-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LFgKsFL3DrJcMxi6bJinAVin5LCdaqZmvW6/bzDXc73JAcr2wt0sH7tVhicsbCZZ 7piTuXUpkw4X4n+fHdgqbw== 0000916641-96-000774.txt : 19960917 0000916641-96-000774.hdr.sgml : 19960917 ACCESSION NUMBER: 0000916641-96-000774 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960901 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNION BANKSHARES CORP CENTRAL INDEX KEY: 0000883948 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 540412820 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-20293 FILM NUMBER: 96630910 BUSINESS ADDRESS: STREET 1: 211 NORTH MAIN ST STREET 2: P O BOX 446 CITY: BOWLING GREEN STATE: VA ZIP: 22427 BUSINESS PHONE: 8046335031 MAIL ADDRESS: STREET 1: PO BOX 446 STREET 2: 211 NORTH MAIN ST CITY: BOWLING GREEN STATE: VA ZIP: 22427 FORMER COMPANY: FORMER CONFORMED NAME: UNION BANCORP INC /VA/ DATE OF NAME CHANGE: 19930328 8-K 1 UNION BANKSHARES 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): September 1, 1996 Commission File No. 0-20293 UNION BANKSHARES CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-1598552 (State of Incorporation) (I.R.S. Employer Identification No.) 211 North Main Street P.O. Box 446 Bowling Green, Virginia 22427 (Address of principal executive offices) (804) 633-5031 (Registrant's telephone number, including area code) Item 2. Acquisition or Disposition of Assets On September 1, 1996 Union Bankshares Corporation, a Virginia corporation ("Union"), acquired King George State Bank Inc., King George, Virginia ("King George"), through a statutory share exchange with King George (the "Merger"). The Merger was accounted for as a pooling of interests business combination. Union issued 275,000 shares of common stock for all the outstanding common shares of King George. The exchange ratio was 5.5 shares of Union common stock for each share of King George common stock outstanding on September 1, 1996. Upon consummation of the Merger on September 1, 1996, Union had outstanding a total of 3,567,049 shares of common stock. King George State Bank operates from a single location in King George County, Virginia, and will continue to carry on its banking business in substantially the same manner as before the Merger. For additional information concerning the Merger, reference is made to the Registration Statement on Form S-4 (No. 333-6631) filed by Union and declared effective on July 17, 1996. Item 7. Financial Statements and Exhibits (a) Financial Statements of the Business Acquired The financial statements of King George are included in Exhibit 99.1 of this filing and include the balance sheets of King George as of December 31, 1995 and 1994, and the related statements of income, changes in stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1995, and the report of Smith & Eggleston, P. C., independent auditors, dated February 16, 1996 thereon. Interim financial statements as of June 30, 1996 and for the six months then ended are not included in this Report because it was impracticable to provide this information in the required format within the prescribed time period. This interim financial information will be provided as soon as practicable (and in any event by October 4, 1996) by the filing of an amendment to this Report. (b) Pro Forma Financial Information Pro forma condensed financial information regarding the Merger is included in Exhibit 99.2 of this filing. (c) Exhibits Exhibit 99.1: Financial statements King George as of December 31, 1995 and for the period then ended. Exhibit 99.2: Pro forma condensed financial information regarding the Merger. Signatures Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. UNION BANKSHARES CORPORATION Date: September 13, 1996 By: /s/ D. ANTHONY PEAY ------------------- D. Anthony Peay Vice President and Chief Financial Officer EX-99 2 EXHIBIT 99.1 Index to Financial Statements King George State Bank, Inc. PAGE AUDITED FINANCIAL STATEMENTS: Independent Auditor's Report...............................................F-2 Balance Sheets as of December 31, 1995 and 1994............................F-3 Statements of Operations for the Two Years Ended December 31, 1995 and 1994......................................F-5 Statements of Changes in Stockholders' Equity for the Two Years Ended December 31, 1995 and 1994..........................F-6 Statements of Cash Flows for the Two Years Ended December 31, 1995 and 1994......................................F-7 Notes to Financial Statements..............................................F-9 UNAUDITED INTERIM FINANCIAL STATEMENTS: Balance Sheet as of March 31, 1996.........................................F-19 Statements of Operations for the Three Months Ended March 31, 1996 and 1995.........................................F-20 Statements of Charges in Stockholders' Equity for the Three Months Ended March 31, 1996 and 1995......................F-21 Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995.........................................F-22 Notes to Interim Financial Statements......................................F-24 F-1 INDEPENDENT AUDITORS' REPORT Stockholders and Directors King George State Bank, Inc. King George, Virginia We have audited the accompanying balance sheets of King George State Bank, Inc. as of December 31, 1995 and 1994, and the related statements of income, changes in stockholders' equity and cash flows for each of the three years in the three year period ended December 31, 1995. