SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------
                                   FORM 10-KSB
            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2000

            |_| 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)

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

      Check 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
                                 ------     -----

      Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B 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-KSB
or any amendment to this Form 10-KSB.

                                       X
                                      ---

      The Registrant's gross revenues for the fiscal year ended December 31,
2000 totaled $31.1 million.

      The aggregate market value of the voting stock of the registrant held by
non-affiliates, based on a closing price of $13.25 per share as of March 20,
2001, was approximately $13,691,000.

      As of March 20, 2001, there were outstanding 2,399,794 shares of Common
Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement for its 2001 Annual
Meeting of Shareholders, to be filed with the Securities and Exchange Commission
not later than April 30, 2001, are incorporated by reference into Part III as
specified.

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

Transitional Small Business Disclosure Format (check one)  Yes      No  X
                                                               ---     ---


<PAGE>


                             UNION BANKSHARES, LTD.

                                TABLE OF CONTENTS
                                                                          PAGE

PART I

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

Item 2.  Properties.........................................................25

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.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................28

Item 7.  Financial Statements...............................................40

Item 8.  Changes In and Disagreements With Accountants On Accounting
         and Financial Disclosure...........................................40

PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act..................41

Item 10. Executive Compensation.............................................41

Item 11. Security Ownership of Certain Beneficial Owners and Management.....41

Item 12. Certain Relationships and Related Transactions.....................41

Item 13. Exhibits and Reports on Form 8-K...................................42


                                       -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 1.39% and 0.09%, respectively, at
December 31, 2000.

      On March 17, 2000, the Company announced that it and Gold Banc Corporation
Inc. ("Gold Banc") had mutually agreed to terminate their merger agreement
pursuant to which Gold Banc would have acquired the Company. The Company also
announced that it would repurchase up to 200,000 shares of its Common Stock in
open market or privately negotiated transactions. To date, the Company has not
purchased any common stock pursuant to this plan.

      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 views the acquisition of Lakewood State Bank as an opportunistic
enhancement of its branching strategy. 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 "Supervision and Regulation."

      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-KSB.


<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:

      -   Personal Attention and Professional Service
      -   Maintaining Asset Quality
      -   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.

      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 by engaging "mystery shoppers" (persons posing as
customers) throughout the year.

      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. At these calls, the officers seek to develop a better understanding of
the business issues faced by the customer and can discuss services which the
Bank can provide to help them address their needs. In September 2000, the
Company conducted a one day commercial customer Expo. The Expo drew 85
exhibitors and several hundred attendees. The Expo is free to the Bank's
commercial customers and received high praise for the exposure it provided to
the exhibitors.

      The Bank requests customer feedback on customer communication pieces such
as direct mail pieces, mailings in monthly statements 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.
On the Bank's new website is a section for contacting the Bank with questions,
concerns or simple inquiries about the Bank. The contact site is monitored by
members of the Bank's staff several times throughout each business day in order
to respond in a timely manner to any website contacts.

      The Bank directly solicits specific feedback from customers in a number of
ways. Each customer, whether new or existing, who opens an account at the Bank
is mailed a letter thanking them for their business and asking them to fill out
a short service quality and product questionnaire. This past year, the Bank
direct mailed a more in-depth service and product questionnaire to approximately
2,000 of the Bank's customers, as well as conducted three focus groups to
ascertain customer satisfaction, product needs and service suggestions.

      The Bank has taken a more proactive step in touting its level of personal
service through increased, targeted advertising. Advertising geared toward the
business community has emphasized that the Bank gives its customers the choice
of a high quality personal touch and/or state of the art technological
capabilities such as online banking.


                                       -2-


<PAGE>


      Management believes that its policy of employee involvement, which it
refers to as its "staff to management" philosophy, has resulted in the
relatively low turnover experienced by the Bank at all levels of employment.
Management believes that this enables the Bank to provide continuity of service
by the same staff members, leading to long-term customer relationships, high
quality service and quick response to customer needs. The Bank emphasizes
education and training for its staff to achieve high levels of customer service.

      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 6 - 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 will 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. Each of
these branches has been well-received by its respective community. 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, 2000.


                                       -3-


<PAGE>


                                  DECEMBER 31, 2000
                             ---------------------------
                             DEPOSITS           LOANS
                             ---------        ----------
                                (DOLLARS IN MILLIONS)

Main                       $     139.7      $      100.3
Lakeside                          35.1               7.1
University Hills                  27.0               9.1
Lakewood                          26.1              28.8
Littleton                         12.9              18.2
Golden                             9.7               4.3
Southwest                         64.8              49.0
                             ---------        ----------
      Total                $     315.3      $      216.8
                             =========        ==========


      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 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 large 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 recent strength in
the metropolitan Denver economy. The metropolitan Denver economy's strength is
believed to reflect its diversification from its prior dependence on the oil and
gas industry, with strong contributions from the manufacturing,
telecommunications and government sectors. Total employment, retail sales and
home sales have all been healthy in recent years, 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. Although the Company
anticipates continued economic growth in metropolitan Denver and in Colorado,
there can be no assurance that growth will continue at or near the rates
recently experienced.


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 16 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,
                           ---------------------------------------------------------------------------------------------------------
                                  2000                 1999                   1998                 1997                  1996
                           ------------------   -------------------   --------------------  -------------------   ------------------
                            AMOUNT      %        AMOUNT        %       AMOUNT        %        AMOUNT       %       AMOUNT       %
                           ---------  -------   ---------   -------   ---------   --------  ----------   ------   ---------  -------
                                                                             (DOLLARS IN THOUSANDS)
                                      -------   ---------   -------   ---------   --------  ----------   ------   ---------  -------
<S>                        <C>           <C>    <C>            <C>    <C>             <C>   <C>            <C>    <C>           <C>
Commercial loans........   $ 153,727     72.0   $ 133,978      73.7   $ 105,618       73.1  $   87,929     72.1   $  70,631     71.4
Real estate-
    construction loans..      26,955     12.6      22,012      12.1      12,881        8.9       9,625      7.9       5,758      5.8
Real estate-
    mortgage loans......       4,372      2.0       5,780       3.2       4,101        2.8       4,297      4.5       5,489      5.5
Consumer loans..........      31,754     14.9      22,855      12.6      24,595       17.0      20,933     17.2      18,854     19.1
                           ---------  -------   ---------   -------   ---------   --------  ----------   ------   ---------  -------
        Total...........     216,908    101.5     184,625     101.6     147,195      101.9     122,784    101.7     100,732    101.8
Less allowance for
     loan losses........     (3,286)    (1.5)     (2,892)     (1.6)     (2,678)      (1.9)     (2,125)    (1.7)     (1,754)    (1.8)
                           ---------  -------   ---------   -------   ---------   --------  ----------   ------   ---------  -------
Loans receivable, net...   $ 213,522    100.0   $ 181,733     100.0   $ 144,517      100.0  $  120,659    100.0   $  98,978    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 $153.7 million at December 31, 2000 compared to $134.0
million at December 31, 1999. 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 spec 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
binding commitment 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 $27.0 million at December 31,
2000, compared to $22.0 million at December 31, 1999.

      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 complete
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
or cost, whichever is lower. 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 or cost, whichever is lower. These loans are
guaranteed from 75% to 80% of the amount of the loan by the Federal government.

      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, 2000, 1999, and 1998, the Bank earned interest income on such loans of
$10,000, $28,000, and $144,000, respectively. During the years ended December
31, 2000, 1999, and 1998, the Bank purchased loans in the amounts of $4.8
million, $9.4 million and $48.4 million and sold loans in the amounts of $4.8
million, $13.7 million and $44.1 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 President 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 $31.8 million and $22.9 million
at December 31, 2000 and 1999, respectively. During 2000, the Bank instituted a
program to purchase dealer initiated loans. At December 31, 2000, the total
loans from this program were $7.5 million. The branches 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 Vice Chairman, Jerrold B. Evans, its President,
Charles B. Worthington, its Executive Vice President, Fred I. Artes, and the
outside directors of the Bank. A quorum of the committee is a minimum of four
members.

      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 ($4.5 million at December 31, 2000). 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, 2000 and 1999 were $2,683,000 and
$1,268,000, 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.


                                                    DECEMBER 31,
                                ------------------------------------------------
                                  2000      1999      1998     1997      1996
                                --------  --------- -------- --------- ---------
                                                  (DOLLARS IN THOUSANDS)
Past due 90 days or more........$   265  $       3 $      -- $      --  $     --
Nonaccrual loans................     70          4        16        23        14
Restructured loans..............     --         --        --        --        --
                                -------  --------- --------- --------- ---------
Total nonperforming loans.......    335          7        16        23        14
Foreclosed assets held for sale      --         --       158        --        --
                                -------  --------- --------- --------- ---------
  Total nonperforming assets....$   335  $       7 $     174 $      23 $      14
                                =======  ========= ========= ========= =========
Ratio of total nonperforming
  to total assets...............  0.09%     l0.00%     0.06%     0.01%     0.01%
Ratio of total nonperforming
  to total loans................  0.15%      0.00%     0.12%     0.02%     0.01%
Ratio of allowance for loan
  to total nonperforming loans..980.90%  41,314.28% 1539.08%  9239.13% 12528.57%


      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,
2000, the Company had $70,000 of loans accounted for on a non-accrual basis
compared to $4,000 and $16,000 at December 31, 1999 and 1998, 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, 2000, 1999 and
1998, 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 $5,112,000 and $2,985,000 at December 31, 2000 and 1999,
respectively. An allowance for loan loss of $767,000 and $450,000 relates to
impaired loans at December 31, 2000 and 1999, respectively. Interest of $410,000
and $261,000 was recognized on average impaired loans of $4,143,000 and
$2,851,000 for 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, 2000 and 1999, 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,
                                            -----------------------------------------------------------------
                                               2000         1999         1998           1997          1996
                                            -----------  ----------- ------------    -----------   ----------
                                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>          <C>         <C>             <C>           <C>
Balance of allowance for loan losses at
   beginning of period......................$     2,892  $     2,678 $      2,125    $     1,754   $    1,448
                                            -----------  ----------- ------------    -----------   ----------

   Charge-offs:
     Commercial loans.......................        170            7           69             13           17
     Real estate -- construction loans......         --           --           13             --           --
     Real estate -- mortgage loans..........         --           --           --             --           --
     Consumer loans.........................         44           20            4             11           12
                                            -----------  ----------- ------------    -----------   ----------
   Total charge-offs........................        214           27           86             24           29
                                            -----------  ----------- ------------    -----------   ----------

   Recoveries:
     Commercial loans.......................        216            9            5             35           50
     Real estate -- construction loans......         --           --           --             --           --
     Real estate -- mortgage loans..........         --           --           --             --           --
     Consumer loans.........................         11            5            6             --           --
                                            -----------  ----------- ------------    -----------   ----------
   Total recoveries.........................        227           14           11             35           50
                                            -----------  ----------- ------------    -----------   ----------
   Net charge-offs (recoveries).............        (13)          13           75            (11)         (21)
                                            -----------  ----------- ------------    -----------   ----------
   Provisions for loan losses...............        381          227          278            360          285
                                            -----------  ----------- ------------    -----------   ----------
   Additions to allowance for loan loss(1)..         --           --          350             --           --
                                            -----------  ----------- ------------    -----------   ----------
Balance of allowance for loan losses at end
   of period................................$     3,286  $     2,892 $      2,678    $     2,125   $    1,754
                                            ===========  =========== ============    ===========   ==========
Ratio of net charge-offs (recoveries)
   to average loans.........................    (0.01)%        0.01%        0.06%         (0.01%)       (0.02%)
   Average loans outstanding during the
     period.................................$  204,297  $   159,684 $    127,262    $    113,043   $   91,586

</TABLE>

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

(1)Additional allowance for loan loss resulting from acquisition of Lakewood
State Bank.


