<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 September 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 November 1, 1996, there were 1,149,982 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (Check one): Yes No X
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UNION BANKSHARES, LTD.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................. 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 8
PART II - OTHER INFORMATION......................... 16
SIGNATURES.......................................... 17
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Part I - Financial Information
Item 1 - Financial Statements
September 30, 1996
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30,
ASSETS 1996 December 31,
(Unaudited) 1995
------------- ------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $11,140,000 $10,297,000
Federal funds sold 11,400,000 0
----------- -----------
Total cash and cash equivalents 22,540,000 10,297,000
Investment securities:
Investment securities held to maturity 25,387,000 18,416,000
Investment securities available for sale 40,372,000 51,232,000
---------- ----------
Total investment securities 65,759,000 69,648,000
Loans:
Commercial 66,752,000 54,488,000
Real estate mortgage 6,343,000 7,975,000
Mortgage loans held for sale 0 0
Real estate construction 8,914,000 5,064,000
Consumer 16,752,000 13,785,000
----------- -----------
Total loans 98,761,000 81,312,000
Less: allowance for loan losses (1,634,000) (1,448,000)
----------- -----------
97,127,000 79,864,000
Excess of investment in subsidiary over net
assets acquired 3,003,000 3,172,000
Furniture, equipment and improvements, net 1,631,000 1,690,000
Accrued interest receivable 1,408,000 1,085,000
Other assets 1,229,000 1,476,000
------------ ------------
TOTAL ASSETS $192,697,000 $167,232,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest -bearing) $46,322,000 $42,466,000
NOW 13,915,000 13,512,000
Money Market 75,031,000 52,343,000
Savings 9,587,000 8,818,000
Time 27,681,000 23,036,000
----------- -----------
Total deposits 172,536,000 140,175,000
Federal funds purchased 0 4,000,000
Notes payable 4,000,000 6,512,000
Accrued interest payable 85,000 230,000
Other liabilities 777,000 1,403,000
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Total liabilities 177,398,000 152,320,000
Stockholders' equity
Common stock 1,000 1,000
Common stock surplus 9,410,000 9,384,000
Valuation allowance 133,000 852,000
Retained earnings 5,755,000 4,675,000
---------- ----------
Total stockholders' equity 15,299,000 14,912,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $192,697,000 $167,232,000
============ ============
</TABLE>
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UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three months ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $6,912,000 $5,893,000 $2,462,000 $2,154,000
Interest on investment securities:
U.S. government agencies
and corporations 1,268,000 1,305,000 482,000 361,000
States and other political
subdivisions 1,336,000 1,236,000 387,000 407,000
U.S. Treasury 234,000 264,000 139,000 72,000
Federal Home Loan Bank 23,000 18,000 9,000 6,000
Interest on federal funds sold
and interest bearing deposits
at other banks 134,000 172,000 94,000 112,000
---------- --------- --------- ---------
Total interest income 9,907,000 8,888,000 3,573,000 3,112,000
INTEREST EXPENSE:
Interest on deposits 2,716,000 2,301,000 1,015,000 819,000
Interest on federal funds purchased 74,000 85,000 18,000 0
Interest on notes payable 301,000 408,000 84,000 135,000
--------- --------- --------- -------
Total interest expense 3,091,000 2,794,000 1,117,000 954,000
--------- --------- --------- -------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSS 6,816,000 6,094,000 2,456,000 2,158,000
PROVISION FOR LOAN LOSS 165,000 60,000 60,000 0
--------- --------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS 6,651,000 6,034,000 2,396,000 2,158,000
NONINTEREST INCOME:
Service charges 279,000 236,000 94,000 78,000
Gain (loss) on sale of
securities available for 89,000 (75,000) (123,000) (14,000)
Other 350,000 281,000 110,000 106,000
--------- --------- --------- ---------
Total non interest income 718,000 442,000 81,000 170,000
--------- --------- --------- ---------
NONINTEREST EXPENSE:
Salaries and employee benefits 2,861,000 2,369,000 945,000 853,000
Amortization of investment in subsidiary
over net assets acquired 170,000 170,000 57,000 57,000
Occupancy and equipment 915,000 722,000 322,000 251,000
Other 2,128,000 1,895,000 525,000 620,000
--------- --------- --------- -------
Total non interest expense 6,074,000 5,156,000 1,849,000 1,781,000
