Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
_______________________
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 0-19214
___________________
UNION NATIONAL FINANCIAL CORPORATION
_________________________________________________________________
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania 23-2415179
_______________________________ _______________________
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
101 East Main Street, P.O. Box 567
Mount Joy, Pennsylvania 17552
______________________________________ ___________
(Address of Principal Executive Offices) (Zip Code)
(717) 653-1441
_________________________________________________________________
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.25 Par Value
_________________________________________________________________
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
_______________________
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the shares of Common Stock of the
Registrant held by nonaffiliates of the Registrant was
$48,187,572 as of March 23, 1998. As of March 23, 1998, the
Registrant had 2,412,308 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Excerpts from Registrant's 1997 Annual Report to Stockholders
(the "1997 Annual Report") are incorporated by reference into
Parts I, II and IV, hereof. The Registrant's Proxy Statement for
its 1998 Annual Meeting is incorporated by reference in response
to Parts III and IV, hereof.
UNION NATIONAL FINANCIAL CORPORATION
FORM 10-K
INDEX
PAGE N0.
PART I
Item 1 - Business 1
Item 2 - Properties 10
Item 3 - Legal Proceedings 12
Item 4 - Submission of Matters to a Vote of
Security Holders 12
PART II
Item 5 - Market for Registrant's Common Equity and
Related Shareholder Matters 12
Item 6 - Selected Financial Data 12
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 13
Item7A- Quantitative and Qualitative About Market Risk
13
Item 8 - Financial Statements and Supplementary Data 13
Item 9 - Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure 13
PART III
Item 10 - Directors and Executive Officers of the
Registrant 13
Item 11 - Executive Compensation 14
Item 12 - Security Ownership of Certain Beneficial
Owners and Management 14
Item 13 - Certain Relationships and Related
Transactions 14
PART IV
Item 14 - Exhibits, Financial Statements, Schedules
and Reports on Form 8-K 14
Signatures 17
Exhibit Index 19
PART I
ITEM 1. BUSINESS.
_______ __________
Union National Financial Corporation (the "Registrant"), a
Pennsylvania business corporation, is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended
(the "BHC Act") and is supervised by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The
Registrant was incorporated on June 26, 1986, under the Business
Corporation Law of the Commonwealth of Pennsylvania. The
Registrant commenced operations on January 2, 1987, upon
consummation of the acquisition of all of the outstanding shares
of The Union National Mount Joy Bank, which effective February 6,
1998, changed its name to Union National Community Bank (the
"Bank"). The Registrant's business consists primarily of
managing and supervising the Bank, and its principal source of
income is dividends paid by the Bank. The Registrant has one
wholly-owned subsidiary, the Bank.
The Bank was organized in 1865 under a national charter. The
Bank is a national banking association and a member of the
Federal Reserve System. The deposits of the Bank are insured by
the Federal Deposit Insurance Corporation (the "FDIC") to the
maximum extent permitted by law. The Bank, having one main
office with an annex and six branch locations within Lancaster
County, Pennsylvania, is a full service commercial bank,
providing a wide range of services to individuals and small to
medium-sized businesses in its south central Pennsylvania market
area, including accepting time, demand, and savings deposits and
making secured and unsecured commercial, real estate and consumer
loans. The Bank also has a full-service trust department.
The Registrant's executive offices are located at 101 East
Main Street, P.O. Box 567, Mount Joy, Pennsylvania 17552
(telephone number: (717) 653-1441).
The Registrant may include forward-looking statements
relating to such matters as anticipated financial performance,
business prospects, technological developments, new products,
research and development activities and similar matters in this
and other filings with the Commission. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the
safe harbor, the Registrant notes that a variety of factors could
cause the Registrant's actual results and experience to differ
materially from the anticipated results or other expectations
expressed in the Registrant's forward-looking statements. The
risks and uncertainties that may affect the operations,
performance, development and results of the Registrant's business
include the following: general economic conditions, including
their impact on capital expenditures; business conditions in the
banking industry; the regulatory environment; rapidly changing
technology and evolving banking industry standards; competitive
factors, including increased competition with community, regional
and national financial institutions; new service and product
offerings by competitors and price pressures; and similar items.
The Registrant operates in a heavily regulated environment.
Changes in laws and regulations affecting the Registrant and it's
subsidiary, the Bank, may have an impact on operations. See
"Supervision and Regulation The Registrant" and "Supervision and
Regulation The Bank" and page 27 of the 1997 Annual Report, which
page is included at Exhibit 13 hereto, and incorporated herein by
reference.
