UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________to__________
Commission File Number 2-90679
UNION BANKSHARES COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0395131
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation of organization)
66 Main Street, Ellsworth, Maine
(Address of Principal Executive Offices)
(Zip Code)
04605
Registrant's telephone number, including area code
(207) 667-2504
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES XXX NO_____
Indicate the number of shares outstanding of each of the issue's
classes of common stock, as of the latest practicable date.
Class Outstanding at September 30, 1997
(Common stock, $12.50 Par Value) 482,932
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No
Item 1 Financial Statements
Condensed consolidated balance sheets-
September 30, 1997, September 30, 1996, and 3
December 31, 1996
Condensed consolidated statements of income-
Nine months ended September 30, 1997 and
September 30, 1996
Three months ended September 30, 1997 and 4-5
September 30, 1996
Condensed consolidated statements of cash flows-
Nine months ended September 30, 1997 and 6
September 30, 1996
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-15
PART II Other Information
Item 1: Legal Proceedings 16
Item 2: Changes in Securities 16
Item 3: Defaults Upon Senior Securities 16
Item 4: Submission of Matters to a Vote of
Security Holders 16
Item 5: Other Information 16
Item 6: Exhibits and Reports on Form 8-K 16
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
September 30 September 30 December 31
1997 1996 1996
(Unaudited) (Unaudited) (Audited)*
ASSETS
Cash and due from banks $ 8,883,318 $ 9,066,768 $ 9,458,971
Assets held for sale 72,825,300 76,489,668 80,022,554
(MARKET VALUE AT 9/30/97)
Held to maturity securities at cost 26,998,978 3,278,353 4,786,800
Federal funds sold 149,068 3,041,360 143,209
Loans (net of unearned discount) 104,659,319 98,149,651 100,970,391
Less: Allowance for loan losses 2,166,766 1,989,448 2,083,831
Net Loans $102,492,553 $ 96,160,203 $ 98,886,560
Premises, furniture & equip net 2,913,776 2,984,262 2,917,112
Other assets 5,510,746 6,350,761 5,851,051
Total Assets $219,773,738 $197,371,375 $202,066,257
LIABILITIES
Deposits:
Demand $ 20,325,536 $ 22,121,054 $ 19,185,504
Savings 77,303,178 84,166,356 79,530,138
Time 75,723,826 65,745,074 70,113,369
Total Deposits 173,352,540 172,032,484 168,829,011
Borrowed Funds 12,234,250 110,000 6,173,000
Accrued Expenses & Other Liabilities 9,519,886 3,299,600 3,350,388
Total Liabilities $195,106,676 $175,442,084 $178,352,399
SHAREHOLDERS' EQUITY
Common Stock $ 6,069,300 $ 5,062,875 $ 5,062,875
Surplus 3,948,797 3,948,797 3,948,797
Retained Earnings 14,613,212 13,908,527 14,929,681
Net Unrealized Gain/(Loss) on
Securities Available for Sale 199,845 (935,185) (171,460)
Less: Treasury Stock 164,092 55,723 56,035
Total Shareholders' Equity $ 24,667,062 $ 21,929,291 $ 23,713,858
Total Liabilities &
Shareholders' Equity $219,773,738 $197,371,375 $202,066,257
*Condensed from audited financial statements
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiary. Minority interests, which are
not significant are included in other liabilities in the balance sheet and
other operating expenses in the consolidated statement of income.
UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Nine Months Ended - September 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $ 6,976,452 $ 6,615,487
Interest and Fees on Municipal Loans and Bonds 434,442 407,041
Interest and Dividends on Securities 4,573,982 3,962,502
Interest on Federal Funds Sold 26,613 44,410
Amortization & Accretion - Net 56,484 (1,384)
Total Interest Earned 12,067,973 11,028,056
INTEREST EXPENSE
Interest on Deposits 4,326,960 4,020,343
Interest on Funds Purchased/Borrowed 627,734 217,846
Total Interest Expense 4,954,694 4,238,189
NET INTEREST INCOME 7,113,279 6,789,867
Provision for Loan Losses 90,000 90,000
NET INTEREST INCOME AFTER LOAN PROVISION 7,023,279 6,699,867
NONINTEREST INCOME
Exchange, Commission & Fees 642,825 608,302
Trust Department 426,329 355,338
Financial Service Fees 52,154 52,550
Other Income 698,001 651,256
Net Securities Gains/(Losses) (5,298) 3,737
Total Noninterest Income 1,814,011 1,671,183
NONINTEREST EXPENSE
Salaries and Employee Benefits 3,038,990 3,123,807
Building Maintenance & Operations 359,768 364,434
FDIC Insurance 20,312 1,500
Other Expenses 2,539,239 2,512,679
Total Noninterest Expense 5,958,309 6,002,420
INCOME BEFORE TAXES 2,878,981 2,368,630
Income Taxes 914,000 690,000
NET INCOME $ 1,964,981 $ 1,678,630
Per Share Data:
Net Income $4.07 $3.48
Dividends Declared $ .50 $ .50
UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Three Months Ended - September 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $2,349,079 $2,296,629
Interest and Fees on Municipal Loans and Bonds 160,951 120,366
Interest and Dividends on Securities 1,648,918 1,298,949
Interest on Federal Funds Sold 6,760 14,548
Amortization & Accretion - Net 10,909 (5,166)
Total Interest Earned 4,176,617 3,725,326
INTEREST EXPENSE
Interest on Deposits 1,496,107 1,346,086
Interest on Funds Purchased/Borrowed 344,696 74,690
Total Interest Expense 1,840,803 1,420,776
NET INTEREST INCOME 2,335,814 2,304,550
Provision for Loan Losses 30,000 30,000
NET INTEREST INCOME AFTER LOAN PROVISION 2,305,814 2,274,550
NONINTEREST INCOME
Exchange, Commission & Fees 297,519 237,184
Trust Department 149,609 120,937
Financial Service Fees 18,427 19,167
Other Income 338,124 306,395
Net Securities Gains/(Losses) (7,581) 0
Total Noninterest Income 796,098 683,683
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,108,417 1,025,002
Building Maintenance & Operations 121,971 109,156
FDIC Insurance 5,046 500
Other Expenses 936,171 875,927
Total Noninterest Expense 2,171,605 2,010,585
INCOME BEFORE TAXES 930,307 947,648
Income Taxes 290,000 293,000
NET INCOME $ 640,307 $ 654,648
Per Share Data:
Net Income $1.33 $1.36
Dividends Declared $ .50 $ .50
UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996
1997 1996
Net Cash Flows Provided by Operating Activities:
Net Income $1,964,981 $1,678,630
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 315,156 297,094
Provision for loan losses 90,000 90,000
Net securities gains 0 0
Loss on sale of other real estate owned 27,399 0
Provision for other real estate owned 15,000 0
Net change in other assets (126,613) (656,801)
Net change in other liabilities 6,169,498 (208,797)
Net amortization of premium on investments 241,029 1,386
Net change in deferred loan origination fees 27,580 71,911
Origination of loans held for sale (5,811,159) (9,316,238)
Proceeds from loans held for sale 5,651,685 7,319,990
Total adjustments 6,599,575 (2,401,455)
Net cash provided by operating activities 8,564,556 (722,825)
Cash Flows From Investing Activities:
Purchase of investments (63,810,745) (27,008,214)
Proceeds from sales of investments 36,280,474 0
Proceeds from maturities of investments 12,436,521 24,762,119
Net change in loans to customers (3,723,573) (5,017,198)
Proceeds from sale of other real estate owned 424,519 0
Capital expenditures (311,820) (127,506)
Net cash used in investing activities (18,704,624) (7,390,799)
Cash Flows From Financing Activities:
Net increase/(decrease) in other Borrowed Funds 6,061,250 0
Net increase/(decrease) in deposits 4,523,529 6,674,615
Transfer to Holding Company 0 472,000
Purchase of Treasury Stock (108,057) (1,520)
Proceeds from sale of Treasury Stock 2,963 15,810
Proceeds from issuance of Common Stock 0 312
Payment for fractional shares (29,699) 0
Dividends paid (879,712) (605,725)
Net cash provided by financing activities 9,570,274 6,555,492
Net increase/(decrease) in cash and cash
equivalents (569,794) (1,558,132)
Cash and cash equivalents at beginning of year 9,602,180 13,666,260
Cash and cash equivalents at 9/30/97 & 9/30/96 $9,032,386 $12,108,128
Supplemental Schedule of Non-Cash Investing and
Financing Activities
1997 1996
