SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE AT OF 1934
Date of Report (Date of earliest event reported): November 19, 1999
GOLD BANC CORPORATION, INC.
(Exact name of registrant as specified in its charter)
KANSAS 0-28936 48-1008593
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) No.)
11301 Nall Avenue, Leawood, Kansas 66211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (913) 451-8050
None
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. OTHER EVENTS.
On August 9, 1999 Gold Banc Corporation, Inc. ("Gold Banc")
entered into an Agreement and Plan of Merger to acquire Union
Bankshares, Ltd., a Delaware corporation ("Union Bankshares").
Attached hereto as Exhibits 99.1 and 99.2 are certain financial
statements of Union Bankshares.
ITEM 7. FINANCIAL STATEMENTS AND OTHER EXHIBITS.
EXHIBITS NO. DESCRIPTION
23.1 Consent of Independent Certified Public Accountants.
99.1 Union Bankshares, Ltd. Consolidated Financial
Statements for the Years Ended December 31, 1998,
1997 and 1996 with Report of Independent Certified
Public Accountants.
99.2 Union Bankshares, Ltd. Consolidated Balance Sheet
as of September 30, 1999 (unaudited); Consolidated
Statements of Income and Cash Flows for the Nine
Months Ended September 30, 1999 and 1998
(unaudited).
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 hereunto duly authorized.
Dated: November 19, 1999.
GOLD BANC CORPORATION, INC.
By: /s/ J. Craig Peterson
J. Craig Peterson,
Chief Financial Officer
UNION BANKSHARES, LTD.
Independent Accountants' Report
and Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(Audited)
September 30, 1999 and 1998
(Unaudited)
<PAGE>
UNION BANKSHARES, LTD.
DECEMBER 31, 1998, 1997 AND 1996
(AUDITED)
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
TABLE OF CONTENTS
PAGE
INDEPENDENT ACCOUNTANTS' REPORT. . . . . . . . . . . . . . . . .F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets . . . . . . . . . . . . . . . . . . . . . .F-3
Statements of Income . . . . . . . . . . . . . . . . . . . . .F-5
Statements of Comprehensive Income (Loss). . . . . . . . . . .F-7
Statements of Stockholders' Equity . . . . . . . . . . . . . .F-8
Statements of Cash Flows . . . . . . . . . . . . . . . . . . F-10
Notes to Financial Statements. . . . . . . . . . . . . . . . F-12
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
Union Bankshares, Ltd.
Denver, Colorado
We have audited the accompanying consolidated balance sheets
of UNION BANKSHARES, LTD. as of December 31, 1998 and 1997, and
the related consolidated statements of income, comprehensive
income (loss), stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the 1998 and 1997 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of UNION BANKSHARES, LTD. as of
December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted
accounting principles.
As described in Note 1, in 1997, the Company retroactively
changed its method of computing earnings per share to adopt the
provisions of Financial Accounting Standards Board Statement No.
128.
Denver, Colorado
January 20, 1999
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
(UNAUDITED) DECEMBER 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
Cash and due from banks $14,528,000 $17,140,000 $18,914,000 $15,314,000
Federal funds sold 7,200,000 11,000,000 26,505,000 11,400,000
Total Cash and
Cash Equivalents 21,728,000 28,140,000 45,419,000 26,714,000
Held-to-maturity securities 34,045,000 25,786,000 27,469,000 27,929,000
Available-for-sale
securities 111,728,000 58,515,000 77,594,000 37,180,000
Other investments 1,949,000 970,000 988,000 916,000
Loans, net 166,440,000 125,625,000 144,517,000 120,659,000
Mortgage loans held for sale - 2,504,000 4,285,000 1,253,000
Excess of cost over fair
value of net assets
acquired, net of
amortization 6,765,000 2,551,000 7,169,000 2,720,000
Premises and equipment 3,245,000 2,030,000 3,276,000 1,378,000
Accrued interest receivable 2,451,000 1,636,000 1,542,000 1,353,000
Other assets 3,537,000 1,641,000 2,318,000 1,403,000
Total Assets $351,888,000 $249,398,000 $314,577,000 $221,505,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
(UNAUDITED) DECEMBER 31,
1999 1998 1998 1997
<S> <C> <C> <C> <C>
LIABILITIES
Deposits:
Demand $85,095,000 $67,038,000 $78,017,000 $57,565,000
NOW 26,865,000 18,009,000 25,852,000 18,914,000
Money Market 82,246,000 61,245,000 65,452,000 65,074,000
Savings 18,702,000 11,836,000 19,221,000 10,798,000
Time 79,251,000 58,935,000 83,108,000 37,725,000
Total Deposits 292,159,000 217,063,000 271,650,000 190,076,000
Notes payable 28,600,000 11,000,000 10,000,000 12,000,000
Guaranteed Preferred
Beneficial Interests in
Company's Debentures 10,304,000 --- 10,304,000 -
Accrued interest payable 338,000 252,000 471,000 187,000
Other liabilities 976,000 1,224,000 1,808,000 1,020,000
Total Liabilities 332,377,000 229,539,000 294,233,000 203,283,000
STOCKHOLDERS' EQUITY
Preferred stock,
$.001 par value; authorized
1,355,790 shares; issued
and outstanding
-0- shares - - - -
Common stock,
$.001 par value;
authorized
10,000,000 shares;
issued and outstanding
1998 - 2,342,014 shares;
1997 - 2,332,014 shares 2,000 2,000 2,000 2,000
Additional paid-in capital 9,672,000 9,610,000 9,639,000 9,583,000
Retained earnings 11,114,000 9,631,000 10,060,000 8,384,000
Accumulated other comprehensive
income:
Unrealized (depreciation)
appreciation on
available-for-sale
securities, net of
applicable
income taxes of
$(683,000); $347,000;
$365,000 and $116,000 in
1999, 1998, 1998 and 1997,
respectively (1,277,000) 616,000 643,000 253,000
Total Stockholders'
Equity 19,511,000 19,859,000 20,344,000 18,222,000
Total Liabilities
and Stockholders'
Equity $351,888,000 $249,398,000 $314,577,000 $221,505,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
1999 1998
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,033,000 $9,385,000
Interest on investment
securities:
U.S. government agencies and
corporations 5,201,000 2,189,000
State and other
political subdivisions 1,020,000 1,018,000
Interest on federal funds
sold and interest-bearing
deposits in other
banks 334,000 487,000
Total Interest
Income 17,588,000 13,079,000
INTEREST EXPENSE
Deposits 5,284,000 3,932,000
Federal funds purchased 137,000 2,000
Notes payable 1,458,000 582,000
Total Interest
Expense 6,879,000 4,516,000
NET INTEREST INCOME 10,709,000 8,563,000
PROVISION FOR LOAN LOSSES 102,000 243,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 10,607,000 8,320,000
NONINTEREST INCOME
Service charges 491,000 292,000
Gain on sale of
available-for-sale
securities, net 266,000 25,000
Other 531,000 398,000
Total Noninterest
Income 1,288,000 715,000
NONINTEREST EXPENSE
Salaries and employee
benefits 5,387,000 4,009,000
Amortization of excess
of cost over
fair value of net
assets acquired 404,000 170,000
Occupancy and
equipment 1,513,000 1,095,000
Other operating
expenses 3,023,000 2,273,000
Total Noninterest
Expense 10,327,000 7,547,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $12,585,000 $11,448,000 $9,404,000
Interest on investment securities:
U.S. government agencies and
corporations 3,121,000 2,887,000 2,215,000
State and other
political subdivisions 1,415,000 1,399,000 1,730,000
Interest on federal funds
sold and interest-bearing
deposits in other
banks 796,000 226,000 177,000
Total Interest Income 17,917,000 15,960,000 13,526,000
INTEREST EXPENSE
Deposits 5,519,000 4,121,000 3,736,000
Federal funds purchased 2,000 110,000 91,000
Notes payable 799,000 887,000 385,000
Total Interest Expense 6,320,000 5,118,000 4,212,000
NET INTEREST INCOME 11,597,000 10,842,000 9,314,000
PROVISION FOR LOAN LOSSES 278,000 360,000 285,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 11,319,000 10,482,000 9,029,000
NONINTEREST INCOME
Service charges 405,000 371,000 368,000
Gain on sale of
available-for-sale
securities, net 43,000 101,000 162,000
Other 514,000 486,000 507,000
Total Noninterest
Income 962,000 958,000 1,037,000
NONINTEREST EXPENSE
Salaries and employee
benefits 5,311,000 4,477,000 3,994,000
