===============================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------
                                    FORM 10-K

          |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2001

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                        For the transition period from to

                         COMMISSION FILE NUMBER 0-21078

                                ----------------

                             UNION BANKSHARES, LTD.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

               DELAWARE                             84-0986148
    (State or other jurisdiction of      (I.R.S. Employer Identification No.)
    incorporation or organization)

                         1825 LAWRENCE STREET, SUITE 444
                             DENVER, COLORADO 80202
                    (Address of principal executive offices)

                                 (303) 298-5352
                           (Issuer's telephone number)

              SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
                                      NONE

              SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
                     Common Stock, par value $.001 per share
    Union Bankshares Capital Trust I 9% Cumulative Trust Preferred Securities
        and the Guarantee of Union Bankshares, Ltd. with respect thereto
                               (Titles of classes)
                                ----------------
         Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 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.
                                    Yes X   No
                                        --     --
         Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-K contained in this form, and no
disclosure will be contained, to the best of 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.
                                       X
                                     -----
         The aggregate market value of the voting stock of the registrant held
by non-affiliates, based on a closing price of $11.60 per share as of March 25,
2002, was approximately $14,880,584.  As of March 25, 2002, there were
outstanding 2,410,078 shares of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the registrant's definitive Proxy Statement for its 2002
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2002, are incorporated by reference into
Part III of this report.

         Certain Exhibits to this Annual Report on Form 10-K have been
incorporated by reference. See Index to Exhibits on Page E-1.

===============================================================================

<PAGE>


                             UNION BANKSHARES, LTD.

                                TABLE OF CONTENTS
                                                                          PAGE

PART I

Item 1.     Business..........................................................1

Item 2.     Properties.......................................................26

Item 3.     Legal Proceedings................................................27

Item 4.     Submission of Matters to a Vote of Security Holders..............27

PART II

Item 5.     Market for Common Equity and Related Shareholder Matters.........27

Item 6.     Selected Financial Data. ........................................28

Item 7.     Management's Discussion and Analysis of Financial Condition and
            Results of Operations............................................30

Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.......44

Item 8.     Financial Statements.............................................44

Item 9.     Changes In and Disagreements with Accountants on
            Accounting and Financial ........................................44

PART III

Item 10.    Directors, and Executive Officers of the Registrant..............45

Item 11.    Executive Compensation...........................................45

Item 12.    Security Ownership of Certain Beneficial Owners and Management...45

Item 13.    Certain Relationships and Related Transactions...................45

Item 14.    Exhibits and Reports on Form 8-K.................................46


                                      -i-

<PAGE>


                                      PART I

ITEM 1. BUSINESS

OVERVIEW

         Union Bankshares, Ltd. (the "Company") is an independent bank holding
company whose predecessor was incorporated as a Colorado corporation in 1984.
The Company was reincorporated in Delaware in 1992. The Company's principal
asset is the common stock of Union Bank & Trust (the "Bank"), a state chartered
commercial bank located in Denver, Colorado. The operations of the Bank and its
predecessors date back to 1917. The Company acquired the Bank in 1985. The Bank
attracts FDIC-insured deposits, and focuses on providing relationship banking
based on personal attention and professional service to small and medium-sized
businesses and individuals. This operating strategy has resulted in sustained
growth in the Bank's asset and deposit base and loan portfolio, with strong
operating results.

         The Bank has maintained its emphasis on asset quality and capital
preservation by following conservative loan underwriting standards that have
allowed it to avoid excessive loan losses. The Bank's ratios of nonperforming
assets to capital and to total assets were 9.32% and 0.57%, respectively, at
December 31, 2001.

         The Company continues to seek to take advantage of the opportunities in
the Colorado banking market which have resulted from the relaxation of
historical regulatory limitations on branch banking. In addition, recent
acquisition activity in the industry has led to lapses in coverage of different
customer needs and reduction in customer services, as well as disruption of
existing account relationships. The Company believes that this continues to
afford the Bank an opportunity for internal growth through attracting new
customers and quality personnel with existing customer relationships.

         The Company's strategy for growth (see "Growth Strategy") is based
primarily on the development of branches that are strategically located around
the Denver metropolitan area to serve the Bank's focus market of small and
medium-sized businesses and individuals. The Company has opened five branches in
the last several years, the first in the Lakeside area in July 1994, the second
in the University Hills area in March 1995, the third in the Lakewood area in
December 1995, the fourth in the Littleton area in May 1998 and the fifth in the
Golden area in October 1998. Each of these are full service branches, having the
appearance of stand alone banks. In addition, the Company acquired Lakewood
State Bank in December 1998 and established it as the Company's sixth branch.
The Company continues to analyze opportunities to open additional full-service
branches in the metropolitan Denver area, subject to identification of an
appropriate market and branch location, negotiation of an acceptable lease and
approval of the various regulatory bodies and branching restrictions under
Colorado law. The Company will also assess additional acquisition opportunities
as they present themselves.

         See "Management's Discussion and Analysis of Financial Condition and
Results of Operation - Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995" for a discussion of matters regarding
forward-looking statements in this Form 10-K.


<PAGE>

OPERATING STRATEGY

         The Company's strategy as an independent one-bank holding company has
been carried out through the operations of the Bank, including its branches. The
Bank, under the direction of the Company, emphasizes local relationship banking
for small and medium-sized businesses and individuals. The Bank's operating
strategies include:

         o        Personal Attention and Professional Service
         o        Maintaining Asset Quality
         o        Asset/Liability Management

         The Company's branching efforts are structured to continue to build on
the three strategies outlined above. The Company has located its branches in
areas that produce a similar customer base to that of the Bank, has encouraged
community participation at each branch, has developed transparent communication
and data delivery systems, and has retained employees familiar with both the
Company's operating philosophies and the community's needs.

         The Bank, through its branches, supports local community events through
employee volunteers and sponsorships. For example, in 2001 the Bank sponsored a
Check Fraud prevention seminar in conjunction with the Invest 2001 Expo and a
seminar by national author and speaker, Francis X. McGuire.

         Personal Attention and Professional Service. The Bank's
customer-oriented strategy is one of providing customers with personal attention
and professional service by involving all employees in supporting the Bank's
programs that are directed at providing exceptional customer service and
empowering employees to make decisions to enhance customer satisfaction. The
Bank measures staff performance in these areas in a number of ways including the
use of both current bank customers and non-customers as testers in what we call
a "mystery shop." In a mystery shop, our testers are sent to interact with Bank
personnel at various branches by posing as customers. These test customers
sample bank personnel competence and customer service skills by posing
challenging questions to Bank employees regarding a range of Bank services. The
results of these shops are used as training aids for employees, to assess
performance and create performance benchmarks, and as a basis for discovering
new ways to continually improve the Bank's service. Another performance
evaluation tool the bank uses is the on-going service quality and product
questionnaire. Each account opened at the Bank is sent a letter thanking them
for their business and is asked to rate their experience. The Bank continues to
receive high marks in the "excellent" category on these questionnaires.

         Under the Bank's Officer Call Program, which was originally implemented
in 1986, lending officers call on existing customers and prospects on a regular
basis. On these calls, the officers seek to develop a better understanding of
the business issues faced by the customer and discuss services which the Bank
can provide to help them address their needs. Branch officers also hosted
several customer and prospect luncheons throughout the year in order to increase
bank awareness with customers as well as prospects.

         The Bank requests customer feedback on customer communication pieces
such as direct mail pieces, mailings in monthly statements, website contact and
through the Bank's recorded on-hold message system. Customers are encouraged to
speak or write freely with respect to both positive and negative aspects of the
Bank's service.

         The Bank's advertising is targeted toward the business community,
emphasizing the high quality of personal attention as well as unique
opportunities for our commercial customers to grow their business. The Bank
produces a quarterly newsletter that highlights 4 to 8 business customers called
"Partners of Interest."

                                      -2-

<PAGE>

The Bank distributes the newsletter in the commercial business statements as
well as posts the newsletter on the Bank's website. The Bank's website also has
a partners link available to commercial customers that allows a link directly to
the customer's website.

         Maintaining Asset Quality. The Bank has emphasized asset quality
through its conservative lending policy rooted in relationship banking. The Bank
generally is not a transaction-by-transaction lender, preferring instead to
develop a full banking relationship with its loan customers. This philosophy has
led to generally positive loan loss experience and low ratios of nonperforming
assets to total assets. See "Nonperforming Assets."

         Asset/Liability Management. The Bank's asset/liability management
policy is designed to manage the risk/return relationships between capital
adequacy, market risk, liquidity and interest rate risk. A substantial component
of this policy is to protect the Bank's portfolio from undue interest rate risk.
Exposure to interest rate risk arises from volatile interest rates and changes
in the Bank's balance sheet mix. The Bank's policy is to control the exposure of
its earnings to changing interest rates by generally maintaining a position
within a narrow range around an "earnings neutral position," which is defined as
the mix of assets and liabilities that generate a net interest margin that is
least affected by interest rate changes. See "Item 7 - Management's Discussion
and Analysis of Financial Condition and Results of Operations - Asset/Liability
Management."


GROWTH STRATEGY

         The Company has focused on growth as an independent entity and adopted
an aggressive internal growth strategy through establishing full-service
branches in locations in the Denver metropolitan area that reach small and
medium-sized businesses in each location. The Bank's six existing full-service
branches are structured to provide complete banking services in each location
and each branch is headed by a branch president or branch manager with
responsibility and authority to service the banking and lending needs of the
local business. This structure compliments the Bank's philosophy of
customer-to-staff-to-management direction so that the Bank responds to customer
input rather than the customer being asked to respond to the Bank without having
the opportunity to give input.

         In July 1994, the Bank opened its first branch in the Lakeside area of
metropolitan Denver. Since then, the Bank has opened branches in the University
Hills area in March 1995, the Lakewood area in December 1995, the Littleton area
in May 1998 and the Golden area in October 1998. In addition, the Bank acquired
Lakewood State Bank in December 1998, which the Bank developed into its sixth
branch and is operating such branch as Union Bank & Trust Southwest. The
following table sets forth the deposits attracted and the loans made by the Bank
and each of its six branches as of December 31, 2001, 2000 and 1999.

                                      -3-

<PAGE>
<TABLE>
<CAPTION>

                               December 31, 2001             December 31, 2000             December 31, 1999
                           ---------------------------    -------------------------    --------------------------
                            Deposits         Loans         Deposits        Loans       Deposits         Loans
                           ------------    -----------    ------------   ----------    ----------    ------------
                             (Dollars in Millions)         (Dollars in Millions)         (Dollars in Millions)
                           ---------------------------    -------------------------    --------------------------

<S>                        <C>            <C>               <C>           <C>            <C>           <C>
Main                       $ 143.5        $ 114.4           $ 139.7       $ 100.3        $ 141.4       $  93.8
Lakeside                      38.1            7.7              35.1           7.1           30.6           8.6
University Hills              29.7           11.1              27.0           9.1           19.9           7.6
Lakewood                      33.1           29.6              26.1          28.8           47.5          47.6
Littleton                     17.6           36.3              12.9          18.2            7.9           8.2
Golden                        14.6            6.7               9.7           4.3            6.4           2.8
Southwest                     56.6           32.7              64.8          49.0           36.3          16.0
                           --------       --------          --------      --------       --------      --------
         Total             $ 333.2        $ 238.5           $ 315.3       $ 216.8        $ 290.0        $184.6
                           ========       ========          ========      ========       ========      ========
</TABLE>


         To accommodate the Company's anticipated growth, management intends to
continue to recruit additional high-quality personnel and enhance its internal
management systems. Management believes that such personnel and systems are
necessary if the Company is to continue to achieve its growth strategy without
compromising its customer-oriented approach to banking and its commitment to
maximize asset quality. Further, the recent consolidation in the Colorado
banking industry has resulted in the availability of a number of quality
personnel with long-standing customer relationships. There can be no assurance,
however, that the Company will achieve its growth objectives.


ECONOMIC ENVIRONMENT IN MARKET AREAS SERVED

         The Company's principal market for loans and deposits is the greater
Denver metropolitan area. The Bank has benefitted from the strength in the
metropolitan Denver economy in recent years. The metropolitan Denver economy has
diversified from its prior dependence on the oil and gas industry, with
contributions from the manufacturing, telecommunications and government sectors.
Total employment, retail sales and home sales have all been healthy in years
past, while apartment vacancy and commercial office vacancy rates have generally
declined.

         As with the metropolitan Denver economy, the Colorado economy has
become more diversified over the past decade. An increase in tourism and
international trade, together with growth in the small manufacturing and high
technology industries, has broadened the economic base of Colorado. Due to
current national and regional economic conditions, however, the Company
anticipates slow, or no growth in metropolitan Denver and Colorado economies and
we anticipate a corresponding reduction in the growth rate of both loans and
deposits at the Bank.


LENDING ACTIVITIES

         General. The Bank provides a range of commercial and retail lending
services, including, but not limited to, commercial business loans, commercial
and residential real estate construction loans, commercial and residential real
estate mortgage loans, loan participations, consumer loans, revolving lines of
credit, and letters of credit. Currently, the primary focus of the Bank is on
commercial business lending to small and medium-sized businesses. The Bank
places a strong emphasis on asset quality, and maintains conservative
underwriting standards. The Bank monitors the concentration of its loan
portfolio in an effort to avoid over-allocating its funds available for lending
to any particular industry sector.

                                      -4-

<PAGE>

         The Bank is not normally a transaction lender and generally requires a
full banking relationship with its commercial customers. The Bank seeks to
continually develop and maintain its strong community orientation by, among
other things, considering the interests of its existing and potential customers
in the Denver community. In particular, primary consideration is given to
customers with interests in the Bank's and branches' surrounding communities,
including the areas located within a five-mile radius of the Bank's main
location and a three-mile radius of the branch locations.

         The Bank's loan officers have an average of over 15 years lending
experience and are committed to the lending profession. The loan officer staff
includes 3 past presidents of the Rocky Mountain Chapter of Robert Morris
Associates (the national organization of bank credit officers).

         Loan Portfolio Composition. The following table sets forth the
composition of the Company's loan portfolio by type of loan, aggregate dollar
amount and percentage of total loans at the dates indicated.

<TABLE>
<CAPTION>
                                                                                December 31,
                        --------------------  ----------------------------------------------------------------------------------
                                2001                 2000                 1999                  1998                1997
                          ------------------  -------------------  --------------------  -------------------  ------------------
                           Amount      %       Amount       %       Amount        %       Amount       %       Amount      %
                          ---------  -------  ----------  -------  ----------  --------  ---------  --------  ---------  -------
                                                                                     (Dollars in Thousands)

<S>                       <C>          <C>    <C>           <C>    <C>            <C>    <C>           <C>    <C>          <C>
Commercial loans.......   $163,054     69.3   $ 153,727     72.0   $ 133,978      73.7   $105,618      73.1   $ 87,929     72.1
Real estate-                36,246     15.4      26,955     12.6      22,012      12.1     12,881       8.9      9,625      7.9
  construction loans...
Real estate-                 5,685      2.4       4,372      2.0       5,780       3.2      4,101       2.8      4,297      4.5
  mortgage loans.......
Consumer loans.........     33,529     14.3      31,754     14.9      22,855      12.6     24,595      17.0     20,933     17.2
                          ---------  -------  ----------  -------  ----------  --------  ---------  --------  ---------  -------
                           238,514    101.4     216,908    101.5     184,625     101.6    147,195     101.9    122,784    101.7
         Total.........
Less allowance for         (3,351)    (1.4)     (3,286)    (1.5)     (2,892)     (1.6)    (2,678)     (1.9)    (2,125)    (1.7)
  loan losses..........
                          ---------  -------  ----------  -------  ----------  --------  ---------  --------  ---------  -------
Loans receivable, net..   $235,163    100.0   $ 213,522    100.0   $ 181,733     100.0   $144,517     100.0   $120,659    100.0
                          =========  =======  ==========  =======  ==========  ========  =========  ========  =========  =======
</TABLE>


         Commercial Loans. Commercial lending is the Bank's primary focus and
the strength of its lending activity. The Bank's areas of emphasis include, but
are not limited to, loans to building contractors, wholesalers, manufacturers,
business services companies and energy-related businesses. The Bank provides a
wide range of commercial business loans, including lines of credit for working
capital purposes and term loans for the acquisition of equipment and other
purposes. Collateral for these loans generally includes accounts receivable,
inventory, equipment and real estate. Where warranted by the overall financial
condition of the borrower, loans may be made on an unsecured basis. Terms of
commercial business loans generally range from one to five years. The majority
of the Bank's commercial business loans have floating interest rates. Commercial
loans outstanding were $163.1 million at December 31, 2001 compared to $153.7
million at December 31, 2000. Many of the Bank's commercial loans are extended
to small business customers. The primary repayment risk is the failure of the
business due to economic or financial factors. In most cases the Bank has taken
security and receives personal guarantees to help assure an alternative source
of repayment.

         Real Estate Construction Loans. The Bank originates single family and
multi-family residential construction loans to builders who have demonstrated a
favorable record of performance with the Bank or within the Bank's known service
area on both a pre-sold and speculative basis. Homes built without a specific
buyer are limited to specific concentration guidelines and factors set from time
to time by Bank management.

                                      -5-

<PAGE>

         The Bank is also actively involved in providing commercial construction
financing to both existing and new customers. The Bank will normally require a
pre-qualification letter for permanent financing from either the Bank or another
lender.

         The Bank also provides acquisition and development, land and lot loans
using conservative underwriting guidelines and specific concentration benchmarks
in relation to capital set from time to time by Bank management. A variety of
risks are present in construction loans, including the failure of the contractor
to complete the work and the borrower's inability to pay. The Bank carefully
monitors construction draws and inspects each property frequently to insure the
work is being completed as specified. In addition, construction loans generally
are made where a conservative loan-to-value ratio exists. These loans are
frequently backed by personal guarantees and other collateral that provide an
alternative source of repayment. The Bank further attempts to limit its risk
through adherence to conservative underwriting procedures and by using only
state licensed or certified appraisers on all loans above $250,000. The Bank's
real estate construction loans outstanding were $36.3 million at December 31,
2001, compared to $27.0 million at December 31, 2000.

         Real Estate Mortgage Loans. The Bank generally restricts its commercial
real estate lending activity to owner-occupied properties or to investor
properties that are owned by customers with which the Bank has a solid banking
relationship. Therefore, many loans classified as commercial real estate loans
could be characterized as ordinary commercial loans which are secured by real
estate.

         Commercial real estate loans are generally made at floating rates and
for maturities ranging from five to ten years. The Bank's underwriting standards
generally require that the loan-to-value ratio not exceed 75% of appraised
value. Management does not believe that the Bank's existing commercial real
estate loan portfolio represents a material risk of loan losses.

         The Bank can originate SBA real estate loans on owner occupied
properties where the maturities may be up to twenty five years, and the
loan-to-value ratio may reach 90% of appraised value. These loans are guaranteed
by the Federal government at no less than 70% of the loan amount.

         The primary risks of real estate mortgage loans include the borrower's
inability to pay and deterioration in the value of the real estate that is being
held as collateral. The Bank also originates residential mortgage loans on a
limited basis as a service to its customers. On those loans that are extended,
the Bank attempts to have conservative loan-to-value ratios, personal
guarantees, a strong history of debt servicing capability, fully amortizing
terms over twenty-five years or less with the majority of these having a balloon
maturity of ten years or less, and alternative collateral if necessary.

         From time to time, the Bank purchases loans from a locally owned
mortgage company until the mortgage company sells the loans into the secondary
mortgage market. The loans are then sold back to the mortgage company.
Initially, the Bank receives interest during its holding period of prime plus
..50%. All origination fees and interest on the loan in excess of the rate
payable to the Bank are retained by the mortgage company. If the mortgage is not
sold within specified periods, the Bank is entitled to receive all of the
interest paid on the mortgage from inception and may be entitled to receive all
or a portion of the origination fees. The mortgage company provides loan
servicing during the period that the mortgage is held by the Bank. During the
years ended December 31, 2001, 2000, and 1999, the Bank earned interest income
on such loans of $102,000, $10,000, and $28,000, respectively. During the years
ended December 31, 2001, 2000, and 1999, the Bank purchased loans in the amounts
of $33.6 million, $4.8 million, and $9.4 million and sold loans in the amounts
of $31.6 million, $4.8 million, and $13.7 million. All loans sold back to the
mortgage company are without recourse to the Bank.

                                      -6-

<PAGE>

         These loans carry the same risks as any other real estate mortgage
loan. However, in most cases, the Bank bears these risks for only a short
period. As a general matter, the loans are presold and remain in the Bank's
portfolio for an average of less than 30 days. The Bank has not, to date,
retained any of these loans. Mr. Zueck, the Chairman of the Board of the Bank
and a director of the Company, is a director and Treasurer of the mortgage
company.

         Consumer Lending. The Bank provides a full range of consumer loans. The
primary risk of consumer lending relates to the personal circumstances of the
borrower. The Bank provides as a service to its business customers and their
employees the choice of dealing with the same loan officer for consumer and
business matters. This service has been well received by new business customers
and their employees who, in dealing with large holding company banks, have
frequently had to deal with a variety of different officers for different types
of transactions. Consumer loans outstanding were $33.5 million and $31.8 million
at December 31, 2001 and 2000, respectively. During 2000, the Bank instituted a
program to purchase dealer initiated loans. At December 31, 2001, the total
loans from this program were $12.9 million. The branches tend to have a higher
ratio of consumer loans to commercial loans than the main Bank has historically
experienced. Management expects that this will continue in the future.

         Commitments and Contingent Liabilities. In the ordinary course of
business, the Bank enters into various types of transactions that include
commitments to extend credit as described in Note 10 of the Notes to
Consolidated Financial Statements. The Bank applies the same credit standards to
these commitments as it uses in all its lending activities and has included
these commitments in its lending risk evaluations. The Bank's exposure to credit
loss under commitments to extend credit is represented by the amount of these
commitments. It is management's policy not to commit to extend credit at below
market interest rates.

         Credit Authority and Loan Limits. All loans, credit lines, and letters
of credit are subject to the same approval procedures and amount limitations.
These limitations apply to the total outstanding indebtedness of the borrower to
the Bank, including the indebtedness of any guarantor. All individual or
aggregate credits in excess of $100,000 must be preapproved by the Bank's Loan
Committee, with certain limited exceptions. The Bank allows certain senior loan
officers the flexibility, based on their experience and the individual loan
customer they are working with, to advance, without preapproval, up to $50,000
per request, with a limit of $100,000 per twelve-month period, to that customer,
even if that customer's aggregate credits are over the $100,000 limit prior to
the request. Any advance made under these conditions are then required to be
ratified at the next regularly-scheduled Loan Committee meeting. The Loan
Committee consists of the Bank's Chairman of the Board, Herman J. Zueck, its
President, Charles B. Worthington, its Executive Vice President, Fred I. Artes,
its Executive Vice President, Van A. Horsley, and the outside directors of the
Bank. A quorum of the committee is a minimum of four members, two of which must
be outside directors.

         Under federal law, permissible loans to one borrower by the Bank are
generally limited to 15% of its unimpaired capital, surplus, undivided profits
and loan loss reserve ($5.0 million at December 31, 2001). The Bank utilizes a
guidepost "house limit" on loans to any borrower of $2,500,000, which has
occasionally been exceeded. The Bank sells loan participations to accommodate
borrowers whose financing needs exceed the Bank's lending limits. Total loan
participations sold as of December 31, 2001 and 2000 were $4,921,000 and
$2,683,000, respectively.

         Loan Policy. The Bank's lending activities are guided by its Statement
of Lending Policies and Procedures. These policies are reviewed annually and
approved by the Bank's Board of Directors. The Bank supplements its internal
supervision and audits of its lending operations with independent examinations
performed by professional, experienced consultants and auditors.

