FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1995. Commission File Number 2-90679
UNION BANK SHARES COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0395131
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation of organization).
66 Main Street, Ellsworth, Maine 04605
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (207) 667-2504
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for 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 XXX NO
Indicate the number of shares outstanding of each of the issue's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1995
(Common stock, $25.00 Par value) 201,818
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UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
Item 1: Financial Statements
Condensed consolidated balance sheets-
September 30, 1995, September 30, 1994,
December 31, 1994 3
Condensed consolidated statements of income-
nine months ended September 30, 1995
and September 30, 1994; three months ended
September 30, 1995 and September 30, 1994 4-5
Condensed consolidated statements of cash flows-
nine months ended September 30, 1995
and September 30, 1994 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-18
PART II Other Information
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote
of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
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UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
September 30 September 30 December 31
1995 1994 1994
(Unaudited) (Unaudited) (Audited) *
ASSETS
Cash and due from banks $ 8,289,721 $ 7,266,146 $ 7,025,431
Assets available for sale 65,094,163 78,214,625 75,212,318
(MARKET VALUE AT 9/30/95)
Investments securities:
Obligations of states and
political subdivisions 5,296,666 7,209,843 6,724,925
Federal Funds Sold 13,883,379 2,468,146 1,644,272
Loans (net of unearned discount) 92,505,842 83,605,951 83,929,969
Less: Allowance for loan losses 1,915,637 1,895,321 1,928,644
Net Loans $ 90,590,205 $ 81,710,630 $ 82,001,325
Premises, Furniture & Equip Net 3,120,549 3,016,471 3,005,886
Other Assets 5,567,667 5,604,305 5,982,690
Total Assets $191,842,350 $185,490,166 $181,596,847
LIABILITIES & STOCKHOLDERS
INVESTMENTS
Deposits:
Demand $ 21,433,519 $ 19,326,269 $20,256,577
Savings 83,723,177 91,697,640 86,582,158
Time 61,839,021 53,180,057 53,409,952
Total Deposits 166,995,717 164,203,966 160,248,687
Borrowed Funds 0 0 0
Accrued Expenses & Other
Liabilities 2,863,137 1,960,190 2,166,779
Total Liabilities $169,858,854 $166,164,156 $162,415,466
STOCKHOLDERS INVESTMENT
Common Stock 5,062,875 3,801,200 3,801,200
Surplus 3,948,797 3,948,797 3,948,680
Retained Earnings 12,716,459 12,325,963 12,915,637
Net Unrealized Gain/(Loss)
on Securities Available for Sale 325,378 (698,983) (1,389,168)
Less: Treasury Stock 70,013 50,967 94,968
Total Stockholders Investment $ 21,983,496 $ 19,326,010 $ 19,181,381
Total Liabilities &
Stockholders Investment $191,842,350 $185,490,166 $ 181,596,847
*Condensed from audited financial statements
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiary. Minority interests, which
are not significant are included in other liabilities in the balance sheet
and other operating expenses in the consolidated statement of income.
