<PAGE>
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, 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 I.D. No.)
212 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, $2
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. ( )
<PAGE>
The Aggregate Market Value of the Voting Stock Held by Nonaffiliates of the
Registrant was $90,612,908 as of February 25, 2000.
As of February 25, 2000, Union Bankshares Corporation had 7,487,829 shares
of Common Stock outstanding.
Documents Incorporated By Reference
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1999 are incorporated into Part II of this Form 10-K and
portions of the Proxy Statement for the 2000 annual meeting are incorporated
into Part III.
<PAGE>
UNION BANKSHARES CORPORATION
FORM 10-K
INDEX
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PART 1
Page
----
Item 1. Business................................. 1
Item 2. Properties............................... 9
Item 3. Legal Proceedings........................ 11
Item 4. Submission of Matters to a Vote of
Security Holders......................... 11
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters......... 12
Item 6. Selected Financial Data................. 12
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations........................... 12
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk............... 13
Item 8. Financial Statements and
Supplementary Data.............. 17
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................... 17
PART III
Item 10. Directors and Executive Officers........ 18
Item 11. Executive Compensation.................. 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management................... 19
Item 13. Certain Relationships and Related
Transactions............................ 19
PART IV
Item 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K................... 20
<PAGE>
PART I
Item 1. - Business
GENERAL
Union Bankshares Corporation (the "Company") is a multi-bank holding
company organized under Virginia law which is headquartered in Bowling Green,
Virginia. The Company is committed to the delivery of financial services
through its four affiliated community banks, Union Bank & Trust Company ("Union
Bank"), Northern Neck State Bank ("Northern Neck Bank"), Rappahannock National
Bank ("Rappahannock Bank") and the Bank of Williamsburg (collectively, the
"Subsidiary Banks") and two non-bank financial services affiliates, Union
Investment Services, Inc. ("Union Investment") and Mortgage Capital Investors,
Inc. ("MCI").
The Company was formed in connection with the July 12, 1993 merger of
Northern Neck Bankshares Corporation with and into Union Bancorp, Inc. On
September 1, 1996, King George State Bank and on July 1, 1998, Rappahannock
National Bank became wholly-owned subsidiaries of the Company. On February 22,
1999, the Bank of Williamsburg began business as a newly organized bank focused
on the Williamsburg market. In June, 1999 King George State Bank was merged
into Union Bank and ceased to be a subsidiary bank.
Each of the Subsidiary Banks 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, and
loans for commercial, industrial, residential mortgage and consumer purposes.
The Subsidiary Banks also issue credit cards and can deliver automated teller
machine services through the use of reciprocally shared ATMs in the MOST, CIRRUS
and PLUS networks.
Union Bankshares Corporation had assets of $822 million, deposits of $647
million, and shareholders' equity of $69 million at December 31, 1999. The
Company serves, through its Subsidiary Banks, the Virginia counties of Caroline,
Hanover, King George, King William, Spotsylvania, Stafford, Richmond,
Westmoreland, Essex, Lancaster, Northumberland, the City of Williamsburg, James
City County and the City of Fredericksburg. Through its Subsidiary Banks, the
Company operated twenty nine branches in its primary trade area at year end.
Union Investment has provided securities brokerage and investment advisory
services since February 1993. It is a full service brokerage company which
offers a full range of investment services, and sells annuities, mutual funds,
bonds and stocks.
1
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On February 22, 1999, the Company opened the Bank of Williamsburg, a full
service bank headquartered in Williamsburg, Virginia. The bank was organized and
chartered under the laws of Virginia in February 1999. On March 20, 2000, the
Bank moved from its temporary location to its headquarters located at 5125 John
Tyler Parkway. The Bank's primary trade area is Williamsburg and surrounding
James City County.
On February 11, 1999, the Company acquired CMK Corporation t/a "Mortgage
Capital Investors," a mortgage loan brokerage company headquartered in
Springfield, Virginia, by merger of CMK Corporation into Mortgage Capital
Investors, Inc., a wholly owned subsidiary of Union Bank. MCI has offices in
Virginia, Maryland, North Carolina, South Carolina, New Jersey and Connecticut.
It provides a variety of mortgage products to customers in those states, as well
as to customers in the service areas of the Subsidiary Banks. The mortgage
loans originated by MCI are generally sold in the secondary market through
purchase agreements with institutional investors. MCI also offers insurance
services to its customers through a joint venture with an insurance agency.
During 1999, Union Mortgage Company, LLC, a mortgage loan brokerage company and
subsidiary of Union Bank, merged with and into MCI.
For additional information on the acquisition on MCI, see the discussion
below on "Acquisition Program - Purchase of Mortgage Capital Investors, Inc."
and Note 1(A) to the Consolidated Financial Statements contained in the
Company's 1999 Annual Report to Shareholders.
The Company has two reportable segments: traditional full service community
banks and a mortgage loan origination business, each as described above. See
Note 17 to the Notes to Consolidated Financial Statements and the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that are included in the Company's 1999 Annual Report to
Shareholders for certain financial and other information about each of the
Company's operating segments.
ACQUISITION PROGRAM
The Company looks to expand its market area and increase its market share
through both internal growth and strategic acquisitions. During 1999, the
Company engaged in the following acquisition transactions:
2
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Opening of the Bank of Williamsburg. On February 22, 1999, the Company
opened the Bank of Williamsburg in temporary headquarters in the Williamsburg
Crossing Shopping Center at 5251 John Tyler Parkway in Williamsburg. On March
20, 2000, Bank of Williamsburg moved to its new headquarters at 5125 John Tyler
Parkway. This full service bank puts the Company in a new market area located in
a rapidly growing region of Virginia.
Purchase of Mortgage Capital Investors. On February 11, 1999, the Company
purchased CMK Corporation t/a "Mortgage Capital Investors" to augment its
mortgage origination business. MCI originates and sells mortgage loans in the
mortgage market and is strategically designed to increase fee income with
limited or no asset quality risk.
COMPETITION
The Company experiences competition in all aspects of its business. 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 has also
increasingly come from out-of-state banks through their acquisitions of
Virginia-based banks. 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.
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 Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). The
Federal Reserve Board has jurisdiction under the BHCA to approve any bank or
non-bank 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 that is so closely related to banking or to managing or controlling
banks as to be a proper incident thereto.
3
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Since September 1995, the BHCA has permitted bank holding companies from
any state to acquire banks and bank holding companies located in any other
state, subject to certain conditions, including nationwide and state imposed
concentration limits. Banks are also able to branch across state lines,
provided certain conditions are met, including that applicable state law must
expressly permit such interstate branching. Virginia has adopted legislation
that permits branching across state lines, 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 Federal Deposit Insurance
Corporation (the "FDIC") insurance funds in the event the depository institution
becomes in danger of default or is 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 ("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.
4
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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
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, 1999 were 11.11% and 12.21%, respectively, exceeding the minimum
requirements.
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, 1999, was 8.35%, 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.
5
<PAGE>
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.
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, OCC for Rappahannock 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.
6
<PAGE>
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 zero (a
minimum of $2,000) to 0.53% 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. In 1999, the
Subsidiary Banks paid $75,316 in deposit insurance premiums.
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.
The Gramm-Leach-Bliley Act of 1999
The Gramm-Leach-Bliley Act of 1999 ("GLBA") was signed into law on November
12, 1999. The main purpose of GLBA is to permit greater affiliations within the
financial services industry, primarily banking, securities and insurance. While
certain portions of GLBA became effective upon enactment and on March 11, 2000,
many other provisions do not become effective until May 2001 and most of the
regulations implementing the law have not yet been issued. As a result, the
overall impact of GLBA on the Company cannot be predicted at this time. The
provisions of GLBA that are believed to be of most significance to the Company
are discussed below.
7
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GLBA repeals sections 20 and 32 of the Glass-Steagall Act, which separated
commercial banking from investment banking, and substantially amends the BHCA,
which limited the ability of bank holding companies to engage in the securities
and insurance businesses. To achieve this purpose, GLBA creates a new type of
company, the "financial holding company." A financial holding company may
engage in or acquire companies that engage in a broad range of financial
services, including
o securities activities such as underwriting, dealing, brokerage,
investment and merchant banking; and
o insurance underwriting, sales and brokerage activities.
A bank holding company may elect to become a financial holding company only if
all of its depository institution subsidiaries are well-capitalized, well-
managed and have at least a satisfactory Community Reinvestment Act rating.
GLBA establishes a system of functional regulation under which the federal
banking agencies will regulate the banking activities of financial holding
companies and banks' financial subsidiaries, the Securities and Exchange
Commission ("SEC") will regulate their securities activities and state insurance
regulators will regulate their insurance activities.
With regard to Federal securities laws, GLBA removes the blanket exemption
for banks from being considered brokers or dealers under the Securities Exchange
Act of 1934, and sets out a number of limited activities, including trust and
fiduciary activities, in which a bank may engage without being considered a
broker, and a set of activities in which a bank may engage without being
considered a dealer. The Investment Advisers Act of 1940 also will be amended
to eliminate certain provisions exempting banks from the registration
requirements of that statute, and the Investment Company Act of 1940 will be
amended to provide the SEC with regulatory authority over various bank mutual
fund activities.
8
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GLBA also provides new protections against the transfer and use by
financial institutions of consumers nonpublic personal information. A financial
institution must provide to its customers, at the beginning of the customer
relationship and annually thereafter, the institution's policies and procedures
regarding the handling of customers' nonpublic personal financial information.
The new privacy provisions will generally prohibit a financial institution from
providing a customer's personal financial information to unaffiliated third
parties unless the institution discloses to the customer that the information
may be so provided and the customer is given the opportunity to opt out of such
disclosure.
At this time, the Company is unable to predict the impact GLBA may have
upon its or its subsidiaries' financial condition or results of operations. The
Company is currently reviewing the new law and at this time has not elected to
be treated as a financial holding company under GLBA.
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 212 N.
Main Street, Bowling Green, Virginia, in a building owned by the Company. The
Company's subsidiaries own or lease various other offices in the counties and
cities in which they operate. 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, 1999.
9
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Locations
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Corporate Headquarters
212 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
10469 Atlee Station Road, Ashland, Virginia
700 Kenmore Avenue, Fredericksburg, Virginia
Route 360, Manquin, Virginia
9534 Chamberlayne Road, Mechanicsville, Virginia
Cambridge & Layhill Road, Falmouth, Virginia
Massaponax Church Road & Route 1, Spotsylvania, Virginia
Brock Road and Route 3, Fredericksburg, Virginia
2811 Fall Hill Avenue, Fredericksburg, Virginia
610 Mechanicsville Turnpike, Mechanicsville, Virginia
10045 Kings Highway, King George, Virginia
840 McKinney Blvd., Colonial Beach, Virginia
Banking Offices - Northern Neck State Bank
5839 Richmond Road, Warsaw, Virginia
4256 Richmond Road, Warsaw, Virginia
Route 3, Kings Highway, Montross, Virginia
Route 17 & Earl Street, Tappahannock, Virginia
1660 Tappahannock Blvd, Tappahannock, Virginia
15043 Northumberland Highway, Burgess, Virginia
284 North Main Street, Kilmarnock, Virginia
876 Main Street, Reedville, Virginia
485 Chesapeake Drive, White Stone, Virginia
Banking Office - Rappahannock National Bank
257 Gay Street, Washington, Virginia
Banking Office - Bank of Williamsburg
5125 John Tyler Parkway, Williamsburg, Virginia
10
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Union Investment Services, Inc.
111 Davis Court, Bowling Green, Virginia
10469 Atlee Station Road, Ashland, Virginia
2811 Fall Hill Avenue, Fredericksburg, Virginia
Mortgage Capital Investors, Inc.
1421 Prince Street #230, Alexandria , Virginia
3012 Mitchellville Road, Bowie, Maryland
5835 Allentown Way, Camp Spring, Maryland
5440 Jeff Davis Highway, #103, Fredericksburg, Virginia
3 Hillcrest Drive #A100, Fredrick, Maryland
7501 Greenway Center, Greenbelt, Maryland
1898 Andell Bluff Boulevard, John's Island, South Carolina
5000 Dearborn Circle, #200, Mount Laurel, New Jersey
7901 N. Ocean Boulevard, Myrtle Beach, South Carolina
6330 Newtown Road, #211, Norfolk, Virginia
15800 Crabbs Branch Way #200, Rockville, Maryland
2600 Post Road, Southport, Connecticut
6571 Edsall Road, Springfield, 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 of the year ended December 31, 1999.
11
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PART II
Item 5. - Market for Registrant's Common Equity and Related Stockholder Matters
This information is incorporated herein by reference from the inside back
cover of the Annual Report to Shareholders for the year ended December 31, 1999.
Item 6. - Selected Financial Data
This information is incorporated herein by reference from the section
captioned "Selected Financial Data" on page 2 in the Annual Report to
Shareholders for the year ended December 31, 1999.
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
With the exception of the information below, the information required
under this item is incorporated herein by reference from the section captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 10 through 20 in the Annual Report to Shareholders for the
year ended December 31, 1999.
LOAN PORTFOLIO
The following table gives detail of the maturities as of December 31,
1999.
Remaining Maturities of Selected Loans
December 31, 1999
------------------------------
Commercial Real Estate
Construction
------------------------------
Within 1 year $38,850 $26,888
Variable Rate:
1 to 5 years
After 5 years
------- -------
Total - -
Fixed Rate:
1 to 5 years 22,697 4,987
After 5 years 6,102 1,343
------- -------
Total 28,799 6,330
------- -------
Total $67,649 $33,218
maturities
12
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ASSET QUALITY - ALLOWANCE/PROVISION FOR LOAN LOSS
Union Bankshares maintains a general allowance for loan loss and does not
allocate its allowance for loan losses to individual categories for management
purposes. The table below shows an allocation among loan categories based upon
analysis of the loan portfolio's composition, historical loan loss experience,
and other factors and the ratio of the related outstanding loan balances to
total loans.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------------------------------------------
Allowance Percent Allowance Percent Allowance Percent Allowance Percent Allowance Percent
of Loans of Loans of Loans of Loans of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Loans Loans Loans Loans Loans
-----------------------------------------------------------------------------------------------------------------
December 31: (Dollars
in
thousands)
<S> <C>
Commercial,
financial and
agriculture $3,215 13.0% $3,382 13.4% $2,433 11.8% $2,338 11.4% $2,167 12.0%
Real Estate
Construction 1,511 6.1% 2,007 7.9% 1,299 7.1% 1,249 3.9% 1,157 5.3%
Real estate
mortgage 264 59.7% 189 60.3% 166 61.1% 160 62.2% 148 60.2%
Consumer &
other 1,627 21.2% 829 18.4% 900 20.0% 865 22.5% 802 22.5%
----- ------ ----- ------ ----- ----- ----- ----- ----- -----
$6,617 100.0% $6,407 100.0% $4,798 100.0% $4,612 100.0% $4,274 100.0%
</TABLE>
Item 7A. - Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's primary market risk is interest rate risk. The main
objective of interest rate risk management is to avoid large fluctuations in net
interest income from changes in interest rates on interest-sensitive assets and
interest-sensitive liabilities. The Asset/Liability Management Committee of the
Company ("ALCO") is responsible for monitoring and limiting exposure to interest
rate risk. Management uses balance sheet repositioning as a tool to manage
interest rate risk. This is accomplished through pricing of asset and liability
accounts. The expected result of pricing is the development of appropriate
maturity and repricing opportunities in those accounts to produce consistent net
interest income during changing interest rate environments. The ALCO also sets
policy guidelines and establishes strategies with respect to interest rate
exposures. The ALCO meets quarterly to review the Company's interest rate
exposure in relation to present and prospective market and business conditions,
and reviews balance sheet management strategies intended to ensure the potential
impact of changes in interest rates on earnings is within acceptable standards.
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The Company uses three methods to measure interest rate risk; static gap
analysis, earnings simulation analysis and market value simulation analysis.
Static Gap Analysis
Gap analysis measures the amount of repricing risk in the balance sheet. It
does this by taking the difference between the amount of rate sensitive assets
and rate sensitive liabilities which reprice within a specified time period.
This is the least reliable measurement of interest rate risk because it only
measures rate sensitive assets minus rate sensitive liabilities at one point in
time. It does not reflect the different degrees of rate sensitivity each asset
and liability account has. An example of this: If prime rate changes by 100
bps, the interest rate change on a money market account might be 25 bps and that
of a certificate of deposit might be 75 bps. The best information obtained from
a gap report is the amount of assets or liabilities which can be repriced at any
one point in the future, not the degree of rate sensitivity.
The following table shows the Company's gap report over the next five
years. To reflect anticipated prepayments, mortgage backed securities are
included in the table based on estimated rather than contractual maturity dates.
14
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<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS
(dollars in thousands)
December 31, 1999 (1)
Within 90-365 1-5 Over 5
90 Days Days Years Years Total
---- ---- ----- ------- ------
<S> <C>
Earning Assets:
- ---------------------------------
Loans, net of unearned income (2) $ 98,937 $ 33,904 $ 246,399 $162,640 $541,880
Investment securities 615 3,844 3,452 1,667 9,578
Securities available for sale 911 8,340 69,885 122,585 201,721
Other short-term investments 1,115 - - - 1,115
Total Earning Assets 101,578 46,088 319,736 286,892 754,294
====================================================================================
Interest-Bearing
- ----------------
Liabilities:
- ------------
Interest checking (3) - - 95,882 - 95,882
Regular savings (3) - - 58,209 - 58,209
Money market savings - 63,249 - - 63,249
Certificates of deposit:
$100,000 and over 29,335 61,680 16,639 - 107,654
Under $100,000 48,924 122,876 70,795 229 242,824
Short-term borrowings 39,159 - - - 39,159
Long-term borrowings 5,320 75 34,025 15,000 54,420
------------------------------------------------------------------------------------
Total Interest-Bearing
Liabilities 122,738 247,880 275,550 15,229 661,397
------------------------------------------------------------------------------------
Period Gap (21,160) (201,792) 44,186 271,663
Cumulative Gap $(21,160) $(222,952) $(178,766) $ 92,897 $ 92,897
====================================================================================
Ratio of cumulative gap to total
earning assets (2.81)% (29.56)% (23.70)% 12.32%
====================================================================================
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) Excludes non-accrual loans
(3) The Company has determined that interest-bearing checking deposits and
regular savings deposits are not sensitive to changes in related market rates
and therefore, it has placed them in the "1-5 Years" column.
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.
15
<PAGE>
Assumptions used in the model rates are derived from historical trends
and management's outlook and include loan and deposit growth rates and projected
yields and rates. 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 reflected in the different rate scenarios.
The following table represents the interest rate sensitivity on net
interest income for the Company using different rate scenarios:
% Change in
Change in Prime Rate Net Interest Income
-------------------- -------------------
+200 basis points -9.02%
Flat 0
-200 basis points +11.33%
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 larger term repricing risk in the balance sheet. The same assumptions are
used in the market value simulation as in the earnings simulation.
16
<PAGE>
The following chart reflects the change in net market value over different
rate environments:
Change in Net Market Value
Change in Prime Rate (dollars in thousands)
-------------------- ----------------------
+200 basis points $-47,781
+100 basis points -31,932
Flat -16,911
-100 basis points 550
-200 basis points 15,970
Item 8. - Financial Statements and Supplementary Data
This information is incorporated herein by reference from the
Consolidated Financial Statements on pages 21 through 40 and the Quarterly
Earnings Summary on page 7 of the Annual Report to Shareholders for the year
ended December 31, 1999.
Item 9. - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
See Part IV, Item 14(b) of this report for information about the Company's
change in its independent public accountants, which was previously reported.