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of King George State Bank, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the three year period ended December 31, 1995 in conformity with generally accepted accounting principles. SMITH & EGGLESTON, P.C. February 16, 1996 F-2 KING GEORGE STATE BANK, INC. BALANCE SHEETS DECEMBER 31, 1995 AND 1994 A S S E T S 1995 1994 ----------- -------- CASH AND DUE FROM BANKS $ 1,805,084 $ 1,214,097 INVESTMENT SECURITIES: (Approximate market value of $9,497,346 and $12,245,673 for 1995 and 1994, respectively) (Notes 1, 2 & 16) 9,450,258 12,831,041 FEDERAL FUNDS SOLD (Note 16) 600,000 1,200,000 LOANS: (Net of allowance for loan losses of $303,160 and $376,219 for 1995 and 1994, respectively) (Notes 1, 3 & 16) 32,696,362 30,589,695 PREMISES AND EQUIPMENT (Notes 1 & 11) 679,571 687,420 OTHER REAL ESTATE OWNED (Note 8) 331,711 416,633 OTHER ASSETS (Note 5) 1,098,033 1,061,804 ----------- ---------- Total Assets $46,661,019 $48,000,690 =========== =========== F-3 L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y 1995 1994 ----------- -------- DEPOSITS: (Note 16) Demand $ 5,629,172 $ 5,791,472 NOW accounts 2,190,244 2,346,526 Money Market accounts 2,961,813 3,646,034 Savings 9,436,386 14,760,000 Time, $100,000 and over 7,463,411 4,907,847 Other time 13,722,267 11,747,806 ----------- ----------- Total Deposits $41,403,293 $43,199,685 OTHER LIABILITIES (Note 6) 867,380 808,050 ----------- ----------- Total Liabilities $42,270,673 $44,007,735 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY: Capital stock - par value $6 per share: Authorized - 200,000 shares Issued and outstanding - 50,000 shares $ 300,000 $ 300,000 Surplus 300,000 300,000 Retained earnings 3,783,594 3,392,955 Unrealized gain on securities available- for-sale (Note 2) 6,752 - ----------- ----------- Total Stockholders' Equity $ 4,390,346 $ 3,992,955 ----------- ----------- Total Liabilities and Stockholders' Equity $46,661,019 $48,000,690 =========== =========== See Notes To Financial Statements F-4 KING GEORGE STATE BANK, INC. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ---------- ---------- ------- INTEREST INCOME: Interest and fees on loans $2,977,761 $2,591,485 2,738,209 Interest on investment securities: Obligations of the U. S. government and its agencies and corporations 265,075 343,557 221,575 Obligations of states and political subdivisions 168,123 129,228 91,616 Other securities 169,222 197,897 173,100 Interest on federal funds sold 32,435 52,892 178,296 ---------- ---------- ---------- Total Interest Income $3,612,616 $3,315,059 $3,402,796 Interest on deposits 1,572,611 1,380,369 1,669,951 ---------- ---------- ---------- Net Interest Income $2,040,005 $1,934,690 $1,732,845 PROVISION FOR LOAN LOSSES (Notes 1 & 3) 403,000 505,000 351,357 ---------- ---------- ---------- Net Interest Income After Provision For Loan Losses $1,637,005 $1,429,690 $1,381,488 NONINTEREST INCOME (Note 12) 176,346 175,862 166,189 ---------- ---------- ---------- $1,813,351 $1,605,552 $1,547,677 ---------- ---------- ---------- OPERATING EXPENSES: Salaries and employee benefits $ 550,465 $ 464,415 $ 356,190 Occupancy 107,519 95,496 91,929 Equipment 43,470 29,474 60,738 Other 375,426 346,110 346,536 FDIC insurance 61,418 106,682 103,405 ---------- ---------- ---------- $1,138,298 $1,042,177 $ 958,798 ---------- ---------- ---------- Income Before Income Tax $ 675,053 $ 563,375 $ 588,879 PROVISION FOR INCOME TAX (Note 7) 169,414 125,502 227,523 ---------- ---------- ---------- Net Income $ 505,639 $ 437,873 $ 361,356 ========== ========== ========== Earnings per share (Note 1) $ 10.11 $ 8.76 $ 7.23 ========== ========== ==========
See Notes To Financial Statements F-5 KING GEORGE STATE BANK, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Capital Retained Stock Surplus Earnings Total BALANCE - JANUARY 1, 1993 $ 300,000 $ 300,000 $2,816,226 $3,416,226 Dividends (Note 4) - - ( 110,000) ( 110,000) Net income - - 361,356 361,356 --------- --------- ---------- ---------- BALANCE - DECEMBER 31, 1993 $ 300,000 $ 300,000 $3,067,582 $3,667,582 Dividends (Note 4) - - ( 112,500) ( 112,500) Net Income - - 437,873 437,873 --------- --------- ---------- ---------- BALANCE - DECEMBER 31, 1994 $ 300,000 $ 300,000 $3,392,955 $3,992,955 Dividends (Note 4) - - ( 115,000) ( 115,000) Net Income - - 505,639 505,639 Unrealized gains on securities available-for-sale - - 6,752 6,752 --------- --------- ---------- ---------- BALANCE - DECEMBER 31, 1995 $ 300,000 $ 300,000 $3,790,346 $4,390,346 ========= ========= ========== ==========