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UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Nine Months Ended-September 30,
1995 1994
INTEREST INCOME
Interest and Fees on Loans $6,339,253 $5,384,535
Interest and Fees on Municipal
Loans and Bonds 541,913 593,566
Interest and Dividends on Securities 3,183,488 3,095,604
Interest on Federal Funds Sold 232,738 167,186
Amortization & Accretion - Net (43,635) 112,709
Total Interest Earned 10,253,757 9,353,600
INTEREST EXPENSE
Interest on Deposits 3,645,577 3,112,716
Interest on Funds Purchased/Borrowed 10,109 426
Total Interest Expense 3,655,686 3,113,142
NET INTEREST INCOME 6,598,071 6,240,458
Provision for loan losses 15,000 0
NET INTEREST INCOME AFTER LOAN PROVISION 6,583,071 6,240,458
NONINTEREST INCOME
Exchange, Commission & Fees 525,878 514,230
Trust Department 325,941 301,287
Financial Service Fees 51,612 51,606
Other Income 564,308 586,603
Net Securities Gains (Losses) 1,045 81,970
Total Noninterest Income 1,468,784 1,535,696
NONINTEREST EXPENSE
Salaries and Employee Benefits 3,202,545 3,049,018
Building Maintenance & Operations 457,810 483,879
FDIC Insurance 169,644 280,006
Other Expenses 2,033,157 1,845,362
Total Noninterest Expense 5,863,156 5,658,265
INCOME BEFORE TAXES 2,188,699 2,117,889
Income Taxes 537,000 479,619
NET INCOME $ 1,651,699 $1,638,270
Per Share Data:
Net Income $ 8.18 $ 8.12
Dividends Declared 1.00 1.00
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UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Three Months Ended-September 30,
1995 1994
INTEREST INCOME
Interest and Fees on Loans $2,187,877 $1,865,035
Interest and Fees on Municipal
Loans and Bonds 195,417 215,215
Interest and Dividends on Securities 982,280 1,149,345
Interest on Federal Funds Sold 162,024 60,377
Amortization & Accretion - Net (3,225) 46,424
Total Interest Earned 3,524,373 3,336,396
INTEREST EXPENSE
Interest on Deposits 1,298,922 1,057,465
Interest on Funds Purchased/Borrowed 162 229
Total Interest Expense 1,299,084 1,057,694
NET INTEREST INCOME 2,225,289 2,278,702
Provision for loan losses 15,000 0
NET INTEREST INCOME AFTER LOAN PROVISION 2,210,289 2,278,702
NONINTEREST INCOME
Exchange, Commission & Fees 198,915 187,746
Trust Department 104,906 100,268
Financial Service Fees 18,162 18,391
Other Income 278,878 220,450
Net Securities Gains (Losses) 0 80,139
Total Noninterest Income 600,861 606,994
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,102,600 1,114,385
Building Maintenance & Operations 117,561 118,496
FDIC Insurance (11,847) 95,000
Other Expenses 701,074 675,239
Total Noninterest Expense 1,909,388 2,003,120
INCOME BEFORE TAXES 901,762 882,576
Income Taxes 202,000 149,619
NET INCOME $ 699,762 $ 732,957
Per Share Data:
Net Income $3.47 $3.63
Dividends Declared 1.00 1.00
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UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1994
1995 1994
Net Cash Flows Provided by Operating Activities:
Net Income $1,651,699 $1,638,270
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 265,000 205,195
Provision for loan losses 15,000 0
Net securities gains (1,045) (81,970)
Net change in other assets 415,023 (1,243,787)
Net change in other liabilities (696,358) 12,632
Net amortization of premium on
investments (237,522) (647,044)
Net change in deferred loan
origination fees 13,489 (36,128)
Origination of loans held for sale (5,483,682) (1,474,095)
Proceeds from loans held for sale 4,558,243 1,975,892
Total adjustments (1,178,830) (1,289,305)
Net cash provided by operating activities 472,869 348,965
Cash Flows From Investing Activities:
Purchase of investments (12,472,581) (45,593,645)
Proceeds from sales of investments 18,977,309 7,500,000
Proceeds from maturities of
investment 9,249,005 27,436,000
Net change in loans to customers (8,605,880) (2,858,827)
Capital expenditures (379,663) (263,718)
Net cash used in investing activities 6,768,190 (13,780,190)
Cash Flows From Financing Activities:
Net increase(decrease) in deposits 6,747,030 2,968,303
Purchase of Treasury Stock (14,560) (7,500)
Proceeds from sale of Treasury Stock 0 0
Proceeds from issuance Common Stock 0 0
Payment to eliminate fractional shares 29,868 0
Dividends paid (500,000) (450,000)
Net cash provided by financing activities 6,262,338 2,510,803
Net increase (decrease) in cash and
cash equivalents 13,503,397 (10,920,422)
Cash and cash equivalents at beginning of yea 8,669,703 20,654,714
Cash and cash equivalents at 9/30/95 & 9/30/94 $22,173,100 $9,734,292
Supplemental Schedule of Non-Cash Investing and Financing Activities
Net increase (decrease) as a result of adopting Statement 1995 1994
of Financial Accounting Standards No. 115
Available for sale securities 345,062 (998,547)
Deferred income liability (receivable) (117,321) 299,564
Net unrealized gain(loss) on available for
sale securities $ 227,741 $(698,983)
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Notes to Consolidated Financial Statements
Unaudited
(A) Basis of Presentation
The accompanying consolidated financial statements of Union
Bankshares Company and its subsidiary (Union Trust Company) for the nine
month period ended September 30, 1995 and 1994 are unaudited. However, in
the opinion
of the Company, all adjustments consisting of normal, recurring accruals
necessary for a fair presentation have been reflected therein.
