FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1995. Commission File Number 0-12958
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
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
$25 Par Value
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K [ ](Amended by
Exch Act Rel No. 28869, eff. 5/1/91)
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 7, 1996, was approximately $31,670,320.
201,818 shares of the Company's Common Stock, $25 Par Value, were issued and
outstanding on February 17, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Annual Report to stockholders of the registrant for the
year ended December 31, 1995, are incorporated by reference into Parts I
and II.
2. Portions of the registrant's definitive Proxy Statement dated March 29,
1996 for its regular Annual Meeting of stockholders to be held April 18,
1996 are incorporated by reference into Part III.
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UNION BANKSHARES COMPANY
INDEX TO FORM 10-K
PART I Page No.
Item 1: Business 3-14
Item 2: Properties 15-16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 18-19
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8. Financial Statements and Supplementary Data 20
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 20
PART III
Item 10. Directors and Executive Officers of
the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial
Owners and Management 20
Item 13. Certain Relationship and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 21-22
Signatures 23
2 of 23<PAGE>
PART I
ITEM I: Business
Union Bankshares Company is a one-bank holding company, organized under the
laws of the State of Maine, which has acquired 99.928% of the common stock
of the Union Trust Company (the Bank). The Company's only subsidiary is the
Bank. The Company's holding company structure can be utilized to engage in
permitted banking-related activities, either directly or through newly
formed subsidiaries, or by acquiring companies already established in such
activities. The Company has no immediate plans for such activities, but
could do so, if such action should appear desirable.
Union Trust is a full-service, independent commercial bank with ten offices
in coastal Maine, serving the financial needs of individuals, businesses,
and municipalities in Hancock and Washington Counties. Commitment to
outstanding service, quality products and the ability to anticipate and
respond to the customers financial needs, Union Trust, now in its 107th
year, is proud to have earned the reputation as one of New England's
preeminent community banks.
Union Trust supports the people and communities it serves and believes that
reinvesting local money locally builds strong communities. The Bank's
charitable contribution program supports a broad range of local charities,
community development efforts and the volunteerism of its employees and
retirees.
Union Trust Company offers a full range of banking services, at competitive
rates, at convenient banking hours and locations and is accessible to our
customers 24 hours a day through physical locations and electronic means.
This year the Bank introduced "BankLine" which provides 24 hour access by
phone, whereby customers may check the balance of their checking account,
check recent account activity, verify interest paid and earned, transfer
funds and make loan payments.
Union Trust's deposit services include: regular and basic checking
accounts, NOW accounts, Money Market accounts, savings accounts,
Certificates of Deposits, IRA accounts, KEOGH Plans, ATM Convenience Card,
Convenience Check Card, Reserve Checking, credit cards, BankLine, Unlimited
Club membership and safe deposit boxes. The Bank also provides the
following loan services: installment loans, student loans, mortgages, lines
of credit, commercial loans, home equity loans and Visa credit cards.
Union Trust also offers a full range of investment and trust services. Our
professional trust advisors design and administer personal trusts,
individual retirement accounts, self-employed retirement accounts, company
retirement plans (pension, simplified employee pension, 401(k), profit
sharing), and estate plans. In addition, our trust staff will help people
of all ages and income levels analyze their savings and retirement needs and
plan customized investment strategies to meet the customer's goal. In 1995,
the trust department introduced "Mutual Partners", an Asset Allocation
Program that offers a balanced investment mechanism for our customer. Using
mutual funds and creating portfolios designed to meet each person's
individual situation and risk level, the Bank hopes to appeal to a broad
range of potential trust customers, many of whom might otherwise think that
they don't have enough savings to qualify for a trust.
3 of 23<PAGE>
The Bank competes actively with other commercial banks and other financial
institutions in its service areas. Strong competition exists among
commercial banks in efforts to obtain new deposits, in the scope and type of
services offered, in interest rates on time deposits and interest rates
charged on loans, and in other aspects of banking. In Maine, savings banks
are major competitors of commercial banks as a result of broadened powers
granted to savings banks. In addition, the Bank like other commercial
banks, encounters substantial competition from other financial institutions
engaged in the business of either making loans or accepting deposit
accounts, such as savings and loan associations, insurance companies,
certain mutual funds, and certain governmental agencies. Furthermore, the
large banks located in Boston, New York, and Providence are active in
servicing some of the large Maine based companies.
As of December 31, 1995 the Bank employed 120 employees of which 14
employees were part-time.
The primary regulator of the Company and the Bank is the Federal Reserve
Bank of Boston.
Please refer to Management's Discussion and Analysis, on page 6 of the 1995
Annual Report of Union Bankshares Company, regarding compliance with capital
requirements.
Any loans classified for regulatory purposes as loss, doubtful, substandard,
or special mention that were not disclosed under Item III of Industry Guide
3 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.
The Company and Bank are not aware of any current recommendations by the
regulatory authorities which if they were to be implemented would have or
would be reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations.
Loans, other than credit card loans, are placed on nonaccrual status when,
in the opinion of management, there are doubts as to collectibility of
interest or principal, or when principal or interest is past due 90 days or
more, and the loan is not well secured and in the process of collection.
Interest previously accrued but not collected is reversed and charged
against interest income at the time the related loan is placed on nonaccrual
status. Principal and accrued interest on credit card loans are charged to
the allowance for credit losses when 180 days past due.
Interest payments received on nonaccrual loans are recorded as reductions of
principal if principal payment is doubtful.
Loans are considered to be restructured when the yield on the restructured
assets is reduced below the current market rates by an agreement with the
borrower. Generally this occurs when the cash flow of the borrower is
insufficient to service the loan under its original terms.
4 of 23<PAGE>
STATISTICAL PRESENTATION
(The Supplemental Financial Data presented on the following pages contains
information to facilitate analysis and comparison of sources of income and
exposure to risk).
A. INVESTMENT PORTFOLIO
The following table shows the book value of the Company's held to
maturity and investment securities at the end of each of the last three
years. (In Thousands)
December 31
1995 1994 1993
U. S. Treasury Securities
& Other Government Agencies $ -0- $ 0- $ -0-
Obligations of States and
Political Subdivisions 4,120 6,725 7,357
Other Investments Securities 0 0 0
TOTAL $4,120 $6,725 $7,357
The table below shows the relative maturities of investment and held to
maturity securities as of December 31, 1995.
Held to Maturity Securities
Maturity Distribution As Of
December 31, 1995
Security Category Due 1 Yr Due 1- Due 5- Due 10-
or less 5 Yrs 10 Yrs 15 Yrs
State and Municipal Bonds $ 817 $2,600 $ 653 $ 50
Average Weighted Yield 7.50% 6.08% 5.96% 8.38%
TOTAL $ 817 $2,600 $ 653 $ 50
Percent of Total Portfolio 19.8% 63.2% 15.8% 1.20%
NOTE: Average Weighted Yields on tax exempt obligations have been computed
on a tax equivalent basis
5 of 23 <PAGE>
A. 1. AVAILABLE FOR SALE SECURITIES
The following table shows the carrying value of the Company's Available for
Sale Securities at the end of each of the last three years. (In Thousands)
December 31
1995 1994 1993
U S Treasury Notes/Bills
and Other Government Agencies $71,799 $73,901 $70,276
Other Securities 659 659 113
TOTAL $72,458 $74,560 $70,389
The table below shows the relative maturities and carrying value of
available for sale securities as of December 31, 1995.
Securities Available For Sale
Maturity Distribution As Of
December 31, 1995
Security Due 1 Yr Due 1- Due 5-
Category or Less 5 Yrs 10 Yrs
U S Treasury Notes/Bills
and Other Government
Agencies $12,367 $30,717 $28,085
Average Weighted Yield 6.19% 6.60% 7.20%
Other Securities -0- 630 -0-
Average Weighted Yield -0- 6.25% -0-
TOTAL $12,367 $31,347 $28,085
Percent of
Total Portfolio: 17.2% 43.7% 39.1%
6 of 23<PAGE>
B. LOANS
The following table reflects the composition of the Company's consolidated
loan portfolio at the end of each of the last five years.
1995 1994 1993 1992 1991
(In Thousands)
Real Estate Loans
A. Construction and Land
Development $ 2,023 $ 2,168 $ 1,568 $ 2,504 $ 2,693
B. Secured by 1-4 Family
Residential Properties 27,402 25,528 26,129 25,373 36,203
C. Secured by Multi-Family
(5 or more) Residential
Properties 2 4 7 12 27
D. Secured by Non-Farm,
Non-Residential
Properties 28,273 26,500 24,553 26,560 28,250
Commercial & Industrial Loans 13,778 12,975 12,834 15,564 16,651
Loans to Individuals for
Household, Family & Other
Consumer Expenditures 14,335 12,844 12,463 12,139 8,569
All Other Loans 7,430 4,189 3,439 2,825 2,255
Total Gross Loans $93,243 $84,208 $80,993 $84,977 $94,648
The above data is gathered from loan classifications established by the
Federal Reserve Call Report 033.
The percentages of loans by lending classification to total loans
outstanding at December 31, was as follows:
1995 1994 1993 1992 1991
Real Estate 61.9% 64.4% 64.5% 64.1% 71.0%
Commercial & Industrial
Including single payment
loans to individuals 14.8% 15.4% 15.9% 18.3% 17.6%
Consumer Loans 15.4% 15.3% 15.4% 14.3% 9.1%
All Other Loans 7.9% 4.9% 4.2% 3.3% 2.3%
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
7 of 23<PAGE>
Maturities and Sensitivities of Loans
to Changes in Interest Rates
As of December 31, 1995
Due 1 Year
or Less Due 1-5 Yrs Due 5 yrs +
Real Estate $ 36,806 $ 15,337 $ 5,557
Commercial & Industrial 10,525 3,253 0
Consumer 11,660 2,675 0
Municipal 4,222 1,902 1,306
Total $ 63,213 $ 23,167 $ 6,863
Note: Real Estate Loans in the 1-5 year category have $1,449,000 at a
fixed interest rate and $13,888,000 at a variable interest rate.
Commercial Loans in the 1-5 year category have $536,000 at a fixed
interest rate and $2,717,000 at a variable interest rate.
Real Estate Loans in the 5+ category have $5,015,000 at a
fixed interest rate and $542,000 at a variable interest rate.
Commercial Loans in the 5+ category have $0 at a fixed
interest rate and $0 at a variable rate.
Delinquent Loans
The following schedule is a summary of loans with principal and/or interest
payments over 30 days past due:
DECEMBER 31
1995 1994 1993 1992 1991
Amt % Amt % Amt % Amt % Amt %
Real Estate $867 0.9 $479 0.6 $1,659 2.0 $1,523 1.8 $2,058 2.2
Installment $ 95 0.1 $ 95 0.1 $ 96 0.1 $ 371 0.4 $ 278 0.3
All Others $ 35 0.0 $189 0.2 $ 102 0.2 $ 296 0.4 $ 759 0.8
TOTAL $997 1.0 $763 0.9 $1,857 2.3 $2,190 2.6 $3,095 3.3
It is the policy of the Company to discontinue the accrual of interest on
loans when, in the opinion of the management, the ultimate collectibility
of principal or interest becomes doubtful. The principal amount of loans
which have been placed on non-accrual status were comprised primarily of
certain installment loans. For each of these loans, management has evaluated
the collectibility of the principal based on its best estimate of the
realizable collateral value of the loans and does not anticipate that any
losses from liquidation of these loans will have a material effect on future
operations. There were approximately $614,000, $151,000, and $486,000 as of
December 31, 1995, 1994 and 1993, respectively, of loans on a non-accrual
status.
8 of 23 <PAGE>
LOANS CONCENTRATIONS
As of December 31, 1995 and 1994, the company did not have any concentration
of loans in one particular industry that exceeded 10% of its total loan
portfolio.
The Bank grants residential, commercial and consumer loans to customers
principally located in Hancock and Washington Counties of the State of Maine.
Although the loan portfolio is diversified, a substantial portion of its
debtor's ability to honor their contracts is dependent upon the economic
conditions in the area, especially in the real estate sector. There are
currently no borrowers whose total indebtedness to the Bank exceeds 10% of
the Bank's Shareholders' equity at December 31, 1995.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Analysis of the allowance for loan losses for the past five years were as
follows:
(Dollars in Thousands)
December 31,
1995 1994 1993 1992 1991
Balance at beginning of period: $ 1,929 $ 1,802 $ 2,325 $ 1,623 $ 971
Charge-Offs
Commercial & Industrial Loans 44 30 62 27 44
Real Estate Loans 48 256 837 92 187
Loans to Individuals 104 4 87 421 206
196 320 986 540 437
Recoveries:
Commercial & Industrial Loans 43 5 84 11 62
Real Estate Loans 1 390 47 26 21
Loans to Individuals 71 52 302 130 106
115 447 433 167 189
Net Charge-Offs (recoveries) 81 (127) 553 373 248
Provision for loan losses 30 0 30 1,075 900
Balance at end of period $ 1,878 $ 1,929 $ 1,802 $ 2,325 $ 1,623
Average Loans Outstanding $88,725 $82,600 $83,104 $89,813 $89,117
Ratio of Net Charge-Offs
(Recoveries) to average
loans outstanding .09% (.15%) .67% .42% .28%
9 of 23 <PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
1995 1994 1993 1992 1991
Amt % of LN Amt % Amt % Amt % Amt %
Categories
To Total
Loans
Balance at end
of Period:
Applicable To:
Real Estate $ 647 61.9% $ 665 64.4% $ 621 64.5% $ 621 64.1% $ 560 71.0%
Commercial &
Industrial 1,024 14.8% 1,051 15.4% 983 15.9% 768 17.5% 884 17.3%
Consumer 207 15.4% 213 15.3% 198 15.4% 246 14.3% 179 9.1%
Municipal -0- 7.9% -0- 4.9% -0- 4.2% -0- 3.3% -0- 2.6%
Identified -0- -0- -0- -0- -0- -0- 690 .8% -0- -0-
$1,878 100.0 $1,929 100.0 $1,802 100.0 $2,325 100.0 $1,623 100.0
The allowance for loan losses is a general allowance established by
management to absorb possible loan losses as they may exist in the loan
portfolio. This allowance is increased by provisions charged to operating
expenses and by recoveries on loans previously charged-off. Management
determines the adequacy of the allowance from continuous reviews of the
quality of new and existing loans, from the results of independent reviews of
the loan portfolio by regulatory agency examiners, evaluation of past
and anticipated loan loss experience, the character and size of the loan
portfolio and anticipated economic conditions.
As of December 31, 1995, the Company had impaired loans totaling some
$59,000, which consisted of commercial and real estate loans. The fair
value of the loan's collateral was used in all instances to determine present
value.
A loan is considered impaired by management when it is probable that the
creditor will be unable to collect all amounts due under the contractual
terms of the loan, including principal and interest. Loans on a non-
accrual status that are deemed collectable are not classified as impaired.