Net increase/(decrease) as a result of adopting Statement
of Financial Accounting Standards No. 115
Available for sale securities 356,011 (1,416,947)
Deferred income/(expense) liability (156,166) 481,762
Net unrealized gain/(loss) on available for sale
securities $ 199,845 $(935,185)
Notes to Consolidated Financial Statements
Unaudited
(A) Basis of Presentation
The accompanying consolidated financial statements of Union Bankshares Company
and its subsidiary (Union Trust Company) for the nine month period ended
September 30, 1997 and 1996 are unaudited. However, in the opinion of the
Company, all adjustments consisting of normal, recurring accruals necessary
for a fair presentation have been reflected therein.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting principles,
but which is not required for interim reporting purposes, has been omitted.
The accompanying consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December
31, 1996.
(B) Earnings Per Share
Earnings per common share are computed by dividing the net income available
for common stock by the weighted average number of common shares outstanding
during this period. Weighted shares as of September 30, 1997 were 485,544
and have been restated for 1997, 1996 and 1995 to reflect the July 1997 20%
stock dividend and a 2 for 1 stock split.
(C) Off-Balance Sheet Items
In the normal course of business, the Bank is a party to financial instruments
with off balance sheet risk to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and letters
of credit. The instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the statement of financial
position. The contract amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments. At
September 30, 1997, and September 30, 1996, the following financial
instruments, whose contractamounts represent credit risk, were outstanding.
September 30
(000's omitted)
1997 1996
1. Unused Commitments:
A. Revolving, open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines 6,191 5,808
B. Credit card lines 6,088 5,711
C. Secured real estate loans 5,785 3,722
D. Other 11,223 13,753
2. Financial Standby Letters of Credit: 35 56
3. Mortgages Transferred With Recourse: 0 0
(D) Regulatory Agencies
The Bank's primary regulator is the Federal Reserve Bank of Boston and as a
state chartered bank to the Bureau of Banking in Augusta, Maine.
(E) General
Any loans classified for regulatory purposes as loss, doubtful, substandard
or special mention do not (1) represent or result from trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity or capital resources or (2) represent material credits about
which management is aware of any information which causes management to
have serious doubts as to the ability of such borrowers to comply with the
loan repayment terms.
(F) Impact of Inflation and Changing Prices
The Consolidated Financial Statements have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money over
time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature. As a
result, interest rates have more significant impact on the Company's
performance than the general level of inflation. Over short periods of time,
interest rates may not necessarily move in the same direction or in the same
magnitude as inflation.
(G) Recent Accounting Developments
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities",
effective for financial statements for the fiscal year beginning after
December 31, 1996. SFAS No. 125 requires entities to recognize (for
each contract in existence before (1/1/97), previously recognized
servicing rights and "excess servicing" receivables that do not exceed
contractually specified servicing fees shall be combined, net of any
previously recognized servicing obligations under contract, as a
servicing asset or liability. The Company has not determined the impact
of adopting SFAS No. 125. It amends and extends to all servicing assets and
liabilities the accounting standards for mortgage servicing rights now in
FASB Statement No. 65 "Accounting for Certain Mortgage Banking Activities",
and supersedes FASB Statement No. 122, "Accounting for Mortgage Servicing
Rights". Effective December 1996, SFAS No. 127 "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125", defers for one year the
effective date (a) of paragraph 15 and (b) for repurchase agreements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share" effective for financial statements for the fiscal year beginning
after December 15, 1997. The statement establishes standards for
computing and presenting earnings per share (EPS) and simplifies the
standards for computing EPS previously found in APB Opinion No. 15, "Earnings
Per Share".
