1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 0-12958
UNION BANKSHARES COMPANY
(Exact name of registrant as specified in its charter)
MAINE 01-0395131
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation of organization)
66 Main Street, Ellsworth, Maine 04605
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (207) 667-2504
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock $12.50 Par Value
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES XXX
NO _______
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ( 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 4, 2000, was approximately $56,587,356.
577,848 shares of the Company's Common Stock, $12.50 par value, were
issued and outstanding on February 15, 2000.
UNION BANKSHARES COMPANY
INDEX TO FORM 10-K
PART I Page No.
Item 1: Business 3-13
Item 2: Properties 13-14
Item 3: Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 15
Item 6: Selected Financial Data 16
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 7A: Quantitative and Qualitative Disclosures About Market Risk 16-18
Item 8: Financial Statements and Supplementary Data 18
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 18
PART III
Item 10: Directors and Executive Officers of the Registrant 18-22
Item 11: Executive Compensation 22-24
Item 12: Security Ownership of Certain Beneficial Owners and Management 24
Item 13: Certain Relationship and Related Transactions 24
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K 24-26
Signatures 27
PART I
ITEM I: Business
Union Bankshares Company is a one-bank holding company, organized under
the laws of the State of Maine. The Company's only subsidiary is Union
Trust Company, wholly owned and established in 1887. Union Bankshares'
holding company structure can be used to engage in permitted banking-
related activities, either directly, through newly formed subsidiaries,
or by acquiring companies already established in those activities.
Union Trust is a full-service, independent, community bank that is
locally owned and operated. Through its eleven offices, Union Trust
serves the financial needs of individuals, businesses, municipalities and
nonprofit organizations in eastern Maine. Union Trust offers a wide
variety of financial services with competitive interest rates, a helpful,
friendly staff, and quick, local decision-making to meet the needs of the
communities it serves. As a complement to the services offered by the
Bank, the Trust and Investment Services Department provides a broad range
of investment options to help meet the needs of our customers. Trust and
Investment Services has served generations of Maine families with estate
planning, investment management and custody, and retirement planning and
employee benefit services.
As a market driven sales and service organization, Union Trust is focused
on the needs of its customers. Our employees are listening to customers'
needs, suggesting solutions, answering their questions and making it easy
for them to purchase and use our services. It is through our team of
dedicated and knowledgeable employees that outstanding customer service
is delivered. That is why Union Trust continues to hire quality
individuals, invest in their continuing education and training, and
reward them for the significant contribution they make to the overall
success of the organization.
There is no better example of this than in our Trust and Investment
Services department. Because of their commitment to personalized service
and professional knowledge, they continue to experience over 20% growth
in revenue and assets under management from 1998 to 1999. To support
this growth, five additional staff members were added during 1999. Two
others received advanced degrees/professional designations in their areas
of expertise.
Another example of excellent customer service is that delivered by our
Relationship Managers to loan customers. Again and again, customers are
saying how extremely satisfied they are with the service they receive
from Union Trust and would recommend Union Trust to a friend or family
member. A "Mortgage Think Tank" was formed during 1999 to focus this
market segment. Their task is to discover new ways to better serve these
customers. Many of their ideas were implemented in 1999 with positive
results.
Technology continues to allow us to conduct business in new ways, never
before possible. Access channels have evolved from the branches to
ATM's, Customer Service Call Center, BankLiner telephone banking,
BankLinePCr computer banking and new for 1999, NetBankingr on the
Internet. To provide customer support for NetBankingr and future
technological initiatives, the call center staff was increased by 100%
this year. The latest in telephone technology was installed, with all
calls to the Bank now being answered through the call center to
facilitate customer service.
More than anything else, the Y2K challenge, which is now successfully
behind us, proved the strength of Union Trust and the teamwork that
exists among its employees. It also served as a testing ground of
technology as a whole, helping to instill public confidence and enhancing
the public's acceptance of this new delivery channel. This gives Union
Trust the "green light" for continued investment in the latest financial
services technology.
As customer service expectations increase, Union Trust will continue to
anticipate customers' needs and pursue the appropriate strategic
initiatives. Union Trust's service to its customers goes beyond the
walls of the Bank, out into the community. During 1999, our employees
and directors contributed over 9,000 hours of volunteer time to over 115
organizations.
The Bank competes actively with other commercial banks and other
financial institutions in its service areas. In the Bank's immediate
market area, there are two other independent community banks, one savings
and loan association, three savings bank branch offices and three
commercial banks owned outside of the state of Maine. Strong competition
exists among commercial banks in efforts to obtain new deposits, in the
scope and type of services offered, in interest rates on time deposits
and interest rates charged on loans, and in other aspects of banking. In
Maine, savings banks are major competitors of commercial banks as a
result of broadened powers granted to savings banks. In addition, the
Bank like other commercial banks, encounters substantial competition from
other financial institutions engaged in the business of either making
loans or accepting deposit accounts, such as savings and loan
associations, credit unions, insurance companies, certain mutual funds,
and certain governmental agencies. Furthermore, the large banks located
in Boston, New York and Providence are active in servicing some of the
large Maine based companies.
As of December 31, 1999, the Bank employed 127 employees of which 13
employees were part time. They are not compensated by the Company for
their service and there are no employees of the Company.
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.
Please refer to Footnote #15 on pages 32 and 33 of the 1999 Annual Report
of Union Bankshares Company, regarding compliance with capital
requirements.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that were not disclosed under Item III of
Industry Guide 3 do not (1) represent or result from trends or
uncertainties which management reasonably expects will materially impact
future operating results, liquidity, or capital resources or (2)
represent material credits about which management is aware of any
information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
The Company and Bank are not aware of any current recommendations by the
regulatory authorities which if they were to be implemented would have or
would be reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations.
Loans, other than credit card loans, are placed on non accrual status
when, in the opinion of management, there are doubts as to the
collectibility of interest or principal, or when principal or interest is
past due 90 days or more, and the loan is not well secured and in the
process of collection. Interest previously accrued but not collected is
reversed and charged against interest income at the time the related loan
is placed on non-accrual status. Principal and accrued interest on
credit card loans are charged to the allowance for credit losses when 180
days past due.
Payments received on non-accrual loans are recorded as reductions of
principal if principal payment is doubtful.
Loans are considered to be restructured when the yield on the
restructured assets is reduced below the current market rates by an
agreement with the borrower. Generally this occurs when the cash flow of
the borrower is insufficient to service the loan under its original
terms.
In the Bank's market area, the banking business is somewhat seasonal due
to an influx of tourists and seasonal residents returning to the area
each spring and summer. As a result, the Bank has an annual deposit
swing, from a high point in mid October to a low point in June. The
deposit swing is predictable and does not have a material adverse effect
on the Bank and its operations.
STATISTICAL PRESENTATION
The Supplemental Financial Data presented on the following pages contains
information to facilitate analysis and comparison of sources of income
and exposure to risk.
A. AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
The following table sets forth the information related to changes in net
interest income. For purposes of the table and the following discussion,
information is presented regarding (1) the total dollar amount of
interest income of the Company from interest earning assets and the
resulting average yields; (2) the total dollar amount of interest expense
on interest bearing liabilities and the resulting average cost; (3) net
interest income; (4) interest rate spread; and (5) net interest margin.
Information is based on average daily balances during the indicated
periods. For the purposes of the table and the following discussion, (1)
income from interest earning assets and net interest income are presented
on a tax equivalent basis and (2) non accrual loans have been included in
the appropriate average balance loan category, but unpaid interest on non
accrual loans has not been included for purposes of determining interest
income.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(In Thousands)
(On a Tax Equivalent Basis)
1999 1998 1997
Avg Int Yield/ Avg Int Yield/ Avg Int Yield/
Bal Earn/Pd Rate Bal EarnPd Rate Bal Earn/Pd Rate
Assets
Interest Earning Assets:
Securities available
for sale $105,663 $ 6,913 6.54 $ 77,517 $ 5,278 6.81 $ 72,741 $ 5,182 7.12
Securities held
to maturity 4,311 333 7.72 23,968 1,510 6.30 22,689 1,437 6.33
Federal funds
sold 5,705 294 5.15 6,384 326 5.11 598 41 6.86
Loans (net) 115,825 10,237 8.83 108,057 10,241 9.47 100,208 9,660 9.64
Total interest earning
assets 231,504 $17,777 7.68 215,926 $17,355 8.04 196,236 $16,320 8.32
Other nonearning
assets 20,069 19,699 18,878
$251,573 $235,625 $215,114
Liabilities
Interest Bearing Liabilities:
Savings
deposits $ 67,766 $ 1,082 1.60 $ 69,656 $ 1,131 1.62 $ 65,432 $ 1,119 1.71
Time deposits 77,139 3,784 4.91 77,545 4,223 5.44 73,419 4,298 5.85
Money market
accounts 21,262 728 3.42 11,765 560 4.76 12,271 482 3.93
Borrowings 20,969 1,502 7.16 18,077 1,260 6.97 14,007 835 5.96
Total interest bearing
liabilities 187,136 $ 7,096 3.79 177,043 $ 7,174 4.05 165,129 $ 6,734 4.08
Other noninterest bearing
liabilities & shareholders'
equity 64,437 58,582 49,985
$251,573 $235,625 $215,114
Net interest income $10,681 $10,181 $ 9,586
Net interest rate spread 3.89 3.99 4.24
Net interest margin 4.61 4.72 4.88
The following table presents certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest earning assets and interest
bearing liabilities, information is provided with respect to changes
attributable to (1) changes in rate (change in rate multiplied by old
volume), (2) changes in volume (change in volume multiplied by old
rate), and (3) changes in rate/volume (change in rate multiplied by
change in volume).
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
For the years ended December 31, 1999, 1998 and 1997
(In Thousands)
Year Ended December 31, 1999 vs. 1998
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $1,918 $(1,787) $1,465 $1,596
Securities held to maturity (1,238) 1,044 (997) (1,191)
Federal funds sold (34) 35 (33) (32)
Loans, net 728 (674) (263) (209)
Total interest earning assets 1,374 (1,382) 172 164
Interest Bearing Liabilities
Savings deposits 33 32 (114) (49)
Time deposits (27) 23 (435) (439)
Money market accounts 452 (326) 42 168
Borrowed funds 202 (208) 248 242
Total interest bearing liabilities 660 (479) (259) (78)
Net change in net interest income $ 714 $ (903) $ 431 $ 242
Year Ended December 31, 1998 vs. 1997
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $ 337 $ (488) $ 83 $ (68)
Securities held to maturity 80 (37) 74 117
Federal funds sold 397 (296) 184 285
Loans, net 757 (751) 575 581
Total interest earning assets 1,571 (1,572) 916 915
Interest Bearing Liabilities
Savings deposits 72 (71) 11 12
Time deposit 238 (228) (86) (76)
Money market accounts (20) 24 74 78
Borrowed funds 242 (284) 468 426
Total interest bearing liabilities 532 (559) 467 440
Net change in net interest income $1,039 $(1,013) $ 449 $ 475
*Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
B. INVESTMENT PORTFOLIO
HELD TO MATURITY SECURITIES
The following table shows the book value of the Company's held to
maturity securities at the end of each of the last three years. (In
Thousands)
December 31
1999 1998 1997
U.S. Treasury Securities &
Other Government Agencies $ 0 $ 0 $25,814
Obligations of States &
Political Subdivisions 4,237 4,376 6,985
TOTAL $4,237 $4,376 $32,799
The table below shows the relative maturities of held to maturity
securities as of December 31, 1999.
Held to Maturity Securities
Maturity Distribution as of
December 31, 1999
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 yrs 10 Yrs
State and Municipal Bonds $ 422 $1,909 $ 591 $1,315
Average Weighted Yield 8.79% 7.83% 8.08% 6.83%
TOTAL $ 422 $1,909 $ 591 $1,315
Percent of Total Portfolio 10.0% 45.1% 13.9% 31.0%
NOTE: Average Weighted Yields on tax exempt obligations have been
computed on a tax equivalent basis
AVAILABLE FOR SALE SECURITIES
The following table shows the carrying value of the Company's available
for sale securities and other investment securities at the end of each
of the last three years. (In Thousands)
December 31
1999 1998 1997
Mortgage Backed Securities $34,000 $ 34,336 $ 0
US Treasury Notes and Other
Government Agencies 54,403 59,635 60,105
Obligations of State and
Political Subdivisions 8,067 8,769 0
Other Securities 3,245 631 3,160
TOTAL $99,715 $103,371 $63,265
The table below shows the relative maturities and carrying value of
available for sale debt securities as of December 31, 1999 (excludes
other securities).
Securities Available for Sale
Maturity Distribution as of
December 31, 1999
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 Yrs 10 yrs
Mortgage Backed Securities $ 0 $ 0 $ 751 $22,012
US Treasury Notes and Other
Government Agencies 3,005 24,286 32,005 17,186
TOTAL $3,005 $24,786 $32,756 $39,198
Average Weighted Yield 6.46% 6.90% 5.91% 6.49%
Percent of Total Portfolio: 3.0% 24.5% 33.0% 39.5%
The Company's net unrealized loss on available for sale securities (net of tax)
of $2,128,324 at December 31, 1999 is largely attributable to the current
interest rate environment. The unrealized loss has no effect on regulatory
capital or current earnings of the Company. The Company would sell these
securities only if it was consistent with the Bank's asset/liability
management strategies.
C. LOANS
The following table reflects the composition of the Company's
consolidated loan portfolio at the end of each of the last five years.
1999 1998 1997 1996 1995
(In Thousands)
Real Estate Loans
A. Construction & Land
Development $ 7,617 $ 6,431 $ 5,925 $ 4,073 $ 2,023
B. Secured by 1-4 Family
Residential Properties 47,988 36,944 33,528 30,457 27,402
C. Secured by Multi Family
(5 or more) Residential
Properties 0 0 0 0 2
D. Secured by Non-Farm,
Non-Residential
Properties 32,443 30,550 28,386 30,134 28,273
Commercial & Industrial
Loans 16,222 15,979 18,566 16,582 13,778
Loans to Individuals for Household,
Family & Other Consumer
Expenditures 14,508 15,327 15,806 15,133 14,335
All Other Loans 8,845 5,168 4,852 4,664 7,430
Total Gross Loans $127,623 $110,399 $107,063 $101,043 $93,243
The above data is gathered from loan classifications established by the
Federal Reserve Call Report 033.
The percentages of loans by lending classification to total loans
outstanding at December 31 was as follows:
1999 1998 1997 1996 1995
Real Estate 69.0% 67.0% 63.4% 64.0% 61.9%
Commercial & Industrial -
Including single payment
loans to individuals 12.7% 14.5% 17.3% 16.4% 14.8%
Consumer Loans 11.4% 13.9% 14.8% 15.0% 15.4%
All Other Loans 6.9% 4.6% 4.5% 4.6% 7.9%
Total Loans 100.0% 100.0% 100.0% 100.0% 100.0%
Maturities and Sensitivities of Loans
To Changes in Interest Rates
As of December 31, 1999
Due 1 Year or Less Due 1-5 Years Due 5 Years +
Real Estate $31,721 $27,671 $28,656
Commercial & Industrial 10,339 4,170 1,713
Consumer 8,101 4,169 2,238
Municipal 6,122 1,942 781
Total $56,283 $37,952 $33,388
Note:Real estate loans in the 1-5 category have $2,659,697 at a fixed
interest rate and $25,011,301 at a variable interest rate.
Commercial loans in the 1-5 year category have $3,033,700 at a
fixed interest rate and $1,136,914 at a variable interest rate.
Real estate loans in the 5+ category have $28,442,714 at a fixed
interest rate and $213,286 at a variable interest rate.
Commercial loans in the 5+ category have $1,237,628 at a fixed
interest rate and $475,372 at a variable rate.
Delinquent Loans
The following schedule is a summary of loans with principal and/or
interest payments over 30 days past due:
December 31,
1999 1998 1997 1996 1995
Amt % Amt % Amt % Amt % Amt %
Real Estate $4,367 3.4 $3,079 2.8 $3,003 2.8 $2,649 2.6 $ 867 0.9
Installment $ 65 0.1 $ 153 0.1 $ 128 0.1 $ 197 0.2 $ 95 0.1
All Others $ 192 0.2 $ 134 0.1 $ 151 0.1 $ 220 0.2 $ 35 0.0
TOTAL $4,624 3.7 $3,366 3.0 $3,282 3.0 $3,066 3.0 $ 997 1.0
It is the policy of the Company to discontinue the accrual of interest
on loans when, in the opinion of the management, the ultimate
collectibility of principal or interest becomes doubtful. The
principal amount of loans which have been placed on non-accrual status
were comprised primarily of certain installment loans. For each of
these loans, management has evaluated the collectibility of the
principal based on its best estimate of the realizable collateral value
of the loans and does not anticipate that any losses from liquidation
of these loans will have a material effect on future operations. There
were approximately $437,000, $534,000 and $503,000 as of December 31,
1999, 1998 and 1997, respectively, of loans on a non-accrual status.
LOAN CONCENTRATIONS
As of December 31, 1999 and 1998, the Company did not have any
concentration of loans in one particular industry that exceeded 10% of
its total loan portfolio.
