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, 2000
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
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(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)
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Not Changed
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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 .
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At August 4, 2000, there were 2,386,798 shares of common stock outstanding.
Transitional Small Business Disclosure Format (Check one): YES NO X
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<PAGE>
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.................................. 9
PART II - OTHER INFORMATION................................... 16
SIGNATURES.................................................... 17
i
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
JUNE 30, 2000
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
(Unaudited)
------------- ------------
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 19,884,000 $ 15,493,000
Federal funds sold 14,100,000 --
------------ ------------
Total cash and cash equivalents 33,984,000 15,493,000
Investment securities:
Investment securities held to maturity -- 32,908,000
Investment securities available for sale 120,566,000 110,080,000
Other investments 2,469,000 1,984,000
------------ ------------
Total investment securities 123,035,000 144,972,000
Loans:
Commercial 148,275,000 133,978,000
Real estate mortgage 5,464,000 5,780,000
Real estate construction 24,540,000 22,012,000
Consumer 28,092,000 22,855,000
------------ ------------
Total loans 206,371,000 184,625,000
Less: allowance for loan losses (3,126,000) (2,892,000)
------------ ------------
203,245,000 181,733,000
Excess of cost over fair value of net
assets acquired, net of amortization 6,361,000 6,630,000
Furniture, equipment and improvements, net 3,133,000 3,309,000
Accrued interest receivable 2,715,000 2,586,000
Other assets 3,641,000 3,863,000
------------ ------------
TOTAL ASSETS $376,114,000 $358,586,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand (noninterest -bearing) $ 93,082,000 $ 88,392,000
NOW 28,610,000 27,348,000
Money Market 69,978,000 78,403,000
Savings 18,204,000 19,382,000
Time 85,395,000 76,530,000
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Total deposits 295,269,000 290,055,000
Federal funds purchased -- 8,500,000
Notes payable 48,600,000 28,600,000
Guaranteed preferred beneficial interests
in Company's debentures 10,304,000 10,304,000
Accrued interest payable 526,000 382,000
Other liabilities 1,294,000 1,362,000
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Total liabilities 355,993,000 339,203,000
Stockholders' equity
Common stock 2,000 2,000
Additional paid in capital 9,877,000 9,822,000
Retained earnings 12,998,000 11,564,000
Unrealized depreciation on available for sale
securities, net of tax (2,756,000) (2,005,000)
------------ ------------
Total stockholders' equity 20,121,000 19,383,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $376,114,000 $358,586,000
============ ============
</TABLE>
See notes to consolidated financial statements
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 9,859,000 $ 7,051,000 $5,218,000 $3,647,000
Interest on investment securities:
U.S. government agencies and corporations 3,868,000 3,229,000 1,877,000 1,748,000
States and other political subdivisions 700,000 666,000 345,000 360,000
Interest on federal funds sold
and interest bearing deposits at other banks 49,000 227,000 33,000 81,000
---------- ---------- ---------- ----------
Total interest income 14,476,000 11,173,000 7,473,000 5,836,000
INTEREST EXPENSE:
Interest on deposits 3,770,000 3,504,000 1,956,000 1,734,000
Interest on federal funds purchased 46,000 130,000 32,000 104,000
Interest on notes payable 1,863,000 758,000 1,001,000 437,000
----------- ----------- ---------- ----------
Total interest expense 5,679,000 4,392,000 2,989,000 2,275,000
----------- ----------- ---------- ----------
NET INTEREST INCOME BEFORE PROVISION FOR
LOAN LOSS 8,797,000 6,781,000 4,484,000 3,561,000
PROVISION FOR LOAN LOSS 136,000 47,000 50,000 2,000
----------- ----------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSS 8,661,000 6,734,000 4,434,000 3,559,000
NONINTEREST INCOME:
Service charges 389,000 322,000 201,000 155,000
Gain (loss) on sale of securities available for sale (359,000) 266,000 (359,000) 93,000
Other 380,000 351,000 203,000 159,000
----------- ----------- ---------- ----------
Total non interest income 410,000 939,000 45,000 407,000
----------- ----------- ---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 3,881,000 3,550,000 1,904,000 1,820,000
Amortization of investment in subsidiary
over net assets acquired 269,000 269,000 134,000 134,000
