<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ________________
Commission File No. 0-21078
UNION BANKSHARES, LTD.
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0986148
------------------------------ ------------------
(State of other jurisdiction of (I.R.S Employer)
incorporation of organization) Identification No.)
1825 LAWRENCE STREET, SUITE 444, DENVER, CO 80202
(Address of principal executive offices)
(Zip Code)
(303) 298-5352
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------
Not Changed
- -------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No .
----- -----
At August 5, 1996, there were 1,149,982 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
<PAGE>
UNION BANKSHARES, LTD.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements. . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
June 30, 1996
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION> June 30, December 31,
1995 1996
ASSETS (Unaudited)
----------- -------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $16,038,000 $10,297,000
Federal funds sold 400,000 -
---------- ----------
Total cash and cash equivalents 16,438,000 10,297,000
Investment securities:
Investment securities held to maturity26,143,000 18,416,000
Investment securities available for sale34,985,00051,232,000
---------- ----------
Total investment securities61,128,000 69,648,000
Loans:
Commercial 62,724,000 54,488,000
Real estate mortgage 6,943,000 7,975,000
Mortgage loans held for sale 425,000 -
Real estate construction 7,315,000 5,064,000
Consumer 15,357,000 13,785,000
---------- ----------
Total loans 92,764,000 81,312,000
Less: allowance for loan losses (1,561,000) (1,448,000)
---------- ----------
91,203,000 79,864,000
Excess of investment in subsidiary over net
assets acquired 3,059,000 3,172,000
Furniture, equipment and improvements, net1,643,0001,690,000
Accrued interest receivable 1,167,000 1,085,000
Other assets 1,207,000 1,476,000
----------- -----------
TOTAL ASSETS $175,845,000 $167,232,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest-bearing) $45,335,000 $42,466,000
NOW14,341,000 13,512,000
Money Market 62,278,000 52,343,000
Savings 9,320,000 8,818,000
Time 24,986,000 23,036,000
----------- -----------
Total deposits 156,260,000 140,175,000
Federal funds purchased - 4,000,000
Notes payable 4,000,000 6,512,000
Accrued interest payable 92,000 230,000
Other liabilities 782,000 1,403,000
----------- -----------
Total liabilities 161,134,000 152,320,000
Stockholders' equity
Common stock 1,000 1,000
Common stock surplus 9,410,000 9,384,000
Valuation allowance (3,000) 852,000
Retained earnings 5,303,000 4,675,000
----------- -----------
Total stockholders' equity 14,711,000 14,912,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$175,845,000$167,232,000
=========== ===========
/TABLE
<PAGE>
UNION BANKSHARES, LTD.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
June 30, June 30,
------------------------ -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $4,450,000 $3,739,000 $2,278,000 $2,000,000
Interest on investment securities:
U.S. government agencies and corporations 786,000 944,000 279000 435000
States and other political subdivisions 949,000 829,000 475000 389000
U.S. Treasury 95,000 192,000 95000 57000
Federal Home Loan Bank 14,000 12,000 7,000 7,000
Interest on federal funds sold
and interest bearing deposits at other banks 40,000 60,000 27,000 44,000
--------- --------- --------- ---------
Total interest income 6,334,000 5,776,000 3,161,000 2,932,000
Interest on deposits 1,701,000 1,482,000 865,000 754,000
Interest on federal funds purchased 56,000 85,000 22,000 35,000
Interest on notes payable 217,000 273,000 82,000 136,000
--------- --------- --------- ---------
Total interest expense 1,974,000 1,840,000 969,000 925,000
--------- --------- --------- ---------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSS 4,360,000 3,936,000 2,192,000 2,007,000
PROVISION FOR LOAN LOSS 105,000 60,000 60,000 0
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS 4,255,000 3,876,000 2,132,000 2,007,000
NONINTEREST INCOME:
Service charges 185,000 158,000 93,000 78.00
Gain (loss) on sale of securities available for sale 212,000 (61,000) 101,000
(26,000)
Other 240,000 175,000 142,000 90,000
--------- --------- --------- ---------
Total non interest income 637,000 272,000 336,000 142,000
--------- --------- --------- ---------
NONINTEREST EXPENSE:
Salaries and employee benefits 1,916,000 1,516,000 950,000 789,000
Amortization of investment in subsidiary
over net assets acquired 113,000 113,000 56,000 57,000
Occupancy and equipment 593,000 471,000 280,000 242,000
Other 1,603,000 1,275,000 562,000 668,000
--------- --------- --------- ---------
Total non interest expense 4,225,000 3,375,000 1,848,000 1,756,000
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE 667,000 773,000 620,000 393,000
INCOME TAX EXPENSE (Note 3) 38,000 146,000 116,000 104,000
--------- --------- --------- ---------
NET INCOME $629,000 $627,000 $504,000 $289,000
========= ========= ========= =========
EARNINGS PER COMMON SHARE: (Note 4)
Net income available for common stockholders $629,000 $627,000 $504,000 $289,000
========= ========= ========= =========
Net income per share available for
common stockholders $0.53 $0.54 $0.42 $0.25
========= ========= ========= =========
Weighted average number of common shares
outstanding 1,183,331 1,155,932 1,184,498 1,203,645
========= ========= ========= =========
</TABLE>
