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, 2001
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, 2002, was approximately $33,131,637.
577,475 shares of the Company's Common Stock, $12.50 par value, were
issued and outstanding on February 15, 2002.
Documents incorporated by reference in this report:
Proxy Statement for 2002 annual meeting pursuant to Regulation 14A of
the General Rules and Regulations of the Commission and filed with the
Commission on April 24, 2002, Incorporated by reference into Parts II,
III and IV of this report. Annual Report to Securities Holders pursuant
to Rule 14a-3(b) incorporated by reference to Part I, of this report.
UNION BANKSHARES COMPANY
INDEX TO FORM 10-K
PART I Page No.
Item 1: Business 3-15
Item 2: Properties 15-17
Item 3: Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6: Selected Financial Data 18
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7A: Quantitative and Qualitative Disclosures About
Market Risk 18
Item 8: Financial Statements and Supplementary Data 18-19
Item 9: Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10: Directors and Executive Officers of the Registrant 19
Item 11: Executive Compensation 19
Item 12: Security Ownership of Certain Beneficial Owners and
Management 20
Item 13: Certain Relationship and Related Transactions 20
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K 20-21
Signatures 22
PART I
The discussions set forth below or elsewhere in this Form 10-K and
in the documents we incorporate by reference herein contain statements
that may be considered forward-looking statements under the Private
Securities Litigation Reform Act of 1995. Union Bankshares Company
(the "Company"), intends such forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995 and is including
this statement for purposes of these safe harbor provisions. Forward-
looking statements, which are based on certain assumptions and describe
future plans, strategies, and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Important factors which
could cause actual events to differ from the Company's expectations
include, but are not limited to, fluctuations in interest rates and loan
and deposit pricing, which could reduce the Company's net interest
margins, asset valuations and expense expectations; a deterioration in
the economy or business conditions, either nationally or in the Company's
market areas, that could increase credit-related losses and expenses;
increases in defaults by borrowers and other loan delinquencies resulting
in increases in the Company's provision for loan losses and related
expenses; higher than anticipated costs related to the Company's new
banking centers or slower than expected earning assets growth which
could extend anticipated breakeven periods at these locations;
significant increases in competition; legislative or regulatory changes
applicable to bank holding companies or the Company's banking subsidiary;
and possible changes in tax rates, tax laws, or tax law interpretation.
You should not rely on forward-looking statements, because they involve
known and unknown risks, uncertainties and other factors, some of which
may be beyond the control of the Company. These risks, uncertainties and
other factors may cause the actual results, performance or achievements
of the Company to be materially different from future anticipated results,
performance or achievements expressed or implied by the forward-looking
statements. The Company disclaims any obligation to publicly update or
revise any forward-looking statement contained in the following discussion,
or elsewhere in this Form 10-K.
ITEM I: Business
OVERVIEW
Union Bankshares Company ("the Company") was incorporated February 3,
1984 under the laws of the State of Maine. As of February 15, 2002,
the Company's securities consisted of one class of common stock ("the
Common Stock"), par value of $12.50 per share, of which there were
577,475 shares outstanding held of record by 746 shareholders. The
Company's only wholly owned subsidiary is Union Trust Company ("the
Bank"), established in 1887. In 2000, the Company acquired Mid-Coast
Bancorp, Inc., a bank holding company with one principal subsidiary, The
Waldoboro Bank, FSB. On September 29, 2000, The Waldoboro Bank, FSB was
merged with and into the Bank.
BUSINESS
The Bank is a full-service, independent, community bank that is locally
owned and operated. Having acquired The Waldoboro Bank, FSB during 2000,
the Bank now has 16 offices located along Maine's coast, stretching from
Waldoboro to Machias. The Bank continues to provide banking, retirement,
employee benefit, investment and personal trust services to individuals,
business, municipalities and non-profit organizations in its market area
and throughout the state. The Bank added financial planning to this
broad list of services during 2000, thereby formalizing the informal
financial advice which has been provided to Bank customers for many years.
In 2001, which was the first full year that the Bank's formalized
financial planning service was operational, this service generated
additional business for all areas of the Bank including loans, deposits,
trust accounts, brokerage accounts, insurance sales and Internet banking.
The acquisition of The Waldoboro Bank, FSB in 2000 expanded the Bank's
market area which now covers Hancock, Washington, Knox, Lincoln and Waldo
Counties. There are approximately 192,000 people within this five county
market area, representing a 125% expansion of the population base that
the Bank serves. The number of business establishments in this new
expanded market area is approximately 6,500 - a 116% increase. The
Bank's products that are positioned to be most effective in this newly
expanded market include NetBanking, home mortgages, small business
banking and trust and investment services. However, this new growth
opportunity also brings new challenges, including increased competition.
In 2001, the Company focused on product expansion into brokerage and
insurance services. The Company's new division, "Cornerstone Investment
Services" ("Cornerstone"), officially began operation in October, 2001.
The Bank is now able to provide customers with a full array of financial
services - those that are FDIC insured and those that are not. The
specific products available through Cornerstone include stocks, bonds,
mutual funds, annuities, and long-term care, life and disability
insurance.
The Company's Investment and Trust Services division saw a continued
expansion of its business during 2001, with fee income increasing by
11% over 2000. This growth occurred even in a "down" market, and
during the construction of additional office space for the Investment
and Trust Services department.
