1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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, 2001, was approximately $44,490,955.
577,564 shares of the Company's Common Stock, $12.50 par value, were
issued and outstanding on February 15, 2001.
UNION BANKSHARES COMPANY
INDEX TO FORM 10-K
PART I
Page No.
Item 1: Business 3-14
Item 2: Properties 14-15
Item 3: Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6: Selected Financial Data 16-17
Item 7: Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7A: Quantitative and Qualitative Disclosures About
Market Risk 17
Item 8: Financial Statements and Supplementary Data 17-18
Item 9: Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 18
PART III
Item 10: Directors and Executive Officers of the Registrant 18
Item 11: Executive Compensation 18
Item 12: Security Ownership of Certain Beneficial Owners
and Management 18
Item 13: Certain Relationship and Related Transactions 18
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports
on Form 8-K 18-19
Signatures 20
PART I
ITEM I: Business
Union Bankshares Company ("the Company") is a one-bank holding company,
organized under the laws of the State of Maine and headquartered in
Ellsworth, Maine. The Company's only subsidiary is Union Trust Company,
("the Bank") wholly owned and established in 1887. On August 31, 2000,
the Company completed the acquisition of Mid-Coast Bancorp, Inc., a bank
holding company with one principal subsidiary, Waldoboro Bank, FSB. On
September 29, 2000, the Waldoboro Bank, FSB was merged with and into
Union Trust Company. The acquisition of Mid-Coast Bancorp, Inc. was
accounted for under the purchase method of accounting. Union Bankshares'
holding company structure can be used to engage in permitted banking-
related activities, either directly, through newly formed subsidiaries,
or by acquiring companies already established in those activities.
Union Trust Company is a full-service, independent, community bank that
is locally owned and operated. Having acquired the Waldoboro Bank FSB,
during 2000, Union Trust now has fifteen offices located along Maine's
coast, stretching from Waldoboro to Machias. Union Trust continues to
provide banking, retirement, employee benefit, investment and personal
trust services to individuals, businesses, municipalities and non-profit
organizations in its market area and throughout the state. To this broad
list of services Union Trust added Financial Planning services during
2000. Offering financial advice to our customers is something we have
been doing for many years. Financial Planning formalizes this by looking
at a person's entire financial situation and providing a written plan
with objectives for the customer to implement in order to reach their
financial goals.
During 2000, many of our services were enhanced or upgraded. Having
introduced Internet banking, known as NetBankingr, in September 1999, Net
Bankingr Cash Management was unveiled in Spring 2000. Net Bankingr Cash
Management provides the same functionality as NetBankingr plus additional
system enhancements designed specifically for the needs of small
businesses. These include ACH origination services for direct deposit of
payroll, stop payments and wire transfer initiation.
Hardware and software was purchased and implemented to provide
Relationship Managers with the ability to complete a mortgage loan
application on a laptop computer either in or out of the office. This
mobility and efficiency enhances the already exceptional service we
provide to our mortgage customers.
The merger with The Waldoboro Bank, FSB further necessitated service
enhancements already on the year's docket. In June 2000, Check Imaging
was installed with overwhelming success and customer acceptance. This
has enabled customers to more easily reconcile their monthly statements
and conveniently organize, store and reference their records. For the
Bank, Check Imaging has brought all the operational efficiencies we hoped
it would. Now customers receive images of their checks with their
monthly statements, can view them on-line using NetBankingr, and can
request them on CD-ROM for additional storage and retrieval convenience.
In July 2000, a new on-line teller system was installed. BankLiner
telephone banking was also brought on-line. With both of these systems
on-line, a customer can make a deposit at the branch and upon returning
home can call BankLiner or log onto NetBankingr and have that deposit
already reflected in their account balance. Or, if the customer were to
make a transfer using BankLiner and then call Customer Service to verify
their balance, the transfer would be reflected on their account.
