UNION BANKSHARES COMPANY
2001 ANNUAL REPORT
UNION TRUST COMPANY
UNION TRUST
Investment & Trust Services
UNION TRUST
Financial Resource Center
CORNERSTONE
Investment Services
Dedication
In Recognition of:
Richard W. Whitney
Director for 34 Years
Casper G. Sargent, Jr.
Director for 23 Years
Dear Shareholder,
The final results for the year 2001 are gratifying considering the
fact that the national economy fell into a recessionary mode and the
Federal Reserve, in its efforts to encourage the economy, cut lending
rates by 475 basis points, an unprecedented drop in less than 12 months.
While our net interest income was up year on year, it was negatively
impacted by the reductions in our prime lending rate. The encouraging
element was that we were able to make adjustments to our balance sheet
and improve our net interest margin by the 4th quarter. We were also
able to increase our fee income significantly, helped to a large extent
by the enormous growth in mortgage refinancing activity spurred by the
above mentioned interest rate decreases. We were able to extend our
double-digit growth in trust income for the seventh consecutive year.
We are close to having assembled all the pieces of our vision of the
Company as a full service financial institution. Our view has been
that in order to compete effectively in the future, we needed to broaden
our service offering to encompass a wider spectrum of financial services
and expand our geographic reach to provide us with the ability to
compete in a larger market. Recent moves such as the establishment
of Cornerstone Investment Services brings us closer to our goal.
Our major competitive advantage remains the talent, dedication and
skill of our people. The past year we have welcomed the following
new members to our team of financial professionals:
Patricia Ellis - Assistant Treasurer
Bonnie Lash - VP/Relationship Manager
Jeannie Merchant - Electronic Services Officer
Diane Rimm - Brokerage Operations
Paul Doody - AVP/Relationship Manager
John Muth - VP Credit
Craig Worcester - VP/Financial Services
Ronald Hamilton - Financial Consultant
Wendy Brooks - Accounting Clerk
Sarah Calise - Mortgage Clerk
Khristy Carter - Teller
Emily Chapman - Teller
Diana Cook - Teller
Francis Day - Teller
Deborah Edgecomb - Mortgage Clerk
Judith Gaul - Teller
Courtney Geyer - Teller
Jennifer Grover - Teller
Roberta Hale - Branch Supervisor
Jennifer Madore - Accounting Clerk
Regina McHenan - Teller
Crystal Pace - Teller
Kathleen Podraza - Loan Administration Assistant
Candace Richardson - Teller
Mary Silverman - Branch Supervisor
Nancy Tucker - Trust Operations Clerk
Sonja Waldrop - Trust Administrative Assistant
Randy Bragg - Mortgage Processor
John Foss - Teller
Nancy Reese - Bookkeeper
Deborah Tracy - Bookkeeper
Janice Wilson - Bookkeeper
Jared Merritt - Bookkeeper
Our goal for 2002 is to broaden and deepen our market penetration,
integrate all the different elements of our financial services
businesses together and grow our bottom line and our return on equity.
We thank you for your continued support.
Sincerely, Sincerely,
John V. Sawyer, II Peter A. Blyberg
Chairman of the Board President and Chief
Executive Officer
Five-Year Summary (000's Omitted)
2001 2000 1999 1998 1997
Deposits $267,907 $245,581 $192,848 $188,029 $177,386
Loans 211,615 205,019 127,623 110,399 107,062
Securities *102,970 *109,958 *107,509 *111,304 *96,065
Shareholders' equity **33,606 **31,586 **29,771 **27,577 **25,565
Total assets 362,003 348,242 257,850 251,195 222,560
Net earnings 3,226 3,000 3,355 3,090 2,700
Earnings per share 5.59 5.19 5.80 5.34 4.66
Equity Ratios
Equity expressed as a percentage of average:
**2001 **2000 **1999 **1998 **1997
Deposits 13.1% 14.4% 15.6% 15.1% 14.9%
Loans 16.1% 19.0% 25.0% 25.4% 24.6%
Total assets 9.3% 10.4% 11.7% 11.6% 12.0%
Earning assets 10.3% 11.4% 12.7% 12.8% 13.0%
Other Financial Highlights
2001 2000 1999 1998 1997
Return on average
shareholders' equity** 9.9% 9.5% 11.7% 11.6% 10.9%
Return on average assets 0.9% 1.0% 1.3% 1.3% 1.3%
Return on average
earning assets 1.0% 1.1% 1.4% 1.4% 1.4%
*Carrying value. Includes available for sale securities with cost of
$98,913, $100,678, $102,488, $101,610, and $59,983 at December 31, 2001,
2000, 1999, 1998, and 1997, respectively.
**Excluding net unrealized gain (loss) net of deferred taxes on
available for sale securities of $530,290, ($466,522), ($2,128,324),
$1,162,032, and $437,749 at December 31, 2001, 2000, 1999, 1998,
and 1997, respectively.
INSERT PHOTO OF CRAIG WORCESTER
CRAIG WORCESTER
VP/FINANCIAL SERVICES
Mr. Worcester is responsible for managing the day to day operations
of Cornerstone Investment Services, including the integration of
Cornerstone with the Bank and the Investment and Trust Services
department. Mr. Worcester also works with customers, helping them
to reach their long-term financial goals. He does this by assessing
where they are now, where they would like to be in the future and takes
the time to understand what the customers is already doing to get there.
Mr. Worcester has over 15 years experience in the financial services
industry, which includes insurance, business planning, financial
planning, investments and trust. He holds a bachelor's degree from
Husson College, his Series 6, 7, 63, and 65 Securities licenses, and
his Maine Life and Health Insurance license. He joined Union Trust in
2001 and resides in Harrington.
Insert the following 5 year bar charts:
Earnings Per Share
Book Value Per Share
Dividends Per Share
Total Assets
Net Income
Shareholders' Equity
BANKING IS...funding a business...paying for college...owning a home
...managing cash flow...investing in the future...planning for
retirement...realizing your dreams.
It is all of these things and more. Today's community bank must
provide friendly help and advice from local people while offering a
full range of financial services that can compete with the biggest
banks in the community. Not an easy task but one to which we at Union
Trust have been fully dedicated to for years.
The last several years have seen dramatic changes at Union Trust with
new geographic coverage, more skilled financial advisors, improved
technology, added space and a broader array of services than ever
before. We have been working to transform the bank into a financial
service company that serves a wider spectrum of customers while
striving to maintain that down home, Down East touch that is so
important.
During 2000, we expanded our geographic scope by moving into Knox,
Lincoln and Waldo counties; thus, effectively doubling the population
we can serve and adding to our opportunities for future growth. The
integration of the Waldoboro Bank is complete and business is growing.
In 2002, we are opening up a Financial Services Center in Camden right
on Route 1.
After expanding geographically, the next move saw us putting another
piece of our strategic plan in place with the establishment of
Cornerstone Investment Services, our full service brokerage and
insurance operation. This, combined with our existing Investment and
Trust Services business and our team of Financial Planners, rounds out
our ability to offer the fullest array of financial advisory and
investment services of anyone in our marketplace. Going forward, we
will concentrate on expanding and growing these services in conjunction
with the more traditional bank services for which we are well known.
Last year saw your bank designated as a Preferred Lender by the U.S.
Small Business Administration and rated as one of the best small
business friendly banks in the nation for the third year in a row by
Entrepreneur Magazine. Small businesses are the backbone of our market
place and we continue our strategic focus on serving this market. We
intend to keep expanding our service offering and meeting as many of
the financial needs of our business community as possible.
2001 was a challenging year for your bank as interest rate declines put
pressure on our interest margins, but we were able to improve our net
interest margin by the fourth quarter. The decline in interest rates
led to a record year for mortgage financing and we were able to deal with
unprecedented volumes of loans, while at the same time strengthening our
ability to compete in the future by adding some staff to the talented
group of mortgage professionals already on board. We are also working
toward streamlining and automating the process to improve our ability to
deliver our mortgage services closer to the customer through such things
as laptop origination.
We did not rest on our laurels on the technology front even though we
brought no major new systems on line in 2001. Rather, we took the
opportunity to improve and strengthen our internal operations so that
added growth in the future could be more easily accommodated. So often
people take bank operations and technology for granted. We never have
and never will. To us, it is something to be constantly working on to
ensure reliability and soundness so that our customers have no cause for
concern.
Dedication, skill, training and attitude are the hallmarks of our
employees and we continue to invest in them with education and challenge
them with opportunities to grow. They are committed to serving their
customers and committed to serving their communities with over 9,000
hours of community service given by our staff annually.
For the future, we look forward to the continued execution of the
strategic plan we have set for ourselves and integrating all the elements
we have put in place these last few years. By systematically developing
our vision for the future, we feel that our customers, our communities
and our shareholders will all benefit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2001
Forward Looking Statements
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995 and is including this
statement for purposes of these safe harbor provisions. Forward-looking
statements, which are based on certain assumptions and describe future
plans, strategies, and expectations of the Company, are generally
identifiable by use of the words "believe," "expect," "intend,"
"anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Important factors which
could cause actual events to differ from the Company's expectations
include, but are not limited to, fluctuations in interest rates and loan
and deposit pricing, which could reduce the Company's net interest
margins, asset valuations and expense expectations; a deterioration in
the economy or business conditions, either nationally or in the Company's
market areas, that could increase credit-related losses and expenses;
increases in defaults by borrowers and other loan delinquencies resulting
in increases in the Company's provision for loan losses and related
expenses; higher than anticipated costs related to the Company's new
banking centers or slower than expected earning assets growth which
could extend anticipated breakeven periods at these locations;
significant increases in competition; legislative or regulatory changes
applicable to bank holding companies or the Company's banking subsidiary;
and possible changes in tax rates, tax laws, or tax law interpretation.
Overview of Company
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, The 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 with fifteen offices located along Maine's coast,
stretching from Waldoboro to Machias.
Business
With 2000 focused on market expansion into the Midcoast region, year
2001 focused on product expansion into brokerage and insurance services.
Our new division, Cornerstone Investment Services, opened its doors
officially in October 2001. Not just a bank anymore, Union Trust is
now able to provide customers with a full array of financial services -
those that are FDIC insured and those that are not. The specific
products available through Cornerstone include stocks, bonds, mutual
funds, annuities, and long-term care, life and disability insurance.
In the realm of financial services, Investment and Trust Services saw
a continued expansion of its business during 2001, with fee income
increasing by 11% over 2000. This growth occurred even in a "down"
market, and during the construction of additional office space for
the department.
2001 was the first full year that Financial Planning has been operational.
As expected, this service is generating additional business for all areas
of the Company including loans, deposits, trust accounts, brokerage
accounts, insurance sales and Internet banking.
Getting back to banking as usual, 2001 was everything but usual. 2001
was marked by an unprecedented decrease in rates, with the Federal
Reserve decreasing the Federal Funds rate by a total of 475 basis points,
over the course of 11 individual reductions. While this put pressure
on the Bank's net interest income, it did spur consumers to apply for
mortgages or refinance existing mortgages. Many customers chose Union
Trust as their new bank with which to refinance. The number of
mortgages closed over the course of the year was a record - approaching
the number closed during the prior two years combined! Mortgages
included residential purchases, construction, commercial, home equity
and refinances.
Our investment in the Midcoast area is showing positive returns. Belfast
grew their loan portfolio by 59% and Rockland grew theirs by 35% over
year end 2000. Jefferson grew their deposits dramatically and Waldoboro
showed strong gains in both commercial loans and demand deposit accounts.
REVIEW OF FINANCIAL STATEMENTS
The following discussion and analysis focus on the factors affecting
Union Bankshares Company's financial condition at December 31, 2001 and
2000, and the financial results of operations during 2001, 2000 and 1999.
The consolidated financial statements and related notes beginning on
page 25 of this report should be read in conjunction with this review.
RESULTS OF OPERATIONS
The operating results of the Company depend primarily on its net
interest income, which is the difference between interest income on
earning assets (primarily loans and investments) and interest expense
(primarily deposits and borrowings). The Company's results are also
affected by the provision for loan losses, which reflects management's
assessment of the adequacy of the allowance for loan losses;
noninterest income, including gains and losses on the sales of loans
and securities; noninterest expenses; and income tax expense. Each of
these major components of the Company's operating results is highlighted
below.
NET INCOME
The Company reported net income in 2001 of $3,226,172, an increase of
$225,679 or 7.5% over 2000, as compared to a decrease of $354,229 or
10.6% for 2000 and an increase of $264,694 or 8.6% for 1999.
The following table summarizes the status of the Company's earnings
and performance for the periods stated.
December 31
2001 2000 1999
Earnings per share $ 5.59 $ 5.19 $ 5.80
Return on average
shareholders' equity* 9.9% 9.5% 11.7%
Return on average assets 0.9% 1.0% 1.3%
Return on average earning assets 1.0% 1.1% 1.4%
*Excluding net unrealized gain (loss) net of deferred taxes on available
for sale securities of $530,290, ($466,522) and ($2,128,324) at December
31, 2001, 2000 and 1999, respectively.
The increase in net income for the twelve months ending December 31,
2001 versus the same period in 2000 was primarily due to an increase
in net interest income, a significant increase in loan fees, and a
healthy increase in trust fees during 2001 and several one time
expenses associated with the Mid-Coast acquisition that occurred in
2000.