Based upon managements periodic review of loans on non-accrual status,
impairment is based on a loan by loan analysis and not set by a defined
period of delinquency before a loan is considered impaired.
The adoption of Statement 114 has had no material affect on the
comparability of prior reporting periods.
Risk Elements
1995 1994 1993 1992 1991
Loans accounted for on
a non-accrual basis $614 $151 $486 $353 $623
Accruing loans contractually
past due 90-days or more $388 $ 86 $237 $134 $ 88
10 of 23 <PAGE>
In accordance with Industry Guide 3 Item III. c (2), the gross interest
income that would have been recorded in 1995 if non-accrual and restructured
loans had been current in accordance with their original terms and had been
outstanding throughout the period or since origination approximates $28,000.
There was some $2,000 included in the gross interest income on non-accrual
and restructured loans for 1995.
C. DEPOSITS
The following table presents the components of total deposits for the last
three years.
(Dollars in Thousands)
1995 1994 1993
Demand Deposits $ 19,327 $ 20,257 $ 17,237
Savings Deposits 63,621 66,236 66,041
Money Market Accounts 17,420 20,346 22,815
Time Deposits 58,104 49,939 49,705
Certificates of Deposits
of $100,000 or more 6,886 3,471 5,438
TOTAL DEPOSITS $165,358 $160,249 $161,236
Interest Bearing
Deposits to Total 89.4% 87.4% 89.3%
The following schedule summarizes the time remaining to maturity of
Certificates of Deposit $100,000 or greater at December 31, 1995.
Amount
(In Thousands)
3 Months or Less 2,176
3 Through 12 Months 3,679
Over One Year 1,031
D. CAPITAL RATIOS
The following table presents, for the last three years, the Company's
capital expressed as a percentage of average deposits, loans, total assets,
and earning assets.
*1995 *1994 1993
Deposits 13.7% 12.8% 11.8%
Loans 25.1% 24.9% 22.7%
Total Assets 11.9% 11.3% 10.5%
Earning Assets 12.9% 12.8% 11.2%
* Excluding net unrealized gain/(loss) on available for sale securities of
$567,810 and ($1,389,168) at December 31, 1995 and 1994, respectively.
11 of 23<PAGE>
E. RETURN ON STOCKHOLDERS' EQUITY
The following table presents, for each of the last three years, the Company's
return on stockholders' equity, return on assets, and return on average
earning assets.
1995 1994 1993
Return on Average
Stockholders' Equity 11.4% 11.9% 11.8%
Return on Average Assets 1.3% 1.3% 1.2%
Return on Average Earning Assets 1.4% 1.4% 1.3%
F. FIVE YEAR SUMMARY (in Thousands)
1995 1994 1993 1992 1991
Deposits $165,358 $160,249 $161,236 $158,674 $149,623
Loans 93,243 84,208 80,993 84,977 94,648
Securities *75,716 *83,391 *73,821 76,704 56,981
Shareholders'
Equity **22,227 **20,570 18,875 17,391 15,923
Total Assets 191,353 181,597 182,129 177,767 167,138
Net Earnings 2,418 2,354 2,134 1,920 1,300
Interest Income 13,855 12,677 12,393 13,698 14,902
Net Interest Income 8,803 8,490 7,666 7,548 6,732
Actual Cash Dividend
Declared*** 4.00 3.00 3.00 2.41 2.41
Dividend Payout Ratio 31.3% 25.8% 28.4% 23.8% 35.1%
Average Equity to
Average Asset Ratio 11.5% 10.8% 10.1% 8.44% 9.43%
Earnings Per Share*** $12.78 $11.65 $10.55 $10.15 $6.87
Loans to Deposits
Ratio 56.4% 52.5% 50.2% 53.6% 63.3%
* Stated at amortized cost. Includes available for sale securities with
cost of $70,939 and $76,007 and securities held for sale with cost of $65,816
at December 31, 1995, 1994, and 1993, respectively.
** Excluding net unrealized gain/(loss) on available for sale securities of
$567,810 and ($1,389,168) at December 31, 1995 and 1994, respectively, due
to impact of FAS 115.
*** Earnings per share have been restated to reflect a stock split effected
in the form of a 33 1/3 stock dividend in 1995.
12 of 23 <PAGE>
The following table sets forth, for the periods indicated, information
regarding (1) the total dollar amount of interest income of the Company from
interest-earning assets and the resulting average yields; (2) the total
dollar amount of interest expense on interest bearing liabilities and the
resulting average cost; (3) net interest income; (4) interest rate spread;
and (5) net interest margin. Information is based on average daily balances
during the indicated periods. For the purposes of the table and the
following discussion, (1) income from interest earning assets and net
interest income are not presented on a tax equivalent basis primarily by
adjusting income and yields earned on tax exempt interest received on loans
and certain investments to make them equivalent to income and yields earned
on fully taxable investments - assuming federal income tax rates of 34% in
1995, 1994 and 1993, respectively, and (2) non-accrual loans have been
included in the appropriate average balance loan category, but unpaid
interest on non-accrual loans has not been included for purposes of
determining interest income.
Average Balances/Interest Earned - Paid/Rates 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
Balance Int Rate Balance Int Rate Balance Int Rate
Earned/Paid Earned/Paid Earned/Paid
Assets
Interest Earning Assets:
Securities Available
for Sale $65,896 $ 4,231 6.42 $ 70,584 $ 4,447 6.30 $ 55,575 $4,199 7.56
State and
Municipal 5,926 419 7.07 7,155 520 7.27 9,050 607 6.71
Federal Funds
Sold 7,409 424 5.72 5,490 209 3.81 5,358 263 4.91
Loans(Net) 88,588 8,781 9.91 82,570 7,501 9.08 91,710 7,324 7.99
Total Interest Earning
Assets 167,819 $13,855 8.26 165,799 $12,677 7.65 $161,693 $12,393 7.66
Other non-earning
assets 14,685 15,503 12,213
$182,504 $181,302 $173,906
Interest Bearing Liabilities:
Savings
Deposits $ 65,690 $ 1,302 1.98 $ 66,290 $ 1,341 2.02 $ 64,915 $ 1,631 2.51
Time Dep 59,544 3,198 5.37 54,668 2,279 4.17 54,668 2,451 4.48
Money Market
Accounts 15,142 552 3.65 21,275 567 2.67 22,649 645 2.84
Total Interest Bearing
Deposits 140,376 $ 5,052 3.60 142,233 $ 4,187 2.94 142,232 $ 4,727 3.33
Other non-interest bearing liabilities &
shareholders'
equity 42,128 39,069 31,674
$182,504 $181,302 $173,906
Interest Spread 8,803 4.66 8,907 4.71 8,062 4.40
Interest Revenue/Earning
Assets 167,819 13,855 8.26 165,799 12,677 7.65 161,693 12,393 7.66
Interest Expense/Earning
Assets 167,819 5,052 3.01 165,799 4,187 2.53 161,693 4,727 2.92
Net Yield on Earning Assets 5.25 5.12 4.74
13 of 23 <PAGE>
Volume and Rate Analysis of Net Interest Income
Taxable Equivalent in Thousands
Year Ended December 31, 1995 vs 1994
Increase(Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets:
Assets Available for Sale (296) 84 (4) (216)
State and Political Obligation (135) (282) 48 (369)
Federal Funds Sold 73 105 37 215
Loans, Net 553 533 45 1,131
Total Interest Earning
Assets 195 440 126 761
Interest Bearing Liabilities:
Savings Deposits (14) (28) 3 (39)
Time Deposit 204 657 58 919
Money Market Accounts (163) 209 (61) (15)
Total Interest Bearing
Deposits 27 838 0 865
Increase (Decrease) 168 (398) 126 (104)
Volume and Rate Analysis of Net Interest Income
Taxable Equivalent in Thousands
Year Ended December 31, 1994 vs 1993
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets:
Assets Held for Sale 1,137 (698) (191) 248
State and Municipal (190) 90 (18) (118)
Federal Funds Sold 7 (59) (2) (54)
Loans, Net (741) 1,071 (101) 229
Total Interest Earning
Assets 213 404 (312) 305
Interest Bearing Liabilities:
Savings Deposits 33 (320) (3) (290)
Time Deposits (2) (171) 1 (172)
Money Market Accounts 37 (40) (75) (78)
Total Interest Bearing
Deposits 68 (531) (77) (540)
Increase (Decrease) 145 935 (235) 845
The above table reconciles changes in interest and dividend
income on a tax equivalent basis and interest expense of the Company for the
period indicated due to changes in average balances, rates or a combination
of both.
*Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
14 of 23 <PAGE>
BANK'S PROPERTIES
ITEM 2: PROPERTIES
The Bank's principal office is located at 66 Main Street in Ellsworth,
Maine. The main office building consists of three floors, all of which are
utilized by the Bank for banking facilities and administrative offices.
The principal office includes a separate drive-up facility and parking lot.
In August, 1981, plans were finalized for the construction of an 8,000
square foot addition to our existing building. Completed in November of
1982, it provided new and enlarged customer service/teller area with street
level access. During 1982 and 1983, the existing building also received
extensive renovation and remodeling, tying it in to the new addition. The
project was completed in July of 1983. In April, 1985, the Bank opened the
first automated drive-up in Downeast Maine. The automated teller machine
is adjacent to its drive-up facility located at 66 Main Street, in Ellsworth,
Maine. In October, 1985, our new branch in Somesville, Maine opened. The
site is a high traffic area and holds excellent promise for attracting new
accounts and servicing existing ones. In 1988, the Main Office began
construction of an addition to its existing building that would house loan
operations. In September, 1989, construction was completed on the addition.
In May, 1992, the bank opened a trust office in Bangor (Penobscot County) to
serve trust customers in that city and surrounding areas. In May 1995, the
Bank elected not to renew its lease for its Bangor office. In addition, the
Bank owns the following properties:
(a) The Bank's Cherryfield office located on Church Street in
Cherryfield, Maine. A major renovation was undertaken at
Cherryfield in 1983, approximately doubling its size.
These alterations were completed in January of 1984.
(b) The Bank's Jonesport office located on Main Street in
Jonesport, Maine.
(c) The Bank's Blue Hill office located on Main Street in Blue
Hill, Maine.During 1989, the branch was renovated to
include an office for the Assistant Manager.
(d) The Bank's Stonington office located on Atlantic Avenue in
Stonington, Maine. The Stonington office was renovated and
expanded in 1980.
(e) The Bank's Milbridge office located on Main Street in
Milbridge, Maine. In 1987, management decided to replace
the Milbridge Branch with a larger up-to-date facility,
located at the same site. The new branch is now
completed and has been open for business since April 1988.
(f) The Bank purchased in 1989 a parcel of land located on
Route 3 in Ellsworth with the possible intention of
constructing a new branch. There are no plans for
construction at this time.
All of the Bank's offices include drive-up facilities.
15 of 23 <PAGE>
In addition to the above properties, which are owned by the bank, the Bank
leases the following properties:
(a) The bank leases its branch office at the Ellsworth Shopping
Center, High Street Ellsworth, Maine, from Ellsworth
Shopping Center, Inc., a Maine Corporation with principal
offices in Ellsworth, Maine. The current lease will expire
in May of 1997.
(b) The Bank leases its Machias office which is located on
Dublin Street in Machias, Maine. The premises are owned by
Hannaford Bros., Inc. of South Portland, Maine, and are
leased to Gay's Super Markets, Inc., under a lease dated
July 26, 1975. The Bank subleased the premises from Gay's
Super Markets, Inc., under a sublease which expires in
April of 1996. The bank has the right to extend the
sublease for three additional five year terms.
(c) The Bank leases its Somesville Branch Office which is
located on Route 102 in Somesville, Maine. The land and
premises are owned by A.C. Fernald Sons, Inc., Mount
Desert, Maine. The current lease expires on March 24,
2005, with an option to renew for an additional 20 years.
(d) The Bank leases it Castine branch office located on Main
Street from Michael Tonry, Castine, Maine. The current
lease expires on February 1, 1999 with the right to
extend the lease for an additional 4 year term.
All premises are considered to be in good condition and currently
adequate for the purposes for which they are utilized.
ITEM 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine
litigation incidental to the business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
16 of 23 <PAGE>
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
A. MARKET INFORMATION
The common stock, $25 par value of the Company, is not listed on any
exchange nor actively traded. Since the Company is not aware of the price
of all trades, the price is established by determining what a willing buyer
will pay a willing seller. The stock prices shown below are based upon
trades that the Bank has knowledge of from Paine Webber and represent a
range of the high and low bids for each quarter ended in 1994 and 1995.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1994 $155.00/160.00 $160.00/160.00 $160.00/160.00 $160.00/160.00
1995 $160.00/175.00 $125.00/169.26 $150.00/167.00 $167.00/170.00
B. HOLDER
As of March 1, 1996 there were approximately 677 stockholders of record.
C. DIVIDENDS
1. History
The following table shows the cash dividends declared by Union Bankshares
Company on its common stock, $25 par value:
1995 *1994
First Quarter $1.00 $ .75
Second Quarter 1.00 .75
Third Quarter 1.00 .75
Fourth Quarter 1.00 .75
Total $4.00 $3.00
Cash dividends declared
per common share $4.00 $3.00
*Dividends per share have been restated to reflect a stock split effected
in the form of a 33 1/3 percent stock dividend in 1995.
17 of 23 <PAGE>
Item 6: Selected FINANCIAL DATA
(in thousands)
Set forth below is a Consolidated Summary of Operations for the Company for
each of the last five years.
1995 1994 1993 1992 1991
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans $ 8,781 $ 7,501 $ 7,324 $ 8,824 $ 9,984
Interest on Federal Funds Sold 424 209 263 176 377
Interest on Available for Sale
Securities 4,230 4,447 0 0 0
Interest on Held for Sale
Securities 0 0 4,199 4,025 3,643
Interest on Held to Maturity
Securities 420 520 607 674 899
Total Interest Earned $13,855 $12,677 $12,393 $13,699 $14,903
INTEREST EXPENSE
Interest on Deposits 4,767 4,084 4,556 5,876 7,658
Interest on C/D's $100,000
and Over 274 101 169 273 511
Interest on Short-term Borrowings 11 2 1 1 1
Total Interest Expense 5,052 4,187 4,726 6,150 8,170
NET INTEREST INCOME 8,803 8,490 7,667 7,549 6,733
Provision for loan losses 30 0 30 1,075 900
Net Interest Income after
Loan Provision 8,773 8,490 7,637 6,474 5,833
NONINTEREST INCOME
Net Securities Gains 3 98 267 1,098 330
Trust Department 444 400 413 381 331
Service Charges on Deposit
Accounts 310 311 324 331 276
Other Income 1,232 1,271 1,255 1,189 964
Total Noninterest Income 1,989 2,080 2,259 2,999 1,901
Income Before Non-Interest
Expenses 10,762 10,570 9,896 9,473 7,734
NONINTEREST EXPENSE
Salaries and Employee Benefits 4,019 3,967 3,497 3,239 2,947
Net Occupancy Expense 777 767 780 712 673
Equipment Expense 201 180 173 190 165
18 of 23 <PAGE>
FDIC Insurance 185 345 349 387 360
Other Expenses 2,277 2,161 2,235 2,430 1,952
Total Noninterest Expense 7,459 7,420 7,034 6,958 6,097
INCOME BEFORE TAXES 3,303 3,150 2,862 2,515 1,637
Income Taxes 885 796 797 595 337
Income Before Cumulative Effect 2,418 2,354 2,065 1,920 1,300
of Change in Accounting Principle
Cumulative Effect of Change 0 0 68 0 0
in Accounting for Income Taxes
NET INCOME $2,418 $2,354 $2,133 $1,920 $1,300
Net Income Per Common Share $12.78 $11.65 $10.55 $10.15 $ 6.87
Cash Dividends Declared
Per Common Share $ 4.00 $ 3.00 $ 3.00 $ 2.41 $ 2.41
The above summary should be read in conjunction with the related
consolidated financial statements and notes thereto for the years ended
December 31, 1995, 1994, 1993, 1992, and 1991, and with Management's
discussion and analysis of financial condition.