Occupancy and equipment 1,024,000 977,000 522,000 515,000
Other 2,092,000 2,052,000 1,047,000 1,067,000
----------- ----------- ---------- ----------
Total non interest expense 7,266,000 6,848,000 3,607,000 3,536,000
----------- ----------- ---------- ----------
INCOME BEFORE INCOME TAX EXPENSE 1,805,000 825,000 872,000 430,000
INCOME TAX EXPENSE 369,000 234,000 106,000 133,000
----------- ----------- ---------- ----------
NET INCOME $ 1,436,000 $ 591,000 $ 766,000 $ 297,000
=========== =========== ========== ==========
EARNINGS PER COMMON SHARE BASIC
Net income per share $ 0.61 $ 0.25 $ 0.33 $ 0.13
=========== =========== ========== ==========
Weighted average number of common shares outstanding 2,373,053 2,348,042 2,368,798 2,350,338
=========== =========== ========== ==========
EARNINGS PER COMMON SHARE DILUTED
Net income per share $ 0.55 $ 0.23 $ 0.29 $ 0.11
=========== =========== ========== ==========
Weighted average number of common shares outstanding 2,595,341 2,584,824 2,591,086 2,587,121
=========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
---------- ---------- ------------------------
<S> <C> <C> <C> <C>
NET INCOME $1,436,000 $ 591,000 $766,000 $ 297,000
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on
available-for-sale securities, net of
income taxes of ($314,000) and ($880,000) (534,000) (1,490,000) (704,000) (1,490,000)
Unrealized (depreciation) appreciation on investments
transferred from held-to-maturity to available-for-sale,
net of income taxes of ($261,000) (443,000) -- -- --
LESS: reclassification adjustment for realized
(gain) losses included in net income, net of
income taxes of ($133,000) and $(99,000) 226,000 (167,000) 226,000 -58,000
---------- ----------- -------- -----------
COMPREHENSIVE INCOME $ 685,000 ($1,066,000) $288,000 ($1,251,000)
========== =========== ======== ===========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
(UNAUDITED)
<TABLE>
<CAPTION>
June 30,
-----------------------------
2000 1999
------------ ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 1,704,000 ($ 2,131,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of available-for-sale
securities 6,819,000 4,509,000
Proceeds from maturities of held-to-maturity
securities 0 11,076,000
Proceeds from sale of available-for-sale
securities 18,032,000 16,070,000
Purchase of available-for-sale securities (2,742,000) (67,998,000)
Purchase of held-to-maturity securities 0 (3,958,000)
Purchase of mortgage loans held-for-sale (1,716,000) (6,758,000)
Proceeds from sale of mortgage loans held-for-sale 1,716,000 11,043,000
Purchase of other investments (486,000) (942,000)
Net (increase) decrease in loans (21,524,000) (12,007,000)
Purchase of furniture and equipment (80,000) -346,000
------------ ------------
Net cash provided by (used in) investing activities 19,000 (49,311,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits 5,214,000 (1,677,000)
(Decrease) in federal funds purchased (8,500,000) --
Proceeds from issuance of notes payable 125,000,000 33,600,000
Principal repayments of notes payable (105,000,000) (5,000,000)
Proceeds from issuance of common stock 54,000 33,000
------------ ------------
Net cash provided by financing activities 16,768,000 26,956,000
------------ ------------
Net increase in cash and cash equivalents 18,491,000 (24,486,000)
Cash and cash equivalents, beginning of year 15,493,000 45,419,000
------------ ------------
Cash and cash equivalents, end of quarter $ 33,984,000 $ 20,933,000
============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
UNION BANKSHARES, LTD. AND SUBSIDIARY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
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, 1999. 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, 2000
and the Company's results of operations for the three and six months ended
June 30, 2000 and 1999, statements of comprehensive income for the three and six
months ended June 30, 2000 and 1999, and statements of cash flows for the three
and six months ended June 30, 2000 and 1999.
The condensed consolidated balance sheet of the Company as of December 31, 1999,
has been derived from the audited consolidated balance sheet of the Company as
of that date.
Certain reclassifications have been made to the June 30, 1999 Consolidated
Financial Statements to conform to the June 30, 2000 Consolidated Financial
Statements.
NOTE 2. RESULTS OF OPERATIONS
The results of operations for the three and six months ended June 30, 2000 and
1999 are not necessarily indicative of the results to be expected for the full
year.
NOTE 3. 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 222,288 shares purchasable pursuant to exercisable options during the three
and six months ended June 30, 2000. Earnings per common share were affected by
236,770 shares purchasable pursuant to exercisable options during the three and
six months ended June 30, 1999.
