AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
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.
------------------------
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CALCULATION OF REGISTRATION FEE
================================== ---------------- -------------------------- ----------------------------- -----------------
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
<S> <C>
=================================== ================ =========================== ============================ =================
Common Stock, $4.00 par value 275,000 N/A $4,529,356 $1,562
=================================== ================ =========================== =========================== ==================
</TABLE>
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) thereunder, on the basis of
the book value of King George State Bank, Inc. common stock to be received
by the Registrant in exchange for common stock of the Registrant pursuant
to the business combination described in the enclosed Prospectus/Proxy
Statement.
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
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FORM S-4 LOCATION OR HEADING IN
ITEM NUMBER AND CAPTION PROSPECTUS AND PROXY STATEMENT
A. INFORMATION ABOUT THE TRANSACTION
<S> <C>
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;
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
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
<S> <C>
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;
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>
<PAGE>
[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 __________, _____________, 1996 at ________ ___.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, and
cash in lieu of any fractional share. 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 ___________, ______________, 1996 at _______
___.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 _________________, 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 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. See "The Affiliation - Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF KING GEORGE UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE AFFILIATION 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
____________, 1996 was $_______.
This Proxy Statement/Prospectus is first being mailed to shareholders
of King George on or about ____________, 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 _____________, 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 _____________, 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..............................................
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 "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 "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
___________, 1996 at ____ __.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 _____________, 1996 (the "Record Date"), will be
entitled to notice of and to vote at the Special Meeting. At the Record Date,
there were approximately _____ 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 soley 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 III 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
during the latter part of the third quarter of 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 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.
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 -
Representations and Warranties; 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 __________, 1996, the latest practicable date prior to the date of this
Proxy Statement/Prospectus, as reported on the Nasdaq National Market was $_____
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 __________, 1996 were $134.75 and $_____,
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...................................... - .55 .51 .45
King George pro forma equivalent (1).................... - 3.03 2.81 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>
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...... 32,830 31,928 32,696 30,590 29,038 26,432 29,486
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........... 5,274 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 $ 505,385 $ 462,884 $ 424,600 $ 395,696 $ 370,782
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 ________,
____________, 1996 at _____ __.m.
RECORD DATE
Only shareholders of record at the close of business on ____________,
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 _____
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, 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 the Bank 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 in the best interest of 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 terms of the Affiliation Agreement,
and Scott & Stringfellow has rendered its opinion to the Board of Directors of
King George that the terms of the Affiliation Agreement 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 Agreement 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 soley 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 during the
latter part of the third quarter of this year.
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 members of the Union Board of
Directors upon 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 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.
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 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 (through May 31, 1996) 27.50 23.50 26.50 22.00 29.00 22.00
3rd Quarter....................... 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 _______________, 1996, the latest
practicable date prior to the date of the Proxy Statement/Prospectus, as quoted
on the Nasdaq National Market was $_____ 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 _____ 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
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 Subsidiary 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 its subsidiary
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 $ 5,933 $ -- $ 51,912
Interest bearing.................................. 339,110 36,889 -- 375,999
------------- ----------- -------------- ------------
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 does not attempt to diversify its loan portfolio
geographically by making significant amounts of 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 loans
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 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% 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 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
------- ---------- ------- ------- ------ ---------- -------
(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).................................... $ 2,011 $ 4,857 $ 19,724 $ 6,520 $ 33,112
Securities (2)............................... 1,008 1,390 6,026 1,275 9,699
Federal Funds sold and other
short term investments.................... 1,590 -- -- -- 1,590
--------- ---------- ---------- ---------- ----------
Total earning assets......................... $ 4,609 $ 6,247 $ 25,750 $ 7,795 $ 44,401
========= ========== ========== ========== ==========
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
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................................... (3,383) (5,140) 8,502 7,795 $ 7,774
Cumulative gap............................... $ (3,383) $ (8,523) $ (21) $ 7,774
Ratio of Cumulative gap to
total earning assets...................... (7.62)% (19.20)% (0.05)% 17.51%
</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 Poray's ( a wholly owned subsidiary) Stock of $3,959.
(3) Does not include non-interest bearing demand deposits of $6,196,000.
NONINTEREST INCOME
Noninterest income for 1995 increased by $484, or .3%, over the same
period in 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 primarily 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 majority being construction on
1-4 single family residences. King George State'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 loan outside the 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
attributed to more construction loans being fully funded.
<PAGE>
TABLE 3. LOAN PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------- ------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------- ------- ------- ------- ------- -------
(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 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. Net charge-offs to loans
was 1.44% for the year 1995, compared to 1.73% in 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 credit 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. Management of King George believes, based on its
review, that King George has adequate reserves to cover any future write-down
that may be required on these loans.
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.
It is the opinion of King George's management that the reserve is
adequate to absorb any losses that may occur.
NONPERFORMING ASSETS
Total nonperforming assets, which consist of nonaccrual loans,
restructured loans and foreclosed property, 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 credit 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 $9.4 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 the year 1994 and decreased $3.0 million, or
44.0% for the year 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 investment securities when management has the
intent and King George has the ability at the time of purchase to hold the
securities to maturity. Investment securities are carried at a cost adjusted for
amortization of premiums and accretion of discounts.
TABLE 7. SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1996 (1) 1995 (1) 1994 (2) 1993 (3)
---------------- ------------ ----------- -----------
(IN THOUSANDS)
<S> <C>
BOOK VALUE:
U.S. Government Securities:
Held to maturity........................... $ 508 $ 508 $ 6,890 $ 5,690
Available for sale......................... 3,866 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........................ 75 79 80 75
----------- ---------- ----------- -----------
Total securities............................... $ 9,773 $ 9,440 $ 12,831 $ 11,487
=========== ========== =========== ===========
</TABLE>
(1) Does not include Federal Reserve Bank Stock of $18,000, Poray's (a wholly
owned subsidiary) Stock of $3,959, and Community Bankers Stock of $57,000.
(2) Does not include Federal Reserve Bank Stock of $18,000, Poray's (a wholly
owned subsidiary) Stock of $5,100, and Community Bankers Stock of $57,000.
(3) Does not include Federal Reserve Bank Stock of $18,000, and Community
Bankers Bank Stock of $57,000.
<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 the same period in 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 are a summary of average deposits and average
rates paid:
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 which was higher compared to the $114,637 earned in the first three
months of 1995. While net interest income increased 7.50% 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 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 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."
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 Transaction 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 Acquisition 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 ________ 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 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
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
AND
PLAN OF SHARE EXCHANGE
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of March 12, 1996, by and between UNION BANKSHARES
CORPORATION, a Virginia corporation ("Union"), and KING GEORGE STATE BANK, INC.,
a Virginia banking corporation ("King George").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Union and King George
have approved the affiliation of their companies through a share exchange under
Virginia law, as a result of which King George will become a wholly-owned
subsidiary of Union, all as more specifically provided in this Agreement and the
Plan of Share Exchange in the form attached hereto as Exhibit A (the "Plan of
Share Exchange"); and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual warranties, covenants
and agreements set forth herein, the parties agree as follows.
ARTICLE 1
THE AFFILIATION AND RELATED MATTERS
1.1 THE AFFILIATION
Subject to the terms and conditions of this Agreement, at the
Effective Date as defined in Section 1.4 hereof, King George shall be become a
wholly-owned subsidiary of Union through the exchange of each outstanding share
of common stock of King George for shares of the common stock of Union in
accordance with Section 1.2 of this Agreement and the Plan of Share Exchange
(the "Affiliation").
1.2 CONVERSION OF KING GEORGE STOCK
At the Effective Date, by virtue of the Share Exchange and without
any action on the part of the holders thereof, each share of common stock, par
value $6.00 per share, of King George ("King George Common Stock") issued and
outstanding immediately prior to the Effective Date (other than Dissenting
Shares as defined in the Plan of Share Exchange) shall be exchanged for and
converted into 5.5 shares of common stock, par value $4.00 per share, of Union
("Union Common Stock"), plus cash for fractional shares, pursuant to the terms
and conditions set forth in the Plan of Share Exchange. Each share of Union
Common Stock issued and outstanding immediately prior to the Effective Date
shall continue unchanged as an outstanding share common stock of Union.
1.3 MEMBERSHIP ON THE BOARD OF DIRECTORS; DIRECTORS, OFFICERS
AND EMPLOYEES
(a) Upon consummation of the Affiliation, Homer L. Hite shall
be appointed to the Board of Directors of Union.
(b) The directors, officers and employees of King George will
not change as a result of the Affiliation. Upon consummation of the
Affiliation, Homer L. Hite shall be appointed as Senior Vice President of
Union.
(c) Union agrees to assume and honor the employment agreement, dated
June 11, 1986, between King George and Homer L. Hite, subject to his agreement
and consent that consummation of the Affiliation shall not constitute a "change
of control" as defined in Section 2 of the employment agreement. Union also
agrees to assume and honor (i) the salary continuation agreements, dated October
15, 1979 and September 1, 1985, between King George and Homer L. Hite, and (ii)
the existing deferred compensation agreements between King George and each of
its directors, other than Homer L. Hite, and with John A. Leitch.
1.4 THE CLOSING AND EFFECTIVE DATE
Subject to Section 6.1, the closing of the transactions contemplated
by this Agreement and the Plan of Share of Exchange shall take place at such
place as may be mutually agreed upon by the parties (the "Closing"). The
Affiliation will become effective on the date shown on the Certificate of Share
Exchange issued by the State Corporation Commission of Virginia (the "SCC")
effecting the Affiliation (the "Effective Date"). After all of the conditions
set forth in this Agreement have been satisfied or waived, the Effective Date
will be the earliest practical date that is the last business day of a month, or
such other date as may be acceptable to Union and King George.
1.5 DEFINITIONS
Any term defined in this Agreement and the Plan of Share Exchange
shall have the meaning ascribed to it for purposes of this Agreement. In
addition:
(a) the term "best knowledge" when used with respect to a party
shall mean the knowledge, after due and diligent inquiry, of any "Executive
Officer" of such party, as such term is defined in Regulation O of the Federal
Reserve Board;
(b) the term "Material Adverse Effect", when applied to a party,
shall mean any condition, event, change or occurrence (including, without
limitation, (i) the making of any provisions for possible loan and lease losses,
write-downs of other real estate and taxes and (ii) any breach of a
representation or warranty by such party) that individually, or in the aggregate
with any other condition, event, change or occurrence, has or is reasonably
likely to have a negative material effect upon (i) the financial condition,
results of operations or business of the party and its subsidiaries, taken as a
whole, or (ii) the ability of a party to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement.
(c) reference to the "Disclosure Letter" shall mean
information set forth in a letter from one party to the other party delivered
and dated not later than the close of business on March 20, 1996.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF KING GEORGE
King George represents and warrants to Union as follows:
2.1 ORGANIZATION, STANDING AND POWER
King George is a bank duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia with full corporate
power and authority to carry on a commercial banking business as now conducted.
2.2 ORGANIZATION, STANDING AND POWER OF KING GEORGE SUBSIDIARY
King George owns all the capital stock of Porays Services, Inc. (the
"King George Subsidiary"), which is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia
with full corporate power and authority to carry on its business as now
conducted and does not do business in any other states or other jurisdictions of
the United States where its ownership or leasing of property or the conduct of
its business requires qualification to do business. Except as set forth in the
Disclosure Letter, King George does not own, directly or indirectly, any
outstanding capital stock or other voting securities or ownership interests of
any corporation, bank or savings association, partnership or other organization.
The outstanding shares of capital stock of the King George Subsidiary are
validly issued and outstanding, fully paid and nonassessable and all such shares
are directly owned by King George free and clear of all liens, claims and
encumbrances or preemptive rights of any person.
2.3 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) King George has all requisite corporate power and authority to
enter into and (subject to the receipt of all necessary governmental approvals
and the approval of the shareholders of King George of this Agreement and the
Plan of Share Exchange) to perform all of its obligations under this Agreement
and the Plan of Share Exchange. The execution, adoption and delivery of this
Agreement and the Plan of Share Exchange and the consummation of the
transactions contemplated of the Affiliation have been duly and validly
authorized by all necessary corporate action on the part of King George, except
the approval of shareholders. This Agreement and the Plan of Share Exchange
represent the legal, valid, and binding obligations of King George, enforceable
against King George in accordance with their respective terms, in each case
subject as to enforceability to (i) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium conservatorship, receivership and similar laws
affecting the enforcement of rights of creditors of FDIC-insured institutions or
the enforcement of creditors' rights generally, (ii) laws relating to the safety
and soundness of depository institutions, and (iii) general principles of
equity.
(b) Neither the execution and delivery of this Agreement or the Plan
of Share Exchange, the consummation of the transactions contemplated herein or
therein, nor compliance by King George with any of the provisions hereof or
thereof will: (i) conflict with or result in a breach of any provision of the
Articles of Incorporation or Bylaws of King George; (ii) except as set forth in
the Disclosure Letter, constitute or result in the breach of any term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or asset of King
George pursuant to any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation, or (iii) subject to the receipt of all required
regulatory approvals, violate any order, writ, injunction, decree, statute, rule
or regulation applicable to King George.
2.4 CAPITAL STRUCTURE
The authorized capital stock of King George consists of (i) 200,000
shares of common stock, par value $6.00 per share. As of the date hereof, there
were 50,000 shares of King George Common Stock issued and outstanding. All
outstanding shares of King George Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person. There are no outstanding
options, warrants or other rights to subscribe for or purchase from King George
any capital stock of King George or securities convertible into or exchangeable
for capital stock of King George. No shares of capital stock have been reserved
for any purpose.
2.5 FINANCIAL STATEMENTS; MINUTE BOOKS
The King George Financial Statements (as defined below) fairly
present or will fairly present, as the case may be, the financial position of
King George as of the dates indicated and the results of operations, changes in
shareholders' equity and statements of cash flows for the periods then ended
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect) in conformity with
generally accepted accounting principles applicable to financial institutions
applied on a consistent basis. The minute books of King George contain legally
sufficient records of all meetings and other corporate actions of its
shareholders and Boards of Directors (including committees of its Board of
Directors). The King George Financial Statements shall mean (i) the balance
sheets of King George as of December 31, 1995 and 1994 and the related
statements of income, shareholders' equity and cash flows for each of the three
years ended December 31, 1995, 1994 and 1993 (including related notes and
schedules, if any) and (ii) the balance sheets of King George and related
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) with respect to periods ended subsequent to
December 31, 1995.
2.6 NO MATERIAL ADVERSE CHANGE
Since December 31, 1995, there has not been any change in the
business, financial condition, results of operations, assets or prospects of
King George which, individually or in the aggregate, has had a Material Adverse
Effect (other than as a result of changes in banking laws or regulations of
general applicability or interpretations thereof), and no event has occurred or
circumstance exists that may result in or have such a Material Adverse Effect.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES
King George has no liabilities or obligations of any nature (whether
known or unknown and whether absolute, accrued, contingent, or otherwise) that
is material to King George or that, when combined with all similar liabilities,
would be material to King George, except for liabilities or obligations
reflected or reserved against in the most recent King George Financial
Statements and current liabilities incurred in the ordinary course of business
consistent with past practice since the date of the most recent King George
Financial Statements.
2.8 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
Except as set forth in the Disclosure Letter, there are no actions,
suits or proceedings instituted or pending or, to the best knowledge of King
George's management, threatened against King George or against any property,
asset, interest or right of King George, or against any officer, director or
employee of King George that would, if determined adversely to King George, have
a Material Adverse Effect on King George. To the best knowledge of King George,
King George has complied in all material respects with all laws, ordinances,
requirements, regulations or orders applicable to its business (including
environmental laws, ordinances, requirements, regulations or orders).
2.9 TAX MATTERS
King George has filed all federal, state and local tax returns and
reports required to be filed, and all taxes shown by such returns to be due and
payable have been paid or are reflected as a liability in the King George
Financial Statements or are being contested in good faith and have been
identified in the Disclosure Letter. Except to the extent that liabilities
therefor are specifically reflected in the King George Financial Statements,
there are no federal, state or local tax liabilities of King George other than
liabilities that have arisen since December 31, 1995, all of which have been
properly accrued or otherwise provided for on the books and records of King
George. Except as set forth in the Disclosure Letter, no tax return or report of
King George is under examination by any taxing authority or the subject of any
administrative or judicial proceeding, and no unpaid tax deficiency has been
asserted against King George by any taxing authority.
<PAGE>
2.10 PROPERTY
Except as set forth in the Disclosure Letter or reserved against in
the King George Financial Statements, King George has good and marketable title
free and clear of all material liens, encumbrances, charges, defaults or
equitable interests to all of the properties and assets, real and personal,
reflected in the balance sheet included in the King George Financial Statements
as of December 31, 1995 or acquired after such date. To the best knowledge of
King George, all buildings, fixtures, equipment, and other property and assets
which are material to its business and held under leases or subleases are held
under valid instruments enforceable in accordance with their respective terms,
subject to bankruptcy, insolvency, reorganization, moratorium and similar laws.
To the best knowledge of King George, the buildings, structures, and
appurtenances owned, leased, or occupied by King George (i) are in good
operating condition and repair, (ii) are not in need of maintenance or repairs
except for ordinary, routine maintenance and repairs that are not material in
nature and cost, and (iii) comply with applicable zoning and other municipal
laws and regulations.
2.11 EMPLOYEE BENEFIT PLANS
(a) Except as set forth in the Disclosure Letter, King George does
not maintain and has not maintained any "employee benefit plans" as defined
under Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). King George does not maintain and has not maintained any
other form of retirement, deferred benefit, stock option or other plan, program,
arrangement or contract under which any employee, former employee or retired
employee is entitled to or will become entitled to participate or receive
benefits.
(b) King George has delivered or will deliver to Union as part of the
Disclosure Letter true and complete copies of all retirement, profit-sharing,
stock option, bonus, vacation or other incentive plans or agreements, all
medical, dental or other health plans, all life insurance plans and all other
employee benefit plans or fringe benefit plans, including, without limitation,
all "employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by King George for the benefit of employees, former employees,
retirees or other beneficiaries eligible to participate (collectively, the "King
George Benefit Plans"). Any of the King George Benefit Plans which is an
"employee pension benefit plan," as that term is defined in Section 3(2) of
ERISA, is referred to herein as an "King George Retirement Plan."
(c) Each King George Benefit Plan is in full force and effect and,
except as set forth in the Disclosure Letter, has at all times been operated in
all material respects in accordance with its terms and in accordance with all
applicable laws, including but not limited to the Internal Revenue Code of 1986,
as amended (the "Code"), ERISA, the Consolidated Omnibus Budget Reconciliation
Act of 1986, as amended ("COBRA"), and applicable state laws prescribing health
care coverage continuation.
(d) No employees, former employees or retired employees of King
George are, as a result of their employment with King George, participants in
any "multiemployer plan" which is a pension plan, as such terms are defined in
Sections 3(2) and 3(37) of ERISA, and King George has no current, contingent or
potential liability with respect to a multiemployer plan. King George has no
withdrawal liability within the meaning of Section 4201 of ERISA. No King George
has experienced a "reportable event" as defined in Section 4043(b) of ERISA.
(e) No King George Retirement Plan that is a defined benefit pension
plan has any "unfunded current liability," as that term is defined in Section
302(d)(8)(A) of ERISA, and the present fair market value of the assets of any
such plan exceeds the plan's "benefit liabilities," as that term is defined in
Section 4001(a)(16) of ERISA, when determined under actuarial factors that would
apply if the plan was terminated in accordance with all applicable legal
requirements.
(f) All reports, returns and other documents required by any
governmental agency with respect to each King George Benefit Plan have been
timely and properly filed with the appropriate agency or agencies and
distributed to others in accordance with the applicable reporting and disclosure
requirements.
(g) Except as set forth in the Disclosure Letter, all benefits,
costs, premiums and other payments due in connection with each King George
Benefit Plan has been paid and no lawsuits, complaints, or disputes that may
result in a lawsuit or complaint to or by any person or governmental agency have
been filed or are pending with respect to any King George Benefit Plan. King
George has no unfunded liabilities for post-retirement health benefits.
(h) King George has not terminated or caused to be terminated any
employee benefit plan as defined in Section 3(3) of ERISA that covered any
current or former employees for which it currently has any outstanding
liabilities.
(i) King George is not a member of any controlled group of
corporations, affiliated service group or other group of entities which would
result in any other entity and King George being treated as a single employer
for purposes of Section 414(b), (c), (m), (o), or (t) of the Code.
2.12 INSURANCE
King George currently maintains insurance in amounts reasonably
necessary for its operations and, to the best knowledge of King George, similar
in scope and coverage to that maintained by other entities similarly situated.
King George has not received any notice of a premium increase or cancellation or
a failure to renew with respect to any insurance policy or bond and, within the
last three years, King George has not been refused any insurance coverage sought
or applied for, and King George has no reason to believe that existing insurance
coverage cannot be renewed as and when the same shall expire upon terms and
conditions as favorable as those presently in effect, other than possible
increases in premiums or unavailability of coverage that do not result from any
extraordinary loss experience on the part of King George.
2.13 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the balance sheets
included in the King George Financial Statements, as of their respective dates,
is adequate in all material respects under the requirements of generally
accepted accounting principles and regulatory accounting principles to provide
for reasonably anticipated losses on outstanding loans.
2.14 ENVIRONMENTAL MATTERS
(a) Except as set forth in the Disclosure Letter, King George is in
substantial compliance with all Environmental Laws (as defined below). King
George has not received any communication alleging that King George is not in
such compliance and, to the best knowledge of King George, there are no present
circumstances that would prevent or interfere with the continuation of such
compliance.
(b) King George has not received notice of pending, and are not aware
of any threatened, legal, administrative, arbitral or other proceedings,
asserting Environmental Claims (as defined below) or other claims, causes of
action or governmental investigations of any nature, seeking to impose, or that
could result in the imposition of, any material liability arising under any
Environmental Laws upon (i) King George, (ii) any person or entity whose
liability for any Environmental Claim (as defined below) King George has or may
have retained either contractually or by operation of law, (iii) any real or
personal property owned or leased by King George, or any real or personal
property which King George has been, or is, judged to have managed or to have
supervised or to have participated in the management of, or (iv) any real or
personal property in which King George holds a security interest securing a loan
recorded on the books of King George. King George is not subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
(c) With respect to all real and personal property owned or leased by
King George, or all real and personal property which King George has been, or
is, judged to have managed or to have supervised or to have participated in the
management of, King George will promptly provide Union with access to copies of
any environmental audits, analyses and surveys that have been prepared relating
to such properties (a list of which will be included in the Disclosure Letter).
To the best of King George's knowledge, King George is in compliance in all
material respects with all recommendations contained in any such environmental
audits, analyses and surveys.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against King George or against any person or entity whose liability for any
Environmental Claim King George has or may have retained or assumed either
contractually or by operation of law.
(e) For purposes of this Agreement, the following terms shall
have the following meanings:
(1) "Environmental Claim" means any written notice from any
governmental authority or third party alleging potential liability
(including, without limitation, potential liability for investigatory
costs, clean-up, governmental response costs, natural resources
damages, property damages, personal injuries or penalties) arising
our of, based upon, or resulting from the presence, or release into
the environment, of any Materials of Environmental Concern.
(2) "Environmental Laws" means all applicable federal,
state and local laws and regulations, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, that relate to pollution or protection of human health or
the environment.
(3) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum
products and any other materials regulated under Environmental Laws.
2.15 BROKERS AND FINDERS
Neither King George nor any of its officers, directors or employees
has employed any broker, finder or financial advisor or incurred any liability
for any fees or commissions in connection with transactions contemplated by this
Agreement, except for Scott & Stringfellow, Inc.
2.16 STATEMENTS TRUE AND CORRECT
When the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by Union with the Securities and Exchange Commission
(the "SEC") shall become effective, and at all times subsequent thereto up to
and including the King George shareholders' meeting to vote upon the
Affiliation, such Registration Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished by King
George relating to it, (i) shall comply in all material respects with the
applicable provisions of the federal and state securities laws, and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading.
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF UNION
Union represents and warrants to King George as follows:
3.1 ORGANIZATION, STANDING AND POWER
Union is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia, with full corporate
power and authority to carry on its business as now conducted. Union is duly
registered as a bank holding company under the Bank Holding Company Act of 1956.
3.2 ORGANIZATION, STANDING AND POWER OF UNION SUBSIDIARIES
Each subsidiary of Union (the "Union Subsidiaries" and, collectively
with Union, the "Union Companies") is a duly organized corporation, validly
existing and in good standing under the laws of Commonwealth of Virginia. Each
Union Subsidiary (i) has full corporate power and authority to carry on its
business as now conducted and (ii) is duly qualified to do business in the
states where its ownership or leasing of property or the conduct of its business
requires such qualification and where the failure to so qualify would have a
Material Adverse Effect on Union on a consolidated basis. The outstanding shares
of capital stock of each of the Union Subsidiaries are validly issued and
outstanding, fully paid and nonassessable and all such shares are directly or
indirectly owned by Union free and clear of all liens, claims and encumbrances
or preemptive rights of any person.
3.3 AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Union has all requisite corporate power and authority to enter
into and to perform all of its obligations under this Agreement and the Plan of
Share Exchange. The execution, adoption and delivery of this Agreement and the
Plan of Share Exchange and the consummation of the Affiliation have been duly
and validly authorized by all necessary corporate action on the part of Union.
This Agreement and the Plan of Share Exchange represent the legal, valid, and
binding obligations of Union, enforceable against Union in accordance with their
respective terms, in each case subject as to enforceability to (i) bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium, conservatorship,
receivership or other similar laws affecting the enforcement of rights of
creditors of FDIC-insured institutions or the enforcement of creditors' rights
generally, (ii) laws relating to the safety and soundness of depository
institutions and their holding companies, and (iii) general principles of
equity.
(b) Neither the execution and delivery of this Agreement or the Plan
of Share Exchange, the consummation of the transactions contemplated herein or
therein, nor compliance by Union with any of the provisions hereof or thereof
will: (i) conflict with or result in a breach of any provision of the Articles
of Incorporation or Bylaws of Union or any Union Subsidiary; (ii) constitute or
result in the breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon, any property or asset of Union or any Union Subsidiary
pursuant to any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation which would have a Material Adverse Effect on the
business, operations or financial condition of Union on a consolidated basis, or
(iii) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to Union or any Union Subsidiary.