The merger with The Waldoboro Bank, FSB expanded our market. Union
Trust's market area now covers five counties including Hancock and
Washington plus Knox, Lincoln and Waldo. There are 192,000 people within
this five county market area, representing a 125% expansion of the
population base that Union Trust serves. The number of business
establishments in this new expanded market area is 6,500 - a 116%
increase. The Bank's products that are positioned to be most effective
in this newly expanded market are NetBankingr, home mortgages, small
business banking and trust and investment services. However, this new
growth opportunity also brings new challenges, including new competitors.
As we capitalize on the opportunity that the acquisition of The Waldoboro
Bank, FSB provides, during 2001 and beyond, we will also be positioning
the Bank for product expansion. By peering in the window of the new
Union Trust storefront on Main Street in Ellsworth, one can see Union
Trust's future emerging, becoming a true provider of financial services
in the broadest sense.
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 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, 2000, the Bank employed 151 employees of which 14
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 regulators are the Federal Reserve Bank of Boston and,
as a state chartered bank, the Bureau of Banking of the State of Maine.
Please refer to Footnote #15 on pages 36 and 37 of the 2000 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. All amounts in tables presented in thousands,
except per share amounts.
A. AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
The following table sets forth the information related to changes in net
interest income. For purposes of the table and the following discussion,
information is presented regarding (1) the total dollar amount of
interest income of the Company from interest earning assets and the
resulting average yields; (2) the total dollar amount of interest expense
on interest bearing liabilities and the resulting average cost; (3) net
interest income; (4) interest rate spread; and (5) net interest margin.
Information is based on average daily balances during the indicated
periods. For the purposes of the table and the following discussion, (1)
income from interest earning assets and net interest income are presented
on a tax equivalent basis and (2) non accrual loans have been included in
the appropriate average balance loan category, but unpaid interest on
nonaccrual loans has not been included for purposes of determining
interest income.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(On a Tax Equivalent Basis)
2000 1999 1998
Average Int Yield/ Average Int Yield/ Average Int Yield/
Balance Earned Rate Balance Earned Rate Balance Earned Rate
/Paid /Paid /Paid
Assets
Interest Earning Assets:
Securities available for
sale $101,234 $ 6,980 6.89 $105,663 $ 6,913 6.54 $ 77,517 $ 5,278 6.81
Securities held to
maturity 4,184 315 7.53 4,311 333 7.72 23,968 1,510 6.30
Federal funds
sold 821 44 5.36 5,705 294 5.15 6,384 326 5.11
Loans
(net) 149,169 13,656 9.15 115,825 10,237 8.83 108,057 10,241 9.47
Total interest earning
assets 255,408 $20,995 8.22 231,504 $17,777 7.68 215,926 $17,355 8.04
Other nonearning
assets 26,891 20,069 19,699
$282,299 $251,573 $235,625
Liabilities
Interest Bearing Liabilities:
Savings
deposits $100,245 $ 1,321 1.32 $ 67,766 $ 1,082 1.60 $ 69,656 $ 1,131 1.62
Time
deposits 84,012 4,540 5.40 77,139 3,784 4.91 77,545 4,223 5.44
Money market
accounts 22,192 808 3.64 21,262 728 3.42 11,765 560 4.76
Borrowings 32,328 2,629 8.13 20,969 1,502 7.16 18,077 1,260 6.97
Total interest bearing liabil-
ities 238,777 $ 9,298 3.89 187,136 $ 7,096 3.79 177,043 $ 7,174 4.05
Other noninterest bearing
liabilities & shareholders'
equity 43,522 64,437 58,582
$282,299 $251,573 $235,625
Net interest income $11,697 $10,681 $10,181
Net interest rate spread 4.33 3.89 3.99
Net interest margin 4.58 4.61 4.72
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, 2000, 1999 and 1998
Year Ended December 31, 2000 vs. 1999
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $ (292) $ 300 $ 53 $ 61
Securities held to maturity (10) 10 (11) (11)
Federal funds sold (252) 262 (259) (249)
Loans, net 2,935 (3,058) 3,531 3,408
Total interest earning assets 2,381 (2,486) 3,314 3,209
Interest Bearing Liabilities
Savings deposits 522 (433) 150 239
Time deposits 341 (374) 790 757
Money market accounts 31 (34) 82 79
Borrowed funds 813 (924) 1,238 1,127
Total interest bearing liabilities 1,707 (1,765) 2,260 2,202
Net change in net interest income $ 674 $ (721) $1,054 $1,007
Year Ended December 31, 1999 vs. 1998
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $1,918 $(1,787) $1,465 $1,596
Securities held to maturity (1,238) 1,044 (997) (1,191)
Federal funds sold (34) 35 (33) (32)
Loans, net 728 (674) (263) (209)
Total interest earning assets 1,374 (1,382) 172 164
Interest Bearing Liabilities
Savings deposits 33 32 (114) (49)
Time deposit (27) 23 (435) (439)
Money market accounts 452 (326) 42 168
Borrowed funds 202 (208) 248 242
Total interest bearing liabilities 660 (479) (259) (78)
Net change in net interest income $ 714 $ (903) $ 431 $ 242
*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.