5
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NOTE 4. NOTES PAYABLE
During the first six months of 2000, the Bank entered into 15 advance agreements
totaling $125 million with the Federal Home Loan Bank of Topeka ("FHLB") bearing
interest rates ranging from 5.82% to 7.04%. During this same period the Bank
repaid $105 million of its advances from the FHLB. As of June 30, 2000, FHLB
advances outstanding are $48.6 million with $5.0 million maturing August 15,
2000 and $10.0 million maturing each on September 7, 2000, September 11, 2000,
October 10, 2000, and November 8, 2000. The remaining $3.6 million matures July
14, 2001 and bears interest at a daily floating rate.
NOTE 5. SECURITIES HELD TO MATURITY
During June, 2000, in order to maximize the Company's liquidity flexibility, the
Company transferred its investment securities held to maturity portfolio with an
amortized cost of $31,263,445 and an unrealized loss of $704,434 to investment
securities available for sale.
6
<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, 2000. The discussion is a supplement to the
unaudited Consolidated Financial Statements and the consolidated financial
statements and the management's discussion and analysis of financial condition
and results of operations included in the Company's Form 10-KSB for the year
ended December 31, 1999, and should be read in conjunction therewith.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30,
1999
OVERVIEW: The Company reported net income of $1,436,000 for the six months ended
June 30, 2000, an increase of 143.0% from net income of $591,000 for the first
six months of 1999. Earnings were positively impacted in the first six months of
2000 by a $2,016,000 increase in net interest income and a $96,000 increase in
service charges and other noninterest income. These improvements were partially
offset by an $89,000 increase in provision for loan loss, a $625,000 decrease in
gain (loss) on sale of securities available for sale, a $418,000 increase in
noninterest expense and a $135,000 increase in income tax expense for the six
months ended June 30, 2000. Net income per share (diluted) was $.55 for the six
months ended June 30, 2000 compared to $.23 per share for the 1999 period.
Return on average assets and average equity were .77% and 14.53%, respectively,
for the six months ended June 30, 2000 compared to .37% and 5.73%, respectively,
for the first six months of 1999.
During the first six months of 2000, the Company's cash and Federal Funds sold
increased $18.5 million, its securities portfolio decreased $21.9 million, its
net loan portfolio increased $21.5 million, its deposits decreased $5.2 million,
and its notes payable to the FHLB increased $20.0 million. See "Liquidity and
Capital Resources" for a discussion of the Company's FHLB borrowings.
The Company's loan growth is a result of increased business development efforts,
including the hiring of four new loan officers over the last year, and the
continued strong local economy.
INTEREST INCOME: Interest income increased $3,303,000, or 29.6%, to $14,476,000
for the period ended June 30, 2000 from $11,173,000 for the comparable 1999
period. This increase results from a general rise in interest rates and an
increase in the Company's interest earning assets, primarily growth in loans,
absolutely and as a percentage of interest earning assets. The Company's net
yield on interest earning assets on a fully tax equivalent basis was 8.74% for
the first six months of 2000, which reflects an increase of 80 basis points
(each basis point equals 1/100 of 1%) from the comparable 1999 period. The
average yield on loans increased from 9.52% in the 1999 period to 10.14% in the
2000 period, and the average yield on securities held by the Company increased
from 6.38% in the 1999 period to 6.93% in the 2000 period. Interest income on
loans was $2,808,000
7
<PAGE>
greater in the 2000 period, interest income on securities increased $673,000 in
the 2000 period and interest income on federal funds sold decreased $178,000 in
the 2000 period.
INTEREST EXPENSE: Interest expense increased $1,287,000, or 29.3%, to $5,679,000
for the six months ended June 30, 2000 from $4,392,000 for the six months ended
June 30, 1999. This increase is primarily due to an increase in notes payable to
the FHLB. Average rates paid on interest bearing deposits increased 21 basis
points to 3.79% in the first six months of 2000 from 3.57% in the first six
months of 1999.
NET INTEREST INCOME: Net interest income before provision for loan loss was
$8,797,000 for the six months ended June 30, 2000, an increase of $2,016,000, or
29.7%, over the first six months of 1999. Net interest margin increased 49 basis
points from 4.90% in the 1999 period to 5.39% in the 2000 period. The increase
in net interest income is primarily due to a $2,808,000 increase in interest
income on loans and a $673,000 increase in interest income on securities, offset
by a $178,000 decrease in interest income on Federal Funds sold and a $1,287,000
increase in interest expense. The Company's average cost of funds for the six
months ended June 30, 2000 was 51 basis points higher than the comparable 1999
period. The Company's average yield on interest earning assets increased 79
basis points in the 2000 period compared to the 1999 period, from 7.93% to
8.74%.
