As filed with the Securities and Exchange Commission on July 16, 1996
Registration No. 333-6631
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 6711 54-1598552
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------------
211 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(804) 633-5031
(Address,including zip code, and telephone
number, including area code of
registrant's principal executive
office)
------------------------
D. Anthony Peay
Chief Financial Officer
Union Bankshares Corporation
P.O. Box 446
Bowling Green, Virginia 22427
(804) 633-5031
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
Copies to:
George P. Whitley, Esq. Hugh B. Wellons, Esq.
LeClair Ryan, A Professional Corporation Mays & Valentine
707 East Main Street, 11th Floor P. O. Box 1122
Richmond, Virginia 23219 Richmond, Virginia 23208
------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
------------------------
The Registrant hereby amends this Registration Statement on Such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
UNION BANKSHARES CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item
501(b) of Regulation S-K, Showing the Location or
Heading in the Prospectus and Proxy Statement
of the Information Required by part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus.....................Cover Page of Registration Statement; Outside Front Cover
Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...........................................Available Information; Incorporation of Certain Information
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................Summary; Comparative Per Share Information; Recent Financial
Data; Selected Financial Data; The King George Special
Meeting; The Affiliation; Market Prices and Dividends;
Information Concerning King George
4. Terms of the Transaction.............................Summary; The Affiliation; Comparative Rights of
Shareholders; Description of Union Capital Stock
5. Pro Forma Financial Information......................Pro Forma Condensed Financial Information
6. Material Contacts with the Company
Being Acquired.......................................Summary; The Affiliation--Background of and Reasons for the
Merger, --Interests of Certain Persons in the Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............................Not Applicable
8. Interests of Named Experts and Counsel...............Experts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..........................................Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants..........Not Applicable
11. Incorporation of Certain Information by
Reference............................................Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..........................................Incorporation of Certain Information by Reference; Summary;
Market Prices and Dividends; Business of Union; Description
of Union Capital Stock
13. Incorporation of Certain Information by
Reference Incorporation of Certain Information by Reference
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
<S> <C>
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................................Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................Summary; Comparative Per Share Information; Recent Financial
Data; Selected Financial Data; Market Prices and Dividends;
Information Concerning King George; Management's Discussion
and Analysis of Financial Condition and Results of
Operations; Financial Statements
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited...................Incorporation of Certain Information by Reference; Summary;
The King George Special Meeting; The Affiliation
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer.................................Not Applicable
</TABLE>
[KING GEORGE LETTERHEAD]
_____________, 1996
Dear Fellow Shareholders:
You are cordially invited to attend the Special Meeting of
Shareholders of King George State Bank, Inc. ("King George") to be held at the
Main Office of King George located at 10045 Kings Highway, King George, Virginia
on Tuesday, August 20, 1996 at 7:00 p.m.
At this important meeting, you will be asked to consider and vote on
the Agreement and Plan of Reorganization, dated as of March 12, 1996, and a
related Plan of Share Exchange (collectively, the "Agreement") between the King
George and Union Bankshares Corporation ("Union"). Based in Bowling Green,
Virginia, Union is a bank holding company with $470.9 million in total assets at
March 31, 1996 and with its principal operations currently being conducted
through its two affiliate banks, Union Bank & Trust Company and Northern Neck
State Bank.
Under the terms of the Agreement, Union will exchange 5.5 shares of
its common stock for each share of common stock of King George held by you, with
cash being paid in lieu of issuing fractional shares. In addition, one member of
the Board of Directors of King George (Homer L. Hite) will be appointed by Union
to its Board of Directors as soon as practicable after consummation of the
affiliation. Union common stock is traded on the Nasdaq National Market under
the symbol "UBSH." It is anticipated that the affiliation will become effective
during the latter part of the third quarter of this year. Following the
consummation of the affiliation with Union, King George will continue to operate
as a separate affiliate bank within the Union system.
Your Board of Directors has retained the investment banking firm of
Scott & Stringfellow, Inc. to act as its financial advisor in connection with
this transaction. As discussed in the accompanying Proxy Statement/Prospectus,
Scott & Stringfellow has delivered to the Board of Directors its written opinion
that, as of this date, the terms of the Agreement are fair from a financial
point of view to our shareholders.
King George shareholders will not recognize gain or loss for federal
income tax purposes to the extent Union common stock is received in the
affiliation in exchange for King George common stock, although the receipt of
cash in lieu of fractional shares will be taxable. Details of the proposed
transaction with Union are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with Union requires the affirmative vote of more
than two-thirds of the outstanding shares of common stock of King George.
Your Board of Directors has unanimously approved the Agreement and
the transaction with Union and believes that they are in the best interests of
King George and our shareholders. Accordingly, the Board unanimously recommends
that you VOTE FOR the Agreement.
WE HOPE YOU CAN ATTEND THE SPECIAL MEETING. WHETHER OR NOT YOU PLAN
TO ATTEND, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE IS IMPORTANT REGARDLESS OF THE
NUMBER OF SHARES YOU OWN.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
E. R. MORRIS, JR. HOMER L. HITE
Chairman of the Board President
<PAGE>
KING GEORGE STATE BANK, INC.
KING GEORGE, VIRGINIA
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
______________, 1996
-------------------------
A Special Meeting of Shareholders of King George State Bank, Inc.
("King George") will be held on Tuesday, August 20, 1996 at 7:00 p.m., at the
Main Office of King George located at 10045 Kings Highway, King George, Virginia
for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as of
March 12, 1996, between King George and Union Bankshares Corporation ("Union")
and a related Plan of Share Exchange (collectively, the "Agreement"), providing
for the affiliation of King George with Union (the "Affiliation") upon the terms
and conditions therein, including, among other things, that each issued and
outstanding share of King George common stock will be exchanged for 5.5 shares
of Union common stock, with cash being paid in lieu of issuing fractional
shares. The Agreement is enclosed as Appendix I to the accompanying Proxy
Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Each King George shareholder will have the right to dissent from the
Affiliation and to demand payment of the fair value of his shares in the event
the Affiliation is approved and consummated. Any right of any such King George
shareholder to receive such payment is contingent upon strict compliance with
the requirements set forth in Article 15 of the Virginia Stock Corporation Act,
the full text of which is included as Appendix V to the accompanying Proxy
Statement/Prospectus.
The Board of Directors has fixed July 9, 1996, as the record date for
the Special Meeting, and only holders of record of King George common stock at
the close of business on that date are entitled to receive notice of and to vote
at the Special Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
HOMER L. HITE
President
_____________, 1996
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR
NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF KING GEORGE UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE AGREEMENT.
<PAGE>
KING GEORGE STATE BANK, INC.
PROXY STATEMENT
UNION BANKSHARES CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
King George State Bank, Inc. ("King George") in connection with the solicitation
of proxies by the Board of Directors of King George for use at its Special
Meeting of Shareholders (the "Special Meeting") to be held on _____________,
1996, and any postponements or adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Reorganization, dated as of March 12, 1996, between King
George and Union Bankshares Corporation, a bank holding company based in Bowling
Green, Virginia ("Union"), and a related Plan of Share Exchange (collectively,
the "Agreement") providing for the affiliation of King George with Union (the
"Affiliation") through the exchange of common stock of King George ("King George
Common Stock") for the common stock of Union ("Union Common Stock"). Upon
consummation of the Affiliation, each outstanding share of King George Common
Stock, other than shares as to which appraisal rights have been duly exercised,
will be converted into and exchanged for 5.5 shares of Union Common Stock. Cash
will be paid in lieu of issuing fractional shares. A copy of the Agreement is
included as Appendix I hereto. See "The Affiliation Terms of the Affiliation."
Scott & Stringfellow, Inc. ("Scott & Stringfellow") has rendered its
opinion, updated to the date hereof, to the Board of Directors of King George
that the terms of the Affiliation are fair to King George's shareholders from a
financial point of view. A copy of this opinion is included as Appendix II
hereto. See "The Affiliation - Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF KING GEORGE UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AGREEMENT. FAILURE TO VOTE IS EQUIVALENT TO
VOTING AGAINST THE PROPOSAL.
This Proxy Statement/Prospectus also constitutes a prospectus of
Union covering up to approximately 275,000 shares of Union Common Stock to be
issued to shareholders of King George in connection with the Affiliation. The
outstanding shares of Union Common Stock are, and the shares offered hereby will
be, approved for trading on the Nasdaq National Market under the symbol "UBSH."
The closing price of Union Common Stock on the Nasdaq National Market on July
15, 1996 was $25.75.
This Proxy Statement/Prospectus is first being mailed to shareholders
of King George on or about July ___, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY NOR HAS
THE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF UNION COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is July ___, 1996.
<PAGE>
AVAILABLE INFORMATION
Union is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and Seven World Trade Center (13th Floor), New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information with
respect to Union may also be inspected at the offices of the National
Association of Securities Dealers Stock Market, Report Section, 1735 K Street,
N.W., Washington, D.C. 2006. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4, of which this Proxy
Statement/Prospectus is a part, and exhibits thereto (together with the
amendments thereto, the "Registration Statement"), which have been filed by
Union with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Union Common Stock that may be
issued in connection with the Affiliation and to which reference is hereby made
for further information.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Proxy Statement/Prospectus is accompanied by Union's 1995 Annual
Report to Shareholders and its Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 which are included as Appendices III and IV, respectively,
to this Proxy Statement/Prospectus.
The following documents filed with the Commission by Union are
incorporated by reference in this Proxy Statement/Prospectus: (i) Union's Annual
Report on Form 10-K for the year ended December 31, 1995; (ii) Union's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; (iii) Union's Current
Report on Form 8-K, filed March 18, 1996; (iv) all other reports filed by Union
pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the year
covered by its Annual Report referred to in (i) above; and (v) the following
portions of Union's Annual Report to Shareholders included as Appendix III
hereto:
PAGE NUMBER IN
ANNUAL REPORT
Selected Financial Data - Five Years Ended
December 31, 1995 1
Quarterly Earnings Summary - Two Years Ended
December 31, 1995 1
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 - 16
Market Price and Dividend Information and Related
Shareholder Matters 36
Also incorporated by reference herein is the Agreement, which is
included as Appendix I to this Proxy Statement Prospectus.
Any statement contained in a document incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement
<PAGE>
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO UNION THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, UPON
REQUEST FROM ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED,
DIRECTED TO: D. ANTHONY PEAY, CHIEF FINANCIAL OFFICER, UNION BANKSHARES
CORPORATION, 211 N. MAIN STREET, BOWLING GREEN, VIRGINIA 22427; TELEPHONE NUMBER
(804) 633-5031. IN ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENTS,
THE REQUEST SHOULD BE MADE BY AUGUST 15, 1996.
The information contained in this Proxy Statement/Prospectus
relating to Union has been supplied by Union, and the information relating to
King George has been supplied by King George.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR GIVE ANY
INFORMATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN AND, IF MADE OR GIVEN, SUCH REPRESENTATION OR INFORMATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY KING GEORGE OR UNION.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OF ANY
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF KING GEORGE OR UNION SINCE THE DATE
HEREOF OR THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
<PAGE>
TABLE OF CONTENTS
Available Information..........................................................
Incorporation of Certain Information by Reference..............................
Summary........................................................................
Comparative Per Share Information..............................................
Recent Financial Data..........................................................
Selected Financial Data........................................................
The King George Special Meeting................................................
The Affiliation................................................................
Market Prices and Dividends....................................................
Pro Forma Condensed Financial Information......................................
Information Concerning King George ............................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations.....................................................
Business of Union .............................................................
Comparative Rights of Shareholders.............................................
Description of Union Capital Stock.............................................
Experts........................................................................
Legal Opinions.................................................................
Other Matters..................................................................
Index to Financial Statements..................................................
APPENDICES
I Agreement and Plan of Reorganization and Plan of Share Exchange
II Opinion of Scott & Stringfellow, Inc.
III Union's 1995 Annual Report to Shareholders
IV Union's Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1996
V Article 15 of the Virginia Stock Corporation Act Relating to Dissenters'
Rights
<PAGE>
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding Union, King George and the matters to be considered
at the Special Meeting and is qualified in all respects by the more detailed
information and financial statements contained elsewhere in this Proxy
Statement/Prospectus including the Appendices hereto and the documents
incorporated herein by reference.
THE PARTIES
UNION. Union is a multi-bank holding company serving the Central and
Northern Neck regions of Virginia through its two banking affiliates, Union Bank
& Trust Company ("Union Bank") and Northern Neck State Bank ("Northern Neck
Bank") and its non-bank subsidiary, Union Investment Services, Inc. Both Union
Bank and Northern Neck Bank (the "Affiliate Banks") are Virginia chartered
full-service commercial banks that offer a wide range of banking and related
financial services. The Affiliate Banks are also members of the Federal Reserve
System (the "Federal Reserve"). Union Investment Services is a full-service
discount brokerage firm offering a wide variety of investment products. Through
its twelve locations, Union Bank serves customers in a primary service area
which stretches from its headquarters in Bowling Green along the I-95 corridor
from Fredericksburg to central Hanover County and east to King William County.
Northern Neck Bank serves the Northern Neck and Middle Peninsula regions through
four locations in Warsaw, Montross and Tappahannock. The Affiliate Banks have a
long history of service, with Union Bank and Northern Neck Bank having been
organized in 1902 and 1909, respectively. At March 31, 1996, Union had total
assets of $470.9 million, total deposits of $385.1 million and total
shareholders' equity of $50.4 million. Union's principal executive offices are
located at 211 N. Main Street, Bowling Green, Virginia 22427 and its telephone
number is (804) 633-5031. See "Recent Financial Data," "Selected Financial Data"
and "Business of Union."
Union Common Stock is traded on the Nasdaq National Market under the
symbol "UBSH."
KING GEORGE. King George is a Virginia chartered commercial bank and
member of the Federal Reserve that commenced its banking business in 1974 and
which provides commercial and consumer banking services to customers in King
George County and the Fredericksburg area in Virginia. At March 31, 1996, King
George had total assets of $48.3 million, total deposits of $42.8 million, and
total shareholders' equity of $4.5 million. The Main Office of King George is
located at 10045 Kings Highway, King George, Virginia 22485. See "Recent
Financial Data," "Selected Financial Data," "Information Concerning King George"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
THE SPECIAL MEETING
TIME, PLACE AND PURPOSE. The Special Meeting will be held on August
20, 1996 at 7:00 p.m. at the Main Office of King George located at 10045 Kings
Highway, King George , Virginia 22485. At the Special Meeting, King George
shareholders will be asked to consider and vote upon a proposal to approve the
Agreement, attached hereto as Appendix I.
RECORD DATE. Only holders of record of King George Common Stock at
the close of business on July 9, 1996 (the "Record Date"), will be entitled to
notice of and to vote at the Special Meeting. At the Record Date, there were
approximately 244 holders of record of the 50,000 shares
<PAGE>
of King George Common Stock then outstanding and entitled to vote at the Special
Meeting. See "The King George Special Meeting."
TERMS OF THE AFFILIATION
The Affiliation provides for the exchange of each outstanding share
of King George Common Stock for Union Common Stock. Union will then serve as the
parent bank holding company for King George, which will continue to carry on its
banking business in substantially the same manner as before the Affiliation. In
addition, Mr. Homer L. Hite will be appointed by Union to serve on the Union
Board of Directors as soon as practicable after the Affiliation.
At the Effective Date of the Affiliation, each outstanding share of
King George Common Stock will be exchanged for 5.5 shares of Union Common Stock
(the "Exchange Ratio"), and cash in lieu of any fractional shares. Cash (without
interest) will be paid to King George shareholders in lieu of the issuance of
any fractional shares in an amount equal to the fraction of a share of Union
Common Stock to which such shareholder would otherwise be entitled, multiplied
by the average of the closing prices of Union Common Stock as reported on the
Nasdaq National Market during the ten trading days immediately preceding the
Effective Date. King George has no right to terminate the Affiliation or to
obtain an adjustment in the Exchange Ratio solely as a result of a decrease in
the market value of Union Common Stock below a specified level. Similarly, Union
has no right to terminate the Affiliation or obtain an adjustment in the
Exchange Ratio solely as a result of an increase in the market value of Union
Common Stock above a specified level. See "The Affiliation - Terms of the
Affiliation" and "The Affiliation - Interests of Certain Persons in the
Affiliation."
Shareholders of King George are entitled to exercise their
dissenters' rights with respect to the Affiliation. See "The
Affiliation - Rights of Dissenting Shareholders."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF KING GEORGE
The Board of Directors of King George has unanimously approved the
Affiliation, including the Agreement. The Board of Directors believes that the
Affiliation is fair to and in the best interests of the shareholders of King
George and recommends a VOTE FOR the Affiliation. See "The Affiliation -
Background of and Reasons for the Affiliation."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of King George has retained Scott &
Stringfellow, an investment banking firm experienced in the valuation of
financial institutions and their securities in connection with merger and
acquisition transactions, to act as its financial advisor in connection with the
Affiliation. Scott & Stringfellow has rendered its opinion to the Board of
Directors of King George that the terms of the Affiliation are fair from a
financial point of view to the King George shareholders. The full text of Scott
& Stringfellow's opinion, including the assumptions made and other matters
considered and limitations on the review undertaken, updated to the date hereof,
is set forth as Appendix II to this Proxy Statement/Prospectus. Shareholders are
urged to read and consider the opinion in its entirety. See "The Affiliation -
Opinion of Financial Advisor."
<PAGE>
VOTE REQUIRED
Approval of the Affiliation requires the affirmative vote of the
holders of more than two-thirds of the outstanding shares of King George Common
Stock outstanding on the Record Date. As of the Record Date, directors and
executive officers of King George and their affiliates beneficially owned
approximately 11,992 shares of King George Common Stock, or approximately 24.0%
of the shares of King George Common Stock outstanding on such date. The
directors and executive officers of King George have indicated their intention
to vote their shares of King George Common Stock in favor of the Affiliation.
See "The King George Special Meeting - Vote Required."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE AGREEMENT.
EFFECTIVE DATE
The Affiliation will become effective at the date and time set forth
on the Certificate of Share Exchange issued by the Virginia State Corporation
Commission (the "Effective Date"). The Effective Date will occur as soon as
practicable following the date that all conditions specified in the Agreement
have been satisfied or waived. The Affiliation is expected to be made effective
on or about September 1, 1996. Union and King George each has the right, acting
unilaterally, to terminate the Agreement should the Affiliation not be
consummated by December 31, 1996. See "The Affiliation - The Effective Date."
DISTRIBUTION OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
As soon as practicable after the Effective Date, Union shall cause
Registrar and Transfer Company, acting as the exchange agent (the "Exchange
Agent"), to mail to each King George shareholder (other than dissenting
shareholders) a letter of transmittal and instructions for use in order to
surrender the certificates representing shares of King George Common Stock in
exchange for certificates representing shares of Union Common Stock. Cash
(without interest) will be paid to King George shareholders in lieu of the
issuance of any fractional shares in an amount equal to the fraction of a share
of Union Common Stock to which such shareholder would otherwise be entitled
multiplied by the average of the closing prices of Union Common Stock as
reported on the Nasdaq National Market during the ten trading days immediately
preceding the Effective Date. See "The Affiliation - Surrender of Stock
Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
LeClair Ryan, counsel for Union, has delivered an opinion that, among
other things, (i) no gain or loss will be recognized by King George shareholders
to the extent they receive shares of Union Common Stock solely in exchange for
their King George Common Stock, (ii) the aggregate tax basis of Union Common
Stock received by a King George shareholder will equal the aggregate tax basis
of the King George Common Stock surrendered in exchange therefor by such
shareholder (reduced by any amount allocable to fractional share interests for
which cash is received), and (iii) the holding period of the Union Common Stock
received will generally include the holding period of the King George Common
Stock surrendered if the King George Common Stock is held as a capital asset at
the Effective Date. For a more complete description of the federal income tax
consequences of the Affiliation, see "The Affiliation - Certain Federal Income
Tax Consequences."
<PAGE>
DUE TO THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE
AFFILIATION, IT IS RECOMMENDED THAT EACH KING GEORGE SHAREHOLDER CONSULT HIS OR
HER OWN TAX ADVISOR CONCERNING THE TAX CONSEQUENCES OF THE AFFILIATION WITH
RESPECT TO THEIR PARTICULAR TAX SITUATION.
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
Certain members of King George's management, as well as certain
members of the King George Board of Directors, have interests in the Affiliation
in addition to their interests as shareholders of King George. These include,
among other things, provisions in the Agreement relating to indemnification of
directors and officers of King George, appointment of a King George director to
the Board of Directors of Union, and eligibility for certain Union employee
benefits. In each case, the King George Board was aware of their potential
interests, and considered them.
Directors. Union has agreed to cause Homer L. Hite, a member of the
King George Board of Directors, to become a member of the Union Board of
Directors as soon as practicable after consumation of the Affiliation.
thereafter. Mr. Hite will also be appointed Senior Vice President of Union and
will continue to serve as President and Chief Executive Officer of King George.
Union currently pays each director $400 for attendance at each Board meeting.
Assumption of Homer L. Hite's Employment Agreement. Union has agreed
to assume and honor the employment agreement between King George and Homer L.
Hite, based on his agreement that the Affiliation will not constitute a "change
of control" of King George. Under the terms of the employment agreement, Mr.
Hite would be entitled to receive a cash payment equal to two times his annual
base salary (currently $90,000) in the event of a change of control of King
George. The employment agreement is renewable on an annual basis on its
anniversary date of June 11. The change of control provision was not waived by
Mr. Hite with respect to any future change of control of Union.
Assumption of Salary Continuation Agreements. Union has agreed to
assume and honor two salary continuation agreements between King George and
Homer L. Hite dated October 15, 1979 and September 1, 1985, respectively. Each
agreement is funded by a life insurance policy on the life of Homer L. Hite, and
provides for certain amounts to be paid to Mr. Hite upon his retirement, or to
Mr. Hite's beneficiaries upon his death while still in the employ of King
George.
Assumption of Deferred Compensation Agreements. Union has also agreed
to assume certain deferred compensation agreements between King George and its
directors. Such agreements provide for payment of certain monthly sums to
certain directors of King George (or designated beneficiaries of such
directors), for a period of fifteen years after the death or retirement of such
director at age 65. Such agreements may, in King George's discretion, be funded
by life insurance policies on the lives of the covered directors. Such
agreements are not assignable by the directors for whom such agreements are in
place and, by their terms, are not contracts of employment.
See "The Affiliation - Interests of Certain Persons in the
Affiliation" and "The Affiliation - Terms of the Affiliation."
REGULATORY APPROVALS
The Affiliation is subject to the prior approval of the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act") and the Virginia State
Corporation Commission (the "Virginia SCC"). Applications with the Federal
Reserve and the Virginia SCC have been filed by Union. Each application has been
accepted for processing. There can be no assurance that the approval of the
Federal Reserve or the Virginia SCC will be obtained or as to the timing or
conditions of such approvals. See "The Affiliation - Regulatory Approvals."