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net cash provided (used) by operating activities ($5,156,000) $799,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities held to maturity (1,010,000) (900,000)
Proceeds from sale of securities available for sale 21,314,000 27,154,000
Purchase of securities available for sale (19,654,000) (12,573,000)
Loan origination fees received 238,000 227,000
Loan originations net of repayments (11,049,000) (11,743,000)
Proceeds from the sale of mortgage loans 3,681,000 563,000
Purchase of mortgage loans (4,106,000) (993,000)
Proceeds from maturities of securities available for sale 6,405,000 1,410,000
Proceeds from maturities of investment securities 2,026,000 3,640,000
Proceeds from sale of other real estate owned - 83,000
Purchase of premises and equipment (147,000) (179,000)
Net cash used in investing activities (2,302,000) 6,689,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 16,085,000 (2,003,000)
New borrowings long-term debt 4,000,000 -
Repayments of long-term debt (6,512,000) (188,000)
Purchase of common stock 26,000 (150,000)
Net cash provided by financing activities 13,599,000 (2,341,000)
Net increase in cash and cash equivalents 6,141,000 5,147,000
Cash and cash equivalents, beginning of year 10,297,000 6,329,000
Cash and cash equivalents, end of quarter $16,438,000 $11,476,000
/TABLE
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB and do not
include all the information and note disclosures required by generally
accepted accounting principles for complete financial statements. For
further information, refer to the consolidated financial statements
and related footnotes included in the Company's annual report on form
10-KSB for the year ended December 31, 1995. In the opinion of
Management, the consolidated financial statements presented herein
include all adjustments (consisting of normal recurring accruals)
necessary to present fairly, in all material respects, the
consolidated financial position of Union Bankshares, Ltd. (the
"Company") as of June 30, 1996 and the Company's results of operations
for the three and six months ended June 30, 1996 and 1995, and
statements of cash flows for the six months ended June 30, 1996 and
1995.
Certain reclassifications have been made to the June 30, 1995
Consolidated Financial Statements to conform to the June 30, 1996
Consolidated Financial Statements.
NOTE 2. RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30,
1996 are not indicative of the results to be expected for the full
year.
NOTE 3. INCOME TAXES
Income taxes are provided for on the liability method, in accordance
with Financial Accounting Standards Board (FASB) Statement No. 109,
whereby deferred assets are recognized for deductible temporary
differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are defined as the differences
between the reported amounts of assets and liabilities and their tax
basis. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of
changes in the tax laws and rates on the date of enactment.
<PAGE>
NOTE 4. EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income
available for common stockholders by the weighted average number of
shares of common stock outstanding during the period plus the
equivalent number of shares purchasable under common stock options, if
dilutive. Earnings per common share were affected by 34,516 shares
purchasable pursuant to exercisable options during the three and six
months ended June 30, 1996. Earnings per common share were affected
by 1,056 shares purchasable pursuant to exercisable options during the
three and six months ended June 30, 1995.
NOTE 5. ACCOUNTING FOR INVESTMENTS
The Company was required to adopt Financial Accounting Standards Board
Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities, which requires the Company to classify investment
securities as trading, available for sale or held to maturity.
Investments classified as trading and available for sale are to be
valued at their fair market value while investment securities
classified as held to maturity are valued at cost. At June 30, 1996,
the Company classified $34,985,000 of its investment portfolio as
available for sale and $26,143,000 as held to maturity. No amounts
were classified as trading. The adoption of this statement decreased
the equity of the Company by approximately $3,000, net of deferred
taxes of approximately $28,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary presents management's discussion and analysis
of the Company's financial performance and financial condition for the
second quarter and six months ended June 30, 1996. The discussion is
a supplement to the unaudited Consolidated Financial Statements and
should be read in conjunction with those statements.
RESULTS OF OPERATIONS
- ---------------------
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30,
- --------------------------------------------------------------------
1995
- ----
OVERVIEW: Union Bankshares, Ltd. (the "Company") reported net income
- ---------
of $629,000 for the six months ended June 30, 1996, an increase of .3%
from net income of $627,000 for the first six months of 1995.
Earnings were positively impacted in the first six months of 1996 by
an increase in net interest income of $424,000, an increase in gain on
sale of securities of $273,000, an increase in other noninterest
income of $92,000 and a decrease in income tax expense of $106,000
compared to the 1995 period. These improvements were partially offset
by an $850,000 increase in noninterest expense and a $45,000 increase
in provision for loan loss for the six months ended June 30, 1996.