Amortization of excess
of cost over
fair value of net
assets acquired 232,000 226,000 226,000
Occupancy and
equipment 1,537,000 1,232,000 1,223,000
Other operating
expenses 3,187,000 2,518,000 2,173,000
Total Noninterest
Expense 10,267,000 8,453,000 7,616,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C>
INCOME BEFORE INCOME
TAXES AND
EXTRAORDINARY ITEM 1,568,000 1,488,000 2,014,000 2,987,000 2,450,000
INCOME TAXES 514,000 240,000 377,000 851,000 540,000
INCOME BEFORE
EXTRAORDINARY ITEM 1,054,000 1,248,000 1,637,000 2,136,000 1,910,000
EXTRAORDINARY ITEM
Loss on early
extinguishment of
debt (net of
applicable income
taxes of $201,000) - - - - 337,000
NET INCOME $1,054,000 $1,248,000 $1,637,000 $2,136,000 $1,573,000
EARNINGS PER SHARE
BASIC
Income before
extraordinary
item $.45 $.53 $.70 $.92 $.83
Extraordinary item, net $-- $ -- $-- $-- $(.15)
Net income $ .45 $ .53 % .70 $ .92 $ .68
Weighted average
number of
common shares
outstanding 2,348,875 2,338,446 2,339,119 2,317,056 2,298,804
DILUTED
Income before
extraordinary
item $.40 $.47 $.62 $.84 $.79
Extraordinary item,
net $-- $ -- $ -- $ -- $ (.14)
Net income $ .40 $ .47 $ .62 $ .84 $ .65
Weighted average number
of common shares
outstanding 2,634,270 2,630,620 2,622,753 2,534,904 2,415,488
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) YEAR ENDED DECEMBER 31,
1999 1998 1998 1997 1996
<S> <C> <C> <C> <C> <C>
NET INCOME $1,054,000 $1,248,000 $1,637,000 $2,136,000 $1,573,000
OTHER COMPREHENSIVE
INCOME (LOSS)
Unrealized appreciation
(depreciation) on
available-for-sale
securities, net of
income taxes of
$(1,194,000),
$221,000, $195,000,
$-0-, and $(214,000)
for September 30, 1999
and 1998 and
December 31, 1998,
1997, and
1996, respectively (2,087,000) 347,000 416,000 - (360,000)
LESS: reclassification
adjustment for realized
(gain) losses included
in net income, net of
income taxes
of $91,000, $10,000,
$15,000, $38,000, and
$60,000, for
September 30, 1999
and 1998 and
December 31, 1998,
1997, and
1996, respectively 167,000 16,000 (26,000) (63,000) (102,000)
Unrealized appreciation
on investment securities
transferred from
available-for-sale
to held-to-
maturity including
amortization - - - (32,000) (42,000)
COMPREHENSIVE INCOME
(LOSS) $(866,000) $1,611,000 $2,207,000 $2,041,000 $1,069,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 2,291,340 $2,000 $9,383,000
Shares issued for stock
option plan 4,540 - 25,000
Shares issued upon conversion and
retirement of notes 4,084 - 26,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of income
taxes of $238,000 - - -
Unrealized appreciation on
investment securities
transferred from available-
for-sale to held-to-maturity
including amortization - - -
Net income - - -
BALANCE, DECEMBER 31, 1996 2,299,964 2,000 9,434,000
Shares issued for stock
option plan 32,050 - 149,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of $33,000 - - - Net change in unrealized
appreciation on investment
securities transferred from
available-for-sale to
held-to-maturity
including amortization - - -
Net income - - -
BALANCE, DECEMBER 31, 1997 2,332,014 $2,000 $9,583,000
</TABLE>
See Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
----INCOME---
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON AVAILABLE-
FOR-SALE RETAINED
SECURITIES EARNINGS TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $852,000 $4,675,000 $14,912,000
Shares issued for stock
option plan - - 25,000
Shares issued upon
conversion and
retirement of notes - - 26,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of income
taxes of $238,000 (462,000) - (462,000)
Unrealized appreciation on
investment securities
transferred from available-
for-sale to held-to-maturity
including amortization (42,000) - (42,000)
Net income - 1,573,000 1,573,000
BALANCE, DECEMBER 31, 1996 348,000 6,248,000 16,032,000
Shares issued for stock
option plan - - 149,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of $33,000 (63,000) - (63,000)
Net change in unrealized
appreciation on investment
securities transferred from
available-for-sale to
held-to-maturity
including amortization (32,000) - (32,000)
Net income - 2,136,000 2,136,000
BALANCE, DECEMBER 31, 1997 $253,000 $8,384,000 $18,222,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
SHARES AMOUNT CAPITAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997
(brought forward) 2,332,014 $2,000 $9,583,000
Shares issued for stock
option plan 10,000 - 56,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of $249,000 - - -
Increase in retained
earnings due to
stock option plans - - -
Net income - - -
BALANCE, DECEMBER 31, 1998 2,342,014 2,000 9,639,000
Shares issued for stock
option plan 6,000 - 33,000
Net change in unrealized
appreciation of available-
for-sale securities,
net of income taxes of
$(1,103,000) - - -
Net income - -
BALANCE, SEPTEMBER 30, 1999 2,348,014 $2,000 $9,672,000
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
----INCOME---
UNREALIZED
APPRECIATION
(DEPRECIATION)
ON AVAILABLE-
FOR-SALE RETAINED
SECURITIES EARNINGS TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1997
(brought forward) $253,000 $8,384,000 $18,222,000
Shares issued for stock
option plan - - 56,000
Net change in unrealized
appreciation of
available-for-sale
securities, net of
income taxes of $249,000 390,000 - 390,000
Increase in retained
earnings due to
stock option plans - 39,000 39,000
Net income - 1,637,000 1,637,000
BALANCE, DECEMBER 31, 1998 643,000 10,060,000 20,344,000
Shares issued for stock
option plan - - 33,000
Net change in unrealized
appreciation of available-
for-sale securities,
net of income taxes of
$(1,103,000) (1,920,000) - (1,920,000)
Net income - 1,054,000 1,054,000
BALANCE, SEPTEMBER 30, 1999 $(1,277,000) $11,114,000 $19,511,000
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
1999 1998
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities:
Gain on sale of securities
Extraordinary item
Federal Home Loan Bank stock
dividend
Amortization (accretion) of
premium/discount on investments
Amortization of deferred loan
fees, net of costs
Deferred income taxes
Provision for loan losses
Depreciation and amortization
Amortization of excess of cost over fair
value of net assets acquired
Changes in:
Mortgage loans held for sale
Accrued interest receivable
Prepaid expenses and other assets
Accrued interest payable
Other liabilities
Net cash provided by
(used in) operating
activities $(1,591,000) $996,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of
available-for-sale securities 12,639,000 19,295,000
Proceeds from maturities of
held-to-maturity securities 19,670,000 24,838,000
Proceeds from sale of
available-for-sale securities 17,149,000 2,207,000
Purchase of available-for-sale
securities (84,709,000) (62,248,000)
Purchase of held-to-maturity
securities (3,958,000) (3,237,000)
Purchase of other investments (961,000) (54,000)
Net decrease (increase) in loans (20,674,000) (5,405,000)
Purchase of Lakewood State Bank,
net of cash acquired - -
Purchase of premises and
equipment (548,000) (979,000)
Proceeds from sale of other
real estate owned 150,000 -
Net cash used in investing
activities (61,242,000) (25,583,000)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $1,637,000 $2,136,000 $1,573,000
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Gain on sale of securities (41,000) (101,000) (162,000)
Extraordinary item - - 337,000
Federal Home Loan Bank stock
dividend (72,000) (53,000) -
Amortization (accretion) of
premium/discount on investments 455,000 (140,000) (2,323,000)
Amortization of deferred loan
fees, net of costs (1,296,000) (955,000) (395,000)
Deferred income taxes (230,000) (216,000) (125,000)
Provision for loan losses 278,000 360,000 285,000
Depreciation and amortization 491,000 415,000 429,000
Amortization of excess of cost
over fair value of net
assets acquired 232,000 226,000 226,000
Changes in:
Mortgage loans held for sale (3,032,000) (1,253,000) -
Accrued interest receivable 72,000 (246,000) (22,000)
Prepaid expenses and other assets (581,000) 7,000 (83,000)
