UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________
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
(Address of Principal Executive Offices)
(Zip Code)
04605
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, 1996
(Common stock, $25.00 Par value) 201,903
1 of 18 <PAGE>
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
Item 1: Financial Statements
Condensed consolidated balance sheets-
September 30, 1996, September 30, 1995,
December 31, 1995 3
Condensed consolidated statements of income-
nine months ended September 30, 1996 and
September 30, 1995, three months ended
September 30, 1996 and September 30, 1995 4-5
Condensed consolidated statements of cash flows-
nine months ended September 30, 1996 and
September 30, 1995 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-16
PART II Other Information
Item 1: Legal Proceedings 17
Item 2: Changes in Securities 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of
Security Holders 17
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 17
2 of 18 <PAGE>
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
September 30 September 30 December 31
1996 1995 1995
(Unaudited) (Unaudited) (Audited) *
ASSETS
Cash and due from banks $ 9,066,768 $ 8,289,721 $ 7,343,489
Assets available for sale 76,489,668 65,094,163 73,686,067
(MARKET VALUE AT 9/30/96)
Investments securities:
Obligations of states and
political subdivisions 3,278,353 5,296,666 4,119,546
Federal Funds Sold 3,041,360 13,883,379 6,322,771
Loans (net of unearned discount) 98,149,651 92,505,842 93,039,263
Less: Allowance for loan losses 1,989,448 1,915,637 1,878,169
Net Loans $ 96,160,203 $ 90,590,205 $ 91,161,094
Premises, Furniture & Equip Net 2,984,262 3,120,549 3,153,850
Other Assets 6,350,761 5,567,667 5,566,349
Total Assets $197,371,375 $191,842,350 $191,353,166
LIABILITIES & STOCKHOLDERS
INVESTMENTS
Deposits:
Demand $ 22,121,054 $ 21,433,519 $ 19,327,213
Savings 84,166,356 83,723,177 81,040,686
Time 65,745,074 61,839,021 64,989,970
Total Deposits 172,032,484 166,995,717 165,357,869
Borrowed Funds 110,000 0 110,000
Accrued Expenses & Other
Liabilities 3,299,600 2,863,137 3,090,803
Total Liabilities $175,442,084 $169,858,854 $168,558,672
STOCKHOLDERS INVESTMENT
Common Stock 5,062,875 5,062,875 5,062,875
Surplus 3,948,797 3,948,797 3,948,485
Retained Earnings 13,908,527 12,716,459 13,285,337
Net Unrealized Gain/(Loss) on
Securities Available for Sale (935,185) 325,378 567,810
Less: Treasury Stock 55,723 70,013 70,013
Total Stockholders Investment $ 21,929,291 $ 21,983,496 $ 22,794,494
Total Liabilities & Stockholders
Investment $197,371,375 $191,842,350 $191,353,166
*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.
UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Nine Months Ended-September 30,
1996 1995
INTEREST INCOME
Interest and Fees on Loans $6,615,487 $6,339,253
Interest and Fees on Municipal Loans and Bonds 407,041 541,913
Interest and Dividends on Securities 3,962,502 3,183,488
Interest on Federal Funds Sold 44,410 232,738
Amortization & Accretion - Net (1,384) (43,635)
Total Interest Earned 11,028,056 10,253,757
INTEREST EXPENSE
Interest on Deposits 4,020,343 3,645,577
Interest on Funds Purchased/Borrowed 217,846 10,109
Total Interest Expense 4,238,189 3,655,686
NET INTEREST INCOME 6,789,867 6,598,071
Provision for loan losses 90,000 15,000
NET INTEREST INCOME AFTER LOAN PROVISION 6,699,867 6,583,071
NONINTEREST INCOME
Exchange, Commission & Fees 608,302 525,878
Trust Department 355,338 325,941
Financial Service Fees 52,550 51,612
Other Income 651,256 564,308
Net Securities Gains (Losses) 3,737 1,045
Total Noninterest Income 1,671,183 1,468,784
NONINTEREST EXPENSE
Salaries and Employee Benefits 3,123,807 3,202,545
Building Maintenance & Operations 364,434 345,825
FDIC Insurance 1,500 169,644
Other Expenses 2,512,679 2,145,142
Total Noninterest Expense 6,002,420 5,863,156
INCOME BEFORE TAXES 2,368,630 2,188,699
Income Taxes 690,000 537,000
NET INCOME $ 1,678,630 $1,651,699
Per Share Data:
Net Income $8.31 $8.18
Dividends Declared 1.00 1.00
5 of 18 <PAGE>
UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Three Months Ended-September 30,