The Registrant experiences substantial competition in
attracting and retaining deposits and in lending funds. Primary
factors in competing for deposits are the ability to offer
attractive rates and the convenience of office locations. Direct
competition for deposits comes primarily from other commercial
banks and thrift institutions. Competition for deposits also
comes from money market mutual funds, corporate and government
securities and credit unions. The primary factors in the
competition for loans are interest rates, loan origination fees
and the range of products and services offered. Competition for
origination of real estate loans normally comes from other
commercial banks, thrift institutions, mortgage bankers, mortgage
brokers and insurance companies.
For additional information with respect to the Registrant's
business activities, see Part II, Item 7 hereof. Certain
significant regulatory matters are discussed below.
Supervision and Regulation - The Registrant
___________________________________________
The Registrant is subject to the provisions of the BHC Act,
and to supervision by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The BHC Act
requires that the Registrant secure the prior approval of the
Federal Reserve Board before it owns or controls, directly or
indirectly, more than 5 percent of the voting shares or
substantially all of the assets of any institution, including
another bank. In addition, the BHC Act has been amended by the
Riegle-Neal Interstate Banking and Branching Efficiency Act,
which amended the BHC Act, permits bank holding companies to
acquire a bank located in any state subject to certain
limitations and restrictions as more fully described below.
A bank holding company is prohibited from engaging in or
acquiring direct or indirect control of more than 5 percent of
the voting shares of any company engaged in non-banking
activities unless the Federal Reserve Board, by order or
regulation, has found such activities to be so closely related to
banking or managing or controlling banks as to be a proper
incident thereto. In making this determination, the Federal
Reserve Board considers whether the performance of these
activities by a bank holding company would offer benefits to the
public that outweigh possible adverse effects.
Federal law also prohibits acquisitions of control of a bank
holding company without prior notice to certain federal bank
regulators. Control is defined for this purpose as the power,
directly or indirectly, to direct the management or policies of
the bank or bank holding company or to vote 25 percent or more of
any class of voting securities.
Subsidiary banks of a bank holding company are subject to
certain restrictions imposed by the Federal Reserve Act on any
extensions of credit to the bank holding company or any of its
subsidiaries, on investments in the stock or other securities of
the bank holding company and on taking of such stock or
securities as collateral for loans to any borrower.
Permitted Activities. The Federal Reserve Board permits bank
____________________
holding companies to engage in certain activities so closely
related to banking or managing or controlling banks as to be a
proper incident thereto. Other than making equity investments in
low to moderate income housing limited partnerships, the
Registrant does not at this time engage in any other permissible
activities, nor does the Registrant have any current plans to
engage in any other permissible activities in the foreseeable
future.
Legislation and Regulatory Changes. From time to time,
__________________________________
legislation is enacted which has the effect of increasing the
cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and
other financial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks, bank
holding companies and other financial institutions are frequently
made in Congress, and before various bank regulatory agencies.
Management cannot predict the likelihood of any major changes or
the impact such changes might have on the Registrant and its
subsidiary bank. Certain changes of potential significance to
the Registrant which have been enacted recently and others which
are currently under consideration by Congress or various
regulatory or professional agencies are discussed below.
The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking and Branch Act") permitted
interstate banking after September 29, 1995. Bank holding
companies, pursuant to an amendment to the BHC Act, can acquire a
bank located in any state, as long as the acquisition does not
result in the bank holding company controlling more than 10
percent of the deposits in the United States, or 30 percent of
the deposits in the target bank's state. The legislation permits
states to waive the concentration limits and require that the
target institution be in existence for up to five years before it
can be acquired by an out-of-state bank or bank holding company.
Interstate branching and merging of existing banks is permitted
after three years from the enactment of the Interstate Banking
and Branching Act, if the bank is adequately capitalized and
demonstrates good management. Branch merging will be permitted
earlier if a state undertakes to enact a law which allows it and
states may also enact a law to permit banks to branch de novo.
See also, page 27 of Registrant's 1997 Annual Report, which page
is included in Exhibit 13, hereto, and incorporated herein by
reference. The Interstate Banking and Branching Act also amends
the International Banking Act to allow a foreign bank to
establish and operate a federal branch or agency upon approval of
the appropriate federal and state banking regulator. As a
national bank, the Bank currently can relocate its main office
across state lines by utilizing a provision in the National Bank
Act which permits such relocation to a location not more than
thirty miles from its existing main office. In effect, a
national bank can thereby move across state lines as long as the
relocation does not exceed thirty miles, and also retain as
branches the offices located in the original state.