INSERT PHOTO OF DIANE RIMM
DIANE RIMM
BROKERAGE OPERATIONS
Ms. Rimm is responsible for overseeing and running the operational and
customer service side of Cornerstone. This includes establishing new
investment accounts, submitting insurance applications, placing trades,
licensing the representatives, overseeing compliance and providing
general support to the Financial Consultants. She is the liaison with
UVEST Investment Services, the registered securities broker-dealer with
whom Union Trust has partnered to provide brokerage and insurance services
to its customers.
Ms. Rimm has over 20 years experience in the financial services industry,
which includes the fields of insurance, investments and banking. She
holds her Series 6, 7 and 66 Securities licenses as well as her Maine
Life and Health Insurance license. She joined Union Trust in 2001 and
is a native of Bangor.
NET INTEREST INCOME
Net interest income continues to be the most significant determinant
of the Company's earnings performance. Net interest income, when
expressed as a percentage of average assets, is referred to as net
interest margin. Management of interest rate risk has become paramount
in ensuring the Bank's continued profitability. Changes in net interest
income are the results of interest rate movements, changes in the balance
sheet mix of earning assets and interest bearing liabilities, and changes
in the level of nonearning assets and liabilities.
The following table sets forth the information related to changes in
net interest income. For purposes of the table and the following
discussion, information is presented regarding (1) the total dollar
amount of interest income of the Company from interest earning assets
and the resulting average yields; (2) the total dollar amount of
interest expense on interest bearing liabilities and the resulting
average cost; (3) net interest income; (4) interest rate spread; and
(5) net interest margin. Information is based on average daily balances
during the indicated periods. For the purposes of the table and the
following discussion, (1) income from interest earning assets and net
interest income are presented on a tax equivalent basis and (2)
nonaccrual loans have been included in the appropriate average balance
loan category, but unpaid interest on nonaccrual loans has not been
included for purposes of determining interest income.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(In Thousands)
(On a Tax Equivalent Basis)
2001 2000 1999
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Earned Rate Balance Earned Rate Balance Earned Rate
/Paid /Paid /Paid
Assets
Interest Earning Assets:
Securities available for
sale $ 95,873 $ 5,992 6.25 $101,234 $ 6,980 6.89 $105,663 $ 6,913 6.54
Securities held to
maturity 3,722 282 7.58 4,184 315 7.53 4,311 333 7.72
Federal funds
sold 5,989 168 2.81 821 44 5.36 5,705 294 5.15
Loans
(net) 207,099 17,560 8.48 149,169 13,656 9.15 115,825 10,237 8.83
Total interest earning
assets 312,683 $24,002 7.68 255,408 $20,995 8.22 231,504 $17,777 7.68
Other nonearning
assets 30,111 26,891 20,069
$342,794 $282,299 $251,573
Liabilities
Interest Bearing Liabilities:
Savings
deposits $120,127 $ 1,311 1.09 $100,245 $ 1,321 1.32 $ 67,766 $ 1,082 1.60
Time
deposits 108,781 5,380 4.95 84,012 4,540 5.40 77,139 3,784 4.91
Money market
accounts 25,951 834 3.21 22,192 808 3.64 21,262 728 3.42
Borrowings 46,025 2,882 6.26 32,328 2,629 8.13 20,969 1,502 7.16
Total interest
bearing liabil-
ities 300,884 $10,407 3.46 238,777 $ 9,298 3.89 187,136 $ 7,096 3.79
Other noninterest
bearing liabilities
& shareholders'
equity 41,910 43,522 64,437
$342,794 $282,299 $251,573
Net interest
income $13,595 $11,697 $10,681
Net interest rate spread 4.22 4.33 3.89
Net interest margin 4.35 4.58 4.61
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, 2001, 2000 and 1999
(In Thousands)
Year Ended December 31, 2001 vs. 2000
Increase (Decrease)
Due to Change In
Volume Rate Rate/Volume* Total
Interest Earning Assets
Securities available for sale $ (374) $ (335) $ (311) $(1,020)
Securities held to maturity (35) (35) 43 (27)
Federal funds sold 277 145 (299) 123
Loans, net 5,294 4,910 (6,263) 3,941
Total interest earning assets 5,162 4,685 (6,830) 3,017
Interest Bearing Liabilities
Savings deposits 265 218 (493) (10)
Time deposits 1,334 1,221 (1,715) 840
Money market accounts 137 122 (233) 26
Borrowed funds 1,113 858 (1,718) 253
Total interest bearing
liabilities 2,849 2,419 (4,159) 1,109
Net change in net
interest income $2,313 $2,266 $(2,671) $1,908
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
*Represents the change not solely attributable to change in rate or
change in volume but a combination of these two factors.
Net interest income increased $1,908,394 or 17.1% to $13,084,832
in 2001 from $11,176,438 in 2000. Interest income on total earning
assets increased $3,017,077 in 2001 from 2000. Interest income on
loans increased $3,940,901 in 2001 from 2000 due to a $57,930,000
increase in average loans outstanding, offsetting a decrease in average
loan rates from 9.15% to 8.48%. Interest expense on interest bearing
liabilities increased $1,108,683 in 2001 from 2000, as a result of a
$855,307 increase in interest expense on deposits and an increase of
$253,376 in interest expense on other borrowings. The increase in
interest expense was due primarily to a combination of a $48,410,000
increase in average deposits offset in part by a decrease in the average
rate paid on deposits from 3.45% in 2000 to 3.08% in 2001. The increase
in interest expense on borrowings was due primarily to an increase in
average balances of $13,697,000 of FHLB advances outstanding and
repurchase agreements during 2001. The increase was offset, in part,
by a decrease in overall interest rates on borrowings from 8.13% in 2000
to 6.26% in 2001.
During 2000, net interest income increased by $1,007,607 or 9.9%. This
increase was primarily due to increases in average earning assets of
$23,904,000 and an increase in the average rate earned from those assets
of 8.22% in 2000 from 7.68% in 1999.
During 1999, net interest income increased by $242,224 or 2.4% compared
to 1998. This increase was attributed to increases in loans of
$17,223,368, offset in part by a decrease in investments of $3,795,339
and an increase in savings and money market accounts.
During 2001, the Federal Reserve decreased the Federal Funds rate by a
total of 475 basis points over 11 individual rate reductions. The
weighted average yield on a tax equivalent basis on interest earning
assets decreased 54 basis points to 7.68% for the year ended December 31,
2001 from 8.22% for the year ended December 31, 2000 while the average
cost of interest-bearing liabilities decreased 43 basis points to 3.46%
for the year ended December 31, 2001 from 3.89% for the year ended
December 31, 2000. As a result, the interest rate spread decreased by
11 basis points to 4.22% for the year ended December 31, 2001 from 4.33%
for the year ended December 31, 2000. The interest rate spread decreased
due to a higher volume of interest earning assets during a period of
declining interest rates. In 1999, the weighted average yield was 7.68%
and the average cost of interest-bearing liabilities was 3.79%. The
interest rate spread was 3.89%. Overall margin compression, the Federal
Reserve reducing the Federal Funds rate, increased competition from bank
and non-bank institutions in our service area and pricing pressures
continue to be significant factors in the Bank's ability to grow net
interest income at a faster pace.
The average balances of non-accrual loans can also affect the average
yield on all outstanding loans. Non-accrual loans as of December 31,
2001 were $1,823,000 and lowered the average yield on loans by 16 basis
points for 2001. For the year ended December 31, 2000, non-accrual loans
were $3,390,000 due to the acquisition and several large loans on non-
accrual status. The average yield on loans was lowered by 35 basis points
for 2000. The average balances on non-accrual loans in 1999 was minimal
and, therefore, had an insignificant effect on average loan yield.
PROVISION FOR LOAN LOSSES
The Bank maintains an allowance for possible loan losses through a
provision that is charged to income. The process of evaluating the
adequacy of the allowance for loan losses involves a high degree of
management judgment, based, in part, on systematic methods. These
methods, which are generally quantitative measures, are employed, not
so the allowance will be the result of routine mathematical exercise,
but to help ensure that all relevant matters affecting loan collectability
will consistently be identified. Such methods at December 31, 2001
included a loan by loan analysis of all impaired loans and loans under
close monitoring by management for potential problems, a risk rating
analysis for all commercial and commercial real estate loans and a
quantitative analysis of residential real estate and consumer loans.
Other factors included in the evaluation of the adequacy of the
allowance for loan losses involve overall loan growth; the character
and mix of the loan portfolio; current trends in nonperforming loans,
delinquent loans and net charge-offs; new loan origination; local
economic conditions; regulatory changes and other quality considerations.
The Company has an independent loan review program that supports the
Company's lending strategies, monitors compliance with established
loan policies and procedures and identifies credit trends. The review
included all criticized and classified assets over $100,000, all loans
delinquent over 30 days and over $100,000, non-accruals over $100,000,
new (closed) and renewed loans over $100,000 as well as the adequacy of
the loan loss reserve.
Although management utilized its best judgment in providing for
possible losses, there can be no assurance that the Company will not
have to increase its provision for possible loan losses in the future
as a result of increased loan demand in the Company's primary market
areas, future increases in non-performing assets or otherwise which
would adversely affect the Company's results of operations.
For the year ended December 31, 2001, the Company increased the allowance
for loan losses through a $300,000 provision for loan losses, compared to
$371,000 in 2000 and $200,000 in 1999. The Company believes that the
current allowance for loan losses accurately reflects the level of risk
in the loan portfolio. The most significant trend influencing the level
of the allowance over the last five years is growth in the real estate
and construction loan portfolio, which has risen from $67.8 million at the
end of 1997 to $170.3 million at December 31, 2001. The Company believes
that, despite using prudent underwriting standards and that the historical
loss experience appears low relative to the level of the allowance,
overall loan growth, entering into a new market area and current
economic conditions has warranted the current level of the allowance.
The following table sets forth information concerning the allocation of the
Company's allowance for loan losses by category:
Allowance for Loan Losses
December 31,
2001 2000 1999
Loan Category Amount % of Amount % of Amount % of
Loans in Loans in Loans in
Each Each Each
Category Category Category
To Total To Total To Total
Loans Loans Loans
Commercial $2,869 9.7% $2,695 10.2% $2,176 12.7%
Residential Real
Estate 579 80.5% 647 78.2% 449 69.0%
Municipal 0 1.4% 0 1.8% 0 6.9%
Installment 5 8.4% 34 9.8% 4 11.4%
Totals $3,453 100.0% $3,376 100.0% $2,629 100.0%
Management believes that the allowance for loan losses and the carrying
value of real estate owned are adequate. While management uses
available information to recognize losses on loans and real estate
owned, future additions to the allowances might be necessary based on
changes in economic conditions, particularly in northern New England.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses.
The following table reflects the quality of the Bank's loan portfolio
and the emphasis placed upon the management of credit risk:
(000's omitted)
December 31,
2001 2000
Nonaccrual loans $1,823 $3,390
Loans past due 90 days and accruing 75 21
Total nonperforming assets 1,898 3,411
Ratio of total nonperforming loans to capital and the
allowance for loan losses (Texas ratio) .051 .098
Ratio of net recoveries (charge-offs) to loans 0 0
Ratio of allowance for loan losses to loans .02 .02
Coverage ratio (allowance for loan losses divided by
nonperforming assets) 1.819 .990
Ratio of nonperforming assets to total assets .005 .010
Ratio of nonperforming loans to total loans .009 .017
NONINTEREST INCOME
Total noninterest income was $4,906,716, $3,639,548 and $3,426,327
for the years ended December 31, 2001, 2000 and 1999, respectively.
The $1,267,168 or 34.8% increase in noninterest income during 2001
was primarily attributable to a $126,305 or 11.0% increase in trust
department income, a $126,750 or 15.5% increase in VISA income, an
increase of $463,188 or 116.0% in loan department income and an increase
of $468,364 or 66.5% in other noninterest income primarily due to fees
earned on customer accounts and mortgage servicing income. The $213,221
or 6.2% increase in noninterest income during 2000 was primarily
attributable to a $245,914 or 27.1% increase in trust department income
and a $105,720 or 14.9% increase in VISA income. The $270,915 or 8.6%
increase during 1999 was primarily due to increases in trust department
income, VISA income, and gains on other real estate owned property.
The following table summarizes information relating to the Company's
noninterest income:
Year Ended December 31,
2001 2000 1999
Net security gains (losses) $ 39,131 $ (13,545) $ (15,728)
Trust department income 1,279,215 1,152,910 906,996
Service income 303,652 291,195 314,268
VISA income 944,025 817,275 711,555
Loan department income 862,602 399,414 514,351
Gain on other real estate owned 0 0 153,984
Income from cash surrender value
of life insurance 305,761 288,333 19,778
Other noninterest income 1,172,330 703,966 821,123
Total noninterest income $4,906,716 $3,639,548 $3,426,327
NONINTEREST EXPENSE
Total noninterest expenses, which consist primarily of employee
compensation and benefits, occupancy and equipment expenses and other
general operating expenses, excluding goodwill amortization expenses
of $498,307, increased $2,249,576 or 21.7% during 2001, $1,704,412 or
19.7% during 2000 and $250,090 or 3.0% during 1999. The increase in
noninterest expenses in 2001 was primarily attributable to increased
staffing, additional branch facilities, additional equipment expenses
and advertising expenses related to the Bank's new market area. The
increase in 2000 was primarily attributable to increased staffing, the
expenses related to upgrading equipment and facilities and non-recurring
acquisition related costs. The increase in noninterest expenses in
1999 was related to new technology and access channels to the Bank and
its services.
