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 JUNE 30, 1999
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.)
212 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, $2 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.
YES X NO
----- -------
As of June 30, 1999, Union Bankshares Corporation had 7,475,220 shares
of Common Stock outstanding.
<PAGE>
UNION BANKSHARES CORPORATION
FORM 10-Q
JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and 1998 (Unaudited)
and December 31, 1998 (Audited)........................................... 1
Consolidated Statements of Income and Comprehensive Income
for the three and six months ended June 30, 1999 and 1998 (Unaudited)..... 2
Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 (Unaudited)....................... 3
Notes to Consolidated Financial Statements (Unaudited)............................. 4-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................ 9-16
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................17-18
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................................... 19
SIGNATURES.................................................................................. 20
INDEX TO EXHIBITS........................................................................... 21
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
ASSETS 1999 1998 1998
- -------- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C>
Cash and cash equivalents:
Cash and due from banks $ 31,296 $ 39,607 $ 25,582
Interest-bearing deposits in other banks 2,336 1,413 1,159
Federal funds sold 5,128 - 8,350
------------ ---------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS 38,760 41,020 35,091
------------ ---------------- ---------------
SECURITIES AVAILABLE FOR SALE, AT FAIR VALUE 196,389 161,228 148,212
INVESTMENT SECURITIES
fair value of $10,799, $16,452 and $19,351, respectively 10,790 16,142 18,997
------------ ---------------- ---------------
TOTAL SECURITIES 207,179 177,370 167,209
------------ ---------------- ---------------
LOANS, NET OF UNEARNED INCOME 505,966 479,822 453,016
Less allowance for loan losses 7,303 6,407 5,177
------------ ---------------- ---------------
NET LOANS 498,663 473,415 447,839
------------ ---------------- ---------------
BANK PREMISES AND EQUPIMENT, NET 22,928 21,057 20,662
OTHER REAL ESTATE OWNED 1,032 1,101 1,390
OTHER ASSETS 38,395 19,984 18,365
------------ ---------------- ---------------
TOTAL ASSETS $ 806,957 $ 733,947 $ 690,556
============ ================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
NON-INTEREST-BEARING DEMAND DEPOSITS $ 103,190 $ 81,329 $ 83,771
INTEREST-BEARING DEPOSITS:
Savings accounts 61,823 61,281 59,985
NOW accounts 81,312 81,514 73,351
Money market accounts 62,930 64,331 58,912
Time deposits of $100,000 and over 92,352 80,926 67,897
Other time deposits 235,376 238,248 225,232
------------ ---------------- ---------------
TOTAL INTEREST-BEARING DEPOSITS 533,793 526,300 485,377
------------ ---------------- ---------------
TOTAL DEPOSITS 636,983 607,629 569,148
------------ ---------------- ---------------
SHORT-TERM BORROWINGS 27,607 19,476 16,323
LONG-TERM BORROWINGS 52,145 28,325 28,460
OTHER LIABILITIES 20,046 5,158 5,703
------------ ---------------- ---------------
TOTAL LIABILITIES 736,781 660,588 619,634
------------ ---------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock, $2 par value. Authorized 24,000,000 shares;
issued and outstanding, 7,475,220, 7,507,394 and
7,497,394 shares, respectively 14,950 15,015 14,995
Surplus - 311 4
Retained earnings 56,992 55,690 54,193
Accumulated other comprehensive income (losses)
Net unrealized gains (losses) on securities available
for sale, net of taxes (1,766) 2,343 1,730
------------ ---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 70,176 73,359 70,922
------------ ---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 806,957 $ 733,947 $ 690,556
============ ================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C>
INTEREST INCOME:
Interest and fees on loans $ 10,338 $ 10,098 $ 20,740 $19,640
Interest on securities:
U.S. government and agency securities 431 369 773 821
Obligations of states and political subdivisions 1,224 1,022 2,345 2,017
Other securities 1,386 1,039 2,533 2,041
Interest on Federal funds sold 29 110 88 299
Interest on interest-bearing deposits in other banks 1 21 29 46
--------- --------- ---------- -------
TOTAL INTEREST INCOME 13,409 12,659 26,508 24,864
--------- --------- ---------- -------
INTEREST EXPENSE:
Interest on deposits 5,664 5,412 11,342 10,498
Interest on other borrowings 919 657 1,524 1,392
--------- --------- ---------- -------
TOTAL INTEREST EXPENSE 6,583 6,069 12,866 11,890
--------- --------- ---------- -------
NET INTEREST INCOME 6,826 6,590 13,642 12,974
PROVISION FOR LOAN LOSSES 751 480 1,513 915
--------- --------- ---------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 6,075 6,110 12,129 12,059
--------- --------- ---------- -------
OTHER INCOME:
Service charges on deposit accounts 738 738 1,430 1,339
Other service charges and fees 554 234 822 662