Certain financial information which is normally included in
financial statements prepared in accordance with generally accepted
accounting principles, but which is not required for interim reporting
purposes, has been omitted. The accompanying consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended December 31, 1994.
(B) Earnings Per Share
Earnings per common share are computed by dividing the net income
available for common stock by the weighted average number of common shares
outstanding during this period. On April 12, 1995 the Company declared a 33
1/3 percent stock dividend, payable on May 15, 1995, and earnings per share
have been restated for the periods to reflect the stock dividend.
(C) Off-Balance Sheet Items
In the normal course of business, the Bank is a party to financial
instruments with off balance sheet risk to meet the financing need of its
customers. These financial instruments include commitments to extend credit
and letters of credit. The instrument involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the statement of
financial position. The contract amounts of these instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments. At September 30, 1995, and September 30, 1994, the following
financial instruments, whose contract amounts represent credit risk, were
outstanding.
September 30
(000's omitted)
1995 1994
1. Unused Commitments:
A. Revolving , open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines 5,792 6,446
B. Credit card lines 4,930 4,467
C. Secured real estate loans 1,595 2,086
D. Other 16,862 19,191
2. Financial Standby Letters of Credit: 4 127
3. Mortgages Transferred With Recourse: 0 0
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(D) Regulatory Agencies
The Bank's primary regulator is the Federal Reserve Bank of Boston
and as a state chartered bank to the Bureau of Banking in Augusta, Maine.
(E) General
Any loans classified for regulatory purposes as loss, doubtful,
substandard or special mention do not (1) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources or (2) represent
material credits about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrowers
to comply with the loan repayment terms.
(F) FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991,
signed into law in December, 1992 has many implications for financial and
internal audit management throughout the industry. Extremely broad in
scope, the Act includes many significant, yet often ambiguous, provisions
that will be clarified when published.
In this connection the Board of Directors of the Federal Deposit
Insurance Corporation (FDIC) in May, 1994, approved the final regulations
and related guidelines implementing the management reporting, audit
committee, and independent audit requirements of Section 112 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). These long
awaited and often debated regulations are scheduled to be published soon,
and most of the provisions will apply to fiscal years ending December 31,
1994, or thereafter.
The final regulations and guidelines incorporated many of the
general provisions contained in the proposed rule, but also include many
significant differences from the original proposal. For instance, the
regulations will apply only to institutions with total assets at or above
$500 million originally proposed.
(G) Impact of Inflation and Changing Prices
The Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing
power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets
and virtually all of the liabilities of the Company are monetary in nature.
As a result, interest rates have more significant impact on the Company's
performance than the general level of inflation. Over short periods of
time, interest rates may not necessarily move in the same direction or in
the same magnitude as inflation.
(H) Recent Accounting Developments
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes." Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability method
of Statement 109, deferred tax assets and liabilities are recognized for the
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future tax consequences attributed to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under Settlement 09, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and
has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1993 consolidated statements of income.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992, deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
On May 31, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" (Statement 114) as amended by FAS 118.
This statement, which applies to all creditors, addresses the accounting by
creditors for impairment of a loan by specifying how allowances for credit
losses related to certain loans should be determined. Effective January 1,
1995, the Company adopted FAS114. The Bank has not determined the impact of
adopting Statement 114 on its financial condition, or results of operations.