INCOME TAXES
The Company recognized $1,350,000, $1,077,000 and $1,377,355 in income
tax expense for the years ended December 31, 2001, 2000 and 1999,
respectively. The effective tax rate was 29.5% for 2001, 26.4% for
2000 and 29.1% for 1999. The Bank has sufficient refundable taxes paid
in available carry back years to fully realize its recorded deferred tax
asset of $1,853,107 at December 31, 2001.
FINANCIAL CONDITION
Set forth below is a discussion of the material changes in the
Company's financial condition for the periods indicated.
BALANCE SHEET REVIEW
OVERVIEW
Total assets at December 31, 2001 were $362,003,056, an increase of
$13,760,930 or 4.0% from December 31, 2000. The change in assets
consisted primarily of a $6,596,277 increase in loans, an increase of
$11,512,254 in cash and due from banks and federal funds sold, offset
in part by a decrease of investment securities of $6,988,298. The asset
growth was supported by an increase of $22,326,409 in deposits offset by
a decrease of $12,109,522 in borrowings.
The year 2000 was highlighted by the acquisition of Mid-Coast Bancorp,
Inc. on August 31, 2000. Its only subsidiary, The Waldoboro Bank, FSB,
had branch locations in Belfast, Rockland, Jefferson and Waldoboro.
These branch locations represent a logical expansion of the Company's
service area. The acquisition was accounted for under the purchase
method of accounting for business combinations. The Company assumed
$63.4 million in deposits, $14.0 million in borrowings, $65.9 million
in loans and $10.2 million in securities.
INVESTMENT SECURITIES
Securities available for sale, which include U.S. Government securities,
callable agency bonds, municipals, mortgage backed securities and
certificates of deposit, decreased $6,735,063 or 6.7%. During 2001,
the Bank managed the securities portfolio to continue its significant
contribution to net interest income, maximize yields, reduce exposure
of continuously callable agencies, manage cash flow, control risk and
to provide diversification. As of December 31, 2001, the Company has a
net unrealized gain of $803,468 in this portfolio.
In 2000, securities available for sale increased $1,423,713 or 1.5%
due primarily to planned portfolio growth. As of December 31, 2000,
the Company had a net unrealized loss of $706,851 in this portfolio.
Securities held to maturity, which include in-state municipals,
decreased $324,835 or 8.4% in 2001, compared to a $385,043 or 9.1%
decrease in 2000.
The changes in the securities portfolio reflect the Company's efforts
to meet asset and liability objectives and otherwise manage its
liquidity and funding needs within the parameters of the Company's
policies. For further discussion, see the Risk Management section,
page 16.
LOANS
Union Trust offers a wide variety of loan products to serve the
financial needs of individuals, businesses, municipalities and
nonprofit organizations. Total loans (which excludes loans held for
sale) reached a record high of $214,883,141 during 2001 and, as of
December 31, 2001, had increased $6,596,277 or 3.2% over 2000,
primarily due to a $9,939,323 or 6.2% increase in real estate loans.
As of December 31, 2000, loans (which included $65,945,392 acquired
from The Waldoboro Bank, FSB) increased 60.6%.
Real estate mortgage loans, which consist of loans secured by real
estate (commercial, residential and home equity loans), increased by
$9,939,323 or 6.2% in 2001. During 2000, real estate loans increased
by $72.3 million or 82.1% from $88.0 million to $160.3 million. The
Company generally retains adjustable rate mortgages in its portfolio,
but will from time to time, retain fixed rate mortgages. With a very
low interest rate environment, it has been the Company's asset/
liability strategy for 2001 to hold a certain number of 15 year fixed
rate mortgages in its portfolio. The yields on these interest earning
assets have been higher than yields available in the investment
portfolio. The Company also originates fixed rate residential loans
for sale to investors in the secondary market and during 2001, volumes
reached record highs due to historical low rates.
Commercial loans decreased by $526 thousand or 2.5% during 2001. In
2000, commercial loans increased by $4.8 million or 29.5%. Commercial
loans consist of loans secured by various corporate assets, as well as
loans to provide working capital in the form of lines of credit.
Consumer loans decreased by $2.2 million or 10.9% in 2001. In 2000,
consumer loans increased by $5.5 million or 37.6%. Consumer loans
include credit card, overdraft protection, automobile, boat,
recreation vehicle, mobile home and personal loans.
Municipal loans decreased $634 thousand or 17.1% in 2001. In 2000,
municipal loans decreased by $5.1 million due mainly to a large
municipal loan payoff in late fall of 2000.
Loan mix and growth trends, as of December 31, 2001, are illustrated
in the graphs below:
INSERT 5 YEAR BAR CHART
LOAN GROWTH TRENDS
INSERT PIE CHART
LOAN MIX
DEPOSITS
Deposits represent the Company's primary source of funds for
lending, investing and are a general source of liquidity for the Bank.
In 2001, total deposits increased a healthy $22.3 million or 9.1% over
2000, ending the year at $267,907,126. The Company experienced growth
in most all deposit categories in 2001 with savings accounts increasing
15.5%, money market accounts increasing 20.6%, demand deposits increasing
24.4% offset in part by a decrease in time deposits of 2.7%. The
Company offers a wide array of deposit products in its market area,
including checking accounts, money market accounts, savings accounts,
certificates of deposit and retirement savings plans. In 2000, total
deposits increased by $52.7 million or 27.3% (which included
$63,414,205 assumed from The Waldoboro Bank, FSB).
In the Bank's market area, the banking business is somewhat seasonal
due to an influx of tourist and seasonal residents returning to the
area each spring and summer. As a result, the Bank has an annual
deposit swing, from a high point in mid October to a low point in June.
This deposit swing is predictable and does not have a material adverse
effect on the Bank.
Deposit mix and growth trends, as of December 31, 2001, are illustrated
in the graphs below:
INSERT 5 YEAR BAR CHART
DEPOSIT GROWTH TRENDS
INSERT PIE CHART
DEPOSIT MIX
BORROWINGS
Borrowings supplement deposits as a source of funds for the Bank. In
addition to borrowing from the Federal Home Loan Bank (FHLB), the Bank
uses securities sold under agreement to repurchase accounts to provide
additional liquidity. Total borrowings as of December 31, 2001 were
$54,093,039, a decrease of $12,109,522. In 2000, total borrowings
increased $34,610,888 over 1999 (including $13,965,000 assumed from
The Waldoboro Bank, FSB).
SHAREHOLDERS' EQUITY AND CAPITAL RESOURCES
The Federal Reserve Board's capital requirement generally calls for an
8% total capital ratio, of which 3% must be comprised of Tier I capital.
Risk based capital ratios are calculated by weighting assets and off
balance sheet instruments according to the relative credit risk. As of
December 31, 2001, the Company's Tier I ratio of 12.91% far exceeds the
Federal Reserve Board's guidelines.
During 2001, total shareholders' equity, excluding a net unrealized gain
on available for sale securities of $530,290, increased $2,019,869 in
2001, primarily as a result of net income of $3,226,172, offset by
dividends declared of $1,212,896.
Total shareholders' equity, excluding a net unrealized loss on available
for sale securities of $466,522, increased $1,814,880 in 2000, primarily
as the result of net income of $3,000,493 offset by dividends declared of
$1,155,375.
During 1999, the Company declared a 20% stock dividend. Dividends of
$1,107,916 were declared on the Company's common stock and represented
a 14.9% increase over 1998. The dividend payouts for 2001, 2000 and
1999 were 37.6%, 38.5% and 33.0% of net income, respectively.
Union Bankshares Company stock, $12.50 par value, is not listed on
any national exchange, nor is it actively traded. Since the Company
is not aware of all trades, the market price is established by determining
what a willing buyer will pay a willing seller. Based upon the trades
that the Company had knowledge of (per quotes from local brokerages),
high and low bids for each quarter for 2001 and 2000 are listed in the
following table.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
2001 $79.50 to $85.00 $63.00 to $80.00 $72.00 to $75.00 $58.50 to $63.00
2000 $107.00 to $107.00 $97.50 to $107.00 $95.00 to $97.50 $85.00 to $85.00
As of December 31, 2001, there were 743 holders of record of Union
Bankshares Company common stock.
Quarterly dividends per share declared by the Company in 2001 and 2000
were as follows:
2001 2000
1st Quarter $ .50 $ .50
2nd Quarter $ .50 $ .50
3rd Quarter $ .55 $ .50
4th Quarter $ .55 $ .50
Total $2.10 $2.00
RISK MANAGEMENT
The Company's continued success is primarily dependent upon its
ability to strategically manage financial and nonfinancial risks.
Nonfinancial risks facing the Company include:
Competition from banks and nonbank financial service companies
Changing regulatory and political environments
Rapid change in technology
Demographic changes
Economic changes
Financial risks managed by the Company include:
Credit risk
Interest rate risk (including asset/liability management)
Market risk
Liquidity risk
Off balance sheet risks/commitments
CREDIT RISK MANAGEMENT
The Company's net loan portfolio as of December 31, 2001 accounted
for 58% of total assets and represents its primary source of credit
risk. Substantial amounts of time and resources have been dedicated
to the management of credit risk within the Bank's loan portfolio.
Future emphasis will be applied toward enhancing the already proven
systems of checks and balances to manage the origination, processing
and collection of loans. Additional information relating to credit risk
may be found on page 11, "Provision for Loan Losses," and Note 16 to the
consolidated financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign
currency exchange rates, commodity prices and equity prices. The
Company's primary market risk exposure is interest rate risk. The
ongoing monitoring and management of this risk is an important component
of the Company's asset/liability management process, which is governed
by policies established by its Board of Directors that are reviewed
and approved annually. The Board of Directors delegates responsibility
for carrying out the asset/liability management policies to the Asset/
Liability Committee (ALCO). In this capacity ALCO develops guidelines
and strategies impacting the Company's asset/liability management-
related activities based upon estimated market risk sensitivity,
policy limits and overall market interest rate levels/trends.
INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
Interest rate risk can be defined as the exposure of the Company's net
income or financial position to adverse movements in interest rates.
Changes in the level of interest rates also can affect:
The amount of loans originated/sold by an institution
The ability of the borrower to repay his/her loan
The average maturity of mortgage loans
The value of the Company's interest earning assets
The market value of available for sale securities
The Company, through management of the relationship of interest rate
sensitive assets to interest rate sensitive liabilities, reduces the
volatility of its net income.
To accomplish this, the Company has undertaken various steps to
increase the percentage of fixed rate assets and to increase the
average maturity of such assets, in particular through the loan
products offered and its investment portfolio.
Net interest income sensitivity to movements in interest rates is
measured through the use of a simulation model that analyzes resulting
net income under various interest rate scenarios established by
regulators. Projected net interest income (NII) is modeled based on
both an immediate rise or fall in interest rates ("rate shock"). The
model is based on the actual maturity and repricing characteristics of
interest rate sensitive assets and liabilities and factors in projections
for activity levels by product lines of the Company. Assumptions are
made as to the changing relationship between different interest rates
as interest rates increase/decrease (basis risk) and the customer's
ability to prepay loans and withdraw deposit balances or transfer them
to a higher yielding account (embedded option). The sensitivity
analysis is compared to ALCO policy limits, which specify a maximum
tolerance level for NII exposure over a one-year horizon, assuming no
balance sheet growth, given both a 200 basis point (bp) upward and
downward shift in interest rates. A parallel and pro rata shift in
rates over a 12-month period is assumed. The following reflects the
Company's NII sensitivity analysis as of December 31, 2001 and 2000.
Estimated
Rate Change NII Sensitivity
2001 2000
+200 bp + 0.1% + 1.6%
-200 bp - 0.5% - 2.8%
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of
expected operating results. These hypothetical estimates are based
upon numerous assumptions including: the nature and timing of interest
rate levels including yield curve shape, prepayments on loans and
securities, deposit decay rates, pricing decisions on loans and
deposits, reinvestment/replacement of asset and liability cash flows
and others. While assumptions are developed based upon current economic
and local market conditions, the Company cannot make any assurances as
to the predictive nature of these assumptions, including how customer
preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to: prepayment/
refinancing levels likely deviating from those assumed, the potential
effect of changing debt service levels on customers with adjustable
rate loans, depositor early withdrawals and product preference changes
and other internal/external variables. Furthermore, the sensitivity
analysis does not reflect actions that ALCO might take in responding
to or anticipating changes in interest rates.
Based on the information and assumptions in effect on December 31,
2001, under five rate simulations used, the Company's net interest
income and net income remain strong, with the return on assets ratio
remaining above 1% under all simulations.
LIQUIDITY RISK MANAGEMENT
Liquidity management is the process by which the Company structures
its liquidity to meet the cash flow requirements of its customers as
well as day to day operating expenses. Many factors affect the
Company's ability to meet its liquidity needs, including its mix of
assets and liabilities, interest rates and local economic conditions.