$538,000 of the increase in noninterest expense relates to the
Company's redemption of its outstanding convertible subordinated notes
(the "Notes") as it was required to write off the balance of the
public offering costs relating to the Notes and the one percent
premium paid at redemption of the Notes. The remainder of the
increase in noninterest expense relates primarily to branch opening
and start-up expenses. Net income per share was $.53 for the six
months ended June 30, 1996 compared to $.54 per share for the 1995
period. Return on average assets and average equity were .77% and
8.41%, respectively, for the six months ended June 30, 1996 compared
to .85% and 9.94% for the first six months of 1995. Net income and
return on average assets and equity were similarly affected by the
write-offs in connection with the redemption of the Notes.
During the first six months of 1996, the Bank's loan portfolio has
increased by 611.5 million, while its deposits have increased $16.1
million. In addition, the Company's long term debt decreased $2.5
million as a result of the redemption of the $6.5 million of the Notes
and the subsequent funding of the $4.0 million loan from Boatmen's
First National Bank of Kansas City ("Boatmen's"). In order to fund
the balance of the Note redemption, the Company reduced its investment
securities portfolio by $2.5 million.
-6-<PAGE>
The average prime rate and average federal funds rate decreased during
the first six months of 1996 approximately 60 basis points and 57
basis points, respectively, from the comparable 1995 period. These
decreases affected the Company's average yields on loans and
securities, and its average cost of funds and net interest margin.
INTEREST INCOME: Interest income increased $558,000, or 9.7%, to
- ----------------
$6,334,000 for the period ended June 30, 1996 from $5,776,000 for the
comparable 1995 period, primarily as a result of higher loan balances
during the period. The Company's net yield on interest earning assets
on a fully tax equivalent basis was 9.01% for the first six months of
1996, which reflects a decrease of 14 basis points (each basis point
equals 1/100 of 1%) from the comparable 1995 period. The average
yield on loans decreased from 10.75% in the 1995 period to 10.40% in
the 1996 period, and the average yield on securities held by the
Company decreased from 7.40% in the 1995 period to 7.21% in the 1996
period. Interest income on loans was $711,000 greater in the 1996
period, while interest income on securities decreased $133,000 in the
1996 period.
INTEREST EXPENSE: Interest expense increased $134,000, or 7.3%, to
- -----------------
$1,974,000 for the six months ended June 30, 1996 from $1,840,000 for
the six months ended June 30, 1995. This increase is primarily due to
the $13.2 million increase in interest bearing deposit accounts in the
1996 period compared to those in the 1995 period. Average rates paid
on interest bearing deposits increased 6 basis points to 3.46% in the
first six months of 1996 from 3.40% in the first six months of 1995.
NET INTEREST INCOME: Net interest income before provision for loan
- --------------------
loss was $4,360,000 for the six months ended June 30, 1996, an
increase of $424,000, or 10.8%, over the first six months of 1995.
Net interest margin decreased 3 basis points from 6.35% in the 1995
period to 6.32% in the 1996 period. The increase in net interest
income from the 1995 period to the 1996 period is primarily due to a
$711,000 increase in interest income on loans, offset by a $133,000
decrease in interest income on securities and a $134,000 increase in
interest expense. The Company's average cost of funds for the six
months ended June 30, 1996 was 8 basis points lower than the
comparable 1995 period. The Company's average yield on interest
earning assets decreased 14 basis points in the 1996 period compared
to the 1995 period, from 9.15% to 9.01%.
NONINTEREST INCOME: Noninterest income increased $365,000 for the six
- -------------------
months ended June 30, 1996 to $637,000 from $272,000 for the six
months ended June 30, 1995. This increase was primarily due to a
$273,000 increase in the gain on sale of securities
-7-<PAGE>
available for sale from a $61,000 loss in the first six months of 1995
to a $212,000 gain in the first six months of 1996.
NONINTEREST EXPENSE: Noninterest expense increased $850,000, or
- --------------------
25.2%, for the first six months of 1996 to $4,225,000 compared to
$3,375,000 in the first six months of 1995. This increase is
primarily the result of increases in (i) salaries and benefits
relating primarily to annual merit increases and staffing expense at
the branches; (ii) marketing, initial start-up costs and overhead
expenses of the branches; and (iii) a one time $538,000 expense for
the write off of the balance of the public offering costs and the one
percent premium paid on the redemption of the Notes.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
- ---------------------------------------------------------------
JUNE 30, 1995
- -------------
OVERVIEW: The Company reported net income of $504,000 for the three
- ---------
months ended June 30, 1996, an increase of 74.4% from net income of
$289,000 for the comparable 1995 period. Net income was $.42 per
share for the three month period ended June 30, 1996, compared to $.24
per share for the 1995 period. Return on average assets and average
equity were 1.24% and 13.51%, respectively, for the three month period
ended June 30, 1996, compared to .79% and 9.00%, respectively, for the
1995 period.