The Bank grants residential, commercial and consumer loans to customers
principally located in Hancock and Washington Counties of the State of
Maine. Although the loan portfolio is diversified, a substantial
portion of its debtor's ability to honor their contracts is dependent
upon the economic conditions in the area, especially in the real estate
sector. There are currently no borrowers whose total indebtedness to
the Bank exceeded regulatory limits at December 31, 1999.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Analysis of the allowance for loan losses for the past five years were
as follows:
(Dollars in thousands)
December 31,
1999 1998 1997 1996 1995
Balance at beginning
of period: $ 2,435 $ 2,213 $ 2,084 $ 1,878 $ 1,929
Charge-offs:
Commercial & Industrial Loans 3 2 5 15 44
Real Estate Loans 5 0 123 0 48
Loans to Individuals 140 111 97 73 104
148 113 225 88 196
Recoveries:
Commercial & Industrial Loans 12 11 118 138 43
Real Estate Loans 0 0 67 12 1
Loans to Individuals 130 39 49 24 71
142 50 234 174 115
Net Charge-offs (recoveries) 6 63 (9) (86) 81
Provision for loan losses 200 285 120 120 30
Balance at end of period $ 2,629 $ 2,435 $ 2,213 $ 2,084 $ 1,878
Average Loans Outstanding $118,311 $110,321 $102,321 $97,143 $88,725
Ratio of Net Charge-offs (Recoveries) to
average loans outstanding .004% .057% (.009%) (.09%) .09%
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
1999 1998 1997 1996 1995
Amt % of Amt % Amt % Amt % Amt %
Loan Loan Loan Loan Loan
Categories Categories Categories Categories Categories
To Total To Total To Total To Total To Total
Loans Loans Loans Loans Loans
Balance At End of Period:
Applicable To:
Real
Estate $ 500 69.0% $ 374 67.0% $ 356 63.4% $ 318 64.0% $ 647 61.9%
Commercial & Indus-
trial 1,789 12.7% 1,780 14.5% 1,558 17.3% 1,405 16.4% 1,024 14.8%
Consumer 145 11.4% 153 13.9% 158 14.8% 151 15.0% 207 15.4%
Municipal 88 6.5% 58 4.2% 49 4.1% 60 4.5% 0 7.9%
Identified 57 .4% 62 .4% 67 .4% 100 .1% 0 .0%
Unallocated 50 .0% 8 .0% 25 .0% 50 .0% 0 .0%
TOTAL $2,629 100.0% $2,435 100.0% $2,213 100.0% $2,084 100.0% $1,878 100.0%
The allowance for loan losses is a general allowance established by
management to absorb possible loan losses as they may exist in the loan
portfolio. This allowance is increased by provisions charged to
operating expenses and by recoveries on loans previously charged-off.
Management determines the adequacy of the allowance from continuous
reviews of the quality of new and existing loans, from the results of
independent reviews of the loan portfolio by regulatory agency
examiners, evaluation of past and anticipated loan loss experience, the
character and size of the loan portfolio and anticipated economic
conditions.
As of December 31, 1999, the Company had impaired loans totaling
$14,978, which consisted of real estate loans. The fair value of the
loans' collateral was used to evaluate the adequacy of the Allowance
for Loans Losses allocated to these loans.
A loan is considered impaired by management when it is probable that
the creditor will be unable to collect all amounts due under the
contractual terms of the loan, including principal and interest. Loans
on a non-accrual status that are deemed collectable are not classified
as impaired. Based upon management's periodic review of loans on non-
accrual status, impairment is based on a loan by loan analysis and not
set by a defined period of delinquency before a loan is considered
impaired.
Risk Elements
1999 1998 1997 1996 1995
Loans accounted for on a
non accrual basis $437 $534 $503 $491 $614
Accruing loans contractually past
due 90 days or more $313 $ 47 $209 $196 $388
In accordance with Industry Guide 3 Item III. C (1), the gross interest
income that would have been recorded in 1999 if nonaccrual and
restructured loans had been current in accordance with their original
terms and had been outstanding throughout the period or since
origination approximates $31,000. There was approximately $31,000
included in the gross interest income on non-accrual and restructured
loans for 1999.
D. DEPOSITS
The following schedule summarizes the time remaining to maturity of
Certificates of Deposit $100,000 or greater at December 31, 1999.
Amount
(In Thousands)
3 Months or Less $ 5,089
Over 3 Through 6 $ 2,076
Over 6 Through 12 Months $ 2,080
Over One Year $ 1,369
Total $10,614
E. SHORT-TERM BORROWINGS
December 31
1999 1998 1997
Weighted Weighted Weighted
Average Average Average
Interest Amount Interest Amount Interest Amount
Rate Rate Rate
Fixed advances 6.54 $ 451,250 6.45 $ 451,250 6.52 $ 273,250
Variable advances 5.49 $18,000,000 5.29 $20,000,000 5.35 $9,000,000
Securities sold
under agreement 3.55 $13,140,423 3.70 $ 8,965,977 4.00 $5,690,975
1999 1998
Fixed Variable Securities Fixed Variable Securities
Maximum
amount $451,250 $22,863,496 $13,822,285 $451,250 $20,142,352 $9,512,901
outstanding of any
month end during
the year
Average
amount $451,250 $20,402,145 $ 9,056,088 $407,584 $18,077,448 $6,485,367
outstanding during
the year
Weighted
average 6.54% 5.36% 3.55% 6.45% 5.30% 4.05%
interest rate for
the year
1997
Fixed Variable Securities
Maximum amount outstanding $273,250 $22,903,225 $7,890,521
of any month end during the
year
Average amount outstanding $206,143 $12,569,863 $3,950,415
during the year
Weighted average interest 6.52% 5.86% 4.17%
rate for the year
Advances at December 31, 1999 mature as follows:
2005 2006 2007 2008 2009 2010 2012 2013
$55,000 $9,000,000 $84,250 $7,089,000 $2,000,000 $55,000 $79,000 $89,000
F. CAPITAL RATIOS
The following table presents, for the last three years, the Company's
average capital expressed as a percentage of average deposits, loans,
total assets, and earning assets.
*1999 *1998 *1997
Deposits 15.6% 15.1% 14.9%
Loans 25.0% 25.4% 24.6%
Total Assets 11.7% 11.6% 12.0%
Earning Assets 12.7% 12.8% 13.0%
*Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of ($2,128,324), $1,162,032 and $437,749
at December 31, 1999, 1998 and 1997, respectively.
G. RETURN ON SHAREHOLDERS' EQUITY
The following table presents, for each of the last three years, the
Company's return on shareholders' equity, return on assets, and return
on average earning assets.
1999 1998 1997
Return on average shareholders' equity 11.7% 11.6% 10.9%
Return on average assets 1.3% 1.3% 1.3%
Return on average earning assets 1.4% 1.4% 1.4%
H. LIQUIDITY MANAGEMENT
Liquidity management is the process by which the Bank structures its
cash flow to meet the requirements of its customers as well as day to
day operating expenses.
Liquidity comes from both assets and liabilities. The asset side of
the balance sheet provides liquidity through the regular maturities on
our securities and loan portfolios, as well as interest received on
these assets. In addition, U.S. government securities may be readily
converted to cash by sale on the open market. On the liability side,
liquidity comes from deposit growth and the Bank's access 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 resources and
strategies to manage and reduce its vulnerability to changes in
interest rates.
A principal objective of the Company is to manage and reduce its
vulnerability 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 December 31, 1999, the Bank's ratio of rate sensitive assets to
rate sensitive liabilities at the one year horizon was 83%, its one
year GAP (measurement of interest sensitivity of interest earning
assets and interest bearing liabilities at a given point in time) was
93%, and $84,131,000 in assets and $103,366,000 in liabilities will be
repriceable in one year. Bank earnings may be negatively affected,
should interest rates fall.
In addition to the "traditional" GAP calculation, the Company analyzes
future net interest income based on budget projections including
anticipated business activity, anticipated changes in interest rates
and other variables, which are adjusted periodically by management to
take into account current economic conditions, the current interest
rate environment, and other factors.
The following table presents, as of December 31, 1999, the Company's
interest rate GAP analysis:
Interest Rate GAP Analysis
As of December 31, 1999 (000's omitted)
0-3 4-12 1-5 Over
Months Months Years Years Total
Interest earning assets
Loans:
Real estate
Fixed rate $ 750 $ 2,191 $ 10,581 $17,618 $ 31,140
Variable rate 14,128 20,004 22,794 0 56,926
Commercial 8,168 3,044 3,297 1,713 16,222
Municipal 0 6,122 1,946 777 8,845
Consumer 11,177 782 2,541 14 14,514
Securities available for sale 5,854 7,410 68,529 12,242 94,035
Held to maturity securities 0 422 1,908 9,974 12,304
Loans held for sale 594 0 0 0 594
Other earning assets 3,485 0 113 5,620 9,218
TOTAL $44,156 $39,975 $111,709 $47,958 $243,798
Interest bearing liabilities
Deposits:
Savings $ 1,572 $ 4,716 $ 25,134 $25,429 $ 56,851
NOW 0 0 38,170 0 38,170
Money market 2,307 6,921 13,237 0 22,465
Time 25,481 39,793 10,137 0 75,411
Borrowings 6,644 15,932 9,015 0 31,591
TOTAL $36,004 $67,362 $95,693 $25,429 $224,488
Rate sensitivity GAP $ 8,152 $(27,387) $16,016 $22,529
Rate sensitivity GAP as a
percentage of total assets 3.27% (10.97%) 6.42% 9.03%
Cumulative GAP $ 8,152 $(19,235) $(3,219) $19,310
Cumulative GAP as a
percentage of total assets 3.27% 7.71% (1.29%) 7.74%
The distribution in the Interest Rate GAP Analysis is based on a
combination of maturities, call provisions, repricing frequencies,
prepayment patterns, historical data and management judgment. Variable
rate assets and liabilities are distributed based on the repricing
frequency of the investment. Management has estimated the rate
sensitivity of money market and savings deposits based on a historical
analysis of the Bank and industry data.
The status of the Bank's sources of cash to fund its operations are as
follows:
As of December 31, 1999 1998
Net cash provided from operations $ 5,420,434 $ 991,012
Net cash used by investing activities $(19,291,184) $(17,797,165)
Net cash provided from financing activities $ 5,832,171 $ 24,018,320
Net (decrease) increase in cash and
cash equivalents $ (8,038,579) $ 7,212,167
BANK'S PROPERTIES
ITEM 2: PROPERTIES
The Bank's principal office is located at 66 Main Street in Ellsworth,
Maine. The main office building consists of three floors, all of which
are utilized by the Bank for banking facilities and administrative
offices. The principal office includes a separate drive-up facility
and parking lot. In August 1981, plans were finalized for the
construction of an 8,000 square foot addition to our existing building.
Completed in November of 1982, it provided new and enlarged customer
service/teller area with street level access. During 1982 and 1983,
the existing building also received extensive renovation and
remodeling, tying it in to the new addition. The project was completed
in July of 1983. In April 1985, the Bank opened the first automated
drive-up in Downeast Maine. The automated teller machine is adjacent
to its drive-up facility located at 66 Main Street, in Ellsworth,
Maine. In 1988, the Main Office began construction of an addition to
its existing building that would house loan operations. In September
1989, construction was completed on the addition. In May 1992, the
Bank opened a trust office in Bangor (Penobscot County) to serve trust
customers in that city and surrounding areas. In May 1995, the Bank
elected not to renew its lease for its Bangor office. In 1999, the
Bank sold a parcel of land located on Route 3 in Ellsworth. In
addition, the Bank owns the following properties:
(a) The Bank's Cherryfield office located on Church Street in
Cherryfield, Maine. A major renovation was undertaken at Cherryfield
in 1983, approximately doubling its size. These alterations were
completed in January of 1984.
(b) The Bank's Jonesport office located on Main Street in Jonesport,
Maine.
(c) The Bank's Blue Hill office located on Main Street in Blue Hill,
Maine. During 1989, the branch was renovated to include an office for
the Assistant Manager.
(d) The Bank's Stonington office located on Atlantic Avenue in
Stonington, Maine. The Stonington office was renovated and
expanded in 1980.
(e) The Bank's Milbridge office located on Main Street in Milbridge,
Maine. In 1987, management decided to replace the Milbridge Branch
with a larger up to date facility, located at the same site. The new
branch has been open for business since April 1988.
(f) The Bank purchased in 1999 land and buildings located at 92 Main
Street in Ellsworth, Maine, adjacent to the Bank's principal office.
All of the Bank's offices include drive-up facilities.
In addition to the above properties, which are owned by the Bank, the
Bank leases the following properties:
(a) The Bank leases its branch office at the
Ellsworth Shopping Center, High Street, Ellsworth, Maine,
from Ellsworth Shopping Center, Inc., a Maine Corporation
with principal offices in Ellsworth, Maine. The current
lease will expire in March of 2000.
(b) The Bank leases its Machias office which is located on Dublin
Street in Machias, Maine. The premises are owned by Hannaford Bros.,
Inc. of South Portland, Maine, and are leased to Gay's Super Markets,
Inc., under a lease dated July 26, 1975. The Bank subleased the
premises from Gay's Super Markets, Inc., under a sublease which
expires in April of 2001. The Bank has the right to extend the
sublease for three additional five year terms.
(c) The Bank leases its Somesville branch office which is located on
Route 102 in Somesville, Maine. The land and premises are owned by A.
C. Fernald Sons, Inc., Mount Desert, Maine. The current lease expires
on March 24, 2005, with an option to renew for an additional 20 years.
(d) The Bank leases its Castine branch office located on Main Street
from Michael Tonry, Castine, Maine. The current lease expires on
February 1, 2003 with the right to extend the lease for an
additional 4 year term.
(e) The Bank leases its Bar Harbor branch office located on Cottage
Street from the Swan Agency, a Maine Corporation with a principal
office in Bar Harbor, Maine. The current lease will expire in
April of 2002.
All premises are considered to be in good condition and currently
adequate for the purposes for which they are utilized.
ITEM 3: LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary
routine litigation incidental to the business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
A. MARKET INFORMATION
Union Bankshares stock, $12.50 par value, is not listed on any national
exchange, nor is it actively traded. Since the Company is not aware of
all trades, the market price is established by determining what a
willing buyer will pay a willing seller. Based upon the trades that
the Company had knowledge of (per quotes from local brokerages), high
and low bids for each quarter for 1999 and 1998 are listed in the
following table.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 108.33 to 108.33 106.63 to 106.67 106.63 to 108.00 108.00 to 110.00
1998 100.00 to 104.16 104.16 to 113.75 105.00 to 108.33 108.33 to 108.33
B. HOLDER
As of March 1, 2000 there were approximately 725 stockholders of record.
C. DIVIDENDS
1. History
The following table shows the cash dividends per share declared by
Union Bankshares Company on its common stock, $12.50 par value:
1999 1998
1st Quarter $ .41 $ .41
2nd Quarter $ .41 $ .41
3rd Quarter $ .50 $ .41
4th Quarter $ .50 $ .41
Cash dividends declared
per common share $1.82 $1.64
Item 6: SELECTED FINANCIAL DATA (in thousands, except for per share
amounts)
Years Ended December 31,
1999 1998 1997 1996 1995
SUMMARY OF OPERATIONS
Operating Income $ 3,426 $ 3,155 $ 2,608 $ 2,207 $ 1,989
Operating Expense 8,663 8,413 8,016 7,723 7,459
Net Interest Income 10,169 9,927 9,452 9,137 8,803
Provision for Loan Losses 200 285 120 120 30
Net Income 3,355 3,090 2,700 2,452 2,418
PER COMMON SHARE DATA
Net Income $ 5.80 $ 5.34 $ 4.66 $ 4.22 $ 4.17
Cash Dividends Declared 1.82 1.64 1.52 1.39 1.30
Book Value (2) 51.50 47.69 44.13 41.14 38.30
Market Value 108.00 108.33 91.66 73.33 56.66
FINANCIAL RATIOS
Return on Average Equity (2) 11.7% 11.6% 10.9% 10.6% 11.4%
Return on Average Assets 1.3% 1.3% 1.3% 1.2% 1.3%
Return on Average
Earning Assets 1.4% 1.4% 1.4% 1.4% 1.4%
Net Interest Margin 4.61% 4.72% 4.88% 5.16% 5.37%
Dividend Payout Ratio 33.0% 31.2% 32.8% 32.9% 31.3%
Allowance for Loan
Losses/Total Loans .02 .02 .02 .02 .02
Non Performing Loans
to Total Loans .006 .005 .007 .007 .007
Non Performing Assets
to Total Assets .003 .004 .005 .008 .010
Efficiency Ratio 63.7% 64.3% 66.5% 67.2% 67.2%
Loan to Deposit Ratio 66.2% 58.7% 60.4% 60.7% 56.7%
BALANCE SHEET
Deposits $192,848 $188,029 $177,386 $166,445 $164,481
Loans 127,623 110,399 107,062 101,044 93,242
Securities (1) 107,509 111,304 96,065 81,568 76,578
Shareholders' Equity (2) 29,771 27,577 25,565 23,885 22,227
Total Assets 257,850 251,195 222,560 202,066 191,353
(1) Carrying value. Includes available for sale securities with cost
of $102,488, $101,610, $59,983, $75,095 and $70,938 at December 31,
1999, 1998, 1997, 1996 and 1995, respectively.
(2) Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of ($2,128,324), $1,162,032, $437,749,
($171,460) and $567,810 at December 31, 1999, 1998, 1997, 1996 and
1995, respectively.
The above summary should be read in conjunction with the related
consolidated financial statements and notes thereto for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995, and with Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1999 Annual Report is incorporated herein
by reference.
ITEM 7A: QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign
currency exchange rates, commodity prices, and equity prices. The
Company's primary market risk exposure is interest rate risk. The
ongoing monitoring and management of this risk is an important
component of the Company's asset/liability management process which is
governed by policies established by its Board of Directors that are
reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies
to the Asset/Liability Committee (ALCO). In this capacity ALCO
develops guidelines and strategies impacting the Company's
asset/liability management related activities based upon estimated
market risk sensitivity, policy limits and overall market interest rate
levels/trends.
INTEREST RATE RISK
Interest rate risk can be defined as the exposure of the Company's net
income or financial position to adverse movements in interest rates.
Changes in the level of interest rates also can affect:
The amount of loans originated/sold by an institution
The ability of the borrower to repay his/her loan
The average maturity of mortgage loans
The value of the Company's interest earning assets
The market value of available for sale securities
The Company, through management of the relationship of interest
rate sensitive assets to interest rate sensitive liabilities, reduces
the volatility of its net income.
To accomplish this, the Company has undertaken various steps to
increase the percentage of fixed rate assets and to increase the
average maturity of such assets, in particular through the loan
products offered and its investment portfolio.
Net interest income sensitivity to movements in interest rates is
measured through the use of a simulation model that analyzes resulting
net income under various interest rate scenarios established by
regulators. Projected net interest income (NII) is modeled based on
both an immediate rise or fall in interest rates ("rate shock"). The
model is based on the actual maturity and repricing characteristics of
interest rate sensitive assets and liabilities and factors in
projections for activity levels by product lines of the Company.
Assumptions are made as to the changing relationship between different
interest rates as interest rates increase/decrease (basis risk) and the
customer's ability to prepay loans and withdraw deposit balances or
transfer them to a higher yielding account (embedded option). The
sensitivity analysis is compared to ALCO policy limits, which specify a
maximum tolerance level for NII exposure over a one-year horizon,
assuming no balance sheet growth, given both a 200 basis point (bp)
upward and downward shift in interest rates. A parallel and pro rata
shift in rates over a 12-month period is assumed. The following
reflects the Company's NII sensitivity analysis as of December 31, 1999
and 1998.