3.4 CAPITAL STRUCTURE
The authorized capital stock of Union consists of: (i) 500,000 shares
of preferred stock, par value $10.00 per share, of which none are issued and
outstanding; and (ii) 12,000,000 shares of common stock, par value $4.00 per
share, of which 3,286,970 shares were issued and outstanding on December 31,
1995. All outstanding shares of Union Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable. The shares of Union Common
Stock to be issued in exchange for shares of King George Common Stock upon
consummation of the Affiliation will have been duly authorized and, when issued
in accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable and will be duly registered under the applicable federal
and state securities laws.
3.5 FINANCIAL STATEMENTS; MINUTE BOOKS
The Union Financial Statements (as defined below) fairly present or
will fairly present, as the case may be, the consolidated financial position of
Union as of the dates indicated and the consolidated results of operations,
changes in shareholders' equity and statements of cash flows for the periods
then ended (subject, in the case of unaudited interim statements, to normal
year-end audit adjustments that are not material in amount or effect) in
conformity with generally accepted accounting principles applicable to financial
institutions applied on a consistent basis. The minute books of the Union
Companies contain legally sufficient records of all meetings and other corporate
actions of its shareholders and Boards of Directors (including committees of its
Board of Directors). The Union Financial Statements shall mean (i) the
consolidated balance sheets of Union as of December 31, 1995 and 1994 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years ended December 31, 1995, 1994 and 1993 (including
related notes and schedules, if any) and (ii) the consolidated balance sheets of
Union and related consolidated statements of income, shareholders' equity and
cash flows (including related notes and schedules, if any) with respect to
periods ended subsequent to December 31, 1995.
3.6 NO MATERIAL ADVERSE CHANGE
Since December 31, 1995, there has not been any change in the
business, financial condition, results of operations, assets or prospects of
Union or the Union Subsidiaries which, individually or in the aggregate, has had
a Material Adverse Effect (other than as a result of changes in banking laws or
regulations of general applicability or interpretations thereof), and no event
has occurred or circumstance exists that may result in or have such a Material
Adverse Effect.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES
Neither Union nor any Union Subsidiary has any liability or
obligation (whether known or unknown and whether absolute, accrued, contingent,
or otherwise) that is material to Union on a consolidated basis or that, when
combined with all similar liabilities or obligations, would be material to Union
on a consolidated basis, except for liabilities or obligations reflected or
reserved against in the most recent Union Financial Statements and current
liabilities incurred in the ordinary course of business consistent with past
practice since the date of the most recent Union Financial Statements.
3.8 LEGAL PROCEEDINGS; COMPLIANCE WITH LAWS
Except as set forth in the Disclosure Letter, there are no actions,
suits or proceedings instituted or pending or, to the best knowledge of Union,
threatened against any of the Union Companies or against any property, asset,
interest or right of any of the Union Companies or against any officer, director
or employee of any of the Union Companies that would, if determined adversely to
Union or any Union Subsidiary, have a Material Adverse Effect on Union on a
consolidated basis. To the best knowledge of Union, the Union Companies have
complied in all material respects with all laws, ordinances, requirements,
regulations or orders applicable to their respective businesses (including
environmental laws, ordinances, requirements, regulations or orders).
3.9 TAX MATTERS
Union has filed all federal, state and local tax returns and reports
required to be filed, and all taxes shown by such returns to be due and payable
have been paid or are reflected as a liability in the Union Financial Statements
or are being contested in good faith and have been identified in the Disclosure
Letter. Except to the extent that liabilities therefor are specifically
reflected in the Union Financial Statements, there are no federal, state or
local tax liabilities of Union other than liabilities that have arisen since
December 31, 1995, all of which have been properly accrued or otherwise provided
for on the books and records of Union. Except as set forth in the Disclosure
Letter, no tax return or report of Union or any Union Subsidiary is under
examination by any taxing authority or the subject of any administrative or
judicial proceeding, and no unpaid tax deficiency has been asserted against any
of the Union Companies by any taxing authority.
3.10 ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the balance sheets
included in the Union Financial Statements, as of their respective dates, is
adequate in all material respects under the requirements of generally accepted
accounting principles and regulatory accounting principles to provide for
reasonably anticipated losses on outstanding loans.
3.11 EMPLOYEE BENEFIT PLANS
(a) All Union employee benefit plans are in compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to Union on a consolidated basis.
(b) No Union employee benefit plan subject to ERISA that is a defined
benefit pension plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of
the assets of any such plan exceeds the plan's "benefit liabilities," as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan was terminated in accordance with all
applicable legal requirements.
3.12 INSURANCE
Each of the Union Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the best knowledge of Union,
similar in scope and coverage to that maintained by other entities similarly
situated. None of the Union Companies has received any notice of a premium
increase or cancellation or a failure to renew with respect to any insurance
policy or bond and, within the last three years, none of the Union Companies has
been refused any insurance coverage sought or applied for, and Union has no
reason to believe that existing insurance coverage cannot be renewed as and when
the same shall expire upon terms and conditions as favorable as those presently
in effect, other than possible increases in premiums or unavailability of
coverage that do not result from any extraordinary loss experience on the part
of the Union Companies.
3.13 ENVIRONMENTAL MATTERS
Except as set forth in the Disclosure Letter, the Union Companies are
in substantial compliance with all Environmental Laws (as defined in Section
2.14). None of the Union Companies has received any communication alleging that
Union or any Union Subsidiary is not in such compliance and, to the best
knowledge of Union, there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
3.14 STATEMENTS TRUE AND CORRECT
When the Registration Statement to be filed by Union with the SEC
shall become effective, and at all times subsequent thereto up to and including
the King George shareholders' meeting to vote upon the Affiliation, such
Registration Statement and all amendments or supplements thereto, with respect
to all information set forth therein furnished by Union relating to Union (i)
shall comply in all material respects with the applicable provisions of the
federal and state securities laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 INVESTIGATION AND CONFIDENTIALITY
King George will keep Union advised of all material developments
relevant to its business and to consummation of the Affiliation, and Union will
advise King George of any material adverse change in its financial condition or
operations and all material developments that are likely to adversely affect
consummation of the Affiliation. Union and King George each may make or cause to
be made such further investigation of the financial and legal condition of the
other as such party reasonably deems necessary or advisable in connection with
the Affiliation, provided, however, that such investigation shall not interfere
unnecessarily with normal operations. Union and King George agree to furnish the
other and the other's advisors with such financial data and other information
with respect to its business and properties as such other party shall from time
to time reasonably request. Each party hereto shall, and shall cause each of its
directors, officers, attorneys and advisors, to maintain the confidentiality of
all information obtained in such investigation which is not otherwise publicly
disclosed by the other party, such undertaking with respect to confidentiality
to survive any termination of this Agreement. In the event of the termination of
this Agreement, each party shall return to the furnishing party or, at the
request of the furnishing party, destroy and certify the destruction of all
confidential information previously furnished in connection with the
transactions contemplated by this Agreement.
4.2 REGISTRATION STATEMENT; SHAREHOLDER APPROVAL
(a) King George shall submit this Agreement and the Plan of Share
Exchange to its shareholders for approval at a special meeting to be held on or
before July 31, 1996 or as soon thereafter as practicable (the "King George
Meeting"). Subject to the fiduciary duties of the Board of Directors of King
George, the King George Board of Directors shall unanimously recommend approval
of the Affiliation and shall use its best efforts to solicit and obtain votes of
the holders of King George Common Stock in favor of the Affiliation. Each member
of the King George Board of Directors agrees to vote all shares of King George
Common Stock under his control (and not held in a fiduciary capacity) in favor
of the Affiliation.
(b) Union and King George will prepare jointly the proxy
statement/prospectus to be used in connection with the King George Meeting (the
"Proxy Statement/Prospectus"). Union will prepare and file with the SEC a
Registration Statement, of which such Proxy Statement/Prospectus shall be a
part, and will use its best efforts to have the Registration Statement declared
effective as promptly as possible. When the Registration Statement or any
post-effective amendment or supplement thereto shall become effective and at all
times subsequent to such effectiveness, up to and including the date of the King
George Meeting, such Registration Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished or to be
furnished by King George relating to King George and by Union relating to the
Union Companies, will conform in all material respects with the provisions of
the Securities Act of 1933 and any other applicable statutory or regulatory
requirements.
4.3 OPERATION OF THE BUSINESS OF KING GEORGE
Between the date of this Agreement and the Effective Date, King
George agrees that it will operate its business substantially as presently
operated and only in the ordinary course and will use its best efforts to
preserve its properties, business and relationships with customers, employees
and other persons having business dealings with it. Without limiting the
generality of the foregoing, King George agrees that it will not, without the
prior written consent of Union:
(a) Make any change in its authorized capital stock, or issue or sell
any additional shares of, securities convertible into or exchangeable for, or
options, warrants or rights to purchase, its capital stock, nor shall it
purchase, redeem or otherwise acquire any of its outstanding shares of capital
stock, except that King George shall not be restricted from acquiring any shares
of King George Common Stock that secure an extension of credit made by King
George that is in default or selling, in the ordinary course, any such
re-acquired shares;
(b) Increase the rate of compensation of any of its directors,
officers or employees, or pay or agree to pay any bonus to, or provide any other
employee benefit or incentive to, any of its directors, officers or employees,
except in a manner and amount consistent with past practice, any of which
changes shall be reported promptly to Union;
(c) Enter into any bonus, incentive compensation, stock option,
deferred compensation, profit sharing, thrift, retirement, pension, group
insurance or other benefit plan or any employment or consulting agreement;
(d) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or encumber
any of its assets, nor dispose of any of its assets in any other manner, except
in the ordinary course of its business and for adequate value, or as otherwise
specifically permitted in this Agreement;
(e) Solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, 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 other than as contemplated by this
Agreement; (except where the failure to furnish such information or participate
in such negotiations or discussions would, on the advice of counsel, constitute
a breach of the fiduciary or legal obligations of King George's Board of
Directors to its shareholders); or authorize or permit any officer, director,
agent or affiliate of King George to do any of the above; or fail to notify
Union immediately if any such inquiries or proposals are received by King
George;
(f) Change its lending, investment, asset/liability management
or other material banking policies in any material respect, except as may be
required by applicable law;
(g) Alter, amend or repeal its Bylaws or Articles of
Incorporation; or
(h) Propose or take any other action which would make any
representation or warranty in Article 2 hereof untrue.
4.4 DIVIDENDS
Union agrees that prior to the Effective Date King George may declare
and pay on or about June 1, 1996 its regular annual cash dividends in an amount
not to exceed $2.35 per share. The payment of such dividend shall be subject to
the reasonable determination of Union that no material change has occurred in
the financial condition or results of operation of King George since December
31, 1995.
4.5 REGULATORY FILINGS
Union and King George shall use their best efforts to prepare and
file as soon as practicable after the date hereof all required applications for
regulatory approval of the Affiliation. Union shall use its best efforts to
obtain prompt approval of each required application.
4.6 PUBLIC ANNOUNCEMENTS
Each party will consult with the other before issuing any press
release or otherwise making any public statements with respect to the
Affiliation and shall not issue any such press release or make any such public
statement prior to such consultations, except as may be required by law.
4.7 ACCOUNTING TREATMENT
Union and King George shall each use their best efforts to ensure
that the Affiliation qualifies for pooling-of-interests accounting treatment.
4.8 AFFILIATES
King George shall identify those persons who may deemed to be
"affiliates" of King George with the meaning of Rule 145 promulgated under the
Securities Act. King George shall cause each person so identified to deliver to
Union at least 30 days prior to the Effective Date a written agreement providing
that such person will not dispose of Union Common Stock received in the
Affiliation, except in a manner that (i) complies with the Securities Act of
1933 and the rules and regulations promulgated thereunder, and (ii) is
consistent with the qualification of the transactions contemplated hereby for
pooling of interests accounting treatment.
4.9 BENEFIT PLANS
Upon consummation of the Affiliation, each current employee of King
George shall either:
(i) be eligible subject to the terms of the applicable plan, to
participate immediately in any benefit plans maintained by Union for its
similarly situated employees taking into account any service with King George
for eligibility purposes; and with respect to any defined contribution plan
maintained by Union, taking into account service with King George for vesting
purposes, provided that no credit for prior service with King George will be
granted where the granting of such service credit would create an obligation of
Union to contribute to any Union plan on behalf of a former King George employee
other than any future obligation to contribute that may arise in accordance with
a Union plan; or
(ii) continue to participate in any King George Benefit Plans
maintained by Union;
provided that Union has the sole discretion to decide whether an affected
employee of King George participates in each plan maintained by Union and except
as provided in Section 1.3(c) concerning certain salary continuation and
deferred compensation arrangements, Union is not obligated to maintain any King
George Benefit Plan and may in its sole discretion terminate any such plan or
merge it with a Union employee benefit plan.
4.10 NASDAQ LISTING
Union shall list on the Nasdaq National Market the shares of Union
Common Stock to be issued in the Affiliation.
4.11 INDEMNIFICATION
Union agrees that following the Effective Date, it shall indemnify,
defend and hold harmless any person who has rights to indemnification from King
George, to the same extent and on the same conditions as such person is entitled
to indemnification pursuant to Virginia law and King George's Articles of
Incorporation or Bylaws, as in effect on the date of this Agreement, to the
extent legally permitted to do so with respect to matters occurring on or prior
to the Effective Date. Without limiting the foregoing, in any case in which
corporate approval may be required to effectuate any indemnification, Union
shall direct, at the election of the party to be indemnified, that the
determination of permissibility of indemnification shall be made by independent
counsel mutually agreed upon between Union and the indemnified party. Union
shall use its reasonable best efforts to maintain King George's existing
directors' and officers' liability policy, or some other policy, including
Union's existing policy, providing at least comparable coverage, covering
persons who are currently covered by such insurance of King George for a period
of three years after the Effective Date on terms no less favorable than those in
effect on the date hereof.
ARTICLE 5
CONDITIONS TO THE AFFILIATION
5.1 GENERAL CONDITIONS
The respective obligations of each of Union and King George to
effect the Affiliation shall be subject to the fulfillment, or waiver in the
case of section 5.1(e) below, at or prior to the Effective Date of the following
conditions:
(a) Corporate Action. All corporation action necessary to authorize
the execution, delivery and performance of this Agreement and consummation of
the transactions contemplated hereby shall have been duly and validly taken,
including without limitation the approval of the shareholders of King George.
(b) Registration Statement. The Registration Statement shall have
been declared effective and shall not be subject to a stop order or any
threatened stop order of the SEC or any state securities commissioner.
(c) Regulatory Approvals. Union and King George shall have received
all regulatory approvals required in connection with the transactions
contemplated by this Agreement, all notice periods and waiting periods required
after the granting of any such approvals shall have passed, and all such
approvals shall be in effect; provided, however, that no such approvals shall
have imposed any condition or requirement which, in the reasonable opinion of
the Boards of Directors of Union or King George, would so materially adversely
impact the economic or business benefits of the transactions contemplated by
this Agreement as to render consummation of the Affiliation inadvisable or
unduly burdensome.
(d) Tax Opinion. Union and King George shall have received an opinion
of Union's counsel in form and substance satisfactory to Union and King George
to the effect that the Affiliation will constitute a reorganization within the
meaning of Section 368 of the Code and that no gain or loss will be recognized
by the shareholders of King George to the extent they receive Union Common Stock
solely in exchange for their King George Common Stock in the Affiliation.
(e) Opinions of Counsel. King George shall have delivered to Union
and Union shall have delivered to King George opinions of counsel, dated as of
the Effective Date, as to such matters as they may each reasonably request with
respect to the transactions contemplated by this Agreement and in a form
reasonably acceptable to each of them.
(f) Legal Proceedings. Neither Union nor King George shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction which enjoins or prohibits the consummation of the Affiliation.
<PAGE>
5.2 CONDITIONS TO OBLIGATIONS OF UNION
The obligations of Union to effect the Affiliation shall be subject
to the fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and
warranties of King George set forth in Article 2 shall be true and correct in
all material respects as of the date of this Agreement and as of the Effective
Date as though made on the Effective Date (or on the date when made in the case
of any representation and warranty which specifically relates to an earlier
date), except as otherwise expressly contemplated by this Agreement or consented
to in writing by Union.
(b) Performance of Obligations. King George shall have performed in
all material respects all obligations required to be performed by it under
this Agreement prior to the Effective Date.
(c) Officers' Certificate. King George shall have delivered to Union
a certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.2(a) and
5.2(b) have been satisfied.
(d) Affiliate Letters. Union shall have received the written
agreements from the affiliates as specified in Section 4.8 hereof.
(e) Accountants' Letters. Union shall have received a letter, dated
as of the Effective Date, from KPMG Peat Marwick LLP, satisfactory in form and
substance to Union, that the Affiliation will qualify for pooling-of-interests
accounting treatment.
5.3 CONDITIONS TO OBLIGATIONS OF KING GEORGE
The obligations of King George to effect the Affiliation shall
be subject to the fulfillment or waiver at or prior to the Effective Date of
the following additional conditions:
(a) Representations and Warranties. The representations and
warranties of Union set forth in Article 3 shall be true and correct in all
material respects as of the date of this Agreement and as of the Effective Date
as though made on the Effective Date (or on the date when made in the case of
any representation and warranty which specifically relates to an earlier date),
except as otherwise expressly contemplated by this Agreement or consented to in
writing by King George.
(b) Performance of Obligations. Union shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. Union shall have delivered to King George
a certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c),
5.3(a) and 5.3(b) have been satisfied.
(d) Investment Banking Letter. King George shall have received an
updated fairness opinion from Scott & Stringfellow, Inc., financial advisor to
King George, addressed to King George and dated on or about the date the Proxy
Statement/Prospectus is mailed to shareholders of King George, to the effect
that the terms of the Affiliation are fair to the shareholders of King George
from a financial standpoint
ARTICLE 6
TERMINATION
6.1 TERMINATION
This Agreement and the Plan of Share Exchange may be terminated at
any time before the Effective Date, whether before or after approval thereof
by the shareholders of King George, as provided below:
(a) Mutual Consent. By mutual consent of the parties,
evidenced by their written agreement.
(b) Closing Delay. At the election of either party, evidenced by
written notice, if the Closing shall not have occurred on or before December 31,
1996, or such later date as shall have been agreed to in writing by the parties;
provided, however, that the right to terminate under this Section 6.1(b) shall
not be available to either party whose failure to perform an obligation
hereunder has been the cause of, or has resulted in, the failure of the Closing
to occur on or before such date.
(c) Conditions to Union Performance Not Met. By Union upon delivery
of written notice of termination to King George if any event occurs which
renders impossible the satisfaction in any material respect of one or more of
the conditions to the obligations of Union to effect the Affiliation set forth
in Sections 5.1 and 5.2, and such noncompliance is not waived by Union.
(d) Conditions to King George Performance Not Met. By King George
upon delivery of written notice of termination to Union if any event occurs
which renders impossible the satisfaction in any material respect of one or more
of the conditions to the obligations of King George to effect the Affiliation
set forth in Sections 5.1 and 5.3, and such noncompliance is not waived by King
George.
(e) Due Diligence Review of King George. By Union in writing at any
time prior to 5:00 p.m. on April 8, 1996 if Union determines in its sole good
faith judgment that the financial condition, business or prospects of King
George are materially adversely different from what was reasonably expected by
Union after the performance of its due diligence prior to the execution of this
Agreement; provided that Union shall inform King George upon such termination of
the reasons for Union's determination and, provided further, that this Section
6.1(e) shall not limit in any way the due diligence investigation of King George
which Union may perform or otherwise affect any other rights which Union has
after the date hereof and after April 8, 1996, under the terms of this
Agreement.
(f) Due Diligence Review of Union. By King George in writing at any
time prior to 5:00 p.m. on April 8, 1996 if King George determines in its sole
good faith judgment that the financial condition, business or prospects of Union
(as such condition, business or prospects may affect the market price of Union
Common Stock) are materially adversely different from what was reasonably
expected by King George after the performance of its due diligence prior to the
execution of this Agreement; provided that King George shall inform Union upon
such termination of the reasons for King George's determination and, provided
further, that this Section 6.1(f) shall not limit in any way the due diligence
investigation of Union which King George may perform or otherwise affect any
other rights which King George has after the date hereof and after April 8,
1996, under the terms of this Agreement.
6.2 EFFECT OF TERMINATION
In the event this Agreement is terminated pursuant to Section 6.1
hereof, both this Agreement and the Plan of Share Exchange shall become void and
have no effect, except that (i) the provisions hereof relating to
confidentiality, press releases and expenses set forth in Sections 4.1, 4.7 and
6.4, respectively, shall survive any such termination and (ii) a termination
pursuant to 6.1(c) or 6.1(d) hereof shall not relieve the breaching party from
liability for an uncured intentional breach of any provision of this Agreement
giving rise to such termination.
6.3 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Agreement and
the Plan of Share Exchange shall not survive the Effective Date and shall be
terminated and extinguished at the Effective Date. From and after the Effective
Date, the parties hereto shall have no liability to the other on account of any
breach of any of those representations, warranties and covenants; provided,
however, that the foregoing clause shall not (i) apply to agreements of the
parties which by their terms are intended to be performed after the Effective
date, and (ii) shall not relieve any person for liability for fraud, deception
or intentional misrepresentation.
6.4 EXPENSES
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that Union agrees to bear and pay
the cost of printing and mailing the Proxy Statement/Prospectus.
(b) Notwithstanding the provisions of Section 6.4(a) hereof, if for
any reason the Affiliation is not approved by King George's shareholders at the
King George Meeting or any adjournment thereof, King George shall reimburse
Union for one-half of all reasonable out-of-pocket expenses incurred by Union in
connection with the transactions contemplated by this Agreement, provided that
the maximum amount that King George shall be responsible to Union for under this
Section 6.4(b) shall be limited to $50,000.
(c) If this Agreement is terminated by Union or King George because
of a willful and material breach by the other of any representation, warranty,
covenant, undertaking or restriction set forth herein, and provided that the
terminating party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall reimburse the other party of all
reasonable out-of-pocket expenses incurred by it in connection with the
transactions contemplated by this Agreement.
(d) Final settlement with respect to the reimbursement of such
fees and expenses by the parties shall be made within thirty days after the
termination of this Agreement.
ARTICLE 7
GENERAL PROVISIONS
7.1 ENTIRE AGREEMENT
This Agreement contains the entire agreement among Union and King
George with respect to the Affiliation and the related transactions and
supersedes all prior arrangements or understandings with respect thereto.
7.2 BINDING EFFECT; NO THIRD PARTY RIGHTS
This Agreement shall bind Union and King George and their respective
successors and assigns. Other than Section 4.9, nothing in this Agreement is
intended to confer upon any person, other than the parties hereto or their
respective successors, any rights or remedies under or by reason of this
Agreement.
7.3 WAIVER AND AMENDMENT
Any term or provision of this Agreement may be waived in writing at
any time by the party which is, or whose shareholders are, entitled to the
benefits thereof, and this Agreement may be amended or supplemented by written
instructions duly executed by the parties hereto at any time, whether before or
after the King George Meeting, except statutory requirements and requisite
approvals of shareholders and regulatory authorities.
<PAGE>
7.4 GOVERNING LAW
Except as required otherwise or otherwise indicated herein, this
Agreement shall be construed and enforced according to the laws of the
Commonwealth of Virginia.
7.5 NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to Union:
G. William Beale
Union Bankshares Corporation
211 North Main Street
P. O. Box 446
Bowling Green, Virginia 22427-0446
Copy to:
George P. Whitley
LeClair Ryan
707 East Main Street; 11th Floor
Richmond, Virginia 23219
If to King George:
Homer L. Hite
King George State Bank, Inc.
State Route 3
P.O. Box 81
King George, Virginia 22495
Copy to:
Fred W. Palmore, III
Mays & Valentine
1111 East Main Street
P.O. Box 1122
Richmond, Virginia 23208
7.6 COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same agreement.
<PAGE>
7.7 SEVERABILITY
In the event that any provision of this Agreement shall be held
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions hereof. Any
provision of this Agreement held invalid or unenforceable only in part or degree
shall remain in full force and effect to the extent not held invalid or
unenforceable. Further, the parties agree that a court of competent jurisdiction
may reform any provision of this Agreement held invalid or unenforceable so as
to reflect the intended agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed in counterparts by their duly authorized officers and their
corporate seals to be affixed hereto, all as of the date first written above.
UNION BANKSHARES CORPORATION
Bowling Green, Virginia
By: __________________________
G. William Beale
President and Chief Executive Officer
ATTEST:
By: __________________________
D. Anthony Peay
Secretary
KING GEORGE STATE BANK, INC.
King George, Virginia
By: __________________________
Homer L. Hite
President
ATTEST:
By: __________________________
<PAGE>
KING GEORGE STATE BANK, INC.
BOARD OF DIRECTORS
Each of the undersigned members of the Board of Directors of King George
State Bank, Inc. agrees to be bound by his personal obligations as provided
in Section 4.1, 4.2 and 4.3(e) of the Agreement and Plan of Reorganization.
____________________________ ______________________________
____________________________ ______________________________
____________________________ ______________________________
____________________________ ______________________________
____________________________ ______________________________
<PAGE>
EXHIBIT A
TO THE AGREEMENT AND
PLAN OF REORGANIZATION
PLAN OF SHARE EXCHANGE
BETWEEN
KING GEORGE STATE BANK, INC.
AND
UNION BANKSHARES CORPORATION
Pursuant to this Plan of Share Exchange (the "Plan of Share
Exchange"), King George State Bank, Inc., a Virginia banking corporation ("King
George"), shall become a wholly-owned subsidiary of Union Bankshares
Corporation, a Virginia corporation ("Union"), pursuant to a statutory share
exchange under Section 13.1-717 of the Virginia Stock Corporation Act.