                                      -7-

<PAGE>

NONPERFORMING ASSETS

         The Company's nonperforming assets consist of nonaccrual loans,
restructured loans, past due loans and foreclosed assets held for sale. The
following table sets forth information with respect to these assets at the dates
indicated.
<TABLE>
<CAPTION>

                                                                                December 31,
                                               -----------     ----------       ----------       ----------     --------
                                                   2001           2000             1999             1998          1997
                                               -----------     ----------       ----------       ----------     --------
                                                                                         (Dollars in Thousands)

<S>                                            <C>             <C>              <C>              <C>            <C>
Past due 90 days or more....................   $     1,662     $      265       $        3       $       --     $     --

Nonaccrual loans............................           895             70                4               16           23

Restructured loans..........................            --             --               --               --           --
                                               -----------     ----------       ----------       ----------     --------
Total nonperforming loans...................         2,557            335                7               16           23

Foreclosed assets held for sale.............            --             --               --              158           --
                                               -----------     ----------       ----------       ----------     --------
         Total nonperforming assets.........   $     2,557     $      335       $        7       $      174     $     23
                                               ===========     ==========       ==========       ==========     ========
Ratio of total nonperforming
         assets to total assets.............          0.57%          0.09%            0.00%            0.06%        0.01%

Ratio of total nonperforming loans
         to total loans.....................          1.07%          0.15%            0.00%            0.12%        0.02%

Ratio of allowance for loan losses
         to total nonperforming loans.......        131.05%        980.90%       41,314.28%         1539.08%     9239.13%

</TABLE>



         Past Due, Nonaccrual and Impaired Loans. The Company's financial
statements are prepared on the accrual basis of accounting, including the
recognition of interest income on its loan portfolio, unless a loan is placed on
a nonaccrual basis. Loans are placed on nonaccrual when there are serious doubts
about the collectibility of principal or interest. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
only if all principal has been collected or principal collection is assured. The
Company's policy is to place a loan on nonaccrual status when the loan becomes
past due for 90 days or more, unless the loan is well secured, is in the process
of being collected and the Bank's Loan Committee has approved maintaining the
loan on an accrual basis, which in practice is rarely done. At December 31,
2001, the Company had $895,000 of loans accounted for on a non-accrual basis
compared to $70,000 and $4,000 at December 31, 2000 and 1999, respectively.

         Restructured loans are those for which concessions, including the
reduction of interest rates below a rate otherwise available to that borrower or
the deferral of interest or principal, have been granted due to the borrower's
weakened financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur. The Company had no restructured loans at December 31, 2001, 2000 and
1999, respectively.

         Impaired loans, which include nonaccrual loans noted above and
potential problem loans, where known information about possible credit problems
causes management to doubt the ability of such borrowers to comply with
contractual repayment terms total $4,510,000 and $5,112,000 at December 31, 2001
and 2000, respectively. An allowance for loan loss of $681,000 and $767,000
relates to impaired loans at December 31, 2001 and 2000, respectively. Interest
of $316,000, $410,000 and $261,000 was recognized on average impaired loans of
$4,761,000, $4,143,000 and $2,851,000 for 2001, 2000 and 1999, respectively.

         Foreclosed Assets Held for Sale. Assets acquired by foreclosure or in
settlement of debt and held for sale are valued at estimated fair value as of
the date of foreclosure, and a related valuation allowance is provided for
estimated costs to sell the assets. Management evaluates the value of foreclosed
assets held for

                                      -8-

<PAGE>

sale periodically and increases the valuation allowance for any subsequent
declines in fair value. Increases in the valuation allowance and gains/losses on
sales of foreclosed assets are included in noninterest expense, net. At December
31, 2001 and 2000, the Company had no foreclosed assets held for sale.


ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses represents management's recognition of
the risks of extending credit and its evaluation of the quality of the loan
portfolio. The allowance is maintained at a level considered adequate to provide
for anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio, including a review of problem loans, business
conditions and loss experience and an overall evaluation of the quality of the
underlying collateral and holding and disposal costs. The allowance is increased
by provisions charged to operations and reduced by loans charged off, net of
recoveries. Allowances are provided for individual loans where ultimate
collection is considered questionable by management after reviewing the current
status of loans that are contractually past due and considering the net
realizable value of the security and of the loan guarantees, if applicable.

         Management believes that the Company's allowance for loan losses is
adequate to cover anticipated losses and is in accordance with generally
accepted accounting principles. There can be no assurance, however, that
management will not determine to increase the allowance for loan losses or that
regulators, when reviewing the Bank's loan portfolio in the future, will not
request the Bank to increase such allowance, either of which could adversely
affect the Company's earnings. Further, there can be no assurance that the
Company's actual loan losses will not exceed its allowance.

         The following table sets forth information regarding changes in the
Company's allowance for loan losses for the periods indicated.

                                      -9-

<PAGE>

<TABLE>
<CAPTION>

                                                                          Years Ended December 31,
                                             ------------  -------------------------------------------------------
                                                2001          2000          1999           1998          1997
                                             ------------  ------------  ------------  -------------  ------------
                                                                                  (Dollars in Thousands)
                                                                         -----------------------------------------

<S>                                          <C>           <C>           <C>           <C>            <C>
Balance of allowance for loan losses at
    beginning of period..................... $   3,286     $   2,892     $   2,678     $   2,125      $   1,754
                                             ------------  ------------  ------------  -------------  ------------

    Charge-offs:
      Commercial loans......................       363           170             7            69             13
      Real estate -- construction loans.....        --            --            --            13             --
      Real estate -- mortgage loans.........        --            --            --            --             --
      Consumer loans........................       100            44            20            4              11
                                             ------------  ------------  ------------  -------------  ------------
    Total charge-offs.......................       463           214            27            86             24
                                             ------------  ------------  ------------  -------------  ------------

    Recoveries:
      Commercial loans......................         3           216             9             5              35
      Real estate -- construction loans.....        --            --            --            --             --
      Real estate -- mortgage loans.........        --            --            --            --             --
      Consumer loans........................        16            11             5             6             --
                                             ------------  ------------  ------------  -------------  ------------
    Total recoveries........................        19           227            14            11             35
                                             ------------  ------------  ------------  -------------  ------------
    Net charge-offs (recoveries)............       444           (13)           13            75            (11)
                                             ------------  ------------  ------------  -------------  ------------
    Provision for loan losses...............       509           381           227           278            360
                                             ------------  ------------  ------------  -------------  ------------
    Additions to allowance for loan loss(1).        --            --            --           350            --
                                             ------------  ------------  ------------  -------------  ------------
    Balance of allowance for loan losses at
    end of period........................... $   3,351     $   3,286     $   2,892     $   2,678      $   2,125
                                             ============  ============  ============  =============  ============
    Ratio of net charge-offs (recoveries
      to average loans......................      0.20%        (0.01)%        0.01%         0.06%         (0.01%)
      Average loans outstanding during the
        period.............................. $ 221,586     $ 204,297     $ 159,684     $ 127,262      $ 113,043


    ----------------------
    (1) Additional allowance for loan loss resulting from acquisition of Lakewood State Bank.
</TABLE>



                                      -10-

<PAGE>

             The following table sets forth the allowance for loan losses by
    loan category, based upon management's assessment of the risk associated
    with such categories, at the dates indicated and summarizes the percentage
    of gross loans in each category to total gross loans.

<TABLE>
<CAPTION>

                                                                                  December 31,
                        -----------------------------------------------------------------------------------------------------------
                                2001                   2000                 1999                 1998                 1997
                        ---------------------- --------------------- -------------------- -------------------- --------------------
                                     Loans in              Loans in             Loans in             Loans in             Loans in
                                     Category              Category             Category             Category             Category
                                       as a                  as a                 as a                 as a                 as a
                          Amount    Percentage   Amount   Percentage   Amount  Percentage  Amount   Percentage  Amount   Percentage
                            of       of Gross      of      of Gross      of     of Gross     of     of Gross      of      of Gross
                         Allowance     Loans    Allowance    Loans    Allowance   Loans   Allowance   Loans    Allowance   Loans
                        ----------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------- ----------
                                                                             (Dollars in Thousands)

<S>                     <C>            <C>     <C>           <C>     <C>          <C>     <C>         <C>      <C>           <C>
Commercial loans....... $  2,455       68.4%   $  2,414      71.0%   $  2,412     72.6%   $ 1,922     71.7%    $ 1,506       70.9%
Real estate --
construction loans.....      539       15.2%        539      12.4%         73     11.9%       234      8.8%        165        7.7%
Real estate -
 mortgage loans........       40        2.4%         15       2.0%         87      3.1%        75      2.8%         95        4.5%
Consumer loans.........      317       14.0%        318      14.6%        320     12.4%       447     16.7%        359       16.9%
                        ----------- ---------- ---------- ---------- --------- ---------- --------- ---------- --------- ----------
      Total............ $  3,351      100.0%   $  3,286     100.0%   $  2,892    100.0%   $ 2,678    100.0%    $ 2,125      100.0%
                        =========== ========== ========== ========== ========= ========== ========= ========== ========= ==========

</TABLE>



INVESTMENT ACTIVITIES

         The Company maintains a securities portfolio comprised primarily of
U.S. government securities, municipal securities and other investment
securities. The Company manages its investment portfolio to (i) maximize safety
and soundness, (ii) provide adequate liquidity, (iii) maximize rate of return
within the constraints of applicable liquidity requirements (with liquidity
taking precedence over return) and (iv) complement asset/liability management
policies. The Bank's Asset and Liability Management Committee, which is made up
of the Bank's Chairman of the Board and Chief Executive Officer, its President,
its Executive Vice President of Lending, its Executive Vice President of
Finance, its Senior Vice President of Operations, and its Vice President and
Controller, oversees the Bank's investment portfolio with the assistance of an
outside consultant. The Bank uses a measurement known as dollar duration to
analyze its exposure to interest rate risk. Dollar duration measures the
percentage loss or gain that the portfolio will sustain with each 100 basis
point parallel shift in interest rates. In 2001, the Bank increased the dollar
duration of its portfolio as interest rates decreased steadily throughout the
year, and the investments which matured were replaced with new investments with
lower yields and longer maturities. In 2000, the Bank increased the dollar
duration of its portfolio as interest rates remained relatively steady through
the first two quarters, then increased during the last two quarters, and the
investments which matured were replaced with new investments with slightly
higher yields and longer maturities. As a result, the Bank has a relatively
higher exposure to increased interest rates at this time than at year-end 2000.
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 $31,253,445 and an unrealized loss of $704,434 to investment
securities available for sale. See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management."

                                      -11-
<PAGE>

         The table below provides the amortized cost and fair value of the
Company's investment securities at each of the dates indicated.

<TABLE>
<CAPTION>

                                                          December 31,
                              ----------------------------------------------------------------------
                                      2001                   2000                   1999
                              ---------------------  ---------------------  ---------------------
                              Amortized              Amortized              Amortized
                                 Cost    Fair Value     Cost    Fair Value     Cost    Fair Value
                              ---------  ----------  ---------  ----------  ---------- ----------

<S>                           <C>        <C>         <C>        <C>          <C>       <C>
Held to Maturity:
  U.S. government agencies
    and corporations........  $      0   $       0   $       0  $       0    $  29,176 $  28,299
  Obligations of states and
    political subdivisions...        0           0           0          0        3,732     3,834
                              ---------  ----------  ---------  ----------  ---------- ----------
                                     0           0           0          0       32,908    32,133
                              ---------  ----------  ---------  ----------  ---------- ----------
Available for Sale:
  U.S. government agencies
    and corporations......... $136,888   $ 136,307    $106,452  $ 105,862    $  90,071  $ 87,028
  U.S. Treasury securities...        -           -           -          -           -          -
  Obligations of states and
    political subdivisions...   44,223      45,104      24,232     24,487       23,195    23,052
  Commercial paper...........        -           -           -          -            -         -
                              ---------  ----------  ---------  ----------  ---------- ----------
                               181,111     181,411     130,684    130,349      113,266   110,080
                              ---------  ----------  ---------  ----------  ---------- ----------
  Less securities pledged to
    repurchase agreement....    12,669      12,669           -          -            -         -
                              ---------  ----------  ---------  ----------  ---------- ----------
              Total.........  $168,442   $ 168,742    $130,684  $ 130,349   $  146,174 $ 142,213
                              =========  ==========  =========  ==========  ========== ==========
</TABLE>



         The following table sets forth the securities held by the Company which
(other than U.S. government securities) make up more than ten percent of
stockholders' equity:

<TABLE>
<CAPTION>

                                                            December 31, 2001                 December 31, 2000
                                                     --------------------------------     --------------------------
                                                       Amortized                            Amortized
                                                          Cost            Fair Value           Cost       Fair Value
                                                     --------------    --------------     -------------   ----------
                                                         (Dollars in thousands)             (Dollars in thousands)

<S>                                                  <C>               <C>                <C>              <C>
Maywood II, Cook County............................  $       4,000     $        4,120     $          -     $       -
Cherokee Colorado Water District...................  $           -     $            -     $      2,485     $   2,474
                                                     --------------    --------------     -------------    ---------

TOTAL............................................... $       4,000     $        4,120     $      2,485     $   2,474
                                                     ==============    ==============     =============    =========
</TABLE>


                                      -12-

<PAGE>

         The following tables provide the carrying values, maturities and
weighted average yields of the Company's securities portfolio at the dates
indicated.

AVAILABLE-FOR-SALE SECURITIES

<TABLE>
<CAPTION>
                                                                       December 31, 2001 (1)
                                                                Due After    Due After
                                                   Due in         One          Five
                                                    One           Year         Years
                                                  Year or       Through       Through      Due After
                                                    Less       Five Years    Ten Years     Ten Years     Total
                                                 ----------    ----------    ----------    ----------    ----------
                                                                      (Dollars in thousands)

<S>                                              <C>           <C>           <C>           <C>           <C>
U.S. treasury securities:
   Balance....................................   $       0     $       0     $       0     $       0     $       0
   Weighted average yield.....................       0.00%         0.00%         0.00%         0.00%         0.00%
U.S. government securities:
   Balance....................................   $       0     $       0     $   2,623     $       0     $   2,623
   Weighted average yield.....................       0.00%         0.00%         4.95%         0.00%         4.95%
Mortgaged Back Pools (2)(4):
   Balance....................................   $       0     $     425     $     507      $132,752      $133,684
   Weighted average yield.....................       0.00%         6.41%         6.44%         6.22%         6.22%
Municipal securities - nontaxable (3):
   Balance....................................   $     396     $   4,729     $   8,847     $  14,768     $  28,740
   Weighted average yield.....................       8.08%         7.73%         7.81%         8.45%         8.13%
Municipal securities - taxable:
   Balance....................................   $       0     $   2,185     $   3,646     $  10,533     $  16,364
   Weighted average yield.....................       0.00%         8.73%         8.49%         7.39%         7.81%
Commercial paper:
   Balance....................................   $       0     $       0     $       0     $       0     $       0
   Weighted average yield.....................       0.00%         0.00%         0.00%         0.00%         0.00%
Federal Home Loan Bank Stock:
   Balance....................................   $   2,750     $       0     $       0     $       0     $   2,750
   Weighted average yield.....................       6.38%         0.00%         0.00%         0.00%         6.00%
 Total:
   Balance....................................  $    3,146     $   7,339     $  15,623     $ 158,053     $ 184,161
   Weighted average yield.....................       6.59%         7.95%         7.45%         6.51%         6.65%
</TABLE>

------------------------
     (1)  Based on contractual maturities and, therefore, do not reflect
          principal amortization.
     (2)  Government guaranteed mortgage pools, such as FHLMC, FNMA, and GNMA,
          which act as pass-through entities for income on mortgages from
          debtors through the Agency pools to investors.
     (3)  Yields have been calculated on a full tax-equivalent basis.
     (4)  Includes $12,669,000 of securities pledged to overnight repurchase
          agreement.

                                     -13-

<PAGE>

          The Company invests in tax-exempt securities to help control taxable
income. Interest paid on tax-exempt securities is non-taxable for ordinary
income tax purposes and partially taxable for alternative minimum tax purposes.
Management attempts to balance its investments in tax-exempt securities in order
to maximize the tax benefits from these investments. The Company modestly
increased the size of its tax-exempt portfolio in 2000 and 2001 in order to
accomplish these goals.


TRUST DEPARTMENT ACTIVITIES

          Although the Bank maintains a trust department for individuals and
corporate entities, it currently is engaging in a minimal level of trust
activities, consisting primarily of acting as an escrow agent.


SOURCE OF FUNDS

          General. The Bank's primary source of funds has historically been
customer deposits. Scheduled loan repayments are a relatively stable source of
funds, while deposit inflows and unscheduled loan prepayments, which are
influenced by general interest rate levels, interest rates available on other
investments, competition, economic conditions and other factors, are not.
Although the Bank's deposit balances have shown historical growth, such balances
may be influenced by changes in the banking industry. Borrowings may be used on
a short-term basis to compensate for reductions in other sources of funds (such
as deposit inflows at less than projected levels). Borrowings may also be used
on a longer term basis to match the maturity or repricing intervals of assets.
In 1994, the Bank became a member of the Federal Home Loan Bank of Topeka (the
"FHLB"). In 2000 and 2001 the Bank's holdings of FHLB dividend-bearing stock
were $2,430,000 and $2,750,000, respectively. The FHLB provides the Bank with
access to a collateralized credit line of approximately $55.0 million, as well
as a source to sell excess federal funds.

          The following table sets forth the Company's short term borrowings
with maturities of less than a year and the weighted average interest rates of
borrowings at the dates indicated.

<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                    --------------------------------------------------------------------------
                                                       2001                                    2000
                                    ----------------------------------     -----------------------------------

                                                                  (Dollars in thousands)

                                       Less              Weighted               Less                Weighted
                                       Than              Average                Than                Average
                                       One               Interest               One                 Interest
                                       Year              Rate                   Year                Rate
                                    -------------     ----------------     ---------------     ---------------
<S>                                   <C>                <C>                  <C>                   <C>
FHLB Advances                         $35,000            2.84%                $28,600               6.67%
</TABLE>



          In addition to the borrowings listed in the above table, the Bank has
borrowed an additional $20,000,000 from the FHLB with maturities from January
31, 2003 through January 22, 2004 at rates from 3.37% to 4.59% which are not
included in short term borrowings disclosed above. The maximum amount of total
outstanding borrowings at any month end was $55,000,000 and $48,600,000 for the
years ended December 31, 2001 and 2000, respectively. The average amounts
outstanding were $39,327,000 and $39,493,000 with approximate weighted average
interest rates of 4.41% and 6.61% for the years ending December 31, 2001 and
2000.

                                      -14-

<PAGE>

          The Bank borrowed a total of $55,000,000 in 2001, representing an
increase in its aggregate borrowings (long and short term combined) of $26.4
million as compared to 2000. The purpose for these borrowings was to provide an
alternative source of funding to fund current loan growth at a time when the
Bank's deposits had not increased and liquidation of a portion of the Bank's
investment portfolio was not believed to be prudent. The Company expects that
these loans will be repaid with liquidity from normal increases in deposits
coupled with liquidity from the Bank's investment portfolio.

          Deposit Activities. The Bank offers a variety of accounts for
depositors designed to attract both short-term and long-term deposits. These
accounts include certificates of deposit ("CD's"), savings accounts, money
market accounts, checking and negotiable order of withdrawal (NOW) accounts and
individual retirement accounts. These accounts generally earn interest at rates
established by management based on competitive market factors and management's
desire to increase or decrease certain types or maturities of deposits. The Bank
has not sought brokered deposits and does not currently intend to do so in the
future. The Bank had no brokered deposits at December 31, 2001.

          The following table presents the average balances outstanding for each
major category of deposits and weighted average interest rates paid for
interest-bearing deposits for the periods indicated.

<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                                2001                   2000                  1999
                                        ---------------------- --------------------- ---------------------
                                                              (Dollars in Thousands)

                                                    Weighted               Weighted              Weighted
                                                    Average                Average               Average
                                         Average    Interest     Average   Interest   Average    Interest
                                         Balance      Rate      Balance      Rate     Balance      Rate
                                        ----------  ---------- ---------- ---------- ---------- ----------
<S>                                     <C>           <C>       <C>          <C>      <C>          <C>
Interest-bearing demand deposits....... $123,794      2.24%     $108,531     3.04%    $104,361     2.63%
Certificates of deposit................  103,861      5.34%       82,387     5.69%      77,729     5.16%
Savings accounts.......................   18,591      1.44%       18,161     2.23%      18,999     2.17%
Noninterest-bearing demand deposits....   92,553       N/A        92,662       N/A      80,508       N/A
                                        ----------  ---------- ---------- ---------- ---------- ----------
                    Total.............. $338,799      2.54%      $301,741    4.01%    $281,597     3.56%
                                        ==========  ========== ========== ========== ========== ==========
</TABLE>



          The following table shows the amount and maturity of CD's that had
balances of more than $100,000 at the dates indicated.

<TABLE>
<CAPTION>
                                                                   December 31,
                                                        2001           2000           1999
                                                     -----------     ----------    -----------
                                                              (Dollars in Thousands)
<S>                                                   <C>             <C>           <C>
CD's over $100,000 with remaining maturity
  Less than three months.........                     $19,967         $20,502       $23,219
  Three to six months............                      11,283          10,134         4,833
  Over six months to one year....                       7,801          11,263        10,760
  Over one year..................                       1,395           4,812         3,164
                                                     -----------     ----------    -----------
         Total..................                      $40,446         $46,711       $41,976
                                                     ===========     ==========    ===========
</TABLE>



COMPETITION

          The banking business in the greater Denver metropolitan area is highly
competitive, including approximately fifteen other banks. The Company competes
for loans and deposits with other commercial banks, credit unions, thrifts,
mortgage bankers and other institutions with respect to the scope and type of


                                      -15-

<PAGE>


services offered, interest rates paid on deposits and pricing of loans, among
other things. Many of these competitors have substantially greater resources
than the Company. In addition, by virtue of their larger capital bases or
affiliation with larger multi-bank holding companies, some of the banks with
which the Bank competes have substantially larger lending limits than the Bank,
and perform other functions for their customers which the Bank can offer only
through correspondents. The Company also faces significant competition for
investors' funds from sellers of short-term money market securities and other
corporate and government securities.

          The Company competes for loans principally through the range and
quality of the services it provides, interest rates and loan fees. The Company
believes its personal service philosophy in conjunction with its staff of
experienced loan officers enables it to compete favorably with other financial
institutions in its focus market of small and medium-sized businesses. The
Company actively solicits deposit-related clients and competes for deposits by
offering customers personal attention and professional service.

          Competition has intensified as a result of changes in Colorado banking
laws that permit (i) unlimited branching (only limited statewide branching of
Colorado-domiciled financial institutions was permitted until January 1, 1997),
and (ii) out-of-state holding companies to acquire Colorado-based financial
institutions, provided that the laws of the state in which the out-of-state
institutions conduct their principal operations similarly permit Colorado-based
institutions to acquire financial institutions domiciled in their states. During
the past several years, substantial consolidation among financial institutions
in Colorado has occurred. Management believes that this consolidation led to
substantial account disruption for small and medium-sized businesses which are
below the focus threshold for larger banks and which have had their lending
relationships at such banks severed. Management further believes that this may
lead customers in the Company's market area to seek a relationship with smaller,
service-oriented institutions such as the Bank.


EMPLOYEES

          At December 31, 2001, the Company had approximately 170 total
employees. In order to effectuate its "staff to management" philosophy, the
Company has placed a high priority on staff development. This development
involves extensive training (including customer service training) and selective
hiring. New hires are selected on the basis of both technical skills and
customer service capabilities. Emphasis is placed upon hiring and retaining
additional key officers in areas such as lending, administration and finance.
None of the Company's employees are covered by a collective bargaining agreement
with the Company and management believes that its relationship with its
employees as a group is good.


SUPERVISION AND REGULATION

          Bank holding companies and banks are extensively regulated under both
federal and state law. The information contained in this section summarizes
portions of the applicable laws and regulations relating to the supervision and
regulation of the Company and its subsidiaries. These summaries do not purport
to be complete, and they are qualified in their entirety by reference to the
particular statutes and regulations described. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
Company and its subsidiaries.