On October 20, 1999, the Company engaged Cherry, Bekaert & Holland, LLP as
independent accountants to audit MCI's year ended December 31, 1999.
17
<PAGE>
PART III
Item 10. - Directors and Executive Officers of the Registrant
This information, as applicable to directors, is incorporated herein by
reference from pages 2 and 3 of the Proxy Statement for the Annual Meeting of
Shareholders to be held April 18, 2000 ("Proxy Statement") from the section
titled "Election of Directors." Executive officers of the Company are listed
below:
Title and Principal Occupation
-------------------------------
Name (Age) During Past Five Years
- ---------- ----------------------
G. William Beale (50) President and Chief Executive Officer of the
Company since its inception;
President of Union Bank since 1991.
D. Anthony Peay (40) Vice President and Chief Financial Officer of the
Company since December 1994.
John C. Neal (50) Executive Vice President - Union Bank since 1991
and Chief Operating Officer - Union Bank since
August 1998.
Myles W. H. Gaythwaite (55) Vice President - Sales and Marketing since
September 1997. During 1995 to September 1997,
self-employed executive consultant. During 1994
and 1995, Executive Vice President, Centura
Securities, Inc., and Senior Vice President,
Centura Insurance Services, Inc., wholly owned
subsidiaries of Centura Bank, Inc., Rocky Mount,
North Carolina.
David S. Wilson (58) Senior Vice President - Operations and Technology
since January 1999. Vice President - Information
Technology Bank of Hudson, Poughkeepsie, N.Y.,
from January 1987 to January 1999.
Information on Section 16(a) beneficial ownership reporting compliance for the
directors and executive officers of the Company is incorporated herein by
reference from page 12 of the Proxy Statement from the section titled "Section
16(a) Beneficial Ownership Reporting Compliance."
18
<PAGE>
Item 11. - Executive Compensation
This information is incorporated herein by reference from pages 4 through
11 of the Proxy Statement from the sections titled "Election of Directors--
Directors' Fees" and "Executive Compensation."
Item 12. - Security Ownership of Certain Beneficial Owners and
Management
This information is incorporated herein by reference from page 4 of the
Proxy Statement from section titled "Ownership of Company Common Stock."
Item 13. - Certain Relationships and Related Transactions
This information is incorporated herein by reference from pages 11-12 of
the Proxy Statement from the section titled "Interest of Directors and Officers
in Certain Transactions."
19
<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:
(a) (1) Financial Statements
The following documents are included in the 1999 Annual Report to
Shareholders and 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
Note: The independent auditors' report for the year ended December 31,
1998 is included in this report as Exhibit 99.0
(a) (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.
(a)(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)
10.1 Change in Control Employment Agreement of G. William Beale
(incorporated by reference to the registrant's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.2 Employment Agreement of G. William Beale
11.0 Statement re Computation of Per Share Earnings (incorporated by
reference to note 12 of the notes to consolidated financial
statements included in the 1999 Annual Report to Shareholders)
13.0 1999 Annual Report to Shareholders
21.0 Subsidiaries of the Registrant
23.1 Consent of Yount, Hyde & Barbour, P.C.
23.2 Consent of KPMG LLP
27.0 Financial Data Schedule
99.0 Report of KPMG LLP, as the Registrant's independent public
accountant for the year ended December 31, 1998.
20
<PAGE>
(b) Reports on Form 8-K
On October 4, 1999, the Company filed a Current Report on Form 8-K dated
September 27, 1999, disclosing in Item 4 of the report a change in the
Company's independent public accountants. The Company filed an amendment to
the Form 8-K on October 14, 1999. No financial statements were included in
either of the filings.
21
<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 report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Union Bankshares Corporation
By: / s/ G. William Beale Date: March 30, 2000
------------------------------ President and Chief Executive Officer
G. William Beale
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 30, 2000.
Signature Title
--------- -----
/ s/ G. William Beale President, Chief Executive Officer and
----------------------------- Director
G. William Beale
/ s/ D. Anthony Peay Vice President and Chief Financial
---------------------------- Officer
D. Anthony Peay
/s/ Ronald L. Hicks Chairman of the Board of Directors
-----------------------------
Ronald L. Hicks
/ s/ Charles H. Ryland Vice Chairman of the Board of Directors
--------------------------
Charles H. Ryland
/ s/ W. Tayloe Murphy, Jr. Director
- ---------------------------
W. Tayloe Murphy, Jr.
/s/ Walton Mahon Director
-----------------------------
Walton Mahon
/s/ M. Raymond Piland, III Director
--------------------------
M. Raymond Piland, III
/s/ A.D. Whittaker Director
--------------------------
A.D. Whittaker
22
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of April 1999,
by and between Union Bankshares Corporation, a Virginia corporation (the
"Company"), and G. William Beale (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed, and currently is
rendering services to the Company as President and Chief Executive Officer;
WHEREAS, the Company considers the continued availability of the
Executive's services to be important to the management and conduct of the
Company's business and desires to secure for it the continued availability of
the Executive's services; and
WHEREAS, the Executive is willing to make his services available to the
Company on the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. Employment. Executive shall be employed as President and Chief
Executive Officer of Company. The Executive shall have such duties and
responsibilities as are commensurate with such positions and shall also render
such other services and duties as may be reasonably assigned to him from time to
time by the Company, consistent with his positions as President and Chief
Executive Officer of the Company. The Executive hereby accepts and agrees to
such employment.
2. Term of Employment. This Agreement is effective April 1, 1999 (the
"Commencement Date") and will continue for a two year term to expire on March
31, 2001; provided that beginning on April 1, 2001 and on each April 1st
thereafter (each such April 1st is referred to as the "Renewal Date"), the term
of this Agreement will be automatically extended for an additional year from
such Renewal Date. This Agreement will not, however, be extended if the Company
gives written notice to the Executive of its intent not to renew at least twelve
months in advance of a Renewal Date. The last day of such term as so extended
from time to time is herein sometimes referred to as the "Expiration Date."
3. Compensation and Benefits.
(a) Base Salary. The Company shall pay the Executive an annual base salary
of $170,000 subject to adjustment as provided below (the "Base Salary"), which
will be payable in accordance with the payroll practices of the Company
applicable to all officers. The Base Salary will be reviewed annually by the
Board of Directors and may be adjusted upward or downward in the sole discretion
of the Board of Directors. In no event, however, will the Base Salary be less
than $170,000.
<PAGE>
(b) Annual Bonus. During the term of this Agreement, the Executive may be
entitled to receive annual cash bonus payments in such amounts and at such times
as may be determined by the Board of Directors of the Company.
(c) Benefits. During the term of the Agreement, Executive shall be
entitled to participate in and receive the benefits of any pension or other
retirement benefit plan, profit sharing, stock option, employee stock ownership,
or other plans, benefits and privileges given to employees and executives of the
Company, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors of the Company.
(d) Business Expenses. The Company shall reimburse Executive or otherwise
provide for or pay for all reasonable expenses incurred by Executive in
furtherance of, or in connection with the business of the Company, including,
but not by way of limitation, travel expenses car allowance, and memberships in
professional organizations, subject to such reasonable documentation and other
limitations as may be established by the Board of Directors of the Company.
(e) Vacation. The Executive shall be entitled to such number of weeks of
vacation per year as shall be established by the Board of Directors of the
Company, as modified from time to time, to be taken at such times and intervals
as shall be determined by the Executive with the approval of the Company, which
approval shall not be unreasonably withheld.
4. Termination and Termination Benefits.
Notwithstanding the provisions of Section 2, the Executive's employment
hereunder shall terminate under the following circumstances and shall be subject
to the following provisions:
(a) Death. In the event of the Executive's death during the Executive's
employment hereunder, the Executive's employment shall terminate on the date of
his death; provided, however, that the Company shall continue to pay an amount
equal to the Executive's Base Salary to the Executive's beneficiary designated
in writing to the Company prior to his death (or to his estate, if he fails to
make such designation) for six (6) months after the date of the Executive's
death, at the Base Salary rate in effect on the date of his death, said payments
to be made on the same periodic dates as salary payments would have been made to
the Executive had he not died.
(b) Disability. The Executive's employment hereunder may be terminated at
any time because of the Executive's inability to perform his duties with the
Company on a full time basis for 180 consecutive days or a total of at least 240
days in any twelve month period as a result of the Executive's incapacity due to
physical or mental illness (as determined by an independent physician selected
by the Board); provided, however, that the Company shall provide continued
medical insurance in the Company's health plan for the benefit of the Executive
for a period of twelve (12) months after the date of such termination.
2
<PAGE>
(c) Termination by the Company for Cause. The Executive's employment may be
terminated at any time without further liability on the part of the Company
effective immediately by a two-thirds vote of the Board of Directors of the
Company for Cause by written notice to the Executive setting forth in reasonable
detail the nature of such Cause. Only the following shall constitute "Cause" for
such termination:
(i) continued failure by the Executive for reasons other than
disability to follow reasonable instructions or policies of the Board of
Directors of the Company after being advised in writing of such failure,
including specific actions or inaction on the part of the Executive and the
particular instruction or policy involved, and being given a reasonable
opportunity and period (as determined by the Board of Directors of the Company)
to remedy such failure;
(ii) gross incompetence, gross negligence, willful misconduct in
office or breach of a material fiduciary duty owed to the Company or any
subsidiary or affiliate thereof;
(iii) conviction of a felony or a crime of moral turpitude (or a plea
of nolo contendere thereto) or commission of an act of embezzlement or fraud
against the Company or any subsidiary or affiliate thereof;
(iv) any breach by the Executive of a material term of this Agreement,
including without limitation material failure to perform a substantial portion
of his duties and responsibilities hereunder as established from time to time by
the Board of Directors of the Company;
(v) dishonesty of the Executive with respect to the Company or any
subsidiary or affiliate thereof; or
(vi) the willful engaging by the Executive in conduct that is
demonstrably and materially injurious to the Company, monetarily or otherwise,
or any conduct deemed by the Board of Directors of the Company to be immoral or
which may bring embarrassment or disrepute to the Company, its good name or
status.
(d) Termination by the Company without Cause. The Executive's employment
may be terminated without Cause by a two-thirds vote of the Board of Directors
of the Company effective immediately by written notice to the Executive. In the
event of termination without Cause, the Executive shall be entitled to the
benefits specified in Section 4(f).
3
<PAGE>
(e) Termination by the Executive. The Executive may terminate his
employment hereunder with or without Good Reason (as defined below) by written
notice to the Board of Directors of the Company effective 30 days after receipt
of such notice by the Board of Directors. In the event the Executive terminates
his employment hereunder for Good Reason, the Executive shall be entitled to the
benefits specified in Section 4(f). The Executive shall not be required to
render any further services to the Company. Upon termination of employment by
the Executive without Good Reason, the Executive shall be entitled to no further
compensation or benefits under this Agreement. "Good Reason" shall be (i) the
failure by the Company to comply with the provisions of Section 3 or material
breach by the Company of any other provision of this Agreement, which failure or
breach shall continue for more than 30 days after the date on which the Board of
Directors of the Company receives such notice, (ii) the assignment of the
Executive without his consent to a position, responsibilities, or duties of a
materially lesser status or degree of responsibility than his position,
responsibilities, or duties at the Commencement Date other than as a direct
result of the change in control of the Company (which is otherwise addressed
herein), or (iii) the requirement by the Company that the Executive be based at
any office that is greater than 50 miles from where the Executive's office is
located at the Commencement Date.
(f) Certain Termination Benefits. In the event of termination by the
Company without Cause and other than for death or disability, or by the
Executive with Good Reason, the Executive shall be entitled to the following
benefits:
(i) For the period subsequent to the date of termination until the
Expiration Date, the Company shall continue to pay the Executive a Base Salary
(not including any bonus other than any unpaid bonus relating to a fiscal year
of the Company completed prior to the date of termination) at the rate
in effect
on the date of termination, such payments to be made on the same periodic dates
as salary payments would have been made to the Executive had he not been
terminated.
(ii) For the period subsequent to the date of termination until the
Expiration Date, the Executive shall continue to receive medical and life
insurance benefits pursuant to plans made available by the Company to its
employees at the expense of the Company to substantially the same extent the
Executive received such benefits on the date of termination (it being
acknowledged that the post-termination plans may be different from the plans in
effect on the date of termination). For purposes of application of such
benefits, the Executive shall be treated as if he had remained in the employ of
the Company, with a Base Salary at the rate in effect on the date of
termination.
(iii) The Company's obligation to pay the Base Salary to the Executive
pursuant to subsection 4(f)(i) above shall terminate thirty (30) days after the
Executive obtains full-time employment with another employer that offers an
annualized base salary that is at least equal to 75% of the Base Salary being
paid by the Company.
4
<PAGE>
(iv) The Company's obligation to provide the Executive with medical
and insurance benefits pursuant to subsection 4(f)(ii) hereof shall terminate in
the event the Executive becomes employed and has insurance made available to him
in connection with such employment.
5. Change in Control of the Company. This Agreement will terminate in the
event there is a change in control of the Company, and the Change in Control
Agreement, dated October 22, 1996 and as it may hereafter be amended, between
the Company and the Executive will become effective and any termination benefits
will be determined and paid solely pursuant to such Change in Control Agreement.
6. Mitigation; Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of any
benefits hereunder by seeking other employment or otherwise.
(b) The specific arrangements referred to herein are not intended to
exclude any other benefits which may be available to the Executive upon a
termination of employment with the Company pursuant to employee benefit plans of
the Company or otherwise.
7. Withholding. All payments required to be made by the Company hereunder
to the Executive shall be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as the Company may reasonably
determine should be withheld pursuant to any applicable law or regulation.
8. Assignability. The Company may assign this Agreement and its rights and
obligations hereunder in whole, but not in part, to any corporation, company or
other entity with or into which the Company may hereafter merge or consolidate
or to which the Company may transfer all or substantially all of their assets,
if in any such case said corporation, company or other entity shall by operation
of law or expressly in writing assume all obligations of the Company hereunder
as fully as if it had been originally made a party hereto, to the extent that
any such transaction does not trigger the operation of Section 5 above. The
Executive may not assign or transfer this Agreement or any rights or obligations
hereunder.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below:
To the Company: Chairman of the Board
Union Bankshares Corporation
P. O. Box 446
211 North Main Street
Bowling Green, Virginia 22427
And at the Chairman's home address as shown on the
records of the Company.
5
<PAGE>
To the Executive: G. William Beale
16534 Tinder Drive
Woodford, Virginia 22580
10. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer or officers as may be
specifically designated by the Boards of Directors of the Company to sign on
their behalf. No waiver by any party hereto at any time of any breach by any
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
11. Entire Agreement. This Agreement, together with the Change in Control
Employment Agreement, dated October 22, 1996 and as it may hereafter be amended,
entered into between the parties hereto, constitutes the entire agreement
between the parties with respect to the subject matter hereof and no agreements
or representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement or in the Change in Control Employment Agreement. For
purposes of this Agreement, the term "Company" includes any subsidiaries of the
Company
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
13. Nature of Obligations. Nothing contained herein shall create or require
the Company to create a trust of any kind to fund any benefits which may be
payable hereunder, and to the extent that the Executive acquires a right to
receive benefits from the Company hereunder, such right shall be no greater than
the right of any unsecured general creditor of the Company.
14. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
6
<PAGE>
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date first
above written.
UNION BANKSHARES CORPORATION
By: /s/ Ronald L. Hicks
---------------------------
Ronald L. Hicks
Chairman of the Board
EXECUTIVE
/s / G. William Beale
------------------------------
G. William Beale
7
<PAGE>
[LOGO]
UNION BANKDAHARES CORPORATION
A UNION OF COMMUNITY BANKS
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
- --------------------------------------------------------------------------------
BANK OF WILLIAMSBURG . JOHNELLA P. CARTER . JOHN M. JOHNSON . TINA O. LESTER .
ALISON MATTOX . MARIE STONE . MORTGAGE CAPITAL INVESTORS . TOBA ABDOLLAHZADEH .
PATRICIA A. ADOLPH . KRISTA M. ALEXANDER . JOSEPH A. ANDAHAZY . FLORENCE C.
ARMSTRONG . ANGELA M. ATKINSON . CRYSTAL A. AYERS . GAIL E. BAKICH . MICHAEL
BARNES . LAURA R. BATCH . MEREDITH R. BATES . VALERIE BEEBE . PATRICE BENTON .
BETH ANNE BITTLE . LYNN P. BLATT . JOANN W. BRAVO . BARBARA A. BREEN . CYTHIA
BROCKMAN . PATRICIA L. BRODERICK . BONNIE B. BURNS . JANEEN S. CARD . GAIL J.
CARR . BARBARA J. CARTER . LORRIE CHILTON . WILLIAM CHRISTOPHER . SHIELA F.
CIANCIO . DARCY J. COLES . BERNARD J. CONNOLLY, JR. . DEBRA B. CURWEN . LINDA L.
CUSICK . SANDRA E. DARRACOTT . TAMMY L. DAVIDSON . LAWRENCE E. DERX . THOMAS P.
DI DONATO . JEANNE DI DONATO . SANDY DIXON . JOHN DORSEY, III . CHRISTINE DOWELL
. MARCUS E. EINSTEIN . MARLENE EINSTEIN . THOMAS D. ELDER, JR. . THOMAS L.
FONTAINE . CECILIA A. FRAZIER . ROBERT D. FULGHUM . DORSEY R. GALFORD, JR. .
REENA S. GARRETT . IRIS M. GAUTIER . SHAWN C. GAVIN . CHRISTOPHER B. GINTER .
BEVERLY GIRUC . BARBARA A. GOLDENBERG . RICHARD A. GOODMAN . DARNELL R. GRAY .
KIMBERLY D. HARVEY . KIM M. HEYING . JACQUELINE A. HODGES . BOND L. HOLFORD .
CONNIE IOANOU . DANIEL G. JAY . TONI H. JONES . KEVIN P. KEEGAN . ELIZABETH A.
KEENAN . MARY JO KELLEY . STACEY L. KERRIGAN . ROLLAND D. KILLE . FRAN KOPLOW .
FLOSSIE LANCASTER . JEAN P. LIBER . JONI Z. LOVING . BRENTON A. McCALLUM .
CLAUDETTE C. McCLUNEY . JANE M. McQUILKIN . RICHARD C. MEEKINS . JOAN M. MILLER
. GARY M. MILLS . BRENT D. MOLOVINSKY . SARA J. MONTES . DARNELLA J. MORGAN .
KIMBERLEIGH MURRAY . JOHN A. O'BRIEN . BRIAN T. O'REILLY . LEONARD J. OSLAR .
EDGAR PACORI . LOUIS M. PELL . EVE H. PENDLETON . REBECCA L. PETERS . PAUL J.
PHELPS . JEFFERSON D. PHELPS, III . SHARON A. POWERS . BRADFORD PRATT .
ELIZABETH ANN PRITCHARD . DANIEL M. PUTNEY . TERRI H. QUINN . LAURA H. RAJABI .
BRENDA S. RAY-STRAIN . ADAM REPASY . LYNN REPASY . ROBERT RESH . PHAN W.
ROBINSON . RAYMOND I. J. ROMANICK . EARNEST A. SAHADY . PATRICIA SCHURTZ .
ROBERT F. SELDON . BRENDA SISSON . JACOB SISSON . ELIZABETH J. SMALLING .
PATRICIA A. SMITH . JENNIFER L. SNYDER . EDWARD SOMA . RAY L. STEIN . JEANNE
STEVENS . MICHAEL E. STOLL . ERIC D. THOMAS . DAVID M. THOMPSON . CAROL TOMASI .