The Company's actual inflow and outflow of funds is detailed in the
Consolidated Statement of Cash Flows on pages 23-24.
Liquidity comes from both assets and liabilities. The assets of the
balance sheet provide liquidity through prepayment and maturities of
outstanding loans, investments and mortgage backed securities and the
sale of mortgage loans. The liability side provides liquidity through
deposits and borrowings from Federal Home Loan Bank of Boston. During
2001 and 2000, the Company used its sources of funds primarily to meet
ongoing commitments to pay maturing certificates of deposit and savings
withdrawals, fund loan originations and maintain a substantial securities
portfolio.
The Company's liquidity policy currently includes requirements that
the Company maintain liquidity as a percentage of total assets at a
minimum of 5%. Access to Federal Home Loan Bank advances provides
additional funding options if the need arises. As of December 31,
2001, the Company had a 16.7% liquidity ratio.
OFF BALANCE SHEET RISKS AND COMMITMENTS
As of December 31, 2001 and 2000, the total approved loan
commitments outstanding, the commitment under unused lines of credit
and the unadvanced portion of loans amounted to $40,969,000 and
$36,980,000, respectively.
REGULATORY ENVIRONMENT
REGULATORY CAPITAL REQUIREMENTS
Under Federal Reserve Board guidelines, the Company is required to
maintain capital based on "risk adjusted" assets. Under risk based
capital guidelines, categories of assets with potentially higher credit
risk require more capital than assets with lower risk. In addition to
balance sheet assets, the Company is required to maintain capital, on
a risk adjusted basis, to support off balance sheet activities such
as loan commitments. The Federal Reserve guidelines classify capital
into two tiers, Tier I and Total Capital. Tier I risk based capital
consists primarily of shareholders' equity. Total risk based capital
consists of Tier I capital plus a portion of the general allowance for
loan losses.
In addition to risk based capital requirements, the Federal Reserve
requires the Company to maintain a minimum leverage capital ratio of
Tier I capital to total assets.
The Company as of December 31, 2001 and 2000 exceeds all applicable
federal and state laws and regulations regarding minimum regulatory
capital and is categorized as a well-capitalized bank.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related notes presented in
this Annual Report have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars
without consideration of changes in the relative purchasing power of
money over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature.
As a result, interest rates have a more significant impact on the
Company's performance than has the general level of inflation. Over
short periods of time, interest rates may not necessarily move in
the same direction or in the same magnitude as inflation.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board recently issued the following
Statement of Financial Accounting Standards (SFAS):
SFAS No. 141 Business Combinations
SFAS No. 142 Goodwill and Other Intangible Assets
SFAS No. 143 Accounting for Asset Retirement Obligations
SFAS No. 144 Accounting for the Impairment or Disposal
of Long-Lived Assets
SFAS No. 141 requires that the purchase method be used to account
for business combinations initiated after June 30, 2001.
SFAS No. 142 requires that goodwill no longer be amortized to earnings,
but instead be reviewed for impairment. The amortization of goodwill
ceases upon adoption of the Statement on January 1, 2002. Management
is in the process of evaluating the effects of this statement on the
Company's consolidated financial condition and results of operations.
SFAS Nos. 143 and 144 provide guidance concerning the recognition and
measurement of an impairment loss for certain types of long-lived
assets and obligations associated with the retirement of tangible
long-lived assets. Management does not expect these statements to
affect the Company's consolidated financial condition and results of
operations.
Quarterly Information
The following tables provide unaudited financial information by quarter for
each of the past two years:
2001
Dollars in thousands Q1 Q2 Q3 Q4
Balance Sheets
Cash $ 17,214 $ 11,148 $ 25,476 $ 21,865
Investments 100,912 94,075 95,531 105,744
Net loans 200,742 210,532 210,191 208,115
Other assets 25,861 25,965 26,319 26,279
Total assets $344,729 $341,720 $357,517 $362,003
Deposits $243,639 $244,806 $268,430 $267,907
Borrowed funds 49,666 51,680 37,115 41,958
Other liabilities 18,621 12,266 17,761 18,002
Shareholders' equity 32,803 32,968 34,211 34,136
Total liabilities & equity $344,729 $341,720 $357,517 $362,003
Income Statements
Interest income $ 6,187 $ 5,914 $ 5,713 $ 5,677
Interest expense 3,057 2,795 2,438 2,117
Net interest income 3,130 3,119 3,275 3,560
Provision for loan losses 75 75 75 75
Net interest income after
provision 3,055 3,044 3,200 3,485
Noninterest income 1,074 1,144 1,324 1,365
Noninterest expense 3,069 3,373 3,393 3,280
Income before taxes 1,060 815 1,131 1,570
Income taxes 300 242 317 491
Net income $ 760 $ 573 $ 814 $ 1,079
Basic earnings per share $ 1.31 $ .99 $ 1.41 $ 1.88
2000
Dollars in thousands Q1 Q2 Q3 Q4
Balance Sheets
Cash $ 9,790 $ 9,869 $ 15,784 $ 10,354
Investments 105,285 103,134 112,352 110,277
Net loans 124,222 135,522 204,215 201,555
Other assets 16,280 17,239 26,520 26,056
Total assets $255,577 $265,764 $358,871 $348,242
Deposits $182,852 $187,635 $261,380 $245,581
Borrowed funds 28,451 35,411 46,416 51,123
Other liabilities 16,785 14,878 21,936 20,418
Shareholders' equity 27,489 27,840 29,139 31,120
Total liabilities & equity $255,577 $265,764 $358,871 $348,242
Income Statements
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
Net interest income after
provision 2,602 2,516 2,635 3,052
Noninterest income 720 822 1,004 1,093
Noninterest expense 2,166 2,465 2,558 3,178
Income before taxes 1,156 873 1,081 967
Income taxes 330 247 354 146
Net income $ 826 $ 626 $ 727 $ 821
Basic earnings per share $ 1.43 $ 1.08 $ 1.26 $ 1.42
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
2001 2000
ASSETS
Cash and due from banks (note 2) $ 12,940,420 $ 10,309,649
Federal funds sold 8,925,312 43,829
Cash and cash equivalents 21,865,732 10,353,478
Available for sale securities, at market
value (note 3) 94,403,282 101,138,345
Held to maturity securities, at cost
(note 4) (market value
$3,586,393 and $3,830,800 at
December 31, 2001 and 2000,
respectively) 3,526,626 3,851,461
Other investment securities at cost,
Which approximates market value 5,039,950 4,968,350
Loans held for sale 2,774,179 320,125
LOANS (note 5):
Real estate 170,272,718 160,333,395
Commercial and industrial 20,476,149 21,001,790
Municipal 3,083,857 3,717,912
Consumer 17,782,261 19,965,611
211,614,985 205,018,708
Deferred loan fees (46,995) (87,619)
Less allowance for loan losses
(note 6) 3,453,245 3,376,395
Net loans 208,114,745 201,554,694
Premises, furniture and equipment,
net (note 8) 6,372,705 6,371,464
Core deposit intangible (note 9) 260,977 307,619
Goodwill (note 9) 6,145,130 6,572,652
Other assets (notes 7, 9, 13 and 14) 13,499,730 12,803,938
Total assets $362,003,056 $348,242,126
LIABILITIES
DEPOSITS
Demand deposits $ 35,218,551 $ 28,313,749
Savings deposits (including NOW deposits
totaling $54,332,628 in 2001 and
$45,991,547 in 2000) 99,300,921 85,946,245
Money market accounts 28,774,213 23,854,901
Time deposits (note 10) 104,613,441 107,465,822
Total deposits 267,907,126 245,580,717
Advances from Federal Home Loan
Bank (note 11) 41,957,641 51,123,250
Other borrowed funds (note 12) 12,135,398 15,079,311
Other liabilities (notes 13 and 14) 5,866,536 5,339,174
Total liabilities 327,866,701 317,122,452
Contingent liabilities and commitments
(notes 8, 15, 16 and 17)
SHAREHOLDERS' EQUITY
Common stock, $12.50 par value.
Authorized 1,200,000 shares, issued
582,394 shares in 2001 and 2000 7,279,925 7,279,925
Surplus 3,963,116 3,963,472
Retained earnings (note 15) 22,695,422 20,682,146
Accumulated other comprehensive
income (loss)
Net unrealized gain (loss) on
available for sale securities
net of deferred tax (liability)
asset of $(273,178) and $240,329
at December 31, 2001 and 2000,
respectively (note 3) 530,290 (466,522)
Treasury stock, at cost (4,899
shares in 2001 and
4,900 shares in 2000) (332,398) (339,347)
Total shareholders' equity 34,136,355 31,119,674
Total liabilities and
shareholders' equity $362,003,056 $348,242,126
The accompanying notes are an integral part of these consolidated
financial statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS
OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $17,382,209 $13,441,308 $10,032,349
Interest on securities
available for sale 5,750,207 6,770,631 6,709,940
Interest on securities
held to maturity 190,922 217,794 229,221
Interest on federal funds sold 168,029 44,557 293,774
Total interest income 23,491,367 20,474,290 17,265,284
INTEREST EXPENSE
Interest on savings deposits 1,311,446 1,321,363 1,082,132
Interest on money market accounts 832,712 807,451 728,408
Interest on time deposits 5,379,905 4,539,942 3,783,922
Interest on borrowings 2,882,472 2,629,096 1,501,991
Total interest expense 10,406,535 9,297,852 7,096,453
Net interest income 13,084,832 11,176,438 10,168,831
Provision for loan losses
(note 6) 300,000 371,000 200,000
Net interest income after
provision for loan losses 12,784,832 10,805,438 9,968,831
NONINTEREST INCOME
Net securities gains (losses)
(note 3) 39,131 (13,545) (15,728)
Trust department income 1,279,215 1,152,910 906,996
Service charges on deposit accounts 303,652 291,195 314,268
VISA income 944,025 817,275 711,555
Loan department income 862,602 399,414 514,351
Gain on other real estate owned 0 0 153,984
Income from cash surrender value
of life insurance 305,761 288,333 19,778
Other income 1,172,330 703,966 821,123
Total noninterest income 4,906,716 3,639,548 3,426,327
Income before noninterest
expenses 17,691,548 14,444,986 13,395,158
NONINTEREST EXPENSE
Salaries and wages 4,952,672 4,100,498 3,445,803
Pension and other employee
benefits (note 13) 1,259,739 1,057,498 909,087
Insurance 142,359 122,786 110,065
FDIC insurance 46,185 44,851 21,414
Net occupancy expenses 1,620,542 1,206,485 975,143
Equipment expenses 508,152 450,104 373,208
Advertising 286,155 156,278 179,148
Supplies 376,038 372,911 265,919
Postage 221,656 187,435 175,031
Telephone 195,835 116,974 125,330
Other professional fees 376,970 200,922 297,018
Other expenses 3,129,073 2,350,751 1,785,915
Total noninterest expenses 13,115,376 10,367,493 8,663,081
Income before income taxes 4,576,172 4,077,493 4,732,077
Income taxes (note 14) 1,350,000 1,077,000 1,377,355
Net income $3,226,172 $3,000,493 $3,354,722
Net income per common share $ 5.59 $ 5.19 $ 5.80
Cash dividends declared per
common share $ 2.10 $ 2.00 $ 1.92
Weighted average common shares
outstanding 577,512 577,716 578,086
The accompanying notes are an integral part of these consolidated
financial statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 2001, 2000 and 1999
ACCUMULATED TOTAL
OTHER SHARE-
COMMON TREASURY RETAINED COMPREHENSIVE HOLDERS'
STOCK SURPLUS STOCK EARNINGS INCOME (LOSS) EQUITY
Balance at December 31,
1998 $7,279,925 $3,963,432 $(289,019) $16,623,348 $ 1,162,032 $28,739,718
Net income,
1999 0 0 0 3,354,722 0 3,354,722
Change in net
unrealized gain
(loss) on available
for sale securities,
net of tax of
$(1,695,031) 0 0 0 0 (3,290,356) (3,290,356)
Total comprehensive
income 0 0 0 3,354,722 (3,290,356) 64,366
Sale of 556
shares treasury
stock 0 101 60,316 0 0 60,417
Repurchase of 726
shares treasury
stock 0 0 (80,468) 0 0 (80,468)
Payment for fractional
shares totaling 258.80
shares 0 0 0 (33,126) 0 (33,126)
Cash dividends
declared 0 0 0 (1,107,916) 0 (1,107,916)
Balance at December 31,
1999 $7,279,925 $3,963,533 $(309,171) $18,837,028 $(2,128,324) $27,642,991
Net income,
2000 0 0 0 3,000,493 0 3,000,493
Change in net
unrealized gain
(loss) on available
for sale securities,
net of tax of
$856,080 0 0 0 0 1,661,802 1,661,802
Total comprehensive
income 0 0 0 3,000,493 1,661,802 4,662,295
Sale of 516
shares treasury
stock 0 (61) 55,084 0 0 55,023
Repurchase of 870
shares treasury
stock 0 0 (85,260) 0 0 (85,260)
Cash dividends
declared 0 0 0 (1,155,375) 0 (1,155,375)
Balance at December 31,
2000 $7,279,925 $3,963,472 $(339,347) $20,682,146 $ (466,522) $31,119,674
Net income,
2001 0 0 0 3,226,172 0 3,226,172
Change in net
unrealized gain
(loss) on available
for sale securities,
net of tax of
$513,509 0 0 0 0 996,812 996,812
Total comprehensive
income 0 0 0 3,226,172 996,812 4,222,984
Sale of 563
shares treasury
stock 0 (356) 47,855 0 0 47,499
Repurchase of 562
shares treasury
stock 0 0 (40,906) 0 0 (40,906)
Cash dividends
declared 0 0 0 (1,212,896) 0 (1,212,896)
Balance at December 31,
2001 $7,279,925 $3,963,116 $(332,398) $22,695,422 $ 530,290 $34,136,355
The accompanying notes are an integral part of these consolidated financial
statements.