The average prime rate and average federal funds rate deceased during
the three months ended June 30, 1996 approximately 75 basis points and
76 basis points, respectively, from the comparable 1995 period. These
decreases affected the Company's average yields on loans and
securities, and its average cost of funds and net interest margin.
INTEREST INCOME: Interest income increased $229,000, or 7.8%, to
- ----------------
$3,161,000 for the three month period ended June 30, 1996 from
$2,932,000 for the comparable 1995 period, primarily as a result of
higher loan balances during the period. The Company's net yield on
interest earning assets on a fully tax equivalent basis was 9.05% for
the three month period ended June 30, 1996, which reflects a decrease
of 27 basis points from the comparable 1995 period. The average yield
on loans decreased from 10.93% in the 1995 period to 10.37% in the
1996 period, and the average yield on securities held by the Company
decreased from 7.35% in the 1995 period to 7.13% in the 1996 period.
Interest income on loans was $278,000 greater in the 1996 period,
while interest income on securities decreased $32,000 in the 1996
period.
INTEREST EXPENSE: Interest expense increased $44,000, or 4.8%, to
- -----------------
$969,000 for the three month period ended June 30, 1996 from
-8-<PAGE>
$925,000 for the three month period ended June 30, 1995. Average
rates paid on interest bearing deposits increased 3 basis points to
3.48% in the three month period ended June 30, 1996 from 3.45% in the
three month period ended June 30, 1995.
NET INTEREST INCOME: Net interest income before provision for loan
- --------------------
loss was $2,192,000 for the three month period ended June 30, 1996, an
increase of $185,000, or 9.2%, over the comparable period of 1995.
Net interest margin decreased 9 basis points between the periods from
6.50% in the 1995 period to 6.41% in the 1996 period. The increase in
the net interest income is primarily due to a $278,000 increase in
interest income on loans, offset by a $32,000 decrease in interest
income on securities and a $44,000 increase in interest expense. The
Company's average cost of funds for the three month period ended June
30, 1996 was 15 basis points lower than in the comparable 1995 period.
The Company's average yield on earning assets decreased 27 basis
points in the 1996 period compared to the 1995 period, from 9.32% to
9.05%.
NONINTEREST INCOME: Noninterest income increased $194,000 for the
- -------------------
three month period ended June 30, 1996 to $336,000 from $142,000 for
the three month period ended June 30, 1995. This increase was
primarily due to a $127,000 increase in the gain on sale of securities
available for sale from a $26,000 loss in the three month period ended
June 30, 1995 to a $101,000 gain in the three month period ended June
30, 1996.
NONINTEREST EXPENSE: Noninterest expense increased $92,000, or 5.2%,
- --------------------
for the three month period ended June 30, 1996 to $1,848,000 compared
to $1,756,000 in the three month period ended June 30, 1995. This
increase is primarily the result of increases in (i) salaries and
benefits relating primarily to annual merit increases and staffing
expense at the branches; and (ii) marketing, initial start-up costs
and overhead expenses of the branches.
PROVISION FOR LOAN LOSS
- -----------------------
The Company charged $105,000 to Provision for Loan Loss in the first
six months of 1996 and $60,000 for the same period in 1995. The ratio
of loan loss reserve to total loans was 1.68% at June 30, 1996 and
1.72% at June 30, 1995. The Company sets its loan loss reserve at a
level considered adequate to provide for anticipated loan losses based
on management's assessment of various factors affecting the loan
portfolio. These factors include a review of problem loans, business
conditions, loan loss experience and an overall evaluation of the
quality of the collateral, holding and disposal costs and costs of
capital. Provision for loan loss is a direct charge against income
and is
-9-<PAGE>
determined by management based on the adequacy of the loan loss
reserve.
LIQUIDITY AND SOURCES OF FUNDS
- ------------------------------
The Company's total assets increased 5.2% to $175.8 million at June
30, 1996 from $167.2 million at December 31, 1995. During the six
months ended June 30, 1996 deposits increased $16.1 million to $156.3
million at June 30, 1996 from $140.2 million at December 31, 1995.
None of the Company's deposits at June 30, 1996 were brokered
deposits.
On April 1, 1996 the Company redeemed $6,486,000 of the $6,512,000
principal amount of Notes outstanding. The Company financed this
redemption by borrowing $4,000,000 from Boatmen's and using $2,551,000
of funds in the investment securities portfolio to fund the balance of
the redemption plus the $65,000 one percent premium paid to the
noteholders. The remaining $26,000 of Notes were converted by the
noteholders into 2,042 shares of common stock.
The Loan Agreement with Boatmen's provides for interest on outstanding
amounts to be payable at Boatmen's corporate base rate, which is
currently 8.25%. The Loan Agreement provides for a one-year term loan
which is renewable by the Company unless the Company's credit standing
is unsatisfactory based on the criteria set forth below. The Loan
Agreement contains a twelve-year amortization schedule, with interest
only for the first two years, assuming renewal of the loan in
accordance with its terms.