Estimated
Rate Change NII Sensitivity
1999 1998
+200 bp + 3.3% +4.4%
-200 bp - 6.2% -5.9%
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected
operating results. These hypothetical estimates are based upon
numerous assumptions including: the nature and timing of interest rate
levels including yield curve shape, prepayments on loans and
securities, deposit decay rates, pricing decisions on loans and
deposits, reinvestment/replacement of asset and liability cash flows
and others. While assumptions are developed based upon current
economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions, including
how customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the
sensitivity analysis, actual results will also differ due to:
prepayment/refinancing levels likely deviating from those assumed, the
potential effect of changing debt service levels on customers with
adjustable rate loans, depositor early withdrawals and product
preference changes and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that ALCO might take
in responding to or anticipating changes in interest rates.
Based on the information and assumptions in effect on December 31,
1999, under five rate simulations used, the Company's net interest
income and net income remain strong, with the return on assets ratio
remaining above 1% under all simulations.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) The financial statements required are contained in the Company's
1999 Annual Report and are incorporated herein by reference.
(See item 14 (a) )
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Previously reported in 8K filing in 1995.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The following table lists, as of February 1, 2000, the number of shares
of Common Stock, including directors' qualifying shares, and the
corresponding percentage of total Common Stock beneficially owned by
each director and nominee for director, including the chief executive
officer of the Company, and by all executive officers and directors as
a group. The information set forth below is based upon director
questionnaires distributed and completed by each director and nominee,
and upon stock records maintained by the Company.
Name Common Stock Percent
Beneficially Owned of Class
Arthur J. Billings 274 *
Peter A. Blyberg 336 *
Robert S. Boit 25,596 4.43
Blake B. Brown 48 *
Richard C. Carver 1,367 *
Peter A. Clapp 258 *
Sandra H. Collier 201 *
Robert B. Fernald 730 *
Douglas A. Gott 870 *
David E. Honey 727 *
James L. Markos, Jr. 266 *
Casper G. Sargent, Jr. 2,868 *
John V. Sawyer, II 3,191 *
Stephen C. Shea 14,267 2.47
Richard W. Teele 527 *
Paul L. Tracy 639 *
Richard W. Whitney 62 *
Total ownership of all listed
Directors and other officers 53,891 9.33
*Represents ownership of less than 1%.
For purposes of the above table, beneficial ownership has been
determined in accordance with the provisions of Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended, under which, in
general, a person is deemed to be the beneficial owner of a security if
he or she has or shares the power to vote or to direct the voting of
the security or has the power to dispose of, or to direct the
disposition of, the security, or if he or she has the right to acquire
beneficial ownership of the security within 60 days.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities Exchange Act of 1934 requires
executive officers, directors and persons who beneficially own more
than ten (10) percent of the stock of the Company to file initial
reports of ownership and reports of changes in ownership. Such persons
are also required by the Securities and Exchange Commission regulations
to furnish the Company with copies of these reports. Based upon copies
of Forms 3, 4 and 5 submitted to and retained by the Company, the
Company knows of no director, officer or beneficial owner of more than
ten percent (10%) of the total outstanding shares of Common Stock who
either failed to file an appropriate ownership report with the
Securities and Exchange Commission, or who filed such report other than
on a timely basis.
ELECTION OF DIRECTORS
Management recommends that the number of directors for the coming
year be set at 17. The Bylaws of the Company provide for not fewer
than 10 nor more than 25 directors, with the directors serving
"staggered terms" of three years. The Board of Directors has nominated
for re-election to three year terms at the 2000 Annual Meeting Messrs.
Billings, Carver, Fernald and Shea. Each of the nominees has consented
to be named as a nominee and to serve if elected. In the event any
nominee shall be unable to serve, discretionary authority is reserved
by management to vote for a substitute to be nominated by the Board.
There are no arrangements or understandings between any nominee,
director, executive officer or associate of any of the foregoing and
any other person pursuant to which the nominee was or is to be elected
as a director or an executive officer. There is no family relationship
among any director, officer or person nominated to become a director or
executive officer.
The following table sets forth the names, occupations, ages and
terms of service of all directors and nominees. Each director is also
presently a director of the Company's banking subsidiary, Union Trust
Company (the "Bank").
Year First
Elected As
Principal Occupation Age as ofDirector of
Now and for Past 5 years 4/15/00 the Company
Term expires in 2000:
Arthur J. Billings President, Barter Lumber Company 44 1990
Richard C. Carver Owner and Manager, Carver Oil Company
and Carver Shellfish, Inc. 67 1984
Robert B. Fernald Treasurer, A.C. Fernald Sons, Inc.
and Jordan-Fernald 66 1986
Stephen C. Shea Treasurer, E.L. Shea, Inc.;
President, Shea Leasing 52 1988
Term expires in 2001:
Blake B. Brown President and Owner, Brown's
Appliance and TV 54 1999
Douglas A. Gott Owner, Douglas A. Gott & Sons,
General Contractors 66 1986
David E. Honey Retired; Former Manager, Swans
Island Electric Cooperative 71 1984
James L. Markos, Jr. General Manager,Maine Shellfish
Company, Inc. 51 1999
Casper G. Sargent, Jr. Owner, Sargent's Real Estate
Corporation 70 1984
John V. Sawyer, II Retired, President, Worcester-
Sawyer Agency Insurance & 66 1984
Real Estate, Chairman of the
Board of the Company
and the Bank
Paul L. Tracy President and owner of Winter
Harbor Agency; Vice President 37 1995
and co-owner of Schoodic Insurance
Services; Vice President and
co-owner of MDI Insurance Agency;
Co-owner of Grindstone Financial Group LLC
Richard W. Whitney Dentist 71 1984
Term expires in 2002:
Peter A. Blyberg President and CEO of the Company
and the Bank since 56 1993
April 1, 1996; former Executive
Vice President of the Company and
the Bank; former Vice President for
Commercial Banking at Chemical Bank
Robert S. Boit Retired President and CEO of the
Company and the Bank 69 1984
Peter A. Clapp President, Blue Hill Garage 55 1995
Sandra H. Collier Attorney at Law, Sandra Hylander
Collier Law Offices 48 1992
Richard W. Teele Retired; Secretary and former
Executive Vice President and 68 1984
Treasurer of the Company and the Bank
COMMITTEES
The Bylaws of the Company provide that, at the annual meeting of
the Directors, the Board shall designate from among its members an
Executive Committee. The Executive Committee possesses all of the
powers of the Board of Directors with regard to ordinary operations of
the business of the Company when the Board is not in session, subject
to any specific vote of the Board. The Executive Committee currently
is comprised of Messrs. Blyberg, Boit, Fernald, Sargent, Sawyer, Shea
and Billings.
The Bylaws of the Company provide that the Board of Directors may
elect or appoint such other committees as it may deem necessary or
convenient to the operations of the Company. The Company does not have
a standing audit, nominating or compensation committee. No other
committees have been appointed.
Nominees for election to the Board of Directors are selected by
the full Board. The Board of Directors will consider nominees
recommended by stockholders if submitted in writing to Sally J.
Hutchins, Clerk, Union Bankshares Company, P.O. Box 479, Ellsworth,
Maine 04605 not less than three months in advance of the date of the
annual meeting.
The Board of Directors of the Company met twelve times in 1999.
Each director attended at least seventy-five percent of the total
number of meetings of the Board of Directors and of committees, of
which he or she was a member, held during that year.
EXECUTIVE OFFICERS
Each executive officer of the Company is identified in the
following table, which also sets forth the respective office, age and
period served in that office of each person listed. Executive officers
are elected annually by the Board of Directors.
Elected
Name Principal Occupation Now and for Past 5 Years Age to Office
John V. Sawyer, II Chairman of the Board of the
Bank and the Company since October 66 1984
1, 1988. Director since 1974.
Peter A. Blyberg President and CEO of the Bank
and the Company since April 1, 56 1993
1996. Formerly Executive Vice
President, COO and Treasurer
of the Bank and the Company.
Former Vice President for
Commercial Banking at
Chemical Bank.
John P. Lynch Executive Vice President of the
Company and Executive Vice President, 53 1996
Senior Banking Officer of the Bank
since December 8, 1999. Formerly Senior
Vice President of the Company and Senior Vice
President, Senior Banking Officer of the
Bank since 1996. Formerly Senior Vice
President - Loans of the Bank.
Sally J. Hutchins Senior Vice President and Clerk of
the Company and Senior Vice President, 44 1988
Treasurer, Controller and Clerk of the
Bank since December 8, 1999. Formerly
Vice President and Clerk of the Company
since 1993. Formerly Vice President,
Treasurer, Controller and Clerk of the
Bank since 1996. Formerly Vice President,
Controller and Clerk of the Bank.
Peter F. Greene Senior Vice President of the Company
and Senior Vice President, Senior Bank 40 1996
Services Officer of the Bank since
December 8, 1999. Formerly Vice President
of the Company since 1996 and Vice President,
Senior Bank Services Officer of the Bank since 1997.
Formerly Vice President - Bank Services and
Vice President - Operations.
Rebecca J. Sargent Senior Vice President, Senior Trust
Officer of the Bank and the Company since 35 1996
December 8, 1999. Formerly Vice President,
Senior Trust Officer of the Company since
1997 and Vice President, Senior
Trust Officer of the Bank since 1996. Formerly
Vice President, Trust Officer of the Company and
Assistant Vice President, Trust Officer of the Bank.
Richard W. Teele Secretary of the Company since 1988.
Retired in 1995 from the Bank. Formerly 68 1988
Executive Vice President, Treasurer and Secretary.
ITEM 11: EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all annual compensation received
during each of the Company's last three fiscal years by Mr. Blyberg who
is the only executive officer for whom such compensation exceeded
$100,000 in any reported year. Mr. Blyberg serves in comparable
positions with both the Bank and the Company. Executive compensation
is paid by the Bank.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other Annual
Year Salary Bonus Compensation ($)
Peter A. Blyberg 1997 $132,750 $ 5,150 $0
President and Chief 1998 $140,000 $ 8,375 $0
Executive Officer 1999 $145,725 $11,200 $0
LONG TERM COMPENSATION
AWARDS PAYOUTS
Restricted LTIP
Stock Optional SARs Payouts
Year Awards ($) (#) ($)
Peter A. Blyberg 1997 $0 0 $0
1998 $0 0 $0
1999 $0 0 $0
ALL OTHER COMPENSATION
Other
Year Compensation ($)
Peter A. Blyberg 1997 $ 5,532
1998 $ 7,653
1999 $ 4,754
Each director of the Bank who is not also an officer is paid a
directors' fee in the amount of $250 for each meeting attended,
including meetings of the Board committees of which the director is a
member. Directors' fees are paid by the Bank and are not separately
paid for attendance at meetings of the Board of Directors of the
Company. John V. Sawyer, II, who serves as Chairman of the Board,
receives a salary of $26,000 per annum from the Bank plus $50 per
meeting for attendance at Board and Committee meetings. No director
has received any other compensation for Board or committee
participation or other special assignments.
The Bank maintains a non-contributory defined benefit pension plan
funded by a trust (the "Plan"). All full time employees who are at
least 21 years of age and have completed one year of service
participate in the Plan. Compensation attributable to the Plan has not
been included in the Summary Compensation Table set forth above.
Annual contributions to the Plan are computed on an actuarial basis to
provide a normal retirement benefit of 60% of average annual salary
minus 50% of the participant's social security benefit, with a downward
adjustment if the participant, at the time of retirement, has completed
less than 25 years of service. "Average Annual Salary" is determined
by calculating the average basic compensation of the participant
exclusive of bonuses for the three highest consecutive years prior to
attaining the age of 65; provided, however, that for the purpose of
such calculation base compensation in any year may not exceed $160,000.
The Plan provides "Normal Retirement Benefits" to participants who
terminate their employment after the latter of attaining the age of 65
and after the completion of his/her fifth anniversary. The accrued
benefit of a participant who retires prior to normal retirement date is
his or her normal benefit adjusted by a fraction which represents his
or her Bank employment time divided by the Bank employment time he or
she would have had by normal retirement date. Payment options include
single life annuities and joint annuities. The Plan provides death
benefits to beneficiaries of employees who meet conditions of early
retirement (age 55 and 10 years of service) prior to termination of
employment. The amount of the benefit is equal to the accrued benefit
at date of death paid monthly over a 10 year period. In addition, the
spouse of a married employee may elect to receive his or her benefit in
the form of a single life annuity. If the employee does not meet
conditions for early retirement, a survivor annuity may be payable, if
the employee is married. The Plan does not provide a disability
benefit. Mr. Blyberg is a participant in the Plan. For purposes of
the Plan, Mr. Blyberg has five credited years of service.
The table below illustrates retirement compensation for
representative salary brackets and years of service with the Bank. The
maximum social security offset for 1999 was $16,476.
PENSION PLAN TABLE
Remuneration Years of Service
15 20 25 30 35
$120,000 $38,257 $51,010 $63,762 $63,762 $63,762
$130,000 $41,857 $55,810 $69,762 $69,762 $69,762
$140,000 $45,457 $60,610 $75,762 $75,762 $75,762
$150,000 $49,057 $65,410 $81,762 $81,762 $81,762
$160,000 $52,657 $70,210 $87,762 $87,762 $87,762
The foregoing table illustrates the value of retirement benefits
at the compensation levels indicated. Benefits are expressed in
today's dollars.
In addition to the foregoing defined benefit pension plan, the
Bank has entered into deferred compensation agreements with certain of
its executive employees, including Mr. Blyberg, pursuant to which,
subject to continued employment with the Bank and certain other
conditions, such executive employees are entitled to receive certain
retirement and disability benefits. Pursuant to his agreement with the
Bank, Mr. Blyberg is entitled to receive monthly payments in the amount
$4,152.17, for a period of ten years following the first to occur of
death or retirement after reaching the age of 65 years. Under the
terms of the agreement, Mr. Blyberg may elect to retire early after
reaching the age of 60 years, in which event he would be entitled to
receive a proportionately reduced monthly benefit. In addition to the
foregoing benefits, under the terms of the agreement, in the event that
Mr. Blyberg is permanently disabled prior to attaining the age of 64
years, he would be entitled to receive a disability benefit in the
amount of $2,000 per month from the date of his disability until he
reached the age of 65. Upon reaching age 65, he would be entitled to
receive the deferred compensation benefit described above. The
obligations of the Bank under these deferred compensation agreements is
unfunded, but the Bank has purchased insurance contracts on the lives
of all covered employees, including Mr. Blyberg, in amounts which are
estimated to be sufficient to fund all amounts payable under the
agreements.
The Bank also has entered into salary continuation agreements with
certain of its executive officers, including Mr. Blyberg, pursuant to
which should he terminate his employment, either voluntarily or
involuntarily, within three years of a change of control or other
"business combination" as defined in the salary continuation
agreements, he would be entitled to receive an amount equal to the
lesser of (i) three times the total compensation paid to him in the
last full fiscal year prior to termination of his employment, less one
dollar, or (ii) the maximum amount permitted without such payment being
deemed an "excessive parachute payment" within the meaning of Section
208-g of the Internal Revenue Code.
Neither the Bank nor the Company has a formal compensation
committee. Mr. Blyberg, in his capacity as President and Chief
Executive Officer, has made compensation recommendations to the
Executive Committee of the Board of Directors with respect to all
employees, other than himself. The recommendations were then
considered by the Board of Directors, which also formulated a
compensation recommendation with respect to Mr. Blyberg. All
compensation recommendations were then considered and voted upon by the
full Board of Directors. Mr. Blyberg is a member of the Board of
Directors and a member of the Executive Committee. He has abstained
from participating in discussions or recommendations regarding his own
compensation.
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Board of Directors of the Bank has no formal compensation
policy applicable to compensation decisions with respect to its
executive officers. While there are no objective criteria which
specifically relate corporate performance to compensation
determinations, in formulating its recommendation with respect to
compensation of Mr. Blyberg during the last fiscal year, the Board of
Directors considered, among other factors, the seniority and experience
of Mr. Blyberg and the relationship of his compensation to that of
other executive officers employed by the Bank and to persons holding
comparable positions at other similarly situated banks in Maine. In
reaching its determination as to the compensation of Mr. Blyberg, the
Board of Directors did not use any objective measure of the Bank's
performance but considered, in general, the performance of the Bank in
relationship to that of other similarly situated banks in Maine.
The forgoing report regarding compensation has been submitted by
the Board of Directors, including Douglas A. Gott, David E. Honey,
Casper G. Sargent, Jr., John V. Sawyer, II, Richard W. Whitney, Peter
A. Blyberg, Robert S. Boit, Peter A. Clapp, Sandra H. Collier, Richard
W. Teele, Arthur J. Billings, Richard C. Carver, Robert B. Fernald,
Stephen C. Shea, Paul L. Tracy, Blake B. Brown and James L. Markos, Jr.
PERFORMANCE GRAPH
The following graph provides a comparison of total shareholder
return on the Common Stock of the Company with that of other comparable
issuers. The following graph illustrates the estimated yearly
percentage change in the Company's cumulative total shareholder return
on its Common Stock for each of the last five years. For purposes of
comparison, the graph also illustrates comparable shareholder return of
NASDAQ banks as a group as measured by the NASDAQ Banks Stock Index.
The graph assumes a $100 investment on December 31, 1995 in the common
stock of the Company and NASDAQ banks as a group and measures the
amount by which the market value of each, assuming reinvestment of
dividends, has increased as of December 31 of each calendar year since
the base measurement point of December 31, 1995.
Insert 5 year line graph Peer Comparison
Common Stock of the Company is not actively traded on any market,
and therefore, no market index is available for the purpose of
determining the market price of such common stock as of any particular
date. The foregoing graph is based upon a good faith determination of
approximate market value for each year indicated based on anecdotal
information available to the Company as to the value at which its
common stock has traded in isolated transactions from time to time.