2001 was marked by an unprecedented decrease in interest rates, with the
Federal Reserve decreasing the Federal Funds rate by a total of 475 basis
points, over the course of 11 individual interest rate reductions. While
this put pressure on the Bank's net interest income, it did spur consumers
to apply for mortgages or refinance existing mortgages. Many customers
selected the Bank to refinance their mortgages. The number of mortgages
closed over 2001 was a record high-- approaching the number closed during
2000 and 1999 combined. The Bank's Mortgage business in 2001 included
residential purchases, construction, commercial, home equity and
refinances.
The Bank's investment in the Midcoast Maine area is showing positive
returns. The Belfast branch grew its loan portfolio by 59% over year
end 2000 and the Rockland branch grew its loan portfolio by 35% over
year end 2000. In 2001, the Jefferson branch increased its deposits
by 38.6% and the Waldoboro branch showed strong gains in both commercial
loans and demand deposit accounts.
The Bank competes actively with other commercial banks and other financial
institutions in its service areas. 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 and other entities 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, large out-of-state
banks and other financial services providers are active in servicing
customers in the Bank's market area.
The Company has no employees. As of December 31, 2001, the Bank employed
176 employees of which 21 employees were part time.
SUPERVISION AND REGULATION
The business in which the Company and its subsidiary, the Bank are engaged
is subject to extensive supervision, regulation and examination by various
federal and state bank regulatory agencies, including the Federal Reserve
Board ("FRB"), the Federal Deposit Insurance Corporation ("FDIC") and the
Maine Bureau of Financial Institutions (hereinafter the "MBF" or
"Superintendent"). The supervision, regulation and examination to which
the Company and the Bank are subject are intended primarily to protect
depositors and other customers or are aimed at carrying out broad public
policy goals, and not necessarily for the protection of shareholders.
Some of the more significant statutory and regulatory provisions applicable
to banks and BHCs to which the Company and the Bank are subject are
described more fully below, together with certain statutory and regulatory
matters concerning the Company and the Bank. The description of these
statutory and regulatory provisions does not purport to be complete and is
qualified in its entirety by reference to the particular statutory or
regulatory provision. Any change in applicable law or regulation may have
a material effect on the Company's business and operations, as well as
those of the Bank. The Company's shareholders generally are not subject
to these statutory and regulatory provisions.
BHCs - Activities and Other Limitations. The Company is subject to
regulation under the BHC Act and Maine law and to examination and
supervision by the FRB and the Superintendent, and is required to file
reports with, and provide additional information requested by, the FRB
and the Superintendent. The FRB has the authority to issue orders to
BHCs to cease and desist from unsound banking practices and violations of
conditions imposed by, or violations of agreements with, the FRB. The
FRB is also empowered to assess civil money penalties against companies
or individuals that violate the BHC Act or orders or regulations thereunder,
to order termination of non-banking activities of non-banking subsidiaries
of BHCs, and to order termination of ownership and control of a non-banking
subsidiary by a BHC.
Various other laws and regulations, including Sections 23A and 23B of the
Federal Reserve Act, as amended (the "FRA"), generally limit borrowings,
extensions of credit and certain other transactions between the Company
and its affiliate insured depository institution. Section 23A of the FRA
also generally requires that an insured depository institution's loans to
non-bank affiliates be secured in appropriate amounts, and Section 23B of
the FRA generally requires that transactions between an insured depository
institution and its non-bank affiliates be on market terms. These laws and
regulations also limit BHCs and their subsidiaries from engaging in certain
tying arrangements in connection with any extension of credit, sale or
lease of property, or furnishing of services.
The BHC Act prohibits a BHC from acquiring substantially all the assets
of a bank or acquiring direct or indirect ownership or control of more
that 5% of the voting shares of any bank, or increasing such ownership or
control of any bank, or merging or consolidating with any BHC without
prior FRB approval. Unless a BHC becomes a "financial holding company"
(an "FHC") under the Gramm-Leach-Bliley Act ("GLBA"), as discussed below,
the BHC Act also prohibits a BHC from acquiring a direct or indirect
interest in or control of more than 5% of the voting shares of any
company which is not a bank or BHC and from engaging directly or indirectly
in activities other than those of banking, managing or controlling banks
or furnishing services to its subsidiary banks, except that it may engage
in and may own shares of companies engaged in certain activities the FRB
determined to be so closely related to banking or managing and controlling
banks as to be a proper incident thereto. In addition, Maine law requires
approval by the Superintendent prior to acquisition of more than 5% of the
voting shares of a Maine financial institution or any financial
institution holding company which controls a Maine financial institution.
The Superintendent also must approve acquisition by a Maine financial
institution holding company of more than 5% of a financial institution or
financial institution holding company domiciled outside of the State of
Maine.
The GLBA established a comprehensive framework to permit affiliations
among commercial banks, insurance companies, securities firms, and
other financial service providers by revising and expanding the BHC Act
framework to permit BHCs that qualify and elect to be treated as FHCs
to engage in a range of financial activities broader than would be
permissible for traditional BHCs that have not elected to be treated
as FHCs, such as the Company. "Financial activities" is broadly defined
to include not only banking, insurance and securities activities, but
also merchant banking and additional activities that the FRB, in
consultation with the Secretary of the Treasury, determines to be
financial in nature, incidental to such financial activities, or
complementary activities that do not pose a substantial risk to the
safety and soundness of depository institutions or the financial
system generally.