<PAGE>
CONDITIONS TO CONSUMMATION OF THE AFFILIATION; TERMINATION
Consummation of the Affiliation is contingent upon the following
unwaivable conditions: (i) receipt of the approval of the shareholders of King
George solicited hereby; (ii) receipt of an opinion of counsel as to the
tax-free nature of the Affiliation (except for cash received in lieu of
fractional shares or upon the exercise of dissenters' rights); and (iii)
approval of the Federal Reserve and the Virginia SCC. The receipt by Union of an
opinion from KPMG Peat Marwick LLP that the Affiliation may be accounted for
under the pooling of interests accounting method is a condition to consummation
of the Affiliation that may be waived by Union. The Affiliation is also subject
to satisfaction or waiver of other conditions. See "The Affiliation - Conditions
to the Affiliation" and "The Affiliation - Regulatory Approvals."
The Agreement may be terminated and the Affiliation abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of Union and King George or (ii) by either Union or King George if the
Effective Date has not occurred by December 31, 1996, or if certain specified
events occur. See "The Affiliation - Waivers, Amendment and Termination."
EFFECT OF THE AFFILIATION ON THE RIGHTS OF KING GEORGE SHAREHOLDERS
Upon consummation of the Affiliation, King George shareholders will
become shareholders of Union. While the rights of the former shareholders of
King George will continue to be governed by the Virginia Stock Corporation Act
(the "Virginia SCA") since Union is a Virginia corporation, the rights of King
George shareholders will also be as provided for under the Articles of
Incorporation and Bylaws of Union. The provisions of the Articles of
Incorporation and Bylaws of Union differ in certain material respects from the
Articles of Incorporation and Bylaws of King George. See "Comparative Rights of
Shareholders."
ACCOUNTING TREATMENT
It is intended that the Affiliation will be accounted for as a
pooling of interests. It is a condition to Union's obligation to consummate the
Affiliation that it receive an opinion from its independent auditors that the
Affiliation will be accounted for as a pooling of interests. See "The
Affiliation - Accounting Treatment."
RIGHTS OF DISSENT AND APPRAISAL
Each holder of King George shares may dissent from the Affiliation
and is entitled to the rights and remedies of dissenting shareholders provided
in Article 15 of the Virginia SCA, subject to compliance with the procedures set
forth therein, including the right to appraisal of his or her stock. A copy of
Article 15 is attached as Appendix V to this Proxy Statement/Prospectus and a
summary thereof is included under "The Affiliation - Rights of Dissenting
Shareholders."
RESALES OF UNION COMMON STOCK
Shares of Union Common Stock received in the Affiliation will be
freely transferable by the holders thereof, except for those shares held by
those holders who may be deemed to be "affiliates" (generally including
directors, certain executive officers and major shareholders) of King George
under applicable federal securities laws. See "The Affiliation Resales of Union
Common Stock."
<PAGE>
MARKET PRICE INFORMATION
Union Common Stock is publicly traded and quoted on the Nasdaq
National Market under the symbol "UBSH." The closing sales price of Union Common
Stock on March 12, 1996, the last full trading day preceding the pubic
announcement of the execution of the Agreement, as reported on the Nasdaq
National Market, was $24.50 per share. The closing sales price of Union Common
Stock on July 15, 1996, the latest practicable date prior to the date of this
Proxy Statement/Prospectus, as reported on the Nasdaq National Market was $25.75
per share. See "Market Prices and Dividends."
King George Common Stock is not traded on any exchange and no
established public trading market exists for King George Common Stock.
The pro forma equivalent per share market values of King George
Common Stock on March 12, 1996 and July 15, 1996 were $134.75 and $141.63,
respectively, calculated by multiplying the closing price of Union Common Stock
on such dates by the Exchange Ratio (5.5).
BECAUSE THE MARKET PRICE OF UNION COMMON STOCK IS SUBJECT TO
FLUCTUATION AND WILL LIKELY CHANGE PRIOR TO THE EFFECTIVE DATE, THE MARKET VALUE
OF UNION COMMON STOCK THAT KING GEORGE SHAREHOLDERS WILL RECEIVE PURSUANT TO THE
AFFILIATION MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE DATE. KING GEORGE
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR UNION COMMON
STOCK.
THERE CAN BE NO ASSURANCE AS TO THE MARKET OR TRADING VALUE OF UNION
COMMON STOCK AT THE EFFECTIVE DATE OR AT ANY TIME THEREAFTER.
UNION'S ACQUISITION STRATEGY
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow Union
to enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire one or more financial
institutions. See "Business of Union - Union's Acquisition Program."
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The table below presents selected comparative unaudited per share
information (i) for Union on a historical basis and on a pro forma combined
basis assuming the Affiliation had been effective during the periods presented
and accounted for as a pooling of interests and (ii) for King George on a
historical basis and on a pro forma equivalent basis. The information shown
below should be read in conjunction with the historical consolidated financial
statements of Union and King George and the respective notes thereto that are
included elsewhere herein or incorporated herein by reference. Results for Union
and King George for the three months ended March 31, 1996 are not necessarily
indicative of results to be expected for their entire fiscal years, nor are pro
forma amounts necessarily indicative of results that will be attained on a
combined basis.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C>
PER COMMON SHARE:
NET INCOME:
King George-historical.................................. $ 3.37 $ 10.11 $ 8.76 $ 7.23
Union-historical........................................ .51 1.91 1.93 1.58
Pro forma combined...................................... .52 1.91 1.90 1.56
King George pro forma equivalent (1).................... 2.86 10.51 10.45 8.58
CASH DIVIDENDS DECLARED:
King George-historical.................................. $ - $ 2.30 2.25 $ 2.20
Union-historical........................................ - .56 .52 .45
Pro forma combined...................................... - .56 .52 .45
King George pro forma equivalent (1).................... - 3.08 2.86 2.48
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
---- ----
<S> <C>
BOOK VALUE:
King George-historical.................................. $ 90.60 $ 87.81
Union-historical........................................ 15.34 15.00
Pro forma combined...................................... 15.43 15.15
King George pro forma equivalent (1).................... 84.87 83.33
..........
</TABLE>
(1) King George pro forma equivalent amounts represent Union's pro forma
combined information multiplied by the Exchange Ratio of 5.5 shares of Union
Common Stock for each share of King George Common Stock.
<PAGE>
RECENT FINANCIAL DATA
Union. For the three months ended June 30, 1996, net income for Union
was $1.8 million or $.55 per share, compared to $1.4 million or $.44 per share
for the same period in 1995. For the six months ended June 30, 1996, net income
for Union increased to $3.5 million or $1.06 per share, from $3.0 million or
$.92 per share for the comparable period in 1995. At June 30, 1996 and 1995,
Union had total assets of $481.7 and $433.6 million, respectively. Total loans
were $313.5 million at June 30, 1996, compared to $275.9 million at June 30,
1995. Deposits at June 30, 1996, increased to $386.9 million, up from $359.2
million at June 30, 1995.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans and foreclosed properties, were $4.5 million at June 30,
1996, an increase of $572,000 (14.7%) from December 31, 1995. The
[decrease/increase] in nonperforming assets increased the ratio of nonperforming
assets to period end loans and foreclosed properties to 1.40% at June 30, 1996
from 1.31% at December 31, 1995. Nonperforming assets at June 30, 1996 include
over $3.7 million in foreclosed properties on which management anticipates
no additional losses. The provision for loan losses during the first six months
of 1996 was $231,000, down from $300,000 for the first six months of 1995. At
June 30, 1996, the ratio of the allowance for loan losses to period end
loans was 1.28%, compared to 1.39% at June 30, 1995.
King George. For the three months ended June 30, 1996, net income for
King George was $409,890 or $8.19 per share compared to $126,805 or $2.54 per
share for the same period in 1995. Of this increase, $261,815 was attributed to
a matured life insurance policy. For the six months ended June 30, 1996, net
income for King George increased to $578,489 or $11.56 per share, from $249,441
or $4.99 per share for the comparable period in 1995. At June 30, 1996 and 1995,
King George had total assets of $49.6 and $47.7 million, respectively. Total
loans were $32.8 million at June 30, 1996, compared to $32.7 million at June 30,
1995. Deposits at June 30, 1996, increased to $43.8 million, up from $42.7
million at June 30, 1995.
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans and foreclosed properties, were $386,228 at June 30, 1996, a
decrease of $19,022 (4.79%) from December 31, 1995. The decrease in
nonperforming assets helped improve the ratio of nonperforming assets to period
end loans and foreclosed properties to 1.18% at June 30, 1996 from 1.23% at
December 31, 1995. The provision for loan losses during the first six months of
1996 was $90,000, down from $178,000 for the first six months of 1995. At June
30, 1996, the ratio of the allowance for loan losses to period end loans was
.99% compared to 1.55% at June 30, 1995.
The following tables set forth certain unaudited financial data for
Union and King George. In the opinion of the respective managements of Union
and King George, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position and
results of operations of such unaudited periods have been included.
<PAGE>
Union Bankshares Corporation (Historical)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------------------------ -----------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C>
Income Data
Interest income..................... $ 9,083 $ 8,459 $ 18,137 $ 16,647
Interest expense.................... 4,384 4,002 8,702 7,624
Net interest income................. 4,699 4,457 9,435 9,023
Provision for loan losses........... 150 150 231 300
Noninterest income.................. 866 577 1,425 1,042
Noninterest expense................. 3,104 3,038 6,170 5,902
Income taxes........................ 513 404 984 873
-------- -------- --------- ----------
Net income.......................... $ 1,798 $ 1,442 $ 3,475 $ 2,990
======== ======== ========= ==========
Per Share Data
Net income.......................... $ .55 $ .44 $ 1.06 $ .92
Cash dividend....................... .30 .28 .30 .28
Book value, end of period........... 15.49 14.08 15.49 14.08
Performance Ratios (1)
Return on average assets............ 1.51% 1.36% 1.48% 1.42%
Return on average equity............ 14.26 13.22 13.90 14.01
<CAPTION>
June 30,
(Unaudited)
---------------------------------
1996 1995
---- ----
(In thousands)
Period End Balances
Assets.............................. $ 481,687 $ 433,558
Loans, net of unearned income....... 313,490 275,898
Securities.......................... 127,918 121,415
Deposits............................ 386,882 359,223
Shareholders' equity................ 50,977 46,029
(1) Annualized based on the six months ended June 30, 1996 and 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
King George State Bank, Inc. (Historical)
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
------------------------------------ ----------------------------------- --
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share data)
<S> <C>
Income Data
Interest income..................... $ 935 $ 910 $ 1,853 $ 1,767
Interest expense.................... 407 391 817 775
Net interest income................. 528 519 1,036 992
Provision for loan losses........... 40 108 90 178
Noninterest income.................. 304 47 348 97
Noninterest expense................. 310 297 584 582
Income taxes........................ 73 35 132 80
------- ------- -------- --------
Net income.......................... $ 409 $ 126 $ 578 $ 249
======= ======= ======== ========
Per Share Data
Net income.......................... $ 8.19 $ 2.54 $ 11.56 $ 4.99
Cash dividend....................... 2.35 2.30 2.35 2.30
Book value, end of period........... 96.02 82.38 96.02 82.38
Performance Ratios (1)
Return on average assets............ 3.42% 1.06% 2.41% 1.01%
Return on average equity............ 36.75 12.56 25.96 12.00
<CAPTION>
June 30,
(Unaudited)
--------------------------------
1996 1995
---- ----
(In thousands)
Period End Balances
Assets.............................. $ 49,559 $ 47,694
Loans, net of unearned income....... 32,837 32,750
Securities.......................... 9,737 10,314
Deposits............................ 43,813 42,738
Shareholders' equity................ 4,801 4,119
(1) Annualized based on the six months ended June 30, 1996 and 1995.
</TABLE>
SELECTED FINANCIAL DATA
The following tables present selected historical financial
information for Union and King George and selected combined pro forma financial
information for Union and King George. This information is derived from and
should be read in conjunction with the historical consolidated financial
statements of Union and King George and the respective notes thereto included
elsewhere in the Proxy Statement/Prospectus or in documents incorporated herein
by reference. See "Incorporation of Certain Information by Reference." All
adjustments necessary for a fair presentation of results of interim periods
of Union and King George (which adjustments were of a normal recurring nature),
in the opinion of the respective management's of Union and King George, have
been included. Results for Union and King George for the three months ended
March 31, 1996 and 1995, are not necessarily indicative of the results to be
expected for their entire fiscal years.
The selected combined pro forma financial information showing the
combined results of Union and King George is provided for informational purposes
only. It is not necessarily indicative of actual results that would have been
achieved had the Affiliation been consummated on the dates at the beginning of
the periods presented, nor is it necessarily indicative of future results. For
additional pro forma information, see "Pro Forma Condensed Financial Information
<PAGE>
UNION BANKSHARES CORPORATION (HISTORICAL)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
INCOME DATA
Interest income................ $ 9,054 $ 8,189 $ 34,470 $ 28,612 $ 26,994 $ 27,812 $ 29,357
Interest expense............... 4,318 3,622 16,282 11,709 11,339 13,238 17,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............ 4,736 4,567 18,188 16,903 15,655 14,574 12,357
Provision for loan losses...... 81 150 574 597 1,220 1,556 1,551
Other income................... 559 465 2,442 2,774 1,895 1,951 1,830
Other expenses................. 3,065 2,864 11,899 11,031 9,875 8,781 7,787
Income taxes................... 471 469 1,910 1,774 1,301 1,414 949
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income..................... $ 1,678 $ 1,549 $ 6,247 $ 6,275 $ 5,154 $ 4,774 $ 3,900
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA
Net income..................... $ 0.51 $ 0.47 $ 1.91 $ 1.93 $ 1.58 $ 1.47 $ 1.20
Cash dividends................. - - .56 .52 .45 .40 .36
Book value, end of period...... 15.33 15.10 15.00 13.25 12.02 10.89 9.82
Average shares outstanding..... 3,286,970 3,264,118 3,268,033 3,258,035 3,255,630 3,255,630 3,255,630
PERIOD END BALANCES
Assets......................... $ 470,943 $ 423,697 $ 458,713 $ 414,879 $ 377,841 $ 351,330 $ 331,413
Loans, net of unearned income 304,265 268,389 294,133 264,799 229,025 220,989 211,443
Securities..................... 129,435 119,946 132,083 119,109 118,582 96,409 89,232
Deposits....................... 385,089 353,524 374,351 347,032 325,556 303,927 286,493
Shareholders' equity........... 50,417 45,099 49,292 43,239 39,146 35,457 31,978
PERFORMANCE RATIOS (1)
Return on average assets....... 1.45% 1.50% 1.43% 1.62% 1.42% 1.41% 1.24%
Return on average equity....... 13.53 14.23 13.58 15.38 13.86 14.00 12.62
</TABLE>
(1) Annualized for the three months ended March 31, 1996 and 1995.
<PAGE>
KING GEORGE STATE BANK, INC. (HISTORICAL)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
INCOME DATA
Interest income.................... $ 921 $ 859 $ 3,613 $ 3,315 $ 3,403 $ 3,622 $ 3,835
Interest expense................... 410 384 1,573 1,380 1,670 1,848 2,175
------- ------- ------- ------- ------- ------- -------
Net interest income................ 511 475 2,040 1,935 1,733 1,774 1,660
Provision for loan losses.......... 50 70 403 505 351 498 620
Other income....................... 43 41 176 176 166 154 203
Other expenses..................... 276 286 1,138 1,042 959 957 894
Income taxes....................... 59 45 169 126 228 151 119
------- ------- ------- ------- ------- ------- -------
Net income......................... $ 169 $ 115 $ 506 $ 438 $ 361 $ 322 $ 230
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA
Net income......................... $ 3.37 $ 2.29 $ 10.11 $ 8.76 $ 7.23 $ 6.44 $ 4.59
Cash dividends..................... - - 2.30 2.25 2.20 2.10 2.10
Book value, end of period.......... 90.60 82.15 87.81 79.86 73.35 68.32 63.98
Average shares outstanding......... 50,000 50,000 50,000 50,000 50,000 50,000 50,000
PERIOD END BALANCES
Assets............................. $48,293 $47,782 $46,661 $48,001 $46,741 $44,348 $39,349
Loans, net of unearned income...... 33,161 32,325 32,999 30,966 29,444 26,994 30,008
Securities......................... 9,743 12,331 9,450 12,831 11,487 5,331 2,510
Deposits........................... 42,822 42,832 41,403 43,200 42,377 40,207 35,307
Shareholders' equity............... 4,530 4,108 4,390 3,993 3,668 3,416 3,199
PERFORMANCE RATIOS (1)
Return on average assets........... 1.39% .96% 1.07% .93% .77% .72% .71%
Return on average equity........... 14.92 11.19 11.97 11.31 9.89 9.42 8.38
</TABLE>
(1) Annualized for the three months ended March 31, 1996 and 1995.
<PAGE>
SUMMARY PRO FORMA FINANCIAL DATA
UNION BANKSHARES CORPORATION AND KING GEORGE STATE BANK, INC.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
INCOME DATA
Interest income............... $ 9,975 $ 9,048 $ 38,083 $ 31,927 $ 30,397 $ 31,434 $ 33,192
Interest expense.............. 4,728 4,006 17,855 13,089 13,009 15,086 19,175
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 5,247 5,042 20,228 18,838 17,388 16,348 14,017
Provision for loan losses..... 131 220 977 1,102 1,571 2,054 2,171
Other income.................. 602 506 2,618 2,950 2,061 2,105 2,033
Other expenses................ 3,341 3,150 13,037 12,073 10,834 9,738 8,681
Income taxes.................. 530 514 2,079 1,900 1,529 1,565 1,068
----------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................... $ 1,847 $ 1,664 $ 6,753 $ 6,713 $ 5,515 $ 5,096 $ 4,130
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA
Net income.................... $0.52 $0.47 $1.91 $1.90 $1.56 $1.44 $1.17
Cash dividends................ - - 0.55 0.51 0.45 0.40 0.36
Book value, end of period..... 15.43 13.90 15.15 13.37 12.13 11.01 9.96
Average shares outstanding.... 3,561,970 3,539,118 3,543,033 3,533,035 3,530,630 3,530,630 3,530,630
PERIOD END BALANCES
Assets........................ $ 519,236 $ 471,479 $ 505,374 $ 462,880 $ 424,582 $ 395,678 $ 370,762
Loans, net of unearned income. 337,095 300,317 326,829 295,389 258,063 247,421 240,929
Securities.................... 139,178 132,277 141,533 131,940 130,069 101,740 91,742
Deposits...................... 427,911 396,357 415,755 390,232 367,933 344,134 321,800
Shareholders' equity.......... 54,947 49,207 53,682 47,232 42,814 38,873 35,177
PERFORMANCE RATIOS (1)
Return on average assets...... 1.44% 1.44% 1.39% 1.55% 1.35% 1.33% 1.19%
Return on average equity...... 13.65 13.97 13.44 15.03 13.51 13.58 12.27
</TABLE>
(1) Annualized for the three months ended March 31, 1996 and 1995.
<PAGE>
THE KING GEORGE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at the Main Office of King George
located at 10045 Kings Highway, King George, Virginia 22485 on Tuesday, August
20, 1996 at 7:00 p.m.
RECORD DATE
Only shareholders of record at the close of business on July 9, 1996,
(the "Record Date") are entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. At the close of business on the Record Date, there
were 50,000 shares of King George Common Stock outstanding, held by 244
shareholders of record.
VOTE REQUIRED
Each share of King George Common Stock outstanding on the Record Date
entitles the holder to cast one vote upon each matter properly submitted at the
Special Meeting. The affirmative vote of the holders of more than two-thirds of
the shares of King George Common Stock outstanding as of the Record Date, in
person or by proxy, is required to approve the Agreement.
As of the Record Date, directors and executive officers of King
George and their affiliates beneficially owned an aggregate of 11,992 shares of
King George Common Stock, or 24.0% of the shares of King George Common Stock
outstanding on such date. Directors and executive officers of King George have
indicated their intention to vote their shares of King George Common Stock in
favor of the Affiliation.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE AGREEMENT.
VOTING AND REVOCATION OF PROXIES.
Shareholders of King George are requested to complete, date and sign
the accompanying form of proxy and return it promptly to King George in the
enclosed envelope. If a proxy is properly executed and returned in time for
voting, it will be voted as indicated thereon. IF A PROXY IS SIGNED AND RETURNED
WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES OF KING GEORGE COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE AGREEMENT.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to King George by executing and delivering a substitute
proxy to King George or by attending the Special Meeting and voting in person.
If a King George shareholder desires to revoke a proxy by written notice, such
notice should be mailed for receipt or delivered, on or prior to the meeting
date, to Homer L. Hite, President, King George State Bank, Inc., 10045 Kings
Highway, King George, Virginia 22485.
If a sufficient number of signed proxies enabling the persons named
as proxies to vote in favor of the Affiliation are not received by King George
by the time scheduled for the Special Meeting, the persons named as proxies may
propose one or more adjournments of a meeting to permit continued solicitation
of proxies with respect to such approval. If an adjournment is proposed, unless
<PAGE>
contrary instructions are contained in the proxy, the persons named as proxies
will vote in favor of such adjournment those proxies which are entitled to be
voted in favor of the Affiliation and against such adjournment those proxies
containing instructions to vote against approval of the Affiliation. Adjournment
of the meetings will be proposed only if the Board Directors of King George
believes that additional time to solicit proxies might permit the receipt of
sufficient votes to approve the Affiliation. It is anticipated that any such
adjournment would be for a relatively short period of time, but in no event for
more than 120 days. Any shareholder may revoke such shareholder's proxy during
any period of adjournment in the manner described above.
SOLICITATION OF PROXIES
King George will bear the costs of its solicitation of proxies.
Solicitations may be made by mail, telephone, telegraph or personally by
directors, officers and employees at King George, none of whom will receive
additional compensation for performing such services. Union shall pay all of the
expenses of printing and mailing the Proxy Statement/Prospectus.
RECOMMENDATION
The Board of Directors of King George has unanimously approved the
Agreement and believes that the proposed transaction is fair to and in the best
interests of King George and its shareholders. The Board of Directors of King
George unanimously recommends that King George shareholders VOTE FOR approval of
the Agreement.
In making its recommendation, the Board of Directors of King George
has considered, among other things, the opinion of Scott & Stringfellow that
Union's proposal is fair to King George shareholders from a financial point of
view. See "The Affiliation - Opinion of Financial Advisor."
THE AFFILIATION
The following is a summary description of the material terms of the
Affiliation, and is qualified in its entirety by reference to the Agreement
which is attached as Appendix I hereto. All holders of King George Common Stock
are urged to read the Agreement in its entirety.