Therefore, although the graph represents a good faith estimate of
shareholder return as reflected by market value, the valuations
utilized are, of necessity, estimates and may not accurately reflect
the actual value at which common stock has traded in particular
transactions as of any of the dates indicated.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Item 10.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had and expects to have in the future, banking transactions in the
ordinary course of its business with directors, officers, principal shareholders
and their associates. These transactions comprise of substantially the same
terms, including interest rates and collateral on the loans as those prevailing
at the same time for comparable transactions with others. Such loans have not
and will not involve more than normal risk of collectability or present other
unfavorable features.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) Financial Statements and Exhibits
(1) The financial statements listed below are filed as part of this
report; such financial statements (including report thereon
and notes thereto) are included in the registrant's Annual
Report to Shareholders for its fiscal year ended December 31,
1999 (a copy of which is being filed as Exhibit 13 hereto), and
are incorporated herein by reference.
Consolidated Balance Sheets
December 31, 1999 and 1998 22
Consolidated Statements of Income
For the years ended December 31, 1999, 1998 and 1997 23
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1999, 1998 and 1997 24
Consolidated Statements of Cash Flow
For the years ended December 31, 1999, 1998 and 1997 25-26
Notes to Consolidated Financial Statements 27
Independent Auditors Opinion 45
(2) Financial statement schedules are omitted as they are not
required or included in the Annual Report to Shareholders.
(3) Exhibits required by Item 601 - see Item 14(c)
(b) Reports on Form 8-K
During the registrant's fiscal quarter ended December 31, 1999,
the registrant was not required to and did not file any reports
on Form 8-K.
(c) Exhibits
* 3 Articles of Incorporation and By-laws of
Union Bankshares Company
* 10.1 Employee Benefit Plan for the employees
of Union Trust Company
Pension Plan for the employees of Union
Trust Company
401 (k) Profit Sharing Plan for the
employees of Union Trust Company
Stock Purchase Plan for the employees of
Union Trust Company
11 Computation of earnings per share, is
incorporated herein by reference to
Note 1 to the Consolidated Financial
Statements on page
27 of the 1999 Annual Report to
Shareholders' attached hereto as
Exhibit 13.
13 The registrant's Annual Report to
Shareholders' for its fiscal year
ended December 31, 1999.
This exhibit, except for those portions
thereof expressly incorporated by
reference into the Form 10 K annual
report, is furnished for the
information of the Commission only
and is not to be "filed" as part of
the report.
*21 Subsidiary information is incorporated
herein by reference to "Part I, Item 1 -
Business".
27 Financial Data Schedule
99.1 Report of Berry, Dunn, McNeil & Parker.
*Incorporated herein by reference into this document from the Exhibits
to Form S-1, Registration Statement, initially filed on June 15, 1984,
Registration No. 2-90679.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNION BANKSHARES COMPANY UNION BANKSHARES COMPANY
By: ___________________________ By:____________________________
Peter A. Blyberg, President Sally J. Hutchins
and Chief Executive Officer Senior Vice President,
Treasurer and Controller
Date:
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Arthur J. Billings, Director
Peter A. Blyberg, Director
Robert S. Boit, Director
Blake B. Brown, Director
Richard C. Carver, Director
Peter A. Clapp, Director
Sandra H. Collier, Director
Robert B. Fernald, Director
Douglas A. Gott, Director
David E. Honey, Director
James L. Markos, Jr., Director
Casper G. Sargent, Director
John V. Sawyer, II, Director
Stephen C. Shea, Director
Richard W. Teele, Director
Paul L. Tracy, Director
Richard W. Whitney, Director
UNION BANKSHARES COMPANY
1999 ANNUAL REPORT
Letter to Shareholders
January 26, 2000
Your Bank closed 1999 with net income up 8.6 percent at $3,354,722.
Competitive pressures held net interest income growth to 2.4 percent while
non interest income rose 8.6%. Non interest income growth was driven by
increased revenue in the Trust Department, VISA income and a one time gain
on real estate sold. Our expenses remain under control showing an increase
of 3.0 percent which is less than the 4.9 percent increase in the prior year.
Our local economy remains healthy although there are pockets of concern.
Home construction in our market area is strong. We saw active demand for
mortgage refinances in the first third of the year but this fell off rapidly
as interest rates rose. At current interest rate levels there are very few
people refinancing. Our loan portfolio grew by $17.2 million and deposits
rose $4.8 million. We will continue to seek opportunities to expand our loan
portfolio at acceptable risk levels.
We have focused considerable attention in recent years on developing strong
relationships with our customers. Not only do we want to be able to help them
grow and prosper but we would also like to expand the range of services which
we provide to them. The financial needs of our customers are many and they
are becoming increasingly complex. Our business development efforts in recent
years have focused on expanding and strengthening existing relationships as
well as establishing new accounts. By listening and offering solutions to
problems, by understanding their problems and their dreams, and by helping them
achieve their goals we feel we will not only serve our customers, but our Bank
as well.
We have put considerable efforts into our Trust and Investments area in the
past few years and 1999 saw an increase in assets under management of $33.9
million and a 24.9 percent increase in income. We were fortunate to be able
to attract five very highly qualified individuals to add to our experienced
trust team, Brenda Strout, Geddes Simpson, Sylvia Joy, Rhonda Reardon and Ed
Bonenfant. Our goal as we grow the business is to maintain the service levels
which are so important to customer relationships. During this coming year, we
will be looking to expand the services offered by our Trust Department in
keeping with changing customer needs.
We weathered the Y2K matter without any problems and this is a reflection of
the excellence of our staff of dedicated employees who not only made sure that
our internal systems functioned normally, but worked with our customers and
communities to reassure them of our readiness. We felt confident enough about
our readiness to introduce our Internet banking service, NetBankingr, in
September. This allows our customers to access their account information
through the Internet, transfer funds, pay bills and check balances. It has
proved very popular and if you would like a demonstration, you can access it
through www.uniontrust.com.
In addition to the Trust staff mentioned above, we were pleased to welcome
the following individuals who joined our staff in 1999:
Michelle Banister...AVP, Training & Development Manager
Richard Cole.....................Call Center Supervisor
William Sneed, Jr.......Information Services Specialist
Shari Dyer.......................................Teller
Tracy Gellerson..................................Teller
Tara Hamilton....................................Teller
Jennifer Madore..................Accounts Payable Clerk
Dawn Raybourn....................................Teller
Mary Thibodeau..........Administrative Assistant, Loans
Rhonda Ulichney..................................Teller
Cheryl Woodward..................................Teller
Mary Youngblood..................Call Center Specialist
Harold Batson.................Physical Plant Technician
We thank you, our shareholders, directors, officers and employees for your
interest and support.
Sincerely, Sincerely,
John V. Sawyer, II Peter A. Blyberg
Chairman of the Board President and
Chief Executive Officer
A Sea of Challenges
Charting the course for the future of Union Trust requires that the many
challenges facing us be carefully analyzed, discussed, and appropriate responses
developed, not only to individual issues, but to the whole spectrum. In the
constantly changing, competitive landscape which is banking in the 21st century
it is not enough to succeed in one or two areas. Success requires a constant
balancing and rebalancing of responses to the myriad of challenges that we face.
Challenges that change from year to year, challenges that only seem to multiply,
not shrink.
First and foremost are the changing needs of our customers as their personal
situations evolve. Developing new products to fill out the array of
increasingly complex financial services which they need will be difficult.
We must incorporate the appropriate level of technology while continuing to
provide the highly personalized service which is one of the distinguishing
characteristics of community banking. We have to grow the bank while facing
an array of competitors who only get more numerous and more responsive. Our
greatest assets, our employees, have been and will be given the opportunity
to grow and develop both professionally and personally. The challenges may
be legion but we are excited about meeting them.
Our goal in all we do is to provide consistently good returns for our
shareholders over the long haul. We appreciate their support and their belief
and trust in us.
A World of Opportunities
Looking at our business at the dawn of a new century, no one can say with any
certainty what it will look like fifty or a hundred years from now. All we can
say is that there are enormous opportunities. The recent passage of the
Financial Modernization Bill by Congress was a fitting end to the century and
will transform the competitive landscape by opening up numerous areas of
business for us to explore.
Technology, while it changes at an ever increasing rate, is making whole areas
of electronic services more accessible to community banks, not only from a cost
point of view, but also from the perspective of the widespread acceptance of
technologies which we, as a small institution, can exploit in delivering
services to our customers. Our customers need more not less services, our
employees are more highly trained and the demand for personal attention in an
increasingly impersonal world will only expand.
The list of opportunities which this new world presents is seemingly endless
and our job will be to navigate a well-plotted course always mindful of the
need to adjust to changing conditions. Our aim is to provide financial
solutions for the lifetime of our customers and we are optimistic that we will
succeed.
Five-Year Summary (000's Omitted)
1999 1998 1997 1996 1995
Deposits $192,848 $188,029 $177,386 $166,445 $164,481
Loans 127,623 110,399 107,062 101,044 93,242
Securities *107,509 *111,304 *96,065 *81,568 *76,578
Shareholders' equity **29,771 **27,577 **25,565 **23,885 **22,227
Total assets 257,850 251,195 222,560 202,066 191,353
Net earnings 3,355 3,090 2,700 2,452 2,418
Earnings per share (A) 5.80 5.34 4.66 4.22 4.17
Equity Ratios
Equity expressed as a percentage of average:
**1999 **1998 **1997 **1996 **1995
Deposits 15.6% 15.1% 14.9% 14.4% 13.7%
Loans 25.0% 25.4% 24.6% 24.6% 25.1%
Total assets 11.7% 11.6% 12.0% 12.1% 11.9%
Earning assets 12.7% 12.8% 13.0% 13.3% 12.9%
Other Financial Highlights
1999 1998 1997 1996 1995
Return on average
shareholders' equity** 11.7% 11.6% 10.9% 10.6% 11.4%
Return on average assets 1.3% 1.3% 1.3% 1.2% 1.3%
Return on average
earning assets 1.4% 1.4% 1.4% 1.4% 1.4%
*Carrying value. Includes available for sale securities with cost of
$102,488, $101,610, $59,983, $75,095 and $70,938 at December 31, 1999,
1998, 1997, 1996 and 1995, respectively.
**Excluding net unrealized gain (loss) net of deferred taxes on available
for sale securities of ($2,128,324), $1,162,032, $437,749, ($171,460) and
$567,810 at December 31, 1999, 1998, 1997, 1996 and 1995, respectively.
(A) Restated for the effect of a 20% stock dividend effected in the form
of a stock split in 1999.
Insert the following 5 year bar charts:
Earnings Per Share
Book Value Per Share
Dividends Per Share
Total Assets
Net Income
Shareholders' Equity
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1999
Union Bankshares Company is a one-bank holding company, organized under the
laws of the State of Maine. The Company's only subsidiary is Union Trust
Company, wholly owned and established in 1887. Union Bankshares' holding
company structure can be used to engage in permitted banking-related activities,
either directly, through newly formed subsidiaries, or by acquiring companies
already established in those activities.
Union Trust is a full-service, independent, community bank that is locally
owned and operated. Through its eleven offices, Union Trust serves the
financial needs of individuals, businesses, municipalities and nonprofit
organizations in eastern Maine. Union Trust offers a wide variety of
financial services with competitive interest rates, a helpful, friendly staff,
and quick, local decision-making to meet the needs of the communities it serves.
As a complement to the services offered by the Bank, the Trust and Investment
Services department provides a broad range of investment options to help meet
the needs of our customers. Trust and Investment Services has served
generations of Maine families with estate planning, investment management and
custody, and retirement planning and employee benefit services.
As a market driven sales and service organization, Union Trust is focused
on the needs of its customers. Our employees are listening to customers'
needs, suggesting solutions, answering their questions and making it easy
for them to purchase and use our services. It is through our team of
dedicated and knowledgeable employees that outstanding customer service
is delivered. That is why Union Trust continues to hire quality
individuals, invest in their continuing education and training, and
reward them for the significant contribution they make to the overall
success of the organization.
There is no better example of this than in our Trust and Investment
Services department. Because of their commitment to personalized service
and professional knowledge, they continue to experience over 20% growth
in revenue and assets under management from 1998 to 1999. To support
this growth, five additional staff members were added during 1999. Two
others received advanced degrees/professional designations in their areas
of expertise.
Another example of excellent customer service is that delivered by our
Relationship Managers to loan customers. Again and again, customers are
saying how extremely satisfied they are with the service they receive
from Union Trust and would recommend Union Trust to a friend or family
member. A "Mortgage Think Tank" was formed during 1999 to focus on this
market segment. Their task is to discover new ways to better serve these
customers. Many of their ideas were implemented in 1999 with positive
results.
Technology continues to allow us to conduct business in new ways, never
before possible. Access channels have evolved from the branches to
ATM's, Customer Service Call Center, BankLiner telephone banking,
BankLinePCr computer banking and new for 1999, NetBankingr on the
Internet. To provide customer support for NetBankingr and future
technological initiatives, the Call Center staff was increased by 100%
this year. The latest in telephone technology was installed, with all
calls to the Bank now being answered through the Call Center to
facilitate customer service.
More than anything else, the Y2K challenge, which is now successfully
behind us, proved the strength of Union Trust and the teamwork that
exists among its employees. It also served as a testing ground of
technology as a whole, helping to instill public confidence and enhancing
the public's acceptance of this new delivery channel. This gives Union
Trust the "green light" for continued investment in the latest financial
services technology.
As customer service expectations increase, Union Trust will continue to
anticipate customers' needs and pursue the appropriate strategic
initiatives. Union Trust's service to its customers goes beyond the
walls of the Bank, out into the community. During 1999, our employees
and directors contributed over 9,000 hours of volunteer time to over 115
organizations.
REVIEW OF FINANCIAL STATEMENTS
The following discussion and analysis focus on the factors affecting Union
Bankshares Company's (the "Company") financial condition at December 31, 1999
and 1998, and the financial results of operations during 1999, 1998 and 1997.
The consolidated financial statements and related notes beginning on page 22
of this report should be read in conjunction with this review.
RESULTS OF OPERATIONS
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on earning assets
(primarily loans and investments) and interest expense (primarily deposits and
borrowings). The Company's results are also affected by the provision for
loan losses, which reflects management's assessment of the adequacy of the
allowance for loan losses; noninterest income, including gains and losses on
the sales of loans and securities; noninterest expenses; and income tax expense.
Each of these major components of the Company's operating results is highlighted
below.
NET INCOME
The Company reported net income in 1999 of $3,354,722, an increase of $264,694
or 8.6% over 1998, as compared to an increase of $389,556 or 14.4% and $248,500
or 10.1% for 1998 and 1997, respectively.
The following table summarizes the status of the Company's earnings and
performance for the periods stated.
December 31, 1999 1998 1997
Earnings per share $ 5.80 $ 5.34 $ 4.66
Return on average shareholders' equity* 11.7% 11.6% 10.9%
Return on average assets 1.3% 1.3% 1.3%
Return on average earning assets 1.4% 1.4% 1.4%
*Excluding net unrealized gain (loss) net of deferred taxes on available for
sale securities of ($2,128,324), $1,162,032 and $437,749 at December 31, 1999,
1998 and 1997, respectively.
The improved results were due to expense control efforts, developing new
business, generating higher fee based income and a slight increase in net
interest income, which amounted to $10,168,831, $9,926,607 and $9,452,159 for
the years ended 1999, 1998 and 1997, respectively.
NET INTEREST INCOME
Net interest income continues to be the most significant determinant of the
Company's earnings performance. Management of interest rate risk has become
paramount in ensuring the Bank's continued profitability. Changes in net
interest income are the results of interest rate movements, changes in the
balance sheet mix of earning assets and interest bearing liabilities, and
changes in the level of nonearning assets and liabilities.
The following table sets forth the information related to changes in net
interest income. For purposes of the table and the following discussion,
information is presented regarding (1) the total dollar amount of interest
income of the Company from interest earning assets and the resulting average
yields; (2) the total dollar amount of interest expense on interest bearing
liabilities and the resulting average cost; (3) net interest income; (4)
interest rate spread; and (5) net interest margin. Information is based on
average daily balances during the indicated periods. For the purposes of the
table and the following discussion, (1) income from interest earning assets and
net interest income are presented on a tax equivalent basis and (2) nonaccrual
loans have been included in the appropriate average balance loan category, but
unpaid interest on nonaccrual loans has not been included for purposes of
determining interest income.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(In Thousands)
(On a Tax Equivalent Basis)
1999 1998 1997
Avg Int Yield/ Avg Int Yield/ Avg Int Yield/
Balance Earn/Pd Rate Balance Earn/Pd Rate Balance Earn/Pd Rate
Assets
Interest Earning Assets:
Securities available
for sale $105,663 $ 6,913 6.54 $ 77,517 $ 5,278 6.81 $72,741 $ 5,182 7.12
Securities held
to maturity 4,311 333 7.72 23,968 1,510 6.30 22,689 1,437 6.33
Federal funds
sold 5,705 294 5.15 6,384 326 5.11 598 41 6.86
Loans (net) 115,825 10,237 8.83 108,057 10,241 9.47 100,208 9,660 9.64
Total interest earning
assets 231,504 $17,777 7.68 215,926 $17,355 8.04 196,236 $16,320 8.32
Other nonearning
assets 20,069 19,699 18,878
$251,573 $235,625 $215,114
Liabilities
Interest Bearing Liabilities:
Savings
deposits $ 67,766 $ 1,082 1.60 $ 69,656 $ 1,131 1.62 $ 65,432 $ 1,119 1.71
Time
deposits 77,139 3,784 4.91 77,545 4,223 5.44 73,419 4,298 5.85
Money market
accounts 21,262 728 3.42 11,765 560 4.76 12,271 482 3.93
Borrowings 20,969 1,502 7.16 18,077 1,260 6.97 14,007 835 5.96
Total interest bearing
liabilities 187,136 $ 7,096 3.79 177,043 $ 7,174 4.05 165,129 $ 6,734 4.08
Other noninterest bearing
liabilities & shareholders'
equity 64,437 58,582 49,985
$251,573 $235,625 $215,114
Net interest income $10,681 $10,181 $9,586
Net interest rate spread 3.89 3.99 4.24
Net interest margin 4.61 4.72 4.88
The following table presents certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest earning assets and interest
bearing liabilities, information is provided with respect to changes
attributable to (1) changes in rate (change in rate multiplied by old
volume), (2) changes in volume (change in volume multiplied by old rate),
and (3) changes in rate/volume (change in rate multiplied by change in
volume).