LESLIE A. VALENTINE . BONNIE G. VICK . JILL A. WAGNER . R. SCOTT WALLACE . DAVIN
J. WILLIFORD . GRANT WING . LISA WITKOWSKI . BETTY L. WRIGHT . NORTHERN NECK
STATE BANK . ROBIN S. ABERCROMBIE . LINDA H. ASHTON . LASHAY S. BALL . NANCY E.
BAUGHAN . MARY ANNETTE BOWLES . MARY L. BOWLES . ANGELA C. BRANN . SHIRLEY T.
BROOKS . RUSSELL G. BROWN . BARBARA H. BRYANT . JANET L. CARPENTER . HOLLY D.
CARTER . MANLEY L. CHADWICK . TERRY J. CLARK . BRENDA H. CONLEY . THELMA
COURTNEY . CYNTHIA E. DAIGER . SHANNON R. DAVIS . BETTY T. DELANO . ALICE V. DIX
. WILLIAM A. ESTELL, JR. . BROOK H. EZZELL . ELIZABETH FORREST FRANKLIN . APRIL
F. GASKINS . TERESA A. GILL . LAURA L. GORDON . KATHRYN P. GOULDTHORPE . GREGORY
A. GRUNER . DORIS C. HALL . LILLIAN S. HAMBLIN . CRISTAL F. HARPER . WILLIAM E.
HARRISON . SANDRA D. HAYWOOD . LINDA L. HIXON . SUE W. JETT . WENDY R. JONES .
JOSEPHINE F. KING . EDITH FAYE LANGE . BARBARA W. LAWSON . ANGELIA D. LEE .
DONNA G. LEWIS . GENEVA B. LOWERY . GLENN A. MORSE . E. PEYTON MOTLEY . LINDA V.
MURRAY . N. BYRD NEWTON . DARLENE F. O'BIER . SANDRA K. O'BIER . C. WAYNE PENICK
. SUSIE B. PRESCOTT . CHERYL REAMY . MACEL F. ROBINSON . JULIE H. ROGERS .
MARION B. ROWE . APRIL R. SANDERS . NANCY A. SANDERS . CAROLYN SANDERS-SMITH .
PEGGY S. SANFORD . DEBRA B. SCOTT . MELESSIA F. SELF . PATRICIA P. SETTLE .
GLORIA B. SMITH . AMY TAYLOR . MARION W. THOMPSON . SANDRA M. VENEY . BRIDGETT
B. WILLIAMS . RAPPAHANNOCK NATIONAL BANK . GEORGIA A. GILPIN . PATRICIA A.
GRIGSBY . BETTY L. JEWELL . MICHAEL T. LEAKE . W. F. MOFFETT, III . HELEN I.
SEALOCK . SHERRY JO SHAW . UNION BANK & TRUST COMPANY . HELEN M. ACORS .
MARGARET ATKINS . ROBERT K. BAILEY, III . AMANDA C. BARLOW . VALERIE BENNETT
<PAGE>
- --------------------------------------------------------------------------------
. BANK OF WILLIAMSBURG . JOHNELLA P. CARTER . JOHN M. JOHNSON . TINA O. LESTER .
ALISON MATTOX . MARIE STONE . MORTGAGE CAPITAL INVESTORS . TOBA ABDOLLAHZADEH .
PATRICIA A. ADOLPH . KRISTA M. ALEXANDER . JOSEPH A. ANDAHAZY . FLORENCE C.
ARMSTRONG . ANGELA M. ATKINSON . CRYSTAL A.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
UNION BANK & TRUST COMPANY
- --------------------------
ASHLAND
U.S. Route 1 & Ashcake Road
Ashland, Virginia 23005
(804) 798-4488
ATLEE
10469 Atlee Station Road
Ashland, Virginia 23005
(804) 550-2300
BOWLING GREEN
211 North Main Street
Bowling Green, Virginia 22427
(804) 633-5031
BROCK ROAD
Brock Road and Route 3
Spotsylvania, Virginia 22553
(540) 972-2958
CHANCELLOR
4210 Plank Road
Fredericksburg, Virginia 22407
(540) 786-2265
COLONIAL BEACH
840 McKinney Blvd.
Colonial Beach,VA 22443
(804) 224-0101
FALL HILL
2811 Fall Hill Avenue
Fredericksburg, Virginia 22401
(540) 372-7760
FALMOUTH
Cambridge & Layhill Road
Falmouth, Virginia 22405
(540) 374-1300
FOUR MILE FORK
4540 Lafayette Boulevard
Fredericksburg, Virginia 22408
(540) 898-5100
HANOVER COMMONS
9534 Chamberlayne Road
Mechanicsville, Virginia 23111
(804) 730-1700
KENMORE AVENUE
700 Kenmore Avenue
Fredericksburg, Virginia 22401
(540) 371-0108
KING GEORGE
10045 Kings Highway
King George, VA 22485
(540) 775-9300
LADYSMITH
U.S. Route 1
Ladysmith, Virginia 22501
(804) 448-3100
LEAVELLS
10415 Courthouse Road
Spotsylvania, Virginia 22553
(540) 898-2700
PORT ROYAL
U.S. Route 301
Port Royal, Virginia 22535
(804) 742-5546
MANQUIN
U.S. Route 360
Manquin, Virginia 23106
(804) 769-3031
MASSAPONAX
Massaponax Church Road &
U.S. Route 1
Fredericksburg, Virginia 22407
(540) 891-0300
MECHANICSVILLE
610 Mechanicsville Turnpike
Mechanicsville, Virginia 23116
(804) 730-7055
NORTHERN NECK STATE BANK
- ------------------------
BURGESS
15043 Northumberland Highway
Burgess, VA 22432
(804) 453-4181
KILMARNOCK
284 North Main Street
Kilmarnock, VA 22842
(804) 435-2681
MONTROSS
Rt. 3, Kings Hwy.
Montross, VA 22520
(804) 493-9301
REEDVILLE
876 Main Street
Reedville, VA 22539
(804) 453-4151
TAPPAHANNOCK
U.S. Rt. 17 & Earl Street
Tappahannock, VA 22560
(804) 443-4361
WAL*MART IN TAPPAHANNOCK
1660 Tappahannock Blvd.
Tappahannock, VA 22560
(804) 443-9433
WARSAW - MAIN OFFICE
5839 Richmond Road
Warsaw, VA 22572
(804) 333-4066
WARSAW - TIME SQUARE
4256 Richmond Road
Warsaw, VA 22572
(804) 333-3019
WHITE STONE
485 Chesapeake Drive
White Stone, VA 22578
(804) 435-1626
UNION INVESTMENT SERVICES
- -------------------------
ATLEE
(804) 550-7209
BOWLING GREEN
(800) 546-5031
FALL HILL
(540) 371-1000
MORTGAGE CAPITAL INVESTORS
- --------------------------
ALEXANDRIA, VA
BOWIE, MD
CAMP SPRINGS, MD
FREDERICKSBURG, VA
FREDERICK, MD
GREENBELT, MD
JOHN'S ISLAND, SC
MT. LAUREL, NJ
MYRTLE BEACH, SC
NORFOLK, VA
ROCKVILLE, MD
SOUTHPORT, CT
SPRINGFIELD, VA
BANK OF WILLIAMSBURG
- --------------------
5125 John Tyler Parkway
Williamsburg, Virginia 23187
(804) 229-5448
RAPPAHANNOCK NATIONAL BANK
- --------------------------
257 Gay Street
Washington, Virginia 22747
(540) 675-3519
On January 29, 2000, we lost a dear [PHOTO]
friend and colleague,
E. Peyton Motley, after a 6 month battle
with cancer.
Peyton was a leader within our
organization and in the community... he
was the community's banker. He was a
devoted husband and father, committed
<PAGE>
- --------------------------------------------------------------------------------
AYERS . GAIL E. BAKICH . MICHAEL BARNES . LAURA R. BATCH . MEREDITH R. BATES o
VALERIE BEEBE . PATRICE BENTON . BETH ANNE BITTLE . LYNN P. BLATT . JOANN W.
BRAVO . BARBARA A. BREEN . CYTHIA BROCKMAN . PATRICIA L. BRODERICK . BONNIE B.
BURNS . JANEEN S. CARD . GAIL J. CARR . BARBARA J.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
BUSINESS PROFILE
Union Bankshares Corporation is a multi-bank holding company committed to the
delivery of financial services through affiliated independent community banks
and other financial services companies. The Company serves the Central and
Northern Neck regions of Virginia through its four banking subsidiaries, Union
Bank & Trust Company, Northern Neck State Bank, Rappahannock National Bank and
Bank of Williamsburg and its non-bank companies, Union Investment Services and
Mortgage Capital Investors. The banking subsidiaries are 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. Each is also independently operated by local
management and boards of directors enabling them to be responsive to the needs
of their communities.
Through its 18 locations, Union Bank & Trust Company serves customers in a
primary service area which extends from its headquarters in Bowling Green along
the I-95 corridor from greater Fredericksburg to central Hanover County and east
to King William County. Northern Neck State Bank serves the Northern Neck and
Middle Peninsula regions through nine locations spanning the Northern Neck.
Rappahannock National serves the community surrounding Washington, Virginia. The
Bank of Williamsburg in its new location at 5125 John Tyler Parkway serves the
greater Williamsburg region.
Union Investment Services is a full-service brokerage firm providing a wide
variety of investment choices to customers throughout the Company's service
area. Mortgage Capital Investors offers a full array of mortgage products to
residents of our markets through its 13 origination offices. In addition, it
offers insurance products through a joint venture, Union Insurance Group, L.L.C.
As of December 31, 1999, Union Bankshares Corporation and subsidiaries had 439
employees, 2,258 shareholders of record, and assets totaling $822 million.
MISSION STATEMENT
"The primary mission of Union Bankshares Corporation and its subsidiaries is to
enhance shareholder value by remaining a strong, independent financial services
organization, providing exemplary customer service, a rewarding work environment
for its employees and a growing return for its shareholders."
1
<PAGE>
- --------------------------------------------------------------------------------
CARTER . LORRIE CHILTON . WILLIAM CHRISTOPHER . SHIELA F. CIANCIO . DARCY J.
COLES . BERNARD J. CONNOLLY, JR. . DEBRA B. CURWEN . LINDA L. CUSICK . SANDRA E.
DARRACOTT . TAMMY L. DAVIDSON . LAWRENCE E. DERX . THOMAS P. DI DONATO . JEANNE
DI DONATO . SANDY DIXON . JOHN DORSEY, III .
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- --------- ---------- ----------
RESULTS OF OPERATIONS (dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Interest income $ 55,636 $ 51,062 $ 44,821 $ 42,068 $ 39,154
Interest expense 27,067 24,463 21,057 19,650 18,155
---------- ---------- --------- ---------- ----------
Net interest income 28,569 26,599 23,764 22,418 20,999
Provision for loan losses 2,216 3,044 1,182 895 977
---------- ---------- --------- ---------- ----------
Net interest income after provision
for loan losses 26,353 23,555 22,582 21,523 20,022
Noninterest income 13,246 5,567 4,495 3,572 2,763
Noninterest expenses 32,689 20,622 16,628 14,982 13,551
---------- ---------- --------- ---------- ----------
Income before income taxes 6,910 8,500 10,449 10,113 9,234
Income tax expense 636 1,678 2,283 2,374 2,192
---------- ---------- --------- ---------- ----------
Net income $ 6,274 $ 6,822 $ 8,166 $ 7,739 $ 7,042
========== ========== ========= ========== =========
KEY PERFORMANCE RATIOS
Return on average assets (ROA) 0.79% 1.00% 1.41% 1.38% 1.34%
Return on average equity (ROE) 8.74% 9.58% 12.80% 12.62% 12.50%
Efficiency ratio 74.50% 61.24% 56.20% 54.06% 52.77%
PER SHARE DATA
Net income per share - basic $ 0.84 $ 0.91 $ 1.10 $ 1.04 $ 0.95
Net income per share - diluted 0.84 0.91 1.09 1.04 0.95
Cash dividends declared 0.40 0.38 0.37 0.32 0.28
Book value at period-end 9.19 9.77 9.16 8.23 7.57
FINANCIAL CONDITION
Total assets $ 821,827 $ 733,947 $ 615,716 $ 559,782 $ 523,613
Total deposits 646,866 607,629 489,256 455,718 431,330
Total loans, net of unearned income 543,367 479,822 399,351 356,038 331,452
Stockholders' equity 68,794 73,359 68,427 61,344 56,352
ASSET QUALITY
Allowance for loan losses $ 6,617 $ 6,407 $ 4,798 $ 4,612 4,274
Allowance as % of total loans 1.22% 1.33% 1.20% 1.29% 1.28%
OTHER DATA
Market value per share at period-end $ 14.75 $ 17.50 $ 21.94 $ 12.50 $ 13.00
Price to earnings ratio 17.6 19.2 19.9 12.0 13.7
Price to book value ratio 161% 179% 240% 152% 172%
Dividend payout ratio 42.62% 41.76% 32.73% 30.76% $ 29.47%
Weighted average shares outstanding 7,473,869 7,489,873 7,455,369 7,447,637 7,402,485
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
CHRISTINE DOWELL . MARCUS E. EINSTEIN . MARLENE EINSTEIN . THOMAS D. ELDER, JR.
. THOMAS L. FONTAINE . CECILIA A. FRAZIER . ROBERT D. FULGHUM . DORSEY R.
GALFORD, JR. . REENA S. GARRETT . IRIS M. GAUTIER . SHAWN C. GAVIN . CHRISTOPHER
B. GINTER . BEVERLY GIRUC . BARBARA A. GOLDENBERG
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
PRESIDENT'S LETTER
[PHOTO]
Dear Fellow Shareholders:
Some seven years ago the vision for Union Bankshares was formed in a house
overlooking the Rappahannock River: a union of community banks, which would take
advantage of the synergies available by spreading its operating expenses and
resources over a larger asset base. The Company would grow through affiliation,
branch acquisition and de novo branches. Fee based services would be expanded to
supplement the Company's income stream. The Company would operate with a
long-term vision focused on increasing shareholder value over time.
Each year since then, the Union Bankshares Board has re-affirmed these
goals in its strategic plan.
The year 1999 will be remembered as a critical time in the execution of our
strategic plan and the development of Union Bankshares. 1999's results reflect
the impact of seven key decisions or events that occurred in late 1997 and 1998.
In February 1998, Union Bankshares purchased five branches from
Signet/First Union. Our projections indicated that these branches would have a
drag on earnings of approximately $250,000 during the first 12 months of
operation. Year two would be breakeven. The Company would not begin to see a
profit from these branches until year three. The deposit growth of these
branches has been above our expectations. Loan growth has been below
expectations. Overall the branches are on track to meet our profitability
projections.
Union Bank & Trust opened three de novo branches in 1998. New branches
typically have an earnings drag of approximately $100,000 per year in their
first year of operation. These new branches have prospered and helped to
contribute to Union Bank's remarkable growth in deposits and loans over the last
eighteen months.
[PHOTO]
FINANCIAL ACCOUNTING:
Planning and Directing Corporate Finance and Reporting
Left to right: Rick Love, John Lane, Lori Newsome, Tony Peay, Ed Worrell, and
Mike Harris.
3
<PAGE>
- --------------------------------------------------------------------------------
. RICHARD A. GOODMAN . DARNELL R. GRAY . KIMBERLY D. HARVEY . KIM M. HEYING o
JACQUELINE A. HODGES . BOND L. HOLFORD . CONNIE IOANOU . DANIEL G. JAY . TONI H.
JONES . KEVIN P. KEEGAN . ELIZABETH A. KEENAN . MARY JO KELLEY . STACEY L.
KERRIGAN . ROLLAND D. KILLE . FRAN KOPLOW .
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
Rappahannock National was acquired in late 1998. As with all of our
acquisitions, it was priced to be accretive (increase earnings per share) to our
shareholders. Under the leadership of a new chief executive, RNB is performing
better than our projections.
Bank of Williamsburg opened for business in February 1999. Start up costs
and operating losses for this year totaled $229,000. We expect to be in our
permanent facility in mid-March. Our projections show that Bank of Williamsburg
will become profitable on a monthly basis during the fourth quarter of 2000.
During 1999, Union Bankshares invested over $3.5 million in new technology.
Upgrades were focused on teller and deposit platform software and enhancing our
ability to consolidate back office functions. The back office consolidation took
six months longer than anticipated which resulted in increased personnel costs.
The delay was to ensure that our customers experienced minimal impact. The back
office consolidation was a tremendous undertaking, but, through teamwork by
associates from each bank the project is now complete. Cost savings resulting
from the consolidation will begin to appear in the first quarter's numbers.
In 1998 Union Bankshares entered into an agreement to acquire Mortgage
Capital Investors (MCI). The transaction was closed in February 1999. Though
MCI's performance in 1999 was not as projected, we continue to believe in the
viability of this venture. Many factors contributed to the poor performance,
including rising interest rates and declines in existing home sales. At this
point, MCI has reduced non-commissioned staff by over 30%, closed two marginally
producing offices, and is reviewing other offices for possible closing.
Additionally, MCI has opened two new offices with high volume producers formerly
with another mortgage company and has begun a construction-permanent loan
program with Union Bank & Trust. We have also begun offering property and
casualty insurance products to MCI's clients through a joint venture, Union
Insurance Group L.L.C.
Finally, during 1999 we completed the resolution of the problem loan
reported during the third quarter of 1998. Management has been working with the
borrower to restructure the loan to minimize any losses to the bank. Results for
1999 reflect an additional $350,000 in loan loss provisions and a partial
charge-off of this loan against the loan loss reserve in the fourth quarter.
It has been a difficult two years, as management and the board faced
challenges on many fronts. We expect many of the long-range decisions made over
this time will begin to show positive results in 2000.
[PHOTO]
OPERATIONS TECHNOLOGY:
Managing Emerging Technology
Left to right: Jim Sanford, Smokey Wilson, Tom Peregoy, and Joe Brown.
[GRAPH]
(in thousands)
1995 1996 1997 1998 1999
ASSETS 523,613 559,782 615,716 733,947 821,827
DEPOSITS 431,330 455,718 489,256 607,629 646,866
LOANS 331,452 356,038 399,351 479,822 543,367
4
<PAGE>
- --------------------------------------------------------------------------------
FLOSSIE LANCASTER . JEAN P. LIBER . JONI Z. LOVING . BRENTON A. McCALLUM .
CLAUDETTE C. McCLUNEY . JANE M. McQUILKIN . RICHARD C. MEEKINS . JOAN M. MILLER
. GARY M. MILLS . BRENT D. MOLOVINSKY . SARA J. MONTES . DARNELLA J. MORGAN .
KIMBERLEIGH MURRAY . JOHN A. O'BRIEN . BRIAN T. O'REILLY .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
[GRAPH]
1995 1996 1997 1998 1999
YIELD ON EARNING ASSETS 8.66 8.68 8.64 8.45 8.07
COST OF INTEREST BEARING LIABILITIES 4.63 4.61 4.66 4.62 4.37
There have been many positive things in 1999 as well. While none had the
bottom line impact of the seven items listed previously, these successes are an
indication of the strength of the team and its ability to accomplish tasks and
grow the banks by meeting the customers' needs.
The Company's Y2K team worked for over 18 months to assure that all systems
were Y2K compliant. When we read of the large amounts spent by others, we feel
fortunate that Union Bankshares Corporation's Y2K expenses were less than
$250,000.
The item processing conversion from paper to image processing was
successful and well received by our customers. Item processing efficiency and
productivity have been increased. The consolidation of our four subsidiary
banks' back office operations into one location went extremely well. Data
processing conversions for two of our banks were handled without incident. This
task could not have been completed without the support and teamwork from all
levels of the organizations.
Union Bank & Trust experienced above market growth, solidifying its
position as the number two bank in greater Fredericksburg and jumping from fifth
to second in market share in the Hanover market. Union's indirect automobile
loan department experienced strong growth.