The Federal Reserve Board, the FDIC and the Comptroller of
the Currency (the "Comptroller") have issued certain risk-based
capital guidelines, which supplement existing capital
requirements. The guidelines require all United States banks and
bank holding companies to maintain a minimum risk-based capital
ratio of 8 percent (of which at least 4 percent must be in the
form of common stockholders' equity). Assets are assigned to
five risk categories, with higher levels of capital required for
the categories perceived as representing greater risk. The
required capital will represent equity and (to the extent
permitted) nonequity capital as a percentage of total
risk-weighted assets. The risk-based capital rules are designed
to make regulatory capital requirements more sensitive to
differences in risk profiles among banks and bank holding
companies and to minimize disincentives for holding liquid
assets. On the basis of an analysis of the rules and the
projected composition of the Registrant's consolidated assets,
management does not believe that the risk-based capital rules
have a material effect on the Registrant's business and capital
plans. The Bank has capital ratios exceeding the regulatory
requirements. See also, pages 26 and 27 of Registrant's 1997
Annual Report for information concerning the Registrant's actual
ratios, which page is included at Exhibit 13, hereto, and
incorporated herein by reference.
The United States Supreme Court recently rendered a decision
in favor of nationwide insurance sales by banks. The decision
also bars states from blocking insurance sales by national banks
in towns with populations of no more than 5,000. Subsequent to
the Supreme Court's ruling, the Office of the Comptroller of the
Currency has issued draft guidelines for national banks to sell
insurance.
Pending Legislation. Management cannot anticipate what
___________________
changes Congress may enact or, if enacted, their impact on the
Registrant's financial position and reported results of
operation. As a consequence of the extensive regulation of
commercial banking activities in the United States, the
Registrant's and the Bank's business is particularly susceptible
to being affected by federal and state legislation and
regulations that may increase the costs of doing business. See
also, page 27 of Registrant's 1997 Annual Report, which page is
included at Exhibit 13, hereto, and incorporated herein by
reference.
Effects of Inflation. Inflation has some impact on the
_____________________
Registrant's and the Bank's operating costs. Unlike many
industrial companies, however, substantially all of the Bank's
assets and liabilities are monetary in nature. As a result,
interest rates have a more significant impact on the Registrant's
and the Bank's performance than the general level of inflation.
Over short periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as prices of
goods and services.
Monetary Policy. The earnings of the Registrant and the Bank
_______________
are affected by domestic economic conditions and the monetary and
fiscal policies of the United States Government and its agencies.
An important function of the Federal Reserve System is to
regulate the money supply and interest rates. Among the
instruments used to implement those objectives are open market
operations in United States government securities and changes
in reserve requirements against member bank deposits. These instruments are
used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may also affect
rates charged on loans or paid for deposits.
The Bank is a member of the Federal Reserve System and,
therefore, the policies and regulations of the Federal Reserve
Board have a significant effect on its deposits, loans and
investment growth, as well as the rate of interest earned and
paid, and are expected to affect the Bank's operations in the
future. The effect of such policies and regulations upon the
future business and earnings of the Registrant and the Bank
cannot be predicted.
Federal Taxation. The Registrant and the Bank are subject to
________________
those rules of federal income taxation generally applicable to
corporations and report their respective income and expenses on
the accrual method of accounting. The Registrant and its
subsidiaries file a consolidated federal income tax return on a
calendar year basis. Intercompany distributions (including
dividends) and certain other items of income and loss derived
from intercompany transactions are eliminated upon consolidation
of all the consolidated group members' respective taxable income
and losses.
The Internal Revenue Code (the "IRC") imposes a corporate
alternative minimum tax (AMT). The corporate AMT only applies if
such tax exceeds a corporation's regular tax liability. In
general, the tentative AMT is calculated by multiplying the
corporate AMT rate of 20% by an amount equal to the excess of (i)
the sum of (a) regular taxable income plus (b) certain
adjustments, as provided in IRC Sections 56 and 58, and tax
preference items, as provided in IRC Section 57 ("alternative
minimum taxable income" or "AMTI") over (ii) an exemption amount
($40,000 for a corporation, that such amount is reduced by 25% of
the excess of AMTI over $150,000 and is completely eliminated
when AMTI equals $310,000). The excess of the tentative AMT over
the regular tax for the taxable year is the taxpayer's net
minimum tax liability.
State Tax. The Registrant is subject to the Pennsylvania
__________
Corporate Net Income Tax and Capital Stock Tax. The Corporate
Net Income Tax rate for 1996 and thereafter is 9.99% and is
imposed upon a corporate taxpayer's unconsolidated taxable income
for federal tax purposes with certain adjustments. In general,
the Capital Stock Tax is a property tax imposed on a corporate
taxpayer's capital stock value apportionable to the Commonwealth
of Pennsylvania, which is determined in accordance with a fixed
formula based upon average book income and net worth. In the
case of a holding company, an optional elective method permits
the corporate taxpayer to be taxed on only 10% of such capital
stock value. The Capital Stock Tax rate is presently 1.275%.
