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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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 I.D. 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON
STOCK, $4 PAR VALUE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The Aggregate Market Value of the Voting Stock Held by Nonaffiliates of
the Registrant was $83,126,033 as of February 28, 1997.
As of February 28, 1997, Union Bankshares Corporation had 3,564,915 shares
of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for the
year ended December 31, 1996 are incorporated into Part II, Items 6 through 8
of this Form 10-K, and (2) portions of the Proxy Statement for the 1997 annual
meeting are incorporated into Part III, Items 10 through 13 of this Form 10-K.
UNION BANKSHARES CORPORATION
FORM 10-K
INDEX
-----
PART 1
Page
----
Item 1. Business................................................... 1
Item 2. Properties................................................. 7
Item 3. Legal Proceedings.......................................... 8
Item 4. Submission of Matters to a Vote of
Security Holders....................................... 9
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters............................ 9
Item 6. Selected Financial Data.................................... 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................. 10
Item 8. Financial Statements and Supplementary
Data................................................... 10
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................................. 10
PART III
Item 10. Directors and Executive Officers of the Registrant ........ 10
Item 11. Executive Compensation..................................... 11
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................... 11
Item 13. Certain Relationships and Related
Transactions.................................... 11
PART IV
Item 14. Exhibits, Financial Statements Schedules
and Reports on Form 8-K......................... 12
PART I
Item 1. - Business
GENERAL
Union Bankshares Corporation (the "Company") is a bank holding company
organized under Virginia law which conducts a financial services business
through its wholly-owned subsidiaries, Union Bank & Trust Company ("Union
Bank"), Northern Neck State Bank ("Northern Neck"), King George State Bank
("King George") and Union Investment Services, Inc. ("Union Investment").
The Company was formed in connection with the July 12, 1993 merger of
Northern Neck Bankshares Corporation with and into Union Bancorp, Inc. to form
Union Bankshares Corporation. On September 1, 1996, King George State Bank also
became a wholly-owned subsidiary of the Company. Under the terms of the
agreement, the Company exchanged 5.5 shares of its common stock for each
outstanding share of King George State Bank, Inc. stock. The transaction
qualified as a tax-free exchange and was accounted for as a
pooling-of-interests.
Each of the subsidiary banks is a full service retail commercial bank
offering a wide range of banking and related financial services, including
checking, savings, certificates of deposit and other depository services,
commercial, industrial, residential mortgage and consumer loans.
Union Bank & Trust Company had assets of $358 million, deposits of $285
million and shareholders' equity of $34 million on December 31, 1996. The Bank
was organized and chartered under the laws of Virginia in 1902. Union Bank's
primary trade area is Caroline County, Hanover County, King William County,
Spotsylvania County, Stafford County and the City of Fredericksburg, Virginia.
In addition to its main office located in Bowling Green, Virginia, Union Bank
operates twelve other branches in its primary trade area.
Northern Neck State Bank was organized and chartered under the laws of
Virginia in 1909. As of December 31, 1996, Northern Neck State Bank had assets
of $133 million, deposits of $113 million, and shareholders' equity of $17
million. Northern Neck State Bank primarily serves the Northern Neck area of the
State of Virginia, in a trade area which encompasses the counties of Richmond,
Westmoreland, Essex and Northumberland. In addition to its main office, the Bank
1
operates four branches in its primary trade area, including a branch in the
Tappahannock Wal*Mart Superstore which opened in October 1996.
King George State Bank had assets of $48 million, deposits of $42 million
and shareholders' equity of $5 million on December 31, 1996. The Bank was
organized and chartered under the laws of Virginia in 1973 and operates from a
single location in King George County. King George State Bank's primary trade
area is King George County and extends into Fredericksburg, Virginia.
Union Investment began providing securities brokerage and investment
advisory services in February, 1993. It is a full service discount brokerage
company which offers a full range of investment services, and sells mutual
funds, bonds and stocks.