BACKGROUND OF AND REASONS FOR THE AFFILIATION
In early 1995, Mr. Hite had informal discussions with Scott & Stringfellow,
a Richmond based investment banking firm which he knew to have expertise
regarding the evaluation of affiliations between financial institutions. In
March 1995, as part of an evaluation of King George's long range planning, Mr.
Hite's accepted Scott & Stringfellow's offer to provide an analysis of some area
financial institutions to determine a strategy for evaluating any affiliation or
purchase offer that might come to King George in the future. Mr. Hite explained
that King George would be interested only in becoming a part of an organization
which shared its philosophy of high quality community banking and improved stock
liquidity for shareholders. At that time, Scott & Stringfellow began and pursued
a comprehensive review of possible affiliation candidates in the state, making
some general recommendations to Mr. Hite in October 1995.
During the same period that Mr. Hite was making inquiries with Scott &
Stringfellow, Mr. E. Peyton Motley, Executive Vice President of Union and
President of Northern Neck Bank, wrote a letter dated May 3, 1995 to Mr. Hite
explaining that Northern Neck
<PAGE>
had taken an option on a parcel of land in King George County with the intent of
establishing a branch. In the letter, Mr. Motley indicated that Union would be
willing to commence discussions to determine if there was any interest in an
affiliation between the two organizations. The directors of King George were
advised of the letter on May 16, 1995. Mr. Morris, Chairman of the King George
Board, and Mr. Hite were authorized to pursue preliminary discussions with
Union.
Additional discussion ensued and on January 11, 1996, Scott &
Stringfellow met with the directors of King George to review the analysis of
Union as a potential affiliation candidate.
On February 8, 1996, Mr. Hite received a letter from Mr. G. William Beale,
President and Chief Executive Officer of Union, formally indicating Union's
interest in affiliating with King George through a tax free stock exchange
whereby King George would become a wholly-owned subsidiary of Union. Mr. Hite
indicated that he would present the terms to his board for consideration. On
February 14, 1996, Scott & Stringfellow met again with the directors of King
George to discuss a preliminary offer of affiliation with Union (the
"Affiliation"). The directors agreed upon an exchange rate and Scott &
Stringfellow was instructed to convey that rate to Union. On March 11, 1996, Mr.
Hite and counsel to King George met with Messrs. Beale and Motley and counsel to
Union to negotiate the terms of a definitive agreement (the "Agreement"). The
Agreement was completed and unanimously approved by the Board of Directors of
King George on March 12, 1996. The Agreement was executed on the evening of
March 12, 1996, and a public announcement regarding the transaction was made the
following morning.
The Board of King George relied upon the advice of Scott &
Stringfellow in analyzing the Affiliation and recommending the Agreement to the
King George shareholders. Scott & Stringfellow determined that the Affiliation
is fair to the King George shareholders, from a financial point of view. See
"Opinion of Financial Advisor" below for a more detailed analysis of the
Affiliation from the point of view of King George's financial advisor.
In deciding to enter into the Agreement with Union, the King George
Board considered a number of factors, but it did not assign any relative or
specific weight to the factors considered. The factors considered included the
following: the price offered was approximately 50% higher than the trading price
per share of King George Common Stock prior to the offer and represented a
significant multiple of both the book value and earnings per share of King
George Common Stock; Union Common Stock is traded on the NASDAQ National Market
and would provide a more liquid investment vehicle for King George shareholders;
Union pays a higher dividend yield than King George; Union has an excellent
reputation for effective management of its financial institutions and a history
of favorable and consistent financial results; King George would be permitted to
designate a representative to serve on the Union Board; the market area of Union
is much broader and more diverse that King George's, thus reducing the risks
associated with operating primarily in a single market such as King George
County; Union indicated that King George would retain a substantial amount of
autonomy in its operations; the Affiliation will provide King George with
greater resources and a wider variety of products; and the transaction would be
substantially tax-free to King George shareholders to the extent they receive
Union Common Stock in exchange for their shares of King George Common Stock. In
summation, the King George Board believes that the banking industry will
experience significant changes in the next few years, and a larger institution
with a management philosophy similar to King George's (and Union's) will be
better equipped to adjust to this fast-changing and competitive industry.
<PAGE>
Pursuant to the Agreement, the officers, and employees of King
George will not change as a result of the Affiliation. Union, as the sole
shareholder of King George after the Effective Date, will have the power to
elect the directors of King George.
Based on the factors described above, the Board of Directors of King
George unanimously approved the Agreement, because it determined that the
Affiliation was in the best interests of King George and its shareholders. The
King George directors have all committed to vote the King George shares under
their control in favor of the Affiliation to the extent of their fiduciary duty
and to encourage other King George shareholders to do likewise.
THE KING GEORGE DIRECTORS UNANIMOUSLY RECOMMEND THAT THE KING GEORGE
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The King George Board of Directors retained the investment banking
firm of Scott & Stringfellow to evaluate the financial terms of the Affiliation,
and Scott & Stringfellow has rendered its opinion to the Board of Directors of
King George that the terms of the Affiliation are fair from a financial point of
view. In developing its opinion, Scott & Stringfellow reviewed and analyzed: (1)
the Affiliation Agreement; (2) the Registration Statement; (3) King George's
audited financial statements for the three years ended December 31, 1995; (4)
King George's unaudited financial statements for the three months ended March
31, 1996 and 1995, and other internal information relating to King George
prepared by King George's management; (5) information regarding the trading
markets for King George Common Stock and Union Common Stock and the price ranges
within which the respective stocks have traded; (6) the relationship of prices
paid to relevant financial data such as net worth, earnings, deposits and assets
in certain bank and bank holding company mergers and acquisitions in Virginia in
recent years; (7) Union's annual reports to stockholders and its financial
statements for the three years ended December 31, 1995; and (8) Union's
unaudited financial statements for the three months ended March 31, 1996 and
1995 and other internal information relating to Union prepared by Union's
management. Scott & Stringfellow has discussed with members of King George's and
Union's management the background of the Affiliation, the reasons and basis for
the Affiliation, and the business and future prospects of King George and Union
individually and as combined entity. No instructions or limitations were given
or imposed in connection with the scope of or the examination or investigations
made by Scott & Stringfellow in arriving at its findings. Finally, Scott &
Stringfellow has conducted such other studies, analysis and investigations
particularly of the banking industry, and considered such other information as
it deemed appropriate, the material portion of which is described below. A copy
of Scott & Stringfellow's opinion, which sets forth the assumptions made,
matters considered and qualifications made on the review undertaken, is attached
as Appendix II hereto and should be read in its entirety.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including discounted cash flow analysis,
market comparable analysis, comparable acquisition analysis, and dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of King George Common Stock. Among other things, Scott &
Stringfellow considered a range of asset and earnings growth for King George of
between 3% and 5% and required equity capital level of 8.00% assets. A range of
discount rates from 12% to 14% were applied to the cash flows resulting from the
projections during the first
<PAGE>
five years and the residual values. The residual values were estimated by
capitalizing the projected final year earnings by the discount rates, less the
projected long-term growth rate of King George's earnings. The discount rates,
growth rates and capital levels were chosen based on what Scott & Stringfellow,
in its judgment, considered to be appropriate taking into account, among other
things, King George's past and current financial performance and condition, the
general level of inflation, rates of return for fixed income and equity
securities in the marketplace generally and particularly in the banking
industry. The discounted cash flow analysis indicated a reference range of
$112.36 to $137.49 per share for King George Common Stock. These values compare
to the value of $148.50 per share of consideration for each share of King George
Common Stock. Accordingly, the present value of King George Common Stock was
calculated at less than the value of the consideration to be received from Union
pursuant to the Affiliation Agreement.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 17 bank and bank holding company mergers
and acquisitions in Virginia since January 1, 1993, representing all such
transactions known to Scott & Stringfellow to have occurred during this period
involving bank and bank holding companies in Virginia, with the proposed
Affiliation and found the consideration to be received by King George's
shareholders from Union to be within the relevant pricing ranges acceptable for
such recent transactions. Specifically, based upon the most recent transactions
either closed or announced in Virginia since January 1, 1993, other than the
Affiliation, the average price to tangible book value in these transactions was
2.07 times, compared with 1.64 times for the Affiliation, the average price to
earnings ratio was 19.7 times, compared to 13.3 times for the Affiliation, the
average deal price to deposits was 19.7%, compared with 17.3% for the
Affiliation, and the average deal price to assets was 17.5%, compared with 15.4%
for the Affiliation. For purposes of computing the information with respect to
the Affiliation, $148.50 per share of consideration for each share of King
George Common Stock was used.
Analysis of Union and Virginia Bank Group. Scott & Stringfellow
analyzed the performance and financial condition of Union relative to the
Virginia Bank Group, which includes the following Virginia based financial
institutions: Crestar Financial Corporation, Central Fidelity Banks, Inc.,
Central Virginia Bankshares, F&M National Corporation, First Patriot Bankshares
Corp., First Virginia Banks, Inc., George Mason Bankshares, Inc., Jefferson
Bankshares, Inc., James River Bankshares, Inc., MainStreet BankGroup Inc.,
Premier Bankshares Corporation, and Signet Banking Corporation. Among the
financial information compared was information relating to tangible equity to
assets, loans to deposits, net interest margin, nonperforming assets, total
assets, non-accrual loans, and efficiency ratio, as well as a comparison of
common stock liquidity. Additional information compared for the period ended
March 31, 1996, was (i) price to tangible book value ratio which was 1.74x for
Union, compared to an average of 1.79x for the Virginia Bank Group, (ii) price
to earnings ratio which was 13.6x for Union, compared to an average of 13.1x for
the Virginia Bank Group, (iii) return on assets which was 1.4% for Union,
compared to an average of 1.2% for the Virginia Bank Group, (iv) return on
equity which was 13.6% for Union, compared to an average of 13.3% for the
Virginia Bank Group, and (v) a dividend yield of 2.3% for Union, compared to an
average of 3.2% for the Virginia Bank Group. Overall, in the opinion of Scott &
Stringfellow, Union's operating performance, financial condition, and liquidity
for its Common Stock were comparable to the Virginia Bank Group average and
Union's market value was reasonable when compared to the Virginia Bank Group.
Accordingly, King George stockholders shall receive Union Common Stock that is
reasonably valued when compared to the Virginia Bank Group.
<PAGE>
Dilution Analysis. Based upon publicly available financial
information on King George and Union, Scott & Stringfellow considered the effect
of the transaction on the book value, earnings, and market value of King George
and Union. The immediate effect on Union -- assuming minimal cost savings of 10%
of King George's non-interest expense -- was to increase earnings by $.03 per
share or 1.4% and to increase book value by $.09 or 0.6%. The effect on King
George under the same assumptions is to decrease earnings $.38 per share or
3.4%, to decrease book value by $5.67 per share or 6.3%, to increase dividends
by $.78 or 33.9%, and to increase the March 12, 1996 market value of King George
of $78.00 per share to $148.50. This dilution analysis does not take into
account the longer term benefits for the combined companies resulting from the
combination. Scott & Stringfellow concluded from this analysis that the
transaction would have a significant positive effect on King George and the King
George shareholders in that, historical dividends per share of Union Common
Stock to be received by the King George stockholders, after giving effect to the
Exchange Ratio, would represent a substantial increase in the historical
dividends per share of King George Common Stock, although there can be no
assurance that pro forma amounts are indicative of future results. See
"Comparative Per Share Information."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the King George Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Accordingly, notwithstanding the separate factors
summarized above, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the process underlying the preparation of its
opinion. As a whole, these various analyses, contributed to Scott &
Stringfellow's opinion that the terms of the Affiliation are fair from a
financial point of view to King George shareholders.
Scott & Stringfellow is a full service investment banking and
brokerage firm headquartered in Richmond, Virginia, that provides a broad array
of services to corporations, financial institutions and state and local
governments. The Financial Institutions Group of Scott & Stringfellow actively
works with financial institutions in Maryland, Virginia, North Carolina, the
District of Columbia, and West Virginia on these and other matters. As part of
its investment banking practice, it is continually engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions, negotiated underwritings, and secondary distribution of listed and
unlisted securities. Scott & Stringfellow was selected by the King George Board
based upon its expertise and reputation in providing valuation and merger and
acquisition and advisory services to financial institutions.
In the ordinary course of business, Scott & Stringfellow makes a
market in Union Common Stock and trades such securities for its own account and
for the accounts of its customers.
In exchange for its services, Scott & Stringfellow will receive from
King George on the Effective Date of the Affiliation a fee of approximately
$50,000.
TERMS OF THE AFFILIATION
The Affiliation provides for the exchange of each outstanding share
of King George Common Stock for Union Common Stock. Union will then serve as the
parent bank holding company for King
<PAGE>
George, which will continue to carry on its banking business in substantially
the same manner as before the Affiliation.
At the effective date of the Affiliation, each outstanding share of
King George Common Stock will be exchanged for 5.5 shares of Union Common Stock
(the "Exchange Ratio"), and cash in lieu of any fractional shares. Cash (without
interest) will be paid to King George shareholders in lieu of the issuance of
any fractional shares in an amount equal to the fraction of a share of Union
Common Stock to which such shareholder would otherwise be entitled multiplied by
the average of the closing prices of Union Common Stock as reported on the
Nasdaq National Market during the ten trading days immediately preceding the
Effective Date. King George has no right to terminate the Affiliation or to
obtain an adjustment in the Exchange Ratio solely as a result of a decrease in
the market value of Union Common Stock below a specified level. Similarly, Union
has no right to terminate the Affiliation or obtain an adjustment in the
Exchange Ratio solely as a result of an increase in the market value of Union
Common Stock above a specified level.
In addition, Mr. Homer L. Hite will be appointed by Union to serve
on the Union Board of Directors as soon as practicable after the Affiliation.
Mr. Hite will also be appointed as Senior Vice President of Union and will
continue to serve as President and Chief Executive Officer of King George. See
"The Affiliation - Interests of Certain Persons in the Affiliation."
Shareholders of King George are entitled to exercise their
dissenters' rights with respect to the Affiliation. See "The Affiliation -
Rights of Dissenting Shareholders."
EFFECTIVE DATE
If the Affiliation is approved by the requisite vote of the
shareholders of King George and by the Federal Reserve and the Virginia SCC (see
"The Affiliation Regulatory Approvals") and other conditions to the Affiliation
are satisfied (or waived to the extent permitted by applicable law), the
Affiliation will be consummated and effected at the time a Certificate of Share
Exchange is issued by the Virginia SCC pursuant to the Virginia SCA. See "The
Affiliation - Representations and Warranties; Conditions to the Affiliation."
It is anticipated that the Effective Date will occur on or about
September 30, 1996.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, Union shall cause
Registrar & Transfer Company, acting as the exchange agent (the "Exchange
Agent"), to mail to each King George shareholder (other than dissenting
shareholders) a letter of transmittal and instructions for use in order to
surrender the certificates representing shares of King George Common Stock in
exchange for certificates representing shares of Union Common Stock.
KING GEORGE SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for King George
Common Stock, together with a properly completed letter of transmittal, the
holder of such certificates will receive a certificate or certificates
representing the number of shares of Union Common Stock to which he or she is
entitled
<PAGE>
and, where applicable, a check for the amount payable in cash in lieu of issuing
a fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of Union.
Cash (without interest) will be paid to King George shareholders in
lieu of the issuance of any fractional shares in an amount equal to the fraction
of a share of Union Common Stock to which such shareholder would otherwise be
entitled multiplied by the average of the closing prices of Union Common Stock
as reported on the Nasdaq National Market during the ten trading days
immediately preceding the Effective Date.
After the Effective Date, King George shareholders will be entitled
to vote the number of shares of Union Common Stock into which their King George
Common Stock has been converted, regardless of whether they have surrendered
their King George certificates. The Agreement provides, however, that no
dividend or distribution payable to the holders of record of Union Common Stock
at or as of any time after the Effective Date will be paid to the holder of any
King George certificate until such holder physically surrenders such
certificate, promptly after which time all such dividends or distributions will
be paid (without interest).
CONDITIONS TO THE AFFILIATION
The obligations of Union and King George to consummate the
Affiliation are subject to the following conditions, among, others: approval and
adoption of the Agreement by the requisite shareholder vote; receipt of all
necessary regulatory approvals not conditioned or restricted in a manner that,
in the judgment of the Boards of Directors of Union or King George, materially
adversely affects the economic or business benefits of the Affiliation so as to
render inadvisable consummation of the Affiliation; the absence of certain
actual or threatened proceedings before a court or other governmental body
relating to the Affiliation; receipt of a current fairness opinion from Scott &
Stringfellow; and the receipt of an opinion of counsel as to certain Federal
income tax consequences of the Affiliation. Also, under the terms of the
Agreement, Union agreed that, following the Effective Date, it will indemnify
those persons associated with King George and its subsidiaries who are entitled
to indemnification as of the effective date of the Affiliation.
In addition, each party's obligation to effect the Affiliation,
unless waived, is subject to performance by the other party of its obligations
under the Agreement, the accuracy, in all material respects, of the
representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
REGULATORY APPROVALS
Union's application to acquire King George pursuant to the
Affiliation is subject to approval by the Federal Reserve under the BHC Act,
which requires that the Federal Reserve take into consideration the financial
and managerial resources and future prospects of the existing and proposed
institutions and the convenience and needs of the
<PAGE>
communities to be served. The BHC Act prohibits the Federal Reserve from
approving the Affiliation if it would result in a monopoly or if it would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the business of banking in any part of the United States, or if its
effect may be substantially to lessen competition or to tend to create a
monopoly, or if it would be in any other manner a restraint of trade, unless the
Federal Reserve finds that the anti-competitive effects of the Affiliation are
clearly outweighed in the public interest by the probable effect of the
transaction in meeting the convenience and needs of the communities to be
served. The Affiliation may not be consummated for thirty days after such
approval pursuant to federal law in order to provide a period for the
Affiliation to be challenged under the antitrust laws. The U.S. Department of
Justice may agree to shorten the waiting period to fifteen days.
The BHC Act provides for the publication of notice and the
opportunity for administrative hearings relating to the applications, and it
authorizes the regulatory agency to permit interested parties to intervene in
the proceedings. If an interested party is permitted to intervene, such
intervention could substantially delay the regulatory approvals required for
consummation of the Affiliation.
The Affiliation is further subject to the approval of the Bureau of
Financial Institutions of the Virginia SCC. To obtain such approval, the
Virginia SCC must conclude that the Affiliation will not affect detrimentally
the safety or soundness of a Virginia bank.
As of the date hereof, all regulatory applications have been filed
and accepted, but no approvals have been obtained. Although neither Union nor
King George know of any reason that any approval should not be granted, there
can be no assurance that the required approvals will be obtained, or that any
approval will not be conditioned in a manner which makes consummation of the
Affiliation, in the judgment of the Board of Directors of Union or King George,
inadvisable.
BUSINESS PENDING THE AFFILIATION
Until consummation of the Affiliation (or termination of the
Agreement), King George is obligated to operate its businesses only in the
ordinary and usual course, consistent with past practice and to use its best
efforts to maintain its business organizations, employees and business
relationships and retain the services of its officers and key employees. Until
consummation of the Affiliation (or termination of the Agreement) King George
may not, without the consent of Union, among other things: (a) declare or pay
additional dividends on its capital stock, except for its regular annual cash
dividend in an amount not to exceed $2.35 per share; (b) solicit or encourage
inquiries or proposals with respect to, furnish any information relating to, or
participate in any negotiations regarding any acquisition or purchase of all or
a substantial portion of the assets of, or a substantial equity interest in,
King George or any business combination with King George, except where the
failure to do so would constitute a breach of the fiduciary or legal obligations
of the King George Board of Directors to the shareholders of King George; (c)
amend its charter or bylaws; (d) issue any capital stock or effect any stock
split or otherwise change its capitalization; or (e) purchase or redeem any of
its capital stock.
WAIVER, AMENDMENT AND TERMINATION
At any time on or prior to the Effective Date, any term or condition
of the Affiliation, except for the general conditions set forth in Section
5.1(a) - (d) of the Agreement, may be waived by the party which is entitled to
the benefits thereof, without shareholder approval, to the extent permitted
under applicable law. The Agreement may be amended at any time prior to the
Effective Date by agreement of the parties whether before or after the Special
Meeting (except that the Exchange Ratio shall not be changed after approval of
the Agreement by the King George shareholders). Any material change in a
material term of the Agreement would require a resolicitation of King George's
shareholders. Such a material change would include, but not be limited to, a
change in the tax consequences to King George's shareholders.
The Agreement may be terminated by Union or King George, whether
before or after the approval of the Agreement by the shareholders: (a) if the
other party materially breaches any
<PAGE>
representation, warranty or agreement which is not properly cured by such
breaching party; (b) if the Affiliation is not consummated by December 31, 1996;
or (c) if the Federal Reserve or the Virginia SCC have denied approval. The
Agreement also may be terminated at any time by the mutual consent of Union and
King George. In the event of termination, the Agreement shall become null and
void, except that certain provisions thereof relating to expenses and
confidentiality of information exchanged between the parties shall survive any
such termination.
RESALES OF UNION COMMON STOCK
All shares of Union Common Stock received by King George shareholders
in connection with the Affiliation will be freely transferable, except that
Union Common Stock received by persons who are deemed to be "affiliates" of King
George for purposes of Rule 145 under the 1933 Act. To the best knowledge of
King George and Union, the only persons who may be deemed to be affiliates of
King George subject to these limitations are the directors and executive
officers of King George.
ACCOUNTING TREATMENT
It is anticipated that the Affiliation will be accounted for as a
pooling of interests for accounting and financial reporting purposes. Under this
method of accounting, recorded assets and liabilities of Union and King George
are carried forward at their previously recorded amounts, income of the combined
corporations will include income of Union and King George for the entire fiscal
year in which the Affiliation occurs, and the reported income of the separate
corporations for prior periods will be combined. No recognition of goodwill in
the combination is required of any party to the Affiliation.
For the Affiliation to qualify as a pooling of interests, it must
satisfy a number of conditions including that substantially all of the King
George Common Stock be exchanged for Union Common Stock. In the event that any
of the conditions to pooling of interests accounting is not satisfied, then the
Affiliation would not qualify for pooling of interests accounting treatment, and
a condition to the obligation of Union to consummate the Affiliation would not
be satisfied. Each of Union and King George have agreed that they will use their
respective best efforts to ensure that the Affiliation will qualify for pooling
of interests accounting treatment.
INTERESTS OF CERTAIN PERSONS IN THE AFFILIATION
Certain members of management of King George and the King George
Board may be deemed to have interests in the Affiliation in addition to their
interests as shareholders of King George generally. These interests include,
among others, provisions in the Agreement relating to indemnification of King
George directors and officers, directors' and officers' liability insurance, the
election or appointment of a member of the King George Board to the Union Board,
and certain other employee benefits, as described below. In each case, the King
George Board was aware of their potential interests, and considered them, among
other matters, in approving the Agreement and the transactions contemplated
thereby.