Also in February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 129, "Disclosure
of Information about Capital Structure" effective for financial statements for
periods ending after December 15, 1997. The statement establishes standards for
disclosing information about an entity's capital structure.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net income increased $286,351 or 17.1% for the first nine months of 1997
versus the same period in 1996. The following table summarizes the
status of the bank's earnings per share:
September 30,
1997 1996
Earnings Per Share 4.07 3.48
Return on Average Shareholders Equity 8.43%A 7.68%B
Return on Average Assets 0.94%A 0.86%B
Return on Average Earning Assets 1.03%A 0.95%B
A=annualized returns are: 11.24%, 1.25%, and 1.37%, respectively.
B=annualized returns are: 10.24%, 1.15%, and 1.27%, respectively.
The healthy increase in net income for the third quarter and the first nine
months of 1997 versus the same periods in 1996 results primarily from an
increase in net interest income, noninterest income and a decrease in
noninterest expenses.
Due to increased loan and investment dollars and a .25% increase in interest
rates in the first quarter of 1997, net interest income was up some $323,000
from the same period last year.
The increase in noninterest income results primarily from improvements in
bankcard fees, trust fees and bank fees offset by decreases in loan department
fees.
Noninterest expenses, consisting primarily of employee compensation and
benefits, occupancy and equipment expense and other general operating
expenses were down some $44,000 from the same period in 1996.
Major initiatives made in 1996 on streamlining the Bank's work flows and
redesigning processes and procedures with the goal of significantly improving
efficiencies continue to be a positive factor during 1997 in many of the
expense categories. A decrease in salaries and employee benefits, due to
reduced staff levels and improved productivity, and the payment of a 27th pay
period in 1996 were major contributors for the decline in noninterest expense.
The Bank is constantly monitoring the economy and its effect on the banking
industry in New England, and in particular, in Maine, in Hancock and
Washington Counties (our service territories). The economy of this area
continues to be sluggish, inflation remains low, and growth will be
moderate and as in years past, we will continue to operate in a conservatively
planned manner. We are growing according to our strategic plan and remain
within the risk parameters we have set forth for ourselves, with the
goals of improved earnings and productivity.
NET INTEREST INCOME
Net interest income, the difference between interest income on earning
assets such as loans and investment securities and interest expense on
interest bearing liabilities such as funds on deposit and borrowed funds
continues to be the most significant determinant of the Company's earnings
performance. Because of the significance of net interest income,
the management of interest rate risk has become increasing important to
ensure the continued profitability of the Bank. Interest rate risk results
from volatile interest rates, increased competition, and changes in the
regulatory environment. As a banking company, our exposure to interest rate
movements is controlled by matching the interest rates as well as the
maturities of assets and liabilities.
Net interest income for the third quarter of 1997 was $2,335,814, up
$31,264 or 1.4% and for the first nine months of 1997 was $7,113,279, up
$323,412 or 4.76% over the same periods in 1996.
The following table illustrates the bank's net interest spread position:
Nine Months Ended September 30,
1997 1996
Yield on Earning Assets 8.26% 8.23%
Cost of all Funds 3.22% 2.90%
Net Interest Spread 5.04% 5.33%
The Bank continues to monitor short and long-term interest rates, balance
sheet volumes and maturities in order to evaluate the potential impact on its
net interest spreads and capital.
PROVISION FOR LOAN LOSSES
The provision for loan losses remained consistent at $90,000 from the same
period last year, resulting from management's ongoing evaluation of the
allowance for loan losses. This increase was due to the desire to
maintain the Allowance for Loan Losses at 2.0% of gross loans. The process to
evaluate the adequacy of the allowance for loan losses involves a high degree
of management judgement. Such judgement is based, in part, on systematic
methods. These methods, which are generally quantitative measures, are
employed, not so the allowance will be the result of routine mathematical
exercises, but to help ensure that all relevant matters affecting loan
collectability will consistently be identified. Such methods at September
30, 1997 included a loan-by-loan analysis of all larger commercial loans and
commercial real estate loans which were non-performing or which were being
closely monitored by management for potential problems, and a quantitive
analysis of residential real estate and consumer loans. Based on these
analyses, an estimation of potential loss exposure was made and an allowance
allocated. The estimation of potential loss exposure reflects declining real
estate values, as evidenced by appraisals and other available information.