On May 13, 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115). Statement 115
addresses the accounting and reporting for investments in equity securities
that have readily determinable fair values, and all investments in debt
securities. The Company adopted Statement 115 effective January 1, 1994.
The adoption resulted in the reclassification of certain investment
securities as of January 1, 1994. The scope of the Statement did not
encompass loans. The Company's investment accounting policies are as
follows at January 1, 1994:
TRADING ACCOUNT SECURITIES
Trading account securities, consisting of securities purchased with the
intent to be subsequently sold to provide net securities gains, are carried
at market value. Realized and unrealized gains and losses on trading
account securities are recognized in the consolidated statements of income
as they occur. There are no trading securities at December 31, 1994.
AVAILABLE FOR SALE SECURITIES
Available for sale securities consist of debt securities that the Company
anticipates could be made available for sale in response to changes in
market interest rates, liquidity needs, changes in funding sources and other
similar factors. These assets are specifically identified and are carried
at fair value. Unrealized holding gains and losses for these assets, net of
related income taxes, are excluded from earnings and are reported as a net
amount in a separate component of Shareholders' equity. When decline in
market value is considered other than temporary, the loss is recognized in
the consolidated statements of income, resulting in the establishment of a
new cost basis for the security.
HELD TO MATURITY SECURITIES
Held to maturity securities consist of debt securities purchased for which
the Company has the positive intent and ability to hold such securities
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until maturity. Debt securities classified as held to maturity are carried
at amortized cost, adjusted for amortization of premiums and accretion of
discounts. When decline in market value is considered other than temporary,
the loss is recognized in the consolidated statements of income, resulting
in the establishment of a new cost basis for the security.
The Company's accounting policies for investment securities prior to January
1, 1994 were as follows:
INVESTMENT SECURITIES
Investment securities are those securities which the Company has the ability
and intent to hold to maturity. These securities are stated at cost
adjusted for amortization of premium and accretion of discount. Generally,
such securities are sold only to meet unexpected liquidity needs. Gains and
losses on the sale of investment securities are computed on the basis of
specific identification of the adjusted cost of each security, are
recognized upon realization and are shown separately in the consolidated
statements of income.
SECURITIES HELD FOR SALE
Securities held for sale are investment securities purchased for the purpose
of potential subsequent sale. These assets are specifically identified at
the time of purchase and are carried at the lower of aggregate cost or
market.
OTHER INVESTMENT SECURITIES
Other investment securities consist of Federal Home Loan Bank (FHLB) stock
and Federal Reserve Bank stock. These securities are carried at cost which
approximates market at December 31, 1994 and 1993.
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MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net Income increased $13,429 or .82% for the first nine months of 1995
versus the same period in 1994.
The following table summarizes the status of the bank's earnings per share:
September 30,
1995 1994
Earnings Per Share 8.18 8.12
Return on Average Shareholders Equity 7.51%A 8.47%B
Return on Average Assets 0.88%A 0.90%B
Return on Average Earning Assets 0.96%A 0.98%B
A = annualized returns are; 10.01%, 1.17%, and 1.28%, respectively.
B = annualized returns are; 11.29%, 1.20%, and 1.30%, respectively.
In January 1993, the Company declared a 33 1/3 percent stock dividend,
subject to the approval by the shareholders, to increase authorized shares
to 600,000. Such approval was received on April 22, 1993.
On April 12, 1995, the Company declared a 33 1/3 percent stock dividend,
payable on May 15, 1995 and earnings per share have been restated for the
above periods to reflect the stock dividend.
The increase in net income for the first nine months of 1995 versus the same
period in 1994 results primarily from an increase in net interest income.
It should be noted, excluding net security gains, net income was up $94,354
or 6.1%.
The healthy increase in net income for the third quarter of 1994 versus 1993
resulted from an increase in net interest income and a decrease in the
provision for loan losses.
The increase in total interest earned results primarily in improved yields
on the Loan and Investment portfolios plus a change in the balance sheet mix
of these two categories.