See Notes To Financial Statements F-6 KING GEORGE STATE BANK, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ---------- ---------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 505,639 $ 437,873 $ 361,356 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 78,957 74,947 58,093 Provision for loan losses 403,000 505,000 351,357 Amortization of premium on investment securities 46,106 59,691 56,924 Gain (loss) on sale of investment securities 7,395 ( 517) ( 746) Changes in assets and liabilities: (Increase) in cash value of life insurance ( 17,451) ( 45,079) ( 31,872) Decrease in deferred income taxes 29,658 29,565 100,073 (Increase) decrease in interest receivable ( 42,894) 10,258 ( 67,944) (Increase) in prepaid expenses ( 9,746) ( 5,437) 12,060 (Increase) decrease in accounts receivable - other 726 159 ( 40,235) Increase (decrease) in interest payable on deposits 29,201 51,054 ( 83,864) Increase in deferred compensation liability 23,930 55,597 73,823 Increase in accounts payable 6,199 12,106 1,299 (Decrease) in income tax payable - - ( 19,902) ---------- ---------- ---------- Net Cash Provided by Operating Activities $1,060,720 $1,185,217 $ 770,422 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) in loans ($2,509,667) ($2,056,911) ($2,956,626) Purchase of held-to-maturity securities ( 950,151) ( 2,266,972) ( 7,697,849) Proceeds from maturities of held-to- maturity securities 4,254,026 868,882 1,485,923 Purchase of available-for-sale securities ( 100,000) - - Proceeds from sale of securities 133,637 - - Changes in federal funds sold - net 600,000 1,265,000 6,715,000 Purchase of equipment ( 71,108) ( 76,853) ( 141,626) Purchase of other real estate ( 66,991) ( 297,116) ( 90,971) Proceeds from sale of foreclosed real estate 151,913 238,283 404,912 ---------- ---------- ---------- Net Cash Provided by (Used in) Investing Activities $1,441,659 ($2,325,687) ($2,281,237) ---------- ---------- ----------
See Notes To Financial Statements F-7 KING GEORGE STATE BANK, INC. STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993 ---------- ---------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposits - net ($1,796,392) $ 815,964 $2,169,535 Dividends paid ( 115,000) ( 112,500) ( 110,000) ---------- ---------- ---------- Net Cash Provided by (Used in) Financing Activities ($1,911,392) $ 703,464 $2,059,535 ---------- ---------- ---------- Net Increase (Decrease) in Cash and Due from Banks $ 590,987 ($ 437,006) $ 548,720 CASH AND DUE FROM BANKS - BEGINNING OF YEAR 1,214,097 1,651,103 1,102,383 ---------- ---------- ---------- CASH AND DUE FROM BANKS - END OF YEAR $1,805,084 $1,214,097 $1,651,103 ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $1,543,409 $1,329,316 $1,753,815 Income taxes 138,463 123,390 187,569
See Notes To Financial Statements F-8 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: HISTORY AND ORGANIZATION King George State Bank, Inc., a Virginia corporation, provides general commercial banking services to individuals and businesses primarily within King George County, Virginia and surrounding communities. It is a member of the Federal Reserve System and the Federal Deposit Insurance Corporation and is also subject to the regulations of certain Federal and State agencies. It undergoes periodic examinations by regulatory authorities. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT SECURITIES Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at cost, adjusted for amortization of premiums and accretion of discounts, computed by the interest method. Other marketable securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses on securities available-for-sale are recognized as direct increases or decreases in stockholders' equity. The cost of securities sold is recognized using the specific identification method. MORTGAGE BACKED SECURITIES Mortgage-backed securities represent participating interests in pools of long-term first mortgage loans originated and serviced by issuers of the securities. Mortgage-backed securities are carried at unpaid principal balances, adjusted for unamortized premiums and unearned discounts. Premiums and discounts are amortized using methods approximating the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Mortgage backed securities that management has the ability and intent to hold to maturity are classified as held-to-maturity. Other mortgage backed securities are classified as available-for-sale and are carried at fair value. Should any be sold, cost of securities sold is determined using the specific identification method. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are stated at the amount of unpaid principal, reduced by unearned discount and an allowance for loan losses. Unearned discount on installment loans is recognized as income over the terms of the loans. Interest on other loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's evaluation of the F-9 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued) collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Because of uncertainties inherent in the estimation process, management's estimate of credit losses inherent in the loan portfolio and the related allowance may change in the near term. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. PREMISES AND EQUIPMENT The premises and equipment is recorded at cost. Depreciation is based on estimated useful service lives and is computed on the straight-line method. CASH FLOW INFORMATION The statement of cash flows reconciles net income with the change in cash and due from banks. The indirect method has been used. For purposes of reporting cash flows, cash and due from banks includes cash on hand and amounts due from banks. EARNINGS PER SHARE Earnings per share are calculated on the basis of the weighted average number of shares outstanding. LOAN COSTS Loan fees and certain direct loan origination costs of completed loans are deferred and recognized as an adjustment of the yields on related loans over the lives of the loans. INCOME TAXES In 1993, the Bank adopted FASB Statement 109, Accounting for Income Taxes, which requires an assets and liability approach to financial accounting and reporting for income taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of the allowance for loan losses, premises and equipment, deferred loan costs and deferred compensation liability for financial and income tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Income tax expense is the tax payable or refundable for the year plus or minus the change for the year in deferred tax assets and liabilities. F-10 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued) FORECLOSED REAL ESTATE Foreclosed real estate includes both formally foreclosed property and in-substance foreclosed property. In-substance foreclosed properties are those properties for which the Bank has taken physical possession, regardless of whether formal foreclosure proceedings have taken place. At the time of foreclosure, foreclosed real estate is recorded at the lower of the Bank's cost or the asset's fair value, less estimated costs to sell, which becomes the property's new basis. Any write-downs based on the asset's fair value at date of acquisition are charged to the allowance for loan losses. Costs incurred in maintaining foreclosed real estate and subsequent write-downs to reflect declines in the fair value of the property are included in income (loss) on foreclosed real estate. RECLASSIFICATIONS Certain previously reported amounts have been reclassified to conform to current presentations. NOTE 2: INVESTMENT SECURITIES: Securities held-to-maturity at December 31, 1995 consist of the following: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U. S. Government and federal agencies $ 500,000 $ - $ 30,000 $ 470,000 State and local governments 2,824,417 32,887 10,785 2,846,519 Mortgage-backed securities 8,384 37 220 8,201 Corporate debt securities 2,653,317 58,675 3,506 2,708,486 ---------- ---------- ---------- ----------- $5,986,118 $ 91,599 $ 44,511 $ 6,033,206 ========== ========== ========== =========== Securities available-for-sale at December 31, 1995 consist of the following: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U. S. Government and federal agencies $3,290,964 $ 13,356 $ 8,050 $ 3,296,270 Mortgaged-backed securities 83,987 4,924 - 88,911 ---------- ---------- ---------- ----------- $3,374,951 $ 18,280 $ 8,050 $ 3,385,181 Other equity securities 78,959 - - 78,959 ---------- ---------- ---------- ----------- $3,453,910 $ 18,280 $ 8,050 $ 3,464,140 ========== ========== ========== =========== F-11 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 2: INVESTMENT SECURITIES: (Continued) The total net unrealized gain on available-for-sale securities of $10,230 is reported as an increase of retained earnings of $6,752 (net of $3,478 deferred income tax). The carrying amounts of investments at December 31, 1995 are as follows: Held-to-maturity $5,986,118 Available-for-sale 3,464,140 $9,450,258 Securities held-to-maturity at December 31, 1994 consist of the following: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value U. S. Government and federal agencies $ 6,764,166 $ - $ 338,481 $ 6,425,685 State and local governments 2,624,532 3,736 143,455 2,484,813 Mortgaged-backed securities 125,779 1,955 1,260 126,474 Corporate debt securities 3,236,464 - 102,763 3,133,701 ----------- ---------- ---------- ----------- $12,750,941 $ 5,691 $ 585,959 $12,170,673 =========== ========== ========== =========== Securities available-for-sale at December 31, 1994 consist of the following: Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value Other equity securities $ 80,100 $ - $ - $ 80,100 =========== ========== ========== =========== U. S. Government and government backed obligations with a carrying amount of $1,679,956 are pledged to secure municipality and treasury tax and loan deposits as of December 31, 1995. The schedule below reflects the maturities of investment securities at December 31, 1995. The classification of mortgage-backed securities was based on expected maturities, while contractual maturities were used for other debt securities. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. F-12 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 2: INVESTMENT SECURITIES: (Continued) Securities Securities Held-to-Maturity Available-for-Sale Amortized Fair Amortized Fair Cost Value Cost Value Due in one year or less $ 900,781 $ 903,438 $ 452,655 $ 452,235 Due after one year through five years 4,154,539 4,187,864 2,838,309 2,844,035 Due after five years through ten years 812,459 823,908 - - Due after ten years 109,955 109,795 - - Mortgage-backed securities 8,384 8,201 83,987 88,911 Equity securities - - 78,959 78,959 ---------- ---------- ---------- ----------- $5,986,118 $6,033,206 $3,453,910 $ 3,464,140 ========== ========== ========== =========== NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES: Major classifications of loans are as follows: 1995 1994 ----------- -------- Monthly real estate $ 6,871,847 $ 6,259,413 Construction 1,151,264 1,411,330 Collateral 19,930,743 16,960,457 Installment 3,348,455 3,108,029 Plain 1,663,911 3,158,683 Demand - 20,000 Capitalized loan costs 47,151 69,239 ----------- ----------- $33,013,371 $30,987,151 Unearned income ( 13,849) ( 21,237) ----------- ----------- $32,999,522 $30,965,914 Allowance for loan losses ( 303,160) ( 376,219) ----------- ----------- Loans - net $32,696,362 $30,589,695 =========== =========== Loans on which the accrual of interest has been discontinued or reduced amounted to $73,250 and $646,437 at December 31, 1995 and 1994, respectively. Certain directors and officers were indebted to the Bank in the aggregate amounts of $520,078 and $604,569 as of December 31, 1995 and 1994, respectively. During the year ended December 31, 1995, new loans made to related parties totaled $53,000 and repayments totaled $137,491. F-13 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 3: LOANS AND ALLOWANCE FOR LOAN LOSSES: (Continued) An analysis of the changes in the allowance for loan losses follows: 1995 1994 ---------- ---------- Balance - beginning of year $ 376,219 $ 405,924 Additions: Provision charged to operations 403,000 505,000 Recoveries of loans charged off in prior years 51,631 76,969 ---------- ---------- $ 830,850 $ 987,893 Deduction: Loans charged off 527,690 611,674 ---------- ---------- Balance - end of year $ 303,160 $ 376,219 ========== ========== NOTE 4: DIVIDENDS: Dividends were declared at the rate of $2.30, $2.25 and 2.20 per share in 1995, 1994 and 1993, respectively. NOTE 5: OTHER ASSETS: Other assets consist of the following: 1995 1994 ---------- ---------- Loan interest receivable $ 481,741 $ 393,776 Deferred income tax 135,322 168,458 Cash value of life insurance 253,235 235,784 Accounts receivable - other 39,350 40,076 Prepaid expenses and other 44,912 35,166 Interest receivable on investments 143,473 188,544 ---------- ---------- $1,098,033 $1,061,804 NOTE 6: OTHER LIABILITIES: Other liabilities consist of the following: 1995 1994 ---------- ---------- Interest payable on deposits $ 138,750 $ 109,548 Deferred compensation liability 697,271 673,341 Accounts payable 31,359 25,161 ---------- ---------- $ 867,380 $ 808,050 ========== ========== F-14 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 7: INCOME TAX: The provision for income tax consists of the following: 1995 1994 1993 ---------- ---------- ---------- Current $ 139,756 $ 95,937 $ 127,432 Deferred 29,658 29,565 100,091 ---------- ---------- ---------- $ 169,414 $ 125,502 $ 227,523 ========== ========== ========== The following reconciles income taxes reported in the financial statements to taxes that would be obtained by applying regular tax rates to net income before income taxes. 1995 1994 1993 ---------- ---------- ---------- Income tax at statutory rate $ 229,518 $ 191,548 $ 200,219 (Decrease) resulting from: Tax exempt income ( 57,162) ( 43,938) ( 29,229) Other ( 2,942) ( 22,108) 33,909 Effect of change in accounting principle - - 22,624 ---------- ---------- ---------- $ 169,414 $ 125,502 $ 227,523 ========== ========== ========== Deferred tax assets have been provided for deductible temporary differences related to deferred compensation. Deferred tax liabilities have been provided for taxable temporary differences related to the allowance for loan losses, premises and equipment, capitalized loan costs, and available for sale investments. The net deferred tax assets in the accompanying statements of financial condition include the following components: 1995 1994 ---------- ------- Deferred tax assets $ 237,072 $ 228,936 Deferred tax liabilities ( 