In order to elect to become an FHC, a BHC must meet certain tests and
file an election form with the FRB. To qualify, all of a BHC's
subsidiary banks must be well-capitalized and well-managed, as measured
by regulatory guidelines. In addition, to engage in the new activities,
each of the BHC's banks must have been rated 'satisfactory' or better
in its most recent federal Community Reinvestment Act evaluation.
A BHC that elects to be treated as an FHC may face significant
consequences if its banks fail to maintain the required capital and
management ratings, including entering into an agreement with the FRB
which imposes limitations on its operations and may even require
divestitures. Such possible ramifications may limit the ability of a
bank subsidiary to significantly expand or acquire less than well-
capitalized and well-managed institutions. The Company has not elected
to become a FHC.
Further, the GLBA permits state banks, to the extent permitted under
state law, to engage in certain new activities which are permissible
for subsidiaries of an FHC. Further, the GLBA expressly preserves the
ability of state banks to retain all existing subsidiaries. In order
to form a financial subsidiary, a state bank must be well-capitalized,
and such banks would be subject to certain capital deduction, risk
management and affiliate transaction rules. Also, the FDIC's final
rules governing the establishment of financial subsidiaries adopt the
position that a state nonmember bank may only conduct through a financial
subsidiary activities that a national bank could only engage in through a
financial subsidiary. However, activities that a national bank could not
engage in through a financial subsidiary, such as real estate development
or investment, continue to be governed by the FDIC's standard activities
rules. Moreover, to mirror the FRB's actions with respect to state member
banks, the final rules provide that a state bank subsidiary that engages
only in activities that the bank could engage in directly (regardless of
the nature of the activities) will not be deemed to be a financial
subsidiary.
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
generally authorizes BHCs to acquire banks located in any state,
possibly subject to certain state-imposed age and deposit concentration
limits, and also generally authorizes interstate mergers and to a lesser
extent, interstate branching.
Declaration of Dividends. According to its Policy Statement on Cash
Dividends Not Fully Covered by Earnings (the "FRB Dividend Policy"),
the FRB considers adequate capital to be critical to the health of
individual banking organizations and to the safety and stability of the
banking system. Of course, one of the major components of the capital
adequacy of a bank or a BHC is the strength of its earnings and the extent
to which its earnings are retained and added to capital or paid to
shareholders in the form of cash dividends. Accordingly, the FRB
Dividend Policy suggests that banks and BHCs generally should not
maintain their existing rate of cash dividends on common stock unless
the organization's net income available to common shareholders over the
past year has been sufficient to fully fund the dividends and the
prospective rate of earnings retention appears consistent with the
organization's capital needs, asset quality and overall financial
condition. The FRB Dividend Policy reiterates the FRB's belief that
a BHC should not maintain a level of cash dividends to its shareholders
that places undue pressure on the capital of bank subsidiaries, or that
can be funded only through additional borrowings or other arrangements
that may undermine the BHC's ability to serve as a source of strength.
Under Maine law, a corporation's board of directors may declare, and
the corporation may pay, dividends on its outstanding shares in cash or
other property, generally out of the corporation's unreserved and
unrestricted earned surplus, or out of the unreserved and unrestricted
net earnings of the current fiscal year and the next preceding fiscal
year taken as a single period, except under certain circumstances,
including when the corporation is insolvent or when the payment of the
dividend would render the corporation insolvent or when the declaration
would be contrary to the corporation's charter. These same limitations
generally apply to investor-owned, Maine financial institutions.
Federal bank regulatory agencies also have authority to prohibit
banking institutions from paying dividends if those agencies determine
that, based on the financial condition of the bank, such payment would
constitute an unsafe or unsound practice.
Capital Requirements
Footnote #15 on pages 36 and 37 of the Company's 2001 Annual Report to
Shareholders, regarding compliance with capital requirements is
incorporated herein by reference.
FRB Guidelines. The FRB has adopted capital adequacy guidelines
pursuant to which it assesses the adequacy of capital in examining and
supervising a BHC and in analyzing applications to it under the BHC Act.
The FRB's capital adequacy guidelines apply on a consolidated basis
to BHCs with consolidated assets of $150 million or more; thus, these
guidelines apply to the Company on a consolidated basis.
The FRB's capital adequacy guidelines generally require BHCs to
maintain total capital equal to 8% of total risk-adjusted assets and
off-balance sheet items, with at least one-half of that amount
consisting of Tier 1 or core capital and the remaining amount
consisting of Tier 2 or supplementary capital. Tier 1 capital for BHCs
generally consists of the sum of common stockholders' equity and
perpetual preferred stock (subject in the case of the latter to
limitations on the kind and amount of such stocks which may be included
as Tier 1 capital), less goodwill and other non-qualifying intangible
assets. Tier 2 capital generally consists of hybrid capital
instruments; perpetual preferred stock, which is not eligible to be
included as Tier 1 capital; term subordinated debt and intermediate-term
preferred stock; and, subject to limitations, general allowances for loan
losses. Assets are adjusted under the risk-based guidelines to take into
account different risk characteristics.
In addition to the risk-based capital requirements, the FRB requires BHCs
to maintain a minimum leverage capital ratio of Tier 1 capital (defined
by reference to the risk-based capital guidelines) to total assets of
3.0%. Total assets for this purpose do not include goodwill and any
other intangible assets and investments that the FRB determines should be
deducted from Tier 1 capital. The FRB has announced that the 3.0%
leverage ratio requirement is the minimum for the strong BHCs without any
supervisory, financial or operational weaknesses or deficiencies or those
which are not experiencing or anticipating significant growth. All other
BHCs are required to maintain a minimum leverage ratio of at least 4.0%.