                                      -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,
                    --------------------------------------------------------------------------------------------------------------
                             2000                   1999                  1998                 1997                  1996
                     ---------------------  --------------------  -------------------- --------------------- ---------------------
                                 LOANS IN              LOANS IN              LOANS IN              LOANS IN              LOANS IN
                                CATEGORY AS            CATEGORY              CATEGORY              CATEGORY              CATEGORY
                                    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.... $    2,414      71.0%     $2,412      72.6%     $1,922      71.7%    $1,506       70.9% $    1,293      70.2%
Real estate --
construction loans..        539      12.4%         73      11.9%        234       8.8%       165        7.7%         39       5.7%
Real estate -
 mortgage loans.....         15       2.0%         87       3.1%         75       2.8%        95        4.5%        157       5.4%
Consumer loans......        318      14.6%        320      12.4%        447      16.7%       359       16.9%        265      18.7%
                     ---------- ----------  ---------  ---------  --------- ---------- ---------  ---------- ---------- ----------
   Total............ $    3,286     100.0%     $2,892     100.0%     $2,678     100.0%    $2,125      100.0% $    1,754     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 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. In 2000, the Bank modestly increased the dollar duration of its
portfolio as interest rates increased in the first two quarters, then remained
relatively steady during the last two quarters, and the investments which
matured were replaced with new investments with 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 1999. 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 6 - 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,
                               -------------------------------------------------------------------------------------
                                            2000                          1999                       1998
                                  -------------------------     ------------------------  --------------------------
                                   AMORTIZED                    AMORTIZED    FAIR VALUE    AMORTIZED
                                     COST       FAIR VALUE         COST                       COST       FAIR VALUE
                                  -----------  ------------     ----------   -----------  ------------  ------------
                                                              (DOLLARS IN THOUSANDS)
<S>                               <C>          <C>              <C>          <C>          <C>           <C>
Held to Maturity:
     U.S. government agencies
       and corporations........   $         0  $          0     $   29,176   $    28,299  $     21,591  $     22,080
     Obligations of states and
       Political subdivisions..             0             0          3,732         3,834         5,878         6,340
                                  -----------  ------------     ----------   -----------  ------------  ------------
                                            0             0         32,908        32,133        27,469        28,420
                                  -----------  ------------     ----------   -----------  ------------  ------------
Available for Sale:
     U.S. government agencies
       and corporations........   $   106,452  $    105,862     $   90,071   $    87,028  $     54,438  $     54,704
     U.S. Treasury securities..             -             -              -             -         3,611         3,659
     Obligations of states and
       political subdivisions..        24,232        24,487         23,195        23,052        18,482        19,231
     Commercial paper..........             -             -              -             -             -             -
                                  -----------  ------------     ----------   -----------  ------------  ------------
                                      130,684       130,349        113,266       110,080        76,531        77,594
                                  -----------  ------------     ----------   -----------  ------------  ------------

     Total.....................   $   130,684  $    130,349     $  146,174   $142,213     $    104,000  $    106,014
                                  ===========  ============     ==========   ===========  ============  ============
</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:


                                         DECEMBER 31, 2000
                                       ----------------------
                                        AMORTIZED
                                          COST      FAIR VALUE
                                       ----------   ---------
                                       (DOLLARS IN THOUSANDS)

Cherokee Colorado Water District...    $    2,485   $   2,474
                                       ----------   ---------

TOTAL...............................   $    2,485   $   2,474
                                       ==========   =========


                                      -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, 2000 (1)
                                                         ---------------------
                                                    DUE AFTER
                                         DUE IN       ONE      DUE AFTER
                                          ONE         YEAR     FIVE YEAR
                                        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.......................  $    748    $ 28,313   $  44,019   $      0    $ 73,080
        Weighted average yield........     6.40%       6.03%       6.52%      0.00%       6.29%
Mortgaged Back Pools (2):
        Balance.......................  $    674    $    709   $     391   $ 31,008    $ 32,782
        Weighted average yield........     6.62%       7.00%       7.50%      7.31%       7.26%
Municipal securities - nontaxable (3):
        Balance.......................  $  2,573    $  3,486   $   5,666   $ 10,448    $ 22,173
        Weighted average yield........     5.57%       5.74%       5.09%      5.31%       5.58%
Municipal securities - taxable:
        Balance.......................  $      0    $    112   $     508   $  1,694    $  2,314
        Weighted average yield........     0.00%       7.00%       6.00%      7.40%       6.94%
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.......................  $  2,430    $      0   $       0   $      0    $  2,430
        Weighted average yield........     6.50%       0.00%       0.00%         0%       6.50%
Total:
        Balance.......................  $  6,425    $ 32,620   $  50,584   $ 43,150    $132,779
        Weighted average yield........     6.03%       6.04%       6.39%      6.90%       6.41%
</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.


                                      -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 1999 and 2000 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"). The Bank
purchased $373,900 of dividend-bearing stock in the FHLB. In 1999 and 2000 the
Bank increased its holdings of FHLB dividend-bearing stock to $1,984,000 and
$2,430,000, respectively. The FHLB provides the Bank with access to a
collateralized credit line of approximately $40.1 million, as well as a source
to sell excess federal funds.

      On January 14, 1997, the Bank borrowed $10 million from the FHLB in the
form of two $5 million loans. The purpose of securing these loans was primarily
to provide liquidity and allow the Bank to limit its capital exposure relative
to the available for sale portfolio. The first $5,000,000 enabled management to
reduce its current daily purchase of Federal Funds from approximately $8,000,000
to $3,000,000. With the remaining $5,000,000, the Bank purchased approximately
$5,000,000 in short-term U.S. Government securities, which were placed in the
available for sale portfolio. This allowed the Bank to transfer approximately
$5,000,000 in long-term GMNA mortgage pool securities with relatively high
coupon yields to held to maturity, which limited the Bank's capital exposure.
The loans were structured as follows: $5,000,000 at 6.34%, maturing January 14,
1999; and $5,000,000 at 6.50%, maturing January 14, 2000. The Bank repaid these
loans on their maturity dates.

      Over the course of 2000 the Bank borrowed an aggregate of $188.6 million
from the FHLB at rates ranging from 5.82% to 7.04% and maturities ranging from
one day to three months. The purpose for these loans was to use 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 bond 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 bond portfolio. During 2000, the Bank repaid $188.6 million of the FHLB
loans.

      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


                                      -14-


<PAGE>


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, 2000.

      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,
                                                2000                    1999                   1998
                                        ---------------------  ----------------------  ---------------------
                                                                    (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....... $  108,531     3.04%   $ 104,361       2.63%  $   83,040      2.83%
Certificates of deposit................     82,387     5.69%      77,729       5.16%      50,982      5.63%
Savings accounts.......................     18,161     2.23%      18,999       2.17%      11,932      2.51%
Noninterest-bearing demand deposits....     92,662     N/A        80,508       N/A        59,648      N/A
                                        ---------- ----------  ---------- -----------  ---------- ----------
         Total......................... $  301,741     4.01%   $ 281,597       3.56%  $  205,602      3.57%
                                        ========== ==========  ========== ===========  ========== ==========

</TABLE>

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


                                               DECEMBER 31,
                                              2000      1999
                                            --------   -------
                                            (DOLLARS IN THOUSANDS)

CD's over $100,000 with remaining maturity
      Less than three months........        $ 20,502   $23,219
      Three to six months...........          10,134     4,833
      Over six months to one year...          11,263    10,760
      Over one year.................           4,812     3,164
                                            --------   -------
            Total...................         $46,711   $41,976
                                            ========   =======


COMPETITION

      The banking business in the greater Denver metropolitan area is highly
competitive. 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 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


                                      -15-


<PAGE>


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, 2000, the Company had approximately 147 full-time
equivalent 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.


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


                                      -16-


<PAGE>


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.


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


                                      -17-


<PAGE>


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, 2000, the Company's Tier I and Total Capital ratios were 10.53% and
12.65%, 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 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, 2000, the Company's Tangible Tier I Capital
Leverage Ratio was 7.29%.


                                      -18-


<PAGE>


      Other Issues And Developments Relating To Regulatory Capital. Pursuant to
such authority and directives set forth in the 1988 Beale 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, 2000, 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 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


                                      -19-


<PAGE>


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 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.


                                      -20-


<PAGE>


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.
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 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


                                      -21-


<PAGE>


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
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-


                                      -22-


<PAGE>


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, we cannot give any assurance that
such conditions will continue to prevail. Moreover, substantially all of the
loans of the Company are to businesses and individuals in the Denver area, and
any 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-KSB will continue or that negative
trends or developments will not have a material adverse effect on the Company.
See "Item 6 - 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 in addition to the acquisition of Lakewood State
Bank, the Company in the future intends to review and solicit acquisition
opportunities and, at any given time, any 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.


                                      -23-


<PAGE>


      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. Interstate banking is permitted in
Colorado. As a result, management believes that the Company may experience
greater competition in its market area.

      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, 2000, the
Company had nonperforming loans of $335,000 and an allowance for loan losses of
$3,286,000 or 1.5% of total loans and 980.90% 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 6 - 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 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 57.0% 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.


                                      -24-


<PAGE>


      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 could
include:

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

     -   the strength of credit demands by customers;

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

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

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

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

      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


                                      -25-


<PAGE>


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 $15.81 per square foot, renewable on an annual
basis. The Bank leases this building at approximately $15.61 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.