The financial performance of Rappahannock National has been excellent with
continued growth and profitability on the horizon. Despite bureaucratic delays
in the construction of our permanent site, the Bank of Williamsburg has been
well received by the community. We expect strong performance in 2000 as we move
from our temporary space to our banking house.
Union Investment Services experienced a record year providing brokerage
services and investment advice to its customers.
On a sadder note, in July, Peyton Motley, president of Northern Neck State
Bank, was diagnosed with pancreatic cancer. The staff at Northern Neck has done
an excellent job of maintaining the pace while Peyton has been away. Peyton lost
his fight with cancer on January 29, 2000. Our thoughts and prayers are with
Peyton's family.
The future holds much promise for Union Bankshares. Your corporation is
positioned to increase shareholder value over the long term. Management is
focused on maximizing efficiencies in the consolidated support areas.
Continually increasing productivity through our investment in technology is a
key to improved financial performance. We have spent the last couple of years
putting the systems, people and plans in place to generate cost savings and
enhance customer service. The year 2000 will be the year in which we execute
those plans.
[PHOTO]
COMMUNITY BANKING:
Focusing on Customers' Financial Needs
Left to right: John Neal, Deborah Usry, and Byrd Newton.
5
<PAGE>
- --------------------------------------------------------------------------------
LEONARD J. OSLAR . EDGAR PACORI . LOUIS M. PELL . EVE H. PENDLETON . REBECCA L.
PETERS . PAUL J. PHELPS . JEFFERSON D. PHELPS, III . SHARON A. POWERS . BRADFORD
PRATT . ELIZABETH ANN PRITCHARD . DANIEL M. PUTNEY. TERRI H. QUINN . LAURA H.
RAJABI . BRENDA S. RAY-STRAIN . ADAM REPASY . LYNN
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
Our concerns for the year 2000 center on the policy of rising interest
rates and tightening of liquidity that have been implemented by the Federal
Reserve Bank. This policy could impact the corporation's already narrowing
margins. Additionally, internally generated growth in deposits and earning
assets, a key component for increased profitability, could be impacted. A series
of rate increases will negatively impact Mortgage Capital's return to
profitability.
[GRAPH]
[PLOT POINTS TO COME]
We will continue to look at affiliations with other community banks as a
way to grow, provide geographic diversity, share the high cost of technology and
provide management depth. As the largest of Virginia's community bank holding
companies, Union Bankshares has a unique opportunity to grow significantly as
community banking in Virginia consolidates. While the corporation does own sites
for future branch expansion, we do not foresee opening any new branches in 2000.
Our stock price has been a concern to many of you. Like many banks our
stock price had reached irrational levels in mid 1998, when compared to the
historic price levels of bank stocks. A chart on this page shows our stock price
performance over the last two years relative to several other market indices,
including the NASDAQ Bank Index. You can see that Union Bankshares Corporation's
stock price, while down 18% in 1999 and over 35% over the two year period, is in
line with the market decline.
When one considers the markets we serve, the investment that we have
already made in infrastructure and our prospects for future growth and
profitability, Union Bankshares remains a good long-term investment.
Many of our shareholders are loyal customers of our banks and brokerage
firm. We appreciate their continued support. Should you have any questions, I
encourage you to contact me either by phone or e-mail at [email protected].
/s/ William Beale
G. William Beale
[PHOTO]
CUSTOMER ACCOUNTING:
Serving Retail and Commercial Customers
Left to right: Karen Dewitt, Jeannette Burke, and Carolyn Wiley.
6
<PAGE>
- --------------------------------------------------------------------------------
REPASY . ROBERT RESH . PHAN W. ROBINSON . RAYMOND I. J. ROMANICK . EARNEST A.
SAHADY . PATRICIA SCHURTZ . ROBERT F. SELDON . BRENDA SISSON . JACOB SISSON .
ELIZABETH J. SMALLING . PATRICIA A. SMITH . JENNIFER L. SNYDER . EDWARD SOMA .
RAY L. STEIN . JEANNE STEVENS . MICHAEL E. STOLL . ERIC
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
DIRECTORS OF UNION BANKSHARES CORPORATION
Ronald L. Hicks
Chairman
Charles H. Ryland
Vice Chairman
G. William Beale
Walton Mahon
E. Peyton Motley
(deceased)
W. Tayloe Murphy, Jr.
M. Raymond Piland, III
A.D. Whittaker
[PHOTO]
(Standing, l to r): W. Tayloe Murphy, Jr., Ronald L. Hicks, G. William Beale,
and E. Peyton Motley. (Seated, l to r): M. Raymond Piland III, Charles H.
Ryland, A.D. Whittaker, and Walton Mahon.
QUARTERLY EARNINGS SUMMARY
<TABLE>
<CAPTION>
1999 1998
(in thousands, except per share data)
FOURTH THIRD SECOND FIRST TOTAL FOURTH THIRD SECOND FIRST TOTAL
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $14,760 $14,327 $13,409 $13,140 $55,636 $13,199 $12,917 $12,741 $12,205 $51,062
Interest expense 7,048 7,153 6,583 6,283 27,067 6,335 6,238 6,069 5,821 24,463
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net interest income 7,712 7,174 6,826 6,857 28,569 6,864 6,679 6,672 6,384 26,599
Provision for loan losses 190 513 751 762 2,216 650 1,479 480 435 3,044
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Noninterest income after
provision for loan losses 7,522 6,661 6,075 6,095 26,353 6,214 5,200 6,192 5,949 23,555
Noninterest income 2,488 3,298 3,922 3,538 13,246 1,784 1,350 1,329 1,104 5,567
Noninterest expense 8,399 8,458 8,470 7,362 32,689 5,593 5,347 5,173 4,509 20,622
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,611 1,501 1,527 2,271 6,910 2,405 1,203 2,348 2,544 8,500
Income tax expense (189) 119 195 511 636 637 104 438 499 1,678
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income $ 1,800 $ 1,382 $ 1,332 $ 1,760 $ 6,274 $ 1,768 $ 1,099 $ 1,910 $ 2,045 $ 6,822
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income per share
Basic $ 0.24 $ 0.18 $ 0.18 $ 0.24 $ 0.84 $ 0.24 $ 0.15 $ 0.25 $ 0.27 $ 0.91
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Diluted $ 0.23 $ 0.18 $ 0.18 $ 0.24 $ 0.84 $ 0.24 $ 0.15 $ 0.25 $ 0.27 $ 0.91
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
D. THOMAS . DAVID M. THOMPSON . CAROL TOMASI . LESLIE A. VALENTINE . BONNIE G.
VICK . JILL A. WAGNER . R. SCOTT WALLACE . DAVIN J. WILLIFORD . GRANT WING .
LISA WITKOWSKI . BETTY L. WRIGHT . NORTHERN NECK STATE BANK . ROBIN S.
ABERCROMBIE . LINDA H. ASHTON . LASHAY S. BALL . NANCY E.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
RETAIL LOCATIONS
[MAP]
8
<PAGE>
- --------------------------------------------------------------------------------
BAUGHAN . MARY ANNETTE BOWLES . MARY L. BOWLES . ANGELA C. BRANN . SHIRLEY T.
BROOKS . RUSSELL G. BROWN . BARBARA H. BRYANT . JANET L. CARPENTER . HOLLY D.
CARTER . MANLEY L. CHADWICK . TERRY J. CLARK . BRENDA H. CONLEY . THELMA
COURTNEY . CYNTHIA E. DAIGER . SHANNON R. DAVIS . BETTY T.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
DIRECTORY OF UNION BANKSHARES CORPORATION*
BANK OF WILLIAMSBURG
- --------------------
OFFICERS
J. Michael Johnson, President
DIRECTORS
Henry Aceto, Jr.
G. William Beale
A. G. W. Christopher
Randall K. Cooper
L. Mark Griggs
J. Michael Johnson
Christopher A. Mayer
Alison Morrison
D. Anthony Peay
Joseph R. Potter, Jr.
MORTGAGE CAPITAL INVESTORS
- --------------------------
OFFICERS
Kevin P. Keegan, President & Chief Executive Officer
DIRECTORS
G. William Beale, Chairman
Kevin P. Keegan
John C. Neal
Brian T. O'Reilly
D. Anthony Peay
RAPPAHANNOCK NATIONAL BANK
- --------------------------
OFFICERS
Michael T. Leake, Executive Vice President and Chief Executive Officer
DIRECTORS
Elisabeth J. Jones, Chairman
G. William Beale
Alphaeus F. Cannon
Thomas B. Massie
Mary L. Payne
Thomas G. Taylor
George E. Williams
UNION INVESTMENT SERVICES
- -------------------------
OFFICERS
Bernard W. Mahon, Jr., President
Darryl Barnes, Vice President
Randall W. Vaughan, Vice President
DIRECTORS
G. William Beale, Chairman
Russell G. Brown
Ronald L. Hicks
Bernard W. Mahon, Jr.
Michael N. Manns
J.E. Small, III
UNION BANK & TRUST COMPANY
- --------------------------
OFFICERS
G. William Beale, President & Chief Executive Officer
John C. Neal, Executive Vice President & Chief Operating Officer
Robert K. Bailey, III, Senior Vice President
William H. Hutton, Senior Vice President
John M. Randolph, Senior Vice President
R. Tyler Ware, Senior Vice President
David K. Bohmke, Vice President
Sylvia Buffkin, Vice President
Travis Bullock, Vice President
David Clare, Vice President
F. Kent Cox, Vice President
Maria Franklin, Vice President
Charles Gravatt, Vice President
Sherry C. Gravatt, Vice President
Tom Parcell, Vice President
Doug Ransone, Vice President
Raymond C. Ratcliffe, Jr., Vice President
Michael Torosian, Vice President
DIRECTORS
Ronald L. Hicks, Chairman
Walton Mahon, Vice Chairman
G. William Beale
John S. Cheadle
William B. Gallahan
Daniel I. Hansen
Michael N. Manns
John C. Neal
M. Raymond Piland, III
J.E. Small, III
A.D. Whittaker
HONORARY DIRECTORS
Estelle H. Kay
Guy C. Lewis, Jr.
H. Ashton Taylor
R.F. Upshaw, Jr.
KING GEORGE ADVISORY BOARD
Michael C. Mayo
E.R. Morris, Jr.
William Storke
A.B. Walker, Jr.
E.P. Woodworth
NORTHERN NECK STATE BANK
- ------------------------
OFFICERS
N. Byrd Newton, President
Russell G. Brown, Vice President
William E. Harrison, Vice President & Cashier
C. Wayne Penick, Vice President
Marion B. Rowe, Vice President
William M. Wright, Vice President
DIRECTORS
William E. Bowen
S. Bryan Chandler
Richard A. Farmar, Jr.
W.D. Gray
Edward L. Hammond
William H. Hughes
W. Tayloe Murphy, Jr.
N. Byrd Newton
Dexter C. Rumsey, III
Charles H. Ryland
Charles H. Williams, III
William M. Wright
HONORARY DIRECTORS
Robert B. Delano
James V. Garland, Jr.
Thomas S. Herbert
Louis G. Packett
LANCASTER/NORTHUMBERLAND
ADVISORY BOARD
Nancy T. Cockrell
Robert E. Crowther, III
William B. Graham
Lloyd B. Hubbard
David Jones
Burton D. Reed, Jr.
H. Chilton Treakle, Sr.
Herbert E. Vaughan
UNION BANKSHARES CORPORATION
- ----------------------------
OFFICERS
G. William Beale, President & Chief Executive Officer
D. Anthony Peay, Vice President, Chief Financial Officer & Corporate Secretary
David "Smokey" Wilson, Senior Vice President
Thomas Boyd III, Vice President
Jeannette Burke, Vice President
Myles W. H. Gaythwaite, Vice President
John A. Lane, Vice President
Scott Nininger, Vice President
George Washington, Vice President
DIRECTORS
Ronald L. Hicks, Chairman
Charles H. Ryland, Vice Chairman
G. William Beale
Walton Mahon
W. Tayloe Murphy, Jr.
M. Raymond Piland, III
A.D. Whittaker
* As of February 29, 2000
9
<PAGE>
- --------------------------------------------------------------------------------
DELANO . ALICE V. DIX . WILLIAM A. ESTELL, JR. . BROOK H. EZZELL . ELIZABETH
FORREST FRANKLIN . APRIL F. GASKINS . TERESA A. GILL. LAURA L. GORDON . KATHRYN
P. GOULDTHORPE . GREGORY A. GRUNER
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
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
Union Bankshares Corporation's net income for 1999 totaled $6.3 million or $0.84
per share on a diluted basis, down 7.4% from $6.8 million or $0.91 per share on
a diluted basis for 1998. Profitability as measured by return on average assets
(ROA) for 1999 was 0.79% as compared to 1.00% a year earlier, while return on
average equity (ROE) for 1999 was 8.74% as compared to 9.58% in 1998. Core
profitability continued to improve as net interest income increased by 7.4% and
service fees on deposit accounts by 6.4%.
Union Bankshares Corporation's financial performance in 1999 was impacted by the
changing interest rate environment and its effect on the net interest margin and
mortgage origination business. Increased volumes helped interest income rise
over the previous year in the core banking business. Rising mortgage rates
lowered mortgage loan production by 39% and adversely affected profitability of
the mortgage origination business. The Company's performance in 1999 was also
impacted by the Company's expansion over the last two years, including five
acquired branches and three de novo branches. In addition, the opening of the
Bank of Williamsburg created an earnings drag which will continue into the fall
of 2000 when it should reach monthly profitability. The Company also completed
consolidation of its accounting and operations functions and continued its
commitment to invest in improved technology. With these initiatives, the
Company's profit was only slightly below the previous year.
The Company's performance was also impacted by continued compression of the net
interest margin. Competitive pricing for loan products and alternative deposit
options for consumers impacted all financial services companies in 1999 and will
likely continue to have a negative impact in 2000. Our net interest margin, on a
taxable equivalent basis, declined from 4.55% in 1998 to 4.30% during 1999.
The financial services industry has increasingly focused on noninterest income
as interest margins have compressed. Our investment brokerage operations
contributed $679,000 in noninterest income in 1999, up from $555,000 in 1998.
The mortgage brokerage business, with the addition of Mortgage Capital
Investors, had nonin-terest income of $7,495,000 in 1999. In addition, our focus
on providing competitive products and customer service has provided additional
sources of fee income.
Assets grew to $821.8 million at December 31, 1999, up 12.0% from $733.9 million
a year ago. Loans grew to $543.4 million, up 13.3% over year end 1998 totals.
Deposits increased from $607.6 million at December 31, 1998 to $646.9 million at
December 31, 1999, a 6.5% increase. The Company's capital position remains
strong with an equity to assets ratio of 8.4%.
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 1999, net interest income, on a taxable equivalent basis, totaled $31.0
million, an increase of 8.8% from $28.5 million in 1998. The Company's net
interest margin declined to 4.30% in 1999, as compared to 4.55% in 1998 and
4.73% in 1997. This 25 basis point decline, when applied to average earning
assets, represented nearly $1.7 million in potential net interest income.
Despite this net interest margin decline, the impact of increases in the volume
of earning assets exceeded the impact of declining rates, resulting in a net
increase of $5.0 million in interest income on a taxable equivalent basis. The
yield on earning assets declined to 8.07% from 8.45% in 1998 while the cost of
interest-bearing liabilities also declined from 4.62% in 1998 to 4.37% in 1999.
Average interest-bearing liabilities increased by $89.8 million, or 16.9% while
average earning assets grew by $92.0 million, or 14.7%. As a result, the Company
was able to realize an increase of $2.5 million in net interest income on a
taxable equivalent basis compared to 1998 (see Volume and Rate Analysis table).
10
<PAGE>
- --------------------------------------------------------------------------------
. DORIS C. HALL . LILLIAN S. HAMBLIN . CRISTAL F. HARPER . WILLIAM E. HARRISON .
SANDRA D. HAYWOOD . LINDA L. HIXON . SUE W. JETT . WENDY R. JONES . JOSEPHINE F.
KING . EDITH FAYE LANGE . BARBARA W.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
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,
-----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- ---------------------------- ----------------------------
INTEREST INTEREST INTEREST
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- ------ ------- ------- ------
ASSETS: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities:
Taxable........................... $ 117,938 $ 7,567 6.42% $ 94,814 $ 6,107 6.44% $ 87,272 $ 5,622 6.44%
Tax-exempt(1)..................... 89,211 6,941 7.78% 74,068 5,847 7.89% 68,361 5,569 8.15%
--------- -------- ---- --------- -------- ---- --------- -------- ----
Total securities............... 207,149 14,508 7.00% 168,882 11,954 7.08% 155,633 11,191 7.19%
Loans, net........................... 507,658 43,220 8.51% 444,463 40,395 9.09% 375,328 34,939 9.31%
Federal funds sold................... 3,004 209 6.96% 12,549 581 4.63% 7,148 384 5.37%
Interest-bearing deposits
in other banks.................... 1,165 56 4.81% 1,058 71 6.71% 702 53 7.55%
--------- -------- --------- -------- --------- --------
Total earning assets........... 718,976 57,993 8.07% 626,952 53,001 8.45% 538,811 46,567 8.64%
Allowance for loan losses............ (7,270) (5,339) (4,693)
Total non-earning assets............. 79,829 59,942 48,049
--------- --------- ---------
Total assets......................... $ 791,535 $ 681,555 $ 582,167
========== ========= =========
LIABILITIES & STOCKHOLDERS' EQUITY:
Interest-bearing deposits:
Checking.......................... $ 88,806 1,845 2.08% $ 73,263 $ 1,745 2.38% $ 56,495 $ 1,452 2.57%
Regular savings................... 59,897 1,576 2.63% 58,490 1,749 2.99% 53,200 1,638 3.08%
Money market savings.............. 63,452 2,070 3.26% 60,674 2,065 3.40% 51,119 1,723 3.37%
Certificates of deposit:
$100,000 and over................. 92,123 4,669 5.07% 68,703 3,789 5.52% 56,481 2,967 5.25%
Under $100,000.................... 237,734 12,609 5.30% 223,362 12,559 5.62% 192,441 10,949 5.69%
--------- -------- --------- -------- --------- --------
Total interest-bearing
deposits................... 542,012 22,769 4.20% 484,492 21,907 4.52% 409,736 18,729 4.57%
Other borrowings..................... 77,497 4,298 5.55% 45,236 2,556 5.65% 42,449 2,328 5.48%
--------- -------- --------- -------- --------- --------
Total interest-bearing
liabilities................ 619,509 27,067 4.37% 529,728 24,463 4.62% 452,185 21,057 4.66%
-------- -------- --------
Non-interest bearing liabilities:
Demand deposits................... 85,017 75,278 60,512
Other liabilities................. 15,242 4,937 5,005
--------- --------- ---------
Total liabilities.............. 719,768 609,943 517,702
Stockholders' equity................. 71,767 71,612 64,465
--------- --------- ---------
Total liabilities and
stockholders' equity.............. $ 791,535 $ 681,555 $ 582,167
========= ========= =========
Net interest income.................. $ 30,926 $ 28,538 $ 25,510
======== ======== ========
Interest rate spread................. 3.70% 3.83% 3.98%
Interest expense as a percent
of average earning assets......... 3.76% 3.92% 3.91%
Net interest margin.................. 4.30% 4.55% 4.73%
</TABLE>
(1) Income and yields are reported on a taxable equivalent basis.
11
<PAGE>
- --------------------------------------------------------------------------------
LAWSON . ANGELIA D. LEE . DONNA G. LEWIS . GENEVA B. LOWERY . GLENN A. MORSE .