BHCs with supervisory, financial, operational or managerial weaknesses,
as well as BHCs that are anticipating or experiencing significant growth,
are expected to maintain capital ratios well above the minimum levels.
Any loans classified for regulatory purposes as loss, doubtful,
substandard, or special mention that were not disclosed under Item III
of Securities and Exchange Commission 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.
At December 31, 2001, the Company's total risk-based capital ratio and
leverage ratio were, and its management expects these ratios to remain,
in excess of regulatory requirements.
Failure to meet capital guidelines could subject the Company or the Bank
to a variety of FDIC corrective actions, including for example, (i)
restricting payment of capital distributions and management fees, (ii)
requiring that the appropriate federal banking agency monitor the
condition of the institution and its efforts to restore its capital,
(iii) requiring submission of a capital restoration plan, (iv)
restricting the growth of the institution's assets and (v) requiring
prior approval of certain expansion proposals.
At December 31, 2001, the Bank was deemed to be a well capitalized
institution for the above purposes. The federal bank regulatory agencies
may raise capital requirements applicable to banking organizations beyond
current levels. The Company is unable to predict whether higher capital
requirements will be imposed and, if so, at what levels and on what
schedules. Therefore, the Company cannot predict what effect such higher
requirements may have on it.
Other Regulatory Requirements
Activities and Investments of Insured State-Chartered Banks. FDIC
insured, state-chartered banks, such as the Bank, are also subject to
similar restrictions on their business and activities. Section 24 of
FDIA, generally limits the activities as principal and equity investments
of FDIC-insured, state-chartered banks to those activities that are
permissible to national banks. In 1999, the FDIC substantially revised
its regulations implementing Section 24 of the FDIA to ease the ability
of state-chartered banks to engage in certain activities not permissible
for national banks, and to expedite FDIC review of bank applications and
notices to engage in such activities.
Customer Information Security. The FDIC and other bank regulatory
agencies have published final guidelines establishing standards for
safeguarding nonpublic personal information about customers that
implement provisions of the GLBA (the "Guidelines"). Among other things,
the Guidelines require each financial institution, under the supervision
and ongoing oversight of its Board of Directors or an appropriate
committee thereof, to develop, implement and maintain a comprehensive
written information security program designed to ensure the security
and confidentiality of customer information, to protect against any
anticipated threats or hazards to the security or integrity of such
information, and to protect against unauthorized access to or use of
such information that could result in substantial harm or inconvenience
to any customer.
Privacy. The FDIC and other regulatory agencies have published final
privacy rules pursuant to provisions of the GLBA ("Privacy Rules").
The Privacy Rules, which govern the treatment of nonpublic personal
information about consumers by financial institutions, require a
financial institution to provide notice to customers (and other consumers
in some circumstances) about its privacy policies and practices, describe
the conditions under which a financial institution may disclose nonpublic
personal information to nonaffiliated third parties, and provide a method
for consumers to prevent a financial institution from disclosing that
information to most nonaffiliated third parties by "opting-out" of that
disclosure, subject to certain exceptions.
USA Patriot Act. The USA Patriot Act of 2001 (the "Patriot Act"),
designed to deny terrorists and others the ability to obtain access to
the United States financial system, has significant implications for
depository institutions, broker-dealers and other businesses involved
in the transfer of money. The Patriot Act requires financial institutions
to implement additional policies and procedures with respect to money
laundering, suspicious activities, currency transaction reporting and due
diligence on customers. Implementation of the Patriot Act's requirements
will occur in stages, as rules regarding its provisions are finalized by
government agencies.
Deposit Insurance. The FDIA does not require the FDIC to charge all banks
deposit insurance premiums when the ratio of deposit insurance reserves to
insured deposits is maintained above specified levels. However, as a
result of general economic conditions and recent bank failures, it is
possible that the ratio of deposit insurance reserves to insured deposits
could fall below the minimum ratio that FDIA requires, which would result
in the FDIC setting deposit insurance assessment rates sufficient to
increase deposit insurance reserves to the required ratio. A resumption
of assessments of deposit insurance premiums charged to well capitalized
institutions, such as the Company's subsidiary bank, could have an effect
on the Company's net earnings. The Company cannot predict whether the
FDIC will be required to increase deposit insurance assessments above
their current levels.
SEASONAL INFORMATION
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.
The Supplemental Financial Data presented on the following pages contains
information to facilitate analysis and comparison of sources of income
and exposure to risk. All amounts in tables presented in thousands,
except per share amounts.
INVESTMENT ACTIVITIES
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.
December 31
2001 2000 1999
Obligations of states & political subdivisions $3,527 $3,851 $4,237
TOTAL $3,527 $3,851 $4,237
The table below shows the relative maturities of held to maturity
securities as of December 31, 2001.
Held to Maturity Securities
Maturity Distribution as of
December 31, 2001
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 yrs 10 Yrs
State and Municipal Bonds $ 300 $1,320 $1,055 $ 852
Weighted Average Yield 5.00% 5.10% 4.81% 4.65%
TOTAL $ 300 $1,320 $1,055 $ 852
Percent of Total Portfolio 8.50% 37.4% 30.0% 24.1%
NOTE: Weighted Average 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.