                                      -16-

<PAGE>

BANK HOLDING COMPANY REGULATION

          The Company is a bank holding company within the meaning of the Bank
Holding Company Act and is registered as such with the Federal Reserve Board.
Under the current terms of that Act, activities of the Company, and those of
companies which it controls or in which it holds more than 5% of the voting
stock, are limited to banking or managing or controlling banks or furnishing
services to or performing services for its subsidiaries, or any other activity
which the Federal Reserve Board determines to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. In making
such determinations, the Federal Reserve Board is required to consider whether
the performance of such activities by a bank holding company or its subsidiaries
can reasonably be expected to produce benefits to the public such as greater
convenience, increased competition or gains in efficiency that outweigh the
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest or unsound banking practices.

          Bank holding companies, such as the Company, are required to file with
the Federal Reserve Board certain reports and information and are required to
obtain prior approval of the Board to engage in a new activity or to acquire
more than 5% of any class of voting stock of any company. Pursuant to the
Riegle-Neal Interstate Branching and Efficiency Act of 1994 ("Riegle-Neal Act"),
subject to approval by the Federal Reserve Board, bank holding companies are
authorized to acquire either control of, or substantial assets of, a bank
located outside the bank holding company's home state. These acquisitions are
subject to limitations which are mentioned in the discussion on "Interstate
Banking" which follows. The Riegle-Neal Act reaffirms the right of states to
segregate and tax separately incorporated subsidiaries of a bank or bank holding
company. The Riegle-Neal Act also affects interstate branching and mergers.

          The Federal Reserve Board has authorized the acquisition and control
by bank holding companies of savings and loan associations and certain other
savings institutions without regard to geographic restrictions applicable to
acquisition of shares of a bank.

          The Federal Reserve Board is authorized to adopt regulations affecting
various aspects of bank holding companies. Pursuant to the general supervisory
authority of the Bank Holding Company Act and directives set forth in the
International Lending Supervision Act of 1983, the Federal Reserve Board has
adopted capital adequacy guidelines prescribing both risk-based capital and
leverage ratios.

          The enactment of the Gramm-Leach-Bliley Act of 1999 (the "GLB Act")
repeals sections 20 and 32 of the Banking Act of 1933, allowing new
opportunities to be available for banks, other depository institutions,
insurance companies and securities firms to enter into combinations that permit
a single financial services organization to offer customers a more complete
array of financial products and services. To further this goal, the GLB Act
amends section 4 of the Act providing a new regulatory framework for regulation
through the financial holding company ("FHC"), which will have as its umbrella
regulator the Federal Reserve Board. Functional regulation of the FHC's
separately regulated subsidiaries will be conducted by their primary functional
regulator. Pursuant to the GLB Act, bank holding companies, subsidiary
depository institutions thereof and foreign banks electing to qualify as a FHC
must be "well managed," "well capitalized" and at least rated satisfactory under
the Community Reinvestment Act in order for them to engage in new financial
activities. The GLB Act provides a federal right to privacy of non-public
personal information of individual customers. The GLB Act and Regulation S-P
became effective on November 13, 2000 with full compliance mandatory by July 1,
2001. Union Bankshares and its Affiliates are also subject to certain state laws
that deal with the use and distribution of non-public personal information.

          In October 2001, the USA PATRIOT Act of 2001 and the International
Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 were
enacted. These statutes contain law enforcement

                                      -17-

<PAGE>

and regulatory provisions that require the Bank to respond to requests for
information or verify information provided from time to time by the Federal
Deposit Insurance Corporation.


REGULATORY CAPITAL REQUIREMENTS

          Risk-Based Capital Guidelines. The Federal Reserve Board established
risk-based capital guidelines for bank holding companies effective March 15,
1989. The guidelines define Tier I Capital and Total Capital. Tier I Capital
consists of common and qualifying preferred shareholders' equity and minority
interests in equity accounts of consolidated subsidiaries, less goodwill and 50%
(and in some cases up to 100%) of investment in unconsolidated subsidiaries.
Total Capital consists of Tier I Capital plus qualifying mandatory convertible
debt, perpetual debt, certain hybrid capital instruments, certain preferred
stock not qualifying as Tier I Capital, subordinated and other qualifying term
debt up to specified limits, and a portion of the allowance for credit losses,
less investments in unconsolidated subsidiaries and in other designated
subsidiaries or other associated companies at the discretion of the Federal
Reserve Board, certain intangible assets, a portion of limited-life capital
instruments approaching maturity and reciprocal holdings of banking
organizations' capital instruments. The Tier I component must constitute at
least 50% of qualifying Total Capital.

          Risk-based capital ratios are calculated with reference to
risk-weighted assets, which include both on-balance sheet and off-balance sheet
exposures. The risk-based capital framework contains four risk-weighted
categories for bank holding company assets -- 0%, 20%, 50%, and 100%. Zero
percent risk-weighted assets include, generally, cash and balances due from
Federal Reserve Banks, and obligations unconditionally guaranteed by the U.S.
government or its agencies. Twenty percent risk-weighted assets include,
generally, claims on U.S. Banks and obligations guaranteed by U.S. government
sponsored agencies as well as general obligations of states or other political
subdivisions of the United States. Fifty percent risk-weighted assets include,
generally, loans fully secured by first liens on one-to-four family residential
properties, subject to certain conditions. All assets not included in the
foregoing categories are assigned to the 100% risk-weighted category, including
loans to commercial and other borrowers. As of year-end 1992, the minimum
required ratio for qualifying Total Capital became 8%, of which at least 4% must
consist of Tier I Capital. At December 31, 2001, the Company's Tier I and Total
Capital ratios were 10.9% and 13.5%, respectively.

          The current risk-based capital ratio analysis establishes minimum
supervisory guidelines and standards. It does not evaluate all factors affecting
an organization's financial condition. Factors which are not evaluated include
(i) overall interest rate exposure; (ii) quality and level of earnings; (iii)
investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain
risks arising from nontraditional activities; and (vii) management's overall
ability to monitor and control other financial and operating risks, including
the risks presented by concentrations of credit and nontraditional activities.
The capital adequacy assessment of federal bank regulators will, however,
continue to include analyses of the foregoing considerations and in particular,
the level and severity of problem and classified assets. Market risk of a
banking organization -- risk of loss stemming from movements in market prices --
is not evaluated under the current risk-based capital ratio analysis (and is
therefore analyzed by the bank regulators through a general assessment of an
organization's capital adequacy) unless trading activities constitute 10 percent
or $1 billion or more of the assets of such organization. Such an organization
(unless exempted by the banking regulators) and certain other banking
organizations designated by the banking regulators must include in its
risk-based capital ratio analysis charges for, and hold capital against, general
market risk of all positions held in its trading account and of foreign exchange
and commodity positions wherever located, as well as against specific risk of
debt and

                                      -18-

<PAGE>

equity positions located in its trading account. Currently, the Company
and the Bank do not calculate a risk-based capital charge for their market risk.

          Minimum Leverage Ratio. The Federal Reserve Board has adopted capital
standards and leverage capital guidelines that include a minimum leverage ratio
of 3% Tier I Capital to total assets (the "leverage ratio"). The leverage ratio
is used in tandem with a risk-based ratio of 8% that took effect at the end of
1992.

          The Federal Reserve Board has emphasized that the leverage ratio
constitutes a minimum requirement for well-run banking organizations having
well-diversified risk, including no undue interest rate exposure, excellent
asset quality, high liquidity, good earnings, and a composite rating of 1 under
the Interagency Bank Rating System. Banking organizations experiencing or
anticipating significant growth, as well as those organizations which do not
exhibit the characteristics of a strong, well-run banking organization described
above, will be required to maintain strong capital positions substantially above
the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve Board has indicated that it will
consider a "tangible Tier I Capital Leverage Ratio" (deducting all intangibles)
and other indices of capital strength in evaluating proposals for expansion or
new activities. At December 31, 2001, the Company's Tangible Tier I Capital
Leverage Ratio was 6.5%.

          Other Issues And Developments Relating To Regulatory Capital. Pursuant
to such authority and directives set forth in the 1988 Basle Capital Accord, as
amended, the Comptroller of the Currency, the FDIC, and the Federal Reserve
Board have issued regulations establishing the capital requirements for banks
under federal law. The regulations, which apply to the Bank, establish minimum
risk-based and leverage ratios which are substantially similar to those
applicable to the Company. As of December 31, 2001, the risk-based and leverage
ratio of the Bank exceeded the minimum requirements.

          The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires the federal banking regulators to take "prompt corrective
action" in respect of banks that do not meet minimum capital requirements and
imposes certain restrictions upon banks which meet minimum capital requirements
but are not "well capitalized" for purposes of FDICIA. FDICIA established five
capital tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Implementing regulations adopted by the federal banking agencies define the
corrective action by the federal banking agencies. A bank may be placed in a
capitalization category that is lower than is indicated by its capital position
if it receives an unsatisfactory examination rating with respect to certain
matters. Failure to meet capital guidelines could subject a bank to a variety of
restrictions and enforcement remedies. All insured banks are generally
prohibited from making any capital distributions and from paying management fees
to persons having control of the bank where such payments would cause the bank
to be undercapitalized. Holding companies of significantly undercapitalized,
critically undercapitalized and certain undercapitalized banks may be required
to obtain the approval of the Federal Reserve Board before paying capital
distributions to their shareholders. Moreover, a bank that is not well
capitalized is generally subject to various restrictions on "pass through"
insurance coverage for certain of its accounts and is generally prohibited from
accepting brokered deposits and offering interest rates on any deposits
significantly higher than the prevailing rate in its normal market area or
nationally (depending upon where the deposits are solicited). Such banks and
their holding companies are also required to obtain regulatory approval prior to
their retention of senior executive officers.

          Banks which are classified undercapitalized, significantly
undercapitalized or critically undercapitalized are required to submit capital
restoration plans satisfactory to their federal banking regulator and guaranteed
within stated limits by companies having control of such banks (i.e., to the
extent of the lesser of five percent of the institution's total assets at the
time it became undercapitalized or the amount necessary to bring the institution
into compliance with all applicable capital standards as of the time the
institution fails

                                      -19-

<PAGE>

to comply with its capital restoration plan, until the institution is adequately
capitalized on average during each of four consecutive calendar quarters), and
are subject to regulatory monitoring and various restrictions on their
operations and activities, including those upon asset growth, acquisitions,
branching and entry into new lines of business and may be required to divest
themselves of or liquidate subsidiaries under certain circumstances. Holding
companies of such institutions may be required to divest themselves of such
institutions or divest themselves of or liquidate nondepository affiliates under
certain circumstances. Critically undercapitalized institutions are also
prohibited from making payments of principal and interest on debt subordinated
to the claims of general creditors as well as to the mandatory appointment of a
conservator or receiver within 90 days of becoming critically undercapitalized
unless periodic determinations are made by the appropriate federal banking
agency, with the concurrence of the FDIC, that forbearance from such action
would better protect the affected deposit insurance fund. Unless appropriate
findings and certifications are made by the appropriate federal banking agency
with the concurrence of the FDIC, a critically undercapitalized institution must
be placed in receivership if it remains critically undercapitalized on average
during the calendar quarter beginning 270 days after the date it became
critically undercapitalized.

          Other Regulatory and Supervisory Issues. Pursuant to FDICIA, the
federal banking agencies have adopted regulations or guidelines prescribing
standards for safety and soundness of insured banks and in some instances their
holding companies, including standards relating to internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, compensation, fees and
benefits, asset quality, earnings and stock valuation, as well as other
operational and managerial standards deemed appropriate by the agencies. Upon a
determination by a federal banking agency that an insured bank has failed to
satisfy any such standard, the bank will be required to file an acceptable plan
to correct the deficiency. If the bank fails to submit or implement an
acceptable plan, the federal banking agency may, and in some instances must,
issue an order requiring the institution to correct the deficiency, restrict its
asset growth or increase its ratio of tangible equity to assets, or imposing
other operating restrictions.

          FDICIA also contains provisions which, among other things, restrict
investments and activities as principal by state nonmember banks to those
eligible for national banks, impose limitations on deposit account balance
determinations for the purpose of the calculation of interest, and require the
federal banking regulators to prescribe, implement or modify standards for
extensions of credit secured by liens on interests in real estate or made for
the purpose of financing construction of a building or other improvements to
real estate, loans to bank insiders, regulatory accounting and reports, internal
control reports, independent audits, exposure on interbank liabilities,
contractual arrangements under which institutions receive goods, products or
services, deposit account-related disclosures and advertising as well as to
impose restrictions on federal reserve discount window advances for certain
institutions and to require that insured depository institutions generally be
examined on-site by federal or state personnel at least once every 12 months.

          In connection with an institutional failure or FDIC rescue of a
financial institution, the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") grants to the FDIC the right, in many
situations, to charge its actual or anticipated losses against commonly
controlled depository institution affiliates of the failed or rescued
institution (although not against a bank holding company itself).

          The Community Reinvestment Act ("CRA") requires banks to help serve
the credit needs in their communities, including credit to low and moderate
income individuals and geographies. Should the Company or its subsidiaries fail
to adequately serve the community, there are penalties which might be imposed.
Corporate applications to expand branches, relocate, add subsidiaries and
affiliates, and merge with or purchase other financial institutions could be
denied. Community groups are encouraged through the regulation to protest
applications for any bank subject to this regulation if they feel that the bank
is not

                                      -20-

<PAGE>

serving the credit needs of the community in which it serves. The Company
and the bank have been deemed by regulators in the past to be adequately serving
their communities.

          The nature of the banking and financial services industry, as well as
banking regulation, may be further affected by various legislative and
regulatory measures currently under consideration. It is impossible to predict
whether or in what form these proposals may be adopted in the future and, if
adopted, what the effect of their adoption will be on the Company and the Bank.

          There are many other regulations requiring detailed compliance
procedures which increase costs and require additional time commitments of
employees. Regulators and the Congress continue to put in place rules and laws
to protect consumers, which have a cumulative additional impact on the cost of
doing business. At this point, management cannot completely assess how earnings
might be affected by these consumer laws.


INTERSTATE BANKING

          Existing laws and various regulatory developments have allowed
financial institutions to conduct significant activities on an interstate basis
for a number of years. During recent years, a number of financial institutions
have expanded their out-of-state activities and various states and the Congress
have enacted legislation intended to allow certain interstate banking
combinations.

          The Riegle-Neal Act dramatically affects interstate banking
activities. As discussed previously, the Riegle-Neal Act allows the Federal
Reserve Board to approve the acquisition by a bank holding company of control or
substantial assets of a bank located outside the bank holding company's home
state. An insured bank may apply to the appropriate federal agency for
permission to merge with an out-of-state bank and convert its offices into
branches of the resulting bank. States retain the option to prohibit
out-of-state mergers if they enacted a statute specifically barring such mergers
before June 1, 1997, and such law applies equally to all out-of-state banks.

          Interstate mergers authorized by the Riegle-Neal Act are subject to
conditions and requirements, the most significant of which include adequate
capitalization and management of the acquiring bank or bank holding company,
existence of the acquired bank for up to five years before purchase where
required under state law, existence of state laws that condition acquisitions on
institutions making assets available to a "state-sponsored housing entity," and
limitations on control by the acquiring bank holding company of not more than
10% of the total amount of deposits in insured depository institutions in the
United States or not more than 30% of the deposits in insured depository
institutions within that state. States may impose lower deposit concentration
limits, so long as those limits apply to all bank holding companies equally and
Colorado has imposed a 25% limit on such concentrations. Additional requirements
placed on mergers include conformity with state law branching requirements and
compliance with "host state" merger filing requirements to the extent that those
requirements do not discriminate against out-of-state banks or out-of-state bank
holding companies.

          The Riegle-Neal Act also permits banks to establish and operate a "de
novo branch" in any state that expressly permits all out-of-state banks to
establish de novo branches in such state, if the law applies equally to all
banks. (A "de novo branch" is a branch office of a national bank or state bank
that is originally established as a branch and does not become a branch as a
result of an acquisition, conversion, merger, or consolidation.) Utilization of
this authority is conditioned upon satisfaction of most of the conditions
applicable to interstate mergers under the Riegle-Neal Act, including adequate
capitalization and management of the branching institution, satisfaction with
certain filing and notice requirements imposed

                                      -21-

<PAGE>

under state law and receipt of federal regulatory approvals. The State of
Colorado did not exercise the option to opt out of the federal legislation.
Accordingly, the provisions of the Riegle-Neal Act as summarized herein are
applicable in the State of Colorado.


THE BANK

          The Bank is a Colorado banking corporation, the deposits of which are
insured by the Federal Deposit Insurance Corporation, and are subject to
supervision and regulation by the FDIC and the Colorado Division of Banking. No
Colorado bank may engage in any activity not permitted for national banks,
unless the institution complies with applicable capital requirements and the
FDIC determines that the activity poses no significant risk to the insurance
fund. This limitation does not now affect the Bank, since it is not presently
involved in the types of transactions covered by this limitation.

          Dividends paid by the Bank provide substantially all of the cash flow
of the Company. Under Colorado law and Federal Deposit Insurance Corporation
policies, the approval of the Colorado Banking Board and the FDIC is required
prior to the declaration of any dividend by a bank if the total of all dividends
declared in any calendar year exceed the total of its net profits of that year
combined with its retained net profits for the preceding two years. In addition,
a bank cannot pay a dividend if it will cause the bank to be "undercapitalized."

          The FDIC insures deposits of the Bank up to the prescribed limit per
depositor through the Bank Insurance Fund ("BIF"), and the amount of FDIC
assessments paid by each BIF member institution is based upon its relative risk
of default as measured by regulatory capital ratios and other factors. The BIF
assessment rate currently ranges from zero to 27 cents per $100 of domestic
deposits. The FDIC may increase or decrease the assessment rate and schedule on
a semi-annual basis. As of December 31, 2000, the Bank qualified for the lowest
BIF assessment rate.


DEPOSIT INSURANCE ASSESSMENTS

          The FDIC periodically examines and evaluates state-chartered banks
that are not members of the Federal Reserve System. Based upon such an
evaluation, the examining regulator may revalue the assets of an insured
institution and require that it establish specific reserves to compensate for
the difference between the value determined by the regulator and the book value
of such assets. The Colorado Division of Banking also conducts examinations of
state-chartered banks. The Colorado Division of Banking may accept the results
of a federal examination in lieu of conducting an independent examination. The
Colorado Division of Banking also has the authority to revalue the assets of a
state-chartered institution and require it to establish reserves.


EFFECT ON ECONOMIC ENVIRONMENT

          The policies of regulatory authorities, including the monetary policy
of the Board of Governors, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Board of Governors to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
imposing or changing reserve requirements against member bank deposits, and
imposing or changing reserve requirements against certain borrowings by banks
and their affiliates. These means are used in varying combinations to influence

                                      -22-

<PAGE>

overall growth and distribution of bank loans, investments and deposits, and
their use may affect the interest rate charged on loans or paid on deposits.

          The Board of Governors' monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on the business and earnings of the Company and its subsidiaries
cannot be predicted.


RISK FACTORS RELATING TO THE COMPANY

          Economic Conditions and Impact of Interest Rates. The Company's
profitability, like that of most similar financial institutions, depends largely
on the Bank's net interest income, which is the difference between its interest
income on interest-earning assets, such as loans and investments, and its
interest expense on interest-bearing liabilities, such as deposits and
borrowings. Accordingly, the Company's results of operations and financial
condition are largely dependent on movements in market interest rates and its
ability to manage its assets in response to such movements. The difference
between the amount of the total interest-bearing assets and interest-bearing
liabilities which reprice within a given time period could have a negative
effect on the Bank's net interest income depending on whether such difference
was positive or negative and whether interest rates are rising or falling.

          Increases in interest rates may reduce demand for loans and, thus, the
amount of loan and commitment fees earned by the Bank. In addition, fluctuations
in interest rates may also result in disintermediation, which is the flow of
funds away from depository institutions into direct investments which pay a
higher rate of return, and may affect the value of the Company's investment
securities and other interest earning assets. Because the Bank's assets consist
of a substantial number of loans with interest rates which change in accordance
with changes in prevailing market rates, if interest rates rise sharply, many of
the Bank's borrowers would be required to make higher interest payments on their
loans. Therefore, increases in interest rates may cause the Bank to experience
an increase in delinquent loans and defaults to the extent that borrowers are
unable to meet their increased debt servicing obligations. In addition, the Bank
has a substantial portfolio of fixed-rate loans that may be prepaid without
significant penalty, so that customers might prepay or refinance them in a
period of declining interest rates. That would alter the Bank's asset-liability
gap position and ultimately reduce the rates earned on those assets, as cash
flows from loan repayments would be reinvested at lower rates.

          Results of operations for financial institutions, including the
Company, may be materially and adversely affected by changes in prevailing
economic conditions, including declines in real estate values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
The profitability of the Company depends in part on the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities. Although management believes that the
maturities of the Company's assets are moderately balanced in relation to
maturities of liabilities ("asset/liability management"), asset/liability
management involves estimates as to how changes in the general level of interest
rates will impact the yields earned on assets and the rates paid on liabilities.
A decrease in interest rate spreads would have a negative effect on the net
interest income and profitability of the Company, and we cannot give any
assurance that this spread will not decrease. Although economic conditions in
the Denver metropolitan area have been generally strong in recent years, the
Denver economy has slowed in recent months, as has the national economy.
Moreover, substantially all of the loans of the Company are to businesses and
individuals in the Denver area, and any significant decline in the economy of
this market area could have an adverse impact on the Company. We cannot give any
assurance that positive trends or developments discussed in this Annual Report
on Form 10-K will continue or that negative trends or

                                      -23-

<PAGE>

developments will not have a material adverse effect on the Company. See "Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations."

          Growth and Acquisition Risks. The Company has pursued and intends to
continue to pursue an internal growth strategy, the success of which will depend
primarily on generating an increasing level of loans and deposits at acceptable
risk levels and terms without proportionate increases in noninterest expenses.
The Company has grown by the establishment of new branches, and intends to
consider new branching opportunities in the future. The Company cannot give any
assurance that it will be successful in continuing its internal growth strategy.
Although the Company does not have any discussions or negotiations underway
relating to any acquisitions, the Company in the future intends to review and
solicit acquisition opportunities and, at any given time, may attempt to acquire
financial institutions. The Company may not be successful in identifying
acquisition candidates, integrating acquired institutions or preventing loss of
deposits at acquired institutions. Competition for acquisitions in the Company's
market area is highly competitive, and the Company may not be able to acquire
institutions on terms beneficial to the Company. Furthermore, the level of
success of the Company's growth strategy will depend on maintaining sufficient
regulatory capital levels and on continued favorable economic conditions in the
Denver area.

          Competitive Banking Environment. The banking business in Colorado is
highly competitive. The Company competes for loans and deposits with other
local, regional and national commercial banks, savings banks, savings and loan
associations, finance companies, money market funds, brokerage houses, credit
unions and nonfinancial institutions, any of which have substantially greater
financial resources than the Company.

          Allowance for Loan Losses. Inability of borrowers to repay loans can
erode earnings and capital of banks. Like all banks, the Company maintains an
allowance for loan losses to provide for loan defaults and nonperformance. The
allowance is based on prior experience with loan losses, as well as an
evaluation of the risks in the current portfolio, and is maintained at a level
considered adequate by management to absorb anticipated losses. The amount of
future losses is susceptible to changes in economic, operating and other
conditions, including changes in interest rates, that may be beyond management's
control, and such losses may exceed current estimates. At December 31, 2001, the
Company had nonperforming loans of $2,557,000 and an allowance for loan losses
of $3,351,000 or 1.4% of total loans 131.05% of nonperforming loans. We cannot
give any assurance that the Company's allowance for loan losses will be adequate
to cover actual losses. Future provisions for loan losses could materially and
adversely affect results of operations of the Company. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. An increase in the
Bank's provision for loan losses would negatively affect the Company's earnings.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations."