ARTICLE I
TERMS OF THE SHARE EXCHANGE
1.1 THE SHARE EXCHANGE
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of March 12, 1996 (the "Agreement"), between Union and
King George, at the Effective Date King George shall become a wholly-owned
subsidiary of Union through the exchange of each outstanding share of common
stock of King George for shares of common stock of Union in accordance with
Section 2.1 of this Plan of Share Exchange and pursuant to a statutory share
exchange under Section 13.1-717 of the Virginia Stock Corporation Act (the
"Act") and with the effect specified in Section 13.1-721 of the Act (the "Share
Exchange"). The Share Exchange shall become effective (the "Effective Date") on
the date shown on the Certificate of Share Exchange issued by the Virginia State
Corporation Commission (the "SCC").
1.2 ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation and Bylaws of Union and King George in
effect immediately prior to the consummation of the Share Exchange shall
remain in effect following the Effective Date until otherwise amended or
repealed.
<PAGE>
ARTICLE II
MANNER OF CONVERTING SHARES
2.1 CONVERSION OF SHARES
Upon and by reason of the Share Exchange becoming effective
pursuant to the issuance of a Certificate of Share Exchange by the SCC and
except as set forth in Section 2.3 below, no cash shall be allocated to the
shareholders of King George and stock shall be issued and allocated as follows:
(a) Each share of common stock, par value $6.00 per share, of King
George ("King George Common Stock") issued and outstanding immediately prior to
the Effective Date shall, by operation of law, be automatically exchanged for
5.5 shares of common stock, par value $4.00 per share, of Union ("Union Common
Stock"), plus cash for fractional shares. The ratio of shares of Union Common
Stock that will be exchanged for each outstanding share of King George Common
Stock is referred to herein as the "Exchange Ratio."
(b) Each holder of a certificate representing shares of King George
Common Stock upon the surrender of his King George stock certificates to Union,
duly endorsed for transfer in accordance with Section 2.2 below, will be
entitled to receive in exchange therefor a certificate or certificates
representing the number of whole shares of Union Common Stock that his shares
shall be converted into pursuant to the Exchange Ratio, plus cash for any
fractional share interest as determined pursuant to Section 2.3 below. In the
event Union changes the number of shares of Union Common Stock issued and
outstanding prior to the Effective Date as a result of any stock split, stock
dividend, recapitalization or similar transaction with respect to the
outstanding shares of Union Common Stock and the record date therefor shall be
prior to the Effective Date, the Exchange Ratio shall be proportionately
adjusted.
(c) Shares of King George Common Stock issued and outstanding
immediately prior to the Effective Date shall, by virtue of the Share Exchange,
continue to be issued and outstanding shares held by Union.
2.2 MANNER OF EXCHANGE OF KING GEORGE STOCK CERTIFICATES
As promptly as practicable after the Effective Date, Union shall
cause Registrar and Transfer Company, acting as the exchange agent (the
"Exchange Agent"), to send to each former shareholder of record of King George
immediately prior to the Effective Date transmittal materials for use in
exchanging such shareholder's certificates of King George Common Stock (other
than shares held by shareholders who perfect their dissenters' rights as
provided under Section 2.5 hereof) for the consideration set forth in Section
2.1 above and Section 2.3 below. Any fractional share checks which a King George
shareholder shall be entitled to receive in exchange for such shareholder's
shares of King George Common Stock, and any dividends paid on any shares of
Union Common Stock, that such shareholder shall be entitled to receive prior to
the delivery to the Exchange Agent of such shareholder's certificates
representing all of such shareholder's shares of King George Common Stock will
be delivered to such shareholder only upon delivery to the Exchange Agent of the
certificates representing all of such shares (or indemnity satisfactory to Union
and the Exchange Agent, in their judgment, if any of such certificates are lost,
stolen or destroyed). No interest will be paid on any such fractional share
checks or dividends to which the holder of such shares shall be entitled to
receive upon such delivery.
2.3 NO FRACTIONAL SHARES
No certificates or scrip for fractional shares of Union Common Stock
will be issued. In lieu thereof, Union will pay the value of such fractional
shares in cash on the basis of the average closing prices of Union Common Stock
as reported on the Nasdaq National Market for the ten trading days immediately
preceding the Effective Date.
2.4 DIVIDENDS
No dividend or other distribution payable to the holders of record of
Union Common Stock at or as of any time after the Effective Date shall be paid
to the holder of any certificate representing shares of King George Common Stock
issued and outstanding at the Effective Date until such holder physically
surrenders such certificate for exchange as provided in Section 2.2 of this Plan
of Share Exchange, promptly after which time all such dividends or distributions
shall be paid (without interest).
2.5 RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of King George who object to the Share Exchange will be
entitled to the rights and remedies set forth in sections 13.1-729 through
13.1-741 of the Act.
ARTICLE III
TERMINATION
This Plan of Share Exchange may be terminated at any time prior to
the Effective Date by the parties hereto as provided in Article 6 of the
Agreement between the parties.
<PAGE>
APPENDIX II
_____________________
_____________________
OPINION OF SCOTT & STRINGFELLOW, INC.
_____________________
_____________________
SCOTT & STRINGFELLOW, INC.
[DRAFT -- FOR SEC FILING PURPOSES ONLY]
_______________, 1996
Board of Directors
King George State Bank
King George, Virginia 22485-0081
Gentlemen:
You have asked us to render our opinion relating to the fairness,
from a financial point of view, to the shareholders of King George State Bank,
Inc. ("King George") of the terms of an Agreement and Plan of Reorganization
between Union Bankshares Corporation ("Union") and King George dated March 12,
1996 and a related Plan of Share Exchange (the "Reorganization Agreement"). The
Reorganization Agreement provides for the affiliation of King George with Union
(the "Affiliation") by way of a statutory share exchange pursuant to the
provisions of the Virginia Stock Corporation Act, and further provides that each
share of Common Stock of King George which is issued and outstanding immediately
prior to the Effective Date of the Affiliation shall be exchanged for 5.50
shares of Union Common Stock (the "Exchange Ratio").
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Reorganization Agreement; (2) King George financial statements
for the three years ended December 31, 1995; (3) King George's unaudited
financial statements for the three months ended March 31, 1995 and 1996, and
other internal information relating to King George prepared by King George's
management; (4) information regarding the trading market for the common stocks
of King George and Union and the price ranges within which the respective stocks
have traded; (5) the relationship of prices paid to relevant financial data such
as net worth, loans, deposits and earnings in certain bank and bank holding
company mergers and acquisitions in Virginia in recent years; (6) Union's annual
reports to shareholders and its financial statements for the three years ended
December 31, 1995; and (7) Union's unaudited financial statements for the three
months ended March 31, 1995 and 1996, and other internal information relating to
Union prepared by Union's management. We have discussed with members of
management of King George and Union the background to the Affiliation, reasons
and basis for the Affiliation and the business and future prospects of King
George and Union
<PAGE>
Board of Directors
King George State Bank
1996
Page 2
individually and as a combined entity. Finally, we have conducted such other
studies, analyses and investigations, particularly of the banking industry, and
considered such other information as we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of King George and Union. We have not attempted independently
to verify such information, nor have we made any independent appraisal of the
assets of King George or Union. We have taken into account our assessment of
general economic, financial market and industry conditions as they exist and can
be evaluated at the date hereof, as well as our experience in business valuation
in general.
On the basis of our analyses and review and in reliance on the
accuracy and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof, the terms
of the Reorganization Agreement are fair from a financial point of view to the
holders of King George Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By: _________________________________
Gary S. Penrose
Managing Director
Financial Institutions Group
<PAGE>
APPENDIX III
UNION'S 1995 ANNUAL REPORT TO SHAREHOLDERS
BUSINESS PROFILE
Union Bankshares Corporation is a multi-bank holding company serving the Central
and Northern Neck regions of Virginia through its two banking subsidiaries,
Union Bank & Trust Company and Northern Neck State Bank and its non-bank
subsidiary, Union Investment Services, Inc. Both Union Bank & Trust Company and
Northern Neck State 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 commercial and consumer deposit accounts
and loans, credit cards, automated teller machines and many other services to
its customers. Union Investment Services, Inc. is a full-service discount
brokerage firm providing a wide variety of investment choices to investors
throughout the Company's service area.
Through its 11 locations, Union Bank & Trust Company 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 State Bank serves the Northern Neck and
Middle Peninsula regions through four locations in Warsaw, Montross and
Tappahannock. The banks have a strong tradition of service, spanning over 87
years, to the communities they serve. As of December 31, 1995, the Company had
202 employees, 1,657 stockholders of record, and assets exceeding $458 million.
MISSION STATEMENT
The primary mission of Union Bankshares Corporation and its subsidiaries is to
enhance shareholder value by remaining a strong, independent banking
organization that is a leading provider of financial services, providing
exemplary customer service,a rewarding work environment for its employees and a
growing return for its shareholders.
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
Interest income $ 34,470 $ 28,612 $ 26,994 $ 27,812 $ 29,357
Interest expense 16,282 11,709 11,339 13,238 17,000
-------- -------- -------- -------- --------
Net interest income 18,188 16,903 15,655 14,574 12,357
Provision for loan losses 574 597 1,220 1,556 1,551
-------- -------- -------- -------- --------
Net interest income after
provision for loan losses 17,614 16,306 14,435 13,018 10,806
Other income 2,442 2,774 1,895 1,951 1,830
Other expenses 11,899 11,031 9,875 8,781 7,787
-------- -------- -------- -------- --------
Income before income taxes 8,157 8,049 6,455 6,188 4,849
Income tax expense 1,910 1,774 1,301 1,414 949
-------- -------- -------- -------- --------
Net income $ 6,247 $ 6,275 $ 5,154 $ 4,774 $ 3,900
-------- -------- -------- -------- --------
Per Share Data
Net income per share $ 1.91 $ 1.93 $ 1.58 $ 1.47 $ 1.20
Cash dividends declared .56 .52 .45 .40 .36
Book value at year-end 15.00 13.25 12.02 10.89 9.82
Financial Condition
Total assets $458,713 $414,879 $377,841 $351,330 $331,413
Total deposits 374,351 347,032 325,556 303,927 286,493
Stockholders' equity 49,292 43,239 39,146 35,457 31,978
Other Data
Return on average assets 1.43% 1.62% 1.42% 1.41% 1.24%
Return on average equity 13.58 15.38 13.86 14.00 12.62
Dividend payout ratio 29.32 27.00 28.48 27.21 30.00
Equity to assets ratio 10.75 10.42 10.27 10.10 9.82
</TABLE>
QUARTERLY EARNINGS SUMMARY
<TABLE>
<CAPTION>
1995 1994
------------------------------------- ------------------------------------
(In thousands, except per share data)
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $8,962 $8,862 $8,457 $8,189 $7,635 $7,256 $6,995 $6,726
Interest expense 4,422 4,236 4,002 3,622 3,305 2,917 2,773 2,714
------ ------ ------ ------ ------ ------ ------ ------
Net interest income 4,540 4,626 4,455 4,567 4,330 4,339 4,222 4,012
Provision for loan losses 115 159 150 150 137 170 167 123
------ ------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses 4,425 4,467 4,305 4,417 4,193 4,169 4,055 3,889
Other income 778 622 577 465 1,160 537 516 561
Other expenses 3,139 2,858 3,038 2,864 3,081 2,701 2,672 2,577
Income tax expense 468 569 404 469 462 500 402 410
------ ------ ------ ------ ------ ------ ------ ------
Net income $1,596 $1,662 $1,440 $1,549 $1,810 $1,505 $1,497 $1,463
------ ------ ------ ------ ------ ------ ------ ------
Net income per share $ .49 $ .51 $ .44 $ .47 $ .56 $ .46 $ .46 $ .45
------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
<PAGE>
Dear Fellow Stockholders,
Union Bankshares was formed with the belief that a family of well-managed
community banks, who retain autonomy and local direction, yet share the costs of
doing business, can prosper and increase shareholder value.
Our approach for the future is two pronged. First, we will continue to focus on
profitability, customer service and growth. With a strong capital base and a
stable earnings platform, the prospects for future earnings growth are good.
Quality customer service remains the biggest difference between community banks
and the regional banks. It is a difference on which we can capitalize. In the
past, each of our subsidiary banks has successfully purchased branches of other
financial institutions. Management feels this is an excellent way to enter new
markets or fill-in existing service areas, and we will pursue branch acquisition
opportunities as they are presented. The Company expects continued strong asset
growth, buoyed by its presence in the I-95 corridor and the earnings stability
historically demonstrated by its subsidiary banks.
[graph goes here]
Secondly, our future focuses on growth through the addition of strong,
profitable community banks to the Union Bankshares family. Opportunities exist
for profitable community banks with management strength to join the Union
Bankshares family, benefiting the shareholders of all participants. Through
consolidation of data processing, back office operations, regulatory compliance,
internal audit and other administrative functions, we can increase overall
profitability and enhance shareholder value.
1995 gave all of us a glimpse of the future of the financial services industry.
Politically, we are fighting for reduced regulation, reduced administrative
burden, and the right to offer to our customers products or services generally
related to banking, such as insurance products and real estate loan closings.
Losing any of these battles will hinder our ability to effectively compete and
could affect the returns provided our shareholders.
[graph goes here]
The 1995 economy and aggressive competition for consumer and residential
mortgage loans have narrowed interest margins. Because banks borrow short term
to lend over a longer period, an inverted yield curve combines to hurt spreads
by creating higher cost deposits and lower yielding loans. In 1995, the
shrinking interest margin adversely affected second half profits.
Your Company will not easily give up its customers to bank or non-bank
competitors, but we refuse to make unprofitable loans. We will choose our
battlefields carefully. While we will not compete with those that sacrifice
shareholders returns, we will continue to emphasize that which offers value to
our customers... relationships, loyalty, experience and knowledge, added to the
attributes of competitive products and services.
Your Company's thrust into alternate sources of revenue are coming to fruition.
In less than three years, customers served by Union Investment Services have
grown into the hundreds with over $20 million under portfolio management. The
subsidiary banks own 24% of Banker's Title Insurance Agency - Fredericksburg.
Dividends paid by Banker's Title in 1995 represented a 100% return on our
initial investment. We also continue to be pleased with our investment in the
Trust Company of Virginia. The Trust Company brings community bank style trust
services to our customers and their families.
Two other revenue programs are still in their infancy. Our agent bank credit
card program is now servicing five financial institutions with several more on
the horizon for 1996. We believe that mortgage banking has a future in your
Company. Home ownership is at the bedrock of American values. The residential
mortgage process represents an excellent opportunity to serve our community and
opens the door for discussion regarding other financial services we can provide.
While we are enthusiastic about the opportunities within the mortgage banking
arena, we recognize that there are risks associated with the entry into the
secondary market. We are taking our steps slowly.
The sales culture within Union Bankshares is reflective of the changing face of
financial services. "Bankers hours" are only a memory. Our banks are becoming
more like retail stores. For example, the three convenience store branches to be
opened by Union Bank & Trust in 1996 will be open from 7:00 a.m. to 7:00 p.m.
Monday through Friday and from 10:00 a.m. to 2:00 p.m. on Saturdays.
Convenience to the customer is only one of the reasons banks nationwide are
partnering with retail stores. It is a concept that management considers a
cost-effective compliment to our traditional branches. As the year progresses,
management will be pursuing other in-store opportunities.
<PAGE>
[PHOTO]
[Caption: G. William Beale E. Peyton Motley
President and Executive Vice President and
Chief Executive Officer Chief Operating Officer]
Software to be installed in 1996 will offer our banks an additional tool in
their needs assessment analysis. Our banks will have the capability to match
their customer base with in-depth demographic data. The resultant information
will provide us with the improved ability to target market products and
services, as well as determine relationship profitability. Our sales culture
goal is to increase our share of our customers' business by understanding their
needs, and making recommendations that are appropriate for our customers and
profitable for the banks.
Lower cost technology and consolidation were prominent news items in 1995.
Technology not only improves efficiency, but enables us to meet our customers
changing needs. Check cards were successfully introduced by both banks in 1995.
Additionally, Union Bank & Trust successfully implemented telephone banking, a
service that Northern Neck State Bank expects to offer in the later part of
1996. Computer banking and electronic bill paying are both being explored as
important products for the critical 25-45 year old customer base.
Computer technology is improving service and offering product enhancements for
our customers but it is also a valuable management tool. By year end 1996, we
expect to implement a computer staffing model which will better enable us to
control personnel expense. And, by late 1996 we expect to convert both banks to
the same data processing system. The project to centralize human resource
management and benefit administration will be completed in early 1996. These are
just a few ways our shareholders will continue to benefit from sharing the costs
of doing business.
The Company will continue to invest in improved technology, new revenue sources,
and market expansion. Each will have a short-term drag on earnings; however, we
are convinced that the long-term results of these activities will ultimately
yield increased shareholder value.
Management was satisfied with operating results in 1995. The Company saw assets
grow by 11%. Loans and investments also increased by 11%. While new deposits
were difficult to attract due to the bullish stock market, our deposits grew by
almost 8%. Comparative net income numbers are flat, but 1994's results include a
$388,000 after-tax gain on the sale of real estate. Excluding this nonrecurring
gain, earnings increased by 6%.
[graph goes here]
We have been pleased with the performance of the Company's stock. Its value has
increased some 30% over the last two years. The high multiple of earnings and
book value is an indication of our shareholders' confidence in the future of
Union Bankshares.
Management greatly appreciates the support of our shareholders and board of
directors. Enough good words cannot be said about our employees. Their ability
to deliver high touch service to our customers makes the whole thing work.
Should you have any questions or comments, we would enjoy the opportunity to
discuss them with you.
Sincerely,
G. William Beale E. Peyton Motley
<PAGE>
DIRECTORS OF
UNION BANKSHARES CORPORATION
[PHOTO]
[Caption: (l to r): A.D. Whittaker, E. Peyton Motley, G. William Beale,
Ronald L. Hicks, Charles H. Ryland, M. Raymond Piland III and Walton Mahon.
W. Tayloe Murphy, Jr. not pictured.]
DIRECTORS
WALTON MAHON
Chairman
Retired President
Union Bank & Trust Company
CHARLES H. RYLAND
Vice Chairman
Attorney
W. TAYLOE MURPHY, JR.
Attorney
Smith, Murphy, and Taliaferro
RONALD L. HICKS
Attorney
Jarrell, Hicks & Sasser
M. RAYMOND PILAND, III
President
Williamsburg Millwork Corporation
A.D. WHITTAKER
President
A.D. Whittaker
Construction Company
G. WILLIAM BEALE
President
Union Bank & Trust Company
E. PEYTON MOTLEY
President
Northern Neck State Bank
OFFICERS
G. WILLIAM BEALE
President and Chief Executive Officer
E. PEYTON MOTLEY
Executive Vice President and
Chief Operating Officer
D. ANTHONY PEAY
Vice President and
Chief Financial Officer
Corporate Secretary
Richard D. Glancy
Vice President and
Director of Human Resources
<PAGE>
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 Union Bankshares Corporation and subsidiaries (the Company or Union
Bankshares). This discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes to the Consolidated Financial
Statements presented elsewhere in this Annual Report.
OVERVIEW
In 1995, Union Bankshares continued to stress the delivery of high quality
financial services to its primary markets. The Company believes by focusing its
efforts on the needs of these and certain adjacent markets it can meet and
exceed the expectations of its customers and stockholders. 1995 was a year of
preparation as the Company established new infrastructure to operate more
effectively, including a new branch in Hanover County (complimenting its two
existing branches in that county); plans for three branches in high-scale
convenience stores to open in 1996; introduction of debit cards and telephone
banking services; consolidation of lending functions in common markets and
consolidation of certain functions, including human resources and marketing.
Despite the costs associated with the above efforts, the Company continued to
post strong operating results in 1995 with net income of $6.25 million or $1.91
per share. Core profitability from primary lines of business continued to
improve as net interest income increased by 7.3% and service fees by over 19.4%
from 1994 levels. Although net income was down slightly from the $6.28 million
or $1.93 per share reported in 1994, those figures included an after-tax gain on
the sale of other real estate (OREO) of $388,000, or $.12 per share.
Irrespective of this nonrecurring gain, net income increased by 6.0% in 1995.
Profitability as measured by the Company's return on average assets (ROA) was
1.43% in 1995, while its return on average equity (ROE) was 13.58%. Although
these ratios were down from 1.62% and 15.38% in 1994, they remain strong
relative to the Company's peer group averages and, excluding the OREO gain in
1994, returns are consistent with the Company's increasing trend in the last
five years. The strong asset and capital growth which the Company has
experienced also influenced these ratios.
[PHOTO]
Increased levels of earning assets and strong loan demand offset declines in the
interest rate spread in 1995 and contributed significantly to the strong
earnings performance in 1995. The Company's net interest margin on a taxable
equivalent basis was down from 5.07% in 1994 to 4.83% in 1995, however the
effect of changes in volume exceeded changes in rates, generating an additional
$1.4 million in net interest income.
Loans, net of unearned income and the allowance for loan losses, totaled $290.4
million at December 31, 1995, and increase of 11.2% from December 31, 1994. This
increase was fueled by improved economic conditions and consumer confidence.
Securities growth was also strong as the Company utilized certain leveraging
strategies to purchase securities funded by short-term borrowings. Though the
spread on such transactions is reduced from the more typical scenario whereby
loans are funded by deposits, the effect on net income was favorable.
Deposits grew from $347.0 million at December 31, 1994, to $374.4 million, an
increase of 7.9%. Average deposits increased from $328.7 million in 1994 to
$360.6 million in 1995, but competition for deposits among financial service
providers has forced the Company to increasingly fund new loan demand with other
borrowings such as securities sold under agreements to repurchase and Federal
funds purchased.
The Company's financial stability was further enhanced in 1995, as capital
growth continued to outpace asset growth. During 1995, stockholders' equity
increased by $6.0 million or 13.8% to $49.3 million. This growth resulted in a
13.2% increase in book value per share from $13.25 at December 31, 1994 to
$14.99 at December 31, 1995. Approximately $.40 per share of this increase is
attributable to the increase in the unrealized gain on securities available for
sale. This component of capital is subject to market volatility as it represents
the unrealized market gain or loss on securities available for sale. As such,
the effects of this component should be considered when comparing information
such as book value per share and stock price as a multiple of book value. The
closing price of the Company's stock at December 31, 1995 was $26.00 per share,
resulting in a market to book ratio of 173%. Because there is not a high volume
of trading in the Company's stock, the price range within which trades occur is
wider than other, more actively traded stocks. Management has worked with the
investment community to address this issue and during 1995 the spread between
the bid (buy) and ask (sell) price quotes was reduced from approximately $4.00
to $1.50.
The Company's performance in 1994 showed significant improvement over 1993 as
the economy and consumer confidence rebounded. Net income increased 21.7% in
1994 to $6.3 million compared with $5.2 million in 1993. The increased earnings
were due primarily to increased levels of earning assets, strong loan demand and
maintenance of the interest rate spread through reduced cost of funds. The
Company also recorded a nonrecurring after-tax gain of $388,000 on the sale of
other real estate which, if excluded, would have reduced the increase in net
income to a strong 14.2% over 1993. Return on average equity increased in 1994
to 15.38% from 13.86% in 1993. Return on average assets in 1994 improved to
1.62% compared to 1.42% in 1993.
NET INTEREST INCOME
Net interest income represents the principal source of earnings for the Company.
Net interest income equals the amount by which interest income exceeds interest
expense. The net interest margin is net interest income expressed as a
percentage of interest-earning assets. Changes in the volume and mix of 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 and the net
interest margin.
During 1995, net interest income, on a taxable equivalent basis, increased 7.4%
to $19.7 million from $18.3 million in 1994. The Company's net interest margin
declined slightly to 4.83% from 5.07 in 1994 and 4.95% in 1993. The yield on
earning assets increased to 8.82% in 1995 from 8.31% in 1994 while the cost of
interest-bearing liabilities grew more rapidly to 4.72% from 3.84% in 1994.
Average interest-bearing liabilities increased by $39.8 million, or 13.0% but
were outpaced by average earning assets which grew by $46.3 million, or 12.8%.
As a result, the Company was able to realize an increase of $1.4 million in net
interest income in 1995 (see Volume and Rate Analysis table).
In 1994, net interest income, on a taxable equivalent basis, increased 9.2% to
$18.3 million from $16.8 million in 1993. The Company's net interest margin
improved slightly to 5.07% from 4.95% in 1993. By managing its interest spread
and improving the ratio of interest-earning assets to interest-bearing
liabilities, the Company was able to achieve these increases in 1994. The yield
on earning assets increased slightly in 1994 to 8.31% from 8.29% in 1993 while
the cost of interest-bearing liabilities declined from 3.94% in 1993 to 3.84% in
1994.
The following table depicts interest income on earning assets and related
average yields, as well as interest expense on interest-bearing liabilities and
related average rates paid for the periods indicated.
Average Balances, Income and Expenses, Yields
and Rates (Taxable Equivalent Basis)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------------------------
1995 1994 1993
------------------------- ----------------------- ------------------------
Annual Annual Annual
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ------ ------- -------- ------ ------- -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Securities:
Taxable $ 71,568 $ 4,585 6.41% $ 69,747 $ 4,366 6.26% $ 62,359 $ 4,194 6.73%
Tax-exempt (1) 52,953 4,507 8.51 48,817 4,266 8.74 42,856 3,771 8.80
-------- ------- -------- ------- -------- -------
Total securities 124,521 9,092 7.30 118,564 8,632 7.28 105,215 7,965 7.57
Loans, net 278,382 26,583 9.55 238,973 21,244 8.89 223,800 19,855 8.87
Federal funds sold 4,828 294 6.09 3,631 156 4.30 9,218 275 2.98
Interest-bearing deposits
in other banks 459 33 7.19 689 39 5.66 1,341 53 3.95
-------- ------- -------- ------- -------- -------
Total earning assets 408,190 36,002 8.82 361,857 30,071 8.31 339,574 28,148 8.29
-------- ------- -------- ------- -------- -------
Allowance for loan losses (3,838) (3,553) (3,256)
Total non-earning assets 31,205 29,183 25,913
-------- -------- --------
Total assets $435,557 $387,487 $362,231
======== ======== ========
Liabilities & Stockholders'
Equity:
Interest-bearing deposits:
Checking $ 39,108 $ 1,094 2.80 $ 38,139 1,014 2.66 $ 31,352 914 2.92
Regular savings 45,878 1,760 3.84 48,956 1,657 3.38 43,284 1,550 3.58
Money market savings 57,085 1,949 3.41 64,593 1,999 3.09 66,315 2,151 3.24
Certificates of deposit:
$100,000 and over 35,569 2,014 5.66 26,175 1,134 4.33 28,070 1,035 3.69
Under $100,000 141,574 7,989 5.64 111,967 5,221 4.66 108,760 5,368 4.94
-------- ------- -------- ------- -------- -------
Total interest-bearing
deposits 319,214 14,806 4.64 289,830 11,025 3.80 277,781 11,018 3.97
Other borrowings 25,598 1,476 5.77 15,227 684 4.49 10,172 321 3.16
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities 344,812 16,282 4.72 305,057 11,709 3.84 287,953 11,339 3.94
-------- ------- -------- ------- -------- -------
Non-interest-bearing
liabilities:
Demand deposits 41,378 38,878 34,966
Other liabilities 3,371 2,744 2,121
-------- -------- --------
Total liabilities $389,562 346,679 325,040
Stockholders' equity 45,995 40,808 37,191
-------- -------- --------
Total liabilities and
stockholders' equity $435,557 $387,487 $362,231
======== ======== ========
Net interest income $19,720 $18,362 $16,809
======= ======= =======
Interest rate spread 4.10% 4.47% 4.35%
Interest expense as a percent of
average earning assets 3.99% 3.24% 3.34%
Net interest margin 4.83% 5.07% 4.95%
</TABLE>
(1) Income and yields are reported on a taxable equivalent basis.