December 31
2001 2000 1999
Mortgage backed securities $38,164 $ 34,612 $34,000
US Treasury notes and other U.S.
Government agencies 36,038 51,240 54,403
Obligations of states and political
subdivisions 15,746 11,277 8,067
Other securities 4,455 4,009 3,245
TOTAL $94,403 $101,138 $99,715
The table below shows the relative maturities and carrying value of
available for sale debt securities as of December 31, 2001 (excludes
stock investments).
Securities Available for Sale
Maturity Distribution as of
December 31, 2001
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 Yrs 10 yrs
Mortgage Backed Securities $ 0 $ 1,507 $10,109 $26,548
US Treasury Notes and Other
Government Agencies 1,025 22,369 12,643 0
Obligations of State and
Political Subdivisions 170 138 5,157 10,280
Other Securities 0 3,460 378 0
TOTAL $ 1,195 $27,474 $28,287 $36,828
Weighted Average Yield 5.17% 5.39% 5.27% 5.63%
Percent of Total Portfolio: 1.3% 29.3% 30.2% 39.2%
The Company's net unrealized gain on available for sale securities
(net of tax) of $530,290 at December 31, 2001 is largely attributable
to the current interest rate environment. The unrealized gain 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.
LENDING ACTIVITIES
The following table reflects the composition of the Company's
consolidated loan portfolio at the end of each of the last five years.
2001 2000 1999 1998 1997
Real Estate Loans
A. Construction & Land
Development $ 14,774 $ 10,710 $ 7,617 $ 6,431 $ 5,925
B. Secured by 1-4 Family
Residential Properties 107,919 99,887 47,988 36,944 33,528
C. Secured by Multi Family
(5 or more) Residential
Properties 0 0 0 0 0
D. Secured by Non-Farm,
Non-Residential
Properties 47,580 49,736 32,443 30,550 28,386
Commercial & Industrial
Loans 20,476 21,002 16,222 15,979 18,566
Loans to Individuals for
Household, Family & Other
Consumer Expenditures 17,782 19,966 14,508 15,327 15,806
All Other Loans 3,084 3,718 8,845 5,168 4,851
Total Gross Loans $211,615 $205,019 $127,623 $110,399 $107,062
The above data is gathered from loan classifications established by the
Federal Reserve Call Report 032.
Maturities and Sensitivities of Loans
To Changes in Interest Rates
As of December 31, 2001
Due 1 Year or Less Due 1-5 Years Due 5 Years +
Real Estate $69,943 $77,709 $22,621
Commercial & Industrial 13,105 4,668 2,703
Consumer 9,941 3,947 3,894
Municipal 1,413 1,318 353
Total $94,402 $87,642 $29,571
Note: Real estate loans in the 1-5 category have $28,274,000 at a fixed
interest rate and $49,435,000 at a variable interest rate. Commercial
loans in the 1-5 year category have $4,247,000 at a fixed interest rate
and $421,000 at a variable interest rate.
Real estate and commercial loans in the 5+ category are all at fixed
interest rates.
Loan Concentrations
As of December 31, 2001 and 2000, 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, Washington, Knox, Lincoln and Waldo
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, 2001.
Delinquent Loans
The following schedule is a summary of loans with principal and/or
interest payments over 30 days past due and still accruing:
December 31,
2001 2000 1999 1998 1997
% % % % %
Of Of Of Of Of
Total Total Total Total Total
Amt Loans Amt Loans Amt Loans Amt Loans Amt Loans
Real Estate $4,877 2.3 $1,054 0.5 $4,367 3.4 $3,079 2.8 $3,003 2.8
Installment 62 0.0 64 0.0 65 0.1 153 0.1 128 0.1
All Others 516 0.3 327 0.2 192 0.2 134 0.1 151 0.1
TOTAL $5,455 2.6 $1,445 0.7 $4,624 3.7 $3,366 3.0 $3,282 3.0
Loans, other than credit card loans, are placed on nonaccrual 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. The principal amount of
loans which have been placed on non-accrual status were comprised
primarily of certain real estate 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.
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.
2001 2000 1999 1998 1997
Loans accounted for on a
nonaccrual basis $1,823 $3,390 $437 $534 $503
Accruing loans contractually past
due 90 days or more $ 75 $ 21 $314 $ 47 $209
In accordance with the Securities and Exchange Commission Industry
Guide 3 Item III. C (1), the gross interest income that would have
been recorded in 2001 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
$335,000. There was approximately $69,000 included in the gross
interest income on non-accrual and restructured loans for 2001.
Allowance For Loan Losses
Analysis of the allowance for loan losses for the past five years
were as follows:
(Dollars in thousands)
December 31,
2001 2000 1999 1998 1997
Balance at beginning
of period: $ 3,376 $ 2,629 $ 2,435 $ 2,213 $ 2,084
Charge-offs:
Commercial & Industrial Loans 132 55 3 2 5
Real Estate Loans 98 9 5 0 123
Loans to Individuals 95 116 140 111 97
325 180 148 113 225
Recoveries:
Commercial & Industrial Loans 38 0 12 11 118
Real Estate Loans 19 10 0 0 67
Loans to Individuals 45 26 130 39 49
102 36 142 50 234
Net Charge-offs (recoveries) 223 144 6 63 (9)
Provision for Loan Losses 300 371 200 285 120
Allowance on Acquired Loans 0 520 0 0 0
Balance at end of period $ 3,453 $ 3,376 $ 2,629 $ 2,435 $ 2,213
Average Loans Outstanding $210,561 $151,924 $118,311 $110,321 $102,321
Ratio of Net Charge-offs
(Recoveries) to
average loans outstanding .106% .095% .004% .057% (.009%)
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated. The allocation of an
allowance to each category is not necessarily indicative of future losses
and does not restrict the use of the allowance to absorb losses in any
other category.