It should also be noted that the decrease in non interest income of $66,912
results primarily from a decrease in Loan Department Fees due to a decline
in points and pricing fees associated with loan refinancing and the
secondary market. This trend is currently improving and refinancing
activity is increasing due to favorable interest rates for the borrowers.
Noninterest expenses consist of employee compensation and benefits,
occupancy and equipment expenses, and other operating expenses. As the Bank
continues to implement new products and services in connection with the
goals of its Strategic Plan, "up front" costs are incurred, and the Bank is
closely monitoring such costs.
It should be noted that the Bank received its FDIC Premium rebate funds of
approximately $95,000 and has implemented the new reduced rate of 4 1/2
cents per thousand in deposits as its insurance premium.
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The Bank continues to monitor the economic slowdown and its effect on the
banking industry in New England and Maine, Hancock and Washington Counties
(our service territories) in particular. The Bank always blends the keen
scrutiny by regulatory agencies and its conservative approach to management
in the conduct of its affairs.
During 1995, it becomes clear that there continues to be challenging,
albeit, difficult conditions for the banking industry and particularly for
those banks located in New England. A surplus of regulations and accounting
pronouncements continues to challenge our bank as never before. In years
past we have attempted to operate in a conservative manner and while this
position has not always been popular, and sometimes has placed us in
contrast with practices elsewhere in the industry, we believe this
conservatism should assist us in getting through this period with a minimum
of difficulty.
It is our continuing belief that our bank and others similar to it are the
heart, if not the soul, of this country.
NET INTEREST INCOME
Net interest income, the difference between interest income on earning
assets such as loans and investment securities and interest expense on
interest bearing liabilities such as funds on deposit continues to be the
most significant determinant of the Company's earnings performance. Because
of the significance of net interest, the management of interest rate risk
has become increasingly important to ensure the continued profitability of
the Bank. Interest rate risk results from volatile interest rates,
increased competition, and changes in the regulatory environment. As a
banking company, our exposure to interest rate movements is controlled by
matching the interest rates as well as the maturities
of assets and liabilities.
Net interest income for the third quarter and the first nine months in 1995
increased $53,413 or 2.3% and $357,613 or 5.7% over comparable periods in
1994 reflecting higher yields on the Investment and Loan Portfolios of .757%
versus rates paid on bank deposits increasing some .680% for the same
period.
The following table illustrates the bank's net interest spread position:
Nine Month Ended September 30,
1995 1994
Yield on Earning Assets 8.33% 7.97%
Cost of All Funds 2.98% 2.47%
Net Interest Spread 5.35% 5.50%
The Bank continues to monitor short and long-term interest rates,
balance sheet volumes and maturities in order to evaluate the potential
impact on its net interest spreads and capital.
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PROVISION FOR LOAN LOSSES
There was an addition of $15,000 for the loan loss provision
resulting from management's ongoing evaluation of the allowance for loan
losses. The process to evaluate the adequacy of the allowance for loan
losses involves a high degree of management judgment. Such judgement is
based, in part, on systematic methods. These methods, which are generally
quantitative measures, are employed, not so the allowance will be the result
of routine mathematical exercises, but to help ensure that all relevant
matters affecting loan collectability will consistently be identified. Such
methods at June 30, 1995 included a loan-by-loan analysis of all larger
commercial and commercial real estate loans which were non-performing or
which were being closely monitored by management for potential problems, and
a quantitative analysis of residential real estate and consumer loans.
Based on these analyses, an estimation of potential loss exposure was made
and an allowance allocated. The estimation of potential loss exposure
reflects declining real estate values, as evidenced by appraisals and other
available information.
Although management utilized its best judgement in providing for
possible losses, there can be no assurance that the Company will not have to
increase it provisions for possible loan losses in the future as a result of
increased loan demand in the Company's primary market areas, future
increases in non-performing assets or otherwise which would adversely affect
the Company's results of operations. In fact, Management anticipates that
due to the increase in loan demand for 1995 that the Company will most
likely increase the provision for loan losses starting in the third quarter
of 1995.