The following table analyzes changes in net interest income attributable to
changes in the volume of interest-bearing assets and liabilities compared to
changes in interest rates (dollars in thousands):
Volume and Rate Analysis*
(Taxable Equivalent Basis)
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------
1995 vs 1994 1994 vs 1993
Increase (Decrease) Increase (Decrease)
Due to Changes in: Due to Changes in:
------------------------------ ----------------------------
Volume Rate Total Volume Rate Total
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Securities:
Taxable $ 116 $ 103 $ 219 $ 479 $(307) $ 172
Tax-exempt 355 (115) 241 522 (27) 495
Loans, net 3,755 1,584 5,339 1,345 44 1,389
Federal funds sold 64 74 138 (209) 90 (119)
Interest-bearing deposits
in other banks (15) 9 (6) (32) 18 (14)
Total earning assets 4,275 1,656 5,931 2,105 (182) 1,923
Interest-Bearing Liabilities:
Interest checking 27 53 80 187 (87) 100
Savings deposits (355) 408 53 138 (183) (45)
Time deposits 1,922 1,726 3,648 88 (135) (48)
Total interest-bearing deposits 1,594 2,187 3,781 413 (405) 7
Other borrowings 537 255 792 196 166 363
Total interest-bearing liabilities 2,131 2,442 4,573 609 (239) 370
Change in net interest income $2,144 $ (786) $1,358 $1,496 $ 57 $1,553
</TABLE>
* The change in interest, due to both rate and volume, has been allocated to
change due to volume and change due to rate in proportion to the relationship of
the absolute dollar amounts of the change in each.
Interest Sensitivity
An important element of earnings performance and the maintenance of sufficient
liquidity is proper 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. This gap can be managed by
repricing assets or liabilities, which can be effected by replacing an asset or
liability at maturity or by adjusting the interest rate during the life of the
asset or liability. Matching the amounts of assets and liabilities maturing in
the same time interval helps to hedge interest risk and to minimize the impact
on net interest income in periods of rising or falling interest rates.
The Company determines the overall magnitude of interest sensitivity risk and
then formulates policies governing asset generation and pricing, funding sources
and pricing, and off-balance-sheet commitments. These decisions are based on
management's expectations regarding future interest rate movements, the state of
the national and regional economy, and other financial and business risk
factors. The Company uses computer simulations to measure the effect of various
interest rate scenarios on net interest income. This modeling reflects interest
rate changes and the related impact on net income over specified time horizons.
At December 31, 1995, the Company had $ 46.8 million more liabilities than
assets subject to repricing within one year and was, therefore, in a
liability-sensitive position. This compares to the Company's position at
December 31, 1994, when it had $38.3 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 increasing interest rates.
The following table presents the Company's interest sensitivity of December 31,
1995. The one-day position, which is continually changing, is not necessarily
indicative of the Company's position at any other time: Interest Sensitivity
Analysis
<TABLE>
<CAPTION>
December 31, 1995 (1)
----------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
---------------- ---------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Earning Assets:
Loans, net of unearned income(3) $ 74,673 $ 59,379 $ 107,780 $ 51,756 $293,588
Investment securities 995 680 5,064 2,407 9,146
Securities available for sale 6,988 5,810 34,547 75,592 122,937
Federal funds sold 2,050 - - - 2,050
Other short-term investments 124 - - - 124
---------------- ------------ ------------ ---------- ---------
Total earning assets 84,830 65,869 147,391 129,755 427,845
Interest-Bearing Liabilities:
Interest checking(2) $ - $ - $ 40,856 $ - $ 40,856
Regular savings(2) 6,558 464 39,432 - 46,454
Money market savings 47,184 - - 6,000 53,184
Certificates of deposit:
$100,000 and over 9,151 12,521 17,371 - 39,043
Under $100,000 32,327 58,060 60,152 - 150,539
Short-term borrowings 31,108 - - - 31,108
Long-term borrowings 75 75 600 525 1,275
---------------- ------------- ------------ ---------- ---------
Total interest-bearing liabilities 126,403 71,120 158,411 6,525 362,459
---------------- ------------- ------------ ---------- ---------
Period gap (41,573) (5,251) (11,020) 123,214
Cumulative gap $ (41,573) $ (46,824) $ (57,844) $ 65,386 65,386
Ratio of cumulative gap to
Total earning assets (9.82%) (11.05%) (13.62%) 15.18%
=============== ============= =========== ========== ========
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
(2) The Company has found that interest-bearing checking deposits and regular
savings deposits are not sensitive to changes in related market rates and
therefore, it has placed them predominantly in the 1-5 Years column.
(3) Excludes nonaccrual loans totaling $545.
Other Income
Other income, excluding OREO gains, increased by 10.7% in 1995. The Company
experienced steady growth in other sources of noninterest income, including
insurance commissions, and its primary source of other income, service fees. The
Company continues to seek additional sources of noninterest income, particularly
as competition from non-bank financial services companies increases.
Other income in 1994 increased $878,000 from 1993. due principally to a gain on
the sale of other real estate owned in the fourth quarter. The sale of this
property, acquired through foreclosure in 1984, resulted in a gain of $587,000
($388,000 net of applicable income taxes).
Other Expenses
Other expenses totaled $11.9 million in 1995, an increase of $868,000, or 7.8%
over 1994 totals. Excluding the decline in FDIC premiums, this percentage
increases to 11.6% which is consistent with the asset growth of 10.6%
experienced in 1995. This increase is also reflective of the Company's product
development, marketing and customer service initiatives. Personnel costs
increased by $836,000 or 15.5% over 1994 levels. Management considers a portion
of such costs to be an investment in the future as we establish the
infrastructure necessary to provide new products and more convenient service to
our customers. There is typically a lag time between this investment and the
associated revenue.
In 1994 other expenses increased $1.2 million, or 11.7% over the $9.9 million
reported for 1993. This increase was due primarily to increases in salaries and
employee benefits and other operating expenses and was attributable, in part, to
the overall growth of the Company in 1994.
Loan Portfolio
Loans, net of unearned income, totaled $294.1 million at December 31, 1995, an
increase of 11.1% over the 1994 total of $264.8 million. The increase was
principally due to continued loan demand during 1995, particularly in the real
estate and consumer loan portfolios which grew by 14.6% and 15.3%, respectively.
Loans, net of unearned income, as of December 31, 1994, were $264.8 million as
compared to $229.0 million as of December 31, 1993, an increase of 15.6%. A
significant portion of this growth was due to the Company's renewed focus on
consumer lending and resulted in a $19.5 million, or 51.8% increase in consumer
loans which totaled $57.2 million at December 31, 1994.
Loan Portfolio
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1995 1994 1993 1992 1991
---------- -------- -------- -------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $31,033 $ 36,209 $ 31,425 $ 38,571 $ 35,248
Loans to finance agriculture production
and other loans to farmers 2,646 2,920 3,129 950 1,063
Real estate:
Real estate construction 3,181 3,211 3,747 5,171 17,835
Real estate mortgage:
Residential (1-4 family) 92,468 85,031 80,313 87,286 72,589
Home equity lines 22,561 22,503 21,905 21,752 21,639
Multi-family 208 218 229 476 426
Commercial(1) 69,929 52,854 46,637 25,376 11,123
Agricultural 2,776 2,943 3,106 3,328 2,524
----------- --------- ---------- ------ ---------
Total real estate 191,123 166,760 155,937 143,389 126,136
Loans to individuals:
Consumer 65,689 57,176 37,661 37,945 50,877
Credit Card 2,235 1,714 1,490 1,238 1,474
----------- --------- ---------- ------- ---------
Total loans to individuals 67,924 58,890 39,151 39,183 52,351
All other loans 2,598 980 509 651 615
----------- --------- --------- -------- ---------
Total loans 295,324 265,759 230,151 222,744 215,413
Less unearned income 1,192 960 1,126 1,755 3,191
---------- --------- ---------- -------- ---------
Total net loans $ 294,132 $ 264,799 $ 229,025 $ 220,989 $ 212,222
========= ========= ========== ======== =========
</TABLE>
(1) This category generally consists of commercial and industrial loans where
real estate constitutes a secondary source of collateral.
Maturity/Repricing Schedule of Loans
<TABLE>
<CAPTION>
1 Year or Less 1 - 5 Years After 5 Years
Fixed Variable Fixed Variable Fixed Variable Total
------- --------- ------- --------- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995 $70,494 $64,068 $92,779 $15,358 $47,792 $4,833 $ 295,324
December 31, 1994 46,953 96,855 80,327 8,928 32,696 - 265,759
December 31, 1993 41,560 85,254 65,118 14,580 23,639 - 230,151
</TABLE>
Loans secured by real estate comprised 64.7% of the total loan portfolio
at December 31, 1995, up slightly from 62.7% in 1994. Of this total
single-family, residential loans comprised 31.4% of the total loan portfolio at
December 31, 1995, down slightly from 32.1% in 1994. Loans secured by commercial
real estate comprised 23.7% of the total loan portfolio at December 31, 1995, as
compared to 20.0% in 1994, and consist principally of commercial and industrial
loans where real estate constitutes a source of collateral. The Company attempts
to reduce its exposure to the risk of the local real estate markets by limiting
the aggregate size of its commercial real estate portfolio, and by making such
loans primarily on owner-occupied properties. Real estate construction loans
accounted for only 1.1% of total loans outstanding at December 31, 1995. The
Company's charge-off rate for all loans secured by real estate has historically
been low.
The Company's consumer loan portfolio, its second largest category,
consists principally of installment loans. Total loans to individuals for
household, family and other personal expenditures totaled 23.0% at December 31,
1995 up slightly from 22.2% in 1994. Commercial and industrial loans, secured by
non-real estate business assets comprised 10.5% of total loans at the end of
1995, a slight decline from 13.6% at the end of 1994. Loans to the agricultural
industry totaled less than 1.5% of the loan portfolio in each of the last five
years.
The Company is focused on providing community-based financial services
and discourages the origination of loans outside of its principal trade area.
The Company maintains a policy not to originate or purchase loans to foreign
entities or loans classified by regulators as highly leveraged transactions.
To slow the growth of the real estate loans in the loan portfolio,
facilitate asset/liability management and generate additional fee income, the
Company sells a portion of conforming first mortgage residential real estate
loans to the secondary market as they are originated. Management expects this
aspect of its operations to expand beginning in 1996, as it establishes the
infrastructure to provide its customers with enhanced mortgage products.
Asset Quality - Allowance/ Provision for Loan Losses
The allowance for loan losses represents management's estimate of the
amount adequate to provide for potential losses inherent in the loan portfolio.
Among other factors, management considers the Company's historical loss
experience, the size and composition of the loan portfolio, the value and
adequacy of collateral and guarantors, nonperforming credits and current and
anticipated economic conditions. There are additional risks of future loan
losses which cannot be precisely quantified nor attributed to particular loans
or classes of loans. Because those risks include general economic trends as well
as conditions affecting individual borrowers, the allowance for loan losses is
an estimate. The allowance is also subject to regulatory examinations and
determination 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 State
Corporation Commission - Bureau of Financial Institutions examined the Company
as of June 1995. That examination included a review of the Company's loan
portfolio and resulted in no adjustments to the allowance for loan losses.
Management maintains a list of loans which have a potential weakness
that may need special attention. This list is used to monitor such loans and is
used in the determination of the sufficiency of the Company's allowance for loan
losses. As of December 31, 1995, the allowance for loan losses was $3.8 million,
or 1.28% of total loans as compare $3.7 million, or 1.41% in 1994. At December
31, 1995, the Company's allowance for loan losses exceeded the sum of net loan
charge-offs over the last five years.
Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
(In thousands)
Balance, beginning of year $3,734 $ 3,416 $ 3,142 $2,482 $1,667
Loans charged-off:
Commercial 248 163 584 231 291
Real estate 128 67 59 50 39
Consumer 347 228 498 830 564
------ ---------- ------- -------- -------
Total loans charged-off 723 458 1,141 1,111 894
------ ---------- ------- --------- -------
Recoveries:
Commercial 86 18 57 117 27
Real estate - 30 18 11 -
Consumer 86 131 120 87 131
------ ---------- -------- -------- --------
Total recoveries 172 179 195 215 158
------ ---------- --------- -------- --------
Net loans charged-off 551 279 946 896 736
Provision for loan losses 574 597 1,220 1,556 1,551
------ ---------- --------- -------- --------
Balance, end of year $3,757 $3,734 $3,416 $3,142 $2,482
======= ========== ========= ======== =======
Ratio of allowance for loan losses to
total loans outstanding at end of year 1.28% 1.41% 1.49% 1.42% 1.17%
Ratio of net charge-offs to average
loans outstanding during year .19% .12% .41% .41% .35%
</TABLE>
Provisions for loan losses are made based on management's periodic
evaluation of the adequacy of the Company's allowance for loan losses. The
provision for loan losses in 1995 totaled $574,000 as compared to $597,000 in
1994. This decrease is reflective of management's assessment of the risk in its
loan portfolio.
The allowance for loan losses as of December 31, 1994 was $3.7 million,
or 9.3% over 1993's level of $3.4 million. The provision for loan losses in 1994
was $597,000 as compared to $1.2 million in 1993 and reflected improvement in
the loan portfolio over the prior year, including reduced charge-offs and
nonperforming assets. The Company had net charge-offs in 1994 of $279,000 down
significantly from 1993 when net charge-offs totaled $946,000. In 1993,
charge-offs of loans to one Fredericksburg area developer represented 53% of the
Company's total charge-offs.
Nonperforming Assets
Total nonperforming assets, which consist of nonaccrual loans and
foreclosed properties, were $3.9 million at December 31, 1995, up from $2.5
million at December 31, 1994. Nonaccrual loans decreased by $488,000 or 55.0% in
1995. Other real estate owned increased by $1.9 million in 1995 as a result of
the foreclosure on a single property comprising over 1800 acres in King George
County.
Total nonperforming assets at December 31, 1995 and 1994 represented
1.31% and .94%, respectively, of total loans and foreclosed property.
Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C>
(In thousands)
Nonaccrual and restructured loans $ 596 $ 1,084 $ 2,502 $ 3,091 $3,429
Foreclosed properties 3,288 1,425 1,175 1,022 277
Total nonperforming assets $3,884 $ 2,509 $ 3,677 $ 4,113 $3,706
Loans past due 90 days
accruing interest $2,492 $ 1,617 $ 2,107 $ 2,070 $2,135
Allowance for loan losses to
year-end loans 1.28% 1.41% 1.49% 1.42% 1.17%
Allowance for loan losses to
nonaccrual loans 630.37% 344.46% 136.53% 101.65% 72.38%
Nonperforming assets to year-end
loans and foreclosed
properties 1.31% .94% 1.60% 1.85% 1.74%
Net charge-offs to average loans .19% .12% .41% .41% .35%
</TABLE>
Most of the nonperforming assets are secured by real estate within the
Company's trade area. Based on the estimated fair values of the related real
estate, management considers these amounts to be recoverable, with any
individual deficiency considered in the allowances for loan or real estate
losses.
Nonperforming assets were $2.5 million at December 31, 1994, a decrease
of $1.2 million from December 31, 1993. One commercial loan of $1.7 million made
up 45.1% of the total nonperforming assets in 1993. This loan was secured by
first lien deeds of trust on both developed and undeveloped properties and an
assignment of a partnership interest and was foreclosed on in 1994.
Securities
During 1994, the Company adopted Statement of Financial Accounting
Standards No.115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No.115"). As a result, the securities portfolio consists of
two components, investment securities and securities available for sale.
Securities are classified as investment securities based on management's intent
and the Company's ability, at the time of purchase, to hold such securities to
maturity. Securities which may be sold in response to changes in market interest
rates, changes in the security's prepayment risk, increases in loan demand,
general liquidity needs, and other similar factors are classified as available
for sale and are carried at estimated fair value.
In 1995, the Financial Accounting Standards Board issued a special
report on the implementation of SFAS No. 115 which permitted a one-time transfer
of securities between portfolios. As a result, in December 1995, the Company
reclassified certain of its investment securities to securities available for
sale. In doing so, management believes it has positioned the Company to be
better able to respond to changes in financial markets and maximize liquidity
and profitability.
At December 31, 1995 $122.9 million, or over 93% of the Company's
securities were classified as available for sale, as compared to $28.1 million
at December 31, 1994. This change reflects the aforementioned transfer of
$71,871,000, as well as management's philosophy of designating the majority of
its 1995 purchases as securities available for sale.
Investment securities totaled $9.1 million at December 31, 1995 and
consists of securities which management intends to hold to maturity. Investment
securities and securities available for sale totaled $132.1 million and
comprised 28.8% of total assets at December 31, 1995, as compared to $119.1
million and 28.7% at December 31, 1994. The higher levels in 1993 were due to
weak loan demand and the purchase of approximately $10 million in deposits from
Dominion Bank, which resulted in the Company increasingly investing deposit
funds in high quality, but lower yielding, securities. This trend slowed
significantly in both 1995 and 1994 as loan demand was strong, providing a
higher returning investment for the Company.
At December 31, 1994 investment securities totaled $91.0 million, a
decrease of $9.9 million from December 31, 1993. Over the same period,
securities available for sale increased by $10.4 million. This shift was
accomplished by reinvesting the proceeds of maturing investment securities to
fund loan demand and to purchase securities available for sale in connection
with the Company's asset/liability management program.
The Company seeks to diversify its portfolio to minimize risk and to
maintain a large amount of securities issued by states and political
subdivisions due to the tax benefits such securities provide.
MATURITIES OF INVESTMENT SECURITIES
AND SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
December 31, 1995(1)
1 Year 1-5 5-10 Over 10
or Less Years Years Years Total
-------- -------- ------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
U.S. agency securities:
Amortized cost $ 2,498 $21,916 $14,956 $21,533 $ 60,903
Fair value 2,513 21,751 14,878 21,248 60,390
Weighted average yield 5.86% 5.90% 7.08% 8.82% 6.52%
U.S. Treasury securities:
Amortized cost $ 2,763 $ 999 $ - $ - $ 3,762
Fair value 2,784 988 - - 3,772
Weighted average yield 6.20% 4.77% - - 5.82%
Municipal bonds:
Amortized cost $ 2,842 $18,754 $27,452 $12,615 $ 61,663
Fair value 2,872 19,484 28,231 12,927 63,514
Weighted average yield 10.44% 8.77% 8.05% 8.10% 8.39%
Other securities:
Amortized cost $ 451 $ 499 $ - $ 3,835 $ 4,785
Fair value 454 491 - 3,849 4,794
Weighted average yield 4.44% 5.17% - 6.95% 6.53%
Total securities:
Amortized cost $ 8,554 $42,168 $42,408 $ 37,983 $ 131,113
Fair value 8,623 42,714 43,109 38,024 132,470
Weighted average yield 7.42% 7.14% 7.71% 7.26% 7.30%
</TABLE>
(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis.
DEPOSITS
Increased competition for customer deposits continues to be a challenge for
the Company, as reflected by continued increases in other borrowings in 1995 to
fund growth in earning assets. In 1995 growth in the loan and securities
portfolios each exceeded 10% while deposit growth was 7.9%. Although average
demand deposits and interest-bearing checking accounts experienced moderate
growth in 1995, the increasing competition for deposits and the current interest
rate environment have resulted in declines in lower cost savings and money
market accounts.
Total deposits grew from $347.0 million at December 31, 1994 to $374.4
million at December 31, 1995. Over this same period, average interest-bearing
deposits were $319.2 million, or 10.1% over the 1994 average of $289.8 million.
The majority of this increase is represented by a $39.0 million increase in
certificates of deposit. Average balances for lower cost money market and
regular savings decreased by a total of $10.6 million. The Company's lowest cost
source of funds, non-interest-bearing and interest-bearing demand deposits both
increased, by a total of $3.5 million, providing the Company with lower cost
funds. The Company has no brokered deposits.
<PAGE>
AVERAGE DEPOSITS AND RATES PAID
<TABLE>
<CAPTION>
1995 1994 1993
Amount Rate Amount Rate Amount Rate
-------------- --------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
demand accounts $41,378 - $ 38,878 - $ 34,966 -
Interest-bearing accounts:
Interest checking 39,108 2.80% 38,139 2.66% 31,352 2.92%
Money market 57,085 3.41% 64,593 3.09% 66,315 3.24%
Regular savings 45,878 3.84% 48,956 3.38% 43,284 3.58%
Time deposits:
Less than $100,000 141,574 5.64% 111,967 4.33% 108,760 4.94%
$100,000 and over 35,569 5.66% 26,175 4.33% 28,070 3.69%
Total interest-bearing 319,214 4.64% 289,830 3.80% 277,781 3.97%
Total deposits $360,592 $328,708 $312,747
</TABLE>
MATURITIES OF TIME DEPOSITS OF $100,000 AND OVER
<TABLE>
<CAPTION>
Percent
Within 3 - 6 6 - 12 Over 12 of Total
3 Months Months Months Months Total Deposits
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1995 $ 9,151 $5,790 $6,731 $17,371 $39,043 10.43%
At December 31, 1994 5,683 3,629 8,301 12,497 30,110 8.68%
At December 31, 1993 7,458 3,418 5,988 10,370 27,234 8.71%
</TABLE>
Further development of core deposits remains a primary objective, as they
represent a stable, lower cost source of funds for asset growth. The new branch
of Union Bank & Trust Company in Hanover County has attracted over $2.0 million
in deposits since opening in April 1995. Union Bank also plans to open three
branches in high-scale convenience stores in 1996, which will attract funds at a
lower cost per deposit dollar due to this less expensive branching alternative.
In 1994, most deposit categories showed increases as total deposits grew from
$325.6 million at December 31, 1993 to $347.0 million at December 31, 1994. Over
this same period, average interest-bearing deposits were $289.8 million, or 4.3%
over the 1993 average of $277.8 million.
CAPITAL RESOURCES
Capital resources represents funds, earned or obtained, over which financial
institutions can exercise greater or longer control in comparison with deposits
and borrowed funds. The adequacy of the Company's capital is reviewed by
management on an ongoing basis with reference to the size, composition, and
quality of the Company's resources and consistency 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
to absorb potential losses, yet allow management to effectively leverage its
capital to maximize return to shareholders.
The Federal Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, 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 assets is 8.0%, of which 4.0% must be Tier 1
capital, consisting of common equity, retained earnings and a limited amount of
perpetual preferred stock, less certain goodwill items. The Company had a ratio
of risk-weighted assets to total capital of 16.20% and 17.86% on December 31,
1995 and 1994, respectively. The Company's ratio of risk-weighted assets to Tier
1 capital was 15.04% and 16.45% at December 31, 1995 and 1994, respectively.
Both of these ratios exceeded the fully phased-in capital requirements in 1995
and 1994.
<PAGE>
ANALYSIS OF CAPITAL
December 31,
----------------------------
1995 1994
---------------- -------------
(In thousands)
Tier 1 capital:
Common stock $ 13,148 $ 13,056
Surplus 565 347
Retained earnings 34,938 30,524
Less: core deposit intangible (129) (466)
------------- -----------
Total Tier 1 capital 48,522 43,461
------------- -----------
Tier 2 capital:
Allowance for loan losses 3,757 3,734
Allowable long-term debt - -
------------ ----------
Total Tier 2 capital 3,757 3,734
------------ ----------
Total risk-based capital $ 52,279 $ 47,195
============ ===========
Risk-weighted assets $ 324,322 $264,177
============ ===========
Capital ratios:
Tier 1 risk-based capital ratio 14.96% 16.45%
Total risk-based capital ratio 16.12% 17.86%
Tier 1 capital to average
adjusted total assets 10.76% 10.86%
Equity to total assets 10.60% 10.42%
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 and loan maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. As a result of the Company's management of liquid assets and the
ability to generate liquidity through liability funding, management believes
that the Company maintains overall liquidity which is sufficient to satisfy its
depositors' requirements and to meet its customers' credit needs.
At December 31, 1995, cash and cash equivalents, securities classified as
available for sale, and federal funds sold were 30.2% of total assets, compared
to 10.9% at December 31, 1994. This increase is predominantly due to the
transfer of securities from investment to available for sale as previously
discussed. Asset liquidity is also provided by managing loan and securities
maturities.
Additional resources of liquidity available to the Company include its
capacity to borrow additional funds when necessary. The subsidiary banks
maintain federal funds lines with several regional banks totaling in excess of
$28.0 million at December 31, 1995. At December 31, 1995, the Banks had
outstanding $10.4 million of borrowing pursuant to securities sold under
agreements to repurchase transactions with a maturity of one day. The Company
also had a line of credit with the Federal Home Loan Bank of Atlanta for $36.0
million at December 31, 1995.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), Accounting for Stock-based
Compensation, in October 1995. SFAS 123 prescribes accounting and reporting
standards for all stock-based compensation plans. The new standard allows
companies to continue to follow present accounting rules which often result in
no compensation expense being recorded or to adopt the SFAS 123 fair value based
method. The fair value based method will generally result in higher compensation
expense based on the estimated fair value of stock-based awards on the grant
date. Companies electing to continue following present accounting rules will be
required to provide pro forma disclosures of net income and earnings per share
as if the fair value based method had been adopted. The Company intends to
continue following present accounting rules and to implement the new disclosure
requirements in 1996 as required. The adoption of SFAS 123, therefore, will not
impact the financial condition or results of operations of the Company.
