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 March 31, 1998
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. EmployerIdentification 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 March 31, 1998
(Common stock, $12.50 Par Value) 482,791
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
Item l: Financial Statements
Condensed consolidated balance sheets - 3
March 31, 1998, March 31, 1997, December 31, 1997
Condensed consolidated statements of income - 4
three months ended March 31, 1998 and March 31, 1997
Condensed consolidated statements of cash flows - 5
three months ended March 31, 1998 and March 31, 1997
Consolidated Statement of Changes in
Shareholders' Equity 7
three months ended March 31, 1998 and 1997
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-16
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 17
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 March 31 December 31
1998 1997 1997
(Unaudited) (Unaudited) (Audited)*
ASSETS
Cash and due from banks $ 6,616,096 $ 6,431,468 $ 7,650,086
Assets held for sale 65,697,794 84,359,286 66,403,649
(MARKET VALUE AT 3/31/98)
Held to maturity securities at cost 34,058,449 10,299,224 32,799,686
Federal funds sold 5,153,147 145,060 2,251,105
Loans (net of unearned discount) 107,063,459 99,086,724 107,037,968
Less: Allowance for loan losses 2,263,448 2,109,739 2,212,740
Net Loans $104,800,011 $ 96,976,985 $104,825,228
Premises, furniture & equip net 2,858,486 2,932,713 2,842,151
Other assets 5,860,091 5,899,117 5,787,926
Total Assets $225,044,074 $207,043,853 $222,559,831
LIABILITIES
Deposits:
Demand $ 18,536,234 $ 16,212,534 $ 20,574,024
Savings 79,253,173 77,463,811 80,170,160
Time 75,961,951 71,955,435 76,641,681
Total Deposits 173,751,358 165,631,780 177,385,865
Borrowed Funds 19,831,205 14,035,028 14,964,225
Accrued Expenses & Other Liabilities 4,745,541 3,738,886 4,206,501
Total Liabilities $198,328,104 $183,405,694 $196,556,591
SHAREHOLDERS' EQUITY
Common Stock $ 6,069,300 $ 6,069,300 $ 6,069,300
Surplus 3,948,797 3,948,797 3,948,797
Retained Earnings 16,244,953 14,365,929 15,708,089
Net Unrealized Gain/(Loss) on
Securities Available for Sale 628,825 (615,795) 437,749
Less: Treasury Stock 175,905 130,072 160,695
Total Shareholders' Equity $ 26,715,970 $ 23,638,159 $ 26,003,240
Total Liabilities &
Shareholders' Equity $225,044,074 $207,043,853 $222,559,831
*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)
Three Months Ended - March 31,
1998 1997
INTEREST INCOME
Interest and Fees on Loans $2,477,350 $2,264,688
Interest and Fees on Municipal Loans and Bonds 157,894 120,611
Interest and Dividends on Securities 1,521,535 1,365,454
Interest on Federal Funds Sold 64,462 9,261
Amortization & Accretion - Net (35,542) 21,992
Total Interest Earned 4,185,699 3,782,006
INTEREST EXPENSE
Interest on Deposits 1,513,520 1,399,310
Interest on Funds Purchased/Borrowed 127,093 71,674
Total Interest Expense 1,640,613 1,470,984
NET INTEREST INCOME 2,545,086 2,311,022
Provision for Loan Losses 45,000 30,000
NET INTEREST INCOME AFTER LOAN PROVISION 2,500,086 2,281,022
NONINTEREST INCOME
Exchange, Commission & Fees 202,474 165,097
Trust Department 166,889 129,677
Financial Service Fees 18,699 18,072
Other Income 259,168 168,992
Net Securities Gains/(Losses) 5,150 2,400
Total Noninterest Income 652,380 484,238
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,032,993 962,590
Building Maintenance & Operations 140,889 120,244
FDIC Insurance 16,050 10,152
Other Expenses 820,814 769,745
Total Noninterest Expense 2,010,746 1,862,731
INCOME BEFORE TAXES 1,141,720 902,529
Income Taxes 365,000 260,000
NET INCOME $ 776,720 $ 642,529
Per Share Data:
Net Income $1.61 $1.33
Dividends Declared $ .50 $ .50
UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997
1998 1997
Net Cash Flows Provided by Operating Activities:
Net Income $ 776,720 $ 642,529
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 76,310 97,662
Provision for loan losses 45,000 30,000
Net securities gains 69,775 0
Net change in OREO 0 17,399
Net change in other assets (72,165) (369,985)
Net change in other liabilities 539,040 3,090,526