      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 expires December 31, 2001 and is renewable
for 2 additional years. 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 $9.50 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 runs through July
31, 2001, renewable at the Bank's option for two additional terms of 8 years
each. The Bank leases the building space at approximately $22.25 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


                                      -26-


<PAGE>


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 2000.


                                    PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Price Range of Common Stock


                            2000                      1999
                    ---------------------     ---------------------
                      High         Low          High         Low
                    ---------    --------     ---------    --------
First Quarter       $  13.38     $   9.00     $  12.00     $ 10.50
Second Quarter      $  11.88     $   8.50     $  15.00     $ 10.50
Third Quarter       $  11.75     $   9.00     $  18.85     $ 12.75
Fourth Quarter      $  12.50     $  10.81     $  17.68     $ 13.13


                                               2001
                                    ---------------------------
                                       High             Low
                                    -----------     -----------
First Quarter (to March 21, 2001)   $     14.88     $    11.75


      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


                                      -27-


<PAGE>


closing sale prices on the NASDAQ-NMS. As of March 20, 2001, there were 101
shareholders of record and approximately 500 beneficial shareholders.

      On November 23, 1997, the NASDAQ-NMS and the Securities and Exchange
Commission approved changes to the listing and maintenance standards required to
be met for companies listed on the NASDAQ-NMS. In order to come into compliance
with the revised maintenance requirements, on May 27, 1998, the Company
completed a two-for-one split of its common stock in the form of a
share-for-share stock dividend.


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.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

GENERAL

      As previously announced, on March 17, 2000, the Company and Gold Banc
mutually agreed to terminate their agreement dated August 9, 1999, providing for
the acquisition of Union Bankshares, Ltd. by Gold Banc. The agreement provided
for the acquisition of all the Common Stock of the Company for a purchase price
of $23.05 per share, to be paid in shares of Gold Banc common stock and the
assumption of all outstanding options. The exchange ratio was to be determined
by dividing $23.05 by the average price of Gold Banc common stock during the
10-day trading period ending three days prior to closing, unless the average
price is less than $13 or greater than $16, in which case the average price
would have been fixed at $13 or $16, respectively. On August 9, 1999, the
closing price on the NASDAQ Stock Market for Gold Banc Common Stock was $11.50.
At the close of trading on March 16, 2000, the Gold Banc share price was $6.13.
As such, the value of the transaction to the Company's stockholders was
substantially diminished.

      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. The differences between the Company's financial
condition and results of operations and those of the Bank have historically
consisted primarily of the $10 million loan obtained by the Company upon the
acquisition of the Bank (the "Acquisition Loan"), the $6.9 million in 8.3%
convertible notes due 2003 (the "Convertible Notes") issued as part of the
Company's initial public offering in 1993 and principal and interest payments
thereon, the $4.0 million loan obtained in March 1996 in connection with the
redemption of the remaining Convertible Notes outstanding, and the amortization
of the values assigned to the Bank's core deposits and goodwill in the
acquisition of the Bank. In 1993, the Company began amortizing the remaining
goodwill relating to the acquisition at the rate of approximately $226,000 per
year through 2009.

      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


                                      -28-


<PAGE>


$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.

      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.


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 interest-earning assets and
interest-bearing liabilities. During the fiscal years ended December 31, 2000,
1999 and 1998, average interest-earning assets were $342.4 million, $307.6
million and $218.4 million, respectively. During these same periods, net
interest margin, computed on a full tax equivalent basis, was 5.44%, 4.99% and
5.60%, respectively. See "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.


                                      -29-


<PAGE>


<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                             -- ----------------------------------------------------------------------------------------------------
                                              2000                                1999                             1998
                                --------------------------------   ----------------------------------  -----------------------------
                                            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..........    $  146,667  $  14,762     10.06%    $ 115,507  $   10,923      9.46%   $ 90,585   $  8,878    9.80%
  Real estate mortgage......         5,360        497      9.27%        3,753         354      9.43%      5,446        508    9.33%
  Real estate construction..        24,597      2,964     12.05%       17,482       1,993     11.40%     11,559      1,371   11.86%
  Consumer loans............        27,673      2,713      9.80%       22,942       2,078      9.06%     19,672      1,828    9.29%
                                ----------  ---------               ---------  ----------              --------   --------
   Total loans..............       204,297     20,936     10.25%      159,684      15,348      9.61%    127,262     12,585    9.89%
Allowance for loan loss.....        (3,061)                            (2,727)                           (2,250)
Securities:
  U.S. Government...........       106,657      7,081      6.64%      115,828       7,223      6.24%     52,160      3,121    5.98%
  Municipal -- nontaxable...        23,289      1,994      8.56%       22,491       1,720      7.65%     21,418      1,879    8.77%
  Municipal -- taxable......         1,891        149      7.88%        1,947         130      6.68%      2,547        173    6.79%
                                ----------  ---------          -    ---------  ----------              --------   --------
   Total securities.........       131,837      9,224      7.00%      140,266       9,073      6.48%     76,125      5,173    6.80%
Interest-bearing deposits
 in other banks.............         0.00%         --         --        0.00%         --         --       0.00%
Federal funds sold..........         6,291        401      6.37%        7,695         378      4.92%     15,012        796    5.30%
                                ----------  ---------          -    ---------  ----------              --------   --------
  Total interest-earning assets    342,425     30,561      8.90%      307,645      24,799      8.06%    218,399     18,554    8.50%
                                            ---------                          ----------                         --------
Noninterest-earning assets:
  Excess of investment in subsidiary
  over net assets acquired..         6,375                              6,838                            2,770
  Other assets..............        29,582                             26,675                           19,921
                                ----------                         ----------                        ---------
   Total noninterest-earning
    assets..................        35,957                             33,513                           22,691
                                ----------                         ----------                        ---------
   Total assets.............    $  375,321                         $  338,431                        $ 238,840
                                ==========                         ==========                        =========
</TABLE>


                                      -30-


<PAGE>


<TABLE>
<CAPTION>
                                            2000                              1999                               1998
                                ------------------------------   --------------------------------   ------------------------------
                                            INTEREST   AVERAGE               INTEREST     AVERAGE               INTEREST   AVERAGE
                                             EARNED     YIELD                 EARNED       YIELD                 EARNED     YIELD
                                 AVERAGE       OR        OR       AVERAGE       OR          OR      AVERAGE        OR        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>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
  Interest-bearing demand
   accounts..................   $  108,532  $  3,205    2.95%    $  104,361  $   2,744      2.63%   $  83,040   $  2,350      2.83%
  Certificates of deposit....       82,421     4,687    5.69%        77,729      4,008      5.16%      50,982      2,869      5.63%
  Savings accounts...........       18,162       405    2.23%        18,999        413      2.17%      11,932        300      2.51%
                                ----------  --------             ----------  ---------              ---------   --------
   Total interest-bearing
     accounts................      209,115     8,297    3.97%       201,089      7,165      3.56%     145,954      5,519      3.78%
  Notes payable..............       49,797     3,541    7.11%        31,346      2,120      6.76%      11,469        799      6.97%
  Federal funds purchased....        1,381        93    6.73%         3,127        166      5.31%          32          2      6.25%
                                ----------  --------             ----------  ---------              ---------   --------
   Total interest-bearing
     liabilities.............      260,293    11,931    4.58%       235,562      9,451      4.01%     157,455      6,320      4.01%
                                            --------                         ---------                          --------
Noninterest-bearing demand
     accounts................       92,671                           80,508                            59,648
                                ----------                       ----------                         ---------
   Total deposits and
      interest-bearing
      liabilities............      352,964                          316,070                           217,103
Other noninterest-bearing
      liabilities............        1,836                            2,240                             2,532
                                ----------                       ----------                         ---------
   Total liabilities.........      354,800                          318,310                           219,635
Stockholders' equity.........       20,521                           20,121                            19,205
                                ----------                       ----------                         ---------
   Total liabilities and
     stockholder equity......   $  375,321                       $  338,431                         $ 238,840
                                ==========                       ==========                         =========
Net interest income..........               $ 18,630                         $  15,348                          $ 12,234
                                            ========                         =========                          ========
Net interest spread..........                           4.32%                               4.05%                             4.49%
                                                     ========                            ========                          ========
Net interest margin..........                           5.44%                               4.99%                             5.60%
                                                     ========                            ========                          ========
Ratio of average interest-
  earning assets to averages
  total deposits and
  interest-bearing
  liabilities................                          97.01%                             130.60%                           138.71%
                                                     ========                            ========                          ========
Return on average assets.....                           0.75%                               0.43%                            0.69%
                                                     ========                            ========                          ========
Return on average equity.....                          13.79%                               7.30%                            8.52%
                                                     ========                            ========                          ========
Dividend payout ratio........                           0.00%                               0.00%                            0.00%
                                                     ========                            ========                          ========
Ratio of average equity to
  average assets.............                           5.47%                               5.95%                             8.04%
                                                     ========                            ========                          ========
</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.


                                      -31-


<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, 2000           YEAR ENDED DECEMBER 31, 1999
                                                             VS.                                    VS.
                                                 YEAR ENDED DECEMBER 31, 1999           YEAR ENDED DECEMBER 31, 1998
                                                     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)
INTEREST-EARNING ASSETS
Loans:
<S>                                            <C>          <C>          <C>          <C>          <C>          <C>
Commercial Loans .......................       $  2947      $   892      $  3839      $  2443      $  (398)     $  2045
  Real estate -- mortgage ................         152           (9)         143         (158)           4         (154)
  Real estate -- construction ............         811          160          971          703          (81)         622
  Consumer loans .........................         429          206          635          304          (54)         250
                                               -------      -------      -------      -------      -------      -------
     Total loans .........................       4,339        1,249        5,588        3,292         (529)       2,763

Securities:
  U.S. government securities .............        (572)         430         (142)       3,807          295        4,102
  Municipal -- nontaxable(1) .............          61          213          274           94         (253)        (159)
  Municipal -- taxable ...................          (4)          23           19          (41)          (2)         (43)
                                               -------      -------      -------      -------      -------      -------
     Total securities ....................        (515)         666          151        3,860           40        3,900

Interest-bearing deposits at other banks .          --           --           --           --           --           --
Federal funds sold .......................         (69)          92           23         (389)         (29)        (418)
                                               -------      -------      -------      -------      -------      -------
     Total interest-earning assets .......       3,755        2,007        5,762        6,763         (518)       6,245
                                               -------      -------      -------      -------      -------      -------

INTEREST-BEARING LIABILITIES
Deposits:
  Interest-bearing demand deposits .......         110          351          461          603         (209)         394
  Certificates of deposit ................         242          437          679        1,505         (366)       1,139
  Savings deposits .......................         (18)          10           (8)         178          (65)         113
                                               -------      -------      -------      -------      -------      -------
     Total interest-bearing accounts .....         334          798        1,132        2,286         (640)       1,646

Notes payable ............................       1,248          173        1,421        1,385          (64)       1,321
Federal funds purchased ..................         (93)          20          (73)         193          (29)         164
                                               -------      -------      -------      -------      -------      -------
     Total interest-bearing liabilities ..       1,489          991        2,480        3,864         (733)       3,131
                                               -------      -------      -------      -------      -------      -------
     Total increase in net interest income     $ 2,266      $ 1,016      $ 3,282      $ 2,899      $   215      $ 3,114
                                               =======      =======      =======      =======      =======      =======
</TABLE>
--------------------
(1)     This table is calculated on a full tax-equivalent basis.