19 of 23 <PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the
Company's Annual Report is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The financial statements required are contained in the
Company's 1995 Annual Report and are incorporated herein by reference.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In May, 1995, the Audit Committee of the Company voted to engage Berry,
Dunn, McNeil & Parker as independent auditors of the Company. The Company's
former auditors, Baker, Newman & Noyes (which was the successor firm as of
1/2/95 to the Portland, Maine office of KPMG Peat Marwick) was dismissed on
the same date. Each of the auditors' report on the financial statements for
the past two fiscal years did not contain an adverse opinion or disclaimer of
opinion and were not qualified as to uncertainty, audit scope or accounting
principles. In connection with the audits of the two most recent fiscal
years preceeding the change in accountants, there were no disagreements of
any type with the Company's former auditor on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. During the Company's two fiscal years preceeding the change in
accountants, no reportable event which would require disclosure under federal
securities laws, occured.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item (and Items 11, 12, and 13 below) is
incorporated by reference from the registrant's definitive Proxy Statement
dated March 28, 1996 for its regular annual meeting of stockholders to be
held April 18, 1996, where it appears under the headings "VOTING SECURITIES
AND PRINCIPAL HOLDERS THEREOF AND ELECTION OF DIRECTORS."
ITEM 11: EXECUTIVE COMPENSATION
See Item 10.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See Item 10.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 10.
20 of 23 <PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Exhibits
(1) The financial statements listed below are filed
as part of this report; such financial
statements (including report thereon and notes
thereto) are included in the registrant's
Annual Report to stockholders for its fiscal
year ended December 31, 1995 (a copy of
which is being filed as Exhibit 13 hereto), and
are incorporated herein by reference.
Exhibit 13
Page Number
Consolidated Balance Sheets
December 31, 1995 and 1994 16 - 17
Consolidated Statements of Income
For the years ended December 31, 1995, 1994, 1993 18 - 19
Consolidated Statements of Changes in Stockholders' Equity
For the years ended December 31, 1995, 1994, 1993 20
Consolidated Statements of Cash Flow
For the years ended December 31, 1995, 1994, 1993 21 - 23
Notes to Consolidated Financial Statements 24 - 44
Independent Auditors Opinion 45
Supplementary schedules are omitted as they are not required or included in
the Annual Report to shareholders.
(2) Exhibits required by Item 601 - see Item 14(c)
(b) Reports on Form 8-K
During the registrant's fiscal quarter ended December 31, 1995, the
registrant was not required to and did not file any Reports on Form 8-K.
(c) Exhibits
Exhibit# Description
* 3 Articles of Incorporation and By-laws
of Union Bankshares Company
* 10.1 Employee benefit plan for the employees
of Union Trust Company
Pension Plan for the employees of Union
Trust Company
401(k) Profit Sharing Plan for the
employees of Union Trust Company
Stock Purchase Plan for the employees
of Union Trust Company
21 of 23 <PAGE>
11 Computation of earnings per share, is
incorporated herein by reference to
Note 1 to the Consolidated Financial
Statements on page 16 of the 1995
Annual Report to Stockholders attached
hereto as Exhibit 13.
12 Statement for computation of ratios is
incorporated herein by reference to
"Part I, Item 1-Five Year Summary."
13 The registrant's Annual Report to
Stockholders for its fiscal year ended
December 31, 1995. This exhibit,
except for those portions thereof
expressly incorporated by reference
into the Form 10-K annual report, is
furnished for the information of the
Commission only and is not to be
"filed" as part of the report.
16 A letter from the registrant's former
independent accountant regarding its
concurrence with the statements made by
the registrant in the current report
concerning the dismissal of the
registrant's principal accountant.
*21 Subsidiary information is incorporated
herein by reference to "Part I, Item 1-
Business".
99.1 Report of Berry, Dunn, McNeil & Parker.
99.2 Report of Baker, Newman and Noyes
99.3 Report of KPMG Peat Marwick
*Incorporated herein by reference into this document from the Exhibits to
Form S-1, Registration Statement, initially filed on June 15, 1984,
Registration No. 2-90679.
22 of 23 <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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 UNION BANKSHARES COMPANY
By: Robert S. Boit, President Peter A. Blyberg
and Chief Executive Officer Executive Vice President and
Treasurer
Date: March 27, 1996
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Arthur J Billings, Director
Peter A Blyberg, Director
Robert S Boit, Director
Richard C Carver, Director
Peter A Clapp, Director
Sandra H Collier, Director
Robert B Fernald, Director
Douglas A Gott, Director
David E Honey, Director
Delmont N Merrill, Director
Thomas R Perkins, Director
Casper G Sargent, Director
John V Sawyer, II, Director
Stephen C Shea, Director
Richard W Teele, Director
Paul L Tracy, Director
Richard W Whitney, Director<PAGE>
24 of 23<PAGE>
Exhibit 99.1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have audited the accompanying consolidated balance sheet of Union
Bankshares Company and Subsidiary as of December 31, 1995, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Union Bankshares Company and Subsidiary as of and
for the year ended December 31, 1994 were audited by other auditors whose
report thereon dated January 20, 1995, included an explanatory paragraph
that described the Company's change in its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities at January
1, 1994, as discussed Notes 3 and 4 to the financial statements. The
financial statements of Union Bankshares Company and Subsidiary as of and
for the year ended December 31, 1993 were audited by other auditors whose
report thereon dated January 13, 1994, included an explanatory paragraph
that described the Company's adoption of SFAS No. 106, Employers' Accounting
for Post Retirement Benefits Other Than Pensions in 1993, as discussed in
Note 9 to the financial statements, and the Company's change in its method
of accounting for income taxes in 1993 to adopt provisions of SFAS No. 109,
Accounting for Income Taxes on January 1, 1993, as discussed in Note 10 to
the financial statements.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Union
Bankshares Company and Subsidiary as of December 31, 1995, and the
consolidated results of their operations and their consolidated cash flows
for the year then ended, in conformity with generally accepted accounting
principles.
BERRY, DUNN, MCNEIL & PARKER
Portland, Maine
January 19, 1996<PAGE>
EXHIBIT 99.2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Union Bankshares Company:
We have audited the accompanying consolidated balance sheet of Union
Bankshares Company and Subsidiary as of December 31, 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flow for the year ended December 31, 1994. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Union
Bankshares Company and Subsidiary at December 31, 1994, and the results of
their operations and their cash flow for the year ended December 31, 1994,
in conformity with generally accepted accounting principles.
As discussed in note 1, the Company changed its method of accounting for
investments to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities at January
1, 1994.
Baker Newman & Noyes
Limited Liability Company
January 20, 1995<PAGE>
EXHIBIT 99.3
The Board of Directors and Stockholders
Union Bankshares Company:
We have audited the accompanying consolidated statements of income, changes
in shareholders' equity and cash flow of Union Bankshares Company and
Subsidiary for the year ended December 31, 1992. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation,. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Union Bankshares Company and Subsidiary for the year ended December
31, 1993, in conformity with generally accepted accounting principles.
As discussed in note 1, the Company changed its method of accounting for
income taxes to adopt the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, on January 1, 1993. As
discussed in note 10, the Company also adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Post Retirement
Benefits Other Than Pensions, on January 1, 1993.
KPMG Peat Marwick LLP
January 14, 1994<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000745083
<NAME> UNION TRUST COMPANY
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 7343489
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6322771
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 71799295
<INVESTMENTS-CARRYING> 4119546
<INVESTMENTS-MARKET> 4119546
<LOANS> 93242760
<ALLOWANCE> 1878169
<TOTAL-ASSETS> 191353166
<DEPOSITS> 165357869
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3200803
<LONG-TERM> 0
0
0
<COMMON> 5062875
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 191353166
<INTEREST-LOAN> 8780734
<INTEREST-INVEST> 4650468
<INTEREST-OTHER> 424146
<INTEREST-TOTAL> 13855348
<INTEREST-DEPOSIT> 5041170
<INTEREST-EXPENSE> 5052107
<INTEREST-INCOME-NET> 8803241
<LOAN-LOSSES> 30000
<SECURITIES-GAINS> 3895
<EXPENSE-OTHER> 1187403
<INCOME-PRETAX> 3303320
<INCOME-PRE-EXTRAORDINARY> 3303320
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2418057
<EPS-PRIMARY> 12.07
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 614000
<LOANS-PAST> 388000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1878169
<CHARGE-OFFS> 268000
<RECOVERIES> 187000
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 13
UNION BANKSHARES COMPANY
1995 ANNUAL REPORT
Insert photo of the following:
Eugene Grindle, Teller at the Blue Hill Branch
Rebecca Sargent, AVP Trust Officer
Lisa Holmes, AVP Machias Office Branch Manager
John Lynch, Senior Vice President, Loans
Insert graphic of our Union Trust Clock Logo<PAGE>
Dedication
J. Roy Barrett
July 8, 1897 - April 30, 1995
Director of Union Trust Company
for 31 Years
David J. Kennedy
February 11, 1907 - July 11, 1995
Director of Union Trust Company
for 38 Years
Sharon R. Carter
June 13, 1946 - January 17, 1996
Teller - Machias Branch
for 9 1/2 Years
2<PAGE>
Can a loan officer install hope in a cancer patient?
Can an accounting clerk rescue people from a burning
building? As your community bank, we believe in
sharing our success--not only by investing in the
people and businesses of Downeast Maine, but by
encouraging our employees to use their abundant
skills, compassion and intelligence to make life
better for all.
Look within to discover some of the many ways our
people are, as our Mission Statement says, "actively
and positively contributing to the quality of life in
our communities." We're proud of the inspiring
contributions of the men and women of your Bank, and
hope you will be, too.
Insert photo of the following:
Eugene Grindle,Teller at the Blue Hill Branch
Rebecca Sargent, AVP Trust Officer
Lisa Holmes, AVP Machias Office Branch Manager
John Lynch, Senior Vice President, Loans
3<PAGE>
February 16, 1996
Dear Shareholder:
While 1995 was a satisfactory year in some
respects for your Bank, it was disappointing in
others. Earnings reached an all time high of
$2,418,057 or $12.78 per share, a modest increase of
2.7 percent over the previous year. A rapid decrease
in interest rates on the lending side and inability to
offset such decreases as quickly in our cost of funds
contributed to a general squeeze in our interest rate
margins. Consequently, our earnings did not increase
as much as originally planned. Also, noninterest
expenses increased, due largely to wages, and costs
associated with new product development, both of which
unfortunately stunted the gains which otherwise would
have been achieved through lower Federal Deposit
Insurance Premiums. Steps being taken to correct this
situation are discussed elsewhere in this letter.
On a more positive note, we call your attention
to various ratios of performance. Your Bank continued
to earn 1.3 percent on average assets and 11.4 percent
on average capital. Capital ratios also remained
strong. At year end, capital was a record 13.7
percent of deposits and 11.9 percent of total assets.
Despite a slow economy, a strong sales and new
business development effort by lenders, branch
managers and customer service personnel produced solid
gains in both loans and deposits. Loans increased by
10.7 percent to $93,242,760, while deposits grew by a
more modest 3.2 percent to $165,357,869.
During the year, after careful thought, the
Board of Directors decided to employ John Floyd
Associates, banking consultants and specialists in
bank operations, to study all the Bank s operations
and the manner in which our products and services are
sold, processed, and delivered to our customers. We
expect this study will help us achieve operational
efficiencies and cost savings going forward, resulting
in a positive impact both on our ability to more
effectively compete in our market place and on our net
operating profits.
In April, the Board voted to declare a stock
dividend of 33 1/3 percent which was paid in May and<PAGE>
the cash dividend in accordance with past practice was
maintained at $4.00 per share per year. This was the
fourth such increase in the past 10 years and
represents an increase in dividends paid of 2.77 times
that paid in 1985.
During the year, the following promotions and
appointments were made:
Dawn L. Lacerda Operations Officer
Teresa L. Linscott Electronic Service
Officer
Gayle A. Norton Assistant Vice President,
Human Resources
Marsha L. Osgood Assistant Trust Officer
Deborah F. Preble Assistant Controller
Stephen L. Tobey Assistant Vice President,
Operations and Security
Julie C. Vittum Senior Auditor
5<PAGE>
We note with sorrow the passing of two Honorary
Directors, J. Roy Barrette, Director for 31 years and
David J. Kennedy, who served 38 years; and Sharon R.
Carter, teller at our Machias branch for 9 1/2 years,
to whom this report is dedicated.
In September, Richard W. Teele, Executive Vice
President and Treasurer, elected to retire after 18
years of service. Dick made many contributions to the
Bank and while his daily presence will be missed, we
are pleased that he will remain as a Director and
Secretary of the Corporation.
Two new Directors were named during 1995: Peter
Clapp, President, Blue Hill Garage and Paul L. Tracy,
President/Owner, Winter Harbor Agency and Vice
President, Schoodic Insurance Services.
On April 1, 1996, Robert S. Boit, having reached
mandatory retirement age, will step down as President
and Chief Executive Officer. Having served the Bank
for 23 years, Mr. Boit will remain as a Director on
both the General Board and the Executive Board. In
February, the Board elected Peter A. Blyberg,
currently Executive Vice President, to the position of
President and Chief Executive Officer, to take effect
on April 1, 1996. Mr. Blyberg joined the Bank in 1993
having been with Chemical Bank of New York for 18
years.
The economy is more likely to grow at a slow pace
for the balance of 1996, and we expect eastern Maine
to be no exception. Despite all the talk about
potential reforms in government spending, deficit
reductions and alterations in the tax code, experience
indicates that any changes will be less dramatic than
current expectations suggest.