Net amortization of premium on investments 89,713 (21,666)
Net change in deferred loan origination fees 12,342 95,078
Origination of loans held for sale (6,617,963) (1,917,492)
Proceeds from loans held for sale 6,268,346 1,562,706
Total adjustments 410,398 2,584,228
Net cash provided by operating activities 1,187,118 3,226,757
Cash Flows From Investing Activities:
Purchase of investments (13,379,710) (12,758,251)
Proceeds from sales of investments 0 0
Proceeds from maturities of investments 13,277,783 2,841,213
Net change in loans to customers (32,126) 1,784,497
Capital expenditures (162,420) 191,256
Net cash used in investing activities (296,473) (7,941,285)
Cash Flows From Financing Activities:
Net increase/(decrease) in other Borrowed Funds 4,866,980 5,160,000
Net increase/(decrease) in deposits (3,634,507) (3,197,231)
Purchase of Treasury Stock (54,210) (77,000)
Proceeds from sale of Treasury Stock 39,000 7,350
Proceeds from issuance of Common Stock 0 (4,387)
Dividends paid (239,856) (199,856)
Net cash provided by financing activities 977,407 1,688,876
Net increase/(decrease) in cash and cash equivalents 1,868,052 (3,025,652)
Cash and cash equivalents at beginning of year 9,901,191 9,602,180
Cash and cash equivalents at 3/31/98 & 3/31/97 $11,769,243 $6,576,528
Supplemental Schedule of Non-Cash Investing and Financing Activities
1998 1997
Net increase as a result of adopting Statement
of Financial Accounting Standards No. 115
Available for sale securities 256,032 293,261
Deferred income/(expense) tax liability (64,956) 151,074
Net unrealized gain on available for sale securities $191,076 $444,335
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 1998 and 1997
ACCUMULATED
OTHER SHARE-
COMMON TREASURY RETAINED COMPREHENSIVE HOLDER'
STOCK SURPLUS STOCK EARNINGS INCOME EQUITY
Balance at December
31, 1996 $6,069,300 $3,948,797 $ (56,035) $13,923,256 $(171,460) $23,713,858
Net income, March
31, 1997 0 0 0 642,529 0 642,529
Change in net unrealized
gain (loss) on available
for sale securities, net of
tax of $151,074 0 0 0 0 (444,335) (444,335)
Total Comprehensive
Income 0 0 0 0 0 198,194
Sale of 35 shares
Treasury stock 0 0 7,350 0 0 7,350
Repurchase of 350 shares
Treasury stock 0 0 (81,387) 0 0 (81,387)
Cash dividends
declared 0 0 0 (199,856) 0 (199,856)
Balance at March
31, 1997 $6,069,300 $3,948,797 $(130,072) $14,365,929 $(615,795) $23,638,159
Net income, March
31, 1998 0 0 0 776,720 0 776,720
Change in net unrealized gain
(loss) on available for sale
securities, net of tax
of $64,956 0 0 0 0 191,076 191,076
Total Comprehensive
Income 0 0 0 0 0 967,796
Sale of 312 shares
Treasury stock 0 0 39,000 0 0 39,000
Repurchase of 360 shares
Treasury stock 0 0 (54,210) 0 0 (54,210)
Cash dividends
declared 0 0 0 (239,856) 0 (239,856)
Balance at March
31, 1998 $6,069,300 $3,948,797 $(175,905) $16,244,953 $628,825 $26,715,970
Notes to Consolidated Financial Statements
Unaudited
(A) Basis of Presentation
The accompanying consolidated financial statements of Union Bankshares
Company and its subsidiary (Union Trust Company) for the three month
period ended March 31, 1998 and 1997 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, 1997.
(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 March 31, 1998 were
485,544 and have been restated for 1997, 1996 and 1995 to reflect the July
1997 20% stock dividend and 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 March 31, 1998, and March 31, 1997,
the following financial instruments, whose contract amounts represent
credit risk, were outstanding.
March 31
(000's omitted)
1998 1997
1. Unused Commitments:
A. Revolving, open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines 6,525 5,976
B. Credit card lines 6,261 5,987
C. Secured real estate loans 3,995 1,747
D. Other 15,840 14,130
2. Financial Standby Letters of Credit: 109 61
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 of the State of Maine.
(E) General
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.
(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 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.