E. PEYTON MOTLEY . LINDA V. MURRAY . N. BYRD NEWTON . DARLENE F. O'BIER . SANDRA
K. O'BIER . C. WAYNE PENICK . SUSIE
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
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. Nonaccrual loans are included in average loans
outstanding.
VOLUME AND RATE ANALYSIS*
(TAXABLE EQUIVALENT BASIS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1999 VS. 1998 1998 VS. 1997
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO CHANGES IN: DUE TO CHANGES IN:
-------------------------------- -------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------ ------- -------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Securities:
Taxable ........................ $ 1,479 $ (19) $ 1,460 $ 485 $ -- $ 485
Tax-exempt ..................... 1,176 (82) 1,094 454 (176) 278
Loans, net ........................ 5,420 (2,595) 2,825 6,300 (844) 5,456
Federal funds sold ................ (575) 203 (372) 256 (59) 197
Interest-bearing deposits
in other banks ................... 6 (21) (15) 24 (6) 18
-------- ------- ------ ------- ------ ------
Total earning assets ............ 7,506 (2,514) 4,992 7,519 (1,085) 6,434
-------- ------- ------ ------- ------ ------
INTEREST-BEARING LIABILITIES:
Interest checking ................. 337 (237) 100 405 (112) 293
Regular savings ................... 41 (214) (173) 159 (48) 111
Money market savings .............. 91 (86) 5 327 15 342
CDs $100,000 and over ............. 1,209 (329) 880 669 153 822
CDs less than $100,000 ............ 786 (736) 50 1,742 (132) 1,610
-------- ------- ------ ------- ------ ------
Total interest-bearing
deposits ................... 2,464 (1,602) 862 3,302 (124) 3,178
Other borrowings .................. 1,788 (46) 1,742 157 71 228
-------- ------- ------ ------- ------ ------
Total interest-bearing
liabilities ................ 4,252 (1,648) 2,604 3,459 (53) 3,406
-------- ------- ------ ------- ------ ------
Change in net interest
income ........................... $ 3,254 $ (866) $ 2,388 $ 4,060 $(1,032) $ 3,028
======== ======= ====== ======= ====== ======
</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 rate 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.
12
<PAGE>
- --------------------------------------------------------------------------------
B. PRESCOTT . CHERYL REAMY . MACEL F. ROBINSON . JULIE H. ROGERS . MARION B.
ROWE . APRIL R. SANDERS . NANCY A. SANDERS . CAROLYN SANDERS-SMITH . PEGGY S.
SANFORD . DEBRA B. SCOTT .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
At December 31, 1999, the Company had $223.0 million more liabilities than
assets subject to repricing within one year and was, therefore, in a
liability-sensitive position. A liability-sensitive company's net interest
margin and net interest income generally will be impacted favorably by declining
interest rates, while that of an asset-sensitive Company generally will be
impacted favorably by increasing interest rates.
Although the gap report shows the Company to be liability sensitive, computer
simulation shows the Company's net interest income tends to increase when
interest rates rise and fall when interest rates decline. The explanation for
this is interest rate changes affect bank products differently. For example: if
the prime rate changes by 1.0% (100 basis points or bps), the change on
certificates of deposit may only be around 0.75% (75 bps), while other interest
bearing deposit accounts may only change 0.1% (10 bps). Also, despite their
fixed terms, loan products are often refinanced as rates decline. Recently,
increased deposit competition and the inverted yield curve have resulted in more
rapid deposit rate movement than for loans.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31, 1999(1)
---------------------------------------------------------------------
WITHIN 90-365 1-5 OVER
90 DAYS DAYS YEARS 5 YEARS TOTAL
--------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Loans, net of unearned income (3) $ 98,937 $ 33,904 $ 246,399 $ 162,640 $ 541,880
Investment securities ........... 615 3,844 3,452 1,667 9,578
Securities available for sale ... 911 8,340 69,885 122,585 201,721
Federal funds sold .............. 248 -- -- -- 248
Other short-term investments .... 867 -- -- -- 867
--------- --------- --------- --------- ---------
Total earning assets ......... 101,578 46,088 319,736 286,892 754,294
========= ========= ========= ========= =========
INTEREST-BEARING LIABILITIES:
Interest checking (2) ........... -- -- 95,882 -- 95,882
Regular savings (2) ............. -- -- 58,209 -- 58,209
Money market savings ............ -- 63,249 -- -- 63,249
Certificates of deposit:
$100,000 and over ............ 29,335 61,680 16,639 -- 107,654
Under $100,000 ............... 48,924 122,876 70,795 229 242,824
Short-term borrowings ........... 39,159 -- -- -- 39,159
Long-term borrowings ............ 5,320 75 34,025 15,000 54,420
-------- ------- -------- ------- --------
Total interest-bearing
liabilities .............. 122,738 247,880 275,550 15,229 661,397
-------- --------- -------- ------- --------
Period gap ...................... (21,160) (201,792) 44,186 271,663 --
Cumulative gap .................. $ (21,160) $(222,952) $(178,766) $ 92,897 $ 92,897
========= ========= ========= ========== =========
Ratio of cumulative gap to
total earning assets ......... -2.81% -29.56% -23.70% 12.32%
========= ========= ======== ========
</TABLE>
(1) The repricing dates may differ from maturity dates for certain assets due
to prepayment assumptions.
(2) The Company has determined 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.
NONINTEREST INCOME
Non interest income increased by 136.4 % from $5.6 million in 1998 to $13.2 in
1999. This increase is largely due to the addition of Mortgage Capital Investors
which contributed $7.5 million in gains on sales of mortgage loans. Excluding
such gains noninterest income was up slightly to $5.7 million. Deposit service
charges were up $184,000 over 1998. Other service charges were up $412,000,
including an increase of $124,000 in brokerage fees from Union Investment
Services.
In 1998, noninterest income increased by 23.9% from $4.5 million in 1997 to $5.6
million. This increase was largely attributable to the gains in deposit service
charges and other service charges of $721,000 and $613,000, respectively. The
latter charges were fueled by continued growth in mortgage income of $272,640
over 1997 and Union Investment's increase of $194,143 over 1997.
13
<PAGE>
- --------------------------------------------------------------------------------
MELESSIA F. SELF . PATRICIA P. SETTLE . GLORIA B. SMITH . AMY TAYLOR . MARION W.
THOMPSON . SANDRA M. VENEY . BRIDGETT B. WILLIAMS . RAPPAHANNOCK NATIONAL BANK .
GEORGIA A. GILPIN . PATRICIA A.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
NONINTEREST EXPENSES
Noninterest expenses totaled $32.7 million in 1999, up $12.1 million or 58.7%
over $20.6 million in 1998. Mortgage Capital Investors accounted for $8.9
million of this increase, including $6.9 million in salaries and loan
commissions, $900,000 in occupancy and equipment and $1.1 million in other
operating expenses. The new Bank of Williamsburg also added $550,000 in
noninterest expense in 1999. The remaining increase came from the core business
with a $1.4 million increase in personnel and a $1.0 million increase in other
operating expenses. In 1999, the Company incurred the full expense impact of the
branches purchased and opened in 1998. It also implemented major technology
enhancements, including teller/platform automation and check imaging, and
consolidated remaining back office functions. All these activities added costs
to the normal inflationary rise and, as expected, created a short term drag on
earnings.
Noninterest expenses totaled $20.6 million in 1998, up 24.0% over 16.6 million
in 1997. Most of this increase was the result of purchasing 5 branches from
Signet/ First Union bank and opening 3 de novo branches.
LOAN PORTFOLIO
Loans, net of unearned income, totaled $543.4 million at December 31, 1999, an
increase of 13.3% over $479.8 million at December 31, 1998. Union Bankshares has
achieved a rate of growth consistent with the economies of the markets within
which it operates and has maintained or increased its market share in each.
Loans secured by real estate comprised 66.3% of the total loan portfolio at
December 31, 1999. Of this total, single-family, residential loans, not
including home equity lines, comprised 33.0% of the total loan portfolio at
December 31, 1999, up slightly from 32.5% in 1998. Loans secured by commercial
real estate comprised 22.1% of the total loan portfolio at December 31, 1999, as
compared to 22.5% in 1998, and consist principally of commercial and industrial
loans where real estate constitutes a secondary 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 6.1% of total loans outstanding at December 31,
1999. The Company's charge-off rate for all loans secured by real estate has
historically been low.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial ............................ $ 67,649 $ 61,678 $ 45,541 $ 37,375 $ 37,041
Loans to finance agriculture production
and other loans to farmers ......... 3,015 2,595 1,590 3,080 2,894
Real estate:
Real estate construction ........... 33,218 38,128 28,206 13,961 17,479
Real estate mortgage:
Residential (1 - 4 family) ...... 179,246 155,843 125,205 114,945 99,821
Home equity lines ............... 20,987 18,737 21,061 21,964 22,561
Multi-family .................... 4,592 3,979 1,905 1,501 1,440
Commercial(1) ................... 120,490 108,063 93,568 80,830 72,992
Agricultural .................... 2,373 2,536 2,292 2,262 2,776
-------- -------- -------- -------- --------
Total real estate ............... 360,906 327,286 272,237 235,463 217,069
Loans to individuals:
Consumer ........................... 102,713 79,492 77,505 76,826 70,788
Credit card ........................ 4,346 3,232 2,682 2,567 2,235
-------- -------- -------- -------- --------
Total loans to individuals ...... 107,059 82,724 80,187 79,393 73,023
All other loans ....................... 5,855 6,559 879 2,125 2,619
-------- -------- -------- -------- --------
Total loans ..................... 544,484 480,842 400,434 357,436 332,646
Less unearned income .................. 1,117 1,020 1,083 1,398 1,194
-------- -------- -------- -------- --------
Total net loans .................... $543,367 $479,822 $399,351 $356,038 $331,452
======== ======== ======== ======== ========
</TABLE>
(1) This category generally consists of commercial and industrial loans where
real estate constitutes a secondary source of collateral.
14
<PAGE>
- --------------------------------------------------------------------------------
GRIGSBY . BETTY L. JEWELL . MICHAEL T. LEAKE . W. F. MOFFETT, III . HELEN I.
SEALOCK . SHERRY JO SHAW . UNION BANK & TRUST COMPANY . HELEN M. ACORS .
MARGARET ATKINS . ROBERT K. BAILEY, III .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
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 18.9% of total loans at December
31, 1999, up from 16.5% in 1998. Commercial loans, secured by non-real estate
business assets comprised 12.4% of total loans at the end of 1999, a slight
decrease from 12.9% at the end of 1998. Loans to the agricultural industry
totaled less than 1.0% of the loan portfolio in each of the last five years.
MATURITY SCHEDULE OF LOANS
<TABLE>
<CAPTION>
1 YEAR OR LESS 1 - 5 YEARS AFTER 5 YEARS TOTAL
-------------- ----------- ------------- -----
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1999 ...... $148,951 $241,795 $153,738 $544,484
December 31, 1998 ...... 155,160 179,068 146,614 480,842
December 31, 1997 ...... 138,935 144,220 117,279 400,434
</TABLE>
Loans, net of unearned income, totaled $479.8 million at December 31, 1998, an
increase of 20.1% over $399.3 million at December 31, 1997, fueled largely by
residential mortgage growth.
The Company is focused on providing community-based financial services and
discourages the origination of portfolio 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 manage 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. Mortgage
Capital Investors serves as a mortgage brokerage operation, selling the majority
of its loan production in the secondary market while retaining loans meeting the
banks' current asset/liability management needs. This venture has provided the
banks' customers with enhanced mortgage products and the Company with improved
efficiencies through the consolidation of this function.
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, non-performing 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 size of the allowance in comparison to peer
companies identified by regulatory agencies.
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, 1999, the allowance for loan losses was $6.6 million, or
1.22% of total loans as compared to $6.4 million, or 1.33% in 1998. The
provision for loan losses decreased from $3.0 million in 1998 to $2.2 million
due largely to a special provision against a single credit in 1998 (see
Non-Performing Assets).
The allowance for loan losses as of December 31, 1998 was $6.4 million, or 1.33%
of total loans as compared to $4.8 million, or 1.20% in 1997. The provision for
loan losses in 1998 totaled $3,044,000 as compared to $1,182,000 in 1997.
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
AMANDA C. BARLOW . VALERIE BENNETT . DEBBIE A. BLAZEK . MARGARET V. BLAZEK . NICOLE S. BOCLAIR .
DAVID K. BOHMKE . BETTY L. BOLTON . ALEXIS C. BOYD . MELINDA B. BRADMAN . DONNA L. BREHM .
- ------------------------------------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
ALLOWANCE FOR LOAN LOSSES
DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year ................ $ 6,407 $ 4,798 $ 4,612 $ 4,274 $ 4,320
Loans charged-off:
Commercial ............................. 1,544 597 247 114 643
Real estate ............................ 62 34 4 59 185
Consumer ............................... 746 1,078 958 795 429
------- ------- ------- ------- -------
Total loans charged-off ............. 2,352 1,709 1,209 968 1,257
------- ------- ------- ------- -------
Recoveries:
Commercial ............................. 12 126 8 275 112
Real estate ............................ 8 18 49 10 16
Consumer ............................... 326 130 156 126 106
------- ------- ------- ------- -------
Total recoveries .................... 346 274 213 411 234
------- ------- ------- ------- -------
Net loans charged-off ..................... 2,006 1,435 996 557 1,023
Provision for loan losses ................. 2,216 3,044 1,182 895 977
------- ------- ------- ------- -------
Balance, end of year ...................... $ 6,617 $ 6,407 $ 4,798 $ 4,612 $ 4,274
======= ======= ======= ======= =======
Ratio of allowance for loan losses to total
loans outstanding at end of year ....... 1.22% 1.33% 1.20% 1.29% 1.28%
Ratio of net charge-offs to average
loans outstanding during year ........... 0.40% 0.32% 0.27% 0.16% 0.32%
</TABLE>
NONPERFORMING ASSETS
Nonperforming assets were $3.5 million at December 31, 1999, down from $4.6
million at December 31, 1998. Non-accrual loans decreased from $2.8 million in
1998 to $1.5 million in 1999. Contributing to the decline in these figures was
the charge-off of a portion of a problem loan reported during the third quarter
of 1998. The Company recorded provisions for loan losses related to this loan of
$975,000 in 1998 and $350,000 in 1999 and charged off 1.1 million in 1999. The
Company is still working with the borrower to resolve this situation and is
aggressively pursuing collection on this credit. The collateral supporting the
credit has been appraised and should protect the Company from any further loss.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ..................... $ 1,487 $ 2,813 $ 2,244 $ 523 $ 669
Foreclosed properties ................ 1,113 1,101 1,746 4,056 3,620
Real estate investment ............... 903 730 1,050 2,970 --
------- ------- ------- ------- -------
Total nonperforming assets ..... $ 3,503 $ 4,644 $ 5,040 $ 7,549 $ 4,289
======= ======= ======= ======= =======
Loans past due 90 days and
accruing interest .............. $ 980 $ 2,979 $ 2,675 $ 3,165 $ 3,126
======= ======= ======= ======= =======
Nonperforming assets to year-end
loans, foreclosed properties and
real estate investment ......... 0.64% 0.97% 1.26% 2.10% 1.28%
Allowance for loan losses to
nonaccrual loans ............... 444.99% 227.73% 213.81% 881.84% 638.86%
</TABLE>
As of December 31, 1999, nonperforming assets includes approximately $903,000
representing an investment in income-producing property and included in other
assets. This property consists of 11 single family homes which are either rented
or listed for sale and are located near Fredericksburg, Virginia. The Company
had previously acquired a limited interest in this property through settlement
of a loan and, in 1996, acquired the
16
<PAGE>
- --------------------------------------------------------------------------------
TABITHA BROWN . TINA R. BRUGGEMAN . SYLVIA C. BUFFKIN . CHARLES T. BULLOCK .
LYDIA E. BYRD . DEBORAH L. BYRUM . GRACE CABANISS . BARBARA CANNON . MELINDA H.
CASTLE . SHEILA CHEWNING .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
remaining ownership and control from the general partner. The carrying value of
this investment in real estate is supported by residential appraisals of the
homes which are being sold in an orderly manner, and management expects no loss
on this investment. Because the initial downpayment on many of these houses was
insufficient to qualify for full accrual sale treatment, they are being carried
as nonaccrual loans until such time as the borrowers' investment in the property
exceeds the required threshold.
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 allowance for loan losses.
At December 31, 1998, nonaccrual loans and foreclosed properties totaled $3.9
million, down from $4.0 million at December 31, 1997. Nonaccrual loans increased
by $569,000 in 1998 while other real estate owned decreased from $1.7 million to
$1.1 million.
SECURITIES
At December 31, 1999, $201.7 million, or over 95%, of the Company's securities
were classified as available for sale, as compared to $161.2 million at December
31, 1998. Investment securities totaled $9.6 million at December 31, 1999 and
consists of securities which management intends to hold to maturity.
At December 31, 1998, $161.2 million, or over 90%, of the Company's securities
were classified as available for sale, as compared to $143.7 million at December
31, 1997. Investment securities totaled $16.1 million at December 31, 1998 and
consists of securities which management intends to hold to maturity.
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. It also purchases mortgage backed
securities because of the reinvestment opportunities from the cashflows and the
higher yield offered from these securities. The investment portfolio has a high
percentage of municipals and mortgage backed securities which is the main reason
for the high yield the portfolio attains compared to its peers.
MATURITIES OF INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------
OVER 10
YEARS &
1 YEAR 1 - 5 5 - 10 EQUITY
OR LESS YEARS YEARS SECURITIES TOTAL
-------- -------- --------- ---------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
U.S. government and agency securities:
Amortized cost .................... $ 1,595 $ 3,701 $ -- $ 17,998 $ 23,294
Fair value ........................ 1,585 3,650 -- 16,649 21,884
Weighted average yield(1) ......... 5.34% 5.88% -- 6.97% 6.69%
Mortgage backed securities:
Amortized cost .................... $ 1,699 $ 28,378 $ 35,365 $ 4,605 $ 70,047
Fair value ........................ 1,698 27,595 33,831 4,389 67,513
Weighted average yield(1) ......... 5.15% 6.59% 6.48% 6.10% 6.43%
Municipal bonds:
Amortized cost .................... $ 4,280 $ 18,736 $ 33,327 $ 46,528 $102,871
Fair value ........................ 4,300 18,828 33,624 43,257 100,009
Weighted average yield(1) ......... 7.95% 7.71% 7.84% 7.16% 7.51%
Other securities:
Amortized cost .................... $ 795 $ 3,209 $ 199 $ 18,381 $ 22,584
Fair value ........................ 794 3,123 189 17,727 21,833
Weighted average yield(1) ......... 6.46% 6,12% 6.28% 8.30% 6.01%
Total securities:
Amortized cost .................... $ 8,369 $ 54,024 $ 68,891 $ 87,512 $218,796
Fair value ........................ 8,377 53,196 67,644 82,022 211,239
Weighted average yield(1) ......... 6.74% 6.49% 7.14% 7.04% 6.92%
</TABLE>
(1) Yields on tax-exempt securities have been computed on a tax-equivalent
basis.
17
<PAGE>
- --------------------------------------------------------------------------------
ROOSEVELT CHILDS . DAVID F. CLARE . DONNA M. CLARK . JENNIFER COATES . LYNDA
CONKLYN . DIANA L. CONLEY . F. KENT COX, JR. . RENEE M. COX . RICHARD E.
CROSSLIN . TIFFANY CUMBERWORTH . MONICA
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
DEPOSITS
Total deposits grew $39 million or 6.5% in 1999 with deposits in existing
branches accounting for 5.8% of that growth, compared to 9.2% existing branch
deposit growth in 1998. Increased competition for customer deposits continues to
be a challenge for the Company, as reflected by the continual rise in other
borrowings in 1999. The Company continues to focus on customer relationships and
delivery of products and services that attract deposit customers.
