Plan ("the 1999 Option Plan"). Under the 1999 Option Plan, nonqualified options
may be granted to employees and eligible directors of the Company and its
subsidiaries to purchase the Company's common stock at 100% of the fair market
value on the date the option is granted. The Company has authorized 50,000
shares for
7.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 6. Stock Option Plans (Continued)
issuance under the 1999 Option Plan. During 1999, 40,750 of these shares were
granted and are 100% fully vested. The options have an exercise period of ten
years from the date of grant. There are 9,250 shares available to grant under
this plan.
In April 2003, the Company adopted the UnionBancorp 2003 Stock Option Plan ("the
2003 Option Plan"). Under the 2003 Option Plan, nonqualified options, incentive
stock options, and/or stock appreciation rights may be granted to employees and
outside directors of the Company and its subsidiaries to purchase the Company's
common stock at an exercise price to be determined by the 2003 Option Plan's
administrative committee. Pursuant to the 2003 Option Plan, 200,000 shares of
the Company's unissued common stock have been reserved and are available for
issuance upon the exercise of options and rights granted under the 2003 Option
Plan. The options have an exercise period of ten years from the date of grant.
There are 110,000 shares available to grant under this plan.
A summary of the status of the option plans as of March 31, 2006, and changes
during the quarter ended on those dates is presented below:
March 31, 2006
----------------------------
Weighted-
Average
Exercise
Shares Price
------------ ------------
Outstanding at beginning
of quarter 301,675 $ 15.74
Granted -- --
Exercised (13,400) 8.03
Forfeited -- --
------------ ------------
Outstanding at end of quarter 288,625 $ 16.10
============ ============
Options exercisable at quarter end 188,740 $ 14.13
============ ============
Weighted-average fair
value of options granted
during the quarter $ --
============
8.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 6. Stock Option Plans (Continued)
Options outstanding at March 31, 2006 and December 31, 2005 were as follows:
March 31, 2006
--------------------------------------------------------
Outstanding Exercisable
--------------------------- ------------------------
Weighted
Average Weighted
Remaining Average
Range of Contractual Exercise
Exercise Prices Number Life Number Price
--------------- ---------- ---------- ---------- ----------
$ 7.25 - $ 9.75 9,000 0.9 years 9,000 $ 9.75
11.25 - 13.00 62,681 4.2 years 62,081 11.64
13.88 - 18.50 126,594 4.7 years 105,659 14.98
20.30 - 23.29 90,000 8.9 years 12,000 22.78
---------- ---------- ---------- ----------
288,275 5.8 years 188,740 $ 14.13
========== ========== ========== ==========
December 31, 2005
--------------------------------------------------------
Outstanding Exercisable
--------------------------- ------------------------
Weighted
Average Weighted
Remaining Average
Range of Contractual Exercise
Exercise Prices Number Life Number Price
--------------- ---------- ---------- ---------- ----------
$ 7.25 - $ 9.75 22,300 0.7 years 22,300 $ 8.69
11.25 - 13.00 62,681 4.5 years 54,855 11.63
13.88 - 18.50 126,694 5.0 years 98,356 15.04
20.30 - 23.29 90,000 9.2 years 12,000 22.78
---------- ---------- ---------- ----------
301,675 5.8 years 187,511 $ 13.78
========== ========== ========== ==========
The intrinsic value for stock options is calculated based on the
exercise price of the underlying awards and the market price of our common stock
as of the reporting date. The intrinsic value of options exercised during the
first quarter of 2006 and 2005 was $173 and $250. The company recorded $34 in
stock compensation expense during the three months ended March 31, 2006 to
salaries and employee benefits.
The fair value of each stock option granted is estimated using the
Black-Scholes based stock option valuation model. This model requires the input
of subjective assumptions that will usually have a significant impact on the
fair value estimate. Expected volatilities are based on historical volatility of
the Company's stock, and other factors. Expected dividends are based on dividend
trends and the market price of the Company's stock price at grant. The Company
uses historical data to estimate option exercises and employee terminations
within the valuation model. The risk-free rate for periods within the
contractual life of the options is bases on the U. S. Treasury yield curves in
effect at the time of grant. There were no grants during the three months ended
March 31, 2006 and 2005.
9.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
The Company elected to adopt the modified prospective application
method as provided by SFAS 123(R), and, accordingly the Company recorded
compensation costs as the requisite service rendered for the unvested portion of
previously issued awards that remain outstanding at the initial date of adoption
and any awards issued, modified, repurchased, or cancelled after the effective
date of SFAS 123(R).
Prior to January 1, 2006, the Company accounted for share-based
compensation to employees in accordance with Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. The Company also followed the disclosure requirements of SFAS
123, "Accounting for Stock-Based Compensation". No stock-based compensation was
recognized on employee stock options in the consolidated statement of income
before January 1, 2006. Accordingly, financial statement amounts for the prior
periods presented in this Form 10-Q have not been restated to reflect the fair
value method of expensing share-based compensation.
SFAS 123R requires the recognition of stock based compensation for the
number of awards that are ultimately expected to vest. As a result, recognized
stock option compensation expense was reduced for estimated forfeitures prior to
vesting primarily based on historical annual forfeiture rates of approximately
three percent. Estimated forfeitures will be reassessed in subsequent periods
and may change based on new facts and circumstances. Prior to January 1, 2006,
actual forfeitures were accounted for as they occurred for purposes of required
pro forma stock compensation disclosures.
Unrecognized stock option compensation expense related to unvested
awards (net of estimated forfeitures) for the remainder of 2006 and beyond is
estimated as follows:
Year
April, 2006 - December, 2006 $ 102
2007 67
2008 47
2009 28
--------
Total $ 245
========
The following table illustrates the effect on net income and earnings
per share if expense was measured using the fair value recognition provisions of
SFAS 123R as of March 31, 2005:
Three Months Ended
March 31,
2005
----------
Net income as reported
for common stockholders $ 912
Deduct: stock-based compensation expense
determined under fair value based method 24
----------
Pro forma net income $ 888
==========
Basic earnings
per common share as reported $ 0.23
Pro forma basic earnings
per common share 0.22
Diluted earnings
per common share as reported $ 0.22
Pro forma diluted earnings
per common share 0.22
10.
UNIONBANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Note 7. Contingent Liabilities And Other Matters
Neither the Company nor its subsidiary is involved in any pending legal
proceedings other than routine legal proceedings occurring in the normal course
of business, which, in the opinion of management, in the aggregate, are not
material to the Company's consolidated financial condition.
Note 8. Segment Information
The reportable segments are determined by the products and services
offered, primarily distinguished between retail, commercial, treasury, financial
services, and operations & other. Loans, and deposits generate the revenues in
the commercial segments; deposits, loans, secondary mortgage sales and servicing
generates the revenue in the retail segment; investment income generates the
revenue in the treasury segment; insurance, brokerage, and trust services
generate the revenue in the financial services segment; and holding company
services generate the revenue in the operations & other segment.
The accounting policies used with respect to segment reporting are the
same as those described in the summary of significant accounting policies set
forth in Note 1 on page 4. Segment performance is evaluated using net income.
Information reported internally for performance assessment follows.
Three Months Ended
-------------------------------------------------------------------------------------------
March 31, 2006
-------------------------------------------------------------------------------------------
Retail Commercial Treasury Financial Other Consolidated
Segment Segment Segment Services Operations Totals
------------ ------------ ------------ ------------ ------------ ------------
Net interest income (loss) $ 1,982 $ 3,263 $ 130 $ 56 $ (248) $ 5,183
Other revenue 850 111 1 633 165 1,760
Other expense 1,450 644 68 664 1,993 4,819
Noncash items
Depreciation 232 3 -- 38 199 472
Provision for loan losses 125 (925) -- -- -- (800)
Other intangibles -- -- -- 15 28 43
Net allocations 847 1,213 160 233 (2,453) --
Income tax expense 57 849 (106) (87) 50 763
Segment profit (loss) 121 1,590 9 (174) 100 1,646
Goodwill 2,512 2,613 -- 1,820 -- 6,963
Segment assets 97,648 327,122 213,003 3,792 20,142 661,707
Three Months Ended
-------------------------------------------------------------------------------------------
March 31, 2005
-------------------------------------------------------------------------------------------
Retail Commercial Treasury Financial Other Consolidated
Segment Segment Segment Services Operations Totals
------------ ------------ ------------ ------------ ------------ ------------
Net interest income (loss) $ 1,734 $ 3,133 $ 134 $ 7 $ 77 $ 5,085
Other revenue 950 114 -- 633 153 1,850
Other expense 1,525 647 58 733 2,110 5,073
Noncash items
Depreciation 241 3 -- 44 142 430
Provision for loan losses 100 -- -- -- -- 100
Other intangibles -- -- -- 15 28 43
Net allocations 784 1,346 111 157 (2,398) --
Income tax expense 7 402 (97) (99) 112 325
Segment profit (loss) 27 849 62 (210) 236 964
Goodwill 2,512 2,613 -- 1,820 -- 6,963
Segment assets 109,859 327,410 210,813 5,159 8,183 661,424
11.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
The following discussion provides an analysis of the Company's results
of operations and financial condition for the three months ended March 31, 2006
as compared to the same period in 2005. Management's discussion and analysis
(MD&A) should be read in conjunction with the consolidated financial statements
and accompanying notes presented elsewhere in this report as well as the
Company's 2005 Annual Report on Form 10-K. Annualized results of operations
during the three months ended March 31, 2006 are not necessarily indicative of
results to be expected for the full year of 2006. Unless otherwise stated, all
earnings per share data included in this section and throughout the remainder of
this discussion are presented on a diluted basis. All financial information is
in thousands (000's), except per share data.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934 as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies, and expectations of the Company, are
generally identified by the use of words such as "believe," "expect," "intend,"
"anticipate," "estimate," "project," "planned" or "potential" or similar
expressions. The Company's ability to predict results, or the actual effect of
future plans or strategies, is inherently uncertain. Factors which could have a
material adverse effect on the operations and future prospects of the Company
and the subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory changes; monetary and
fiscal policies of the U.S. government, including policies of the U.S. Treasury
and the Federal Reserve Board; the quality and composition of the loan or
securities portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market areas; the Company's
implementation of new technologies; the Company's ability to develop and
maintain secure and reliable electronic systems; and accounting principles,
policies, and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. By their nature, changes in these assumptions and estimates
could significantly affect the Company's financial position or results of
operations. Actual results could differ from those estimates. Discussed below
are those critical accounting policies that are of particular significance to
the Company.
Allowance for Loan Losses: The allowance for loan losses is a valuation
allowance for probable incurred credit losses, increased by the provision for
loan losses and decreased by charge-offs less recoveries. Management estimates
the allowance balance required based on past loan loss experience, the nature
and volume of the portfolio, information about specific borrower situations and
estimated collateral values, current economic conditions, and other factors.
Allocations of the allowance may be made for specific loans, but the entire
allowance is available for any loan that, in management's judgment, should be
charged off. Loan losses are charged against the allowance when management
believes that the uncollectibility of a loan balance is confirmed.
12.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
General
UnionBancorp, Inc. is a bank holding company organized under the laws
of the state of Delaware. The Company derives most of its revenues and income
from the operations of its bank subsidiary, UnionBank (the "Bank"), but also
derives revenue from its Financial Services Division. The Company provides a
full range of services to individual and corporate customers located in the
north central and central Illinois areas. These services include demand, time,
and savings deposits; lending; mortgage banking; insurance products; brokerage
services; asset management; and trust services. The Company is subject to
competition from other financial institutions, including banks, thrifts and
credits unions, as well as nonfinancial institutions providing financial
services. Additionally, the Company and the Bank are subject to regulations of
certain regulatory agencies and undergo periodic examinations by those
regulatory agencies.
