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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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 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 5, 1999, was approximately $56,603,300.
481,896 shares of the Company's Common Stock, $12.50 par value, were
issued and outstanding on February 16, 1999.
UNION BANKSHARES COMPANY
INDEX TO FORM 10-K
PART I Page No.
Item 1: Business 3-16
Item 2: Properties 16-17
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 18
Item 6: Selected Financial Data 19
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 7A: Quantitative and Qualitative Disclosures
About Market Risk 20-21
Item 8: Financial Statements and Supplementary Data 21
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 21
PART III
Item 10: Directors and Executive Officers of the Registrant 21
Item 11: Executive Compensation 21
Item 12: Security Ownership of Certain Beneficial Owners
and Management 21
Item 13: Certain Relationship and Related Transactions 21
PART IV
Item 14: Exhibits, Financial Statement Schedules and
Reports on Form 8-K 22-23
Signatures 24
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, established in 1887 and wholly owned. 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. The
Company has no immediate plans to engage in such activities, but could do
so if such action should appear desirable.
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, custody, and retirement planning and
employee benefit services.
The long-term goals of Union Trust Company focus on:
becoming a market-driven sales and service organization;
becoming effective users of appropriate technology; and
building the financial strength of the Bank with steady growth of
earnings and assets and controlled risk taking consistent with
shareholder expectations.
We encourage our Relationship Managers to visit customers, listen to them
and respond with appropriate solutions to their needs. Our Relationship
Managers continue to meet with area business owners at their places of
business in an effort to understand their businesses and how the Bank can
play a role in helping them. More visits are being made to more and more
businesses each year. The Bar Harbor branch, now one-and-a-half years
old, has shown tremendous growth during 1998, confirming our commitment
to the Mount Desert Island market area.
As customers increase their demand for electronic banking services, Union
Trust is responding. During 1998, scores of customers discovered the
value of BankLinerPC (our computer banking service) and its cash
management features. For example, we have experienced a significant
increase in ACH transaction volume since 1994. This can be attributed to
the growing appeal of automated services such as direct deposit payroll
services, direct deposit of Government payments and direct debits for
monthly bills.
BankLinerPC is just the most recent 24-hour financial connection that
Union Trust has established to meet its customers' needs. In October
1998, the Jonesport branch became Union Trust's twelfth and newest 24-
hour ATM location. BankLiner (our automated 24-hour telephone banking
service) and Customer Service Call Center (answered by real people)
continue to receive record-breaking numbers of calls year after year.
Customers are wanting more information and more ways to access their
accounts more often.
Union Trust Company has a documented record of consistent earnings
growth, posting an earnings increase in 1998 of 14.4%. Loans grew to
$110 million. Over the years, as we have worked to expand our fee-based
services, Trust and Investment Services has been a major focus. The
department's contribution to net income increases every year. During
1998, trust assets under management grew by 25.6% over 1997.
Union Trust takes pride in delivering personalized, responsive service
and developing quality, innovative products for its customers. Union
Trust also supports the people and communities it serves through a far-
reaching donation program. The program addresses human needs within the
community by contributing to various nonprofit organizations, community
development efforts and environmental groups. It also encourages and
supports the thousands of hours of volunteer time given each year by the
Bank's employees, directors and retirees. During 1998, we elected two
new directors to the Board, Blake "Cubby" Brown and Jim Markos. We are
excited to have their business expertise and community connections at
work for the Bank.