--------- --------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE 1,295,000 1,320,000 628,000 547,000
INCOME TAX EXPENSE (Note 3) 215,000 292,000 177,000 146,000
--------- --------- ------- -------
NET INCOME $1,080,000 $1,028,000 $451,000 $401,000
========== ========== ======== ========
EARNINGS PER COMMON SHARE: (Note 4)
Net income available for
common stockholders $1,080,000 $1,028,000 $451,000 $401,000
========== ========== ======== ========
Net income per share available
for common stockholders $0.89 $0.88 $0.37 $0.34
========== ========== ======== ========
Weighted average number of common
shares outstanding 1,220,463 1,166,682 1,221,238 1,160,578
========== ========= ========= =========
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UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------
1996 1995
------------ -----------
<S> <C> <C>
Net cash provided (used) by operating activities ($1,143,000) $1,208,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities held to maturity (1,010,000) (900,000)
Proceeds from sale of securities available for sale 24,707,000 28,142,000
Purchase of securities available for sale (29,636,000) (20,084,000)
Loan origination fees received 349,000 370,000
Loan originations net of repayments (17,475,000) (12,900,000)
Proceeds from the sale of mortgage loans 4,106,000 1,520,000
Purchase of mortgage loans (4,106,000) (1,520,000)
Proceeds from maturities of securities
available for sale 8,090,000 1,676,000
Proceeds from maturities of investment securities 2,698,000 4,108,000
Proceeds from sale of other real estate owned 0 83,000
Proceeds from sale of premises and equipment 31,000 0
Purchase of premises and equipment (243,000) (222,000)
Net cash used in investing activities (12,489,000) 273,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 32,361,000 7,899,000
Net increase (decrease) in fed funds purchase (4,000,000) 0
New borrowings long-term debt 4,000,000 0
Repayments of long-term debt (6,512,000) (188,000)
Purchase of common stock 26,000 (219,000)
Net cash provided by financing activities 25,875,000 7,492,000
Net increase in cash and cash equivalents 12,243,000 8,973,000
Cash and cash equivalents, beginning of year 10,297,000 6,329,000
Cash and cash equivalents, end of quarter $22,540,000 $15,302,000
</TABLE>
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UNION BANKSHARES, LTD. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 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 September 30, 1996 and the Company's results of
operations for the three and nine months ended September 30, 1996 and
1995, and statements of cash flows for the nine months ended September
30, 1996 and 1995.
Certain reclassifications have been made to the September 30, 1995
Consolidated Financial Statements to conform to the September 30, 1996
Consolidated Financial Statements.
NOTE 2. RESULTS OF OPERATIONS
The results of operations for the three and nine months ended
September 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.
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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 71,256 shares
purchasable pursuant to exercisable options during the three and nine
months ended September 30, 1996. Earnings per common share were
affected by 14,908 shares purchasable pursuant to exercisable options
during the three and nine months ended September 30, 1995.
NOTE 5. ACCOUNTING FOR INVESTMENTS
The Company was required to adopt FASB 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 September 30, 1996, the Company classified $40,372,000 of
its investment portfolio as available for sale and $25,387,000 as held
to maturity. No amounts were classified as trading. The adoption of
this statement increased the equity of the Company by approximately
$133,000, net of deferred taxes of approximately $45,000.
-7-<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
third quarter and nine months ended September 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
- ---------------------
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
- ----------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Overview: Union Bankshares, Ltd. (the "Company") reported net income
- --------
of $1,080,000 for the nine months ended September 30, 1996, an
increase of 5.1% from net income of $1,028,000 for the first nine
months of 1995. Earnings were positively impacted in the first nine
months of 1996 by an increase in net interest income of $722,000, an
increase in gain on sale of securities of $164,000, an increase in
service charges and other noninterest income of $112,000 and a
decrease in income tax expense of $77,000 compared to the 1995 period.