Accrued interest payable 97,000 92,000 (135,000)
Other liabilities 671,000 103,000 (13,000)
Net cash provided by
(used in) operating
activities (1,319,000) 375,000 (408,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of
available-for-sale securities 24,932,000 8,809,000 8,600,000
Proceeds from maturities of
held-to-maturity securities 6,995,000 8,652,000 3,473,000
Proceeds from sale of available-for-
sale securities 2,312,000 13,161,000 34,111,000
Purchase of available-for-sale
securities (55,426,000) (24,077,000) (38,731,000)
Purchase of held-to-maturity
securities (6,710,000) (7,003,000) (1,010,000)
Purchase of other investments - (369,000) (85,000)
Net decrease (increase) in loans 104,000 (21,086,000) (19,004,000)
Purchase of Lakewood State Bank,
net of cash acquired 520,000 - -
Purchase of premises and
equipment (1,306,000) (220,000) (295,000)
Proceeds from sale of other
real estate owned - - -
Net cash used in investing
activities (28,579,000) (22,133,000) (12,941,000)
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)
1999 1998
<S> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Net increase in demand deposits,
money market, NOW, and
savings accounts 24,366,000 5,777,000
Net increase (decrease) in
time deposits (3,857,000) 21,210,000 Change in federal funds
purchased - - Proceeds from issuance of
notes payable 33,600,000 - Principal repayments of
notes payable (15,000,000) (1,000,000) Proceeds from issuance of
common stock 33,000 26,000
Proceeds from issuance of
Guaranteed Preferred
Beneficial Interests in
Company's Debentures - -
Net cash provided by
financing activities 39,142,000 26,013,000
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (23,691,000) 1,426,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 45,419,000 26,714,000
CASH AND CASH EQUIVALENTS,
END OF YEAR $21,728,000 $28,140,000
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM
FINANCING ACTIVITIES
Net increase in demand deposits,
money market, NOW, and
savings accounts 8,700,000 23,547,000 11,665,000
Net increase (decrease) in
time deposits 31,543,000 10,120,000 4,569,000
Change in federal funds
purchased - (6,200,000) 2,200,000
Proceeds from issuance of
notes payable - 10,000,000 4,000,000
Principal repayments of
notes payable (2,000,000) (1,500,000) (7,077,000)
Proceeds from issuance of
common stock 56,000 149,000 51,000
Proceeds from issuance of
Guaranteed Preferred
Beneficial Interests in
Company's Debentures 10,304,000 - -
Net cash provided by
financing activities 48,603,000 36,116,000 15,408,000
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS 18,705,000 14,358,000 2,059,000
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 26,714,000 12,356,000 10,297,000
CASH AND CASH EQUIVALENTS,
END OF YEAR $45,419,000 $26,714,000 $12,356,000
</TABLE>
See Notes to Consolidted Financial Statements
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF OPERATIONS
Union Bank and Trust (Bank) is a wholly-owned subsidiary of
Union Bankshares, Ltd. (Bankshares) (collectively referred to as
Company). The Bank provides a full range of banking services to
customers, primarily living in the Denver metropolitan area,
through its home office and three branch facilities located in
the Denver area. The Bank is subject to competition from other
financial institutions. The Bank is also subject to the
regulation of certain federal and state agencies and undergoes
periodic examinations by those regulatory authorities.
USE OF ESTIMATES
The preparation of financial statements in conformity with
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. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for loan
losses and the valuation of foreclosed assets held for sale,
management obtains independent appraisals for significant
properties.
Management believes that the allowance for loan losses and the
valuation of foreclosed assets held for sale are adequate. While
management uses available information to recognize losses on
loans and foreclosed assets held for sale, changes in economic
conditions may necessitate revision of these estimates in future
years. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's
allowance for loan losses and valuation of foreclosed assets held
for sale. Such agencies may require the Bank to recognize
additional losses based on their judgments of information
available to them at the time of their examination.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Union Bankshares, Ltd. and its wholly-owned subsidiary, Union
Bank and Trust. All significant intercompany balances and
transactions have been eliminated.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
OPERATING SEGMENTS
The Bank is organized on a branch by branch basis, upon which
management makes decisions regarding how to allocate resources
and assess performance. Each of the branch banks provides a
group of similar community banking services, including such core
products and services as loans, time deposits, checking and
saving accounts, as well as products that compliment these core
products.
CASH AND CASH EQUIVALENTS
The Company considers all liquid investments with original
maturities of three months or less to be cash equivalents. At
December 31, 1998, cash equivalents consisted of federal funds
sold.
Pursuant to normal banking practices, the Bank is required to
maintain certain balances (reserves) with the Federal Reserve
Bank. Included in cash and due from banks in the accompanying
consolidated balance sheets are required reserve balances of
approximately $4,263,000 and $1,525,000 at December 31, 1998 and
1997, respectively.
As of December 31, 1998, the Company had approximately
$5,330,000 on deposit in one financial institution.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Available-for-sale securities, which include any security for
which the Company has no immediate plan to sell but which may be
sold in the future, are carried at fair value. Realized gains
and losses, based on specifically identified amortized cost of
the specific security, are included in other income. Unrealized
gains and losses are recorded, net of related income tax effects,
in stockholders' equity. Premiums and discounts are amortized
and accreted, respectively, to interest income using the
level-yield method over the period to maturity.
Held-to-maturity securities, which include any security for
which the Company has the positive intent and ability to hold
until maturity, are carried at historical cost adjusted for
amortization of premiums and accretion of discounts. Premiums
and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to
maturity.
Interest and dividends on investments in debt and equity
securities are included in income when earned.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
FEE INCOME
Loan origination fees, net of direct origination costs, are
recognized as income using the level-yield method over the term
of the loans.
LOANS
Loans that management has the intent and ability to hold for
the foreseeable future or until maturity or pay-offs are reported
at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on
originated loans.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions
charged to expense and reduced by loans charged off, net of
recoveries. The allowance is maintained at a level considered
adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on
prevailing and anticipated economic conditions and historical
losses by loan category. General allowances have been
established, based upon the aforementioned factors, and allocated
to the individual loan categories, including consumer loans and
real estate mortgage loans that are collectively evaluated.
Allowances are accrued on specific loans evaluated for impairment
for which the basis of each loan, including accrued interest,
exceeds the discounted amount of expected future collections of
interest and principal or, alternatively, the fair value for loan
collateral using a single risk category method of identification.