First Quarter Highlights
o Earnings per share increased 90.9% compared to the first quarter of
2005 and 133.3% compared to fourth quarter 2005 levels.
o The Company recorded a negative provision of $800 to the allowance for
loan losses largely based on the pay-off of one $4,400 loan
relationship that was classified as impaired as of year-end with a
specific reserve allocation of $1,500. Also contributing to
management's decision to make the reverse provision were continued
improvements in the quality of the loan portfolio, favorable loan loss
experience and management's beliefs regarding the probability and
estimations of future losses inherent in the loan portfolio.
o The net interest margin decreased to 3.50% during the first quarter of
2006 as compared with 3.52% for the same period in 2005 and 3.60% in
the fourth quarter of 2005.
o The loan portfolio decreased to $406,617 as compared to $417,525 at
December 31, 2005. Of this $10,908 decrease in outstanding balances,
approximately $6,800 or 62% was related to the pay-off of action list
credits refinanced with a competitor. The remainder was due to
cyclical agriculture elevator pay downs.
o The level of nonperforming loans to end of period loans totaled 0.82%
as of March 31, 2006 compared to 1.19% at March 31, 2005 and 0.96% on
December 31, 2005.
o Net charge-offs for the first quarter of 2006 were 0.01% of average
loans as compared to (0.03%) for the same period 2005 and 0.06% for
the fourth quarter of 2005.
o The Company's Board of Directors, in a continuing effort to enhance
stockholder value, approved the payment of a 9.1% increase in the
quarterly cash dividend to $0.12 from $0.11 on the Company's common
stock during the first quarter, marking the 84th consecutive quarter
of dividends paid to stockholders.
o The Company repurchased 77,625 shares at a weighted average cost of
$21.10 of its common stock under the Company's stock repurchase plan.
o The Company sold $6,100 of deposits related to the divestiture of its
Mendota sales and service center.
13.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Results of Operations
Net Income
Net income equaled $1,646 or $0.42 per diluted share for the three
months ended March 31, 2006, versus $964 or $0.22 per diluted share for the same
period in 2005.
The Company's quarterly results were positively impacted by a negative
provision of $800 to the allowance for loan losses. This action was largely
based on the pay-off of one $4,400 loan relationship that was classified as
impaired as of year-end with a specific reserve of $1,500. Additionally,
quarterly earnings were assisted by improved asset quality that allowed lower
than anticipated funding for the provision for loan losses, management of
noninterest expense levels led to decreased expense levels, and fewer FTE's
drove salary and benefit costs lower. These items were partially offset by
increased interest expense due to higher rates and an adverse shift in the
deposit base from lower paying accounts to higher paying deposit products. Also
contributing to the change in earnings were decreases in revenue generated from
the mortgage banking division and insurance and brokerage product lines due to
lower production volumes, and decreases in overdraft and service charge fees due
to lower volume of deposit accounts and balances.
Return on average assets was 0.99% for the first quarter of 2006
compared to 0.59% for the same period in 2005. Return on average stockholders'
equity was 10.14% for the first quarter of 2006 compared to 5.52% for the same
period in 2005.
Net Interest Income/ Margin
Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred for the funding
sources used to finance these assets. Changes in net interest income generally
occur due to fluctuations in the volume of earning assets and paying liabilities
and the rates earned and paid, respectively, on those assets and liabilities.
The net yield on total interest-earning assets, also referred to as net interest
margin, represents net interest income divided by average interest-earning
assets. Net interest margin measures how efficiently the Company uses its
earning assets and underlying capital. The Company's long-term objective is to
manage those assets and liabilities to provide the largest possible amount of
income while balancing interest rate, credit, liquidity and capital risks. For
purposes of this discussion, both net interest income and margin have been
adjusted to a fully tax equivalent basis for certain tax-exempt securities and
loans.
Net interest income, on a tax equivalent basis, was $5,314 for the
three months ended March 31, 2006, compared with $5,242 earned during the same
three-month period in 2005. This represented an increase of $72 or 1.4% from the
prior year period. The change in net interest income is attributable to the
increase in interest income earned on interest-earning assets totaling $1,215
partially offset by the increase in interest expense paid on interest bearing
liabilities totaling $1,143.
The $1,215 increase in interest income resulted from increases of $30
due to volume and $1,185 due to rate. The majority of the change in interest
income was related to the increases in rates experienced from the loan and
investment portfolios. Additionally, the volume within the security portfolio
was $14,587 higher for the first quarter of 2006 as compared to the same period
in 2005. These increases were slightly offset by lower volume in the loan
portfolio.
The $1,143 increase in interest expense resulted from increases of
$1,025 associated with rate and $118 associated with volume. The majority of the
change was attributable to a 92 basis point increase in rates paid on time
14.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
deposits, a 105 basis point increase in rates paid on money market accounts and
a 68 basis point increase in rates paid on NOW accounts.
The net interest margin decreased 2 basis points to 3.50% in the first
quarter 2006 as compared with 3.52% for the same period in 2005. The expectation
of a flat yield curve is likely to maintain pressure on margins for the
remainder of 2006. Although the margin declined by 2 basis points,
tax-equivalent net interest income increased $72 to $5,314 reported for the
first quarter of 2006 as compared to $5,242 for the first quarter of 2005.
The Company's net interest income is affected by changes in the amount
and mix of interest-earning assets and interest-bearing liabilities, referred to
as "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as "rate change." The following table details each
category of average amounts outstanding for interest-earning assets and
interest-bearing liabilities, average rate earned on all interest-earning
assets, average rate paid on all interest-bearing liabilities, and the net yield
on average interest-earning assets. In addition, the table reflects the changes
in net interest income stemming from changes in interest rates and from asset
and liability volume, including mix. The change in interest attributable to both
rate and volume has been allocated to the changes in the rate and the volume on
a pro rata basis.