Gains (losses) on securities transactions, net - (27) 19 (25)
Gains (losses) on sales of other real estate owned
and bank premises, net - - (2) 16
Other operating income 2,630 466 5,232 523
--------- --------- ---------- -------
TOTAL OTHER INCOME 3,922 1,411 7,501 2,515
--------- --------- ---------- -------
OTHER EXPENSES:
Salaries and benefits 4,999 2,703 9,507 5,183
Occupancy expenses 522 319 918 615
Furniture and equipment expenses 589 486 1,053 850
Other operating expenses 2,360 1,666 4,195 3,034
--------- --------- ---------- -------
TOTAL OTHER EXPENSES 8,470 5,174 15,673 9,682
--------- --------- ---------- -------
Income before income taxes and cumulative effect of accounting change 1,527 2,347 3,957 4,892
Income tax expense 195 438 706 937
--------- --------- ---------- -------
INCOME BEFORE EFFECT OF ACCOUNTING CHANGE 1,332 1,909 3,251 3,955
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING METHOD, NET - - (104) -
--------- --------- ---------- -------
NET INCOME $ 1,332 $ 1,909 $ 3,147 $ 3,955
========= ========= ========== =======
OTHER COMPREHENSIVE INCOME (LOSSES)
Unrealized holding gains (losses) arising during the period net of taxes
of( $1705) and ($908) for three and six months 1999
and $18 and $899 for three and six months 1998 $ (3,310) $ 34 $ (1,763) $ 1,746
Less reclassification adjustments for gains (losses) included in net
income net of taxes of $0 and $6 for three and six months 1999
and ($9) and ($9) for three and six months 1998 - (18) 13 (16)
--------- --------- ---------- -------
Total Other Comprehensive Income (losses) (3,310) 16 (1,776) 1,730
========= ========= ========== =======
COMPREHENSIVE INCOME (LOSSES) $ (1,978) $ 1,925 $ 1,371 $ 5,717
========= ========= ========== =======
BASIC EARNINGS PER SHARE
Before cumulative effect of change in accounting $ 0.18 $ 0.25 $ 0.44 $ 0.53
Cumulative effect of change in accounting method - - (0.02) -
--------- --------- ---------- -------
Net income $ 0.18 $ 0.25 $ 0.42 $ 0.53
========= ========= ========== =======
DILUTED EARNINGS PER SHARE
Before cumulative effect of change in accounting $ 0.18 $ 0.25 $ 0.43 $ 0.53
Cumulative effect of change in accounting method - - (0.02) -
--------- --------- ---------- -------
Net income $ 0.18 $ 0.25 $ 0.41 $ 0.53
========= ========= ========== =======
DIVIDENDS PER SHARE $ 0.20 $ 0.19 $ 0.20 $ 0.19
========= ========= ========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C>
OPERATING ACTIVITIES:
Net income $ 3,147 $ 3,955
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 1,244 747
Amortization of intangibles 430 153
Provision for loan losses 1,513 915
Gains on sales of securities available for sale (19) 25
(Gains) Losses on sale of other real estate owned 2 (16)
Increase in other assets (18,632) (6,156)
Increase (Decrease) in other liabilities 17,005 (1,380)
------------ ------------
NET CASH AND CASH EQUIVALENTS USED IN
OPERATING ACTIVITIES 4,690 (1,757)
------------ ------------
INVESTING ACTIVITIES:
Net increase in securities (36,211) (3,127)
Net increase in loans (26,881) (55,345)
Acquisition of bank premises and equipment (3,115) (4,430)
Proceeds from sales of other real estate owned 190 418
------------ ------------
NET CASH AND CASH EQUIVALENTS USED IN
INVESTING ACTIVITIES (66,017) (62,484)
------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest-bearing deposits 21,861 17,272
Net increase in interest-bearing deposits 7,493 61,441
Net increase(decrease) in short-term borrowings 8,131 (10,922)
Increase in long-term borrowings 23,880 4,880
Issuance of common stock 1,005 10
Repurchase of common stock (1,915) -
Cash Dividends paid (1,328) (1,231)
Repayment of long-term borrowings (60) (135)
------------ ------------
NET CASH AND CASH EQUIVALENTS PROVIDED BY
FINANCING ACTIVITIES 59,067 71,315
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,260) 7,074
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 41,020 28,681
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 38,760 $ 35,755
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments for:
Interest 11,860 12,101
Income taxes 564 890
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999
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 and six month periods ended June 30,
1999 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1999.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1998 Annual Report to Shareholders. Certain previously reported
amounts have been reclassified to conform to current period presentation.
As of January 1999, the Company adopted SOP 98-5 - REPORTING ON THE COSTS
OF START-UP ACTIVITIES. This SOP requires that the costs of start-up
activities be expensed as incurred. This is a change from past practices,
which allowed the amortization of these costs over a specified time. As a
result, two additional lines are on the Consolidated Statements of Income
and Comprehensive Income: Income before effect of accounting change and
Cumulative effect of change in accounting method, net of taxes. This one
time effect impacted the first quarter and the six months ended June 30,
1999 as a result of costs accumulated in 1998 related to the Bank of
Williamsburg (See Management Discussion).