The following table reflects the quality of the Bank's loan
portfolio and the emphasis placed upon the management of credit risk:
(000's Omitted)
Nine Months Ended
September 30,
1995 1994
1. Nonaccrual Loans 150 333
2. Loans past due 90 days & accruing 166 274
3. Restructured loans 0 0
4. Other real estate owned (including insubstance
foreclosure) 940 905
5. Total nonperforming assets 1,256 1,512
6. Ratio of total nonperforming loans to capital
and the allowance for loan losses (Texas ratio) 5.26 7.12
7. Ratio of net chargeoffs to loans 0.00 0.00
8. Ratio of allowance for loan losses to loans 2.03 2.27
9. Coverage ratio(allowance for loan losses
divided by nonperforming assets) 152.47 123.86
10. Ratio of nonperforming assets to total assets .66 .82
11. Ratio of nonperforming loans to total loans .33 .73
*Net recoveries of $286,000 were experienced as of September 30, 1994
While not attempting to sound self-serving the directors, officers
and employees of the Bank are proud of the above data and their efforts in
serving its community while simultaneously working hand-in-hand with state
and federal regulators in structuring its financial position during these
times. Most assuredly all parties concerned benefit from just such
cooperative effort.
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NONINTEREST INCOME
The Company receives noninterest income from trust fees, service
charges on deposit accounts and other income comprised of fees earned from a
variety of other services. Securities gains and losses are another major
component of this category.
Non interest income, excluding securities gains, increased $74,006
or 14.0% and $14,013 or 1.0% for the three and nine months ended September
30, 1995 over the same period in 1994.
The decline of sales of real estate mortgages to the secondary
market and the attendant gains and subsequent service fees on such
transactions continue to have a significant impact on noninterest income.
As indicated previously, we do see this trend turning around as customers
take advantage of favorable rates.
Fees associated with Visa Fees and Trust Services contributed some
$85,000 to non interest income over the same period in 1994.
Net security gains amounted to $0 and $1,045 for the three and nine
months ended September 30, 1995 compared to $80,139 and $81,970 for the same
period in 1994.
NONINTEREST EXPENSES
Noninterest expenses consist of employee compensation and benefits,
occupancy and equipment expenses and miscellaneous expenses. Management is
continually reviewing expenses to control them and develop more efficient
delivery systems for all Bank services.
Stagnant deposit growth, strong loan demand and a generally flat
economy in Maine-particularly in Downeast Maine-has compelled or should
compel banking institutes of our size to prudently and conservatively manage
their affairs. In order to grow the Bank and maintain market share in
accordance to the Banks strategic plan, certain costs have been incurred
with the development of products and services and their implementation.
According, a concerted effort in controlling and reducing non interest
expenses has and continues to be a major undertaking in 1995 and beyond.
Non interest expenses decreased $93,732 or 4.7% and increased
$204,891 or 3.62% for the three and nine months ended September 30, 1995
over the same period in 1994. Salaries and employee benefits is one of the
major contributors to the changes and reflect merit increases and changes in
Bank personnel due to staff reductions as a result of retirements and
improved efficiencies.
Other Expenses also contain those costs associated with the
development, supplies, and advertisement of new Bank products and services.
INCOME TAXES
Income taxes are provided in accordance with the comprehensive
income tax allocation method which recognizes the tax effects of all income
and expense transactions in each year's statement of income, regardless of
the year the transactions are reported for tax purposes. The tax effects of
these timing differences are reflected in deferred income tax accounts in
the consolidated financial statements.
In February 1992, the FASB released Statement 109, "Accounting for
Income Taxes". The Company currently accounts for income taxes under APB
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11. Statement No. 109 changes the Company's method of accounting for income
taxes from the deferred method required under APB 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method of Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Effective January 1, 1993, the Company adopted Statement 109 and
has reported the cumulative effect of that change in the method of
accounting for income taxes in the 1993 consolidated statements of income.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992, deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and income
tax purposes using the tax rate applicable for the year of the calculation.