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
For the years ended December 31, 1999, 1998 and 1997
(In Thousands)
Year Ended December 31, 1999 vs. 1998
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $1,918 $(1,787) $1,465 $1,596
Securities held to maturity (1,238) 1,044 (997) (1,191)
Federal funds sold (34) 35 (33) (32)
Loans, net 728 (674) (263) (209)
Total interest earning assets 1,374 (1,382) 172 164
Interest Bearing Liabilities
Savings deposits 33 32 (114) (49)
Time deposits (27) 23 (435) (439)
Money market accounts 452 (326) 42 168
Borrowed funds 202 (208) 248 242
Total interest bearing liabilities 660 (479) 259 (78)
Net change in net interest income $ 714 $ (903) $ 431 $ 242
Year Ended December 31, 1998 vs. 1997
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $ 337 $ (488) $ 83 $ (68)
Securities held to maturity 80 (37) 74 117
Federal funds sold 397 (296) 184 285
Loans, net 757 (751) 575 581
Total interest earning assets 1,571 (1,572) 916 915
Interest Bearing Liabilities
Savings deposits 72 (71) 11 12
Time deposits 238 (228) (86) (76)
Money market accounts (20) 24 74 78
Borrowed funds 242 (284) 468 426
Total interest bearing liabilities 532 (559) 467 440
Net change in net interest income $1,039 $(1,013) $449 $ 475
*Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
Net interest income increased by $242,224 or 2.4% during 1999. This increase
was primarily due to increases in interest earning assets, in particular loans
of $17,223,368, offset in part by a decrease in investments of $3,795,339 and
an increase in volume of interest paying liabilities, in particular savings
and money market accounts. During 1998, net interest income increased by
$474,448 or 5.0% compared to 1997. This increase was attributed to higher loan
and investment volumes, offset by a higher cost of funds (interest on deposits
and borrowings). In 1997, net interest income increased $314,635 or 3.4% due
mainly to higher loan volumes offset by interest expense on certificates of
deposit. The weighted average yield on a tax equivalent basis on interest
earning assets was 7.68% for 1999, down slightly over 1998 of 8.04%. In 1997,
the weighted average yield was 8.32%. The Company's net interest margin was
4.62%, 4.72% and 4.88% for 1999, 1998 and 1997, respectively, and the net
interest income spread was 3.89% in 1999, 3.99% in 1998 and 4.24% in 1997.
Interest and dividend income increased slightly by $164,574 or 1.0% during
1999, primarily due to the extremely competitive banking market in Hancock and
Washington counties. Profit margins continue to be compressed. The squeeze
is part of a long term trend and one aspect of the increasing competitive
nature of the national and local economy.
Loan increases, particularly in real estate loans, were primarily the result of
the business development program conducted by the Bank's Relationship Managers,
attractive interest rates, a one time transfer of loans classified as available
for sale of approximately $5,000,000 and a strong local economy. Interest and
dividend income increased $914,358 or 5.7% in 1998 and $1,417,984 or 9.6% in
1997, primarily due to increased interest on loans and investments due to
volume growth and wider margins.
The amount of nonaccrual loans can also affect the average yield earned on all
outstanding loans. Nonaccrual loans for 1999, 1998 and 1997 were insignificant,
and therefore did not have a material effect on the average loan yield.
Interest expense on deposits and borrowings decreased $77,650 or 1.1% in 1999
compared to 1998. The cost of borrowings increased by $242,000 or .19 basis
points on average during the year. The overall cost of deposits decreased by
$319,000. The cost of deposits increased by $458,000 based on increased deposit
volumes and decreased by $271,000 due to rate reductions to reflect the current
interest rate environment. Interest expense on deposits and borrowings in 1998
increased $439,910 or 6.5% over 1997. This increase was primarily driven by the
expense of short-term borrowings and certificates of deposit.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $200,000 in 1999. There was a $285,000
provision in 1998 and a $120,000 provision in 1997.
The process of evaluating the adequacy of the allowance for loan losses
involves a high degree of management judgment, based, in part, on systematic
methods. These methods include a loan by loan analysis of all larger
commercial and commercial real estate loans as well as those that were
nonperforming or under close monitoring by management for potential problems.
Other factors included in the evaluation of the adequacy of the allowance for
loan losses involve overall loan growth; the character and mix of the loan
portfolio; current trends in nonperforming loans, delinquent loans and net
charge-offs; new loan originations; and other asset quality considerations.
During 1998, the Company implemented an independent loan review program that
supports the Company's lending strategies, monitors compliance with
established loan policies and procedures and identifies credit trends.
Management believes that the allowance for loan losses and the carrying value
of real estate owned are adequate. While management uses available information
to recognize losses on loans and real estate owned, future additions to the
allowances might be necessary based on changes in economic conditions,
particularly in northern New England. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses.
The following table reflects the quality of the Bank's loan portfolio and the
emphasis placed upon the management of credit risk:
(000's omitted)
December 31,
1999 1998
Nonaccrual loans $ 437 $ 534
Loans past due 90 days and accruing 314 47
Other real estate owned (including insubstance foreclosure) 0 376
Total nonperforming assets 751 957
Ratio of total nonperforming loans to capital and the
allowance for loan losses (Texas ratio) .025 .019
Ratio of net recoveries (charge-offs) to loans 0 .001
Ratio of allowance for loan losses to loans .02 .02
Coverage ratio (allowance for loan losses divided by
nonperforming assets) 3.501 2.543
Ratio of nonperforming assets to total assets .003 .004
Ratio of nonperforming loans to total loans .006 .005
NONINTEREST INCOME
Total noninterest income was $3,426,328, $3,155,412 and $2,608,206 for the years
ended December 31, 1999, 1998 and 1997, respectively. The $270,916 or 8.6%
increase in noninterest income during 1999 was primarily attributable to a
$180,816 or 24.9% increase in trust department income, a $153,984 gain on other
real estate owned and a $69,458 or 10.8% increase in VISA income. The $547,206
or 21.0% increase during 1998 was primarily due to increases in trust department
income, loan department income, and mortgage servicing rights. The $401,075
or 18.2% increase during 1997 was primarily due to increases in trust
department income, VISA income and mortgage servicing rights.
The following table summarizes information relating to the Company's
noninterest income:
Year Ended December 31,
1999 1998 1997
Net security gains (losses) $ (15,728) $ 31,842 $ (1,463)
Trust department income 906,996 726,180 594,961
Service income 314,268 331,574 343,272
VISA income 711,555 642,097 611,239
Loan department income 514,351 554,120 352,534
Gain on other real estate owned 153,984 0 0
Other noninterest income 840,902 869,599 707,663
Total noninterest income $3,426,328 $3,155,412 $2,608,206
NONINTEREST EXPENSE
Total noninterest expenses, which consist primarily of employee compensation
and benefits, occupancy and equipment expenses and other general operating
expenses, increased $250,090 or 3.0% during 1999, $397,098 or 4.9% during 1998
and $293,210 or 3.8% during 1997. The increase in noninterest expenses in 1999
was attributable to salary and staffing increases, in particular in the Trust
and Investment Services department and expenses related to new technology and
access channels to the Bank and its services. The increase in 1998 was
attributable to salary and staffing increases, depreciation, taxes and rent
expenses related to our newest branch in Bar Harbor and expenses related to
strategic initiatives. The increase in 1997 was attributable to net occupancy
and equipment expenses and bank card expenses incurred due to business
development efforts in 1997.
INCOME TAXES
The Company recognized $1,377,355, $1,294,000 and $1,224,000 in income tax
expense for the years ended December 31, 1999, 1998 and 1997, respectively.
The effective tax rate was 29.1% for 1999, 29.5% for 1998 and 31.2% for 1997.
The Bank has sufficient refundable taxes paid in available carry back years
to fully realize its recorded deferred tax asset of $2,587,204 at December 31,
1999.
FINANCIAL CONDITION
Set forth below is a discussion of the material changes in the Company's
financial condition for the periods indicated.
BALANCE SHEET REVIEW
Total assets increased $6,654,860 or 2.6% in 1999, primarily due to increased
loan volume offset by decreased securities and cash volumes used to fund loan
growth and Y2K year end transition needs, compared to an increase of $28,634,974
or 12.9% in 1998.
Securities available for sale, which include U.S. Government securities,
callable agency bonds, municipals and mortgage backed securities, decreased
$3,655,862 or 3.5%. During 1999, the Bank elected to maintain the level of
the securities portfolio to enhance its contribution to net interest income,
maximize yields, reduce exposure of continuously callable agencies, manage
cash flow, control risk and to provide diversification. As of December 31,
1999, the Company has a net unrealized loss of $3,224,735 in this portfolio.
In 1998, securities available for sale increased $42,723,673 or 70.4% due
primarily to a transfer from held to maturity investments of $28,502,694 and
planned portfolio growth. As of December 31, 1998, the Company had a net
unrealized gain of $1,760,656 in this portfolio.
Securities held to maturity, which include in-state municipals, decreased
$139,477 or 3.2% in 1999, compared to a $28,423,705 or 86.7% decrease in 1998
primarily due to a transfer to securities available for sale.
The changes in the securities portfolio reflect the Company's efforts to meet
asset and liability objectives and otherwise manage its liquidity and funding
needs within the parameters of the Company's policies. For further discussion,
see the Risk Management section, page 17.
LOANS
Total loans reached a record high of $129,633,426 during 1999 and, as of
December 31, 1999, had increased $17,223,368 or 15.6% over 1998, primarily due
to a $14,752,901 or 20.1% increase in real estate loans. As of December 31,
1998, loans increased $3,337,081 or 3.1% over 1997.
There has been no material change in the Bank's loan mix, and as of December
31, 1999, the loan portfolio remains diversified with a total of 69% secured
by real estate of which consumer loans were 39% and commercial real estate were
30%. Loans to individuals for household, family and other personal expenditures
were 8%, home equities were 3%, commercial loans accounted for 13% and 7% was
invested in municipal loans.
Loan mix and growth trends, as of December 31, 1999, are illustrated in the
graphs below:
INSERT 5 YEAR BAR CHART
LOAN GROWTH TRENDS
INSERT PIE CHART
LOAN MIX
DEPOSITS
During 1999, deposits peaked at a record level of $203,632,917 and increased
$4,818,818 or 2.6% by December 31, 1999, compared to a $10,643,151 or 6.0%
increase over the same period in 1998.
Growth was primarily in savings and money market accounts, due to competitive
rates and customer's desire to place their funds in short term deposit accounts.
In the Bank's market area, the banking business is somewhat seasonal due to an
influx of tourists and seasonal residents returning to the area each spring and
summer. As a result, the Bank has an annual deposit swing, from a high point
in mid October to a low point in June. This deposit swing is predictable and
does not have a material adverse effect on the Bank.
Deposit mix and growth trends, as of December 31, 1999, are illustrated in
the graphs below:
INSERT 5 YEAR BAR CHART
DEPOSIT GROWTH TRENDS
INSERT PIE CHART
DEPOSIT MIX
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Federal Reserve Board's capital requirement generally calls for an 8% total
capital ratio, of which 3% must be comprised of Tier I capital. Risk based
capital ratios are calculated by weighting assets and off balance sheet
instruments according to the relative credit risk. As of December 31, 1999, the
Company's Tier I ratio of 19.97% far exceeds the Federal Reserve Board's
guidelines.
Total shareholders' equity, excluding a net unrealized gain/(loss) on available
for sale securities of ($2,128,324) in 1999 and $1,162,032 in 1998, increased
$2,193,629 in 1999, primarily as a result of net income of $3,354,722, offset
by dividends declared of $1,107,916.
During 1999, the Company declared a 20% stock dividend. Dividends of $1,107,916
were declared on the Company's common stock and represented a 14.9% increase
over 1998. The dividend payouts for 1999, 1998, and 1997 were 33.0%, 31.2% and
32.8% of net income, respectively.
Union Bankshares Company stock, $12.50 par value, is not listed on any national
exchange, nor is it actively traded. Since the Company is not aware of all
trades, the market price is established by determining what a willing buyer will
pay a willing seller. Based upon the trades that the Company had knowledge of
(per quotes from local brokerages), high and low bids for each quarter for 1999
and 1998 are listed in the following table. Prices have been adjusted to
reflect a 20% stock dividend distributed in May 1999.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 108.33 to 108.33 106.63 to 106.67 106.63 to 108.00 108.00 to 110.00
1998 100.00 to 104.16 104.16 to 113.75 105.00 to 108.33 108.33 to 108.33
As of December 31, 1999, there were 725 holders of record of Union Bankshares
Company common stock.
Quarterly dividends per share, adjusted for a 20% stock dividend, paid by the
Company in 1999 and 1998 were as follows:
1999 1998
1st Quarter $ .41 $ .41
2nd Quarter $ .41 $ .41
3rd Quarter $ .50 $ .41
4th Quarter $ .50 $ .41
Total $1.82 $1.64
RISK MANAGEMENT
The Company's continued success is primarily dependent upon its ability to
strategically manage financial and nonfinancial risks.
Nonfinancial risks facing the Company include:
Competition from banks and nonbank financial service companies
Changing regulatory and political environments
Rapid change in technology
Demographic changes
Economic changes
Financial risks managed by the Company include:
Credit risk
Interest rate risk (including asset/liability management)
Market risk
Liquidity risk
Off balance sheet risks/commitments
CREDIT RISK MANAGEMENT
The Company's net loan portfolio as of December 31, 1999 accounted for 49% of
total assets and represents its primary source of credit risk. Substantial
amounts of time and resources have been dedicated to the management of credit
risk within the Bank's loan portfolio. Future emphasis will be applied toward
enhancing the already proven systems of checks and balances to manage the
origination, processing and collection of loans. Additional information
relating to credit risk may be found on page 13, "Provision for Loan Losses,"
and Note 16 to the consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from adverse
changes in market rates/prices such as interest rates, foreign currency exchange
rates, commodity prices and equity prices. The Company's primary market risk
exposure is interest rate risk. The ongoing monitoring and management of this
risk is an important component of the Company's asset/liability management
process, which is governed by policies established by its Board of Directors
that are reviewed and approved annually. The Board of Directors delegates
responsibility for carrying out the asset/liability management policies to the
Asset/Liability Committee (ALCO). In this capacity ALCO develops guidelines and
strategies impacting the Company's asset/liability management-related activities
based upon estimated market risk sensitivity, policy limits and overall market
interest rate levels/trends.
INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
Interest rate risk can be defined as the exposure of the Company's net income
or financial position to adverse movements in interest rates. Changes in the
level of interest rates also can affect:
The amount of loans originated/sold by an institution
The ability of the borrower to repay his/her loan
The average maturity of mortgage loans
The value of the Company's interest earning assets
The market value of available for sale securities
The Company, through management of the relationship of interest rate sensitive
assets to interest rate sensitive liabilities, reduces the volatility of its
net income.
To accomplish this, the Company has undertaken various steps to increase the
percentage of fixed rate assets and to increase the average maturity of such
assets, in particular through the loan products offered and its investment
portfolio.
Net interest income sensitivity to movements in interest rates is measured
through the use of a simulation model that analyzes resulting net income under
various interest rate scenarios established by regulators. Projected net
interest income (NII) is modeled based on both an immediate rise or fall in
interest rates ("rate shock"). The model is based on the actual maturity and
repricing characteristics of interest rate sensitive assets and liabilities and
factors in projections for activity levels by product lines of the Company.
Assumptions are made as to the changing relationship between different interest
rates as interest rates increase/decrease (basis risk) and the customer's
ability to prepay loans and withdraw deposit balances or transfer them to a
higher yielding account (embedded option). The sensitivity analysis is compared
to ALCO policy limits, which specify a maximum tolerance level for NII exposure
over a one-year horizon, assuming no balance sheet growth, given both a 200
basis point (bp) upward and downward shift in interest rates. A parallel and
pro rata shift in rates over a 12-month period is assumed. The following
reflects the Company's NII sensitivity analysis as of December 31, 1999 and
1998.
Estimated
Rate Change NII Sensitivity
1999 1998
+200 bp + 3.3% + 4.4%
-200 bp - 6.2% - 5.9%
The preceding sensitivity analysis does not represent a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including:
the nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions on
loans and deposits, reinvestment/replacement of asset and liability cash flows
and others. While assumptions are developed based upon current economic and
local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions, including how customer preferences or
competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity analysis,
actual results will also differ due to: prepayment/refinancing levels likely
deviating from those assumed, the potential effect of changing debt service
levels on customers with adjustable rate loans, depositor early withdrawals and
product preference changes and other internal/external variables. Furthermore,
the sensitivity analysis does not reflect actions that ALCO might take in
responding to or anticipating changes in interest rates.
Based on the information and assumptions in effect on December 31, 1999, under
five rate simulations used, the Company's net interest income and net income
remain strong, with the return on assets ratio remaining above 1% under all
simulations.
LIQUIDITY RISK MANAGEMENT
Liquidity management is the process by which the Company structures its
liquidity to meet the cash flow requirements of its customers as well as day to
day operating expenses. Many factors affect the Company's ability to meet its
liquidity needs, including its mix of assets and liabilities, interest rates and
local economic conditions. The Company's actual inflow and outflow of funds is
detailed in the Consolidated Statement of Cash Flows on pages 25-26.
Liquidity comes from both assets and liabilities. The assets of the balance
sheet provide liquidity through prepayment and maturities of outstanding loans,
investments and mortgage backed securities and the sale of mortgage loans. The
liability side provides liquidity through deposits and borrowings from Federal
Home Loan Bank of Boston. During 1999 and 1998, the Company used its sources
of funds primarily to meet ongoing commitments to pay maturing certificates of
deposit and savings withdrawals, fund loan originations and maintain a
substantial securities portfolio.
The Company's liquidity policy currently includes requirements that the Company
maintain liquidity as a percentage of total assets at a minimum of 5%. Access
to Federal Home Loan Bank advances allows the Company to maintain a lower
liquidity level than might otherwise be required. As of December 31, 1999, the
Company had a 8.5% liquidity ratio.
OFF BALANCE SHEET RISKS AND COMMITMENTS
As of December 31, 1999 and 1998, the total approved loan commitments
outstanding, the commitment under unused lines of credit and the unadvanced
portion of loans amounted to $35,990,000 and $32,528,000, respectively.