101,750) ( 60,478) ---------- ---------- $ 135,322 $ 168,458 ========== ========== NOTE 8: OTHER REAL ESTATE OWNED: Other real estate owned reflects properties acquired during foreclosure sales in order to protect the Bank's interests after the secured notes were in default. The properties are valued at the lower of their fair market value or the recorded investment in the related loan. F-15 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 9: DIRECTORS' BENEFIT PLAN: The Bank maintains a voluntary deferred compensation program which permits eligible directors and officers to defer receipt of a portion of their directors' fees. There are 10 eligible participants and 7 have elected to participate. The Bank has purchased life insurance on all of the participants in amounts that, in the aggregate, actuarially fund its future liabilities under this program, and it is the owner and sole beneficiary of all such insurance. The program has been designed so that, if assumptions as to mortality experience, policy dividends, tax effects, and other factors are realized, the compensation deferred by a participant and the death benefits payable to the Bank under the insurance policies will cover all premium payments and benefit payments, plus a factor for the use of funds of the Bank. While the insurance policies were purchased as a means of funding the deferred compensation liability created under this plan, there exists no obligation to use any insurance funds from policy loans or death proceeds to curtail the deferred compensation liability. Under the terms of the directors' benefit plan, a participant, or his beneficiary, will receive upon retirement a monthly retirement payment for life, payable for a minimum of 15 years. The plan also provides for a reduced payment to a participant's beneficiary in the event that the participant dies prior to retirement, payable for a period of 15 years from the date of death. A participant's retirement date is considered to be the later of the date a participant turns age 65 or completes 10 years of plan participation. The deferred compensation liability as of December 31, 1995 and 1994 totaled $697,271 and $673,341, respectively. The deferred compensation plan expense totaled $39,643, $55,597, and $73,823 for 1995, 1994, and 1993, respectively. The Bank began paying benefits during 1995 and $15,713 was paid to eligible participants. Anticipated payments for the next five years are as follows: 1996 $ 36,671 1997 39,818 1998 49,258 1999 49,258 2000 49,258 NOTE 10: COMMITMENTS AND CONTINGENT LIABILITIES: In the normal course of business, there are various outstanding commitments and contingent liabilities such as guarantees, commitments to extend credit, etc., which are not reflected in the accompanying financial statements. The Bank had outstanding letters of credit totaling $874,044 and $993,313 at December 31, 1995 and 1994, respectively, and it does not anticipate losses as a result of these transactions. At December 31, 1995, the Bank also had undisbursed funds under various lines of credit and loan commitments totaling $2,041,292. F-16 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 11: PREMISES AND EQUIPMENT: A summary of premises and equipment at December 31, 1995 and 1994 follows: 1995 1994 ---------- ---------- Land $ 206,862 $ 206,862 Building and improvements 389,598 378,123 Furniture and equipment 586,638 527,895 ---------- ---------- $1,183,098 $1,112,880 Less: Accumulated depreciation 503,527 425,460 ---------- ---------- $ 679,571 $ 687,420 ========== ========== NOTE 12: NONINTEREST INCOME: Noninterest income was comprised of the following:
1995 1994 1993 ---------- ---------- ------- Service charges on deposit accounts $ 136,501 $ 113,393 $ 115,268 Other service charges 33,201 50,649 39,237 Net investment securities gains (losses) ( 7,395) 517 746 Other 12,959 10,223 9,858 Dividends - Federal Reserve stock 1,080 1,080 1,080 ---------- ---------- ---------- $ 176,346 $ 175,862 $ 166,189 ========== ========== ==========
NOTE 13: INVESTMENT IN SUBSIDIARY: During 1994, the Bank formed Porays Services, Inc., a wholly owned subsidiary organized to conduct any business authorized by a bank subsidiary. The Bank accounts for its investment under the equity method. It contributed $5,100 to Porays' initial capital. Net income recorded for 1995 totaled $3,959. NOTE 14: DISCLAIMER: This financial information has not been reviewed, or confirmed for accuracy or relevance, by the Federal Reserve System. NOTE 15: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition. F-17 KING GEORGE STATE BANK, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1995 NOTE 15: FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: (Continued) The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments (see Note 10). The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer's creditworthiness on a case-by-case basis. The amount and type of collateral obtained, if deemed necessary by the Bank upon extension of credit, varies and is based on management's credit evaluation of the counterparty. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank's policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit. NOTE 16: FAIR VALUES OF FINANCIAL INSTRUMENTS: The estimated fair values of the Bank's financial instruments are as follows:
