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, 1999
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 March 31, 1999
(Common stock, $12.50 Par Value) 482,350
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, 1999, March 31, 1998, December 31, 1998
Condensed consolidated statements of income - 4
three months ended March 31, 1999 and March 31, 1998
Condensed consolidated statements of cash flows - 5
three months ended March 31, 1999 and March 31, 1998
Consolidated Statement of Changes in Shareholders' Equity 7
three months ended March 31, 1999 and 1998
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-17
PART II Other Information
Item 1: Legal Proceedings 17
Item 2: Changes in Securities 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of Security Holders 17
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 18
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 March 31 December 31
1999 1998 1998
(Unaudited) (Unaudited) (Audited)*
ASSETS
Cash and due from banks $ 6,289,823 $ 6,616,096 $ 7,845,223
Assets held for sale 111,742,380 65,197,395 113,066,150
(MARKET VALUE AT 3/31/99)
Held to maturity securities at cost 4,372,358 34,058,449 4,375,981
Federal funds sold 26,280 5,153,147 9,268,135
Loans (net of unearned discount) 115,732,618 107,063,459 110,422,431
Less: Allowance for loan losses 2,472,065 2,263,448 2,434,636
Net Loans $113,260,553 $104,800,011 $107,987,795
Premises, furniture & equip net 2,623,394 2,858,486 2,653,775
Other assets 5,771,969 5,860,091 5,997,746
Total Assets $244,086,757 $224,543,675 $251,194,805
LIABILITIES
Deposits:
Demand $ 19,111,107 $ 18,536,234 $ 22,823,763
Savings 82,767,656 79,253,173 85,547,715
Time 77,823,702 75,961,951 79,657,538
Total Deposits 179,702,465 173,751,358 188,029,016
Borrowed Funds 22,706,250 15,323,250 20,451,250
Sweep Repurchase 7,534,466 4,507,955 8,965,977
Accrued Expenses &
Other Liabilities 5,152,092 4,836,541 5,008,844
Total Liabilities $215,095,273 $198,419,104 $222,455,087
SHAREHOLDERS' EQUITY
Common Stock $ 6,069,300 $ 6,069,300 $ 6,069,300
Surplus 3,963,432 3,948,797 3,963,432
Retained Earnings 18,637,257 15,653,554 17,833,973
Net Unrealized Gain/(Loss) on
Securities Available for Sale 551,494 628,825 1,162,032
Less: Treasury Stock 229,999 175,905 289,019
Total Shareholders' Equity $ 28,991,484 $ 26,124,571 $ 28,739,718
Total Liabilities &
Shareholders' Equity $244,086,757 $224,543,675 $251,194,805
*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,
1999 1998
INTEREST INCOME
Interest and Fees on Loans $2,397,601 $2,477,350
Interest and Fees on Municipal Loans and Bonds 225,067 157,894
Interest and Dividends on Securities 1,587,446 1,521,535
Interest on Federal Funds Sold 87,135 64,462
Amortization & Accretion - Net (35,626) (35,542)
Total Interest Earned 4,261,623 4,185,699
INTEREST EXPENSE
Interest on Deposits 1,408,382 1,513,520
Interest on Funds Purchased/Borrowed 340,999 218,093
Total Interest Expense 1,749,381 1,731,613
NET INTEREST INCOME 2,512,242 2,454,086
Provision for Loan Losses 65,000 45,000
NET INTEREST INCOME AFTER LOAN PROVISION 2,447,242 2,409,086
NONINTEREST INCOME
Exchange, Commission & Fees 237,549 202,474
Trust Department 215,996 166,889
Financial Service Fees 17,992 18,699
Other Income 328,954 259,168
Gain on Sale of Other Real Estate Owned 153,984 0
Net Securities Gains/(Losses) 101,988 5,150
Total Noninterest Income 1,056,463 652,380
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,059,274 1,032,993
Building Maintenance & Operations 143,205 140,889
FDIC Insurance 10,954 16,050
Other Expenses 775,476 820,814
Total Noninterest Expense 1,988,909 2,010,746
INCOME BEFORE TAXES 1,514,796 1,050,720
Income Taxes 470,355 365,000
NET INCOME $1,044,441 $ 685,720
Per Share Data:
Net Income $2.15 $1.41
Dividends Declared $ .50 $ .50
UNION BANKSHARES COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1999 and 1998
1999 1998
Net Cash Flows Provided by Operating Activities:
Net Income $ 1,044,441 $ 776,720
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 114,906 76,310
Provision for loan losses 65,000 45,000
Net securities gains 103,855 69,775
Net change in other assets 252,844 (72,165)
Net change in other liabilities (1,288,263) 539,040
Net amortization of premium on investments (115,383) 89,713
Net change in deferred loan origination fees 5,340 12,342
Origination of loans held for sale (5,761,775) (6,617,963)
Proceeds from loans held for sale 8,133,261 6,268,346
Total adjustments 1,509,785 410,398