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, 1998, the Bank employed 123 employees of which 16
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 page 37 of the 1998 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 balance 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 using a tax rate of 34% 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)
1998 1997 1996
Avg Int Yield/ Avg Int Yield/ Avg Int Yield/
Bal Earned/Paid Rate Bal Earned/Paid Rate Bal Earned/Paid Rate
Assets
Interest Earning Assets:
Securities
Available
for Sale $ 77,517 $ 5,278 6.81 $ 72,741 $ 5,182 7.12 $ 80,333 $ 5,256 6.54
Securities Held
to Maturity 23,968 1,510 6.30 22,689 1,437 6.33 3,772 369 9.78
Federal Funds
Sold 6,384 326 5.11 598 41 6.86 1,411 76 5.39
Loans (Net) 108,057 10,241 9.47 100,208 9,660 9.64 94,139 9,192 9.76
Total Interest
Earning
Assets 215,926 $17,355 8.04 196,236 $16,320 8.32 179,655 $14,893 8.28
Other Nonearning
Assets 19,699 18,878 14,926
$235,625 $215,114 $194,581
Liabilities
Interest Bearing Liabilities:
Savings
Deposits $ 69,656 $ 1,131 1.62 $ 65,432 $ 1,119 1.71 $ 65,770 $ 1,172 1.78
Time Deposits 77,545 4,223 5.44 73,419 4,298 5.85 67,294 3,752 5.57
Money Market
Accounts 11,765 560 4.76 12,271 482 3.93 14,107 478 3.39
Borrowings 18,077 1,260 6.97 14,007 835 5.96 4,012 229 5.71
Total Interest
Bearing
Liabilities 177,043 $ 7,174 4.05 165,129 $ 6,734 4.08 151,183 $ 5,631 3.72
Other Noninterest
Bearing Liabilities
& Shareholders'
Equity 58,582 49,985 43,398
$235,625 $215,114 $194,581
Net Interest Income $10,181 $ 9,586 $ 9,262
Net Interest Rate Spread 3.99 4.24 4.56
Net Interest Margin 4.72 4.88 5.16
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, 1998, 1997 and 1996
(In Thousands)
Year Ended December 31, 1998 vs. 1997
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets:
Assets 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
Change in Net Interest Income $1,039 $(1,013) $449 $ 475
Year Ended December 31, 1997 vs. 1996
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets:
Assets Available for Sale $ (499) $ 463 $ (38) $ (74)
Securities Held to Maturity 1,223 (27) (136) 1,060
Federal Funds Sold (44) 21 (12) (35)
Loans, Net 588 (118) (2) 468
Total Interest Earning Assets 1,268 339 (188) 1,419
Interest Bearing Liabilities:
Savings Deposits (7) (47) 1 (53)
Time Deposit 337 185 24 546
Money Market Accounts (62) 76 (10) 4
Borrowed Funds 571 10 25 606
Total Interest Bearing Liabilities 839 224 40 1,103
Change in Net Interest Income $ 429 $ 115 $(228) $ 316
*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
1998 1997 1996
U.S. Treasury Securities &
Other Government Agencies $ 0 $25,814 $ 995
Obligations of States &
Political Subdivisions 4,376 6,985 3,792
TOTAL $4,376 $32,799 $4,787
The table below shows the relative maturities of held to maturity
securities as of December 31, 1998.
Held to Maturity Securities
Maturity Distribution as of
December 31, 1998
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 yrs 10 Yrs
State and Municipal Bonds $ 150 $1,611 $1,235 $1,380
Average Weighted Yield 8.39% 7.81% 8.26% 7.26%
TOTAL $ 150 $1,611 $1,235 $1,380
Percent of Total Portfolio 3.4% 36.8% 28.3% 31.5%
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
1998 1997 1996
US Treasury Notes and
Other Government Agencies $ 93,971 $60,105 $73,322
Obligations of State and
Political Subdivisions 8,769 0 1,513
Other Securities 4,189 3,160 1,946
TOTAL $106,929 $63,265 $76,781
The table below shows the relative maturities and carrying value of
available for sale debt securities as of December 31, 1998 (excludes
other securities).
Securities Available for Sale
Maturity Distribution as of
December 31, 1998
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 Yrs 10 yrs
US Treasury Notes and Other
Government Agencies $ 3,153 $13,959 $46,532 $39,096
Average Weighted Yield 6.93% 6.62% 6.67% 7.01%
TOTAL $ 3,153 $13,959 $46,532 $39,096
Percent of Total Portfolio: 2.9% 13.1% 43.5% 36.5%
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.
