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 March 31, 1995. Commission File Number 2-90679
UNION BANKSHARES 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 March 31, 1995
Common stock, $25.00 Par value) 151,474<PAGE>
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
Item 1: Financial Statement
Condensed consolidated balance sheets-
March 31, 1995, March 31, 1994,
December 31, 1994 3
Condensed consolidated statements of
income-three months ended March 31, 1995
and March 31, 1994 4
Condensed consolidated statements of
cash flows-three months ended March 31,
1995 and March 31, 1994 5
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 6-18
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 <PAGE>
<TABLE>
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
<CAPTION>
March 31 March 31 December 31
1995 1994 1994
(Unaudited) (Unaudited) (Unaudited)*
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 5,211,363 $ 5,766,915 $ 7,025,431
Assets held for sale 69,543,637 71,585,295 74,554,218
Investments securities:
Obligations of states and
political subdivisions 6,146,629 7,312,047 6,724,925
(MARKET VALUE AT 3/31/95)
Federal Funds Sold 95,590 2,989,948 1,644,272
Loans (net of unearned discount) 88,638,871 83,156,178 83,929,969
Less: Allowance for loan losses 1,911,609 1,943,685 1,928,644
Net Loans $ 85,727,262 $ 81,212,493 $ 82,001,325
Premises, furniture & Equip Net 3,042,766 3,074,954 3,005,886
Other Assets 5,933,502 5,032,926 5,982,690
TOTAL ASSETS $175,700,749 $176,974,578 $181,596,847
LIABILITIES & STOCKHOLDERS
INVESTMENTS
Deposits:
Demand $ 16,936,348 $ 14,914,910 $ 20,256,577
Savings 77,829,274 84,108,570 86,582,158
Time 55,174,978 55,644,451 53,409,952
Total Deposits 149,940,600 154,667,931 160,248,687
Borrowed Funds 3,050,000 0 0
Accrued Expenses & Other
Liabilities 2,271,067 2,247,577 2,166,779
TOTAL LIABILITIES $155,261,667 $156,915,508 $162,415,466
STOCKHOLDERS INVESTMENT
Common Stock 3,801,200 3,801,200 3,801,200
Surplus 3,948,797 3,948,797 3,948,680
Retained Earnings 13,307,085 11,495,874 12,915,637
Net Unrealized Gain/(Loss)
on Securities Available for Sale (537,592) 856,667 (1,389,168)
Less: Treasury Stock 80,408 43,468 94,968
TOTAL STOCKHOLDERS INVESTMENT $ 20,439,082 $ 20,059,070 $ 19,181,381
TOTAL LIABILITIES & STOCKHOLDERS $175,700,749 $176,974,578 $181,596,847
</TABLE>
The accompanying consolidate 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
are other operating expenses in the consolidated statement of income. <PAGE>
<TABLE>
UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
<CAPTION>
Three Months Ended-March 31,
1994 1995
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $1,967,586 $1,722,099
Interest and Fees on Municipal Loans
and Bonds 164,786 184,886
Interest and Dividends on Securities 1,142,667 967,008
Interest on Federal Funds Sold 27,029 73,079
Amortization & Accretion - Net (20,071) 10,052
Total Interest Earned 3,281,997 2,957,124
INTEREST EXPENSE
Interest on Deposits 1,135,338 1,037,186
Interest on Funds Purchased/Borrowed 0 0
Total Interest Expense 1,135,338 1,037,186
NET INTEREST INCOME 2,146,659 1,919,938
Provision for loan losses 0 0
NET INTEREST INCOME AFTER LOAN PROVISION 2,146,695 1,919,938
NONINTEREST INCOME
Exchange, Commission & Fees 158,921 146,870
Trust Department 112,296 99,402
Financial Service Fees 17,944 16,496
Other Income 140,491 177,791
Net Securities Gains (Losses) (63,677) 597
Total Noninterest Income 365,975 441,156
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,141,568 1,023,648
Building Maintenance & Operations 212,398 230,011
FDIC Insurance 91,491 95,000
Other Expenses 569,071 496,471
Total Noninterest Expense 2,014,528 1,845,130
INCOME BEFORE TAXES 498,106 515,964
Income Taxes 108,000 125,000
NET INCOME $ 390,106 $ 390,964
Per Share Data:
Net Income 2.58 2.58
Dividends Declared 1.00 1.00
</TABLE>
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. <PAGE>
<TABLE>
UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the Quarter Ended March 31, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
Net Cash Flows Provided by
OPERATING ACTIVITIES:
Net Income $ 390,106 $ 390,064
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 90,000 4,642
Provision for loan losses 0 0
Net securities gains 63,677 (597)
Net change in other assets 49,188 (807,499)