Under the deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
The status of the Bank's income tax expense is as follows:
Tax Expense Effective Rate
1995 1994 1995 1994
Nine Months ended September 30, $537,000 $479,619 24.5 22.6
INTEREST RATE GAP ANALYSIS
Attention should be directed to the interest rate gap analysis as
of December 31, 1994 as provided on page 27 in the Bank's 1994 Form 10K.
Data as of September 30, 1995 is essentially identical to that reported in
the Form 10K.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' Equity was as follows for the following periods:
SHAREHOLDER'S EQUITY
Amount Book Value
Per Share
September 30, 1995 $21,983,496 $108.93
September 30, 1994 $19,326,010 $ 95.76
December 31, 1994 $19,181,381 $ 95.04
During 1989, the Federal Reserve Board issued final guidelines for
a risk-based approach to measuring the capital adequacy of bank holding
companies and state-chartered banks that are members of the Federal Reserve
System. These capital requirements generally called for an 8% total capital
ratio by year-end 1992 of which 4% must be comprised of Tier 1 capital.
Risk-based capital ratios are calculated by weighing assets and off-balance
sheet instruments according to their relative credit risks. At September
30, 1995 the Company had met the minimum capital ratios. In fact, the
Bank's strong capital position at September 30, 1995 exceeded the minimums
established by the Federal Reserve Board as follows:
15 of 20<PAGE>
Minimum Regulatory
September 30, 1995 Requirements
Tier 1 Capital Ratio 19.0 4.0%
Total Capital Ratio 20.2 8.0%
Leverage Ratio 11.5
DIVIDENDS
The common stock is not actively traded and therefore, we are not
aware of the price of all trades. The price is established by determining
what a willing buyer will pay a willing seller.
Cash dividends per share declared on common stock were $1.00 for
the third quarter of 1995 and 1994.
STOCK DIVIDENDS
In April 1995, the Company declared a 33 1/3 percent stock
dividend. Accordingly, book value per share and cash dividends per share
have been retroactively restated for the second quarter of 1995 and 1994 to
reflect the stock dividend.
LIQUIDITY MANAGEMENT
The Bank's financial position and results of operations are
affected by changes in the interest rate environment. Since interest-
earnings assets and interest-bearing liabilities have various repricing and
maturities, changes in interest rates may result in an increase or decrease
in net interest income.
Management considers a portion of noninterest-bearing deposits to
be somewhat stable and hence a consistent source of funding. These demand
deposits and shareholders' equity allow the Bank to fund longer-term
interest-earning as well as noninterest-earning assets.
The objective of liquidity management is not only to have funds
available for all requirements that might arise, but also to ensure that
liquidity is not excessive when it could be projected to have an adverse
impact on profits.
Liquidity is provided from both assets and liabilities. The asset
side of the balance sheet provides liquidity through regular maturities of
investment securities, payments of loans and short-term funds sold. In
addition, U.S. Government securities may also be readily converted to cash
by sale in the marketplace. On the liability side, liquidity comes from
deposit growth and accessibility to other sources of funds. In this
respect, liquidity is enhanced by a significant amount of core demand and
savings deposits from a broad customer base.
The Bank holds an abundance of core deposits and has no significant
reliance on volatile funds. It is pointed out that both interest rate
sensitivity and liquidity needs are monitored continually and positioned to
react favorably to change in funding needs on interest rate movements.
16 of 20<PAGE>
The status of the Bank's sources of cash to fund its operation are
as follows:
September 30,
1995 1994
Net cash from operations $ 472,869 $ 48,965
Net cash from investing activities $ 6,768,190 $(13,780,190)
Net cash from financing activities $ 6,262,338 $ 2,510,803)
Net increase $13,503,397 $(10,810,520)
BALANCE SHEET ANALYSIS
The Bank experienced an steady increase in loan demand during the
first nine months of 1995; the quality and strength of the balance sheet
remains strong.