Union Mortgage Company, LLC began operations on January 1, 1997, providing
a wide array of mortgage products to customers in the service areas of the
subsidiary banks.
COMPETITION
The banking business in Virginia and nationally is very competitive. In
its market area the Company competes with large regional financial institutions,
savings and loans and other independent community banks, as well as credit
unions, mutual funds and life insurance companies. Competition for deposits and
loans is affected by factors such as interest rates offered, the number and
location of branches and types of products offered, as well as the reputation of
the institution.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. The following description briefly discusses certain
provisions of federal and state laws and certain regulations and proposed
regulations and the potential impact of such provisions on the Company and its
subsidiary banks, Union Bank, Northern Neck Bank and King George Bank
(collectively, the "Subsidiary Banks").
Bank Holding Companies
As a bank holding company registered under the Bank Holding Company Act of
1956 (the "BHCA"), the Company is subject to regulation
2
by the Federal Reserve Board. The Federal Reserve Board has jurisdiction under
the BHCA to approve any bank or nonbank acquisition, merger or consolidation
proposed by a bank holding company. The BHCA generally limits the activities of
a bank holding company and its subsidiaries to that of banking, managing or
controlling banks, or any other activity which is so closely related to banking
or to managing or controlling banks as to be a proper incident thereto.
The BHCA currently prohibits the Federal Reserve Board from approving an
application from a bank holding company to acquire shares of a bank located
outside the state in which the operations of the holding company's banking
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by statute of the state in which the bank whose shares
are to be acquired is located. However, under recently enacted federal
legislation, the restriction on interstate acquisitions will be abolished
effective one year from enactment of such legislation, and thereafter, bank
holding companies from any state will be able to acquire banks and bank holding
companies located in any other state, subject to certain conditions, including
nationwide and state concentration limits. Banks also will be able to branch
across state lines effective June 1, 1997 (unless state law would permit such
interstate branching at an earlier date), provided certain conditions are met,
including that applicable state law must expressly permit such interstate
branching. Virginia has adopted legislation that will permit branching across
state lines effective July 1, 1995, provided there is reciprocity with the state
in which the out-of-state bank is based.
There are a number of obligations and restrictions imposed on bank holding
companies and their depository institution subsidiaries by federal law and
regulatory policy that are designed to reduce potential loss exposure to the
depositors of such depository institutions and to the Federal Deposit Insurance
Corporation (the "FDIC") insurance fund in the event the depository institution
becomes in danger of default or in default. For example, under a policy of the
Federal Reserve Board with respect to bank holding company operations, a bank
holding company is required to serve as a source of financial strength to its
subsidiary depository institutions and to commit resources to support such
institutions in circumstances where it might not do so absent such policy. In
addition, the "cross-guarantee" provisions of federal law, require insured
depository institutions under common control to reimburse the FDIC for any loss
suffered or reasonably anticipated by either the Savings Association Insurance
Fund ("SAIF") or the Bank Insurance Fund ("BIF") as a result of the default of a
commonly controlled insured depository institution in danger of default.
3
The FDIC may decline to enforce the cross-guarantee provisions if it determines
that a waiver is in the best interest of the SAIF or the BIF or both. The FDIC's
claim for damages is superior to claims of stockholders of the insured
depository institution or its holding company but is subordinate to claims of
depositors, secured creditors and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institutions.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution of any insured depository
institution by any receiver must be distributed (after payment of secured
claims) to pay the deposit liabilities of the institution prior to payment of
any other general creditor or stockholder. This provision would give depositors
a preference over general and subordinated creditors and stockholders in the
event a receiver is appointed to distribute the assets of the bank.
The Company is registered under the bank holding company laws of Virginia.
Accordingly, the Company and the Subsidiary Banks are subject to regulation and
supervision by the State Corporation Commission of Virginia (the "SCC").