Annual renewal of the loan is based on the compliance by the Bank with
the following criteria:
1. Capital Ratio of not less than 6.25%;
2. Return on Average Assets of not below 1.00%;
3. Loan Loss Reserve/Total Loans Ratio of not below 1.00%;
4. Non-Performing Loans/Total Loans Ratio of not greater than
2.00%;
5. Debt Service Coverage Ratio of not less than 2:1; and
6. Absence of regulatory dividend restrictions.
In the event the Bank does not meet any of these criteria calculated
as of December 31 of each year and based on its financial statements,
the Company will have 90 days from the delivery of the financial
statements to cure the situation.
The loan is secured by the pledge of all of the shares of capital
stock of the Bank, and contains standard representations, warranties
and covenants.
The Company has also negotiated with Boatmen's for a revolving line of
credit in an amount not to exceed $3,000,000. Any monies
-10-<PAGE>
advanced under this line would be used solely for capital needs of the
Company or to purchase the stock of banks or bank holding companies.
This line of credit is available for one year only, with renewals to
be negotiated each year. If any principal is advanced on this line,
the terms of the repayment would also be negotiated depending upon the
use of proceeds. Interest on amounts outstanding under this revolving
line of credit, if any, is due quarterly.
Management anticipates that the Company will continue to rely
primarily on customer deposits, sales and maturities of investment
securities, loan sales and loan repayments, as well as retained
earnings to provide liquidity. These funds are used to make loans, to
acquire investment securities and other assets and to fund continuing
operations. The Company believes that its customer deposits will
continue to provide a strong source of liquidity because of the high
percentage of core deposits, many of which are held as compensating
balances under long-standing loan relationships.
ASSET QUALITY
- -------------
The Company's lending activities are guided by its Statement of
Lending Policies and Procedures. These policies are annually reviewed
and approved by the Bank's Board of Directors. The Bank employs an
internal auditor to monitor its internal supervision and audits of its
lending operation and the Company supplements these internal
procedures with independent examinations performed by professional
consultants and auditors. The Company monitors concentrations of
loans by collateral, purpose and industry. The Company has no
significant exposure to highly leveraged transactions and has no
foreign credits in its loan portfolio.
Total nonperforming assets were $17,000 and $192,000 at June 30, 1996
and December 31, 1995, respectively. Other Real Estate Owned (OREO)
was $0 at both June 30, 1996 and December 31, 1995. At June 30, 1996,
securities held to maturity were $26.1 million, or 42.8% of the total
portfolio, and securities available for sale totaled $35.0 million, or
57.2% of the total portfolio. Securities available for sale are those
securities which may be sold in response to changes in interest rates,
changes in the Company's short term liquidity needs or changes in
prepayment risk, and are stated at the lower of cost or estimated
market value. At June 30, 1996, the carrying value of investments
available for sale exceeded market value by approximately $82,000.
Securities held to maturity are considered longer term assets which
are normally held until maturity and are carried at amortized cost.
The carrying value of securities held to maturity exceeded market
value by approximately $86,000 at June 30, 1996. U.S. government
securities make up $31.3 million, or 51.2% of the investment
portfolio, and obligations of states and
-11-<PAGE>
political subdivisions (municipal securities), comprise $29.8 million,
or 48.8% of the portfolio at June 30, 1996.
As noted in the Company's Form 10-KSB for the year ended December 31,
1995, management has generally sought to control the exposure of the
Company's securities portfolio to rising interest rates by maintaining
a position within a narrow range around an "earnings neutral position"
(i.e. the mix of assets and liabilities that generate a net interest
margin that is least affected by interest rate changes). The Company
uses a measurement tool known as dollar duration to help maintain an
earnings neutral position. As of June 30, 1996, the dollar duration
of the investment portfolio was 3.90 compared to 3.68 at December 31,
1995. This modest increase in dollar duration resulted from the
partial replacement of securities which were sold, matured or called
during the first six months of 1996 with securities with the same or
higher yields but with longer maturities. The Company may also engage
in hedging transactions to control interest rate risk. The effect of
these efforts in any given period may be to negatively impact reported
net noninterest income and the interest earned on the securities.
CAPITAL RESOURCES
- -----------------
The Company's capital adequacy is a direct measurement of the overall
financial strength of the Company and its ability to absorb adverse
market conditions. In addition, the capital position of the Company
provides a mechanism to promote public confidence in the Company and
the Bank.
The Company's total stockholders' equity decreased to $14.7 million at
June 30, 1996 from $14.9 million at December 31, 1995. This decrease
in stockholders' equity was due to the retention of earnings in the
current year and the conversion of the $26,000 of convertible
subordinated notes into common stock, less the net effect of FAS 115
which requires financial institutions to mark their Available For Sale
securities portfolio to market.