          Lending Risks -- Credit Quality. A central focus of the Company's and
the Bank's strategy is the continued development and growth of a diversified
loan portfolio, with emphasis on commercial business lending to small- and
medium-sized businesses. Certain risks are inherent in the lending function,
including a borrower's inability to pay, insufficient collateral coverage and
changes in interest rates. Repayment risk on commercial loans is significantly
affected by changing economic conditions in a particular geographical area,
business or industry which could impair future operating performance. Risks
associated with general business loans include changes in general economic
conditions which may affect the borrower's ability to repay as well as
underlying collateral values. Installment and other consumer loans are also
subject to repayment risk.

          Dependence on Key Personnel. The Company depends on the continued
services of Charles R. Harrison, Chairman of the Board and Chief Executive
Officer of the Company, Herman J. Zueck, the Bank's

                                      -24-

<PAGE>

Chairman of the Board and Chief Executive Officer and President of the Company
and Bruce E. Hall, Vice President of the Company. The Company has employment
agreements with Messrs. Harrison, Zueck and Hall. The loss of the services of
Mr. Harrison, Mr. Zueck or Mr. Hall, or of certain other key personnel, could
adversely affect the Company. The Company is the beneficiary of key-person life
insurance on the lives of each of Messrs. Harrison, Zueck and Hall. The
Company's anticipated growth and expansion into areas and activities requiring
additional expertise are expected to place increased demands on the Company's
resources. These demands are expected to require the addition of new management
personnel and the development of additional expertise by existing management
personnel. The failure to acquire such services or to develop such expertise
could have a material adverse effect on the Company's future growth.

          Control by Officers and Directors as a Group; Anti-takeover Effect.
The Company's officers and directors own beneficially approximately 57.3% of the
outstanding shares of Common Stock. This percentage includes the shares of
Common Stock held in the Company's 401(k) plan over which certain officers of
the Company have voting control as trustees of the 401(k) plan. As a result,
they alone may elect by simple majority the Board of Directors. This may impede
the efforts of a third party to acquire control of the Company or to change the
Board of Directors of the Company.

          Government Regulation and Recent Legislation. The Company and the Bank
are subject to extensive federal and state legislation, regulation and
supervision which is intended primarily to protect depositors and the Bank
Insurance Fund, rather than investors. Recently enacted, proposed and future
legislation and regulations designed to strengthen the banking industry have had
and may have a significant impact on the banking industry. Although some of the
legislative and regulatory changes may benefit the Company and the Bank, others
may increase their costs of doing business or otherwise adversely affect the
Company and the Bank and create competitive advantages for non-bank competitors.

          The financial institutions industry is subject to significant
regulation which has materially affected the financial institutions industry in
the past and will do so in the future. Such regulations, which affect the
Company on a daily basis, may be changed at any time, and the interpretation of
the relevant law and regulations are also subject to change by the authorities
who examine the Company and the Bank and interpret those laws and regulations.
We cannot make any assurance that any present or future changes in the laws or
regulations or in their interpretation will not adversely and materially affect
the Company.

          Economic Conditions and Monetary Policies. Conditions beyond the
Company's control may have a significant impact on the Company's operations and
its net interest income from one period to another. Examples of such conditions
include:

     o    prevailing economic conditions both nationally and in the Denver
          metropolitan market;

     o    the strength of credit demands by customers;

     o    fiscal and debt management policies of the federal government,
          including changes in tax laws;

     o    the Federal Reserve's monetary policy, including the percentage of
          deposits that may be held in the form of non-earning cash reserves;

     o    the introduction and growth of new investment instruments and
          transaction accounts by non-bank financial competitors; and

     o    changes in rules and regulations governing the payment of interest on
          deposit accounts.

                                      -25-

<PAGE>

          Potential Liability for Undercapitalized Subsidiary Bank. Under a
federal law, a bank holding company may be required to guarantee a capital plan
filed by an undercapitalized bank or thrift subsidiary with its primary
regulator. If the subsidiary defaults under the plan, the holding company may be
required to contribute to the capital of the subsidiary bank an amount equal to
the lesser of 5% of the bank's assets at the time it became undercapitalized or
the amount necessary to bring the bank into compliance with applicable capital
standards. It is, therefore, possible that the Company would be required to
contribute capital to the Bank or any other bank it may acquire in the event
that the Bank or such other bank becomes undercapitalized.


ITEM 2. PROPERTIES

          The Bank leases space in a six-story office building in Denver,
Colorado, with approximately 21,300 rentable square feet. This space houses the
Bank's loan and teller facilities, new accounts personnel, safe deposit
facilities, the trust department and administrative offices. The Bank also
leases a 1,723 square-foot detached facility located one block from the Bank's
main offices, which is used for drive-up and walk-in customer services. In
addition, the Bank leases 2,220 square feet of space in an adjacent building
which is used for storage. The lease provides the Bank with parking rights for
use by the Bank's customers. The foregoing leases run for a term of ten years
from July 2, 1994, renewable at the Bank's option for two additional terms of
five years each. Effective June 1, 1996, the Bank leased 2,347 additional square
feet in the six-story office building, renewable on an annual basis. The space
is occupied by the Bank's Real Estate/Construction Loan Department. Effective
July 1, 1997, this lease agreement was amended to be concurrent with the same
terms of the Bank's original lease agreement dated July 2, 1994. The Bank leases
all of the above space at an average of approximately $17.00 per square foot.

          The Company expanded its operations in July 1994 through the opening
of a full-service branch in the Lakeside area of metropolitan Denver. The branch
occupies a two-story office building with approximately 9,278 square feet. The
building houses the branch's operations, the Bank's customer service operations
and the Bank's data processing operations. The original lease expires on July
31, 2004 and is renewable for two additional terms of five years each. Due to
the consolidation of customer service operations, on August 15, 1996, the Bank
leased 1,474 additional square feet on the second floor. The addendum to the
original lease expires August 14, 2001 and is renewable at the Bank's option for
three additional years. As a result of growth of data processing, effective
December 1, 1997, the Bank leased an additional 1,320 square feet on the second
floor in order to expand the Bank's data processing department. The Bank leases
this space at approximately $16.83 per square foot, renewable on an annual
basis. The Bank leases this building at approximately $16.95 per square foot,
with rental subject to annual per square foot escalation.

          The Company again expanded its operations in March 1995 by leasing a
3,917 square-foot building to house a branch in the University Hills area of
metropolitan Denver. The lease expires on March 31, 2005 and is renewable at the
Bank's option for two additional terms of five years. The Bank leases this
building at approximately $13.64 per square foot.

          On December 4, 1995, the Company opened its third branch, this one in
the Lakewood area of metropolitan Denver. The Bank leased space in a three-story
building with approximately 3,955 rentable square feet, along with a separate
drive-up facility with two stalls and a control booth. The lease runs through
October 31, 2005, renewable at the Bank's option for two additional terms of
five years each. The Bank leases the building space and drive-up facility at
approximately $18.75 per square foot.

                                      -26-

<PAGE>

          In connection with the establishment of a fourth branch, which opened
May 11, 1998, the Company is leasing a single-story building with 5,157 square
feet in the Littleton area of metropolitan Denver. The branch occupies
approximately 3,449 square feet; the Bank subleases the remaining 1,708 square
feet in the building, at approximately $9.00 per square foot with rental subject
to annual per square foot escalation. The lease expired December 31, 2001. The
sublease was renewed for two years through December 31, 2003 at $13.00. The
lease runs for a term of ten years from February 4, 1998, renewable for two
additional terms of five years. The Bank leases this building at approximately
$10.00 per square foot, with rental subject to bi-annual per square foot
escalation.

          On October 19, 1998, the Company opened its fifth branch in the Golden
area of metropolitan Denver. The Bank leased space in a multi-tenant single
story building with approximately 1,705 square feet. The lease expired July 31,
2001, renewable at the Bank's option for two additional terms of 8 years each.
The Bank exercised the first option for an additional term of eight years on
July 31, 2001 through July 31, 2009. The Bank leases the building space at
approximately $23.25 per square foot.

          On December 17, 1998, the Company acquired Lakewood State Bank,
located in the Lakewood area of metropolitan Denver. The site, which was owned
by Lakewood State Bank and is now owned by the Company, contains a three-story
building constructed in 1972 with a total net rentable area of approximately
20,079 square feet and includes eight drive-through lanes at the rear of the
building. The building and drive-throughs are situated on a parcel containing a
total of approximately 1.425 acres of land. The Bank occupies approximately
15,000 square feet and subleases approximately 90% of the remaining space to
eight (8) small tenants. Parking is provided by an asphalt paved parking lot
which contains 89 spaces.

          The Company believes its existing facilities will be adequate to meet
the Company's needs for the foreseeable future. Should the Company need
additional space, management believes it will be able to secure facilities at
reasonable rates. The Company believes that the facilities are adequately
covered by insurance.


ITEM 3. LEGAL PROCEEDINGS

          Periodically and in the ordinary course of business, various claims
and lawsuits are brought against the Company, such as claims to enforce liens,
condemnation proceedings on properties in which the Company holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to the Company's business. In the opinion of the Company's
management, the ultimate liability, if any, resulting from such claims or
lawsuits will not have a material adverse effect on the financial position or
results of operations of the Company.


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 of fiscal year 2001.


                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Price Range of Common Stock


                                      -27-

<PAGE>

<TABLE>
<CAPTION>
                                          2001                            2000
                              --------------------------      ---------------------------
                                High             Low              High           Low
                              -----------    -----------      -----------    ------------

<S>                            <C>             <C>              <C>             <C>
         First Quarter         $14.63          $12.50           $13.38          $9.00

         Second Quarter        $12.90          $10.20           $11.88          $8.50

         Third Quarter         $13.12          $11.74           $11.75          $9.00

         Fourth Quarter        $12.49          $10.00           $12.50          $10.81

</TABLE>


<TABLE>
<CAPTION>
                                                                    2002
                                                     -----------------------------------
                                                          High                 Low
                                                     ---------------      --------------

<S>                                                      <C>                  <C>
        First Quarter (to March 25, 2002)                $12.50               $10.35

</TABLE>


          Union Bankshares' Common Stock has been traded on the NASDAQ National
Market System ("NASDAQ-NMS") stock market since March 1993 under the symbol
"UBSC". The above prices represent closing sale prices on the NASDAQ-NMS. As of
March 25, 2002, there were 103 shareholders of record and approximately 700
beneficial shareholders.


DIVIDEND POLICY

          The Company's policy is to retain its earnings to support the growth
of its business. The Board of Directors of the Company has not historically
declared cash dividends on its Common Stock, and does not plan to do so in the
foreseeable future. The ability of the Company to pay cash dividends largely
depends on the amount of cash dividends paid to it by the Bank. Capital
distributions, including dividends, by institutions such as the Bank are subject
to restrictions tied to the institution's earnings.


ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying Notes,
presented elsewhere herein.

<TABLE>
<CAPTION>
                                                                                    As of December 31,
(Dollars in Thousands Except Per Share Amounts)                  2001         2000         1999         1998         1997
---------------------------------------------------------------------------------------------------------------------------

<S>                                                         <C>          <C>          <C>          <C>           <C>
  INCOME STATEMENT DATA
   Interest income:
       Loans                                                $   19,578   $   20,936   $   15,348   $   12,585    $  11,448
       Securities                                                9,485        8,545        8,489        4,536        4,286
       Other                                                       217          401          378          796          226
                                                            ---------------------------------------------------------------
   Total interest income                                        29,280       29,882       24,215       17,917       15,960



                                      -28-

<PAGE>

   Interest expense:
       Deposits                                                  8,451        8,297        7,165        5,519        4,121
       Borrowings and other                                      2,711        3,634        2,286          801          997
                                                            ---------------------------------------------------------------
     Total interest expense                                     11,162       11,931        9,451        6,320        5,118
                                                            ---------------------------------------------------------------

    Net interest income                                         18,118       17,951       14,764       11,597       10,842
    Provision for loan losses                                      509          381          227          278          360
                                                            ---------------------------------------------------------------
    Net interest income after
     provision for loan losses                                  17,609       17,570       14,537       11,319       10,482
                                                            ---------------------------------------------------------------

    Noninterest income                                           2,717        1,200        1,621          962          958

    Noninterest expense                                         16,161       14,691       14,314       10,267        8,453
                                                            ---------------------------------------------------------------
    Income before income taxes                                   4,165        4,079        1,844        2,014        2,987
    Income taxes                                                 1,410        1,250          376          377          851
                                                            ---------------------------------------------------------------
    Net Income                                              $    2,755   $    2,829   $    1,468   $    1,637    $   2,136
                                                            ===============================================================

  Earnings Per Common Share:
    Basic                                                   $     1.15   $     1.18   $     0.62   $     0.70    $    0.92
      Weighted average shares outstanding                    2,400,709    2,387,901    2,352,540    2,339,119    2,317,056

    Diluted                                                 $     1.04   $     1.09   $     0.55   $     0.62    $    0.84
      Weighted average equivalent shares outstanding         2,643,343    2,597,559    2,649,473    2,622,753    2,534,904


  BALANCE SHEET DATA (AT PERIOD END)

    Total assets                                            $  447,386   $  380,480   $  358,586   $  314,577    $ 221,505
    Loans receivable, net                                      235,163      213,522      181,733      144,517      120,659
    Cash and cash equivalents                                   15,512       19,551       15,493       45,419       26,714
    Securities (1)                                             184,161      132,779      144,972      106,051       66,025
    Deposits                                                   333,207      315,329      290,055      271,650      190,076

    Guaranteed preferred beneficial
      interest in Company debentures                            30,304       10,304       10,304       10,304            -

    Stockholders' equity                                        27,422       24,160       19,383       20,344       18,222


  SELECTED RATIOS

  OPERATING RATIOS AND OTHER DATA:
    Return on average assets                                     0.66%        0.75%        0.43%        0.69%        1.08%
    Return on average equity                                    10.34%       13.79%        7.30%        8.52%       12.68%
   Interest rate spread (2)                                      3.98%        4.32%        4.05%        4.49%        5.14%
   Net interest margin (2)                                       4.88%        5.44%        4.99%        5.60%        6.25%
   Efficiency ratio (3)                                         77.57%       76.71%       87.36%       81.75%       71.64%


  ASSET QUALITY DATA:
  Nonperforming assets to total assets                           0.57%        0.09%        0.00%        0.06%        0.01%
  Nonperforming loans to total loans                             1.07%        0.15%        0.00%        0.12%        0.02%
  Allowance for loan losses to total loans                       1.40%        1.51%        1.57%        1.82%        1.73%
  Net charge-offs to average gross loans                         0.20%       -0.01%        0.01%        0.06%       -0.01%


                                      -29-

<PAGE>


  REGULATORY CAPITAL RATIOS
    Tier I to risk-weighted assets                               10.9%        10.5%        10.0%        14.0%         9.9%
    Total to risk-weighted assets                                13.5%        12.7%        12.7%        15.2%        11.2%
    Leverage ratio (Tier I capital to total average assets)       6.5%         7.3%         6.4%         8.3%         6.9%
</TABLE>



------------------------------------------

     (1)  Includes available for sale and held to maturity securities
     (2)  Calculated on a tax equivalent basis
     (3)  Represents noninterest expense divided by the total of our net
          interest income before provision for loan losses plus our noninterest
          income.


ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

GENERAL

          The Company's Consolidated Financial Statements show its financial
condition and information on a consolidated basis. The Bank is the only
operating unit of the Company. When the Bank was acquired by the Company in
1985, a portion of the purchase price was allocated to goodwill. In 1993, the
Company began amortizing the remaining goodwill relating to the acquisition of
the Bank at the rate of approximately $226,000 per year through 2001. Beginning
in 2002, the Company will no longer amortize goodwill in accordance with FAS 141
Business Combinations and FAS 142 Goodwill and Other Intangibles.

          On December 17, 1998, Union Bankshares Capital Trust I, a newly-formed
Delaware business trust, issued approximately $10.3 million of its 9% Cumulative
Trust Preferred Securities guaranteed on a subordinated basis by the Company.
The Company contributed approximately $7 million of the proceeds of the public
offering to the Bank to finance the acquisition of Lakewood State Bank. The
remainder of the net proceeds was used for general corporate purposes including
the payoff of all outstanding amounts of the $4.0 million loan obtained in March
1996. Currently, the differences between the Company's financial condition and
results of operations and those of the Bank consist of the interest expense
relating to the 9% Cumulative Trust Preferred Securities, and the amortization
of the remaining goodwill relating to the acquisition of the Bank (which ended
at December 31, 2001, as noted above).

          The Company has opened five branches since July 1994 and acquired
Lakewood State Bank in December 1998. As expected, the branches have all
experienced greater expenses than income during the early stages of operations.
As the deposit and loan balances have grown, however, the monthly net losses
have become smaller. During the last quarter of 1997 and all of 1998, 1999 and
2000, each of the first three branches opened had an excess of income over
direct costs. During the third quarter of 2000, the Littleton branch, opened in
May of 1998, became profitable. Management expects the Golden branch opened in
December 1998 to follow a similar pattern and be profitable by the end of 2002.

NET INTEREST INCOME

          For most financial institutions, the primary component of earnings is
net interest income. Net interest income is the difference between interest
income, principally from loan and investment securities portfolios, and interest
expense, principally on customer deposits and borrowings. Changes in net
interest income result from changes in volume, spread and margin. Volume refers
to the average dollar level of interest-earning assets and interest-bearing
liabilities. Spread refers to the difference between the average yield on
interest-earning assets and the average cost of interest-bearing liabilities.
Margin refers to net interest income divided by average interest-earning assets
and is influenced by the level and relative mix of

                                      -30-

<PAGE>

interest-earning assets and interest-bearing liabilities. During the fiscal
years ended December 31, 2001, 2000 and 1999, average interest-earning assets
were $384.1 million, $342.4 million and $307.6 million, respectively. During
these same periods, net interest margin, computed on a full tax equivalent
basis, was 4.88%, 5.44% and 4.99%, respectively. See "Asset/Liability
Management" and "Results of Operations."

          The following tables set forth for the periods indicated information
with regard to average balances of assets and liabilities, as well as the total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant yields or costs, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities. Net interest
income is computed on a full tax equivalent basis to reflect the effect of tax
exempt income earned on municipal obligations in the investment securities
portfolio. Full tax equivalent interest income on tax exempt securities is the
amount of income that would have to be earned on taxable securities to yield the
same after tax return. A 34% tax rate was used.


                                      -31-

<PAGE>

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                     -----------------------------------------------------------------------------------------------
                                                  2001                              2000                          1999
                                     -------------------------------  ------------------------------- ------------------------------
                                                Interest   Average               Interest    Average             Interest    Average
                                      Average   Earned or  Yield or    Average   Earned or  Yield or   Average   Earned or  Yield or
                                     Balance(1)   Paid       Cost     Balance(1)   Paid       Cost    Balance(1)   Paid       Cost
                                     ---------  ---------  ---------  ---------  ----------  -------- ---------  --------  --------
                                                                        (Dollars in Thousands)
<S>                                  <C>         <C>        <C>       <C>         <C>        <C>      <C>        <C>        <C>
ASSETS
Loans:
  Commercial Loans.................  $155,829    $13,450    8.63%     $146,667    $14,762    10.06%   $115,507   $10,923    9.46%
  Real estate mortgage.............     5,316        465    8.75%        5,360        497     9.27%      3,753       354    9.43%
  Real estate construction.........    28,769      2,749    9.56%       24,597      2,964    12.05%     17,482     1,993   11.40%
  Consumer loans...................    31,671      2,914    9.20%       27,673      2,713     9.80%     22,942     2,078    9.06%
                                    ----------  ---------             ---------- ---------            ---------  -------
    Total loans....................   221,585     19,578    8.84%      204,297     20,936    10.25%    159,684    15,348    9.61%

Allowance for loan loss............     3,272                           (3,061)                         (2,727)

Securities:
  U.S. Government..................   118,721      7,070    5.96%      106,657      7,081     6.64%    115,828     7,223    6.24%
  Municipal -- nontaxable..........    29,382      2,345    7.98%       23,289      1,994     8.56%     22,491     1,720    7.65%
  Municipal -- taxable.............     9,390        680    7.24%        1,891        149     7.88%      1,947       130    6.68%
                                    ----------  ---------             ---------- ---------            ---------  -------
    Total securities...............   157,493     10,095    6.41%      131,837      9,224     7.00%    140,266     9,073    6.48%

Interest-bearing deposits in other
banks..............................         -          -    0.00%            -          -     0.00%          -         -    0.00%
Federal funds sold.................     5,006        217    4.33%        6,291        401     6.37%      7,695       378    4.92%
                                    ----------  ---------             ---------- ---------            ---------  -------
    Total interest-earning assets..   384,084     29,890    7.78%      342,425     30,561     8.90%    307,645    24,799    8.06%
                                                ---------                        ---------                       -------
Noninterest-earning assets:
  Goodwill........................      5,827                            6,375                           6,838
  Other assets....................     27,961                           29,582                          26,675
                                    ----------                        ----------                      ---------
    Total noninterest-earning
        assets....................     33,788                           35,957                          33,513
                                    ----------                        ----------                      ---------
    Total assets..................   $414,600                          375,321                        $338,431
                                    ==========                        ==========                      =========
</TABLE>



                                      -32-

<PAGE>

<TABLE>
<CAPTION>
                                                   2001                              2000                          1999
                                      ------------------------------  ------------------------------- ------------------------------
                                                 Interest   Average                Interest   Average              Interest  Average
                                       Average   Earned or  Yield or   Average     Earned or  Yield or  Average   Earned or Yield or
                                      balance(1)    Paid      Cost    Balance(1)     Paid       Cost   Balance(1)    Paid     Cost
                                      ----------  --------  --------  ----------   --------- --------  ----------  --------- -------
                                          (Dollars in thousands)                             (Dollars in thousands)
<S>                                    <C>        <C>          <C>     <C>          <C>         <C>      <C>         <C>       <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
  Interest-bearing demand accounts.... $ 119,180  $  2,632     2.21%   $ 108,532    $  3,205    2.95%    $ 104,361   $ 2,744   2.63%
  Certificates of deposit.............   103,860     5,550     5.34%      82,421       4,687    5.69%       77,729     4,008   5.16%
  Savings accounts....................    18,591       268     1.44%      18,162         405    2.23%       18,999       413   2.17%
                                       ---------  --------    ------   ---------    --------             ---------   -------
    Total interest-bearing accounts...   241,631     8,450     3.50%     209,115       8,297    3.97%      201,089     7,165   3.56%
  Notes payable.......................    51,539     2,661     5.16%      49,797       3,541    7.11%       31,346     2,120   6.76%
  Federal funds purchased.............       401        51    12.72%       1,381          93    6.73%        3,127       166   5.31%
                                       ---------  --------    ------   ---------    --------             ---------   -------
    Total interest-bearing
      liabilities.....................   293,571    11,162     3.80%     260,293      11,931    4.58%      235,562     9,451   4.01%
                                       ---------  --------                          --------                         -------
Noninterest-bearing demand accounts...    92,553                          92,671                            80,508
                                       ---------                       ---------                         ---------
    Total deposits and
      interest-bearing liabilities....   386,124                         352,964                           316,070
Other noninterest-bearing liabilities.     1,836                           1,836                             2,240
                                       ---------                       ---------                         ---------
    Total liabilities.................   387,960                         354,800                           318,310
Stockholders' equity..................    26,640                          20,521                            20,121
                                       ---------                       ---------                         ---------
    Total liabilities and
      stockholders' equity............ $ 414,600                       $ 375,321                          $338,431
                                       =========                       =========                         =========
Net interest income...................            $ 18,728                           $18,630                         $15,348
                                                  ========                          ========                         =======
Net interest spread...................                         3.98%                            4.32%                          4.05%
                                                              ======                           ======                        =======
Net interest margin...................                         4.88%                            5.44%                          4.99%
                                                              ======                           ======                        =======
Ratio of average interest-
  earning assets to average
  total deposits and interest-
  bearing liabilities                                         99.47%                           97.01%                        130.60%
                                                              ======                           ======                        =======
Return on average assets..............                         0.66%                            0.75%                          0.43%
                                                              ======                           ======                        =======
Return on average equity..............                        10.34%                           13.79%                          7.30%
                                                              ======                           ======                        =======
Dividend payout ratio.................                         0.00%                            0.00%                          0.00%
                                                              ======                           ======                        =======
Ratio of average equity to
  average assets......................                         6.43%                            5.47%                          5.95%
                                                              ======                           ======                        =======
</TABLE>


     (1)  Average balances are based on daily averages and include nonaccrual
          loans. Loan fees are included in interest income as follows: 2000 --
          $971,000; 1999 -- $924,000; 1998 -- $560,000.