Although management utilized its best judgement in providing for possible
losses, there can be no assurance that the Company will not have to increase
its provision for possible loan losses in the future as a result of increased
loan demand in the Company's primary market areas, future increases in non-
performing assets or otherwise which would adversely affect the Company's
results of operations.
The following table reflects the quality of the Bank's loan portfolio
and the emphasis placed upon the management of credit risk:
(000's Omitted)
Nine Months Ended
September 30,
1997 1996
1. Nonaccrual Loans 524 279
2. Loans past due 90 days & accruing 69 160
3. Restructured loans 0 0
4. Other real estate owned (including insubstance
foreclosure) 376 940
5. Total nonperforming assets 969 1,379
6. Ratio of total nonperforming loans to capital
and the allowance for loan losses (Texas ratio) 2.21 1.83
7. Ratio of net chargeoffs to loans 0.006 0.00
8. Ratio of allowance for loan losses to loans 2.07 2.03
9. Coverage ratio (allowance for loan losses
divided by nonperforming assets) 223.63 144.23
10. Ratio of nonperforming assets to total assets .44 .70
11. Ratio of nonperforming loans to total loans .57 .45
It is important to note that the directors, officers and employees of the Bank
are proud of the above data and their efforts in serving its community while
simultaneously working hand-in-hand with state and federal regulators in
structuring its financial position during these times. Most assuredly all
parties concerned benefit from just such cooperative effort.
NONINTEREST INCOME
The Company receives noninterest income from trust fees, service charges on
deposit accounts and other income comprised of fees earned from a variety
of other services. Securities gains and losses are another major component
of this category.
Noninterest income, excluding securities gains/(losses), increased
$151,863 or 9.1% and $119,996 or 17.6% for the three and nine months ended
September 30, 1997 over the same period in 1996.
This increase is primarily due to an increase of credit card income of
$96,093 or 27.1%, trust income of $70,991 or 19.9%, and customer account
income of $32,523 or 5.68% offset by decreases in loan fees.
Net security gains/(losses) amounted to $(7,581) and $(5,298) for the three and
nine months ended September 30, 1997 compared to $0 and $3,737 for the same
periods in 1996.
NONINTEREST EXPENSES
Noninterest expenses consist of employee compensation and benefits,
occupancy and equipment expenses and miscellaneous expenses. Management is
continually reviewing expenses to control them and develop more efficient
delivery systems for all Bank services.
A generally flat economy in Maine and in particular in Downeast Maine, has
compelled or should compel banking institutions of our size to manage
their institutions prudently and conservatively. This we are committed
to do.
Accordingly, a concerted effort in reducing noninterest expenses was a
major undertaking in fiscal 1996, and continues to be a factor in 1997.
Noninterest expenses increased by $161,020 or 8.0% for the three months
ended September 20, 1997 and decreased $44,111 or .73% for nine months ended
September 30, 1997 over the same period in 1996. A decrease in salaries and
benefits, due to reduced staff levels and improved productivity, and the
payment of a 27th pay period in 1996 were major contributors for the
decline.