15.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
For the Three Months Ended March 31,
--------------------------------------------------------------
2006 2005
----------------------------- -----------------------------
Interest Interest Change Due To:
Average Income/ Average Average Income/ Average --------------------------------
Balance Expense Rate Balance Expense Rate Volume Rate Net
-------- -------- ------ -------- -------- ------ -------- -------- --------
ASSETS
Interest-earning assets
Interest-earning deposits $ 251 $ 4 6.46% $ 128 $ -- --% $ -- $ 4 $ 4
Securities (1)
Taxable 181,272 1,991 4.45 162,356 1,425 3.56 180 386 566
Non-taxable (2) 18,026 327 7.36 22,355 391 7.09 (29) (35) (64)
-------- -------- ------ -------- -------- ------ -------- -------- --------
Total securities
(tax equivalent) 199,298 2,318 4.72 184,711 1,816 3.99 151 351 502
-------- -------- ------ -------- -------- ------ -------- -------- --------
Federal funds sold 1,560 17 4.42 1,651 9 2.21 (1) 9 8
-------- -------- ------ -------- -------- ------ -------- -------- --------
Loans (3)(4)
Commercial 118,069 2,061 7.08 119,704 1,848 6.26 (26) 239 213
Real estate 283,961 4,834 6.90 277,454 4,178 6.11 101 555 656
Installment and other 11,992 280 9.47 20,391 448 8.91 (195) 27 (168)
-------- -------- ------ -------- -------- ------ -------- -------- --------
Gross loans
(tax equivalent) 414,022 7,175 7.03 417,549 6,474 6.29 (120) 821 701
-------- -------- ------ -------- -------- ------ -------- -------- --------
Total interest-
earning assets 615,131 9,514 6.27 604,039 8,299 5.57 30 1,185 1,215
-------- -------- ------ -------- -------- ------ -------- -------- --------
Noninterest-earning assets
Cash and cash equivalents 18,521 17,556
Premises and equipment, net 13,842 13,441
Other assets 23,967 23,859
-------- --------
Total nonearning assets 56,330 54,856
-------- --------
Total assets $671,461 $658,895
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW accounts $ 69,997 $ 282 1.63% $ 70,554 $ 165 0.95% $ (1) $ 118 $ 117
Money market accounts 55,792 349 2.54 58,160 214 1.49 (9) 144 135
Savings deposits 38,538 54 0.57 43,290 62 0.58 (7) (1) (8)
Time deposits 308,206 2,794 3.68 275,901 1,878 2.76 238 678 916
Federal funds purchased and
repurchase agreements 6,010 72 4.86 11,098 74 2.70 (44) 42 (2)
Advances from FHLB 49,349 482 3.96 60,210 583 3.93 (105) 4 (101)
Notes payable 11,052 167 6.13 7,537 81 4.36 46 40 86
-------- -------- ------ -------- -------- ------ -------- -------- --------
Total interest-
bearing liabilities 538,944 4,200 3.16 526,750 3,057 2.35 118 1,025 1,143
-------- -------- ------ -------- -------- ------ -------- -------- --------
Noninterest-bearing liabilities
Noninterest-bearing deposits 61,730 57,341
Other liabilities 4,966 4,034
-------- --------
Total noninterest-
bearing liabilities 66,696 61,375
-------- --------
Stockholders' equity 65,821 70,770
-------- --------
Total liabilities and
stockholders' equity $671,461 $658,895
======== ========
Net interest income
(tax equivalent) $ 5,314 $ 5,242 $ (88) $ 160 $ 72
======== ======== ======== ======== ========
Net interest income
(tax equivalent) to
total earning assets 3.50% 3.52%
======== ========
Interest-bearing
liabilities to earning
assets 87.61% 87.20%
======== ========
--------------------------------
(1) Average balance and average rate on securities classified as
available-for-sale is based on historical amortized cost balances.
(2) Interest income and average rate on non-taxable securities are reflected on
a tax equivalent basis based upon a statutory federal income tax rate of
34%.
(3) Nonaccrual loans are included in the average balances.
(4) Overdraft loans are excluded in the average balances.
16.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Provision for Loan Losses
The Company recorded a negative provision of $800 to the allowance for
loan losses for the first quarter of 2006 which is a decrease of $900 from the
$100 recorded during the same period a year ago. The decrease in the provision
was primarily due to the payoff of one $4,400 loan relationship that was
classified as impaired as of year-end with a specific reserve of $1,500. Also,
funding of the provision has been lower than anticipated due to continued
improvement in asset quality driven by a net decrease in non-performing and
action/watch list loans from the first quarter of 2005 through the first quarter
of 2006, as well as resolutions, either through charge-off of non-bankable
assets or through successful workout strategies that have been executed.
Nonperforming loans decreased $1,670 from $5,022 as of March 31, 2005 to $3,352
as of March 31, 2006. Net charge-offs for the first quarter of 2006 were $56
compared with ($116) for the comparable period in 2005. Annualized net
charge-offs were 0.01% of average loans for the first quarter of 2006 compared
with (0.03%) of average loans for same period in 2005. See "Nonperforming
Assets" and "Other Potential Problem Loans" for further information.
The amount of the provision for loan losses is based on management's
evaluations of the loan portfolio, with particular attention directed toward
nonperforming, impaired and other potential problem loans. During these
evaluations, consideration is also given to such factors as management's
evaluation of specific loans, the level and composition of impaired loans, other
nonperforming loans, other identified potential problem loans, historical loss
experience, results of examinations by regulatory agencies, results of the
independent asset quality review process, the market value of collateral, the
estimate of discounted cash flows, the strength and availability of guarantees,
concentrations of credits, and various other factors, including concentration of
credit risk in various industries and current economic conditions.
Management remains watchful of credit quality issues. Should the
economic climate deteriorate from current levels, borrowers may experience
difficulty, and the level of nonperforming loans, charge-offs and delinquencies
could rise and require further increases in the provision.
Noninterest Income
Noninterest income consists of a wide variety of fee-based revenues
from bank-related service charges on deposits and mortgage revenues. Also
included in this category are revenues generated by the Company's insurance,
brokerage, trust and asset management product lines as well as increases in cash
surrender value on bank-owned life insurance. The following table summarizes the
Company's noninterest income:
Three Months Ended
March 31,
---------------------------
2006 2005
------------ ------------
Service charges $ 440 $ 483
Trust income 219 215
Mortgage banking income 246 340
Insurance commissions and fees 379 421
Bank owned life insurance 140 134
Gain on the sale of assets -- 2
Other income 336 255
------------ ------------
$ 1,760 $ 1,850
============ ============
Noninterest income totaled $1,760 for the three months ended March 31,
2006, compared to $1,850 for the same period in 2005. Exclusive of the gain on
sale of assets for both periods, noninterest income equaled $1,760 for the three
17.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
months ended March 31, 2006, compared to $1,848 for the same period in 2005.
This represented a decrease of $88 or 4.8%. The quarter-over-quarter decrease
was primarily attributable to a decrease in mortgage banking income related to a
slowdown in production volumes (including gains on sale and servicing income,
net of non-cash amortization charges in the carrying value of the mortgage
servicing rights portfolio), decreases in overdraft fees (included in service
charges) and service charge fees due to volume and lower insurance and brokerage
revenue due to new production shortfalls. Additionally, most other fee
categories for the quarter have shown an increase as well when compared to 2005
results for the same period.