                                      -33-

<PAGE>

          The following table illustrates the changes in the Company's net
interest income due to changes in volume and changes in interest rate on a full
tax equivalent basis. Changes attributable to the combined effect of volume and
interest rate have been allocated proportionately to the change due to volume
and the change due to interest rate.

<TABLE>
<CAPTION>
                                                 Year Ended December 31, 2001        Year Ended December 31, 2000
                                                               vs.                               vs.
                                                 Year Ended December 31, 2000        Year Ended December 31, 1999
                                                       Increase (decrease)                Increase (decrease)
                                                     in net interest income             in net interest income
                                                      due to changes in (1)              due to changes in (1)
                                                ---------------------------------    ------------------------------
                                                Volume        Rate        Total      Volume       Rate      Total
                                                -------     ---------   ---------    --------    -------   --------
                                                                              (Dollars in Thousands)
<S>                                             <C>         <C>         <C>          <C>         <C>       <C>
INTEREST-EARNING ASSETS
Loans:
  Commercial Loans..........................    $  922      $ (2,234)   $ (1,312)    $ 2,947     $  892    $ 3,839
  Real estate -- mortgage...................        (4)          (28)        (32)        152         (9)       143
  Real estate -- construction...............       503          (718)       (215)        811        160        971
  Consumer loans............................       392          (191)        201         429        206        635
                                                -------     ---------   ---------    --------    -------   --------
    Total loans.............................     1,813        (3,171)     (1,358)      4,339      1,249      5,588
Securities:
  U.S. government securities................       801          (812)        (11)       (572)       430       (142)
  Municipal -- nontaxable(1)................       522          (171)        351          61        213        274
  Municipal -- taxable......................       591           (60)        531          (4)        23         19
                                                -------     ---------   ---------    --------    -------   --------
Total securities............................     1,914        (1,043)        871        (515)       666        151

Interest-bearing deposits at
 other banks................................        --            --          --          --         --         --
Federal funds sold..........................       (82)         (102)       (184)        (69)        92         23
                                                -------     ---------   ---------    --------    -------   --------
    Total interest-earning assets...........     3,645        (4,316)       (671)      3,755      2,007      5,762
                                                -------     ---------   ---------    --------    -------   --------

INTEREST-BEARING LIABILITIES
Deposits:
  Interest-bearing demand deposits..........       314          (887)       (573)        110        351        461
  Certificates of deposit...................     1,220          (357)        863         242        437        679
  Savings deposits..........................        10          (147)       (137)        (18)        10         (8)
                                                -------     ---------   ---------    --------    -------   --------
    Total interest-bearing accounts.........     1,544        (1,391)        153         334        798      1,132

Notes payable...............................       124        (1,004)       (880)      1,248        173      1,421
Federal funds purchased.....................       (66)           24         (42)        (93)        20        (73)
                                                -------     ---------   ---------    --------    -------   --------
    Total interest-bearing liabilities......     1,602        (2,371)       (769)      1,489        991      2,480
                                                -------     ---------   ---------    --------    -------   --------
    Total increase in net interest income...    $2,043      $ (1,945)   $     98     $ 2,266     $1,016    $ 3,282
                                                =======     =========   =========    ========    =======   ========
</TABLE>

------------------------
(1)This table is calculated on a full tax-equivalent basis.

                                      -34-

<PAGE>

MARKET RISK MANAGEMENT

          Market risk arises from changes in interest rates. The Company has
risk management policies to monitor and limit exposure to market risk as
discussed below. See "Asset/Liability Management." Disclosures about the fair
value of financial instruments, which reflect changes in market prices and
rates, can be found in Note 19 of Notes to Consolidated Financial Statements.


ASSET/LIABILITY MANAGEMENT

          The Company's results of operations depend substantially on its net
interest income. Like most financial institutions, the Company's interest income
and cost of funds are affected by general economic conditions and by competition
in the marketplace.

          The function of asset/liability management is to manage the
risk/return relationships between capital adequacy, market risk, liquidity and
interest rate risk. To manage these relationships, the Bank analyzes the
following items: equity, free capital, debt/capital, liquidity, volatile
liability coverage, portfolio maturities, maturing assets and maturing
liabilities. In addition, in reviewing the needs of the Bank with regard to
proper management of its asset/liability program, the Company's management has
projected its needs into the future, taking into consideration historical
periods of high loan demand, low deposit balances, projected loan increases (due
to increased demand through marketing), and interest rate changes (as projected
by consulting economists). The Bank's Asset and Liability Management Committee
is responsible for establishing procedures that enable the Company to achieve
its goals while adhering to prudent banking practices and existing loan and
investment policies.

          The excess of the Bank's interest-earning assets over its
interest-bearing liabilities have generally been invested in securities when
suitable lending opportunities have not been sufficient to use such excess
funds. The Bank's securities portfolio plays an important part in the overall
asset/liability management program and is a major contributor to the Company's
financial results. The primary objectives in the overall management of the
securities portfolio are safety, liquidity, yield, interest rate risk and
pledging for public deposits.

          The securities designated as available for sale generally are more
liquid and have a shorter term than those designated as held to maturity. In
connection with the preparation of its Consolidated Financial Statements, the
Company has designated securities with a carrying value of $181,411,000 as
available for sale. These securities are to be available for sale to assist
management in providing an adequate asset/liability and liquidity management
program for the Bank. Securities designated as held to maturity typically have
less liquidity and also have less call protection than those held for sale. At
December 31, 2001 and 2000, the Company had no securities designated as 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 $31,253,445 and an unrealized loss of
$704,434, to investment securities available for sale.

          A critical element of the Company's asset/liability management program
is management of exposure to interest rate risk. Exposure to interest rate risk
arises from volatile interest rates and changes in the balance sheet mix. The
Bank's policy is to control the exposure of its earnings to changing interest
rates by generally maintaining a position within a narrow range around an
"earnings neutral position," which is defined as the mix of assets and
liabilities that generate a net interest margin that is least affected by
interest rate changes.

                                      -35-

<PAGE>

          Accordingly, in addition to performing gap analysis, management also
evaluates the impact of differing interest rates on net interest income using an
earnings simulation model. The model incorporates the factors not captured by
gap analysis by projecting income under a variety of interest rate scenarios.
The following table shows the anticipated effect on net interest income with a
100 and 200 basis point parallel shift up or down interest rate scenario.


        Change in rate       Change in net interest      Percent change in net
                                     income                 interest income
        --------------       ----------------------      ---------------------

           +200 bp                 $(36,000)                     (.2)%

           +100 bp                 $(14,000)                     (.1)%

           -100 bp                 $ 13,000                        .1%

           -200 bp                 $(58,000)                     (.3)%


          The Bank uses a measurement tool known as dollar duration to help
maintain an earnings neutral position. Dollar duration measures the percentage
of loss or gain that the portfolio would sustain with a 100 basis point parallel
shift in applicable interest rates.

          In order to control interest rate risk in a rising interest rate
environment, or when management believes there is a significant risk of rising
interest rates, management's philosophy is generally to reduce the dollar
duration of the investment portfolio in order to achieve a more asset sensitive
position, thereby allowing quicker repricings and maximizing net interest
margin. Conversely, in a declining interest rate environment, management's
philosophy is to increase the dollar duration of the investment portfolio,
thereby becoming more liability sensitive. Management would ideally take steps
to increase dollar duration at the time of a peak in interest rates or during
the stabilization period prior to the anticipated decline of rates. This
strategy provides that rates on the investments are locked in at higher levels
and enhances the effect on net interest margin. The Bank decreases the dollar
duration of its investment portfolio by taking steps to increase the coupon rate
and decrease the average life (the period for which a security is actually held
as opposed to its stated maturity) of the securities held in the portfolio. The
Bank increases the dollar duration of its investment portfolio by taking steps
to decrease the coupon rate and increase the average life of the securities held
in the portfolio.

          The Bank does not anticipate that the Federal Reserve Board will
change the interest rates substantially during 2002. As of December 31, 2001,
the dollar duration of the investment portfolio was 5.34 compared to 4.63 at
December 31, 2000. The increase in dollar duration for 2001 reflects
management's replacement of investments which matured with investments that had
lower yields and longer maturities, which lower yields and longer maturities
were due to falling interest rates during 2001. The decision resulted in
increasing the dollar duration of the portfolio, and decreasing the gross yield
on the portfolio from 7.00% to 6.41%. During a portion of 2000, the Company's
merger agreement with Gold Banc restricted its ability to engage in additional
transactions which would have had the result of limiting the increase in dollar
duration in 2000. 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 non-interest income and the interest earned on
the securities.

          Although analysis of interest rate gap (the difference between the
repricing of interest-earning assets and interest-bearing liabilities during a
given period of time) is one standard tool for the measurement of exposure to
interest rate risk, the Company believes that because interest rate gap analysis
does not address all factors that can affect earnings performance, such as early
withdrawal of time deposits and prepayment

                                      -36-

<PAGE>

of loans, it should not be used as the primary indicator of exposure to interest
rate risk and the related volatility of net interest income in a changing
interest rate environment. Interest rate gap analysis is primarily a measure of
liquidity based upon the amount of change in principal amounts of assets and
liabilities outstanding, as opposed to a measure of changes in the overall net
interest margin. The Company believes that since interest rate risk is caused by
a combination of (i) differing volumes of re-pricing assets and liabilities
(i.e. gaps), (ii) variability of interest rate changes (i.e. multiples) and
(iii) variability of occurrence of rate changes for various classes of assets
and liabilities (i.e. lags), that its system of measuring the effect of each of
these factors is a preferable tool for management of interest rate risk.

          The Bank has contracted with a consulting firm to assist it with
economic outlook, interest rate forecasting, asset/liability management and
purchase and/or sale of securities. This firm does not have discretionary
authority to act on behalf of the Company.

                                      -37-

<PAGE>

          The following table sets forth the estimated maturity or repricing,
and the resulting interest rate gap, of the Company's interest-earning assets
and interest-bearing liabilities at December 31, 2001. The amounts in the table
are derived from internal data from the Company. The amounts are based upon
regulatory reporting formats and, therefore, may not be consistent with
financial information appearing elsewhere in this Form 10-K that has been
prepared in accordance with generally accepted accounting principles. The
amounts could be significantly affected by external factors such as changes in
prepayment assumptions, early withdrawals of deposits and competition.

<TABLE>
<CAPTION>
                                                                       December 31, 2001
                                                                Estimated maturity or repricing
                                                ----------------------------------------------------------------
                                                Less than      Three
                                                  three       months to    One year to   Over five
                                                 months        one year    five years      years         Total
                                                ----------    ---------    ----------    ---------    ----------

<S>                                             <C>           <C>          <C>           <C>          <C>
Interest-earnings assets:
  Fixed rate loans.........................     $    2,120    $   4,749    $   36,025    $  15,322    $   58,216
  Floating rate loans......................         30,628       55,593        49,431       44,646       180,298
  Investment securities....................            396        7,339        15,623      158,053       181,411
  FHLB stock...............................          2,750           --            --           --         2,750
  Federal funds sold.......................             --           --            --           --            --
                                                ----------    ---------    ----------    ---------    ----------
    Total interest-earning assets..........         35,894       67,681       101,079      218,021       422,675
                                                ----------    ---------    ----------    ---------    ----------

Interest-bearing liabilities:
  Interest-bearing demand deposits.........         38,385           --            --           --        38,385
  Money market deposits....................         93,788           --            --           --        93,788
  Certificates of deposits under $100,000..         12,376       30,080         4,208           11        46,675
  Certificates of deposits over $100,000...         19,967       19,084         1,395           --        40,446
  Savings deposits.........................         20,002           --            --           --        20,002
  Notes payable............................         55,000           --            --       10,304        65,304
  Federal funds purchased..................         19,169           --            --           --        19,169
                                                ----------    ---------    ----------    ---------    ----------
    Total interest-bearing liabilities.....        258,687      49,164          5,603       10,315       323,769
                                                ----------    ---------    ----------    ---------    ----------

Interest rate gap..........................     $ (222,793)   $  18,517       $95,476    $ 207,706
                                                ==========    =========    ==========    =========
Cumulative interest rate gap...............     $ (222,793)   $(204,276)   $ (108,800)   $  98,906    $   98,906
                                                ==========    =========    ==========    =========    ==========
Cumulative interest rate
gap to total assets........................        -49.80%      -45.66%       -24.32%       22.11%
                                                ==========    =========    ==========    =========
Total consolidated assets..................     $  447,386
                                                ==========
</TABLE>

                                      -38-

<PAGE>

          The following table presents at the date indicated (i) the aggregate
loans by maturity in each major category of the Company's loan portfolio and
(ii) the aggregate amounts of variable and fixed rate loans that mature after
one year. Actual maturities may differ from the contractual maturities shown
below as a result of renewals and prepayments.

<TABLE>
<CAPTION>
                                                            December 31, 2001
                                              ---------------------------------------------
                                              Less than  One year to  Over five
                                              one year   five years     years       Total
                                              --------   -----------  ---------   ---------
<S>                                           <C>        <C>          <C>         <C>
Commercial Loans...........................   $ 60,898   $ 55,702     $ 46,454    $ 163,054
Real estate -- construction loans..........     24,279      9,032        2,935       36,246
Real estate -- mortgage loans..............      2,051        789        2,845        5,685
Consumer loans.............................      5,862     19,933        7,734       33,529
                                              --------   --------     --------    ---------
    Total                                     $ 93,090   $ 85,456     $ 59,968    $ 238,514
                                              ========   ========     ========    =========

Fixed rate loans...........................              $ 36,025     $ 15,322
Floating rate loans........................                49,431       44,646
                                                         --------     --------
    Total..................................              $ 85,456     $ 59,968
                                                         ========     ========
</TABLE>


RESULTS OF OPERATIONS

Years ended December 31, 2001 and 2000

          Overview. Net income decreased $74,000 for 2001 to $2,755,000 from
$2,829,000 in 2000. This decrease was primarily the result of a $128,000
increase in provision for loan loss, a $1,470,000 increase in noninterest
expense and a $160,000 increase in income tax expense, partially offset by a
$167,000 increase in net interest income and a $1,517,000 increase in
noninterest income. Return on average assets and return on average equity were
..66% and 10.34%, respectively, for 2001 compared to .76% and 13.79%,
respectively, for 2000.

          Interest Income. Interest income decreased $602,000 to $29,280,000 for
2001 from $29,882,000 for 2000. Interest income on loans decreased $1,358,000,
interest income on securities increased $940,000 and interest income on federal
funds sold decreased $184,000 in 2001. The decrease in interest income on loans
and federal funds sold was primarily a result of the decrease in the interest
rates over the period as a response to the reduction in the federal funds rate
by the Federal Reserve. The net increase in interest income on securities was
primarily a result of the investment by the Bank of excess customer deposits in
investment securities.

          Interest Expense. Interest expense decreased $769,000 to $11,162,000
for 2001 from $11,931,000 in 2000. Interest expense on interest-bearing deposits
increased $154,000, interest expense on federal funds purchased decreased
$43,000, and interest expense on FHLB notes payable decreased $880,000 in 2001.
The increase in interest expense on interest-bearing deposits was primarily due
to higher deposits in 2001. The average rates paid on interest-bearing deposits
decreased 47 basis points between 2000 and 2001. The decrease in interest
expense on FHLB notes payable was due to the decrease in interest rates on
borrowings from the FHLB.

          Net Interest Income. Net interest income increased $167,000 to
$18,118,000 for 2001 from $17,951,000 for 2000. During 2001 average loans
outstanding increased $17,288,000, average securities owned increased
$25,656,000, average federal funds sold decreased $1,285,000. However, the net
interest spread decreased from 4.32% for 2000 to 3.98% for 2001, reflecting the
decline in interest rates during that period. The increase in net interest
income resulted primarily from the increase in the volume of interest

                                      -39-

<PAGE>

earning assets, partially offset by the increase in the volume of interest-
bearing deposits and the decline in net interest spread.

          Noninterest Income. Noninterest income increased $1,517,000 to
$2,717,000 for 2001 from $1,200,000 for 2000. This increase was primarily due to
a $1,443,000 increase in gain on sale of securities available for sale and an
$88,000 increase in service charge income, offset by a $14,000 decrease in other
noninterest income.

          Noninterest Expense. Noninterest expense increased $1,470,000 to
$16,161,000 for 2001 from $14,691,000 for 2000. This increase is primarily a
result of increases in salary and benefit expense of $723,000, and increases in
various other noninterest expenses aggregating $751,000.

Years ended December 31, 2000 and 1999

          Overview. Net income increased $1,361,000 for 2000 to $2,829,000 from
$1,468,000 in 1999. This increase was primarily a result of a $3,187,000
increase in net interest income, partially offset by a $154,000 increase in
provision for loan loss and a $421,000 decrease in noninterest income, a
$377,000 increase in noninterest expense and an $874,000 increase in income tax
expense. Return on average assets and return on average equity were .76% and
13.79%, respectively, for 2000 compared to .43% and 7.30%, respectively, for
1999.

          Interest Income. Interest income increased $5,667,000 to $29,882,000
for 2000 from $24,215,000 for 1999. Interest income from loans increased
$5,588,000, interest income on securities increased $56,000 and interest income
on federal funds sold increased $23,000 in 2000. The increase in interest income
on loans was primarily a result of an increase in commercial and real estate
construction loans made by the Bank. The net increase in interest income on
securities and federal funds sold was primarily a result of the investment by
the Bank of excess customer deposits.

          Interest Expense. Interest expense increased $2,480,000 to $11,931,000
for 2000 from $9,451,000 in 1999. Interest expense on interest-bearing deposits
increased $1,132,000, interest expense on federal funds purchased decreased
$73,000, and interest expense on the notes payable increased $1,421,000 in 2000.
The increase in interest expense on interest-bearing deposits was primarily due
to higher deposit rates in 2000. The average rates paid on interest-bearing
deposits increased 41 basis points between 1999 and 2000. The increase in
interest expense on the notes payable was due to the increase in borrowings from
the FHLB.

          Net Interest Income. Net interest income increased $3,187,000 to
$17,951,000 for 2000 from $14,764,000 for 1999. During 2000 average loans
outstanding increased $44,613,000, average securities owned decreased
$8,429,000, average federal funds sold decreased $1,400,000 and the net interest
spread increased from 4.05% for 1999 to 4.32% for 2000. The increase in net
interest income resulted primarily from the increase in the volume of interest
earning assets, offset by the increase in the volume of interest- bearing
deposits.

          Noninterest Income. Noninterest income decreased $421,000 to
$1,200,000 for 2000 from $1,621,000 for 1999. This decrease was primarily due to
a $611,000 decrease in gain on sale of securities available for sale, offset by
a$171,000 increase in service charge income and a $19,000 increase in other
noninterest income.

          Noninterest Expense. Noninterest expense increased $377,000 to
$14,691,000 for 2000 from $14,314,000 for 1999. This increase is primarily a
result of increases in salary and benefit expense.

                                      -40-

<PAGE>

PROVISION FOR LOAN LOSSES

          The Company's provisions for loan losses in the years ended December
31, 2001, 2000 and 1999 were $509,000, $381,000 and $227,000, respectively.


INCOME TAXES

          The Company's income tax expense for the years ended December 31,
2001, 2000, and 1999 was $1,410,000, $1,250,000 and $376,000, respectively. The
Company's effective tax rate typically differs from the expected 34% enacted tax
rate due to interest income received on tax-exempt securities, which is
partially offset by the amortization of excess of investment in subsidiary over
net assets acquired.


LIQUIDITY AND SOURCES OF FUNDS

          The Company's primary sources of funds are customer deposits, sales
and maturities of investment securities and loan repayments. These funds are
used to make loans, to acquire investment securities and other assets and to
fund continuing operations. During the year ended December 31, 2001, deposits
increased to $333,207,000 from $315,329,000 and $290,055,000 at December 31,
2000 and 1999, respectively. None of the deposits at December 31, 2001, 2000 or
1999 were brokered deposits. Management believes that the increases in deposits
in 2000 and 2001 were the result of (i) the successful opening of the Bank's two
new branches in 1998 and the resulting increase in new customers at each branch
and the acquisition of Lakewood State Bank in December of 1998; (ii) referrals
from existing customers; (iii) continued success of the Bank's Officer Call
Program; and (iv) recent bank acquisition activity in Colorado which has
improved the Bank's opportunities to attract new business from customers in its
small and medium-sized business focus area. See "Item 1 - Business - Operating
Strategy" and "- Growth Strategy." At December 31, 2001, net loans were
$235,163,000 compared to $213,522,000 and $181,733,000 at December 31, 2000 and
1999, respectively.

          In 1998 the Company successfully negotiated with Gold Banc (f/k/a
Exchange National Bank) for a revolving line of credit in an amount not to
exceed $3,000,000. Any monies advanced under this are used solely for capital
needs of the Company or to purchase the stock of banks or bank holding
companies. This line of credit is available for one year only, with renewals to
be negotiated each year. If any principal is advanced on this line, the terms of
the repayment would also be negotiated depending upon the use of proceeds.
Interest is due quarterly. There is currently no amount outstanding under this
line of credit. The line of credit is secured by the pledge of all of the shares
of capital stock of the Bank, and contains standard representations, warranties
and covenants.

          Annual renewal of the line of credit is based on the compliance by the
Bank with the following criteria:

          1. Capital Ratio of not less than 6.25%;

          2. Return on Average Assets of not below 1.00%;

          3. Loan Loss Reserve/Total Loans Ratio of not below 1.00%;

          4. Non-Performing Loans/Total Loans Ratio of not greater than 2.00%;

          5. Debt Service Coverage Ratio of not less than 2:1; and

                                      -41-

<PAGE>

          6. Absence of regulatory dividend restrictions.

In the event the Bank does not meet any of these criteria calculated as of
December 31 of each year and based on its financial statements, the Company will
have 90 days from the delivery of the financial statements to cure the
deficiency.

          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 and will use funds so provided primarily to make loans and to purchase
securities. The Company believes that its customer deposits 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 its membership
in the FHLB. See "Item 1 - Business - Source of Funds."


CAPITAL RESOURCES

          The Company's total stockholders' equity increased to $27,422,000 at
December 31, 2001 from $24,160,000 at December 31, 2000. This increase is a
result of an increase in retained earnings of $2,755,000 relating to 2001 net
income, an increase in common stock surplus of $30,000 relating to issuance of
stock to the outside Directors in lieu of their annual retainer and $49,000
relating to the exercise of stock options, and an increase in unrealized gains
on investment securities available for sale of $410,000. At December 31, 2001,
stockholders' equity was 6.1% of total assets, compared to 6.4% of total assets
at December 31, 2000. Management presently intends to retain earnings, if any,
to support growth. Accordingly, the Company does not intend to pay cash
dividends on its Common Stock in the foreseeable future.

          Federal Reserve Board and FDIC guidelines call for a 4% Tier I capital
to risk-weighted assets ratio, 8% total capital to risk-weighted assets ratio,
and a 4% leverage ratio. See "Item 1 - Business - Government Regulation - The
Company - Capital Adequacy" and "- The Bank - Capital Adequacy." The Company and
the Bank currently exceed the applicable regulatory capital requirements. The
Company contributed $7.0 million of the net proceeds of the offering of the 9%
Cumulative Trust Preferred Securities to the Bank to enhance its regulatory
capital levels to support continued asset growth. The following table sets forth
the Company's and the Bank's capital ratios at December 31, 2001.