REGULATORY ENVIRONMENT
REGULATORY CAPITAL REQUIREMENTS
Under Federal Reserve Board guidelines, the Company is required to maintain
capital based on "risk adjusted" assets. Under risk based capital guidelines,
categories of assets with potentially higher credit risk require more capital
than assets with lower risk. In addition to balance sheet assets, the Company
is required to maintain capital, on a risk adjusted basis, to support off
balance sheet activities such as loan commitments. The Federal Reserve
guidelines classify capital into two tiers, Tier I and Total Capital. Tier I
risk based capital consists primarily of shareholders' equity. Total risk based
capital consists of Tier I capital plus a portion of the general allowance for
loan losses.
In addition to risk based capital requirements, the Federal Reserve requires
the Company to maintain a minimum leverage capital ratio of Tier I capital to
total assets.
The Company as of December 31, 1999 and 1998 exceeds all applicable federal and
state laws and regulations regarding minimum regulatory capital and is
categorized as a well-capitalized bank.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes presented in this Annual
Report 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 consideration of 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
has 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.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued the following Statements
of Financial Accounting Standards during 1998 and 1999:
SFAS No. 133 Accounting for Derivative Instruments and
Hedging Activities
SFAS No. 134 Accounting for Mortgage Backed Securities Retained After
the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise
SFAS No. 135 Rescission of FASB Statement No. 75 and Technical Corrections
SFAS No. 136 Transfer of Assets to a Not-for-Profit Organization or
Charitable Trust that Raises or Holds Contributions for Others
SFAS No. 137 Accounting for Derivative Instruments and Hedging Activities
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, 1999, 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.
SFAS No. 134, 135 and 136 have no effect on the consolidated financial
condition and results of operations of the Company.
SFAS No. 137, which amends SFAS No. 133 and establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities, is effective
for all fiscal quarters of all fiscal years beginning after June 15, 2000. The
Company does not expect this statement to have any material impact to its
consolidated financial condition and results of operations.
YEAR 2000 READINESS
As of December 31, 1999, the Bank experienced no significant operational or
financial impact from the year 2000 transition. Union Trust, recognizing the
importance of this issue, started working on this problem several years ago.
The Company adopted a plan of action back in 1997 to minimize the risks to the
Company's operations and financial condition 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 1999 and 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. As of December 31, 1999, Union
Trust met 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 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. During 1999, the Bank
joined an inter bank Y2K group to address the issues of the Year 2000 event,
in particular, addressing cash reserves, security and customer communication
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 have amounted to as much as $110,000, of which $85,000 and $25,000 was
expensed in 1999 and 1998, respectively. In addition, it is estimated that
approximately 3,500 employee-hours were utilized during the period for related
activities, which are not reflected in the above figures.
Management believes the Company has and will continue to adequately address the
Year 2000 event and that testing will be conducted throughout the organization
during year 2000 to minimize any potential adverse effects on the Company and
its customers.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
ASSETS
Cash and due from banks (note 2) $ 9,035,081 $ 7,845,223
Federal funds sold 39,698 9,268,135
Available for sale securities, at market
value (note 3) 99,714,632 103,370,494
Held to maturity securities, at cost (note 4)
(market value $4,142,076 and $4,503,123 at
December 31, 1999 and 1998, respectively) 4,236,504 4,375,981
Other investment securities at cost, which
approximates market value 3,557,700 3,557,700
Loans held for sale 594,464 6,137,956
LOANS (note 5):
Real estate 88,047,637 73,294,736
Commercial and industrial 16,221,882 15,979,032
Municipal 8,845,000 5,798,085
Consumer 14,508,058 15,327,356
127,622,577 110,399,209
Deferred loan costs 26,574 23,222
Less allowance for loan losses (note 6) 2,629,472 2,434,636
Net loans 125,019,679 107,987,795
Premises, furniture and equipment, net (note 8) 2,987,572 2,653,775
Other assets (notes 7, 9, 13 and 14) 12,664,335 5,997,746
Total assets $257,849,665 $251,194,805
LIABILITIES
DEPOSITS
Demand deposits $ 25,368,731 $ 22,823,763
Savings deposits (including NOW deposits
totaling $38,170,328 in 1999 and
$37,114,944 in 1998) 69,602,376 66,796,459
Money market accounts 22,465,087 18,751,256
Time deposits (note 10) 75,411,640 79,657,538
Total deposits 192,847,834 188,029,016
Advances from Federal Home Loan Bank (note 11) 18,451,250 20,451,250
Other borrowed funds (note 12) 13,140,423 8,965,977
Other liabilities (notes 13 and 14) 5,767,167 5,008,844
Total liabilities 230,206,674 222,455,087
Contingent liabilities and commitments
(notes 15, 16 and 17)
SHAREHOLDERS' EQUITY
Common stock, $12.50 par value. Authorized
1,200,000 shares, issued 582,394 shares
in 1999 and 1998 $ 7,279,925 $ 7,279,925
Surplus 3,963,533 3,963,432
Retained earnings (note 15) 18,837,028 16,623,348
Net unrealized gain (loss) on available for
sale securities net of deferred tax liability
(asset) of $(1,096,409) and $598,622 at 1999
and 1998, respectively (note 3) (2,128,324) 1,162,032
Treasury stock, at cost (4,546 shares in 1999
and 4,378 shares in 1998) (309,171) (289,019)
Total shareholders' equity 27,642,991 28,739,718
Total liabilities and shareholders' equity $257,849,665 $251,194,805
The accompanying notes are an integral part of these consolidated
financial statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 10,032,349 $ 10,240,991 $ 9,659,971
Interest on securities available
for sale 6,709,940 5,113,775 5,182,071
Interest on securities held to maturity 229,221 1,420,204 1,303,582
Interest on federal funds sold 293,774 325,740 40,728
Total interest income 17,265,284 17,100,710 16,186,352
INTEREST EXPENSE
Interest on savings deposits 1,082,132 1,131,252 1,119,098
Interest on money market accounts 728,408 560,186 481,714
Interest on time deposits 3,783,922 4,222,178 4,298,169
Interest on borrowings 1,501,991 1,260,487 835,212
Total interest expense 7,096,453 7,174,103 6,734,193
Net interest income 10,168,831 9,926,607 9,452,159
Provision for loan losses (note 6) 200,000 285,000 120,000
Net interest income after provision
for loan losses 9,968,831 9,641,607 9,332,159
NONINTEREST INCOME
Net securities gains (losses) (note 3) (15,728) 31,842 (1,463)
Trust department income 906,996 726,180 594,961
Service charges on deposit accounts 314,268 331,574 343,272
VISA income 711,555 642,097 611,239
Loan department income 514,351 554,120 352,534
Gain on other real estate owned 153,984 0 22,390
Other income 840,901 869,599 685,273
Total noninterest income 3,426,327 3,155,412 2,608,206
Income before noninterest expenses 13,395,158 12,797,019 11,940,365
NONINTEREST EXPENSE
Salaries and wages 3,445,803 3,182,478 3,040,454
Pension and other employee
benefits (note 13) 909,087 976,522 977,292
Insurance 110,065 97,853 112,761
FDIC insurance 21,414 20,859 20,312
Net occupancy expenses 975,143 955,316 888,014
Equipment expenses 373,208 289,376 278,267
Advertising 179,148 176,649 211,180
Supplies 265,919 272,239 212,258
Postage 175,031 154,161 161,254
Telephone 125,330 141,738 143,499
Other professional fees 297,018 319,975 347,608
Other expenses 1,785,915 1,825,825 1,622,994
Total noninterest expenses 8,663,081 8,412,991 8,015,893
Income before income taxes 4,732,077 4,384,028 3,924,472
Income taxes (note 14) 1,377,355 1,294,000 1,224,000
Net income $3,354,722 $3,090,028 $2,700,472
Net income per common share $ 5.80 $ 5.34 $ 4.66
Cash dividends declared
per common share $ 1.82 $ 1.64 $ 1.52
Weighted average common
shares outstanding 578,086 578,211 579,368
The accompanying notes are an integral part of these consolidated
financial statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
ACCUMULATED
OTHER SHARE-
COMMON TREASURY RETAINED COMPREHENSIVE HOLDERS'
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,
1997 0 0 0 2,700,472 0 2,700,472
Change in net unrealized gain (loss)
on available for sale securities,
net of tax of
$313,835 0 0 0 0 609,209 609,209
Total comprehensive
income 0 0 0 2,700,472 609,209 3,309,681
Sale of 116 shares treasury
stock 0 0 8,780 0 0 8,780
Repurchase of 1,500 shares treasury
stock 0 0 (113,440) 0 0 (113,440)
Payment for fractional
shares totaling 294.97
shares 0 0 0 (29,699) 0 (29,699)
Effect of the May 28, 1999 stock
split effected in the form of a
20% stock dividend (96,850
shares) 1,210,625 0 0 (1,210,625) 0 0
Cash dividends
declared 0 0 0 (885,940) 0 (885,940)
Balance at December 31,
1997 $7,279,925 $3,948,797 $(160,695) $14,497,464 $ 437,749 $26,003,240
Net income,
1998 0 0 0 3,090,028 0 3,090,028
Change in net unrealized gain
(loss) on available for sale
securities, net of tax of
$373,116 0 0 0 0 724,283 724,283
Total comprehensive
income 0 0 0 3,090,028 724,283 3,814,311
Sale of 510 shares treasury
stock 0 0 53,546 0 0 53,546
Repurchase of 1,742 shares treasury
stock 0 0 (181,870) 0 0 (181,870)
Redeem minority interest
shareholders 0 14,635 0 0 0 14,635
Cash dividends
declared 0 0 0 (964,144) 0 (964,144)
Balance at December 31,
1998 $7,279,925 $3,963,432 $(289,019) $16,623,348 $1,162,032 $28,739,718
Net income,
1999 0 0 0 3,354,722 0 3,354,722
Change in net unrealized gain
(loss) on available for sale
securities, net of tax of
$(1,695,031) 0 0 0 0 (3,290,356) (3,290,356)
Total comprehensive
income 0 0 0 3,354,722 (3,290,356) 64,366
Sale of 556 shares treasury
stock 0 101 60,316 0 0 60,417
Repurchase of 726 shares treasury
stock 0 0 (80,468) 0 0 (80,468)
Payment for fractional shares
totaling 258.80
shares 0 0 0 (33,126) 0 (33,126)
Cash dividends
declared 0 0 0 (1,107,916) 0 (1,107,916)
Balance at December 31,
1999 $7,279,925 $3,963,533 $(309,171) $18,837,028 $(2,128,324) $27,642,991
The accompanying notes are an integral part of these consolidated financial
statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH
FLOWS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 3,354,722 $ 3,090,028 $ 2,700,472
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Depreciation 478,466 460,820 409,043
Amortization and accretion (62,422) 8,252 (453,787)
Provision for loan losses 200,000 285,000 120,000
Net (gain) loss on sale of
available for sale securities 15,728 (31,842) 1,463
Net loss on sale of equipment 1,867 6,467 944
(Gain) loss on sale of other
real estate owned (153,984) 0 22,390
Provision for other real estate owned 0 0 15,000
Originations of loans
held for sale (18,010,986) (23,861,002) (8,526,648)
Proceeds from loans held for sale 18,589,135 20,861,264 8,629,484
Net change in other assets (943,556) (16,783) (315,375)
Net change in other liabilities 1,954,816 24,910 451,593
Net change in deferred loan
origination fees (3,352) (47,382) 49,374
Provision for deferred income
tax expense 0 211,280 2,267
Net cash provided by operating
activities $ 5,420,434 $ 991,012 $ 3,106,220
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available
for sale securities $ 33,240,067 $ 13,525,454 $ 41,170,105
Purchase of available for
sale securities (48,397,100) (54,796,618) (41,533,761)
Proceeds from maturities and
principal payments on available
for sale securities 13,888,678 28,548,951 14,856,692
Purchase of held to maturity
securities (100,000) (4,804,544) (29,663,803)
Proceeds from maturities and
principal payments on held to
maturity securities 225,000 4,347,687 2,082,547
Purchase of other investment securities 0 (939,000) 0
Purchase of cash surrender
life insurance (5,600,000) 0 0
Proceeds from sales of other
real estate owned 529,490 0 429,528
Net increase in loans
to customers (12,263,189) (3,400,185) (6,108,042)
Proceeds from sales of fixed assets 0 7,900 0
Capital expenditures (814,130) (286,810) (368,255)
Net cash used by investing
activities $(19,291,184) $(17,797,165) $(19,134,989)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in demand, savings and
money market accounts $ 9,064,716 $ 7,627,294 $ 2,028,542
Increase (decrease) in
time deposits (4,245,898) 3,015,857 8,911,856
Net change in advances from
Federal Home Loan Bank (2,000,000) 11,178,000 3,100,250
Net change in other borrowed funds 4,174,446 3,275,002 3,307,431
Payment to eliminate
fractional shares (33,126) 0 (29,699)
Purchase of treasury stock (80,468) (181,870) (113,440)
Sale of treasury stock 60,417 53,546 8,780
Elimination of minority shares 0 14,635 0
Dividends paid (1,107,916) (964,144) (885,940)
Net cash provided by financing
activities $ 5,832,171 $ 24,018,320 $ 16,327,780
Net (decrease) increase in cash
and cash equivalents (8,038,579) 7,212,167 299,011
Cash and cash equivalents at
beginning of year 17,113,358 9,901,191 9,602,180
Cash and cash equivalents at
end of year $ 9,074,779 $ 17,113,358 $ 9,901,191
The accompanying notes are an integral part of these consolidated financial
statements.
1999 1998 1997
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 7,278,946 $ 7,174,676 $ 6,501,460
Income taxes paid $ 1,431,000 $ 1,518,991 $ 1,425,987
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Net increases (decreases) required
by Statement of Financial Accounting
Standards No. 115 "Available for Sale
Securities" $(4,985,387) $ 1,097,399 $ 923,044
Deferred income tax assets
(liabilities) thereon $ 1,695,031 $ (373,116) $ (313,835)
Cost of held to maturity securities
transferred to available
for sale $ 0 $ 28,502,694 $ 0
Unrealized gain on securities
transferred to available for
sale, net of deferred taxes
of $138,627 $ 0 $ 269,100 $ 0
Loans held for sale transferred
to loan portfolio $ 4,965,343 $ 0 $ 0
The accompanying notes are an integral part of these consolidated financial
statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Union Bankshares Company (the Company) provides a full range of banking services
to individual and corporate customers through its subsidiary and branches in
Maine. It is subject to regulations of certain federal agencies and undergoes
periodic examinations by those regulatory authorities.
Operating Segments
The Financial Accounting Standards Board issued Statements of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," effective January 1, 1998. The Company's
operations are comprised of a single operating segment; therefore, SFAS No. 131
imposes no additional disclosure requirements.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the future relate to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses and the
carrying value of real estate owned, management obtains independent appraisals
for significant properties.
Management believes that the allowance for loan losses and the carrying value
of real estate owned are adequate. While management uses available information
to recognize losses on loans and real estate owned, future additions to the
allowances might be necessary based on changes in economic conditions,
particularly in northern New England. In addition, various regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowance for loan losses. These agencies may require the Company to
recognize additions to the allowances based on their judgments about information
available to them at the time of their examination.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Union Trust Company (the Bank). All
significant intercompany balances and transactions have been eliminated in the
accompanying financial statements.
Earnings and Cash Dividends per Share
At December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share,"
and No. 129, "Disclosure of Information about Capital Structure." These
standards have no effect on the financial statements as the Company has no
dilution of earnings per share and the Company's capital disclosures meet the
requirements of SFAS No. 129.
Earnings per share is based upon the average number of common shares outstanding
during each year. In 1999, the Company declared a stock split effected in the
form of a 20% stock dividend. Common share amounts, earnings per share and
dividends per share, common stock and retained earnings for all years presented
have been restated to reflect this transaction.
Investments
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," on July 1, 1998. The Company does not hold any derivative
instruments or engage in hedging activities; therefore, adoption of SFAS No.
133 on the financial statements of the Company is limited to the transfer of
held to maturity securities to available for sale upon adoption of the standard.
Available for Sale Securities
Available for sale securities consist of debt securities that the Company
anticipates could be made available for sale in response to changes in market
interest rates, liquidity needs, changes in funding sources and similar factors.
These assets are specifically identified and are carried at fair value.
Amortization of premiums and accretion of discounts are recorded as an
adjustment to yield. Unrealized holding gains and losses for these assets, net
of related income taxes, is excluded from earnings and is reported as a net
amount in a separate component of shareholders' equity. When a decline in
market value is considered other than temporary, the loss is recognized in the
consolidated statements of income, resulting in the establishment of a new
cost basis. Gains and losses on the sale of available for sale securities are
determined using the specific identification method.
Held to Maturity Securities
Held to maturity securities consist of debt securities that the Company has the
positive intent and ability to hold until maturity. Debt securities classified
as held to maturity are carried at amortized cost, adjusted for amortization of
premiums and accretion of discounts. When a decline in market value is
considered other than temporary, the loss is recognized in the consolidated
statements of income, resulting in the establishment of a new cost basis for
the security.
Other Investment Securities
Other investment securities consist of Federal Home Loan Bank (FHLB) stock and
Federal Reserve Bank stock. These securities are carried at cost, which
approximates market value at December 31, 1999 and 1998.
Loans Held for Sale
Loans held for sale are loans originated for the purpose of potential subsequent
sale. These loans are carried at the lower of aggregate cost or market value
as determined by current investor yield requirements. Gains and losses on the
sale of these loans are computed on the basis of specific identification.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs, the allowance for loan
losses and any deferred fees or costs on originated loans. Interest income is
accrued on the unpaid principal balances. Loan commitments are recorded when
funded.
Loan Servicing
Mortgage loans serviced for others are not included in the accompanying balance
sheets. The Bank recognizes a loan servicing fee for the difference between the
principal and interest payment collected on the loan and the payment remitted
to the investor. Effective January 1, 1997, the Company adopted SFAS No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities," which requires capitalization of mortgage servicing rights for
loans originated after January 1, 1996. The impact of adoption of SFAS No. 125
was not material to the Company's financial statements.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed by accelerated and straight-
line methods over the estimated useful life of each type of asset. Leasehold
improvements are amortized over the terms of the respective leases or the
service lives of the improvements. Maintenance and repairs are charged to
expense as incurred; betterments are capitalized.
Allowance for Loan Losses
The allowance for loan losses is established by management to absorb charge-offs
of loans deemed uncollectible. This allowance is increased by provisions
charged to operating expense and by recoveries on loans previously charged off.