Noninterest Expense
Noninterest expense is comprised primarily of compensation and employee
benefits, occupancy and other operating expense. The following table summarizes
the Company's noninterest expense:
Three Months Ended
March 31,
---------------------------
2006 2005
------------ ------------
Salaries and employee benefits $ 3,314 $ 3,476
Occupancy expense, net 443 394
Furniture and equipment expense 512 424
Marketing 111 96
Supplies and printing 97 77
Telephone 117 107
Other real estate owned expense 6 --
Amortization of intangible assets 44 44
Other expenses 690 928
------------ ------------
$ 5,334 $ 5,546
============ ============
Noninterest expense totaled $5,334 for the three months ended March 31,
2006, as compared to $5,546 for the same period in 2005. This represented a
decrease of $212 or 3.8%. This improvement in noninterest expense was primarily
due to lower salary and employee benefits expenses due to fewer FTE's in first
quarter of 2006 and lower loan related costs (included in other expenses). These
positive variances were partially offset by higher expenses in marketing,
occupancy and furniture and equipment expenses. Finally, management's continued
efforts to contain costs have led to decreases in many other expense categories.
18.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Applicable Income Taxes
Income tax expense for the periods included benefits for tax-exempt
income, tax-advantaged investments and general business tax credits offset by
the effect of nondeductible expenses. The following table shows the Company's
income before income taxes, as well as applicable income taxes and the effective
tax rate for the three months ended March 31, 2006 and 2005.
Three Months Ended
March 31,
-------------------------
2006 2005
---------- ----------
Income before income taxes $ 2,409 $ 1,289
Applicable income taxes 763 325
Effective tax rates 31.7% 25.2%
The Company recorded an income tax expense of $763 and of $325 for the
three months ended March 31, 2006 and 2005, respectively. Income tax expense for
the periods included benefits for tax-exempt income, tax-advantaged investments
and general business tax credits offset by the effect of nondeductible expenses.
The Company's effective tax rate was lower than statutory rates due to the
Company deriving interest income from municipal securities and loans, which are
exempt from federal tax and certain U. S. government agency securities, which
are exempt from Illinois State tax. Additionally, the Company has reduced tax
expense through various tax planning initiatives.
For the first quarter of 2006, the Company has less of its security
portfolio invested in federally tax-exempt assets than in the same period in
2005. Thus, the amount of tax exempt interest earned on the portfolio in the
first quarter of 2006 is lower than the same period of 2005. This change in mix
in the security portfolio increased the amount of interest that is taxable
leading to the higher effective tax rate experienced during the period.
Additionally, total taxable income for the first quarter of 2006 has doubled as
compared to the same period in 2005 which raises the mix of taxable versus
nontaxable income that drives the effective tax rate higher.
Preferred Stock Dividends
The Company paid $52 in preferred stock dividends for the three months
ended March 31, 2006 and 2005, respectively.
Interest Rate Sensitivity Management
The business of the Company and the composition of its balance sheet
consist of investments in interest-earning assets (primarily loans and
securities) which are primarily funded by interest-bearing liabilities (deposits
and borrowings). All of the financial instruments of the Company are for other
than trading purposes. Such financial instruments have varying levels of
sensitivity to changes in market rates of interest. The operating income and net
income of the Bank depends, to a substantial extent, on "rate differentials,"
i.e., the differences between the income the Bank receives from loans,
securities, and other earning assets and the interest expense they pay to obtain
deposits and other liabilities. These rates are highly sensitive to many factors
that are beyond the control of the Bank, including general economic conditions
and the policies of various governmental and regulatory authorities.
19.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
The Company measures its overall interest rate sensitivity through a
net interest income analysis. The net interest income analysis measures the
change in net interest income in the event of hypothetical changes in interest
rates. This analysis assesses the risk of changes in net interest income in the
event of a sudden and sustained 100 to 200 basis point increase in market
interest rates or a 100 basis point decrease in market rates. The interest rates
scenarios are used for analytical purposes and do not necessarily represent
management's view of future market movements. The tables below present the
Company's projected changes in net interest income for the various rate shock
levels at March 31, 2006 and December 31, 2005, respectively:
March 31, 2006
-------------------------------------------------------
Net Interest Income
-------------------------------------------------------
Amount Change Change
----------- ----------- ------
(Dollars in Thousands)
+200 bp $ 23,818 $ 890 3.88%
+100 bp 23,447 518 2.26
Base 22,929 -- --
-100 bp 22,198 (731) (3.19)
-200 bp 20,526 (2,402) (10.48)
Based upon the Company's model at March 31, 2006, the effect of an
immediate 200 basis point increase in interest rates would increase the
Company's net interest income by $890 or 3.88%. The effect of an immediate 200
basis point decrease in rates would decrease the Company's net interest income
by $2,402 or 10.48%.
December 31, 2005
-------------------------------------------------------
Net Interest Income
-------------------------------------------------------
Amount Change Change
----------- ----------- ------
(Dollars in Thousands)
+200 bp $ 23,043 $ 959 4.34%
+100 bp 22,629 545 2.47
Base 22,084 -- --
-100 bp 21,314 (770) (3.49)
-200 bp 19,744 (2,340) (10.59)
Based upon the Company's model at December 31, 2005, the effect of an
immediate 200 basis point increase in interest rates would increase the
Company's net interest income by $959 or 4.34%. The effect of an immediate 200
basis point decrease in rates would decrease the Company's net interest income
by $2,340 or 10.59%.
Financial Condition
General
As of March 31, 2006, the Company had total assets of $661,707, total
gross loans of $406,617, total deposits of $530,928 and total stockholders'
equity of $65,369. Total assets decreased by $14,515 or 2.1% from year-end 2005.
Total gross loans decreased by $10,908 or 2.6% from year-end 2005. Total
deposits declined by $12,913 or 2.4% from year-end 2005.