NONINTEREST INCOME: Noninterest income decreased $529,000, or 56.3%, for the six
months ended June 30, 2000 to $410,000 from $939,000 for the six months ended
June 30, 1999. This decrease was due to a $625,000 decrease in the gain (loss)
on sale of securities available for sale, offset by a $67,000 increase in
service charge income and a $29,000 increase in other noninterest income. The
decrease in the gain (loss) on the sale of securities available for sale was due
to the decline in market value of the securities sold due to the rise in
interest rates between the periods.
NONINTEREST EXPENSE: Noninterest expense increased $418,000, or 6.1%, for the
first six months of 2000 to $7,266,000 compared to $6,848,000 in the first six
months of 1999. A significant portion of this increase is increases in salaries
and benefits relating primarily to annual merit increases.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30,
1999
OVERVIEW: The Company reported net income of $766,000 for the three months ended
June 30, 2000, an increase of 158.0% from net income of $297,000 for the
comparable 1999 period. Net income was $.30 per share (diluted) for the three
month period ended June 30, 2000, compared to $.11 per share (diluted) for the
1999 period. Return on average assets and average equity were .82% and 15.08%,
respectively, for the three month period ended June 30, 2000, compared to .37%
and 5.74%, respectively, for the 1999 period.
INTEREST INCOME: Interest income increased $1,637,000, or 28.1%, to $7,473,000
for the three month period ended June 30, 2000 from $5,836,000 for the
comparable 1999 period. This increase results from a general rise in interest
rates and an increase in the Company's interest earning assets, primarily growth
in loans, absolutely and as a percentage of interest earning assets. The
Company's net yield on interest earning assets on a fully tax equivalent basis
was 8.93% for the three month period ended June 30, 2000, which reflects an
increase of 91 basis points from the comparable 1999
8
<PAGE>
period. The average yield on loans increased from 9.62% in the 1999 period to
10.40% in the 2000 period, and the average yield on securities held by the
Company increased from 6.44% in the 1999 period to 6.86% in the 2000 period.
Interest income on loans was $1,571,000 greater in the 2000 period, interest
income on securities increased $114,000 in the 2000 period and interest income
on federal funds sold decreased $48,000 in the 2000 period.
INTEREST EXPENSE: Interest expense increased $714,000, or 31.4%, to $2,989,000
for the three month period ended June 30, 2000 from $2,275,000 for the three
month period ended June 30, 1999. This increase was primarily due to a the
increase in average rates paid on interest bearing deposit accounts and a $32.4
million increase in average notes payable to the FHLB. Average rates paid on
interest bearing deposits increased 41 basis points to 3.93% in the three month
period ended June 30, 2000 from 3.52% in the three month period ended June 30,
1999.
NET INTEREST INCOME: Net interest income before provision for loan loss was
$4,484,000 for the three month period ended June 30, 2000, an increase of
$923,000, or 25.9%, over the comparable period of 1999. Net interest margin
increased 33 basis points between the periods from 5.09% in the 1999 period to
5.42% in the 2000 period. The increase in net interest income is primarily due
to a $1,571,000 increase in interest income on loans and a $114,000 increase in
interest income on securities, offset by a $48,000 decrease in interest income
on federal funds sold and a $714,000 increase in interest expense. The Company's
average cost of funds for the three month period ended June 30, 2000 was 71
basis points higher than in the comparable 1999 period. The Company's average
yield on earning assets increased 91 basis points in the 2000 period compared to
the 1999 period, from 8.02% to 8.93%.
NONINTEREST INCOME: Noninterest income decreased $362,000, or 88.9%, for the
three month period ended June 30, 2000 to $45,000 from $407,000 for the three
month period ended June 30, 1999. This decrease was primarily due to a $452,000
decrease in the gain on sale of securities available for sale, offset by a
$46,000 increase in service charge income and a $44,000 increase in other
noninterest income.
NONINTEREST EXPENSE: Noninterest expense increased $71,000, or 2.0%, for the
three month period ended June 30, 2000 to $3,607,000 compared to $3,536,000 in
the three month period ended June 30, 1999. A significant portion of this
increase is increases in salaries and benefits relating primarily to annual
merit increases.