<PAGE>
INDEPENDENT AUDITORS' REPORT
[KPMG Peat Marwick LLP Logo]
The Board of Directors
Union Bankshares Corporation
We have audited the accompanying consolidated balance sheets of Union
Bankshares Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Union
Bankshares Corporation and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in note 1(b) to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No.115, Accounting for Certain Investments in Debt and Equity Securities, in
1994.
/s/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Richmond, Virginia
January 19, 1996
<PAGE>
CONSOLIDATED BALANCE SHEETS
Union Bankshares Corporation and Subsidiaries
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
-------------------- --------------------
<S> <C> <C>
Cash and cash equivalents (note 11):
Cash and due from banks $ 13,448,433 $ 13,516,893
Interest-bearing deposits in other
banks 124,265 306,706
Federal funds sold 2,050,000 3,178,000
----------------- ----------------
Total cash and cash equivalents 15,622,698 17,001,599
----------------- ----------------
Securities available for sale, at fair
value (note 2) 122,937,302 28,062,931
Investments securities, fair value
$9,532,825 in 1995 and $87,321,403
in 1994 (note 2) 9,146,075 91,046,139
----------------- ----------------
Total securities 132,083,377 119,109,070
---------------- ----------------
Loans, net of unearned income (notes
3 and 10) 294,132,549 264,798,631
Less allowance for loan losses (note 4) 3,757,299 3,733,859
---------------- ----------------
Net loans 290,375,250 261,064,772
---------------- ----------------
Bank premises and equipment, net
(note 5) 9,522,838 7,883,141
Other real estate owned 3,287,640 1,425,269
Other assets (note 7) 7,824,726 8,395,498
---------------- ----------------
Total assets $ 458,712,529 $ 414,879,349
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 44,275,954 $ 43,424,063
Interest-bearing deposits:
Savings accounts 46,453,456 48,697,968
NOW and money market accounts 94,039,474 103,234,838
Time deposits of $100,000 and over 39,043,075 30,109,740
Other time deposits 150,539,535 121,565,881
---------------- ----------------
Total interest-bearing deposits 330,075,540 303,608,427
---------------- ----------------
Total deposits 374,351,494 347,032,490
---------------- ----------------
Short-term borrowings (note 6) 31,108,034 20,544,357
Long-term borrowings (note 6) 1,275,000 1,425,000
Other liabilities (note 8) 2,686,407 2,638,455
---------------- ----------------
Total liabilities 409,420,935 371,640,302
---------------- ----------------
Stockholders' equity (notes 8 and 11):
Common stock, $4 par value.
Authorized 12,000,000 shares;
issued and outstanding
3,286,970 shares in 1995
and 3,264,118 in 1994 13,147,880 13,056,472
Surplus 565,711 346,843
Retained earnings 34,937,860 30,523,918
Unrealized gains (losses) on
securities available for sale,
net of taxes 640,143 (688,186)
---------------- ----------------
Total stockholders' equity 49,291,594 43,239,047
---------------- ----------------
Commitments and contingencies
(notes 5 and 9)
Total liabilities and
stockholders' equity $ 458,712,529 $ 414,879,349
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Union Bankshares Corporation and Subsidiaries
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- ------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans (note 3) $ 26,583,450 $ 21,244,243 $ 19,855,126
Interest on securities:
U.S. Treasury securities 212,478 172,618 277,850
Obligations of U.S. Government
agencies and corporations 3,828,733 3,642,121 3,390,766
Obligations of states and political subdivisions 3,025,841 2,833,121 2,616,684
Other securities 493,043 524,517 525,590
Interest on Federal funds sold 294,431 156,329 274,877
Interest on interest-bearing deposits in other banks 32,327 38,795 52,649
-------------------- -------------------- ------------------
Total interest income 34,470,303 28,611,744 26,993,542
-------------------- -------------------- ------------------
Interest expense:
Interest on deposits 14,806,165 11,025,382 11,018,167
Interest on borrowings 1,475,730 683,611 320,512
-------------------- -------------------- ------------------
Total interest expense 16,281,895 11,708,993 11,338,679
-------------------- -------------------- ------------------
Net interest income 18,188,408 16,902,751 15,654,863
Provision for loan losses (note 4) 574,338 596,747 1,220,139
-------------------- -------------------- ------------------
Net interest income after provision
for loan losses 17,614,070 16,306,004 14,434,724
-------------------- -------------------- ------------------
Other income:
Service fees 2,006,730 1,783,830 1,666,376
Losses on securities transactions, net (note 2) (9,097) (13,695) (69,049)
Gains (losses) on sales of other real estate owned
and bank premises, net (11,333) 558,087 (9,016)
Other operating income 455,425 445,623 307,258
-------------------- -------------------- ------------------
Total other income 2,441,725 2,773,845 1,895,569
-------------------- -------------------- ------------------
Other expenses:
Salaries and wages 4,729,235 4,159,260 3,708,263
Pensions and other employee benefits 1,514,654 1,248,437 1,230,793
Occupancy expenses 631,142 590,319 516,929
Furniture and equipment expenses 987,439 837,565 732,789
FDIC assessments 405,671 730,077 718,268
Other operating expenses 3,630,306 3,464,887 2,967,737
-------------------- -------------------- ------------------
Total other expenses 11,898,447 11,030,545 9,874,779
-------------------- -------------------- ------------------
Income before income taxes 8,157,348 8,049,304 6,455,514
Income tax expense (note 7) 1,910,398 1,773,887 1,301,082
-------------------- -------------------- ------------------
Net income $ 6,246,950 $ 6,275,417 $ 5,154,432
-------------------- -------------------- ------------------
-------------------- -------------------- ------------------
Net income per share of common stock $ 1.91 $ 1.93 $ 1.58
-------------------- -------------------- ------------------
-------------------- -------------------- ------------------
Cash dividends per share of common stock $ .56 $ .52 $ .45
-------------------- -------------------- ------------------
-------------------- -------------------- ------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Union Bankshares Corporation and Subsidiaries
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common stock Unrealized gains
-------------------------------------------- Retained (losses) on securities
Shares Amount Surplus earnings available for sale Total
-------------- ------------ ----------- ----------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992 1,085,210 $10,852,100 $ 2,351,734 $22,253,232 $ - $35,457,066
Three-for-one stock split and change in
par value from $10 to $4 per share 2,170,420 2,170,420 (2,170,420) - - -
Net income - 1993 - - - 5,154,432 - 5,154,432
Cash dividends declared - - - (1,465,138) - (1,465,138)
-------------- ------------ ----------- ----------- ----------------- -----------
Balance - December 31, 1993 3,255,630 13,022,520 181,314 25,942,526 - 39,146,360
Cumulative effect of change in
accounting for securities
available for sale,
net of taxes of $24,727 - - - - (48,000) (48,000)
Issuance of common stock under
Dividend Reinvestment Plan 8,488 33,952 165,529 - - 199,481
Net income - 1994 - - - 6,275,417 - 6,275,417
Cash dividends declared - - - (1,694,025) - (1,694,025)
Change in unrealized losses
on securities available for sale
net of taxes of $329,786 - - - - (640,186) (640,186)
-------------- ------------ ----------- ----------- ----------------- -----------
Balance - December 31, 1994 3,264,118 $13,056,472 $ 346,843 $30,523,918 $ (688,186) $43,239,047
Issuance of common stock under
Dividend Reinvestment Plan 9,412 37,648 192,617 - - 230,265
Issuance of common stock under
Incentive Stock Option Plan 13,440 53,760 26,251 - - 80,011
Net income - 1995 - - - 6,246,950 - 6,246,950
Cash dividends declared - - - (1,833,008) - (1,833,008)
Change in unrealized losses
on securities available for sale
net of taxes of $684,282 - - - - 1,328,329 1,328,329
-------------- ------------ ----------- ----------- ----------------- -----------
Balance - December 31, 1995 3,286,970 $13,147,880 $ 565,711 $34,937,860 $ 640,143 $49,291,594
-------------- ------------ ----------- ----------- ----------------- -----------
-------------- ------------ ----------- ----------- ----------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
Union Bankshares Corporation and Subsidiaries
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,246,950 $ 6,275,417 $ 5,154,432
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 840,674 768,796 645,340
Provision for loan losses 574,338 596,747 1,200,139
Provision for losses on other real estate owned -- 200,000 --
Losses on securities transactions, net 9,097 13,695 69,049
Losses on sales of bank premises, net -- 71,872 12,200
(Gains) losses on sales of other real estate owned, net 11,333 (829,959) (3,184)
Deferred income tax expense (benefit) (9,430) 32,968 (266,091)
Increase in accrued interest receivable (420,275) (316,544) (39,989)
Other, net 387,762 (560,404) (1,170,811)
-------------- -------------- --------------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 7,640,449 6,252,588 5,601,085
-------------- -------------- --------------
INVESTING ACTIVITIES:
Purchases of investment securities (3,781,175) (28,524,650) (56,618,549)
Proceeds from sales of investment securities -- -- 11,205,307
Proceeds from maturities of investment securities 13,777,974 14,701,066 23,186,317
Purchases of securities available for sale (31,365,588) (9,579,446) --
Proceeds from sales of securities available for sale 4,758,480 12,675,056 --
Proceeds from maturities of securities available for sale 5,620,901 8,883,740 --
Net increase in loans (31,962,316) (37,571,505) (9,456,176)
Acquisition of bank premises and equipment (2,481,371) (1,799,972) (2,021,727)
Proceeds from sales of bank premises and equipment -- 6,500 16,997
Proceeds from sales of other real estate owned 203,796 1,427,198 325,064
-------------- -------------- --------------
NET CASH AND CASH EQUIVALENTS USED IN
INVESTING ACTIVITIES (45,229,299) (39,782,013) (33,362,767)
-------------- -------------- --------------
FINANCING ACTIVITIES:
Net increase in non-interest-bearing deposits 851,891 5,103,574 7,266,129
Net increase in interest-bearing deposits 26,467,113 16,372,426 14,363,024
Net increase in short-term borrowings 10,563,677 9,640,249 1,598,823
Proceeds from long-term borrowings -- 1,500,000 --
Repayment of long-term borrowings (150,000) (75,000) --
Cash dividends paid (1,833,008) (1,694,025) (1,465,138)
Issuance of common stock under Plans 310,276 199,481 --
Premium paid for purchase of deposit base -- -- (329,181)
-------------- -------------- --------------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY FINANCING ACTIVITIES 36,209,949 31,046,705 21,433,657
-------------- -------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,378,901) (2,482,720) (6,328,025)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 17,001,599 19,484,319 25,812,344
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,622,698 $ 17,001,599 $ 19,484,319
============== ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 15,991,899 $ 11,630,746 $ 11,406,199
Income taxes $ 1,765,000 $ 1,905,000 $ 1,483,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies and practices of Union Bankshares Corporation and
subsidiaries (the "Company") conform to generally accepted accounting principles
and to general practice within the banking industry. Certain major policies and
practices are described below:
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Union Bankshares
Corporation and its wholly-owned subsidiaries. Union Bankshares Corporation is a
bank holding company that owns all of the outstanding common stock of its
banking subsidiaries, Union Bank and Trust Company ("Union Bank") and Northern
Neck State Bank ("Northern Neck") and its non-banking subsidiary, Union
Investment Services, Inc. All significant intercompany balances and transactions
have been eliminated. Northern Neck was merged with and into the Company on July
1, 1993. The merger was accounted for as a pooling of interests and,
accordingly, the amounts in the 1993 consolidated financial statements include
the accounts and results of operations of Northern Neck.
The accompanying consolidated financial statements for prior periods reflect
certain reclassifications in order to conform with the 1995 presentation.
(B) INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS 115"). In accordance with SFAS 115, when
securities are purchased, they are classified as investment securities when
management has the intent and the Company has the ability to hold them to
maturity. Investment securities are carried at cost, adjusted for amortization
of premiums and accretion of discounts, which are recognized as adjustments to
interest income using a method that approximates the interest method.
Securities available for sale are those that management intends to hold for an
indefinite period of time, including securities used as part of the Company's
asset/liability strategy, and that may be sold in response to changes in
interest rates, liquidity needs or other similar factors. Securities available
for sale are recorded at estimated fair value with net unrealized gains or
losses reported as a separate component of stockholders' equity, net of taxes.
Gains and losses on the sale of securities are determined using the specific
identification method.
(C) LOANS
Interest on loans is calculated using the simple interest method on daily
balances of principal amounts outstanding. The accrual of interest is
discontinued when the collection of principal and/or interest is legally barred
or considered by management to be highly unlikely. After a loan is classified as
nonaccrual, interest income is generally recognized only when collected.
Loan origination fees and direct loan origination costs for completed loans are
netted and then deferred and amortized into interest income as an adjustment of
yield.
<PAGE>
(D) ALLOWANCE FOR LOAN LOSSES
The provision for loan losses charged to operations is an amount sufficient to
bring the allowance for loan losses to an estimated balance that management
considers adequate to absorb potential losses in the portfolio. Loans are
charged against the allowance when management believes the collectibility of the
principal is unlikely. Recoveries of amounts previously charged off are credited
to the allowance. Management's determination of the adequacy of the allowance is
based on an evaluation of the composition of the loan portfolio, the value and
adequacy of collateral, current economic conditions, historical loan loss
experience, and other risk factors. Management believes that the allowance for
loan losses is adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions, particularly those affecting real
estate values. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination.
Effective January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114),
as amended by SFAS 118. SFAS No. 114 requires the measurement of impaired loans
based on the present value of the expected future cash flows discounted at the
loan's effective rate, or the fair value of the loan's collateral. Under the new
standard, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due under the contractual terms
of the loan agreement. The effect of the adoption of SFAS No. 114 as amended was
not material to the Company's financial statements as of and for the year ended
December 31, 1995.
(E) BANK PREMISES AND EQUIPMENT
Bank premises and equipment is stated at cost less accumulated depreciation.
Depreciation is computed using either the straight-line or accelerated
depreciation method based on the type of asset involved. It is the policy of the
Company to capitalize additions and improvements and to depreciate the cost
thereof over their estimated useful lives. Maintenance, repairs and renewals are
expensed as they are incurred.
(F) INCOME TAXES
Deferred income tax assets and liabilities are computed for differences between
the financial statement and income tax bases of assets and liabilities that will
result in taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences are expected to
affect taxable income. Income tax expense is the tax payable or refundable for
the period plus or minus the change during the period in deferred tax assets and
liabilities.
(G) OTHER REAL ESTATE OWNED
Foreclosed assets are carried at the lower of (a) fair value minus estimated
costs to sell or (b) cost at the time of foreclosure. Such determination is made
on an individual asset basis. If the fair value of the asset minus the estimated
costs to sell the asset is less than the cost of the asset, the deficiency is
recognized as a valuation allowance. If the fair value of the asset minus the
estimated costs to sell the asset subsequently increases and is more than its
carrying amount, the valuation allowance is reduced , but not below zero.
Increases or decreases in the valuation allowance are charged or credited to
income. Recovery of the carrying value of such real estate is dependent to a
great extent on economic, operating, and other conditions that may be beyond the
Company's control.
<PAGE>
(H) CONSOLIDATED STATEMENTS OF CASH FLOWS
For purposes of reporting cash flows, the Company defines cash and cash
equivalents as cash, due from banks, interest-bearing deposits in other banks
and Federal funds sold. Other real estate owned increased in the amount of
$2.077,500, $1,047,500 and $474,308 during the years ended December 31, 1995,
1994 and 1993, respectively, as a result of loan foreclosures. The Company also
transferred $71,872,000 in investment securities to securities available for
sale. Other assets increased by $471,304 during the year ended December 31,
1994, also as a result of loan foreclosures. These represent non-cash investing
activities for purposes of the consolidated statements of cash flows.
(I) PENSION PLAN
The Company computes the net periodic pension cost of its pension plan in
accordance with Statement of Financial Accounting Standards No. 87, Employers'
Accounting for Pensions. Costs of the plan are determined by independent
actuaries.
(J) PER SHARE DATA
Per share data have been computed on the basis of the weighted average number of
shares outstanding. Weighted average shares used for the computation were
3,268,033 in 1995, 3,258,035 in 1994 and 3,255,630 in 1993.
2. INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated fair values, and gross unrealized gains and losses
of investment securities at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Obligations of U.S. agencies $ 1,500,000 $ 13,595 $ -- $ 1,513,595
Obligations of states and
political subdivisions 7,646,075 374,609 1,454 8,019,230
----------- ---------- ---------- -----------
$ 9,146,075 $388,204 $ 1,454 $ 9,532,825
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,996,902 $ -- $ 116,277 $ 1,880,625
Obligations of U.S. agencies 9,229,232 825 494,687 8,735,370
Obligations of states and
political subdivisions 45,367,461 678,847 1,588,211 44,458,097
Corporate and other bonds 1,250,723 -- 51,663 1,199,060
Mortgage-backed securities 33,201,821 74,609 2,228,179 31,048,251
----------- ---------- ---------- -----------
$91,046,139 $754,281 $4,479,017 $87,321,403
=========== ========== ========== ===========
</TABLE>
<PAGE>
The amortized cost, estimated fair values, and gross unrealized gains and losses
of securities available for sale at December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,761,963 $ 21,447 $ 11,482 $ 3,771,928
Obligations of U.S. agencies 14,852,044 142,417 63,126 14,931,335
Obligations of states and
political subdivisions 54,016,732 1,639,524 160,918 55,495,338
Corporate and other bonds 2,453,694 7,718 8,800 2,452,612
Mortgage-backed securities 44,551,518 237,333 843,703 43,945,148
Federal Reserve Bank stock 342,950 -- -- 342,950
Federal Home Loan Bank stock 1,845,170 -- -- 1,845,170
Other equity securities 143,319 9,502 -- 152,821
------------ ---------- ---------- ------------
$121,967,390 $2,057,941 $1,088,029 $122,937,302
============ ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
1994
-------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,477,026 $ 348 $ 4,045 $ 1,473,329
Obligations of U.S. agencies 10,387,315 938 394,177 9,994,076
Obligations of states and
political subdivisions 7,180,965 36,439 162,508 7,054,896
Corporate and other bonds 1,308,826 4,127 16,163 1,296,790
Mortgage-backed securities 6,890,148 -- 507,658 6,382,490
Federal Reserve Bank stock 342,950 -- -- 342,950
Federal Home Loan Bank stock 1,518,400 -- -- 1,518,400
------------ ---------- ---------- ------------
$ 29,105,630 $ 41,852 $1,084,551 $ 28,062,931
============ ========== ========== ============
</TABLE>
The amortized cost and estimated fair value of investment securities and
securities available for sale at December 31, 1995, by contractual maturity, are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Investment Securities Securities Available for Sale
---------------------------- -----------------------------
Amortized Estimated Amortized Estimated
Cost Fair value Cost Fair value
---------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Due in one year or less $1,674,527 $ 1,687,438 $ 8,127,792 $ 8,169,723
Due after one year through five years 4,864,491 5,107,294 35,954,333 36,271,027
Due after five years through ten years 2,377,057 2,505,285 39,575,013 40,147,588
Due after ten years 230,000 232,808 35,978,813 36,008,023
---------- ----------- ------------- ------------
$9,146,075 $ 9,532,825 119,635,951 120,596,361
Federal Reserve Bank stock - - 342,950 342,950
Federal Home Loan Bank stock - - 1,845,170 1,845,170
Other equity securities - - 143,319 152,821
---------- ----------- ------------- ------------
$9,146,075 $ 9,532,825 $121,967,390 $122,937,302
---------- ----------- ------------- ------------
---------- ----------- ------------- ------------
</TABLE>
Investment securities with an amortized cost of approximately $40,932,000 at
December 31, 1995 and $30,336,000 at December 31, 1994 were pledged to secure
public deposits, repurchase agreements and for other purposes.
<PAGE>
Sales of securities produced the following results for the years ended December
31, 1995, 1994 and 1993:
1995 1994 1993
------------------ ------------------ ----------------
Proceeds $ 4,758,480 $ 12,675,056 $ 11,205,307
------------------ ------------------ ----------------
------------------ ------------------ ----------------
Gross gains $ 36,714 $ 54,244 $ 96,350
Gross losses (45,811) (67,939) (165,399)
------------------ ------------------ ----------------
Net losses $ (9,097) $ (13,695) $ (69,049)
------------------ ------------------ ----------------
------------------ ------------------ ----------------
In December 1995, upon issuance of a Special Report on the implementation of
SFAS No. 115 by the Financial Accounting Standards Board, the Company
transferred investment securities with an amortized cost of $71,872,000.
3. Loans
Loans are stated at their face amount, net of unearned income, and consist
of the following at December 31, 1995 and 1994:
1995 1994
------------ ------------
Real estate loans $191,121,948 $166,760,261
Commercial and industrial loans 34,875,472 39,128,575
Loans to individuals for household,
family and other personal expenditures 67,925,128 58,889,880
All other loans 1,401,955 980,168
------------ ------------
295,324,503 265,758,884
Less unearned income on loans 1,191,954 960,253
------------ ------------
$294,132,549 $264,798,631
------------ ------------
------------ ------------
On January 1, 1995, the Bank adopted Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114), as amended
by SFAS 118. This pronouncement requires that impaired loans within the scope of
the statements be presented in the financial statements at the present value of
expected future cash flows or at the fair value of the loan's collateral. A
valuation allowance is required to the extent that the measure of the impaired
loans is less than the recorded investment. SFAS 114 does not apply to larger
groups of homogenous loans such as real estate mortgage, installment, home
equity and bank card loans, which are collectively evaluated for impairment. The
initial adoption of SFAS 114 did not require an increase to the Bank's allowance
for loan losses. The effect of SFAS 114, as amended was immaterial to the Bank's
financial statements as of and for the year ended December 31, 1995. At December
31, 1995, the recorded investment in loans which have been identified as
impaired loans, in accordance with SFAS 114, totaled $544,000.
Nonaccrual loans and restructured loans totaled approximately $1,436,000 at
December 31, 1995 and approximately $1,084,000 at December 31, 1994. The gross
interest income that would have been recorded during 1995, 1994 and 1993 had the
Company's nonaccrual loans been current with their original terms, was
approximately $54,000, $160,000 and $208,000, respectively. The amount of
interest income recorded by the Company during 1995, 1994 and 1993 on nonaccrual
loans was $9,014, $0 and $10,250, respectively.
4. ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31, 1995,
1994 and 1993 are summarized below:
1995 1994 1993
---------- ---------- ----------
Balance, beginning of year $3,733,859 $3,415,972 $3,141,865
Provision charged to operations 574,338 596,747 1,220,139
Recoveries credited to allowance 173,022 179,322 195,268
---------- ---------- ----------
Total 4,481,220 4,192,041 4,557,272
Loans charged off 723,921 458,182 1,141,300
---------- ---------- ----------
Balance, end of year $3,757,299 $3,733,859 $3,415,972
---------- ---------- ----------
---------- ---------- ----------
<PAGE>
5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of December 31, 1995 and 1994 are as follows:
1995 1994
----------- -----------
Land $ 2,900,296 $ 1,642,736
Land improvements and buildings 6,792,676 6,065,498
Furniture and equipment 5,449,222 4,918,347
Construction in progress 189,681 224,443
----------- -----------
15,381,875 12,851,024
Less accumulated depreciation 5,809,037 4,967,883
----------- -----------
Bank premises and equipment, net $ 9,522,838 $ 7,883,141
----------- -----------
----------- -----------
Depreciation expense for 1995, 1994 and 1993 was $840,674, $768,796 and
$645,340, respectively. Future minimum rental payments required under
non-cancelable operating leases that have initial or remaining terms in excess
of one year as of December 31, 1995 are $60,000 per year for 1996 and 1997, and
$38,000 for 1998.
6. OTHER BORROWINGS
Short-term borrowings consist of the following at December 31, 1995, 1994 and
1993:
1995 1994 1993
------------ ------------- ------------
Federal funds purchased $ 6,590,000 $ 1,175,000 $ 1,125,000
Securities sold under
agreements to repurchase 10,368,034 12,341,784 6,080,284
Other short-term borrowings 14,150,000 7,027,573 3,698,824
------------ ------------- ------------
Total $31,108,034 $20,544,357 $10,904,108
------------ ------------- ------------
------------ ------------- ------------
Weighted interest rate 5.43% 5.86% 3.11%
Average for the years
ended December 31:
Outstanding $23,832,180 $13,862,728 $10,172,268
Interest rate 5.85% 4.37% 3.16%
Maximum month-end
outstanding $31,108,034 $22,095,121 $11,087,782
Federal funds purchased and securities sold under agreements to repurchase are
due within one year. The subsidiary banks maintain Federal funds lines with
several regional banks totaling in excess of $28.0 million at December 31, 1995.
Long-term borrowings at December 31, 1995 represent Federal Home Loan Bank
advances totaling $1,275,000. Interest on these advances is payable monthly at
6.17% with semiannual principal payments of $75,000, with the final payment due
in 2004. Outstanding long-term borrowings at December 31, 1994 totaled
$1,425,000.
7. INCOME TAXES
The components of the 1995, 1994 and 1993 income tax expense (benefit) are as
follows:
1995 1994 1993
------------ ----------- -----------
Current taxes - Federal $1,919,828 $1,740,919 $1,567,173
Deferred taxes - Federal (9,430) 32,968 (266,091)
------------ ----------- -----------
Income tax expense $1,910,398 $1,773,887 $1,301,082
------------ ----------- -----------
------------ ----------- -----------
The reasons for the difference between income tax expense and the amount
computed by applying the statutory Federal income tax rate to income before
income taxes are shown below.