Net cash provided by operating activities 2,554,226 1,187,118
Cash Flows From Investing Activities:
Purchase of investments (22,277,459) (13,379,710)
Proceeds from sales of investments 13,444,543 0
Proceeds from maturities of investments 7,189,813 13,277,783
Net change in loans to customers (5,343,098) (32,126)
Capital expenditures (111,592) (162,420)
Net cash used in investing activities (7,097,793) (296,473)
Cash Flows From Financing Activities:
Net increase/(decrease) in other
Borrowed Funds 2,255,000 4,866,980
Net increase/(decrease) in deposits (8,326,551) (3,634,507)
Purchase of Treasury Stock 0 (54,210)
Proceeds from sale of Treasury Stock 59,020 39,000
Dividends paid (241,157) (239,856)
Net cash provided by financing activities (6,253,688) 977,407
Net increase/(decrease) in cash
and cash equivalents (10,797,255) 1,868,052
Cash and cash equivalents at beginning of year 17,113,358 9,901,191
Cash and cash equivalents at 3/31/99 & 3/31/98 $ 6,316,103 $11,769,243
Supplemental Schedule of Non-Cash Investing and Financing Activities
1999 1998
Net increase as a result of adopting Statement
of Financial Accounting Standards No. 115
Available for sale securities 924,538 256,032
Deferred income/(expense) tax liability 314,000 (64,956)
Net unrealized gain on available for sale securities $610,538 $191,076
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 1999 and 1998
ACCUMULATED
OTHER SHARE-
COMMON TREASURY RETAINED COMPREHENSIVE HOLDER'S
STOCK SURPLUS STOCK EARNINGS INCOME EQUITY
Balance at December
31, 1997 $6,069,300 $3,948,797 $(160,695) $15,708,089 $437,749 $26,003,240
Net income, March
31, 1998 0 0 0 185,321 0 185,321
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) $15,653,554 $628,825 $26,124,571
Balance at December
31, 1998 $6,069,300 $3,963,432 $(289,019) $17,833,973 $1,162,032 $28,739,718
Net income, March
31, 1999 0 0 0 1,044,441 0 1,044,441
Change in net unrealized gain
(loss) on available for sale
securities, net of tax
of $314,000 0 0 0 0 (610,538) (610,538)
Total Comprehensive
Income 0 0 0 0 0 334,158
Sale of 454 shares
Treasury stock 0 0 59,020 0 0 59,020
Cash dividends
declared 0 0 0 (241,157) 0 (241,157)
Balance at March
31, 1998 $6,069,300 $3,963,432 $(229,999) $18,637,257 $ 551,494 $28,991,484
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, 1999 and 1998 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, 1998.
(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, 1999 were
485,544.
(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, 1999, and March 31, 1998,
the following financial instruments, whose contract amounts represent
credit risk, were outstanding.
March 31
(000's omitted)
1999 1998
1. Unused Commitments:
A. Revolving, open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines 6,395 6,525
B. Credit card lines 6,034 6,261
C. Secured real estate loans 3,949 3,995
D. Other 19,744 15,840
2. Financial Standby Letters of Credit: 155 109
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 1998:
SFAS No. 132 Employer's Disclosure about Pension and Other Post-
Retirement Benefits
SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities
SFAS No. 132, which revises employers' disclosures about pension and other
post-retirement benefits, is effective for years beginning after December
31, 1997. The Company implemented SFAS No. 132 in 1998. The required
disclosures have been made in the Company's consolidated financial
statements.
SFAS No. 133, which establishes accounting and reporting standards for
derivative instruments and for hedging activity, is effective for fiscal
years beginning after June 15, 1999. The Company adopted SFAS No. 133
effective July 1, 1998. During the three-year period ended December 31,
1998, the Company did not hold any derivative instruments, and management
does not expect to enter into derivative transactions in the near future.
The effect of adopting SFAS No. 133 on the consolidated financial
statements of the Company is limited to the transfer of securities from
held to maturity to available for sale.
(H) Year 2000 Readiness
It has been widely publicized that many computer software applications and
hardware will not operate past the year 2000 without modifications. This
problem results from the fact that some computer systems store dates in
two-digit format (i.e., 98) instead of four-digit format (1998). On
January 1, 2000, it is possible that some systems with time sensitive
software programs will recognize the year as "00" and may incorrectly
interpret the year as "1900."