PROVISION FOR LOAN LOSS
The Company charged $136,000 to Provision for Loan Loss in the first six months
of 2000 and $47,000 for the same period in 1999. The ratio of loan loss reserve
to total loans was 1.52% at June 30, 2000 and 1.70% at June 30, 1999. 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.
9
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LIQUIDITY AND SOURCES OF FUNDS
The Company's total assets increased 4.9% to $376.1 million at June 30, 2000
from $358.6 million at December 31, 1999. During the six months ended June 30,
2000 deposits increased $5.2 million to $295.3 million at June 30, 2000 from
$290.1 million at December 31, 1999. None of the Company's deposits at June 30,
2000 were brokered deposits.
The Company has established a revolving line of credit with Gold Banc in an
amount not to exceed $3.0 million. 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 will be available for one year
only, with renewals to be negotiated each year. There is currently no amount
outstanding under this line of credit.
During the second quarter of 2000, the Bank borrowed $80.0 million from the FHLB
with rates ranging from 6.04% to 7.04% and maturities ranging from one day to
six months. These borrowings serve as an alternative source of funding to fund
current loan growth at a time when the Bank's deposits have not increased and
liquidation of a portion of the Bank's bond portfolio was not believed to be
advisable. The Company expects that these loans will be repaid with liquidity
from normal increases in deposits coupled with liquidity from the Bank's bond
portfolio.
During the second quarter of 2000, the Bank repaid $75.0 million of the FHLB
loans.
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. As a secondary source of funds, management uses
federal funds and borrowings related to its membership in the FHLB.
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 $175,000 and $4,000 at June 30, 2000 and
December 31, 1999, respectively. Other Real Estate Owned (OREO) was $0 at June
30, 2000 and December 31, 1999. At June 30, 2000, securities available for sale
totaled $120.6 million, or 98.0% of the total portfolio and other securities
(investment in FHLB stock) totaled $2.5 million, or 2.0% of the total portfolio.
10
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As of June 30, 2000, in order to maximize the Company's liquidity flexibility,
the Company has transferred all securities held to maturity to available for
sale. 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, 2000, the carrying value of
investments available for sale exceeded market value by approximately
$4,301,000.
U.S. government securities make up $73.6 million, or 59.8% of the investment
portfolio, mortgage backed securities make up $22.1 million, or 18.0% of the
investment portfolio, obligations of states and political subdivisions
(municipal securities), comprise $24.8 million, or 20.2% of the investment
portfolio, and other investments make up $2.5 million, or 2.0% of the investment
portfolio at June 30, 2000.
As noted in the Company's Form 10-KSB for the year ended December 31, 1999,
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, 2000, the
dollar duration of the investment portfolio was 4.99 compared to 4.50 at
December 31, 1999. While the Company would typically seek to decrease duration
in a rising interest rate environment, as discussed above, the Company elected
to fund current loan growth through FHLB borrowings rather than sales of
investment securities which would have moderated the increase in duration. The
Company does not believe its present position results in a material exposure to
rising interest rates in view of the current stable interest rate climate. 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 $738,000 to $20.1 million at
June 30, 2000 from $19.4 million at December 31, 1999. This increase in
stockholders' equity was due to the retention of earnings in the current year
and the exercise of options to purchase 10,600 shares of common stock, offset by
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 9.02% at June 30, 2000 and its total qualifying capital to
risk weighted assets
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was 11.38%. As of June 30, 2000 the Bank also 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: continued success of the
Bank's branching strategy, 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.
Information included in this document includes "forward-looking statements"
which can be identified by the use of forward-looking terminology such as "may,"
"will," "anticipate," "believe," "estimate," or "continue," or the negative
thereof or other variations thereon or comparable terminology. The statements in
"risk factors" and other statements and disclaimers in the Company's Annual
Report on Form 10-KSB constitute cautionary statements identifying important
factors, including certain risks and uncertainties, with respect to such
forward-looking statements that could cause actual results to differ materially
from those reflected in such forward-looking statements.
12
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UNION BANKSHARES, LTD.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes In Securities
None.
Item 3. Default Upon Senior Securities
None.
Item 4. Submission Of Matters To A Vote Of Securityholders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibits.
Exhibit 27. Financial Data Schedule
Reports on Form 8-K
None.
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SIGNATURES
In accordance with 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 4, 2000 /S/ BRUCE E. HALL
------------------------------------
Bruce E. Hall
Vice President, Treasurer and
Secretary
(Authorized Officer and Principal
Financial Officer of the Registrant)
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