2. ALLOWANCE FOR LOAN LOSSES
The following summarizes activity in the allowance for loan losses for the
six months ended June 30, (in thousands):
1999 1998
Balance, January 1 $ 6,407 $4,798
Provisions charged to operations 1,513 915
Recoveries credited to allowance 192 155
Loans charged off (809) (691)
------- ------
Balance, June 30 $ 7,303 $5,177
======= ======
4
<PAGE>
3. EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of shares outstanding during the period. Weighted
average shares used for the computation of basic EPS were 7,494,300 and
7,492,307 for the three months ended June 30, 1999 and 1998 and 7,511,420
and 7,480,514 for the six months ended June 30, 1999 and 1998. Diluted EPS
is computed using the weighted number of common shares outstanding during
the period, including the effect of dilutive potential common shares
outstanding attributable to stock options. Weighted average shares used
for the computation of diluted EPS were 7,697,395 and 7,526,604 for the
three months ended June 30, 1999 and 1998 and 7,714,120 and 7,512,181 for
the six months ended June 30, 1999 and 1998.
4. PURCHASE OF MORTGAGE CAPITAL INVESTORS, INC.
On February 11, 1999, the Company completed the purchase of Mortgage
Capital Investors, Inc. a mortgage origination business with 16 locations
in the states of Virginia, Maryland, North Carolina, South Carolina and
Florida. This business was purchased to enhance the Company's existing
mortgage operations and increase non-interest income. It contributed
approximately $132,000 in net income for the period February 11 to June
30, 1999. This acquisition was accounted for under the purchase method of
accounting. The purchase price was $5,000,000. At closing the Company paid
$1,000,000 in cash and $1,000,000 in common stock. In addition, $3,000,000
is to be distributed over the next three years in cash and common stock.
At closing 61,490 shares were issued with cash paid for fractional shares.
As a result of the transaction, goodwill in the amount of $1,044,887 was
recorded and is being amortized using the straight line method over 10
years at $104,488 per year.
5. SEGMENT REPORTING DISCLOSURES
Union Bankshares Corporation has two reportable segments: traditional full
service community banks and mortgage loan origination business. The
community bank business is made up of four banks which provide loan,
deposit, investment, and trust services to retail and commercial customers
throughout their locations in Virginia. The mortgage company provides a
variety of mortgage loan products in a multi-state market. These loans are
originated and sold in the secondary market through purchase commitments
from investors which subject the company to only de minimis market risk.
Profit and loss is measured by net income after taxes including gains and
losses on the Company's investment portfolio. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies. Intersegment transactions are recorded at
cost and eliminated as part of the consolidation process.
Both of the Company's reportable segments are service based. While the
banks offer a distribution and referral network for the mortgage services,
the mortgage company does not offer a similar network for the banks due
largely to the lack of overlapping geographic markets. Another a major
distinction is the source of income. The mortgage business is a fee based
business while the banks are driven principally by net interest income.
5
<PAGE>
The following is a summary of segment profit (dollars in thousands).
Segment information for periods prior to 1999 are not presented as the
Company's mortgage banking operation prior to the acquisition of MCI was
not significant.:
6
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMUNITY MORTGAGE TOTAL
BANKS BANKING
----------------------------------------------
<S> <C>
Net interest income after provision for loan loss $ 12,262 $ - $ 12,262
Total other income 2,654 4,829 7,483
Total other expenses 10,034 4,630 14,664
Segment profit after taxes 3,756 132 3,888
Total assets 787,011 19,524 806,535
</TABLE>
The following summary reconciles segment profit (loss) to income after taxes:
Net income
Segment profit $ 3,888
Other (741)
---------------
Net income $ 3,147
===============
THREE MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
COMMUNITY MORTGAGE TOTAL
BANKS BANKING
----------------------------------------------
<S> <C>
Net interest income after provision for loan loss $ 6,120 $ - $ 6,120
Total other income
1,648 2,477 4,125
Total other expenses
5,087 2,859 7,946
Segment profit (losses) after taxes
2,108 (272) 1,836
Total assets 787,011 19,524 806,535
</TABLE>
The following summary reconciles segment profit (loss) to income after taxes:
Net income
Segment profit $ 1,836
Other (504)
---------------
Net income $ 1,332
===============
7
<PAGE>
6. RECENT ACCOUNTING STATEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities", which establishes
accounting and reporting standards for derivative instruments and for
hedging activities. It requires that a company recognize all derivative
instruments as either assets or liabilities in the consolidated balance
sheet, and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. In June of 1999 the FASB
issued SFAS137, "Accounting for derivative instruments hedging
activities--deferal of the effective date of FASB Statement 133". SFAS 137
delayed the effective date of with SFA3133 until fiscal years beginning
after June 15, 2000. As such, the effective date for the Company will be
January 1, 2001. The impact of adopting SFAS 133 will be dependent on the
specific derivative instruments in place at the date of adoption. At this
time, management believes the adoption of this new standard will not have
a material impact on the financial condition or results of operations of
the Company.