(G) Recent Accounting Developments
The Financial Accounting Standards Board issued the following Statements
of Financial Accounting Standards during 1997:
SFAS No. 130 Reporting Comprehensive Income
SFAS No. 131 Disclosures about Segments of an Enterprise and
Related Information
These two statements do not change the measurement or recognition methods
used in the financial statements but rather deal with disclosure and
presentation requirements.
SFAS No. 130 and No. 131 are effective for periods beginning after
December 15, 1997. The financial statements include unrealized gains and
losses on available for sale securities as the only item reported as other
comprehensive income under SFAS No. 130. SFAS No. 131 has no effect on
disclosure requirements as the Company has no reportable segments.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures about Pensions and Other Post Retirement Benefits" effective
for financial statements for the fiscal year beginning after December 15,
1997. SFAS No. 132, which supersedes the benefit disclosure requirements
in FASB Statements No's 87, 88 and 106, requires entities to standardize
the disclosure requirements for pension and other post retirement benefits
to the extent practicable, requires additional information on changes in
the benefit obligations and fair value of plan assets that will facilitate
financial analysis. The Company expects no material impact from adopting
SFAS No. 132.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net income increased $134,191or 20.9% for the first three months of 1998
versus the same period in 1997. The following table summarizes the status
of the bank's earnings per share:
March 31,
1998 1997
Earnings Per Share 1.61 1.33
Return on Average Shareholders Equity 3.14%A 2.76%B
Return on Average Assets 0.36%A 0.32%B
Return on Average Earning Assets 0.38%A 0.34%B
A=annualized returns are: 12.56%, 1.44%, and 1.52%, respectively.
B=annualized returns are: 11.04%, 1.28%, and 1.36%, respectively.
The healthy increase in net income for the first quarter of 1998 versus
the same period in 1997 results primarily from an increase in net interest
income and noninterest income.
Despite narrowing margins, net interest income was up some $234,000 or
10.0% from the same period last year, due to increased loan and investment
volumes.
The increase in noninterest income results primarily from improvements in
virtually all fee income categories, in particular, in bankcard fees,
trust fees, loan and bank fees.
Noninterest expenses, consisting primarily of employee compensation and
benefits, occupancy and equipment expense and other general operating
expenses increased some $148,000 from the same period in 1997 due to
increased staffing and the expenses related to upgrading equipment and
facilities.
During 1998, the Company will implement specific strategic priorities that
will focus on increasing fee based revenues and controlling overall
expense. With the ever changing environment of interest rate risk, fee
income has developed into a significant component in the Bank's total
revenue generation goals. While revenue generation is a top priority, the
Company will also focus on productivity and maximizing the returns of its
financial and human resources.
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 increasingly important to
ensure the continued profitability of the Bank. Interest rate risk
results from volatile interest rates, increased competition, and changes
in the regulatory environment. As a banking company, our exposure to
interest rate movements is controlled by matching the interest rates as
well as the maturities of assets and liabilities.
Net interest income for the first quarter of 1998 was $2,545,086, up
$234,064 or 10.1% over the same period in 1997.
The following table illustrates the bank's net interest spread position:
Three Months Ended March 31,
1998 1997
Yield on Earning Assets 8.09% 8.16%
Cost of all Funds 3.17% 3.05%
Net Interest Spread 4.91% 5.10%
The Bank continues to monitor short and long-term interest rates, balance
sheet volumes and maturities in order to evaluate the potential impact on
its net interest spreads and capital.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased $15,000 to $45,000 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 March 31, 1998 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)
Three Months Ended
March 31,
1998 1997
1. Nonaccrual Loans 679 818
2. Loans past due 90 days & accruing 174 205
3. Restructured loans 0 0
4. Other real estate owned (including
insubstance foreclosure) 376 521
5. Total nonperforming assets 1,229 1,544
6. Ratio of total nonperforming loans to capital and the
allowance for loan losses (Texas ratio) 3.00 4.04
7. Ratio of net chargeoffs to loans .0006 .00004
8. Ratio of allowance for loan losses to loans 2.11 2.13
9. Coverage ratio (allowance for loan losses divided by
nonperforming assets) 184.13 136.64
10. Ratio of nonperforming assets to total assets .55 .75
11. Ratio of nonperforming loans to total loans .80 .53
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
$165,392 or 34.3% during the first quarter of 1998 versus 1997.
This increase is primarily due to an increase in loan department income of
$43,177 or 63.57%, credit card income of $10,857 or 11.16% and trust
income of $37,212 or 28.70%.