1996 1995
INTEREST INCOME
Interest and Fees on Loans $2,296,629 $2,187,877
Interest and Fees on Municipal Loans and Bonds 120,366 195,417
Interest and Dividends on Securities 1,298,949 982,280
Interest on Federal Funds Sold 14,548 162,024
Amortization & Accretion - Net (5,166) (3,225)
Total Interest Earned 3,725,326 3,524,373
INTEREST EXPENSE
Interest on Deposits 1,346,086 1,298,922
Interest on Funds Purchased/Borrowed 74,690 162
Total Interest Expense 1,420,776 1,299,084
NET INTEREST INCOME 2,304,550 2,225,289
Provision for loan losses 30,000 15,000
NET INTEREST INCOME AFTER LOAN PROVISION 2,274,550 2,210,289
NONINTEREST INCOME
Exchange, Commission & Fees 237,184 198,915
Trust Department 120,937 104,906
Financial Service Fees 19,167 18,162
Other Income 306,395 278,878
Net Securities Gains (Losses) 0 0
Total Noninterest Income 683,683 600,861
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,025,002 1,102,600
Building Maintenance & Operations 109,156 117,561
FDIC Insurance 500 (11,847)
Other Expenses 875,927 701,074
Total Noninterest Expense 2,010,585 1,909,388
INCOME BEFORE TAXES 947,648 901,762
Income Taxes 293,000 202,000
NET INCOME $ 654,648 $ 699,762
Per Share Data:
Net Income $3.24 $3.47
Dividends Declared 1.00 1.00
UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995
1996 1995
Net Cash Flows Provided by Operating Activities:
Net Income $1,678,630 $1,651,699
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 297,094 265,000
Provision for loan losses 90,000 15,000
Net securities gains 0 (1,045)
Net change in other assets (656,801) 415,023
Net change in other liabilities (208,797) (696,358)
Net amortization of premium on investments 1,386 (237,522)
Net change in deferred loan origination fees 71,911 (13,489)
Origination of loans held for sale (9,316,238) (5,483,682)
Proceeds from loans held for sale 7,319,990 4,558,243
Total adjustments (2,401,455) (1,178,830)
Net cash provided by operating activities (722,825) 472,869
Cash Flows From Investing Activities:
Purchase of investments (27,008,214 (12,472,581)
Proceeds from sales of investments 0 18,977,309
Proceeds from maturities of investment 24,762,119 9,249,005
Net change in loans to customers (5,017,198) (8,605,880)
Capital expenditures (127,506) (379,663)
Net cash used in investing activities (7,390,799) 6,768,190
Cash Flows From Financing Activities:
Net increase(decrease) in other Borrowed Funds 0 0
Net increase(decrease) in deposits 6,674,615 6,747,030
Transfer to Holding Company 472,000 0
Purchase of Treasury Stock (1,520) (14,560)
Proceeds from sale of Treasury Stock 15,810 0
Proceeds from issuance Common Stock 312 0
Payment to eliminate fractional shares 0 29,868
Dividends paid (605,725) (500,000)
Net cash provided by financing activities 6,555,492 6,262,338
Net increase (decrease) in cash and
cash equivalents (1,558,132) 13,503,397
Cash and cash equivalents at beginning of year 13,666,260 8,669,703
Cash and cash equivalents at 9/30/96 & 9/30/95 $12,108,128 $22,173,100
Supplemental Schedule of Non-Cash Investing and Financing Activities
Net increase (decrease) as a result of adopting
Statement of Financial Accounting Standards No. 115 1996 1995
Available for sale securities (1,416,947) 345,062
Deferred income liability (receivable) 481,762 (117,321)
Net unrealized gain(loss) on available for
sale securities $ (935,185) $ 227,741
8 of 18 <PAGE>
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, 1996 and 1995 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, 1995.
(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, 1996, and September 30, 1995, the following
financial instruments, whose contract amounts represent credit risk, were
outstanding.
September 30
(000's omitted)
1996 1995
1. Unused Commitments:
A. Revolving , open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines 5,808 5,792
B. Credit card lines 5,711 4,930
C. Secured real estate loans 3,722 1,595
D. Other 13,753 16,862
2. Financial Standby Letters of Credit: 56 42
3. Mortgages Transferred With Recourse: 0 0
10 of 18 <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) 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.