A loan is considered impaired when it is probable that the Bank
will not receive all amounts due according to the contractual
terms of the loan. This includes loans that are delinquent 90
days or more (nonaccrual loans) and certain other loans
identified by management. Accrual of interest is generally
discontinued, and interest accrued and unpaid is removed, at the
time such amounts are delinquent 90 days. Interest is recognized
for nonaccrual loans only upon receipt, and only after all
principal amounts are current according to the terms of the
contract. Loans are charged off when, in the opinion of
management, all or a portion of the principal outstanding is no
longer collectible.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale are normally sold within 120 days
of origination and are carried at the lower of cost or market.
Gains and losses resulting from sales of mortgage loans are
recognized when the respective loans are sold to investors.
Gains and losses are determined by the difference between the
selling price and the carrying amount of the loans sold, net of
discounts collected or paid and considering a normal servicing
rate.
PREMISES AND EQUIPMENT
Depreciable assets are stated at cost less accumulated
depreciation. Depreciation is charged to expense using the
straight-line method over the estimated useful lives of the
assets. Leasehold improvements are capitalized and amortized
using the straight-line method over the terms of the respective
leases or the estimated useful lives of the improvements,
whichever is shorter.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess costs of the purchased subsidiary acquired by the
Company in 1985 in excess of the fair value of underlying net
tangible assets is amortized on a straight-line basis over a 25
year period. The remaining balance is being amortized through
2009 at a rate of approximately $226,000 per year. The excess
cost over purchase price of the branch bank acquired in 1998 is
also being amortized on a straight-line basis over a 15 year life
at an annual rate of $312,000 through 2014. Amortization expense
related to the purchased subsidiary and branch bank in 1998 was
$232,000.
FORECLOSED ASSETS HELD FOR SALE
Assets acquired by foreclosure or in settlement of debt and
held for sale are valued at estimated fair value as of the date
of foreclosure, and a related valuation allowance is provided for
estimated costs to sell the assets. Management evaluates the
value of foreclosed assets held for sale periodically and
increases the valuation allowance for any subsequent declines in
fair value. Increases in the valuation allowance and gains/losses
on sales of foreclosed assets are included in noninterest
expense, net.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (CONTINUED)
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of the 9.0%
Cumulative Trust Preferred Securities are being amortized over a
ten year period.
INCOME TAXES
Deferred tax liabilities and assets are recognized for the tax
effects of differences between the financial statement and tax
bases of assets and liabilities. A valuation allowance is
established to reduce deferred tax assets if it is more likely
than not that a deferred tax asset will not be realized.
EARNINGS PER COMMON SHARE
Basic earnings per share is computed based on the weighted
average number of common shares outstanding during each period.
Diluted earnings per share is computed assuming exercise of all
stock options having exercise prices less than the average market
price of the common stock using the treasury stock method.
All share and per share amounts have been restated to reflect
the two-for-one stock split which was voted on and approved by
stockholders on May 27, 1998.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
The amortized cost and approximate fair value of
held-to-maturity securities was as follows at September 30, 1999
(unaudited), December 31, 1998 and 1997:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1999 (UNAUDITED)
U.S. Government agencies
and corporations $30,313,000 $- $(68,000) $30,245,000
Obligations of state
and political
subdivisions 3,732,000 150,000 - 3,882,000
$34,045,000 $150,000 $(68,000) $34,127,000
1998:
U.S. Government agencies
and corporations $21,591,000 $501,000 $(12,000) $22,080,000
Obligations of state and
political subdivisions 5,878,000 462,000 - 6,340,000
$27,469,000 $963,000 $(12,000) $28,420,000
1997:
U.S. Government agencies
and corporations $21,989,000 $383,000 $(1,000) $22,371,000
Obligations of state and
political subdivisions 5,940,000 370,000 - 6,310,000
$27,929,000 $753,000 $(1,000) $28,681,000
</TABLE>
Maturities of held-to-maturity securities at December 31, 1998:
AMORTIZED APPROXIMATE
COST FAIR VALUE
One year or less $ - $ -
After one year through five years 4,439,000 4,552,000
After five years through ten years 3,735,000 3,919,000
After ten years 1,538,000 1,710,000
Mortgage-backed and other debt
securities 17,757,000 18,239,000
$ 27,469,000 $28,420,000
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)
The amortized cost and approximate fair value of
available-for-sale securities was as follows at September 30,
1999 (unaudited), December 31, 1998 and 1997:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED APPROXIMATE
COST GAINS LOSSES FAIR VALUE
<S> <C> <C> <C> <C>
SEPTEMBER 30, 1999 (UNAUDITED)
U.S. Government agencies and
corporations $92,533,000 $91,000 $(1,949,000) $90,675,000
U.S. Treasury securities - - - -
Obligations of state and
political subdivisions 21,155,000 235,000 (337,000) 21,053,000
$113,688,000 $326,000 $(2,286,000) $111,728,000
1998:
U.S. Government agencies and
corporations $54,438,000 $276,000 $(10,000) $54,704,000
U.S. Treasury securities 3,611,000 48,000 - 3,659,000
Obligations of state and
political subdivisions 18,482,000 774,000 (25,000) 19,231,000
$76,531,000 $1,098,000 $(35,000) $77,594,000
1997:
U.S. Government agencies and
corporations $12,804,000 $7,000 $(30,000) $12,781,000
U.S. Treasury securities 6,027,000 43,000 - 6,070,000
Obligations of state and
political subdivisions 16,981,000 388,000 (39,000) 17,330,000
Commercial paper 999,000 - - 999,000
$36,811,000 $438,000 $(69,000) $37,180,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 2: INVESTMENTS IN DEBT AND EQUITY SECURITIES
(CONTINUED)
Maturities of available-for-sale securities at December 31, 1998:
AMORTIZED APPROXIMATE
COST FAIR VALUE
One year or less $8,286,000 $8,295,000
After one year through
five years 14,292,000 14,508,000
After five years through
ten years 19,391,000 19,763,000
Due after ten years 7,014,000 7,337,000
Mortgage-backed and
other debt securities 27,548,000 27,691,000
$76,531,000 $77,594,000
The book value of securities pledged as collateral, to
secure notes payable, public deposits, and for other purposes,
amounted to $55,125 at December 31, 1998 and $29,008,000 at
December 31, 1997. The approximate fair value of pledged
securities amounted to $56,249 at December 31, 1998 and
$29,725,000 at December 31, 1997.
Gross gains of $43,000, $131,000, and $349,000 and gross
losses of $2,000, $46,000, and $187,000 resulting from sales of
available-for-sale securities were realized for 1998, 1997 and
1996, respectively.
The Company redesignated available-for-sale securities with
an aggregate amortized cost of $5,061,000 and $8,830,000 to the
held-to-maturity portfolio during 1997 and 1996, respectively.
The Bank, as a member of the Federal Home Loan Bank (FHLB)
system, is required to maintain an investment in capital stock of
the FHLB. As a member, the Bank has access to a $19,396,000
credit line which is secured by investment securities. No ready
market exists for the FHLB stock, and it has no quoted market
value. Such stock is recorded at cost and reported as other
investments. As discussed in Note 6, the Bank had advances
outstanding at September 30, 1999 and December 31, 1998, of
$28,600,000 and $10,000,000, respectively.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES
Categories of loans at December 31, 1998 and 1997, include:
1998 1997
Commercial $105,618,000 $87,929,000
Real estate mortgage 4,101,000 4,297,000
Real estate construction 12,881,000 9,625,000
Consumer 24,595,000 20,933,000
147,195,000 122,784,000
Allowance for loan losses (2,678,000) (2,125,000)
Net loans $144,517,000 $120,659,000
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, beginning of year $2,125,000 $1,754,000 $1,448,000
Allowance for loan losses of
acquired institution 350,000 - -
Charge offs (86,000) (24,000) (29,000)
Recoveries 11,000 35,000 50,000
Net (charge offs) recoveries (75,000) 11,000 21,000
Provision charged to operating
expenses 278,000 360,000 285,000
Balance, end of year $2,678,000 $2,125,000 $1,754,000
</TABLE>
Impaired loans totaled $2,380,000 and $73,000 at December
31, 1998 and 1997, respectively. An allowance for loan losses of
$362,000 and $19,000 related to impaired loans at December 31,
1998 and 1997, respectively. At December 31, 1998 and 1997, all
impaired loans had allocated allowances.