These improvements were partially offset by a $918,000 increase in
noninterest expense and a $105,000 increase in provision for loan loss
for the nine months ended September 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 $.89 for the nine months ended September 30, 1996
compared to $.88 per share for the 1995 period. Return on average
assets and average equity were .79% and 9.67%, respectively, for the
nine months ended September 30, 1996 compared to .91% and 10.64% for
the first nine 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 nine months of 1996, the Bank's loan portfolio
increased by $17.4 million, while its deposits increased $32.4
million. The increase in deposits at September 30, 1996 includes a
$16.2 million escrow deposit from one customer of the Bank
-8-<PAGE>
which was withdrawn in October 1996. 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.
The average prime rate and average federal funds rate decreased during
the first nine months of 1996 approximately 58 basis points and 53
basis points, respectively, from the comparable 1995 period. These
decreases negatively affected the Company's average yields on loans
and securities, and its average cost of funds and net interest
margin. This negative effect results from the more frequent repricing
of the Company's loan and securities portfolios than its deposit base.
Interest Income: Interest income increased $1,019,000, or 11.5%, to
- ---------------
$9,907,000 for the period ended September 30, 1996 from $8,888,000 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 8.98% for the first
nine months of 1996, which reflects a decrease of 17 basis points
(each basis point equals 1/100 of 1%) from the comparable 1995 period.
The average yield on loans decreased from 10.90% in the 1995 period to
10.34% in the 1996 period, and the average yield on securities held by
the Company increased from 7.20% in the 1995 period to 7.25% in the
1996 period. Interest income on loans was $1,019,000 greater in the
1996 period, while interest income on securities increased $38,000 in
the 1996 period.
Interest Expense: Interest expense increased $297,000, or 10.6%, to
- ----------------
$3,091,000 for the nine months ended September 30, 1996 from
$2,794,000 for the nine months ended September 30, 1995. This
increase is primarily due to the $28.5 million increase in interest
bearing deposit accounts (including the $16.2 million escrow deposit
described above) in the 1996 period compared to those in the 1995
period, partially offset by the $2.5 million decrease in the Notes
payable between the same periods. Average rates paid on interest
bearing deposits increased 8 basis points to 3.49% in the first nine
months of 1996 from 3.41% in the first nine months of 1995.
Net Interest Income: Net interest income before provision for loan
- -------------------
loss was $6,816,000 for the nine months ended September 30, 1996, an
increase of $722,000, or 11.8%, over the first nine months of 1995.
Net interest margin decreased 8 basis points from 6.37% in the 1995
period to 6.29% in the 1996 period. The increase in net interest
-9-<PAGE>
income from the 1995 period to the 1996 period is primarily due to a
$1,019,000 increase in interest income on loans and a $38,000 increase
in interest income on securities, partially offset by a $297,000
increase in interest expense. The Company's average cost of funds for
the nine months ended September 30, 1996 was 6 basis points lower than
the comparable 1995 period. The Company's average yield on interest
earning assets decreased 17 basis points in the 1996 period compared
to the 1995 period, from 9.15% to 8.98%.
Noninterest Income: Noninterest income increased $276,000 for the
- ------------------
nine months ended September 30, 1996 to $718,000 from $442,000 for the
nine months ended September 30, 1995. This increase was primarily due
to a $164,000 increase in the gain on sale of securities available for
sale from a $75,000 loss in the first nine months of 1995 to an
$89,000 gain in the first nine months of 1996.