                                      -32-


<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 17 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 uses 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 $130,349,000 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.

      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. 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


                                      -33-


<PAGE>


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 anticipates that the Federal Reserve Board will lower interest
rates in 2001. As of December 31, 2000, the dollar duration of the investment
portfolio was 4.63 compared to 4.50 at December 31, 1999. The increase in dollar
duration for 2000 reflects management's replacement of investments which matured
with investments that had slightly higher yields and longer maturities, which
higher yields and longer maturities were due to rising interest rates in the
first two quarters of 2000, and stable rates in the last two quarters of 2000.
The decision resulted in increasing the dollar duration of the portfolio, and
increasing the gross yield on the portfolio from 6.48% to 7.00%. 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. 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 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.


                                      -34-


<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, 2000. 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-KSB 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, 2000
                                                                 ESTIMATED MATURITY OR REPRICING
                                               ---------------------------------------------------------------------
                                               LESS THAN        THREE        ONE YEAR
                                                 THREE        MONTHS TO       TO FIVE       OVER FIVE
                                                 MONTHS        ONE YEAR        YEARS          YEARS          TOTAL
                                               ---------      ---------      ---------      ---------      ---------
<S>                                            <C>            <C>            <C>            <C>            <C>
Interest-earnings assets:
   Fixed rate loans ......................     $   2,505      $   5,692      $  31,510      $  14,295      $  54,002
   Floating rate loans ...................       120,652         15,199         26,372            583        162,806
   Investment securities .................           130          3,865         32,620         93,734        130,349
   FHLB stock ............................         2,430             --             --             --          2,430
   Federal funds sold ....................            --             --             --             --             --
                                               ---------      ---------      ---------      ---------      ---------
        Total interest-earning assets ....       125,717         24,756         90,502        108,612        349,587
                                               ---------      ---------      ---------      ---------      ---------

Interest-bearing liabilities:
   Interest-bearing demand deposits ......        30,413             --             --             --         30,413
   Money market deposits .................        76,549             --             --             --         76,549
   Certificates of deposits under $100,000        11,535         24,345          8,407             --         44,287
   Certificates of deposits over $100,000         20,502         21,397          4,812             --         46,711
   Savings deposits ......................        18,149             --             --             --         18,149
   Notes payable .........................        28,600             --             --         10,304         38,904
   Federal funds purchased ...............            --             --             --             --             --
                                               ---------      ---------      ---------      ---------      ---------
        Total interest-bearing liabilities       185,748         45,742         13,219         10,304        255,013
                                               ---------      ---------      ---------      ---------      ---------

Interest rate gap ........................     $ (60,031)     $ (20,986)     $  77,283      $  98,308
                                               =========      =========      =========      =========
Cumulative interest rate gap .............     $ (60,031)     $ (81,017)     $  (3,734)     $  94,574      $  94,574
                                               =========      =========      =========      =========      =========
Cumulative interest rate gap to
   total assets ..........................        -15.78%        -21.29%         -0.98%        24.86%
                                               =========      =========      =========      =========
Total consolidated assets ................     $ 380,480
                                               =========
</TABLE>


                                      -35-


<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, 2000
                                      ------------------------------------------------
                                      LESS THAN    ONE YEAR TO  OVER FIVE
                                       ONE YEAR    FIVE YEARS     YEARS       TOTAL
                                      ---------    -----------  ---------    --------
<S>                                   <C>          <C>          <C>          <C>
Commercial Loans ................     $ 79,183     $ 50,260     $ 24,284     $153,727
Real estate -- construction loans       23,025        3,219          711       26,955
Real estate -- mortgage loans ...          766        3,398          208        4,372
Consumer loans ..................       13,107       15,033        3,614       31,754
                                      --------     --------     --------     --------
            Total ...............     $116,081     $ 71,910     $ 28,817     $216,808
                                      ========     ========     ========     ========

Fixed rate loans ................                  $ 27,126     $  5,398
Floating rate loans .............                    44,784       23,419
                                                   --------     --------
            Total ...............                  $ 71,910     $ 28,817
                                                   ========     ========
</TABLE>

RESULTS OF OPERATIONS

Years ended December 31, 2000 and 1999

      Overview. Net income increased $1,361,000 for 2000 to $2,829,000 from
$1,468,000. 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.


                                      -36-


<PAGE>


      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.


PROVISION FOR LOAN LOSSES

      The Company's provisions for loan losses in the years ended December 31,
2000, 1999, and 1998 were $381,000, $227,000, and $278,000, respectively. See
"Item 1 - Business - Analysis of Allowance for Loan Losses."


INCOME TAXES

      The Company's income tax expense for the years ended December 31, 2000,
1999, and 1998 was $1,250,000, $376,000, and $377,000, 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, 2000, deposits
increased to $315,329,000 from $290,055,000 and $271,650,000 at December 31,
1999 and 1998 respectively. None of the deposits at December 31, 2000, 1999, or
1998 were brokered deposits. Management believes that the increases in deposits
in 1999 and 2000 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, 2000, net loans were
$213,522,000 compared to $181,733,000 and $144,517,000 at December 31, 1999 and
1998, respectively.

      In December 1998, Union Bankshares Capital Trust I, a newly formed
Delaware business trust completed the sale of $10.3 million of 9% Cumulative
Trust Preferred Securities, guaranteed on a subordinated basis by the Company.
The Company contributed $7 million of the proceeds of the offering to the Bank
to finance the acquisition of Lakewood State Bank. The remainder of the proceeds
was used for general corporate purposes, including the payoff of all outstanding
amounts to NationsBank under the Loan Agreement. The Company also terminated the
revolving line of credit it maintained with NationsBank.

      The Company has 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 line would be used solely for capital
needs of the Company or to purchase the stock of banks or bank holding
companies. This line of credit would be 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


                                      -37-


<PAGE>


use of proceeds. Interest would be 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

      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 $24,160,000 at
December 31, 2000 from $19,383,000 at December 31, 1999. This increase is a
result of an increase in retained earnings of $2,829,000 relating to 2000 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 $135,000
relating to the exercise of stock options, and an increase in unrealized gains
on investment securities available for sale of $1,783,000. At December 31, 2000,
stockholders' equity was 6.4% of total assets, compared to 5.4% of total assets
at December 31, 1999. 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, 2000.


                                      -38-


<PAGE>


<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2000
                                                          ---------------------
                                                          (DOLLARS IN THOUSANDS)
<S>                                                         <C>
Company
   Tier I Capital.......................................    $    26,417
   Total Capital........................................         31,731
   Risk-Weighted Assets.................................        250,876
   Tier I Capital to Risk-Weighted Assets...............         10.53%
   Total Capital to Risk-Weighted Assets................         12.65%
   Leverage Ratio.......................................          7.29%

Bank
   Tier I Capital.......................................    $    22,778
   Total Capital........................................         25,785
   Risk-Weighted Assets.................................        240,537
   Tier I Capital to Risk-Weighted Assets...............          9.48%
   Total Capital to Risk-Weighted Assets................         10.73%
   Leverage Ratio.......................................          6.25%
</TABLE>

      Bank management is anticipating 2001 capital expenditures of approximately
$1,300,000 in connection with updating its internal operating systems. The Bank
intends to use part of its anticipated income in 2001 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


                                      -39-


<PAGE>


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.

      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 From 10-KSB constitute cautionary
statements identifying important factors, including certain risks and
uncertainties, with respect to such forward-looking statements that could cause
actual results to differ materially from those reflected in such forward-looking
statements.


ITEM 7.  FINANCIAL STATEMENTS

      See Index to Financial Statements appearing in Item 13 on Page 42.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.


                                      -40-


<PAGE>


                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      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 2001
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2001.


ITEM 10. 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 2001
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2001.


ITEM 11. 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 2001
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2001.


ITEM 12. 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 2001
Annual Meeting of Shareholders, to be filed with the Securities and Exchange
Commission not later than April 30, 2001.


                                      -41-


<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)   Index to Financial Statements
<TABLE>
<CAPTION>
                                                                                PAGE REFERENCE
<S>                                                                             <C>
      Reports of Independent Accountants                                             F-1
      Consolidated Balance Sheets at December 31, 2000 and 1999                      F-2
      Consolidated Statements of Income for the Years Ended
         December 31, 2000, 1999 and 1998                                            F-4
      Consolidated Statements of Comprehensive Income for the
         Years Ended December 31, 2000, 1999 and 1998                                F-6
      Consolidated Statements of Stockholders' Equity for the
         Years Ended December 31, 2000, 1999 and 1998                                F-7
      Consolidated Statements of Cash Flows for the Years Ended
         December 31, 2000, 1999 and 1998                                            F-8
      Notes to Consolidated Financial Statements                                    F-10
</TABLE>

      Exhibits

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

(b)   Reports on Form 8-K

         None.


                                      -42-


<PAGE>


                             UNION BANKSHARES, LTD.

                       Independent Accountants' Report and
                        Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


<PAGE>


                             UNION BANKSHARES, LTD.


                        DECEMBER 31, 2000, 1999 AND 1998


                                TABLE OF CONTENTS



                                                                            PAGE

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

CONSOLIDATED FINANCIAL STATEMENTS
  Balance Sheets.............................................................F-2
  Statements of Income.......................................................F-4
  Statements of Comprehensive Income.........................................F-6
  Statements of Stockholders' Equity.........................................F-7
  Statements of Cash Flows...................................................F-8
  Notes to Financial Statements.............................................F-10


<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, 2000 and 1999, 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, 2000. 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 generally accepted auditing
standards. 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, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with generally accepted accounting principles.