December 31,
2001 2000 1999 1998 1997
Amount % of Amount % Amount % Amount % Amount %
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 $1,227 81.0% $ 647 76.9% $ 500 69.0% $ 374 67.0% $ 356 63.4%
Commercial &
Industrial 1,634 9.7% 2,195 10.2% 1,846 13.1% 1,842 14.9% 1,625 17.7%
Consumer 177 8.4% 137 9.7% 145 11.4% 153 13.9% 158 14.8%
Municipal 31 .0% 37 1.9% 88 6.5% 58 4.2% 49 4.1%
Impaired 273 .9% 257 1.3% 0 .0% 0 .0% 0 .0%
Unallocated 111 .0% 103 .0% 50 .0% 8 .0% 25 .0%
TOTAL $3,453 100.0% $3,376 100.0% $2,629 100.0% $2,435 100.0% $2,213 100.0%
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 independent
reviews of the quality of new and existing loans, from the results of
reviews of the loan portfolio by regulatory agency examiners, evaluation
of past loan loss experience, the character and size of the loan
portfolio, current economic conditions and other observable data.
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. Actual losses could vary from these estimates.
A detailed analysis of the allowance for loan losses is reviewed
quarterly, at which time necessary increases or decreases are made
to the allowance for loan losses, with a related adjustment to the
provision for loan losses. The Bank's Board of Directors reviews and
approves the analysis of the adequacy of the allowance for loan losses
quarterly.
The allocated portion of the allowance for loan losses is comprised of
general reserves for specific loan types and specific reserves for
impaired loans. The general reserve categories consist of reserve
checking, personal and commercial installments, commercial notes and
mortgages, residential mortgages and Visa loans. A general reserve
has also been established for contingent liabilities such as lines of
credit, letters of credit and residential and commercial construction
lines.
Each general reserve category valuation consists of an assigned
reserve percentage. The factors used in determining the reserve
percentage for each category starts with the five year historical
average of loan losses to loans and makes adjustments for factors such
as loan volumes and trends, economic and industrial conditions, credit
concentrations, lending policies, procedures and practices all of which
management believes may impact the potential for losses in the loan
portfolio.
The specific allocation for impaired loans is determined based on a
loan by loan review of impaired loans and specific loans under close
monitoring by management for potential problems.
As of December 31, 2001, the Bank had impaired loans totaling $1,822,604,
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. 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.
The unallocated portion of the allowance for loan losses is influenced
by overall loan growth, the character and mix of the loan portfolio,
current trends in nonperforming loans, current economic conditions and
industry conditions, and other asset quality considerations. Though
these factors have not been identified by specific borrower, management
believes these are probable losses in the portfolio and has provided for
them in the allowance for loan losses accordingly.
At December 31, 2001, the allowance for loan losses was comprised of a
specific reserve on impaired loans of $273,000, a general reserve of
$3,069,000 and an unallocated reserve of $111,000.
During 2001, the Bank provided $300,000 to the allowance for loan
losses, compared to $371,000 and $200,000 in 2000 and 1999,
respectively. During 2000, the allowance was increased in part because
of loans acquired from The Waldoboro Bank, FSB, overall loan growth and
an increase in nonaccrual loans.
DEPOSIT ACTIVITIES
The following schedule summarizes the time remaining to maturity of
Certificates of Deposit $100,000 or greater at December 31, 2001.
Amount
3 Months or Less $ 9,135
Over 3 Through 6 5,003
Over 6 Through 12 Months 2,451
Over One Year 1,952
Total $18,541
BORROWINGS
December 31
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Interest Interest Interest
Rate Amount Rate Amount Rate Amount
Fixed advances 4.90 $39,291 5.86 $30,000 6.54 $ 451
Variable advances 5.37 $ 2,666 4.62 $21,123 5.49 $18,000
Securities sold
under agreement 1.45 $12,135 3.42 $15,079 3.55 $13,140
2001 2000 1999
Variable Variable Variable
Fixed Securities Fixed Securities Fixed Securities
Maximum amount $52,000 $6,179 $13,948 $451 $21,123 $18,555 $451 $22,863 $13,822
outstanding of
any month end
during the year
Average amount $45,500 $4,423 $10,944 $451 $32,328 $13,870 $451 $20,402 $9,056
outstanding
during the year
Weighted average 5.40% 4.53% 2.73% 6.54% 5.69% 5.11% 6.54% 5.36% 3.55%
interest rate
for the year
Advances at December 31, 2001 mature as follows:
2002 $10,000
2003 6,000
2004 7,791
2005 2,055
Thereafter 16,111
Total $41,957
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.
*2001 *2000 *1999
Deposits 13.1% 14.4% 15.6%
Loans 16.1% 19.0% 25.0%
Total Assets 9.3% 10.4% 11.7%
Earning Assets 10.3% 11.4% 12.7%
*Excluding net unrealized gain (loss) net of deferred taxes on available
for sale securities of $530,290, ($466,522) and ($2,128,324) at December
31, 2001, 2000 and 1999, respectively.