Directors. Union has agreed to cause Homer L. Hite, a member of the
King George Board of Directors, to become a member of the Union Board of
Directors as soon as practicable after consummation of the Affiliation. In
addition, Mr. Hite will be appointed Senior Vice President of Union. Union
currently pays each director $400 for attendance at each Board meeting.
<PAGE>
Indemnification of Directors and Officers. Following the Effective
Date, Union has agreed to indemnify the directors and officers of King George
who are currently entitled to indemnification from King George to the same
extent and on the same conditions as they are entitled to indemnification
pursuant to Virginia law and King George's Articles of Incorporation or Bylaws
with respect to matters occurring on or prior to the Effective Date. In
addition, Union has agreed to use its reasonable best efforts to maintain King
George's existing directors' and officers' liability policy, or some other
policy providing at least comparable coverage, for a period of three years after
the Effective Date.
Assumption of Homer L. Hite's Employment Agreement. Union has agreed
to assume and honor the employment agreement between King George and Homer L.
Hite, subject to his agreement that the Affiliation will not constitute a
"change of control" of King George. Under the terms of the employment agreement,
Mr. Hite would be entitled to receive a cash payment equal to two times his
annual base salary (currently $90,000) in the event of a change of control of
King George. The employment agreement is renewable on an annual basis on its
anniversary date of June 11. The change of control provision was not waived by
Mr. Hite with respect to any future change of control of Union.
Assumption of Salary Continuation Agreements. Union has agreed to
assume and honor two salary continuation agreements between King George and
Homer L. Hite dated October 15, 1979 and September 1, 1985, respectively. Each
agreement is funded by a life insurance policy on the life of Homer L. Hite, and
provides for certain amounts to be paid to Mr. Hite upon his retirement, or to
Mr. Hite's beneficiaries upon his death while still in the employ of King
George.
Assumption of Deferred Compensation Agreements. Union has also agreed
to assume certain deferred compensation agreements between King George and its
directors. Such agreements provide for payment of certain monthly sums to
certain directors of King George (or designated beneficiaries of such
directors), for a period of fifteen years after the death or retirement of such
director at age 65. Such agreements may, in King George's discretion, be funded
by life insurance policies on the lives of the covered directors. Such
agreements are not assignable by the directors for whom such agreements are in
place and, by their terms, are not contracts of employment.
Employees and Benefit Plans. The Agreement provides that the officers
and employees of King George will not change as a result of the Affiliation. As
soon as administratively practicable following the Affiliation, employees of
King George will be entitled to participate in the Union pension, benefit and
similar plans on the same terms and conditions as employees of Union. Employees
of King George will receive credit for their years of service to King George for
participation and vesting purposes only.
CERTAIN FEDERAL INCOME TAX MATTERS
Union and King George have received an opinion from LeClair Ryan,
counsel for Union, to the effect that for federal income tax purposes:
1. The Affiliation will constitute a reorganization within the
meaning of Section 368 of the Code;
2. No gain or loss will be recognized by Union or King George as a
result of the Affiliation;
3. No gain or loss will be recognized by a King George shareholder
to the extent he or she receives Union Common Stock solely in exchange for his
King George Common Stock pursuant to the Affiliation;
4. The tax basis of the Union Common Stock received by each King
George shareholder will be the same as the tax basis of the King George stock
surrendered in exchange therefor; and
5. The holding period for each share of Union Common Stock received
by each King George shareholder in exchange for King George Common Stock will
include the period for which such
<PAGE>
shareholder held the King George Common Stock exchanged therefore, provided such
King George Common Stock is a capital asset in the hands of such holder at the
Effective Date.
The opinion from LeClair Ryan has been filed as an exhibit to the
Registration Statement, and receipt of substantially the same opinion as of the
Effective Date is a non-waivable condition to consummation of the Affiliation.
The opinion from LeClair Ryan is based on, and the opinion to be given at the
Effective Date will be based on, certain customary assumptions and
representations regarding, among other things, the lack of previous dealings
between Union and King George, the existing and future ownership of King George
and Union Common Stock and the future business plans of Union.
Any cash received by shareholders, whether as a result of an exercise
of their dissenters' rights or in lieu of the issuance of fractional shares,
could result in taxable income to the shareholders. The receipt of such cash
generally will be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations. In the case of cash payments in lieu of fractional shares,
however, such payments will be small in amount and not a material concern to
King George shareholders.
The preceding discussion summarizes the material federal income tax
consequences of the Affiliation to King George shareholders. It does not discuss
all potentially relevant federal income tax matters or consequences to any
foreign or other shareholders subject to special tax treatment, nor does it
discuss, and no opinion has been requested regarding, any state or local tax
consequences of the Affiliation. The tax consequences to any particular
shareholder may depend on the shareholder's circumstances. King George
shareholders are urged to consult their own tax advisors concerning federal,
state and local tax consequences of the Affiliation with respect to their
particular tax situation.
RIGHTS OF DISSENTING SHAREHOLDERS
A shareholder of King George Common Stock who objects to the Affiliation (a
"Dissenting Shareholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Affiliation is consummated, for the fair value of his or
her stock immediately before the Effective Date, exclusive of any appreciation
or depreciation in anticipation of the Affiliation unless such exclusion would
be inequitable. In order to receive payment, a Dissenting Shareholder must
deliver to King George before the vote is taken at the Special Meeting a written
notice of intent to demand payment for his or her shares if the Affiliation is
effectuated (an "Intent to Demand Payment") and must not vote his or her shares
in favor of the Affiliation. The Intent to Demand Payment should be delivered to
Homer L. Hite, President, King George State Bank, Inc., 10045 Kings Highway,
King George, Virginia 22485. A VOTE AGAINST THE AFFILIATION WILL NOT ITSELF
CONSTITUTE SUCH WRITTEN NOTICE AND A FAILURE TO VOTE WILL NOT CONSTITUTE A
TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
A shareholder of record of King George Common Stock may assert
dissenters' rights as to fewer than all the shares registered in his or her name
only if the shareholder dissents with respect to all shares beneficially owned
by any one person and notifies King George in writing of the name and address of
each person on whose behalf he asserts dissenters' rights. The rights of such a
partial dissenter are determined as if the shares as to which he dissents and
his other shares were registered in the names of different shareholders. A
beneficial shareholder of King George Common Stock may
<PAGE>
assert dissenters' rights as to shares held on his behalf by a shareholder of
record only if (i) he submits to King George the record shareholder's written
consent to the dissent not later than the time when the beneficial shareholder
asserts dissenters' rights, and (ii) he dissents with respect to all shares of
which he is the beneficial shareholder or over which he has power to direct the
vote.
Within 10 days after the Effective Date, King George is required to
deliver a notice in writing (a "Dissenter's Notice") to each Dissenting
Shareholder who has filed an Intent to Demand Payment and who has not voted such
shares in favor of the Affiliation. The Dissenter's Notice shall (i) state where
the demand for payment (the "Payment Demand") shall be sent and where and when
stock certificates shall be deposited; (ii) supply a form for demanding payment;
(iii) set a date by which King George must receive the Payment Demand; and (iv)
be accompanied by a copy of Article 15. A Dissenting Shareholder who is sent a
Dissenter's Notice must submit the Payment Demand and deposit his or her stock
certificates in accordance with the terms of, and within the time frames set
forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Shareholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the terms of the proposed Affiliation (the "Announcement Date"),
which was March 13, 1996. King George will specify the Announcement Date in the
Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date,
King George shall pay a Dissenting Shareholder the amount King George estimates
to be the fair value of his or her shares, plus accrued interest. Such payment
shall be made within 30 days of receipt of the Dissenting Shareholder's Payment
Demand. As to shares acquired after the Announcement Date, King George is only
obligated to estimate the fair value of the shares, plus accrued interest, and
to offer to pay this amount to the Dissenting Shareholder conditioned upon the
Dissenting Shareholder's agreement to accept it in full satisfaction of his or
her claim.
If a Dissenting Shareholder believes that the amount paid or offered
by King George is less than the fair value of his or her shares, or that the
interest due is incorrectly calculated, that Dissenting Shareholder may notify
King George of his or her own estimate of the fair value of his shares and
amount of interest due and demand payment of such estimate (less any amount
already received by the Dissenting Shareholder) (the "Estimate and Demand"). The
Dissenting Shareholder must notify King George of the Estimate and Demand within
30 days after the date King George makes or offers to make payment to the
Dissenting Shareholder.
Within 60 days after receiving the Estimate and Demand, King George
must either commence a proceeding in the appropriate circuit court to determine
the fair value of the Dissenting Shareholder's shares and accrued interest, or
King George must pay each Dissenting Shareholder whose demand remains unsettled
the amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against King George, except
that the court may assess costs against all or some of the Dissenting
Shareholders to the extent the court finds that the Dissenting Shareholders did
not act in good faith in demanding payment of the Estimate and Demand.
The foregoing discussion is a summary of the material provisions of
Article 15. Shareholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Appendix V to this Proxy
Statement/Prospectus. The provisions of Article 15 are technical and complex,
and a shareholder failing to comply strictly with them may forfeit his or her
Dissenting Shareholder's rights. Any shareholder who intends to dissent from the
Affiliation should review the full text of those provisions carefully and also
should consult with his or her attorney. NO FURTHER NOTICE OF THE EVENTS
<PAGE>
GIVING RISE TO DISSENTERS RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE
FURNISHED TO KING GEORGE SHAREHOLDERS, EXCEPT AS INDICATED ABOVE OR OTHERWISE
REQUIRED BY LAW.
Any Dissenting Shareholder who perfects his right to be paid the fair
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Affiliation - Certain Federal Income Tax Consequences."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Both Union and King George are corporations subject to the provisions
of the Virginia SCA. Shareholders of King George, whose rights are governed by
King George's Articles of Incorporation and Bylaws, will, upon consummation of
the Affiliation, become shareholders of Union. The rights of the former King
George shareholders will then be governed by the Articles of Incorporation and
Bylaws of Union.
There are no material differences between the rights of a King George
shareholder under King George's Articles of Incorporation and Bylaws, on the one
hand, and the rights of an Union shareholder under the Articles of Incorporation
and Bylaws of Union, on the other hand, except as disclosed in the section
"Comparative Rights of Shareholders."
EXPENSES OF THE AFFILIATION
Whether or not the Affiliation is consummated, King George and Union
will pay their own expenses incident to preparing, entering into and carrying
out the Agreement, preparing and filing the Registration Statement of which this
Proxy Statement/Prospectus is a part, except under circumstances involving
willful breaches of certain provisions of the Agreement. In general, the
Agreement provides for each party to pay its own expenses in this regard.
If, however, either party materially breaches the Agreement, that
party must pay the costs associated with this transaction incurred by the
non-breaching party. If the Agreement is terminated by King George because it is
not approved by the King George shareholders, King George must pay 50% of
Union's costs in this transaction, provided that the maximum amount that King
George may be responsible to Union for shall be limited to $50,000.
King George and Union have incurred and will continue to incur
expenses related to the Affiliation, which expenses include, among other
things, legal fees, filing fees, accounting fees, investment banking fees,
printing charges and costs of mailing.
MARKET PRICES AND DIVIDENDS
MARKET PRICES
Union Common Stock is traded on the Nasdaq National Market under the
symbol "UBSH".
The following table sets forth the high and low closing sales prices
for Union Common Stock as quoted on the Nasdaq National Market for the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
CLOSING SALES PRICES
1996 1995 1994
------------------ ------------------ -------------------
HIGH LOW HIGH LOW HIGH LOW
<S> <C>
1st Quarter $ 27.25 $ 24.50 $ 27.00 $ 22.00 $ 30.00 $ 22.00
2nd Quarter 27.50 23.50 26.50 22.00 29.00 22.00
3rd Quarter (through July 15, 1996) 27.00 25.75 27.50 23.50 28.00 23.00
4th Quarter....................... 28.00 24.25 28.00 23.00
</TABLE>
The closing sales price of Union Common Stock on March 12, 1996, the
last full trading day preceding the public announcement of the execution of the
Agreement, as quoted on the Nasdaq National Market was $24.50 per share. The
closing sales price of Union Common Stock on July 15, 1996, the latest
practicable date prior to the date of the Proxy Statement/Prospectus, as quoted
on the Nasdaq National Market was $25.75 per share.
There is no active public market for King George Common Stock. It is
not listed on a registered exchange or quoted on the Nasdaq system, and trades
in King George Common Stock occur infrequently on a local basis and generally
involve a relatively small number of shares. Based on information made available
to it, King George believes that the selling price for its common stock during
1994 was $75; during 1995, ranged from $75 to $79; and from January 1, 1996
through May 31, 1996, ranged from $75 to $78. Such transactions may not be
representative of all transactions during the indicated periods or of the actual
fair market value of the King George Common Stock at the time of such
transactions due to the infrequency of trades and the limited market for King
George Common Stock.
As of March 31, 1996, there were 1,666 record holders of Union Common
Stock. As of the Record Date, there were 244 record holders of King George
Common Stock.
DIVIDENDS
The following tables reflect the cash dividends per share paid during each
quarter on Union Common Stock for the periods indicated. Since 1994, Union has
typically paid dividends on a semi-annual basis in June and December of each
year.
1996 1995 1994 1993
---- ---- ---- ----
1st Quarter....................... $ - $ - $ -
2nd Quarter....................... $ .30 .28 .25 -
3rd Quarter....................... - - .45
4th Quarter....................... .28 .27 -
<PAGE>
King George pays an annual cash dividend in June of each year. King
George paid a cash dividend per share of $2.35, $2.30 and $2.25 in 1996, 1995
and 1994, respectively.
Union is a legal entity separate and distinct from its subsidiaries,
and its revenues depend primarily on the payment of dividends from its
subsidiary banks. Union's subsidiary banks are subject to certain legal
restrictions on the amount of dividends they are permitted to pay to Union.
For example, a Virginia chartered bank is prohibited from paying a dividend
that would impair its paid-in capital. In addition, the Virginia SCC may limit
the payment by any Virginia chartered bank if it determines that the limitation
is in the public interest and is necessary to ensure the bank's financial
soundness.
Under current federal law, insured depository institutions, such as
the Affiliate Banks, are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is defined in federal law). Based
on the Affiliate Banks current financial condition, Union does not expect that
this provision will have any impact on its ability to obtain dividends from its
insured depository institution subsidiaries.
As a result of these legal restrictions, there can be no assurance
that dividends would be paid in the future by Union's bank subsidiaries. The
final determination of the timing, amount and payment of dividends on Union
Common Stock is at the discretion of Union's Board of Directors and will depend
upon the earnings of Union and its subsidiaries, principally the Affiliate
Banks, the financial condition of Union and other factors, including general
economic conditions and applicable governmental regulations and policies.
PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
PRO FORMA CONDENSED BALANCE SHEET
The following unaudited pro forma condensed balance sheet combines
the consolidated historical balance sheets of Union and King George on the
assumption that the Affiliation had been effective as of March 31, 1996, giving
effect to the transaction on a pooling of interests accounting basis. The
unaudited pro forma condensed balance sheet should be read in conjunction with
the consolidated historical financial statements of Union and King George,
including the respective notes thereto, included elsewhere in this Proxy
Statement/Prospectus or in documents incorporated herein by reference. See
"Incorporation of Certain Information by Reference."
<PAGE>
UNION AND KING GEORGE
PRO FORMA CONDENSED BALANCE SHEET
AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
KING PRO FORMA PRO FORMA
UNION GEORGE ADJUSTMENTS COMBINED
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS
Cash and due from banks.............................. $ 14,719 $ 2,024 -- $ 16,743
Interest-bearing deposits
in other banks.................................... 96 -- -- 96
Federal funds sold................................... 3,614 1,590 -- 5,204
Securities........................................... 129,435 9,743 -- 139,178
Loans, net of unearned income........................ 304,265 33,161 -- 337,426
Less allowance for loan losses....................... 3,944 331 -- 4,275
------------- ----------- -------------- ------------
Net loans.................................... 300,321 32,830 -- 333,151
Premises and equipment, net.......................... 10,116 670 -- 10,786
Other assets......................................... 12,642 1,436 -- 14,078
------------- ----------- -------------- -------------
Total assets................................. $ 470,943 $ 48,293 $ -- $ 519,236
============= =========== ============== =============
LIABILITIES
Deposits:
Noninterest bearing............................... $ 45,979 $ 6,039 $ -- $ 52,018
Interest bearing.................................. 339,110 36,783 -- 375,893
------------- ----------- -------------- ------------
Total deposits............................... 385,089 42,822 -- 427,911
Short-term borrowings................................ 31,236 -- -- 31,236
Long-term debt....................................... 1,200 -- -- 1,200
Other liabilities.................................... 3,001 941 -- 3,942
------------- ----------- -------------- ------------
Total liabilities............................ 420,526 43,763 -- 464,289
------------- ----------- -------------- ------------
SHAREHOLDERS' EQUITY
Preferred Stock...................................... -- -- -- --
Common stock, par value
$4.00 per share................................... 13,148 1,100 14,248
Common stock, par value
$6.00 per share................................... - 300 (300) --
Surplus 566 300 (300) 566
Retained earnings.................................... 36,615 3,952 (500) 40,067
Unrealized gain (loss) on securities
available for sale, net........................... 88 (22) -- 66
------------- ------------ -------------- ------------
Total shareholders' equity................... 50,417 4,530 -- 54,947
------------- ----------- -------------- ------------
Total liabilities and
shareholders' equity....................... $ 470,943 $ 48,293 $ -- $ 519,236
============= =========== ============== ============
</TABLE>
See Notes to Pro Forma Condensed Financial Information.
<PAGE>
PRO FORMA CONDENSED STATEMENTS OF INCOME
The following unaudited pro forma condensed statements of income
present the combined statements of income of Union and King George assuming that
King George was combined at the beginning of each period presented on a pooling
of interests accounting basis. These unaudited pro forma condensed statements of
income should be read in conjunction with the consolidated historical financial
statements of Union and King George, including the respective notes thereto,
included elsewhere in this Proxy Statement/Prospectus or in documents
incorporated herein by reference. See "Incorporation of Certain Information by
Reference." The pro forma information is not necessarily indicative of the
results of operations that would have resulted had the Affiliation been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of the results of operations of future periods.
<PAGE>
<TABLE>
<CAPTION>
UNION AND KING GEORGE
PRO FORMA CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
1996 1995 1994 1993
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C>
INTEREST INCOME
Interest and fees on loans........................ $ 7,840 $ 29,561 $ 23,835 $ 22,593
Interest and dividends on securities.............. 2,057 8,163 7,844 7,298
Federal funds sold and securities
purchased under agreements
to resell...................................... 76 327 209 453
Interest-bearing deposits in
other banks....................................... $ 2 $ 32 $ 39 $ 53
----------- ----------- ----------- -----------
Total interest income..................... 9,975 38,083 31,927 30,397
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits ........................................ 4,345 16,365 12,405 12,688
Other borrowings.................................. 383 1,490 684 321
Total interest expense.................... 4,728 17,855 13,089 13,009
----------- ----------- ----------- -----------
Net interest income....................... 5,247 20,228 18,838 17,388
Provision for loan losses......................... 131 977 1,102 1,571
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses............... 5,116 19,251 17,736 15,817
----------- ----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts............... 568 2,143 1,897 1,781
Securities gains (losses), net.................... (106) (16) (14) (68)
Other operating income............................ 140 491 1,066 348
----------- ----------- ----------- -----------
Total other income........................ 602 2,618 2,949 2,061
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits.................... 1,841 6,794 5,872 5,295
Net occupancy expense............................. 422 1,726 1,524 1,342
FDIC assessments.................................. 12 449 759 779
Other operating expenses.......................... 1,076 4,068 3,918 3,418
----------- ----------- ----------- -----------
Total other expenses...................... 3,341 13,037 12,073 10,834
----------- ----------- ----------- -----------
Income before income taxes........................ 2,377 8,832 8,612 7,044
Income tax expense................................ 530 2,079 1,899 1,529
----------- ----------- ----------- -----------
Net income................................ $ 1,847 $ 6,753 $ 6,713 $ 5,515
=========== =========== =========== ===========
PER SHARE DATA
Net income $ 0.52 $ 1.91 $ 1.90 $ 1.56
Cash dividends.................................... -- 0.55 0.51 0.45
Average common shares outstanding................. 3,561,970 3,543,033 3,533,035 3,530,630
</TABLE>
<PAGE>
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
(a) The pro forma information presented is not necessarily indicative of
the results of operations or the financial position that would have
resulted had the Affiliation been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities.
(b) It is assumed that the Affiliation will be accounted for on a pooling
of interests accounting basis and, accordingly, the related pro forma
adjustments have been calculated using the Exchange Ratio of 5.5
shares of Union Common Stock for each outstanding share of King
George Common Stock.
As a result, information was appropriately adjusted for the
Affiliation by the (i) addition of 275,000 shares of Union Common
Stock amounting to $1.1 million; (ii) elimination of 50,000 shares of
King George Common Stock amounting to $300,000; and (iii) recordation
of the remaining amount of $800,000 as a decrease in capital surplus
of $300,000 and a decrease in retained earnings of $500,000 at March
31, 1996.
(c) Per share data has been computed based on the combined historical net
income applicable to common shareholders of Union and King George
using the historical weighted average shares outstanding of Union
Common Stock and the weighted average shares, adjusted to equivalent
shares of Union Common Stock, of King George, as of the earliest
period presented.
<PAGE>
INFORMATION CONCERNING KING GEORGE
HISTORY AND BUSINESS
King George was organized and chartered under the laws of the
Commonwealth of Virginia on February 13, 1973 and commenced operation on June
17, 1974. King George is a Virginia chartered bank and a member of the Federal
Reserve System. Its deposits are FDIC insured, and King George is subject to
supervision, examination and regulation by the Federal Reserve and the Virginia
Bureau of Financial Institutions. King George provides a wide range of financial
services, principally to individuals and to small and medium-sized businesses,
including individual and commercial demand, savings and time deposit accounts,
commercial, agricultural and consumer loans, travelers' checks, safe deposit
facilities, ATM services, sales of United States Savings Bonds, collection items
and official checks.
King George has one banking office located at 10045 Kings Highway,
King George, Virginia. The Bank owns a lot in Dahlgren on Route 206 which may
be used for a future branch site.
As of March 31, 1996, King George had the equivalent of 20
full-time employees. None of its employees are represented by any collective
bargaining unit. King George considers relations with its employees to be
good.
LENDING ACTIVITIES
GENERAL. King George is a residential mortgage and residential
construction lender and also extends commercial loans to small and medium-sized
businesses within its primary service area. Its lending activity extends across
its primary service area of King George County and into Fredericksburg,
Virginia. Consistent with its focus on providing community-based financial
services, King George generally does not make loans to borrowers outside its
primary service area.