                                             /s/ Baird, Kurtz & Dobson


Colorado Springs, Colorado
February 2, 2001


                                      F-1
<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2000 AND 1999

                                     ASSETS
                                     ------

                                                                   2000          1999
                                                              ------------  ------------
<S>                                                           <C>           <C>
Cash and due from banks                                       $ 19,551,000  $ 15,493,000

Held-to-maturity securities                                           --      32,908,000

Available-for-sale securities                                  130,349,000   110,080,000

Other investments                                                2,430,000     1,984,000

Loans, net                                                     213,522,000   181,733,000

Excess of investment in subsidiary over net assets acquired,
 net of amortization                                             6,092,000     6,630,000

Premises and equipment                                           2,724,000     3,309,000

Accrued interest receivable                                      3,170,000     2,586,000

Other assets                                                     2,642,000     3,863,000
                                                              ------------  ------------


TOTAL ASSETS                                                  $380,480,000  $358,586,000
                                                              ============  ============
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-2
<PAGE>


<TABLE>
<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

                                                                        2000             1999
                                                                  -------------   -------------
<S>                                                               <C>             <C>
LIABILITIES
  Deposits:
    Demand                                                        $  99,220,000   $  88,392,000
    NOW                                                              30,413,000      27,348,000
    Money Market                                                     76,549,000      78,403,000
    Savings                                                          18,149,000      19,382,000
    Time                                                             90,998,000      76,530,000
                                                                  -------------   -------------
          Total Deposits                                            315,329,000     290,055,000

  Advances from FHLB                                                 28,600,000      28,600,000
  Guaranteed Preferred Beneficial Interests
    In Company's Debentures                                          10,304,000      10,304,000
  Federal funds purchased                                                  --         8,500,000
  Accrued interest payable                                              383,000         382,000
  Other liabilities                                                   1,704,000       1,362,000
                                                                  -------------   -------------
          Total Liabilities                                         356,320,000     339,203,000
                                                                  -------------   -------------

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
   2000 - 2,395,710 shares; 1999 - 2,373,914 shares                       2,000           2,000
  Additional paid-in capital                                          9,987,000       9,822,000
  Retained earnings                                                  14,393,000      11,564,000
  Accumulated other comprehensive income:
   Unrealized depreciation on available-for-sale securities,
   net of applicable income taxes of ($113,000) and ($1,183,000)
   in 2000 and 1999, respectively                                      (222,000)     (2,005,000)
                                                                  -------------   -------------
          Total Stockholders' Equity                                 24,160,000      19,383,000
                                                                  -------------   -------------


TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $ 380,480,000   $ 358,586,000
                                                                  =============   =============
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-3
<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                        CONSOLIDATED STATEMENTS OF INCOME

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


                                                     2000           1999           1998
                                                ------------   ------------  ------------
<S>                                                <C>            <C>           <C>
INTEREST INCOME
  Interest and fees on loans                    $ 20,936,000   $ 15,348,000  $ 12,585,000
  Interest on investment securities:
    U.S. government agencies and corporations      7,080,000      7,223,000     3,121,000
    States and other political subdivisions ..     1,465,000      1,266,000     1,415,000
    Interest on federal funds sold and
      interest-bearing deposits in other banks       401,000        378,000       796,000
                                                ------------   ------------  ------------
          Total interest income                   29,882,000     24,215,000    17,917,000
                                                ------------   ------------  ------------

INTEREST EXPENSE
  Deposits                                         8,297,000      7,165,000     5,519,000
  Federal funds purchased                             93,000        166,000         2,000
  Notes payable                                    3,541,000      2,120,000       799,000
                                                ------------   ------------  ------------
          Total interest expense                  11,931,000      9,451,000     6,320,000
                                                ------------   ------------  ------------

NET INTEREST INCOME BEFORE
 PROVISION FOR LOAN LOSSES                        17,951,000     14,764,000    11,597,000

PROVISION FOR LOAN LOSSES                            381,000        227,000       278,000
                                                ------------   ------------  ------------

NET INTEREST INCOME AFTER
 PROVISION FOR LOAN LOSSES                        17,570,000     14,537,000    11,319,000
                                                ------------   ------------  ------------

NONINTEREST INCOME
  Service charges                                    826,000        655,000       405,000
  (Loss) gain on sale of available-for-sale
   securities, net                                  (345,000)       266,000        43,000
  Other                                              719,000        700,000       514,000
                                                ------------   ------------  ------------
          Total noninterest income                 1,200,000      1,621,000       962,000
                                                ------------   ------------  ------------
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-4
<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


                                                     2000           1999           1998
                                                ------------   ------------  ------------
<S>                                                <C>            <C>           <C>
NONINTEREST EXPENSE
  Salaries and employee benefits                   7,919,000      7,250,000     5,311,000
  Amortization of excess of cost over
   fair value of net assets acquired                 539,000        539,000       232,000
  Occupancy and equipment                          2,205,000      2,232,000     1,537,000
  Other operating expenses                         4,028,000      4,293,000     3,187,000
                                                ------------   ------------  ------------
          Total noninterest expense               14,691,000     14,314,000    10,267,000
                                                ------------   ------------  ------------


INCOME BEFORE INCOME TAXES                         4,079,000      1,844,000     2,014,000

INCOME TAXES                                       1,250,000        376,000       377,000
                                                ------------   ------------  ------------

NET INCOME                                      $  2,829,000   $  1,468,000  $  1,637,000
                                                ============   ============  ============

EARNINGS PER SHARE
 BASIC
  Net income                                    $       1.18   $        .62  $        .70
  Weighted average number of common
   shares outstanding                              2,387,901      2,352,540     2,339,119

DILUTED
  Net income                                    $       1.09   $        .55  $        .62
  Weighted average number of common
   shares outstanding                              2,597,559      2,649,473     2,622,753

</TABLE>


See Notes to Consolidated Financial Statements


                                      F-5
<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998



                                                            2000           1999          1998
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
NET INCOME                                              $ 2,829,000   $ 1,468,000   $ 1,637,000

OTHER COMPREHENSIVE INCOME (LOSS)
  Unrealized appreciation (depreciation) on
   available-for-sale securities, net of income
   taxes $1,203,000, ($1,564,000) and $195,000,
   for December 31, 2000, 1999
   and 1998, respectively                                 2,009,000    (2,714,000)      416,000

  Less: reclassification adjustment for realized
   (gain) losses included in net income, net of
   income taxes of ($128,000), $99,000
   and  $15,000 for December 31, 2000,
   1999 and 1998, respectively                              217,000      (167,000)      (26,000)

  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                           4,612,000    (1,413,000)    2,027,000

  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)                             $ 4,612,000   $(1,180,000)  $ 2,027,000
                                                        ===========   ===========   ===========
</TABLE>


See Notes to Consolidated Financial Statements


                                      F-6


<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


                                                                                        Accumulated Other
                                                                      Additional Paid-in  Comprehensive   Retained
                                                   Shares     Amount       Capital           Income       Earnings         Total
                                               -----------  ---------   ------------      ------------   ------------   ------------
<S>               <C> <C>                        <C>        <C>         <C>               <C>            <C>            <C>
BALANCE, DECEMBER 31, 1997                       2,332,014  $   2,000   $  9,583,000      $    253,000   $  8,384,000   $ 18,222,000
    Shares issued for stock option plan             10,000       --           56,000            --             --           56,000
    Net change in unrealized appreciation
      of available-for-sale securities,
      net of income taxes of $249,000                 --         --             --             390,000           --          390,000
    Increase in retained earnings due to
      stock option plans                              --         --             --              39,000         39,000
    Net income                                        --         --             --                --        1,637,000      1,637,000
                                               -----------  ---------   ------------      ------------   ------------   ------------

BALANCE, DECEMBER 31, 1998                       2,342,014      2,000      9,639,000           643,000     10,060,000     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
    Net change in unrealized (depreciation)
      of 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
    Net change in unrealized appreciation
      of 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
                                               ===========  =========   ============      ============   ============   ============
</TABLE>


See Notes to Consolidated Financial Statements


                                       F-7


<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998


                                                                  2000           1999           1998
                                                             ------------   ------------   ------------
<S>                                                          <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                 $  2,829,000   $  1,468,000   $  1,637,000
  Items not requiring (providing) cash:
      Loss (gain) on sale of securities                           345,000       (266,000)       (41,000)
      Federal Home Loan Bank stock dividend                          --          (88,000)       (72,000)
      Amortization (accretion) of premium/discount on
        investments                                              (157,000)       395,000        455,000
      Amortization of deferred loan fees, net of costs           (537,000)      (511,000)      (310,000)
      Deferred income taxes                                      (152,000)       (19,000)      (230,000)
      Provision for loan losses                                   381,000        227,000        278,000
      Depreciation and amortization                               839,000        625,000        491,000
      Amortization of excess of cost over fair value of
        net assets acquired and offering costs                    615,000        615,000        232,000
      Loss on sale of premises and equipment                         --           10,000           --
  Changes in:
      Mortgage loans held for sale                                   --        4,285,000     (3,032,000)
      Accrued interest receivable                                (584,000)    (1,044,000)        72,000
      Other assets                                               (439,000)      (550,000)      (581,000)
      Accrued interest payable                                      1,000        (89,000)        97,000
      Other liabilities                                           342,000       (446,000)       671,000
                                                             ------------   ------------   ------------
         Net cash provided by (used in) operating
           activities                                           3,483,000      4,612,000       (333,000)
                                                             ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from maturities of available-for-sale securities     8,120,000     14,091,000     24,932,000
  Proceeds from maturities of held-to-maturity securities       1,628,000      7,101,000      6,995,000
  Proceeds from sale of available-for-sale securities          26,402,000     18,816,000      2,312,000
  Purchase of available-for-sale securities                   (20,181,000)   (78,270,000)   (55,426,000)
  Purchase of held-to-maturity securities                            --       (3,958,000)    (6,710,000)
  Purchase of other investments                                  (446,000)      (872,000)          --
  Net increase in loans                                       (31,633,000)   (36,932,000)      (882,000)
  Purchase of Lakewood State Bank, net of cash acquired              --             --          520,000
  Proceeds from sale of other real estate                            --          150,000           --
  Proceeds from sale of premises and equipment                      5,000        957,000           --
  Purchase of premises and equipment                             (259,000)    (1,309,000)    (1,306,000)
                                                             ------------   ------------   ------------
         Net cash used in investing activities                (16,364,000)   (80,226,000)   (29,565,000)
                                                             ------------   ------------   ------------
</TABLE>


See Notes to Consolidated Financial Statements


                                       F-8
<PAGE>


<TABLE>
<CAPTION>
                             UNION BANKSHARES, LTD.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998



                                                                  2000           1999           1998
                                                             ------------   ------------   ------------
<S>                                                          <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in demand deposits, money market,
    NOW and savings accounts                                   10,806,000     24,983,000      8,700,000
  Net increase (decrease) in time deposits                     14,468,000     (6,578,000)    31,543,000
  Change in federal funds purchased                            (8,500,000)     8,500,000           --
  Proceeds from FHLB advances                                        --       18,600,000           --
  Principal repayments of FHLB advances                              --             --       (2,000,000)
  Proceeds from issuance of common stock                          165,000        183,000         56,000
  Proceeds from issuance of Guaranteed Preferred
   Beneficial Interests in Company's Debentures                      --             --       10,304,000
                                                             ------------   ------------   ------------
         Net cash provided by financing activities             16,939,000     45,688,000     48,603,000
                                                             ------------   ------------   ------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                              4,058,000    (29,926,000)    18,705,000

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                            15,493,000     45,419,000     26,714,000
                                                             ------------   ------------   ------------

CASH AND CASH EQUIVALENTS,
  END OF YEAR                                                $ 19,551,000   $ 15,493,000   $ 45,419,000
                                                             ============   ============   ============
</TABLE>


See Notes to Consolidated Financial Statements


                                       F-9


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


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

NATURE OF OPERATIONS

    Union Bank and Trust (Bank) is a wholly-owned subsidiary of Union
Bankshares, Ltd. (Bankshares) (collectively referred to as 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 generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    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-10


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 1:   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (CONTINUED)

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 $352,000 and $225,000 at December 31, 2000 and
1999, respectively.