UNION BANKSHARES COMPANY AND SUBSIDIARY CONSOLIDATED STATEMENTS
OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
Net income $ 3,226,172 $ 3,000,493 $ 3,354,722
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Goodwill amortization 498,307 162,406 0
Depreciation 863,801 662,742 478,466
Net amortization of premium
(accretion of discount)
on investments 21,643 (93,650) (62,422)
Provision for loan losses 300,000 371,000 200,000
Net (gain) loss on sale of
available for sale securities (39,131) 13,545 15,728
Net (gain) loss on sale of equipment (684) 0 1,867
Gain on sale of other real estate owned 0 0 (153,984)
Originations of loans held
for sale (24,520,344) (4,129,490) (18,010,986)
Proceeds from loans held
for sale 22,066,290 4,403,829 18,589,135
Net change in other assets (429,541) 1,185,273 (943,556)
Net change in other liabilities 218,728 (1,487,982) 1,954,816
Net change in deferred loan
origination fees (40,624) 114,193 (3,352)
Net cash provided by
operating activities 2,164,617 4,202,359 5,420,434
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs (24,144) (1,564,452) 0
Cash paid to Mid-Coast
stockholders in connection with
Mid-Coast acquisition 0 (11,809,047) 0
Cash received through Mid-Coast
acquisition 0 4,403,785 0
Proceeds from sale of available
for sale securities 11,731,432 8,278,721 33,240,067
Purchase of available for
sale securities (48,872,524) (10,821,602) (48,397,100)
Proceeds from maturities and
principal payments on available
for sale securities 45,416,263 12,535,982 13,888,678
Purchase of held to
maturity securities (107,464) (50,000) (100,000)
Proceeds from maturities
and principal payments
on held to maturity securities 420,000 421,250 225,000
Purchase of other
investment securities (71,600) 0 0
Purchase of life insurance
policies (500,000) 0 (5,600,000)
Proceeds from sales of
other real estate owned 0 0 529,490
Net increase in loans
to customers (6,819,427) (11,074,816) (12,263,189)
Proceeds from sales of
fixed assets 8,000 0 0
Capital expenditures (872,358) (2,022,435) (814,130)
Net cash provided (used)
by investing activities 308,178 (11,702,614) (19,291,184)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease)
in deposits 22,326,409 (10,681,322) 4,818,818
Proceeds from long-term
borrowings 20,791,391 1,500,000 9,000,000
Repayment of long-term
borrowings (2,500,000) (5,285,000) (11,000,000)
Net change in short-term
advances from Federal Home
Loan Bank (27,457,000) 22,492,000 0
Net change in other
borrowed funds (2,943,913) 1,938,888 4,174,446
Payment to eliminate
fractional share 0 0 (33,126)
Purchase of treasury stock (40,906) (85,260) (80,468)
Sale of treasury stock 47,499 55,023 60,417
Dividends paid (1,184,021) (1,155,375) (1,107,916)
Net cash provided by
financing activities 9,039,459 8,778,954 5,832,171
Net increase (decrease)
in cash and cash equivalents 11,512,254 1,278,699 (8,038,579)
Cash and cash equivalents at
beginning of year 10,353,478 9,074,779 17,113,358
Cash and cash equivalents
at end of year $21,865,732 $10,353,478 $ 9,074,779
The accompanying notes are an integral part of these consolidated
financial statements.
2001 2000 1999
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $10,739,397 $ 8,900,821 $ 7,278,946
Income taxes paid $ 1,355,155 $ 1,185,800 $ 1,431,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Net increases (decreases)
required by Statement of Financial
Accounting Standards No. 115
"Available for Sale Securities" $ 1,510,321 $2,517,882 $(4,985,387)
Deferred income tax
(liabilities) assets thereon $ (513,509) $ (856,080) $ 1,695,031
Loans held for sale transferred
to loan portfolio $ 0 $ 0 $ 4,965,343
The accompanying notes are an integral part of these consolidated
financial statements.
INSERT PHOTO OF RON HAMILTON
RON HAMILTON
FINANCIAL CONSULTANT
Mr. Hamilton is responsible for working with customers to help them
meet their financial goals and preserve and protect their financial
assets. He assists customers by sifting through the many alternatives
to find the specific solution that best meets their needs. He
approaches his work from a relationship standpoint, providing
exceptional service before, during and after the sale. Developing
the Union Trust branch staff into an effective referral network for
new customers is something to which Mr. Hamilton devotes a significant
amount of time.
Mr. Hamilton has over 25 years experience in the financial services
industry with an insurance concentration, which includes life, health,
long-term care, disability and property and casualty insurance along
with mutual funds and annuities. Mr. Hamilton holds a bachelor's degree
from the University of Maine, his Maine Life and Health Insurance license,
his Series 6 license, and will soon sit for his Series 7 Securities
license exam. He joined Union Trust in 2001 and is an Ellsworth native.
UNION BANKSHARES COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000 and 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Union Bankshares Company (the Company) provides a full range of
banking services to individual and corporate customers through its
subsidiary and branches in Maine. It is subject to regulations of
certain federal agencies and undergoes periodic examinations by those
regulatory authorities.
Operating Segments
Operations are managed and financial performance is evaluated on a
corporate-wide basis. Accordingly, all the Company's banking operations
are considered by management to be aggregated in one reportable
operating segment.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Material estimates that are particularly susceptible to significant
change in the future relate to the determination of the allowance for
loan losses and valuation of other real estate owned. In connection
with the determination of the allowance for loan losses and the carrying
value of other real estate owned, management obtains independent
appraisals for significant properties.
Management believes that the allowance for loan losses and the carrying
value of other real estate owned are adequate. While management uses
available information to recognize losses on loans and other real estate
owned, future additions to the allowances might be necessary based on
changes in economic conditions, particularly in northern New England.
In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance
for loan losses. These agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiary, Union Trust Company
(the Bank). All significant intercompany balances and transactions
have been eliminated in the accompanying financial statements.
Earnings and Cash Dividends per Share
Earnings per share is based upon the weighted average number of common
shares outstanding during each year. In July 2001, the Company
increased its cash dividend by 10%. In 1999, the Company declared a
stock split effected in the form of a 20% stock dividend. Common
share amounts, earnings per share and dividends per share, common stock
and retained earnings for all years presented have been restated to
reflect this transaction.
Investments
Available for Sale Securities
Available for sale securities consist of marketable securities that
the Company anticipates could be made available for sale in response
to changes in market interest rates, liquidity needs, changes in
funding sources and similar factors. These assets are specifically
identified and are carried at fair value. Amortization of premiums
and accretion of discounts are recorded as an adjustment to yield.
Unrealized holding gains and losses for these assets, net of related
income taxes, are excluded from earnings and are reported as a net
amount in a separate component of shareholders' equity. When a decline
in market value is considered other than temporary, the loss is
recognized in the consolidated statements of income, resulting in
the establishment of a new cost basis. Gains and losses on the sale
of available for sale securities are determined using the specific
identification method.
Held to Maturity Securities
Held to maturity securities consist of debt securities that the Company
has the positive intent and ability to hold until maturity. Debt
securities classified as held to maturity are carried at amortized
cost, adjusted for amortization of premiums and accretion of discounts.
When a decline in market value is considered other than temporary, the
loss is recognized in the consolidated statements of income, resulting
in the establishment of a new cost basis for the security.
Other Investment Securities
Other investment securities consist of Federal Home Loan Bank (FHLB)
stock and Federal Reserve Bank stock. These securities are carried
at cost, which approximates market value at December 31, 2001 and 2000.
Loans Held for Sale
Loans held for sale are loans originated for the purpose of potential
subsequent sale. These loans are carried at the lower of aggregate
cost or market value as determined by current investor yield
requirements. Gains and losses on the sale of these loans are
computed on the basis of specific identification.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff generally are reported
at their outstanding unpaid principal balances adjusted for charge-offs,
the allowance for loan losses and any deferred fees or costs on
originated loans. Interest income is accrued on the unpaid principal
balances. Loan commitments are recorded when funded.
Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
balance sheets. The Bank recognizes a loan servicing fee for the
difference between the principal and interest payment collected on
the loan and the payment remitted to the investor.
The cost of mortgage servicing rights is amortized in proportion to,
and over the period of, estimated net servicing revenues. Impairment
of mortgage servicing rights is assessed based on the fair value of
those rights. Fair values are estimated using discounted cash flows
based on a current market interest rate. For purposes of measuring
impairment, the rights are stratified based on the following risk
characteristics of the underlying loans: interest rate, fixed versus
variable rate, and period of origination. The amount of impairment
recognized is the amount by which the capitalized mortgage servicing
rights for a stratum exceed their fair value.
Premises, Furniture and Equipment
Premises, furniture and equipment are stated at cost less accumulated
depreciation. Depreciation expense is computed by accelerated and
straight-line methods over the estimated useful life of each type of
asset. Leasehold improvements are amortized over the lesser of the
terms of the respective leases or the service lives of the improvements.
Maintenance and repairs are charged to expense as incurred; betterments
are capitalized.
Intangible Assets
Goodwill is amortized on a straight-line basis over 15 years. The core
deposit intangible is amortized on a straight-line basis over 7 years.
Goodwill and the core deposit intangible are reviewed for possible
impairment when it is determined that events or changed circumstances
may affect the underlying basis of the asset. Upon adoption of Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets", on January 1, 2002, amortization of goodwill will
be discontinued and the goodwill asset will be evaluated for impairment.
Allowance for Loan Losses
The allowance for loan losses is established by management to absorb
charge-offs of loans deemed uncollectible. This allowance is increased
by provisions charged to operating expense and by recoveries on loans
previously charged off. The amount of the provision is based on
management's evaluation of the loan portfolio. Considerations include
past and anticipated loan loss experience, current economic conditions,
the character and size of the loan portfolio and the need to maintain
the allowance at a level adequate to absorb anticipated future losses.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans.
If these allocations cause the allowance to increase, the increase is
reported as loan loss provision.
Other Real Estate Owned
Other real estate owned, which is included in other assets, is recorded
at the lower of cost or fair value less estimated costs to sell at the
time the Company takes possession of the property. Losses arising from
the acquisition of such properties are charged against the allowance for
loan losses. Operating expenses and any subsequent provisions to reduce
the carrying value are charged to operations. Gains and losses upon
disposition are reflected in earnings as realized.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the enactment date.
Accrual of Interest Income and Expense
Interest on loans and investment securities is taken into income using
methods that relate the income earned to the balances of loans outstanding
and investment securities. Interest expense on liabilities is derived by
applying applicable interest rates to principal amounts outstanding. The
recording of interest income on problem loan accounts ceases when
collectibility within a reasonable period of time becomes doubtful.
Interest income accruals are resumed only when they are brought fully
current with respect to principal and interest and when management
expects the loan to be fully collectible.
The carrying values of impaired loans are periodically adjusted to
reflect cash payments, revised estimates of future cash flows and
increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are
reported as such. Other cash payments are reported as reductions
in carrying value, while increases or decreases due to changes in
estimates of future payments and due to the passage of time are
reflected in the loan loss provision.
Loan Origination Fees and Costs
Loan origination fees and certain direct loan origination costs are
recognized over the life of the related loan as an adjustment to or
reduction of the loan's yield.
Advertising Costs
The Company expenses advertising costs as they are incurred.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Comprehensive Income
Comprehensive income includes both net income and other comprehensive
income. The only component of other comprehensive income is net
unrealized gains and losses on available for sale securities, net of
deferred taxes. The required disclosures for all periods presented
are included in the consolidated statement of changes in shareholders'
equity.
Reclassifications
Certain 2000 and 1999 balances have been reclassified to conform with
the 2001 presentation.
2. CASH AND DUE FROM BANKS
The Federal Reserve Board requires the Bank to maintain a reserve
balance. The amount of this reserve balance as of December 31, 2001
was $250,000. In the normal course of business, the Bank has funds on
deposit at other financial institutions in amounts in excess of the
$100,000 insured by the Federal Deposit Insurance Corporation.