7. FORWARD-LOOKING STATEMENTS
Certain statements in this report may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Although the Company believes that its expectations with
respect to certain forward-looking statements are based upon reasonable
assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results, performance or
achievements of the Company will not differ materially from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
8
<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, Rappahannock National Bank, the Bank of Williamsburg ,Union Investment
Services, Inc., and Mortgage Capital Investors. The four subsidiary banks, Union
Bank & Trust Company, Northern Neck State Bank, Rappahannock National Bank and
the Bank of Williamsburg 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. Mortgage Capital Investors
provides a wide array of mortgage products through its 16 offices in Virginia,
Maryland, North Carolina, South Carolina and Florida.
The Company's primary trade area stretches from Rappahannock County to
Fredericksburg, south to Hanover County, east to Williamsburg and throughout the
Northern Neck area of Virginia. The Corporate Headquarters are located in
Bowling Green, Virginia. Through its banking subsidiaries, the Company operates
29 branches in its primary trade area. In addition to the primary banking trade
area, the addition of Mortgage Capital Investors expands the Company's mortgage
origination business to four additional states.
In February 1999, the Company opened the Bank of Williamsburg in
temporary headquarters in the Williamsburg Crossing Shopping Center. This
location is one of the faster growing areas of Virginia and it is expected that
this bank will contribute to the profit of the Company within its first two
years. Also in February 1999, the Company acquired Mortgage Capital Investors, a
mortgage origination company based in Springfield, Virginia. In June 1999, the
Company merged its King George State Bank subsidiary into its Union Bank & Trust
subsidiary to better leverage its presence in the Fredericksburg, Virginia
market and reduce costs after the retirement of King George State Bank's
president.
Management's discussion and analysis is presented to aid the reader in
understanding and evaluating the financial condition and results of operations
of 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 second quarter of 1999 was $1.3 million, down from
$1.9 million for the same period in 1998. The decline in net income for the
period is due principally to an increase of $271,000 in the provision for loan
loss over the second quarter of 1998; an increase of $2.3 million in salaries
and benefits (which includes a full 3 months expenses for Mortgage Capital
Investors) and a $694,000 increase in other expenses which includes the addition
of Check Imaging and branch automation software and hardware. Diluted earnings
per share amounted to $.18 in the second quarter of 1999, as compared to $.25 in
the second quarter of 1998. The Company's annualized return on assets for the
second quarter of 1999 was .67% as compared to 1.12% a year ago. The Company's
annualized return on equity totaled 7.19% and 10.85% for the three months ended
June 30, 1999 and 1998, respectively.
9
<PAGE>
Net income for the first six months of 1999 before the cumulative effect of a
change in accounting was $3.3 million, down 17.5% from $4.0 million a year ago.
During the first quarter the Company adopted a new accounting standard
(Statement of Position 98-5) which required it to expense certain previously
capitalized start-up costs totaling $158,000, or $104,000 net of applicable
taxes. Earnings per share before the cumulative adjustment for a change in
accounting method on a diluted basis decreased to $.43 from $.53 for the same
six months in 1998. Diluted earnings per share was $.41 in the first six months
of 1999, as compared to $.53 in the first six months of 1998. The Company's
annualized return on assets for the first six months of 1999 was .82% as
compared to 1.20% a year ago. The Company's annualized return on equity totaled
8.61% and 11.41% for the six months ended June 30, 1999 and 1998, respectively.
Declining interest rates through most of the first six months continued to
negatively impact the net interest margin as loans and investments matured, were
prepaid or repriced at lower rates, while deposit competition remained tight.
With the Federal Reserve's interest rate hike in late June, the margin improve
over the second half of 1999. Rising interest rates negatively impacted our
mortgage origination business income which slowed in the second quarter. Recent
expansion activities, including branch acquisitions and de novo openings, in
addition to the addition of a new mainframe and imaging software/hardware have
generated a short term drag on earnings. Other infrastructure costs, principally
continued investments in technology and people, contributed to a decline in
earnings for the quarter for the core banking business. While the benefits of
these technology investments tends to lag behind the costs, the long term
benefit is significant in terms of the Company's ability to compete effectively
in the changing financial services marketplace.
Of particular significance during the first six months was the opening of a new
bank subsidiary, the Bank of Williamsburg. As with any de novo operation, the
Bank of Williamsburg is expected to incur operating losses for the first year,
becoming profitable during the second year of operation. The Bank's performance
since opening in a temporary location has met management's expectations.
NET INTEREST INCOME
Net interest income on a tax-equivalent basis for the second quarter of
1999 increased by 2.7% to $7.4 million from $7.2 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. The current interest rate environment and
competition for deposits continue to put pressure on net interest margins. The
opening of the Williamsburg bank with most of its capital invested in the
investment portfolio has contributed to the narrowed interest margin. Average
earning assets during the second quarter of 1999 increased by $103.5 million to
$717.7 million from the second quarter of 1998, while average interest-bearing
deposits grew by $56.1 million to $539.3 million over this same period. The
Company's yield on average earning assets was 7.82%, down 84 basis points from
8.66% a year ago, while its cost of average interest-bearing liabilities also
decreased 33 basis points from 4.62% to 4.29%.