(G) Recent Accounting Developments
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," effective for financial statements for fiscal years beginning after
December 15, 1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be held and used by an entity being reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount for an asset may not be recoverable. The Company expects no
material impact from adopting SFAS No. 121.
In May 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 122, "Accounting for
Mortgage Servicing Rights" (an amendment of FASB Statement No. 65). SFAS
No. 122 applies to mortgage banking activities in which a mortgage loan is
originated, or purchased, and then sold with the right to service the loan
retained by the mortgage banking entity. The Statement amends SFAS No. 65,
which provided only for the recognition of purchased mortgage servicing
rights. Prior to SFAS No. 122, purchased mortgage servicing rights were
capitalized only in circumstances where the right to service loans was
acquired from another organization. SFAS No. 122 amends SFAS No. 65 by
requiring the capitalization of mortgage servicing rights, whether they were
acquired from another organization or originated internally. Additionally,
SFAS No. 122 has provisions that require an impairment analysis of the
servicing right regardless of whether the servicing right was originated or
purchased. The Company has not determined the impact of adopting SFAS No.
122.
In October 1995, the Financial Accounting Standards Board issued
11 of 18<PAGE>
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-based Compensation," effective for financial statements for the fiscal
year beginning after December 15, 1995. SFAS No. 123 requires entities to
disclose the fair value of their stock options, although they will not have
to record the options at fair value in the financial statement. As of
December 31, 1995, the Company did not offer stock-based compensation to its
employees.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", effective for financial statements for the fiscal year
beginning after December 31, 1996. SFAS No. 125 requires entities to
recognize (for each contract in existence before 1/1/97), previously
recognized servicing rights and "excess servicing" receivables that do not
exceed contractually specified servicing fees shall be combined, net of any
previously recognized servicing obligations under contract, as a servicing
asset or liability. The Company has not determined the impact of adopting
SFAS No. 125. It amends and extends to all servicing assets and liabilities
the accounting standards for mortgage servicing rights now in FASB Statement
No. 65 "Accounting for Certain Mortgage Banking Activities", and supercedes
FASB Statement No. 122, "Accounting for Mortgage Servicing Rights".
12 of 18 <PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net income increased $26,931 or 1.63% for the first nine months of
1996 versus the same period in 1995.
The following table summarizes the status of the bank's earnings
per share:
September 30,
1996 1995
Earnings Per Share 8.31 8.18
Return on Average Shareholders Equity 7.68%A 7.51%B
Return on Average Assets 0.86%A 0.88%B
Return on Average Earning Assets 0.95%A 0.96%B
A = annualized returns are; 10.24%, 1.15%, and 1.27%,
respectively.
B = annualized returns are; 10.01%, 1.17%, and 1.28%,
respectively.
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 third quarter and the first nine
months of 1996 versus the same period in 1995 results primarily from an
increase in net interest income, noninterest income and cost containment
efforts found in noninterest expenses. Year on year comparisons are
directly effected by a one-time FDIC rebate of $96,000 received in September
1995. It should be noted, excluding net security gains, net income was up
$24,239 or 1.5%.
The increase in net interest income of some $774,000 or 7.6% was a
result of higher loan and investment balances and interest rates based on
current market conditions.
The increase in noninterest income results primarily from loan
department fees, trust income and customer account fees.
Noninterest expenses, consisting primarily of employee compensation
and benefits, occupancy and equipment expenses, and other general operating
expenses were up some $139,000 or 2.30% from the same period in 1995.
Excluding one time adjustments of a 27th pay period affecting 1996 salary
expense and the $96,000 FDIC rebate in 1995, noninterest expenses were down
some $127,000 or 2.1%.
The Bank is constantly monitoring the economy and its effect on the
banking industry in New England, and in particular, in Maine, in Hancock and
Washington Counties (our service territories). The economy of this area
13 of 18<PAGE>
continues to be sluggish, inflation remains low and growth will be moderate
and as in years past, we will continue to operate in a conservatively
planned manner. We are growing according to our strategic plan and remain
within the risk parameters we have set forth for ourselves, with the goals
of improved earnings and productivity.
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 income, 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 of 1996 was $2,304,550,
up $79,261 or 3.6% and for the first nine months of 1996 was $6,789,867, up
$191,796 or 2.91% over the same periods in 1995.