Net change in other liabilities (104,288) (347,019)
Net amortization of premium on investments (20,071) (10,052)
Net change in deferred loan origination fees (17,699) (7,955)
Origination of loans held for sale (1,643,260) (4,545,446)
Proceeds from loans held for sale 1,610,522 4,918,180
Total adjustments 28,099 (795,746)
Net cash provided by operating activities 418,205 (404,782)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (3,004,032) (9,408,672)
Proceeds from sales of investments 7,500,000 0
Proceeds from maturities of investment 3,000,000 6,681,000
Net change in loans to customers (3,725,902) (1,952,981)
Capital expenditures (126,900) (92,979)
Net cash used in investing activities 3,643,166 (4,773,632)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in other Borrowed Funds 3,050,000 0
Net increase(decrease) in deposits (10,308,087) (6,567,732)
Purchase of Treasury Stock (14,560) 0
Proceeds from sale of Treasury Stock 0 0
Proceeds from issuance Common Stock 0 0
Payment to eliminate fractional shares 0 0
Dividends paid (151,474) (151,705)
Net cash provided by financing activities (7,424,121) (6,719,437)
Net increase (decrease) in cash and
cash equivalents (3,363,750) (11,897,851)
Cash and cash equivalents at beginning of year 8,669,703 20,654,714
Cash and cash equivalents at 3/31/95 & 3/31/94 $ 5,306,953 $ 8,756,863
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Net increase (decrease) as a result of adopting Statement of Financial Accounting Standards No. 115
Available for sale securities (814,533) 1,173,516
Deferred income liability 276,941 (316,849)
Net unrealized gain(losses) on available
for sale securities $ (537,592) $ 856,667<PAGE>
</TABLE>
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 three-month period
ended March 31, 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.
(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 March 31, 1995 and March 31, 1994, the following financial
instruments, whose contract amounts represent credit risk, were outstanding.
March 31
(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 8,266 4,650
B. Credit card lines 4,503 3,993
C. Secured real estate loans 1,446 2,101
D. Other 15,930 11,465
2. Financial Standby Letters of Credit: 127 103
3. Mortgages Transferred With Recourse: 0 0
<PAGE>
(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.<PAGE>
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. This statement, which
must be applied prospectively, is effective for financial statements for
fiscal years beginning December 15, 1994. The Bank has not determined the
impact of adopting Statement 114 on its financial condition, or results of
operations.
(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
future tax consequences attribute 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. This Statement,
which must be applied prospectively, is effective for financial statements
for fiscal years beginning after December 15, 1994. The Bank has not
determined the impact of adopting Statement 114 on its financial condition,
or results of operations.<PAGE>
On May 31, 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
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.<PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
EARNINGS AND PERFORMANCE OVERVIEW
Net Income decreased $858 or .22% for the first three months of 1995 versus
the same period in 1994. The following table summarizes the status of the
bank's earnings per share:
March 31,
1995 1994
Earnings Per Share 2.58 2.58
Return on Average Shareholders Equity 1.93A 2.08%B
Return on Average Assets 0.22A 0.22%B
Return on Average Earning Assets 0.24A 0.24%B
A = annualized returns are; 7.72, .88%, and .96%, respectively.
B = annualized returns are; 8.32, .88%, and .96%, 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 and earnings per
share have been restated for the above periods to reflect the stock
dividend.
On April 12, 1995, the Company declared a 33 1/3 percent stock dividend,
payable on May 15, 1995.
The slight decrease in net income for the first quarter of 1995 vs. the
first quarter in 1994, results primarily from a decrease in noninterest
income and an increase in noninterest expense. It should be noted,
excluding net security losses, net income was up $62,819 or 16.1%.