Environmental Laws. Neither the Registrant nor the Bank
___________________
anticipate that compliance with environmental laws and
regulations will have any material effect on capital,
expenditures, earnings, or on its competitive position. However,
environmentally related hazards have become a source of high risk
and potentially unlimited liability for financial institutions.
Environmentally contaminated properties owned by an institution's
borrowers may result in a drastic reduction in the value of the
collateral securing the institution's loans to such borrowers,
high environmental clean up costs to the borrower affecting its ability to
repay the loans, the subordination of any lien in favor of the institution
to a state or federal lien securing clean up costs, and liability to the
institution for clean up costs if it forecloses on the
contaminated property or becomes involved in the management of
the borrower. To minimize this risk, the Bank may require an
environmental examination of and report with respect to the
property of any borrower or prospective borrower if circumstances
affecting the property indicate a potential for contamination,
taking into consideration a potential loss to the institution in
relation to the borrower. Such examination must be performed by
an engineering firm experienced in environmental risk studies and
acceptable to the institution, and the cost of such examinations
and reports are the responsibility of the borrower. These costs
may be substantial and may deter prospective borrower from
entering into a loan transaction with the Bank. The Registrant
is not aware of any borrower who is currently subject to any
environmental investigation or clean up proceeding that is likely
to have a material adverse effect on the financial condition or
results of operations of the Bank.
In 1995, the Pennsylvania General Assembly enacted the
Economic Development Agency, Fiduciary and Lender Environmental
Liability Protection Act which, among other things, provides
protection to lenders from environmental liability and
remediation costs under the environmental laws for releases and
contamination caused by others. A lender who engages in
activities involved in the routine practices of commercial
lending, including, but not limited to, the providing of
financial services, holding of security interests, workout
practices, foreclosure or the recovery of funds from the sale of
property shall not be liable under the environmental acts or
common law equivalents to the Pennsylvania Department of
Environmental Resources or to any other person by virtue of the
fact that the lender engages in such commercial lending practice.
A lender, however, will be liable if it, its employees or agents,
directly cause an immediate release or directly exacerbate a
release of regulated substances on or from the property, or
knowingly and willfully compelled the borrower to commit an
action which caused such release or violate an environmental act.
The Economic Development Agency, Fiduciary and Lender
Environmental Liability Protection Act, however, does not limit
federal liability which still exists under certain circumstances.
As discussed above, there are several federal and state
statutes that regulate the obligations and liabilities of
financial institutions pertaining to environmental issues. In
addition to the potential for attachment of liability resulting
from its own actions, a bank may be held liable under certain
circumstances for the actions of its borrowers, or third parties,
when such actions result in environmental problems on properties
that collateralize loans held by the Bank. Further, the
liability has the potential to far exceed the original amount of
the loan issued by the Bank. Currently, neither the Registrant
nor the Bank is a party to any pending legal proceeding pursuant
to any environmental
statute, nor is the Registrant or the Bank aware of any circumstances
that may give rise to liability under any such statute.
Supervision and Regulation - Bank
_________________________________
The operations of the Bank are subject to federal and state
statutes applicable to banks chartered under the banking laws of
the United States, to members of the Federal Reserve System
and to banks whose deposits are insured by the FDIC. Bank
operations are also subject to regulations of the Comptroller,
the Federal Reserve Board and the FDIC.
The primary supervisory authority of the Bank is the
Comptroller, which regulates and examines the Bank. The
Comptroller has the authority under the Financial Institutions
Supervisory Act to prevent a national bank from engaging in an
unsafe or unsound practice in conducting its business.
Federal and state banking laws and regulations govern, among
other things, the scope of a bank's business, the investments a
bank may make, the reserves against deposits a bank must
maintain, loans a bank makes and collateral it takes, the maximum
interest rates a bank may pay on deposits, the activities of a
bank with respect to mergers and consolidations and the
establishment of branches.
As a subsidiary of a bank holding company, the Bank is
subject to certain restrictions imposed by the Federal Reserve
Act on any extensions of credit to the parent bank holding
company or its subsidiaries, on investments in the stock or other
securities of the bank holding company or its subsidiaries and on
taking such stock or securities as collateral for loans. The
Federal Reserve Act and Federal Reserve Board regulations also
place certain limitations and reporting requirements on
extensions of credit by a bank to principal shareholders of its
parent holding company, among others, and to related interests of
such principal shareholders. In addition, such legislation and
regulations may affect the terms upon which any person becoming a
principal shareholder of a holding company may obtain credit from
banks with which the subsidiary bank maintains a correspondent
relationship.