Interest of $158,000 and $8,000 was recognized on average
impaired loans of $1,612,000 and $98,000 for 1998 and 1997,
respectively. No interest was recognized on impaired loans on a
cash basis during 1998 and 1997.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 4: PREMISES AND EQUIPMENT
Major classifications of premises and equipment, stated at
cost, at December 31, were as follows:
1998 1997
Land $150,000 $ -
Building 750,000 -
Leasehold improvements 2,056,000 1,485,000
Furniture and equipment 3,082,000 2,162,000
6,038,000 3,647,000
Less accumulated
depreciation and
amortization (2,762,000) (2,269,000)
Net premises and
equipment $3,276,000 $1,378,000
NOTE 5: DEPOSITS
Interest bearing deposits in denominations of $100,000 or more
were $44,231,000 on December 31, 1998, and $19,969,000 on
December 31, 1997.
At December 31, 1998, the scheduled maturities of time deposits
were as follows:
1999 $51,424,000
2000 10,923,000
2001 7,566,000
2002 57,000
2003 and thereafter 13,138,000
$83,108,000
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 6: NOTES PAYABLE
Notes payable at September 30, 1999 (unaudited), December 31,
1998 and 1997, consisted of the following components:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999
(UNAUDITED) 1998 1997
<S> <C> <C> <C>
Advances from FHLB $28,600,000 $10,000,000 $10,000,000
Note payable to financial
institution - - 2,000,000
Total notes payable $28,600,000 $10,000,000 $12,000,000
</TABLE>
The Bank entered into two $5,000,000 advance agreements with
the FHLB on January 21, 1997. One advance has an interest rate
of 6.34% and matured January 14, 1999. The other advance has an
interest rate of 6.5% and matures January 14, 2000. During 1999,
the Bank entered into two additional $5,000,000 advance
agreements with the FHLB at interest rates of 5.44% and 5.11%
that mature on October 1, 1999 and November 5, 1999,
respectively. The Bank also entered into a $10,000,000 FHLB
advance agreement at an interest rate of 5.39%, maturing October
15, 1999. Additionally, the Bank entered into a line-of-credit
agreement with the FHLB with outstanding borrowings as of
September 30, 1999 of $3,600,000 bearing interest at a daily
floating rate, repayable at any time. The advances are secured
by pledges of securities as discussed in Note 2.
NOTE 7: GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
DEBENTURES
1998 1997
Guaranteed Preferred
Beneficial Interests
In Company's Debentures $10,304,000 $ -
On October 14, 1998, the Company formed a wholly-owned
business trust (the Trust) to issue preferred securities
representing undivided beneficial interests in the assets of the
Trust. The sole assets of the Trust are $10.3 million aggregate
principal amount of the Company's 9.00% Subordinated Debenture
Notes due December 17, 2028, which are redeemable on or after
December 17, 2003. Such securities qualify as Tier I Capital for
regulatory purposes.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 8: INCOME TAXES
The provision for income taxes consists of:
1998 1997 1996
Taxes currently payable $607,000 $1,067,000 $464,000
Deferred income taxes (230,000) (216,000) (125,000)
$377,000 $851,000 $339,000
The tax effects of temporary differences related to deferred
taxes shown in the December 31, balance sheets are:
1998 1997
Deferred tax assets:
Allowance for loan losses $761,000 $572,000
Accrued expenses 160,000 96,000
Deferred loan fees 167,000 134,000
Deferred compensation 37,000 24,000
Furniture, equipment, and
improvements - 52,000
Other real estate owned 94,000 -
Other - 9,000
1,219,000 887,000
Deferred tax liabilities:
Federal Home Loan Bank Stock (47,000) (20,000)
Furniture, equipment, and
improvements (65,000) -
Unrealized gains on
available-for-sale
securities (365,000) (116,000)
Other (27,000) -
(504,000) (136,000)
Net deferred tax asset $715,000 $751,000
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 8: INCOME TAXES (CONTINUED)
A reconciliation of income tax expenses at the statutory
rate to the Company's actual income tax is shown below:
1998 1997 1996
Computed at the
statutory rate (34%) $685,000 $1,016,000 $651,000
Increase (decrease)
in income taxes
resulting from:
Tax-exempt interest (367,000) (328,000) (406,000)
Amortization of
excess of investment
in subsidiary over
net assets acquired 79,000 79,000 79,000
State income taxes,
net of federal
tax benefit 16,000 17,000 24,000
Nondeductible interest 42,000 30,000 25,000
Other, net (78,000) 37,000 (34,000)
Income tax expense $377,000 $851,000 $339,000
NOTE 9: EARNINGS PER SHARE
A reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculation for income
before extraordinary item is shown below for the years ended
December 31, 1998, 1997 and 1996:
INCOME SHARES PER-SHARE
NUMERATOR (DENOMINATOR) AMOUNT
1998
Income before
extraordinary
item $1,637,000 2,339,119
Basic earnings
per share $.70
Effect of dilutive
securities:
Stock options - 283,634
Diluted earnings
per share $1,637,000 2,622,753 $.62
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 9: EARNINGS PER SHARE (CONTINUED)
1997
Income before
extraordinary
item $2,136,000 2,317,056
Basic earnings
per share $.92
Effect of
dilutive securities:
Stock options - 217,848
Diluted earnings
per share $2,136,000 2,534,904 $.84
1996
Income before
extraordinary
item $1,910,000 2,298,804
Basic earnings
per share $.83
Effect of
dilutive securities:
Stock options - 116,684
Diluted earnings
per share $1,910,000 2,415,488 $.79
NOTE 10: COMMITMENTS AND CREDIT RISKS
The Bank grants commercial, residential, and other
installment loans to customers throughout the state of Colorado
and, in addition, invests in municipal obligations of various
entities in the state.
Lines of credit are agreements to lend to a customer as long
as there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates.
Since a portion of the line may expire without being drawn upon,
the total unused lines do not necessarily represent future cash
requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed
necessary, is based on management's credit evaluation of the
counterparty. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment, commercial
real estate, and residential real estate. Management uses the
same credit policies in granting lines of credit as it does for
on balance sheet instruments.
At December 31, 1998 and 1997, the Bank had granted unused
lines of credit to borrowers aggregating approximately
$58,719,000 and $45,875,000, respectively. At December 31, 1998,
unused lines of credit consisted of approximately $57,771,000 for
commercial lines and $948,000 for open-end consumer lines.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 10: COMMITMENTS AND CREDIT RISKS (Continued)
Letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and
private borrowing arrangements, including commercial paper, bond
financing, and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loans to customers.
The Bank had total outstanding letters of credit amounting
to $1,318,000 and $948,000 at December 31, 1998 and 1997,
respectively, with terms ranging from 15 days to two years.
At December 31, 1998 and 1997, the Bank had outstanding
commitments to originate loans aggregating approximately
$12,780,000 and $9,468,000, respectively. The commitments
extended over varying periods of time with the majority being
disbursed within a one-year period.
NOTE 11: OPERATING LEASES
The Bank leases premises under a noncancelable lease which
expires in 2001. The lease contains a renewal option clause for
an additional five-year term and provides for periodic rental
adjustment based on the Consumer Price Index.