The decrease in noninterest income results primarily from an increase of net
security losses of $64,274 and a decrease of $60,031 in Loan Department Fees
due to a decline in points and pricing fees associated with loan refinancing
and the secondary market. Noninterest expenses consist of employee
ompensation and benefits, occupancy and equipment expense and other general
operating expenses. Salaries and employee benefits is a major contribution
to the 1995 increase in noninterest expense of $117,920. The remaining
increase consists of costs associated with the development, supplies and
advertisement of new Bank products and services.
The bank continues to monitor the economic downturn 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.<PAGE>
As the year 1995 unfolds, it becomes clear that there will be challenging,
albeit, difficult conditions for the banking industry and particularly for
those banks located in New England. The costs associated with monitoring
and implementing regulations and accounting pronouncements continues to
drain the resources of financial institutions. The economy of this area
continues to be sluggish and as in years past, we will continue to operate
in a conservative manner, which 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
hear, 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 first quarter of 1995 was $2,146,659; up
$226,721 or 11.81% over the same period in 1994 reflecting higher yields on
the Investment and Loan Portfolios of .816% - outpacing rates paid on Bank
deposits of .429%.
The following table illustrates the bank's net interest spread position:
Three Months Ended March 31,
1995 1994
Yield on Earning Assets 8.39% 7.58%
Cost of All Funds 2.87% 2.64%
Net Interest Spread 5.52% 4.94%
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.<PAGE>
PROVISION FOR LOAN LOSSES
There was no provision for loan losses 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 March 31,
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 a
continued softening of the market for real estate 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.
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)
Three Months Ended
March 31,
1995 1994
1. Nonaccrual Loans 157 577
2. Loans past due 90 days & accruing 62 318
3. Restructured loans 0 0
4. Other real estate owned
(including insubstance foreclosure) 905 905
5. Total nonperforming assets 1,124 1,800
6. Ratio of total nonperforming loans to
capital and the allowance for loan
losses (Texas ratio) 5.03 8.21
7. Ratio of net chargeoffs to loans .00002 .0005
8. Ratio of allowance for
loan losses to loans 2.18 2.34
9. Coverage ratio(allowance for loan losses
divided by nonperforming assets) 170.07 107.94
10. Ratio of nonperforming assets to total
assets .64 1.02
11. Ratio of nonperforming loans
to total loans .26 .51
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.<PAGE>
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.
Noninterest income, excluding securities losses, decreased 2.48%, during the
first quarter of 1995 v. 1994.
Loan Department income decreased $60,031 or 51.0% in the first quarter of
1995. This decrease is primarily a result of a decline of the sale of real
estate mortgages to the secondary market and the attendant gains and
subsequent service fees on such transactions.
Net security losses amounted to $63,677 for the three months ended March 31,
1995 and net security gains amounted to $597 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 loan demand and generally flat economy in Maine and particularly in
Downeast Maine has compelled or should compel banking institutions of our
size to prudently and conservatively manage their institutions of our size
to prudently and conservatively manage their affairs. This we are committed
to do. Accordingly, a concerted effort in reducing noninterest expenses has
been a major undertaking in fiscal 1995.
Noninterest expenses increased $169,398 or 9.18% for the first quarter of
1995 vs. the first quarter of 1994. Salaries and employee benefits is a
major contributor to the increase, of $117,920. The remaining increase
consists of 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
expenses 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 11.
Statement No. 109 will change 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<PAGE>
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:
<TABLE>
<CAPTION>
Tax Expense Effective Rate
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Three Months
ended March 31, $108,000 $125,000 21.7 24.2
</TABLE>
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 March 31, 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
March 31, 1995 $20,439,082 $138.49
March 31, 1994 $20,049,070 $126.77
December 31, 1994 $19,181,381 $126.63<PAGE>
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 March 31,
1995 the Company had met the minimum capital ratios. In fact, the Bank's
strong capital position at March 31, 1995 exceeded the minimums established
by the Federal Reserve Board as follows:
March 31, 1995 Minimum Regulatory
Requirements
Tier 1 Capital Ratio 22.7 4.0%
Total Capital Ratio 11.9 8.0%
Leverage Ratio 12.0
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 first
quarter of 1995 and 1994.
