UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 2-90679
UNION BANKSHARES COMPANY
------------------------
(Exact name of registrant as specified in its charter)
MAINE 01-0395131
----- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
66 Main Street, Ellsworth, Maine
--------------------------------
(Address of Principal Executive Offices)
(Zip Code)
04605
-----
Registrant's telephone number, including area code
(207) 667-2504
--------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
----- -----
Indicate the number of shares outstanding of each of the issue's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 16, 2002
----- -------------------------------
(Common stock, $12.50 Par Value) 574,832
1
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART 1 Financial Information Page No.
- ------ --------------------- --------
Item 1 Financial Statements (Unaudited)
Independent Accountants' Report 3
Consolidated Balance Sheets -
September 30, 2002, September 30, 2001
and December 31,2001 4
Consolidated Statements of Income -
nine months ended September 30, 2002
and September 30, 2001 three months ended September
30, 2002 and September 30, 2001 5-6
Consolidated Statements of Cash Flows -
nine months ended September 30, 2002
and September 30, 2001 7
Consolidated Statements of Changes in Shareholders'
Equity - nine months ended September 30, 2002
and September 30, 2001 8
Notes to Consolidated Financial Statements 9-11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 18
Item 4 Controls and Procedures 18
PART II Other Information
- ------- -----------------
Item 1: Legal Proceedings 19
Item 2: Changes in Securities 19
Item 3: Defaults Upon Senior Securities 19
Item 4: Submission of Matters to a Vote of Security Holders 19
Item 5: Other Information 19
Item 6: Exhibits and Reports on Form 8-K 19
2
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors and Shareholders
Union Bankshares Company
We have reviewed the accompanying interim consolidated financial
information of Union Bankshares Company and Subsidiary as of September 30,
2002 and 2001, and for the three- and nine-month periods then ended. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit in accordance with U.S. generally accepted auditing
standards, the objective of which is to express an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with U.S. generally accepted accounting principles.
Berry Dunn McNeil & Parker
Portland, Maine
November 1, 2002
3
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30 September 30 December 31
2002 2001 2001
(Unaudited) (Unaudited) (Audited)*
----------- ----------- -----------
<s> <c> <c> <c>
ASSETS
- ------
Cash and due from banks $ 12,541,584 $ 14,413,469 $ 12,940,420
Federal funds sold 14,250,798 11,062,850 8,925,312
------------ ------------ ------------
Cash and cash equivalents 26,792,382 25,476,319 21,865,732
Available for sale securities 106,046,485 86,861,107 97,177,461
Held to maturity securities, at cost 3,419,665 3,629,572 3,526,626
Other investment securities, at cost 6,800,197 5,039,950 5,039,950
Loans (net of deferred fees) 226,583,268 213,691,695 211,567,990
Less: Allowance for loan losses 3,711,834 3,501,146 3,453,245
------------ ------------ ------------
Net Loans 222,871,434 210,190,549 208,114,745
------------ ------------ ------------
Premises, furniture & equip, net 6,114,010 6,562,462 6,372,705
CSV life insurance 7,690,578 6,794,202 7,442,278
Core deposit intangible 225,920 272,662 260,977
Goodwill 6,305,130 6,418,231 6,305,130
Other assets 6,050,181 6,271,741 5,897,452
------------ ------------ ------------
Total Assets $392,315,982 $357,516,795 $362,003,056
============ ============ ============
LIABILITIES
- -----------
Deposits:
Demand $ 42,087,553 $ 34,743,850 $ 35,218,551
Savings and money market 144,554,343 127,810,328 128,075,134
Time 101,353,781 105,875,709 104,613,441
------------ ------------ ------------
Total Deposits 287,995,677 268,429,887 267,907,126
------------ ------------ ------------
Borrowed funds 47,834,479 37,115,134 41,957,641
Sweep repurchase 11,208,874 11,955,838 12,135,398
Accrued expenses & other liabilities 7,248,023 5,805,458 5,866,536
------------ ------------ ------------
Total Liabilities $354,287,053 $323,306,317 $327,866,701
============ ============ ============
Commitments (Note E)
SHAREHOLDERS' EQUITY
- --------------------
Common Stock, $12.50 par value.