10
<PAGE>
<TABLE>
<CAPTION>
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
-----------------------------------------------------------------------------------------
Three Months June 30,
-----------------------------------------------------------------------------------------
1999 1998
-----------------------------------------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
ASSETS:
Securities:
Taxable . . . . . . . . . . . . $131,210 $ 1,915 5.85% $ 92,147 $ 1,500 6.53%
Tax-exempt(1) . . . . . . . . . 86,134 1,703 7.93% 73,753 1,468 7.98%
------------------------ ----------------------
Total securities . . . . 217,344 3,618 6.68% 165,900 2,968 7.17%
Loans, net. . . . . . . . . . . . . . . . 495,598 10,338 8.37% 440,108 10,190 9.29%
Federal funds sold . . . . . . . . . . . . 4,015 29 3.20% 6,947 110 4.45%
Interest-bearing deposits
in other banks . . . . . . . . . 775 1 1.55% 1,241 21 6.14%
------------------------ ----------------------
TOTAL EARNING ASSETS . . . 717,732 $ 13,986 7.82% 614,196 $ 13,289 8.66%
Allowance for loan losses . . . . . . . . . (7,058) (5,106)
TOTAL NON-EARNING ASSETS . . . . . . . . . 83,264 67,855
------------ ----------
TOTAL ASSETS . . . . . . . . . . . . . . . $793,938 $676,945
============ ==========
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
Checking . . . . . . . . . . . . $ 87,240 $ 410 1.89% $ 73,552 $ 438 2.39%
Regular savings . . . . . . . . . 59,757 391 2.62% 58,703 445 3.04%
Money market savings . . . . . . 64,008 561 3.51% 61,294 522 3.42%
Certificates of deposit:
$100,000 and over . . . . . . . . 93,642 1,178 5.05% 66,952 927 5.55%
Under $100,000 . . . . . . . . . 234,631 3,124 5.34% 222,623 3,080 5.55%
------------------------ ----------------------
TOTAL INTEREST-BEARING
DEPOSITS . . . . . 539,278 5,664 4.21% 483,124 5,412 4.47%
Other borrowings . . . . . . . . . . . . . 76,676 919 4.81% 41,647 657 6.33%
------------------------ ----------------------
TOTAL INTEREST-BEARING
LIABILITIES . . . . 615,954 6,583 4.29% 524,771 6,069 4.62%
------------ ------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . . 84,153 76,185
Other liabilities . . . . . . . . 19,556 5,488
------------ ----------
TOTAL LIABILITIES . . . . 719,663 606,444
Stockholders' equity . . . . . . . . . . . 74,275 70,501
------------ ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $793,938 $676,945
============ ==========
NET INTEREST INCOME . . . . . . . . . . . . $ 7,403 $ 7,220
============ ============
Interest rate spread . . . . . . . . . . . 3.53% 4.04%
Interest expense as a percent
of average earning assets . . . . 3.68% 3.94%
Net interest margin . . . . . . . . . . . . 4.14% 4.71%
</TABLE>
(1) Income and yields are reported on a taxable equivalent basis.
11
<PAGE>
<TABLE>
<CAPTION>
UNION BANKSHARES CORPORATION
Average Balances, Income and Expenses, Yields and Rates (Taxable Equivalent Basis)
-------------------------------------------------------------------------------------------
Six Months Ended June 30,
-------------------------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C>
ASSETS:
Securities:
Taxable . . . . . . . . . . . . $115,527 $ 3,453 6.03% $ 94,446 $ 3,017 6.44%
Tax-exempt(1) . . . . . . . . . 85,977 3,327 7.80% 72,616 2,900 8.05%
------------------------- ----------------------
Total securities . . . . 201,504 6,780 6.79% 167,062 5,917 7.14%
Loans, net. . . . . . . . . . . . . . . 488,719 20,740 8.56% 432,005 19,721 9.21%
Federal funds sold . . . . . . . . . . . 4,175 88 4.30% 8,767 299 4.44%
Interest-bearing deposits
in other banks . . . . . . . . . 1,344 29 4.35% 1,206 46 7.02%
------------------------- ----------------------
TOTAL EARNING ASSETS . . 695,742 $ 27,637 8.01% 609,040 $ 25,983 8.57%
Allowance for loan losses . . . . . . . . (6,887) (5,028)
TOTAL NON-EARNING ASSETS . . . . . . . . 81,625 60,806
------------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . $770,480 $664,818
============= ==========
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
Checking . . . . . . . . . . . . $ 84,775 $ 871 2.07% $ 69,318 $ 818 2.38%
Regular savings . . . . . . . . 58,804 789 2.71% 57,042 861 3.04%
Money market savings . . . . . . 64,024 1,075 3.39% 59,171 1,012 3.45%
Certificates of deposit:
$100,000 and over . . . . . . . 90,913 2,349 5.21% 66,245 1,784 5.43%
Under $100,000 . . . . . . . . . 236,648 6,257 5.33% 215,790 5,984 5.59%
------------------------- ----------------------
TOTAL INTEREST-BEARING
DEPOSITS . . . . . . 535,164 11,341 4.27% 467,566 10,459 4.51%
Other borrowings . . . . . . . . . . . . 61,260 1,525 5.02% 49,105 1,392 5.72%
------------------------- ----------------------
TOTAL INTEREST-BEARING
LIABILITIES . . . . . 596,424 12,866 4.35% 516,671 11,851 4.63%
------------ ------------
Non-interest bearing liabilities:
Demand deposits . . . . . . . . 81,328 72,846
Other liabilities . . . . . . . 18,984 5,203
------------- ----------
TOTAL LIABILITIES . . . . 696,736 594,720
Stockholders' equity . . . . . . . . . . 73,744 70,098
------------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . $770,480 $664,818
============= ==========
NET INTEREST INCOME . . . . . . . . . . . $ 14,773 $ 14,132
============ ============
Interest rate spread . . . . . . . . . . 3.66% 3.94%
Interest expense as a percent
of average earning assets . . . 3.73% 3.92%
Net interest margin . . . . . . . . . . . 4.28% 4.64%
</TABLE>
(1) Income and yields are reported on a taxable equivalent basis.