The following table illustrates the bank's net interest spread
position:
Nine Months Ended September 30,
1996 1995
Yield on Earning Assets 8.23% 8.33%
Cost of All Funds 2.95% 2.98%
Net Interest Spread 5.28% 5.35%
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.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $90,000 from the same
period last year, resulting from management's ongoing evaluation of the
allowance for loan losses. The increase was due to increased loan volumes
and the desire to maintain the allowance for loan losses at 2.0% of gross
loans. 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 September 30, 1996 included a loan-by-loan analysis of all larger
commercial loans 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
14 of 18<PAGE>
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.
15 of 18 <PAGE>
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,
1996 1995
1. Nonaccrual Loans 279 150
2. Loans past due 90 days & accruing 160 166
3. Restructured loans 0 0
4. Other real estate owned (including
insubstance foreclosure) 940 940
5. Total nonperforming assets 1,379 1,256
6. Ratio of total nonperforming loans to capital
and the allowance for loan losses (Texas ratio) 1.83 5.26
7. Ratio of net chargeoffs to loans 0.00 0.00
8. Ratio of allowance for loan losses to loans 2.03 2.03
9. Coverage ratio(allowance for loan losses divided
by nonperforming assets) 144.23 152.47
10.Ratio of nonperforming assets to total assets .70 .66
11.Ratio of nonperforming loans to total loans .45 .33
It is important to note that 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.
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 gains, increased $82,822
or 13.8% and $199,707 or 13.6% for the three and nine months ended September
30, 1996 over the same period in 1995.
This increase is primarily due to an increase in loan department
income of $45,653 or 18.8%, customer account income of $82,424 or l5.77%,
credit card income of $39,243 or 12.4% and trust income of $29,397 or 9.1%.
Net security gains amounted to $0 and $3,737 for the three and nine
16 of 18<PAGE>
months ended September 30, 1996 compared to $0 and $1,045 for the same
period in 1995.
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.
A generally flat economy in Maine and in particular in Downease
Maine, has compelled or should compel banking institutions of our size to
manage their institutions prudently and conservatively. This we are
committed to do. Accordingly, a concerted effort in reducing non interest
expense has been a major undertaking in fiscal year 1996.
Noninterest expenses increased by $101,197 or 5.3% and $139,264 or
2.4% for the three and nine months ended September 30, 1996 over the same
period in 1995. The primary reasons for the increase were increased costs
in connection with consulting fees, due to an efficiency study conducted in
the fall of 1995, depreciation expense due to the upgrade of the Bank's
software, Bankcard expenses, and costs associated with loan expenses on
foreclosed property. Offsetting these increases, there were decreases in
salaries and benefits due to reduced staff levels and improved productivity,
and a decrease in FDIC insurance premiums and a $96,000 rebate received in
September 1995.
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.
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
1996 1995 1996 1995
Nine Months ended September 30, $690,000 $537,000 29.1 24.5
INTEREST RATE GAP ANALYSIS
Attention should be directed to the interest rate gap analysis as
17 of 18 <PAGE>
of December 31, 1995 as provided on page 12 in the Bank's 1995 Annual
Report. Data as of September 30, 1996 is essentially identical to that
reported in the Annual Report.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' Equity was as follows for the following periods:
SHAREHOLDER'S EQUITY
Amount Book Value
Per Share
September 30, 1996 $21,929,291 $108.61
September 30, 1995 $21,983,496 $108.88
December 31, 1995 $19,181,381 $ 95.00
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, 1996 the Company had met the minimum capital ratios. In fact, the
Bank's strong capital position at September 30, 1996 exceeded the minimums
established by the Federal Reserve Board as follows:
Minimum Regulatory
September 30, 1996 Requirements
Tier 1 Capital Ratio 19.8 4.0%
Total Capital Ratio 20.9 8.0%
Leverage Ratio 11.6
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 1996 and 1995.
STOCK DIVIDENDS
On April 12, 1995, the Company declared a 33 1/3 percent stock
dividend to be payable on May 15, 1995. Accordingly, book value per share
and cash dividends per share have been retroactively restated for the third
quarter of 1996 and 1995 to reflect the stock dividend.
18 of 18<PAGE>
LIQUIDITY MANAGEMENT
Liquidity management is the process by which the Bank structures
its cash flow to meet requirements of its customers as well as day-to-day
operating expenses.