    As of December 31, 2000 and 1999, the Company had approximately $7,700,000
and $5,100,000 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.

    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.


                                      F-11


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 1:   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (CONTINUED)

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.
Interest income is accrued on the unpaid principal balance.

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.

    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.


                                      F-12


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 1:   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (CONTINUED)

MORTGAGE LOANS HELD FOR SALE

    Mortgage loans held for sale are normally sold within 120 days of
origination and are carried at the lower of cost or market. Gains and losses
resulting from sales of mortgage loans are recognized when the respective loans
are sold to investors. Gains and losses are determined by the difference between
the selling price and the carrying amount of the loans sold, net of discounts
collected or paid and considering a normal servicing rate.

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.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED

    The Company purchased a subsidiary in 1985 in which the excess costs over
the fair value of certain underlying net tangible assets were amortized over a
period of nine years. The remaining excess costs over the fair value of the net
assets are being amortized on a straight-line basis over a 25 year period at a
rate of approximately $226,000 per year. The excess cost over purchase price 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 through 2014.
Amortization expense related to the purchased subsidiary and branch bank in 2000
and 1999 was $539,000 and $539,000, 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 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.


                                      F-13


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 1:   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
          (CONTINUED)

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, 2000 and
1999, respectively.

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.

    All share and per share amounts have been restated to reflect the
two-for-one stock split which was voted on and approved by stockholders on
May 27, 1998.


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.


                                      F-14


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)

    The amortized cost and approximate fair value of held-to-maturity securities
as of December 31, 1999 was as follows:


<TABLE>
<CAPTION>
                                                       Gross           Gross
                                      Amortized      Unrealized      Unrealized     Approximate
                                         Cost          Gains           Losses        Fair Value
                                    -------------  -------------   -------------   -------------
<S>                                 <C>            <C>             <C>             <C>
U.S. Government agencies and
  corporations                      $  29,176,000  $      65,000   $    (942,000)  $  28,299,000
Obligations of state and political
  subdivisions                          3,732,000        102,000            --         3,834,000
                                    -------------  -------------   -------------   -------------

                                    $  32,908,000  $     167,000   $    (942,000)  $  32,133,000
                                    =============  =============   =============   =============
</TABLE>

   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
                                    -------------  -------------   -------------   -------------
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
                                    =============  =============   =============   =============

1999:

U.S. Government agencies and
  corporations                      $  90,071,000  $      44,000   $  (3,087,000)  $  87,028,000
Obligations of state and political
  subdivisions                         23,195,000        265,000        (408,000)     23,052,000
                                    -------------  -------------   -------------   -------------

                                    $ 113,266,000  $     309,000   $  (3,495,000)  $ 110,080,000
                                    =============  =============   =============   =============

</TABLE>


                                      F-15


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 2:  INVESTMENTS IN DEBT AND EQUITY SECURITIES (CONTINUED)

    Maturities of available-for-sale securities at December 31, 2000:

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

One year or less                     $  3,986,000  $  3,995,000
After one year through five years      33,888,000    33,809,000
After five years through ten years     51,854,000    51,670,000
After ten years                        40,956,000    40,875,000
                                     ------------  ------------

                                     $130,684,000  $130,349,000
                                     ============  ============

    The amortized cost of securities pledged as collateral, to secure notes
payable, public deposits and for other purposes, amounted to $54,168,000 at
December 31, 2000 and $38,656,000 at December 31, 1999. The approximate fair
value of pledged securities amounted to $53,745,000 at December 31, 2000 and
$37,681,000 at December 31, 1999.

    Gross gains of $60,000, $303,000 and $45,000 and gross losses of $405,000,
$37,000 and $2,000 resulting from sales of available-for-sale securities were
realized for 2000, 1999 and 1998, 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.

    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 $40,100,000 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, 2000
and 1999 of $28,600,000 and $28,600,000, respectively.


                                      F-16

<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 3:  LOANS AND ALLOWANCE FOR LOAN LOSSES

    Categories of loans include:

                                    2000             1999
                                -------------   -------------

     Commercial                 $ 153,727,000   $ 133,978,000
     Real estate mortgage           4,372,000       5,780,000
     Real estate construction      26,955,000      22,012,000
     Consumer                      31,754,000      22,855,000
                                -------------   -------------
                                  216,808,000     184,625,000
     Allowance for loan losses     (3,286,000)     (2,892,000)
                                -------------   -------------

     Net loans                  $ 213,522,000   $ 181,733,000
                                =============   =============

    Transactions in the allowance for loan losses were as follows:

<TABLE>
<CAPTION>
                                                  2000         1999           1998
                                              -----------   -----------   -----------
<S>                                           <C>           <C>           <C>
     Balance, beginning of year               $ 2,892,000   $ 2,678,000   $ 2,125,000
     Allowance for loan losses of acquired
      institution                                    --            --         350,000
     Charge offs                                 (214,000)      (27,000)      (86,000)
     Recoveries                                   227,000        14,000        11,000
     Provision charged to operating expenses      381,000       227,000       278,000
                                              -----------   -----------   -----------

     Balance, end of year                     $ 3,286,000   $ 2,892,000   $ 2,678,000
                                              ===========   ===========   ===========
</TABLE>

    Impaired loans totaled $5,112,000 and $2,985,000 at December 31, 2000 and
1999, respectively. An allowance for loan losses of $767,000 and $450,000
related to impaired loans at December 31, 2000 and 1999, respectively. At
December 31, 1998, all impaired loans had allocated allowances.

    Interest of $410,000 and $261,000 was recognized on average impaired loans
of $4,143,000 and $2,851,000 for 2000 and 1999, respectively. Interest of
$621,000 and $254,000 was recognized on impaired loans on a cash basis during
2000 and 1999, respectively.


                                      F-17


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 4:  PREMISES AND EQUIPMENT

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

                                                         2000          1999
                                                     -----------   -----------

     Land                                            $   150,000   $   150,000
     Building                                            750,000       750,000
     Leasehold improvements                            2,361,000     2,058,000
     Furniture and equipment                           3,311,000     3,364,000
                                                     -----------   -----------
                                                       6,572,000     6,322,000
     Less accumulated depreciation and amortization   (3,848,000)   (3,013,000)
                                                     -----------   -----------

     Net premises and equipment                      $ 2,724,000   $ 3,309,000
                                                     ===========   ===========


NOTE 5:  DEPOSITS

    Interest bearing deposits in denominations of $100,000 or more were
$96,938,000 on December 31, 2000 and $41,976,000 on December 31, 1999.

    At December 31, 2000, the scheduled maturities of time deposits were as
follows:

                     2001                      $ 77,429,000
                     2002                        11,858,000
                     2003                         1,089,000
                     2004                           391,000
              2005 and thereafter                   231,000
                                               ------------
                                               $ 90,998,000
                                               ============


                                      F-18


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 6:  ADVANCES FROM FHLB

    Notes payable consisted of the following components:

                                                       2000         1999
                                                   -----------  -----------

     Advances from FHLB                            $28,600,000  $28,600,000
                                                   ===========  ===========


    The Bank entered into two $5,000,000 advance agreements with the FHLB in
December 2000 bearing interest at a rate of 6.55% and 6.48% and maturing on
January and February 2001. Additionally, the bank entered into a $5,000,000
advance agreement dated November 2000 bearing interest at a rate of 6.7% and
maturing February 2001. Further, the bank entered into a $10,000,000 advance
agreement dated October 2000 bearing interest at a rate of 6.72% that matured
January 8, 2001. As of December 31, 2000, the bank also has a line of credit
with $3,600,000 outstanding, bearing interest at a daily floating rate, (6.9% at
December 31, 2000), maturing July 13, 2001. The advances are secured by pledges
of securities as discussed in Note 2.

    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

                                                       2000         1999
                                                   -----------  -----------

     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-19


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 8:  INCOME TAXES

    The provision for income taxes consists of:

<TABLE>
<CAPTION>
                                                                      2000         1999          1998
                                                                  -----------   -----------   -----------
<S>                                                               <C>           <C>           <C>
         Taxes currently payable                                  $ 1,402,000   $   395,000   $   607,000
         Deferred income taxes                                       (152,000)      (19,000)     (230,000)
                                                                  -----------   -----------   -----------

                                                                  $ 1,250,000   $   376,000   $   377,000
                                                                  ===========   ===========   ===========
</TABLE>

    The tax effects of temporary differences related to deferred taxes shown in
the December 31, balance sheets are:

<TABLE>
<CAPTION>
                                                                      2000         1999
                                                                  -----------   -----------
<S>                                                               <C>           <C>
         Deferred tax assets:
           Allowance for loan losses                              $   982,000   $   842,000
           Accrued expenses                                            20,000        32,000
           Deferred loan fees                                          95,000       219,000
           Deferred compensation                                       67,000        51,000
           Furniture, equipment and improvements                       86,000          --
           Unrealized losses on available-for-sale securities         113,000     1,183,000
           State net operating loss and credit carryforwards          104,000        87,000
                                                                  -----------   -----------
                                                                    1,467,000     2,414,000
                                                                  -----------   -----------
         Deferred tax liabilities:
           Federal Home Loan Bank Stock                               (79,000)      (79,000)
           Furniture, equipment and improvements                         --         (48,000)
           Discount accretion on tax exempt municipal securities      (19,000)         --
                                                                  -----------   -----------
                                                                      (98,000)     (127,000)
                                                                  -----------   -----------

                   Net deferred tax asset                         $ 1,369,000   $ 2,287,000
                                                                  ===========   ===========
</TABLE>

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


<TABLE>
<CAPTION>
                                                                      2000         1999          1998
                                                                  -----------   -----------   -----------
<S>                                     <C>                       <C>           <C>           <C>
         Computed at the statutory rate (34%)                     $ 1,387,000   $   627,000   $   685,000
         Increase (decrease) in income taxes resulting from:
           Tax-exempt interest                                       (447,000)     (387,000)     (367,000)
           Amortization of excess of investment
           in subsidiary over net assets acquired                     182,000        79,000        79,000
           State income taxes, net of federal tax
            benefit                                                      --         (51,000)       16,000
           Nondeductible interest                                      48,000        40,000        42,000
           Other, net                                                  80,000        68,000       (78,000)
                                                                  -----------   -----------   -----------

         Income tax expense                                       $ 1,250,000   $   376,000   $   377,000
                                                                  ===========   ===========   ===========
</TABLE>


                                      F-20


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 8:  INCOME TAXES (CONTINUED)

    The Company has a net operating loss carryforward available to offset
Colorado state taxable income of $1,686,000 which expires by 2019.