1998 1997 1996 1995 1994
(In Thousands)
Real Estate Loans
A. Construction & Land
Development $ 6,431 $ 5,925 $ 4,073 $ 2,023 $ 2,168
B. Secured by 1-4 Family
Residential Properties 36,944 33,528 30,457 27,402 25,528
C. Secured by Multi Family
(5 or more) Residential
Properties 0 0 0 2 4
D. Secured by Non-Farm,
Non-Residential
Properties 30,550 28,386 30,134 28,273 26,500
Commercial & Industrial Loans 15,979 18,566 16,582 13,778 12,975
Loans to Individuals for Household,
Family & Other Consumer
Expenditures 15,327 15,806 15,133 14,335 12,844
All Other Loans 5,168 4,852 4,664 7,430 4,189
Total Gross Loans $110,399 $107,063 $101,043 $93,243 $84,208
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:
1998 1997 1996 1995 1994
Real Estate 67.0% 63.4% 64.0% 61.9% 64.4%
Commercial & Industrial -
Including single
payment loans to individuals 14.5% 17.3% 16.4% 14.8% 15.4%
Consumer Loans 13.9% 14.8% 15.0% 15.4% 15.3%
All Other Loans 4.6% 4.5% 4.6% 7.9% 4.9%
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, 1998
Due 1 Year Due 1-5 Years Due 5 Years +
or Less
Real Estate $37,349 $19,262 $17,314
Commercial & Industrial 11,246 3,106 1,627
Consumer 7,469 2,485 5,373
Municipal 3,032 1,554 582
Total $59,096 $26,407 $24,896
Note: Real estate loans in the 1-5 category have $2,846,353 at a fixed
interest rate and $16,415,647 at a variable interest rate.
Commercial loans in the 1-5 year category have $3,052,000 at a
fixed interest rate and $54,000 at a variable interest rate.
Real estate loans in the 5+ category have $15,851,148 at a fixed
interest rate and $1,462,852 at a variable interest rate.
Commercial loans in the 5+ category have $1,253,695 at a fixed
interest rate and $373,305 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,
1998 1997 1996 1995 1994
Amt % Amt % Amt % Amt % Amt %
Real Estate $3,079 2.8 $3,003 2.8 $2,649 2.6 $ 867 0.9 $ 479 0.6
Installment $ 153 0.1 $ 128 0.1 $ 197 0.2 $ 95 0.1 $ 95 0.1
All Others $ 134 0.1 $ 151 0.1 $ 220 0.2 $ 35 0.0 $ 189 0.2
TOTAL $3,366 3.0 $3,282 3.0 $3,066 3.0 $ 997 1.0 $ 763 0.9
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 $534,000, $503,000 and $491,000 as of December 31,
1998, 1997 and 1996, respectively, of loans on a non-accrual status.
LOAN CONCENTRATIONS
As of December 31, 1998 and 1997, the Company did not have any
concentration of loans in one particular industry that exceeded 10% of
its total loan portfolio.
The Bank grants residential, commercial and consumer loans to customers
principally located in Hancock and Washington Counties of the State of
Maine. Although the loan portfolio is diversified, a substantial
portion of its debtor's ability to honor their contracts is dependent
upon the economic conditions in the area, especially in the real estate
sector. There are currently no borrowers whose total indebtedness to
the Bank exceeds 10% of the Bank's shareholders' equity at December 31,
1998.