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Computed "expected" tax expense $2,773,498 $2,736,763 $2,194,875
Increase (reduction) in taxes resulting from:
Tax-exempt interest (918,230) (955,060) (797,100)
Other, net 55,130 (7,816) (96,693)
-------------------- -------------------- --------------------
Income tax expense $1,910,398 $1,773,887 $1,301,082
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred assets and deferred liabilities at December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1995 1994
-------------------- --------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to the allowance for loan losses $932,607 $984,473
Benefit plans 359,105 372,727
Deferred loan fees and costs 69,571 86,964
Unrealized losses on securities available for sale - 354,513
Other 77,328 146,074
-------------------- --------------------
Total deferred tax assets 1,438,611 1,944,751
-------------------- --------------------
Deferred tax liabilities:
Unrealized gains on securities available for sale 329,769 -
Bank premises and equipment 305,523 301,744
Condemnation gains 52,001 52,001
Prepaid expenses - 126,140
Other real estate owned 157,508 200,008
Other 36,824 33,020
-------------------- --------------------
Total deferred tax liabilities 881,625 712,913
-------------------- --------------------
Net deferred tax asset (included in other assets) $556,986 $1,231,838
-------------------- --------------------
-------------------- --------------------
</TABLE>
In assessing the realizability of deferred tax assets, management considers the
scheduled reversal of temporary differences, projected future taxable income,
and tax planning strategies. Management believes it is more likely than not the
Company will realize its deferred tax assets and, accordingly no valuation has
been established.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". The implementation of this
standard did not have a material impact on the Company's 1993 consolidated
financial statements.
8. EMPLOYEE BENEFITS
The Company has a noncontributory, defined benefit pension plan covering all
full-time employees. Contributions to the plan totaled $107,201 for 1995. For
1994, no contributions were made because the plan was determined to be fully
funded by actuarial estimates.
Significant assumptions used in determining net periodic pension cost and
projected benefit obligation for 1995 and 1994 were:
Expected long-term rate of return on assets 9%
Discount rate 7.5%
Salary increase rate 6%
Average remaining service 21 years
<PAGE>
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------- --------------------
<S> <C> <C>
Vested benefit obligation $(1,408,944) $(1,254,502)
Nonvested accumulated plan benefits 16,137 21,569
-------------------- --------------------
Accumulated benefit obligation $(1,425,081) $(1,276,071)
---------------------- --------------------
---------------------- --------------------
Projected benefit obligation $(2,750,571) $(2,392,933)
Plan assets at fair value 2,277,287 1,960,310
---------------------- --------------------
Excess of projected benefit obligation over plan assets (473,284) (432,623)
Unrecognized net obligation 6,925 7,774
Unrecognized prior service cost 302,681 320,697
Unrecognized net gain (659,184) (609,562)
---------------------- --------------------
Accrued pension cost (included in other liabilities) $ (822,862) $ (713,714)
---------------------- --------------------
---------------------- --------------------
</TABLE>
Net periodic pension cost for 1995, 1994 and 1993 included the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Service cost $ 212,076 $ 203,227 $ 171,168
Interest cost 178,487 162,529 138,087
Actual return on assets (339,234) (57,280) (196,329)
Net amortization and deferral 165,020 (131,639) 13,900
-------------------- -------------------- --------------------
Net periodic pension cost $ 216,349 $ 176,837 $ 126,826
-------------------- -------------------- --------------------
-------------------- -------------------- --------------------
</TABLE>
The Company also contributes to an employees' profit-sharing plan which covers
all full-time employees. Contributions are made annually at the discretion of
the subsidiaries banks' Board of Directors. The payments to the plan for the
years 1995, 1994 and 1993 were approximately $580,000, $422,000 and $291,000
respectively, which represents approximately 15% of the compensation of
participants in each year.
The Company has an obligation to certain members of the Board of Directors under
a deferred compensation plan in the amount of $282,000 and $380,000 at December
31, 1995 and 1994, respectively. A portion of the benefits will be funded by
life insurance.
Prior to the merger with Northern Neck, Union Bank provided postretirement
benefits to certain employees. In connection with the merger, the Company has
terminated postretirement benefits, except to individuals who were
"grandfathered" under the existing plan. The postretirement benefits obligation
is insignificant to the consolidated financial statements.
In 1993, the Company adopted an incentive stock plan which reserves up to
200,000 shares of common stock for issuance to certain employees. Approximately
35,000 shares had been granted under this plan as of December 31, 1995 at
prevailing market prices including 10,000 shares granted in 1995. Stock options
representing 13,440 shares were exercised in 1995. No stock options were
exercised during 1994.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company 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 and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and standby letters of credit.
These instruments involve elements of credit and interest rate risk in excess of
the amount recognized in the consolidated balance sheets. The contractual
amounts of these instruments reflect the extent of the Company's involvement in
particular classes of financial instruments. The Company'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
written is represented by the contractual amount of these instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. Unless noted otherwise,
the Company does not require collateral or other security to support financial
instruments with credit risk.
<PAGE>
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 may expire without being
completely drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's creditworthiness
on a case-by-case basis. At December 31, 1995 and 1994, the Company had
outstanding loan commitments approximating $18,320,000 and $27,100,000,
respectively.
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers. The amount of standby letters of
credit whose contract amounts represent credit risk totaled approximately
$2,332,000 and $1,030,000 at December 31, 1995 and 1994, respectively. A
geographic concentration exists within the Company's loan portfolio as most of
the Bank's business activity is with customers located in areas from
Fredericksburg to Hanover County, Virginia and in the Northern Neck area of
Virginia.
10. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with its directors, principal officers
and affiliated companies in which they are principal stockholders. Such
transactions were made in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. The aggregate amount of loans to such related parties
totaled $5,027,034 and $5,823,141 as of December 31, 1995 and 1994,
respectively. During 1995 new advances to such related parties amounted to
$2,832,926 and repayments amounted to $3,629,033.
11. REGULATORY RESTRICTIONS
The Company is subject to certain requirements imposed by state and federal
banking statutes and regulations. These requirements, among other things,
establish minimum levels for capital, restrict the amount of dividends that may
be distributed and require that the subsidiary banks maintain a minimum reserve
balance. At December 31, 1995, the Company was in compliance with all such
requirements.
As a member of the Federal Reserve System, the Company's banking subsidiaries
are required to maintain average reserve balances. For the final weekly
reporting period in the years ended December 31, 1995 and 1994, the aggregate
amounts of daily average required balances were approximately $2,140,000 and
$1,592,000, respectively.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
CASH AND CASH EQUIVALENTS
For those short-term instruments, the carrying amount is a reasonable estimate
of fair value.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
For investment securities and securities available for sale, fair value is
determined by quoted market price. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
<PAGE>
LOANS
The fair value of performing loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. Fair value
for significant nonperforming loans is based on recent external appraisals. If
appraisals are not available, estimated cash flows are discounted using a rate
commensurate with the risk associated with the estimated cash flows.
DEPOSITS
The fair value of demand deposits, savings accounts, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed-maturity certificates of deposit is estimated by discounting the future
cash flows using the rates currently offered for deposits of similar remaining
maturities.
BORROWINGS
The carrying value of short-term borrowings are reasonable estimates of fair
value. The fair value of long-term borrowings is estimated based on interest
rates currently available for debt with similar terms and remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligations with
the counterparties at the reporting date. At December 31, 1995 and 1994, the
carrying amount and fair value of loan commitments and standby letters of credit
were immaterial.
The carrying amounts and estimated fair values of the Company's financial
instruments as of December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------ ------------------------ --------------------- ---------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 15,622,698 $ 15,622,698 $ 17,001,599 $ 17,001,599
Investment securities 9,146,075 9,532,825 91,046,139 87,321,403
Securities available for sale 122,937,302 122,937,302 28,062,931 28,062,931
Net loans 290,375,250 286,151,528 261,064,772 251,709,695
Financial liabilities:
Deposits 374,351,494 369,616,663 347,032,490 344,942,823
Borrowings 32,383,034 32,383,034 21,969,357 21,969,357
</TABLE>
13. PARENT COMPANY FINANCIAL INFORMATION
The primary source of funds for the dividends paid by Union Bankshares
Corporation (the "Parent Company") is dividends received from its subsidiary
banks. The payment of such dividends by the subsidiary banks and the ability of
the banks to loan or advance funds to the Parent Company are subject to certain
statutory limitations which contemplate that the current year earnings and
earnings retained for the two preceding years may be paid to the Parent Company
without regulatory approval.
Financial information for the Parent Company follows:
<PAGE>
UNION BANKSHARES CORPORATION ("PARENT COMPANY ONLY")
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------------------- --------------------
<S> <C> <C>
Assets:
Cash $ 206,926 $ 340,559
Certificates of deposit 450,000 -
Securities available for sale 1,108,361 -
Investment securities - 1,496,067
Other assets 322,744 136,225
Due from subsidiaries 73,224 -
Investment in subsidiaries 47,133,395 41,266,196
----------------------- --------------------
Total assets $49,294,630 $43,239,047
----------------------- --------------------
----------------------- --------------------
Liabilities and Stockholders' equity:
Stockholders' equity:
Other liabilities $ 3,036 $ -
Common stock 13,147,880 13,056,472
Surplus 565,711 346,843
Retained earnings 34,937,860 30,523,918
Unrealized gain (losses) on
securities available for sale 640,143 (688,186)
----------------------- --------------------
Total liabiliites and
stockholders' equity $49,294,630 $43,239,047
----------------------- --------------------
----------------------- --------------------
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- -------------------- -------------------
<S> <C> <C> <C>
Income:
Interest income $ 93,662 $ 27,750 $ -
Dividends received from subsidiaries 1,833,009 3,411,807 1,640,138
Equity in undistributed net income of subsidiaries 4,494,742 2,882,920 3,628,446
----------------------- -------------------- -------------------
Total income 6,421,413 6,322,477 5,268,584
Operating expenses 174,463 47,060 114,152
----------------------- -------------------- -------------------
Net income $6,246,950 $6,275,417 $5,154,432
----------------------- -------------------- -------------------
----------------------- -------------------- -------------------
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- -------------------- -------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 6,246,950 $ 6,275,417 $ 5,154,432
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed net income of subsidiaries (4,494,742) (2,882,920) (3,628,446)
Increase in other assets (259,743) (136,225) -
Other (net) (1,587) 44,950 (30,900)
----------------------- -------------------- -------------------
Net cash provided by operating activities 1,490,878 3,301,222 1,495,086
Investing activities:
Purchase of securities (100,319) (1,496,067) -
Proceeds from maturity of securities 498,540 - -
Capital contributions to subsidiaries 50,000 - -
Financing activities:
Cash dividends paid (1,833,008) (1,694,025) (1,465,138)
Issuance of common stock under plans 310,276 199,481 -
----------------------- -------------------- -------------------
Increase in cash and cash equivalents 316,367 310,611 29,948
Cash and cash equivalents at beginning of year 340,559 29,948 -
----------------------- -------------------- -------------------
Cash and cash equivalents at end of year $ 656,926 $ 340,559 $ 29,948
----------------------- -------------------- -------------------
----------------------- -------------------- -------------------
</TABLE>
<PAGE>
DIRECTORY OF
UNION BANKSHARES CORPORATION
UNION BANK & TRUST COMPANY
G. William Beale
President
John C. Neal
Executive Vice President
John A. Lane
Senior Vice President
Almeda H. Pitts
Vice President & Cashier
George Washington, Jr.
Vice President
Raymond C. Ratcliffe, Jr.
Vice President
Robert K. Bailey, III
Vice President
Thomas J. Boyd, III
Vice President
William H. Hutton
Vice President
F. Kent Cox
Vice President
Jeannette B. Burke
Vice President
John M. Randolph
Vice President
DIRECTORS
Ronald L. Hicks
Chairman
Attorney, Jarrell, Hicks & Sasser
Walton Mahon
Vice Chairman and
Retired President,
Union Bank & Trust Company
M. Raymond Piland, III
President,
Williamsburg Millwork Corporation
A.D. Whittaker
President,
A.D. Whittaker Construction Company
Estelle H. Kay
Retired Executive Vice President/Secretary,
Union Bank & Trust Company
Daniel I. Hansen
Vice President/Secretary,
DeJarnette & Beale, Inc.
G. William Beale
President,
Union Bank & Trust Company
Michael N. Manns
President,
Pitts & Manns Realty, Inc.
HONORARY DIRECTORS
H. Ashton Taylor
President,
Taylor Fiber, Inc.
R.F. Upshaw, Jr.
Farmer
Guy C. Lewis, Jr.
Retired General Manager
Rappahannock Electric Cooperative
UNION INVESTMENT SERVICES, INC.
G. William Beale
President
Bernard W. Mahon, Jr.
Vice President
NORTHERN NECK STATE BANK
E. Peyton Motley
President
William E. Bowen
Senior Vice President &
Asst. Secretary
N. Byrd Newton
Senior Vice President &
Secretary
Russell G. Brown
Vice President
William E. Harrison
Vice President & Cashier
Marion B. Rowe
Vice President
William M. Wright
Vice President
DIRECTORS
Lowery R. Sanders
Chairman and
Retired President,
Northern Neck State Bank
William E. Bowen
Senior Vice President,
Northern Neck State Bank
S. Bryan Chandler
President,
Chandler Chevrolet
Robert B. Delano
Farmer
Richard A. Farmar, Jr.
President,
B.H. Baird Insurance Agency
W. D. Gray
Farmer
Edward L. Hammond
President,
Hammond Brothers, Inc.
William H. Hughes, CPA
Hughes and Associates
E. Peyton Motley
President,
Northern Neck State Bank
W. Tayloe Murphy, Jr.
Attorney,
Smith, Murphy, and Taliaferro
Louis G. Packett
Farmer & Land Developer
Charles H. Ryland
Attorney
William M. Wright
President,
Wood Preservers, Inc.
HONORARY DIRECTORS
R. Carter Wellford
Farmer
James V. Garland, Jr.
Farmer
Thomas S. Herbert
Food Retailer
<PAGE>
RETAIL LOCATIONS
[MAP APPEARS HERE]
<PAGE>
[NORTHERN NECK LOGO]
MONTROSS
Rt. 3, Kings Hwy.
Montross, VA 22520
(804) 493-9301
MAIN OFFICE
5839 Richmond Road
Warsaw, VA 22572
(804) 333-4066
TIMES SQUARE
4256 Richmond Road
Warsaw, VA 22572
(804) 333-3019
TAPPAHANNOCK
U.S. Rt. 17 & Earl Street
Tappahannock, VA 22560
(804) 443-4361
[UNION BANK & TRUST COMPANY LOGO]
MAIN OFFICE
211 North Main Street
Bowling Green, Virginia 22427
(804) 633-5031
LADYSMITH
U.S. Route 1
Ladysmith, Virginia 22501
(804) 448-3100
PORT ROYAL
U.S. Route 301
Port Royal, Virginia 22535
(804) 742-5546
CHANCELLOR
4210 Plank Road
Fredericksburg, Virginia 22407
(540) 786-2265
FOUR MILE FORK
4540 Lafayette Boulevard
Fredericksburg, Virginia 22408
(540) 898-5100
KENMORE AVENUE
700 Kenmore Avenue
Fredericksburg, Virginia 22401
(540) 371-0108
LEAVELLS
10415 Courthouse Road
Spotsylvania, Virginia 22553
(540) 898-2700
STAFFORD
Cambridge & Layhill Road
Falmouth, Virginia 22405
(540) 374-1300
ASHLAND
U.S. Route 1 & Ashcake Road
Ashland, Virginia 23005
(804) 798-4488
HANOVER AIR PARK
10374 Leadbetter Road
Ashland, Virginia 23005
(804) 550-2300
MANQUIN
U.S. Route 360
Manquin, Virginia 23106
(804) 769-3031
HANOVER COMMONS
9534 Chamberlayne Road
Mechanicsville, Virginia 23111
(804) 730-1700
[UNION INVESTMENT SERVICES, INC. LOGO]
111 Davis Court
Bowling Green, VA 22427
(804) 633-5031
<PAGE>
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
Union Bankshares Corporation
P.O. Box 446
211 North Main Street
Bowling Green, Virginia 22427-0446
(804) 633-5031
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 7:00 p.m. on Tuesday,
March 26, 1996, at the Carolina County Middle School, Bowling Green, Virginia.
All shareholders are cordially invited to attend.
COMMON STOCK
Union Bankshares' Common Stock is traded on the National Over-The-Counter
Market and is quoted on the National Market System of NASDAQ (National
Association of Securities Dealers Automated Quotations) where our symbol is
UBSH. (CUSIP #905399101)
Union Bankshares is also listed in some newspapers under the NASDAQ
National Market heading "UnBkCp" or "UnionBS".
COMMON STOCK PRICES
AND DIVIDENDS
Union Bankshares Corporation began trading its stock via NASDAQ in October
1993. Dividends are typically paid on June 15 and December 15 of each year.
There were 3,286,970 shares of stock outstanding on December 31, 1995,
held by 1,657 shareholders of record. The most recent trades were at $26.00 per
share which compares to a year earlier trading price of $24.00.
The following schedule summarizes the high and low sales prices and
dividends declared for the two years ended December 31, 1995.
<TABLE>
<CAPTION>
Dividends
Market Values Declared
------------------------------------------------- -------------------
1995 1994
---------------------- ----------------------
High Low High Low 1995 1994
---------- ---------- --------- --------- -------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $27.00 $22.00 $30.00 $22.00 $ - $ -
Second Quarter 26.50 22.00 29.00 22.00 .28 .25
Third Quarter 27.50 23.50 28.00 23.00 - -
Fourth Quarter 28.00 24.25 28.00 23.00 .28 .27
</TABLE>
DIVIDEND REINVESTMENT PLAN
Union Bankshares' dividend reinvestment plan provides each registered
shareholder with an economical and convenient method of investing cash dividends
in additional shares of the Company's common stock without fees and at a 5%
discount from the prevailing market price. For a prospectus on the Dividend
Reinvestment Plan, contact our Transfer Agent at the address indicated below.
INVESTOR RELATIONS
Union Bankshares' Annual Report, Form 10-K, and other corporate
publications are available to shareholders on request, without charge, by
writing:
Mr. D. Anthony Peay
Vice President and Chief Financial Officer
Union Bankshares Corporation
P.O. Box 446
Bowling Green, Virginia 22427-0446
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1021 East Cary Street, Suite 1900
Richmond, VA 23219
TRANSFER AGENT
Shareholders requiring information on stock transfer requirements, lost
certificates, dividends and other shareholder matters should contact our
transfer agent:
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
1-800-368-5948 (ext. 7760)
<PAGE>
APPENDIX IV
UNION'S QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File No. 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-1598552
(State of Incorporation) (I.R.S. Employer Identification No.)
211 North Main Street
P.O. Box 446
Bowling Green, Virginia 22427
(Address of principal executive offices)
(804) 633-5031
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Union Bankshares Corporation (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
As of March 31, 1996, Union Bankshares Corporation had 3,286,970 shares of
Common Stock outstanding.
<PAGE>
UNION BANKSHARES CORPORATION
FORM 10-Q
March 31, 1996
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995.......................................... 1
Consolidated Statements of Income for the
three months ended March 31, 1996 and 1995..................... 2
Consolidated Statements of Cash Flows for the
three months ended March 31, 1996 and 1995..................... 3
Notes to Consolidated Financial Statements.......................... 4
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 5-11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K................................. 12
Signatures................................................................ 12
Index to Exhibits......................................................... 13
<PAGE>
Balance sheet
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
- -------- ---- ----
<S> <C>
Cash and cash equivalents:
Cash and due from banks $ 14,719 $ 13,448
Interest-bearing deposits in other banks 96 124
Federal funds sold 3,614 2,050
------------ --------------
Total cash and cash equivalents 18,429 15,622
------------ --------------
Securities available for sale, at fair value 121,243 122,937
Investments securities,
fair value of $8,514 and $9,533, respectively 8,192 9,146
------------ --------------
Total securities 129,435 132,083
------------ --------------
Loans, net of unearned income 304,265 294,133
Less allowance for loan losses (note 2) 3,944 3,757
------------ --------------
Net loans 300,321 290,376
------------ --------------
Bank premises and equpiment, net 10,116 9,523
Other real estate owned 3,600 3,288
Other assets 9,042 7,821
------------ --------------
Total assets $ 470,943 $ 458,713
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 45,979 $ 44,276
Interest-bearing deposits:
Savings accounts 48,574 46,453
NOW accounts 42,839 40,856
Money market accounts 55,397 53,184
Time deposits of $100,000 and over 39,333 39,043
Other time deposits 152,967 150,540
------------ --------------
Total interest-bearing deposits 339,110 330,076
------------ --------------
Total deposits 385,089 374,352
------------ --------------
Short-term borrowings 31,236 31,108
Long-term borrowings 1,200 1,275
Other liabilities 3,001 2,686
------------ --------------
Total liabilities 420,526 409,421
------------ --------------
Stockholders' equity:
Common stock, $4 par value. Authorized 12,000,000 shares;
issued and outstanding, 3,286,970 shares 13,148 13,148
Surplus 566 566
Retained earnings 36,615 34,938
Unrealized gains on securities available for sale, net of taxes 88 640
------------ --------------
Total stockholders' equity 50,417 49,292
------------ --------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 470,943 $ 458,713
============ ==============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
Income statement
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Quarters ended March 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
<S> <C>
Interest income:
Interest and fees on loans $ 7,065 $ 6,275
Interest on securities:
U.S. Treasury securities 53 58
Obligations of U.S. Government
agencies and corporations 895 972
Obligations of states and political subdivisions 849 725
Other securities 135 108
Interest on Federal funds sold 55 45
Interest on interest-bearing deposits in other banks 2 6
----------- ----------
Total interest income 9,054 8,189
----------- ----------
Interest expense:
Interest on deposits 3,935 3,273
Interest on other borrowings 383 349
----------- ----------
Total interest expense 4,318 3,622
----------- ----------
Net interest income 4,736 4,567
Provision for loan losses (note 2) 81 150
----------- ----------
Net interest income after provision
for loan losses 4,655 4,417
----------- ----------
Other income:
Service fees 540 445
Gains (losses) on sale of securities available for sale (106) (35)
Gains (losses) on sales of other real estate owned
and bank premises, net - (5)
Other operating income 125 60
----------- ----------
Total other income 559 465
----------- ----------
Other expenses:
Salaries and wages 1,269 1,188
Pensions and other employee benefits 422 341
Occupancy expenses 169 136
Furniture and equipment expenses 223 229
FDIC assessments 1 189
Other operating expenses 981 781
----------- ----------
Total other expenses 3,065 2,864
----------- ----------
Income before income taxes 2,149 2,018
Income tax expense 471 469
----------- ----------
Net income $ 1,678 $ 1,549
=========== ==========
Net income per share of common stock $ 0.51 $ 0.47
=========== ==========
Cash dividends per share of common stock $ - $ -
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Statement of cash flows
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C>
Operating activities:
Net income $ 1,678 $ 1,549
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 206 206
Amortization of intangibles 10 10
Provision for loan losses 81 150
(Gains) losses on sales of securities available for sale 105 35
Loss on sale of other real estate owned - 5
(Increase) decrease in other assets (1,232) 65
Increase in other liabilities 599 575
------------ ------------
Net cash and cash equivalents provided
by operating activities 1,447 2,595
------------ ------------
Investing activities:
Net increase in securities 1,709 (387)
Net increase in loans (10,338) (3,887)
Acquisition of bank premises and equipment (799) (293)
Proceeds from sales of other real estate owned - 70
------------ ------------
Net cash and cash equivalents used in
investing activities (9,428) (4,497)
------------ ------------
Financing activities:
Net increase (decrease) in non-interest-bearing deposits 1,703 (3,029)
Net increase in interest-bearing deposits 9,034 9,521
Net decrease in short-term borrowings 128 (194)
Repayment of long-term borrowings (75) (75)
------------ ------------
Net cash and cash equivalents provided by
financing activities 10,790 6,223
------------ ------------
Increase (decrease) in cash and cash equivalents 2,809 4,321
Cash and cash equivalents at beginning of period 15,623 17,002
------------ ------------
Cash and cash equivalents at end of period $ 18,432 $ 21,323
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 1996
1. ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Union
Bankshares Corporation and its subsidiaries (the "Company"). Significant
intercompany accounts and transactions have been eliminated in
consolidation.
The information contained in the financial statements is unaudited and
does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. However, in the opinion of management, all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of the results of the interim periods presented have been
made. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1996.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1995 Annual Report to Stockholders. Certain previously reported
amounts have been reclassified to conform to current period presentation.
2. ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the
three months ended March 31 (in thousands):
1996 1995
---- ----
Balance, January 1 $ 3,757 $ 3,734
Provisions charged to operations 81 150
Recoveries credited to allowance 263 23
------- -------
Total 4,101 3,907
Loans charged off (157) (182)
------- -------
Balance, March 31 $ 3,944 $ 3,725
======= =======
3. EARNINGS PER SHARE
Earnings per share outstanding has been computed by dividing net income by
the weighted average number of shares outstanding for the period. Weighted
average shares used for the computation were 3,286,970 and 3,264,118 for
the three months ended March 31, 1996 and 1995, respectively.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Union Bankshares Corporation (the "Company") is a multi-bank holding
company organized under Virginia law which provides financial services through
its wholly-owned subsidiaries, Union Bank & Trust Company, Northern Neck State
Bank and Union Investment Services, Inc. Both subsidiary banks, Union Bank &
Trust Company and Northern Neck State Bank, are full service retail commercial
banks offering a wide range of banking and related financial services, including
demand and time deposits, as well as commercial, industrial, residential
construction, residential mortgage and consumer loans. Union Investment
Services, Inc., is a full service discount brokerage company which offers a full
range of investment services, and sells mutual funds, bonds and stocks.
The Company's primary trade area stretches from Fredericksburg, south to
Hanover County and east to the Northern Neck area of Virginia. The Corporate
Headquarters are located in Bowling Green, Virginia. Through its banking
subsidiaries, the Company operates 16 branches in its primary trade area. In
March 1996, Union Bank & Trust Company opened the first of its three planned
in-store branches in a FasMart convenience store in Stafford County. In
addition, Northern Neck State Bank has recently announced plans for a branch to
be located in a WalMart Superstore in Tappahannock, Virginia. Management feels
in-store branching supplements its existing branch network, providing increased
accessibility for its customers and a competitive advantage for the Company.