The amount of the provision is based on management's evaluation of the loan
portfolio. Considerations include past and anticipated loan loss experience,
the character and size of the loan portfolio and the need to maintain the
allowance at a level adequate to absorb anticipated future losses.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral, by allocating a portion
of the allowance for loan losses to such loans. If these allocations cause the
allowance to increase, the increase is reported as loan loss provision.
Other Real Estate Owned
Other real estate owned, which is included in other assets, is recorded at the
lower of cost or fair value less estimated costs to sell at the time the
Company takes possession of the property. Losses arising from the acquisition
of such properties are charged against the allowance for loan losses.
Operating expenses and any subsequent provisions to reduce the carrying value
are charged to operations. Gains and losses upon disposition are reflected in
earnings as realized.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
Accrual of Interest Income and Expense
Interest on loans and investment securities is taken into income using methods
that relate the income earned to the balances of loans outstanding and
investment securities. Interest expense on liabilities is derived by applying
applicable interest rates to principal amounts outstanding. The recording of
interest income on problem loan accounts ceases when collectibility within a
reasonable period of time becomes doubtful. Interest income accruals are resumed
only when they are brought fully current with respect to principal and interest
and when management expects the loan to be fully collectible.
The carrying values of impaired loans are periodically adjusted to reflect cash
payments, revised estimates of future cash flows and increases in the present
value of expected cash flows due to the passage of time. Cash payments
representing interest income are reported as such. Other cash payments are
reported as reductions in carrying value, while increases or decreases due to
changes in estimates of future payments and due to the passage of time are
reflected in the loan loss provision.
Loan Origination Fees and Costs
Loan origination fees and certain direct loan origination costs are recognized
over the life of the related loan as an adjustment to or reduction of the loan's
yield.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," effective
January 1, 1998. The required disclosures for all periods presented are
included in the consolidated statement of changes in shareholders' equity.
Comprehensive income includes both net income and other comprehensive income.
The only component of other comprehensive income is net unrealized gains and
losses on available for sale securities, net of deferred taxes.
2. CASH AND DUE FROM BANKS
The Federal Reserve Board requires the Bank to maintain a reserve balance. The
amount of this reserve balance as of December 31, 1999 was $3,773,000. In the
normal course of business, the Bank has funds on deposit at other financial
institutions in amounts in excess of the $100,000 insured by Federal Deposit
Insurance Corporation.
3. AVAILABLE FOR SALE SECURITIES
The Company carries available for sale securities at fair value. A summary of
the cost and fair values of available for sale securities at December 31, 1999
and 1998 is as follows:
Gross Gross
Amortized Unrealized Unrealized Carrying &
Cost Gains Losses Fair Value
1999 1999 1999 1999
Mortgage-backed securities $ 35,198,891 $ 7,092 $(1,206,514) $ 33,999,469
U.S. Treasury securities and
other U.S. Government
agencies 55,921,382 21,812 (1,540,225) 54,402,969
Obligations of state and
political subdivisions 8,454,47 92,023 (389,361) 8,067,141
Other securities 3,364,615 0 (119,562) 3,245,053
Totals $102,939,367 $ 30,927 $(3,255,662) $ 99,714,632
1998 1998 1998 1998
Mortgage-backed securities $ 34,144,871 $ 250,676 $ (59,988) $ 34,335,559
U.S. Treasury securities
and other U.S. Government
agencies 58,492,664 1,173,814 (31,323) 59,635,155
Obligations of state and
political subdivisions 8,499,474 272,654 (3,573) 8,768,555
Other securities 472,829 158,396 0 631,225
Totals $101,609,838 $1,855,540 $ (94,884) $103,370,494
The amortized cost and fair value of available for sale debt securities at
December 31, 1999, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 2,997,392 $ 3,005,938
Due in one year through five years 24,667,129 24,285,653
Due after five years through ten years 34,009,874 32,756,336
Due after ten years 40,792,143 39,197,480
Totals $102,466,538 $ 99,245,407
Upon adoption of SFAS No. 133, an entity is allowed to change the
classification of its securities from held to maturity to available for sale.
The Company reclassified certain held to maturity investments to available for
sale with a cost of $28,502,694 and an unrealized gain of $407,727 upon
adoption of SFAS No. 133 on July 1, 1998.
Proceeds from the sale of securities were $33,240,067, $13,525,454 and
$41,170,105 in 1999, 1998 and 1997, respectively. Gross realized gains were
$197,312, $58,719 and $116,446 in 1999, 1998 and 1997, respectively. Gross
realized losses were $213,040, $26,877 and $117,909 in 1999, 1998 and 1997,
respectively.
4. HELD TO MATURITY SECURITIES
The carrying amounts of held to maturity securities for 1999 and 1998 as shown
in the Company's consolidated balance sheets, and their approximate fair values
at December 31, are as follows:
Gross Gross
Book Unrealized Unrealized Fair
Value Gains Losses Value
1999 1999 1999 1999
Obligations of state and
political subdivisions $4,236,504 $ 20,001 $(114,429) $4,142,076
1998 1998 1998 1998
Obligations of state and
political subdivisions $4,375,981 $140,142 $ (13,000) $4,503,123
The amortized cost and fair value of held to maturity securities at December
31, 1999, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 422,271 $ 424,418
Due after one year through five years 1,908,996 1,925,386
Due after five years through ten years 590,237 583,339
Due after ten years 1,315,000 1,208,933
Totals $4,236,504 $4,142,076
Nontaxable interest income on municipal investments was $596,061, $507,771 and
$274,081 for 1999, 1998 and 1997, respectively.
5. LOANS
At December 31, 1999 and 1998, loans on nonaccrual status totaled
approximately $437,000 and $534,000, respectively. If interest had been accrued
on such loans, interest income on loans would have been approximately $31,000,
$40,000 and $39,000 higher in 1999, 1998 and 1997, respectively. Loans
delinquent by 90 days or more that were still on accrual status at December 31,
1999 and 1998 totaled approximately $313,000 and $47,000, respectively.
In the ordinary course of business, the Company's subsidiary granted loans to
the executive officers and directors of the Company and its subsidiary, and to
affiliates of directors. These loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility.
The balance of loans to related parties amounted to $2,350,837 and
$2,258,380 at December 31, 1999 and 1998, respectively. New loans granted to
related parties in 1999 and 1998 totaled $1,879,937 and $946,303, respectively;
payments and reductions amounted to $1,487,205 and $2,343,004 in 1999 and 1998,
respectively.
At December 31, 1999, the Bank assigned loans in the amount of $5,215,952 to
the Federal Reserve Bank of Boston to provide access to additional borrowing
capacity for year 2000 readiness purposes.
6. ALLOWANCE FOR LOAN LOSSES
Analysis of the allowance for loan losses is as follows for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
Balance, beginning of year $2,434,636 $2,212,740 $2,083,831
Provision for loan losses 200,000 285,000 120,000
Balance before loan charge-offs 2,634,636 2,497,740 2,203,831
Loans charged off 148,355 112,810 225,365
Less recoveries on loans charged off 143,190 49,706 234,274
Net loan charge-offs (recoveries) 5,164 63,104 (8,909)
Balance, end of year $2,629,472 $2,434,636 $2,212,740
Impairment of loans having recorded investments of $14,978 at December 31, 1999
and $207,686 at December 31, 1998 has been recognized in conformity with SFAS
No. 114, as amended by SFAS No. 118. The average recorded investment in
impaired loans during both 1999 and 1998 was $111,332 and $69,229, respectively.
The total allowance for loan losses related to these loans was $150 and $170
on December 31, 1999 and 1998, respectively. There was no interest income
recognized on impaired loans in 1999, 1998 and 1997.
7. LOAN SERVICING
The Bank services loans for others amounting to $61,202,606 and $57,721,623 at
December 31, 1999 and 1998, respectively. Mortgage servicing rights of $233,848
and $207,659 were capitalized in 1999 and 1998, respectively, and have been
written to their fair value of $279,896 and $203,504 through a valuation
allowance at December 31, 1999 and 1998, and are included in other assets.
Amortization of mortgage servicing rights was $110,792, $53,613 and $28,227 in
1999, 1998 and 1997, respectively.
8. PREMISES, FURNITURE AND EQUIPMENT
Detail of bank premises, furniture and equipment is as follows:
1999 1998
Land $ 133,378 $ 133,378
Buildings and improvements 3,973,759 3,462,435
Furniture and equipment 3,630,574 3,432,249
Leasehold improvements 478,259 469,221
$8,215,970 $7,497,283
Less accumulated depreciation 5,228,398 4,843,508
$2,987,572 $2,653,775
At December 31, 1999, the Bank was obligated under a number of
noncancellable leases for premises and equipment that are accounted for as
operating leases. Leases for real property contain original terms from 2 to
20 years with renewal options up to 20 years. Management expects that, in the
normal course of business, most leases will be renewed or replaced by other
leases, or, when available, purchase options may be exercised.
Rental expense was $124,412 in 1999, $127,953 in 1998 and $114,168 in 1997.
The minimum annual lease commitments under noncancellable leases in effect at
December 31, 1999 are as follows:
Year Ending December 31, Amount
2000 $131,524
2001 $ 88,707
2002 $ 54,896
2003 $ 5,014
2004 $ 5,149
Thereafter $ 70,875
Total $356,165
9. OTHER REAL ESTATE OWNED
Other real estate owned is included in other assets and amounts to $0 at
December 31, 1999 and $375,506 at December 31, 1998, respectively. Activity in
the allowance for losses on other real estate owned for the year ended
December 31, 1997 is as follows:
1997
Balance, beginning of year $ 93,082
Provisions charged to income 15,000
Adjustment to market (108,082)
Balance, end of year $ 0
There was no activity in the allowance for losses on other real estate
owned during 1999 and 1998.
10. DEPOSITS
The aggregate amount of jumbo certificates of deposit, each with a minimum
denomination of $100,000, was $10,614,011 and $11,479,860 in 1999 and 1998,
respectively.
At December 31, 1999, the scheduled maturities of time deposits were as follows:
2000 $65,101,945
2001 7,216,826
2002 2,301,735
2003 791,134
Total $75,411,640
11. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank are summarized as follows:
Interest Rates at
December 31, 1999 1999 1998
Fixed advances 5.84% to 7.23% $ 451,250 $ 451,250
Variable advances 5.27% to 5.71% 18,000,000 20,000,000
$18,451,250 $20,451,250
Pursuant to the collateral agreements with the Federal Home Loan Bank (FHLB),
advances are collateralized by stock in the FHLB, qualifying first mortgage
loans and available for sale securities.
Advances at December 31, 1999 mature as follows:
2005 2006 2007 2008 2009 2010 2012 2013
$55,000 $9,000,000 $84,250 $7,089,000 $2,000,000 $55,000 $79,000 $89,000
12. OTHER BORROWED FUNDS
Securities sold under agreements to repurchase generally mature within one day
from the transaction date. At December 31, 1999, securities with a fair value
of $26,541,203 were pledged to collateralize other borrowed funds. Information
concerning securities sold under agreements to repurchase at December 31, 1999
is summarized as follows:
Average balance during the year $ 9,056,088
Average interest rate during the year 3.55%
Maximum month-end balance during the year $13,822,285
13. EMPLOYEE BENEFITS
The Company adopted SFAS No. 132, "Employer's Disclosure about Pension and Other
Post-Retirement Benefits," in 1998. This statement, which revises employers'
disclosures about pension and post-retirement benefits, is effective for years
beginning after December 31, 1997.
Pension Plan
The Company's subsidiary has a noncontributory defined benefit pension plan
covering substantially all permanent full-time employees. The benefits are
based on employees' years of service and the average of their three highest
consecutive rates of annual salary preceding retirement.
It is the subsidiary's policy to fund the plan sufficiently to meet the minimum
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as the Company may determine to be appropriate from
time to time.
Pension expense amounted to $53,480, $39,145 and $124,079 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Post-Retirement Benefits Other Than Pensions
The Company sponsors a post-retirement benefit program that provides medical
coverage and life insurance benefits to certain employees and directors who meet
minimum age and service requirements. Active employees and directors accrue
benefits over a 25-year period.
The following table sets forth the benefit obligations, fair value of plan
assets and funded status for the Company's pension and other post-retirement
benefit plans at December 31, 1999 and 1998.
1999 1998
Pension Other Pension Other
Benefits Benefits Benefits Benefits
Change in Benefit Obligations
Benefit obligations at
beginning of year $4,609,135 $ 1,597,863 $4,262,973 $ 1,413,233
Service cost 185,348 37,622 151,631 63,635
Interest cost 310,869 78,873 288,111 97,391
Actuarial (gain) loss (381,284) (542,761) 138,734 64,090
Benefits paid (234,420) (46,754) (232,314) (40,486)
Benefit obligations at
end of year $4,489,648 $ 1,124,843 $4,609,135 $ 1,597,863
Change in Plan Assets
Fair value of plan assets at
beginning of year $5,259,015 $ 0 $4,782,945 $ 0
Actual return on plan assets 348,389 0 708,384 0
Employer contributions 0 46,754 0 40,486
Benefits paid (234,420) (46,754) (232,314) (40,486)
Fair value of plan assets at
end of year $5,372,984 $ 0 $5,259,015 $ 0
Funded Status $ 883,336 $(1,124,843) $ 649,880 $(1,597,863)
Unrecognized net actuarial
(gain) loss (587,544) (339,792) (274,284) 194,711
Unamortized prior service
cost (28,304) 0 (30,850) 0
Unrecognized transition (net
asset) net obligation (84,486) 594,300 (108,264) 639,900
Prepaid (accrued) benefit
cost, included in other assets
or other liabilities $ 183,002 $ (870,335) $ 236,482 $ (763,252)
Net periodic benefit cost includes the following components:
1999 1998 1997
Pension Other Pension Other Pension Other
Benefits Benefits Benefits Benefits Benefits Benefits
Service cost $185,348 $ 37,622 $151,631 $ 63,635 $177,524 $ 59,472
Interest cost 310,869 78,873 288,111 97,391 293,016 89,543
Expected return on
plan assets (416,413) 0 (374,273) 0 (326,921) 0
Recognized net actuarial
(gain) loss 0 (8,258) 0 0 6,784 9
Amortization (accretion) of
unrecognized transition asset
or obligation (23,778) 45,600 (23,778) 45,600 (23,778) 45,600
Amortization of prior
service cost (2,546) 0 (2,546) 0 (2,546) 0
Net periodic
benefit cost $ 53,480 $153,837 $ 39,145 $206,626 $124,079 $194,624
Weighted-average assumptions as of December 31
Discount rate 6.75% 6.75% 6.75% 6.75% 7.00% 7.00%
Expected return on
plan assets 8.00% - 8.00% - 8.00% -
Rate of compensation
increase 4.00% 4.00% 4.00% 5.00% 4.00% 5.00%
For measurement purposes, the annual rates of increase in the per capita health
care cost of covered benefits were 12%, 11% and 11% for 1999, 1998 and 1997,
respectively. The annual rate of increase in per capita health care costs are
assumed to decrease annually by 1% until the year 2005 (which at that time will
be 6%) and later.
The effects of a one-percentage-point change in the assumed health care cost
trend rate on the aggregate service and interest cost components of the net
periodic post-retirement health care benefit cost would be:
1 Percentage 1 Percentage
Point Increase Point Decrease
1999 1998 1997 1999 1998
Effect on total service and
interest components $ 177,080 $ 43,505 $ 39,845 $ (136,112) $ (33,525)
Effect on post-retirement
benefit obligation $1,363,639 $344,334 $332,820 $(1,055,423) $(274,276)
The effects of a one-percentage-point decrease in the assumed health care
cost trend rate on the aggregate service and interest cost components of
the net periodic post-retirement benefit cost and the accumulated post-
retirement benefit obligation for health care benefits are not available
for 1997.
401(k) Plan
The Company has a noncontributory 401(k) plan for employees who meet certain
service requirements.
Stock Purchase Plan
The Bank maintains a stock purchase plan which allows qualified employees and
directors to acquire stock at fair market value.
14. INCOME TAXES
Income tax expense consists of the following:
Current Deferred Total
1999
Federal $1,317,355 $ 0 $1,317,355
State 60,000 0 60,000
$1,377,355 $ 0 $1,377,355
1998
Federal $1,023,720 $211,280 $1,235,000
State 59,000 0 59,000
$1,082,720 $211,280 $1,294,000
1997
Federal $1,176,733 $ 2,267 $1,179,000
State 45,000 0 45,000
$1,221,733 $ 2,267 $1,224,000
The actual tax expense for 1999, 1998 and 1997 differs from the "expected" tax
expense for those years (computed by applying the applicable U.S. Federal
Corporate Tax Rate to income before income taxes) due to the following:
1999 1998 1997
Amount % of Amount % of Amount % of
Pretax Pretax Pretax
Earnings Earnings Earnings
Computed "expected"
tax expense $1,608,910 34.0% $1,490,570 34.0% $1,334,320 34.0%
Nontaxable income on
obligations of states
and political
subdivisions (286,523) (6.1%) (247,762) (5.7%) (158,781) (4.1%)
Other 54,968 1.2% 51,192 1.2% 48,461 1.3%
$1,377,355 29.1% $1,294,000 29.5% $1,224,000 31.2%
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented as
follows:
DEFERRED TAX ASSETS 1999 1998
Unrealized loss on available for sale securities $1,096,409 $ 0
Allowance for loan losses 894,020 849,232
Deferred compensation 230,225 224,786
Post-retirement benefits 295,308 259,674
Other 71,242 157,104
Deferred tax assets $2,587,204 $1,490,796
DEFERRED TAX LIABILITIES
Unrealized gain on available for sale securities $ 0 $ 598,622
Allowance for loan losses 146,903 170,114
Premises, furniture and equipment, principally
due to differences in depreciation 242,659 256,007
Prepaid pension expense 62,493 80,676
Cash surrender value of life insurance 36,386 36,386
Other 72,751 18,010
Deferred tax liabilities $ 561,192 $1,159,815
The Bank has sufficient refundable taxes paid in available carryback years to
fully realize its recorded deferred tax asset of $2,587,204 at December 31,
1999. The deferred tax asset and liability are included in other assets and
other liabilities in the balance sheet at December 31, 1999 and 1998.
15. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
Federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory (and possibly additional discretionary) actions by
regulators that could have a direct material effect on the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off balance sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators regarding components, risk weightings and other
factors.