The estimated future minimum lease payments under
noncancelable operating leases at December 31, 1998, were as
follows:
1999 $597,000
2000 600,000
2001 582,000
2002 560,000
2003 556,000
Thereafter 640,000
Total future
minimum
lease payment $3,535,000
Total rental expense for all operating leases (net of
month-to-month sublease rental income in 1995), including certain
cancelable equipment leases, was $614,000, $509,000, and $458,000
for the years ended December 31, 1998, 1997 and 1996,
respectively.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
The Company provides a 401(k) profit sharing plan for its
employees, contributing annually to a profit sharing trust. All
employees who are at least 21 years old and who have been
employed by the Company for at least one year are eligible to
participate. Total contributions were approximately $226,000,
$195,000, and $174,000 in 1998, 1997 and 1996, respectively. The
Company matches 50% of the first 6% of the participants'
contributions; additional contributions may be made at the
discretion of the Board of Directors. Company contributions are
20% vested after the participant has completed two years of
service, with 20% incremental increases in vesting for each of
the next four years.
During the year ended December 31, 1994, the Company adopted
a Non-Employee Director Equity Compensation Plan (Compensation
Plan) effective January 1, 1995. The Compensation Plan provides
for the initial authorization of 50,000 shares of common stock.
Under the provisions of the Compensation Plan, the directors are
compensated $6,000 annually provided certain performance measures
are met. The directors have the option of accepting the
Company's common stock in lieu of cash compensation. If the
director opts for common stock, the number of shares issued is
determined on the first business day of the year. The director
has voting rights on the common stock issued as compensation;
however, the common stock is restricted until the director has
met all performance measures. In January 1998 and 1997, the
Company issued 2,000, and 3,750 common shares, respectively,
pursuant to the Compensation Plan at exercise prices of $24.00
and $16.00, respectively.
The Company adopted the Equity Incentive Plan (Incentive
Plan) in December 1992 for certain key employees of the Company.
The Incentive Plan provides for the authorization of 624,000
shares of common stock, plus an additional authorization of
one-half percent of the outstanding shares of common stock as of
each succeeding annual anniversary of the effective date of the
Incentive Plan. Options issued within the Incentive Plan vest in
three equal increments on the date of grant and the first two
anniversaries thereof, and expires ten years after date of grant.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (Continued)
A summary of the status of the Incentive Plan at December
31, and changes during the year is presented below:
<TABLE>
(RESTATED)
-------1998---------- ---------1997---------
<S> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 443,400 $5.61 429,200 $4.92
Granted 43,700 11.38 40,600 11.75
Exercised (6,500) 3.97 (22,800) 4.16
Forfeited (1,400) 5.19 (3,600) 6.13
Outstanding, end of year 479,200 $6.16 443,400 $5.61
Options exercisable,
end of year 436,734 407,500
</TABLE>
<TABLE>
<CAPTION>
(RESTATED)
--------------1996----------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding,
beginning of year 401,500 $4.78
Granted 27,700 7.63
Exercised - -
Forfeited - -
Outstanding, end of year 429,200 $4.92
Options exercisable,
end of year 351,400
</TABLE>
The following table summarizes information about stock
options under the Incentive Plan outstanding at December 31, 1998:
<TABLE>
<CAPTION>
----------OPTIONS OUTSTANDING------- --OPTIONS EXERCISABLE--
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C> <C>
$4.50 154,000 4 years $4.50 154,000 $4.50
$4.00 20,000 5 years $4.00 20,000 $4.00
$3.75 to $3.81 28,000 6 years $3.76 28,000 $3.76
$5.38 166,800 7 years $5.38 166,800 $5.38
$7.63 26,300 8 years $7.63 26,300 $7.63
$11.75 40,400 9 years $11.75 27,067 $11.75
$11.38 43,700 10 years $11.38 14,567 $11.38
</TABLE>
The Company also adopted a Nonemployee Directors' Stock
Option Plan (Directors' Plan) in December 1992. An aggregate of
22,000 shares of common stock are reserved for issuance under the
Directors' Plan. Nonemployee directors are automatically granted
options to purchase 500 common shares during each fiscal year
following election to the Board. The Board of Directors, or a
committee consisting of such Board members or other persons as
may be appointed by the Board, administer the Directors' Plan.
The Directors' Plan is currently administered by the Board of
Directors. Each option under the Directors' Plan expires five
years from the date of grant.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (CONTINUED)
A summary of the status of the Directors' Plan at December
31, and changes during the year is presented below:
<TABLE>
<CAPTION>
(RESTATED)
--------1998--------- --------1997----------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding,
beginning of year 9,000 $7.14 12,500 $10.17
Granted 2,000 12.50 2,000 12.07
Exercised (1,500) 4.13 (5,500) 4.48
Forfeited - - - -
Outstanding, end of year 9,500 $8.74 9,000 $7.14
Options exercisable,
end of year 7,500 7,000
</TABLE>
<TABLE>
<CAPTION>
(RESTATED)
--------------1996----------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
<S> <C> <C>
Outstanding,
beginning of year 10,000 $4.47
Granted 2,500 8.00
Exercised - -
Forfeited - -
Outstanding, end of year 12,500 $10.17
Options exercisable,
end of year 10,000
</TABLE>
The following table summarizes information about stock options
under the Directors' Plan outstanding at December 31, 1998:
<TABLE>
<CAPTION>
----------OPTIONS OUTSTANDING------- --OPTIONS EXERCISABLE--
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$3.75 1,500 1 years $3.75 1,500 $3.75
$5.50 1,500 2 years $5.50 1,500 $5.50
$8.00 2,500 3 years $8.00 2,500 $8.00
$12.07 2,000 4 years $12.07 2,000 $12.07
$12.50 2,000 5 years $12.50 - $ -
</TABLE>
In May 1996, the Company adopted an "Option Bonus Plan"
(Bonus Plan). The exercise price on all options is equal to the
market price of the common stock on the date of grant. The
option period expires ten years from the date the options were
granted. The options vest and are exercisable six months after
they are granted. The maximum number of shares that may be
issued pursuant to the exercise of these options is 300,000
shares.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 12: EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (Continued)
A summary of the status of the Bonus Plan at December 31,
and changes during the year is presented below:
<TABLE>
<CAPTION>
--------1998------ -----------1997------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C>
Outstanding,
beginning
of year 78,586 $7.93 72,802 $7.63
Granted 129,129 11.38 5,784 11.75
Exercised - - - -
Forfeited - - - -
Outstanding,
end of year 207,715 $10.07 78,586 $7.93
Options exercisable,
end of year 78,586 -
</TABLE>
The following table summarizes information about stock options
under the Bonus Plan outstanding at December 31, 1998:
<TABLE>
<CAPTION>
----------OPTIONS OUTSTANDING------- --OPTIONS EXERCISABLE--
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$7.63 72,802 8 years $7.63 72,802 $7.63
$11.75 5,784 9 years $11.75 5,784 $11.75
$11.38 129,129 10 years $11.38 - $-
</TABLE>
The Company applies APB Opinion 25 and related
Interpretations in accounting for its stock option plans, and no
compensation cost has been recognized for the plans. Had
compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates using
Statement of Financial Accounting Standards No. 123, the
Company's net income would have decreased by approximately
$368,000, $172,000, and $323,000 in 1998, 1997 and 1996,
respectively. In addition, the Company's basic earnings per
share would have decreased by $.16 per share, $.07 per share, and
$.14 per share in 1998, 1997 and 1996, respectively. Diluted
earnings per share would have decreased $.14 per share, $.07 per
share, and $.14 per share, respectively.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 13: OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Professional services $ 729,000 $ 586,000 $ 618,000
Credit card 352,000 309,000 247,000
Legal and
accounting 253,000 271,000 91,000
Advertising and
promotion 286,000 200,000 144,000
Postage and
delivery 176,000 150,000 114,000
Software maintenance
and amortization 164,000 140,000 124,000
Service charges 131,000 129,000 140,000
Supplies 191,000 112,000 138,000
Insurance and bonds 127,000 106,000 88,000
Telephone 107,000 88,000 89,000
Printing 124,000 86,000 93,000
Travel and
entertainment 114,000 67,000 104,000
Dues and
subscriptions 80,000 67,000 76,000
Deposit insurance 23,000 19,000 2,000
Amortization of debt
issuance costs 2,000 - 17,000
Other operating
expenses 332,000 188,000 88,000
$3,191,000 $ 2,518,000 $ 2,173,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 14: BUSINESS ACQUISITIONS
On December 17, 1998, the Company acquired all the
outstanding shares of Lakewood State Bank common stock for
$8,350,000, including $7,515,000 in cash and $835,000 held on
deposit at the Bank. The acquisition has been accounted for as a
purchase by recording the assets and liabilities of the acquiree
at their estimated market values at the acquisition date. The
consolidated operations of the Company include the operations of
the acquiree, which was liquidated into another branch bank from
the acquisition date. Unaudited Pro Forma consolidated
operations assuming the purchase was made at the beginning of
each year are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net Interest Income $12,580,000 $12,099,000 $10,399,000
Net Income $ 1,386,000 $ 1,795,000 $ 1,285,000
Basic earnings
per share 0.57 0.77 0.56
</TABLE>
The Pro Forma results are not necessarily indicative of what
would have occurred had the acquisition been on those date, nor
are they necessarily indicative of future operations.