Liquidity is provided from both assets and liabilities. The asset
side of the balance sheet provides liquidity through the regular maturities
on our securities portfolio, as well as the interest received on these
assets. In addition, U.S. government securities may be readily converted to
cash by sale in the open market. On the liability side, liquidity comes
from deposit growth and the Bank's accessibility to other sources of
borrowed funds. In this respect, liquidity is enhanced by a significant
amount of core demand and savings deposits from a broad customer base.
As a part of the Bank's asset and liability management and
liquidity needs, management actively evaluates its funding resource and
strategies to reduce and manage the vulnerability of its operation to
changes in interest rates.
When a Company's ability to reprice interest-bearing liabilities
exceeds its ability to reprice interest-earning assets within shorter time
periods, material and prolonged increases in interest rates generally
adversely affect net interest income, while material and prolonged decreases
in interest rates generally have the opposite effect.
A principal objective of the Company is to reduce and manage the
vulnerability of its operations to changes in interest rates by managing the
ratio of interest-rate sensitive assets to interest-rate sensitive
liabilities within specified maturities or repricing dates.
Union Trust Company is asset-sensitive as a result of its variable-
rate loan portfolio and its short-term investment portfolio. Bank earnings
may be negatively affected, should interest rates fall.
As of September 30, 1996, the Bank's ratio of rate-sensitive assets
to rate-sensitive liabilities at the one-year horizon was 80%, its one-year
GAP (measurement of interest sensitivity of interest-earning assets and
interest-bearing liabilities at a point in time) was 11%, which is 89%
matched, and $92,836,000 in assets and $115,530,000 in liabilities will be
repriceable in one year.
In addition to the "traditional" GAP calculation, the Company
analyzes future net interest income based on budget projections including
anticipated business activity, anticipated changes in interest rates and
other variables, which are adjusted periodically by management to take into
account current economic conditions, the current interest rate environment,
and other factors.
The status of the Bank's sources of cash to fund its operation are
as follows:
September 30,
1996 1995
Net cash from operations $ (722,825) $ 472,869
Net cash from investing activities $(7,390,799) $ 6,768,190
Net cash from financing activities $ 6,555,492 $ 6,262,338
Net increase (decrease) $(1,558,132) $13,503,397
BALANCE SHEET ANALYSIS
The Bank experienced an increase in loan demand during the first
nine months of 1996; 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
1996 1995 (Decrease)
Total Assets $197,371,375 $191,842,350 $ 5,529,025
Total Earnings Assets $178,969,584 $174,864,413 $ 4,105,171
Loans $ 96,160,203 $ 90,590,205 $ 5,569,998
Assets Available for Sale $ 76,489,668 $ 65,094,163 $11,395,505
Deposits $172,032,484 $166,995,717 $ 5,036,767
Capital $ 21,929,291 $ 21,983,496 $ (54,205)
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 increased
$11,395,505 to $76,489,668 or 38.8% of total assets as of September 30,
1996, as compared to 33.9% at September 30, 1995. The Bank implemented a
prefunding strategy for its security portfolio during the first quarter of
1996 as evidenced by security and borrowing balances.
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.
LOANS
20 of 18 <PAGE>
Loan demand continues to show signs of moderate growth during the
third quarter of 1996 and thus the Bank experienced an increase of
$5,569,998 or 6.1% at September 30, 1996, vs September 30, 1995.
It must be pointed out that the Bank has sold and serviced
$43,764,314 of real estate loans and $1,761,403 of commercial mortgages and
has over $3,223,695 of loans held for sale at September 30, 1996.
The section of management's discussion and analysis entitled
"Provision for Loan Losses" clearly indicates the quality of the loan
portfolio at September 30, 1996.
The Bank's loan-to-deposit ratio was 57.1% and the allowance for
loan losses 2.0% of total loans at September 30, 1996.
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
Total deposits increased $5,036,767 or 3.0% over the comparable
period in 1995, primarily due to competitive interest rates on products
offered and as a result of a calling program instituted in 1995. The
proportion of interest bearing funds continues to place emphasis on the need
for properly matching our assets 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 3.39% of its deposit base.
21 of 18 <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, l996,
the Registrant was not required to and did not file any reports on Form 8-K.
22 of 18 <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
Peter A. Blyberg, President
October 30, 1996
Sally J. Hutchins, Vice President/Treasurer
23 of 18<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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