12
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses totaled $751,000 for the second
quarter of 1999, up from $480,000 for the second quarter of 1998. For the first
six months, provision is up at $1.5 million for 1999 versus $915,000 in 1998.
These provisions reflect 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 three months ended June 30, 1999 totaled
$3.9 million, up from $1.4 million for the same period in a year ago. For the
six months ended on June 30, 1999 non-interest income was up $5.0 million at
$7.5 versus $2.5 million in 1998. This increase is due principally to the
increases in income from mortgage brokerage fees from Mortgage Capital Investors
(MCI) totaling $2.4 million for the second quarter and $4.8 for the first six
months of 1999. The remaining increase in non-interest income is due to
increases in service fees on deposit accounts, increases in other service fees
and increased brokerage commissions. Management continues to seek additional
sources of non-interest income, including increased emphasis on its credit card
operations, mortgage banking activities and brokerage services.
NON-INTEREST EXPENSE
Non-interest expense increased by 63.5% for the three months ended June
30, 1999, totaling $8.5 million as compared to $5.2 million for 1998. For the
first six months of 1999, non-interest expenses was up 61.8% at $15.7 million in
1999 versus $9.7 million in 1998. In the second quarter, the impact of MCI full
three months of expenses is the primary source of increase. Of the $2.3 million
increase in the quarter in salaries and benefits, over $2.0 million was from
MCI. For the six months ended June 30, 1999, personnel costs increased $4.3
million of which $3.6 million was MCI with the remaining $700,000 coming from
normal merit increases, the full impact of staffing in last years purchased
branches, and the addition of staff in the technology area including a Senior
Technology manager. For the first six months, occupancy expense is up which is
principally attributable to MCI and the Bank of Williamsburg, while the increase
in furniture and equipment expense is the result of amortization of software
expense and new software licensing fees. Also for the six months, other
operating expenses are up $1.2 million of which MCI accounts for $733,000 with
the remainder coming from increased processing expenses, consulting costs and
amortization of core deposit premiums for the purchased branches and goodwill
expense for the MCI purchase.
FINANCIAL CONDITION
Total assets as of June 30, 1999 were $807.0 million, an increase of
16.9% from $690.6 million at June 30, 1998. Asset growth was fueled by loan
growth, as loans totaled $498.7 million at June 30, 1999, an increase of 11.4%
from $447.8 million at June 30, 1998. Stockholders' equity totaled $70.1 million
at June 30, 1999, which represents a book value of $9.39 per share.
13
<PAGE>
Deposit growth remained steady. Total deposits at June 30, 1999 were
$637.0 million, up 11.9% from $569.1 million at June 30, 1998. Other borrowings
totaled $79.7 million at June 30, 1999, a 78.1% increase over $44.8 million at
June 30, 1998. This is reflective of the Company's effort to better leverage its
strong capital position. The Company continues to utilize other borrowings to
supplement deposit growth and, periodically, engages in wholesale leverage
transactions. These wholesale leverage transactions have typically been executed
at spreads of approximately 150 to 200 basis points and, although they have
negatively impacted the Company's net interest margin (as a percentage), they
have had a positive effect on earnings and return on equity.
Continued competition for deposits, particularly as it impacts
certificate of deposit rates, is reflected in the deposit mix. Management
continues to focus on increasing lower cost deposit products, including
non-interest bearing demand deposits and savings accounts. Increased competition
for funds, particularly by non-banks, continues to contribute 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 loan losses is an estimate of an amount adequate to
provide for potential losses in the loan portfolio. General economic trends as
well as conditions affecting individual borrowers affect the level of credit
losses. 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 $7.3 million at June 30, 1999 or
1.44% of total loans, as compared to 1.34% at December 31, 1998 and 1.14% at
June 30, 1998. At June 30, 1999, non-performing assets of $4.2 million included
foreclosed properties of $1,032,000 and a $710,000 investment in
income-producing property.