1995 1994 ---------------------- ------------------------ Carrying Fair Carrying Fair Amount Value Amount Value Financial Assets: Cash and due from banks $1,805,084 $1,805,084 $1,214,097 $ 214,097 Securities available-for-sale 3,453,910 3,464,140 80,100 80,100 Securities held-to-maturity 5,986,118 6,033,206 12,750,941 12,170,673 Federal funds sold 600,000 600,000 1,200,000 1,200,000 Demand deposits 5,629,172 5,629,172 5,791,472 5,791,472 NOW accounts 2,190,244 2,190,244 2,346,526 2,346,526 Money market accounts 2,961,813 2,961,813 3,646,034 3,646,034 Savings accounts 9,436,386 9,436,386 14,760,000 14,760,000
The fair values of loans and time deposits are not presented herein as it is not practicable to estimate the fair value without incurring excessive costs. F-18 EX-99 3 EXHIBIT 99.2 UNION and KING GEORGE Exhibit 99.2 Pro Forma Condensed Balance Sheets (Unaudited)
June 30, 1996 -------------------------------------------------- King Pro Forma Pro Forma Union George Adjustments Combined (Dollars in thousands) Assets Cash and due from banks $ 15,451 $ 1,585 $ 17,036 Interest-bearing deposits in other banks 418 2 420 Federal funds sold 2,808 3,785 6,593 Securities 127,918 9,737 137,655 Loans, net of unearned income 313,490 32,837 346,327 Less allowance for loan losses 3,953 324 4,277 --------- --------- --------- Net loans 309,537 32,513 - 342,050 Premises and equpiment, net 11,405 615 12,020 Other assets 14,149 1,322 15,471 --------- --------- --------- Total assets $481,686 $ 49,559 $ - $ 531,245 ========== ========= ========= ========= Liabilities Deposits Non-interest-bearing demand deposits $ 47,459 $ 5,896 $ 53,355 Interest-bearing deposits 339,423 37,917 377,340 --------- --------- --------- Total deposits 386,882 43,813 - 430,695 Short-term borrowings 29,927 - 29,927 Long-term borrowings 11,200 - 11,200 Other liabilities 2,700 945 3,645 --------- --------- --------- Total liabilities 430,709 44,758 - 475,467 --------- --------- --------- Stockholders' equity Preferred stock - - - - Common stock, $4 par value 13,168 - 1,100 (1) 14,268 Common stock, $6 par value - 300 (300)(1) - Surplus 674 300 (300)(1) 674 Retained earnings 37,427 4244 (500)(1) 41,171 Unrealized gains (losses) on securities available for sale, net of taxes (292) (43) - (335) --------- --------- ------------ --------- Total stockholders' equity 50,977 4,801 - 55,778 --------- --------- ------------- --------- Total liabilities and stockholders' equity $ 481,686 $ 49,559 $ - $ 531,245 ========== ======== ============= ===========
- --------------------------------- See Notes to Pro Forma Condensed Financial Information 1 UNION and KING GEORGE Pro Forma Condensed Statement of Income For the Year Ended December 31, 1995 (Unaudited)
King Pro Forma Union George Combined Interest income: Interest and fees on loans $ 26,583 $ 2,978 $ 29,561 Interest on securities 7,560 603 8,163 Federal funds sold 295 32 327 Interest-bearing deposits in other banks 32 - 32 ---------- -------- ---------- Total interest income 34,470 3,613 $ 38,083 Interest expense: Interest on deposits 14,806 1,559 16,365 Interest on other borrowings 1,476 14 1,490 ---------- -------- ---------- Total interest expense 16,282 1,573 17,855 ---------- -------- ---------- Net interest income 18,188 2,040 $ 20,228 Provision for loan losses (note 2) 574 403 977 ---------- -------- ---------- Net interest income after provision for loan losses 17,614 1,637 19,251 ---------- -------- ---------- Other income: Service fees 2,007 136 2,143 Losses on sales of securities available for sale (9) (7) (16) Other operating income 444 47 491 ---------- -------- ---------- Total other income 2,442 176 2,618 ---------- -------- ---------- Other expenses: Salaries and employee benefits 6,244 550 6,794 Occupancy expenses 1,618 108 1,726 FDIC assessments 406 43 449 Other operating expenses 3,631 437 4,068 ---------- -------- ---------- Total other expenses 11,899 1,138 13,037 ---------- -------- ---------- Income before income taxes 8,157 675 8,832 Income tax expense 1,910 169 2,079 ---------- -------- ---------- Net income $ 6,247 $ 506 $ 6,753 ========== ======== ========== Per Share Data: Net income per share of common stock $ 1.91 $ 10.11 $ 1.91 Cash dividends per share of common stock $ 0.56 $ 2.30 $ 0.56 Average common shares outstanding 3,268,033 50,000 3,543,033
- ---------------------------------------------------- See Notes to Pro Forma Condensed Financial Information UNION and KING GEORGE Pro Forma Condensed Statement of Income For the Year Ended December 31, 1994 (Unaudited)