December 31
2000 1999 1998
Obligations of States & Political Subdivisions $3,851 $4,237 $4,376
TOTAL $3,851 $4,237 $4,376
The table below shows the relative maturities of held to maturity
securities as of December 31, 2000.
Held to Maturity Securities
Maturity Distribution as of
December 31, 2000
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 yrs 10 Yrs
State and Municipal Bonds $ 421 $1,530 $ 585 $1,315
Weighted Average Yield 8.24% 7.82% 8.27% 6.83%
TOTAL $ 421 $1,530 $ 585 $1,315
Percent of Total Portfolio 10.9% 39.8% 15.2% 34.1%
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
2000 1999 1998
Mortgage Backed Securities $ 34,612 $ 34,000 $ 34,336
US Treasury Notes and Other Government Agencies 51,240 54,403 59,635
Obligations of State and Political Subdivisions 11,277 8,067 8,769
Other Securities 4,009 3,245 631
TOTAL $101,138 $99,715 $103,371
The table below shows the relative maturities and carrying value of
available for sale debt securities as of December 31, 2000 (excludes
stock investments).
Securities Available for Sale
Maturity Distribution as of
December 31, 2000
Security Category Due 1 Yr Due 1- Due 5- Due After
or less 5 Yrs 10 Yrs 10 yrs
Mortgage Backed Securities $ 0 $ 0 $ 2,189 $32,423
US Treasury Notes and Other
Government Agencies 2,001 18,356 29,193 1,689
Obligations of State and
Political Subdivisions 0 262 3,744 7,271
Other Securities 694 2,449 413 0
TOTAL $2,695 $21,067 $35,539 $41,383
Weighted Average Yield 6.88% 5.88% 5.47% 6.99%
Percent of Total Portfolio: 2.7% 21.1% 35.5% 41.4%
The Company's net unrealized loss on available for sale securities (net
of tax) of $466,522 at December 31, 2000 is largely attributable to the
current interest rate environment. The unrealized loss has no effect
on regulatory capital or current earnings of the Company. The Company
would sell these securities only if it was consistent with the Bank's
asset/liability management strategies.
C. LOANS
The following table reflects the composition of the Company's
consolidated loan portfolio at the end of each of the last five years.
2000 1999 1998 1997 1996
Real Estate Loans
A. Construction & Land
Development $ 10,710 $ 7,617 $ 6,431 $ 5,925 $ 4,073
B. Secured by 1-4 Family
Residential Properties 99,887 47,988 36,944 33,528 30,457
C. Secured by Multi Family
(5 or more) Residential
Properties 0 0 0 0 0
D. Secured by Non-Farm,
Non-Residential
Properties 49,736 32,443 30,550 28,386 30,134
Commercial & Industrial
Loans 21,002 16,222 15,979 18,566 16,582
Loans to Individuals for Household,
Family & Other Consumer
Expenditures 19,966 14,508 15,327 15,806 15,133
All Other Loans 3,718 8,845 5,168 4,852 4,664
Total Gross Loans $205,019 $127,623 $110,399 $107,063 $101,043
The above data is gathered from loan classifications established by the
Federal Reserve Call Report 032.