JUNE 30, DECEMBER 31, JUNE 30,
1999 1998 1998
(DOLLARS IN THOUSANDS)
Non-accrual loans $2,484 $2,813 $2,787
Foreclosed properties 1,032 1,101 1,390
Real estate investment 710 730 954
------ ------- ------
Non-performing assets $4, 226 $4,644 $5,131
======== ======= ======
Allowance for loan losses $7,303 $6,407 $5,177
Allowance as % of total loans 1.44% 1.34% 1.14%
Non-performing assets to loans
and foreclosed properties .83% .97% 1.13%
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
14
<PAGE>
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.
At June 30, 1999, the Company's ratio of total capital to risk-weighted
assets was 12.42% and its ratio of Tier 1 capital to risk-weighted assets was
11.14%. Both ratios exceed the fully phased-in capital requirements. The
following summarizes the Company's regulatory capital and related ratios at June
30, 1999 (dollars in thousands):
Tier 1 capital $ 63,435
Tier 2 capital $ 7,303
Total risk-based capital $ 70,738
Total risk-weighted assets $ 568,861
CAPITAL RATIOS:
Tier 1 risk-based capital ratio 11.15%
Total risk-based capital ratio 12.44%
Leverage ratio (Tier I capital to
average adjusted total assets) 8.16%
Equity to assets ratio 8.76%
The Company's book value per share at June 30, 1999 was $9.39.
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 June 30, 1999, cash, interest-bearing deposits in other banks,
federal funds sold, securities available for sale and loans maturing or
repricing in one year were 24.2% of total earning assets. At June 30, 1999
approximately $144.5 million or 28.5% 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, periodically in wholesale leverage
transactions.
15
<PAGE>
YEAR 2000
The Company's Year 2000 effort is proceeding in accordance with a written
plan, which has been adopted by the Company's Board of Directors. Progress
reports are provided to the Board on a regular basis. The Company has completed
its assessment of the mission critical computer systems. Testing has been
completed for all mission critical systems. All material business partners have
been contacted: issues discussed and surveys of their contingency plans
reviewed. The vendors/partners have provided Y2K compliance statements.
The Company has developed a comprehensive Business Resumption Contingency
Plan (BRCP). The plan identifies 33 business systems. Each system has a policy
statement, an internal and external PR statement, and step by step procedures to
guide our management team in the event of a failure. The BRCP will be tested in
four phases beginning in September. Phase one is where each owner will have
alternative resources in place. Phase two is an initial walk through. Phase
three is performing mock transactions if applicable. Finally, phase four is a
refresher scheduled for early December. At this time, Management believes the
most likely worst case scenario concerning Year 2000 will not have a material
effect on the company's results of operations, liquidity, and financial
condition for the year ending December 31, 2000. However, the Company is
dependent on numerous outside vendors whom it can not control. Additionally, no
entity can address the virtually unlimited possible circumstances related to
Year 2000 issues, including risks outside the Banks market place. These plans
will continue to be reviewed to meet new circumstances as they arise.
The Company is continuing its customer awareness efforts throughout the
markets that it serves. These are designed to make the customers aware of our
efforts to prepare for all potential situations and to give them our assurances
that the Company is prepared. In addition, a cash contingency model has been
developed to alert the Company to unusual changes in the cash demand patterns.
The cash analysis and education of the community will be an ongoing function.
The Company has incurred internal staff costs as well as consulting and
other expenses related to the infrastructure and facilities enhancements
necessary to prepare its systems for the Year 2000. These cost, unless for
depreciable assets, were expensed as incurred. Approximately $100,000 of
expenses have been incurred as of June 30, 1999 and all costs have been expensed
as incurred. The Company has $150,000 remaining in its Year 2000 budget and does
not anticipate needing more.