INCOME TAXES
Income taxes are provided in accordance with the comprehensive income tax
allocation method which recognizes the tax effects of all income and
expense transactions in each year's statement of income, regardless of the
year the transactions are reported for tax purposes. The tax effects of these
timing differences are reflected in deferred income tax accounts in the
consolidated financial statements. Effective January 1, 1993, the Company
adopted Statement 109 and has reported the cumulative effect of that change in
the method of accounting for income taxes in the 1993 consolidated
statements of income. Pursuant to the deferred method under APB Opinion 11,
which was applied in 1992, deferred income taxes are recognized for income
and expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted
for subsequent changes in tax rates. The status of the Bank's income tax
expense is as follows:
Tax Expense Effective Rate
1997 1996 1997 1996
Nine Months Ended September 30, $914,000 $690,000 31.8% 29.1%
INTEREST RATE GAP ANALYSIS
Attention should be directed to the interest rate gap analysis as of December
31, 1996 as provided on page 31 in the Bank's 1996 Annual Report. Data as of
September 30, 1997 is essentially identical to that reported in the Form 10K.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' Equity was as follows for the following periods:
SHAREHOLDERS' EQUITY
Amount Book Value
Per Share
September 30, 1997 $24,667,062 $51.08
September 30, 1996 $21,929,291 $45.41
December 31, 1996 $23,713,858 $39.72
During 1989, the Federal Reserve Board issued final guidelines for a
risk-based approach to measuring the capital adequacy of bank holding
companies and state-chartered banks that are members of the Federal Reserve
System. These capital requirements generally called for an 8% total capital
ratio by year-end 1992 of which 4% must be comprised of Tier 1 capital.
Risk-based capital ratios are calculated by weighing assets and off-balance
sheet instruments according to their relative credit risks. At September 30,
1997, the Company had met the minimum capital ratios. In fact, the Bank's
strong capital position at September 30, 1997 exceeded the minimums
established by the Federal Reserve Board as follows:
Minimum Regulatory
September 30, 1997 Requirements
Tier 1 Capital Ratio 20.5 4.0%
Total Capital Ratio 23.4 8.0%
Leverage Ratio 11.1
DIVIDENDS
The common stock is not actively traded and therefore, we are not aware of the
price of all trades. The price is established by determining what a willing
buyer will pay a willing seller.
Cash dividends per share declared on common stock were $.50 for the third
quarter of 1997 and $1.00 for the third quarter of 1996.
STOCK DIVIDENDS
On June 11, 1997, the Board of Directors of Union Bankshares Company
declared a 20% stock dividend payable to stockholders of record on June 27,
1997. The Board also declared a two for one stock split, subject to shareholder
approval of an amendment to the Articles of Incorporation of the Company. A
special shareholders meeting will be held on July 30 to vote said amendment.
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, US Government securities may be readily converted to cash by sale in
the open market. On the liability side, liquidity comes from deposit
growth and the Bank's accessibility to other sources of borrowed funds. In
this respect, liquidity is enhanced by a significant amount of core demand and
savings deposits from a broad customer base.
As a part of the Bank's asset and liability management and liquidity needs,
management actively evaluates its funding resource and strategies to reduce
and manage the vulnerability of its operation to changes in interest rates.
When a Company's ability to reprice interest bearing liabilities exceeds
its ability to reprice interest earning assets within shorter time periods,
material and prolonged increases in interest rates generally adversely
affect net interest income, while material and prolonged decreases in
interest rates generally have the opposite effect.
A principal objective of the Company is to reduce and manage the vulnerability
of its operations to changes in interest rates by managing the ratio of
interest rate sensitive assets to interest rate sensitive liabilities within
specified maturities or repricing dates.
As of September 30, 1997, Union Trust Company is liability sensitive. The
Bank becomes asset sensitive between 37 and 60 month horizons. Bank
earnings may be negatively affected, should interest rates fall.
As of September 30, 1997, the Bank's ratio of rate sensitive assets to rate
sensitive liabilities at the one year horizon was 81%, its one year GAP
(measurement of interest sensitivity of interest earning assets and
interest bearing liabilities at a point in time) was 9% which is 91%
matched, and $85,438,000 in assets and $104,036,000 in liabilities will be
repriceable in one year.
In addition to the "traditional" GAP calculation, the Company analyzes
future net interest income based on budget projections including
anticipated business activity, anticipated changes in interest rates
and other variables, which are adjusted periodically by management to
take into account current economic conditions, the current interest rate
environment, and other factors.