Pro Forma data reflect the amortization expense from
revaluing Lakewood State Bank's investment portfolio, additional
interest expense related to the financing of the purchase, and
amortization expense related to debt issuance costs and the
excess of cost over the fair value of assets acquired. These
items each affect income tax expense proportionally.
NOTE 15: TRANSACTIONS WITH RELATED PARTIES
At December 31, 1998 and 1997, the Bank had loans
outstanding to shareholders, executive officers, and directors of
the Company and their affiliates, in the amount of $3,341,000 and
$2,175,000, respectively. New loans made to shareholders,
executive officers, and directors of the Company and their
affiliates approximated $1,510,000 and $716,000, and repayments
approximated $344,000 and $221,000 for the years ended December
31, 1998 and 1997, respectively.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 15: TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
In management's opinion, such loans and other extensions of
credit and deposits were made in the ordinary course of business
and were made on substantially the same terms (including interest
rates and collateral) as those prevailing at the time of
comparable transactions with other persons. Further, in
management's opinion, these loans did not involve more than
normal risk of collectability or present other unfavorable
features.
From time to time, the Bank purchases loans from a locally
owned mortgage company until the mortgage company sells the loans
into the secondary mortgage market. The loans are then sold back
to the mortgage company. Initially, the Bank receives interest
during its holding period of prime plus .50%. All origination
fees and interest on the loan in excess of the rate payable to
the Bank are retained by the mortgage company. If the mortgage
is not sold within specified periods, the Bank is entitled to
receive all of the interest paid on the mortgage from inception
and may be entitled to receive all or a portion of the
origination fees. The mortgage company provides loan servicing
during the period that the mortgage is held by the Bank. During
the years ended December 31, 1998, 1997 and 1996, the Bank earned
interest income on such loans of $276,000, $59,000, and $6,000,
respectively. During the years ended December 31, 1998, 1997 and
1996, the Bank purchased loans in the amounts of $48,364,000,
$5,762,000, and $4,106,000 and sold loans in the amount of
$44,079,000, $4,509,000, and $4,106,000, respectively. All loans
sold back to the mortgage company are without recourse to the
Bank. The Chairman of the Board of the Bank is a director and
treasurer of the mortgage company.
NOTE 16: SUBSEQUENT EVENTS
On January 14, 1999, the Bank transferred $15,405,000 of
available-for-sale securities to held-to-maturity.
NOTE 17: ADDITIONAL CASH FLOW INFORMATION
The Company purchased all of the capital stock of Lakewood
State Bank for $8,350,000 ($7,515,000 in cash and $835,000 held
on deposit at the Bank). In conjunction with the acquisition,
assets acquired and liabilities assumed are as follows:
Fair value of assets acquired $50,020,000
Cash paid for the capital stock (7,515,000)
Liabilities assumed $42,505,000
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 17: ADDITIONAL CASH FLOW INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
ADDITIONAL CASH
PAYMENT INFORMATION
1998 1997 1996
<S> <C> <C> <C>
Income taxes paid $638,000 $819,000 $397,000
Interest paid $5,900,000 $5,012,000 $4,347,000
NON-CASH INVESTING
ACTIVITIES
Reclassification of
securities from
available-for-sale
to held-to-maturity
at fair value $ - $5,092,000 $8,808,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 18: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
Financial statements of the parent company, Union
Bankshares, Ltd., are shown below and should be read in
conjunction with the consolidated financial statements.
CONDENSED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
<S> 1998 1997
<C> <C>
Cash $ 2,432,000 $ 311,000
Available-for-sale
securities 2,685,000 3,700,000
Excess of cost over
fair value of net
assets acquired,
net of amortization 2,494,000 2,720,000
Investment in subsidiary 22,550,000 13,757,000
Accrued interest
receivable 37,000 40,000
Income taxes receivable 33,000 -
Deferred income taxes - 26,000
Other assets 577,000 -
Total Assets $ 30,808,000 $ 20,554,000
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Cumulative Trust
Preferred
Securities $ 10,304,000 $ -
Note payable - 2,000,000
Accrued interest
payable 36,000 -
Other liabilities 124,000 332,000
Total Liabilities 10,464,000 2,332,000
STOCKHOLDERS' EQUITY
Common stock 1,000 1,000
Additional paid-in
capital 9,640,000 9,584,000
Unrealized gains on
subsidiary's
available-for-sale
securities 643,000 253,000
Retained earnings 10,060,000 8,384,000
Total Stockholders'
Equity 20,344,000 18,222,000
Total Liabilities
and Stockholders'
Equity $ 30,808,000 $ 20,554,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 18: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION> 1998 1997 1996
<S> <C> <C> <C>
OPERATING INCOME
Dividends from
subsidiary $1,000,000 $1,600,000 $1,250,000
Interest income 157,000 224,000 241,000
Total operating income 1,157,000 1,824,000 1,491,000
OPERATING EXPENSES
Interest 157,000 268,000 385,000
Amortization of excess of
investment in
subsidiary over
net assets acquired 228,000 226,000 226,000
Salaries and employee
benefits 374,000 479,000 354,000
Occupancy and equipment 36,000 13,000 13,000
Other 516,000 305,000 321,000
Total operating expenses 1,311,000 1,291,000 1,299,000
INCOME BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS
OF SUBSIDIARY, INCOME TAX
BENEFIT, AND EXTRAORDINARY
ITEM (154,000) 533,000 192,000
EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY 1,424,000 1,337,000 1,398,000
INCOME TAX BENEFIT 367,000 266,000 320,000
INCOME BEFORE
EXTRAORDINARY ITEM 1,637,000 2,136,000 1,910,000
EXTRAORDINARY ITEM
Loss on early extinguishment
of debt (net of applicable
income taxes of $201,000) - - 337,000
NET INCOME $1,637,000 $2,136,000 $1,573,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 18: CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,637,000 $2,136,000 $1,573,000
Adjustments to reconcile net income
to net cash
provided by (used in) operating
activities:
(Gains) losses on repurchase of
notes payable - - 65,000
Amortization 229,000 206,000 617,000
Deferred taxes 26,000 (3,000) (12,000)
Change in:
Other assets (573,000) 26,000 (26,000)
Accrued interest receivable 2,000 (4,000) 16,000
Due from subsidiary - 7,000 41,000
Equity in undistributed earnings
of subsidiary (1,403,000) (1,337,000) (1,398,000)
Other liabilities (170,000) 164,000 (228,000)
Net cash (used in) provided by
operating activities (252,000) 1,195,000 648,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale
securities (2,686,000) (3,704,000) (6,351,000)
Capital contribution to banking
subsidiary (7,000,000) - -
Proceeds from sales of available-
for-sale securities - - 4,890,000
Proceeds from maturities of
available-for-sale securities 3,700,000 3,460,000 3,830,000
Net cash provided by (used
in) investing activities (5,986,000) (244,000) 2,369,000
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of trust
preferred securities 10,304,000 - -
Proceeds from notes payable - - 4,000,000
Principal repayments of notes
payable (2,000,000) (1,500,000) (7,077,000)
Proceeds from issuance of
common stock 56,000 149,000 51,000
Net cash used in
financing activities 8,360,000 (1,351,000) (3,026,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,122,000 (400,000) (9,000)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 311,000 711,000 720,000
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,433,000 $ 311,000 $ 711,000
</TABLE>
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 19: REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory
capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weighing, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios (set forth in the table following) of
total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as
defined) to adjusted total assets (as defined). Management
believes, as of December 31, 1998, that the Company and the Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from
the Federal Deposit Insurance Corporation (FDIC) categorized the
Company and the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Company and the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events
since that notification that management believes have changed the
category.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 19: REGULATORY CAPITAL REQUIREMENTS (Continued)
The Company's and the Bank's actual capital amounts and
ratios are also presented in the table. In accordance with FDIC
regulations, no amount has been deducted from capital for
interest rate risk.