Noninterest Expense: Noninterest expense increased $918,000, or
- -------------------
17.8%, for the first nine months of 1996 to $6,074,000 compared to
$5,156,000 in the first nine months of 1995. This increase is
primarily the result of increases in (i) 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; (ii) salaries
and benefits relating primarily to annual merit increases and staffing
expense at the branches; and (iii) marketing, initial start-up costs
and overhead expenses of the branches.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
- --------------------------------------------------------------------
SEPTEMBER 30, 1995
- ------------------
Overview: The Company reported net income of $451,000 for the three
- --------
months ended September 30, 1996, an increase of 12.5% from net income
of $401,000 for the comparable 1995 period. Net income was $.37 per
share for the three month period ended September 30, 1996, compared to
$.34 per share for the 1995 period. Return on average assets and
average equity were .99% and 12.12%, respectively, for the three month
period ended September 30, 1996, compared to 1.05% and 12.01%,
respectively, for the 1995 period.
The average prime rate and average federal funds rate decreased during
the three months ended September 30, 1996 approximately 52 basis
points and 47 basis points, respectively, from the comparable 1995
period. These decreases negatively affected the Company's average
yields on loans and securities, and its average cost of funds and net
interest margin. This negative effect results from the more frequent
repricing of the Company's loan and securities portfolios than its
deposit base.
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Interest Income: Interest income increased $461,000, or 14.8%, to
- ---------------
$3,573,000 for the three month period ended September 30, 1996 from
$3,112,000 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 8.91% for
the three month period ended September 30, 1996, which reflects a
decrease of 41 basis points from the comparable 1995 period. The
average yield on loans decreased from 11.17% in the 1995 period to
10.23% in the 1996 period, and the average yield on securities held by
the Company increased from 7.21% in the 1995 period to 7.32% in the
1996 period. Interest income on loans was $308,000 greater in the
1996 period and interest income on securities increased $171,000 in
the 1996 period.
Interest Expense: Interest expense increased $163,000, or 17.1%, to
- ----------------
$1,117,000 for the three month period ended September 30, 1996 from
$954,000 for the three month period ended September 30, 1995. This
increase was primarily due to an increase in interest expense on
deposits of $196,000, offset by a decrease in interest expense on the
Notes payable of $51,000. Average rates paid on interest bearing
deposits increased 8 basis points to 3.53% in the three month period
ended September 30, 1996 from 3.45% in the three month period ended
September 30, 1995.
Net Interest Income: Net interest income before provision for loan
- -------------------
loss was $2,456,000 for the three month period ended September 30,
1996, an increase of $298,000, or 13.8%, over the comparable period of
1995. Net interest margin decreased 33 basis points between the
periods from 6.57% in the 1995 period to 6.24% in the 1996 period.
The increase in the net interest income is primarily due to a $308,000
increase in interest income on loans and a $171,000 increase in
interest income on securities, offset by a $163,000 increase in
interest expense. The Company's average cost of funds for the three
month period ended September 30, 1996 was 5 basis points lower than in
the comparable 1995 period. The Company's average yield on earning
assets decreased 41 basis points in the 1996 period compared to the
1995 period, from 9.32% to 8.91%.
Noninterest Income: Noninterest income decreased $89,000 for the
- ------------------
three month period ended September 30, 1996 to $81,000 from $170,000
for the three month period ended September 30, 1995. This decrease
was primarily due to a $109,000 decrease in the gain on sale of
securities available for sale from a $14,000 loss in the three month
period ended September 30, 1995 to a $123,000 gain in the three month
period ended September 30, 1996.
Noninterest Expense: Noninterest expense increased $68,000, or 3.8%,
- -------------------
for the three month period ended September 30, 1996 to $1,849,000
compared to $1,781,000 in the three month period ended September 30,
1995. This increase is primarily the result of increases in (i)
salaries and benefits relating primarily to
-11-<PAGE>
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 recovery of legal expenses of
approximately $57,000.
PROVISION FOR LOAN LOSS
- -----------------------
The Company charged $165,000 to Provision for Loan Loss in the first
nine months of 1996 and $60,000 for the same period in 1995. The
ratio of loan loss reserve to total loans was 1.66% at September 30,
1996 and 1.46% at September 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 determined by management based on the adequacy of the loan loss
reserve.