King Pro Forma Union George Combined Interest income: Interest and fees on loans $ 21,244 $ 2,591 $ 23,835 Interest on securities 7,173 671 7,844 Federal funds sold 156 53 209 Interest-bearing deposits in other banks 39 - 39 ---------- -------- ---------- Total interest income 28,612 3,315 $ 31,927 Interest expense: Interest on deposits 11,025 1,380 12,405 Interest on other borrowings 684 - 684 ---------- -------- ---------- Total interest expense 11,709 1,380 13,089 ---------- -------- ---------- Net interest income 16,903 1,935 $ 18,838 Provision for loan losses (note 2) 597 505 1,102 ---------- -------- ---------- Net interest income after provision for loan losses 16,306 1,430 17,736 Other income: Service fees 1784 113 1,897 Losses on sales of securities available for sale (14) - (14) Other operating income 1,004 62 1,066 ---------- -------- ---------- Total other income 2,774 175 2,949 ---------- -------- ---------- Other expenses: Salaries and employee benefits 5408 464 5,872 Occupancy expenses 1428 96 1,524 FDIC assessments 730 29 759 Other operating expenses 3,465 453 3,918 ---------- -------- ---------- Total other expenses 11,031 1,042 12,073 ---------- -------- ---------- Income before income taxes 8,049 563 8,612 Income tax expense 1,774 125 1,899 ---------- -------- ---------- Net income $ 6,275 $ 438 $ 6,713 ========== ========= =========== Per Share Data: Net income per share of common stock $ 1.93 $ 8.76 $ 1.90 Cash dividends per share of common stock $ 0.52 $ 2.25 $ 0.52 Average common shares outstanding 3,258,035 50,000 3,533,035
- ------------------------------------------------------------ See Notes to Pro Forma Condensed Financial Information UNION and KING GEORGE Pro Forma Condensed Statement of Income For the Year Ended December 31, 1993 (Unaudited)
King Pro Forma Union George Combined Interest income: Interest and fees on loans $ 19,855 $ 2,738 $ 22,593 Interest on securities 6,811 487 7,298 Federal funds sold 275 178 453 Interest-bearing deposits in other banks 53 - 53 ---------- -------- ---------- Total interest income 26,994 3,403 $ 30,397 Interest expense: Interest on deposits 11,018 1,670 12,688 Interest on other borrowings 321 - 321 ---------- -------- ---------- Total interest expense 11,339 1,670 13,009 ---------- -------- ---------- Net interest income 15,655 1,733 $ 17,388 Provision for loan losses (note 2) 1,220 351 1,571 ---------- -------- ---------- Net interest income after provision for loan losses 14,435 1,382 15,817 ---------- -------- ---------- Other income: Service fees 1666 115 1,781 Losses on sales of securities available for sale (69) 1 (68) Other operating income 298 50 348 ---------- -------- ---------- Total other income 1,895 166 2,061 ---------- -------- ---------- Other expenses: Salaries and employee benefits 4939 356 5,295 Occupancy expenses 1250 92 1,342 FDIC assessments 718 61 779 Other operating expenses 2,968 450 3,418 ---------- -------- ---------- Total other expenses 9,875 959 10,834 ---------- -------- ---------- Income before income taxes 6,455 589 7,044 Income tax expense 1,301 228 1,529 ---------- -------- ---------- Net income $ 5,154 $ 361 $ 5,515 ========== ========= ========== Per Share Data: Net income per share of common stock $ 1.58 $ 7.23 $ 1.56 Cash dividends per share of common stock $ 0.45 $ 2.20 $ 0.45 Average common shares outstanding 3,255,630 50,000 3,530,630
- ------------------------------------------------------------ See Notes to Pro Forma Condensed Financial Information Union Bankshares Corporation and King George State Bank Notes to Pro Forma Condensed Financial Information (Unaudited) a) The pro forma information presented is not necessarily indicative of the results of operations or the financial position that would have resulted had the KGSB Merger been consummated at the beginning of the periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. b) It is assumed that the KGSB Merger will be accounted for on a pooling of interests accounting basis and, accordingly, the related pro forma adjustments have been calculated using the exchange ratio, whereby Union will issue 5.5 share of Union Common Stock for each share of KGSB Common Stock. As a result, information was appropriately adjusted for the KGSB Merger by the (I) addition of 275,000 shares of Union Common Stock amounting to $1,100,000; (ii) elimination of 50,000 shares of KGSB Common Stock amounting to $300,000; and (iii) recordation of the remaining amount of $800,000 as a decrease in capital surplus ($300,000) and retained earnings ($500,000) at June 30, 1996. c) Per share data has been computed based on the combined historical net income applicable to common shareholders of Union and KGSB using the historical weighted average shares outstanding of Union Common Stock and the weighted average shares, adjusted to equivalent shares of Union Common Stock, of KGSB, as of the earliest period presented. -----END PRIVACY-ENHANCED MESSAGE-----