Capital Requirements
The Federal Reserve Board, the Office of the Comptroller of the Currency
(the "OCC") and the FDIC have issued substantially similar risk-based and
leverage capital guidelines applicable to United States banking organizations.
In addition, those regulatory agencies may from time to time require that a
banking organization maintain capital above the minimum levels because of its
financial condition or actual or anticipated growth. Under the risk-based
capital requirements of these federal bank regulatory agencies, the Company and
each of the Subsidiary Banks are required to maintain a minimum ratio of total
capital to risk-weighted assets of at least 8%. At least half of the total
capital is required to be "Tier 1 capital", which consists principally of common
and certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder ("Tier 2 capital") consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of the Company as of
December 31, 1996 were 15.15% and 16.29%, respectively, exceeding the minimum
requirements.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including requirements that they
have the highest regulatory examination rating and are not contemplating
significant growth or expansion. All other institutions are
4
expected to maintain a leverage ratio of at least 100 to 200 basis points above
the minimum. The leverage ratio of the Company as of December 31, 1996, was
10.70%, which is above the minimum requirements. The guidelines also provide
that banking organizations experiencing internal growth or making acquisitions
will be expected to maintain strong capital positions substantially above the
minimum supervisory levels, without significant reliance on intangible assets.
Limits on Dividends and Other Payments
The Company is a legal entity, separate and distinct from its subsidiary
institutions. Substantially all of the revenues of the Company result from
dividends paid to it by the Subsidiary Banks. There are various legal
limitations applicable to the payment of dividends to the Company, as well as
the payment of dividends by the Company to its respective shareholders.
Under federal law, the Subsidiary Banks may not, subject to certain
limited exceptions, make loans or extensions of credit to, or investments in the
securities of, the Company or take securities of the Company as collateral for
loans to any borrower. The Subsidiary Banks are also subject to collateral
security requirements for any loans or extensions of credit permitted by such
exceptions.
The Subsidiary Banks are subject to various statutory restrictions on
their ability to pay dividends to the Company. Under the current supervisory
practices of the Subsidiary Banks' regulatory agencies, prior approval from
those agencies is required if cash dividends declared in any given year exceed
net income for that year plus retained earnings of the two proceeding years. The
payment of dividends by the Subsidiary Banks or the Company may also be limited
by other factors, such as requirements to maintain capital above regulatory
guidelines. Bank regulatory agencies have the authority to prohibit the
Subsidiary Banks or the Company from engaging in an unsafe or unsound practice
in conducting their business. The payment of dividends, depending on the
financial condition of the subsidiary banks, or the Company, could be deemed to
constitute such an unsafe or unsound practice.
Under the FDIA, insured depository institutions such as the Subsidiary
Banks are prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the
Subsidiary Banks' current financial condition,
5
the Company does not expect that this provision will have any impact on its
ability to obtain dividends from the Subsidiary Banks.
The Subsidiary Banks
The Subsidiary Banks are supervised and regularly examined by the Federal
Reserve Board and the SCC. The various laws and regulations administered by the
regulatory agencies affect corporate practices, such as the payment of
dividends, incurring debt and acquisition of financial institutions and other
companies, and affect business practices, such as the payment of interest on
deposits, the charging of interest on loans, types of business conducted and
location of offices.
The Subsidiary Banks are also subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of the local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open a
branch or facility.
As an institution with deposits insured by the BIF, the Bank also is
subject to insurance assessments imposed by the FDIC. The FDIC has implemented a
risk-based assessment schedule, imposing assessments ranging from 0.0% to 0.27%
of an institution's average assessment base. The actual assessment to be paid by
each BIF member is based on the institution's assessment risk classification,
which is determined based on whether the institution is considered "well
capitalized," "adequately capitalized" or "undercapitalized," as such terms have
been defined in applicable federal regulations, and whether such institution is
considered by its supervisory agency to be financially sound or to have
supervisory concerns. Under this structure, the Subsidiary Banks will pay no
deposit insurance premiums other than the $2,000 statutory minimum assessment.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under current federal law
to make prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized,"
6
"adequately capitalized," "undercapitalized," "significantly undercapitalized"
or "critically undercapitalized." All such terms are defined under uniform
regulations defining such capital levels issued by each of the federal banking
agencies.