LIQUIDITY AND SOURCES OF FUNDS
- ------------------------------
The Company's total assets increased 15.2% to $192.7 million at
September 30, 1996 from $167.2 million at December 31, 1995. During
the nine months ended September 30, 1996 deposits increased $32.3
million to $172.5 million at September 30, 1996 from $140.2 million at
December 31, 1995. This increase includes a $16.2 million escrow
deposit from one customer of the Bank which was withdrawn in October
1996. None of the Company's deposits at September 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:
-12-<PAGE>
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 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
-13-<PAGE>
Company has no significant exposure to highly leveraged transactions
and has no foreign credits in its loan portfolio.
Total nonperforming assets were $16,000 and $192,000 at September 30,
1996 and December 31, 1995, respectively. Other Real Estate Owned
(OREO) was $0 at both September 30, 1996 and December 31, 1995. At
September 30, 1996, securities held to maturity were $25.4 million, or
38.6% of the total portfolio, and securities available for sale
totaled $40.4 million, or 61.4% 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 September 30, 1996, the
market value of investments available for sale exceeded carrying value
by approximately $132,000.
Securities held to maturity are considered longer term assets which
are normally held until maturity and are carried at amortized cost.
The market value of securities designated as held to maturity exceeded
carrying value by approximately $238,000 at September 30, 1996. U.S.
government securities make up $38.6 million, or 58.5% of the
investment portfolio, and obligations of states and political
subdivisions (municipal securities), comprise $27.2 million, or 41.5%
of the portfolio at September 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 September 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 nine 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 increased to $15.3 million at
September 30, 1996 from $14.9 million at December 31,
-14-<PAGE>
1995. This increase in stockholders' equity was due to the retention
of earnings in the current year, the conversion of the $26,000 of
convertible subordinated notes into common stock and 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 9.85% at September 30, 1996 and its total
qualifying capital to risk weighted assets was 11.13%. As of
September 30, 1996 the Bank exceeded the minimum regulatory risk based
capital ratios.
"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.
-15-
<PAGE>
UNION BANKSHARES, LTD.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 25, 1996, the Company filed a Report on Form
8-K, pursuant to Item 4 thereof, stating the change in
the Company's certifying accountant.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
UNION BANKSHARES, LTD.
----------------------------------------
(REGISTRANT)
NOVEMBER 7, 1996 BRUCE E. HALL
----------------------------------------
Bruce E. Hall
Vice President,Treasurer and
Secretary
(Authorized Officer and Principal
Financial Officer of the Registrant)
-17-<PAGE>
Exhibit Index
Exhibit No. Description
27 Financial Data Schedule
-18-
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
TABLE>
<S> <C>
<CASH> 11,140,000
<INT-BEARING-DEPOSITS> 126,214,000
<FED-FUNDS-SOLD> 11,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,387,000
<INVESTMENTS-CARRYING> 40,372,000
<INVESTMENTS-MARKET> 65,759,000
<LOANS> 98,761,000
<ALLOWANCE> (1,634,000)
<TOTAL-ASSETS> 192,697,000
<DEPOSITS> 172,536,000
<SHORT-TERM> 0
<LIABILITIES-OTHER> 862,000
<LONG-TERM> 4,000,000
<COMMON> 9,411,000
0
0
<OTHER-SE> 5,888,000
<TOTAL-LIABILITIES-AND-EQUITY> 192,697,000
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<INTEREST-INVEST> 2,995,000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,907,000
<INTEREST-DEPOSIT> 2,716,000
<INTEREST-EXPENSE> 3,091,000
<INTEREST-INCOME-NET> 6,816,000
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 89,000
<EXPENSE-OTHER> 6,074,000
<INCOME-PRETAX> 1,295,000
<INCOME-PRE-EXTRAORDINARY> 1,295,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,080,000
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 8.98
<LOANS-NON> 25,000
<LOANS-PAST> 25,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,448,000
<CHARGE-OFFS> 22,000
<RECOVERIES> 42,000
<ALLOWANCE-CLOSE> 1,634,000
<ALLOWANCE-DOMESTIC> 1,634,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
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