The principal economic risk associated with each of the categories of
loans in King George's portfolio is the creditworthiness of its borrowers.
Within each category, such risk is increased or decreased depending on
prevailing economic conditions. In an effort to manage the risk, King George's
policy gives loan amount approval limits to individual loan officers based on
their level of experience. The risk associated with real estate mortgage loans
and installment loans to individuals varies based upon employment levels,
consumer confidence, fluctuations and value of residential real estate and other
conditions that affect the ability of consumers to repay indebtedness. The risk
associated with commercial loans varies based upon the strength and activity of
the local economy of King George's market area. The risk associated with real
estate construction loans varies based upon the supply and demand for the type
of real estate under construction. Most of King George's residential real estate
construction loans are for pre-sold and contract homes.
While King George does not monitor or track specific economic data
from any particular source, it does rely on information contained in local,
regional and national publications dealing with economic activity, consumer
confidence, employment trends, residential and commercial real estate sales and
construction, and business relocations. In addition to this, King George's
Directors, Officers and staff members are involved in a wide variety of local
business, civic and charitable organizations which provides the overall
monitoring of the general direction and developing trends that affect the
business climate of the region.
<PAGE>
RESIDENTIAL MORTGAGE LENDING. King George mortgage operation
originates both conventional and government fixed rate and adjustable rate
residential mortgage loans primarily for resale in the secondary market.
RESIDENTIAL CONSTRUCTION LENDING. Because of the attractive
adjustable rates available, King George makes construction loans for residential
purposes. These include both construction loans to experienced builders and
loans to consumers for owner occupied residences. Construction lending entails
significant additional risk as compared with residential mortgage lending.
Construction loans to builders can involve larger loan balances concentrated
with single borrowers or groups of related borrowers. Also, with construction
loans, funds are advanced upon the security of the home under construction,
which is of uncertain value prior to the completion of construction. Thus, it is
more difficult to evaluate accurately the total loan funds required to complete
a project and related loan-to-value ratios. Residential construction loans to
consumers, for which a permanent loan commitment from another lender approved
prior to loan closing is required, are subject to the additional risk of the
permanent lender failing to provide the necessary funds at closing, either due
to the borrower's inability to fulfill the terms of his commitment or due to the
permanent lender's inability to meet its funding commitments. In addition to its
usual credit analysis of the borrowers, King George seeks to obtain a first lien
on the property as security for its construction loans.
COMMERCIAL REAL ESTATE LENDING. King George provides permanent
mortgage financing for a variety of commercial projects but attempts to
concentrate its efforts on owner-occupied projects. From time to time in the
normal course of business, King George will provide a limited amount of
financing for income producing, non-owner occupied projects which meet all the
guidelines established by loan policy. These loans generally do not exceed 80%
of current appraised or market value, whichever is lower, and are written on
terms which provide for a maturity provision or interest rate adjustment
available from three to five years from the note date.
CONSUMER LENDING. King George currently offers most types of consumer
demand, time and installment loans, including automobile loans and home equity
loans.
COMMERCIAL BUSINESS LENDING. As a full-service community bank, King
George makes commercial loans to qualified small businesses in King George's
market area. Commercial business loans generally have a higher degree of risk
than residential mortgage loans but have commensurably higher yields. To manage
these risks, King George generally secures appropriate collateral and carefully
monitors the financial condition of its business borrowers and the concentration
of such loans in King George's portfolio. Residential mortgage loans generally
are made on the basis of the borrower's ability to make repayment from
employment and other income and are secured by real estate whose value tends to
be easily ascertainable. In contrast, commercial business loans may be
substantially dependent on the success of the business itself. Further, the
collateral for secured commercial business loans may depreciate over time and
cannot be appraised with as much precision as residential real estate.
CREDIT EVALUATION AND LOAN UNDERWRITING. King George places priority
on meeting the borrowing requirements of its credit-worthy depositors.
Non-deposit, credit-worthy customers will also be granted loans when their
requests meet the established requirements, and there are sufficient funds
available to satisfy the demand. General economic conditions in the trade area,
loan demand and yield opportunities will be the principal determinants of loan
levels within the categories previously
<PAGE>
noted. King George's underwriting practices, which are consistently applied,
involve investigation of sources of income, employment history, details of
existing debt, obtaining a credit report and compiling a summary of the borrower
relative to all of these areas. On credits in excess of $3,000, a loan
application or financial statement is required. A minimum of two years of
financial statements, which include balance sheets and profit and loss
statements, is required to evaluate the applicant's cash flow and ability to
service debt. The primary source of repayment is always the ability to pay from
operations with the secondary sources usually being collateral. The debt service
to gross income ratio acceptable for consumer loans is generally 40%. Commercial
loans require sufficient debt service coverage, generally 1.25 times debt
service.
COMPETITION
The financial services industry is competitive in the King George
market area. A very active credit union and two branches of a state-wide bank
are located in the county. Banks from Fredericksburg actively seek business in
King George. Competition for deposits comes from money market mutual funds and
insurance brokers.
MANAGEMENT
The following table lists the executive officers of King George and
the capacity in which they serve.
Name (and Age) Present Position
Homer L. Hite (55) President and Chief Executive Officer since 1974
David F. Clare (40) Vice President for Loans employed since 1994
Scott Q. Nininger (32) Vice President for Operations employed since 1990
Gary A. Salinsky (44) Assistant Vice President for Loans employed since
1995
Priscilla O. Morgan (31) Cashier employed since 1984
EXECUTIVE COMPENSATION
The following table sets forth the compensation of King George's
President and Chief Executive Officer, Mr. Hite, for the fiscal years ended
December 31, 1995, 1994 and 1993. No officer received in excess of $100,000 for
such years. Mr. Hite received no stock options or warrants in any of the
reported years.
<PAGE>
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL POSITION YEAR SALARY(1) ALL OTHER COMPENSATION(2)
Homer L. Hite 1995 $90,258 $3,600
President and 1994 $89,804 $3,450
Chief Executive 1993 $87,541 $3,000
Officer
(1) Amounts shown include $4,258 for 1995, $3,860 for 1994, and $3,175 for
1993 for taxable benefits associated with company vehicle usage.
(2) Amounts shown include $3,000 for each of 1995, 1994, and 1993 related to
deferred directors fees.
EMPLOYMENT CONTRACT. On June 11, 1986, King George entered into an
employment agreement with Mr. Hite pursuant to which Mr. Hite agreed to serve as
Chief Executive Officer of King George commencing on July 1, 1986 and renewing
annually unless the Directors vote affirmatively not to renew the agreement. The
agreement provides that Mr. Hite would be paid a base salary of $46,200 in 1986
and that in each subsequent year he would receive increases as approved by the
Directors. In addition, King George provides Mr. Hite health and similar benefit
plans made available from time to time by King George to its employees, and Mr.
Hite is entitled to participate in any pension, profit sharing and employee
stock ownership plans of King George if and when such plans, or any of them, are
adopted by King George for the benefit of employees of King George.
The agreement provides that in the event King George terminates Mr.
Hite's employment without cause, Mr. Hite is entitled to the full salary at
the annual rate then in effect for the remaining term of the agreement or 90
days, whichever is greater.
The agreement also provides that if King George is sold or merged,
Mr. Hite shall be entitled to a lump sum payment equal to twice his annual base
salary in effect at that time in the event Mr. Hite is not given reasonably
equivalent duties and responsibilities. The consummation of the Affiliation will
not trigger the "sale or merger," commonly known as "change of control,"
provisions of Mr. Hite's agreement. However, in the event that such provisions
had been triggered, as of May 1, 1996, Mr. Hite would have been entitled to
receive approximately $180,000.
BENEFIT PLANS. King George maintains deferred compensation
arrangements with some of the directors. King George's current policy is to
accrue the estimated amounts to be paid under the contracts.
King George has a 401(K) plan administered through the Virginia
Bankers Association. King George matches each employee's contributions up to 6%
of salary.
OWNERSHIP OF KING GEORGE COMMON STOCK
The following table sets forth, as of March 31, 1996, certain
information as to the shares of King George Common Stock beneficially owned by
the King George directors individually and by all directors and executive
officers
<PAGE>
NUMBER OF SHARES BENEFICIALLY
OWNED AS OF MAY 31, 1996
NAME (PERCENT OF CLASS)(1)
Frederick G. Davies 1,960 (2)(3.9%)
Douglas T. Gray 295 (2)*
Homer L. Hite 2,207 (2)(4.4%)
E. R. Morris, Jr. 2,000 (2)(4.0%)
Frank B. Taylor 2,300 (2)(4.6%)
Newell C. Thompson 2,000 (2)(4.0%)
E. Patterson Woodworth 600 (2)(1.2%)
All directors and 11,992 (24.0%)
executive officers
as a group (11 individuals)
* Represents less than 1% of total outstanding shares
(1) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he has or shares the power to vote or
direct the voting of the security or the power to dispose of or direct the
disposition of the security, or if he has the right to acquire beneficial
ownership of the security within sixty days.
(2) Includes shares held jointly with spouse.
CERTAIN TRANSACTIONS
Some of King George's officers and directors are customers of King
George. As such customers, they have had transactions in the ordinary course of
business with King George, all of which were on substantially the same terms as
those prevailing at the time for comparable transactions with other persons and
did not involve more than normal risks of collectability or present any other
unfavorable features. The total direct and indirect indebtedness to King George
of all the directors and principal officers as of December 31, 1995 was
$520,078, an amount equal to 11.85% of King George's equity capital as of
December 31, 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information about the major
components of the results of operations and financial condition, liquidity and
capital resources of King George. This discussion and analysis should be read in
conjunction with the Financial Statements and Notes thereto included elsewhere
in this Proxy Statement/Prospectus.
<PAGE>
OVERVIEW
King George's performance for 1995 continued its twenty-one years of
profit. Net income increased 15% in 1995 to $505,639, compared to $437,873
earned in 1994. Per share earnings increased to $10.11, compared to $8.76 in
1994. The increased earnings for 1995 were primarily due to higher levels of net
interest income and a reduction in the provision for loan losses.
Return on average equity increased during 1995 to 11.97% from 11.31%
in 1994. Return on average assets also increased during 1995 to 1.07%, compared
to .93% for the previous year.
Net interest margin was 4.89% on a tax-equivalent basis in 1995, up
from 4.65% in 1994. The net interest margin for 1993 was 4.02%. Loan demand
rose moderately during 1995.
Loans, net of unearned income and allowance for possible loan losses,
were $32.7 million at December 31, 1995, compared to $30.6 million in 1994.
NET INTEREST INCOME
Net interest income represents the principal source of earnings for
King George. Net interest income equals the amount by which interest income
exceeds interest expense. Changes in the volume and mix of interest-earning
assets and interest-bearing liabilities, as well as their respective yields and
rates, have a significant impact on the level of net interest income.
Net interest income was $2.0 million for the year ended December 31,
1995, up from $1.9 million in 1994. Although the increase in total loans was
small, the favorable interest rate environment produced a higher yield on loans.
Interest expense rose from $1.4 million in 1994 to $1.6 million in 1995 as
customers switched from lower yielding to higher yielding deposits.
INTEREST SENSITIVITY
An important element of both earnings performance and the maintenance
of sufficient liquidity is management of the interest sensitivity gap. The
interest sensitivity gap is the difference between interest sensitive assets and
interest sensitive liabilities in a specific time interval. The gap can be
managed by repricing assets or liabilities, by replacing an asset or liability
at maturity or by adjusting the interest rate during the life of an asset or
liability. Matching the amounts of assets and liabilities repricing in the same
time interval helps to hedge the risk and minimize the impact on net interest
income in periods of rising or falling interest rates.
King George evaluates interest sensitivity risk and then formulates
strategies regarding asset generation and pricing, funding sources and pricing,
and off-balance sheet commitments in order to decrease sensitivity risk. These
strategies are based on management's outlook regarding future interest rate
movements, the state of the regional and national economies and other financial
and business risk factors.
King George establishes prices for deposits and loans based on local
market conditions and manages its securities portfolio in accordance with
policies set by King George. King George reviews its interest sensitivity
position at least monthly.
<PAGE>
At March 31, 1996, King George had $8.5 million more liabilities than
assets subject to repricing within one year and was, therefore, in a
liability-sensitive position. This compares to its position at December 31,
1995, when it had $4.9 million more in liabilities than assets subject to
repricing within one year. A liability-sensitive institution's net interest
margin and net interest income generally will be impacted favorably by declining
interest rates, while that of an asset-sensitive institution generally will be
impacted favorably by rising interest rates.
The following tables present the maturity of King George's loan
portfolio by category and the fixed and variable portions of each category and
its interest sensitivity position as of March 31, 1996. These are one-day
positions which are continually changing and are not necessarily indicative of
King George's position at any other time.
TABLE 1. MATURITY SCHEDULE OF PERIOD END LOANS
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------------------------
1 YEAR OR LESS 1 TO 5 YEARS AFTER 5 YEARS
--------------------- ------------------ ------------------
FIXED VARIABLE FIXED VARIABLE FIXED VARIABLE
RATE RATE RATE RATE RATE RATE TOTAL
------- ---------- ------- ------- ------ ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C>
Commercial.................... $2,159 $ 311 $ 3,105 $ 308 $ 312 $ -- $ 6,195
Real estate construction...... 4,409 -- -- -- -- -- 4,409
Real estate mortgage.......... 1,076 -- 11,577 -- 5,427 -- 18,080
Consumer...................... 1,298 -- 2,866 -- 313 -- 4,477
------- ----- ------- ----- ------ ------ -------
Total......................... $8,942 $ 311 $17,548 $ 308 $6,052 $ -- $33,161
======= ===== ======= ===== ====== ====== =======
</TABLE>
<PAGE>
TABLE 2. INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------------------------------
WITHIN 91 - 365 1 TO 5 OVER
90 DAYS DAYS YEARS 5 YEARS TOTAL
--------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C>
EARNING ASSETS:
Loans (1).................................... $ 1,987 $ 4,857 $ 19,724 $ 6,520 $ 33,088
Securities (2)............................... 1,008 1,390 5,991 1,275 9,664
Federal Funds sold and other
short term investments.................... 1,590 -- -- -- 1,590
--------- ---------- ---------- ---------- ----------
Total earning assets......................... $ 4,585 $ 6,247 $ 25,715 $ 7,795 $ 44,342
========= ========== ========== ========== ==========
INTEREST-BEARING LIABILITIES (3):
Interest checking............................ $ -- $ 429 $ 3,864 $ -- $ 4,293
Regular savings.............................. -- 1,867 7,470 -- 9,337
Money market savings......................... -- 252 1,009 -- 1,261 (4)
Certificates of deposit...................... 7,992 8,839 4,905 -- 21,736
--------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities........... $ 7,992 $ 11,387 $ 17,248 $ -- $ 36,627
--------- ---------- ---------- ---------- ----------
Period gap................................... $ (3,407) $ (5,140) $ 8,467 $ 7,795 $ 7,715
Cumulative gap............................... $ (3,407) $ (8,547) $ (80) $ 7,715
Ratio of Cumulative gap to
total earning assets...................... (7.68)% (19.28)% (0.02)% 17.40%
</TABLE>
(1) Does not include non accrual loans of $73,250 or allowance for loan losses
of $331,158.
(2) Does not include Federal Reserve Stock of $18,000, Community Bankers Stock
of $57,000, and Porays Services, Inc. ( a wholly owned subsidiary) Stock of
$3,959.
(3) Does not include non interest-bearing demand deposits of $6,196,000.
(4) Does not include matured certificates of deposit totalling $262,000.
NONINTEREST INCOME
Noninterest income for 1995 increased by $484, or .3%, over 1994.
Service charges on deposit accounts, the largest single item of noninterest
income, were $136,500 for 1995, up 20.4% over the prior year.
Noninterest income in 1994 increased 6.4% over 1993. Service charges
on deposit accounts decreased slightly from $113,393 in 1994 compared to
$115,268 in 1993.
NONINTEREST EXPENSE
Noninterest expense was $959,000 in 1993, $1,042,000 in 1994 and
$1,138,000 in 1995. This was an increase of 8.7% and 9.2% from 1993 to 1994 and
1994 to 1995, respectively.
King George consistently ranks among the top 5% of its peer group
(based on asset size) in maintaining low overhead costs. Salaries and benefits
increased 30.4% from 1993 to 1994 and 18.5% from 1994 to 1995 because of
personnel additions and promotions, and normal salary increases.
<PAGE>
LOAN PORTFOLIO
Loans, net of unearned income, were $33.0 million at December 31,
1995, up 6.8% from the $31.0 million at December 31, 1994.
Loans secured by real estate consist of a portfolio of predominately
1-4 single family residential loans, which are primarily purchase money loans to
consumers for their primary residences. Such loans at December 31, 1995 were
30.2% of the loan portfolio. Non-farm, non-residential loans comprised 20.4% of
the loan portfolio at December 31, 1995. Home equity lines of credit were
implemented in January of 1996. Real estate construction loans accounted for
14.1% of total loans at December 31, 1995 with the majority being construction
of 1-4 single family residences. King George's consumer portfolio, which was
13.6% of loan portfolio at December 31, 1995, consists of primarily installment
loans.
Consistent with its focus on providing financial services to the
local community, King George generally does not make loans outside its defined
lending area. King George maintains a policy not to originate or purchase loans
classified by regulators as highly leveraged transactions or loans to foreign
entities or individuals.
King George's unfunded commitments amounted to $2.0 million at
December 31, 1995, compared to $2.8 million at December 31, 1994. This decrease
in unfunded commitments was attributable to more construction loans being fully
funded.
<PAGE>
TABLE 3. LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C>
Commercial......................... $ 6,195 $ 5,877 $ 5,111 $ 6,047 $ 2,202 $ 3,778
Real estate construction........... 4,409 4,668 2,242 3,685 4,161 6,497
Real estate mortgage:
Residential (1-4
family)..................... 10,247 9,961 6,976 6,035 5,043 4,222
Home equity lines.............. 6 -- -- -- -- --
Multifamily.................... 1,025 1,066 1,188 950 448 526
Non-farm,
non-residential............. 6,630 6,724 7,799 6,528 8,116 6,866
Agricultural................... 173 232 163 232 233 243
------- ------- ------- ------- ------- -------
Real estate subtotal........... 22,490 22,651 18,368 17,430 18,001 18,354
Consumer........................... 4,477 4,474 7,507 6,093 7,181 8,525
------- ------- ------- ------- ------- -------
Total loans........................ 33,162 33,002 30,986 29,570 27,384 30,657
Less unearned income............... 1 2 21 120 419 594
------- ------- ------- ------- ------- -------
Loans, net of unearned
income......................... $33,161 $33,000 $30,965 $29,450 $26,965 $30,063
======= ======= ======= ======= ======= =======
</TABLE>
ASSET QUALITY
The allowance of loan loss is an estimate of an amount adequate to
provide for potential losses in the loan portfolio of King George. The level of
loan losses is affected by general economic trends as well as conditions
affecting individual borrowers. The allowance is also subject to regulatory
examinations and determinations as to adequacy, which may take into account such
factors as the methodology used to calculate the allowance and the size of the
allowance in comparison to peer companies identified by regulatory agencies.
The provision for loan losses in 1995 decreased to $403,000, from
$505,000 in 1994, in response to improved economic conditions and collection
efforts. The larger provisions for loan losses in years 1991 through 1994 were
attributed to the declining real estate market and weakening economy. The ratio
of the allowance of loan losses to net charge-offs was consistent for these
years.
King George's net charge-offs in 1995 were lower by approximately
$59,000 than in 1994. The improved charge-off experience was due primarily to an
improved economy and more conservative loan policies. The ratio of net
charge-offs to average loans was 1.44% for 1995, compared to 1.73% for 1994. The
ratio for the first quarter of 1996 was .07%.
The allowance for loan losses was $303,000 at December 31, 1995, down
$73,000 from $376,000 at December 31, 1994. The allowance was $406,000 at
December 31, 1993.
<PAGE>
TABLE 4. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C>
Balance, beginning of period........... $ 303 $ 376 $ 376 $ 406 $ 562 $ 522 $ 317
Loans charged-off:
Commercial......................... -- 9 395 278 257 404 408
Real estate contruction............ -- -- -- -- -- -- --
Real estate mortgage............... -- 25 57 206 183 -- --
Consumer installment............... 22 32 75 127 87 60 27
------ ------- ------- ------- ------- ------- -------
Total loans charged-off............ 22 66 527 611 527 464 435
Recoveries:
Commercial......................... -- -- 26 -- -- 6 9
Real estate construction........... -- -- -- -- -- -- --
Real estate mortgage............... -- 16 16 62 11 -- --
Consumer installment -- 1 9 14 9 -- 1
------ ------- ------- ------- ------- ------- -------
Total recoveries................... -- 17 51 76 20 6 20
------ ------- ------- ------- ------- ------- -------
Net charge-offs........................ 22 49 476 535 507 458 415
Provision for credit losses............ 50 70 403 505 351 498 620
------ ------- ------- ------- ------- ------- -------
Balance end of period.................. $ 331 $ 397 $ 303 $ 376 $ 406 $ 562 $ 522
====== ======= ======= ======= ======= ======= =======
Ratio of allowance for credit
losses to loans outstanding
at end of period................... 1.00% 1.23% 0.92% 1.21% 1.38% 2.08% 1.74%
Ratio of net charge-offs to
average loans outstanding
during period...................... 0.07% 0.15% 1.44% 1.73% 1.72% 1.70% 1.38%
</TABLE>
The ratio of allowance for loan losses to nonperforming assets
totaled 4.15% at December 31, 1995; .58% at December 31, 1994 and .97% at
December 31, 1993. Management evaluates nonperforming loans relative to their
collateral value and makes appropriate reductions in the carrying value of those
loans based on that review.