Item 2. - Properties
The Company, through its subsidiaries, owns or leases buildings that are
used in the normal course of business. The main office is located at 212 N. Main
Street, Bowling Green, Virginia, in a building owned by Union Bank. The
Company's subsidiaries own or lease various other offices in the counties and
cities in which they operate. Northern Neck State Bank has its main office in
Warsaw, Virginia and operates four branches; Union Bank has its main office in
Bowling Green, Virginia and operates 12 branches. Union Investment's office is
located in Bowling Green, Virginia. See Notes to Consolidated Financial
Statements for information with respect to the amounts at which bank premises
and equipment are carried and commitments under long-term leases.
The properties on the following page are those owned or leased by the Company
and its subsidiaries as of December 31, 1996.
7
Locations
---------
Corporate Headquarters
212 North Main Street, Bowling Green, Virginia
Banking Offices - Union Bank & Trust Company
211 North Main Street, Bowling Green, Virginia
Route 1, Ladysmith, Virginia
Route 301, Port Royal, Virginia
4540 Lafayette Boulevard, Fredericksburg, Virginia
Route 1 & Ashcake Road, Ashland, Virginia
4210 Plank Road, Fredericksburg, Virginia
10415 Courthouse Road, Fredericksburg, Virginia
10374 Leadbetter Road, Ashland, Virginia
700 Kenmore Avenue, Fredericksburg, Virginia
Route 360, Manquin, Virginia
Route 301, Hanover, Virginia
Cambridge & Layhill Road, Falmouth, Virginia
Massaponax Church Road & Route 1, Spotsylvania, Virginia
Banking Offices - Northern Neck State Bank
5839 Richmond Road, Warsaw, Virginia
4256 Richmond Road, Warsaw, Virginia
Route 3, Kings Highway, Montross, Virginia
Route 17 & Earl Street, Tappahannock, Virginia
1660 Tappahannock Blvd, Tappahannock, Virginia
Union Investment Services, Inc.
111 Davis Court, Bowling Green, Virginia
Union Mortgage Company, LLC.
111 Davis Court, Bowling Green, Virginia
Item 3. - Legal Proceedings
In the ordinary course of its operations, the Company and its subsidiaries
are parties to various legal proceedings. Based on the information presently
available, and after consultation with legal counsel, management believes that
the ultimate outcome in such proceedings, in the aggregate, will not have a
material adverse effect on the business or the financial condition or results of
operations.
8
Item 4. - Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter.
PART II
Item 5. - Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded on the over-the-counter market and is
quoted on the NASDAQ National Market System of (where under the symbol "UBSH".
The following table sets forth the high and low sale prices of the
Company's common stock and the dividends paid:
Sales Price
-------------
High Low Dividend
----- --- --------
1996:
First Quarter $26.25 $24.50 ----
Second Quarter 27.75 23.50 $.30
Third Quarter 27.00 24.50 ----
Fourth Quarter 26.25 25.00 .34
1995:
First Quarter $27.00 $22.00 ----
Second Quarter 26.50 22.00 $.28
Third Quarter 27.50 23.50 ----
Fourth Quarter 28.00 24.25 .28
As of December 31, 1996, there were 1,875 shareholders of record of common
stock. The Company expects to continue its policy of paying regular dividends,
although there is no assurance as to future dividends because they are dependent
upon future earnings, capital requirements and financial condition, and certain
regulatory restrictions.
9
Item 6. - Selected Financial Data
This information is incorporated herein by reference from the section
captioned "Selected Financial Data" on page 1 in the Annual Report to
Shareholders for the year ended December 31, 1996.