Union Trust, recognizing the importance of this issue, has been working on
this problem for some time. The Company adopted a plan of action in 1997
to minimize the risks to the Company's operations posed by the Year 2000
event. The plan included the formation of a Technology Steering Committee
to assess, monitor and review vendor compliance and certification. The
committee's charter also called for it to identify clearly all systems and
equipment used in the day to day operations of the Company that might be
affected and to oversee the remediation of any date recognition problems
thus identified.
During 1998, guided by the stringent requirements of federal and state
banking regulators and a comprehensive plan of action developed by the
Technology Steering Committee, the Company completed the assessment phase,
identified mission critical systems, tested all those internal systems and
worked on contingency plans. It has also taken steps to verify that all
third party vendors, suppliers and other related business parties are
adequately prepared for the year 2000. Primarily for operational reasons,
Union Trust replaced its mainframe operating system in 1995. The system
vendor has certified to the Company that the system is Year 2000
compliant, and the Company has completed the validation of the system's
readiness. Union Trust is currently on track with the Federal Financial
Institutions Examination Council's (FFIEC) required time frames for
compliance, and the Company's efforts have been examined by the bank
regulators. The Company has also embarked upon an awareness program to
educate its employees and customers regarding Year 2000 issues. During
1998, the Company participated in several seminars to educate the public
about this issue. The Company also hosted discussion groups with area
professionals to review potential areas of concern. This program will be
expanded during 1999 to include more customer communications and public
seminars.
The Company has estimated that the total costs directly relating to fixing
Year 2000 issues, such as hardware purchases, software modification and
system testing, will not have a material effect on the performance of the
Company. The Company estimates that the total costs for evaluation,
remediation and testing could amount to as much as $100,000, of which
$25,000 was expensed in 1998. In addition, it is estimated that
approximately 2,500 employee-hours were utilized during 1998 for related
activities, which are not reflected in the above figures.
The Company's most reasonable, likely, worst case Year 2000 scenarios may
include the failure of a vendor or third party provider - which is beyond
the Company's control. In the event a failure occurs, the Company will
implement manual contingency systems without serious impact on the
Company's financial condition. The Company has created contingency plans
for all mission critical functions. These plans will be tested in 1999
based on the latest FFIEC guidelines.
Management believes the Company is adequately addressing the Year 2000
issue and that the current preparations and testing being conducted
throughout the organization seek to minimize any potential adverse effects
on the Company or its customers.
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Earnings and Performance Overview
Net income increased $358,721 or 52.3% for the first three months of 1999
versus the same period in 1998. The following table summarizes the status
of the bank's earnings per share:
March 31,
1999 1998
Earnings Per Share 2.15 1.41
Return on Average Shareholders Equity 3.79%A 2.76%B
Return on Average Assets 0.45%A 0.32%B
Return on Average Earning Assets 0.48%A 0.34%B
A=annualized returns are: 15.16%, 1.80%, and 1.92%, respectively.
B=annualized returns are: 11.04%, 1.28%, and 1.36%, respectively.
The healthy increase in net income for the first quarter of 1999 versus
the same period in 1998 results primarily from an increase in net interest
income and noninterest income, which includes a one time gain on the sale
of bank owned property.
As a result of narrowing margins, net interest income was up only $58,156
or 2.4% from the same period last year, primarily 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. There was also a one time entry which was
a gain on the sale of other real estate owned.
Noninterest expenses, consisting primarily of employee compensation and
benefits, occupancy and equipment expense and other general operating
expenses decreased $24,923 from the same period in 1998 due to cost
control efforts.
During 1999, 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 and exploring new fee generation
opportunities.
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 log the national trend, 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 1999 was $2,512,242, up
$58,156 or 2.4% over the same period in 1998.
The following table illustrates the bank's net interest spread position:
Three Months Ended March 31,
1999 1998
Yield on Earning Assets 7.65% 8.09%
Cost of all Funds 2.93% 3.17%
Net Interest Spread 4.72% 4.91%
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 $20,000 to $65,000 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, 1999 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.
During May 1998, the Bank implemented a Loan Review Program whereas an
independent loan review service conducted a review of the commercial loan
portfolio. The review included updates to comments on all criticized and
classified assets over $100,000, all loans delinquent over 30 days and
over $100,000, non accruals over $100,000, new (closed) and renewed loans
over $100,000 as well as the adequacy of the loan loss reserve.