We extend our sincerest thanks to you, our
Shareholders, and our Directors, Officers and
Employees for your support.
Sincerely,
John V. Sawyer, II Robert S. Boit
Chairman of the Board President and Chief
Executive Officer<PAGE>
Five-Year Summary (000's Omitted)
1995 1994 1993 1992 1991
Deposits $165,358 $160,249 $161,236 $158,674 $149,623
Loans 93,242 84,208 80,993 84,977 94,648
Securities *75,716 *83,391 *73,821 76,704 56,981
Shareholders'
Equity **22,227 **20,570 18,875 17,391 15,923
Total assets 191,353 181,597 182,129 177,767 167,138
Net earnings 2,418 2,354 2,134 1,920 1,300
***Earnings
per share 12.78 11.65 10.55 10.15 6.87
Equity Ratios
Equity expressed as a percentage of average:
**1995 **1994 1993 1992 1991
Deposits 13.7% 12.8% 11.8% 11.3% 10.8%
Loans 25.1% 24.9% 22.7% 19.4% 17.2%
Total assets 11.9% 11.3% 10.5% 10.1% 9.7%
Earning assets 12.9% 12.8% 11.2% 10.8% 10.4%
Other Financial Highlights
1995 1994 1993 1992 1991
**Return on average
Shareholders' equity 11.4% 11.9% 11.8% 11.5% 8.4%
Return on average
assets 1.3% 1.3% 1.2% 1.1% 0.8%
Return on average
earning assets 1.4% 1.4% 1.3% 1.2% 0.9%
***Earnings per share have been restated to reflect a
stock split effected in the form of a 33 1/3% stock
dividend in 1995.
*Stated at amortized cost. Includes available for
sale securities with cost of $70,939 and $76,007 and
securities held for sale with cost of $65,816 at
December 31, 1995, 1994 and 1993, respectively.
**Excluding net unrealized gain (loss) on available
for sale securities of $567,810 and ($1,389,168) at
December 31, 1995 and 1994, respectively.
7<PAGE>
Insert: Three 10 year bar charts referencing the
following:
Earnings Per Share
Book Value Per Share
Dividends Per Share
8<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
December 31, 1995
Union Bankshares Company is a one-bank holding
company, organized under the laws of the State of
Maine, which has acquired 99.928% of the common stock
of Union Trust Company. The Company's only subsidiary
is the Bank. The Company's holding company structure
can be utilized to engage in permitted banking-related
activities, either directly or through newly formed
subsidiaries, or by acquiring companies already
established in such activities. The Company has no
immediate plans for such activities, but could do so
if such action should appear desirable.
Union Trust is a full-service, independent
commercial bank with ten offices in coastal Maine,
serving the financial needs of individuals,
businesses, and municipalities in Hancock and
Washington Counties. With its commitment to
outstanding service, quality products and the ability
to anticipate and respond to the customers' financial
needs, Union Trust, now in its 108th year, is proud to
have earned the reputation as one of New England's
preeminent community banks.
Union Trust supports the people and communities
it serves and believes that reinvesting local money
locally builds strong communities. The Bank's
charitable contribution program supports a broad range
of local charities, community development efforts and
the volunteerism of its employees and retirees.
Union Trust Company offers a full range of
banking services, at competitive rates and at
convenient banking hours and locations and is
accessible to customers 24 hours a day through
physical locations and electronic means. This year
the Bank introduced BankLine which provides 24-hour
access by phone, whereby customers may check the
balance of their accounts, check recent account
activity, verify interest paid and earned, transfer
funds between accounts and make loan payments.
Union Trust's deposit services include: regular
and basic checking accounts, NOW accounts, money
market accounts, savings accounts, certificate of
deposits, IRA accounts, KEOGH Plans, ATM Convenience
Cards, Convenience Check Cards, reserve checking,
credit cards, BankLine, Unlimited Club membership and
safe deposit boxes. The Bank also provides the
following loan services: installment loans, student
loans, mortgages, lines of credit, commercial loans,
home equity loans and Visa credit cards.
Union Trust Company also offers a full range of
9<PAGE>
investment and trust services. Our professional trust
advisors design and administer personal trusts,
individual retirement accounts, self-employed
retirement accounts, company retirement plans
(pension, simplified employee pension, 401(k), profit
sharing), and estate plans. In addition, our trust
staff will help people of all ages and income levels
analyze their savings and retirement needs and plan
customized investment strategies to meet the
customer's goal. In 1995, the Trust Department
introduced MutualPARTNERS, an asset allocation program
that offers a balanced investment mechanism for our
customers. Using mutual funds and creating portfolios
designed to meet each person's individual situation
and risk level, the Bank hopes to appeal to a broad
range of potential trust customers, many of whom might
otherwise think that they don't have enough savings to
qualify for a trust.
Insert photo of the following: Sandra Salsbury,
Administrative Assistant Supervisor; Foster Mathews,
AVP Manager of Cherryfield Branch; Phyllis Harmon, AVP
Loan Officer and Harry Vickerson, AVP Manager of
Stonington Branch
RESULTS OF OPERATIONS
The operating results of the Bank depend
primarily on its net interest
income, which is the difference between interest
income on earning assets (which consists primarily of
loans and investments) and interest expense (which
consist primarily of deposits and borrowings). The
Bank's results are also affected by the Provision For
Loan Losses, which reflects management's assessment of
the adequacy of the Allowance For Loan Losses;
noninterest income, including gains and losses on the
sales of loans and securities; noninterest expenses;
and income tax expense. Each of these major
components of the Bank's operating results are
highlighted below.
NET INCOME
Net income in 1995 of $2,418,057 increased from
1994 by $64,094 or 2.7%. Net income in 1994
represented an increase of $220,326 or 10.3% from
1993.
The following table summarizes the status of the
Bank's earnings and performance for the periods
stated.
10<PAGE>
December 31,
1995 1994 1993
Earning Per Share $12.78 $12.44 $11.28
Return on average Shareholder's equity * 11.4% 11.9% 11.8%
Return on average assets 1.3% 1.3% 1.2%
Return on average earning assets 1.4% 1.4% 1.3%
* Excluding net unrealized gain (loss) on
available for sale securities of $567,810 and
($1,389,168) at December 31, 1995 and 1994,
respectively.
In 1995, the Company declared a 33 1/3 percent
stock dividend, and therefore earnings and cash
dividends per share have been retroactively restated
for 1994 and 1993 to reflect the stock dividend.
NET INTEREST INCOME
Net interest income continues to be the most
significant determinant of the Company's earning
performance. 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. The Bank's
exposure to interest rate movements is controlled by a
careful balancing of interest earned and interest paid
as well as the maturities of assets and liabilities.
Net interest income in 1995 was $8,803,241, an
increase of $312,848 or 3.7% from 1994. The increase
was primarily due to higher loan levels in 1995, up
$9,034,924 on December 31, 1995 or 10.7% over December
31, 1994. Loans generally represent higher yielding
assets than securities.
Loan increases were primarily the result of a
loan calling program instituted in late 1995 and a
recovering local economy. Interest and fees earned on
loans in 1995 amounted to $8,800,000, up $1,300,000 or
17.1% over the year ended December 31, 1994. Variable
rate loans amounting to $54,000,000 represent
approximately 58.0% of the total loan portfolio.
Despite falling interest rates, loan yields improved
by 34 basis points in 1995 compared to the 1994
increase of 89 basis points. Moderate balance
increases were experienced in real estate, commercial,
municipal and consumer categories, and the loan mix
remains consistent with prior years.
Interest expense on deposits in 1995 increased
20.5% or $856,185 from 1994. The increase was
primarily due to a change in the Bank's deposit mix to
higher costing deposits, which reflected the
customer's desire to invest more in high-yielding
11<PAGE>
certificates of deposit. In 1994, interest expense on
deposits decreased 11.5% or $541,355 from 1993.
Interest margin, the percentage difference
between interest earned on loans and investments and
interest paid to depositors, declined 23 basis points
in 1995 over 1994. Your Bank's net interest margin is
among the highest of all Maine banks. The Bank
continues to monitor short- and long-term interest
rates, balance sheet volumes and maturities in order
to optimize its net interest margin.
The following table illustrates the Bank's net
interest margin for the years indicated:
December 31,
1995 1994 1993
Yield on earning assets 8.330% 8.042% 7.328%
Cost of all funds 3.104% 2.586% 2.539%
Net interest margin 5.226% 5.456% 4.789%
PROVISION FOR LOAN LOSSES
The provision for loan losses increased by
$30,000 in 1995. This increase was due to increased
loan volume and the desire to maintain the Allowance
for Loan Losses at 2.0% of gross loans. There was no
provision made in 1994 and a $30,000 increase in 1993.
The process of evaluating the adequacy of the
Allowance for Loan Losses involves a high degree of
management judgement. Such judgement is based, in
part, on systematic methods. These methods include a
loan-by-loan analysis of all larger commercial loans
and commercial real estate loans as well as those that
were nonperforming or were being closely monitored by
management for potential problems, and a quantitative
analysis of residential real estate and consumer
loans. The analysis also incorporates all relevant
matters that affect loan collectibility. Based on
this analysis, an estimation of potential loss
exposure was made and an allowance determined.
Management believes that the Allowance for Loan
Losses and the carrying value of real estate owned are
adequate. While management uses available information
to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary
based on changes in economic conditions, particularly
in northern New England. In addition, various
regulatory agencies, as an integral part of their
examination process, periodically review the Company's
Allowance for Loan Losses. Such agencies may require
the Company to recognize additions to the allowance
based on their judgements about information available
12<PAGE>
to them at the time of their examination.
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)
December 31,
1995 1994
Non-accrual loans $ 614 $ 151
Loans past due 90 days and accruing 388 86
Restructured loans 0 0
Other real estate owned (including
insubstance foreclosure) 1,316 908
Total nonperforming assets 2,318 1,145
Ratio of total nonperforming loans
to capital and the Allowance for
Loan Losses (Texas ratio) .041 .011
Ratio of net recoveries (charge-offs) to loans (.001) .002
Ratio of Allowance for Loan Losses to loans .02 .023
Coverage of ratio (Allowance for Loan Losses
divided by nonperforming assets) .845 1.689
Ratio of nonperforming assets to total assets .01 .006
Ratio of nonperforming loans to total loans .007 .003
NONINTEREST INCOME
The Company receives noninterest income from
trust fees, service charges on deposit accounts and
income comprised of fees earned from a variety of
other banking services. Security gains or losses are
another major component of this category.
Noninterest income, excluding securities gains,
remained relatively stable for the years 1995 and
1994. In 1993, an increase of $92,525, or 4.9% was
experienced. The primary reason for the change in
1995 was a $75,927 or 21.4% increase in Visa income,
offset by a decrease of $81,802 or 20.2% of Loan
Department income.
Major efforts were made in 1995 to increase Visa
accounts in conjunction with the loan calling program.
The decrease in Loan Department income in 1995 is
primarily a result of a major slowdown in the volume
of residential mortgages. This slowdown impacted the
volume of processed loans sold to the secondary market
in both 1994 and 1995. Origination of loans held for
sale were $8,593,440, $10,813,150, and $18,846,144 for
1995, 1994, and 1993, respectively.
Trust Department income increased $43,352, or
10.8% in 1995 compared with $12,722 or 3.1% decrease
in 1994. The increase is primarily a result of new
business in 1995 and an improved stock market.
Net security gains amounted to $3,103, $98,009
13<PAGE>
and $266,664 for the years 1995, 1994, and 1993,
respectively.
NONINTEREST EXPENSE
Noninterest expense consists of employee
compensation and benefits, occupancy and equipment
expenses and other general operating expenses.
In an effort to enhance the Bank's management
process and operating procedures and to improve
efficiencies, the Bank, in the fall of 1995, employed
the services of John M. Floyd and Associates, Inc., of
Bellaire, Texas. As a result of the work done with
this firm, we expect to achieve more efficient use of
resources, increased income opportunities, improved
delivery of products and services and reduced expense.
Management anticipates implementation of many of the
study's recommendations in 1996 and 1997.
Noninterest expenses increased .53% to $7,459,206
in 1995 and 5.5% in 1994. The increases in 1995 were
centered primarily in salaries and wages, advertising
new product development and supplies. These increases
were offset, to some extent, by decreases in pension
and employee benefits, as well as an FDIC insurance
premium rebate and rate reduction, which occurred
during the year.
Salaries and wages increased 5.7% in 1995, down
from a 10.2% increase in 1994 over 1993.
Pension and employee benefits (current and post-
retirement) decreased 11.5% in 1995 following a 24.2%
increase in 1994 due to the implementation of deferred
compensation agreements. The periodic post-retirement
benefit costs under Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for
Post-Retirement Benefits Other Than Pension" were
$148,646, $154,800 and $148,700 for 1995, 1994, and
1993, respectively. Future changes in the discount
rates applied to the actuarial analysis will have a
corresponding impact on the Company's pension and
post-retirement liabilities.
INCOME TAXES
The status of the Bank's income tax expense is as
follows:
Twelve Months Ended December 31,
Tax Expense Percentage of Pre-tax Earnings
1995 1994 1993 1995 1994 1993
$885,000 $797,000 $797,000 28.0% 25.3% 27.8%
14 <PAGE>
Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", was
adopted by the Company in 1993 and resulted in a
positive cumulative effect of $68,000 to net income.
The Bank has sufficient refundable taxes paid in
available carry-back years to fully realize its
recorded deferred tax asset of $1,072,636 at December
31, 1995.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Federal Reserve Board's capital requirements
generally call for an 8% total capital ratio, 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. The Company's Tier 1 capital
ratio of 20.4% far exceeds the Federal Reserve Board's
guidelines.
Total shareholders' equity increased $3,613,113
in 1995 primarily as a result of net income of
$2,418,057, as well as a $1,956,978 change in the
category of "Unrealized Gains (Losses)on Securities
Available for Sale", net of applicable income taxes,
from the adoption of Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain
Investments on Debt and Equity Securities."
Dividends of $756,860 were declared on the
Company's common stock and represented a 24.8%
increase over 1994. Dividend payout for 1995, 1994,
and 1993 was 31.3%, 25.8%, and 28.4% of net income,
respectively. In 1995, the Company declared a 33 1/3
percent stock dividend.