The Federal Reserve Board and FDIC guidelines require a minimum of a
4% Tier 1 core capital to risk-weighted assets ratio and an 8% total
qualifying capital to risk-weighted assets ratio. Due to the
Company's high level of capital and the level of risk in its current
asset mix, the Company's risk based capital ratios exceed the
regulatory minimum ratios. The Company's Tier 1 core capital to risk
weighted assets was 9.84% at June 30, 1996 and its total qualifying
capital to risk weighted assets was 11.12%. As of June 30, 1996 the
Bank exceeded the minimum regulatory risk based capital ratios.
-12-<PAGE>
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
- ----------------------------------------------------------------------
ACT OF 1995.
- ------------
Statements which are not historical facts contained in this document
are forward looking statements that involve risks and uncertainties
that could cause actual results to differ from projected results.
Factors that could cause actual results to differ materially include,
among others: general economic conditions, economic conditions in the
Denver metropolitan area, the monetary policy of the Federal Reserve
Board, changes in interest rates, inflation, competition in the
banking business, changes in the state and federal regulatory regime
applicable to the Company's and the Bank's operations, the results of
financing efforts and other risk factors detailed in the Company's
Forms 10-KSB, 10-QSB and 8-K filed with the Securities and Exchange
Commission.
-13-<PAGE>
UNION BANKSHARES, LTD.
PART II - OTHER INFORMATION
ITEM 6(a). Exhibits
10.1 Revolving Line of Credit Agreement and Line of Credit Note with
Boatmen's First National Bank of Kansas City.
27 Financial Data Schedule
ITEM 6(b). Reports on Form 8-K.
The Registrant filed Form 8-K on July 25, 1996 reporting as Item 4 the
change in the Registrant's certifying accountant.
<PAGE>
SIGNATURES
Pursuant the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Union Bankshares, Ltd.
---------------------------------------------
(Registrant)
August 5, 1996 BRUCE E. HALL
---------------------------------------------
Bruce E. Hall
Vice President, Treasurer and
Secretary
(Authorized Officer and Principal
Financial Officer of the Registrant)
REVOLVING LINE OF CREDIT
AGREEMENT
This agreement is made this 1st day of April, 1996, between Union
Bankshares, Ltd. a Delaware corporation (the "Borrower") and Union
Bank & Trust, a Colorado corporation (the "Subsidiary Association"),
and Boatmen's First National Bank of Kansas City (the "Bank"), having
its principal office at 14 West 10th Street, Kansas City, Missouri.
Subject to the terms and conditions of this Agreement and the
Note and Security Agreement issued hereunder, the Bank agrees to
extend to the Borrower on or after April 1, 1996 a Revolving Line of
Credit in an amount not to exceed three million and no/100 dollars
($3,000,000.00).
ARTICLE I
1.1 Revolving Line of Credit. Boatmen's agrees, on the terms
------------------------
and subject to the conditions hereinafter set forth and at the request
of the Borrower, to make revolving credit loans to Borrower during the
period commencing on April 1, 1996 and terminating on April 1, 1997 in
amounts not to exceed an aggregate of $3,000,000.00 (the "Line of
Credit"); provided, that the amount remaining available under the Line
of Credit shall be reduced by any loans made under the Line of Credit
in the event the proceeds from a borrowing under the Line of Credit
are used to acquire the stock of a bank or bank holding company.
Borrower may borrow, repay and reborrow under the Line of Credit
during the term of the Note provided however, in no event shall
Boatmen's be obligated to make advances totaling in excess of
$3,000,000.00 at any one time.
1.2 Line of Credit Note. Borrower agrees to execute and deliver
-------------------
to Boatmen's to evidence any advances made under the Line of Credit a
Promissory Note in the form attached hereto as Exhibit A.
1.3 Repayment. Principal under the Line of Credit Note shall be
---------
due and payable in full on the Line Maturity Date. Interest will be
due and payable quarterly on amounts borrowed, the first day of the
third, sixth and ninth months following the date of the Line of Credit
Note and on April 1, 1997, on which date all accrued but unpaid
interest shall be due and payable in full.
1.4 Use of Proceeds. The proceeds of loans to be made under the
---------------
Line of Credit shall be available for use by Borrower solely for
capital needs, or to purchase the stock of banks or bank holding
companies, provided not less than 80% of the issued and outstanding
capital stock of each such bank to be acquired is purchased. In the
event Borrower desires to use any part of the
<PAGE>
proceeds from the Line of Credit to directly or indirectly purchase
the stock of a bank or bank holding company with total assets in
excess of 10% of the total assets of Borrower as of the January 1 next
proceeding the estimated closing date of such proposed acquisition,
then Boatmen's shall have the opportunity to perform such due
diligence of such bank as it deems necessary and it is satisfied, in
its sole and absolute discretion, with the results of such due
diligence.