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.
2001 2000 1999
Return on average shareholders' equity 9.9% 9.5% 11.7%
Return on average assets 0.9% 1.0% 1.3%
Return on average earning assets 1.0% 1.1% 1.4%
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, US government securities may be readily
converted to cash by sale in the open market. On the liability side,
liquidity comes from deposit growth and the Bank's accessibility to
other sources of borrowed funds. In this respect, liquidity is enhanced
by a significant amount of core demand and savings deposits from a broad
customer base.
As a part of the Bank's asset and liability management and liquidity
needs, management actively evaluates its funding resources and strategies
to reduce and manage the vulnerability of its operation to changes in
interest rates.
A principal objective of the Bank is to reduce and manage the
vulnerability of its operations to changes in interest rates by managing
the ratio of interest rate sensitive assets to interest rate sensitive
liabilities within specified maturities or repricing dates.
At December 31, 2001, the Bank's ratio of rate sensitive assets to rate
sensitive liabilities at the one year horizon was 30%, its one year GAP
(measurement of interest sensitivity of interest earning assets and
interest bearing liabilities at a given point in time) was 95%, and
$119,475,000 in assets and $156,601,000 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 Bank 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, 2001, the Bank's
interest rate GAP analysis:
Interest Rate GAP Analysis
As of December 31, 2001
0-3 4-12 1-5 Over 5
Months Months Years Years Total
Interest earning assets
Loans:
Real estate
Fixed rate $ 9,721 $ 8,855 $ 28,274 $ 22,621 $ 69,471
Variable rate 18,435 33,532 48,835 0 100,802
Commercial 8,314 4,791 4,668 2,703 20,476
Municipal 0 1,413 1,318 353 3,084
Consumer 937 9,004 3,947 3,894 17,782
Securities available
for sale 2,677 7,458 68,820 15,448 94,403
Held to maturity securities 85 649 1,743 6,414 8,891
Loans held for sale 2,774 0 0 0 2,774
Other earning assets 0 0 184 14,467 14,651
TOTAL $42,943 $65,702 $157,789 $ 65,900 $332,334
Interest bearing liabilities
Deposits:
Savings $ 0 $ 0 $ 0 $ 44,968 $ 44,968
NOW 0 0 0 54,333 54,333
Money market 0 28,774 0 0 28,774
Time 42,826 49,318 12,469 0 104,613
Borrowings 21,309 1,531 17,208 14,317 54,365
TOTAL $64,135 $79,623 $29,677 $113,618 $287,053
Rate sensitivity GAP $(21,192) $(13,921) $128,112 $(47,718)
Rate sensitivity GAP
as a percentage of
total assets (6.09%) (4.00%) 36.79% (13.70%)
Cumulative GAP $(21,192) $(35,113) $92,999 $45,281
Cumulative GAP as a
percentage of total
assets (6.09%) (10.08%) 26.71% 12.95%
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, 2001 2000
Net cash provided from operations $ 2,165 $ 4,202
Net cash provided (used) by
investing activities $ 308 $(11,702)
Net cash provided from financing activities $ 9,039 $ 8,778
Net increase in cash and cash equivalents $11,512 $ 1,278
ITEM 2: BANK 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.
(g) The Bank acquired the Waldoboro property located on Atlantic
Highway in Waldoboro, Maine on August 31, 2000.
(h) The Bank acquired the Rockland property located on Camden
Street in Rockland, Maine on August 31, 2000.
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
2002.
(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 2006. 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.
(f) The Bank assumed the lease of its Belfast office located on
Starret Drive in Belfast on August 31, 2000 from the Waldoboro
Bank FSB, who leased from Belfast Marketplace Association.
The current lease expires on January 15, 2007.
(g) The Bank assumed the lease of its Jefferson office located on
Route 32 in Jefferson on August 31, 2000 from the Waldoboro Bank
FSB, who leased from Jefferson Market Inc. The current lease
expires on December 4, 2011.
(h) The Bank leases its Camden office which is located on Elm
Street in Camden, Maine from Ellis and Catherine Cohn, Camden,
Maine. The current lease expires on January 31, 2005.