                                                     December 31, 2001
                                                  -----------------------
                                                    (Dollars in thousands)
Company
  Tier I Capital................................         $  28,534
  Total Capital.................................            35,238
  Risk-Weighted Assets..........................           261,980
  Tier I Capital to Risk-Weighted Assets........            10.90%
  Total Capital to Risk-Weighted Assets.........            13.50%
  Leverage Ratio................................             6.50%

                                      -42-

<PAGE>

Bank
  Tier I Capital................................         $  26,109
  Total Capital.................................            29,364
  Risk-Weighted Assets..........................           261,454
  Tier I Capital to Risk-Weighted Assets........             9.90%
  Total Capital to Risk-Weighted Assets.........            11.23%
  Leverage Ratio................................             5.96%

          Bank management is anticipating 2002 capital expenditures of
approximately $650,000 in connection with updating its internal operating
systems. The Bank intends to use part of its anticipated income in 2002 to
finance these expenditures.

          Management expects that the current capital levels, together with
internally generated funds, will be sufficient to support the Company's
operations for the foreseeable future. However, depending upon the nature and
scale of the Company's acquisition opportunities, the Company may be required to
obtain additional capital resources through borrowing or the issuance of
additional securities. The Company's ability to incur additional indebtedness
may be limited by government regulations. See "Item 1 - Business - Government
Regulation."


EFFECTS OF INFLATION AND CHANGING PRICES

          The primary impact of inflation on the Company's operations is
increased operating costs. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates generally have a more significant impact on a financial
institution's performance than the effects of general levels of inflation.
Although interest rates do not necessarily move in the same direction or to the
same extent as the prices of goods and services, increases in inflation
generally have resulted in increased interest rates. The effects of inflation,
however, can magnify the growth of assets in the banking industry. If
significant, this would require that equity capital increase at a faster rate
than would otherwise be necessary.


"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 contained herein and detailed elsewhere in the Company's filings
with the Securities and Exchange Commission.

          On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scope. These attacks have caused instability in the
global economy and have led to military action by the United States against
suspected terrorists. Such military action may lead to further acts of terrorism
and/or civil disturbances in the United States or elsewhere, which may cause
further instability and have a material adverse effect on our business,
financial condition and operating results.

                                      -43-

<PAGE>

          Information included in this document includes "forward-looking
statements," which can be identified by the use of forward-looking terminology
such as "may," "will," "expect," "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 this Annual Report on Form 10-K 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.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          See Market Risk Management and Asset/Liability Management beginning on
Page 35.

ITEM 8. FINANCIAL STATEMENTS

          See Index to Financial Statements appearing in Item 14 on Page 46.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

          None.

                                      -44-

<PAGE>

                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The information required by this item is incorporated by reference to
the information set forth under the similarly titled captions contained in the
definitive Proxy Statement to be used by the Company in connection with its 2002
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2002.


ITEM 11. EXECUTIVE COMPENSATION

          The information required by this item is incorporated by reference to
the information set forth under the similarly titled caption contained in the
definitive Proxy Statement to be used by the Company in connection with its 2002
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2002.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The information required by this item is incorporated by reference to
the information set forth under the similarly titled caption contained in the
definitive Proxy Statement to be used by the Company in connection with its 2002
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2002.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The information required by this item is incorporated by reference to
the information set forth under the similarly titled caption contained in the
definitive Proxy Statement to be used by the Company in connection with its 2002
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2002.

                                      -45-

<PAGE>

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

(a) Index to Financial Statements
                                                              Page Reference
                                                              --------------

    Reports of Independent Accountants                              F-1
    Consolidated Balance Sheets at December 31, 2001 and 2000       F-2
    Consolidated Statements of Income for the Years Ended
      December 31, 2001, 2000 and 1999                              F-3
    Consolidated Statements of Comprehensive Income for the
      Years Ended December 31, 2001, 2000 and 1999                  F-4
    Consolidated Statements of Stockholders' Equity for the
      Years Ended December 31, 2001, 2000 and 1999                  F-5
    Consolidated Statements of Cash Flows for the Years Ended
      December 31, 2001, 2000 and 1999                              F-6
    Notes to Consolidated Financial Statements                      F-7

    Exhibits

      See Exhibit Index on Page E-1 of this Form 10-K.

(b) Reports on Form 8-K

      None.

                                      -46-

<PAGE>

                             UNION BANKSHARES, LTD.

                             Accountants' Report and
                        Consolidated Financial Statements

                       December 31, 2001, 2000 and 1999



<PAGE>

                             UNION BANKSHARES, LTD.
                        DECEMBER 31, 2001, 2000 AND 1999

                                TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT ACCOUNTANTS' REPORT............................................F-1

CONSOLIDATED FINANCIAL STATEMENTS
  Balance Sheets...........................................................F-2
  Statements of Income.....................................................F-3
  Statements of Comprehensive Income.......................................F-4
  Statements of Stockholders' Equity.......................................F-5
  Statements of Cash Flows.................................................F-6
  Notes to Financial Statements............................................F-7


<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT


The Board of Directors
Union Bankshares, Ltd.
Denver, Colorado


   We have audited the accompanying consolidated balance sheets of UNION
BANKSHARES, LTD. as of December 31, 2001 and 2000, and the related consolidated
statements of income, comprehensive income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

   We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of UNION
BANKSHARES, LTD. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.


                                                /s/  BKD, LLP


Colorado Springs, Colorado
February 19, 2002

                                       F-1

<PAGE>


                             UNION BANKSHARES, LTD.

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000

<TABLE>
<CAPTION>
                                                             2001            2000
                                                         ------------   ------------
                         ASSETS
<S>                                                      <C>            <C>
Cash and due from banks                                  $ 15,512,000   $ 19,551,000
Available-for-sale securities                             168,742,000    130,349,000
Securities pledged to repurchase agreement                 12,669,000             --
Other investments                                           2,750,000      2,430,000
Loans, net                                                235,163,000    213,522,000
Goodwill                                                    5,554,000      6,092,000
Premises and equipment                                      2,325,000      2,724,000
Interest receivable                                         2,308,000      3,170,000
Other assets                                                2,363,000      2,642,000
                                                         ------------   ------------
        TOTAL ASSETS                                     $447,386,000   $380,480,000
                                                         ============   ============

          LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Deposits:
    Demand                                               $ 93,911,000   $ 99,220,000
    NOW                                                    38,385,000     30,413,000
    Money Market                                           93,788,000     76,549,000
    Savings                                                20,002,000     18,149,000
    Time                                                   87,121,000     90,998,000
                                                         ------------   ------------
          Total Deposits                                  333,207,000    315,329,000
                                                         ------------   ------------
Borrowings under securities repurchase agreement           12,669,000             --
Advances from FHLB                                         55,000,000     28,600,000
Guaranteed Preferred Beneficial Interests in Company's
  Debentures                                               10,304,000     10,304,000
Federal funds purchased                                     6,500,000             --
Accrued interest payable                                      270,000        383,000
Other liabilities                                           2,014,000      1,704,000
                                                         ------------   ------------
          Total Liabilities                               419,964,000    356,320,000
                                                         ------------   ------------

STOCKHOLDERS' EQUITY
  Preferred stock, $.001 par value; authorized
   1,355,790 shares; no shares issued and outstanding              --             --
  Common stock, $.001 par value; authorized
   10,000,000 shares; issued and outstanding
   2001 - 2,407,094 shares, 2000 - 2,395,710 shares             2,000          2,000
  Additional paid-in capital                               10,066,000      9,987,000
  Retained earnings                                        17,166,000     14,393,000
  Accumulated other comprehensive income:
  Unrealized appreciation (depreciation)on
   available-for-sale securities, net of
   applicable income taxes of 112,000
   and ($113,000) in 2001 and 2000, respectively              188,000       (222,000)
                                                         ------------   ------------
          Total Stockholders' Equity                       27,422,000     24,160,000
                                                         ------------   ------------
          TOTAL LIABILITIES AND STOCKHOLDERS'
           EQUITY                                        $447,386,000   $380,480,000
                                                         ============   ============
</TABLE>

                See Notes to Consolidated Financial Statements

                                       F-2

<PAGE>

                         UNION BANKSHARES, LTD.

                   CONSOLIDATED STATEMENTS OF INCOME
              YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                     2001           2000           1999
                                                 -----------   ------------    -----------
<S>                                              <C>           <C>             <C>
INTEREST INCOME
  Interest and fees on loans                     $19,578,000   $ 20,936,000    $15,348,000
  Interest on investment securities:
    U.S. government agencies and corporations      7,257,000      7,080,000      7,223,000
    States and other political subdivisions        2,228,000      1,465,000      1,266,000
    Interest on federal funds sold and
     interest-bearing deposits in other banks        217,000        401,000        378,000
                                                 -----------   ------------    -----------
          Total Interest Income                   29,280,000     29,882,000     24,215,000
                                                 -----------   ------------    -----------

INTEREST EXPENSE
  Deposits                                         8,451,000      8,297,000      7,165,000
  Federal funds purchased and borrowings under
   securities repurchase agreement                    50,000         93,000        166,000
  Notes payable                                    2,661,000      3,541,000      2,120,000
                                                 -----------   ------------    -----------
          Total Interest Expense                  11,162,000     11,931,000      9,451,000
                                                 -----------   ------------    -----------

NET INTEREST INCOME                               18,118,000     17,951,000     14,764,000

PROVISION FOR LOAN LOSSES                            509,000        381,000        227,000
                                                 -----------   ------------    -----------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES                        17,609,000     17,570,000     14,537,000
                                                 -----------   ------------    -----------

NONINTEREST INCOME
  Service charges                                    914,000        826,000        655,000
  Net realized gains (losses) on sales of
   available-for-sale securities                   1,098,000       (345,000)       266,000
  Other                                              705,000        719,000        700,000
                                                 -----------   ------------    -----------
          Total Noninterest Income                 2,717,000      1,200,000      1,621,000
                                                 -----------   ------------    -----------

NONINTEREST EXPENSE
  Salaries and employee benefits                   8,642,000      7,919,000      7,250,000
  Amortization of goodwill                           539,000        539,000        539,000
  Occupancy and equipment                          2,201,000      2,205,000      2,232,000
  Other operating expenses                         4,779,000      4,028,000      4,293,000
                                                 -----------   ------------    -----------
          Total Noninterest Expense               16,161,000     14,691,000     14,314,000
                                                 -----------   ------------    -----------

INCOME BEFORE INCOME TAXES                         4,165,000      4,079,000      1,844,000

INCOME TAXES                                       1,410,000      1,250,000        376,000
                                                 -----------   ------------    -----------

NET INCOME                                       $ 2,755,000   $  2,829,000    $ 1,468,000
                                                 ===========   ============    ===========

 BASIC EARNINGS PER SHARE                        $      1.15   $       1.18    $       .62
  Weighted average number of common
   shares outstanding                              2,400,709      2,387,901      2,352,540

DILUTED EARNINGS PER SHARE                       $      1.04   $       1.09    $       .55
  Weighted average number of common
   share equivalents outstanding                   2,643,343      2,597,559      2,649,473
</TABLE>


              See Notes to Consolidated Financial Statements

                                       F-3

<PAGE>


                             UNION BANKSHARES, LTD.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                    2001          2000           1999
                                                -----------    -----------    -----------

<S>                                             <C>            <C>            <C>
NET INCOME                                      $ 2,755,000    $ 2,829,000    $ 1,468,000

OTHER COMPREHENSIVE INCOME
 (LOSS)
  Unrealized appreciation (depreciation)
   on available-for-sale securities,net
   of income taxes $631,000, $1,203,000,
   and ($1,564,000) for December 31, 2001,
   2000 and 1999, respectively                    1,102,000      2,009,000     (2,714,000)

  Less: reclassification adjustment for
   realized (gain) losses included in net
   income, net of income taxes of ($406,000),
   $128,000, and ($99,000) for December 31,
   2001, 2000 and 1999, respectively               (692,000)       217,000       (167,000)

  Unrealized depreciation on investment
   securities transferred from
   held-to-maturity to available-for-sale,
   net of income taxes of ($261,000)                     --       (443,000)            --
                                                -----------    -----------    -----------

COMPREHENSIVE INCOME (LOSS)
 BEFORE CUMULATIVE EFFECT OF
 CHANGE IN ACCOUNTING PRINCIPLE                   3,165,000      4,612,000     (1,413,000)

  Cumulative effect of accounting
   change for transfer of securities from
   held-to-maturity to available-for-sale,
   net of income taxes of $115,000                       --             --        233,000
                                                -----------    -----------    -----------

COMPREHENSIVE INCOME (LOSS)                     $ 3,165,000    $ 4,612,000    $(1,180,000)
                                                ===========    ===========    ===========
</TABLE>


              See Notes to Consolidated Financial Statements

                                       F-4

<PAGE>

                             UNION BANKSHARES, LTD.

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                                        Additional      Other
                                                                         Paid-in     Comprehensive    Retained
                                                    Shares    Amount     Capital        Income         Earnings    Total
                                                    ------    ------    ---------    -------------    ----------   ------

<S>                                               <C>         <C>      <C>           <C>            <C>         <C>
BALANCE, DECEMBER 31, 1998                        2,342,014   $2,000   $ 9,639,000   $   643,000    $10,060,00  $ 20,344,000
  Shares issued for stock option plan                31,900       --       183,000            --            --       183,000
  Cumulative effect of accounting change
    for transfer of securities from held-to-
    maturity to available-for-sale, net of
    income taxes of $115,000                             --       --            --       233,000            --       233,000
  Unrealized appreciation (depreciation)
    on available-for-sale securities,
    net of income taxes of ($1,663,000)                  --       --            --    (2,881,000)           --    (2,881,000)
  Increase in retained earnings due to
    stock option plans                                   --       --            --            --        36,000        36,000
   Net income                                            --       --            --            --     1,468,000     1,468,000
                                                  ---------   ------   -----------   -----------     ---------     ---------

BALANCE, DECEMBER 31, 1999                        2,373,914    2,000     9,822,000    (2,005,000)   11,564,000    19,383,000
  Shares issued for stock option plan                21,796       --       165,000            --            --       165,000
  Unrealized appreciation (depreciation)
    on available-for-sale securities,
    net of income taxes of $1,047,000                    --       --            --     1,783,000            --     1,783,000
  Net income                                             --       --            --            --     2,829,000     2,829,000
                                                  ---------   ------   -----------   -----------     ---------     ---------

BALANCE, DECEMBER 31, 2000                        2,395,710    2,000     9,987,000      (222,000)   14,393,000    24,160,000
  Shares issued for stock option plan                11,384       --        79,000            --            --        79,000
  Unrealized appreciation (depreciation)
    on available-for-sale securities,
    net of  income  taxes of $225,000                    --       --            --       410,000            --       410,000
  Increase in retained earnings due to
     stock option plans                                  --       --            --            --        18,000        18,000
  Net income                                             --       --            --            --     2,755,000     2,755,000
                                                              ------   -----------   -----------     ---------     ---------

BALANCE, DECEMBER 31, 2001                        2,407,094   $2,000   $10,066,000   $   188,000   $17,166,000  $ 27,422,000
                                                  =========   ======   ===========   ===========   ===========  ============
</TABLE>


              See Notes to Consolidated Financial Statements

                                       F-5

<PAGE>

                         UNION BANKSHARES, LTD.

                 CONSOLIDATED STATEMENTS OF CASH FLOWS
              YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<TABLE>
<CAPTION>

                                                                2001             2000             1999
                                                                -----            -----            -----
<S>                                                         <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                $   2,755,000    $  2,829,000    $  1,468,000
  Items not requiring (providing) cash:
    Net realized (gains) losses on sale
      of securities                                            (1,098,000)        345,000        (266,000)
    Federal Home Loan Bank stock dividend                              --              --         (88,000)
    Amortization (accretion) of premium/discount on
    investments                                                   670,000        (157,000)        395,000
    Amortization  of deferred loan fees, net of costs            (650,000)       (537,000)       (511,000)
    Deferred income taxes                                        (211,000)       (152,000)        (19,000)
    Provision for loan losses                                     509,000         381,000         227,000
    Depreciation and amortization                                 729,000         839,000         625,000
    Amortization of goodwill and offering costs                   615,000         615,000         615,000
    Loss on sale of premises and equipment                             --              --          10,000
  Changes in:
    Mortgage loans held for sale                                       --              --       4,285,000
    Interest receivable                                           862,000        (584,000)     (1,044,000)
    Other assets                                                  188,000        (439,000)       (550,000)
    Accrued interest payable                                     (113,000)          1,000         (89,000)
    Other liabilities                                             328,000         342,000        (446,000)
                                                            -------------    ------------    ------------
      Net cash provided by operating activities                 4,584,000       3,483,000       4,612,000
                                                            -------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from maturities of available-for-sale securities    43,082,000       8,120,000      14,091,000
  Proceeds from maturities of held-to-maturity securities              --       1,628,000       7,101,000
  Proceeds from sale of available-for-sale securities         112,077,000      26,402,000      18,816,000
  Purchase of available-for-sale securities                  (205,158,000)    (20,181,000)    (78,270,000)
  Purchase of held-to-maturity securities                              --              --      (3,958,000)
  Purchase of other investments                                  (320,000)       (446,000)       (872,000)
  Net increase in loans                                       (21,611,000)    (31,633,000)    (36,932,000)
  Proceeds from sale of other real estate                         111,000              --         150,000
  Proceeds from sale of premises and equipment                         --           5,000         957,000
  Purchase of premises and equipment                              330,000        (259,000)     (1,309,000)
                                                            -------------    ------------    ------------
    Net cash used in  investing activities                    (71,489,000)    (16,364,000)    (80,226,000)
                                                            -------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in demand deposits, money market,
    NOW and savings accounts                                   21,755,000      10,806,000      24,983,000
  Net increase (decrease) in time deposits                     (3,877,000)     14,468,000      (6,578,000)
  Net increase (decrease) in federal funds purchased            6,500,000      (8,500,000)      8,500,000
  Net increase in borrowings under securities
    repurchase agreement                                       12,699,000              --              --
  Net short term FHLB advances                                  6,400,000              --      18,600,000
  Proceeds from issuance of FHLB advances - long term          20,000,000              --              --
  Proceeds from issuance of common stock                           79,000         165,000         183,000
                                                            -------------    ------------    ------------
     Net cash provided by financing activities                 63,526,000      16,939,000      45,688,000
                                                            -------------    ------------    ------------

INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                              (4,039,000)      4,058,000     (29,926,000)

CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                                             19,551,000      15,493,000      45,419,000
                                                            -------------    ------------    ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                      $  15,512,000    $ 19,551,000    $ 15,493,000
                                                            =============    ============    ============

</TABLE>

              See Notes to Consolidated Financial Statements

                                       F-6

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 1:  NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

   Union Bank and Trust (the Bank) is a wholly-owned subsidiary of Union
Bankshares, Ltd. (Bankshares) (collectively referred to as the Company). The
Bank provides a full range of banking services to customers, primarily living in
the Denver metropolitan area, through its home office and six branch facilities
located in the Denver area. The Bank is subject to competition from other
financial institutions. The Bank is also subject to the regulation of certain
federal and state agencies and undergoes periodic examinations by those
regulatory authorities.

USE OF ESTIMATES

   The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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.

   Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed assets held for sale, management obtains independent
appraisals for significant properties.

   Management believes that the allowance for loan losses and the valuation of
foreclosed assets held for sale are adequate. While management uses available
information to recognize losses on loans and foreclosed assets held for sale,
changes in economic conditions may necessitate revision of these estimates in
future years. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses and valuation of foreclosed assets held for sale. Such agencies may
require the Bank to recognize additional losses based on their judgments of
information available to them at the time of their examination.

PRINCIPLES OF CONSOLIDATION

   The consolidated financial statements include the accounts of Union
Bankshares, Ltd. and its wholly-owned subsidiary, Union Bank and Trust. All
significant intercompany balances and transactions have been eliminated.


                                      F-7
<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


OPERATING SEGMENTS

   The Bank is organized on a branch by branch basis, upon which management
makes decisions regarding how to allocate resources and assess performance. Each
of the branch banks provides a group of similar community banking services,
including such core products and services as loans, time deposits, checking and
saving accounts, as well as products that compliment these core products.

CASH AND CASH EQUIVALENTS

   The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents.

   Pursuant to normal banking practices, the Bank is required to maintain
certain balances (reserves) with the Federal Reserve Bank. Included in cash and
due from banks in the accompanying consolidated balance sheets, are required
reserve balances of approximately $25,000 and $352,000 at December 31, 2001 and
2000, respectively.

   As of December 31, 2001 and 2000, the Company had approximately $3,100,000
and $7,700,000 on deposit with one financial institution.

INVESTMENTS IN DEBT AND EQUITY SECURITIES

   Available-for-sale securities, which include any security for which the
Company has no immediate plan to sell but which may be sold in the future, are
carried at fair value. Realized gains and losses, based on specifically
identified amortized cost of the specific security, are included in other
income. Unrealized gains and losses are recorded, net of related income tax
effects, in stockholders' equity. Premiums and discounts are amortized and
accreted, respectively, to interest income using the level-yield method over the
period to maturity.

   Securities pledged to repurchase agreement represents securities pledged
under lending transactions through an overnight repurchase agreement. Under the
repurchase agreement the Bank maintains effective control of the securities and
therefore does not meet the criteria of a sales transaction. The securities
pledged are carried at an equal amount to the amount outstanding under the
agreement on the close of business. The repurchase agreement liability is
considered a secured borrowing.


                                      F-8

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   Held-to-maturity securities, which include any security for which the Company
has the positive intent and ability to hold until maturity, are carried at
historical cost adjusted for amortization of premiums and accretion of
discounts. Premiums and discounts are amortized and accreted, respectively, to
interest income using the level-yield method over the period to maturity.

   Interest and dividends on investments in debt and equity securities are
included in income when earned.

FEE INCOME

   Loan origination fees, net of direct origination costs, are recognized as
income using the level-yield method over the term of the loans.

LOANS

   The Bank grants mortgage, commercial and consumer loans to customers. A
substantial portion of the loan portfolio is represented by commercial and real
estate loans throughout the Denver metropolitan area. The ability of the Bank's
debtors to honor their contracts is dependent upon the real estate and general
economic conditions in this area. Loans that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-offs are
reported at their outstanding principal adjusted for any charge-offs, the
allowance for loan losses, and any deferred fees or costs on originated loans
and unamortized premiums or discounts on purchased loans. Interest income is
accrued on the unpaid principal balance.

   Discounts and premiums on purchased consumer loans are recognized over the
expected lives of the loans using methods that approximate the interest method.

ALLOWANCE FOR LOAN LOSSES

   The allowance for loan losses is increased by provisions charged to expense
and reduced by loans charged off, net of recoveries. The allowance is maintained
at a level considered adequate to provide for potential loan losses, based on
management's evaluation of the loan portfolio, as well as on prevailing and
anticipated economic conditions and historical losses by loan category. General
allowances have been established, based upon the aforementioned factors, and
allocated to the individual loan categories, including consumer loans and real
estate mortgage loans that are collectively evaluated. Allowances are accrued on
specific loans evaluated for impairment for which the basis of each loan,
including accrued interest, exceeds the discounted amount of expected future
collections of interest and principal or, alternatively, the fair value for loan
collateral using a single risk category method of identification.


                                      F-9

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   A loan is considered impaired when it is probable that the Bank will not
receive all amounts due according to the contractual terms of the loan. This
includes loans that are delinquent 90 days or more (nonaccrual loans) and
certain other loans identified by management. Accrual of interest is generally
discontinued, and interest accrued and unpaid is removed, at the time such
amounts are delinquent 90 days. Interest is recognized for nonaccrual loans only
upon receipt, and only after all principal amounts are current according to the
terms of the contract. Loans are charged off when, in the opinion of management,
all or a portion of the principal outstanding is no longer collectible.

FORECLOSED ASSETS HELD FOR SALE

   Assets acquired by foreclosure or in settlement of debt and held for sale are
valued at estimated fair value as of the date of foreclosure, and a related
valuation allowance is provided for estimated costs to sell the assets.
Management evaluates the value of foreclosed assets held for sale periodically
and increases the valuation allowance for any subsequent declines in fair value.
Increases in the valuation allowance and gains/losses on sales of foreclosed
assets are included in noninterest expense, net.