On March 13, 1996, the Company announced it had entered into an agreement
which provided for the affiliation of King George State Bank, Inc. with the
Company. King George State Bank is a $47 million bank located in King George,
Virginia adjacent to and encompassing certain of the markets currently served by
the Company. Under the terms of the agreement, the Company would exchange 5.5
shares of its common stock for each outstanding share of King George State Bank,
Inc. stock. The agreement requires the approval of various regulatory agencies
and satisfaction of other standard conditions. Shareholders of King George State
Bank are expected to consider the affiliation at a special shareholder meeting
to be held in the third quarter of 1996.
Management's discussion and analysis is presented to aid the reader in
understanding and evaluating the financial condition and results of operations
of Union Bankshares Corporation and subsidiaries (the "Company"). The analysis
focuses on the Consolidated Financial Statements, the footnotes thereto, and the
other financial data herein. Highlighted in the discussion are material changes
from prior reporting periods and any identifiable trends affecting the Company.
Amounts are rounded for presentation purposes, while the percentages presented
are computed based on unrounded amounts.
Results of Operations
Net income for the first quarter of 1996 was $1.68 million, up 8.3% from
$1.55 million for the same period in 1995. Earnings per share increased from
$.47 in the first quarter of 1995 to $.51 in the first quarter of 1996. The
Company's annualized return on assets for the first quarter of 1996 was 1.45% as
compared to 1.50% a year ago. The Company's annualized return on equity totaled
13.53% and 14.23% for the three months ended March 31, 1996 and 1995,
respectively. Due largely to strong asset and capital growth these performance
ratios declined slightly from the comparable period in 1995, but remain strong
performance ratios by industry and peer standards.
<PAGE>
Net income for the first quarter reflects the continued competition for
funds in the industry and increases in certain growth-related and infrastructure
costs. Management expects increasing returns on these infrastructure costs
through the development of new products and delivery systems. Such developments
include "supermarket" branching, telephone banking, check cards, a credit card
agency program and enhanced mortgage lending.
Net Interest Income
Net interest income on a tax-equivalent basis for the first quarter of
1996 increased by 4.9% to $5.1 million from $4.9 million for the same period a
year ago. By managing its interest rate spread and increasing the volume of
earning assets over interest-bearing liabilities, the Company has been able to
maintain a strong net interest margin. Average earning assets during the first
quarter of 1996 increased by $42.3 million to $431.7 million from the first
quarter of 1995, while average interest-bearing liabilities grew by $38.9
million to $369.1 million over this same period. This additional growth in net
earning assets was accomplished principally through continued strong loan demand
over the last year. The industry has generally experienced steady, but slower,
loan demand which, combined with increased competition for deposits, has led to
a compression of interest margins. The Company's yield on average earning assets
was relatively unchanged from a year ago, while its cost of average
interest-bearing liabilities increased by 29 basis points to 4.74%. This net
reduction of 29 basis points lowered the net interest spread to 4.14% and the
net interest margin, or net yield on average earning assets, to 4.83%.
<PAGE>
The following table presents the Company's interest sensitivity position at
December 31, 1995. This one-day position, which is continually changing, is not
necessarily indicative of the Company's position at any other time.
<TABLE>
<CAPTION>
Interest Sensitivity Analysis
March 31, 1996
-------------------------------------------------------------------------------
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
------------- -------------- -------------- -------------- -------------
<S> <C> (In thousands)
Earning Assets:
Loans, net of unearned income (3) . . . .. $ 80,537 $ 56,606 $ 112,913 $ 54,209 $ 304,265
Investment securities . . . . . . . . . .. 700 579 4,706 2,207 8,192
Securities available for sale. . . . . . . 6,596 4,615 29,663 80,373 121,247
Federal funds sold . . . . . . . . . . . . 3,614 - - - 3,614
Other short-term investments . . . . . . . 37 - - - 37
------------- -------------- -------------- -------------- -------------
Total earning assets . . . . . . . . . . . 91,484 61,800 147,282 136,789 437,355
------------- -------------- -------------- -------------- -------------
Interest-Bearing Liabilities:
Interest checking (2) . . . . . . . . . .. 457 5,372 37,010 - 42,839
Regular savings (2) . . . . . . . . . . .. 684 6,161 41,729 - 48,574
Money market savings . . . . . . . . . . . 10,714 7,104 37,578 - 55,396
Certificates of deposit:
$100,000 and over . . . . . . . . . .. 10,836 11,032 17,465 - 39,333
Under $100,000 . . . . . . . . . . . . 26,027 72,900 54,490 - 153,417
Short-term borrowings. . . . . . . . . . . 6,000 16,295 8,941 - 31,236
Long-term borrowings . . . . . . . . . . . - 150 600 450 1,200
------------- -------------- -------------- -------------- -------------
Total interest-bearing
liabilities . . . . . . . . . . . . .. 54,718 119,014 197,813 450 371,995
-----------------------------------------------------------------------------
Period gap . . . . . . . . . . . . . . . . 36,766 (57,214) (50,531) 136,339
Cumulative gap . . . . . . . . . . . . . . $ 36,766 $ (20,448) $ (70,979) $ 65,360 $ 65,360
============= ============== ============== ============== =============
Ratio of cumulative gap to
total earning assets . . . . . . . . . 8.41% -4.68% -16.23% 14.94%
============= ============== ============== ==============
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due to
prepayment assumptions.
(2) The Company has found that interest-bearing checking deposits and regular
savings deposits are not sensitive to changes in related market rates and
therefore, it has placed them predominantly in the "1-5 Years" column.
<PAGE>
Provision for Possible Loan Losses
The provision for possible loan losses totaled $81,000 for the first
quarter of 1996, as compared to $150,000 in 1995. This reduction reflects
recoveries of $263,000 on loans previously charged off, including approximately
$230,000 related to a single real estate loan. It is also reflective of the
performance of the loan portfolio and management's assessment of the credit risk
in the portfolio. (See Asset Quality)
Non-Interest Income
Non-interest income for the first quarter of 1996 totaled $559,000, up
20.22% from the same period a year ago, and up 33.0% excluding losses on
securities transactions for those periods. This increase is due principally to
the increases in income from service fees on deposit accounts, increased
brokerage commissions and additional fee income on mortgage loans originated for
the secondary market. Management continues to seek additional sources of
non-interest income, including increased emphasis on its credit card operations,
mortgage banking activities and discount brokerage services.
Non-Interest Expense
Non-interest expense increased by 7.05% for the first quarter of 1996,
totaling $3.06 million as compared to $2.86 million for the quarter ended March
31, 1995. Personnel costs comprised much of this change, increasing
approximately 10.6% over the first quarter of 1995, which was consistent with
the loan and asset growth for the same period of 13.5% and 11.2%, respectively.
Much of this cost is attributable to infrastructure associated with the
development and introduction of new products and delivery systems, which are
expected to enhance future earnings through increased revenue and/or improved
efficiencies. The Company continues to stress budgetary expense controls and
operates at considerably more efficient levels than its peers, as measured by
the efficiency ratio (ratio of non-interest expenses to net interest income plus
non-interest income). For the first quarter of 1996 the Company's efficiency
ratio was 57.9%.
Financial Condition
Total assets as of March 31, 1996 were $470.9 million, an increase of 2.6%
from $458.7 million at December 31, 1995 and 11.2% from $423.7 million at March
31, 1995. Asset growth continued to be fueled by strong loan demand, as loans
totaled $304.3 million at March 31, 1996, an increase of 3.4% from $294.1
million at December 31, 1995, and 13.4% from $268.4 million at March 31, 1995.
Stockholders' equity totaled $$50.4 million at March 31, 1996 which represents a
book value of $15.34 per share.
Deposit growth, though outpaced by loan growth, remained steady. Total
deposits at March 31, 1996 were $385.1 million, up 2.9% from December 31, 1995
and 8.9% from $353.5 million a year earlier. During the first quarter of 1996
other borrowings, which were utilized to fund loan demand, declined slightly to
$32.4 million. Other borrowings increased 49.5% over the $21.7 million at March
31, 1995.
<PAGE>
Continued competition for deposits, particularly as it impacts certificate
of deposit rates, is reflected in the deposit mix which shows slight increases
in lower cost deposits, such as NOW and money market accounts and greater
increases in higher cost certificates of deposit. This has contributed to a
narrowing of the net interest margin which has been largely offset by increases
in the volume of earning assets.
Asset Quality
The allowance for credit losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. The level of credit losses
is affected by general economic trends as well as conditions affecting
individual borrowers. The allowance is also subject to regulatory examinations
and determination as to adequacy, which may take in to account such factors as
the methodology used to calculate the allowance and comparison to peer groups.
The allowance for loan losses totaled $3.9 million at March 31, 1996 or
1.31% of total loans, as compared to 1.28% at December 31, 1995 and 1.39% at
March 31, 1995. Non-performing assets included foreclosed properties of $3.6
million at March 31, 1996. The increase from the prior year is principally due
to the addition of a single property comprising over 1800 acres in King George
County and carried at $1.9 million.
March 31, December 31, March 31,
1996 1995 1995
----- ---- ----
Non-accrual loans $ 748 $ 596 $ 488
Foreclosed properties 3,600 3,288 1,488
----- ----- -----
Non-performing assets $4,346 $ 3,884 $ 1,976
===== ===== =====
Allowance for loan losses $3,944 $ 3,757 $ 3,725
Allowance as % of total loans 1.31% 1.28% 1.39%
Non-performing assets to loans
and foreclosed properties 1.42% 1.31% 1.38%
Capital Resources
Capital resources represent funds, earned or obtained, over which
financial institutions can exercise greater or longer control in comparison with
deposits and borrowed funds. The adequacy of the Company's capital is reviewed
by management on an ongoing basis with reference to the size, composition, and
quality of the Company's resources and consistency 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 Reserve, along with the Comptroller of the Currency and the
Federal Deposit Insurance Corporation, 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 assets is 8.0%, of which 4.0% must be Tier 1
capital, consisting of common equity and retained earnings, less certain
goodwill items.
<PAGE>
At March 31, 1996, the Company's ratio of total capital to risk-weighted assets
was 15.8% and its ratio of Tier 1 capital to risk-weighted assets was 14.6%.
Both ratios exceed the fully phased-in capital requirements. The following
summarizes the Company's regulatory capital and related ratios at March 31,
1996:
Tier 1 capital $ 49,959
Tier 2 capital $ 3,944
Total risk-based capital $ 53,903
Total risk-weighted assets $ 316,085
Capital Ratios:
Tier 1 risk-based capital ratio 14.6%
Total risk-based capital ratio 15.8%
Leverage ratio (Tier I capital to
average adjusted total assets) 10.8%
Equity to assets ratio 10.7%
The Company's book value per share at March 31, 1996 was $15.33.
Dividends to stockholders are typically declared and paid semi-annually in June
and December.
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 and loans maturing within one year. The Company's ability to obtain
deposits and purchase funds at favorable rates determines its liability
liquidity. Additional sources of liquidity available to the Company include its
capacity to borrow additional funds when necessary through Federal funds lines
with several regional banks and a line of credit with the Federal Home Loan
Bank. Management considers the Company's overall liquidity to be sufficient to
satisfy its depositors' requirements and to meet its customers' credit needs.
At March 31, 1996, cash, interest-bearing deposits in other banks, federal
funds sold, securities available for sale and loans maturing or repricing in one
year were 63.3% of total earning assets. At March 31, 1996 approximately $137.1
million or 45.1% of total loans would mature or reprice within the next year.
The Company utilizes federal funds purchased, FHLB advances, securities sold
under agreements to repurchase and customer repurchase agreements, in addition
to deposits, to fund the growth in its loan portfolio, and to fund securities
purchases.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Form 8-K was filed on March 20, 1996 after the Company entered into an
Agreement and Plan of Reorganization on March 12, 1996 providing for the
affiliation of King George State Bank, Inc. with the Company.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Union Bankshares Corporation
(Registrant)
May 2, 1996
(Date) G. William Beale,
President, Chief Executive Officer
and Director
May 2, 1996
(Date) D. Anthony Peay,
Vice President and Chief Financial Officer
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Form 8-K was filed on March 20, 1996 after the Company entered into
an Agreement and Plan of Reorganization on March 12, 1996 providing for
the affiliation of King George State Bank, Inc. with the Company.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Union Bankshares Corporation
(Registrant)
May 2, 1996 s/ G. William Beale
(Date) G. William Beale,
President, Chief Executive Officer
and Director
May 2, 1996 s/ D. Anthony Peay
(Date) D. Anthony Peay,
Vice President and Chief Financial Officer
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
Index to Exhibits
Form 10-Q / March 31, 1996
Exhibit
No. Description
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession - Not Applicable
4 Instruments defining the rights of security holders,
including indentures Not Applicable
10 Material contracts Not Applicable
11 Statement re: computation of per share earnings Not Applicable
15 Letter re: unaudited interim financial
information Not Applicable
18 Letter re: change in accounting principles Not Applicable
19 Previously unfiled documents Not Applicable
20 Report furnished to security holders Not Applicable
22 Published report re: matters submitted to
vote of security holders None
23 Consents of experts and counsel Not Applicable
24 Power of Attorney Not Applicable
99 Additional Exhibits None
<PAGE>
APPENDIX V
ARTICLE 15 OF THE VIRGINIA STOCK CORPORATION ACT
RELATING TO DISSENTERS' RIGHTS
<PAGE>
ARTICLE 15.
DISSENTERS' RIGHTS
SS.13.1-729. DEFINITIONS.--In this article:
"Corporation" means the issuer of the shares held by a dissenter
before the corporate action, except that (i) with respect to a merger,
"corporation" means the surviving domestic or foreign corporation or limited
liability company by merger of that issuer, and (ii) with respect to a share
exchange, "corporation" means the acquiring corporation by share exchange,
rather than the issuer, if the plan of share exchange places the responsibility
for dissenters' rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss.13.1-730 and who exercises that right when and in the
manner required by ss.13.1-732 through ss.13.1-739.
"Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file with
a corporation.
"Beneficial shareholder" means the person who is a beneficial owner
of shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
SS.13.1-730. RIGHT TO DISSENT.--A. A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by ss.13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under ss.13.1-719;
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that such
dissenter's rights shall not apply in the case of (i) a sale or exchange
pursuant to court order, or (ii) a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with respect
to a plan of merger or share exchange or a sale or exchange of property there
shall be no right of dissent in favor of holders of shares of any class or
series which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing
such shares provide otherwise;
2. In the case of a plan of merger or share exchange, the
holders of the class or series are required under the plan of merger or share
exchange to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or
membership interests and cash in lieu of fractional shares (i) of the surviving
or acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange or
held of record by at least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership
interests as set forth in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated
transaction" and is not approved by a majority of "disinterested directors" as
such terms are defined in ss.13.1-725.
D. The right of a dissenting shareholder to obtain payment of
the fair value of his shares shall terminate upon the occurrence of any one of
the following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets
aside the corporate action; or
3. His demand for payment is withdrawn with the written
consent of the corporation.
SS.13.1-731. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.--A. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as
to shares held on his behalf only if:
1. He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
SS.13.1-732. NOTICE OF DISSENTERS' RIGHTS.--A. If proposed corporate
action creating dissenters' rights under ss. 13.1-730 is submitted to a vote at
a shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under ss.13.1-730
is taken without a vote of shareholders, the corporation, during the ten-day
period after the effectuation of such corporate action, shall notify in writing
all record shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in ss.13.1-734.
SS.13.1-733. NOTICE OF INTENT TO DEMAND PAYMENT.--A. If proposed
corporate action creating dissenters' rights under ss.13.1-730 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (i) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (ii) shall not vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.
SS.13.1-734. DISSENTERS' NOTICE.--A. If proposed corporate action
creating dissenters' rights under ss.13.1-730 is authorized at a shareholders'
meeting, the corporation, during the ten-day period after the effectuation of
such corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of ss.13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
3. Supply a form for demanding payment that includes the date
of the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting dissenters'
rights certify whether or not he acquired beneficial ownership of the shares
before or after that date;
4. Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more than sixty
days after the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
SS.13.1-735. DUTY TO DEMAND PAYMENT.--A. A shareholder sent a
dissenters' notice described in ss.13.1-734 shall demand payment, certify that
he acquired beneficial-ownership of the shares before or after the date required
to be set forth in the dissenters' notice pursuant to paragraph 3 of subsection
B of ss. 13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to
subsection A of this section retains all other rights of a shareholder except
to the extent that these rights are canceled or modified by the taking of the
proposed corporate action.
C. A shareholder who does not demand payment and deposits his
share certificates where required each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
SS.13.1-736. SHARE RESTRICTIONS.--A. The corporation may restrict
the transfer of uncertificated shares from the date the demand for their payment
is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
SS.13.1-737. PAYMENT.--A. Except as provided in ss.13.1-738, within
thirty days after receipt of a payment demand made pursuant to ss.13.1-735, the
corporation shall pay the dissenter the amount the corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
corporation under this paragraph may be enforced (i) by the circuit court in the
city or county where the corporation's principal office is located, or, if none
in this Commonwealth, where its registered office is located or (ii) at the
election of any dissenter residing or having its principal office in the
Commonwealth, by the circuit court in the city or county where the dissenter
resides or has its principal office. The court shall dispose of the complaint on
an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair
value of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment
under ss.13.1-739; and
4. A copy of this article.
SS.13.1-738. AFTER-ACQUIRED SHARES.--A. A corporation may elect to
withhold payment required by ss. 13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount of each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss.13.1-739.
SS.13.1-739. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR
OFFER.--A. A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate (less any payment under ss. 13.1-737), or reject the
corporation's offer under ss. 13.1-738 and demand payment of the fair value of
his shares and interest due, if the dissenter believes that the amount paid
under ss.13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection A
of this section within thirty days after the corporation made or offered payment
for his shares.
SS.13.1-740. COURT ACTION.--A. If a demand for payment under
ss.13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth were the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
E. The jurisdiction of the court in which the proceeding is commenced
under subsection B of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under ss.13.1-738.
SS.13.1-741. COURT COSTS AND COUNSEL FEES.--A. The court in an
appraisal proceeding commenced under ss.13.1-740 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under ss.13.1-739.
B. The court may also assess the reasonable fees and expenses
of experts, excluding those of counsel, for the respective parties,
in amounts the court finds equitable:
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply
with the requirements of ss.13.1-732 through ss.1 3.1-739; or
2. Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the rights
provided by this article.
C. If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, the court
may award to these counsel reasonable fees to be paid out of the amounts awarded
the dissenters who were benefited.
D. In a proceeding commenced under subsection A of ss. 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceedings, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
<PAGE>
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.
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.
13.1 Union's Annual Report on Form 10-K for the year
ended December 31, 1995 (included as Appendix IV
to the Proxy Statement/Prospectus).
<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.
24 Powers of Attorney (included in Part II of this
Registration Statement).
99 Form of proxy of King George.
(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;
<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.
<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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the Town of Bowling
Green, Commonwealth of Virginia on June 10, 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
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints G.
William Beale, E. Peyton Motley and D. Anthony Peay, and each of them singly, as
his or her true and lawful attorneys-in-fact and agents, with full power of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all registration statements or applications to
the Securities and Exchange Commission, the regulatory authorities of any state
in the United States or any other regulatory authorities as may be necessary to
permit shares of Common Stock of the Company to be offered in the United States
in connection with the proposed statutory share exchange of King George State
Bank, Inc. with the Company, including without limitation any and all amendments
or post-effective amendments to this registration statement, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission or any other such regulatory
authority, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable Union Bankshares Corporation to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission as well as all other laws, rules and regulations relating to
the offer and sale of securities.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C>
/s/ G. William Beale President and Chief Executive Officer and June 10, 1996
- ------------------------------------ Director (Principal Executive Officer)
G. William Beale
/s/ E. Peyton Motley Executive Vice President and Chief June 11, 1996
- ----------------------------------- Operating Officer and Director
E. Peyton Motley
/s/ D. Anthony Peay Vice President and June 18, 1996
- ------------------------------------ Chief Financial Officer (Principal
D. Anthony Peay Financial and Accounting Officer)
/s/ Walton Mahon Chairman of the Board and Director June 10, 1996
- ------------------------------------
Walton Mahon
/s/ Charles H. Ryland Vice Chairman of the Board and Director June 11, 1996
- ------------------------------------
Charles H. Ryland
/s/ W. Tayloe Murphy, Jr. Director June 11, 1996
- ------------------------------------
W. Tayloe Murphy, Jr.
/s/ Ronald L. Hicks Director June 7, 1996
- ------------------------------------
Ronald L. Hicks
/s/ M. Raymond Piland Director June 7, 1996
- ------------------------------------
M. Raymond Piland
/s/ A. D. Whittaker Director June 7, 1996
- ------------------------------------
A. D. Whittaker
</TABLE>
II-6
<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.
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.
13.1 Union's Annual Report on Form 10-K for the year
ended December 31, 1995 (included as Appendix IV
to the Proxy Statement/Prospectus).
<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 III to the Proxy Statement/Prospectus).
13.3 Union's 1995 Annual Report to Shareholders.
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.
EXHIBIT NO. 5.
(804) 343-4089
2994.012
June 21, 1996
Union Bankshares Corporation
P. O. Box 446
Bowling Green, Virginia 22427
Gentlemen:
We have acted as counsel to Union Bankshares Corporation, a Virginia
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Company (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the "Commission"),
relating to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of a maximum of 275,000 shares (the "Shares") of the
Company's common stock, par value $4.00 per share, issuable pursuant to the
Agreement and Plan of Reorganization, dated as of March 12, 1996, by and between
the Company and King George State Bank, Inc. ("King George"), and the related
Plan of Share Exchange (collectively, the " Agreement"), whereby each share of
King George common stock, par value $6.00 per share ("King George Common
Stock"), will be exchanged for 5.5 shares of Company common stock pursuant to
the terms set forth in the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and By-laws of the Company, as
amended and as currently in effect; (iii) certain resolutions of the Board of
Directors of the Company relating to the issuance of the Shares and the other
transactions contemplated by the Registration Statement; (iv) the Agreement; and
(v) such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such copies. As to any facts material to this opinion that we did not
independently establish or
<PAGE>
LECLAIR RYAN
January 22, 1996
Page 2.
verify, we have relied upon statements and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, we are of the opinion that if and when
issued in exchange for shares of King George Common Stock pursuant to the terms
of the Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the Commonwealth of Virginia and the federal law of the United States of
America.
We hereby consent to the filing of this opinion with the Commission
as Exhibit 5 to the Registration Statement and to the reference to our name
under the caption "Legal Matters" in the Proxy Statement/Prospectus constituting
a part of the Registration Statement.
Sincerely,
LECLAIR RYAN
A Professional Corporation
By: /s/George P. Whitley
George P. Whitley
Vice President
GPW:plj
Exhibit 8.1
FORM OF TAX OPINION
June ___, 1996
Union Bankshares Corporation King George State Bank, Inc.
211 North Main Street State Route 3
Post Office Box 446 Post Office Box 81
Bowling Green, Virginia 22427-0446 King George, Virginia 22495
OPINION WITH RESPECT TO CERTAIN TAX MATTERS
RELATING TO SHARE EXCHANGE BETWEEN
UNION BANKSHARES CORPORATION
AND
KING GEORGE STATE BANK, INC.
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization and share exchange to be effected among Union
Bankshares Corporation, a Virginia corporation ("Union"), King George State
Bank, Inc., a Virginia corporation ("King George"), and the holders of King
George's issued and outstanding shares of common stock pursuant to an Agreement
and Plan of Reorganization dated as of March 12, 1996 (the "Agreement"), by and
between Union and King George.
THE REORGANIZATION TRANSACTION
Pursuant to the Agreement and subject to various regulatory
approvals, King George will become a wholly-owned subsidiary of Union in
accordance with the provisions of, and with the effect provided in, Title 13.1
of the Code of Virginia (the "Share Exchange"). As a result of the Share
Exchange, Union will become the parent holding company of King George, and King
George will continue to conduct its business in substantially the same manner as
prior to the Share Exchange.
At the effective date of the Share Exchange, each outstanding share
of common stock of King George ("King George Common Stock") will be exchanged
for and converted into 5.5 shares of common stock of Union ("Union Common
Stock"), plus cash in lieu of issuing fractional shares of Union Common Stock.
<PAGE>
EXAMINATION
In connection with the preparation of this opinion, we have examined
such documents concerning the Share Exchange as we have deemed necessary. We
have based our conclusions on the Internal Revenue Code of 1986 (the "Code") and
the regulations promulgated pursuant thereto, each as amended from time to time
and in effect as of the date hereof, as well as existing judicial and
administrative interpretations thereof.
As to various questions of fact material to our opinion, we have
relied upon the representations made in the Agreement as well as the
additional representations set forth below.
ADDITIONAL REPRESENTATIONS
In connection with the proposed Share Exchange, the following
additional representations have been made to and relied upon by us in the
preparation of this opinion:
A. The fair market value of Union Common Stock received by King
George shareholders will be approximately equal to the fair market value of King
George Common Stock to be surrendered in exchange therefor on the effective date
of the Share Exchange.
B. To the best knowledge of the management of King George, there is
no plan or intention on the part of King George's shareholders to sell or
otherwise dispose of Union Common Stock received by them in the Share Exchange
that will reduce their holdings of Union Common Stock to a number of shares
having in the aggregate a fair market value of less than 50 percent of the fair
market value of all of the King George Common Stock held by King George
shareholders on the effective date of the Share Exchange. For purposes of this
representation, shares of King George Common Stock exchanged for cash in lieu of
fractional shares of Union Common Stock will be treated as outstanding King
George Common Stock on the effective date of the Share Exchange. In addition,
shares of King George Common Stock and shares of Union Common Stock held by King
George shareholders and otherwise sold, redeemed, or disposed of prior or
subsequent to the Share Exchange will be considered in making this
representation.
C. Union has no plan or intention to reacquire any of the Union
Common Stock issued in the Share Exchange.
D. There is no plan or intention to sell or otherwise dispose of any
of the assets of King George, except for dispositions made in the ordinary
course of business or transfers described in Section 368(a)(2)(C) of the Code,
King George has no plan or intention to issue additional shares of its capital
stock that would result in Union's ceasing to own 80 percent of the voting power
of all King George voting stock and 80 percent of each class of any King George
nonvoting stock, and Union has no plan to liquidate King George, to merge King
George into another corporation, or to sell or otherwise dispose of any of the
King George stock acquired in the Share Exchange.