Total deposits increased from $607.6 million at December 31, 1998 to $646.9
million at December 31, 1999. Over this same period, average interest-bearing
deposits were $542 million, or 11.8% over the 1998 average of $484.5 million.
The majority of the increase in average deposits is represented by a $37.8
million increase in certificates of deposit and a $4.2 million increase in
savings accounts. In 1999, the Company's lowest cost source of funds,
non-interest-bearing demand deposits increased by a total of $9.7 million. The
Company has no brokered deposits.
AVERAGE DEPOSITS AND RATES PAID
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1999 1998 1997
----------------- ------------------ -------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------------- ------------------ -------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest-bearing accounts $ 85,017 -- $ 75,278 -- $ 60,512 --
Interest-bearing accounts:
Interest checking ..... 88,806 2.08% 73,263 2.38% 56,495 2.57%
Money market .......... 63,452 3.26% 60,674 3.40% 51,119 3.37%
Regular savings ....... 59,897 2.63% 58,490 2.99% 53,200 3.08%
Certificates of deposit:
Less than $100,000 237,734 5.30% 223,362 5.62% 192,441 5.69%
$100,000 and over . 92,123 5.07% 68,703 5.52% 56,481 5.25%
-------- -------- --------
Total interest-bearing ...... 542,012 4.20% 484,492 4.51% 409,736 4.57%
-------- -------- --------
Total average deposits. $627,029 $559,770 $470,248
======== ======== ========
</TABLE>
MATURITIES OF CERTIFICATES OF DEPOSIT 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, 1999...... $ 29,141 $ 21,405 $ 39,851 $ 17,257 $107,654 16.64%
At December 31, 1998...... 26,974 16,014 19,005 18,933 80,926 13.32%
At December 31, 1997...... 14,116 29,408 13,924 3,723 61,171 12.94%
</TABLE>
Total deposits grew from $489.3 million at December 31, 1997 to $607.6 million
at December 31, 1998. Over this same period, average interest-bearing deposits
were $484.5 million, or 18% over the 1997 average of $409.7 million.
18
<PAGE>
- --------------------------------------------------------------------------------
CUNDIFF . CRYSTAL DAVIS . ANNA MARIA DAY . GRACE L. DEEM . MARY E. DEYO .
PHILLIP S. DICKINSON . TAMMY P. EDWARDS . RACHELLE B. ELLER . FAYE W. ELMORE .
ROSA EUBANK . ELIZABETH FAIDLEY .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
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 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-weighed 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 12.21% and 13.70% on December 31, 1999
and 1998, respectively. The Company's ratio of risk-weighted assets to Tier 1
capital was 11.11% and 12.47% at December 31, 1999 and 1998, respectively. Both
of these ratios exceeded the fully phased-in capital requirements in 1999 and
1998.
The Company's strategic plan includes targeted capital levels between 8% and 9%.
ANALYSIS OF CAPITAL
DECEMBER 31,
--------- ---------
1999 1998
--------- ---------
(dollars in thousands)
Tier 1 capital:
Common stock .................................. $ 14,976 $ 15,015
Surplus ....................................... 163 311
Retained earnings ............................. 58,603 55,690
--------- ---------
Total equity .............................. 73,742 71,016
Less: core deposit intangibles/goodwill ....... (6,569) (5,846)
--------- ---------
Total Tier 1 capital .......................... 67,173 65,170
--------- ---------
Tier 2 capital:
Allowance for loan losses ..................... 6,617 6,407
Allowable long-term debt ...................... -- --
--------- ---------
Total Tier 2 capital .......................... 6,617 6,407
--------- ---------
Total risk-based capital ...................... $ 73,790 $ 71,577
========= =========
Risk-weighted assets ................................ $ 604,525 $ 522,533
========= =========
Capital ratios:
Tier 1 risk-based capital ratio ............... 11.11% 12.47%
Total risk-based capital ratio ................ 12.21% 13.70%
Tier 1 capital to average adjusted total assets 8.35% 9.06%
Equity to total assets ........................ 8.37% 10.00%
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. 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 it customers' credit needs.
At December 31, 1999, cash and cash equivalents and securities classified as
available for sale were 26.9% of total assets, compared to 27.6% at December 31,
1998. Asset liquidity is also provided by managing loan and
19
<PAGE>
- --------------------------------------------------------------------------------
FRANCES M. FARMER . KELLY FASZEWSKI . TINA L. FIELDS . CHRISTOPHER FINES . HOLLY
M. FLIPPEN . CAROLYN J. FORD . MARIA S. FRANKLIN . MELISSA FULLER . REBEKAH R.
GART . SHARON DARLENE GILBERT
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
securities maturities and cash flows.
Additional sources 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 approximately $52 million at
December 31, 1999. At year end 1999, the Banks had outstanding $16.8 million of
borrowings 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 $100 million at December 31,
1999.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is required to be adopted no later
than January 1, 2001. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
asset, liability, or firm commitment through earnings, or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company does not anticipate that the adoption of
this Statement will have a significant effect on its results of operations or
financial position.
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.
20
<PAGE>
- --------------------------------------------------------------------------------
DEBORAH S. GILES . KARINA K. GIVENS . KAY LYNN GOULDIN . TAMMY B. GOULDMAN
. CHARLES H. GRAVATT . SHERRY C. GRAVATT . CAROLYN R. GRAVES . JANON R. GRAY
. CORINNA L. GREEN . CASEY A. GREGORY
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
INDEPENDENT AUDITOR'S REPORT
[LOGO OF YOUNT, HYDE & BARBOUR, P.C.]
YOUNT, HYDE & BARBOUR, P.C.
Certified Public Accountants INDEPENDENT AUDITOR'S REPORT
and Consultants
To the Stockholders and Directors
Union Bankshares Corporation
Bowling Green, Virginia
We have audited the accompanying consolidated balance sheet of Union Bankshares
Corporation and subsidiaries as of December 31, 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year ended December 31, 1999. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. We did not audit the financial
statements of Mortgage Capital Investors, a consolidated subsidiary, which
statements reflect total assets and revenue constituting 1% and 11%,
respectively, in 1999, of the related consolidated totals. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Mortgage Capital
Investors, is based solely on the report of the other auditors. The financial
statements of Union Bankshares Corporation for the years ended December 31, 1998
and 1997 were audited by other auditors whose report, dated February 9, 1999,
except as to Note 14, which is as of February 11, 1999, expressed an unqualified
opinion on those statements.
We conducted our audit 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 audit and the report of the other auditors provides a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
1999 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, 1999, and the results of their operations and
their cash flows for the year ended December 31, 1999 in conformity with
generally accepted accounting principles.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
January 28, 2000
21
<PAGE>
- --------------------------------------------------------------------------------
CAROLYN R. GULLETT . JAMMIE HAIRFIELD . VALERIE HALEY . MARIE T. HARRISON .
SUSAN N. HARTSOOK . NANCY B. HAUN . JULI A. HAWKINS . JENNIFER HAYDEN . CATHY J.
HOLMAN . KRISTI L. HURD . WILLIAM H.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
ASSETS 1999 1998
----------- -----------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 18,804 $ 39,607
Interest-bearing deposits in other banks 867 1,413
Federal funds sold 248 -
----------- -----------
Total cash and cash equivalents 19,919 41,020
----------- -----------
Securities available for sale, at fair value 201,721 161,228
Investment securities, at amortized cost
Fair value of $9,518 and $16,452, respectively 9,578 16,142
----------- -----------
Total securities 211,299 177,370
----------- -----------
Loans held for sale 6,680 -
----------- -----------
Loans, net of unearned income 543,367 479,822
Less allowance for loan losses 6,617 6,407
----------- -----------
Net loans 536,750 473,415
----------- -----------
Bank premises and equipment, net 21,458 21,057
Other real estate owned 2,016 1,101
Other assets 23,705 19,984
----------- -----------
Total assets $ 821,827 $ 733,947
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Non-interest-bearing demand deposits $ 79,048 $ 81,329
Interest-bearing deposits:
Savings accounts 58,209 61,281
NOW accounts 95,882 81,514
Money market accounts 63,249 64,331
Time deposits of $100,000 and over 107,654 80,926
Other time deposits 242,824 238,248
----------- -----------
Total interest-bearing deposits 567,818 526,300
----------- -----------
Total deposits 646,866 607,629
----------- -----------
Short-term borrowings 39,159 19,476
Long-term borrowings 54,420 28,325
Other liabilities 12,588 5,158
----------- -----------
Total liabilities 753,033 660,588
----------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, $2 par value. Authorized 24,000,000 shares; issued and
outstanding, 7,487,829 shares in 1999 and 7,507,394 shares in 1998 14,976 15,015
Surplus 163 311
Retained earnings 58,603 55,690
Accumulated other comprehensive income (loss) (4,948) 2,343
----------- -----------
Total stockholders' equity 68,794 73,359
----------- -----------
Total liabilities and stockholders' equity $ 821,827 $ 733,947
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
- --------------------------------------------------------------------------------
HUTTON . LOIS E. HYNSON . ROSEMARIE A. ISAACS-WHITE . ADAM J. JACOBS . LUCILLE
S. JOHNSON . MARCIA P. JONES . JACLYN KEEL . KELLEY R. KIRBY . CHONG P. KOLIN .
ELIZABETH LANEY . KIM D. LAY . LYNNE P.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest and dividend income:
Interest and fees on loans $ 43,220 $ 40,395 $ 34,939
Interest and dividends on securities:
U.S. government and agency securities 1,584 1,505 3,569
Obligations of states and political subdivisions 4,917 4,145 3,954
Other securities 5,650 4,365 1,922
Interest on Federal funds sold 209 581 384
Interest on interest-bearing deposits in other banks 56 71 53
----------- ----------- -----------
Total interest income 55,636 51,062 44,821
----------- ----------- -----------
Interest expense:
Interest on deposits 22,769 21,907 18,729
Interest on other borrowings 4,298 2,556 2,328
----------- ----------- -----------
Total interest expense 27,067 24,463 21,057
----------- ----------- -----------
Net interest income 28,569 26,599 23,764
Provision for loan losses 2,216 3,044 1,182
----------- ----------- -----------
Net interest income after provision
for loan losses 26,353 23,555 22,582
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts 3,078 2,894 2,173
Other service charges and fees 1,716 1,304 1,001
Gains (losses) on securities transactions, net 16 71 (29)
Gains on sales of loans 7,581 - -
Gains (losses) on sales of other real estate owned
and bank premises, net 312 297 446
Other operating income 543 1,001 904
----------- ----------- -----------
Total noninterest income 13,246 5,567 4,495
----------- ----------- -----------
Noninterest expenses:
Salaries and benefits 18,844 10,902 8,990
Occupancy expenses 2,149 1,280 971
Furniture and equipment expenses 2,411 1,617 1,435
Other operating expenses 9,285 6,823 5,232
----------- ----------- -----------
Total noninterest expenses 32,689 20,622 16,628
----------- ----------- -----------
Income before income taxes 6,910 8,500 10,449
Income tax expense 636 1,678 2,283
----------- ----------- -----------
Net income $ 6,274 $ 6,822 $ 8,166
=========== =========== ===========
Basic net income per share $ 0.84 $ 0.91 $ 1.10
Diluted net income per share $ 0.84 $ 0.91 $ 1.09
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
- --------------------------------------------------------------------------------
LECARPENTIER . KATHRYN S. LEE . BARBARA B. LEWIS . SHEILA Y. LONG . DEBBIE C.
LOVING . HELEN K. MANOS . BARBARA MARCH . S. RENEE MARKS . TERRI MASSIE .
CHRISTOPHER MAYDEN . DONNA R.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
(dollars in thousands)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
RETAINED COMPREHENSIVE COMPREHENSIVE
COMMON STOCK SURPLUS EARNINGS INCOME (LOSS) INCOME (LOSS) TOTAL
------------ ----------- ---------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 $ 14,900 $ (173) $ 46,203 $ 272 $ 61,202
Comprehensive income:
Net income - 1997 8,166 $ 8,166 8,166
Unrealized holding gains arising
during the period (net of tax, $738) 1,416
Reclassification adjustment for losses included
in net income (net of tax, $10) 19
-------------
Other comprehensive income (net of tax, $728) 1,435 1,435 1,435
-------------
Total comprehensive income $ 9,601
=============
Cash dividends - 1997 ($.37 per share) (2,641) (2,641)
Issuance of common stock under
Dividend Reinvestment Plan (21,044 shares) 43 261 304
Stock repurchased under
Stock Repurchase Plan (3,000 shares) (6) (33) (39)
---------------------------------------------------- ---------
Balance - December 31, 1997 $ 14,937 $ 55 $ 51,728 $ 1,707 $ 68,427
Comprehensive income:
Net income - 1998 6,822 $ 6,822 6,822
Unrealized holding gains arising
during the period (net of tax, $352) 683
Reclassification adjustment for gains included
in net income (net of tax, $24) (47)
-------------
Other comprehensive income (net of tax, $328) 636 636 636
-------------
Total comprehensive income $ 7,458
=============
Cash dividends - 1998 ($.38 per share) (2,860) (2,860)
Issuance of common stock under
Dividend Reinvestment Plan (17,326 shares) 35 289 324
Issuance of common stock under
Incentive Stock Option Plan (21,776 shares) 43 (33) 10
---------------------------------------------------- ---------
Balance - December 31, 1998 $ 15,015 $ 311 $ 55,690 $ 2,343 $ 73,359
Comprehensive income:
Net income - 1999 6,274 $ 6,274 6,274
Unrealized holding losses arising
during the period (net of tax, $3,764) (7,280)
Reclassification adjustment for gains included
in net income (net of tax, $5) (11)
-------------
Other comprehensive income (net of tax, $3,756) (7,291) (7,291) (7,291)
-------------
Total comprehensive (loss) $ (1,017)
=============
Cash dividends - 1999 ($.40 per share) (2,994) (2,994)
Issuance of common stock under
Dividend Reinvestment Plan (22,257 shares) 45 291 336
Stock repurchased under
Stock Repurchase Plan (104,912 shares) (210) (1,705) - (1,915)
Discretionary transfer of retained earnings to surplus 367 (367) -
Issuance of common stock under
Incentive Stock Option Plan (400 shares) 1 4 - 5
Issuance of common stock for services rendered
(1,200 shares) 2 18 20
Issuance of common stock in exchange
for net assets in acquisition (61,490 shares) 123 877 1,000
---------------------------------------------------- ---------
Balance - December 31, 1999 $ 14,976 $ 163 $ 58,603 $ (4,948) $ 68,794
==================================================== =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
- --------------------------------------------------------------------------------
MCCLELLAN . JENNIFER L. MCFADDEN . MELISSA MCFALL . KRISTINA MEAD-CARBEE .
JENNIFER MERIDETH . CAMILLE A. MINTON . MAGGIE PERRY . PRISCILLA O. MORGAN .
JOHN C. NEAL . DARHLEEN M. NELSON
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 6,274 $ 6,822 $ 8,166
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation of bank premises and equipment 1,683 1,472 1,359
Amortization 1,082 10 -
Provision for loan losses 2,216 3,044 1,182
(Gains) losses on securities transactions, net (16) (71) 29
Origination of loans held for sale (65,076) - -
Proceeds from sales of loans held for sale 58,396 - -
Gains (losses) on sales of other real estate owned
and fixed assets, net (312) (297) (446)
Deferred income tax (benefit) (397) (567) (173)
Decrease (increase) in accrued interest receivable (812) 114 (292)
Other, net 9,048 (8,902) 2,188
----------- ----------- -----------
Net cash and cash equivalents provided by operating activities 12,086 1,625 12,013
----------- ----------- -----------
Investing activities:
Purchases of investment securities (199) (1,646) (8,949)
Proceeds from maturities of investment securities 3,697 3,269 6,695
Purchases of securities available for sale (77,484) (82,381) (37,565)
Proceeds from sales of securities available for sale 14,259 56,472 2,857
Proceeds from maturities of securities available for sale 13,387 8,838 26,662
Net increase in loans (65,862) (82,056) (45,164)
Purchases of bank premises and equipment (1,732) (5,642) (4,003)
Proceeds from sales of other real estate owned 300 1,092 3,611
----------- ----------- -----------
Net cash and cash equivalents used in investing activities (113,634) (101,974) (55,856)
----------- ----------- -----------
Financing activities:
Net increase (decrease) in noninterest-bearing deposits (2,281) 15,623 6,242
Net increase in interest-bearing deposits 41,518 102,750 27,440
Net increase (decrease) in short-term borrowings 19,683 (7,769) (158)
Proceeds from long-term borrowings 26,500 4,745 12,800
Repayment of long-term borrowings (405) (135) (210)
Cash dividends paid (2,994) (2,860) (2,791)
Issuance of common stock 341 334 304
Purchases of common stock (1,915) - (39)
----------- ----------- -----------
Net cash and cash equivalents provided by financing activities 80,447 112,688 43,588
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (21,101) 12,339 (255)
Cash and cash equivalents at beginning of year 41,020 28,681 28,936
----------- ----------- -----------
Cash and cash equivalents at end of year $ 19,919 $ 41,020 $ 28,681
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest $ 27,566 $ 24,267 $ 21,053
Income taxes $ 1,840 $ 2,747 $ 2,517
Supplemental schedule of noncash investing and financing activities:
Loan balances transferred to foreclosed properties $ 311 $ 50 $ 475
Unrealized gain (loss) on securities available for sale $ (11,047) $ 964 $ 2,163
Issuance of common stock in exchange for net assets in acquisition $ 1,000 $ - $ -
Issuance of common stock for services rendered $ 20 $ - $ -
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
- --------------------------------------------------------------------------------
. SUSAN NEPRUD . GERRY P. NEWTON . RENEE NEWTON . JENNY NORRIS . DONNA A. NORTON
. JEANNA M. OTT . JOYCE S. OTTO . MICHELLE C. PAGE . DARLENE M. PALMER . C.
THOMAS PARCELL, III . MARY J. PARKER
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNION BANKSHARES CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
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. 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, Northern Neck State Bank,
Rappahannock National Bank, Bank of Williamsburg and its
non-banking subsidiaries, Union Investment Services and Mortgage
Capital Investors ("MCI"). During 1999 King George State Bank was
merged into Union Bank and Trust Company with King George State
Bank ceasing to exist. All significant intercompany balances and
transactions have been eliminated. The accompanying consolidated
financial statements for prior periods reflect certain
reclassifications in order to conform with the 1999 presentation.
On February 11, 1999 the Company completed the purchase of
Mortgage Capital Investors, a mortgage origination business
headquartered in Springfield, Virginia with locations in the
states of Virginia, Maryland, North Carolina, South Carolina, New
Jersey and Connecticut. This business was purchased to enhance the
Company's existing mortgage operations (which was merged into MCI)
and increase noninterest income. This acquisition was accounted
for under the purchase method of accounting. The final purchase
price was $3,560,000. At closing the Company paid $1,000,000 in
cash and $1,000,000 in common stock totaling 61,490 shares. In
addition, a total of $1,560,000 in cash and common stock is to be
distributed over the next three anniversary dates. As a result of
this transaction, goodwill in the amount of $1,211,000 was
recorded and is being amortized using the straight line method
over 10 years.
(B) INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
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. The net unrealized gains or losses on
securities available for sale, net of deferred taxes, are included
in accumulated other comprehensive income (loss) in stockholders'
equity. Gains and losses on the sale of securities are determined
using the specific identification method.
Purchased premiums and discounts are recognized in interest income
using the interest method over the terms of the securities.