PREMISES AND EQUIPMENT

   Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to expense using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are capitalized and
amortized using the straight-line method over the terms of the respective leases
or the estimated useful lives of the improvements, whichever is shorter.

GOODWILL

   The Company purchased a subsidiary in 1985 in which the excess costs over the
fair value of certain underlying net tangible assets, goodwill, were amortized
over a period of nine years. The remaining goodwill is being amortized on a
straight-line basis over a 25-year period at a rate of approximately $226,000
per year. The goodwill of the branch bank acquired in 1998 is also being
amortized on a straight-line basis over a 15-year life at an annual rate of
$313,000. Amortization expense related to the purchased subsidiary and branch
bank in 2001, 2000 and 1999 was $539,000, each year.

DEBT ISSUANCE COSTS

   Debt issuance costs associated with the issuance of the 9.0% Cumulative Trust
Preferred Securities are being amortized over a ten year period. Amortization
expense was $76,000 each, for the years ended December 31, 2001, 2000 and 1999.


                                      F-10

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


INCOME TAXES

   Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will not be realized.

EARNINGS PER COMMON SHARE

   Basic earnings per share is computed based on the weighted average number of
common shares outstanding during each period.

   Diluted earnings per share is computed assuming exercise of all stock options
having exercise prices less than the average market price of the common stock
using the treasury stock method.


NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES

   During June 2000, in order to maximize the Company's liquidity and
flexibility, the Company transferred all of 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.

   The amortized cost and approximate fair value of available-for-sale
securities was as follows:
<TABLE>
<CAPTION>

                                               Gross        Gross
                                Amortized   Unrealized    Unrealized    Approximate
                                  Cost         Gains        Losses      Fair Value
                                  ----         -----        ------      ----------
2001:
----

<S>                          <C>            <C>         <C>            <C>
U.S. Government agencies
  and corporations           $ 136,888,000  $  627,000  $ (1,208,000)  $ 136,307,000
Obligations of state
  and political subdivisions    44,223,000   1,175,000      (294,000)     45,104,000
                                ----------   ---------    ----------      ----------

                               181,111,000   1,802,000    (1,502,000)    181,411,000
  Less Securities Pledged
    to Repurchase Agreement     12,669,000          --            --      12,669,000
                                ----------   ---------    ----------      ----------

                             $ 168,442,000  $1,802,000  $ (1,502,000)  $ 168,742,000
                                ===========  =========    ==========     ===========
</TABLE>

                                      F-11

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999

<TABLE>
<CAPTION>

                                               Gross        Gross
                                Amortized   Unrealized    Unrealized    Approximate
                                  Cost         Gains        Losses      Fair Value
                                  ----         -----        ------      ----------
2000:
----
<S>                         <C>           <C>          <C>            <C>
U.S. Government agencies
  and corporations          $ 106,452,000 $    79,000  $   (669,000)  $105,862,000
Obligations of state and
  political subdivisions       24,232,000     322,000       (67,000)    24,487,000
                                ---------- ----------    ----------    -----------

                            $ 130,684,000 $   401,000  $   (736,000)  $130,349,000
                              ===========  ==========    ==========    ===========
</TABLE>

   Maturities of available-for-sale securities at December 31, 2001:

                                                 Amortized     Approximate
                                                   Cost         Fair Value
                                                   ----         ----------

     One year or less                          $    388,000   $    396,000
     After one year through five years            7,080,000      7,339,000
     After five years through ten years          11,602,000     11,777,000
     After ten years                            162,041,000    161,899,000
                                                -----------    -----------

                                               $181,111,000   $181,411,000
                                                ===========    ===========

   The amortized cost of securities pledged as collateral, to secure notes
payable, public deposits and for other purposes, amounted to $73,849,000 at
December 31, 2001 and $54,168,000 at December 31, 2000. The approximate fair
value of pledged securities amounted to $73,560,265 at December 31, 2001 and
$53,745,000 at December 31, 2000.

   Gross gains of $1,166,000, $60,000, and $303,000 and gross losses of $68,000,
$405,000, and $37,000 resulting from sales of available-for-sale securities were
realized for 2001, 2000 and 1999, respectively.

   The Company redesignated available-for-sale securities with an aggregate
amortized cost of $15,405,000 to the held-to-maturity portfolio during 1999.


                                      F-12

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is
required to maintain an investment in capital stock of the FHLB. As a member,
the Bank has access to a $55,000,000 credit line which is secured by investment
securities. No ready market exists for the FHLB stock, and it has no quoted
market value. Such stock is recorded at cost and reported as other investments.
As discussed in Note 6, the Bank had advances outstanding at December 31, 2001
and 2000 of $55,000,000 and $28,600,000, respectively.


NOTE 3:  LOANS AND ALLOWANCE FOR LOAN LOSSES

 Categories of loans include:
                                                       2001           2000
                                                       ----           ----

   Commercial                                     $163,054,000   $ 153,727,000
   Real estate mortgage                              5,685,000       4,372,000
   Real estate construction                         36,246,000      26,955,000
   Consumer                                         33,529,000      31,754,000
                                                    ----------     -----------
                                                   238,514,000     216,808,000
   Allowance for loan losses                        (3,351,000)     (3,286,000)
                                                    ----------     -----------

   Net loans                                      $235,163,000   $ 213,522,000
                                                   ===========     ===========

 Transactions in the allowance for loan losses were as follows:

                                          2001          2000          1999
                                          ----          ----          ----

   Balance, beginning of year          $3,286,000    $2,892,000    $ 2,678,000
   Charge offs                           (463,000)     (214,000)       (27,000)
   Recoveries                              19,000       227,000         14,000
   Provision charged to operating
     expenses                             509,000       381,000        227,000
                                        ---------     ---------     ----------
   expenses

   Balance, end of year                $3,351,000    $3,286,000    $ 2,892,000
                                        =========     =========     ==========

   Impaired loans totaled $4,510,000 and $5,112,000 at December 31, 2001 and
2000, respectively. An allowance for loan losses of $681,000 and $767,000
related to impaired loans at December 31, 2001 and 2000, respectively. At
December 31, 1999, all impaired loans had allocated allowances.


                                      F-13

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   Interest of $316,000 and $410,000 was recognized on average impaired loans of
$4,761,000 and $4,143,000 for 2001 and 2000, respectively. Interest of $380,072
and $621,000 was recognized on impaired loans on a cash basis during 2001 and
2000, respectively.


NOTE 4:  PREMISES AND EQUIPMENT

   Major classifications of premises and equipment, stated at cost at December
31, were as follows:

                                                          2001         2000
                                                          ----         ----

   Land                                               $  150,000    $  150,000
   Building                                              750,000       750,000
   Leasehold improvements                              2,061,000     2,361,000
   Furniture and equipment                             3,230,000     3,311,000
                                                       ---------     ---------
                                                       6,191,000     6,572,000
   Less accumulated depreciation and amortization     (3,866,000)   (3,848,000)
                                                       ----------    ----------

   Net premises and equipment                         $2,325,000    $2,724,000
                                                       =========     =========


NOTE 5:  DEPOSITS

   Interest bearing deposits in denominations of $100,000 or more were
$144,064,000 on December 31, 2001 and $96,938,000 on December 31, 2000.

   At December 31, 2001, the scheduled maturities of time deposits were as
follows:

                   2001                               $  81,422,000
                   2002                                   3,272,000
                   2003                                   1,780,000
                   2004                                     250,000
            2005 and thereafter                             397,000
                                                        -----------
                                                      $  87,121,000
                                                        ===========


                                      F-14

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 6:  ADVANCES FROM FHLB

   The Company had advances from FHLB of $55,000,000 and $28,600,000 as of
December 31, 2001 and 2000, respectively. At December 31, 2001, $20,000,000 is
considered long-term.

     Maturities at December 31, 2001 are:              Amount      Interest Rate
                                                       ------      -------------

      January 7, 2002                               $  5,000,000       2.49%
      January 18, 2002                                 5,000,000       1.92%
      February 22, 2002                                5,000,000       1.96%
      March 26, 2002                                   5,000,000       1.97%
      July 26, 2002                                    5,000,000       4.00%
      October 3, 2002                                  5,000,000       2.58%
      December 31, 2002                                5,000,000       4.95%
      January 31, 2003                                 5,000,000       4.09%
      July 22, 2003                                    5,000,000       4.36%
      October 15, 2003                                 5,000,000       3.37%
      January 22, 2004                                 5,000,000       4.59%
                                                     -----------
                                                    $ 55,000,000
                                                     ===========

   The Company has an unused $3,000,000 revolving line-of-credit with a
financial institution, with interest payable quarterly at prime, adjusted the
same day a rate change occurs. The line-of-credit is secured by the pledge of
all of the shares of capital stock of the Bank and contains standard
representations, warranties and financial covenants.


NOTE 7:  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S
         DEBENTURES
                                                        2001           2000
                                                        ----           ----

     Guaranteed Preferred Beneficial Interests in
      Company's Debentures                          $ 10,304,000    $ 10,304,000
                                                     ===========     ===========

   On October 14, 1998, the Company formed a wholly-owned business trust (the
Trust) to issue preferred securities representing undivided beneficial interests
in the assets of the Trust. The sole assets of the Trust are $10.3 million,
aggregate principal amount of the Company's 9.00% Subordinated Debenture Notes
due December 17, 2028, which are redeemable on or after December 17, 2003. Such
securities qualify as Tier I capital for regulatory purposes.


                                      F-15

<PAGE>

NOTE 8:  INCOME TAXES

   The provision for income taxes consists of:

                                              2001          2000         1999
                                              ----          ----         ----

   Taxes currently payable                $1,621,000   $1,402,000    $  395,000
   Deferred income taxes                    (211,000)    (152,000)      (19,000)
                                           ---------    ---------     ---------

      Income Tax Expense                  $1,410,000   $1,250,000    $  376,000
                                           =========    =========     =========

   The tax effects of temporary differences related to deferred taxes shown in
the December 31, balance sheets were:
                                                           2001         2000
                                                           ----         ----
   Deferred tax assets:
     Allowance for loan losses                         $1,146,000    $  982,000
     Accrued expenses                                     316,000        20,000
     Deferred loan fees                                    56,000        95,000
     Deferred compensation                                 85,000        67,000
     Furniture, equipment and improvements                 61,000        86,000
     Unrealized losses on available-for-sale securities        --       113,000
     State net operating loss and credit carryforwards         --       104,000
                                                        ---------     ---------
                                                        1,664,000     1,467,000
   Deferred tax liabilities:
     Federal Home Loan Bank Stock                         (79,000)      (79,000)
     Unrealized gains on available for sale securities   (112,000)           --
     Prepaid expenses                                     (77,000)           --
     Discount accretion on tax exempt municipal
       securities                                        (102,000)      (19,000)
                                                        ---------     ---------
                                                         (370,000)      (98,000)
                                                        ---------     ---------
             Net Deferred Tax Asset                    $1,294,000    $1,369,000
                                                        =========     =========


                                      F-16

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   A reconciliation of income tax expenses at the statutory rate to the
Company's actual income tax is shown below:

                                               2001         2000          1999
                                               ----         ----          ----

 Computed at the statutory rate (34%)      $1,417,000   $1,387,000   $  627,000
 Increase (decrease) in income taxes
  resulting from:
   Tax-exempt interest                       (491,000)    (447,000)    (387,000)
   Amortization of goodwill                   182,000      182,000       79,000
   State income taxes, net of federal tax      61,000           --      (51,000)
    benefit
   Nondeductible interest                      49,000       48,000       40,000
   Other, net                                 192,000       80,000       68,000
                                             --------    ---------    ---------

           Income Tax Expense              $1,410,000   $1,250,000   $  376,000
                                             =========    =========    =========


NOTE 9:  EARNINGS PER SHARE

   Earnings per share (EPS) were computed as follows:

                                           Income         Shares    Per-Share
                                         (Numerator)  (Denominator)   Amount
                                         -----------  -------------   ------
     2001
     ----
       Net Income                        $2,755,000      2,400,709
         Basic earnings per share                                      $ 1.15
                                                                        =====

       Effect of dilutive securities:
         Stock options                           --        242,634
                                          ---------      ---------

       Diluted earnings per share        $2,755,000      2,643,343     $ 1.04
                                          =========      =========      =====

     2000
     ----
       Net Income                        $2,829,000      2,387,901
         Basic earnings per share                                      $ 1.18
                                                                        =====

       Effect of dilutive securities:
         Stock options                           --        209,658
                                          ---------      ---------

       Diluted earnings per share        $2,829,000      2,597,559     $ 1.09
                                          =========      =========      =====


                                      F-17

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


                                           Income         Shares    Per-Share
                                         (Numerator)  (Denominator)   Amount
                                         -----------  -------------   ------
     1999
     ----
       Net Income                        $  1,468,000    2,352,540
         Basic earnings per share                                      $ .62
                                                                        ====

       Effect of dilutive securities:
         Stock options                             --      296,933
                                          -----------    ---------

       Diluted earnings per share        $  1,468,000    2,649,473     $ .55
                                          ===========    =========      ====

Options to purchase 94,955, 241,052 and -0-, shares of common stock at option
prices per share ranging from $ 11.38 to $13.13 were outstanding at December 31,
2001, 2000 and 1999, respectively, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.


NOTE 10:  COMMITMENTS AND CREDIT RISKS

   The Bank grants commercial, residential, and other installment loans to
customers throughout the state of Colorado and, in addition, invests in
municipal obligations of various entities in the state.

   Lines-of-credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Lines-of-credit
generally have fixed expiration dates. Since a portion of the line may expire
without being drawn upon, the total unused lines do not necessarily represent
future cash requirements. Each customer's creditworthiness is evaluated on a
case-by-case basis. The amount of collateral obtained, if deemed necessary, is
based on management's credit evaluation of the counterparty. Collateral held
varies but may include accounts receivable, inventory, property, plant and
equipment, commercial real estate, and residential real estate. Management uses
the same credit policies in granting lines-of-credit as it does for balance
sheet instruments.

   At December 31, 2001 and 2000, the Bank had granted unused lines-of-credit to
borrowers aggregating approximately $83,806,000 and $74,434,000, respectively.
At December 31, 2001, unused lines-of-credit consisted of approximately
$80,378,000 for commercial lines and $3,428,000 for open-end consumer lines.


                                      F-18

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   Letters of credit are conditional commitments issued by the Bank to guarantee
the performance of a customer to a third party. Those guarantees are primarily
issued to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.

   The Bank had total outstanding letters of credit amounting to $3,498,696 and
$3,103,906 at December 31, 2001 and 2000, respectively, with terms ranging from
15 days to two years.

   At December 31, 2001 and 2000, the Bank had outstanding commitments to
originate loans aggregating approximately $13,632,800 and $7,515,500,
respectively. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period.


NOTE 11:  OPERATING LEASES

   The Bank leases numerous premises under noncancelable leases that expire from
2004 to 2008. Several of the leases contain various renewal option clauses for
additional terms and provide for periodic rental adjustments based on the
Consumer Price Index.

   The estimated future minimum lease payments under noncancelable operating
leases at December 31, 2001 were as follows:

                2002                               $  551,000
                2003                                  448,000
                2004                                  295,000
                2005                                  121,000
                2006                                   40,000
             Thereafter                               111,000
                                                    ---------

      Total future minimum lease payments          $1,566,000
                                                    =========

   Total rental expense for all operating leases including certain cancelable
equipment leases, was $799,000, $759,000, and $690,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.


                                      F-19

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS

401(K) PROFIT SHARING PLAN

   The Company provides a 401(k) profit sharing plan for its employees,
contributing annually to a profit sharing trust. All employees who are at least
21 years old and who have been employed by the Company for at least one year are
eligible to participate. Total contributions were approximately $361,000,
$323,000, and $304,000 in 2001, 2000 and 1999, respectively. Effective for the
year beginning January 1, 1999, the Company matches 100% of the first 3% of the
participants' contributions and 50% of the next 2% of participant contributions.
These employer matching contributions are 100% vested. Prior to 1999, the
Company matched 50% of the first 6% of the participants' contributions.
Additional bonus profit sharing contributions may be made at the discretion of
the Board of Directors. The Company's pre-1999 and all bonus profit sharing
matching contributions are 20% vested after the participant has completed two
years of service, with 20% incremental increases in vesting for each of the next
four years.

NON-EMPLOYEE DIRECTOR EQUITY COMPENSATION PLAN

   During the year ended December 31, 1994, the Company adopted a Non-Employee
Director Equity Compensation Plan (Compensation Plan) effective January 1, 1995.
The Compensation Plan provides for the initial authorization of 50,000 shares of
common stock. Under the provisions of the Compensation Plan, the directors are
compensated annually $7,500 for 2001, 2000 and 1999, provided certain
performance measures are met. The directors have the option of accepting the
Company's common stock in lieu of cash compensation. If the director opts for
common stock, the number of shares issued is determined on the first business
day of the year. The director has voting rights on the common stock issued as
compensation; however, the common stock is restricted until the director has met
all performance measures. In January 2001, 2000 and 1999, the Company issued
2,484, 2,284 and 2,500 common shares, respectively, pursuant to the Compensation
Plan at exercise prices of $12.06, $13.13 and $12.00 respectively.

INCENTIVE PLAN

   The Company adopted the Equity Incentive Plan (Incentive Plan) in December
1992 for certain key employees of the Company. The Incentive Plan provides for
the authorization of 624,000 shares of common stock, plus an additional
authorization of one-half percent of the outstanding shares of common stock as
of each succeeding annual anniversary of the effective date of the Incentive
Plan. Options issued within the Incentive Plan vest in three equal increments on
the date of grant and the first two anniversaries thereof, and expires ten years
after date of grant.


                                      F-20

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   A summary of the status of the Incentive Plan at December 31, and changes
during the year is presented below:

                               2001                2000               1999
                       -------------------  -----------------  -----------------
                                 Weighted            Weighted           Weighted
                                  Average            Average             Average
                                 Exercise            Exercise           Exercise
                        Shares     Price    Shares    Price    Shares     Price
                        ------     -----    -----     -----    ------     -----
Outstanding, beginning
 of year                511,200  $    7.12  473,800  $   6.50  479,200  $   6.16
Granted                  64,100      11.32   54,400     12.38   23,400     12.50
Exercised                (7,400)      5.00  (13,300)     5.26  (26,900)     5.20
Forfeited                (9,100)     10.74   (3,700)    11.82   (1,900)     9.48
                        -------             -------            -------

Outstanding, end of
 year                   558,800  $    7.57  511,200  $   7.12  473,800  $   6.50
                       ========             =======            =======

Options exercisable,
end
 of year                498,700             467,500            444,000

   The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions:

                                          2001           2000           1999
                                          ----           ----           ----

   Dividend per share                  $    0         $    0        $    0
   Risk-free interest rate                  4.40%          4.98%         6.55%
   Expected life of options                 4 years        4 years      10 years

   Weighted-average fair value of
     options granted during year       $    3.54      $    4.52      $    7.86


                                      F-21

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   The following table summarizes information about stock options under the
Incentive Plan outstanding at December 31, 2001:


                             Options Outstanding             Options Exercisable
                      ----------------------------------     -------------------
                                   Weighted
                                   Average      Weighted                Weighted
                                  Remaining      Average                 Average
      Range of        Number     Contractual    Exercise      Number    Exercise
  Exercise Prices   Outstanding     Life          Price     Exercisable   Price
  ---------------   -----------     ----          -----     -----------   -----
 $        4.50         154,000     1 years       $   4.50     154,000   $  4.50
 $        4.00          11,000     2 years       $   4.00      11,000   $  4.00
 $    3.75 to $3.81     16,000     3 years       $   3.76      16,000   $  3.76
 $        5.38         144,500     4 years       $   5.38     144,500   $  5.38
 $        7.63          21,500     5 years       $   7.63      21,500   $  7.63
 $       11.75          36,300     6 years       $  11.75      36,300   $ 11.75
 $       11.38          39,100     7 years       $  11.38      39,100   $ 11.38
 $       12.50          20,300     8 years       $  12.50      20,300   $ 12.50
 $       12.38          52,000     9 years       $  12.38      34,667   $ 12.38
 $   10.50 to $12.25    64,100    10 years       $  11.32      21,367   $ 11.32

DIRECTORS' PLAN

   The Company also adopted a Non-Employee Directors' Stock Option Plan
(Directors' Plan) in December 1992. An aggregate of 22,000 shares of common
stock were reserved for issuance under the Directors' Plan. Effective June 6,
2001, the shareholders approved an increase of 20,000 share for the Directors'
Plan. Non-employee directors are automatically granted options to purchase 500
common shares during each fiscal year following election to the Board. The Board
of Directors, or a committee consisting of such board members or other persons
as may be appointed by the Board, administer the Directors' Plan. The Directors'
Plan is currently administered by the Board of Directors. Each option under the
Directors' Plan expires five years from the date of grant.


                                      F-22

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   A summary of the status of the Directors' Plan at December 31, and changes
during the year is presented below:
<TABLE>
<CAPTION>

                                   2001               2000             1999
                       -------------------- ------------------ -----------------
                                 Weighted            Weighted             Weighted
                                  Average             Average              Average
                                 Exercise            Exercise             Exercise
                        Shares     Price     Shares    Price     Shares     Price
                        ------     -----     ------    -----     ------     -----

<S>                       <C>   <C>            <C>   <C>          <C>     <C>
Outstanding, beginning
 of year                  9,000 $  11.68       8,000 $   10.86    9,000   $   8.74
Granted                   2,000    10.05       2,000     11.88    2,000      13.13
Exercised                (1,500)    8.00      (1,000)     5.50   (2,500)      4.95
Forfeited                    --      --           --       --      (500)     12.07
                        -------              -------            -------

Outstanding, end of
 year                  $  9,500 $  11.92       9,000 $   11.68    8,000   $  10.86
                        =======              =======            =======

Options exercisable,
 end of year              7,500                7,000              6,000
</TABLE>

   The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions:

                                    2001             2000             1999
                                    ----             ----             ----

   Dividend per share           $    0           $    0           $    0
   Risk-free interest rate           4.40%            4.98%            6.55%
   Expected life of options          4 years          4 years          4 years

   Weighted-average fair value  $    3.54        $    4.52        $    5.05
    of options granted during
   year


                                      F-23

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   The following table summarizes information about stock options under the
Directors' Plan outstanding at December 31, 2001:


                             Options Outstanding             Options Exercisable
                      ----------------------------------     -------------------
                                   Weighted
                                   Average      Weighted                Weighted
                                  Remaining      Average                Average
      Range of        Number     Contractual    Exercise     Number     Exercise
  Exercise Prices   Outstanding     Life          Price    Exercisable   Price
  ---------------   -----------     ----          -----    -----------   -----

     $12.07          1,500       1 years       $ 12.07        1,500       $12.07
     $12.50          2,000       2 years       $ 12.50        2,000       $12.50
     $13.13          2,000       3 years       $ 13.13        2,000       $13.13
     $11.88          2,000       4 years       $ 11.88        2,000       $11.88
     $10.05          2,000       5 years       $ 10.05           --           --

OPTION BONUS PLAN

   In May 1996, the Company adopted an "Option Bonus Plan" (Bonus Plan). The
exercise price on all options is equal to the market price of the common stock
on the date of grant. The option period expires ten years from the date the
options were granted. The options vest and are exercisable six months after they
are granted. The maximum number of shares that may be issued pursuant to the
exercise of these options is 300,000 shares.

