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 June 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 June 30, 1997
(Common stock, $25.00 Par value) 201,426
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UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
Item 1: Financial Statements
Condensed consolidated balance sheets-
June 30, 1997, June 30, 1996,
December 31, 1996 3
Condensed consolidated statements of income-
six months ended June 30, 1997 and
June 30, 1996 three months ended June 30, 1997
and June 30, 1996 4-5
Condensed consolidated statements of cash flows-
six months ended June 30, 1997
and June 30, 1996 6
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
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UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
June 30 June 30 December 31
1997 1996 1996
(Unaudited) (Unaudited) (Audited) *
ASSETS
Cash and due from banks $ 7,437,776 $ 5,738,970 $ 9,458,971
Assets held for sale 88,502,480 80,341,017 80,022,554
(MARKET VALUE AT 6/30/97)
Held to maturity securities
at cost 16,789,265 3,587,233 4,786,800
Federal Funds Sold 146,356 139,511 143,209
Loans (net of unearned
discount) 102,272,573 95,482,068 100,970,391
Less: Allowance for loan
losses 1,930,548 1,936,237 2,083,831
Net Loans $100,342,025 $ 93,545,831 $ 98,886,560
Premises, Furniture &
Equip Net 2,926,910 3,070,521 2,917,112
Other Assets 5,984,659 6,820,668 5,851,051
Total Assets $222,129,471 $193,243,751 $202,066,257
LIABILITIES & STOCKHOLDERS
INVESTMENTS
Deposits:
Demand $ 17,047,531 $ 16,441,370 $ 19,185,504
Savings 73,344,446 77,558,933 79,530,138
Time 72,653,372 65,938,941 70,113,369
Total Deposits 163,045,349 159,939,244 168,829,011
Borrowed Funds 28,105,250 7,496,000 6,173,000
Accrued Expenses & Other
Liabilities 6,534,980 4,420,071 3,350,388
Total Liabilities $197,685,579 $171,855,315 $178,352,399
STOCKHOLDERS INVESTMENT
Common Stock 5,062,875 5,062,875 5,062,875
Surplus 3,948,797 3,948,797 3,948,797
Retained Earnings 15,489,030 13,452,362 14,929,681
Net Unrealized Gain/(Loss) on
Securities Available for Sale 107,282 (1,021,395) (171,460)
Less: Treasury Stock 164,092 54,203 56,035
Total Stockholders
Investment $ 24,443,892 $ 21,388,436 $ 23,713,858
Total Liabilities &
Stockholders Investment $222,129,471 $193,243,751 $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.
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UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Six Months Ended-June 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $4,627,373 $4,318,858
Interest and Fees on Municipal
Loans and Bonds 273,491 286,675
Interest and Dividends on Securities 2,925,064 2,663,553
Interest on Federal Funds Sold 19,853 29,862
Amortization & Accretion - Net 45,575 3,782
Total Interest Earned 7,891,356 7,302,730
INTEREST EXPENSE
Interest on Deposits 2,830,853 2,674,257
Interest on Funds Purchased/Borrowed 283,038 143,156
Total Interest Expense 3,113,891 2,817,413
NET INTEREST INCOME 4,777,465 4,485,317
Provision for loan losses 60,000 60,000
NET INTEREST INCOME AFTER LOAN PROVISION 4,717,465 4,425,317
NONINTEREST INCOME
Exchange, Commission & Fees 345,306 371,118
Trust Department 276,720 234,401
Financial Service Fees 33,727 33,383
Other Income 359,877 344,861
Net Securities Gains (Losses) 2,283 3,737
Total Noninterest Income 1,017,913 987,500
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,930,573 2,098,805
Building Maintenance & Operations 237,797 255,278
FDIC Insurance 15,266 1,000
Other Expenses 1,603,068 1,636,752
Total Noninterest Expense 3,786,704 3,991,835
INCOME BEFORE TAXES 1,948,674 1,420,982
Income Taxes 624,000 397,000
NET INCOME $1,324,674 $1,023,982
Per Share Data:
Net Income $ 6.58 $ 5.08
Dividends Declared $ 1.00 $ 1.00
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UNION BANKSHARES COMPANY
Condensed Consolidated Statements of Income