Declines in the fair value of held-to-maturity and
available-for-sale securities below their cost that are deemed to
be other than temporary are reflected in earnings as realized
losses. Gains and losses on the sale of securities are recorded on
the trade date and are determined using the specific
identification method.
(C) LOANS HELD FOR SALE
Loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated fair value in the
aggregate. Net unrealized losses, if any, are recognized through a
valuation allowance by charges to income.
(D) LOANS
Interest on loans is calculated using principally 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.
26
<PAGE>
- --------------------------------------------------------------------------------
. DEBORAH A. PAULEY . LORI PAYNE . ARTHUR E. PEARSON . MARJORIE S. PERKINS .
JOYCE S. PITTS . KAREN POATES . TAMARA D. PRITCHARD . KIMBERLY PUGH . JOHN M.
RANDOLPH . DOUGLAS M. RANSONE .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
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.
(E) 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.
A loan is considered impaired when, based on current information
and events, it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Factors
considered by management in determining impairment include payment
status, collateral value, and the probability of collecting
scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines
the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation
to the principal and interest owed. Impairment is measured on a
loan by loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's obtainable market
price, or the fair value of the collateral if the loan is
collateral dependent. The Company includes, as a component of its
allowance for loan losses, amounts it deems adequate to cover
estimated losses related to impaired loans. Interest income on
impaired loans is recognized on a cash basis.
(F) BANK PREMISES AND EQUIPMENT
Bank premises and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed using either the straight-line or accelerated 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.
(G) INTANGIBLE ASSETS
Core deposit intangibles are included in other assets and are
being amortized on a straight-line basis over the period of
expected benefit, which approximates 15 years. Core deposits, net
of amortization amounted to $5,465,000 and $5,846,000 at December
31, 1999 and 1998, respectively. Other assets also includes
goodwill, which is being amortized on a straight line basis over
the period of expected benefit, approximately ten years. Goodwill,
net of amortization, totaled $1,111,000 at December 31, 1999.
(H) INCOME TAXES
Deferred income tax assets and liabilities are determined using
the liability (or balance sheet) method. Under this method, the
net deferred tax asset or liability is determined based on the tax
effects of the temporary differences between the book and tax
bases of the various balance sheet assets and liabilities and
gives current recognition to changes in tax rates and laws.
(I) 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
27
<PAGE>
- --------------------------------------------------------------------------------
RAYMOND C. RATCLIFFE . CAROLYN K. RAWLINGS . HEATHER E. RICHARD . NANCY L. ROCHE
. BARBARA JEANNE ROLL . ROSALIND ROLLINS . DONNA J. SABOURIN . EMILY E. SALE .
GARY A. SALINSKY . KATHRYN
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
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.
(J) 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.
(K) 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. Termination of
this plan is in process and is anticipated to be completed in
2000.
(L) EARNINGS PER SHARE
Basic earnings per share (EPS) is computed by dividing net income
by the weighted average number of common shares outstanding during
the year. Diluted EPS is computed using the weighted average
number of common shares outstanding during the year, including the
dilutive effect of stock options.
(M) COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) represents all changes in equity of an
enterprise that result from recognized transactions and other
economic events of the period. Other comprehensive income (loss)
refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in
comprehensive income but excluded from net income, such as
unrealized gains and losses on certain investments in debt and
equity securities.
(N) USE OF ESTIMATES
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions of certain amounts in
the financial statements. Actual results could differ from these
estimates. Material estimates that are particularly susceptible to
significant change in the near term include the allowance for loan
losses and the valuation of foreclosed real estate and deferred
tax assets.
2 INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses of investment
securities and estimated fair value at December 31, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. government and agency securities $ 1,300 $ 1 $ (6) $ 1,295
Obligations of states and
political subdivisions 7,260 33 (85) 7,208
Corporate and other bonds 1,018 - (3) 1,015
----------- ----------- ------------ -----------
$ 9,578 $ 34 $ (94) $ 9,518
=========== =========== ============ ===========
1998
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ------------ -----------
U.S. government and agency securities $ 5,747 $ 40 $ - $ 5,787
Obligations of states and
political subdivisions 8,765 241 - 9,006
Corporate and other bonds 1,630 29 - 1,659
------------ ----------- ------------ -----------
$ 16,142 $ 310 $ - $ 16,452
============ =========== ============ ===========
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
N. SEAY . GAIL A. SHANIKA . BONNIE C. SHOCKEY . HEATHER SHUFF . JUDITH C. SHUPE
. JOYCE O. SMART . KATHLEEN L. SMILEY . TERRIA SPENCER . JUDITH E. STADDAN . GAY
N. STANLEY . SHELLEY A. STENGER .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
The amortized cost, estimated fair value and gross unrealized gains and
losses of securities available for sale at December 31, 1999 and 1998 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. government and agency securities $ 21,994 $ - $ (1,405) $ 20,589
Obligations of states and
political subdivisions 95,611 720 (3,530) 92,801
Corporate and other bonds 16,257 34 (805) 15,486
Mortgage-backed securities 70,047 34 (2,568) 67,513
Federal Reserve Bank stock 706 - - 706
Federal Home Loan Bank stock 3,923 - - 3,923
Other securities 680 43 (20) 703
------------ ----------- ------------ -----------
$ 209,218 $ 831 $ (8,328) $ 201,721
============ =========== ============ ===========
<CAPTION>
1998
----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
U.S. government and agency securities $ 7,647 $ 64 $ - $ 7,711
Obligations of states and
political subdivisions 73,523 2,979 (39) 76,463
Corporate and other bonds 4,175 98 - 4,273
Mortgage-backed securities 69,015 489 (108) 69,396
Federal Reserve Bank stock 484 - - 484
Federal Home Loan Bank stock 2,517 - - 2,517
Other securities 317 67 - 384
------------ ----------- ------------ -----------
$ 157,678 $ 3,697 $ (147) $ 161,228
============ =========== ============ ===========
</TABLE>
The amortized cost and estimated fair value (in thousands) of investment
securities and securities available for sale at December 31, 1999, 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 $ 4,207 $ 4,215 $ 33,820 $ 32,958
Due after one year through five years 5,371 5,303 125,439 120,900
Due after five years through ten years - - 35,365 33,832
Due after ten years - - 9,285 8,699
------------ ----------- ------------ -----------
9,578 9,518 203,909 196,389
Federal Reserve Bank stock - - 706 706
Federal Home Loan Bank stock - - 3,923 3,923
Other securities - - 680 703
------------ ----------- ------------ -----------
$ 9,578 $ 9,518 $ 209,218 $ 201,721
============ =========== ============ ===========
</TABLE>
Securities with an amortized cost of approximately $67,691,000 and
$43,297,000 at December 31, 1999 and 1998 were pledged to secure public
deposits, repurchase agreements and for other purposes.
29
<PAGE>
- --------------------------------------------------------------------------------
JANE M. STIEGLER . LORI S. STINSON . NELSON DOUGLAS STREET . CHARLOTTE K.
SULLIVAN . TRACY SULLIVAN . TANYA Y. SUMBRY . CHRISTINA TAYLOR . SHIRL A. TAYLOR
. ANN M. TERRY . HALEY THOMAS .
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
Sales of securities available for sale produced the following results for
the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------------ ----------- ------------
<S> <C> <C> <C>
Proceeds $ 14,259 $ 56,472 $ 2,857
============ =========== ============
Gross realized gains $ 20 $ 195 $ 58
Gross realized (losses) (4) (124) (87)
------------ ----------- ------------
Net realized gains (losses) $ 16 $ 71 $ (29)
============ =========== ============
</TABLE>
3 LOANS
Loans are stated at their face amount, net of unearned income, and
consist of the following at December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate loans
Residential 1 - 4 family $ 167,801 $ 144,778
Commercial 120,490 108,063
Construction 33,218 38,128
Second Mortgages 11,445 11,065
Equity lines of credit 20,987 18,737
Multifamily 4,592 5,521
Agriculture 2,373 994
----------- -----------
Total real estate loans 360,906 327,286
----------- -----------
Commercial loans 67,649 61,678
----------- -----------
Consumer installment loans
Personal 102,713 79,492
Credit cards 4,346 3,232
----------- -----------
Total consumer installment loans 107,059 82,724
----------- -----------
All other loans and agriculture loans 8,870 9,154
----------- -----------
Gross loans 544,484 480,842
Less unearned income on loans 1,117 1,020
----------- -----------
Loans, net of unearned income $ 543,367 $ 479,822
=========== ===========
</TABLE>
At December 31, 1999 and 1998, the recorded investment in loans which
have been identified as impaired loans, in accordance with Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114), totaled $1,487,000 and $2,813,000,
respectively. The valuation allowance related to impaired loans on
December 31, 1999 is $513,000 and $1,436,000, respectively. At December
31, 1999, 1998 and 1997, the average investment on impaired loans was
$2,418,000, $3,054,000 and $1,357,000, respectively. The amount of
interest income recorded by the Company during 1999, 1998 and 1997 on
impaired loans was approximately $9,000, $61,000 and $102,000,
respectively.
4 ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for loan losses for the years ended December 31,
1999, 1998 and 1997 are summarized below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Balance, beginning of year $ 6,407 $ 4,798 $ 4,612
Provision charged to operations 2,216 3,044 1,182
Recoveries credited to allowance 346 274 213
----------- ----------- ------------
Total 8,969 8,116 6,007
Loans charged off 2,352 1,709 1,209
----------- ----------- ------------
Balance, end of year $ 6,617 $ 6,407 $ 4,798
=========== =========== ============
</TABLE>
30
<PAGE>
- --------------------------------------------------------------------------------
TAMMY C. THOMAS . KAREN C. THOMPSON . SHARON TOLIVER . MICHAEL L. TOROSIAN .
SUZANNE-MARIE C. TULLOSS . KIMBERLY TYREE . JEAN G. UPSHAW . MORTON UPSHAW .
WENDY G. VERNE . BETTY J. WALLER .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
5 BANK PREMISES AND EQUIPMENT
Bank premises and equipment as of December 31, 1999 and 1998 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land $ 5,187 $ 5,386
Land improvements and buildings 13,896 13,328
Leasehold improvements 503 383
Furniture and equipment 12,607 11,031
Construction in progress 613 762
----------- -----------
32,806 30,890
Less accumulated depreciation and amortization 11,348 9,833
----------- -----------
Bank premises and equipment, net $ 21,458 $ 21,057
=========== ===========
</TABLE>
Depreciation expense for 1999, 1998 and 1997 was $1,683,000, $1,472,000
and $1,359,000 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, 1999 are approximately
$851,000 for 2000, $692,000 for 2001, $453,000 for 2002, $425,000 for
2003, $360,000 for 2004, and $2,417,000 thereafter. Rental expense for
years ended December 31, 1999, 1998 and 1997 totaled $980,000, $218,000
and $193,000 respectively.
6 DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or
more at December 31, 1999 and 1998 was $107,654,000 and $80,926,000,
respectively. At December 31, 1999, the scheduled maturities of time
deposits are as follows (in thousands):
2000 $ 262,815
2001 33,551
2002 16,820
2003 29,693
2004 7,359
Thereafter 240
-----------
$ 350,478
===========
7 Other Borrowings
Short-term borrowings consist of the following at December 31, 1999 and
1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Federal funds purchased $ 750 $ 4,500
Securities sold under agreements to repurchase 16,789 14,856
Other short-term borrowings 21,620 120
----------- -----------
Total $ 39,159 $ 19,476
=========== ===========
Weighted interest rate 5.37% 3.92%
Average for the year ended December 31:
Outstanding $ 36,545 $ 15,150
Interest rate 5.18% 5.26%
Maximum month-end outstanding $ 53,363 $ 41,621
</TABLE>
The subsidiary banks maintain Federal funds lines with several regional
banks totaling approximately $52 million at December 31, 1999. The
Company also had a line of credit with the Federal Home Loan Bank of
Atlanta for $100 million at December 31, 1999.
Short-term borrowings consist of securities sold under agreements to
repurchase which are secured transactions with customers and generally
mature the day following the date sold. Short-term borrowings also
include federal funds purchased, which are unsecured overnight borrowings
from other financial institutions, and advances from the Federal Home
Loan Bank of Atlanta, which are secured by mortgage-related assets.
At December 31, 1999, the Company's fixed-rate long-term debt totals
$49,175,000 and matures through December 6, 2009. The interest rate on
the fixed-rate note payable ranges from 5.12% to 6.61%. At December 31,
1998, the Company had long-term debt totaling $28,325,000, maturing
through 2008. The
31
<PAGE>
- --------------------------------------------------------------------------------
KIMBERLY L. WALTERS . R. TYLER WARE . JAMES M. WATKINS . BARBARA J. WILLIAMS .
DAWN WILSON . DREAMA B. WINGARD . JOAN WOODSIDE . REBECCA WUNCE . MICHAEL S.
YUHASZ . UNION BANKSHARES
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
interest rate on the notes payable ranged from 5.51% to 6.61% at December
31, 1998.
At December 31, 1999, the Company's floating-rate long-term debt totals
$5,245,000 and matures through July 1, 2004. The floating rates are based
on the 90 day LIBOR plus 95 basis points and the 90 day LIBOR plus 100
basis points. The interest rate on floating-rate long-term debt ranged
from 5.95% to 6.25% during 1999.
The contractual maturities of long-term debt are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999
-----------------------------------------------
FIXED RATE FLOATING RATE TOTAL
<S> <C> <C> <C>
Due in 2000 $ 150 $ 300 $ 450
Due in 2001 10,150 320 10,470
Due in 2002 6,150 3,605 9,755
Due in 2003 150 120 270
Due in 2004 17,575 900 18,475
Thereafter 15,000 - 15,000
-----------------------------------------------
Total long-term debt $ 49,175 $ 5,245 $ 54,420
===============================================
</TABLE>
8 INCOME TAXES
Net deferred tax assets consist of the following components as of
December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 2,071 $ 1,799
Benefit plans 730 484
Other 221 135
Securities available for sale 2,567 -
----------- -----------
Total deferred tax assets 5,589 2,418
----------- -----------
Deferred tax liabilities:
Depreciation 503 326
Other 127 96
Securities available for sale - 1,207
----------- -----------
Total deferred tax liabilities 630 1,629
----------- -----------
Net deferred tax asset (included in other assets) $ 4,959 $ 789
=========== ===========
</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 allowance has been established.
The provision for income taxes charged to operations for the years ended
December 31, 1999, 1998 and 1997 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current tax expense $ 1,033 $ 2,245 $ 2,456
Deferred tax (benefit) (397) (567) (173)
----------- ----------- -----------
Income tax expense $ 636 $ 1,678 $ 2,283
=========== =========== ===========
</TABLE>
The income tax provisions differs from the amount of income tax
determined by applying the U.S. federal income tax rate to pretax income
for the years ended December 31, 1999, 1998 and 1997, due to the
following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" tax expense $ 2,350 $ 2,890 $ 3,553
(Decrease) in taxes resulting from:
Tax-exempt interest income (1,485) (1,203) (1,181)
Other, net (229) (9) (89)
----------- ----------- -----------
Income tax expense $ 636 $ 1,678 $ 2,283
=========== =========== ===========
</TABLE>
32
<PAGE>
- --------------------------------------------------------------------------------
CORPORATION . CARMELA L. ALBO . RUTH M. ARNOLD . TRACY BABER . MARILYN D. BAILEY
. MARY ALICE BALL . DENISE BARLOW . G. WILLIAM BEALE . ELIZABETH M. BENTLEY .
THOMAS J. BOYD, III . JEREMY
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
Low income housing credits totaled $72,425, $72,425 and $60,557 for the
years ended December 31, 1999, 1998 and 1997, respectively.
9 EMPLOYEE BENEFITS
The Company had a noncontributory, defined benefit pension plan covering
all full-time employees. Termination of this plan is in process and
should be completed in 2000. Significant assumptions used in determining
net periodic pension cost and projected benefit obligation for 1999, 1998
and 1997 were:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Discount rate 5.0% 7.5% 7.5%
Salary increase rate 5.0% 5.0% 5.0%
Average remaining service 20 years 21 years 22 years
</TABLE>
The following table sets forth the plan's funded status as calculated at
September 30, 1999, 1998 and 1997 and amounts recognized in the Company's
consolidated balance sheets at December 31, 1999, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 4,120 $ 3,756 $ 3,179
Service cost 544 384 323
Interest cost 325 281 237
Actuarial (gain) loss (568) (275) 43
Benefits paid (468) (26) (26)
----------- ----------- -----------
Benefit obligation at end of year 3,953 4,120 3,756
----------- ----------- -----------
Change in plan assets
Fair value of plan assets at beginning of year 3,109 3,271 2,723
Actual return on plan assets 524 (136) 394
Employer contribution 788 - 180
Benefits paid (468) (26) (26)
----------- ----------- -----------
Fair value of plan assets at end of year 3,953 3,109 3,271
----------- ----------- -----------
Funded status - (1,011) (485)
Unrecognized net obligation at transition 6 6 8
Unrecognized actuarial (gain) (1,447) (692) (872)
Unrecognized prior service cost 257 279 300
----------- ----------- -----------
Accrued pension liability (included in other liabilities) $ (1,184) $ (1,418) $ (1,049)
=========== =========== ===========
</TABLE>
Net periodic pension cost for 1999, 1998 and 1997 included the following
components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Service cost $ 544 $ 384 $ 323
Interest cost 326 281 238
Expected return on assets (329) (293) (281)
Net amortization and deferral 13 (3) 33
----------- ----------- -----------
Net periodic pension cost $ 554 $ 369 $ 313
=========== =========== ===========
</TABLE>
The Company also contributes to an employees' profit-sharing plan which
covers all full-time employees with vesting at various intervals over
seven years. Contributions are made annually at the discretion of the
subsidiary banks' Board of Directors. The payments to the plan for the
years 1999, 1998 and 1997 were approximately $553,000, $567,000 and
$621,000, respectively.
The Company has an obligation to certain members of the subsidiary banks'
Boards of Directors under deferred compensation plans in the amount of
$1,005,000 and $1,033,000 at December 31, 1999 and 1998, respectively. A
portion of the benefits will be funded by life insurance.
33
<PAGE>
- --------------------------------------------------------------------------------
BREAKFIELD . JOSEPH E. BROWN, JR. . ELEANOR A. BUFFINGTON . JEANNETTE B. BURKE .
CYNTHIA BYRD . REBECCA A. CARTER . CARMEN CATO . GEORGE B. CECIL, JR. . MARY Y.
CHILDS . DANA F. CRUTE . STACY
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
The Company has a stock option plan (the "Plan") adopted in 1993 that
authorizes the reservation of up to 400,000 shares of common stock and
provides for the granting of incentive options to certain employees.