Federal Deposit Insurance Act. Under the Federal Deposit
_____________________________
Insurance Act, the Comptroller possesses the power to prohibit
institutions regulated by it (such as the Bank) from engaging in
any activity that would be an unsafe or unsound banking practice
or would otherwise be in violation of the law.
Community Reinvestment Act. In 1995, federal regulators
__________________________
revised the Community Reinvestment Act ("CRA") rules to emphasize
performance over process and documentation. Under the revised
rules, a five-point rating scale is used; A bank's compliance is
determined by a three-prong test whereby examiners assign a
numerical score for a bank's performance in each of three areas:
lending, service and investment. The area of lending is weighted
to increase its importance in the application of the test. When
rating a bank in the area of lending, regulators examine
the number and amount of loan originations, the location of where the
loans were made, and the income levels of the borrowers.
Although banks, under the revised rules, are not required to make
loans in every area, if there are apparent tracts in which there
is little lending, examiners will focus their investigations in
that area. The service prong evaluates how a bank delivers its
products to the community through branching. As with lending,
banks are not required to branch in every area, although
conspicuous gaps will be investigated. The third prong,
investment in community, examines how the bank meets the
investment needs in the community within which it operates.
Assessment of investment is accomplished using a "performance
context" pursuant to which regulators meet with civic, community
and bank officials in order to determine the credit needs of the
community.
Home Mortgage Disclosure Act. Expanded Home Mortgage
____________________________
Disclosure Act reporting requirements were also approved for
large banks and thrifts which require reporting of census tract
data on mortgages made outside of the delineated communities. In
addition, effective March 1, 1997, institutions with assets above
$250 million were required to report their aggregate small
business loans made by geographic region. Independent banks with
total assets of less than $250 million and bank subsidiaries with
total assets of less than $250 million that have holding
companies with total assets of less than $1 billion are subjected
to less stringent CRA examinations.
Under the new regulation, banks enjoy a reduction in
compliance burden. Banks are not required to keep extensive
documentation to prove that directors have participated in
drafting and review of CRA policies. A formal CRA statement need
not be prepared. The efforts banks make to market in low - and
moderate-income communities do not have to be documented, nor
will banks have to justify the basis for their community
delineation or the methods used to determine the credit needs of
the community.
Bank Security Act. Under the Bank Secrecy Act ("BSA"), banks
_________________
and other financial institutions are required to report to the
Internal Revenue Service currency transactions of more than
$10,000 or multiple transactions of which the Bank is aware in
any one day that aggregate in excess of $10,000. Civil and
criminal penalties are provided under the BSA for failure to file
a required report, for failure to supply information required by
the BSA or for filing a false or fraudulent report.
Federal Deposit Insurance Corporation Improvement Act of
________________________________________________________
1991. Under the Federal Deposit Insurance Corporation
____
Improvement Act of 1991 ("FDICIA") institutions must be
classified in one of five defined categories as illustrated below
(well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized).
Total Tier 1 Under a
Risk- Risk- Tier 1 Capital
Based Based Leverage Order or
Ratio Ratio Ratio Directive
_______ ______ ______ __________
CAPITAL CATEGORY
Well capitalized >10.0 >6.0 >5.0 No
Adequately capitalized > 8.0 >4.0 >4.0*
Undercapitalized < 8.0 <4.0 <4.0*
Significantly
undercapitalized < 6.0 <3.0 <3.0
Critically
undercapitalized <2.0
*3.0 for those banks having the highest available regulatory
rating.
In the event an institution's capital deteriorates to the
undercapitalized category or below, FDICIA prescribes an
increasing amount of regulatory intervention, including: (1) the
institution by a bank of a capital restoration plan and a
guarantee of the plan by a parent institution; and (2) the
placement of a hold on increases in assets, number of branches or
lines of business. If capital has reached the significantly or
critically undercapitalized levels, further material restrictions
can be imposed, including restrictions on interest payable on
accounts, dismissal of management and (in critically
undercapitalized situations) appointment of a receiver. For well
capitalized institutions, FDICIA provides authority for
regulatory intervention where the institution is deemed to be
engaging in unsafe or unsound practices or receives a less than
satisfactory examination report rating for capital, asset
quality, management, earnings, liquidity or sensitivity to market
risk. All but well capitalized institutions are prohibited from
accepting brokered deposits without prior regulatory approval.