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total risk-based capital
(to risk-weighted assets):
Consolidated $25,387,000 15.2% $ 13,347,000 8.0% $16,684,000 10.0%
Bank $19,860,000 11.8% $ 13,444,000 8.0% $16,805,000 10.0%
Tier I risk-based capital
(to risk-weighted assets):
Consolidated $23,357,000 14.0% $ 6,673,000 4.0% $10,010,000 6.0%
Bank $17,752,000 10.6% $ 6,722,000 4.0% $10,083,000 6.0%
Tier I leverage capital
(to adjusted total assets):
Consolidated $23,357,000 8.3% $ 11,261,000 4.0% $14,076,000 5.0%
Bank $17,752,000 6.8% $ 10,457,000 4.0% $13,072,000 5.0%
As of December 31, 1997:
Total risk-based capital
(to risk-weighted assets):
Consolidated $17,208,000 11.2% $ 12,308,000 8.0% $15,386,000 10.0%
Bank $15,415,000 10.1% $ 12,216,000 8.0% $15,270,000 10.0%
Tier I risk-based capital
(to risk-weighted assets):
Consolidated $15,249,000 9.9% $ 6,154,000 4.0% $ 9,231,000 6.0%
Bank $13,504,000 8.8% $ 6,108,000 4.0% $ 9,162,000 6.0%
Tier I leverage capital
(to adjusted total assets):
Consolidated $15,249,000 6.9% $ 8,866,000 4.0% $11,083,000 5.0%
Bank $13,504,000 6.6% $ 8,230,000 4.0% $10,287,000 5.0%
</TABLE>
The Bank is subject to certain restrictions on the amount of dividends
that it may declare without prior regulatory approval. At December 31, 1998,
approximately $2,740,000 of retained earnings were available for dividend
declaration without prior regulatory approval.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:
CASH AND CASH EQUIVALENTS
For these short-term instruments, the carrying amount approximates
Fair value.
INVESTMENT SECURITIES
Fair values for investment securities equal quoted market prices,
if available. If quoted market prices are not available, fair values
are estimated based on quoted market
prices of similar securities.
LOANS
The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Loans with
similar characteristics were aggregated for purposes of the calculations.
The carrying amount of accrued interest approximates its fair value.
MORTGAGE LOANS HELD FOR SALE
Fair values of mortgage loans held for sale is estimated using the
quoted market prices for securities backed by similar loans, adjusted for
differences in loan characteristics.
DEPOSITS
The fair value of demand deposits, savings accounts, NOW accounts,
and certain money market deposits is the amount payable on demand at the
reporting date (i.e., their carrying amount). The fair value of
fixed-maturity time deposits is estimated using a
discounted cash flow calculation that applies the rates currently offered
for deposits of similar remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
NOTES PAYABLE
Rates currently available to the Company for debt with similar terms
and remaining maturities are used to estimate fair value of existing debt.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S DEBENTURES
Rates currently available to the Company for debt with similar
terms and remaining maturities are used to estimate fair value of existing
debt.
COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining
terms of the agreements and the present creditworthiness of the counterparties.
For fixed-rate loan commitments, fair value also considers the difference
between current levels of interest rates and the committed rates.
The fair value of letters of credit and lines of credit
is based on fees currently charged for similar agreements or on the estimated
cost to terminate or otherwise settle the obligations with the counterparties
at the reporting date.
The following table presents estimated fair values of the
Company's financial instruments. The fair values of certain of these
instruments were calculated by discounting expected cash flows, which method
involves significant judgments by management and uncertainties. Fair value is
the estimated amount at which financial assets or
liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale.
Because no market exists for certain of these financial instruments and
because management does not intend to sell these financial
instruments, the Company does not know whether the fair values
shown below represent values at which the respective financial instruments
could be sold individually or in the aggregate.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 20: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $18,914,000 $18,914,000 $15,314,000 $15,314,000
Federal funds sold 26,505,000 26,505,000 11,400,000 11,400,000
Available-for-sale
securities 77,594,000 77,594,000 37,180,000 37,180,000
Held-to-maturity
securities 27,469,000 28,420,000 27,929,000 28,681,000
Other investments 988,000 988,000 916,000 916,000
Interest receivable 1,542,000 1,542,000 1,353,000 1,353,000
Loans, net of allowance
for loan losses 144,518,000 152,234,000 120,659,000 123,906,000
Mortgage loans held for
sale 4,285,000 4,285,000 1,253,000 1,253,000
FINANCIAL LIABILITIES
Deposits 271,650,000 267,851,000 190,076,000 186,829,000
Notes payable 10,000,000 10,000,000 12,000,000 12,137,000
Guaranteed Preferred
Beneficial Interests
in Company's
Debentures 10,304,000 10,304,000
Interest payable 471,000 471,000 187,000 187,000
UNRECOGNIZED FINANCIAL
INSTRUMENTS
(net of contract amount):
Commitments to extend credit - - - -
Letters of credit - - - -
Lines of credit - - - -
</TABLE>
NOTE 21: FUTURE CHANGES IN ACCOUNTING PRINCIPLES
The Financial Accounting Standards Board recently issued
Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities." Statement No. 133, which becomes effective
for periods beginning after June 15, 1999, requires that business
enterprises recognized all derivative instruments either as
assets or liabilities in the financial statements and record
those instruments at fair value. Changes in fair value of these
derivatives are recognized in the statement of income or
comprehensive income in the period of change. Management has not
yet determined the impact on the Company's financial position and
results of operations of adopting Statement No. 133.
<PAGE>
UNION BANKSHARES, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We consent to the use in this form 8-K and incorporation by
reference in the following Registration Statement and related
Prospectus of Gold Banc Corporation, Inc. of our report dated
January 20, 1999 on the consolidated financial statements of
Union Bankshares, Ltd. as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998.
Registration
Form Statement No. Purpose
S-4 333-65539 Shelf registration
of 3,920,292 shares
BAIRD, KURTZ & DOBSON
Denver, Colorado
November 17, 1999
<PAGE>