20.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Nonperforming Assets
The Company's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on nonaccrual status. Loans are placed on nonaccrual
status when there are serious doubts regarding the collectibility of all
principal and interest due under the terms of the loans. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
after all principal has been collected. It is the policy of the Company not to
renegotiate the terms of a loan because of a delinquent status. Rather, a loan
is generally transferred to nonaccrual status if it is not in the process of
collection and is delinquent in payment of either principal or interest beyond
90 days. Loans that are 90 days delinquent but are well secured and in the
process of collection are not included in nonperforming assets. Other
nonperforming assets consist of real estate acquired through loan foreclosures
or other workout situations and other assets acquired through repossessions.
The classification of a loan as nonaccrual does not necessarily
indicate that the principal is uncollectible, in whole or in part. The Bank
makes a determination as to collectibility on a case-by-case basis. The Bank
considers both the adequacy of the collateral and the other resources of the
borrower in determining the steps to be taken to collect nonaccrual loans. The
final determination as to the steps taken is made based upon the specific facts
of each situation. Alternatives that are typically considered to collect
nonaccrual loans are foreclosure, collection under guarantees, loan
restructuring, or judicial collection actions.
Each of the Company's loans is assigned a rating based upon an
internally developed grading system. A separate credit administration department
also reviews grade assignments on an ongoing basis. Management continuously
monitors nonperforming, impaired, and past due loans to prevent further
deterioration of these loans. The Company has an independent loan review
function which is separate from the lending function and is responsible for the
review of new and existing loans.
The following table summarizes nonperforming assets and loans past due
90 days or more and still accruing for the previous five quarters.
2006 2005
--------- ------------------------------------------------
Mar 31, Dec 31, Sept 30, Jun 30, Mar 31
--------- --------- --------- --------- ---------
Non-accrual loans $ 2,785 $ 3,082 $ 2,397 $ 3,217 $ 4,176
Loans 90 days past due and still accruing interest 567 922 1,329 618 846
--------- --------- --------- --------- ---------
Total nonperforming loans 3,352 4,004 3,726 3,835 5,022
Other real estate owned 536 203 194 669 400
--------- --------- --------- --------- ---------
Total nonperforming assets $ 3,888 $ 4,207 $ 3,920 $ 4,504 $ 5,422
========= ========= ========= ========= =========
Nonperforming loans to total end of period loans 0.82% 0.96% 0.92% 0.95% 1.19%
Nonperforming assets to total end of period loans 0.96 1.01 0.97 1.11 1.29
Nonperforming assets to total end of period assets 0.59 0.62 0.59 0.68 0.82
The level of nonperforming loans at March 31, 2006 decreased to $3,352
versus the $4,004 that existed as of December 31, 2005 and from $5,022 at March
31, 2005. The level of nonperforming loans to total end of period loans was
0.82% at March 31, 2006, as compared to 0.96% at December 31, 2005 and 1.19% at
March 31, 2005. The reserve coverage ratio (allowance to nonperforming loans)
was reported at 223.93% as of March 31, 2006 as compared to 208.84% as of
December 31, 2005 and 198.09% as of March 31, 2005.
21.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Other Potential Problem Loans
The Company has other potential problem loans that are currently
performing, but where some concerns exist as to the ability of the borrower to
comply with present loan repayment terms. Excluding nonperforming loans and
loans that management has classified as impaired, these other potential problem
loans totaled $858 at March 31, 2006 as compared to $7,728 at March 31, 2005 and
$2,879 at December 31, 2005. The classification of these loans, however, does
not imply that management expects losses on each of these loans, but believes
that a higher level of scrutiny and close monitoring is prudent under the
circumstances. Such classifications relate to specific concerns for each
individual borrower and do not relate to any concentration risk common to all
loans in this group.
Allowance for Loan Losses
At March 31, 2006, the allowance for loan losses was $7,506 or 1.85% of
total loans as compared to $8,362 or 2.00% at December 31, 2005, and $9,948 or
2.36% at March 31, 2005. The decrease in the allowance was primarily related to
the Company recording a negative provision of $800 to the allowance for loan
losses during the first quarter. This negative provision was related to the
payoff of one $4,400 loan relationship that was classified as impaired as of
year-end with a specific reserve of $1,500. In originating loans, the Company
recognizes that credit losses will be experienced and the risk of loss will vary
with, among other things, general economic conditions; the type of loan being
made; the creditworthiness of the borrower over the term of the loan; and, in
the case of a collateralized loan, the quality of the collateral for such a
loan. The allowance for loan losses represents the Company's estimate of the
allowance necessary to provide for probable incurred losses in the loan
portfolio. In making this determination, the Company analyzes the ultimate
collectibility of the loans in its portfolio, incorporating feedback provided by
internal loan staff, the independent loan review function, and information
provided by examinations performed by regulatory agencies. The Company makes an
ongoing evaluation as to the adequacy of the allowance for loan losses.
On a quarterly basis, management reviews the adequacy of the allowance
for loan losses. Commercial credits are graded by the loan officers and the Loan
Review function validates the officers' grades. In the event that the loan
review function downgrades the loan, it is included in the allowance analysis at
the lower grade. The grading system is in compliance with the regulatory
classifications and the allowance is allocated to the loans based on the
regulatory grading, except in instances where there are known differences (i.e.,
collateral value is nominal, etc.). To establish the appropriate level of the
allowance, a sample of loans (including impaired and nonperforming loans) are
reviewed and classified as to potential loss exposure.
Based on an estimation computed pursuant to the requirements of
Financial Accounting Standards Board ("FASB") Statement No. 5, "Accounting for
Contingencies," and FASB Statements Nos. 114 and 118, "Accounting by Creditors
for Impairment of a Loan," the analysis of the allowance for loan losses
consists of three components: (i) specific credit allocation established for
expected losses resulting from analysis developed through specific credit
allocations on individual loans for which the recorded investment in the loan
exceeds its fair value; (ii) general portfolio allocation based on historical
loan loss experience for each loan category; and (iii) subjective reserves based
on general economic conditions as well as specific economic factors in the
markets in which the Company operates.
The specific credit allocation component of the allowance for loan
losses is based on a regular analysis of loans over a fixed-dollar amount where
the internal credit rating is at or below a predetermined classification. The
fair value of the loan is determined based on either the present value of
expected future cash flows discounted at the loan's effective interest rate, the
market price of the loan, or, if the loan is collateral dependent, the fair
value of the underlying collateral less cost of sale.