(UNAUDITED)
Three Months Ended-June 30,
1997 1996
INTEREST INCOME
Interest and Fees on Loans $2,362,685 $2,184,868
Interest and Fees on Municipal
Loans and Bonds 152,880 141,453
Interest and Dividends on Securities 1,559,610 1,351,180
Interest on Federal Funds Sold 10,592 3,576
Amortization & Accretion - Net 23,583 (2,126)
Total Interest Earned 4,109,350 3,678,951
INTEREST EXPENSE
Interest on Deposits 1,431,543 1,324,804
Interest on Funds Purchased/Borrowed 211,364 108,721
Total Interest Expense 1,642,907 1,433,525
NET INTEREST INCOME 2,466,443 2,245,426
Provision for loan losses 30,000 30,000
NET INTEREST INCOME AFTER LOAN PROVISION 2,436,443 2,215,426
NONINTEREST INCOME
Exchange, Commission & Fees 180,209 191,258
Trust Department 147,043 118,899
Financial Service Fees 15,655 15,479
Other Income 190,885 183,468
Net Securities Gains (Losses) (117) 3,778
Total Noninterest Income 533,675 512,882
NONINTEREST EXPENSE
Salaries and Employee Benefits 967,983 960,018
Building Maintenance & Operations 117,553 123,812
FDIC Insurance 5,114 500
Other Expenses 833,323 906,838
Total Noninterest Expense 1,923,973 1,991,168
INCOME BEFORE TAXES 1,046,145 737,140
Income Taxes 364,000 219,000
NET INCOME $ 682,145 $ 518,140
Per Share Data:
Net Income $3.39 $2.57
Dividends Declared $1.00 $1.00
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UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1997 and 1996
1997 1996
Net Cash Flows Provided by Operating Activities:
Net Income $1,324,674 $1,023,982
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 207,156 189,094
Provision for loan losses 60,000 60,000
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 (600,526) (1,349,079)
Net change in other liabilities 3,184,592 (5,205)
Net amortization of premium on investments (15,088) (3,782)
Net change in deferred loan origination fees 18,116 37,200
Origination of loans held for sale (3,605,760) (6,072,372)
Proceeds from loans held for sale 3,112,485 5,420,303
Total adjustments 2,403,374 (1,723,841)
Net cash provided by operating activities 3,728,048 (699,859)
Cash Flows From Investing Activities:
Purchase of investments (37,310,914) (25,006,914)
Proceeds from sales of investments 13,024,648 0
Proceeds from maturities of investment 4,225,368 17,130,958
Net change in loans to customers (1,533,581) (2,481,937)
Proceeds from sale of other
real estate owned 424,519 0
Capital expenditures (216,954) (105,765)
Net cash used in investing activities (21,386,914) (10,463,658)
Cash Flows From Financing Activities:
Net Increase(decrease) in other
Borrowed Funds 21,932,249 7,386,000
Net increase(decrease) in deposits (5,783,662) (4,094,562)
Transfer to Holding Company 0 472,000
Purchase of Treasury Stock (111,020) 0
Proceeds from sale of Treasury Stock 2,963 15,810
Proceeds from issuance Common Stock 0 312
Payment to eliminate fractional shares 0 0
Dividends paid (399,712) (403,822)
Net cash provided by financing activities 15,640,818 3,375,738
Net increase (decrease) in cash and
cash equivalents (2,018,048) (7,787,779)
Cash and cash equivalents at beginning of year 9,602,180 13,666,260
Cash and cash equivalents at 6/30/97 & 6/30/96 $7,584,132 $5,878,481
Supplemental Schedule of Non-Cash Investing and Financing Activities
Net increase (decrease) as a result of
adopting Statement 1997 1996
of Financial Accounting Standards No. 115
Available for sale securities (131,394) (1,547,568)
Deferred income (expense) liability 44,523 526,173
Net unrealized gain(loss) on available
for sale securities $(86,871) $(1,021,395)
6 of 17 <PAGE>
Notes to Consolidated Financial Statements
Unaudited
(A) Basis of Presentation
The accompanying consolidated financial statements of Union
Bankshares Company and its subsidiary (Union Trust Company) for the six-
month period ended June 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 June 30, 1997 were
201,502.