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
Analysis of the allowance for loan losses for the past five years were
as follows:
(Dollars in thousands)
December 31,
1998 1997 1996 1995 1994
Balance at beginning of period:$ 2,213 $ 2,084 $ 1,878 $ 1,929 $ 1,802
Charge-offs:
Commercial & Industrial Loans 2 5 15 44 30
Real Estate Loans 0 123 0 48 256
Loans to Individuals 111 97 73 104 34
113 225 88 196 320
Recoveries:
Commercial & Industrial Loans 11 118 138 43 5
Real Estate Loans 0 67 12 1 390
Loans to Individuals 39 49 24 71 52
50 234 174 115 447
Net Charge-offs (recoveries) 63 (9) (86) 81 (127)
Provision for loan losses 285 120 120 30 0
Balance at end of period $ 2,435 $ 2,213 $ 2,084 $ 1,878 $ 1,929
Average Loans Outstanding $110,321 $102,321 $97,143 $88,725 $82,600
Ratio of Net Charge-offs (Recoveries) to
average loans outstanding .057% (.009%) (.09%) .09% (.15%)
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
1998 1997 1996 1995 1994
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 $ 374 67.0% $ 356 63.4% $ 318 64.0% $ 647 61.9% $ 665 64.4%
Commercial &
Industrial 1,780 14.5% 1,558 17.3% 1,405 16.4% 1,024 14.8% 1,051 15.4%
Consumer 153 13.9% 158 14.8% 151 15.0% 207 15.4% 213 15.3%
Municipal 58 4.2% 49 4.1% 60 4.5% 0 7.9% 0 4.9%
Identified 62 .4% 67 .4% 100 .1% 0 .0% 0 .0%
Unallocated 8 .0% 25 .0% 50 .0% 0 .0% 0 .0%
TOTAL $2,435 100.0% $2,213 100.0% $2,084 100.0% $1,878 100.0% $1,929 100.0%
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, 1998, the Company had impaired loans totaling
$207,686, 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
1998 1997 1996 1995 1994
Loans accounted for on a
non accrual basis $534 $503 $491 $614 $151
Accruing loans contractually
past due 90 days or more $ 47 $209 $196 $388 $ 86
In accordance with Industry Guide 3 Item III. C (1), the gross interest
income that would have been recorded in 1998 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 $40,000. There was approximately $2,000
included in the gross interest income on non-accrual and restructured
loans for 1998.
D. DEPOSITS
The following schedule summarizes the time remaining to maturity of
Certificates of Deposit $100,000 or greater at December 31, 1998.
Amount
(In Thousands)
3 Months or Less $ 5,886
Over 3 Through 6 $ 1,569
Over 6 Through 12 Months $ 3,032
Over One Year $ 993
Total $11,480
E. SHORT-TERM BORROWINGS
December 31
1998 1997
Weighted Weighted
Average Average
Interest Rate Amount Interest Rate Amount
Fixed advances 6.45 $451,250 6.52 $273,250
Variable advances 5.29 $20,000,000 5.35 $9,000,000
Securities sold
under agreement 3.70 $8,965,977 4.00 $5,690,975
1998 1997
Fixed Variable Securities Fixed Variable Securities
Maximum amount $451,250 $20,142,352 $9,512,901 $273,250 $22,903,225 $7,890,521
outstanding of any
month end during the year
Average amount $407,584 $18,077,448 $6,485,367 $206,143 $12,569,863 $3,950,415
outstanding during
the year
Weighted average 6.53% 5.30% 4.05% 6.74% 5.86% 4.17%
interest rate for the year
Advances at December 31, 1998 mature as follows:
2002 2005 2007 2008 2010 2012 2013
$4,000,000 $55,000 $84,250 $16,089,000 $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.
*1998 *1997 *1996
Deposits 15.1% 14.9% 14.4%
Loans 25.4% 24.6% 24.6%
Total Assets 11.6% 12.0% 12.1%
Earning Assets 12.8% 13.0% 13.3%
*Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of $1,162,032, $437,749 and ($171,460) at
December 31, 1998, 1997 and 1996, 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.