Under FDICIA, financial institutions are subject to increased
regulatory scrutiny and must comply with certain operational,
managerial and compensation standards to be developed by Federal
Reserve Board regulations. FDICIA also requires the regulators
to issue new rules establishing certain minimum standards to
which an institution must adhere including standards requiring a
minimum ratio of classified assets to capital, minimum earnings
necessary to absorb losses and minimum ratio of market value to
book value for publicly held institutions. Additional
regulations are required to be developed relating to internal
controls, loan documentation, credit underwriting, interest rate
exposure, asset growth and excessive compensation, fees and
benefits.
Truth-In-Savings. A separate subtitle within FDICIA,
________________
called the "Bank Enterprise Act of 1991", requires "truth-in-savings" on
consumer deposit accounts so that consumers can make
meaningful comparisons between the competing claims of banks with
regard to deposit accounts and products. Under this provision,
the Bank is required to provide information to depositors
concerning the terms of their deposit accounts, and in
particular, to disclose the annual percentage yield. There are
some operational costs of complying with the Truth-In-Savings
law.
Management believes that full implementation of FDICIA
has had no material impact on liquidity, capital resources or
reported results of operation. If FDIC insurance premiums
assessments increase in the future, Management believes such
future increase may have a material impact on future reported
results of operations.
Other. From time to time, various types of federal and
______
state legislation have been proposed that could result in
additional regulation of, and restrictions on, the business of
the Bank. It cannot be predicted whether any such legislation
will be adopted or, if adopted, how such legislation would affect
the business of the Bank. As a consequence of the extensive
regulation of commercial banking activities in the United States,
the Bank's business is particularly susceptible to being affected
by federal legislation and regulations that may increase the
costs of doing business.
Statistical Data. The information required by this Item
________________
is incorporated by reference from pages 15 through 27 of the
Registrant's 1997 Annual Report.
Employees. As of March 23, 1998, the Bank had 93 full-
__________
time employees and 17 part-time employees. None of these
employees is represented by a collective bargaining agent, and
the Registrant believes it enjoys good relations with its
personnel.
ITEM 2. PROPERTIES.
_______ ____________
The Bank owns its main office, five branch offices, the
administration services center and certain parking facilities
related to its banking offices, all of which are free and clear
of any lien. The Bank's main office is located in the central
business district of Mount Joy, Pennsylvania. Below is a table
containing the location and date of acquisition of the Bank's
properties. In addition, the Bank leases office space for one
branch office located in Manheim, Pennsylvania.
PROPERTIES OWNED BY THE BANK
Office and Address Description of Property Date Acquired
__________________ _______________________ ________________
Main Office Main Bank Office 1911
101 East Main Street Cut limestone and brick.
Mount Joy, PA 17552 1995 addition is concrete
over steel construction.
Containing approximately
a total of 22,251 sq. ft.
of space.
Main Office AnnexWood frame
115 East Main Street construction September, 1992
Mount Joy, PA 17552 with aluminum siding.
Containing approximately
1,632 sq. ft. of space.
Maytown Branch Office Branch Bank April, 1972
100 West High Street Brick veneer, shingled roof
Maytown, PA 17550 with wood trusses. Containing
approximately 4,960 sq. ft.
of space.
Hempfield Branch Office Branch Bank June, 1979
190 Stony Battery Road Brick with wood shingle roof.
Salunga, PA 17538 Containing approximately
4,619 sq. ft. of space.
Elizabethtown Branch Branch Bank January, 1988
Office Brick veneer, shingled roof
1275 South Market Street with wood trusses.
Elizabethtown PA 17022 Containing approximately
6,668 sq. ft. of space.
Motor Bank Branch Office Drive-up Bank Branch November, 1972
21 North Barbara Street Brick on frame.
Mount Joy, PA 17552 Containing approximately
445 sq. ft. of space.
Administration Services Brick on concrete block December, 1984
Center with wood and steel frame.
Bank Administration Containing approximately
Building 9,398 sq. ft. of space.
25 North Barbara Street
Mount Joy, PA 17552
Columbia Branch Office Branch Bank October, 1992
921 Lancaster Avenue One story brick building
Columbia, PA 17512 containing approximately
2,257 sq. ft. of space.
PROPERTY LEASED BY THE BANK
Office and Address Description of Property Date Leased
_____________________ ________________________ _____________
Manheim Branch Office Concrete block building January, 1995
701 Lancaster Road containing 4,266 sq. ft.
Manheim, PA 17545 of space of which approximately
2,600 sq. ft. of space is
currently used for banking
purposes.
In management's opinion, the above properties are in good
condition and are adequate for the Bank's purposes.
ITEM 3. LEGAL PROCEEDINGS.