Net security gains amounted to $5,150 and $2,400 for the three months
ended March 31, 1998 and 1997, respectively.
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.
Noninterest expenses increased $148,015 or 7.95% for the first quarter of
1998 versus the first quarter of 1997. The increase was primarily
attributable to increased staffing and the expenses related to upgrading
equipment and facilities.
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.
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.
The status of the Bank's income tax expense is as follows:
Tax Expense Effective Rate
1998 1997 1998 1997
Three Months Ended March 31, $365,000 $260,000 32.0% 28.8%
INTEREST RATE GAP ANALYSIS
Attention should be directed to the interest rate gap analysis as of
December 31, 1997 as provided on page 14 in the Bank's 1997 Annual Report.
Data as of March 31, 1998 is essentially identical to that reported in the
Annual Report.
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
Shareholders' Equity was as follows for the following periods:
SHAREHOLDERS' EQUITY
Amount Book Value
Per Share
March 31, 1998 $26,715,970 $55.34
March 31, 1997 $23,638,159 $48.96
December 31, 1997 $26,003,240 $53.85
The Federal Reserve Board 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 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.
At March 31, 1998, the Company had met the minimum capital ratios. In
fact, the Bank's strong capital position at March 31, 1998 exceeded the
minimums established by the Federal Reserve Board as follows:
Minimum Regulatory
March 31, 1998 Requirements
Tier 1 Capital Ratio 22.6 4.0%
Total Capital Ratio 23.9 8.0%
Leverage Ratio 11.7
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 first
quarter of 1998 and $.50 for the first quarter of 1997, adjusted for a
July 1997 20% stock dividend and two for one stock split.
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 was held on July 30, 1997 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 March 31, 1998, 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 March 31, 1998, the Bank's ratio of rate sensitive assets to rate
sensitive liabilities at the one year horizon was 101%, its one year GAP
(measurement of interest sensitivity of interest earning assets and
interest bearing liabilities at a point in time) was 4% or 104% matched,
and $123,516,000 in assets and $124,561,000 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:
March 31,
1998 1997
Net cash from operations $ 1,187,118 $ 3,226,757
Net cash from investing activities $ (296,473) $ (7,941,285)
Net cash from financing activities $ 977,407 $ 1,688,876
Net increase (decrease) $ 1,868,052 $ (3,025,652)
BALANCE SHEET ANALYSIS
The Bank experienced an increase in loan demand during the first three
months of 1998; 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 March 31, Increase
1998 1997 (Decrease)
Total Assets $225,044,074 $207,043,853 $ 18,000,221
Total Earnings Assets $209,709,401 $191,780,525 $ 17,928,876
Loans $107,063,459 $ 99,086,724 $ 7,976,735
Assets AFS at Market $ 70,850,941 $ 84,504,346 $(13,653,405)
Assets Held to Maturity $ 34,058,449 $ 10,299,224 $ 23,759,225
Deposits $173,751,358 $165,631,780 $ 8,119,578
Capital $ 26,715,970 $ 23,638,159 $ 3,077,811
SECURITIES PORTFOLIO
The objective of the securities portfolio is to provide for a stable
earnings base and the investment of excess liquidity. The securities
portfolio increased $10,105,820 to $104,909,390 or 46.62% of total assets
as of March 31, 1998, as compared to 45.79% at March 31, 1997. The Bank
continues its prefunding strategy for its security portfolio during the
first quarter of 1998 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 first
quarter of 1998 and thus the Bank experienced an increase of $7,976,735 or
8.1% at March 31, 1998 versus March 31, 1997.
It should be pointed out that the Bank has sold and serviced $49,099,247
of real estate loans and $3,483,771 of commercial mortgages and has over
$3,487,835 of loans held for sale at March 31, 1998.
The section of management's discussion and analysis entitled "Provision
for Loan Losses" clearly indicates the quality of the loan portfolio at
March 31, 1998.
The Bank's loan to deposit ratio was 61.6% and the allowance for loan
losses 2.1% of total loans at March 31, 1998.
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 $8,119,578, or 4.9% over the comparable period in
1997, 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 5.81% of its deposit base.
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 and Reports on Form 8-K
A. Non-Applicable
B. Reports on Form 8-K
During the Registrant's fiscal quarter ended March 31, 1998, 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
May 12, 1998
Sally J. Hutchins, Vice President /Treasurer
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