The status of the Bank's sources of cash to fund its operation are as follows:
September 30,
1997 1996
Net cash from operations $ 8,564,556 $ (722,825)
Net cash from investing activities $(18,704,624) $(7,390,799)
Net cash from financing activities $ 9,570,274 $ 6,555,492
Net increase (decrease) $ (569,794) $(1,558,132)
BALANCE SHEET ANALYSIS
The Bank experienced an increase in loan demand during the first nine months
of 1997; the quality and strength of the balance sheet remains strong.
The following financial statistics give a general overview and profile of the
Company:
As of September 30,
Increase
1997 1996 (Decrease)
Total Assets $219,773,738 $197,371,375 $22,402,363
Total Earnings Assets $202,465,898 $178,969,584 $23,496,314
Loans $102,492,553 $ 96,160,203 $ 6,332,350
Assets Held for Sale $ 72,825,300 $ 76,489,668 $(3,664,368)
Assets Held to Maturity $ 26,998,978 $ 3,278,353 $23,720,625
Deposits $173,352,540 $170,059,858 $ 3,292,682
Capital $ 24,667,062 $ 21,929,291 $ 2,737,771
SECURITIES PORTFOLIO
The objective of the securities portfolio is to provide for a stable earnings
base and the investment of excess liquidity. As shown under the section
"Balance Sheet Analysis", the securities portfolio increased $20,056,257 to
$99,824,278 or 45.4% of total assets as of September 30, 1997, as compared to
38.8% at September 30, 1996. The Bank continues its prefunding strategy for
its security portfolio during the third quarter of 1997 as evidenced by
security and borrowing balances.
The Company has reviewed its investment policy regarding securities. In
recognition of current economic conditions and the attendant responsibility
of management to consider known liquidity requirements and to provide for
capital planning, securities may be sold as part of prudent asset/liability
management.
LOANS
Loan demand continues to show signs of moderate growth during the third
quarter of 1997 and thus the Bank experienced an increase of $6,332,350
or 6.6% at September 30, 1997 vs September 30, 1996.
It should be pointed out that the Bank has sold and serviced $45,853,987 of
real estate loans and $3,581,037 of commercial mortgages and has over
$3,908,726 of loans held for sale at September 30, 1997.
The section of management's discussion and analysis entitled "Provision for
Loan Losses" clearly indicates the quality of the loan portfolio at
September 30, 1997.
The Bank's loan to deposit ratio was 60.4% and the allowance for loan losses
2.1% of total loans at September 30, 1997.
Management's approach to loan growth is to seek out and work with borrowers
whose financial condition, credit history, and performance would warrant
extensions of credit.
In brief, the Company's loan portfolio is driven by a desire to maintain our
credit standards while meeting the financial needs of qualified borrowers
in the community.
DEPOSITS
Total deposits increased $3,292,682, or 1.9% over the comparable period in
1996, primarily due to competitive interest rates on products offered and
an active calling program. The proportion of interest bearing funds
continues to place emphasis on the need for properly matching our assets and
liabilities to maintain stable net interest margins.
The Company has continued its overall asset and liability management strategy
which is to maintain flexibility in its interest sensitivity gap in order to
take advantage of both short term and long term changes in market rates while
minimizing the risk of adverse effects on operations.
The Bank is not reliant on volatile liabilities as evidenced by such
comprising only 5.07% of its deposit base.
PART II
Item 1: N/A
Item 2: N/A
Item 3: N/A
Item 4: During the Registrant's fiscal quarter ended September 30, 1997,
the Registrant held a special Stockholder's Meeting on Wednesday,
July 30, 1997, to approve an increase in the number of the Company's
authorized shares of common stock from 600,000 shares with a par
value of $25.00 per share to 1,200,000 shares each with a par
value of $12.50 per share. The final votes were:
For: 139,417 or 69.1%
Against: 2,163 or 1.1%
Abstain: 2
Item 5: N/A
Item 6:Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Non-Applicable
B. Reports on Form 8-K
During the Registrant's fiscal quarter ended September 30, 1997, the
Registrant was not required to and did not file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION BANKSHARES COMPANY
Peter A. Blyberg, President
November 5, 1997
Sally J. Hutchins, Vice President /Treasurer
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