_______ __________________
Management, after consulting with the Registrant's legal
counsel, is not aware of any litigation that would have a
material adverse effect on the consolidated financial position of
the Registrant. There are no proceedings pending other than
ordinary routine litigation incident to the business of the
Registrant and its subsidiary, the Bank. In addition, no
material proceedings are known to be contemplated by governmental
authorities against the Registrant or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
_______ ____________________________________________________
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
_______ _________________________________________________
STOCKHOLDER MATTERS.
____________________
Market and dividend information required by this Item is
incorporated by reference herein, from the inside front cover of
the Registrant's 1997 Annual Report. The Registrant's common
stock is traded on a very limited basis in the local over-the-counter market.
Bid and asked information is not regularly
quoted. Information concerning actual trades is included on the
inside front cover of the Registrant's 1997 Annual Report. This
information represents a limited amount of share transfer
activity.
The Registrant and, prior to the Registrant's organization as
a bank holding company, the Bank paid regular cash dividends on
their common stock for more than thirty-five years. The
Registrant expects to pay future dividends, however, payment of
such dividends will depend upon earnings of the Registrant and of
the Bank, their financial condition, capital requirements and
other factors, such as regulatory and legal requirements. It is
anticipated that substantially all of the funds available for the
payment of dividends by the Registrant will be derived from
dividends paid to it by the Bank.
Additional information required by this Item regarding
dividend restrictions is incorporated by reference herein, from
page 11 of the Registrant's 1997 Annual Report, which page is
included in Exhibit 13, attached hereto.
As of March 23, 1998, there were approximately 898 holders of
record of the Registrant's common stock.
ITEM 6. SELECTED FINANCIAL DATA.
_______ ________________________
The information required by this Item is incorporated by
reference herein, from page 16 of the Registrant's 1997 Annual
Report, which page is included in Exhibit 13, attached hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
_______ _________________________________________________
CONDITION AND RESULTS OF OPERATION.
___________________________________
The information required by this Item is incorporated by
reference herein, from pages 17 through 27 of the Registrant's
1997 Annual Report, which page is included in Exhibit 13,
attached hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
_______ ____________________________________________________
RISK.
_____
The information required by this Item is incorporated by
reference herein, from pages 24 and 25 of the Registrant's 1997
Annual Report, which page is included in Exhibit 13, attached
hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
_______ ____________________________________________
The information required by this Item is incorporated by
reference herein, from pages 2 through 15 of the Registrant's
1997 Annual Report, which page is included in Exhibit 13,
attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
_______ _________________________________________________
ACCOUNTING AND FINANCIAL DISCLOSURE.
____________________________________
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
________ ___________________________________________________
The information required by this Item is incorporated by
reference herein, from pages 6 through 9 and pages 16 through 18
of the Registrant's Proxy Statement for its 1998 Annual Meeting
of Shareholders.
Section 16(a) Beneficial Ownership Compliance. Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the
Registrant's officers and directors, and persons who own more
than 10 percent of a registered class of the Registrant's equity
securities, to file reports of ownership and changes in ownership
with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater than 10 percent shareholders are
required by SEC regulation to furnish the Registrant with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms
received by it or written representations from certain reporting
persons, the Registrant believes that during the period January
1, 1997 through December 31, 1997, its officers and directors
were in compliance with all filing requirements applicable to
them.
ITEM 11. EXECUTIVE COMPENSATION.
________ ______________________
The information required by this Item is incorporated by
reference herein, from pages 9 through 13 of the Registrant's
Proxy Statement for its 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
________ ____________________________________________________
MANAGEMENT.
___________
The information required by this Item is incorporated by
reference herein, from pages 3 through 5 and pages 16 and 17 of
the Registrant's Proxy Statement for its 1998 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
_______ _______________________________________________
The information required by this Item is incorporated by
reference herein, from pages 15 and 16 of the Registrant's Proxy
Statement for its 1998 Annual Meeting of Shareholders.
PART IV
________
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
________ _____________________________________________________
ON FORM 8-K.
____________
(a) 1. Financial Statements.
The following financial statements are
included by reference in Part II, Item 8
hereof.
Independent Auditors' Report.
Consolidated Balance Sheets.
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Changes in
Stockholders' Equity
Notes to Consolidated Financial
Statements
2. The financial statement schedules
required by this Item are omitted because
the information is either inapplicable,
not required or is in the consolidated
financial statements as a part of this
Report.
3. The following Exhibits are filed
herewith, or incorporated by reference as
a part of this Report:
3(i) Registrant's Amended Articles of
Incorporation. (Incorporated by
reference to Exhibit 3(i) to
Registrant's Registration
Statement No. 333-27837
on Form S-8, filed with the
Commission on May 27, 1997.)