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
15<PAGE>
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 December 31, 1995, the Bank's ratio of
rate-sensitive assets to rate-sensitive liabilities at
the one-year horizon was 95%, its one-year GAP
(measurement of interest sensitivity of interest-
earning assets and interest-bearing liabilities at a
point in time) was -3%, and $82,000,000 in assets and
$75,000,000 in liabilities will be repricable 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 following table presents, as of December 31,
1995, the Company's interest rate GAP analysis:
16<PAGE>
Interest Rate GAP Analysis
as of December 31, 1995 (000's omitted)
Interest-earning
Assets: 0-3 4-12 1-5 over 5 Total
months months years years
Loans:
Real estate
fixed rate $ 319 $ 1,082 $ 7,144 $ 5,557 $14,102
variab 18,322 17,083 8,193 0 43,598
Commercial 9,469 1,056 3,253 0 13,778
Municipal 600 3,622 1,902 1,306 7,430
Consumer 10,501 1,159 2,675 0 14,335
Securities Available
for Sale 4,717 31,739 30,967 3,515 70,938
Held to Maturity
Securities 0 817 2,600 702 4,119
Loans Held for Sale 1,227 0 0 0 1,227
Other Earning Asset 6,323 0 659 0 6,982
TOTAL $51,478 $56,558 $57,393 $11,080 $176,509
Interest-bearing Liabilities:
Deposits:
Savings $ 7,860 $21,130 $22,220 $ 0 $ 51,210
NOW 4,281 12,843 17,113 0 34,237
Money Market 7,461 7,460 0 0 14,921
Time 18,545 34,241 12,203 0 64,989
Borrowings 0 110 0 0 110
TOTAL $38,147 $75,784 $51,536 $ 0 $165,467
Rate-sensitivity GAP $ 13,331 $(19,226) $ 5,857 $11,080
Rate-sensitivity GAP as
a percentage of total
assets 6.97% (10.05%) 3.05% 5.79%
Cumulative GAP $ 13,331 $( 5,895) $ 38 $11,042
17 <PAGE>
Cumulative GAP as a
percentage of total
assets 6.97% (3.08%) (.03%) 5.76%
The distribution in the Interest Rate GAP
Analysis table is based on a combination of
maturities, call provisions, repricing frequencies,
prepayment patterns, historical data and management
judgement. Variable-rate assets and liabilities are
distributed based on the repricing frequency of the
investment. Management has estimated the rate
sensitivity of money market and savings deposits based
on an historical analysis of the Bank and industry
data.
18 <PAGE>
The status of the Bank's sources of cash to fund its
operation are as follows:
December 31,
1995 1994
Net Cash provided from Operations $ 2,632,741 $ 2,178,779
Net Cash (used) from Investing Activities (1,983,445) (12,169,912)
Net Cash (used) provided from Financing
Activities 4,347,261 (1,993,878)
Net (decrease) increase in cash and cash
equivalents $ 4,996,557 $(11,985,011)
BALANCE SHEET ANALYSIS
Total assets increased $9,800,000 or 5.4%, in
1995, primarily due to increased loan volume, compared
to a decrease of approximately $530,000 or .3%, in
1994. The following table gives a general overview
and profile of the Company:
(000's omitted)
as of December 31,
1995 1994 Increase % of
(Decrease) Change
Total Assets $191,353 $181,597 $ 9,756 5.4%
Total Earning Assets 177,369 167,788 9,581 5.7%
Loans 93,243 84,208 9,035 10.7%
*Securities 75,716 83,391 (7,675) (9.2%)
Deposits 165,358 160,249 5,109 3.2%
**Shareholder's Equity 22,227 20,570 1,657 8.1%
* Stated at amortized cost. Includes available for
sale securities with cost of $70,939,000 and
$76,000,000 for 1995 and 1994, respectively.
** Excluding net unrealized gains (losses) on
available for sale securities of $567,810 and
($1,389,168) at December 31, 1995 and 1994,
respectively.
SECURITIES
The objective of the securities portfolio is to
provide for a stable earnings base and the investment
of excess liquidity. The carrying value of the
portfolio at December 31, 1995, totaled $76,000,000,
consisting primarily of U.S. Government and Agency
Securities. Approximately 46% 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
19<PAGE>
economic conditions and the attendant responsibility
of management to consider known liquidity requirements
and provide for capital planning, investment
securities may be sold as part of prudent
asset/liability management. Accordingly, the Bank has
classified certain securities (exclusive of tax-free
securities) to assets available for sale. Therefore,
such assets are recorded at market value.
As a result of Statement of Financial Accounting
Standards Board Statement (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity
Securities," unrealized holding gains or losses, net
of tax effect, for securities classified as available
for sale are recorded as an adjustment of a separate
component of equity.
LOANS
Total loans increased $9,035,000, or 10.7%,
primarily due to a $3,499,000, or 6.5%, increase in
real estate loans, and a $3,242,000, or 77.4%,
increase in municipal loans.
On January 1, 1995, the Company adopted Financial
Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan",
which states that a loan is defined as "impaired" when
it is probable that the creditor will be unable to
collect all amounts due, including principal and
interest, under the contracted terms of the loan.
Loans that are reported on nonaccrual, overdue,
rated or watch listings are tested for impairment.
Management then determines, loan-by-loan based upon
the credit history and repayment schedule, whether the
loan is impaired or, in all probability, uncollectible
by the Bank. Adoption of this standard has had no
effect on the level of Allowance for Loan Losses in
1995.
DEPOSITS
Total deposits increased $5,109,000, or 3.2%,
during 1995, primarily due to competitive interest
rates on products offered and as a result of the
calling program instituted this year. Total deposits
decreased .6%, or $987,000, in 1994.
The banking business, in the Bank's market area,
is somewhat seasonal due to an influx of tourists and
summer residents each spring and summer. As a result,
the Bank has an annual deposit swing from a high point
in mid-October, to a low point in May. This deposit
swing is predictable and does not have a materially
adverse effect on the Bank.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related
notes presented in this Annual Report have been
20<PAGE>
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 a 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.
Union Bankshares, $25 par value, is not listed on
any national exchange, nor is it actively traded.
Since the Company is not aware of all trades, the
market price is established by determining what a
willing buyer will pay a willing seller. Based upon
the trades that the Company had knowledge of (per
quotes from Paine, Webber, Inc., and other local
brokerages), high and low bids for each quarter for
1995 and 1994 are listed in the following table:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1995 $160.00 to $175.00 $125.00 to $169.26 $150.00 to $167.00 $167.00 to $170.00
1994 $155.00 to $160.00 $160.00 to $160.00 $160.00 to $160.00 $160.00 to $160.00
As of December 31, 1995, there were 654 holders
of record of Union Trust Company common stock.
Quarterly dividends paid by the Company in 1995
and 1994 were as follows:
1995 1994
1st Quarter $1.00 $.81
2nd Quarter $1.00 $.81
3rd Quarter $1.00 $.81
4th Quarter $1.00 $.81
Total $4.00 $3.21
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
21<PAGE>
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 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.
22 <PAGE>
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
1995 1994
ASSETS
Cash and due from banks (note 2) $ 7,343,489 $ 7,025,431
Federal funds sold 6,322,771 1,644,272
13,666,260 8,669,703
Available for sale securities,
at market value (note 4) 71,799,295 73,901,802
Held to maturity securities at cost (note 3)
(market value $4,232,683 and $6,843,871 at
December 31, 1995 and 1994, respectively) 4,119,546 6,724,925
Other investment securities at cost, which
approximates market value 659,325 659,325
Loans held for sale 1,227,447 651,191
LOANS (note 5):
Real estate 57,699,645 54,200,997
Commercial and industrial 13,778,012 12,975,176
Municipal 7,430,234 4,187,860
Consumer 14,334,869 12,843,803
93,242,760 84,207,836
Less deferred loan fees 203,497 277,867
Less allowance for loan losses (note 6) 1,878,169 1,928,644
Net loans 91,161,094 82,001,325
Premises, furniture and equipment (note 7) 3,153,850 3,005,886
Other Assets (notes 10 and 11) 5,566,349 5,982,690
Total Assets $191,353,166 $181,596,847
The accompanying notes are an integral part of these
consolidated financial statements.
23 <PAGE>
1995 1994
LIABILITIES
DEPOSITS:
Demand Deposits $ 19,327,213 $ 20,256,577
Savings deposits (including NOW deposits
totaling $34,237,051 in 1995 and
$33,807,108 in 1994) 63,621,013 66,236,025
Money market accounts 17,419,673 20,346,133
Time deposits 58,103,915 49,938,624
Certificates of deposit $100,000 and over 6,886,055 3,471,328
Total deposits 165,357,869 160,248,687
Other liabilities (note 11) 3,200,803 2,166,779
Total liabilities 168,558,672 162,415,466
Contingent liabilities and commitments (note 13)
SHAREHOLDERS' EQUITY
Common stock, $25 par value. Authorized 600,000
shares, issued 202,515 in 1995 and 1994
(restated) (notes 1 and 12) $ 5,062,875 $ 3,801,200
Surplus 3,948,485 3,948,680
Retained earnings 13,285,337 12,915,637
Net unrealized gain (loss) on available for
sale securities (note 4) 567,810 (1,389,168)
Treasury stock, at cost (697 shares in 1995
and 665 shares in 1994) (70,013) (94,968)
Total Shareholders' equity 22,794,494 19,181,381
Total liabilities and Shareholders' equity $191,353,166 $181,596,847
The accompanying notes are an integral part of these
consolidated financial statements.
24 <PAGE>
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans $ 8,780,734 $ 7,500,694 $ 7,323,880
Interest on securities available
for sale 4,230,639 4,446,906 0
Interest on securities held for
sale 0 0 4,199,405
Interest on securities held to
maturity 419,829 520,215 607,153
Interest on Federal funds sold 424,146 209,210 262,871
Total interest income 13,855,348 12,677,025 12,393,309
INTEREST EXPENSE:
Interest on savings deposits 1,302,644 1,341,186 1,630,848
Interest on money market accounts 552,417 567,359 644,790
Interest on time deposits 2,912,040 2,175,936 2,281,342
Interest on certificates of deposit
$100,000 and over 274,069 100,504 169,360
Interest on short-term borrowings 10,937 1,647 596
Total interest expense 5,052,107 4,186,632 4,726,936
Net interest income 8,803,241 8,490,393 7,666,373
Provision for loan losses (note 6) 30,000 0 30,000
Net interest income after provision
for loan losses 8,773,241 8,490,393 7,636,373
NONINTEREST INCOME:
Net securities gains (note 4) 3,103 98,009 266,664
Trust Department income 443,661 400,309 413,031
Service charges on deposit accounts 310,381 311,069 324,167
Visa income 431,338 355,411 341,775
Loan Department income 323,657 405,459 498,401
Other income 477,145 509,866 416,086
Total noninterest income 1,989,285 2,080,123 2,260,124
Income before noninterest expenses 10,762,526 10,570,516 9,896,497
The accompanying notes are an integral part of these
consolidated financial statements.
26 <PAGE>
1995 1994 1993
NONINTEREST EXPENSE:
Salaries and wages 3,124,862 2,955,272 2,681,942
Pension and other employee
benefits (note 10) 894,706 1,011,960 814,869
Insurance 97,809 99,286 137,355
FDIC insurance 184,630 345,006 348,732
Net occupancy expenses 776,703 767,400 780,022
Equipment expenses 201,516 180,465 173,289
Advertising 248,510 223,087 155,070
Supplies 283,430 206,047 235,746
Postage 147,947 130,755 127,683
Telephone 155,120 165,357 153,131
Other professional fees 156,570 159,698 100,119
Other expenses 1,187,403 1,175,484 1,325,902
Total noninterest expenses 7,459,206 7,419,817 7,033,860
Income before income taxes 3,303,320 3,150,699 2,862,637
Income taxes (note 11) 885,263 796,736 797,000
Income before cumulative effect of
a change in accounting principle 2,418,057 2,353,963 2,065,637
Cumulative effect of change in
accounting for income taxes
(note 11) 0 0 (68,000)
Net income $2,418,057 $2,353,963 $2,133,637
Net income per common share $ 12.78 $ 11.65 $ 10.55
Cash dividends declared per
common share $ 4.00 $ 3.00 $ 3.00
Weighted average common shares
outstanding 189,204 202,128 202,214
27 <PAGE>
The accompanying notes are an integral part of these
consolidated financial statements.
28 <PAGE>
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995, 1994 and 1993
NET
UNREALIZED
GAIN(LOSS)ON SHARE-
COMMON TREASURY RETAINED AVAILABLE FOR HOLDER'S
STOCK SURPLUS STOCK EARNINGS SALE
SECURITIES EQUITY
Balance at December
31, 1992 3,801,175 2,448,576 (33,968) 11,174,901 0 17,390,684
Net income, 1993 0 0 0 2,133,637 0 2,133,637
Additional stock sold,
1 share 25 122 0 0 0 147
Payment for fractional shares
totaling 219.66
shares 0 0 0 (33,491) 0 (33,491)
Transfer to surplus 0 1,500,000 0 (1,500,000) 0 0
Sale of 76 shares
Treasury stock 0 (18) 11,418 0 0 11,400
Repurchase of 138 shares
Treasury stock 0 0 (20,918) 0 0 (20,918)
Cash dividends
declared 0 0 0 (606,882) 0 (606,882)
Balance at December
31, 1993 3,801,200 3,948,680 (43,468) 11,168,165 0 18,874,577
Net income, 1994 0 0 0 2,353,963 0 2,353,963
Repurchase of 322 shares
Treasury stock 0 0 (51,500) 0 0 (51,500)
Effect from implementation
of SFAS 115 0 0 0 0 1,545,654 1,545,654
Change in net unrealized
gain (loss) on available
for sale securities 0 0 0 0 (2,934,822)(2,934,822)
Cash dividends
declared 0 0 0 (606,491) 0 (606,491)
Balance at December
31, 1994 3,801,200 3,948,680 (94,968) 12,915,637 (1,389,168)19,181,381
Net income, 1995 0 0 0 2,418,057 0 2,418,057
Sale of 159 shares
Treasury stock 0 (195) 24,955 0 0 24,760
Stock split effected in the form of
a 33 1/3% stock dividend
(50,467 shares) 1,261,675 0 0 (1,261,675) 0 0
Payment for fractional shares
totaling 138.49 shares 0 0 0 (29,822) 0 (29,822)
Cash dividends declared 0 0 0 (756,860) 0 (756,860)
Change in net unrealized gain
(loss) on available for
sale securities 0 0 0 0 1,956,978 1,956,978
Balance at December
31, 1995 $5,062,875 $3,948,485 $(70,013) $13,285,337 $567,810 $22,794,494
The accompanying notes are an integral part of these
consolidated financial statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED
STATEMENTS OF CASH FLOW
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
NET CASH FLOWS PROVIDED (USED)
BY OPERATING ACTIVITIES:
Net income $ 2,418,057 $ 2,353,963 $ 2,133,637
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Cumulative effect of implementation of
FASB No. 109 0 0 (68,000)
Depreciation, amortization and
accretion 477,744 252,783 589,130
Provision for loan losses 30,000 0 30,000
Gain on sale of available for sale
securities (3,103) (98,009) 0
Net securities gains 0 0 (266,664)
Net loss on sale of equipment 0 0 14,060
Purchase of securities held for resale 0 0 (18,991,461)
Proceeds from maturities of securities
held for sale 0 0 14,083,420
Proceeds from sale of securities held
for sale 0 0 6,432,216
Provision for other real estate owned 60,000 0 35,000
Originations of loans held
for sale (8,593,440) (10,813,150) (18,846,144)
Proceeds from loans held for sale 7,936,912 11,042,763 18,961,740
Net change in other assets (151,224) (588,825) 870,447
Net change in other liabilities 522,499 132,523 (445,211)
Net change in deferred loan
origination fees (74,370) 60,471 22,285
Provision for deferred income tax
(benefit) expense 9,666 (163,740) 113,794
Net cash provided by operating
activities $2,632,741 $2,178,779 $4,668,249
The accompanying notes are an integral part of these
consolidated financial statements.