NOTE 9:  EARNINGS PER SHARE

    A reconciliation of the numerators and denominators of the basic and diluted
earnings per share calculation for income before extraordinary item is shown
below for the years ended December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                              Income       Shares      Per-Share
                                            (Numerator) (Denominator)    Amount
                                              ----------  ---------     --------
<S>                                           <C>         <C>           <C>
     2000
       Income before extraordinary item       $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
                                              ========== ==========     ========

     1999
       Income before extraordinary item       $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
                                              ==========  =========     ========

     1998
       Income before extraordinary item       $1,637,000  2,339,119
         Basic earnings per share                                       $    .70
                                                                        ========

       Effect of dilutive securities:
         Stock options                             --       283,634
                                              ----------   --------

       Diluted earnings per share             $1,637,000  2,622,753     $    .62
                                              ==========  =========     ========
</TABLE>


                                      F-21


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


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 on balance
sheet instruments.

    At December 31, 2000 and 1999, the Bank had granted unused lines of credit
to borrowers aggregating approximately $74,434,000 and $75,214,000,
respectively. At December 31, 2000, unused lines of credit consisted of
approximately $70,591,000 for commercial lines and $3,843,000 for open-end
consumer lines.

    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 $3,103,906 and
$2,034,377 at December 31, 2000 and 1999, respectively, with terms ranging from
15 days to two years.

    At December 31, 2000 and 1999, the Bank had outstanding commitments to
originate loans aggregating approximately $7,515,500 and $11,510,500,
respectively. The commitments extended over varying periods of time with the
majority being disbursed within a one-year period.


                                      F-22


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 11:  OPERATING LEASES

    The Bank leases numerous premises under noncancelable leases which 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, 2000 were as follows:

                  2001                               $   593,000
                  2002                                   559,000
                  2003                                   556,000
                  2004                                   380,000
                  2005                                    75,000
               Thereafter                                185,000
                                                      ----------

         Total future minimum lease payments         $ 2,348,000
                                                      ==========

    Total rental expense for all operating leases including certain cancelable
equipment leases, was $759,000, $690,000 and $614,000, for the years ended
December 31, 2000, 1999 and 1998, respectively.


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS

    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 $323,000,
$304,000 and $226,000 in 2000, 1999 and 1998, 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.


                                      F-23


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998

NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (CONTINUED)

    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 2000 and 1999 and $6,000 for 1998, 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 2000, 1999 and 1998, the
Company issued 2,284, 2,500 and 2,000 common shares, respectively, pursuant to
the Compensation Plan at exercise prices of $13.13, $12.00 and $24.00,
respectively.

    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.

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

<TABLE>
<CAPTION>
                                          2000                 1999                  1998
                                  -------------------   ------------------   ------------------

                                             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     473,800   $   6.50   479,200   $   6.16   443,400   $  5.61
Granted                             54,400      12.38    23,400      12.50    43,700     11.38
Exercised                          (13,300)      5.26   (26,900)      5.20    (6,500)     3.97
Forfeited                           (3,700)     11.82    (1,900)      9.48    (1,400)     5.19
                                  ---------             --------             --------

Outstanding, end of year           511,200   $   7.12   473,800   $   6.50   479,200   $  6.16
                                  =========             ========             ========

Options exercisable, end of year   467,500              444,000              436,734
</TABLE>


                                      F-24


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (CONTINUED)

    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:

                                          2000          1999            1998
                                          ----          ----            ----

    Dividend per share                   $ 0           $  0           $  0
    Risk-free interest rate                4.98%          6.55%          4.75%
    Expected life of options               4 years       10 years       10 years

    Weighted-average fair value of
      options granted during year        $ 4.52        $  7.86        $  5.09

    The following table summarizes information about stock options under the
Incentive Plan outstanding at December 31, 2000:

                          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    2 years    $  4.50      154,000    $  4.50
           $4.00      13,000    3 years    $  4.00       13,000    $  4.00
  $3.75 to $3.81      19,000    4 years    $  3.76       19,000    $  3.76
           $5.38     147,300    5 years    $  5.38      147,300    $  5.38
           $7.63      22,500    6 years    $  7.63       22,500    $  7.63
          $11.75      37,900    7 years    $ 11.75       37,900    $ 11.75
          $11.38      40,800    8 years    $ 11.38       40,800    $ 11.38
          $12.50      22,300    9 years    $ 12.50       14,867    $ 12.50
          $12.38      54,400   10 years    $ 12.38       18,133    $ 12.38

    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 are reserved for issuance under the Directors' Plan. Nonemployee 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-25

<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (CONTINUED)

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

<TABLE>
<CAPTION>
                                          2000               1999                 1998
                                   ----------------    ---------------     ----------------
                                             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      8,000   $  10.86     9,000   $ 8.74       9,000   $ 7.14
Granted                             2,000      11.88     2,000    13.13       2,000    12.50
Exercised                          (1,000)      5.50    (2,500)    4.95      (1,500)    4.13
Forfeited                              --      --         (500)   12.07        (500)    4.13
                                 --------             --------              -------

Outstanding, end of year            9,000   $  11.68     8,000   $10.86       9,000   $ 8.74
                                 ========             ========              =======

Options exercisable, end of
  year                              7,000                6,000                7,000

</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:

                                          2000            1999           1998
                                          ----            ----           ----

    Dividend per share                 $  0            $  0           $  0
    Risk-free interest rate               4.98%           6.55%          4.75%
    Expected life of options              4 years         4 years        5 years

    Weighted-average fair value of
      options granted during year      $  4.52         $  5.05        $  3.64


                                      F-26


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS  (CONTINUED)

    The following table summarizes information about stock options under the
Directors' Plan outstanding at December 31, 2000:

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

     $8.00         1,500       1 years     $ 8.00      1,500      $ 8.00
    $12.07         1,500       2 years     $12.07      1,500      $12.07
    $12.50         2,000       3 years     $12.50      2,000      $12.50
    $13.13         2,000       4 years     $13.13      2,000      $13.13
    $11.88         2,000       5 years     $11.88         --      $   --


    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>
                                             2000                       1999                 1998
                                  ------------------------   ---------------------  ---------------------
                                               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        212,566   $ 10.15       207,715   $ 10.07         78,586   $  7.93
Granted                                 6,304     12.38         4,851     13.13        129,129     11.38
Exercised                              (5,212)    11.38            --      --               --       --
Forfeited                                  --     --               --      --               --       --
                                  -----------             -----------              -----------

Outstanding, end of year              213,658   $ 10.16       212,566   $ 10.15        207,715   $ 10.07
                                  ===========             ===========              ===========

Options exercisable, end of
  year                                207,354                 207,715                   78,586

</TABLE>


                                      F-27


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 12:  EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS (CONTINUED)

    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:

                                              2000              1999
                                              ----              ----

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

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

    The following table summarizes information about stock options under the
Bonus Plan outstanding at December 31, 2000:

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

    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 $150,000, $102,000 and $368,000 in 2000, 1999 and
1998, respectively. In addition, the Company's basic earnings per share would
have decreased by $.06 per share, $.04 per share and $.16 per share in 2000,
1999 and 1998, respectively. Diluted earnings per share would have decreased
$.06 per share, $.04 per share and $.14 per share, respectively.


                                      F-28


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 13:  OTHER OPERATING EXPENSES

    Other operating expenses consist of the following:

<TABLE>
<CAPTION>
                                                2000         1999         1998
                                             ----------   ----------   ----------
<S>                                          <C>          <C>          <C>
     Professional services                   $  818,000   $  990,000   $  729,000
     Credit card                                442,000      445,000      352,000
     Legal and accounting                       360,000      210,000      253,000
     Advertising and promotion                  291,000      263,000      286,000
     Postage and delivery                       242,000      238,000      176,000
     Software maintenance and amortization       99,000      102,000      164,000
     Service charges                            193,000      199,000      131,000
     Supplies                                   205,000      234,000      191,000
     Insurance and bonds                        136,000      140,000      127,000
     Telephone                                  183,000      165,000      107,000
     Printing                                   166,000      192,000      124,000
     Travel and entertainment                   162,000      122,000      114,000
     Dues and subscriptions                      97,000      113,000       80,000
     Deposit insurance                          103,000       31,000       23,000
     Amortization of debt issuance costs         76,000       76,000        2,000
     Other operating expenses                   455,000      448,000      328,000
     Merger cost                                   --        325,000         --
                                             ----------   ----------   ----------

                                             $4,028,000   $4,293,000   $3,187,000
                                             ==========   ==========   ==========
</TABLE>


NOTE 14:  TRANSACTIONS WITH RELATED PARTIES

    At December 31, 2000 and 1999, the Bank had loans outstanding to
shareholders, executive officers, and directors of the Company and their
affiliates, in the amount of $3,219,000 and $3,306,000, respectively. New loans
made to shareholders, executive officers, and directors of the Company and their
affiliates approximated $1,769,000 and $1,060,000, and repayments approximated
$1,856,000 and $1,095,000 for the years ended December 31, 2000 and 1999,
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-29


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 14:  TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

    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, 2000, 1999 and 1998, the Bank earned interest income on such loans of
$10,000, $28,000 and $144,000, respectively. During the years ended December 31,
2000, 1999 and 1998, the Bank purchased loans in the amounts of $4,754,000,
$9,389,000 and $48,364,000 and sold loans in the amount of $4,754,000,
$13,674,000 and $44,079,000, 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.