3. AVAILABLE FOR SALE SECURITIES
The Company carries available for sale securities at fair value. A
summary of the cost and fair values of available for sale securities at
December 31, 2001 and 2000 is as follows:
Gross Gross
Amortized Unrealized Unrealized Carrying &
Cost Gains Losses Fair Value
2001 2001 2001 2001
Mortgage-backed
securities $ 38,157,879 $ 302,556 $(296,557) $ 38,163,878
U.S. Treasury
securities and other
U.S. Government
agencies 35,506,787 629,196 (98,489) 36,037,494
Obligations of states
and political subdivisions 15,754,433 193,978 (201,959) 15,746,452
Other securities 4,180,714 283,795 (9,051) 4,455,458
Totals $ 93,599,813 $1,409,525 $(606,056) $ 94,403,282
2000 2000 2000 2000
Mortgage-backed
securities $ 34,881,652 $152,546 $ (422,245) $ 34,611,953
U.S. Treasury
securities and other
U.S. Government
agencies 51,551,788 191,310 (502,800) 51,240,298
Obligations of states
and political subdivisions 11,339,127 50,724 (112,841) 11,277,010
Other securities 4,072,631 0 (63,547) 4,009,084
Totals $101,845,198 $394,580 $(1,101,433) $101,138,345
The amortized cost and fair value of available for sale debt securities
at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 1,174,922 $ 1,195,009
Due in one year through five years 27,166,408 27,473,725
Due after five years through ten years 27,964,881 28,287,844
Due after ten years 36,820,773 36,827,989
Totals $93,126,984 $93,784,567
Mortgage-backed securities are allocated among the above maturity
groupings based on their final maturity dates.
Proceeds from the sale of securities were $11,731,432, $8,278,721
and $33,240,067 in 2001, 2000 and 1999, respectively. Gross realized
gains were $104,197, $37,472 and $197,312 in 2001, 2000 and 1999,
respectively. Gross realized losses were $65,066, $51,017 and
$213,040 in 2001, 2000 and 1999, respectively.
4. HELD TO MATURITY SECURITIES
The carrying amounts of held to maturity securities for 2001 and 2000
as shown in the Company's consolidated balance sheets, and their
approximate fair values at December 31, are as follows:
Gross Gross
Book Unrealized Unrealized Fair
Value Gains Losses Value
2001 2001 2001 2001
Obligations of states and
political subdivisions $3,526,626 $89,260 $(29,493) $3,586,393
2000 2000 2000 2000
Obligations of states and
political subdivisions $3,851,461 $33,070 $(53,731) $3,830,800
The amortized cost and fair value of held to maturity securities
at December 31, 2001, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Fair
Cost Value
Due in one year or less $ 300,033 $ 306,743
Due after one year through five years 1,319,770 1,376,663
Due after five years through ten years 1,054,740 1,071,008
Due after ten years 852,083 831,979
Totals $3,526,626 $3,586,393
Nontaxable interest income on municipal investments was $712,889,
$597,258 and $596,061 for 2001, 2000 and 1999, respectively.
5. LOANS
At December 31, 2001 and 2000, loans on nonaccrual status totaled
approximately $1,823,000 and $3,390,000, respectively. If interest
had been accrued on such loans, interest income on loans would have
been approximately $334,989, $332,622 and $31,000 higher in 2001, 2000
and 1999, respectively. Loans delinquent by 90 days or more that
were still on accrual status at December 31, 2001 and 2000 totaled
approximately $75,000 and $21,000, respectively.
In the ordinary course of business, the Company's subsidiary granted
loans to the executive officers and directors of the Company and its
subsidiary, and to affiliates of directors. These loans were made on
substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons and did not involve more than normal risk of uncollectibility.
The balance of loans to related parties amounted to $3,104,703 and
$2,773,611 at December 31, 2001 and 2000, respectively. New loans
granted to related parties in 2001 and 2000 totaled $2,713,536 and
$2,251,599, respectively; payments and reductions amounted to
$2,283,148 and $1,927,713 in 2001 and 2000, respectively.
6. ALLOWANCE FOR LOAN LOSSES
Analysis of the allowance for loan losses is as follows for the
years ended December 31, 2001, 2000 and 1999:
2001 2000 1999
Balance, beginning of year $3,376,395 $2,629,472 $2,434,636
Provision for loan losses 300,000 371,000 200,000
Allowance on acquired loans 0 520,019 0
Balance before loan charge-offs 3,676,395 3,520,491 2,634,636
Loans charged-off 324,720 179,903 148,354
Less recoveries on loans charged-off 101,570 35,807 143,190
Net loan charge-offs 223,150 144,096 5,164
Balance, end of year $3,453,245 $3,376,395 $2,629,472
Impairment of loans having recorded investments of $1,822,604 at
December 31, 2001 and $2,661,402 at December 31, 2000 has been
recognized in conformity with SFAS No. 114, as amended by SFAS No. 118.
The average recorded investment in impaired loans during 2001 and 2000
was $2,242,003 and $2,938,516, respectively. All impaired loans have
a related allowance for loan losses. The total allowance for loan
losses related to these loans was $273,391 and $256,588 on December 31,
2001 and 2000, respectively. There was $68,810 and $126,100 interest
income recognized on impaired loans in 2001 and 2000, respectively, and
none in 1999.
7. LOAN SERVICING
The Bank services loans for others amounting to $80,849,851 and
$71,835,641 at December 31, 2001 and 2000, respectively. Mortgage
servicing rights of $280,253 and $144,081 were capitalized in 2001 and
2000, respectively. Mortgage servicing rights have been written down to
their fair value of $219,303 and $222,389 through a valuation allowance
at December 31, 2001 and 2000, and are included in other assets.
Amortization of mortgage servicing rights was $201,968, $198,092 and
$110,792 in 2001, 2000 and 1999, respectively.
8. PREMISES, FURNITURE AND EQUIPMENT
Detail of bank premises, furniture and equipment is as follows:
2001 2000
Land $ 413,675 $ 409,275
Buildings and improvements 6,629,518 6,308,996
Furniture and equipment 5,086,413 4,642,315
Leasehold improvements 724,931 715,881
$12,854,537 $12,076,467
Less accumulated depreciation 6,481,832 5,705,003
$ 6,372,705 $ 6,371,464
At December 31, 2001, the Bank was obligated under a number of
noncancellable leases for premises and equipment that are accounted
for as operating leases. Leases for real property contain original
terms from 2 to 20 years with renewal options up to 20 years.
Management expects that, in the normal course of business, most leases
will be renewed or replaced by other leases, or, when available,
purchase options may be exercised.
Rental expense was $180,272 in 2001, $142,420 in 2000 and $124,412
in 1999.
The minimum annual lease commitments under noncancellable leases
in effect at December 31, 2001 are as follows:
Year Ending December 31, Amount
2002 $160,760
2003 90,607
2004 83,085
2005 66,484
2006 37,829
Thereafter 496,472
Total $935,237
9. ACQUISITION of MID-COAST BANCORP, INC.
On August 31, 2000, the Bank acquired the outstanding stock of
Mid-Coast Bancorp, Inc., and its subsidiary, The Waldoboro Bank, FSB.
The acquisition was accounted for under the purchase method of
accounting for business combinations. The following is a summary
of the transaction.
Cash and equivalents $ 4,403,785
Loans acquired 65,945,392
Investments 10,215,683
Premises, furniture and equipment 2,024,200
Goodwill 5,155,225
Other assets 1,899,664
Deposits and accrued
interest assumed (63,414,205)
Borrowings (13,965,000)
Other liabilities (455,697)
Net cash paid to the
Stockholders of Mid-Coast Bancorp 11,809,047
Acquisition costs (goodwill) 1,564,452
Net cash paid $13,373,499
Goodwill, including acquisition costs, is being amortized using the
straight line method over 15 years. The core deposit intangible of
$323,000 is being amortized using the straight line method over 7 years.
Amortization charged to operations was $498,307 and $162,406 in 2001
and 2000, respectively. Results of operations from the date of
acquisition are included in the Company's Consolidated Statement of
Income.
Following are proforma results of operations for the years ended
December 31, 2000 and 1999, as though Union Bankshares Company and
Mid-Coast Bancorp, Inc. had been combined at the beginning of each
period.
December 31,
2000 1999
Net interest income $13,230,742 $12,921,831
Net income $ 3,317,787 $ 3,414,722
Earnings per share $ 5.74 $ 5.91
10. DEPOSITS
The aggregate amount of jumbo certificates of deposit, each with a
minimum denomination of $100,000, was $18,541,406 and $13,831,249 in
2001 and 2000, respectively.
At December 31, 2001, the scheduled maturities of time deposits
were as follows:
2002 $ 91,814,948
2003 8,688,153
2004 1,183,274
2005 2,843,385
2006 9,209
Thereafter 74,472
Total $104,613,441
11. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from the Federal Home Loan Bank are summarized as follows:
Range of Final Interest Rates at
Maturity Dates December 31, 2001 2001 2000
Fixed advances 2002 to 2008 2.71% to 6.09% $39,291,391 $30,000,000
Variable advances 2002 to 2013 2.00% to 7.23% 2,666,250 21,123,250
$41,957,641 $51,123,250
Pursuant to the collateral agreements with the Federal Home Loan
Bank (FHLB), advances are collateralized by stock in the FHLB,
qualifying first mortgage loans and available for sale securities.
The Bank has an available line of credit with the FHLB of $5,000,000.
The amount of advances with a call option totaled $13,000,000 at
December 31, 2001.
Advances at December 31, 2001 mature as follows:
2002 $10,000,000
2003 6,000,000
2004 7,791,391
2005 2,055,000
Thereafter 16,111,250
Total $41,957,641
12. OTHER BORROWED FUNDS
Securities sold under agreements to repurchase generally mature within
one day from the transaction date. The Bank provides collateral based
upon the par value of the underlying securities. At December 31, 2001,
securities with a fair value of $24,190,591 were pledged to
collateralize other borrowed funds. Information concerning securities
sold under agreements to repurchase for 2001 is summarized as follows:
Average balance during the year $10,944,416
Average interest rate during the year 2.73%
Maximum month-end balance during the year $13,948,545
13. EMPLOYEE BENEFITS
Pension Plan
The Company's subsidiary has a noncontributory defined benefit pension
plan covering substantially all permanent full-time employees. The
benefits are based on employees' years of service and the average of
their three highest consecutive rates of annual salary preceding
retirement.
It is the subsidiary's policy to fund the plan sufficiently to meet the
minimum requirements set forth in the Employee Retirement Income Security
Act of 1974, plus such additional amounts as the Company may determine
to be appropriate from time to time.
Pension expense amounted to $126,806, $60,279 and $53,480 for the years
ended December 31, 2001, 2000 and 1999, respectively.
Postretirement Benefits Other Than Pensions
The Company sponsors a postretirement benefit program that provides
medical coverage and life insurance benefits to certain employees and
directors who meet minimum age and service requirements. Active employees
and directors accrue benefits over a 25-year period.
The following table sets forth the benefit obligations, fair value of
plan assets and funded status for the Company's pension and other
postretirement benefit plans at December 31, 2001 and 2000.
2001 2000 1999
Pension Other Pension Other Pension Other
Benefits Benefits Benefits Benefits Benefits Benefits
Change in Benefit Obligations
Benefit obligations at
beginning of
year $4,977,665 $1,106,380 $4,489,648 $1,124,843 $4,609,135 $1,597,863
Service
cost 217,737 45,771 175,039 37,433 185,348 37,622
Interest
cost 356,242 73,129 331,444 74,206 310,869 78,873
Actuarial
(gain) loss 266,362 129,878 223,969 (87,362) (381,284) (542,761)
Benefits
paid (260,227) (57,090) (242,435) (42,740) (234,420) (46,754)
Benefit obligations
at end
of year $5,557,779 $1,298,068 $4,977,665 $1,106,380 $4,489,648 $1,124,843
Change in Plan Assets
Fair value of plan
Assets at beginning
of year $5,396,748 $ 0 $5,372,984 $ 0 $5,259,015 $ 0
Actual return
on plan
assets (175,895) 0 266,199 0 348,389 0
Employer
contributions 0 57,090 0 42,740 0 46,754
Benefits
paid (260,227) (57,090) (242,435) (42,740) (234,420) (46,754)
Fair value of
plan assets
at end of
year $4,960,626 $ 0 $5,396,748 $ 0 $5,372,984 $ 0
Funded
Status $(597,153) $(1,298,068) $ 419,083 $(1,106,380) $ 883,336 $(1,124,843)
Unrecognized net
actuarial (gain)
loss 653,212 (254,017) (209,894) (408,706) (587,544) (339,792)
Unamortized prior
service cost (23,212) 0 (25,758) 0 (28,304) 0
Unrecognized transition
(net asset) net
obligation (36,930) 503,100 (60,708) 548,700 (84,486) 594,300
Prepaid (accrued)
benefit cost,
included in other
assets or other
liabilities $ (4,083) $(1,048,985)) $ 122,723 $ (966,386) $ 183,002 $(870,335)
Net periodic benefit cost includes the following components:
2001 2000 1999
Pension Other Pension Other Pension Other
Benefits Benefits Benefits Benefits Benefits Benefits
Service cost $217,737 $ 45,771 $175,039 $ 37,433 $185,348 $ 37,622
Interest cost 356,242 73,129 331,444 74,206 310,869 78,873
Expected return on
plan assets (420,849) 0 (419,880) 0 (416,413) 0
Recognized net
actuarial gain 0 (24,811) 0 (18,448) 0 (8,258)
Amortization (accretion)
of unrecognized
transition asset
or obligation (23,778) 45,600 (23,778) 45,600 (23,778) 45,600
Amortization of prior
service cost (2,546) 0 (2,546) 0 (2,546) 0
Net periodic
benefit cost $126,806 $139,689 $ 60,279 $138,791 $ 53,480 $153,837
Weighted-average assumptions as of December 31
Discount rate 7.25% 6.75% 7.50% 6.75% 6.75% 6.75%
Expected return on
plan assets 8.00% - 8.00% - 8.00% -
Rate of compensation
increase 4.00% 4.00% 4.00% 4.00% 4.00% 5.00%
For measurement purposes, the annual rates of increase in the per capita
health care cost of covered benefits were 12%, 12% and 12% for 2001, 2000
and 1999, respectively. The annual rate of increase in per capita health
care costs is assumed to decrease annually by 1% until the year 2007 (which
at that time will be 6%) and later.