(C) Off-Balance Sheet Items
In the normal course of business, the Bank is a party to financial
instruments with off balance sheet risk to meet the financing need of its
customers. These financial instruments include commitments to extend credit
and letters of credit. The 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 June 30, 1997, and June 30, 1996, the following financial
instruments, whose contract amounts represent credit risk, were outstanding.
June 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 6,398 5,543
B. Credit card lines 6,126 5,779
C. Secured real estate loans 2,470 3,342
D. Other 12,470 13,125
2. Financial Standby Letters of Credit: 35 62
3. Mortgages Transferred With Recourse: 0 0
7 of 17 <PAGE>
(D) Regulatory Agencies
The Bank's primary regulator is the Federal Reserve Bank of Boston
and as a state chartered bank to the Bureau of Banking in Augusta, Maine.
(E) General
Any loans classified for regulatory purposes as loss, doubtful,
substandard or special mention do not (1) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity or capital resources or (2) represent
material credits about which management is aware of any information which
causes management to have serious doubts as to the ability of such borrowers
to comply with the loan repayment terms.
(F) Impact of Inflation and Changing Prices
The Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing
power of money over time due to inflation.
Unlike many industrial companies, substantially all of the assets
and virtually all of the liabilities of the Company are monetary in nature.
As a result, interest rates have more significant impact on the Company's
performance than the general level of inflation. Over short periods of
time, interest rates may not necessarily move in the same direction or in
the same magnitude as inflation.
(G) Recent Accounting Developments
In 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
8 of 17 <PAGE>
statements for periods ending after December 15, 1997. The statement
establishes standards for disclosing information about an entity's capital
structure.
9 of 17 <PAGE>
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net income increased $300,692 or 29.3% for the first six months of
1997 versus the same period in 1996.
The following table summarizes the status of the bank's earnings
per share:
June 30,
1997 1996
Earnings Per Share 6.58 5.08
Return on Average Shareholders Equity 5.78%A 4.77%B
Return on Average Assets 0.64%A 0.55%B
Return on Average Earning Assets 0.68%A 0.60%B
A = annualized returns are; 11.56%, 1.28%, and 1.36%, respectively.
B = annualized returns are; 9.24%, 1.08%, and 1.18%, respectively.
The healthy increase in net income for the second quarter and the
first six 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
$292,000 from the same period last year.
The increase in noninterest income results primarily from
improvements in bankcard fees and trust fees offset by decreases in loan and
bank fee categories.
Noninterest expenses, consisting primarily of employee compensation
and benefits, occupancy and equipment expense and other general operating
expenses were down some $205,000 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 as
1997 continues to unfold. Decreases in net occupancy and other expenses
were in the area of $51,000 or 24.9% from 1996 results.
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.
10 of 17<PAGE>
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 increasingly important to ensure
the continued profitability of the Bank. Interest rate risk results from
volatile interest rates, increased competition, and changes in the
regulatory environment. As a banking company, our exposure to interest rate
movements is controlled by matching the interest rates as well as the
maturities of assets and liabilities.
Net interest income for the second quarter of 1997 was $1,642,907,
up $209,382 or l4.6% and for the first six months of 1997 was $4,777,465, up
$292,148 or 6.51% over the same periods in 1996.