Item 7. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
This information is incorporated herein by reference from the section
captioned "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 5 through 16 in the Annual Report to
Shareholders for the year ended December 31, 1996.
Item 8. - Financial Statements and Supplementary Data
This information is incorporated herein by reference from the Consolidated
Financial Statements on pages 17 through 33 and the Quarterly Earnings Summary
on the inside front over of the Annual Report to Shareholders for the year ended
December 31, 1996.
Item 9. - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There are no disagreements between the Company and its independent
accountants, KPMG Peat Marwick LLP.
PART III
Item 10. - Directors and Executive Officers of the Registrant
This information, as applicable to directors, is incorporated herein by
reference to the Proxy Statement for the Annual Meeting of Shareholders to be
held April 8, 1997 from the section entitled "Election of Directors" and
"Executive Compensation". Executive officers of the Company as of December 31,
1996 are listed on the following page:
10
Title and Principal Occupation
------------------------------
Name (Age) During Past Five Years
- --------- ----------------------
G.William Beale (47) President and Chief Executive Officer of the Company since
its inception; President of Union Bank & Trust since 1991.
E.Peyton Motley (52) Executive Vice President and Chief Operating Officer of the
Company since its inception; President of Northern Neck
State Bank.
Homer L. Hite (57) Senior Vice President of the Company since 1996; President
and Chief Executive Officer of King George State Bank since
1974.
D.Anthony Peay (37) Vice President and Chief Financial Officer since December
1994; Certified Public Accountant, Senior Manager -
Deloitte & Touche (1990-94).
Item 11 - Executive Compensation
This information is incorporated herein by reference to the Proxy
Statement for the Annual Meeting of Shareholders to be held April 8, 1997 from
the section entitled "Executive Compensation".
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
This information is incorporated herein by reference to the Proxy
Statement for the Annual Meeting of Shareholders to be held April 8, 1997 from
section "Election of Directors".
Item 13 - Certain Relationships and Related Transactions
This information is incorporated herein by reference to the Proxy
Statement for the Annual Meeting of Shareholders to be held April 8, 1997 from
the section entitled "Interest of Directors and officers in Certain
Transactions".
11
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following consolidated financial statements of Union Bankshares
Corporation and subsidiaries included in the 1996 Annual Report to
Shareholders are incorporated herein by reference (see Exhibit 13):
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedules
All schedules are omitted since they are not required, are not
applicable, or the required information is shown in the consolidated
financial statements or notes thereto.
(3) Exhibits
The following exhibits are filed as part of this Form 10-K, and this
list includes the Exhibit Index
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation (incorporated by reference
to Form S-4 Registration Statement - 33-60458)
3.2 By-Laws (incorporated by reference to Form S-4
Registration Statement - 33-60458)
10.1 Form of Employment Agreement of G. William Beale and
E. Peyton Motley, respectively.
13 1996 Annual Report to Shareholders
22 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter ended
December 31, 1996.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Union Bankshares Corporation
By: /s/ G. William Beale Date: March 28, 1997
-------------------------
G. William Beale President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in such capacities named below on March 28, 1997.
Signature Title
/s/ G. William Beale President, Chief Executive Officer and
- ------------------------
G. William Beale Director
Executive Vice President, Chief Operating
- -------------------------
E. Peyton Motley Officer and Director
/s/ D. Anthony Peay Vice President and Chief Financial Officer
- -------------------------
D. Anthony Peay
Chairman of the Board of Directors
- -------------------------
Walton Mahon
Vice Chairman of the Board of Directors
- -------------------------
Charles H. Ryland
/s/ W. Tayloe Murphy, Jr. Director
- -------------------------
W. Tayloe Murphy, Jr.
/s/ Ronald L. Hicks Director
- -------------------------
Ronald L. Hicks
/s/ M. Raymond Piland, III Director
- -------------------------
M. Raymond Piland, III
/s/ A.D. Whittaker Director
- -------------------------
A.D. Whittaker