31 <PAGE>
Continued
32 <PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW CONTINUED
1995 1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available for
sale securities $16,933,182 $10,010,376 $ 0
Purchase of available for sale
securities (38,702,639) (49,678,400) 0
Proceeds from maturities and principal
payments on available for sale
securities 26,734,617 29,700,344 0
Purchase of held to maturity
securities 0 (725,000) 0
Proceeds from maturities and principal
payments on held to maturity
securities 2,619,748 1,355,000 0
Purchase of investments 0 (12,300) (100,000)
Proceeds from called and matured
investments 0 0 1,539,275
Proceeds from sales of other real
estate owned 0 37,000 0
Net decrease (increase) in loans to
customers (9,035,126) (2,547,926) 3,371,588
Proceeds from sales of fixed assets 4,000 0 3,034
Capital expenditures (537,227) (309,006) (304,528)
Net cash (used) provided by
investing activities $(1,983,445) $(12,169,912) $ 4,509,369
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in demand, savings and
money market accounts (6,470,836) 746,169 4,961,190
(Decrease) Increase in time
deposits 11,580,018 (1,733,145) (2,399,218)
Net increase in cash surrender value
of life insurance policies 0 (348,911) 0
Proceeds from issuance of common stock 0 0 147
Payment to eliminate fractional
shares (29,821) 0 (33,491)
Purchase of Treasury stock 0 (51,500) (20,918)
Sale of Treasury stock 24,760 0 11,400
Dividends paid (756,860) (606,491) (606,882)
Net cash (used) provided by
financing activities $ 4,347,261 $(1,993,878) $ 1,912,228
Net (decrease) increase in cash and
cash equivalents 4,996,557 (11,985,011) 11,089,846
Cash and cash equivalents at
beginning of year 8,669,703 20,654,714 9,564,868
Cash and cash equivalents at
end of year $13,666,260 $ 8,669,703 $20,654,714
The accompanying notes are an integral part of these
consolidated financial statements.
34<PAGE>
1995 1994 1993
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
Interest paid $ 4,752,751 $4,264,239 $ 4,948,559
Income taxes paid $ 927,610 $1,049,000 $ 636,904
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Net transfer of securities held for sale
to available for sale
securities $ 0 $65,816,445 $ 0
Net transfer of investment securities
to assets held for sale $ 0 $ 0 $ 100,000
Net transfer from loans to other real
estate owned and insubstance
foreclosure $ 0 $ 39,850 $ 247,427
Net transfer from loans held for
sale to loans $ 80,272 $ 701,917 $ 0
Net (decreases) increases required by
Statement of Financial Accounting
Standards No. 115 available for sale
securities $ 2,966,401 $(2,104,799) $ 0
Deferred income tax assets $(1,009,423) $ 715,631 $ 0
Net unrealized gain (loss) on
available for sale securities $ 1,956,978 $(1,389,168) $ 0
The accompanying notes are an integral part of these
consolidated financial statements.
35<PAGE>
UNION BANKSHARES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Union Bankshares Company provides a full range
of banking services to individual and corporate
customers through its subsidiary and branches in
Maine. The Company is subject to competition from
other financial institutions. The Company is subject
to regulations of certain Federal agencies and
undergoes periodic examinations by those regulatory
authorities.
Basis of Consolidated Financial Statement Presentation
The consolidated financial statements have been
prepared in conformity with generally accepted
accounting principles. In preparing the consolidated
financial statements, management is required to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
continuing assets and liabilities as of the date of
the balance sheet and revenues and expenses for the
period. Actual results could differ significantly from
those estimates.
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its
majority-owned subsidiary, Union Trust Company. All
significant intercompany balances and transactions
have been eliminated in the accompanying financial
statements. Minority interests, which are not
significant, are included in other liabilities in the
balance sheets and other operating expenses in the
consolidated statements of income.
Earnings and Cash Dividends Per Share
Earnings per share is based upon the average
number of common shares outstanding during each year.
In 1995, the Company declared a 33-1/3 percent stock
dividend. Earnings and cash dividends per share have
been retroactively restated for 1994 and 1993 to
reflect the stock dividend.
Investments
The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," 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:
36<PAGE>
Trading Account Securities
Trading account securities, consisting of
securities purchased with the intent that they will 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 were no trading securities at
December 31, 1995 and 1994.
Insert photo of 1995 Christmas is for Kids
volunteers and photo of Michelle Joy, Accounting Clerk
and Jayne Wallace, Branch Supervisor at our Somesville
Branch.
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.
Amortization of premiums and accretion of discounts
are recorded as an adjustment to yield. 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
purchased debt securities that the Company has the
positive intent and ability to hold 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.
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, 1995 and 1994.
Insert photo of Foster Mathews, AVP and Branch
Manager of Cherryfield Branch
Loans Held for Sale
Loans held for sale are loans originated for
the purpose of potential subsequent sale. These loans
37<PAGE>
are carried at lower of cost or market at December 31,
1995 and 1994. Gains and losses on the sale of these
loans are computed on the basis of specific
identification.
Loan Servicing
Mortgage loans serviced for others are not
included in the accompanying balance sheet. The Bank
recognizes a loan servicing fee for the difference
between the principal and interest payment collected
on the loan and the payment remitted to the investor.
In May 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
(SFAS) No. 122, "Accounting for Mortgage Servicing
Rights," which requires capitalization of mortgage
servicing rights for loans originated after January 1,
1996.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at
cost less accumulated depreciation. Depreciation
expense is computed by accelerated and straight-line
methods over the estimated useful life of each type of
asset. Leasehold improvements are amortized over the
terms of the respective leases or the service lives of
the improvements. Maintenance and repairs are charged
to expense as incurred; betterments are capitalized.
Allowance for Loan Losses
The Allowance for Loan Losses is established by
management to absorb charge-offs of loans deemed
uncollectible. This allowance is increased by
provisions charged to operating expense and by
recoveries on loans previously charged-off. The amount
of the provision is based on management s evaluation
of the loan portfolio. Considerations in this
evaluation include past and anticipated loan loss
experience, the character and size of the loan
portfolio and maintenance of the allowance at a level
adequate to absorb anticipated future losses.
Statement of Financial Accounting Standards No.
114, "Accounting by Creditor for Impairment of a
Loan," was adopted on January 1, 1995. Under this
standard, loans considered to be impaired are reduced
to the present value of expected future cash flows or
to the fair value of collateral, by allocating a
portion of the Allowance for Loan Losses to such
loans. If these allocations cause the Allowance for
Loan Losses to increase, such increase is reported as
loan loss provision. There was no effect on the
financial statement in adopting this standard for
1995.
Other Real Estate Owned
Other real estate owned, which is included in
other assets, is recorded at the lower of cost or fair
value less estimated costs to sell at the time the
38<PAGE>
Company takes possession of the property. Losses
arising from the acquisition of such properties are
charged against the Allowance for Loan Losses.
Operating expenses and any subsequent provisions to
reduce the carrying value are charged to operations.
Gains and losses upon disposition are reflected in
earnings as realized.
Accounting Estimates
Material estimates that are particularly
susceptible to significant change in the future relate
to the determination of the Allowance for Loan Losses.
In connection with the determination of the Allowance
for Loan Losses and the carrying value of real estate
owned, management obtains independent appraisals for
significant properties.
Management believes that the allowance for
losses on loans and the carrying value of real estate
owned are adequate. While management uses available
information to recognize losses on loans and real
estate owned, future additions to the allowances may
be necessary based on changes in economic conditions,
particularly in northern New England. In addition,
various regulatory agencies, as an integral part of
their examination process, periodically review the
Company s Allowance for Loan Losses. Such agencies may
require the Company to recognize additions to the
allowances based on their judgments about information
available to them at the time of their examination.
Income Taxes
The Bank accounts for income taxes in
accordance with Statement of Financial Accounting
Standards No.109, "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.
Accrual of Interest Income and Expense
Interest on loans and investment securities is
taken into income using methods that relate the income
earned to the balances of loans outstanding and
39<PAGE>
investment securities. Interest expense on liabilities
is derived by applying applicable interest rates to
principal amounts outstanding. The recording of
interest income on problem loan accounts ceases when
collectibility within a reasonable period of time
becomes doubtful. Interest income accruals are resumed
only when they are brought fully current with respect
to principal and interest and when management expects
the loan to be fully collectible.
The carrying values of impaired loans are
periodically adjusted to reflect cash payments,
revised estimates of future cash flows and increases
in the present value of expected cash flows due to the
passage of time. Cash payments representing interest
income are reported as such. Other cash payments are
reported as reductions in carrying value, while
increases or decreases due to changes in estimates of
future payments and due to the passage of time are
reflected in the loan loss provision.
Loan Origination Fees and Costs
Loan origination fees and certain direct loan
origination costs are recognized over the life of the
related loan as an adjustment to or reduction of the
loan s yield.
Statement of Cash Flows
For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due
from banks and Federal funds sold. Generally, Federal
funds are purchased and sold for one-day periods.
Fair Value Estimates
The Company has made fair value estimates on
its financial instruments. Fair value estimates are
made at a specific point in time, based on relevant
market information and information about the financial
instrument. These estimates do not reflect any premium
or discount that could result from offering for sale
at one time the Company s entire holdings of a
particular financial instrument. Because no market
exists for a significant portion of the Company s
financial instruments, fair value estimates are based
on judgments regarding future expected loss
experience, current economic conditions, risk
characteristics of various financial instruments and
other factors. These estimates are subjective in
nature and involve uncertainties and matters of
significant judgment and therefore cannot be
determined with precision. Changes in assumptions
could significantly affect the estimates.
2. CASH AND DUE FROM BANK ACCOUNTS
The Federal Reserve Board requires the Bank to
maintain a reserve balance. The amount of this reserve
balance as of December 31, 1995 was $100,000.
40<PAGE>
3. HELD TO MATURITY SECURITIES
The carrying amounts of held to maturity
securities for 1995 and 1994 as shown in the
consolidated balance sheets of the Company, and their
approximate market values at December 31, are as
follows:
OBLIGATIONS OF STATE AND POLITICAL SUBDIVISION: There were no
December 31, pledged
held to
maturity
securities as of
1995 1994 December 31, 1995
Book Value $4,119,546 $6,724,925 and 1994,
Gross unrealized gains $ 117,723 $ 181,627 respectively.
Gross unrealized losses $ (4,586) $ (62,681)
Market Value $4,232,683 $6,843,871
The amortized cost and market value of held to
maturity securities at December 31, 1995, by
contractual maturity, are shown below. Expected
maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment
penalties.
Amortized Market
Cost Value The Company
did not sell
any held to
Due in one year or less $ 816,992 $ 812,406 maturity
Due after one year through five years 2,599,963 2,675,776 securities in
Due after five years through ten years 652,859 691,720 1995 and 1994.
Due after ten years 49,732 52,781
$4,119,546 $4,232,683
Insert photo of Phyllis Harmon, AVP Loan
Officer
4. AVAILABLE FOR SALE SECURITIES
In accordance with SFAS No. 115, the Company
carries available for sale securities at market value.
A summary of the cost and market values of available
for sale securities at December 31, 1995 and 1994 are
as follows:
41<PAGE>
Gross Gross Carrying
Unrealized Unrealized & Market
Amortized Gains Losses Value
Cost
1995 1995 1995 1995
U.S. Treasury
Securities and other
U.S. Government
agencies $70,308,79 $877,088 ($17,220) $71,168,661
Other Securities 628,900 1,734 0 630,634
Totals $70,937,693 $878,822 ($17,220) $71,799,295
1994 1994 1994 1994
U.S. Treasury
Securities and other
U.S. Government
agencies $74,506,809 $ 35,715 $(2,081,667) $72,460,857
Other Securities 1,499,792 0 (58,847) 1,440,945
Totals $76,006,601 $35,715 $(2,140,514) $73,901,802
Pledged available for sale securities totaled $12,000,000
and $8,000,000 at December 31, 1995 and 1994, respectively.
The amortized cost and market value of
available for sale securities at December 31, 1995, by
contractual maturity, are shown below. Expected
maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment
penalties.
42 <PAGE>
Amortized Cost Market Value
Due in one year or less $12,327,678 $12,366,875
Due in one year through
five years 31,006,085 31,347,235
Due after five years through
ten years 27,603,930 28,085,165
$70,937,693 $71,799,275
Proceeds from the sale of securities were $16,933,183, $10,010,376
and $6,432,216 in 1995, 1994 and 1993, respectively. Gross
realized gains were $90,066, $183,825 and $0 in 1995, 1994, and
1993, respectively. Gross realized losses in 1995, 1994, and
1993 were $86,170, $85,816 and $0, respectively.
Insert photo of Harry Vickerson AVP Branch
Manager of Stonington Branch
5. LOANS
At December 31, 1995 and 1994, loans on
nonaccrual status totaled approximately $614,000 and
$151,000, respectively. If interest had been accrued
on such loans, interest income on loans would have
been approximately $28,000, $17,000 and $52,000 higher
in 1995, 1994, and 1993, respectively. Loans
delinquent by 90 days or more that were still on
accrual status at December 31, 1995 and 1994 totaled
approximately $388,000 and $86,000, respectively.
In the ordinary course of business, the
Company s subsidiary granted loans to the Executive
Officers and Directors of the Company and its
subsidiary, and to affiliates of Directors. Such loans
were made on substantially the same terms, including
interest rates and collateral, as those prevailing at
the time for comparable transactions with other
persons and did not involve more than normal risk of
collectibility.
The balance of loans to related parties
amounted to $1,388,780 and $1,163,540 at December 31,
1995 and 1994, respectively. New loans granted to
related parties in 1995 totaled approximately
$532,567; payments and reductions amounted to
$357,327.