22.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
The general portfolio allocation component of the allowance for loan
losses is determined statistically using a loss migration analysis that examines
historical loan loss experience. The loss migration analysis is performed
quarterly and loss factors are updated regularly based on actual experience. The
general portfolio allocation element of the allowance for loan losses also
includes consideration of the amounts necessary for concentrations and changes
in portfolio mix and volume.
The allowance for loan losses is based on estimates, and ultimate
losses will vary from current estimates. These estimates are reviewed monthly,
and as adjustments, either positive or negative, become necessary, a
corresponding increase or decrease is made in the provision for loan losses. The
composition of the loan portfolio has not significantly changed since year-end
2004. The methodology used to determine the adequacy of the allowance for loan
losses is consistent with prior years, and there were no reallocations.
Management remains watchful of credit quality issues. Should the
economic climate deteriorate from current levels, borrowers may experience
difficulty, and the level of nonperforming loans, charge-offs and delinquencies
could rise and require further increases in the provision.
Liquidity
The Company manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and borrowers
and to take advantage of earnings enhancement opportunities. In addition to the
normal inflow of funds from core-deposit growth together with repayments and
maturities of loans and investments, the Company utilizes other short-term
funding sources such as brokered time deposits, securities sold under agreements
to repurchase, overnight federal funds purchased from correspondent banks and
the acceptance of short-term deposits from public entities, and Federal Home
Loan Bank advances.
The Company monitors and manages its liquidity position on several
bases, which vary depending upon the time period. As the time period is
expanded, other data is factored in, including estimated loan funding
requirements, estimated loan payoffs, investment portfolio maturities or calls,
and anticipated depository buildups or runoffs.
The Company classifies all of its securities as available-for-sale,
thereby maintaining significant liquidity. The Company's liquidity position is
further enhanced by structuring its loan portfolio interest payments as monthly
and by the significant representation of retail credit and residential mortgage
loans in the Company's loan portfolio, resulting in a steady stream of loan
repayments. In managing its investment portfolio, the Company provides for
staggered maturities so that cash flows are provided as such investments mature.
The Company's cash flows are comprised of three classifications: cash
flows from operating activities, cash flows from investing activities, and cash
flows from financing activities. Cash flows used in financing activities offset
by those provided by operating activities and investing activities, resulted in
a net decrease in cash and cash equivalents of $8,607 from December 31, 2005 to
March 31, 2006.
During the first three months of 2006, the Company experienced net cash
outflows of $9,355 in financing activities primarily due to a decrease in
deposits and $487 in investing activities largely due to the decrease in net
loans and securities. In contrast, net cash inflows of $1,260 were provided by
operating activities due to negative provision and net income.
23.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet
Financial Instruments
The Company has entered into contractual obligations and commitments
and off-balance sheet financial instruments. The following tables summarize the
Company's contractual cash obligations and other commitments and off balance
sheet instruments as of March 31, 2006.
Payments Due by Period
-------------------------------------------------------------------
Within 1 After
Contractual Obligations Year 1-3 Years 4-5 Years 5 Years Total
----------- ----------- ----------- ----------- -----------
Short-term debt $ 10,600 $ -- $ -- $ -- $ 10,600
Long-term debt -- 246 -- -- 246
Certificates of Deposit 239,655 53,278 13,302 3,380 309,615
Series B Mandatory redeemable
Preferred stock -- 831 -- -- 831
FHLB Advances 10,700 23,600 10,000 3,000 47,300
----------- ----------- ----------- ----------- -----------
Total contractual cash obligations $ 260,955 $ 77,955 $ 23,302 $ 6,380 $ 368,592
=========== =========== =========== =========== ===========
Amount of Commitment Expiration per Period
-------------------------------------------------------------------
Within 1 After
Off-Balance Sheet Financial Instruments Year 1-3 Years 4-5 Years 5 Years Total
----------- ----------- ----------- ----------- -----------
Lines of credit $ 61,014 $ 4,688 $ 996 $ 16,277 $ 82,975
Standby letters of credit 7,687 878 -- -- 8,565
----------- ----------- ----------- ----------- -----------
Total commercial commitments $ 68,701 $ 5,566 $ 996 $ 16,277 $ 91,540
=========== =========== =========== =========== ===========
Capital Resources
Stockholders' Equity
The Company is committed to managing capital for maximum shareholder
benefit and maintaining strong protection for depositors and creditors.
Stockholders' equity at March 31, 2006 was $65,369, a decrease of $706 or 1.1%,
from December 31, 2005. The decrease in stockholders' equity was largely the
result of stock repurchase activity, dividends paid to shareholders and a
decrease in accumulated other comprehensive income. Average quarterly equity as
a percentage of average quarterly assets was 9.80% at March 31, 2006, compared
to 10.39% at December 31, 2005. Book value per common share equaled $17.33 at
March 31, 2006 compared to $17.23 at December 31, 2005.
Stock Repurchase
On May 2, 2003, the Board of Directors approved a stock repurchase plan
whereby the Company may repurchase from time to time up to 5% of its outstanding
shares of common stock in the open market or in private transactions over an 18
month period. On September 23, 2004, the Board of Directors extended the
Company's stock repurchase program through May 2, 2006. On June 16, 2005, the
Board of Directors amended the repurchase plan to enable the Company to acquire
an additional 5% of its outstanding shares of common stock in the open market or
in private transactions. On March 16, 2006, the Board of Directors approved an
additional 5% stock repurchase program that begins when the existing plan is
completed. Under the revised plan, the Company can repurchase approximately
188,000 shares of its outstanding shares of common stock. Under the terms of the
plan, the Company is able to repurchase, from time to time, up to 5% of its
outstanding shares of common stock in the open market or in private
transactions. Purchases are dependent upon market conditions and the
24.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
availability of shares. The extension of the repurchase program enables the
Company to optimize its use of capital relative to other investment alternatives
and benefits both the Company and the shareholders by enhancing earnings per
share and return on equity. During the current quarter, 77,625 shares were
repurchased at a weighted cost of $21.10 and to date, the Company has
repurchased 364,879 shares at a weighted average cost of $21.16
Capital Measurements
The Bank is expected to meet a minimum risk-based capital to
risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in
the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in the
form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss
allowance that may be included in capital is limited to 1.25% of risk-weighted
assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and
Tier 2 (supplementary) capital to risk-weighted assets for the Company was 12.2%
and 13.5%, respectively, at March 31, 2006. The Company is currently, and
expects to continue to be, in compliance with these guidelines.