1998 1997 1996
Return on Average Shareholders' Equity 11.6% 10.9% 10.6%
Return on Average Assets 1.3% 1.3% 1.2%
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, 1998, the Bank's ratio of rate sensitive assets to
rate sensitive liabilities at the one year horizon was 102%, its one
year GAP (measurement of interest sensitivity of interest earning
assets and interest bearing liabilities at a given point in time) was
101%, and $116,522,000 in assets and $114,396,000 in liabilities will
be repriceable in one year. The Bank becomes asset sensitive between
25 and 36 months. 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, 1998, the Company's
interest rate GAP analysis:
Interest Rate GAP Analysis
As of December 31, 1998 (000's omitted)
0-3 4-12 1-5 Over 5
Months Months Years Years Total
Interest earning assets
Loans:
Real estate
Fixed rate $ 677 $ 1,983 $ 8,052 $ 8,385 $ 19,097
Variable rate 17,921 21,982 14,312 0 54,215
Commercial 9,562 1,844 2,672 1,898 15,976
Municipal 20 3,003 2,198 577 5,798
Consumer 11,433 755 3,148 0 15,336
Securities available
for sale 15,426 15,884 48,892 21,204 101,406
Held to maturity securities 0 626 2,360 1,390 4,376
Loans held for sale 6,138 0 0 0 6,138
Other earning assets 9,268 0 3,558 0 12,826
TOTAL $70,445 $46,077 $85,192 $33,454 $235,168
Interest bearing liabilities
Deposits:
Savings $ 3,405 $10,215 $16,061 $22,823 $52,504
NOW 3,093 9,279 24,743 0 37,115
Money market 3,153 9,459 6,139 0 18,751
Time 29,738 37,088 12,832 0 79,658
Borrowings 8,966 0 13,000 7,451 29,417
TOTAL $48,355 $66,041 $72,775 $30,274 $217,445
Rate sensitivity GAP $22,090 $(19,964) $12,417 $ 3,180
Rate sensitivity GAP as a
percentage of total assets 8.80% (7.95%) 4.94% 1.27%
Cumulative GAP $22,090 $ 2,126 $14,543 $17,723
Cumulative GAP as a
percentage of total assets 8.80% 0.09% 5.79% 7.06%
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, 1998 1997
Net cash provided from operations $ 4,266,014 $ 3,106,220
Net cash used by investing activities (17,797,165) (19,134,989)
Net cash provided from financing activities 20,743,318 16,327,780
Net increase in cash and cash equivalents $ 7,212,167 $ 299,011
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 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 is now completed and has been open for business since April
1988.
(f) The Bank purchased in 1989 a parcel of land located on Route 3 in
Ellsworth with the possible intention of constructing a new branch.
This property is currently unoccupied and is available for sale.
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, 1999 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 1998 and 1997 are listed in the
following table.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1998 120.00 to 125.00 125.00 to 136.50 126.00 to 130.00 130.00 to 130.00
1997 93.00 to 104.00 93.00 to 97.00 88.00 to 100.00 100.00 to 110.00
B. HOLDER
As of March 1, 1999 there were approximately 698 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:
1998 1997
1st Quarter $ .50 $ .41
2nd Quarter $ .50 $ .42
3rd Quarter $ .50 $ .50
4th Quarter $ .50 $ .50
Cash dividends declared
per common share $2.00 $1.83
Item 6: SELECTED FINANCIAL DATA (in thousands, except for per share
amounts)
Years Ended December 31,
1998 1997 1996 1995 1994
SUMMARY OF OPERATIONS
Operating Income $ 3,155 $ 2,608 $ 2,207 $ 1,989 $ 2,080
Operating Expense 8,413 8,016 7,723 7,459 7,420
Net Interest Income 9,927 9,452 9,137 8,803 8,490
Provision for Loan Losses 285 120 120 30 0
Net Income 3,090 2,700 2,452 2,418 2,354
PER COMMON SHARE DATA
Net Income $ 6.41 $ 5.59 $ 5.07 $ 5.00 $ 4.86
Cash Dividends Declared 2.00 1.83 1.67 1.56 1.25
Book Value (2) 57.21 52.93 49.34 45.87 42.45
Market Value 130.00 110.00 104.00 75.00 71.00
FINANCIAL RATIOS
Return on Average
Equity (2) 11.6% 10.9% 10.6% 11.4% 11.9%
Return on Average Assets 1.3% 1.3% 1.2% 1.3% 1.3%
Return on Average
Earning Assets 1.4% 1.4% 1.4% 1.4% 1.4%
Net Interest Margin 4.72% 4.88% 5.16% 5.37% 5.46%
Dividend Payout Ratio 31.2% 32.8% 32.9% 31.3% 25.8%
Allowance for Loan
Losses/Total Loans .02 .02 .02 .02 .02
Non Performing Loans
to Total Loans .005 .007 .007 .007 .003
Non Performing Assets
to Total Assets .004 .005 .008 .010 .006
Efficiency Ratio 64.3% 66.5% 67.2% 67.2% 69.1%
Loan to Deposit Ratio 58.7% 60.4% 60.7% 56.7% 52.5%
BALANCE SHEET
Deposits $188,029 $177,386 $166,445 $164,481 $160,249
Loans 110,399 107,062 101,044 93,242 84,208
Securities (1) 111,304 96,065 81,568 76,578 83,391
Shareholders' Equity (2) 27,577 25,565 23,885 22,227 20,570
Total Assets 251,195 222,560 202,066 191,353 181,597
(1) Carrying value. Includes available for sale securities with cost
of $101,610, $59,983, $75,095 and $70,938 at December 31, 1998, 1997,
1996 and 1995, respectively.