The percentages of loans by lending classification to total loans
outstanding at December 31 was as follows:
2000 1999 1998 1997 1996
Real Estate 78.2% 69.0% 67.0% 63.4% 64.0%
Commercial & Industrial - Including single
payment loans to individuals 10.2% 12.7% 14.5% 17.3% 16.4%
Consumer Loans 9.7% 11.4% 13.9% 14.8% 15.0%
All Other Loans 1.9% 6.9% 4.6% 4.5% 4.6%
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, 2000
Due 1 Year or Less Due 1-5 Years Due 5 Years +
Real Estate $72,310 $67,340 $20,683
Commercial & Industrial 13,488 4,336 3,178
Consumer 10,642 4,891 4,433
Municipal 2,584 930 204
Total $99,024 $77,497 $28,498
Note:Real estate loans in the 1-5 category have $25,521,860 at a fixed
interest rate and $41,818,140 at a variable interest rate.
Commercial loans in the 1-5 year category have $3,152,272 at a
fixed interest rate and $1,183,728 at a variable interest rate.
Real estate loans in the 5+ category have $20,683,000 at a fixed
interest rate and $0 at a variable interest rate. Commercial
loans in the 5+ category have $2,294,516 at a fixed interest rate
and $883,484 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 and still accruing:
December 31,
2000 1999 1998 1997 1996
% % % % %
Of Of Of Of Of
Total Total Total Total Total
Amt Loans Amt Loans Amt Loans Amt Loans Amt Loans
Real Estate $1,054 0.5 $4,367 3.4 $3,079 2.8 $3,003 2.8 $2,649 2.6
Installment $ 64 0.0 $ 65 0.1 $ 153 0.1 $ 128 0.1 $ 197 0.2
All Others $ 327 0.2 $ 192 0.2 $ 134 0.1 $ 151 0.1 $ 220 0.2
TOTAL $1,445 0.7 $4,624 3.7 $3,366 3.0 $3,282 3.0 $3,066 3.0
It is the policy of the Company to discontinue the accrual of interest
on loans when, in the opinion of the management, the ultimate
collectibility of principal or interest becomes doubtful. The
principal amount of loans which have been placed on non-accrual status
were comprised primarily of certain 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. There
were approximately $3,390,000, $437,000 and $534,000 as of December 31,
2000, 1999 and 1998, respectively, of loans on non-accrual status.
LOAN CONCENTRATIONS
As of December 31, 2000 and 1999, 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, 2000.
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,
2000 1999 1998 1997 1996
Balance at beginning of period: $ 2,629 $ 2,435 $ 2,213 $ 2,084 $ 1,878
Charge-offs:
Commercial & Industrial Loans 55 3 2 5 15
Real Estate Loans 9 5 0 123 0
Loans to Individuals 116 140 111 97 73
180 148 113 225 88
Recoveries:
Commercial & Industrial Loans 0 12 11 118 138
Real Estate Loans 10 0 0 67 12
Loans to Individuals 26 130 39 49 24
36 142 50 234 174
Net Charge-offs (recoveries) 144 6 63 (9) (86)
Provision for Loan Losses 371 200 285 120 120
Allowance on Acquired Loans 520 0 0 0 0
Balance at end of period $ 3,376 $ 2,629 $ 2,435 $ 2,213 $ 2,084
Average Loans Outstanding $151,924 $118,311 $110,321 $102,321 $ 97,143
Ratio of Net Charge-offs (Recoveries) to
average loans outstanding .095% .004% .057% (.009%) (.09%)
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
December 31,
2000 1999 1998 1997 1996
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 $ 647 76.9% $ 500 69.0% $ 374 67.0% $ 356 63.4% $ 318 64.0%
Commercial &
Industrial 2,195 10.2% 1,846 13.1% 1,842 14.9% 1,625 17.7% 1,505 16.5%
Consumer 137 9.7% 145 11.4% 153 13.9% 158 14.8% 151 15.0%
Municipal 37 1.9% 88 6.5% 58 4.2% 49 4.1% 60 4.5%
Impaired 257 1.3% 0 .0% 0 .0% 0 .0% 0 .0%
Unallocated 103 .0% 50 .0% 8 .0% 25 .0% 50 .0%
TOTAL $3,376 100.0% $2,629 100.0% $2,435 100.0% $2,213 100.0% $2,084 100.0%
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.