The effects of a one-percentage-point change in the assumed health care
cost trend rate on the aggregate service and interest cost components
of the net periodic postretirement health care benefit cost and on the
postretirement benefit obligation would be:
1 Percentage 1 Percentage
Point Increase Point Decrease
2001 2000 1999 2001 2000 1999
Effect on total
service and interest
components $ 142,531 $ 161,157 $ 177,080 $(100,726) $(121,746) $ (136,112)
Effect on
postretirement
benefit
obligation
$1,484,439 $1,269,267 $1,363,639 $(1,150,001) $(977,805) $(1,055,423)
401(k) Plan
The Company has a noncontributory 401(k) plan for employees who meet
certain service requirements.
Stock Purchase Plan
The Bank maintains a stock purchase plan which allows qualified
employees and directors to acquire stock at fair market value.
14. INCOME TAXES
Income tax expense, which is all current, consists of the following:
Total
2001
Federal $1,278,000
State 72,000
$1,350,000
2000
Federal $1,019,000
State 58,000
$1,077,000
1999
Federal $1,317,355
State 60,000
$1,377,355
The actual tax expense for 2001, 2000 and 1999 differs from the
"expected" tax expense for those years (computed by applying the
applicable U.S. Federal Corporate Tax Rate to income before income
taxes) due to the following:
2001 2000 1999
Amount % of Amount % of Amount % of
Pretax Pretax Pretax
Earnings Earnings Earnings
Computed "expected"
tax expense $1,555,900 34.0% $1,386,350 34.0% $1,608,910 34.0%
Nontaxable income on
obligations of states
and political
subdivisions (337,753) (7.4%) (285,624) (7.0%) (286,523) (6.1%)
Cash surrender value
of life insurance (123,631) (2.7%) (118,118) (2.9%) 0 0.0%
Goodwill
amortization 153,685 3.4% 0 0.0% 0 0.0%
Other 101,799 2.2% 94,392 2.3% 54,968 1.2%
$1,350,000 29.5% $1,077,000 26.4% $1,377,355 29.1%
INSERT PHOTO OF SCOTT K. SHIELDS
SCOTT K. SHIELDS
FINANCIAL PLANNER
Mr. Shields is responsible for serving the needs of customers in a
financial planning capacity. His role is to give advice to customers
regarding their comprehensive financial situation. Mr. Shields prides
himself in helping people reach their short-term and long-term
financial goals by constructing a suitable plan that meets their
individual needs.
Mr. Shields has been advising customers on a full range of financial
matters including investments and insurance since 1997. He holds his
NASD Securities Series 7 and 63 licenses along with his Maine Life and
Health Insurance licenses. Mr. Shields is a native of Bar Harbor,
Maine and joined Union Trust in 2000.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented as follows:
DEFERRED TAX ASSETS 2001 2000
Unrealized loss on available
for sale securities $ 0 $ 240,329
Allowance for loan losses 1,174,103 1,147,974
Deferred compensation 265,884 247,812
Post-retirement benefits 375,405 327,911
Other 37,715 50,098
Deferred tax assets $1,853,107 $2,014,124
DEFERRED TAX LIABILITIES
Unrealized gain on available
for sale securities $ 273,178 $ 0
Deferred origination fees 93,233 0
Allowance for loan losses 127,965 127,965
Premises, furniture and equipment,
principally due to
differences in depreciation 370,776 404,055
Mortgage servicing rights 73,407 109,051
Cash surrender value of life insurance 36,386 36,386
Other 246,240 191,238
Deferred tax liabilities $1,221,185 $ 868,695
The Bank has sufficient refundable taxes paid in available carryback
years to fully realize its recorded deferred tax asset of $1,853,107 at
December 31, 2001. The deferred tax asset and liability are included
in other assets and other liabilities in the balance sheet at December
31, 2001 and 2000.
15. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory (and possibly
additional discretionary) actions by regulators that could have a
direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities
and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators regarding
components, risk weightings and other factors.
Quantitive measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios
(set forth in the following table) of total and Tier I capital (as
defined in the regulations) to risk weighted assets (as defined), and
of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 2001, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 2001, the most recent notification from the Federal
Reserve Board categorized the Bank as well capitalized under the
regulatory framework. To be so categorized, the Bank must maintain
minimum total risk based, Tier I risk based and Tier I leverage ratios
as set forth in the table. Management believes no conditions or events
that would alter the Bank's categorization have occurred since the
Board's notification.
The actual capital amounts and ratios for the Company and the Bank
as of December 31, 2001 and 2000 are presented in the table below:
December 31, 2001
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Consolidated $29,764,000 14.5% >$16,410,000 >8.0% >$20,513,000 >10.0%
Union Trust
Company $28,840,000 14.1% >$16,351,000 >8.0% >$20,439,000 >10.0%
Tier I capital
(to risk weighted assets)
Consolidated $27,198,000 13.3% >$ 8,205,000 >4.0% >$12,308,000 > 6.0%
Union Trust
Company $26,274,000 12.9% >$ 8,175,000 >4.0% >$12,263,000 > 6.0%
Tier I capital
(to average assets)
Consolidated $27,198,000 7.6% >$14,238,000 >4.0% >$17,798,000 > 5.0%
Union Trust
Company $26,274,000 7.4% >$14,209,000 >4.0% >$17,761,000 > 5.0%
December 31, 2000
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total capital (to risk weighted assets)
Consolidated $27,263,000 13.3% >$16,352,000 >8.0% >$20,401,000 >10.0%
Union Trust
Company $26,279,000 12.9% >$16,305,000 >8.0% >$20,381,000 >10.0%
Tier I capital
(to risk weighted assets)
Consolidated $24,705,000 12.1% >$ 8,176,000 >4.0% >$12,264,000 > 6.0%
Union Trust
Company $23,721,000 11.6% >$ 8,152,000 >4.0% >$12,229,000 > 6.0%
Tier I capital
(to average assets)
Consolidated $24,705,000 7.1% >$10,470,000 >3.0% >$17,450,000 > 5.0%
Union Trust
Company $23,721,000 6.8% >$10,452,000 >3.0% >$17,420,000 > 5.0%
The Company may not declare or pay a cash dividend on or repurchase any
of its capital stock if the effect thereof would cause the capital of the
Company to be reduced below the capital requirements imposed by the
Federal Reserve.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND
CONCENTRATION OF CREDIT RISK
In the normal course of business, the Bank is a party to financial
instruments with off-balance sheet risk to meet the financing needs
of its customers. These financial instruments include commitments to
extend credit and letters of credit. The instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the consolidated balance sheet. The contract amounts
of these instruments reflect the extent of involvement the Bank has
in particular classes of financial instruments. At December 31, 2001
and 2000, the following financial instruments, whose contract amounts
represent credit risk, were outstanding:
Contract Amount
2001 2000
Commitments to extend credit $35,550,000 $33,359,000
Standby letters of credit 86,000 51,000
Unadvanced portions of
construction loans 5,333,000 3,570,000
Total $40,969,000 $36,980,000
The Bank's exposure to credit loss in the event of nonperformance by
the other parties to the above financial instruments is represented
by the contractual amounts of the instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as
it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on
a case by case basis. The amount of collateral obtained, if deemed
necessary by the Bank upon the credit extension, is based on
management's credit evaluation of the counterparty. The types of
collateral held include residential and commercial real estate and,
to a lesser degree, personal property, business inventory and accounts
receivable.
Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party.
Expiration dates are usually within one year. The credit risk
involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers.
The Bank grants residential, commercial and consumer loans
principally to customers in Maine's Hancock, Washington, Waldo,
Knox and Lincoln counties. Although the loan portfolio is
diversified, a substantial portion of the debtors' ability to honor
their contracts depends upon local economic conditions, especially
in the real estate sector. At December 31, 2001, there were no
borrowers whose total indebtedness to the Bank exceeded regulatory limits.
The consolidated balance sheets do not include various contingent
liabilities such as liabilities for assets held in trust. Management
does not anticipate any loss as a result of these contingencies.
17. LITIGATION
At December 31, 2001, the Company was involved in litigation arising
from normal banking, financial and other activities of the Bank.
Management, after consultation with legal counsel, does not anticipate
that the ultimate liability, if any, arising out of these matters will
have a material effect on the Company's financial condition.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods and assumptions are set forth below
for the Bank's financial instruments. Fair values are calculated based
on the value of one unit without regard to any premium or discount
that may result from concentrations of ownership of a financial
instrument, possible tax ramifications or estimated transaction costs.
If these considerations had been incorporated into the fair value
estimates, the aggregate fair value amount could have changed.
Cash, Due from Banks and Federal Funds Sold
The fair value of cash, due from banks and federal funds sold
approximates their relative book values at December 31, 2001 and
2000, as these financial instruments have short maturities.
Available for Sale Securities and Held to Maturity Securities
Fair values are estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The
fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so
fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments
and the instruments being valued.
Loans
Fair values are estimated for portfolios of loans with similar
financial characteristics. Management has determined that the fair
value approximates book value on all loans with maturities of one
year or less or variable interest rates. The fair values of all other
loans are estimated based on bid quotations received from securities
dealers. The estimates of maturity are based on the Bank's historical
experience with repayments for each loan classification, modified, as
required, by an estimate of the effect of current economic and lending
conditions and the effects of estimated prepayments.
Loans Held for Sale
The fair value of this financial instrument approximates the book value
as the instrument has a short maturity.
Accrued Interest Receivable
The fair value of this financial instrument approximates the book value
as the instrument has a short maturity.
Other Investment Securities, Federal Home Loan Bank Stock and Federal
Reserve Bank Stock
The fair value of these financial instruments approximates the book
value as these instruments do not have a market, nor is it practical
to estimate their fair value without incurring excessive costs.
Cash Surrender Value Life Insurance
The fair value is based on the actual cash surrender value of life
insurance.
Deposits
Fair value of deposits with no stated maturity, such as noninterest
bearing demand deposits, savings deposits, NOW accounts and money
market and checking accounts, equals the amount payable on demand.
The fair values of certificates of deposit are based on the discounted
value of contractual cash flows. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
The fair value estimates do not include the benefit that results from
the low cost funding provided by the deposit liabilities compared to
the cost of borrowing funds in the market. If that value was considered,
the fair value of the Bank's net assets could increase.
Accrued Interest Payable
The fair value of this financial instrument approximates the book value
as the instrument has a short maturity.
Advances from Federal Home Loan Bank
The fair values of advances are estimated using discounted cash flow
analyses based on the Bank's current incremental borrowing rates for
similar types of borrowing arrangements.
Other Borrowed Funds
The carrying amount of borrowings under repurchase agreements maturing
within 90 days approximates their fair value.
Commitments to Extend Credit
The Bank has not estimated the fair values of commitments to originate
loans due to their short-term nature and their relative immateriality.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These values do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no market
exists for a significant portion of the Company's financial instruments,
fair value estimates are based on judgments regarding future expected
loss, current economic conditions, risk characteristics of various
financial instruments and other factors. These estimates are subjective
in nature and involve uncertainties and matters of significant judgment,
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. The latter may include
deferred tax assets, bank premises and equipment and other real estate
owned. In addition, tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair
value estimates and have not been considered in any of the estimates.
A summary of the fair values of the Company's significant financial
instruments at December 31, 2001 and 2000 follows:
2001 2000
Carrying Estimate of Carrying Estimate of
Value Fair Value Value Fair Value
ASSETS
Cash, due from banks
and federal funds sold $ 21,865,732 $ 21,865,732 $ 10,353,478 $ 10,353,478
Available for sale
securities 94,403,282 94,403,282 101,138,345 101,138,345
Held to maturity
securities 3,526,626 3,586,393 3,851,461 3,830,300
Other investment
securities 5,039,950 5,039,950 4,968,350 4,968,350
Loans 208,114,745 206,490,000 201,554,694 201,750,000
Loans held for sale 2,774,179 2,774,179 320,125 320,125
Accrued interest
receivable 2,128,351 2,128,351 2,592,044 2,592,044
Cash surrender value
life insurance 7,442,277 7,442,277 6,578,656 6,578,656
LIABILITIES
Deposits 267,907,126 268,862,000 245,580,717 245,676,000
Accrued interest payable 887,426 887,426 1,220,287 1,220,287
Advances from Federal
Home Loan Bank 41,957,641 43,130,000 51,123,250 51,123,250
Other borrowed funds 12,135,398 12,135,398 15,079,311 15,079,311
INSERT PHOTO OF ANNETTE M. RUSSELL
ANNETTE M. RUSSELL
FINANCIAL PLANNER
Ms. Russell is responsible for delivering fee-only financial
planning services directly to customers. This includes all stages
of the planning process, from conducting the initial interview and
gathering information to forming comprehensive strategies to help
customers achieve their goals. Ms. Russell prides herself in being
the one advisor that customers consult first about important
financial decisions or a serious business problem.