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 legal proceedings pending against the Company
or the Bank 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 common stock, $12.50 par value, is not actively
traded but is listed on the Pink Sheet Electronic System. 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 2001 and 2000 are
listed in the following table.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2001 79.50 to 85.00 63.00 to 80.00 72.00 to 75.00 58.50 to 63.00
2000 107.00 to 107.00 97.50 to 107.00 95.00 to 97.50 85.00 to 85.00
B. HOLDER
As of March 1, 2002 there were approximately 746 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:
2001 2000
1st Quarter $ .50 $ .50
2nd Quarter $ .50 $ .50
3rd Quarter $ .55 $ .50
4th Quarter $ .55 $ .50
Cash dividends declared
per common share $2.10 $2.00
Item 6: SELECTED FINANCIAL DATA (in thousands, except for
per share amounts)
Years Ended December 31,
2001 2000 1999 1998 1997
SUMMARY OF OPERATIONS
Operating Income $ 4,907 $ 3,639 $ 3,426 $ 3,155 $ 2,608
Operating Expense 13,115 10,367 8,663 8,413 8,016
Net Interest Income 13,085 11,176 10,169 9,927 9,452
Provision for Loan Losses 300 371 200 285 120
Net Income 3,226 3,000 3,355 3,090 2,700
PER COMMON SHARE DATA
Net Income $ 5.59 $ 5.19 $ 5.80 $ 5.34 $ 4.66
Cash Dividends Declared 2.10 2.00 1.92 1.67 1.53
Book Value (2) 58.19 54.67 51.50 47.69 44.13
FINANCIAL RATIOS
Return on Average Equity (2) 9.9% 9.5% 11.7% 11.6% 10.9%
Return on Average Assets 0.9% 1.0% 1.3% 1.3% 1.3%
Return on Average
Earning Assets 1.0% 1.1% 1.4% 1.4% 1.4%
Net Interest Margin 4.35% 4.58% 4.61% 4.72% 4.88%
Dividend Payout Ratio 37.6% 38.5% 33.0% 31.2% 32.8%
Allowance for Loan
Losses/Total Loans .02 .02 .02 .02 .02
Non Performing Loans to
Total Loans .009 .017 .006 .005 .007
Non Performing Assets to
Total Assets .005 .010 .003 .004 .005
Efficiency Ratio 70.1% 69.9% 63.7% 64.3% 66.5%
Loan to Deposit Ratio 79.0% 83.5% 66.2% 58.7% 60.4%
BALANCE SHEET
Deposits $267,907 $245,581 $192,848 $188,029 $177,386
Loans 211,615 205,019 127,623 110,399 107,062
Securities (1) 102,970 109,958 107,509 111,304 96,065
Shareholders' Equity (2) 33,606 31,586 29,771 27,577 25,565
Total Assets 362,003 348,242 257,850 251,195 222,560
(1) Carrying value. Includes available for sale securities with
cost of $98,913, $100,678, $102,488, $101,610 and $59,983 at December
31, 2001, 2000, 1999, 1998 and 1997, respectively.
(2) Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of $530,290, ($466,522), ($2,128,324),
$1,162,032 and $437,749 at December 31, 2001, 2000, 1999, 1998 and
1997, respectively.
The above summary should be read in conjunction with the related
consolidated financial statements and notes thereto for the years
ended December 31, 2001, 2000, 1999, 1998 and 1997, 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 2001 Annual Report is incorporated herein by reference.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained in the section captioned "Quantitative and
Qualitative Disclosures about Market Risk" in the Company's 2001
Annual Report is incorporated herein by reference.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) The financial statements required are contained in the
Company's 2001 Annual Report and are incorporated herein
by reference. (See item 14 (a))
(B) The following is a summary of the quarterly results of
operations for the years ended December 31, 2001 and 2000:
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
Mar 31 Jun 30 Sept 30 Dec 31
2001
Interest income $6,187 $5,914 $5,713 $5,677
Interest expense 3,057 2,795 2,438 2,117
Net interest income 3,130 3,119 3,275 3,560
Provision for loan losses 75 75 75 75
Income before income taxes 1,060 815 1,131 1,570
Applicable income taxes 300 242 317 491
Net income 760 573 814 1,079
Per common share:
Basic 1.31 .99 1.41 1.88
THREE MONTHS ENDED
Mar 31 June 30 Sept 30 Dec 31
2000
Interest income $4,432 $4,547 $5,219 $6,276
Interest expense 1,800 1,986 2,483 3,029
Net interest income 2,632 2,561 2,736 3,247
Provision for loan losses 30 45 101 195
Income before income taxes 1,156 873 1,081 967
Applicable income taxes 330 247 354 146
Net income 826 626 727 821
Per common share:
Basic 1.43 1.08 1.26 1.42
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Previously reported in Form 8-K filed with the Commission on June
29, 1995 (Commission Reference Number 0-12958).
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this Item (and Items 11, 12 and 13
below) is incorporated by reference from the registrant's definitive
Proxy Statement dated April 18, 2002 for its regular annual meeting
of shareholders to be held May 16, 2002 where it appears under the
headings "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF, ELECTION
OF DIRECTORS, EXECUTIVE OFFICERS AND COMPENSATION OF DIRECTORS AND
EXECUTIVE OFFICERS."
ITEM 11: EXECUTIVE COMPENSATION
See Item 10 herein above.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Item 10 herein above.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 10 herein above.
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, 2001 (a copy of which is being
filed as Exhibit 13 hereto), and are incorporated herein
by reference.
Consolidated Balance Sheets
December 31, 2001 and 2000 20
Consolidated Statements of Income
For the years ended December 31, 2001, 2000 and 1999 21
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 2001, 2000 and 1999 22
Consolidated Statements of Cash Flow
For the years ended December 31, 2001, 2000 and 1999 23-24
Notes to Consolidated Financial Statements 25-41
Independent Auditors Opinion 43
(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, 2001,
the registrant 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 25 of the 2001 Annual Report to
Shareholders' attached hereto as Exhibit 13.
13 The registrant's Annual Report to Shareholders'
for its fiscal year ended December 31, 2001.
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".
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: Peter A. Blyberg, President By: Sally J. Hutchins
and Chief Executive Officer Senior Vice President
and Treasurer
Date: March 13, 2002
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
Samuel G. Cohen, Director
Sandra H. Collier, Director
Robert B. Fernald, Director
Douglas A. Gott, Director
James L. Markos, Jr., Director
John V. Sawyer, II, Director
Stephen C. Shea, Director
Robert W. Spear, Director
Richard W. Teele, Director
Paul L. Tracy, Director