The process of evaluating the adequacy of the allowance for loan losses
involves a high degree of management judgement, 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 allocated portion of the allowance for loan losses is comprised of
a general valuation and a specific allocation for impaired loans. The
general valuation consists of an assigned reserve percentage based on
the credit rating and type of loan. The factors used in determining
the assigned reserve percentage are past experience on loans of similar
credit quality, current economic conditions and trends in the
portfolio. The credit ratings are subject to review by an external
loan reviewer and internal credit administrators.
The specific allocation 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, 2000, the Company had impaired loans totaling
$2,661,402, 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.
The unallocated portion of the allowance for loan losses is a
subjective portion influenced by overall loan growth, the character and
mix of the loan portfolio, current trends in nonperforming loans,
current economic conditions and industry outlooks, 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.
During 2000, the Company provided $371,000 to the allowance for loan
losses, compared to $200,000 and $285,000 in 1999 and 1998,
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.
Risk Elements
2000 1999 1998 1997 1996
Loans accounted for on a non accrual basis $3,390 $437 $534 $503 $491
Accruing loans contractually past due
90 days or more $ 21 $314 $ 47 $209 $196
In accordance with Industry Guide 3 Item III. C (1), the gross interest
income that would have been recorded in 2000 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 $302,000. There was approximately $126,000
included in the gross interest income on non-accrual and restructured
loans for 2000.
D. DEPOSITS
The following schedule summarizes the time remaining to maturity of
Certificates of Deposit $100,000 or greater at December 31, 2000.
Amount
3 Months or Less $ 5,169
Over 3 Through 6 $ 4,713
Over 6 Through 12 Months $ 3,034
Over One Year $ 915
Total $13,831
E. BORROWINGS
December 31
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Interest Amount Interest Amount Interest Amount
Rate Rate Rate
Fixed advances 5.86 $30,000 6.54 $ 451 6.45 $ 451
Variable advances 4.62 $21,123 5.49 $18,000 5.29 $20,000
Securities sold
under agreement 3.42 $15,079 3.55 $13,140 3.70 $ 8,965
2000 1999 1998
Fixed Securities Fixed Securities Fixed Securities
Variable Variable Variable
Maximum amount $451 $21,123 $18,555 $451 $22,863 $13,822 $451 $20,142 $9,512
outstanding of any
month end during
the year
Average amount $451 $32,328 $13,870 $451 $20,402 $ 9,056 $407 $18,077 $6,485
outstanding during
the year
Weighted 6.54% 5.69% 5.11% 6.54% 5.36% 3.55% 6.45% 5.30% 4.05%
average interest
rate for the year
Advances at December 31, 2000 mature as follows:
2001 $38,957
2002 1,000
2003 1,000
2005 1,055
Thereafter 9,111
Total $51,123
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.
*2000 *1999 *1998
Deposits 14.4% 15.6% 15.1%
Loans 19.0% 25.0% 25.4%
Total Assets 10.4% 11.7% 11.6%
Earning Assets 11.4% 12.7% 12.8%
*Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of ($466,522), ($2,128,324) and
$1,162,032 at December 31, 2000, 1999 and 1998, 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.
2000 1999 1998
Return on average shareholders' equity 9.5% 11.7% 11.6%
Return on average assets 1.0% 1.3% 1.3%
Return on average earning assets 1.1% 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, 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 Company is to reduce and manage the
vulnerability of its operations to changes in interest rates by
managing the ratio of interest rate sensitive assets to interest rate
sensitive liabilities within specified maturities or repricing dates.