1.5 Collateral Security. Pursuant to the security agreement in
-------------------
form attached hereto as Exhibit C, payment of the Line of Credit Note
will be secured by a first pledge and security interest covering 100%
(470 shares) of the capital stock of Union Bank & Trust, Denver,
Colorado, the Subsidiary Association. Advances to purchase banks will
require the pledging of the common stock of the bank being purchased.
1.6 Other Agreements. This Revolving Line of Credit Agreement
----------------
is also subject to certain terms and conditions as stated in that
certain Loan Agreement, attached as Exhibit B. dated March 1, 1996
between Union Bankshares, Ltd., Union Bank & Trust and Boatmen's First
National Bank of Kansas City. The only parts of that Loan Agreement
not applicable is that certain section of 1.3 referring to specific
principal reductions as outlined in Exhibit B of the Loan Agreement
and Section 9 referring to the "Entire Agreement". Loans made under
the line of credit to purchase banks or bank holding companies will be
made on substantially the same terms, conditions, note and security
forms as the Agreement for our previous loan to the Borrower in the
amount of $4,000,000.00 under such Loan Agreement.
1.7 Entire Agreement. This agreement, including the exhibits
----------------
hereto, is the final expression of the Agreement between Boatmen's and
the Borrower with respect to the subject matter hereof. This agreement
may not be contradicted by evidence of any prior oral agreement or of
a contemporaneous oral agreement between the parties. In the event of
any conflict between the terms of this agreement and those of any
agreement or commitment entered into in connection herewith, the terms
of this agreement shall govern.
All of the terms of the final agreement of the parties not set
forth above or which vary any terms set forth above, including any
previous oral agreements are as follows:
No unwritten oral agreement between the parties exists.
-2-<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
agreement effective on the date first above written.
"Borrower"
UNION BANKSHARES, LTD.
By: /s/ Charles R. Harrison
------------------------------------------
Title: Chairman/CEO
---------------------------------------
"Subsidiary Association"
Union Bank & Trust
By: /s/ Herman Zueck
-------------------------------------------
Title: Chairman and CEO
---------------------------------------
"Bank"
BOATMEN'S FIRST NATIONAL BANK
OF KANSAS CITY
By: /s/ Dean Howard
------------------------------------------
Title: Sr. VP.
---------------------------------------
-3-<PAGE>
EXHIBIT A
---------
LINE OF CREDIT NOTE
-------------------
$3,000,000 and interest Kansas City, Missouri
APRIL 1, 1996
FOR VALUE RECEIVED, the undersigned, UNION BANKSHARES, LTD., a
Delaware corporation (the "Borrower"), hereby promises to pay to the
order of BOATMEN'S FIRST NATIONAL BANK OF KANSAS CITY (together with
its successors and assigns, "Boatmen's"), the principal sum of the
lesser of (i) THREE MILLION DOLLARS ($3,000,000), or (ii) the
aggregate unpaid principal amount or all advances made by Boatmen's
hereunder, on April 1, 1997 (the "Maturity Date").
The principal balance from time to time outstanding under this
Line of Credit Note shall bear interest from the date hereof at the
rate per annum equal to Boatmen's "Corporate Base Rate" (as
hereinafter defined), except as otherwise provided herein. As used
herein, the term "Corporate Base Rate" means the rate of interest
announced by the bank as its corporate base rate from time to time,
the Corporate Base Rate to change when and as such corporate base rate
changes; provided, however, that the "Corporate Base Rate" shall
change no more often than daily. The Bank's corporate base rate shall
be the rate generally charged to its preferred business lending
customers for 90 day loans; provided, that such rate need not
necessarily represent the lowest or best rate actually charged to any
customer. Interest shall be payable quarterly in arrears on July 1,
1996, October 1, 1996, January 1, 1997, and on the Maturity Date, upon
any prepayment, at maturity (whether by acceleration or otherwise)
and, after such maturity, on demand and shall be computed on the basis
of a 365-day year.
Any amount hereunder which is not paid when due, whether at
stated maturity, by acceleration or otherwise, shall bear interest
from the date when due until paid at the lesser of (i) the foregoing
rate per annum plus three (3) percentage points or (ii) the maximum
rate permitted by law, said interest to be compounded annually and
computed on the basis of a 365-day year.
If any installment of this Line of Credit Note becomes due and
payable on a Saturday, Sunday or business holiday in the State of
Missouri, payment shall be made on the next successive business day
and interest shall be payable thereon at the rate herein specified
during such extension.
This Line of Credit Note is the Line of Credit Note referred to
in Section 1.2 of the Revolving Line of Credit Agreement dated
April 1, 1996, between the Borrower and Boatmen's, to which Loan
Agreement, and any amendments thereto, reference is hereby made for,
among other things, a statement of the terms and conditions <PAGE>
under which the loan evidenced hereby was made and is to be repaid and
under which this Line of Credit Note may be paid prior to the Maturity
Date or the Maturity Date accelerated. This Line of Credit Note is
secured as provided in a Security Agreement, dated April 1, 1996,
between the Borrower and Boatmen's.