<PAGE>
E. Each party to the Share Exchange, including each King George
shareholder, will pay its own expenses, if any, incurred in connection with the
Share Exchange.
F. Following the Share Exchange, Union will continue the historic
business of King George.
G. No property will be transferred and no liabilities will be assumed
in the Share Exchange.
H. There is no intercorporate indebtedness existing between or among
Union and King George that was issued, acquired or will be settled at a
discount, and in acquiring the King George Common Stock, Union will not assume
any liability or take the King George Common Stock subject to any liability.
I. Union and King George did not separately bargain for the cash to
be paid by Union to King George shareholders in lieu of issuing fractional
shares of Union Common Stock to King George shareholders. The payment of cash in
lieu of a fractional share of Union Common Stock is solely for the purpose of
avoiding the expense and inconvenience to Union of issuing fractional shares and
does not represent separately bargained-for consideration. The cash in lieu of
issuing fractional shares represents a mechanical rounding-off of the fractions
in the exchange.
J. No dividends or other distributions will be made with respect to
any King George Common Stock immediately before the Share Exchange, except for
regular, normal distributions.
K. None of the shares of Union Common Stock or cash in lieu of
fractional shares received by a shareholder-employee of King George in exchange
for King George Common Stock pursuant to the Share Exchange constitutes or is
intended to be compensation for services rendered, and will not be separate
consideration for, or allocable to, any employment agreement or relationship.
None of the compensation received by, or indeminification provided to, a
shareholder-employee, or officer or director, of King George will be separate
consideration for, or allocable to, any of such shareholder-employee's, or
officer's or director's, King George Common Stock. In addition, any compensation
paid to any shareholder-employee of King George, including any shares of Union
Common Stock received by a shareholder-employee in exchange for and in
cancellation of any option to purchase shares of King George Common Stock
existing as of the effective date of the Share Exchange, and indemnification
provided to any shareholder of King George who may become an officer or director
of Union, will constitute and be intended as compensation for, or
indemnification in consideration of, services actually rendered and bargained
for at arm's length, and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
L. No two parties to the Share Exchange are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code, and for each of Union
and King George, less than 50 percent of the fair market value of its total
assets (excluding cash, cash items, government securities, and stock and
<PAGE>
securities in any 50 percent or greater subsidiary) consists of stock and
securities.
M. King George is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
N. Any cash payments to King George shareholders who elect to dissent
from the Share Exchange pursuant to Article 15 of the Virginia Stock Corporation
Act shall be paid by King George or funded from its assets and shall not be
attributable directly or indirectly to Union.
O. Upon the consummation of the Share Exchange, King George will not
have outstanding any warrants, options, convertible securities, or any other
type of right pursuant to which any person could acquire any King George stock.
P. Union does not own directly or indirectly, nor has it directly or
indirectly owned during the past 5 years, any King George stock.
OPINION
Based upon the foregoing, and with due regard to such legal
considerations as we deem necessary, we are of the opinion that for federal
income tax purposes:
1. The Share Exchange will constitute and qualify as a
"reorganization" within the meaning of Section 368(a)(1)(B) of the Code,
provided that (a) all cash payments to dissenting King George shareholders are
made by King George or from its own funds or assets, and are not directly or
indirectly attributable to the funds or assets of Union (see Revenue Ruling
68-285, 1968-1 C.B. 147), and (b) that any cash payments to King George
shareholders in lieu of issuing fractional shares of Union Common Stock do not
represent separately bargained-for consideration, but, rather, constitute a
mechanical rounding off of the fractions in the exchange (as described in
Revenue Ruling 66-365, 1966-2 C.B. 116). Each of the following opinions below
assume that the foregoing provisos of this opinion 1 are satisfied.
2. No gain, other income or loss will be recognized by Union
(pursuant to Section 1032 of the Code) or King George (Section 361 of the Code)
as a result of the Share Exchange.
3. Shareholders of King George who receive solely Union
Common Stock in exchange for their shares of King George Common Stock will
recognize no gain or loss as a result of the Share Exchange, as provided in
Section 354(a)(1) of the Code.
4. A King George shareholder who receives cash in lieu of a
fractional share of Union Common Stock will be treated as if the fractional
share of Union Common Stock had been issued and then redeemed by Union. If the
deemed redemption distribution is not essentially equivalent to a dividend
within the meaning of Section 302(b)(1) of the Code, then the King George
shareholder
<PAGE>
shall be treated as receiving a distribution in redemption of such
fractional share, subject to the provisions and limitations of Section 302(a) of
the Code. If the deemed redemption distribution is essentially equivalent to a
dividend, then the King George shareholder shall be treated as receiving a
dividend distribution under Section 301(c)(1) of the Code, as provided in
Section 302(d) of the Code. See Section 356(a)(2) of the Code, as interpreted by
Clark v. Commissioner, 109 S. Ct. 1455 (1989) and Revenue Ruling 66-365, 1966-2
C.B. 116.
5. A King George shareholder-employee who receives shares of Union
Common Stock in exchange for and in cancellation of an outstanding option to
acquire King George Common Stock will recognize ordinary income in amount equal
to the fair market value of Union Common Stock so received, subject to the
provisions and limitations of Section 83 of the Code, and King George will be
entitled to a deduction in the year such income is recognized, subject to the
provisions of Section 280G of the Code.
6. A dissenting King George shareholder who receives solely cash in
exchange for his King George Common Stock will be treated as receiving a
distribution in redemption of his King George Common Stock, subject to the
provisions and limitations of Section 302(a) of the Code. Where, as a result of
such distribution, a King George shareholder no longer holds any shares of King
George Common Stock directly and, furthermore, is not deemed to own any such
shares pursuant to the constructive ownership rules under Section 318 of the
Code, the distribution will be treated as a complete termination of such
shareholder's interest within the meaning of Section 302(b)(3) of the Code and
will be treated as a distribution in full payment in exchange for the
shareholder's shares pursuant to Section 302(a) of the Code.
7. The tax basis of Union Common Stock received by King George
shareholders who exchange their King George Common Stock solely for Union Common
Stock will be the same as the tax basis of King George Common Stock surrendered
in exchange therefor, as provided in Section 358(a)(1) of the Code.
8. The holding period of Union Common Stock received by King George
shareholders will include the period during which King George Common Stock
surrendered in exchange therefor was held by such King George shareholders,
provided the King George Common Stock was held as a capital asset on the date of
the exchange.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof.
<PAGE>
This opinion is made in connection with the Share Exchange and is
solely for the benefit of Union, King George and King George's shareholders. It
may not be relied upon in any other manner or by any other person. This opinion
may not be disclosed to any other person or used in any other manner without the
prior written consent of the undersigned.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NO. 0-20293
UNION BANKSHARES CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1598552
(State of Incorporation) (I.R.S. Employer I.D. No.)
211 NORTH MAIN STREET
P.O. BOX 446
BOWLING GREEN, VIRGINIA 22427
(Address of principal executive officers)
(804) 633-5031
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The Aggregate Market Value of the Voting Stock Held by Nonaffiliates of the
Registrant was $74,270,382 as of February 29, 1996.
As of February 29, 1996, Union Bankshares Corporation had 3,286,970 shares of
Common Stock outstanding.
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated into Part II of this Form 10-K and portions
of the Proxy Statement for the 1996 annual meeting are incorporated into Part
III.
<PAGE>
UNION BANKSHARES CORPORATION
FORM 10-K
INDEX
PART 1
Page
Item 1. Business................................................... 1
Item 2. Properties................................................. 7
Item 3. Legal Proceedings.......................................... 8
Item 4. Submission of Matters to a Vote of
Security Holders.......................................... 8
PART II
Item 5. Market for the Common Equity and
Related Stockholder Matters............................... 9
Item 6. Selected Financial Data.................................... 9
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................10
Item 8. Financial Statements and Supplementary
Data......................................................10
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure......................................10
PART III
Item 10. Directors and Executive Officers...........................10
Item 11. Executive Compensation.....................................11
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................11
Item 13. Certain Relationships and Related
Transactions..........................................11
PART IV
Item 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K..................................12
<PAGE>
PART I
ITEM 1. - BUSINESS
GENERAL
Union Bankshares Corporation (the "Company") is a bank holding company
organized under Virginia law which conducts a financial services business
through its wholly-owned subsidiaries, Union Bank & Trust Company ("Union
Bank"), Northern Neck State Bank ("Northern Neck"), and Union Investment
Services, Inc. ("Union Investment").
The Company was formed in connection with the July 12, 1993 merger of
Northern Neck Bankshares Corporation with and into Union Bancorp, Inc. to form
Union Bankshares Corporation. Each outstanding share of common stock of Northern
Neck Bankshares Corporation was converted to 1.4 shares of Union Bankshares
Corporation and each share of Union Bancorp, Inc. was converted to one share of
Union Bankshares Corporation.
Union Bank had assets of $328 million, deposits of $265 million and
shareholders' equity of $31 million on December 31, 1995. The bank was organized
and chartered under the laws of Virginia in 1902. Union Bank is a full service
retail commercial bank offering a wide range of banking and related financial
services, including checking, savings, certificates of deposit and other
depository services, commercial, industrial, residential mortgage and consumer
loans.
Union Bank's primary trade area is Caroline County, Hanover County, King
William County, Spotsylvania County and the City of Fredericksburg, Virginia.
The main office is located in Bowling Green, Caroline County, Virginia. The Bank
operates ten other branches in its primary trade area.
Northern Neck State Bank was organized and chartered under the laws of
Virginia in 1909 as successor to the Warsaw, Virginia office of the L.E. Mumford
Banking Company. As of December 31, 1995, Northern Neck State Bank had assets of
$129 million, deposits of $111 million, and shareholders' equity of $16 million.
The Bank provides a full range of banking and related financial services,
including checking, savings, certificates of deposit and other depository
services, commercial, industrial, residential mortgage and consumer loans.
Northern Neck State Bank primarily serves the Northern Neck area of the State
of Virginia, in a trade area which encompasses the counties of Richmond,
Westmoreland, Essex and Northumberland. In addition to its main office, the Bank
operates three branches in its primary trade area.
<PAGE>
Union Investment began providing securities brokerage and investment advisory
services in February, 1993. It is a full service discount brokerage company
which offers a full range of investment services, and sells mutual funds, bonds
and stocks.
The Company announced on March 13, 1996 that it has entered into a definitive
agreement providing for the affiliation of King George State Bank, Inc. with the
Company. King George State Bank is a single branch bank with approximately $46
million in assets at December 31, 1995. Under the terms of the agreement, the
Company will exchange 5.5 shares of its common stock for each outstanding share
of King George State Bank, Inc. stock. The agreement requires the approval of
various regulatory agencies and the shareholders of King George State Bank and
satisfaction of other standard conditions. The transaction is intended to
qualify as a tax-free exchange and to be accounted for as a pooling of
interests. A special meeting of King George's shareholders to consider the
affiliation is anticipated to be held in the third quarter of 1996.
COMPETITION
The banking business in Virginia and nationally is very competitive. In its
market area the Company competes with large regional financial institutions,
savings and loans and other independent community banks, as well as credit
unions, mutual funds and life insurance companies. Competition for deposits and
loans is affected by factors such as interest rates offered, the number and
location of branches and types of products offered, as well as the reputation of
the institution.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both federal
and state law. The following description briefly discusses certain provisions of
federal and state laws and certain regulations and proposed regulations and the
potential impact of such provisions on the Company and its subsidiary banks,
Union Bank and Northern Neck Bank (collectively, the "Subsidiary Banks").
<PAGE>
BANK HOLDING COMPANIES
As a bank holding company registered under the Bank Holding Company Act of
1956 (the "BHCA"), the Company is subject to regulation by the Federal Reserve
Board. The Federal Reserve Board has jurisdiction under the BHCA to approve any
bank or nonbank acquisition, merger or consolidation proposed by a bank holding
company. The BHCA generally limits the activities of a bank holding company and
its subsidiaries to that of banking, managing or controlling banks, or any other
activity which is so closely related to banking or to managing or controlling
banks as to be a proper incident thereto.
The BHCA currently prohibits the Federal Reserve Board from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank whose shares
are to be acquired is located. However, under recently enacted federal
legislation, the restriction on interstate acquisitions will be abolished
effective one year from enactment of such legislation, and thereafter, bank
holding companies from any state will be able to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
nationwide and state concentration limits. Banks also will be able to branch
across state lines effective June 1, 1997 (unless state law would permit such
interstate branching at an earlier date), provided certain conditions are met,
including that applicable state law must expressly permit such interstate
branching. Virginia has adopted legislation that will permit branching across
state lines effective July 1, 1995, provided there is reciprocity with the state
in which the out-of-state bank is based.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the FDIC insurance fund in the
event the depository institution becomes in danger of default or in default. For
example, under a policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is required to serve as a
source of financial strength to its subsidiary depository institutions and to
commit resources to support such institutions in circumstances where it might
not do so absent such policy. In addition, the "cross-guarantee" provisions of
federal law, require insured depository institutions under common control to
reimburse the FDIC for any loss suffered or reasonably anticipated by either the
Savings Association Insurance Fund
<PAGE>
("SAIF") or the Bank Insurance Fund ("BIF") as a result of the default of a
commonly controlled insured depository institution in danger of default. The
FDIC may decline to enforce the cross-guarantee provisions if it determines that
a waiver is in the best interest of the SAIF or the BIF or both. The FDIC's
claim for damages is superior to claims of stockholders of the insured
depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institutions.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution of any insured depository
institution by any receiver must be distributed (after payment of secured
claims) to pay the deposit liabilities of the institution prior to payment of
any other general creditor or stockholder. This provision would give depositors
a preference over general and subordinated creditors and stockholders in the
event a receiver is appointed to distribute the assets of the bank.
The Company is registered under the bank holding company laws of Virginia.
Accordingly, the Company and the Subsidiary Banks are subject to regulation and
supervision by the State Corporation Commission of Virginia (the "SCC").
CAPITAL REQUIREMENTS
The Federal Reserve Board, the Office of the Comptroller of the Currency (the
"OCC") and the FDIC have issued substantially similar risk-based and leverage
capital guidelines applicable to United States banking organizations. In
addition, those regulatory agencies may from time to time require that a banking
organization maintain capital above the minimum levels because of its financial
condition or actual or anticipated growth. Under the risk-based capital
requirements of these federal bank regulatory agencies, the Company and each of
the Subsidiary Banks are required to maintain a minimum ratio of total capital
to risk-weighted assets of at least 8%. At least half of the total capital is
required to be "Tier 1 capital", which consists principally of common and
certain qualifying preferred shareholders' equity, less certain intangibles and
other adjustments. The remainder ("Tier 2 capital") consists of a limited amount
of subordinated and other qualifying debt (including certain hybrid capital
instruments) and a limited amount of the general loan loss allowance. The Tier 1
and total capital to risk-weighted asset ratios of the Company as of December
31, 1995 were 14.91% and 16.07%, respectively, exceeding the minimum
requirements.
<PAGE>
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The leverage ratio
of the Company as of December 31, 1995, was 11.10%, which is above the minimum
requirements. The guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets.
LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The Company is a legal entity, separate and distinct from its subsidiary
institutions. Substantially all of the revenues of the Company result from
dividends paid to it by the Subsidiary Banks. There are various legal
limitations applicable to the payment of dividends to the Company, as well as
the payment of dividends by the Company to its respective shareholders.
Under federal law, the Subsidiary Banks may not, subject to certain limited
exceptions, make loans or extensions of credit to, or investments in the
securities of, the Company or take securities of the Company as collateral for
loans to any borrower. The Subsidiary Banks are also subject to collateral
security requirements for any loans or extensions of credit permitted by such
exceptions.
The Subsidiary Banks are subject to various statutory restrictions on their
ability to pay dividends to the Company. Under the current supervisory practices
of the Subsidiary Banks' regulatory agencies, prior approval from those agencies
is required if cash dividends declared in any given year exceed net income for
that year plus retained earnings of the two proceeding years. The payment of
dividends by the Subsidiary Banks or the Company may also be limited by other
factors, such as requirements to maintain capital above regulatory guidelines.
Bank regulatory agencies have the authority to prohibit the Subsidiary Banks or
the Company from engaging in an unsafe or unsound practice in conducting their
business. The payment of dividends, depending on the financial condition of the
subsidiary banks, or the Company, could be deemed to constitute such an unsafe
or unsound practice.
<PAGE>
Under the FDIA, insured depository institutions such as the Subsidiary 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 used in the statute). Based on the
Subsidiary Banks' current financial condition, the Company does not expect that
this provision will have any impact on its ability to obtain dividends from the
Subsidiary Banks.
THE SUBSIDIARY BANKS
The Subsidiary Banks are supervised and regularly examined by the Federal
Reserve Board and the SCC. The various laws and regulations administered by the
regulatory agencies affect corporate practices, such as the payment of
dividends, incurring debt and acquisition of financial institutions and other
companies, and affect business practices, such as the payment of interest on
deposits, the charging of interest on loans, types of business conducted and
location of offices.
The Subsidiary Banks are also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of the local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
As an institution with deposits insured by the BIF, the Bank also is subject
to insurance assessments imposed by the FDIC. The FDIC has implemented a
risk-based assessment schedule, imposing assessments ranging from 0.0% to 0.27%
of an institution's average assessment base. The actual assessment to be paid by
each BIF member is based on the institution's assessment risk classification,
which is determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or "undercapitalized," as such terms have
been defined in applicable federal regulations, and whether such institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns. Under this structure, the Subsidiary Banks will pay no
deposit insurance premiums other than the $2,000 statutory minimum assessment.
<PAGE>
OTHER SAFETY AND SOUNDNESS REGULATIONS
The federal banking agencies have broad powers under current federal law to
make prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." All such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
ITEM 2. - PROPERTIES
The Company, through its subsidiaries, owns or leases buildings that are used
in the normal course of business. The main office is located at 211 N. Main
Street, Bowling Green, Virginia, in a building owned by Union Bank. The
Company's subsidiaries own or lease various other offices in the counties and
cities in which they operate. Northern Neck State Bank has its main office in
Warsaw, Virginia and operates three branches; Union Bank has its main office in
Bowling Green, Virginia and operates 10 branches. Union Investment's office is
located in Bowling Green, Virginia. See Notes to Consolidated Financial
Statements for information with respect to the amounts at which bank premises
and equipment are carried and commitments under long-term leases.
The properties on the following page are those owned or leased by the Company
and its subsidiaries as of December 31, 1995.
<PAGE>
LOCATIONS
CORPORATE HEADQUARTERS
211 North Main Street, Bowling Green, Virginia
BANKING OFFICES - UNION BANK & TRUST COMPANY
211 North Main Street, Bowling Green, Virginia
Route 1, Ladysmith, Virginia
Route 301, Port Royal, Virginia
4540 Lafayette Boulevard, Fredericksburg, Virginia
Route 1 & Ashcake Road, Ashland, Virginia
4210 Plank Road, Fredericksburg, Virginia
10415 Courthouse Road, Fredericksburg, Virginia
10374 Leadbetter Road, Ashland, Virginia
700 Kenmore Avenue, Fredericksburg, Virginia
Route 360, Manquin, Virginia
Route 301, Hanover, Virginia
BANKING OFFICES - NORTHERN NECK STATE BANK
2 East Richmond Road, Warsaw, Virginia
Route 360, Warsaw, Virginia
Route 3, Kings Highway, Montross, Virginia
Routes 17 & 360, Tappahannock, Virginia
UNION INVESTMENT SERVICES, INC.
111 Davis Court, Bowling Green, Virginia
ITEM 3. - LEGAL PROCEEDINGS
In the ordinary course of its operations, the Company and its subsidiaries
are parties to various legal proceedings. Based on the information presently
available, and after consultation with legal counsel, management believes that
the ultimate outcome in such proceedings, in the aggregate, will not have a
material adverse effect on the business or the financial condition or results of
operations.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter.
<PAGE>
PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the NASDAQ National Market System of (where under the symbol "UBSH".
The following table sets forth the high and low sale prices of the Company's
common stock and the dividends paid:
SALES PRICE
HIGH LOW DIVIDEND
1995:
First Quarter $27.00 $22.00 ----
Second Quarter 26.50 22.00 $.28
Third Quarter 27.50 23.50 ----
Fourth Quarter 28.00 24.25 .28
1994:
First Quarter $30.00 $22.00 ----
Second Quarter 29.00 22.00 $.25
Third Quarter 28.00 23.00 ----
Fourth Quarter 28.00 23.00 .27
As of December 31, 1995, there were 1,657 shareholders of record of common
stock. The Company expects to continue its policy of paying regular dividends,
although there is no assurance as to future dividends because they are dependent
upon future earnings, capital requirements and financial condition, and certain
regulatory restrictions.
ITEM 6. - SELECTED FINANCIAL DATA
This information is incorporated herein by reference from the section
captioned "Selected Financial Data" on page 1 in the Annual Report to
Shareholders for the year ended December 31, 1995.
<PAGE>
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is incorporated herein by reference from the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 5 through 16 in the Annual Report to
Shareholders for the year ended December 31, 1995.
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated herein by reference from the Consolidated
Financial Statements on pages 17 through 32 and the Quarterly Earnings Summary
on page 1 in the Annual Report to Shareholders for the year ended December 31,
1995.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no disagreements between the Company and its independent
accountants, KPMG Peat Marwick LLP.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS
This information, as applicable to directors, is incorporated herein by
reference to the Proxy Statement for the Annual Meeting of Shareholders held
March 26, 1996 from the section entitled "Election of Directors" and "Executive
Compensation". Executive officers of the Company as of December 31, 1995 are
listed on the following page:
<PAGE>
TITLE AND PRINCIPAL OCCUPATION
NAME (AGE) DURING PAST FIVE YEARS
G.William Beale (46) President and Chief Executive Officer of the Company
since its inception; President of Union Bank & Trust
since 1991; formerly served as Executive Vice
President (1990-91)
E.Peyton Motley (51) Executive Vice President and Chief Operating Officer
of the Company since its inception; President of
Northern Neck State Bank.
D.Anthony Peay (36) Vice President and Chief Financial Officer
since December 1994; Certified Public Accountant,
Senior Manager - Deloitte & Touche (1990-94)
ITEM 11 - EXECUTIVE COMPENSATION
This information is incorporated herein by reference to the Proxy Statement
for the Annual Meeting of Shareholders held March 26, 1996 from the section
entitled "Executive Compensation".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated herein by reference to the Proxy Statement
for the Annual Meeting of Shareholders held March 26, 1996 from sections
entitled "Principal Shareholders" and "Election of Directors".
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated herein by reference to the Proxy Statement
for the Annual Meeting of Shareholders held March 26, 1996 from the sections
entitled "Loans to Officers and Directors" and "Transactions with Management".
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
The following consolidated financial statements of Union Bankshares
Corporation and subsidiaries included in the 1995 Annual Report to
Shareholders are incorporated by reference in this report:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted since they are not required, are not applicable,
or the required information is shown in the consolidated financial
statements or notes thereto.
(3) EXHIBITS
Exhibit No. Description
3.1 Articles of Incorporation (incorporated by
reference to Form S-4 Registration
Statement - 33-60458)
3.2 By-Laws (incorporated by reference to
Form S-4 Registration Statement - 33-60458)
13 1995 Annual Report to Shareholders
22 Subsidiaries of the Registrant
(4) REPORTS ON FORM 8-K
No reports were filed on Form 8-K during the fourth quarter ended December
31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Union Bankshares Corporation
By: /s/ G. WILLIAM BEALE Date: March 26, 1996
G. William Beale President and Chief Executive Office
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on March 26, 1996.
SIGNATURE TITLE
/s/ G. WILLIAM BEALE
- ------------------------- President, Chief Executive Officer and
G. William Beale Director
- ------------------------- Executive Vice President, Chief Operating
E. Peyton Motley Officer and Director
/s/ D. ANTHONY PEAY Vice President and Chief Financial Officer
- -------------------------
D. Anthony Peay
/s/ WALTON MAHON Chairman of the Board of Directors
- -------------------------
Walton Mahon
Vice Chairman of the Board of Directors
- -------------------------
Charles H. Ryland
Director
- -------------------------
W. Tayloe Murphy, Jr.
/s/ RONALD L. HICKS Director
- -------------------------
Ronald L. Hicks
/s/ M. RAYMOND PILAND, III Director
- -------------------------
M. Raymond Piland, III
/s/ A.D. WHITTAKER Director
- -------------------------
A.D. Whittaker
SUBSIDIARIES OF UNION BANKSHARES CORPORATION
STATE OF INCORPORATION
Union Bank & Trust Company Virginia
Northern Neck State Bank Virginia
Union Investment Services, Inc. Virginia
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
June 21, 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
June 19, 1996
EXHIBIT 99
KING GEORGE STATE BANK, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _______________ and ______________,
or either of them and with full power of substitution, his or her
attorney-in-fact and proxy, to represent the undersigned at the Special Meeting
of Shareholders of King George State Bank, Inc. ("King George"), to be held on
__________, 1996 at _____ p.m. at the Main Office of King George, 10045 King's
Highway, King George, Virginia and at any adjournment thereof, and to vote all
shares of stock of King George that the undersigned shall be entitled to vote at
such meeting. The proxies are instructed to vote on the matter set forth in the
proxy statement as specified below.
1. To approve an Agreement and Plan of Reorganization, dated as of
March 12, 1996, and a related Plan of Share Exchange (collectively, the
"Agreement") between King George and Union Bankshares Corporation ("Union")
providing for the affiliation of King George with Union upon the terms and
conditions set forth in the Agreement as described in the Proxy
Statement/Prospectus of King George and Union, dated _____________, 1996.
FOR [__] AGAINST [__] ABSTAIN [__]
(Has the same effect as
a vote Against)
2. In their discretion, the Proxies are authorized to vote
upon such other business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY SIGNED AND DATED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSAL NUMBER 1 AS SPECIFIED ABOVE.
Dated:________________, 1996
------------------------------------
-----------------------------------
Please sign exactly as name appears
on the stock certificate. When
signing as attorney, executor,
administrator or trustee, please give
full title. This proxy may be revoked
at any time prior to its exercise.