The following table shows the balance and percentage of King George's
allowance for loan losses allocated to each major category of loans:
<PAGE>
TABLE 5. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
REAL ESTATE REAL ESTATE
COMMERCIAL CONSTRUCTION MORTGAGE CONSUMER
---------------------- ---------------------- ---------------------- ----------------------
RESERVE PERCENTAGE RESERVE PERCENTAGE RESERVE PERCENTAGE RESERVE PERCENTAGE
FOR LOAN OF TOTAL FOR LOAN OF TOTAL FOR LOAN OF TOTAL FOR LOAN OF TOTAL
LOSSES LOANS LOSSES LOANS LOSSES LOANS LOSSES LOANS
-------- ---------- -------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C>
March 31,
1996............ $ 62 18.7 % $ 44 13.3% $ 180 54.5% $ 45 13.5%
1995............ 72 18.0 % 46 11.5% 224 56.6% 55 13.9%
December 31,
1995............ 54 17.8 % 43 14.1% 165 54.5% 41 13.6%
1994............ 62 16.5 % 27 7.2% 196 52.0% 91 24.2%
1993............ 83 20.5 % 51 12.5% 189 46.5% 84 20.6%
1992............ 45 8.0 % 85 15.2% 284 50.5% 147 26.2%
</TABLE>
King George has allocated the allowance according to the amount
deemed to be reasonably necessary to provide for the possibility of losses being
incurred within each of the above categories of loans. The allocation of the
allowance as shown in the table above should not be interpreted as an indication
that loan losses in future years will occur in the same proportions or that the
allocation indicates future loan loss trends. Furthermore, the portion allocated
to each loan category is not the total amount available for future losses that
might occur within such categories since the total allowance is a general
allowance applicable to the entire portfolio.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
At the end of 1995, the allowance for loan losses was .92% of
outstanding loans compared to 1.21% of outstanding loans in 1994. The amount
expensed over the last five years as provisions for loan losses has been $2.4
million. Net charge-offs over the same period have been $2.4 million. The losses
in 1991 through 1995 were the result of declining real estate values and
subsequent foreclosures on properties. In 1995, the loss associated with one
loan was $354,000.
NONPERFORMING ASSETS
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans and foreclosed properties, were $405,000 at December 31,
1995, a decrease of $659,000 from December 31, 1994.
The decrease in nonperforming assets in 1995 was largely attributed
to one large commercial loan that was written off and some foreclosed property
being sold. The commercial loan was $354,000 and one foreclosed property of
$85,000. At March 31, 1996, King George's nonperforming assets totaled $405,000.
<PAGE>
TABLE 6. NONPERFORMING ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
------------------ -------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C>
Nonaccrual loans........................... $ 73 $ 598 $ 73 $ 647 $ 418 $ 142 $ 150
Restructured loans......................... 0 0 0 0 0 0 0
Foreclosed property........................ 332 326 332 417 358 672 506
------- ------- ------ ------ ------ ------- -------
Total non-performing assets............ $ 405 $ 924 $ 405 $1,064 $ 776 $ 814 $ 656
======= ======= ====== ====== ====== ======= =======
Allowance for loan losses
to period end loans.................... 1.00% 1.23% 0.92% 1.21% 1.37% 2.05% 1.70%
Allowance for loan losses
to nonaccrual loans.................... 453% 66% 415% 58% 97% 396% 348%
Non-performing assets to
period end loans....................... 1.22% 2.86% 1.23% 3.43% 2.62% 2.97% 2.14%
Net charge-offs to loans................... 0.07% 0.15% 1.44% 1.73% 1.71% 1.67% 1.35%
</TABLE>
Loans are placed on nonaccrual status when collection of interest and
principal is doubtful, generally when loans become 90 days past due. There are
three negative implications for earnings when a loan is placed on nonaccrual
status. All interest accrued but unpaid at the date the loan is placed on
nonaccrual status is either deducted from interest income or written off as a
loss. Second, accruals of interest are discounted until it becomes certain that
both principal and interest can be repaid. Third, there may be actual losses
which necessitate additional provisions for loan losses charged against
earnings.
At December 31, 1995, loans past due 90 days or more and still
accruing interest because they are both well secured and in the process of
collection were $634,000, compared to $54,000 at December 31, 1994, and
$1,086,000 at December 31, 1993.
During 1995, $5,494 in additional interest income would have been
recorded if King George's nonaccrual loans had been current in accordance with
their original terms. During 1994, $49,260 in additional interest income would
have been recorded if King George's nonaccrual loans had been current in
accordance with their original terms.
At December 31, 1995, potential problem loans were approximately
$364,000. These loans are subject to regular periodic management attention, and
their status is reviewed on a regular basis. Of the potential problem loans
identified at December 31, 1995, $178,000 are secured by real estate with
appraised values that exceed the principal balance.
<PAGE>
SECURITIES
The book value of the securities portfolio was $9.5 million at
December 31,1995, compared to $12.8 million at December 31, 1994 and $11.4
million at December 31, 1993. This is largely in response to a strengthening
economy and increased loan demand. Investment in U.S. Government securities
increased $1.2 million, or 21.1%, for 1994 and decreased $3.0 million, or 44.0%,
for 1995. Investment grade corporate securities decreased 18.1% in 1995 from
1994 and 3.8% in 1994 from 1993.
The securities portfolio consists solely of investment securities.
Securities are classified as held-to-maturity when management has the intent and
King George has the ability at the time of purchase to hold the securities to
maturity. Held-to-maturity securities are carried at a cost adjusted for
amortization of premiums and accretion of discounts. Other securities are
classified as available-for-sale and are carried at fair value.
TABLE 7. SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1996 1995 1994 1993
---------------- ------------ ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C>
BOOK VALUE:
U.S. Government Securities:
Held to maturity........................... $ 508 $ 508 $ 6,890 $ 5,690
Available for sale......................... 3,832 3,375 -- --
States and political subdivisions:
Held to maturity........................... 2,772 2,825 2,625 2,361
Available for sale......................... -- -- -- --
Other securities............................... 2,552 2,653 3,236 3,361
Other equity securities........................ 79 79 80 75
----------- ---------- ----------- -----------
Total securities............................... $ 9,743 $ 9,440 $ 12,831 $ 11,487
=========== ========== =========== ===========
</TABLE>
<PAGE>
TABLE 8. MATURITY ANALYSIS AS OF MARCH 31, 1996 (1)
<TABLE>
<CAPTION>
ONE ONE FIVE OVER
YEAR TO FIVE TO TEN TEN
OR LESS YEARS YEARS YEARS TOTAL
------------- ------------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C>
U.S. AGENCY SECURITIES:
Book value................................. $ 1,008 $ 1,301 $ 367 $ 63 $ 2,739
Market value............................... 986 1,282 362 67 2,697
Weighted average yield..................... 4.84% 5.72% 6.66% 8.92% 5.61%
U.S. TREASURY SECURITIES:
Book value................................. $ 252 $ 1,383 $ -- $ -- $ 1,635
Market value............................... 252 1,373 -- -- 1,625
Weighted average yield..................... 5.54% 5.67% -- -- 5.65%
STATE AND POLITICAL SUBDIVISIONS:
Book value................................. $ 76 $ 1,774 $ 812 $ 110 $ 2,772
Market value............................... 76 1,774 819 109 2,778
Weighted average yield..................... 5.87% 6.96% 8.07% 7.15% 7.26%
OTHER SECURITIES:
Book value................................. $ 956 $ 1,596 $ -- $ -- $ 2,552
Market value............................... 956 1,616 -- -- 2,572
Weighted average yield..................... 5.83% 6.66% -- -- 6.28%
TOTAL SECURITIES:
Book value................................. $ 2,292 $ 6,055 $ 1,179 $ 173 $ 9,699
Market value............................... 2,270 6,046 1,181 176 9,673
Weighted average yield..................... 5.34% 6.33% 7.62% 7.97% 6.26%
</TABLE>
(1) For comparative purposes, yields on all securities have been computed on a
tax-equivalent basis.
DEPOSITS
King George works to attract and retain core deposits and reduce cost
of funds. Deposits provide funding for King George's investments in loans and
securities, and the interest paid for deposits must be managed carefully to
control the level of interest expense.
Deposits at December 31, 1995 were $41.4 million, a 4.2% decrease
from December 31, 1994. Interest checking and money market savings have been
relatively stable from 1993 to 1995. Savings accounts decreased from $20.5
million in 1993 to $14.8 million in 1994 to $9.4 million in 1995. There was a
corresponding increase in certificates of deposit from $12.1 million in 1993 to
$16.7 million in 1994 to $21.2 million in 1995. The shift between deposit
categories was attributed to rising rates in 1994 and 1995. Noninterest-bearing
checking deposits were 14.1% of total deposits at December 31, 1995 and December
31, 1994, compared to 12.3% for 1993.
<PAGE>
As shown below, the decline in average total deposits from 1994 to
1995 was a broad consumer reaction to lower yielding deposit accounts. The
average interest rate paid on interest-bearing deposits was 4.51% in 1995,
compared to 4.02% for 1994, and 3.74% for 1993. The largest amount of King
George's deposits are higher yielding time deposits because most of its
customers are individuals who seek higher yields than those offered on savings
and demand accounts.
The following tables include a summary of average deposits and
average rates paid and information concerning the maturity schedule of
certificates of deposit of $100,000 or more.
TABLE 9. DEPOSITS AND RATES PAID
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1994 1993
----------------- ---------------- ---------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ----- -------- ----- -------- ------ -------- ------
(DOLLARS IN THOUSANDS)
<S> <C>
Noninterest-bearing
accounts..................... $ 6,196 $ 5,833 $ 6,084 $ 5,193
Interest-bearing accounts:
Interest checking............ 4,293 2.42% 4,007 2.42% 4,364 2.42% 3,413 2.42%
Money market savings......... 1,261 2.25 1,145 2.25 1,240 2.25 1,136 2.25
Regular checking............. 9,337 3.50 9,434 3.50 15,160 3.50 20,461 3.50
Time deposits:
Less than $100,000.......... 13,603 5.47 13,521 5.54 11,544 5.08 7,772 4.82
$100,000 and over*........... 8,132 5.32 7,463 5.51 4,808 5.16 4,402 4.56
-------- -------- -------- --------
Total interest-bearing
accounts..................... 36,626 4.46% 35,570 4.51% 37,116 4.02% 37,184 3.74%
-------- -------- -------- --------
Total............................ $ 42,822 $ 41,403 $ 43,200 $ 42,377
======== ======== ======== ========
* Does not include $106,000 and $100,000 matured certificates of
deposit at March 31, 1996 and December 31, 1994, respectively.
</TABLE>
TABLE 10. MATURITIES OF CD'S OF $100,000 AND OVER
<TABLE>
<CAPTION>
WITHIN THREE TO SIX TO OVER PERCENT
THREE SIX TWELVE ONE OF TOTAL
MONTHS MONTHS MONTHS YEAR TOTAL DEPOSITS
------------ ------------- ----------- ------------ ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C>
At March 31, 1996................ $ 2,681 $ 2,244 $ 1,879 $ 1,328 $ 8,132 18.99%
At December 31, 1995............. 1,362 3,724 1,441 936 7,463 18.03%
</TABLE>
<PAGE>
LIQUIDITY
Liquidity represents an institution's ability to meet present and
future financial obligations through either the sale or maturity of existing
assets or the acquisition of additional funds through liability management.
Liquid assets include cash, interest-bearing deposits with banks, federal funds
sold, investments in Treasury securities, and loans maturing within one year. As
a result of King George's management of liquid assets and the ability to
generate liquidity through liability funding, management believes that King
George maintains overall liquidity sufficient to satisfy its depositors'
requirements and meet its customers' credit needs.
At March 31, 1996, cash, interest-bearing deposits with banks,
federal funds sold, investments in Treasury securities, and loans maturing
within one year were 27.96% of total earning assets. As of March 31, 1996,
approximately 24.46% or $48.1 million of the loan portfolio would mature or
reprice within a one-year period. King George had no long-term debt or
short-term borrowings at March 31, 1996, or at the end of any of the past three
years.
FIRST THREE MONTHS RESULTS OF OPERATIONS
OVERVIEW. Net income for the first three months of 1996 totaled
$168,599, a 47.1% increase over the $114,637 earned in the first three months of
1995. While net interest income increased 7.5% to $511,000, net interest expense
increased only 7.0% to $410,000. Noninterest expense decreased by $11,000 to
$276,000. The provision for loan losses decreased from $70,000 in the first
three months of 1995 to $50,000 for the same period in 1996.
Loan demand remained basically flat for the first three months of
1996 with loans, net of unearned discount, increasing only slightly from $32.7
million at December 31, 1995, to $32.8 million at March 31, 1996. Investment
securities held, primarily United States Treasury, United States Agency and
municipal securities, increased slightly to $9.7 million at March 31, 1996
compared to $9.4 million at December 31, 1995. Total assets were $48.3 million,
up $1.7 million from $46.6 million reported on December 31, 1995. Total March
31, 1996 deposits were up $1.4 million at $42.8 million at March 31, 1996
compared to $41.4 million at December 31, 1995.
ASSET QUALITY. Loan quality continues to be good despite slow
economic growth in the general economy. For the first three months, King
George had loan charge-offs of approximately $22,000.
CAPITAL RESOURCES. The adequacy of King George's capital is reviewed
by management on an ongoing basis with reference to the size, composition, and
quality of King George's asset and liability levels and consistent with
regulatory requirements and industry standards. Management seeks to maintain a
capital structure that will assure an adequate level of capital to support
anticipated asset growth and absorb potential losses.
The Federal Financial Institutions Examination Council has adopted
capital guidelines to supplement the existing definitions of capital for
regulatory purposes and to establish minimum capital standards. Specifically,
the guidelines categorize assets and off-balance sheet items into four
risk-weighted categories. The minimum ratio of qualifying total capital to
risk-weighted assets is 8%, of which at least 4% must be Tier 1 capital,
composed of common equity, retained earnings and a limited amount of perpetual
preferred stock, less certain goodwill items. King George had a ratio of
<PAGE>
risk-weighted assets to total capital of 13.89% at March 31, 1996 and a ratio of
risk-weighted assets to Tier 1 capital of 12.94%. Both of these exceed the
capital requirements adopted by the federal regulatory agencies
TABLE 11. ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995 1994 1993
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C>
Tier 1 Capital:
Common stock.......................... $ 300 $ 300 $ 300 $ 300
Additional paid in capital............ 300 300 300 300
Retained earnings..................... 3,930 3,790 3,393 3,068
--------- --------- --------- ---------
Total Tier 1 capital.................. 4,530 4,390 3,993 3,668
Tier 2 Capital:
Allowance for credit 331 303 376 406
losses.............................
Allowable long term debt.............. -- -- -- --
Total Tier 2 capital.................. 331 303 376 406
--------- --------- --------- ---------
Total risk-based capital.............. $ 4,861 $ 4,693 $ 4,369 $ 4,074
========= ========= ========= =========
</TABLE>
<PAGE>
BUSINESS OF UNION
HISTORY AND BUSINESS
Union is a multi-bank holding company serving the Central and
Northern Neck regions of Virginia through its two banking affiliates, Union Bank
& Trust Company and Northern Neck State Bank and its non-bank subsidiary, Union
Investment Services, Inc. Union was formed in connection with the affiliation of
Union Bank and Northern Neck Bank in 1993. Both Union Bank and Northern Neck
Bank are state-chartered, Federal Reserve member banks whose deposits are
insured by the Federal Deposit Insurance Corporation. Each is a full-service
commercial bank offering a wide range of banking and related financial services,
including consumer and commercial demand and time deposit accounts, consumer and
commercial loans, residential and commercial mortgages, credit card services and
safe deposit boxes. Union Investment Services is a full-service discount
brokerage firm providing a wide variety of investment choices to investors
throughout Union's trade area.
Through its 12 locations, Union Bank serves customers in a primary
service area which stretches from its headquarters in Bowling Green along the
I-95 corridor from Fredericksburg to central Hanover County and east to King
William County. Northern Neck Bank serves the Northern Neck and Middle Peninsula
regions through four locations in Warsaw, Montross and Tappahannock. The Banks
have a long history of service, with Union Bank and Northern Neck Bank having
been organized in 1902 and 1909, respectively.
At March 31, 1996, Union had total consolidated assets of
approximately $470.9 million, total consolidated deposits through its banking
affiliates of approximately $385.1 million and consolidated shareholders' equity
of approximately $50.4 million. Union's total consolidated net income for the
three months ended March 31, 1996, was approximately $1.7 million, or $0.51 per
share.
For additional information concerning Union, see Union's 1995 Annual
Report to Shareholders and its Quarterly Report on Form 10-Q for the Quarter
Ended March 31, 1996 included as Appendices III and IV, respectively, to this
Proxy Statement/Prospectus. See also "Incorporation of Certain Information by
Reference," "Recent Financial Data" and "Selected Financial Data."
UNION'S ACQUISITION PROGRAM
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow Union
to enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire one or more financial
institutions. There can be no assurance that Union will be able to successfully
effect any additional acquisition activity, or that any such acquisition
activity will have a positive effect on the value of shares of Union Common
Stock.
<PAGE>
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
Union and King George are corporations subject to the provisions of
the Virginia Stock Corporation Act (the "Virginia SCA"). Shareholders of King
George, whose rights are governed by King George's Articles of Incorporation and
Bylaws and by the Virginia SCA, will become shareholders of Union upon
consummation of the Affiliation. The rights of such shareholders as shareholders
of Union will then be governed by the Articles of Incorporation and Bylaws of
Union and by the Virginia SCA.
The following is a summary of the material differences in the rights
of shareholders of King George and Union. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE ARTICLES OF INCORPORATION AND BYLAWS OF EACH
CORPORATION AND TO THE VIRGINIA SCA.
AUTHORIZED CAPITAL
Union. Union is authorized to issue (i) 12,000,000 shares of Common
Stock, par value $4.00 per share, of which 3,286,970 shares were issued and
outstanding as of March 31, 1996, and (ii) 500,000 shares of Preferred Stock,
par value $10.00 per share, of which no shares were issued and outstanding as of
March 31, 1996. Union's Articles of Incorporation authorize the Union Board,
without shareholder approval, to fix the preferences, limitations and relative
rights of the preferred stock and to establish series of such preferred stock
and determine the variations between each series. If any shares of preferred
stock are issued, the rights of holders of Union Common Stock would be subject
to the rights and preferences conferred to holders of such preferred stock.
There are no preemptive rights to purchase additional shares of capital stock of
Union. See "Description of Union Capital Stock" for additional information.
King George. King George is authorized to issue 200,000 shares of
King George Common Stock, par value $6.00 per share, of which 50,000 shares were
issued and outstanding as of March 31, 1996. Similar to the shareholders of
Union, the shareholders of King George do not have preemptive rights to
subscribe for and purchase any shares of King George Common Stock issued for
cash in order to retain their proportionate ownership in King George.
DIVIDEND RIGHTS
Union. The holders of Union Common Stock are entitled to share
ratably in dividends when and as declared by the Union Board of Directors out of
funds legally available therefor. One of the principal sources of income to
Union is dividends from its two Affiliate Banks. For a description of certain
restrictions on the payment of dividends by banks, see "Market Prices and
Dividends." Union's Articles of Incorporation permit the Union Board to issue
preferred stock with terms set by the Union Board, which terms may include the
right to receive dividends ahead of the holders of Union Common Stock. No shares
of preferred stock are presently outstanding.
King George. The holders of King George Common Stock also are
entitled to share ratably in dividends when and as declared by the King George
Board of Directors out of funds legally available therefor. See "Market Prices
and Dividends" for a description of certain restrictions on the payment of
dividends by banks.
<PAGE>
VOTING RIGHTS
The holders of both Union and King George Common Stock have one vote
for each share held on any matter presented for consideration by the
shareholders. Neither the holders of Union nor King George Common Stock are
entitled to cumulative voting in the election of directors.
DIRECTORS AND CLASSES OF DIRECTORS
Union. The Union Board is divided into three classes so that each
director serves for a term ending on the date of the third annual meeting
following the annual meeting at which such director was elected. In the event of
any increase in the authorized number of directors, the newly created
directorships resulting from such increase would be apportioned among the three
classes of directors so as to maintain such classes as nearly equal as possible.
Because of the classification of directors, unless the shareholders act to
remove directors from office, two annual meetings generally would be required to
elect a majority of the Union Board. Under Union's Articles of Incorporation,
directors may only be removed for cause and with the affirmative vote of at
least two-thirds of the outstanding shares entitled to vote.
King George. The King George Board is divided into three classes so
that each director serves for a term ending on the date of the third annual
meeting following the annual meeting at which such director was elected. In the
event of any increase in the authorized number of directors, the newly created
directorships resulting from such increase would be apportioned among the three
classes of directors so as to maintain such classes as nearly equal as possible.
Because of the classification of directors, unless the shareholders act to
remove directors from office, two annual meetings generally would be required to
elect a majority of the King George Board. Under King George's Articles of
Incorporation, directors may only be removed for cause and with the affirmative
vote of at least 80% of the outstanding shares entitled to vote.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Virginia SCA and the Articles of
Incorporation and Bylaws of Union and King George may discourage an attempt to
acquire control of Union or King George, respectively, that a majority of either
corporation's shareholders determined was in their best interests. These
provisions also may render the removal of one or all directors more difficult or
deter or delay corporate changes of control that the Union Board or King George
Board, respectively, did not approve.
Classified Board of Directors; Removal of Directors. The provisions
of Union's and King George's Articles providing for classification of the Board
of Directors into three separate classes and removal of directors only for cause
and with the affirmative vote of the holders of at least two-thirds in the case
of Union and 80% in case of King George of the outstanding shares may have
certain anti-takeover effects.
Authorized Preferred Stock. The Articles of Incorporation of Union
authorize the issuance of preferred stock. The Union Board may, subject to
applicable law and the rules of the Nasdaq National Market, authorize the
issuance of preferred stock at such times, for such purposes and for such
consideration as they may deem advisable without further shareholder approval.
The issuance of preferred stock under certain circumstances may have the effect
of discouraging an attempt by a third
<PAGE>
party to acquire control of Union by, for example, authorizing the issuance of a
series of preferred stock with rights and preferences designed to impede the
proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that,
unless a corporation's articles of incorporation provide for a higher or lower
vote, certain significant corporate actions must be approved by the affirmative
vote of the holders of more than two-thirds of the votes entitled to be cast on
the matter. Corporate actions requiring a two-thirds vote include amendments to
a corporation's articles of incorporation, adoption of plans of merger or share
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of Union provide that a Fundamental
Action shall be approved by a vote of a majority of all votes entitled to be
cast on such transactions by each voting group entitled to vote on the
transaction, provided that the transaction has been approved and recommended by
at least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
The Articles of Incorporation of King George provide that the
affirmative vote of the holders of at least 80% of the outstanding shares of
King George Common Stock is required to approve a "Business Combination" (as
defined in the Articles of Incorporation) with any person who owns or controls
5% or more of the total voting power of all the outstanding voting stock of King
George, except for Business Combinations approved by not less than 80% of the
Board of Directors. A "Business Combination" is defined in the King George
Articles of Incorporation to include: (i) a merger, reorganization or
consolidation with an unaffiliated corporation, the sale, (ii) the sale, lease
or hypothecation of 25% or more of the total assets of King George, and (iii)
the issuance during any twelve-month period of convertible securities, warrants
or options representing, in the aggregate, more than 5% of the total voting
power of all outstanding voting securities to certain persons and their
affiliates who own or control 5% or more of King George Common Stock.
These provisions could tend to make the acquisition of either Union
or King George more difficult to accomplish without the cooperation or
favorable recommendation of either the Union or King George Board, as the case
may be.