The following table sets forth an analysis of the Company's capital
ratios:
December 31, Minimum Well
March 31, ---------------------------- Capital Capitalized
2006 2005 2004 Ratios Ratios
------------ ------------ ------------ ------ ------
Tier 1 risk-based capital $ 60,223 $ 60,546 $ 63,347
Tier 2 risk-based capital 6,165 6,266 6,067
------------ ------------ ------------
Total capital 66,388 66,812 69,414
Risk-weighted assets 493,240 501,342 485,325
Capital ratios
Tier 1 risk-based capital 12.2% 12.1% 13.0% 4.00% 6.00%
Tier 2 risk-based capital 13.5 13.3 14.3 8.00 10.00
Leverage ratio 9.2 9.0 9.5 4.00 5.00
Impact of Inflation, Changing Prices, and Monetary Policies
The financial statements and related financial data concerning the
Company have been prepared in accordance with U.S. generally accepted accounting
principles which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. The primary
effect of inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant effect on the performance of a
financial institution than do the effects of changes in the general rate of
inflation and changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Interest rates are highly sensitive to many factors which are beyond the control
of the Company, including the influence of domestic and foreign economic
conditions and the monetary and fiscal policies of the United States government
and federal agencies, particularly the Federal Reserve Board.
25.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
Recent Regulatory and Accounting Developments
In February, 2006, the FASB issued SFAS No. 155, "Accounting for
Certain Hybrid Financial Instruments - An Amendment of FASB Statement No. 133
and 140" ("SFAS155"). SFAS 155 simplifies the accounting for certain hybrid
financial instruments that contain an embedded derivative that otherwise would
have required bifurcation. SFAS 155 also eliminates the interim guidance in FASB
Statement No. 133, which provides that beneficial interest in securitized
financial assets are not subject to the provisions of FASB Statement No. 133.
SFAS 155 is effective for all financial instruments acquired or issued after the
beginning of an entity's first fiscal year that begins after September 15, 2006,
which for the Company will be as of the beginning of fiscal 2007. The Company
does not believe that the adoption of SFAS 155 will have a significant effect on
its financial statements as the Company does not have any hybrid financial
instruments at this time.
In March, 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets - An Amendment of FASB Statement No. 140" ("SFAS 156"). SFAS
156 requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. The statement
permits, but does not require, the subsequent measurement of servicing assets
and servicing liabilities at fair value. SFAS 156 is effective as of the
beginning of the entity's first fiscal year that begins after September 15,
2006. The Company is currently evaluating any potential impact of the adoption
of this SFAS.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The information required by this Item 3 is incorporated by reference
from the discussion on pages 19 and 20 of this Form 10-Q under the caption
"Interest Rate Sensitivity Management" and the discussion immediately above
under the caption "Impact of Inflation, Changing Prices, and Monetary Policies."
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of
1934, as amended). Based on this evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective in timely alerting them to material
information relating to the Company required to be included in the Company's
periodic filings with the Securities and Exchange Commission. It should be noted
that in designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. The Company has designed its disclosure controls and procedures to
reach a level of reasonable assurance of achieving the desired control
objectives and, based on the evaluation described above, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective at reaching that level of
reasonable assurance.
26.
UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(In Thousands, Except Per Share Data)
--------------------------------------------------------------------------------
There was no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended) during the Company's most recently completed
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
27.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business the Company may be involved in various
legal proceedings from time to time. The Company does not believe it is
currently involved in any claim or action the ultimate disposition of which
would have a material adverse effect on the Company's financial statements.
Item 1A. Risk Factors
The Company did not experience any material changes in the Risk Factors
during the Company's most recently completed fiscal quarter. For specific
information about the risks facing the Company refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 2005.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information about purchases of the
Company's common stock by the Company during the quarter ended March 31, 2006.
================================================================================================================
Total Number of
Shares Purchased as Maximum Number of
Part of Publicly Shares that May Yet
Total Number of Average Price Paid Announced Plans or Be Purchased Under
Period Shares Purchased per Share Programs the Plans or Programs
================================================================================================================
01/01/06 - -- -- -- 108,907
01/31/06
================================================================================================================
02/01/06 - 57,400 $21.14 57,400 51,507
02/28/06
================================================================================================================
03/01/06 - 20,225 $21.00 20,225 219,282
03/31/06
================================================================================================================
Total (1) (2) 77,625 $21.10 77,625 219,282
================================================================================================================
(1) The Company repurchased 77,625 shares at an average price per
share of $21.10 of our common stock during the quarter ended
March 31, 2006 pursuant to the Company's current repurchase
program. The current repurchase program approved on June 16, 2005
provides for the repurchase by us of up to an aggregate of 5% of
the outstanding shares of our common stock. The expiration date
of this program is May 2, 2006. Unless terminated earlier by
resolution of our board of directors, the program will expire on
the earlier of such expiration date or when we have repurchased
all shares authorized for repurchase under the program.
(2) On March 23, 2006, our board of directors approved an additional
5% stock repurchase program that will begin when the existing
plan approved on June 16, 2005 is completed. Under the new plan,
the Company will repurchase over an 18-month period up to
approximately 188,000 shares of its outstanding shares of common
stock in the open market or in private transactions.
28.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits:
31.1 Certification of Scott A. Yeoman, President and Principal
Executive Officer, required by Rule 13a - 14(a).
31.2 Certification of Kurt R. Stevenson, Senior Executive Vice
President and Principal Financial and Accounting Officer
required by Rule 13a - 14(a).
32.1(1) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
from the Company's President and Principal Executive Officer.
32.2(1) Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
from the Company's Senior Executive Vice President and
Principal Financial and Accounting Officer.
----------------
(1) This certification is not "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended, or incorporated
by reference into any filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended.
29.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNIONBANCORP, INC.
Date: May 12, 2006 By: /s/ SCOTT A. YEOMAN
-------------------------------------
Scott A. Yeoman
President and Principal Executive
Officer
Date: May 12, 2006 By: /s/ KURT R. STEVENSON
-------------------------------------
Kurt R. Stevenson
Senior Executive Vice President and
Principal Financial and Accounting
Officer
30.