(2) Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of $1,162,032, $437,749, ($171,460),
$567,810 and ($1,389,168) at December 31, 1998, 1997, 1996, 1995 and
1994, respectively.
The above summary should be read in conjunction with the related
consolidated financial statements and notes thereto for the years ended
December 31, 1998, 1997, 1996, 1995 and 1994, 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 1998 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 represents the sensitivity of earnings to changes in
market interest rates. As interest rates change the interest income
and expense streams associated with the Company's financial instruments
also change thereby impacting net interest income (NII), the primary
component of the Company's earnings. ALCO utilizes the results of a
detailed and dynamic simulation model to quantify the estimated
exposure of NII to sustained interest rate changes. While ALCO
routinely monitors simulated NII sensitivity over a rolling two year
horizon, it also utilizes additional tools to monitor potential longer
term interest rate risk.
The simulation model captures the impact of changing interest rates on
the interest income received and interest expense paid on all assets
and liabilities reflected on the Company's balance sheet. This
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 point 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 table below
presents the potential adverse impact on the Bank's current earnings
due to changes in interest rates. This measure is based on the Bank's
interest rate sensitivity position at December 31, 1998 and 1997, which
reflects a view on future interest rate movements relative to the
current yield curve. As indicated in the table, the Bank's interest
rate sensitivity position would increase 400 bp from 1998 over 1997 in
a 200 bp upward interest rate shift and decrease 500 bp in a downward
interest rate shift for the same period.
Estimated
Rate Change NII Sensitivity
1998 1997
+200 bp +6.0% +2.0%
-200 bp -8.0% -3.0%
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 cashflows,
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.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) The financial statements required are contained in the Company's
1998 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
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 March 26, 1999 for its regular annual meeting of
shareholders to be held April 15, 1999, where it appears under the
headings "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF AND ELECTION
OF DIRECTORS."
ITEM 11: EXECUTIVE COMPENSATION
See Item 10.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
See Item 10.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 10.
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, 1998 (a
copy of which is being filed as Exhibit 13 hereto), and are
incorporated herein by reference.
Consolidated Balance Sheets
December 31, 1998 and 1997 22
Consolidated Statements of Income
For the years ended December 31, 1998, 1997 and 1996 23
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 1998, 1997 and 1996 24
Consolidated Statements of Cash Flow
For the years ended December 31, 1998, 1997 and 1996 25-26
Notes to Consolidated Financial Statements 27
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, 1998,
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 22 of the 1998
Annual Report to Shareholders'
attached hereto as Exhibit 13.
12 Statement for computation of ratios is
incorporated herein by reference to
"Part II, Item 6 - Selected Financial
Data."
13 The registrant's Annual Report to
Shareholders'forits fiscal year ended
December 31, 1998. 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 Vice President, Treasurer
and
Controller
Date: March 25, 1999
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