Quantitive measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations)
to risk weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal Reserve
Board categorized the Bank as well capitalized under the regulatory framework.
To be so categorized, the Bank must maintain minimum total risk based, Tier I
risk based and Tier I leverage ratios as set forth in the table. Management
believes no conditions or events that would alter the Bank's categorization have
occurred since the Board's notification.
The actual capital amounts and ratios for the Bank as of December 31, 1999 and
1998 are presented in the table below:
December 31, 1999
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital
(to risk weighted
assets) $31,061,000 21.2% >$11,705,000 >8.0% >$14,631,300 >10.0%
Tier I capital
(to risk weighted
assets) $29,222,000 20.0% >$ 5,853,000 >4.0% >$ 8,778,780 > 6.0%
Tier I capital
(to average
assets) $29,222,000 11.2% >$ 7,854,000 >3.0% >$13,223,500 > 5.0%
December 31, 1998
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital
(to risk weighted
assets) $28,490,327 21.6% >$10,540,400 >8.0% >$13,175,500 >10.0%
Tier I capital
(to risk weighted
assets) $26,833,327 20.4% >$ 5,270,200 >4.0% >$ 7,905,300 > 6.0%
Tier I capital
(to average
assets) $26,833,327 10.7% >$ 7,500,060 >3.0% >$12,500,100 > 5.0%
The actual capital amounts and ratios for the Company are not materially
different from those for the Bank. The Company may not declare or pay a cash
dividend on or repurchase any of its capital stock if the effect thereof would
cause the capital of the Company to be reduced below the capital requirements
imposed by the Federal Reserve.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION
OF CREDIT RISK
In the normal course of business, the Bank is a party to financial instruments
with off-balance sheet risk to meet the financing needs of its customers. These
inancial 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 consolidated balance sheet. The contract
amounts of these instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments. At December 31, 1999 and 1998,
the following financial instruments, whose contract amounts represent credit
risk, were outstanding:
Contract Amount
1999 1998
Commitments to extend credit $33,241,000 $30,769,000
Standby letters of credit $ 82,000 $ 195,000
Unadvanced portions of construction loans $ 2,667,000 $ 1,564,000
Total $35,990,000 $32,528,000
The Bank's exposure to credit loss in the event of nonperformance by the other
parties to the above financial instruments is represented by the contractual
amounts of the instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case by case basis. The amount of collateral obtained, if
deemed necessary by the Bank upon the credit extension, is based on management's
credit evaluation of the counterparty. The types of collateral held include
residential and commercial real estate and, to a lesser degree, personal
property, business inventory and accounts receivable.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Expiration dates are
usually within one year. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loans to customers.
The Bank grants residential, commercial and consumer loans principally to
customers in Maine's Hancock and Washington counties. Although the loan
portfolio is diversified, a substantial portion of the debtors' ability to
honor their contracts depends upon local economic conditions, especially in
the real estate sector. At December 31, 1999, there were no borrowers whose
total indebtedness to the Bank exceeded regulatory limits.
The consolidated balance sheets do not include various contingent
liabilities such as liabilities for assets held in trust. Management does
not anticipate any loss as a result of these contingencies.
17. LITIGATION
At December 31, 1999, the Company was involved in litigation arising from
normal banking, financial and other activities of the Bank. Management, after
consultation with legal counsel, does not anticipate that the ultimate
liability, if any, arising out of these matters will have a material effect on
the Company's financial condition.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below for the Bank's
financial instruments. Fair values are calculated based on the value of one
unit without regard to any premium or discount that may result from
concentrations of ownership of a financial instrument, possible tax
ramifications or estimated transaction costs. If these considerations had
been incorporated into the fair value estimates, the aggregate fair value
amount could have changed.
Cash, Due from Banks and Federal Funds Sold
The fair value of cash, due from banks and federal funds sold approximates their
relative book values at December 31, 1999 and 1998, as these financial
instruments have short maturities.
Available for Sale Securities and Held to Maturity Securities
Fair values are estimated based on bid prices published in financial newspapers
or bid quotations received from securities dealers. The fair value of certain
state and municipal securities is not readily available through market sources
other than dealer quotations, so fair value estimates are based on quoted market
prices of similar instruments, adjusted for differences between the quoted
instruments and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Management has determined that the fair value approximates
book value on all loans with maturities of one year or less or variable interest
rates. The fair values of all other loans are estimated based on bid
quotations received from securities dealers. The estimates of maturity are
based on the Bank's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of current
economic and lending conditions and the effects of estimated prepayments.
Loans Held for Sale
The fair market value of this financial instrument approximates the book value
as the instrument has a short maturity.
Accrued Interest Receivable
The fair market value of this financial instrument approximates the book value
as the instrument has a short maturity. It is the Bank's policy to stop
accruing interest on loans past due by more than 90 days.
Other Investment Securities, Federal Home Loan Bank Stock and Federal
Reserve Bank Stock
The fair market value of these financial instruments approximates the book
value as these instruments do not have a market, nor is it practical to
estimate their fair value without incurring excessive costs.
Deposits
Fair value of deposits with no stated maturity, such as noninterest bearing
demand deposits, savings deposits, NOW accounts and money market and checking
accounts, equals the amount payable on demand. The fair values of certificates
of deposit are based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
The fair value estimates do not include the benefit that results from the low
cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market. If that value was considered, the fair value of
the Bank's net assets could increase.
Accrued Interest Payable
The fair value of this financial instrument approximates the book value as the
instrument has a short maturity.
Advances from Federal Home Loan Bank
The fair values of advances are estimated using discounted cash flow analyses
based on the Bank's current incremental borrowing rates for similar types of
borrowing arrangements.
Other Borrowed Funds
The carrying amount of borrowings under repurchase agreements maturing within 90
days approximates their fair value.
Commitments to Extend Credit
The Bank has not estimated the fair values of commitments to originate loans
due to their short-term nature and their relative immateriality.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instruments. These
values do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The latter may include deferred tax assets, bank
premises and equipment and other real estate owned. In addition, tax
ramifications related to the realization of the unrealized gains and losses
can have a significant effect on fair value estimates and have not been
considered in any of the estimates.
A summary of the fair values of the Company's significant financial
instruments at December 31, 1999 and 1998 follows:
1999 1998
Carrying Estimate of Carrying Estimate of
Value Fair Value Value Fair Value
ASSETS
Cash, due from banks and federal
funds sold $ 9,074,779 $ 9,074,779 $ 17,113,358 $ 17,113,358
Available for sale securities 99,714,632 99,714,632 103,370,494 103,370,494
Held to maturity securities 4,236,504 4,142,076 4,375,981 4,503,123
Other investment securities 3,557,700 3,557,700 3,557,700 3,557,700
Loans 125,019,679 123,904,819 107,987,795 108,860,924
Loans held for sale 594,464 594,464 6,137,956 6,137,956
Accrued interest receivable 2,294,145 2,294,145 2,368,736 2,368,736
LIABILITIES
Deposits 192,847,834 194,258,313 188,029,016 189,881,877
Accrued interest payable 823,256 823,256 1,005,749 1,005,749
Advances from Federal Home
Loan Bank 18,451,250 18,451,250 20,451,250 20,451,250
Other borrowed funds 13,140,423 13,140,423 8,965,977 8,965,977
19. PARENT-ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Union Bankshares Company as of December
31, 1999 and 1998 and for each of the years ended December 31, 1999, 1998 and
1997 are presented as follows:
BALANCE SHEET
December 31, 1999 and 1998
1999 1998
ASSETS
Cash $ 49,635 $ 70,198
Investment in subsidiary 27,125,055 28,094,322
Other assets 757,225 870,000
Total assets $27,931,915 $29,034,520
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 288,924 $ 240,948
Other liabilities 0 53,854
Shareholders' equity 27,642,991 28,739,718
Total liabilities and shareholders' equity $27,931,915 $29,034,520
STATEMENTS OF INCOME
Years ended December 31, 1999, 1998, and 1997
1999 1998 1997
Dividend income $1,149,726 $ 971,354 $ 887,466
Equity in undistributed earnings
of subsidiary 2,214,170 1,945,460 1,682,019
Other income 0 181,870 140,804
Total income 3,363,896 3,098,684 2,710,289
Operating expenses 9,174 8,656 9,817
Net income $3,354,722 $3,090,028 $2,700,472
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,354,722 $ 3,090,028 $ 2,700,472
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Undistributed earnings
of subsidiary (2,214,170) (1,945,460) (1,682,019)
Increase in other assets (48,000) (173) (39,970)
Net cash provided by
operating activities $ 1,092,552 $ 1,144,395 $ 978,483
CASH FLOWS FROM FINANCING ACTIVITIES
Payment to eliminate fractional
shares $ (33,126) $ 0 $ (29,699)
Increase (decrease) in dividends
payable 47,978 (515) 39,558
Dividends paid (1,107,916) (964,144) (885,940)
Purchase of treasury stock (80,468) (181,870) (113,440)
Sale of treasury stock 60,417 53,546 8,780
Net cash used by financing
activities $(1,113,115) $(1,092,983) $ (980,741)
Net increase (decrease) in cash
and cash equivalents (20,563) 51,412 (2,258)
Cash beginning of year 70,198 18,786 21,044
Cash end of year $ 49,635 $ 70,198 $ 18,786
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Net increase (decrease) in net
unrealized gain (loss) on available
for sale securities $(3,290,356) $ 724,283 $ 609,209
Elimination of minority shares 0 14,635 0
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have audited the accompanying consolidated balance sheets of Union
Bankshares Company and Subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above represent
fairly, in all material respects, the consolidated financial position of
Union Bankshares Company and Subsidiary as of December 31, 1999 and 1998,
and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended December 31,
1999, in conformity with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
January 21, 2000
UNION BANKSHARES COMPANY &
UNION TRUST COMPANY DIRECTORS
Arthur J. Billings David E. Honey
President, Barter Lumber Company Retired, Former Manager
Swans Island Electric Coop
Peter A. Blyberg
President James L. Markos, Jr.
General Manager,
Robert S. Boit Maine Shellfish Company, Inc.
Retired, Former President
Blake B. Brown Casper G. Sargent, Jr.
President & Owner, Brown's Owner, Sargent's Real Estate Corp.
Appliance and TV
Richard C. Carver John V. Sawyer II
Owner, Carver Oil Co. Chairman of the Board; Retired
& Carver Shellfish President, Worcester-Sawyer Agency
Peter A. Clapp Stephen C. Shea
President, Blue Hill Garage Treasurer, E. L. Shea, Inc.;
President, Shea Leasing
Sandra H. Collier
Attorney at Law, Richard W. Teele
Sandra Hylander Collier Law Offices Secretary; Retired Former Executive
Vice President & Treasurer
Robert B. Fernald
Treasurer, A. C. Fernald Sons, Inc. Paul L. Tracy
& Jordan Fernald President, Owner, Winter Harbor
Agency; Vice President, Co-Owner,
Douglas A. Gott Schoodic Insurance Agency;
Owner, Douglas A. Gott & Sons Vice President, Co-Owner, MDI
Insurance Agency; Co-Owner,
Grindstone Financial Group LLC
Richard W. Whitney
Dentist
UNION BANKSHARES COMPANY UNION BANKSHARES COMPANY
DIRECTORY OF OFFICERS & UNION TRUST COMPANY
HONORARY DIRECTORS
John V. Sawyer II
Chairman of the Board Franklin L. Beal
Retired
Peter A. Blyberg
President Carroll V. Gay
Retired
John P. Lynch
Executive Vice President Delmont N. Merrill
President, Merrill Blueberry Farms, Inc.
Peter F. Greene
Senior Vice President Thomas R. Perkins
Retired Pharmacy Owner
Sally J. Hutchins Retired Maine Legislator (Senator)
Senior Vice President & Clerk Retired Legislative Liaison MSHA
Rebecca J. Sargent John E. Raymond
Sr. Vice President, Sr. Trust Officer President, Bimbay, Inc.
Richard W. Teele Mary T. Slaven
Secretary Realtor
Douglas N. Smith
Retired
I Frank Snow
Retired
UNION TRUST COMPANY
DIRECTORY OF OFFICERS
John V. Sawyer II Harold L. Metcalf
Chairman of the Board AVP, Relationship Manager
Peter A. Blyberg Peter C. O'Brien
President, Chief Executive Officer AVP, Loan Support Manager and CRA
Officer
John P. Lynch Lorraine S. Ouellette
Exec. Vice Pres., Sr. Banking Officer AVP, Trust Officer
Peter F. Greene Catherine M. Planchart
Sr. Vice Pres., Sr. Bank Services Officer AVP, Marketing Officer
Sally J. Hutchins Deborah F. Preble
Sr. Vice Pres., Treas., Controller & Clerk AVP, Assistant Controller
Rebecca J. Sargent Sandy Salsbury
Sr. Vice President, Senior Trust Officer Human Resource Officer
Edwin Bonnenfont Susan A. Saunders
Vice President, Investment Officer AVP, Project Management Officer
Janis Guyette Stephen L. Tobey
Vice President, Trust Operations Officer AVP, Cash Management &
Security Officer
Christopher H. Keefe Julie C. Vittum
Vice President, Sr. Relationship Manager AVP, Senior Auditor
David A. Krech Linda Carter
Vice President, Sr. Investment Officer Deposit Services Officer
Bette B. Pierson Helen J. Condon
Vice President, Mortgage Loan Officer Electronic Services Officer
Geddes Simpson, Jr. Cynthia Davis
Vice President, Trust Officer Customer Services Officer
Michelle Bannister Sylvia Joy
AVP, Training and Development Officer Assistant Trust Officer
James M. Callnan Dawn L. Lacerda
AVP, Senior Information Services Officer Loan Services Officer
Nancy E. Domagala Mary Lou Lane
AVP, Mortgage Underwriter Mortgage Underwriter
Laurence D. Fernald, Jr. William Sneed
AVP, Relationship Mgr. and Information Specialist Officer
Appraisal Review Officer
Lynda C. Hamblen Brenda Strout
AVP, Relationship Manager Assistant Trust Officer
Phyllis C. Harmon Tina St. Pierre
AVP, Relationship Manager Collections Officer
Patti S. Herrick
AVP, Information Services Officer
UNION TRUST COMPANY BRANCH OFFICES
Bar Harbor Gray, Shelly
Christopher H. Keefe, VP, Sr. Relationship Manager Grindle, Eugene
Hall, Maria
Blue Hill Hamilton, Tara
Pamela G. Hutchins, AVP, Relationship Manager Handy, Louise
Heidi Gommo, Assistant Branch Manager Hennigan, Robin
Hills, Darlene
Castine Hinkel, Scott
Pamela G. Hutchins, AVP, Relationship Manager Hutchins, Rebecca
Hutchinson, Elwell
Cherryfield Ingalls, Laurea
C. Foster Mathews, AVP, Branch Manager Jewell, Beth
Johnson, Mindy
Ellsworth Shopping Center Kalloch, Debra
Melody L. Wright, Branch Manager Kelley, Cindy
Look, Cheryl
Jonesport Look, Lisa
Wendy W. Beal, AVP, Relationship Manager Lounder, Lorraine
MacLaughlin, Wendy
Machias Madden, Anita
Lisa A. Holmes, AVP, Relationship Manager Madore, Jennifer
Marshall, Carol
Milbridge McCormick, Bernadette
James E. Haskell, AVP, Relationship Manager Merritt, Caroline
Norton, Clifford III
Somesville Owen, Doris
William R. Weir, Jr., AVP, Relationship Manager Page, Deborah
Perry, Ann
Stonington Pineo, Muriel
Harry R. Vickerson III, AVP, Relationship Manager Podlubny, Helene
Raybourn, Dawn
UNION TRUST COMPANY PERSONNEL Reardon, Rhonda
Rollins, Bonnie
Allen, Deborah Rose, Brenda
Armstrong, Rebecca Sackett, Jacqueline
Austin, Lois Salisbury, Jane
Babson, William Santerre, Tammy
Batson, Harold Sawyer, Donna
Bayrd, Rona Scott, Marsha
Billings, Holly Scoville, Clark
Bishop, Kristina Servetas, Dana
Bonville, Melissa Sinford, Nicole
Boyce, Katrina Sinford, Stacey
Carter, Glendon Snow, Christie
Carver, Lisa Spaulding, Virginia
Cole, Richard Sprague, Donna
Curtis, Kristen Sproul, Bonnie
Czlapinski, Kathy Swett, Andrea
Dillon, Patricia Thibodeau, Mary
Dorr, Peggy Thompson, Dianne
Douglas, Joanne Treadwell, Mattie
Driscoll, Johna Ulichny, Rhonda
Dyer, Shari Wallace, Jayne
Elliott, Linda Wenger, April
Faulkner, Kathy Wilson, Stephanie
Furrow, Cecila Youngblood, Mary
Gellerson, Tracy
Grant, Victoria
Union Trust Company is committed to offering equal opportunity in regard to
employment, training, benefits, salary administration and promotional
opportunities to all employees, regardless of race, color, religion, sex,
age or national origin. The Bank has implemented an Affirmative Action
Plan.
Upon written request, the Company will provide, without charge, a copy of
its 1999 Annual Report on SEC Form 10K, including the financial statements
and schedules required to be filed with the Securities and Exchange
Commission. Interested persons should write to:
Sally J. Hutchins, Senior Vice President
Union Bankshares Company
P.O. Box 479
Ellsworth, Maine 04605
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<PERIOD-END> DEC-31-1999
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<TRADING-ASSETS> 0
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<INVESTMENTS-CARRYING> 4236504
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0
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<COMMON> 7279925
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 257849665
<INTEREST-LOAN> 10032349
<INTEREST-INVEST> 7232935
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 17265284
<INTEREST-DEPOSIT> 5594462
<INTEREST-EXPENSE> 7096453
<INTEREST-INCOME-NET> 10168831
<LOAN-LOSSES> 200000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1785915
<INCOME-PRETAX> 4732077
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3354722
<EPS-BASIC> 5.80
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 438000
<LOANS-PAST> 99000
<LOANS-TROUBLED> 4624000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2629472
<CHARGE-OFFS> 307000
<RECOVERIES> 301000
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have audited the accompanying consolidated balance sheets of Union Bankshares
Company and Subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above represent fairly,
in all material respects, the consolidated financial position of Union
Bankshares Company and Subsidiary as of December 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
January 21, 2000