16
<PAGE>
The following table presents the Company's interest sensitivity position at June
30, 1999. 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
30-Jun-99
Within 90-365 1-5 Over
90 Days Days Years 5 Years Total
(In thousands)
<S> <C>
Earning Assets:
Loans, net of unearned income (3) . $106,068 $ 37,195 $ 195,643 $164,576 $503,482
Investment securities . . . . . . . 275 3,514 5,027 1,974 10,790
Securities available for sale. . . 5,721 2,406 67,129 121,133 196,389
Federal funds sold . . . . . . . . 5,128 - - - 5,128
Other short-term investments . . . 418 - - - 418
Total earning assets . . . . . . . 117,610 43,115 267,799 287,683 716,207
-------- ------- -------- -------- --------
Interest-Bearing Liabilities:
Interest checking (2) . . . . . . . $ - $ - $ 81,312 $ - $81,312
Regular savings (2) . . . . . . . . - - 61,823 - 61,823
Money market savings . . . . . . . - 62,930 - - 62,930
Certificates of deposit:
$100,000 and over . . . 22,785 52,390 17,177 - 92,352
Under $100,000 . . . . 29,704 125,862 79,408 402 235,376
Short-term borrowings. . . . . . . 27,487 120 - - 27,607
Long-term borrowings . . . . . . . 10,075 75 32,200 9,795 52,145
Total interest-bearing
liabilities . . . . . . 90,051 241,377 271,920 10,197 613,545
------- -------- -------- ------- --------
Period gap . . . . . . . . . . . . 27,559 (198,262) (4,121) 277,486
Cumulative gap . . . . . . . . . . 27,559 $(170,703) $(174,824) $102,662 $102,662
======= ========== ========== ========= =========
Ratio of cumulative gap to
total earning assets . 3.85% -23.83% -24.41% 14.33%
===== ======= ======= ======
</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 non-accrual loans
17
<PAGE>
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
EARNINGS SIMULATION ANALYSIS
Management uses simulation analysis to measure the sensitivity of net
interest income to changes in interest rates. The model calculates an earnings
estimate based on current and projected balances and rates. This method is
subject to the accuracy of the assumptions that underlie the process, but it
provides a better analysis of the sensitivity of earnings to changes in interest
rates than other analysis such as the static gap analysis.
Assumptions used in the model, including loan and deposit growth rates,
are derived from seasonal trends and management's outlook, as are the
assumptions used to project yields and rates for new loans and deposits. All
maturities, calls and prepayments in the securities portfolio are assumed to be
reinvested in like instruments. Mortgage loans and mortgage backed securities
prepayment assumptions are based on industry estimates of prepayment speeds for
portfolios with similar coupon ranges and seasoning. Different interest rate
scenarios and yield curves are used to measure the sensitivity of earnings to
changing interest rates. Interest rates on different asset and liability
accounts move differently when the prime rate changes and are accounted for in
the different rate scenarios.
The following table represents the interest rate sensitivity on net
interest income for the Company using different rate scenarios as of June 30,
1999:
% CHANGE IN
CHANGE IN PRIME RATE NET INTEREST INCOME
+200 basis points +.60%
Flat 0
-200 basis points -.28%
MARKET VALUE SIMULATION
Market value simulation is used to calculate the estimated fair value of
assets and liabilities over different interest rate environments. Market values
are calculated based on discounted cash flow analysis. The net market value is
the market value of all assets minus the market value of all liabilities. The
change in net market value over different rate environments is an indication of
the longer term repricing risk in the balance sheet. The same assumptions are
used in the market value simulation as in the earnings simulation.
The following chart reflects the change in net market value over different
rate environments as of June 30, 1999:
CHANGE IN NET MARKET VALUE
CHANGE IN PRIME RATE (DOLLARS IN THOUSANDS)
-------------------- --------------------------
+200 basis points $ -34,221
+100 basis points -20,342
Flat -7,487
-100 basis points 6,834
-200 basis points 18,728
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) See attached list of exhibits.
(b) No Form 8-K was required to be filed during the most recently
completed quarter.
19
<PAGE>
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)
August 16, 1999
--------------------------------------------
(Date) G. WILLIAM BEALE,
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
August 16, 1999
--------------------------------------------
(Date) D. ANTHONY PEAY,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
20
<PAGE>
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
FORM 10-Q /JUNE 30, 1999
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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
</TABLE>
21
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,760
<INT-BEARING-DEPOSITS> 533,793
<FED-FUNDS-SOLD> 5,128
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 10,790
<INVESTMENTS-CARRYING> 196,389
<INVESTMENTS-MARKET> 0
<LOANS> 505,966
<ALLOWANCE> 7,303
<TOTAL-ASSETS> 806,957
<DEPOSITS> 636,983
<SHORT-TERM> 27,607
<LIABILITIES-OTHER> 20,046
<LONG-TERM> 52,145
0
0
<COMMON> 14,950
<OTHER-SE> 55,226
<TOTAL-LIABILITIES-AND-EQUITY> 806,957
<INTEREST-LOAN> 20,740
<INTEREST-INVEST> 5,768
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 26,508
<INTEREST-DEPOSIT> 11,342
<INTEREST-EXPENSE> 12,866
<INTEREST-INCOME-NET> 13,642
<LOAN-LOSSES> 1,513
<SECURITIES-GAINS> 19
<EXPENSE-OTHER> 15,673
<INCOME-PRETAX> 3,957
<INCOME-PRE-EXTRAORDINARY> 3,251
<EXTRAORDINARY> 0
<CHANGES> 104
<NET-INCOME> 3,147
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.41
<YIELD-ACTUAL> 8.01
<LOANS-NON> 4,226
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,226
<ALLOWANCE-OPEN> 6,407
<CHARGE-OFFS> 809
<RECOVERIES> 192
<ALLOWANCE-CLOSE> 7,303
<ALLOWANCE-DOMESTIC> 7,303
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,303
</TABLE>