As of December 31, 2000, the Bank's ratio of rate sensitive assets to
rate sensitive liabilities at the one year horizon was 74%, its one
year GAP (measurement of interest sensitivity of interest earning
assets and interest bearing liabilities at a given point in time) was
98%, and $115,698,000 in assets and $187,285,000 in liabilities will be
repriceable in one year. Bank earnings may be negatively affected,
should interest rates fall.
In addition to the "traditional" GAP calculation, the Company analyzes
future net interest income based on budget projections including
anticipated business activity, anticipated changes in interest rates
and other variables, which are adjusted periodically by management to
take into account current economic conditions, the current interest
rate environment, and other factors.
The following table presents, as of December 31, 2000, the Company's
interest rate GAP analysis:
Interest Rate GAP Analysis
As of December 31, 2000
0-3 4-12 1-5 Over 5
Months Months Years Years Total
Interest earning assets
Loans:
Real estate
Fixed rate $ 9,400 $ 8,351 $ 31,210 $ 24,151 $ 73,112
Variable rate 23,286 30,483 33,452 0 87,221
Commercial 10,510 3,635 2,085 4,772 21,002
Municipal 0 1,840 1,540 337 3,717
Consumer 1,734 7,386 8,099 2,747 19,966
Securities available for sale 2,191 7,750 71,517 16,645 98,103
Held to maturity securities 102 431 2,384 5,902 8,819
Loans held for sale 320 0 0 0 320
Other earning assets 4,900 0 113 6,575 11,588
TOTAL $52,443 $ 59,876 $150,400 $ 61,129 $323,848
Interest bearing liabilities
Deposits:
Savings $ 0 $ 0 $ 0 $ 39,954 $ 39,954
NOW 0 0 0 45,992 45,992
Money market 0 0 23,855 0 23,855
Time 37,379 60,804 9,282 0 107,465
Borrowings 50,622 9 1,055 14,516 66,202
TOTAL $88,001 $ 60,813 $34,192 $100,462 $283,468
Rate sensitivity GAP $(35,558) $ (937) $116,208 $(39,333)
Rate sensitivity GAP as a
percentage of total assets (10.27%) (.27%) 33.55% (11.36%)
Cumulative GAP $(35,558) $(36,495) $79,713 $40,380
Cumulative GAP as a
percentage of total assets (10.27%) (10.54%) 23.01% 11.66%
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, 2000 1999
Net cash provided from operations $ 4,202 $ 5,420
Net cash used by investing activities $(11,702) $(19,291)
Net cash provided from financing activities $ 8,778 $ 5,832
Net (decrease) increase in cash and cash equivalents $ 1,278 $ (8,038)
BANK'S PROPERTIES
ITEM 2: PROPERTIES
The Bank's principal office is located at 66 Main Street in Ellsworth,
Maine. The main office building consists of three floors, all of which
are utilized by the Bank for banking facilities and administrative
offices. The principal office includes a separate drive-up facility
and parking lot. In August 1981, plans were finalized for the
construction of an 8,000 square foot addition to our existing building.
Completed in November of 1982, it provided new and enlarged customer
service/teller area with street level access. During 1982 and 1983,
the existing building also received extensive renovation and
remodeling, tying it in to the new addition. The project was completed
in July of 1983. In April 1985, the Bank opened the first automated
drive-up in Downeast Maine. The automated teller machine is adjacent
to its drive-up facility located at 66 Main Street, in Ellsworth,
Maine. In 1988, the Main Office began construction of an addition to
its existing building that would house loan operations. In September
1989, construction was completed on the addition. In May 1992, the
Bank opened a trust office in Bangor (Penobscot County) to serve trust
customers in that city and surrounding areas. In May 1995, the Bank
elected not to renew its lease for its Bangor office. In 1999, the
Bank sold a parcel of land located on Route 3 in Ellsworth. In
addition, the Bank owns the following properties:
(a) The Bank's Cherryfield office located on Church Street in
Cherryfield, Maine. A major renovation was undertaken at Cherryfield
in 1983, approximately doubling its size. These alterations were
completed in January of 1984.