The following table illustrates the bank's net interest spread
position:
Six Months Ended June 30,
1997 1996
Yield on Earning Assets 8.35% 8.220
Cost of All Funds 3.40% 3.16%
Net Interest Spread 4.95% 5.06%
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 $60,000 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 judgment. Such judgement is based, in part, on
systematic methods. These methods, which are generally quantitative
measures, are employed, not so the allowance will be the result of routine
mathematical exercises, but to help ensure that all relevant matters
affecting loan collectability will consistently be identified. Such methods
at June 30, 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
quantitative analysis of residential real estate and consumer loans. Based
on these analyses, an estimation of potential loss exposure was made and an
allowance allocated. The estimation of potential loss exposure reflects
declining real estate values, as evidenced by appraisals and other available
information.
Although management utilized its best judgement in providing for
possible losses, there can be no assurance that the Company will not have to
11 of 17<PAGE>
increase it provisions for possible loan losses in the future as a result of
increased loan demand in the Company's primary market areas, future
increases in non-performing assets or otherwise which would adversely affect
the Company's results of operations.
12 of 17 <PAGE>
The following table reflects the quality of the Bank's loan
portfolio and the emphasis placed upon the management of credit risk:
(000's Omitted)
Six Months Ended
June 30,
1997 1996
1. Nonaccrual Loans 558 490
2. Loans past due 90 days & accruing 491 148
3. Restructured loans 0 0
4. Other real estate owned (including insubstance
foreclosure) 376 1,190
5. Total nonperforming assets 1,425 1,828
6. Ratio of total nonperforming loans to capital and the
allowance for loan losses (Texas ratio) 4.00 7.84
7. Ratio of net chargeoffs to loans .00200 .00002
8. Ratio of allowance for loan losses to loans 1.89 2.03
9. Coverage ratio(allowance for loan losses divided
by nonperforming assets) 135.51 105.92
10. Ratio of nonperforming assets to total assets .64 .95
11. Ratio of nonperforming loans to total loans .99 .67
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
$24,688 or 4.8% and $31,867 or 3.2% for the three and six months ended June
30, 1997 over the same period in 1996.
This increase is primarily due to an increase of credit card income
of $37,297 or 22.8% and trust income of $42,319 or 18.1%, offset by
decreases in loan and bank fees.
Net security gains/(losses) amounted to $(117) and $2,283 for the
three and six months ended June 30, 1997 compared to $3,778 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
13 of 17<PAGE>
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 decreased by $67,195 or 3.4% and $205,131 or
5.14% for the three and six months ended June 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
Six Months ended June 30, $624,000 $397,000 32.0% 27.9%
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 June 30, 1997 is essentially identical to that reported
in the Form 10K.
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SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' Equity was as follows for the following periods:
SHAREHOLDER'S EQUITY
Amount Book Value
Per Share
June 30, 1997 $24,443,892 $121.35
June 30, 1996 $21,388,436 $106.19
December 31, 1996 $23,713,858 $114.88
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 June 30,
1997, the Company had met the minimum capital ratios. In fact, the Bank's
strong capital position at June 30, 1997 exceeded the minimums established
by the Federal Reserve Board as follows:
Minimum Regulatory
June 30, 1997 Requirements
Tier 1 Capital Ratio 18.0 4.0%
Total Capital Ratio 18.8 8.0%
Leverage Ratio 11.3
DIVIDENDS
The common stock is not actively traded and therefore, we are not
aware of the price of all trades. The price is established by determining
what a willing buyer will pay a willing seller.
Cash dividends per share declared on common stock were $1.00 for
the second quarter of 1997 and 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
15 of 17<PAGE>
assets. In addition, U.S. Government securities may be readily converted to
cash by sale in the open market. On the liability side, liquidity comes
from deposit growth and the Bank's accessibility to other sources of
borrowed funds. In this respect, liquidity is enhanced by a significant
amount of core demand and savings deposits from a broad customer base.