STOCK DIVIDENDS
In January 1993, the Company declared 33 1/3 percent stock dividend subject
to the approval by the shareholders to increase authorized shares to
600,000. Accordingly, book value per share and cash dividends per share
have been retroactively restated for the first quarter of 1993 to reflect
the stock dividend.
On April 12, 1995, the Company declared a 33 1/3 percent stock dividend to
be payable on May 15, 1995.
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.<PAGE>
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.
The status of the Bank's sources of cash to fund its operation are as
follows:
March 31,
1995 1994
Net cash from operations $ 418,205 $( 404,782)
Net cash from investing activities $ 3,643,166 $( 4,773,437)
Net cash from financing activities $(7,424,121) $( 6,719,437)
Net increase $(3,362,750) $(11,897,851)
BALANCE SHEET ANALYSIS
The Bank experienced a moderate increase in loan demand during the first
three 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:
<TABLE>
<CAPTION>
As of March 31, Increase
1995 1994 (Decrease)
<S> <C> <C> <C>
Total Assets $175,700,749 $176,939,578 $(1,238,829)
Total Earnings Assets $161,513,118 $163,099,783 $(1,586,665)
Loans $ 87,638,871 $ 83,156,178 $ 4,482,693
Investments $ 75,690,266 $ 78,897,342 $(3,207,076)
Deposits $149,940,600 $154,667,931 $(4,727,331)
Capital $ 20,439,082 $ 20,059,070 $ 380,012
</TABLE>
SECURITIES PORTFOLIO
The objective of the securities portfolio is to provide for a stable
earnings base and the investment of excess liquidity. As shown under the
section "Balance Sheet Analysis", the securities portfolio decreased
$3,207,076 or 43.1% of total assets as of March 31, 1995 as compared to
40.5% at March 31, 1994. Approximately 72% of the securities portfolio
matures in the one through five year period.
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<PAGE>
(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 classification as available for sale is recorded as an
adjustment of a separate component of equity. As of March 31, 1995, the
adjustment was $537,592.
LOANS
Loan demand showed signs of improvement during the first quarter of 1995 and
thus the Bank experienced an increase of $4,482,693 or 5.4% at March 31,
1995 vs March 31, 1994.
It must be pointed out that the Bank has sold and serviced $38,305,667 of
real estate loans and $2,848,958 of commercial mortgages and has over
$500,979 of loans held for sale at March 31, 1995.
The section of management's discussion and analysis entitled "Provision for
Loan Losses" clearly indicates the quality of the loan portfolio at March
31, 1995.
The Bank's loan-to-deposit ratio was 58.7% and the allowance for loan losses
2.2% of total loans at March 31, 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 three months ended March 31, 1995 decreased 3.1% 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 2.63% of its deposit base.<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 March 31, 1995, the
Registrant was required to and did file a report on Form 8-K, dated January
4, 1995, reporting item 4 - "Changes in Registrant's Certifying Account".<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
MAY 10, 1995
Richard W. Teele, Executive
Vice President/Treasurer<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 5,211,363
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 95,590
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,543,637
<INVESTMENTS-CARRYING> 6,146,629
<INVESTMENTS-MARKET> 6,356,508
<LOANS> 88,638,871
<ALLOWANCE> 1,911,609
<TOTAL-ASSETS> 175,700,749
<DEPOSITS> 149,940,600
<SHORT-TERM> 3,050,000
<LIABILITIES-OTHER> 2,271,067
<LONG-TERM> 0
<COMMON> 3,801,200
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 175,700,749
<INTEREST-LOAN> 1,967,586
<INTEREST-INVEST> 1,314,411
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,281,997
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 1,135,338
<INTEREST-INCOME-NET> 2,146,695
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 569,071
<INCOME-PRETAX> 2,014,528
<INCOME-PRE-EXTRAORDINARY> 2,014,528
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390,106
<EPS-PRIMARY> 2.58
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 157,000
<LOANS-PAST> 62,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,911,609
<CHARGE-OFFS> 35,000
<RECOVERIES> 18,000
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