(b) The Bank's Jonesport office located on Main Street in Jonesport,
Maine.
(c) The Bank's Blue Hill office located on Main Street in Blue Hill,
Maine. During 1989, the branch was renovated to include an office for
the Assistant Manager.
(d) The Bank's Stonington office located on Atlantic Avenue in
Stonington, Maine. The Stonington office was renovated and expanded
in 1980.
(e) The Bank's Milbridge office located on Main Street in Milbridge,
Maine. In 1987, management decided to replace the Milbridge Branch
with a larger up to date facility, located at the same site. The new
branch has been open for business since April 1988.
(f) The Bank purchased in 1999 land and buildings located at 92 Main
Street in Ellsworth, Maine, adjacent to the Bank's principal office.
(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 2001. The Bank has the right to extend the
sublease for three additional five year terms.
(c) The Bank leases its Somesville branch office which is located on
Route 102 in Somesville, Maine. The land and premises are owned by A.
C. Fernald Sons, Inc., Mount Desert, Maine. The current lease expires
on March 24, 2005, with an option to renew for an additional 20 years.
(d) The Bank leases its Castine branch office located on Main Street
from Michael Tonry, Castine, Maine. The current lease expires on
February 1, 2003 with the right to extend the lease for an additional
4 year term.
(e) The Bank leases its Bar Harbor branch office located on Cottage
Street from the Swan Agency, a Maine Corporation with a principal
office in Bar Harbor, Maine. The current lease will expire in April
of 2002.
(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.
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
A. A special meeting of the shareholders was held on August 3, 2000.
B. Matters voted upon at the meeting:
1. To consider and vote upon a proposal to approve the amended and
restated agreement and Plan of Merger, dated June 20, 2000.
Total vote cast: 446,775
For: 444,192
Against: 1,801
Abstained: 782
2. To consider and vote upon any other matters that properly come
before the special meeting, or any adjournments or postponements of
the special meeting.
Total vote cast: 446,775
For: 440,313
Against: 2,011
Abstained: 4,451
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 2000 and 1999 are listed in the
following table.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2000 107.00 to 107.00 97.50 to 107.00 95.00 to 97.50 85.00 to 85.00
1999 108.33 to 108.33 106.63 to 106.67 106.63 to 108.00 108.00 to 110.00
B. HOLDER
As of March 1, 2001 there were approximately 737 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:
2000 1999
1st Quarter $ .50 $ .41
2nd Quarter $ .50 $ .41
3rd Quarter $ .50 $ .50
4th Quarter $ .50 $ .50
Cash dividends declared
per common share $2.00 $1.82
Item 6: SELECTED FINANCIAL DATA (in thousands, except for per share
amounts)
Years Ended December 31,
2000 1999 1998 1997 1996
SUMMARY OF OPERATIONS
Operating Income $ 3,639 $ 3,426 $ 3,155 $ 2,608 $ 2,207
Operating Expense 10,367 8,663 8,413 8,016 7,723
Net Interest Income 11,176 10,169 9,927 9,452 9,137
Provision for Loan Losses 371 200 285 120 120
Net Income 3,000 3,355 3,090 2,700 2,452
PER COMMON SHARE DATA
Net Income $ 5.19 $ 5.80 $ 5.34 $ 4.66 $ 4.22
Cash Dividends Declared 2.00 1.82 1.64 1.52 1.39
Book Value (2) 54.67 51.50 47.69 44.13 41.14
Market Value 85.00 108.00 108.33 91.66 73.33
FINANCIAL RATIOS
Return on Average Equity (2) 9.5% 11.7% 11.6% 10.9% 10.6%
Return on Average Assets 1.0% 1.3% 1.3% 1.3% 1.2%
Return on Average
Earning Assets 1.1% 1.4% 1.4% 1.4% 1.4%
Net Interest Margin 4.58% 4.61% 4.72% 4.88% 5.16%
Dividend Payout Ratio 38.5% 33.0% 31.2% 32.8% 32.9%
Allowance for Loan
Losses/Total Loans .02 .02 .02 .02 .02
Non Performing Loans to
Total Loans .017 .006 .005 .007 .007
Non Performing Assets
to Total Assets .010 .003 .004 .005 .008
Efficiency Ratio 69.9% 63.7% 64.3% 66.5% 67.2%
Loan to Deposit Ratio 83.5% 66.2% 58.7% 60.4% 60.7%
BALANCE SHEET
Deposits $245,581 $192,848 $188,029 $177,386 $166,445
Loans 205,019 127,623 110,399 107,062 101,044
Securities (1) 109,958 107,509 111,304 96,065 81,568
Shareholders' Equity (2) 31,586 29,771 27,577 25,565 23,885
Total Assets 348,242 257,850 251,195 222,560 202,066
(1) Carrying value. Includes available for sale securities with cost
of $100,678, $102,488, $101,610, $59,983 and $75,095 at December 31,
2000, 1999, 1998, 1997 and 1996, respectively.