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,
1999 1998
1. Nonaccrual Loans 635 679
2. Loans past due 90 days & accruing 73 174
3. Restructured loans 0 0
4. Other real estate owned (including
insubstance foreclosure) 0 376
5. Total nonperforming assets 708 1,229
6. Ratio of total nonperforming loans to capital
and the allowance for loan losses (Texas ratio) 2.30 3.00
7. Ratio of net chargeoffs to loans .0002 .0006
8. Ratio of allowance for loan losses to loans 2.14 2.11
9. Coverage ratio (allowance for loan losses
divided by nonperforming assets) 349.15 184.13
10. Ratio of nonperforming assets to total assets .29 .55
11. Ratio of nonperforming loans to total loans .61 .80
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
$307,245 or 47.5% during the first quarter of 1999 versus 1998.
This increase is primarily due to an increase in loan department income of
$43,392 or 39.1%, credit card income of $7,031 or 6.5% and trust income of
$49,107 or 29.4%. There was also a one time entry of $153,984 which was a
gain on the sale of other real estate owned.
Net security gains amounted to $101,988 and $5,150 for the three months
ended March 31, 1999 and 1998, 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 decreased $24,923 or 1.24% for the first quarter of
1999 versus the first quarter of 1998. The decrease was primarily
attributable to efforts to control expenses.
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
1999 1998 1999 1998
Three Months Ended March 31, $470,355 $365,000 31.1% 32.0%
INTEREST RATE GAP ANALYSIS
Attention should be directed to the interest rate gap analysis as of
December 31, 1998 as provided on page 12 in the Bank's 1998 Annual Report.
Data as of March 31, 1999 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, 1999 $28,991,484 $58.96
March 31, 1998 $26,124,571 $54.16
December 31, 1998 $28,739,718 $59.58
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 3% 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, 1999, the Company had met the minimum capital ratios. In
fact, the Bank's strong capital position at March 31, 1999 exceeded the
minimums established by the Federal Reserve Board as follows:
Minimum Regulatory
March 31, 1999 Requirements
Leverage Ratio 11.4 3.0%
Risk Based Ratio 22.5 8.0%
Tier 1 Capital Ratio 21.2
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 1999 and $.50 for the first quarter of 1998, 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, 1999, Union Trust Company is asset sensitive. The Bank
becomes liability sensitive between 37 and 60 month horizons. Bank
earnings may be negatively affected, should interest rates fall.
As of March 31, 1999, the Bank's ratio of rate sensitive assets to rate
sensitive liabilities at the one year horizon was 97%, its one year GAP
(measurement of interest sensitivity of interest earning assets and
interest bearing liabilities at a point in time) was 1% or 99% matched,
and $99,843,000 in assets and $102,346,000 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,
1999 1998
Net cash from operations $ 2,554,226 $ 1,187,118
Net cash from investing activities $ (7,097,793) $ (296,473)
Net cash from financing activities $ (6,253,688) $ 977,407
Net increase (decrease) $ (10,797,255) $ 1,868,052
BALANCE SHEET ANALYSIS
The Bank experienced an increase in loan demand during the first three
months of 1999; 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
1999 1998 (Decrease)
Total Assets $244,086,757 $224,543,675 $ 19,543,082
Total Earnings Assets $229,401,571 $209,209,002 $ 20,192,569
Loans $115,732,618 $107,063,459 $ 8,669,159
Assets AFS at Market $111,742,380 $ 65,197,395 $ 46,544,985
Assets Held to Maturity $ 4,372,358 $ 34,058,449 $(29,686,091)
Deposits $179,702,465 $173,751,358 $ 5,951,107
Capital $ 28,991,484 $ 26,124,571 $ 2,866,913
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 $16,857,894 to $116,114,738 or 47.57% of total assets
as of March 31, 1999, as compared to 46.62% at March 31, 1998.
Upon adoption of FAS 133 in July 1998, $21,270,958 in Mortgage Backed
Securities and $7,231,736 in State and Municipal Bonds were reclassified
from Held to Maturity to Available for Sale.
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 1999 and thus the Bank experienced an increase of $8,669,159 or
8.1% at March 31, 1999 versus March 31, 1998.
It should be pointed out that the Bank has sold and serviced $58,764,949
of real estate loans and $2,324,434 of commercial mortgages and has over
$3,766,470 of loans held for sale at March 31, 1999.
The section of management's discussion and analysis entitled "Provision
for Loan Losses" clearly indicates the quality of the loan portfolio at
March 31, 1999.
The Bank's loan to deposit ratio was 64.4% and the allowance for loan
losses 2.1% of total loans at March 31, 1999.
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 $5,951,107, or 3.4% over the comparable period in
1998, 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 5.57% 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, 1999, 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 6, 1999
Sally J. Hutchins, Vice President /Treasurer
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