NOTE 15:  ADDITIONAL CASH FLOW INFORMATION

    The Company purchased all of the capital stock of Lakewood State Bank for
$8,350,000 ($7,515,000 in cash and $835,000 held on deposit at the Bank). In
conjunction with the acquisition, assets acquired and liabilities assumed are as
follows:

                                                                1998
                                                                ----

    Fair value of assets acquired                          $   50,020,000
    Cash paid for the capital stock                            (7,515,000)
                                                            -------------

    Liabilities assumed                                    $   42,505,000
                                                            =============


                                      F-30


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 15:  ADDITIONAL CASH FLOW INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
ADDITIONAL CASH PAYMENT INFORMATION
                                                  2000          1999           1998
                                                  ----          ----           ----
<S>                                            <C>           <C>           <C>
     Income taxes paid                         $ 1,020,000   $   783,000   $   638,000
                                               ===========   ===========   ===========

     Interest paid                             $11,930,000   $ 9,540,000   $ 5,900,000
                                               ===========   ===========   ===========

NON-CASH INVESTING ACTIVITIES

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

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


                                      F-31


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


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, 2000 AND 1999

<TABLE>
<CAPTION>
                                     ASSETS
                                                                         2000            1999
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
  Cash                                                               $  3,477,000    $  1,545,000
  Available-for-sale securities                                         2,246,000       3,612,000
  Investment in subsidiary                                             26,607,000      21,887,000
  Excess of investment in subsidiary over net assets acquired, net      2,042,000       2,268,000
  Accrued interest receivable                                              45,000          53,000
  Other assets                                                            600,000         741,000
                                                                     ------------    ------------

          Total Assets                                               $ 35,017,000    $ 30,106,000
                                                                     ============    ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
  Guaranteed preferred beneficial interest in Company's debentures   $ 10,304,000    $ 10,304,000
  Accrued interest payable                                                 39,000          39,000
  Other liabilities                                                       514,000         380,000
                                                                     ------------    ------------
          Total Liabilities                                            10,857,000      10,723,000
                                                                     ------------    ------------


STOCKHOLDERS' EQUITY
  Common stock                                                              2,000           2,000
  Additional paid-in capital                                            9,987,000       9,822,000
  Retained earnings                                                    14,393,000      11,564,000
  Unrealized gains on subsidiary's available-for-sale securities         (222,000)     (2,005,000)
                                                                     ------------    ------------
          Total Stockholders' Equity                                   24,160,000      19,383,000
                                                                     ------------    ------------

          Total Liabilities and Stockholders' Equity                 $ 35,017,000    $ 30,106,000
                                                                     ============    ============
</TABLE>


                                      F-32


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 16:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)


                         CONDENSED STATEMENTS OF INCOME

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                2000          1999            1998
                                            -----------    -----------    -----------
<S>                                         <C>            <C>            <C>
OPERATING INCOME
  Dividends from subsidiary                 $ 1,400,000    $ 1,400,000    $ 1,000,000
  Interest income                               167,000        172,000        157,000
                                            -----------    -----------    -----------
          Total operating income              1,567,000      1,572,000      1,157,000
                                            -----------    -----------    -----------

OPERATING EXPENSES
  Interest                                      927,000        925,000        157,000
  Amortization of excess of investment in
   subsidiary over net assets acquired          226,000        226,000        226,000
  Salaries and employee benefits                835,000        696,000        374,000
  Occupancy and equipment                       115,000         88,000         36,000
  Other                                         687,000        919,000        518,000
                                            -----------    -----------    -----------
          Total operating expenses            2,790,000      2,854,000      1,311,000
                                            -----------    -----------    -----------

(LOSS) BEFORE EQUITY IN UNDISTRIBUTED
  EARNINGS OF SUBSIDIARY, INCOME TAX
  BENEFIT                                    (1,223,000)    (1,282,000)      (154,000)

EQUITY IN UNDISTRIBUTED EARNINGS              3,031,000      2,027,000      1,424,000


INCOME TAX BENEFIT                            1,021,000        723,000        367,000
                                            -----------    -----------    -----------

NET INCOME                                  $ 2,829,000    $ 1,468,000    $ 1,637,000
                                            ===========    ===========    ===========
</TABLE>


                                      F-33


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 16:  CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)


                       CONDENSED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                    2000            1999            1998
                                                                ------------    ------------    ------------
<S>                                                             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                    $  2,829,000    $  1,468,000    $  1,637,000
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
      Amortization                                                   302,000         302,000         229,000
      Deferred taxes                                                    --              --            26,000
  Change in:
      Other assets                                                    65,000        (171,000)       (574,000)
      Accrued interest receivable                                      8,000         (16,000)          2,000
      Equity in undistributed earnings of subsidiary              (2,937,000)     (1,985,000)     (1,403,000)
      Other liabilities                                              134,000         259,000        (170,000)
                                                                ------------    ------------    ------------
          Net cash provided by (used in) operating activities        401,000        (143,000)       (253,000)
                                                                ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of available-for-sale securities                      (2,246,000)     (3,612,000)     (2,686,000)
  Capital contribution to banking subsidiary                            --              --        (7,000,000)
  Proceeds from maturities of available-for-sale securities        3,612,000       2,685,000       3,700,000
                                                                ------------    ------------    ------------
          Net cash provided by (used in) investing activities      1,366,000        (927,000)     (5,986,000)
                                                                ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of trust preferred securities                  --              --        10,304,000
  Principal repayments of notes payable                                 --              --        (2,000,000)
  Proceeds from issuance of common stock                             165,000         183,000          56,000
                                                                ------------    ------------    ------------
          Net cash provided by financing activities                  165,000         183,000       8,360,000
                                                                ------------    ------------    ------------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                             1,932,000        (887,000)      2,121,000

CASH AND CASH EQUIVALENTS,
 BEGINNING OF YEAR                                                 1,545,000       2,432,000         311,000
                                                                ------------    ------------    ------------

CASH AND CASH EQUIVALENTS,
 END OF YEAR                                                    $  3,477,000    $  1,545,000    $  2,432,000
                                                                ============    ============    ============
</TABLE>


                                      F-34


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


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-35


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 17:  REGULATORY CAPITAL REQUIREMENTS  (CONTINUED)

    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, 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%

AS OF DECEMBER 31, 1999:
  Total risk-based capital
   (to risk-weighted assets):
      Consolidated                     $ 28,393,000     12.7%   $ 17,916,000         8.0%   $ 22,394,000      10.0%
      Bank                             $ 22,309,000     10.1%   $ 17,622,000         8.0%   $ 22,028,000      10.0%
  Tier I risk-based capital
    (to risk-weighted assets):
      Consolidated                     $ 22,339,000     10.0%   $  8,958,000         4.0%   $ 13,437,000       6.0%
      Bank                             $ 19,554,000      8.9%   $  8,811,000         4.0%   $ 13,217,000       6.0%
  Tier I leverage capital
    (to adjusted total assets):
      Consolidated                     $ 22,339,000      6.4%   $ 13,929,000         4.0%   $ 17,411,000       5.0%
      Bank                             $ 19,554,000      5.6%   $ 13,854,000         4.0%   $ 17,317,000       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, 2000,
approximately $1,840,000 of retained earnings were available for dividend
declaration without prior regulatory approval.


                                      F-36


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 18:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

    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.

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.

NOTES PAYABLE

    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.


                                      F-37


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 18: DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
              (CONTINUED)

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.

    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.


                                      F-38


<PAGE>


                             UNION BANKSHARES, LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        DECEMBER 31, 2000, 1999 AND 1998


NOTE 18:  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
          (CONTINUED)

<TABLE>
<CAPTION>
                                                    December 31, 2000              December 31, 1999
                                             -----------------------------   --------------------------
                                                 Carrying                     Carrying
                                                  Amount      Fair Value       Amount        Fair Value
                                             -------------   ------------   ------------   ------------
<S>                                           <C>            <C>            <C>            <C>
FINANCIAL ASSETS
  Cash and due from banks                     $ 19,551,000   $ 19,551,000   $ 15,493,000   $ 15,493,000
  Available-for-sale securities                130,349,000    130,349,000    110,080,000    110,080,000
  Held-to-maturity securities                         --             --       32,908,000     32,133,000
  Other investments                              2,430,000      2,430,000      1,984,000      1,984,000
  Interest receivable                            3,170,000      3,170,000      2,586,000      2,586,000
  Loans, net of allowance for loan losses      213,522,000    212,095,000    181,733,000    181,537,000

FINANCIAL LIABILITIES
  Deposits                                     315,329,000    315,475,000    290,055,000    290,118,000
  Notes payable                                 28,600,000     28,600,000     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                             --             --        8,500,000      8,500,000
  Interest payable                                 433,000        433,000        382,000        382,000

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


                                      F-39


<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 30, 2001            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 30, 2001
---------------------------     Executive Officer and a Director
Charles R. Harrison             (Principal Executive Officer)

/s/ BRUCE E. HALL               Vice President-Finance, Secretary,     March 30, 2001
---------------------------     Treasurer and a Director (Principal
Bruce E. Hall                   Financial and Accounting Officer)

/s/ WAYNE T. BIDDLE             Director                               March 30, 2001
---------------------------
Wayne T. Biddle

/s/ JERROLD B. EVANS            Director                               March 30, 2001
---------------------------
Jerrold B. Evans

/s/ HAROLD R. LOGAN, JR.        Director                               March 30, 2001
---------------------------
Harold R. Logan, Jr.

/s/ RALPH D. JOHNSON            Director                               March 30, 2001
---------------------------
Ralph D. Johnson

/s/ RICHARD C. SAUNDERS         Director                               March 30, 2001
---------------------------
Richard C. Saunders

/s/ HERMAN J. ZUECK             Director                               March 30, 2001
---------------------------
Herman J. Zueck
</TABLE>


                                       S-1

<PAGE>


<TABLE>
<CAPTION>


         SIGNATURE                          TITLE                           DATE
<S>                             <C>                                    <C>
/s/ CHARLES B. WORTHINGTON      Director                               March 30, 2001
---------------------------
Charles B. Worthington


</TABLE>

                                      S-2
<PAGE>


                         EXHIBIT DESCRIPTION AND INDEX

Exhibit
Number      Description
-------     -----------

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        Nonemployee Directors' Stock Option Plan *

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

10.8        Nonemployee Directors Equity Compensation Plan **

10.9        Amended Shareholders' Agreement **

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


                                       E-1


<PAGE>


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

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

10.13       Option Bonus Plan *****

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

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

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

10.17       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 Baird, Kurtz & Dobson ******


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

*       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.


                                       E-2