6. Allowance for Loan Losses
Analysis of the Allowance for Loan Losses is as
follows for the years ended December 31, 1995, 1994
and 1993:
43 <PAGE>
1995 1994 1993
Balance, beginning of year $1,928,644 $1,802,443 $2,324,705
Provision for loan losses 30,000 0 30,000
Balance before loan losses 1,958,644 1,802,443 2,354,705
Loans charged-off 195,912 321,002 985,503
Less recoveries on loans
charged-off 115,437 447,203 433,241
Net loan charge-off (recoveries) 80,475 (126,201) 552,262
Balance, end of year $1,878,169 $1,928,644 $1,802,443
Information regarding impaired loans is as
follows for the year ended December 31, 1995:
1995
Average investment in impaired loans $59,000
Interest income recognized on impaired loans
including interest income recognized on cash basis 6,400
Interest income recognized on impaired loans on cash basis 5,500
Information regarding impaired loans at
December 31, 1995 is as follows:
1995
Balance of impaired loans $58,874
Less portion for which no Allowance for Loan Losses
is allocated 0
Portion of impaired loan balance for which an allowance
for credit losses is allocated 58,874
Portion of Allowance for Loan Losses allocated
to the impaired loan balance 600
7. PREMISES, FURNITURE AND EQUIPMENT
Detail of Bank Premises, Furniture and Depreciation
Equipment is as follows: 1995 1994 expense charged
Land $ 131,743 $ 131,743 against income was
Buildings and improvements 3,375,282 3,353,475 $385,327, $375,115
Furniture and equipment 2,966,160 2,456,474 and $403,060 in
Leasehold improvements 412,173 412,173 1995, 1994 and
$6,885,358 $6,353,865 1993,
Less accumulated depreciation 3,731,508 3,347,979 respectively.
$3,153,850 $3,005,886
8. LEASE AND RENTAL EXPENSE
At December 31, 1995, the Bank was obligated
under a number of noncancellable leases for premises
and equipment which are accounted for as operating
leases. Leases for real property contain original
44<PAGE>
terms from 2 to 20 years with renewal options up to 20
years. Management expects that in the normal course
of business, most leases will be renewed or replaced
by other leases, or when available, purchase options
may be exercised.
Rental expense was $83,068 in 1995, $90,175 in
1994, and $78,212 in 1993.
The minimum annual lease commitments under
noncancellable leases in effect at December 31, 1995,
are as follows:
Year Ending December 31, Amount
1996 $100,311
1997 $102,424
1998 $104,601
1999 $106,845
2000 $109,154
9. OTHER REAL ESTATE OWNED
Other real estate owned amounts to $1,315,505
and $907,850 at December 31,1995 and 1994,
respectively. Activity in the allowance for losses on
other real estate owned for the years ended December
31, is as follows:
1995 1994
Balance at beginning of year $35,000 $ 0
Provisions charged to income 60,000 35,000
Balance at end of year $95,000 $35,000
10. Employee Benefits
PENSION PLAN
The Company's subsidiary has a noncontributory
defined benefit pension plan covering substantially
all permanent full-time employees. The benefits are
based on employees' years of service and the average
of their three highest consecutive rates of annual
salary preceding retirement.
It is the subsidiary's policy to fund the plan
sufficiently to meet the minimum funding requirements
set forth in the Employee Retirement Income Security
Act of 1974, plus such additional amounts as the
Company may determine to be appropriate from time to
time.
Pension expense amounted to $126,219, $124,720
and $94,641 for the years ended December 31, 1995,
1994 and 1993, respectively.
45<PAGE>
The following table sets forth the plan's
funded status and amounts recognized in the Company's
consolidated financial statements at December 31, 1995
and 1994:
Insert photo of Rebecca Sargent AVP Trust
Officer
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS: 1995 1994
Accumulated benefit obligation including vested
benefits of $3,077,477 in 1995 and $2,483,705
in 1994 $(3,133,283) $(2,505,191)
Projected benefit obligation for service
rendered to date (4,030,311) (3,188,762)
Plan assets at fair value (cash and equivalent,
U.S. Government securities and other
investments) 3,884,088 3,269,570
Plan assets in excess of projected benefit
obligation (146,223) 80,808
Unrecognized net (gain) loss from past experience
different from that assumed and effects of
changes in assumptions 608,338 396,093
Unrecognized prior service cost (38,488) (41,034)
Unrecognized net asset at January 1, being
recognized over 17 years (179,598) (203,376)
Prepaid pension cost included in other assets $ 244,029 $ 232,491
NET PENSION COST INCLUDED THE FOLLOWING
COMPONENTS: 1995 1994 1993
Service cost - benefits earned
during the period $158,055 $170,374 $141,499
Interest cost on projected
benefit obligation 253,278 232,087 219,951
Actual return on plan assets (550,892) 95,028 (206,941)
Net amortization and deferral 265,778 (372,769) (59,868)
Net periodic pension cost $126,219 $124,720 $ 94,641
NET AMORTIZATION AND DEFERRAL INCLUDED THE
FOLLOWING COMPONENTS:
Amortization of unrecognized net
obligations existing at January 1 $(23,778) $(23,778) $(23,778)
Asset (loss) deferred 289,222 (357,725) (36,090)
Amortization of unrecognized prior
service cost (2,546) (2,546) 0
Amortization of net gain (loss)
from earlier periods 2,880 11,280 0
$265,778 $(372,769) $(59,868)
Insert photo of Sandra Salsbury, Administrative
Assistant Supervisor
The weighted average discount rates of 7.0% and
8.0% were used in determining the projected benefit in
1995 and 1994, respectively. The increase in salary
levels was 5.0%. Expected long-term rates of return on
46 <PAGE>
assets were 8.0% for 1995, 1994, and 1993,
respectively.
Post-retirement Benefits Other Than Pensions
The Company sponsors a post-retirement benefit
program that provides medical coverage and life
insurance benefits to certain employees and directors
who meet minimum age and service requirements. Active
employees and directors accrue benefits over a 25-year
period.
Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 106,
"Employers Accounting for Post-retirement Benefits
Other Than Pensions." Statement 106 requires the
Company to change from the cash basis of accounting
for post-retirement benefits, which recognizes costs
when paid, to the accrual method, which recognizes
costs over the employee s period of active employment.
Statement 106 may be adopted through a 20-year
transition or by recognizing the entire accumulated
post-retirement benefit obligation immediately. The
Company decided to amortize the total post-retirement
benefit obligation of $915,000 over a 20-year period
beginning January 1, 1993. The effect of adopting
Statement 106 was a decrease in net income and an
increase of the net periodic benefit cost for the
years ended December 31, 1995 and 1994 in the amount
of $148,646 and $154,800, respectively.
The following table sets forth the status of
the Company s post-retirement obligation at December
31, 1995 and 1994:
ACCUMULATED POST-RETIREMENT BENEFIT OBLIGATION:
1995 1994
Retirees $ 457,603 $ 555,789
Fully eligible active program participants 150,412 186,533
Other active program participants 601,411 278,390
Other 19,420 105,088
$1,228,846 $1,125,800
Accumulated post-retirement benefit obligation in excess of
plan assets $1,228,846 $1,125,800
Unrecognized prior service cost (776,700) (822,300)
Accrued post-retirement benefit cost $ 452,146 $ 303,500
Net period post-retirement benefit cost for the
years ended December 31, 1995, 1994, and 1993,
respectively, includes the following components:
47 <PAGE>
(IN THOUSANDS): 1995 1994 1993
Service cost $ 30,129 $ 29,800 $ 27,400
Interest cost 74,758 79,400 75,700
Amortization of accumulated
post-retirement obligation 45,600 45,600 45,600
Amortization of net
(gain)/loss (1,841) 0 0
Net periodic post-retirement
benefit cost $148,646 $154,800 $148,700
For measurement purposes, the assumed annual
rates of increase in the per capita cost of covered
benefits were 15% and 14% for 1995 and 1994,
respectively. Per capita medical costs are assumed to
decrease annually by 1% until the year 2002 and later,
which at that time will be 6%. The health care cost
trend rate assumption has a significant effect on the
amounts reported; however, these amounts are not
available at this time. The weighted average discount
rate and rate of compensation increase used in
determining the accumulated post-retirement benefit
obligation were 8.5% and 6.0%, respectively, on
December 31, 1995 and 1994.
401(K) PLAN
The Company has a 401(k) noncontributory plan
for employees who meet certain service requirements.
11. INCOME TAXES
Income tax expense (benefit) consists of the
following:
Current Deferred Total
1995
Federal $835,597 $ 9,666 $845,263
State 40,000 0 40,000
$875,597 $ 9,666 $885,263
1994
Federal $913,476 $(163,740) $749,736
State 47,000 0 47,000
$960,476 $(163,740) $796,736
1993
Federal $642,206 $ 113,794 $756,000
State 41,000 0 41,000
$683,206 $ 113,794 $797,000
Deferred tax expense (benefits) results from
timing differences in the recognition of revenue and
expense for tax and financial statement purposes. The
sources of these differences and the tax effect of
each are as follows:
48 <PAGE>
1995 1994 1993
Excess of tax over financial
statement depreciation $ 15,900 $ 13,368 $ 6,000
Financial statement (over) under
tax loan loss provision 48,737 (34,410) 181,700
Effect of deferring loan fees for
financial statement purposes 30,885 20,560 (7,500)
Deferred compensation accrual (32,724) (153,440) (61,200)
FDIC assessment accrual 23,800 20,400 0
Effect of recording real estate
owned at market value (20,400) 0 0
Post-retirement benefits accrual (50,539) (35,821) (32,000)
Other (5,993) 5,603 26,794
$ 9,666 $(163,740) $ 113,794
Insert photo of Michelle Joy, Accounting Clerk
and Jayne Wallace, Somesville Branch Supervisor
Income tax expense amounted to $885,263 for
1995 (an effective rate of 28.0%), $796,736 for 1994
(an effective rate of 25.3%) and $797,000 for 1993 (an
effective rate of 27.8%). The actual tax expense for
1995, 1994 and 1993 differs from the "expected" tax
expense for those years (computed by applying the
applicable U.S. Federal Corporate Tax Rate to income
before income taxes) due to the following:
1995 1994 1993
Amount % of Amount % of Amount % of
Pretax Pretax Pretax
Earnings Earnings Earnings
Computed "expected"
tax expense $1,098,900 34.0% $1,071,237 34.0% $ 973,825 34.0%
Nontaxable income on
obligations of states
and political
subdivisions (225,810) (7.0%) (251,808) (8.0%) (235,411) (8.2%)
Other 12,173 1.0% (22,693) (0.7%) 58,586 2.0%
$ 885,263 28.0% $796,736 25.3% $797,000 27.8%
The tax effects of temporary differences that
give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented as
follows:
49 <PAGE>
DEFERRED TAX ASSETS: 1995 1994
Unrealized loss on available
for sale securities $ 0 $ 715,632
Allowance for Loan Losses 638,577 519,274
Real Estate owned 32,300 94,475
Deferred loan fees 63,590 0
Accrued FDIC assessment 17,000 40,800
Deferred compensation 186,164 153,440
Post-retirement benefits 118,358 67,819
Other 16,647 18,629
Deferred tax assets $1,072,636 $1,610,069
DEFERRED TAX LIABILITIES:
Unrealized gain on available
for sale securities $ 293,793 $ 0
Allowance for Loan Losses 168,041 0
Premises, furniture and equipment principally
due to differences in depreciation 259,748 243,847
Prepaid pension expense 81,668 77,745
Cash surrender value of life insurance 36,386 36,386
Deferred tax liabilities $ 839,636 $ 357,978
Insert photo of Eugene Grindle, Teller at Blue
Hill Branch
The Bank has sufficient refundable taxes paid
in available carry-back years to fully realize its
recorded deferred tax asset of $1,072,636 at December
31, 1995. The deferred tax asset and liability are
included in other assets and other liabilities on the
balance sheet at December 31, 1995 and 1994, except
for the amount attributed to available for sale
securities, which is included in Shareholder's equity.
12. SHAREHOLDERS EQUITY
The Federal Reserve Board has issued 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 call for an 8%
total capital ratio, of which 4% must be comprised of
Tier I capital. Risk-based capital ratios are
calculated by weighing assets and off-balance sheet
instruments according to their relative credit risks.
At December 31, 1995, the Company had met the minimum
capital ratios.
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, the Bank is a
party to financial instruments with off-balance sheet
risk to meet the financing needs of its customers.
These financial instruments include commitments to
extend credit and letters of credit. The instruments
50<PAGE>
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
December 31, 1995 and 1994, the following financial
instruments, whose contract amounts represent credit
risk, were outstanding:
Contract Amount
1995 1994
Commitments to extend credit $30,987,000 $27,911,000
Standby letters of credit $ 36,000 $ 127,000
Unadvanced portions of construction loans $ 809,000 $ 459,000
The Bank s exposure to credit loss in the event
of nonperformance by the other party to the above
financial instruments is represented by the
contractual amounts of the instruments. The Bank uses
the same credit policies in making commitments and
conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of
any condition established in the contract. Commitments
generally have fixed expiration dates or other
termination clauses and may require payment of a fee.
Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
The Bank evaluates each customer s creditworthiness on
a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon the
credit extension, is based on management s credit
evaluation of the counterparty. Collateral held varies
but may include residential and commercial real estate
and, to a lesser degree, personal property, business
inventory and accounts receivable.
Standby letters of credit are conditional
commitments issued by the Bank to guarantee the
performance of a customer to a third party. The credit
risk involved in issuing letters of credit is
essentially the same as that involved in extending
loan facilities to customers.
The Bank grants residential, commercial and
consumer loans to customers principally located in
Hancock and Washington Counties of the State of Maine.
Although the loan portfolio is diversified, a
substantial portion of its debtors ability to honor
their contracts is dependent upon the economic
conditions in the area, especially in the real estate
51<PAGE>
sector. There were no borrowers whose total
indebtedness to the Bank exceeded 10% of the Bank s
Shareholders equity at December 31, 1995.
The consolidated balance sheets do not include
various contingent liabilities such as liabilities for
assets held in trust. Management does not anticipate
any loss as a result of these contingencies.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Accounting Standards No. 107,
"Disclosures About Fair Value of Financial
Instruments," requires that the Bank disclose
estimated fair values for its financial instruments.
Fair value estimates, methods and assumptions are set
forth below for the Bank s financial instruments.
Statement 107 specifies that fair values should be
calculated based on the value of one unit without
regard to any premium or discount that may result from
concentrations of ownership of a financial instrument,
possible tax ramifications or estimated transaction
costs. If these considerations had been incorporated
into the fair value estimates, the aggregate fair
value amount could have changed.
Cash, Due from Banks and Federal Funds Sold
The fair value of cash, due from banks and
Federal funds soldapproximates their relative book
values at December 31, 1995 and 1994, as these
financial instruments have short maturities.
Available for Sale Securities and Held to Maturity
Securities
Fair values are estimated based on bid prices
published in financial newspapers or bid quotations
received from securities dealers. The fair value of
certain state and municipal securities is not readily
available through market sources other than dealer
quotations, so fair value estimates are based on
quoted market prices of similar instruments, adjusted
for differences between the quoted instruments and the
instruments being valued.
Loans
Fair values are estimated for portfolios of
loans with similar financial characteristics.