Shareholder Meetings. Shareholders of both Union and King George may
not request that a special meeting of shareholders be called.
State Anti-Takeover Statutes. Virginia has two anti-takeover
statutes in force, the Affiliated Transactions Statute and the Control Share
Acquisitions Statute.
Affiliated Transactions. The Virginia SCA contains provisions
governing "affiliated transactions" (including, among other various
transactions, mergers, share exchanges, sales, leases, or other dispositions of
material assets, issuances of securities, dissolutions, and similar
transactions) with an "interested shareholder" (generally the beneficial owner
of more than 10% of any class of the corporation's outstanding voting shares).
During the three years following the date a shareholder becomes an interested
shareholder, any affiliated transaction with the interested
<PAGE>
shareholder must be approved by both a majority of the "disinterested directors"
(those directors who were directors before the interested shareholder became an
interested shareholder or who were recommended for election by a majority of
disinterested directors) and by the affirmative vote of the holders of
two-thirds of the corporation's voting shares other than shares beneficially
owned by the interested shareholder. The foregoing requirements do not apply to
affiliated transactions if, among other things, a majority of the disinterested
directors approve the interested shareholder's acquisition of voting shares
making such a person an interested shareholder prior to such acquisition.
Beginning three years after the shareholder becomes an interested shareholder,
the corporation may engage in an affiliated transaction with the interested
shareholder if (i) the transaction is approved by the holders of two-thirds of
the corporation's voting shares, other than shares beneficially owned by the
interested shareholder, (ii) the affiliated transaction has been approved by a
majority of the disinterested directors, or (iii) subject to certain additional
requirements, in the affiliated transaction the holders of each class or series
of voting shares will receive consideration meeting specified fair price and
other requirements designed to ensure that all shareholders receive fair and
equivalent consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisitions Statute.
Union has not opted-out of the statute. The statutes do not apply to King George
because it has fewer than 300 shareholders.
DIRECTOR AND OFFICER EXCULPATION
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of
<PAGE>
incorporation and bylaws if the officer or director engaged in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law.
Union. The Articles of Incorporation of Union provide that to the
full extent that the Virginia SCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of Union shall not be
liable to Union or its shareholders for monetary damages.
King George. The Articles of Incorporation of King George provide
that to the full extent that the Virginia SCA permits the limitation or
elimination of the liability of directors or officers, a director or officer of
King George shall not be liable to King George or its shareholders for monetary
damages in excess of $1.00.
INDEMNIFICATION
Union. The Articles of Incorporation of Union provide that, to the
full extent permitted by the Virginia SCA and any other applicable law, Union is
required to indemnify a director or officer of Union who is or was a party to
any proceeding by reason of the fact that he is or was such a director or
officer or is or was serving at the request of the corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The board of
directors is empowered, by majority vote of a quorum of disinterested directors,
to contract in advance to indemnify any director or officer.
King George. Similar to Union, the Articles of Incorporation of King
George provide that, to the full extent permitted by the Virginia SCA and any
other applicable law, King George is required to indemnify a director or officer
of King George who is or was a party to any proceeding by reason of the fact
that he is or was such a director or officer or is or was serving at the request
of the corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. The board of directors is empowered, by majority vote of a
quorum of disinterested directors, to contract in advance to indemnify any
director or officer
DISSENTERS' RIGHTS
The provisions of Article 15 of the Virginia SCA provide shareholders
of a Virginia corporation the right to dissent from, and obtain payment of the
fair value of their shares in the event of mergers, share exchanges,
consolidations and certain other corporate transactions. However, Article 15 of
the Virginia SCA provides that holders of shares of a Virginia corporation which
has shares listed on a national securities exchange or which has at least 2,000
record shareholders are not entitled to dissenters' rights unless certain
requirements are met. It is expected that following consummation of the
Affiliation, Union will have approximately 1,910 shareholders of record. For
additional information in this regard, see "Affiliation - Rights of Dissent and
Appraisal."
DESCRIPTION OF UNION CAPITAL STOCK
Union is authorized to issue (i) 12,000,000 shares of Common Stock,
par value $4.00 per share, and (ii) 500,000 shares of Preferred Stock, par value
$10.00 per share, which may be issued in series with such powers, designations,
and rights as may be established from time to time by the Board of Directors. On
March 31, 1996, Union had issued and outstanding 3,286,970 shares of Union
<PAGE>
Common Stock held by 1,666 shareholders of record. All outstanding shares of
Union Common Stock are fully paid and nonassessable. No shares of Preferred
Stock have been issued.
COMMON STOCK
Holders of shares of Union Common Stock are entitled to receive
dividends when and as declared by the Board of Directors out of funds legally
available therefor. Union's ability to pay dividends is dependent upon its
earnings and financial condition of Union and certain legal requirements.
Specifically, the Federal Reserve has stated that bank holding companies should
not pay dividends except out of current earnings and unless the prospective rate
of earnings retention by the company appears consistent with its capital needs,
asset quality and overall financial condition. In addition, Virginia law
precludes any distribution to shareholders if, after giving it effect, (a) Union
would not be able to pay its debts as they become due in the usual course of
business; or (b) Union's total assets would be less than the sum of its total
liabilities plus the amount that would be needed, if Union were to be dissolved
at the time of the distribution to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to those
receiving the distribution. Upon the liquidation, dissolution or winding up of
Union, whether voluntary or involuntary, holders of Union Common Stock are
entitled to share ratably, after satisfaction in full of all liabilities, in all
remaining assets of Union available for distribution. The dividend and
liquidation rights of Union Common Stock are subject to the rights of any
Preferred Stock that may be issued and outstanding.
Holders of Union Common Stock are entitled to one vote per share on
all matters submitted to shareholders. There are no cumulative voting rights in
the election of directors or preemptive rights to purchase additional shares of
any class of Union's capital stock. Holders of Union Common Stock have no
conversion or redemption rights. The shares of Union Common Stock presently
outstanding are, and those shares of Union Common Stock to be issued in
connection with the Affiliation will be when issued, fully paid and
nonassessable. Union Common Stock is approved for trading on the Nasdaq National
Market.
Union maintains a Dividend Reinvestment Plan providing for the
purchase of additional shares of Union Common Stock by reinvestment of cash
dividends paid on the outstanding shares of Union Common Stock. Dividends
reinvested are applied to the purchase of shares of Union Common Stock at 95% of
the market value at the time of purchase. The plan permits Union, at its
discretion, to use shares purchased in the over-the-counter market or to use
Union's authorized and unissued shares in order to satisfy the plan's
requirements.
PREFERRED STOCK
The Board of Directors, without shareholder approval, is empowered to
authorize the issuance, in one or more series, of shares of Preferred Stock at
such times, for such purposes and for such consideration as it may deem
advisable. The Board of Directors is also authorized to fix before the issuance
thereof the designations, voting, conversion, preference and other relative
rights, qualifications and limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize
the issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of Union
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of Union.
<PAGE>
The creation and issuance of any additional series of Preferred
Stock, and the relative rights, designations and preferences of such series, if
and when established, will depend upon, among other things, the future capital
needs of Union, then existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of Preferred
Stock.
EXPERTS
The consolidated financial statements of Union included as part of
Appendix II hereto and incorporated in this Proxy Statement/Prospectus by
reference to Union's Annual Report on Form 10-K for the year ended December 31,
1995 have been so incorporated in reliance upon the report of KPMG Peat Marwick
LLP, independent auditors, incorporated by reference herein, and upon the
authority of such firm as experts in auditing and accounting. The report of KPMG
Peat Marwick LLP refers to a change in accounting for certain investments in
debt and equity securities.
The audited financial statements of King George included in this
Proxy Statement/Prospectus have been so included in reliance upon the report of
Smith & Eggleston, P.C., independent certified public accountants, given on
their authority as experts in auditing and accounting.
LEGAL OPINIONS
The validity of the shares of Union Common Stock offered hereby is
being passed upon for Union by LeClair Ryan, A Professional Corporation,
Richmond, Virginia. LeClair Ryan will deliver opinions to Union and King George,
respectively, concerning certain federal income tax consequences of the
Affiliation. See "Affiliation - Certain Federal Income Tax Consequences."
Certain matters relating to the Affiliation will be passed upon for
King George by Mays & Valentine, Richmond, Virginia.
OTHER MATTERS
The King George Board of Directors does not intend to bring any
matter before the Special Meeting other than as specifically set forth in the
Notice of Special Meeting of Shareholders, nor does it know of any matter to be
brought before the Special Meeting by others. If, however, any other matters
properly come before the Special Meeting, it is the intention of each of the
proxyholders to vote such proxy in accordance with the decision of a majority of
the King George Board of Directors.
<PAGE>
Index to Financial Statements
King George State Bank, Inc.
PAGE
AUDITED FINANCIAL STATEMENTS:
Independent Auditor's Report...............................................F-2
Balance Sheets as of December 31, 1995 and 1994............................F-3
Statements of Operations for the Two Years Ended
December 31, 1995 and 1994......................................F-5
Statements of Changes in Stockholders' Equity for the Two
Years Ended December 31, 1995 and 1994..........................F-6
Statements of Cash Flows for the Two Years Ended
December 31, 1995 and 1994......................................F-7
Notes to Financial Statements..............................................F-9
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Balance Sheet as of March 31, 1996.........................................F-19
Statements of Operations for the Three Months Ended
March 31, 1996 and 1995.........................................F-20
Statements of Charges in Stockholders' Equity for the
Three Months Ended March 31, 1996 and 1995......................F-21
Statements of Cash Flows for the Three Months Ended
March 31, 1996 and 1995.........................................F-22
Notes to Interim Financial Statements......................................F-24
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Stockholders and Directors
King George State Bank, Inc.
King George, Virginia
We have audited the accompanying balance sheets of King George State Bank,
Inc. as of December 31, 1995 and 1994, and the related statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the three year period ended December 31, 1995. These financial statements are
the responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly,
in all material respects, the financial position of King George State Bank, Inc.
as of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the three year period ended December 31,
1995 in conformity with generally accepted accounting principles.
SMITH & EGGLESTON, P.C.
February 16, 1996
F-2
<PAGE>
KING GEORGE STATE BANK, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
A S S E T S
1995 1994
----------- --------
CASH AND DUE FROM BANKS $ 1,805,084 $ 1,214,097
INVESTMENT SECURITIES: (Approximate market
value of $9,497,346 and $12,245,673 for
1995 and 1994, respectively)
(Notes 1, 2 & 16) 9,450,258 12,831,041
FEDERAL FUNDS SOLD (Note 16) 600,000 1,200,000
LOANS: (Net of allowance for loan losses
of $303,160 and $376,219 for 1995 and
1994, respectively) (Notes 1, 3 & 16) 32,696,362 30,589,695
PREMISES AND EQUIPMENT (Notes 1 & 11) 679,571 687,420
OTHER REAL ESTATE OWNED (Note 8) 331,711 416,633
OTHER ASSETS (Note 5) 1,098,033 1,061,804
----------- ----------
Total Assets $46,661,019 $48,000,690
=========== ===========
F-3
<PAGE>
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
1995 1994
----------- --------
DEPOSITS: (Note 16)
Demand $ 5,629,172 $ 5,791,472
NOW accounts 2,190,244 2,346,526
Money Market accounts 2,961,813 3,646,034
Savings 9,436,386 14,760,000
Time, $100,000 and over 7,463,411 4,907,847
Other time 13,722,267 11,747,806
----------- -----------
Total Deposits $41,403,293 $43,199,685
OTHER LIABILITIES (Note 6) 867,380 808,050
----------- -----------
Total Liabilities $42,270,673 $44,007,735
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Capital stock - par value $6 per share:
Authorized - 200,000 shares
Issued and outstanding - 50,000 shares $ 300,000 $ 300,000
Surplus 300,000 300,000
Retained earnings 3,783,594 3,392,955
Unrealized gain on securities available-
for-sale (Note 2) 6,752 -
----------- -----------
Total Stockholders' Equity $ 4,390,346 $ 3,992,955
----------- -----------
Total Liabilities and Stockholders' Equity $46,661,019 $48,000,690
=========== ===========
See Notes To Financial Statements
F-4
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C>
INTEREST INCOME:
Interest and fees on loans $2,977,761 $2,591,485 2,738,209
Interest on investment
securities:
Obligations of the U. S.
government and its
agencies and corporations 265,075 343,557 221,575
Obligations of states and
political subdivisions 168,123 129,228 91,616
Other securities 169,222 197,897 173,100
Interest on federal funds sold 32,435 52,892 178,296
---------- ---------- ----------
Total Interest Income $3,612,616 $3,315,059 $3,402,796
Interest on deposits 1,572,611 1,380,369 1,669,951
---------- ---------- ----------
Net Interest Income $2,040,005 $1,934,690 $1,732,845
PROVISION FOR LOAN LOSSES
(Notes 1 & 3) 403,000 505,000 351,357
---------- ---------- ----------
Net Interest Income After
Provision For Loan Losses $1,637,005 $1,429,690 $1,381,488
NONINTEREST INCOME (Note 12) 176,346 175,862 166,189
---------- ---------- ----------
$1,813,351 $1,605,552 $1,547,677
---------- ---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits $ 550,465 $ 464,415 $ 356,190
Occupancy 107,519 95,496 91,929
Equipment 43,470 29,474 60,738
Other 375,426 346,110 346,536
FDIC insurance 61,418 106,682 103,405
---------- ---------- ----------
$1,138,298 $1,042,177 $ 958,798
---------- ---------- ----------
Income Before Income Tax $ 675,053 $ 563,375 $ 588,879
PROVISION FOR INCOME TAX
(Note 7) 169,414 125,502 227,523
---------- ---------- ----------
Net Income $ 505,639 $ 437,873 $ 361,356
========== ========== ==========
Earnings per share (Note 1) $ 10.11 $ 8.76 $ 7.23
========== ========== ==========
</TABLE>
See Notes To Financial Statements
F-5
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
Capital Retained
Stock Surplus Earnings Total
<S> <C>
BALANCE - JANUARY 1, 1993 $ 300,000 $ 300,000 $2,816,226 $3,416,226
Dividends (Note 4) - - ( 110,000) ( 110,000)
Net income - - 361,356 361,356
--------- --------- ---------- ----------
BALANCE - DECEMBER 31, 1993 $ 300,000 $ 300,000 $3,067,582 $3,667,582
Dividends (Note 4) - - ( 112,500) ( 112,500)
Net Income - - 437,873 437,873
--------- --------- ---------- ----------
BALANCE - DECEMBER 31, 1994 $ 300,000 $ 300,000 $3,392,955 $3,992,955
Dividends (Note 4) - - ( 115,000) ( 115,000)
Net Income - - 505,639 505,639
Unrealized gains on securities
available-for-sale - - 6,752 6,752
--------- --------- ---------- ----------
BALANCE - DECEMBER 31, 1995 $ 300,000 $ 300,000 $3,790,346 $4,390,346
========= ========= ========== ==========
</TABLE>
See Notes To Financial Statements
F-6
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 505,639 $ 437,873 $ 361,356
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 78,957 74,947 58,093
Provision for loan losses 403,000 505,000 351,357
Amortization of premium on investment
securities 46,106 59,691 56,924
Gain (loss) on sale of investment
securities 7,395 ( 517) ( 746)
Changes in assets and liabilities:
(Increase) in cash value of life
insurance ( 17,451) ( 45,079) ( 31,872)
Decrease in deferred income taxes 29,658 29,565 100,073
(Increase) decrease in interest
receivable ( 42,894) 10,258 ( 67,944)
(Increase) in prepaid expenses ( 9,746) ( 5,437) 12,060
(Increase) decrease in accounts
receivable - other 726 159 ( 40,235)
Increase (decrease) in interest
payable on deposits 29,201 51,054 ( 83,864)
Increase in deferred compensation
liability 23,930 55,597 73,823
Increase in accounts payable 6,199 12,106 1,299
(Decrease) in income tax payable - - ( 19,902)
---------- ---------- ----------
Net Cash Provided by Operating
Activities $1,060,720 $1,185,217 $ 770,422
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans ($2,509,667) ($2,056,911) ($2,956,626)
Purchase of held-to-maturity securities ( 950,151) ( 2,266,972) ( 7,697,849)
Proceeds from maturities of held-to-
maturity securities 4,254,026 868,882 1,485,923
Purchase of available-for-sale securities ( 100,000) - -
Proceeds from sale of securities 133,637 - -
Changes in federal funds sold - net 600,000 1,265,000 6,715,000
Purchase of equipment ( 71,108) ( 76,853) ( 141,626)
Purchase of other real estate ( 66,991) ( 297,116) ( 90,971)
Proceeds from sale of foreclosed
real estate 151,913 238,283 404,912
---------- ---------- ----------
Net Cash Provided by (Used in)
Investing Activities $1,441,659 ($2,325,687) ($2,281,237)
---------- ---------- ----------
</TABLE>
See Notes To Financial Statements
F-7
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits - net ($1,796,392) $ 815,964 $2,169,535
Dividends paid ( 115,000) ( 112,500) ( 110,000)
---------- ---------- ----------
Net Cash Provided by (Used in)
Financing Activities ($1,911,392) $ 703,464 $2,059,535
---------- ---------- ----------
Net Increase (Decrease) in Cash
and Due from Banks $ 590,987 ($ 437,006) $ 548,720
CASH AND DUE FROM BANKS - BEGINNING OF YEAR 1,214,097 1,651,103 1,102,383
---------- ---------- ----------
CASH AND DUE FROM BANKS - END OF YEAR $1,805,084 $1,214,097 $1,651,103
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $1,543,409 $1,329,316 $1,753,815
Income taxes 138,463 123,390 187,569
</TABLE>
See Notes To Financial Statements
F-8
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
HISTORY AND ORGANIZATION
King George State Bank, Inc., a Virginia corporation, provides general
commercial banking services to individuals and businesses primarily within King
George County, Virginia and surrounding communities. It is a member of the
Federal Reserve System and the Federal Deposit Insurance Corporation and is also
subject to the regulations of certain Federal and State agencies. It undergoes
periodic examinations by 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.
INVESTMENT SECURITIES
Debt securities that management has the ability and intent to hold to maturity
are classified as held-to-maturity and carried at cost, adjusted for
amortization of premiums and accretion of discounts, computed by the interest
method. Other marketable securities are classified as available-for-sale and are
carried at fair value. Unrealized gains and losses on securities
available-for-sale are recognized as direct increases or decreases in
stockholders' equity. The cost of securities sold is recognized using the
specific identification method.
MORTGAGE BACKED SECURITIES
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal balances,
adjusted for unamortized premiums and unearned discounts. Premiums and discounts
are amortized using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments. Mortgage
backed securities that management has the ability and intent to hold to maturity
are classified as held-to-maturity. Other mortgage backed securities are
classified as available-for-sale and are carried at fair value. Should any be
sold, cost of securities sold is determined using the specific identification
method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned discount
and an allowance for loan losses. Unearned discount on installment loans is
recognized as income over the terms of the loans. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding. The allowance for loan losses is maintained at a
level which, in management's judgment, is adequate to absorb credit losses
inherent in the loan portfolio. The amount of the allowance is based on
management's evaluation of the
F-9
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the provision
for loan losses. Because of uncertainties inherent in the estimation process,
management's estimate of credit losses inherent in the loan portfolio and the
related allowance may change in the near term. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
PREMISES AND EQUIPMENT
The premises and equipment is recorded at cost. Depreciation is based on
estimated useful service lives and is computed on the straight-line method.
CASH FLOW INFORMATION
The statement of cash flows reconciles net income with the change in cash and
due from banks. The indirect method has been used. For purposes of reporting
cash flows, cash and due from banks includes cash on hand and amounts due from
banks.
EARNINGS PER SHARE
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding.
LOAN COSTS
Loan fees and certain direct loan origination costs of completed loans are
deferred and recognized as an adjustment of the yields on related loans over the
lives of the loans.
INCOME TAXES
In 1993, the Bank adopted FASB Statement 109, Accounting for Income Taxes, which
requires an assets and liability approach to financial accounting and reporting
for income taxes. Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of the
allowance for loan losses, premises and equipment, deferred loan costs and
deferred compensation liability for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return consequences
of those differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled. Income tax expense is the tax payable
or refundable for the year plus or minus the change for the year in deferred tax
assets and liabilities.
F-10
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
FORECLOSED REAL ESTATE
Foreclosed real estate includes both formally foreclosed property and
in-substance foreclosed property. In-substance foreclosed properties are those
properties for which the Bank has taken physical possession, regardless of
whether formal foreclosure proceedings have taken place.
At the time of foreclosure, foreclosed real estate is recorded at the lower of
the Bank's cost or the asset's fair value, less estimated costs to sell, which
becomes the property's new basis. Any write-downs based on the asset's fair
value at date of acquisition are charged to the allowance for loan losses. Costs
incurred in maintaining foreclosed real estate and subsequent write-downs to
reflect declines in the fair value of the property are included in income (loss)
on foreclosed real estate.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to current
presentations.
NOTE 2: INVESTMENT SECURITIES:
Securities held-to-maturity at December 31, 1995 consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Government and
federal agencies $ 500,000 $ - $ 30,000 $ 470,000
State and local governments 2,824,417 32,887 10,785 2,846,519
Mortgage-backed securities 8,384 37 220 8,201
Corporate debt securities 2,653,317 58,675 3,506 2,708,486
---------- ---------- ---------- -----------
$5,986,118 $ 91,599 $ 44,511 $ 6,033,206
========== ========== ========== ===========
Securities available-for-sale at December 31, 1995 consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Government and
federal agencies $3,290,964 $ 13,356 $ 8,050 $ 3,296,270
Mortgaged-backed securities 83,987 4,924 - 88,911
---------- ---------- ---------- -----------
$3,374,951 $ 18,280 $ 8,050 $ 3,385,181
Other equity securities 78,959 - - 78,959
---------- ---------- ---------- -----------
$3,453,910 $ 18,280 $ 8,050 $ 3,464,140
========== ========== ========== ===========
F-11
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 2: INVESTMENT SECURITIES: (Continued)
The total net unrealized gain on available-for-sale securities of $10,230 is
reported as an increase of retained earnings of $6,752 (net of $3,478 deferred
income tax). The carrying amounts of investments at December 31, 1995 are as
follows:
Held-to-maturity $5,986,118
Available-for-sale 3,464,140
$9,450,258
Securities held-to-maturity at December 31, 1994 consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U. S. Government and
federal agencies $ 6,764,166 $ - $ 338,481 $ 6,425,685
State and local governments 2,624,532 3,736 143,455 2,484,813
Mortgaged-backed securities 125,779 1,955 1,260 126,474
Corporate debt securities 3,236,464 - 102,763 3,133,701
----------- ---------- ---------- -----------
$12,750,941 $ 5,691 $ 585,959 $12,170,673
=========== ========== ========== ===========
Securities available-for-sale at December 31, 1994 consist of the following:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Other equity securities $ 80,100 $ - $ - $ 80,100
=========== ========== ========== ===========
U. S. Government and government backed obligations with a carrying amount of
$1,679,956 are pledged to secure municipality and treasury tax and loan deposits
as of December 31, 1995.