All payments made hereunder shall be made in lawful currency of
the United States of America in immediately available funds at
920 Main Street, Kansas City, Missouri, 64105, Attention: L. Dean
Howard, or at such other place as Boatmen's may designate in writing.
All payments made hereunder shall be allocated first to the discharge
of any expenses for which Boatmen's may be entitled to receive
reimbursement of under any of the Loan Documents (as defined in the
Loan Agreement), next to accrued but unpaid interest, next to
installments of principal overdue and currently due, and then to
installments of principal remaining outstanding hereunder in the
inverse order of their maturity.
There may be other security and Borrower acknowledges that
omitting to list it here shall not constitute a waiver or abandonment
thereof. The holder of this Note, in addition to any other rights the
holder may have, shall have the right to offset against amounts due
under this Note all deposits, funds, securities, and other property of
Borrower in the possession of the holder.
If Borrower does not pay any principal or interest when due
hereunder, or if Borrower defaults under or otherwise fails to perform
or pay any covenant or obligation in any agreement that secures this
Note or has been executed and delivered to the holder hereof in
connection with the indebtedness evidenced by this Note, subject to
the notice and cure provisions set forth in the Loan Agreement, the
holder hereof may declare all principal and unpaid accrued interest to
be immediately due and payable. Failure to do so at any time shall
not constitute a waiver of the right of the holder hereof to do so at
any other time.
The Borrower, for itself and for any guarantors, sureties,
endorsers and/or any other person or persons now or hereafter liable
hereon, if any, hereby waives demand of payment, presentment for
payment, protest, notice of nonpayment or dishonor and any and all
other notices and demands whatsoever, and any and all delays or lack
of diligence in the collection hereof, and expressly consents and
agrees to any and all extensions or postponements of the time of
payment hereof from time to time at or after maturity and any other
indulgence and waives all notice thereof.
If this Note is not paid strictly according to its terms,
Borrower shall (to the extent permitted by law) pay all costs of
collection, including but not limited to court costs and reasonable
attorney's fees and expenses (whether or not there is litigation), and
all costs of the holder hereof incurred in
-2-<PAGE>
connection with any proceedings affecting this Note under the United
States Bankruptcy Code.
Borrower agrees that it will use the proceeds of this Note for
business purposes (other than agricultural purposes) only, and not for
personal, family or household purposes.
This note is made pursuant to the terms of the certain Revolving
Line of Credit Agreement dated 4/1/96 between the Borrower, its
wholly-owned subsidiary Union Bank & Trust, and Boatmen's First
National Bank of Kansas City. In the event of any conflict or
ambiguity between the terms of the Note and said Revolving Line of
Credit Agreement, the terms of the Revolving Line of Credit Agreement
shall govern.
This Line of Credit Note shall be governed by and construed and
enforced in accordance with the laws of the State of Missouri.
IN WITNESS WHEREOF, the undersigned has duly caused this Line of
Credit Note to be executed and delivered at the place specified above
and as of the date first written above.
UNION BANKSHARES, LTD.
By /s/ Charles R. Harrison
-------------------------------------------
Title Chairman/CEO
----------------------------------------
Borrower's Notice Address: 1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
Borrower's Telephone Number: 1-303-298-5352
Borrower's Facsimile Number: 1-303-298-5380
Borrower's Chief Business Address: 1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
-3-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1996
<CASH> 16,038,000
<INT-BEARING-DEPOSITS> 110,925,000
<FED-FUNDS-SOLD> 400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 34,985,000
<INVESTMENTS-CARRYING> 61,128,000
<INVESTMENTS-MARKET> 61,046,000
<LOANS> 92,764,000
<ALLOWANCE> (1,561,000)
<TOTAL-ASSETS> 175,845,000
<DEPOSITS> 156,260,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 782,000
<LONG-TERM> 4,000,000
<COMMON> 9,411,000
0
0
<OTHER-SE> 5,300,000
<TOTAL-LIABILITIES-AND-EQUITY> 175,845,000
<INTEREST-LOAN> 4,450,000
<INTEREST-INVEST> 1,884,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,334,000
<INTEREST-DEPOSIT> 1,701,000
<INTEREST-EXPENSE> 1,974,000
<INTEREST-INCOME-NET> 4,360,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 212,000
<EXPENSE-OTHER> 4,225,000
<INCOME-PRETAX> 667,000
<INCOME-PRE-EXTRAORDINARY> 667,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 629,000
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 8.98
<LOANS-NON> 17,000
<LOANS-PAST> 17,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,448,000
<CHARGE-OFFS> 18,000
<RECOVERIES> 25,000
<ALLOWANCE-CLOSE> 1,561,000
<ALLOWANCE-DOMESTIC> 1,561,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