(2) Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of ($466,522), ($2,128,324),
$1,162,032, $437,749 and ($171,460) at December 31, 2000, 1999,
1998, 1997 and 1996, respectively.
The above summary should be read in conjunction with the related
consolidated financial statements and notes thereto for the years ended
December 31, 2000, 1999, 1998, 1997 and 1996, 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 2000 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 2000 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
2000 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, 2000 and 1999:
QUARTERLY RESULTS OF OPERATIONS
(Unaudited)
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 1,157 873 1,081 966
Applicable income taxes 330 247 354 146
Net income 827 626 727 820
Per common share:
Basic 1.43 1.08 1.26 1.42
THREE MONTHS ENDED
Mar 31 June 30 Sept 30 Dec 31
1999
Interest income $4,262 $4,211 $4,350 $4,442
Interest expense 1,749 1,744 1,768 1,835
Net interest income 2,513 2,467 2,582 2,607
Provision for loan losses 65 45 45 45
Income before income taxes 1,515 967 1,140 1,110
Applicable income taxes 470 306 342 259
Net income 1,045 661 798 851
Per common share:
Basic 2.15 1.14 1.38 1.13
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 April 20, 2001 for its regular annual meeting of
shareholders to be held May 17, 2001 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.
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, 2000 (a
copy of which is being filed as Exhibit 13 hereto), and are
incorporated herein by reference.
Consolidated Balance Sheets
December 31, 2000 and 1999 20
Consolidated Statements of Income
For the years ended December 31, 2000, 1999 and 1998 21
Consolidated Statements of Changes in Shareholders' Equity
For the years ended December 31, 2000, 1999 and 1998 22
Consolidated Statements of Cash Flow
For the years ended December 31, 2000, 1999 and 1998 23-24
Notes to Consolidated Financial Statements 25-41
Independent Auditors Opinion 42
(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
Union Bankshares Company filed a current report on Form 8-K
dated March 31, 2000 disclosing under Item 5 that Union Trust
Company has reached an agreement to acquire Waldoboro Bank FSB.
(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, isincorporated herein by
reference to Note 1 to the Consolidated
Financial Statements on page
25 of the 2000 Annual Report to
Shareholders' attached hereto as
Exhibit 13.
13 The registrant's Annual Report to
Shareholders' for its fiscal year
ended December 31, 2000.
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: ___________________________ By:____________________________
Peter A. Blyberg, President Sally J. Hutchins
and Chief Executive Officer Senior Vice President and
Treasurer
Date:
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Arthur J. Billings, Director
Peter A. Blyberg, Director
Robert S. Boit, Director
Blake B. Brown, Director
Richard C. Carver, Director
Peter A. Clapp, Director
Samuel G. Cohen, Director
Sandra H. Collier, Director
Robert B. Fernald, Director
Douglas A. Gott, Director
James L. Markos, Jr., Director
Casper G. Sargent, Director
John V. Sawyer, II, Director
Stephen C. Shea, Director
Robert W. Spear, Director
Richard W. Teele, Director
Paul L. Tracy, Director
Richard W. Whitney, Director