   A summary of the status of the Bonus Plan at December 31, and changes during
the year is presented below:
<TABLE>
<CAPTION>

                                   2001               2000            1999
                       -------------------- ------------------ -----------------
                                 Weighted            Weighted             Weighted
                                  Average             Average              Average
                                 Exercise            Exercise             Exercise
                        Shares     Price     Shares    Price     Shares     Price
                        ------     -----     ------    -----     ------     -----
<S>                      <C>      <C>        <C>      <C>         <C>     <C>
Outstanding, beginning
 of year                 213,658  $   10.16  212,566  $  10.15    207,715 $   10.07
Granted                   19,912      11.25    6,304     12.38      4,851     13.13
Exercised                     --       --     (5,212)    11.38         --      --
Forfeited                     --       --         --       --          --      --
                         -------            --------             --------

Outstanding, end of
year                     233,570  $   10.26  213,658  $  10.16    212,566 $   10.15
                        ========            ========             ========

Options exercisable,
end of year              213,658             207,354              207,715
</TABLE>


                                      F-24

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   The fair value of each option granted is estimated on the date of the grant
using the minimum value method with the following weighted-average assumptions:

                                    2001             2000             1999
                                    ----             ----             ----

   Dividend per share           $    0           $    0           $    0
   Risk-free interest rate           4.40%            4.98%            6.55%
   Expected life of options          4 years          4 years          4 years

   Weighted-average fair value  $    3.54        $    4.52        $    5.05
    of options granted during
    year

   The following table summarizes information about stock options under the
Bonus Plan outstanding at December 31, 2001:

                             Options Outstanding             Options Exercisable
                      ----------------------------------     -------------------
                                   Weighted
                                   Average      Weighted                Weighted
                                  Remaining      Average                Average
      Range of        Number     Contractual    Exercise     Number     Exercise
  Exercise Prices   Outstanding     Life          Price    Exercisable   Price
  ---------------   -----------     ----          -----    -----------   -----

          $7.63         72,802     5 years      $   7.63     72,802     $ 7.63
         $11.75          5,784     6 years      $  11.75      5,784     $11.75
         $11.38        123,917     7 years      $  11.38    123,917     $11.38
         $12.50          4,851     8 years      $  13.13      4,851     $12.50
         $12.38          6,304     9 years      $  12.38      6,304     $12.38
         $11.25         19,912    10 years      $  11.25         --     $   --

   The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans, and no compensation cost has been recognized for the
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates using Statement of
Financial Accounting Standards No. 123, the Company's net income would have
decreased by approximately $189,000, $150,000 and $102,000 in 2001, 2000 and
1999, respectively. In addition, the Company's basic earnings per share would
have decreased by $.08 per share, $.06 per share and $.04 per share in 2001,
2000 and 1999, respectively. Diluted earnings per share would have decreased
$.07 per share, $.06 per share and $.04 per share in 2001, 2000 and 1999,
respectively.


                                      F-25

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 13:  OTHER OPERATING EXPENSES

   Other operating expenses consist of the following:

                                           2001          2000           1999
                                           ----          ----           ----

   Professional services              $  969,000    $  818,000     $  990,000
   Credit card                           424,000       442,000        445,000
   Legal and accounting                  644,000       360,000        210,000
   Advertising and promotion             468,000       291,000        263,000
   Postage and delivery                  281,000       242,000        238,000
   Software maintenance and
      amortization                       103,000        99,000        102,000
   Service charges                       220,000       193,000        199,000
   Supplies                              266,000       205,000        234,000
   Insurance and bonds                   146,000       136,000        140,000
   Telephone                             204,000       183,000        165,000
   Printing                              158,000       166,000        192,000
   Travel and entertainment              117,000       162,000        122,000
   Dues and subscriptions                116,000        97,000        113,000
   Deposit insurance                      60,000       103,000         31,000
   Amortization of debt issuance costs    76,000        76,000         76,000
   Other operating expenses              527,000       455,000        448,000
   Merger cost                                --            --        325,000
                                       ---------     ---------      ---------

                                      $4,779,000    $4,028,000     $4,293,000
                                       =========     =========      =========


NOTE 14:  TRANSACTIONS WITH RELATED PARTIES

   At December 31, 2001 and 2000, the Bank had loans outstanding to
shareholders, executive officers, and directors of the Company and their
affiliates, in the amount of $1,784,000 and $3,219,000, respectively. New loans
made to shareholders, executive officers, and directors of the Company and their
affiliates approximated $439,000 and $1,769,000, and repayments approximated
$1,874,000 and $1,856,000 for the years ended December 31, 2001 and 2000,
respectively.

   In management's opinion, such loans and other extensions of credit and
deposits were made in the ordinary course of business and were made on
substantially the same terms (including interest rates and collateral) as those
prevailing at the time of comparable transactions with other persons. Further,
in management's opinion, these loans did not involve more than normal risk of
collectibility or present other unfavorable features.


                                      F-26

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   From time to time, the Bank purchases loans from a locally owned mortgage
company until the mortgage company sells the loans into the secondary mortgage
market. The loans are then sold back to the mortgage company. Initially, the
Bank receives interest during its holding period of prime plus .50%. All
origination fees and interest on the loan in excess of the rate payable to the
Bank are retained by the mortgage company. If the mortgage is not sold within
specified periods, the Bank is entitled to receive all of the interest paid on
the mortgage from inception and may be entitled to receive all or a portion of
the origination fees. The mortgage company provides loan servicing during the
period that the mortgage is held by the Bank. During the years ended December
31, 2001, 2000 and 1999, the Bank earned interest income on such loans of
$102,000, $10,000 and $28,000, respectively. During the years ended December 31,
2001, 2000 and 1999, the Bank purchased loans in the amounts of $33,585,000,
$4,754,000 and $9,389,000 and sold loans in the amount of $31,548,000,
$4,754,000 and $13,674,000, respectively. All loans sold back to the mortgage
company are without recourse to the Bank. The Chairman of the Board of the Bank
is a director and treasurer of the mortgage company.

   During the year ended December 31, 2001, the Bank entered into secured
lending transactions with one of its directors. The balance outstanding at
year-end was $12,669,000. The Bank incurred interest expense of $38,408 for the
year ended December 31, 2001.


NOTE 15:  ADDITIONAL CASH FLOW INFORMATION

ADDITIONAL CASH PAYMENT INFORMATION

                                          2001          2000           1999
                                          ----          ----           ----

   Income taxes paid (net of refunds)  $  1,385,000  $ 1,020,000    $    783,000
                                        ===========   ==========     ===========

   Interest paid                       $ 11,275,000  $11,930,000    $  9,540,000
                                        ===========   ==========     ===========

NON-CASH INVESTING ACTIVITIES

   Reclassification of securities
   from available-
    for-sale to held-to-maturity at
   fair value                          $          0  $         0    $ 15,434,000
                                        ===========   ==========     ===========

   Real estate acquired in settlement
    of loans                           $    153,000  $         0    $          0
                                        ===========   ==========     ===========

   Sale and financing of foreclosed
   assets                              $     42,000  $         0    $          0
                                        ===========   ==========     ===========

   Reclassification of securities
   from held-to-maturity to
   available-for-sale at fair value    $          0  $31,264,000    $  6,940,000
                                        ===========   ==========     ===========


                                      F-27

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 16:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY

   Financial statements of the parent company, Union Bankshares, Ltd., are shown
below and should be read in conjunction with the consolidated financial
statements.

                            CONDENSED BALANCE SHEETS

                           DECEMBER 31, 2001 AND 2000

                                     ASSETS
                                                      2001            2000
                                                      ----            ----

  Cash                                            $ 5,783,000     $ 3,477,000
  Available-for-sale securities                            --       2,246,000
  Investment in subsidiary                         30,035,000      26,607,000
  Goodwill                                          1,816,000       2,042,000
  Accrued interest receivable                              --          45,000
  Other assets                                        525,000         600,000
                                                   ----------      ----------

          Total Assets                            $38,159,000     $35,017,000
                                                   ==========      ==========


                      LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Guaranteed preferred beneficial interest in     $10,304,000     $10,304,000
   Company's debentures
  Accrued interest payable                             39,000          39,000
  Other liabilities                                   394,000         514,000
                                                   ----------      ----------
          Total Liabilities                        10,737,000      10,857,000
                                                   ----------      ----------


STOCKHOLDERS' EQUITY
  Common stock                                          2,000           2,000
  Additional paid-in capital                       10,066,000       9,987,000
  Retained earnings                                17,166,000      14,393,000
  Unrealized gains on subsidiary's
     available-for-sale securities                    188,000        (222,000)
                                                   ----------      ----------

          Total Stockholders' Equity               27,422,000      24,160,000
                                                   ----------      ----------

          Total Liabilities and Stockholders'
             Equity                               $38,159,000     $35,017,000
                                                   ==========      ==========


                                      F-28

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


                         CONDENSED STATEMENTS OF INCOME

                 YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                          2001           2000          1999
                                          ----           ----          ----
OPERATING INCOME
  Dividends from subsidiary           $ 1,400,000    $ 1,400,000   $ 1,400,000
  Gain on sale of securities               85,000            --             --
  Interest income                          65,000        167,000       172,000
                                       ----------     ----------    ----------
          Total Operating Income        1,550,000      1,567,000     1,572,000
                                       ----------     ----------    ----------

OPERATING EXPENSES
  Interest                                927,000        927,000       925,000
  Amortization of goodwill                226,000        226,000       226,000
  Salaries and employee benefits          726,000        835,000       696,000
  Occupancy and equipment                 167,000        115,000        88,000
  Other                                   743,000        687,000       919,000
                                       ----------     ----------    ----------
          Total Operating Expenses      2,789,000      2,790,000     2,854,000
                                       ----------     ----------    ----------

(LOSS) BEFORE EQUITY IN
 UNDISTRIBUTED  EARNINGS OF
 SUBSIDIARY, INCOME TAX BENEFIT        (1,239,000)    (1,223,000)   (1,282,000)

EQUITY IN UNDISTRIBUTED
 EARNINGS                               3,161,000      3,031,000     2,027,000

INCOME TAX BENEFIT                        833,000      1,021,000       723,000
                                       ----------      ----------    ----------

NET INCOME                            $ 2,755,000    $ 2,829,000     1,468,000
                                       ==========     ==========    ==========


                                      F-29


<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


                       CONDENSED STATEMENTS OF CASH FLOWS

                 YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
<TABLE>
<CAPTION>

                                                  2001          2000         1999
                                                  ----          ----         ----
<S>                                            <C>            <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                   $2,755,000     $2,829,000  $1,468,000
  Adjustments  to reconcile net income to net
    cash provided by (used in) operating
    activities:
      Amortization                                301,000        302,000     302,000
      Gain on sale of securities                  (85,000)            --          --
  Change in:
      Other assets                                                65,000    (171,000)
      Accrued interest receivable                  45,000          8,000     (16,000)
      Equity in undistributed earnings of      (3,000,000)    (2,937,000) (1,985,000)
        subsidiary
      Other liabilities                          (120,000)       134,000     259,000
                                                ---------      ---------   ---------
          Net Cash Provided by (used in)         (104,000)       401,000    (143,000)
                                                ---------      ---------   ---------
            Operating Activities

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of available-for-sale securities           --     (2,246,000) (3,612,000)
  Proceeds from sale and maturities of
   available-for-sale securities                2,331,000      3,612,000   2,685,000
                                                ---------      ---------   ---------
         Net Cash Provided by (used in)
         Investing Activities                   2,331,000      1,366,000    (927,000)
                                                ---------      ---------   ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of common stock           79,000        165,000     183,000
                                                ---------      ---------   ---------
         Net Cash Provided by Financing
         Activities                                79,000        165,000     183,000
                                                ---------      ---------   ---------

NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                           2,306,000      1,932,000    (887,000)

CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                              3,477,000      1,545,000   2,432,000
                                                ---------      ---------   ---------

CASH AND CASH EQUIVALENTS,
 END OF YEAR                                   $5,783,000     $3,477,000  $1,545,000
                                                =========      =========   =========
</TABLE>


                                      F-30


<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 17:  REGULATORY CAPITAL REQUIREMENTS

   The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weighing, and other factors.

   Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table following) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to adjusted total assets (as defined). Management believes, as of
December 31, 2000, that the Company and the Bank meet all capital adequacy
requirements to which they are subject.

   As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation (FDIC) categorized the Company and the Bank as
well capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, the Company and the Bank must maintain
minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the category.


                                      F-31

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


   The Company's and the Bank's actual capital amounts and ratios are also
presented in the table. In accordance with FDIC regulations, no amount has been
deducted from capital for interest rate risk.
<TABLE>
<CAPTION>

                                                                                    To be Well
                                                                                 Capitalized Under
                                                           For Capital           Prompt Corrective
                                        Actual           Adequacy Purposes       Action Provisions
                                --------------------    --------------------    -------------------
                                  Amount      Ratio       Amount       Ratio    Amount        Ratio
                                  ------      -----       ------       -----    ------        -----

<S>                             <C>             <C>     <C>             <C>     <C>           <C>
AS OF DECEMBER 31, 2001:
  Total risk-based capital
  (to risk-weighted assets):
     Consolidated               $35,238,000     13.5%   $20,958,000     8.0%    $26,198,000   10.0%
     Bank                       $29,364,000     11.2%   $20,916,000     8.0%    $26,145,000   10.0%
  Tier I risk-based capital
  (to risk-weighted assets):
     Consolidated               $28,534,000     10.9%   $10,479,000     4.0%    $15,719,000    6.0%
     Bank                       $26,109,000     10%     $10,458,000     4.0%    $15,687,000    6.0%
  Tier I leverage capital
  (to adjusted total assets):
     Consolidated               $28,534,000      6.5%   $17,556,000     4.0%    $21,944,000    5.0%
     Bank                       $22,109,000      6%     $17,533,000     4.0%    $21,916,000    5.0%

AS OF DECEMBER 31, 2000:
  Total risk-based capital
  (to risk-weighted assets):
     Consolidated               $31,731,000     12.7%   $20,070,000     8.0%    $25,088,000   10.0%
     Bank                       $25,785,000     10.7%   $19,221,000     8.0%    $24,026,000   10.0%
  Tier I risk-based capital
  (to risk-weighted assets):
     Consolidated               $26,417,000     10.5%   $10,035,000     4.0%    $15,053,000    6.0%
     Bank                       $22,778,000      9.5%   $ 9,610,000     4.0%    $14,415,000    6.0%
  Tier I leverage capital
  (to adjusted total assets):
     Consolidated               $26,417,000      7.3%   $14,497,000     4.0%    $18,121,000    5.0%
     Bank                       $22,778,000      6.3%   $14,578,000     4.0%    $18,223,000    5.0%
</TABLE>

   The Bank is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 2001,
approximately $7,940,000 of retained earnings were available for dividend
declaration without prior regulatory approval.


                                      F-32

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 18:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following table presents estimated fair values of the Company's financial
instruments. The fair values of certain of these instruments were calculated by
discounting expected cash flows, which method involves significant judgments by
management and uncertainties. Fair value is the estimated amount at which
financial assets or liabilities could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. Because no
market exists for certain of these financial instruments and because management
does not intend to sell these financial instruments, the Company does not know
whether the fair values shown below represent values at which the respective
financial instruments could be sold individually or in the aggregate.
<TABLE>
<CAPTION>

                                             December 31, 2001             December 31, 2000
                                        ---------------------------    -------------------------
                                          Carrying                      Carrying
                                           Amount     Fair-Value         Amount    Fair Value
                                           ------     ----------         ------    ----------
<S>                                     <C>            <C>            <C>            <C>
FINANCIAL ASSETS
  Cash and due from banks               $ 15,512,000   $ 15,512,000   $ 19,551,000   $ 19,551,000
  Available-for-sale securities          181,411,000    181,411,000    130,349,000    130,349,000
  Other investments                        2,750,000      2,750,000      2,430,000      2,430,000
  Interest receivable                      2,308,000      2,308,000      3,170,000      3,170,000
  Loans, net of allowance for
    loan losses                          235,163,000    238,161,000    213,522,000    212,095,000

FINANCIAL LIABILITIES
  Deposits                               333,207,000    334,029,000    315,329,000    315,475,000
  Advances from FHLB                      55,000,000     55,267,000     28,600,000     28,600,000
  Guaranteed Preferred
    Beneficial Interests
    in Company's Debentures               10,304,000     10,304,000     10,304,000     10,304,000
  Federal funds purchased and
    securities sold under
    repurchase agreements                 19,169,000             --             --
  Interest payable                           270,000        270,000        433,000        433,000

UNRECOGNIZED FINANCIAL
INSTRUMENTS (net of contract amount):
    Commitments to extend credit                  --             --             --             --
    Letters of credit                             --             --             --             --
    Lines-of-credit                               --             --             --             --
</TABLE>

   The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:

CASH AND CASH EQUIVALENTS

   For these short-term instruments, the carrying amount approximates fair
value.

                                      F-33

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


INVESTMENT SECURITIES

   Fair values for investment securities equal quoted market prices, if
available. If quoted market prices are not available, fair values are estimated
based on quoted market prices of similar securities.

LOANS

   The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities. Loans with similar
characteristics were aggregated for purposes of the calculations. The carrying
amount of accrued interest approximates its fair value.

DEPOSITS

   The fair value of demand deposits, savings accounts, NOW accounts, and
certain money market deposits is the amount payable on demand at the reporting
date (i.e., their carrying amount). The fair value of fixed-maturity time
deposits is estimated using a discounted cash flow calculation that applies the
rates currently offered for deposits of similar remaining maturities. The
carrying amount of accrued interest payable approximates its fair value.

SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE

   For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.

ADVANCES FROM FHLB

   Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY'S DEBENTURES

   Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

COMMITMENTS TO EXTEND CREDIT AND LETTERS OF CREDIT

   The fair value of commitments is estimated using the fees currently charged
to enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
letters of credit and lines-of-credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties at the reporting date.


                                      F-34

<PAGE>

                             UNION BANKSHARES, LTD.

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2001, 2000 AND 1999


NOTE 19:  IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) recently adopted Statement of
Financial Accounting Standards (SFAS) 142, "Goodwill and Other Intangible
Assets." This Statement establishes new financial accounting and reporting
standards for acquired goodwill and other intangible assets. The Statement
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. It also addresses
how goodwill and other intangible assets (including those acquired in a business
combination) should be accounted for after they have been initially recognized
in the financial statements. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. The impact of adopting SFAS 142 will result in no
longer requiring the amortization of goodwill, which will increase net income by
$539,000 per year. Additionally, the standard requires a transitional and annual
evaluation of goodwill impairment, the impact of applying this aspect of the
standard has not yet been determined.


                                      F-35


<PAGE>

                                   SIGNATURES

          In accordance with Section 13 or 15(d) Securities Exchange Act of
1934, as amended, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                           UNION BANKSHARES, LTD.


Date:  March 28, 2002      By:  /S/ CHARLES R. HARRISON
                              -----------------------------
                              Charles R. Harrison, Chairman of the Board, Chief
                              Executive Officer and a Director

          In accordance with the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
       Signature                                    Title                             Date
       ---------                                    -----                             ----

<S>                                      <C>                                      <C>
/S/ CHARLES R. HARRISON                  Chairman of the Board, Chief             March 28, 2002
-----------------------------------      Executive Officer and a Director
Charles R. Harrison
                                         (Principal Executive Officer)


/S/ BRUCE E. HALL                        Vice President-Finance, Secretary,       March 28, 2002
-----------------------------------
Bruce E. Hall                            Treasurer and a Director (Principal
                                         Financial and Accounting Officer)


/S/ WAYNE T. BIDDLE                      Director                                 March 28, 2002
-----------------------------------
Wayne T. Biddle


/S/ HAROLD R. LOGAN, JR.                 Director                                 March 28, 2002
-----------------------------------
Harold R. Logan, Jr.


/S/ RALPH D. JOHNSON                     Director                                 March 28, 2002
-----------------------------------
Ralph D. Johnson


/S/ RICHARD C. SAUNDERS                  Director                                 March 28, 2002
-----------------------------------
Richard C. Saunders


/S/ HERMAN J. ZUECK                      Director                                 March 28, 2002
-----------------------------------
Herman J. Zueck


/S/ CHARLES B. WORTHINGTON               Director                                 March 28, 2002
-----------------------------------
Charles B. Worthington


/S/ DONALD E. SIECKE                     Director                                 March 28, 2002
-----------------------------------
Donald E. Siecke
</TABLE>


                                      S-1

<PAGE>

                          EXHIBIT DESCRIPTION AND INDEX

<TABLE>
<CAPTION>
Exhibit
NUMBER           DESCRIPTION

<C>      <S>
3.1      Certificate of Incorporation of Union Bankshares, Ltd. *

3.2      Certificate of Amendment to Certificate of Incorporation of Union Bankshares, Ltd.+

3.3      Bylaws of Union Bankshares, Ltd. *

4.1      Form of Subordinated Indenture dated to be entered into between the Registrant and American
         Securities Transfer & Trust, Inc., as Indenture Trustee +

4.2      Form of Junior Subordinated Debenture (included as an exhibit to Exhibit 4.1

4.3      Certificate of Trust of Union Bankshares Capital Trust I +

4.4      Trust Agreement of Union Bankshares Capital Trust I dated as of October 14, 1998 +

4.5      Form of Amended and Restated Trust Agreement of Union Bankshares Capital Trust I +

4.6      Form of Preferred Security Certificate of Union Bankshares Capital Trust I (included as an
         exhibit to Exhibit 4.5)

4.7      Form of Preferred Securities Guarantee Agreement +

4.8      Form of Agreement as to Expenses and Liabilities +

10.1     Certificate of Incorporation of Union Bank & Trust Company *

10.2     Bylaws of Union Bank & Trust Company *

10.3     Lease Agreement, dated July 1, 1994, between Lichtenberg Corporation of Delaware and the
         Bank ***

10.4     Form of Employment Agreement *

10.5     Equity Incentive Plan *

10.6     2003 Equity Incentive Plan******

10.7     Nonemployee Directors' Stock Option Plan *

10.8     Agreement between Union Bank & Trust and Colorado Bankers Mortgage, Inc.*

10.9     Nonemployee Directors Equity Compensation Plan **

10.10    Amended Shareholders' Agreement **

                                      E-1

<PAGE>

10.11    Agreement between Union Bank & Trust and Colorado National Bank ***

10.12    Loan Agreement between Union Bankshares, Ltd., Union Bank & Trust and Boatmen's First
         National Bank of Kansas City ****

10.13    Line of Credit Agreement between Union Bankshares, Ltd., Union Bank & Trust and Boatmen's
         First National Bank of Kansas City *****

10.14    Option Bonus Plan *****

10.15    Agreement and Plan of Merger, dated August 27, 1998, among Union Bank & Trust Company, LSB
         Acquisition Corp. and Lakewood State Bank +

10.16    Loan Agreement among Union Bankshares, Ltd., Union Bank & Trust and Exchange National Bank ++

10.17    Agreement and Plan of Reorganization, dated August 9, 1999, among Gold Banc Corporation,
         Inc., Gold Banc Acquisition Corporation VIII, Inc., and Union Bankshares, Ltd.+++

10.18    Mutual Termination Agreement, dated March 17, 2000, among Gold Banc Corporation, Inc., Gold
         Banc Acquisition Corporation VIII, Inc. and Union Bankshares, Ltd.++++

21       Subsidiaries of the Registrant ******

23.1     Consent of BKD, LLP ******



-------------------------

*        Incorporated by reference to the Company's S-1 Registration Statement filed with the Commission
         on January 6, 1993, as amended (Reg. No. 33-56736).

**       Incorporated by reference to the Company's Form 10-KSB filed with the Commission on March 31, 1994.

***      Incorporated by reference to the Company's Form 10-KSB filed with the Commission on March 31, 1995.

****     Incorporated by reference to the Company's Form 8-K filed with the Commission on March 1, 1996.

*****    Incorporated by reference to the Company's Form 10-KSB filed with the Commission on March 31, 1997.

******   Filed herewith.

+        Incorporated by reference to the Company's S-2 Registration Statement filed with the Commission
         on October 26, 1998, as amended (Reg. No. 333-66153).

++       Incorporated by reference to the Company's 10-KSB filed with the Commission on March 31, 1999.

+++      Incorporated by reference to the Company's 10-QSB filed with the Commission on August 13, 1999.

++++     Incorporated by reference to the Company's Form 8-K filed with the Commission on March 17, 2000.
</TABLE>

                                      E-2