Ms. Russell has worked in the financial services industry, serving the
Downeast area, since 1992. She has completed several courses in
financial management at the University of Maine at Orono, in addition
to earning many diplomas and degrees specific to the financial services
industry. Ms. Russell is a native of Maine and joined Union Trust in
2000.
19. PARENT-ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of Union Bankshares Company as of
December 31, 2001 and 2000 and for each of the years ended December
31, 2001, 2000 and 1999 are presented as follows:
BALANCE SHEETS
December 31, 2001 and 2000 2001 2000
ASSETS
Cash $ 330,854 $ 354,375
Investment in subsidiary 26,729,355 23,488,599
Core deposit intangible 260,977 307,619
Goodwill 6,145,130 6,572,652
Other assets 1,037,263 685,176
Total assets $34,503,579 $31,408,421
LIABILITIES AND SHAREHOLDERS' EQUITY
Dividends payable $ 317,622 $ 288,747
Other liabilities 49,602 0
Shareholders' equity 34,136,355 31,119,674
Total liabilities and
shareholders' equity $34,503,579 $31,408,421
STATEMENTS OF INCOME
Years ended December 31, 2001, 2000, and 1999
2001 2000 1999
Dividend income $ 1,224,900 $ 14,704,600 $1,149,726
Equity in undistributed
earnings of subsidiary (1) 2,523,002 (11,519,371) 2,214,170
Other income 12,836 11,754 0
Total income 3,760,738 3,196,983 3,363,896
Operating expenses 534,566 196,490 9,174
Net income $ 3,226,172 $ 3,000,493 $3,354,722
(1) Amount in parenthesis represents the excess of dividends over
net income of subsidiary.
STATEMENTS OF CASH FLOWS
Years ended December 31, 2001, 2000 and 1999
2001 2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $3,226,172 $3,000,493 $3,354,722
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Undistributed earnings of
subsidiary (2,523,002) 11,519,371 (2,214,170)
Goodwill amortization 498,307 162,406 0
(Increase) decrease in
other assets (23,426) 156,367 (48,000)
Net cash provided by
operating activities 1,178,051 14,838,637 1,092,552
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs (24,144) (1,560,759) 0
Cash paid to Mid-Coast stockholders
in connection with
Mid-Coast acquisition 0 (11,809,047) 0
Cash received through Mid-Coast
acquisition 0 21,698 0
Net cash used by investing activities (24,144) (13,348,108) 0
CASH FLOWS FROM FINANCING ACTIVITIES
Payment to eliminate
fractional shares 0 0 (33,126)
Dividends paid (1,184,021) (1,155,552) (1,059,938)
Purchase of treasury stock (40,906) (85,260) (80,468)
Sale of treasury stock 47,499 55,023 60,417
Net cash used by financin
activities (1,177,428) (1,185,789) (1,113,115)
Net increase (decrease) in cash (23,521) 304,740 (20,563)
Cash at beginning of year 354,375 49,635 70,198
Cash at end of year $ 330,854 $ 354,375 $ 49,635
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Net increase (decrease) in net
unrealized gain (loss)
on available for sale securities $ 996,812 $ 1,661,802 $(3,290,356)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have audited the accompanying consolidated balance sheets of
Union Bankshares Company and Subsidiary as of December 31, 2001 and
2000, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with U.S. generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above represent
fairly, in all material respects, the consolidated financial position
of Union Bankshares Company and Subsidiary as of December 31, 2001
and 2000, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period
ended December 31, 2001 in conformity with U.S. generally accepted
accounting principles.
Berry, Dunn, McNeil & Parker
Portland, Maine
January 18, 2002
UNION BANKSHARES COMPANY &
UNION TRUST COMPANY DIRECTORS
Arthur J. Billings
President, Barter Lumber Company
Peter A. Blyberg
President
Robert S. Boit
Retired, Former President
Blake B. Brown
President & Owner, Brown's Appliance and TV
Richard C. Carver
Owner, Carver Oil Co. & Carver Shellfish
Peter A. Clapp
President, Blue Hill Garage
Samuel G. Cohen
Attorney, Cohen & Cohen
Sandra H. Collier
Attorney at Law, Sandra Hylander Collier Law Offices
Robert B. Fernald
Treasurer, A. C. Fernald Sons, Inc. & Jordan Fernald
Douglas A. Gott
Owner, Douglas A. Gott & Sons
James L. Markos, Jr.
General Manager, Maine Shellfish Company, Inc.
John V. Sawyer II
Chairman of the Board; Retired President,
Worcester-Sawyer Agency
Stephen C. Shea
Treasurer, E. L. Shea, Inc.; President, Shea Leasing
Robert W. Spear
Commissioner of Agriculture - State of Maine
Richard W. Teele
Secretary; Retired Former Executive Vice
President & Treasurer
Paul L. Tracy
President, Owner, Winter Harbor Agency; Vice President,
Co-Owner, Schoodic Insurance Agency;
Vice President, Co-Owner, MDI Insurance Agency;
Co-Owner, Grindstone Financial Group LLC
Co-Owner, Insurance Source of ME
UNION BANKSHARES COMPANY
DIRECTORY OF OFFICERS
John V. Sawyer II
Chairman of the Board
Peter A. Blyberg
President
John P. Lynch
Executive Vice President
Peter F. Greene
Senior Vice President
Sally J. Hutchins
Senior Vice President & Clerk
Rebecca J. Sargent
Senior Vice President, Senior Trust Officer
Richard W. Teele
Secretary
UNION BANKSHARES COMPANY
& UNION TRUST COMPANY
HONORARY DIRECTORS
Franklin L. Beal
Retired
David E. Honey
Retired, Former Manager Swan's Island Electric Co-op
Delmont N. Merrill
President, Merrill Blueberry Farms, Inc.
Thomas R. Perkins
Retired Pharmacy Owner, Retired Maine Legislator (Senator),
Retired Legislative Liaison MSHA
John E. Raymond
President, Bimbay, Inc.
Casper G. Sargent, Jr.
Owner, Sargent's Real Estate Corp.
Mary T. Slaven
Realtor
Douglas N. Smith
Retired
I Frank Snow
Retired
Richard W. Whitney
Dentist
UNION TRUST COMPANY
DIRECTORY OF OFFICERS
John V. Sawyer II
Chairman of the Board
Peter A. Blyberg
President, Chief Executive Officer
John P. Lynch
Executive Vice President, Senior Banking Officer
Robert E. Carter
Senior Vice President, Branch Administrator
Peter F. Greene
Senior Vice President, Senior Bank Services Officer
Sally J. Hutchins
Senior Vice President, Treasurer & Clerk
Rebecca J. Sargent
Senior Vice President, Senior Trust Officer
Edwin Bonenfant
Vice President, Investment Officer
Janis Guyette
Vice President, Trust Operations Officer
David A. Krech
Vice President, Investment Officer
Bonnie Lash
Vice President, Relationship Manager
John Muth
Vice President, Relationship Manager
Bette B. Pierson
Vice President, Mortgage Loan Officer
Geddes Simpson, Jr.
Vice President, Trust Officer
Craig Worcester
Vice President, Financial Services Officer
Michelle Bannister
AVP, Training and Development Officer
James M. Callnan
AVP, Senior Information Services Officer
Paul Doody
AVP, Relationship Manager
Debra A. Ehrlenbach
AVP, Auditor
Laurence D. Fernald, Jr.
AVP, Appraisal Review and Loan Officer
Lynda C. Hamblen
AVP, Relationship Manager
Phyllis C. Harmon
AVP, Relationship Manager
Patti S. Herrick
AVP, Information Services Officer
Mary Lou Lane
AVP, Mortgage Underwriter Officer
Kathe Marion-Gallant
AVP, Underwriter
Peter C. O'Brien
AVP, Underwriter and CRA Officer
Lorraine S. Ouellette
AVP, Trust Officer
Catherine M. Planchart
AVP, Marketing Officer
Deborah F. Preble
AVP, Controller
Sandy Salsbury
AVP, Human Resource Officer
Susan A. Saunders
AVP, Project Management Officer
Stephen L. Tobey
AVP, Security Officer
Tina Torres-York
AVP, Relationship Manager
Linda Carter
Deposit Services Officer
Helen J. Condon
Electronic Commercial Banking Officer
Patricia Ellis
Assistant Treasurer
Ronald Hamilton
Financial Consultant
Sylvia Joy
Trust Officer
Jeannie Merchant
Electronic Services Officer
Cynthia Pinkham
Teller Services Officer
Bonnie Poland
Loan Services Officer
Diane Rimm
Operations Manager, Cornerstone
Annette Russell
Financial Planning Officer
Scott Shields
Financial Planning Officer
Brenda Strout
Trust Officer
Tina St. Pierre
Collections Officer
UNION TRUST COMPANY OFFICES
Bar Harbor
Christopher H. Keefe
Vice President, Senior Relationship Manager
Belfast
Pamela Dalfonso
Relationship Manager
Blue Hill
Pamela G. Fowler
AVP, Relationship Manager
Dianne Thompson
Assistant Branch Manager
Castine
Pamela G. Fowler
AVP, Relationship Manager
Cherryfield
James E. Haskell
AVP, Relationship Manager
Ellsworth Shopping Center
Melody L. Wright
Branch Manager
Jefferson
Dianne Lawrence
AVP, Branch Manager
Jonesport
Wendy W. Beal
AVP, Relationship Manager
Machias
Lisa A. Holmes
AVP, Relationship Manager
Milbridge
James E. Haskell
AVP, Relationship Manager
Rockland
Jane Dagley
AVP, Relationship Manager
Somesville
Andrea G. Leonard
Vice President, Relationship Manager
Stonington
Harry R. Vickerson III
AVP, Relationship Manager
Waldoboro
April Murray
Branch Manager
UNION TRUST COMPANY PERSONNEL
Allen, Deborah
Allen, Tabatha
Armstrong, Rebecca
Austin, Lois
Babson, William
Batson, Harold
Bayrd, Rona
Billings, Holly
Bonville, Melissa
Bragg, Randy
Brooks, Wendy
Calise, Sarah
Carter, Glendon
Carter, Khristy
Carver, Lisa
Chapman, Emily
Chatto, Elizabeth
Clark, Theresa
Cole, Richard
Colson, Sylvia
Cook, Diana
Curtis, Kristen
Davis, Rachael
Davis, Sharon
Day, Francis
Dillon, Patricia
Dorr, Peggy
Douglass, Joanne
Edgecomb, Deborah
Emery, Sherry
Faulkner, Kathy
Foss, John
Gaul, Judith
Gellerson, Tracy
Geyer, Courtney
Grant, Victoria
Gray, Shelley
Grindle, Eugene
Grover, Jennifer
Hale, Roberta
Hall, Maria
Handy, Louise
Hennigan, Robin
Hills, Darlene
Hinkel, Scott
Huckins, Heidi
Hustus, Gayle
Hutchins, Rebecca
Hutchinson, Elwell
Ingalls, Laurea
Jewell, Beth
Johnson, Mindy
Kalloch, Debra
Kaspala, Tammy
Kelley, Cindy
Kimball, Brandi
Leonard, Kathy
Libby, Gretta
Look, Cheryl
Look, Lisa
MacLaughlin, Wendy
Madden, Anita
Madore, Jennifer
Marshall, Carol
McCormick, Bernadette
McHenan, Regina
Merritt, Caroline
Norton, Clifford III
Otis-Anderson, Sandra
Owen, Doris
Pace, Crystal
Philbrook, Michelle
Pineo, Muriel
Podlubny, Helene
Reardon, Rhonda
Reese, Nancy
Richardson, Candice
Salisbury, Jane
Sargent, Lucinda
Sargent, Tammy
Sawyer, Donna
Scott, Marsha
Servetas, Dana
Shields, Valerie
Silverman, Mary
Sinford, Nicole
Sinford, Stacey
Spaulding, Virginia
Spear, Annette
Sprague, Donna
Sproul, Bonnie
Sprowl, Kelly
Storer, Jessica
Strout, Jessica
Swett, Andrea
Thibodeau, Mary
Tracy, Deborah
Treadwell, Mattie
Tripp, Jody
Tucker, Nancy
Tyler, Kimberly
Vittum, Julie
Waldrop, Sonja
Wallace, Jayne
Wilson, Janice
Wilson, Stephanie
Woodward, Cheryl
Worster, Nancy
Youngblood, Mary
Union Trust Company is committed to offering equal opportunity in regard to
employment, training, benefits, salary administration and promotional
opportunities to all employees, regardless of race, color, religion, sex, age
or national origin. The Bank has implemented an Affirmative Action Plan.
Upon written request, the Company will provide, without charge, a copy of its
2001 Annual Report on SEC Form 10K, including the financial statements and
schedules required to be filed with the Securities and Exchange Commission.
Interested persons should write to:
Sally J. Hutchins, Senior Vice President
Union Bankshares Company
P.O. Box 479
Ellsworth, Maine 04605