Under the Plan, the option price cannot be less than the fair market
value of the stock on the date granted. An option's maximum term is ten
years from the date of grant. Options granted under the Plan may be
subject to a graded vesting schedule. A summary of changes for the Plan
for the years 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ---------- ----------- ---------- ---------
Year ended December 31, 1999 1998 1997
---------------------- ------------------------ ----------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding, January 1 146,132 $ 17.25 73,240 $ 8.66 63,240 $ 8.06
Granted 7,500 16.00 98,940 20.13 10,000 12.50
Exercised (400) 12.50 (26,048) 8.03 - -
---------- ---------- ----------
Options outstanding, December 31 153,232 $ 17.20 146,132 $ 17.25 73,240 $ 8.66
========== ========== ==========
Weighted average fair value per option
of options granted during year $ 5.71 $ 4.25 $ 3.59
========= ========== ==========
</TABLE>
A summary of options outstanding at December 31, 1999 follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- --------------------------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER REMAINING EXERCISE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE CONTRACTUAL LIFE PRICE
----------------- ----------- ---------------- ----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 7.46 - 6.53 5,040 .27 yrs. $ 6.53 5,040 .27 yrs. $ 6.53
7.46 - 11.00 20,000 5.05 11.00 16,000 4.05 11.00
22.00 - 12.50 21,752 6.49 12.50 12,491 6.46 12.50
22.00 - 16.00 7,500 9.06 16.00 - - -
22.00 - 20.13 98,940 8.06 20.13 19,788 8.06 20.13
------------ ------------
$ 6.53 - 20.13 153,232 7.24 $ 17.24 53,319 6.05 $ 14.31
============ ============
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for the Company's
stock options. Proforma adjustment of compensation cost for the
stock-based compensation plans are determined based on the grant date
fair values of awards (the method described in SFAS No. 123, "Accounting
for Stock-Based Compensation"). For the purpose of computing the proforma
amount, the fair value of each option on the date of grant is estimated
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1999, 1998 and 1997, respectively:
dividend yields of 2.24%, 2.40% and 2.40%; expected volatility of 25.45%,
23.00% and 23.00%; a risk free interest rate of 6.50%, 4.99% and 4.99%;
and an expected option life of 9.06 years. For 1999, proforma net income
was $6,183,000; proforma and diluted earnings per share were $0.83 and
$0.82, respectively. For 1998 and 1997 the Company's net income and
earnings per share as reported would not have been impacted by a material
amount based on the above assumptions..
10 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.
34
<PAGE>
- --------------------------------------------------------------------------------
DABNEY . CHRISTINE DAVIS . KAREN S. DEWITT . LAURIE DILLARD . PEGGY A. DIMAIO .
DAWNA D. EACHO . MARLENE ELLISON . CAROLYN D. FARMER . JAMES G. FINCH . NORMA J.
FINCH . JILL L. FOSTER . MYLES W.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
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, 1999 and 1998, the Company had outstanding loan
commitments approximating $114,915,000 and $80,404,000, 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 $8,495,000 and $5,962,000 at December 31, 1999 and
1998, 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 Rappahannock to Hanover County, Virginia and in the Northern Neck
area of Virginia.
11 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 $9,591,000 and $8,847,000 as of December 31, 1999 and
1998, respectively. During 1999 new advances to such related parties
amounted to $11,220,000 and repayments amounted to $10,476,000.
12 EARNINGS PER SHARE
The following is a reconciliation of the denominators of the basic and
diluted EPS computations for December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- -----------
(dollars and shares information in thousands)
<S> <C> <C> <C>
For the Year Ended December 31, 1999
Basic EPS $ 6,274 7,474 $ .84
Effect of dilutive stock options - 24 -
----------- ------------- -----------
Diluted EPS $ 6,274 7,498 $ .84
----------- ------------- -----------
For the Year Ended December 31, 1998
Basic EPS $ 6,822 7,490 $ .91
Effect of dilutive stock options - 26 -
----------- ------------- -----------
Diluted EPS $ 6,822 7,516 $ .91
----------- ------------- -----------
For the Year Ended December 31, 1997
Basic EPS $ 8,166 7,455 $ 1.10
Effect of dilutive stock option - 27 -
----------- ------------- -----------
Diluted EPS $ 8,166 7,482 $ 1.09
----------- ------------- -----------
</TABLE>
In 1999, stock options representing 98,940 shares were not included in
the calculation of earnings per share as their effect would have been
antidilutive.
13 LEGAL CONTINGENCIES
Various legal claims also arise from time to time in the normal course of
business which, in the opinion of management, will have no material
effect on the Corporation's consolidated financial statements.
14 REGULATORY MATTERS
The Corporation and its subsidiary banks are subject to various
regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate
certain mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have
35
<PAGE>
H. GAYTHWAITE . DANTE GRAY . DIANA L. HAINES . MICHAEL S. HARRIS . SHARON
HARRISON . MICHAEL HAYES . DOUGLAS J. HILL . JAMES D. HOFSTEE . JAY HUDGINS .
THERESA JETT . TERI G. KETOLA . JOHN A.
UNION BANKSHARES CORPORATION
a direct material effect on the Company's and Banks' financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Banks must meet
specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors. Prompt
corrective action provisions are not applicable to bank holding
companies.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and Banks to maintain minimum amounts and
ratios of total and Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1999, that the Company
and Banks meet all capital adequacy requirements to which they are
subject.
The most recent notification from the Federal Reserve Bank as of December
31, 1999, categorized the Banks as well capitalized under the regulatory
framework for prompt corrective action (PCA). To be categorized as
adequately capitalized, an institution must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the Banks' category.
The Company's and principal banking subsidiaries' actual capital amounts
and ratios are also presented in the table.
<TABLE>
<CAPTION>
MINIMUM MINIMUM TO BE WELL CAPITALIZED
CAPITAL UNDER PROMPT CORRECTIVE ACTION
ACTUAL REQUIREMENT PROVISIONS
------------------------ ----------------------- ------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------- ---------- ----------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1999
Total capital to risk weighted assets
Consolidated $ 73,790 12.21% $ 48,362 8.00% $ NA NA
Union Bank & Trust 46,417 10.38% 35,780 8.00% 44,726 10.00%
Northern Neck State Bank 18,376 13.04% 11,273 8.00% 14,091 10.00%
Tier 1 capital to risk weighted assets
Consolidated 67,173 11.11% 24,181 4.00% NA NA
Union Bank & Trust 41,513 9.28% 17,890 4.00% 26,835 6.00%
Northern Neck State Bank 16,813 11.93% 5,636 4.00% 8,455 6.00%
Tier 1 capital to average adjusted assets
Consolidated 67,172 8.35% 32,191 4.00% NA NA
Union Bank & Trust 41,513 7.16% 23,192 4.00% 28,990 5.00%
Northern Neck State Bank 16,813 7.97% 8,434 4.00% 10,542 5.00%
As of December 31, 1998
Total capital to risk weighted assets
Consolidated $ 71,577 13.70% $ 41,797 8.00% $ NA NA
Union Bank & Trust 44,576 11.64% 30,636 8.00% 38,296 10.00%
Northern Neck State Bank 17,247 13.30% 10,374 8.00% 12,967 10.00%
Tier 1 capital to risk weighted assets
Consolidated 65,170 12.47% 20,905 4.00% NA NA
Union Bank & Trust 39,819 10.40% 15,315 4.00% 22,973 6.00%
Northern Neck State Bank 15,739 12.14% 5,187 4.00% 7,780 6.00%
Tier 1 capital to average adjusted assets
Consolidated 65,170 9.06% 28,773 4.00% NA NA
Union Bank & Trust 39,819 7.64% 20,848 4.00% 26,060 5.00%
Northern Neck State Bank 15,739 8.31% 7,578 4.00% 9,473 5.00%
</TABLE>
15 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation.
Fair value is best determined based on quoted market prices. However, in
many instances, there are no quoted market prices for the Company's
various financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. Accordingly, the fair value estimates may not be
realized in an immediate settlement of the instruments. SFAS 107 excludes
certain financial
36
<PAGE>
- --------------------------------------------------------------------------------
LANE . STUART LEINENBACH . STACY LEWIS . RICHARD L. LOVE . JENNIFER MACKNIGHT .
MARY F. MALLOY . SHARON L. MCENHIMER . MATTHEW MCWHIRT . KAREN H. MILLER .
MICHELLE A. MINES . LORI B.
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented may
not necessarily represent the underlying fair value of the Company.
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.
LOANS HELD FOR SALE
Fair values of mortgage loans held for sale are based on
commitments on hand from investors or prevailing market prices.
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.
ACCRUED INTEREST
The carrying amounts of accrued interest approximate fair value.
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, 1999 and 1998, 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, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------- -----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 19,919 $ 19,919 $ 41,020 $ 41,020
Investment securities 9,578 9,518 16,142 16,452
Securities available for sale 201,721 201,721 161,228 161,228
Net loans 536,750 529,377 473,415 476,606
Loans held for sale 6,680 6,680 - -
Accrued interest receivable 5,527 5,527 4,715 4,715
Financial liabilities:
Deposits 646,866 648,928 607,629 611,834
Borrowings 93,579 93,840 47,801 48,145
Accrued interest payable 1,891 1,891 1,451 1,451
</TABLE>
37
<PAGE>
- --------------------------------------------------------------------------------
NEWSOME . SCOTT Q. NININGER . MELISSA D. OESTERHELD . MICHELLE OSBORNE . JANICE
D. PAVIE . D. ANTHONY PEAY . THOMAS G. PEREGOY . ALMEDA H. PITTS . SARAH PITTS .
CYNTHIA A. RINALDI . JOYCE W.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
16 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. As of December 31, 1999 the aggregate amount of unrestricted
funds which could be transferred from the Company's subsidiaries to the
Parent Company, without prior regulatory approval, totaled $7,965,000 or
13.6% of the consolidated net assets. Financial information for the
Parent Company follows:
UNION BANKSHARES CORPORATION ("PARENT COMPANY ONLY")
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Assets:
Cash $ 221 $ 1,927
Certificates of deposit - 29
Securities available for sale 306 273
Premises and equipment, net 3,652 3,809
Other assets 3,162 2,239
Due from subsidiaries - 115
Investment in subsidiaries 66,818 66,765
----------- -----------
Total assets $ 74,159 $ 75,157
=========== ===========
Liabilities and Stockholders' equity:
Long-term debt $ 5,365 $ 1,620
Other liabilities - 178
----------- -----------
Total liabilities 5,365 1,798
----------- -----------
Common stock 14,976 15,015
Surplus 163 311
Retained earnings 58,603 55,690
Accumulated other comprehensive income (loss) (4,948) 2,343
----------- -----------
Total stockholders' equity 68,794 73,359
----------- -----------
Total liabilities and stockholders' equity $ 74,159 $ 75,157
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Interest income $ 9 $ 11 $ 11
Dividends received from subsidiaries 5,488 7,250 3,434
Equity in undistributed net income of subsidiaries 2,402 511 5,052
Other income 626 - 62
----------- ----------- -----------
Total income 8,525 7,772 8,559
----------- ----------- -----------
Expense:
Interest expense 305 115 64
Operating expenses 1,946 835 329
----------- ----------- -----------
Total expense 2,251 950 393
----------- ----------- -----------
Net income $ 6,274 $ 6,822 $ 8,166
=========== =========== ===========
</TABLE>
38
<PAGE>
- --------------------------------------------------------------------------------
ROLLINS . JAMES SANFORD . RUSSELL M. SCHOOLS, JR. . LORRELL T. SHABAZZ . STACY
G. SIMS . ALICE D. SKINNER . GAIL S. SMITH . VIOLA SMITH . KAREN E. SORRELL .
SHARON L. SULLIVAN . PANDORA SWIFT .
- --------------------------------------------------------------------------------
1999 ANNUAL REPORT
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 6,274 $ 6,822 $ 8,166
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiaries (2,402) (511) (4,902)
Decrease (increase) in other assets 913 (1,312) (144)
Other, net (1,038) 299 (162)
----------- ----------- -----------
Net cash provided by operating activities 3,747 5,298 2,958
----------- ----------- -----------
Investing activities:
Purchase of securities (89) - -
Proceeds from maturity of securities 38 - 55
Purchase of equipment (691) (894) (2,585)
Increase in investment in subsidiary (4,000) - -
Decrease in investment in subsidiary 83 - -
----------- ----------- -----------
Net cash used by investing activities (4,659) (894) (2,530)
----------- ----------- -----------
Financing activities:
Net increase (decrease) in borrowings 4,000 (120) 1,740
Repayment of long-term borrowings (255) - -
Cash dividends paid (2,994) (2,860) (2,791)
Issuance of common stock under plans 341 334 304
Repurchase of common stock under plans (1,915) - (39)
----------- ----------- -----------
Net cash used in financing activities (823) (2,646) (786)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents (1,735) 1,758 (358)
Cash and cash equivalents at beginning of year 1,956 198 556
----------- ----------- -----------
Cash and cash equivalents at end of year $ 221 $ 1,956 $ 198
=========== =========== ===========
</TABLE>
17 SEGMENT REPORTING
Union Bankshares Corporation has two reportable segments: traditional
full service community banks and a mortgage loan origination business.
The community bank business includes 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 principally 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 realized
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
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.
39
<PAGE>
- --------------------------------------------------------------------------------
LISA L. TALLENT . FRANKLYN TAYLOR . THOMAS W. THOMPSON, III . DEBORAH USRY .
GEORGE WASHINGTON, JR. . DARRELL A. WATSON . SONYA WEINS . AIMEE WHITTAKER .
CAROLYN A. WILEY . DAVID S. WILSON .
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
Information about reportable segments and reconciliation of such
information to the consolidated financial statements as of and for the
year ended December 31, 1999 follows. Segment information for periods
prior to 1999 are not presented, as the Company's mortgage banking
operation was acquired during the current year:
<TABLE>
<CAPTION>
INTERSEGMENT CONSOLIDATED
BANKS MORTGAGE ELIMINATION OTHER TOTALS
---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 28,855 $ - $ - $ (286) $ 28,569
Provision for loan losses 2,216 - - - 2,216
Net interest income after provision for loan losses 26,639 - - (286) 26,353
Noninterest income 4,931 7,581 (51) 785 13,246
Noninterest expense 20,892 8,909 - 2,888 32,689
Income before income taxes 10,678 (1,328) (51) (2,389) 6,910
Income taxes (benefits) 1,996 (450) - (910) 636
---------- ---------- ---------- ---------- ------------
Net income (loss) $ 8,682 $ (878) $ (51) $ (1,479) $ 6,274
========== ========== ========== ========== ============
Assets $ 817,270 $ 8,598 $ (77,309) $ 73,268 $ 821,827
========== ========== ========== ========== ============
Capital expenditures $ 1,015 $ 26 $ - $ 691 $ 1,732
========== ========== ========== ========== ============
</TABLE>
40
<PAGE>
- --------------------------------------------------------------------------------
JOHN E. WORRELL . DARE W. WRIGHT . PATRICIA A. ZIMMERMAN . UNION INVESTMENT
SERVICES . DARRYL BARNES . JULIET T. COLEMAN . BERNARD W. MAHON, JR. . ARIANE
SHAGENA . RANDALL W. VAUGHAN, JR.
- --------------------------------------------------------------------------------
UNION BANKSHARES CORPORATION
STOCKHOLDER INFORMATION
CORPORATE HEADQUARTERS
Union Bankshares Corporation
P.O. Box 446
212 North Main Street
Bowling Green, Virginia 22427-0446
(804) 633-5031
ANNUAL MEETING
The Annual Meeting of Stockholders will be held at 6:30 p.m. on Tuesday, April
---------------------------
18, 2000, at the Richmond County Elementary School, Warsaw, Virginia. All
- ---------
shareholders are cordially invited to attend.
COMMON STOCK
Union Bankshares' Common Stock is quoted on the NASDAQ National Market 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 semi-annually on June 1st and December 1st of each
year.
There were 7,487,829 shares of stock outstanding on December 31, 1999, held by
2,258 shareholders of record. The most recent trades at February 25, 2000 were
$13.25 per share which compares to a year earlier trading price of $19.00.
The following schedule summarizes the high and low sales prices and dividends
declared for the two years ended December 31, 1999.
Dividends
Market Values Declared
---------------------------- -------------
1999 1998
-------------- -------------
High Low High Low 1999 1998
------ ------- ------ ------ ------ ------
First Quarter $19.00 $ 14.37 $22.38 $19.88 $ - $ -
Second Quarter 20.00 15.75 22.75 20.75 0.20 .0.19
Third Quarter 19.00 14.63 23.00 17.50 - -
Fourth Quarter 16.00 13.25 20.25 14.50 0.20 0.19
----- -----
$0.40 $0.38
===== =====
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:
D. Anthony Peay
Vice President and Chief Financial Officer
Union Bankshares Corporation
P.O. Box 446
Bowling Green, Virginia 22427-0446
(804) 632-2112 e-mail: [email protected]
INDEPENDENT AUDITORS
Yount, Hyde & Barbour, P.C.
50 South Cameron Street
Winchester, VA 22601
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
(800) 368-5948
<PAGE>
Exhibit 21.0
Subsidiaries of Union Bankshares Corporation
Subsidiary State of Incorporation
---------- ----------------------
Union Bank & Trust Company Virginia
Northern Neck State Bank Virginia
Rappahannock National Bank Federally Chartered
Union Investment Services, Inc. Virginia
Bank of Williamsburg Virginia
Mortgage Capital Investors, Inc. Virginia
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
The Board of Directors
Union Bankshares Corporation
We consent to incorporation by reference in Registration Statements No. 33-78060
on Form S-3, No. 333-81199 on Form S-3, and No. 33-99900 on Form S-8 of Union
Bankshares Corporation of our report dated January 28, 2000, relating to the
consolidated balance sheet of Union Bankshares Corporation and subsidiaries (the
Company) as of December 31, 1999, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the year ended
December 31, 1999, which report appears in the Company's 1999 Form 10-K.
/s/ Yount, Hyde & Barbour, P.C.
Winchester, Virginia
March 30, 2000
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
Union Bankshares Corporation
We consent to incorporation by reference in Registration Statements No. 333-
81199 and 33-78060 on Form S-3 and No. 33-99900 on Form S-8 of Union Bankshares
Corporation of our report dated February 9, 1999, except as to Note 14, which is
as of February 11, 1999, relating to the consolidated balance sheet of Union
Bankshares Corporation and subsidiaries (the Company) as of December 31, 1998,
and the related consolidated statements of income and comprehensive income,
changes in stockholders' equity and cash flows for each of the years in the
two-year period ended December 31, 1998, which report appears in the Company's
1999 Form 10-K for the year ended December 31, 1999.
/s/ KPMG LLP
Richmond, Virginia
March 30, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,804
<INT-BEARING-DEPOSITS> 867
<FED-FUNDS-SOLD> 248
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 201,721
<INVESTMENTS-CARRYING> 9,578
<INVESTMENTS-MARKET> 9,518
<LOANS> 550,047
<ALLOWANCE> 6,617
<TOTAL-ASSETS> 821,827
<DEPOSITS> 646,866
<SHORT-TERM> 39,159
<LIABILITIES-OTHER> 12,588
<LONG-TERM> 54,420
0
0
<COMMON> 14,976
<OTHER-SE> 53,818
<TOTAL-LIABILITIES-AND-EQUITY> 821,827
<INTEREST-LOAN> 43,220
<INTEREST-INVEST> 12,416
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 55,636
<INTEREST-DEPOSIT> 22,769
<INTEREST-EXPENSE> 27,067
<INTEREST-INCOME-NET> 28,569
<LOAN-LOSSES> 2,216
<SECURITIES-GAINS> 16
<EXPENSE-OTHER> 32,689
<INCOME-PRETAX> 6,910
<INCOME-PRE-EXTRAORDINARY> 6,274
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,274
<EPS-BASIC> 0.84
<EPS-DILUTED> 0.84
<YIELD-ACTUAL> 4.30
<LOANS-NON> 1,487
<LOANS-PAST> 980
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,407
<CHARGE-OFFS> 2,352
<RECOVERIES> 346
<ALLOWANCE-CLOSE> 6,617
<ALLOWANCE-DOMESTIC> 6,617
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
Exhibit 99.0
Independent Auditors' Report
The Board of Directors
Union Bankshares Corporation
We have audited the consolidated balance sheet of Union Bankshares Corporation
and subsidiaries as of December 31, 1998, and the related consolidated
statements of income and comprehensive income, changes in stockholders' equity
and cash flows for each of the years in the two-year period ended December 31,
1998. 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, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Richmond, Virginia
February 9, 1999, except as to Note 14, which is as of February 11, 1999