As a part of the Bank's asset and liability management and
liquidity needs, management actively evaluates its funding resource and
strategies to reduce and manage the vulnerability of its operation to
changes in interest rates.
When a Company's ability to reprice interest-bearing liabilities
exceeds its ability to reprice interest-earning assets within shorter time
periods, material and prolonged increases in interest rates generally
adversely affect net interest income, while material and prolonged decreases
in interest rates generally have the opposite effect.
A principal objective of the Company is to reduce and manage the
vulnerability of its operations to changes in interest rates by managing the
ratio of interest-rate sensitive assets to interest-rate sensitive
liabilities within specified maturities or repricing dates.
As of June 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 June 30, 1997, the Bank's ratio of rate-sensitive assets to
rate-sensitive liabilities at the one-year horizon was 76%, its one-year GAP
(measurement of interest sensitivity of interest-earning assets and
interest-bearing liabilities at a point in time) was 12% which is 88%
matched, and $86,559,000 in assets and $113,946,000 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:
June 30,
1997 1996
Net cash from operations $ 3,728,048 $ (699,859)
Net cash from investing activities $(21,386,914) $(10,463,658)
Net cash from financing activities $ 15,640,818 $ 3,375,738
Net increase (decrease) $ (2,018,048) $ (7,787,779)
BALANCE SHEET ANALYSIS
The Bank experienced an increase in loan demand during the first six
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:
16 of 17 <PAGE>
As of June30, Increase
1997 1996 (Decrease)
Total Assets $222,129,471 $193,243,751 $28,885,720
Total Earnings Assets $205,780,126 $177,613,592 $28,166,534
Loans $100,342,025 $ 93,545,831 $ 6,796,194
Assets Held For Sale $ 83,133,78 $ 78,394,817 $ 4,738,963
Deposits $163,045,349 $159,939,244 $ 3,106,105
Capital $ 24,443,892 $ 21,388,436 $ 3,055,456
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
$4,738,963 to $83,133,780 or 37.4% of total assets as of June 30, 1997, as
compared to 40.6% at June 30, 1996. The Bank continues its prefunding
strategy for its security portfolio during the second 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.
17 of 17 <PAGE>
LOANS
Loan demand continues to show signs of moderate growth during the
second quarter of 1997 and thus the Bank experienced an increase of
$6,796,194 or 7.3% at June 30, 1997, vs June 30, 1996.
.
It should be pointed out that the Bank has sold and serviced
$45,793,459 of real estate loans and $3,984,776 of commercial mortgages and
has over $3,734,329 of loans held for sale at June 30, 1997.
The section of management's discussion and analysis entitled
"Provision for Loan Losses" clearly indicates the quality of the loan
portfolio at June 30, 1997.
The Bank's loan-to-deposit ratio was 62.7% and the allowance for loan
losses 1.89% of total loans at June 30, 1997.
Managements approach to loan growth is to seek out and work with
borrowers whose financial condition, credit history, and performance would
warrant extensions of credit.
In brief, the Company's loan portfolio is driven by a desire to
maintain our credit standards while meeting the financial needs of qualified
borrowers in the community.
DEPOSITS
Total deposits increased $3,106,105, 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 5.27% of its deposit base.
18 of 17 <PAGE>
PART II
Item 1: N/A
Item 2: N/A
Item 3: N/A
Item 4: N/A
Item 5: N/A
Item 6: Exhibits, Financial Statement Schedules and Reports on Form 8-K.
A. Non-Applicable.
B. Reports on Form 8-K.
During the Registrant's fiscal Quarter Ended June 30, 1997, the
Registrant was not required to and did not file any reports on Form 8-K.
19 of 17 <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION BANKSHARES COMPANY
Peter A. Blyberg, President
August 8, 1997
Sally J. Hutchins, Vice President/Treasurer
20 of 17<PAGE>
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