The following financial statistics give a general overview and
profile of the Company:
As of September 30, Increase
1995 1994 (Decrease)
Total Assets $191,842,350 $185,490,166 $ 6,352,184
Total Earnings Assets $174,864,413 $167,393,911 $ 7,470,502
Loans $ 90,590,205 $ 81,710,630 $ 8,879,575
Assets Available
for Sale $ 65,094,163 $ 78,214,625 $ (13,120,462)
Deposits $166,995,717 $164,203,966 $ 2,791,751
Capital $ 21,983,496 $ 19,326,010 $ 2,657,486
SECURITIES PORTFOLIO
The objective of the securities portfolio is to provide for a
stable earnings base and management of the Bank's liquidity needs. As shown
under the section "Balance Sheet Analysis", the securities portfolio
decreased $13,120,462 to $65,094,163 or 16.8% of total assets as of
September 30, 1995, as compared to 42.2% at September 30, 1994.
The Company has reviewed its investment policy regarding
securities. In recognition of current economic conditions and the attendant
responsibility of management to consider known liquidity requirements and to
provide for capital planning, securities may be sold as part of prudent
asset/liability management. Accordingly, the Bank has reclassified certain
securities (exclusive of tax-free securities) to assets available for sale.
Therefore, such assets were recorded at fair market.
On May 31, 1993, the Financial Accounting Standards Board (FASB)
issued Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Statement 115 addresses the accounting and recording
for investments in equity securities that have readily determinable fair
values, and all investments in debt securities. The Bank adopted Statement
115 as of the first quarter in 1994. The unrealized holding loss, net of
tax effect for securities classified as Available for Sale is recorded as an
adjustment of a separate component of equity. As of September 30, 1995, the
adjustment was $227,741.
LOANS
17 of 20<PAGE>
Loan demand remained steady during the third quarter of 1995 and
thus the Bank experienced an increase of $6,352,184 or 3.4% at September 30,
1995, vs September 30, 1994.
It must be pointed out that the Bank has sold and serviced
$39,684,294 of real estate loans and $2,717,387 of commercial mortgages and
has over $1,576,625 of loans held for sale at September 30, 1995.
The section of management's discussion and analysis entitled
"Provision for Loan Losses" clearly indicates the quality of the loan
portfolio at September 30, 1995.
The Bank's loan-to-deposit ratio was 54.2% and the allowance for
loan losses 2.0% of total loans at September 30, 1995.
Managements approach to loan growth is to seek out and work with
borrowers whose financial condition, credit history, and performance would
warrant extensions of credit.
In brief, the Company's loan portfolio is driven by a desire to
maintain our credit standards while meeting the financial needs of qualified
borrowers in the community.
DEPOSITS
Deposits for the nine months ended September 30, 1995 increased
1.7% over the comparable period in 1994. It is apparent that our Bank and
other commercial banks are a victim of uninsured mutual funds which drain
the life-blood to some extent of allowing us to service our communities.
Disintermediation, of course, will come to an end with hopefully no damage
to those depositors who withdrew funds for higher yields. This is
understandable, but however, "Caveat Emptor". The proportion of interest-
bearing funds continues to place emphasis on the need for properly matching
our asset and liabilities to maintain stable net interest margins.
The Company has continued its overall asset and liability
management strategy which is to maintain flexibility in its interest
sensitivity gap in order to take advantage of both short-term and long-term
changes in market rates while minimizing the risk of adverse effects on
operations.
The Bank is not reliant on volatile liabilities as evidenced by
such comprising only 3.48% of its deposit base.
18 of 20<PAGE>
PART II
Item 1: N/A
Item 2: N/A
Item 3: N/A
Item 4: N/A
Item 5: N/A
Item 6: Exhibits, Financial Statement Schedules and Reports on Form 8-K.
A. Non-Applicable.
B. Reports on Form 8-K.
During the Registrant's fiscal Quarter Ended September 30, l994,
the Registrant was not required to and did not file any reports on Form 8-K.
19 of 20<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
UNION BANKSHARES COMPANY
___________________________________
Robert S. Boit, President
______________________
November 8, 1995
__________________________________
Peter A. Blyberg, EVP, COO, & Treasurer
20 of 20<PAGE>
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