Management has determined that the fair value
approximates book value on all loans with maturities
of one year or less and variable interest rates. The
fair values of all other loans are estimated based on
bid quotations received from securities dealers. The
estimates of maturity are based on the Bank s
historical experience with repayments for each loan
classification, modified, as required, by an estimate
of the effect of current economic, lending conditions
and the effects of estimated prepayments.
52<PAGE>
Loans Held for Sale
The fair market value of this financial
instrument approximates the book value as this
financial instrument has a short maturity.
Accrued Interest Receivable
The fair market value of this financial
instrument approximates the book value as this
financial instrument has a short maturity. It is the
Bank s policy to stop accruing interest on loans past
due by more than ninety days.
Other Investment Securities, Federal Home Loan Bank
Stock and Federal Reserve Bank Stock
The fair market value of these financial
instruments approximates the book value as these
financial instruments do not have a market nor is it
practical to estimate their fair value without
incurring excessive costs.
Deposits
Under Statement 107, the fair value of deposits
with no stated maturity, such as noninterest-bearing
demand deposits, savings, NOW accounts and money
market and checking accounts, is equal to the amount
payable on demand. The fair values of certificates of
deposit are based on the discounted value of
contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of
similar remaining maturities.
The fair value estimates do not include the
benefit that results from the low-cost funding
provided by the deposit liabilities compared to the
cost of borrowing funds in the market. If that value
was considered, the fair value of the Bank s net
assets could increase.
Accrued Interest Payable
The fair value of this financial instrument
approximates the book value as this financial
instrument has a short maturity.
Insert photo of John Lynch, Senior Vice
President Loans
Commitment to Extend Credit
Under Statement 107, the fair value of
commitments to extend credit is estimated using the
fees currently charged to enter into similar
agreements, taking into account the remaining terms of
the agreements and the present creditworthiness of the
counterparties. The Bank has not estimated the fair
values of commitments to originate loans due to their
short-term nature and their relative immateriality.
53<PAGE>
Limitations
Fair value estimates are made at a specific
point in time, based on relevant market information
and information about the financial instruments. These
values do not reflect any premium or discount that
could result from offering for sale at one time the
Bank s entire holdings of a particular financial
instrument. Because no market exists for a significant
portion of the Bank s financial instruments, fair
value estimates are based on judgments regarding
future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments and other factors. These estimates are
subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on-
and off-balance sheet financial instruments without
attempting to estimate the value of anticipated future
business and the value of assets and liabilities that
are not considered financial instruments. Other
significant assets and liabilities that are not
considered financial instruments include the deferred
tax assets, bank premises and equipment and other real
estate owned. In addition, the tax ramifications
related to the realization of the unrealized gains and
losses can have a significant effect on fair value
estimates and have not been considered in any of the
estimates.
Insert photo of Lisa Holmes, AVP Branch Manager
of Machias Branch
A summary of the fair values of the Company s
significant financial instruments at December 31, 1995
and 1994 follows:
54 <PAGE>
1995 1994
Carrying Estimate Carrying Estimate of
Value of Fair Value Fair Value
Value
ASSETS
Cash, due from banks
and Federal funds sold $ 13,666,260 $ 13,666,260 $ 8,669,703 $ 8,669,703
Available for sale
securities 71,799,295 71,799,295 73,901,802 73,901,802
Held to maturity
securities 4,119,546 4,232,683 6,724,925 6,843,871
Other investment
securities 659,325 659,325 659,325 659,325
Loans 91,364,591 92,762,722 82,279,192 81,753,215
Loans held for sale 1,227,447 1,227,447 651,191 651,191
Acccrued interest
receivable 1,846,149 1,846,149 1,986,543 1,986,543
LIABILITIES
Deposits 165,357,869 166,729,943 160,248,687 161,285,635
Accrued interest
payable 808,103 808,103 508,747 508,747
15. PARENT-ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Union
Bankshares Company as of December 31, 1995 and 1994
and for each of the years ended December 31, 1995,
1994, and 1993 are presented as follows:
BALANCE SHEET
December 31, 1995 and 1994 1995 1994
ASSETS:
Cash $ 17,056 $ 939
Investment in subsidiary 22,809,268 19,181,934
Other assets 199,856 149,892
Total assets $23,026,180 $19,332,765
LIABILITIES AND SHAREHOLDER'S EQUITY:
Dividends payable $ 201,818 $ 151,384
Other liabilities 29,868 0
Shareholders' equity 22,794,494 19,181,381
Total liabilities and Shareholders' equity $23,026,180 $19,332,765
55 <PAGE>
STATEMENTS OF INCOME
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Dividends from subsidiary $ 749,460 $ 599,568 $ 599,568
Equity in undistributed
earnings of subsidiary 1,670,357 1,697,344 1,541,878
Service income 0 59,000 0
Total income $2,419,817 $2,355,912 $2,141,446
Operating expenses 1,760 1,949 7,808
Net income $2,418,057 $2,353,963 $2,133,638
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and
1993 1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,418,057 $ 2,353,963 $ 2,133,638
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Undistributed earnings of
subsidiary $ (1,670,357) $ (1,697,344) $ (1,542,026)
Increase in other assets (49,963) 0 (37,475)
Increase in other liabilities 29,868 0 0
Increase (decrease) in dividends
payable 50,434 (321) 37,716
Net cash provided by operating
activities $ 778,039 $ 656,298 $ 591,853
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of one additional
share of stock $ 0 $ 0 $ 147
Payment for fractional shares (29,821) 0 (33,491)
Dividends (756,860) (606,491) (606,882)
Purchase of Treasury stock 0 (51,500) (20,918)
Sale of Treasury stock 24,759 0 11,400
Net cash used by financing
activities (761,922) (657,991) (649,744)
Net increase (decrease) in cash
and cash equivalents 16,117 (1,693) (57,891)
Cash and cash equivalents at
beginning of year 939 2,632 60,523
Cash and cash equivalents at
end of year $ 17,056 $ 939 $ 2,632
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
ACTIVITIES:
Net unrealized gain (loss) on
available for sale securities $ 1,956,978 ($1,389,168) $ 0
56<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have audited the accompanying consolidated balance
sheet of Union Bankshares Company and Subsidiary as of
December 31, 1995, and the related consolidated
statements of income, changes in shareholders' equity
and cash flows for the year then ended. These
consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit. The
financial statements of Union Bankshares Company and
Subsidiary as of and for the year ended December 31,
1994 were audited by other auditors whose report
thereon dated January 20, 1995, included an
explanatory paragraph that described the Company's
change in its method of accounting for investments to
adopt the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities at January
1, 1994, as discussed in Notes 3 and 4 to the
financial statements. The financial statements of
Union Bankshares Company and Subsidiary as of and for
the year ended December 31, 1993 were audited by other
auditors whose report thereon dated January 13, 1994,
included an explanatory paragraph that described the
Company's adoption of SFAS No. 106, Employers'
Accounting for Post Retirement Benefits Other Than
Pensions in 1993, as discussed in Note 9 to the
financial statements, and the Company's change in its
method of accounting for income taxes in 1993 to adopt
provisions of SFAS No. 109, Accounting for Income
Taxes on January 1, 1993, as discussed in Note 10 to
the financial statements.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain
reasonable assurance about whether the financial
statements are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the
financial statements. An audit also includes
assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement
presentation. We believe our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
consolidated financial position of Union Bankshares
Company and Subsidiary as of December 31, 1995, and
the consolidated results of their operations and their
57<PAGE>
consolidated cash flows for the year then ended, in
conformity with generally accepted accounting
principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
January 19, 1996
58<PAGE>
UNION BANKSHARES COMPANY &
UNION TRUST COMPANY DIRECTORS
Arthur J. Billings Richard W. Whitney
President, Barter Lumber Company Dentist
Peter A. Blyberg UNION BANKSHARES COMPANY
Executive Vice President DIRECTORY OF OFFICERS
and Treasurer
Robert S. Boit John V. Sawyer II
President Chairman of the
Board
Richard C. Carver Robert S. Boit
Owner, Carver Oil Co. President
& Carver Shellfish, Inc.
Peter A. Blyberg
Peter A. Clapp Executive Vice
President, Blue Hill Garage President and
Treasurer
Sandra H. Collier
Attorney-at-Law Richard W. Teele
Ferm, Collier & Larson Secretary
Robert B. Fernald Sally J. Hutchins
Treasurer, A.C. Fernald Sons, Inc. Vice President & &
Jordan-Fernald Clerk
Douglas A. Gott UNION BANKSHARES COMPANY
Owner, Douglas A. Gott & UNION TRUST COMPANY
& Sons HONORARY DIRECTORS
David E. Honey Franklin L. Beal
Retired, Former Manager, Retired
Swan's Island Electric Coop
Emery B. Dunbar
Delmont N. Merrill Owner, Edgewater
President, Merrill Blueberry Cabins
Farms, Inc.
Carroll V. Gay
Thomas R. Perkins Retired
Retired Pharmacy Owner
John E. Raymond
Casper G. Sargent, Jr. President, Bimbay,
Owner, Sargent's Real Estate Corp. Inc.
John V. Sawyer II Mary T. Slaven
Chairman of the Board Realtor
President, Worcester-Sawyer Agency
Douglas N. Smith
Stephen C. Shea Retired
Secretary, E.L. Shea, Inc.,
President, Shea Leasing I. Frank Snow
President, Snow's
Richard W. Teele Plumbing and
Secretary, Retired Executive Heating
Vice President & Treasurer
59<PAGE>
Paul L. Tracy
President, Owner, Winter Harbor Agency;
Vice President, Co-Owner, Schoodic Insurance
Agency
UNION TRUST COMPANY
DIRECTORY OF OFFICERS
John V. Sawyer II Peter C. O'Brien
Chairman of the Board AVP, Loan and CRA Officer
Robert S. Boit Rebecca J. Sargent
President, Chief AVP, Trust Officer
Executive Officer
Peter A. Blyberg Stephen L. Tobey
Executive Vice President, AVP, Operations and Chief
Operating Officer Security Officer
and Treasurer
Patti S. Herrick
John P. Lynch Operations Officer
Senior Vice President, Loans
Dawn L. Lacerda
Cynthia W. Cadwalader Operations Officer
Vice President, Investment Officer
Mary Lou Lane
Peter F. Greene Customer Service Officer
Vice President, Operations
Teresa L. Linscott
Sally J. Hutchins Electronic Services Officer
Vice President, Controller & Clerk
Marsha L. Osgood
Christopher H. Keefe Assistant Trust Officer
Vice President, Branch Administration
Deborah F. Preble
Bette B. Pierson Assistant Controller
Vice President, Mortgage Loan Officer
Lorraine S. Ouellette
Leah S. Allen Trust Officer
AVP, Deposit Operations Officer
Julie C. Vittum
James M. Callnan Senior Auditor
AVP, Data Processing Officer
Nancy E. Domagala
AVP, Mortgage Underwriter
Laurence D. Fernald, Jr.
AVP, Loan and Appraisal Review Officer
Janis M. Guyette
AVP, Trust Operations Officer
Lynda C. Hamblen
AVP, Loan Officer
60<PAGE>
Phyllis C. Harmon
AVP, Loan Officer
Harold L. Metcalf
AVP, Loan Officer
Gayle A. Norton
AVP, Human Resource Officer
UNION TRUST COMPANY
BRANCH OFFICES
Blue Hill
Pamela G. Hutchins, AVP, Branch Manager
Castine
Sherry L. Oliver, Branch Manager
Cherryfield
C. Foster Mathews, AVP, Branch Manager
Ellsworth Shopping Center
Melody L. Wright, Branch Manager
Jonesport
Wendy W. Beal, AVP, Branch Manager
Machias
Lisa A. Holmes, AVP, Branch Manager
Milbridge
James E. Haskell, AVP, Branch Manager
Somesville
William R. Weir, Jr., AVP, Residential Lender
61 <PAGE>
Stonington
Harry R. Vickerson III, AVP, Branch Manager
UNION TRUST COMPANY PERSONNEL
Albert, Betty
Allen, Deborah
Armstrong, Rebecca
Babson, William
Bayrd, Rona
Billings, Holly
Boyce, Katrina
Bragg, Randy
Braun, Tammie
Bunker, Corace
Carter, Linda
Carter, Sharon
Chisholm, Catherine
Condon, Helen
Curtis, Kristen
Curtis, Marjorie
Dearborn, Trevor
Douglass, Joanne
Edgecomb, Ann
Eldridge, Stacey
Elliott, Linda
Faulkner, Kathy
Fuller, Jackie
Gilbert, Jennie
Grant, Victoria
62 <PAGE>
Grindle, Eugene
Handy, Louise
Harriman, Barbara
Heline, Heidi
Hills, Darlene
Hinckley, Wayne
Hutchins, Rebecca
Hutchinson, Elwell
Ingalls, Laurea
Johnson, Mindy
Joy, Michelle
Kelley, Cindy
Leach, Gail
Look, Lisa
Lounder, Lorraine
MacLaughlin, Wendy
Madden, Anita
Marshall, Carol
McCormick, Bernadette
Mitchell, Stacie
Murphy, Jill
Neale, Debra
Owen, Doris
Page, Deborah
Pierson, June
Pineo, Muriel
Podlubny, Helene
Robbins, Nancy
Rose, Brenda
Sackett, Jacqueline
Salisbury, Jane
Salsbury, Sandra
Santerre, Tammy
Sargent, Lucinda
Scott, Marsha
Scoville, Clark
Smith, Katherine
Smith, Ronald
Snow, Christie
Spaulding, Virginia
Spizio, Barbara
Sprague, Donna
Sproul, Bonnie
Sticht, Julie
St. Pierre, Bettina
Swett, Andrea
Thompson, Dianne
Thompson, Patricia
Treadwell, Mattie
Waldron, Marcella
Wallace, Jayne
West, Cynthia
White, Tammy
Woodward, Cheryl
York, Caroline
Young, April
Young, Michelle
Young, Vicki
63 <PAGE>
Union Trust Company is committed to offering equal
opportunity in regard to employment, training,
benefits, salary administration and promotional
opportunities to all employees, regardless of race,
color, religion, sex, age or national origin. An
Affirmative Action Plan has been implemented by the
Bank.
The Company will provide, without charge, upon written
request, a copy of its annual report on SEC Form 10K
for 1995, including the financial statements and the
schedules required to be filed with the Securities and
Exchange Commission.
Interested persons should write to:
Sally J. Hutchins, Vice President
Union Bankshares Company
PO Box 479
Ellsworth, Maine 04605
Annual Shareholders Meeting
2:00 pm.
Thursday, April 18, 1996
Holiday Inn, High Street
Ellsworth, Maine
64<PAGE>
Insert photo of 1995 Christmas is for Kids
volunteers: Larry Fernald, Jackie Sackett, Helen
Condon, Vickie Grant, Wendy MacLaughlin, Mary Lou
Lane, Sandy Salsbury.
65<PAGE>