3(ii) Registrant's Amended By-laws.
(Incorporated by reference to
Exhibit 3(ii) to Registrant's
Registration Statement No. 333-
27837 on Form S-8, filed with
the Commission on May 27, 1997.)
10.1 Executive Employment Agreement
dated as of January 27, 1994,
between William E. Eby and
Union National Financial
Corporation, and addenda thereto.
10.2 Union National Financial
Corporation 1988 Stock Incentive
Plan. (Incorporated by Reference
to Registrant's Registration
Statement No. 333-27837 on Form
S-8, filed with the Commission
on May 27, 1997.)
10.3 Union National Financial
Corporation 1997 Stock
Incentive Plan. (Incorporated
by Reference to Registrant's
Registration Statement No. 333-
27837 on Form S-8, filed with
the Commission on May 27, 1997.)
11 Statement re: Computation of
Earnings Per Share.
(Incorporated by Reference to
the inside cover page of
Registrant's 1997 Annual Report,
which is included herein at
Exhibit 13.)
12 Statement re: Computation of
Ratios. (Incorporated by
Reference to page 16 of
Registrant's 1997 Annual Report,
which is included herein at
Exhibit 13.)
13 Excerpts from Registrant's 1997
Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) No Current Report on Form 8-K was filed by the
Registrant during the fourth quarter of the 1997
fiscal year.
(c) The exhibits required to be filed by this Item
are listed under Item 14(a)3, above.
(d) NOT APPLICABLE.
SIGNATURES
____________
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNION NATIONAL FINANCIAL CORPORATION
____________________________________
(Registrant)
By /s/ William E. Eby
____________________________
William E. Eby, President
and Chief Executive Officer
Date: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
DATE
____
By /s/ Donald H. Wolgemuth March 26, 1998
________________________
Donald H. Wolgemuth
Chairman of the Board of Directors
and Director
By /s/ William E. Eby March 26, 1998
________________________
William E. Eby
President, Chief Executive Officer and
Director (principal executive officer)
By /s/ Clement M. Hoober March 26, 1998
________________________
Clement M. Hoober, CPA,
Chief Financial Officer (principal
financial officer and principal
accounting officer)
By /s/ Franklin R. Eichler March 26, 1998
________________________
Franklin R. Eichler, Director
By /s/ E. Ralph Garber March 26, 1998
________________________
E. Ralph Garber, Director
By /s/ Mark D. Gainer March 26, 1998
________________________
Mark D. Gainer, Director and
Vice President
By /s/ Daniel C. Gohn March 26, 1998
________________________
Daniel C. Gohn, Director
By /s/ Carl R. Hallgren March 26, 1998
________________________
Carl R. Hallgren, Director
By /s/ David G. Heisey March 26, 1998
________________________
David G. Heisey, Director
By /s/ William D. Linkous March 26, 1998
________________________
William D. Linkous, Director
By /s/ Daniel H. Raffensperger March 26, 1998
________________________
Daniel H. Raffensperger, Director
By /s/ Benjamin W. Piersol, Jr. March 26, 1998
________________________
Benjamin W. Piersol, Jr., Director
EXHIBIT INDEX
Sequential Page
Exhibit Number in Manually
Number Signed Original
______ ______________________
3(i) Registrant's Amended Articles of Incorporation.
(Incorporated by reference to Exhibit 3(i)
to Registrant's Registration Statement No. 333-27837
on Form S-8, filed with the Commission on
May 27, 1997.)
3(ii) Registrant's Amended By-laws.
(Incorporated by reference to Exhibit 3(ii)
to Registrant's Registration Statement No. 333-27837
on Form S-8, filed with the Commission on
May 27, 1997.)
10.1 Executive Employment Agreement dated as of
January 27, 1994, between William E. Eby and
Union National Financial Corporation, and addenda
thereto.
10.2 Union National Financial Corporation 1988 Stock
Incentive Plan. (Incorporated by Reference to
Registrant's Registration Statement No. 333-27837
on Form S-8, filed with the Commission on
May 27, 1997.)
10.3 Union National Financial Corporation 1997 Stock
Incentive Plan. (Incorporated by Reference to
Registrant's Registration Statement No. 333-27837
on Form S-8, filed with the Commission on
May 27, 1997.)
11 Statement re: Computation of Earnings Per Share.
(Incorporated by Reference to the inside cover page
of Registrant's 1997 Annual Report, which is
included herein at Exhibit 13.)
12 Statement re: Computation of Ratios.
(Incorporated by Reference to page 16 of
Registrant's 1997 Annual Report, which is
included herein at Exhibit 13.)
13 Excerpts from Registrant's 1997 Annual
Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.