The schedule below reflects the maturities of investment securities at December
31, 1995. The classification of mortgage-backed securities was based on expected
maturities, while contractual maturities were used for other debt securities.
Expected maturities differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
F-12
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 2: INVESTMENT SECURITIES: (Continued)
Securities Securities
Held-to-Maturity Available-for-Sale
Amortized Fair Amortized Fair
Cost Value Cost Value
Due in one year or less $ 900,781 $ 903,438 $ 452,655 $ 452,235
Due after one year through
five years 4,154,539 4,187,864 2,838,309 2,844,035
Due after five years through
ten years 812,459 823,908 - -
Due after ten years 109,955 109,795 - -
Mortgage-backed securities 8,384 8,201 83,987 88,911
Equity securities - - 78,959 78,959
---------- ---------- ---------- -----------
$5,986,118 $6,033,206 $3,453,910 $ 3,464,140
========== ========== ========== ===========
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES:
Major classifications of loans are as follows:
1995 1994
----------- --------
Monthly real estate $ 6,871,847 $ 6,259,413
Construction 1,151,264 1,411,330
Collateral 19,930,743 16,960,457
Installment 3,348,455 3,108,029
Plain 1,663,911 3,158,683
Demand - 20,000
Capitalized loan costs 47,151 69,239
----------- -----------
$33,013,371 $30,987,151
Unearned income ( 13,849) ( 21,237)
----------- -----------
$32,999,522 $30,965,914
Allowance for loan losses ( 303,160) ( 376,219)
----------- -----------
Loans - net $32,696,362 $30,589,695
=========== ===========
Loans on which the accrual of interest has been discontinued or reduced amounted
to $73,250 and $646,437 at December 31, 1995 and 1994, respectively. Certain
directors and officers were indebted to the Bank in the aggregate amounts of
$520,078 and $604,569 as of December 31, 1995 and 1994, respectively. During the
year ended December 31, 1995, new loans made to related parties totaled $53,000
and repayments totaled $137,491.
F-13
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES: (Continued)
An analysis of the changes in the allowance for loan losses follows:
1995 1994
---------- ----------
Balance - beginning of year $ 376,219 $ 405,924
Additions:
Provision charged to operations 403,000 505,000
Recoveries of loans charged off
in prior years 51,631 76,969
---------- ----------
$ 830,850 $ 987,893
Deduction:
Loans charged off 527,690 611,674
---------- ----------
Balance - end of year $ 303,160 $ 376,219
========== ==========
NOTE 4: DIVIDENDS:
Dividends were declared at the rate of $2.30, $2.25 and 2.20 per share in 1995,
1994 and 1993, respectively.
NOTE 5: OTHER ASSETS:
Other assets consist of the following:
1995 1994
---------- ----------
Loan interest receivable $ 481,741 $ 393,776
Deferred income tax 135,322 168,458
Cash value of life insurance 253,235 235,784
Accounts receivable - other 39,350 40,076
Prepaid expenses and other 44,912 35,166
Interest receivable on investments 143,473 188,544
---------- ----------
$1,098,033 $1,061,804
NOTE 6: OTHER LIABILITIES:
Other liabilities consist of the following:
1995 1994
---------- ----------
Interest payable on deposits $ 138,750 $ 109,548
Deferred compensation liability 697,271 673,341
Accounts payable 31,359 25,161
---------- ----------
$ 867,380 $ 808,050
========== ==========
F-14
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 7: INCOME TAX:
The provision for income tax consists of the following:
1995 1994 1993
---------- ---------- ----------
Current $ 139,756 $ 95,937 $ 127,432
Deferred 29,658 29,565 100,091
---------- ---------- ----------
$ 169,414 $ 125,502 $ 227,523
========== ========== ==========
The following reconciles income taxes reported in the financial statements to
taxes that would be obtained by applying regular tax rates to net income before
income taxes.
1995 1994 1993
---------- ---------- ----------
Income tax at statutory rate $ 229,518 $ 191,548 $ 200,219
(Decrease) resulting from:
Tax exempt income ( 57,162) ( 43,938) ( 29,229)
Other ( 2,942) ( 22,108) 33,909
Effect of change in accounting
principle - - 22,624
---------- ---------- ----------
$ 169,414 $ 125,502 $ 227,523
========== ========== ==========
Deferred tax assets have been provided for deductible temporary differences
related to deferred compensation. Deferred tax liabilities have been provided
for taxable temporary differences related to the allowance for loan losses,
premises and equipment, capitalized loan costs, and available for sale
investments. The net deferred tax assets in the accompanying statements of
financial condition include the following components:
1995 1994
---------- -------
Deferred tax assets $ 237,072 $ 228,936
Deferred tax liabilities ( 101,750) ( 60,478)
---------- ----------
$ 135,322 $ 168,458
========== ==========
NOTE 8: OTHER REAL ESTATE OWNED:
Other real estate owned reflects properties acquired during foreclosure sales in
order to protect the Bank's interests after the secured notes were in default.
The properties are valued at the lower of their fair market value or the
recorded investment in the related loan.
F-15
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 9: DIRECTORS' BENEFIT PLAN:
The Bank maintains a voluntary deferred compensation program which permits
eligible directors and officers to defer receipt of a portion of their
directors' fees. There are 10 eligible participants and 7 have elected to
participate. The Bank has purchased life insurance on all of the participants in
amounts that, in the aggregate, actuarially fund its future liabilities under
this program, and it is the owner and sole beneficiary of all such insurance.
The program has been designed so that, if assumptions as to mortality
experience, policy dividends, tax effects, and other factors are realized, the
compensation deferred by a participant and the death benefits payable to the
Bank under the insurance policies will cover all premium payments and benefit
payments, plus a factor for the use of funds of the Bank.
While the insurance policies were purchased as a means of funding the deferred
compensation liability created under this plan, there exists no obligation to
use any insurance funds from policy loans or death proceeds to curtail the
deferred compensation liability. Under the terms of the directors' benefit plan,
a participant, or his beneficiary, will receive upon retirement a monthly
retirement payment for life, payable for a minimum of 15 years. The plan also
provides for a reduced payment to a participant's beneficiary in the event that
the participant dies prior to retirement, payable for a period of 15 years from
the date of death. A participant's retirement date is considered to be the later
of the date a participant turns age 65 or completes 10 years of plan
participation.
The deferred compensation liability as of December 31, 1995 and 1994 totaled
$697,271 and $673,341, respectively. The deferred compensation plan expense
totaled $39,643, $55,597, and $73,823 for 1995, 1994, and 1993, respectively.
The Bank began paying benefits during 1995 and $15,713 was paid to eligible
participants.
Anticipated payments for the next five years are as follows:
1996 $ 36,671
1997 39,818
1998 49,258
1999 49,258
2000 49,258
NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES:
In the normal course of business, there are various outstanding commitments and
contingent liabilities such as guarantees, commitments to extend credit, etc.,
which are not reflected in the accompanying financial statements. The Bank had
outstanding letters of credit totaling $874,044 and $993,313 at December 31,
1995 and 1994, respectively, and it does not anticipate losses as a result of
these transactions. At December 31, 1995, the Bank also had undisbursed funds
under various lines of credit and loan commitments totaling $2,041,292.
F-16
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 11: PREMISES AND EQUIPMENT:
A summary of premises and equipment at December 31, 1995 and 1994 follows:
1995 1994
---------- ----------
Land $ 206,862 $ 206,862
Building and improvements 389,598 378,123
Furniture and equipment 586,638 527,895
---------- ----------
$1,183,098 $1,112,880
Less: Accumulated depreciation 503,527 425,460
---------- ----------
$ 679,571 $ 687,420
========== ==========
NOTE 12: NONINTEREST INCOME:
Noninterest income was comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- -------
<S> <C>
Service charges on deposit accounts $ 136,501 $ 113,393 $ 115,268
Other service charges 33,201 50,649 39,237
Net investment securities gains
(losses) ( 7,395) 517 746
Other 12,959 10,223 9,858
Dividends - Federal Reserve stock 1,080 1,080 1,080
---------- ---------- ----------
$ 176,346 $ 175,862 $ 166,189
========== ========== ==========
</TABLE>
NOTE 13: INVESTMENT IN SUBSIDIARY:
During 1994, the Bank formed Porays Services, Inc., a wholly owned subsidiary
organized to conduct any business authorized by a bank subsidiary. The Bank
accounts for its investment under the equity method. It contributed $5,100 to
Porays' initial capital. Net income recorded for 1995 totaled $3,959.
NOTE 14: DISCLAIMER:
This financial information has not been reviewed, or confirmed for accuracy or
relevance, by the Federal Reserve System.
NOTE 15: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the statements of
financial condition.
F-17
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
DECEMBER 31, 1995
NOTE 15: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: (Continued)
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments (see Note 10). The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Bank upon extension of credit, varies and
is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
NOTE 16: FAIR VALUES OF FINANCIAL INSTRUMENTS:
The estimated fair values of the Bank's financial instruments are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------- ------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Financial Assets:
<S> <C>
Cash and due from banks $1,805,084 $1,805,084 $1,214,097 $ 214,097
Securities available-for-sale 3,453,910 3,464,140 80,100 80,100
Securities held-to-maturity 5,986,118 6,033,206 12,750,941 12,170,673
Federal funds sold 600,000 600,000 1,200,000 1,200,000
Demand deposits 5,629,172 5,629,172 5,791,472 5,791,472
NOW accounts 2,190,244 2,190,244 2,346,526 2,346,526
Money market accounts 2,961,813 2,961,813 3,646,034 3,646,034
Savings accounts 9,436,386 9,436,386 14,760,000 14,760,000
</TABLE>
The fair values of loans and time deposits are not presented herein as it is not
practicable to estimate the fair value without incurring excessive costs.
F-18
<PAGE>
KING GEORGE STATE BANK, INC.
BALANCE SHEET
MARCH 31, 1996
(Unaudited)
A S S E T S
1996
Cash and due from banks $ 2,024,265
Investment securities 9,743,073
Federal funds sold 1,590,000
Loans (Net of allowance for loan losses of $331,158) 32,829,716
Premises and equipment 670,318
Other real estate owned 331,711
Other assets 1,104,273
Total Assets $48,293,356
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
1996
Deposits:
Demand $ 5,932,609
NOW accounts 4,293,237
Money Market accounts 1,261,450
Savings 9,336,867
Time, $100,000 and over 8,238,391
Other time 13,759,820
-----------
Total Deposits $42,822,374
Other liabilities 941,061
Total Liabilities $43,763,435
Commitments and contingencies
Stockholders' equity:
Capital stock - par value $6 per share:
Authorized - 200,000 shares
Issued and outstanding - 50,000 shares $ 300,000
Surplus 300,000
Retained earnings 3,952,193
Unrealized loss on securities available-for-sale ( 22,272)
-----------
Total Stockholders' Equity $ 4,529,921
-----------
Total Liabilities and Stockholders' Equity $48,293,356
F-19
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
---------- -------
INTEREST INCOME:
Interest and fees on loans $ 775,335 $ 692,292
Interest on investment securities:
Obligations of the U. S. government
and its agencies and corporations 50,775 84,656
Obligations of states and political
subdivisions 32,968 32,313
Other securities 41,487 43,114
Interest on federal funds sold 20,557 6,161
---------- ----------
Total Interest Income $ 921,122 $ 858,536
Interest on deposits 410,419 383,549
---------- ----------
Net Interest Income $ 510,703 $ 474,987
PROVISION FOR LOAN LOSSES 50,000 70,000
---------- ----------
Net Interest Income After Provision
For Loan Losses $ 460,703 $ 404,987
NONINTEREST INCOME 43,191 40,938
---------- ----------
$ 503,894 $ 445,925
---------- ----------
OPERATING EXPENSES:
Salaries and employee benefits $ 150,070 $ 134,636
Occupancy 30,064 26,973
Equipment 10,353 12,094
Other 84,884 85,686
FDIC insurance 500 26,899
---------- ----------
$ 275,871 $ 286,288
---------- ----------
Income Before Income Tax $ 228,023 $ 159,637
PROVISION FOR INCOME TAX 59,424 45,000
---------- ----------
Net Income $ 168,599 $ 114,637
========== ==========
Earnings per share 3.37 2.29
========== ==========
See Notes To Financial Statements
F-20
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
Capital Retained
Stock Surplus Earnings Total
<S> <C>
BALANCE - DECEMBER 31, 1994 $ 300,000 $ 300,000 $3,392,955 $3,992,955
Net income - - 114,637 114,637
---------- ---------- ---------- ----------
BALANCE - MARCH 31, 1995 $ 300,000 $ 300,000 $3,507,592 $4,107,592
========== ========== ========== ==========
BALANCE - DECEMBER 31, 1995 $ 300,000 $ 300,000 $3,790,346 $4,390,346
Net income - - 168,599 168,599
Unrealized losses on securities
available for sale - - ( 29,024) ( 29,024)
---------- ---------- ---------- ----------
BALANCE - MARCH 31, 1996 $ 300,000 $ 300,000 $3,929,921 $4,529,921
========== ========== ========== ==========
</TABLE>
See Notes To Financial Statements
F-21
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
---------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 168,599 $ 114,637
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 19,778 12,448
Provision for loan losses 50,000 70,000
Amortization of premium on investment
securities 12,082 7,582
Gain (loss) on sale of investment securities 35 ( 7,593)
Changes in assets and liabilities:
(Increase) in interest receivable ( 9,775) ( 72,632)
(Increase) in prepaid expenses ( 20,864) ( 40,317)
Decrease in accounts receivable - other 39,350 40,076
Increase in interest payable on deposits 5,922 8,958
Increase in deferred compensation
liability 6,522 5,982
Increase in accounts payable 24,792 13,773
Increase in accrued expenses 36,445 5,810
---------- ----------
Net Cash Provided by Operating Activities $ 332,886 $ 158,724
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) in loans ($ 183,352) ($1,408,293)
Proceeds from maturities of held-to-
maturity securities 350,000 500,000
Purchase of available-for-sale securities ( 698,906) -
Changes in federal funds sold - net ( 990,000) 980,000
Purchase of equipment ( 10,528) ( 15,566)
Proceeds from sale of foreclosed
real estate - 90,327
---------- ----------
Net Cash Provided by (Used in)
Investing Activities ($1,532,786) $ 146,468
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits - net $1,419,081 ($ 368,027)
---------- ----------
Net Cash Provided by (Used in)
Financing Activities $1,419,081 ($ 368,027)
---------- ----------
See Notes To Financial Statements
F-22
<PAGE>
KING GEORGE STATE BANK, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
YEARS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
1996 1995
---------- -------
Net Increase (Decrease) in Cash
and Due from Banks $ 219,181 ($ 62,835)
CASH AND DUE FROM BANKS - BEGINNING OF PERIOD 1,805,084 1,214,097
---------- ----------
CASH AND DUE FROM BANKS - END OF PERIOD $2,024,265 $1,151,262
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 404,497 $ 374,591
Income taxes 20,641 -
See Notes To Financial Statements
F-23
<PAGE>
KING GEORGE STATE BANK, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE 1: In the opinion of management, the accompanying unaudited financial
statements contain all the adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial
position as of March 31, 1996 and 1995 and results of operations,
changes in stockholders' equity and cash flows for the three months
ended March 31, 1996 and 1995.
NOTE 2: The results of operations for the three month periods ended March
31, 1996 and 1995 are not necessarily indicative of the results to
be expected for the full year.
F-24
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
The laws of the Commonwealth of Virginia pursuant to which the Company
is incorporated permit it to indemnify its officers and directors against
certain liabilities with the approval of its shareholders. The articles of
incorporation of the Company, which have been approved by its shareholders,
provide for the indemnification of each director and officer (including former
directors and officers and each person who may have served at the request of the
Company as a director or officer of any other legal entity and, in all such
cases, his or her heirs, executors and administrators) against liabilities
(including expenses) reasonably incurred by him or her in connection with any
actual or threatened action, suit or proceeding to which he or she may be made
party by reason of his or her being or having been a director or officer of the
Company, except in relation to any action, suit or proceeding in which he or she
has been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Not Applicable
2 Agreement and Plan of Reorganization, dated March 12,
1996, between Union Bankshares Corporation ("Union")
and King George State Bank, Inc. ("King George") and
a related Plan of Share Exchange, filed as Appendix I
to the Proxy Statement/Prospectus included in this
Registration Statement.
3.1 Articles of Incorporation of Union. Incorporated
herein by reference to Exhibit 3.1 to Union's
Registration Statement on Form S-4 (Registration No.
33-60458).
3.2 Bylaws of Union. Incorporated herein by reference to
Exhibit 3.1 to Union's Registration Statement on Form
S-4 (Registration No. 33-60458).
5 Opinion of LeClair Ryan, A Professional Corporation,
regarding the legality of the securities being
registered and consent (previously filed).
8.1 Form of tax opinion of LeClair Ryan, A Professional
Corporation, regarding the tax-free nature of the
statutory share exchange between Union and King
George (previously filed).
13.1 Union's Annual Report on Form 10-K for the year ended
December 31, 1995 (previously filed).
II-1
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
13.2 Union's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (included as Appendix IV to the
Proxy Statement/Prospectus).
13.3 Union's 1995 Annual Report to Shareholders (included
as Appendix III to the Proxy Statement/Prospectus).
21 Subsidiaries of Union:
Union Bank & Trust Company; Northern Neck State Bank;
and Union Investment Services. Each of the foregoing
subsidiaries of Union are Virginia corporations and
are wholly-owned by Union.
23.1 Consent of KPMG Peat Marwick LLP, as independent
auditors for Union.
23.2 Consent of Smith & Eggleston, as accountants for King
George.
23.3 Consent of LeClair Ryan, (included as part of Exhibit
5).
23.4 Consent of Scott & Stringfellow, Inc. relating to
inclusion of its opinion given to King George in the
Proxy Statement/Prospectus included in this
Registration Statement (previously filed).
24 Powers of Attorney (included in Part II of this
Registration Statement).
99 Form of proxy of King George (previously filed).
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
Item 22. Undertakings
(a) Item 512 of Regulation S-K.
Rule 415 offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
II-2
<PAGE>
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Registration on Form S-4. (1) The undersigned registrant hereby
undertakes as follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Request for acceleration of effective date or filing registration
statement on Form S-8. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payments by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
(b) Item 22(b) of Form S-4
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) Item 22(c) of Form S-4
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this amendment to the registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized in the Town
of Bowling Green, Commonwealth of Virginia on July 16, 1996.
UNION BANKSHARES CORPORATION
By: /s/ G. William Beale
-------------------------------------
G. William Beale, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ G. William Beale President and Chief Executive July 16, 1996
- ---------------------------
G. William Beale Officer and Director (Principal
Executive Officer)
/s/ E. Peyton Motley Executive Vice President and Chief July 16, 1996
- ---------------------------
E. Peyton Motley Operating Officer and Director
/s/ D. Anthony Peay Vice President and July 16, 1996
- ---------------------------
D. Anthony Peay Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ Walton Mahon* Chairman of the Board and Director July 16, 1996
- ---------------------------
Walton Mahon
/s/ Charles H. Ryland* Vice Chairman of the Board and July 16, 1996
- ---------------------------
Charles H. Ryland Director
/s/ W. Tayloe Murphy, Jr.* Director July 16, 1996
- ---------------------------
W. Tayloe Murphy, Jr.
/s/ Ronald L. Hicks* Director July 16, 1996
- ---------------------------
Ronald L. Hicks
/s/ M. Raymond Piland* Director July 16, 1996
- ---------------------------
M. Raymond Piland
/s/ A. D. Whittaker* Director July 16, 1996
- ---------------------------
A. D. Whittaker
* /s/ G. William Beale July 16, 1996
- ---------------------------
As attorney-in-fact
II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
1 Not Applicable
2 Agreement and Plan of Reorganization, dated March 12,
1996, between Union Bankshares Corporation ("Union")
and King George State Bank, Inc. ("King George") and
a related Plan of Share Exchange, filed as Appendix I
to the Proxy Statement/Prospectus included in this
Registration Statement.
3.1 Articles of Incorporation of Union. Incorporated
herein by reference to Exhibit 3.1 to Union's
Registration Statement on Form S-4 (Registration No.
33-60458).
3.2 Bylaws of Union. Incorporated herein by reference to
Exhibit 3.1 to Union's Registration Statement on Form
S-4 (Registration No. 33-60458).
5 Opinion of LeClair Ryan, A Professional Corporation,
regarding the legality of the securities being
registered and consent (previously filed).
8.1 Form of tax opinion of LeClair Ryan, A Professional
Corporation, regarding the tax-free nature of the
statutory share exchange between Union and King
George (previously filed).
13.1 Union's Annual Report on Form 10-K for the year ended
December 31, 1995 (previously filed).
13.2 Union's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 (included as Appendix IV to the
Proxy Statement/Prospectus).
13.3 Union's 1995 Annual Report to Shareholders (included
as Appendix III to the Proxy Statement/Prospectus).
21 Subsidiaries of Union:
Union Bank & Trust Company; Northern Neck State Bank;
and Union Investment Services. Each of the foregoing
subsidiaries of Union are Virginia corporations and
are wholly-owned by Union.
23.1 Consent of KPMG Peat Marwick LLP, as independent
auditors for Union.
23.2 Consent of Smith & Eggleston, as accountants for King
George.
23.3 Consent of LeClair Ryan, (included as part of Exhibit
5).
23.4 Consent of Scott & Stringfellow, Inc. relating to
inclusion of its opinion given to King George in the
Proxy Statement/Prospectus included in this
Registration Statement.
24 Powers of Attorney (included in Part II of this
Registration Statement).
99 Form of proxy of King George (previously filed).
Exhibit 23.1
CONSENT OF INDEPENTDENT AUDITORS
The Board of Directors
Union Bankshares Corporation:
We consent to the use of our report included in Union Bankshares Corporation's
Annual Report on Form 10-K for the year ended December 31, 1995 incorporated
herein by reference and to the reference to our firm under the heading "Experts"
in the Proxy Statement/Prospectus. Our report refers to a change in accounting
for certain investments in debt and equity securities.
KPMG Peat Marwick LLP
Richmond, Virginia
July 16, 1996
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Registration Statement of our report,
dated February 16, 1996, on the financial statements of King George State Bank,
Inc. included herein and to the reference made to our Firm under the caption
"Experts" in the Proxy Statement/Prospectus constituting a part of this
Registration Statement.
SMITH & EGGLESTON, P.C.
Richmond, Virginia
July 16, 1996