Authorized 1,200,000 shares, issued
582,394 shares in 2002 and 2001. $ 7,279,925 $ 7,279,925 $ 7,279,925
Surplus 3,963,116 3,963,116 3,963,116
Retained Earnings 25,163,437 21,933,672 22,695,422
Accumulated Other Comprehensive Income
Net Unrealized Gain on Securities
Available for Sale 2,157,602 1,366,162 530,290
Less: Treasury Stock (7,562 shares as
of September 30, 2002, 4,899 shares as of
September 30, 2001 and 4,899 shares as of
December 31, 2001) 535,151 332,397 332,398
------------ ------------ ------------
Total Shareholders' Equity $ 38,028,929 $ 34,210,478 $ 34,136,355
------------ ------------ ------------
Total Liabilities & Shareholders' Equity $392,315,982 $357,516,795 $362,003,056
============ ============ ============
<FN>
* Condensed from audited financial statements
</FN>
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
4
UNION BANKSHARES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended - September 30,
---------------------------------
2002 2001
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans $11,958,985 $12,808,670
Interest and Fees on Municipal Loans and Bonds 757,833 855,371
Interest and Dividends on Securities 3,754,884 3,962,671
Interest on Federal Funds Sold 54,750 108,864
Amortization & Accretion - Net (453,934) 79,233
----------- -----------
Total Interest and Dividend Income 16,072,518 17,814,809
----------- -----------
INTEREST EXPENSE
Interest on Deposits 3,505,645 5,945,148
Interest on Funds Purchased/Borrowed 1,908,414 2,345,346
----------- -----------
Total Interest Expense 5,414,059 8,290,494
----------- -----------
NET INTEREST INCOME 10,658,459 9,524,315
Provision for Loan Losses 270,000 225,000
----------- -----------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 10,388,459 9,299,315
----------- -----------
NONINTEREST INCOME
Net Securities Gains (Losses) 20,503 (27,820)
Exchange, Commission & Fees 1,020,939 955,475
Financial Services 1,164,221 960,998
Loan Department Income 887,869 568,524
Visa Income 720,751 711,438
Other Income 481,520 391,550
----------- -----------
Total Noninterest Income 4,295,803 3,560,165
----------- -----------
NONINTEREST EXPENSE
Salaries and Employee Benefits 5,187,430 4,747,315
Building Maintenance & Operations 663,217 642,269
FDIC Insurance 45,212 46,185
Miscellaneous Losses 42,385 10,305
Other Expenses 3,860,881 4,407,605
----------- -----------
Total Noninterest Expense 9,799,125 9,853,679
----------- -----------
INCOME BEFORE TAXES 4,885,137 3,005,801
Income Taxes 1,465,000 859,000
----------- -----------
NET INCOME $ 3,420,137 $ 2,146,801
=========== ===========
Weighted Average Shares 576,418 577,517
Per Share Data:
Net Income $ 5.93 $ 3.72
Dividends Declared $ 1.65 $ 1.55
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
5
UNION BANKSHARES COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended-September 30,
--------------------------------
2002 2001
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans $3,977,015 $4,223,828
Interest and Fees on Municipal Loans and Bonds 243,149 295,391
Interest and Dividends on Securities 1,290,683 1,186,836
Interest on Federal Funds Sold 25,727 24,652
Amortization & Accretion - Net (147,609) (17,432)
---------- ----------
Total Interest and Dividend Income 5,388,965 5,713,275
---------- ----------
INTEREST EXPENSE
Interest on Deposits 1,122,479 1,763,337
Interest on Funds Purchased/Borrowed 684,575 674,848
---------- ----------
Total Interest Expense 1,807,054 2,438,185
---------- ----------
NET INTEREST INCOME 3,581,911 3,275,090
Provision for Loan Losses 90,000 75,000
---------- ----------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 3,491,911 3,200,090
---------- ----------
NONINTEREST INCOME
Net Securities Gains (Losses) 26,947 (27,820)
Exchange, Commission & Fees 372,322 304,271
Financial Services 415,404 327,789
Loan Department Income 294,205 179,785
Visa Income 369,414 375,760
Other Income 157,246 182,951
---------- ----------
Total Noninterest Income 1,635,538 1,342,736
---------- ----------
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,690,335 1,562,872
Building Maintenance & Operations 218,453 203,196
FDIC Insurance 10,658 11,021
Miscellaneous Losses 42,385 10,305
Other Expenses 1,385,235 1,624,049
---------- ----------
Total Noninterest Expense 3,347,066 3,411,443
---------- ----------
INCOME BEFORE TAXES 1,780,383 1,131,383
Income Taxes 515,000 317,000
---------- ----------
NET INCOME $1,265,383 $ 814,383
========== ==========
Weighted Average Shares 575,432 577,495
Per Share Data:
Net Income $ 2.20 $ 1.41
Dividends Declared $ .55 $ .55
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
6
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
2002 2001
---- ----
<s> <c> <c>
Net Cash Flows Provided by Operating Activities:
Net Income $ 3,420,137 $ 2,146,801
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 611,340 1,017,665
Provision for loan losses 270,000 225,000
Gain on sale of equipment (953) (684)
Net securities (gains)/losses (20,503) 27,820
Net change in other assets (1,239,341) (1,243,718)
Net change in other liabilities 1,381,489 466,284
Net amortization of premium (accretion of
discount) on investments 453,934 (79,233)
Net change in deferred loan origination fees (11,258) 12,423
Origination of loans held for sale (26,989,162) (17,304,247)
Proceeds from loans held for sale 27,215,510 15,522,728
------------ ------------
Total adjustments 1,671,056 (1,355,962)
------------ ------------
Net cash provided by operating activities 5,091,193 790,839
------------ ------------
Cash Flows From Investing Activities:
Purchase of securities available for sale (31,145,310) (23,545,115)
Purchase of securities held to maturity (102,004) (107,464)
Proceeds from sales of securities available for sale 7,264,765 9,645,522
Proceeds from sale of equipment 1,000 8,000
Proceeds from calls or maturities of securities available
for sale 15,179,256 32,922,039
Proceeds from maturities of securities held to maturity 200,000 320,000
Net change in loans to customers (15,128,605) (8,873,278)
Increase in other assets 0 (24,144)
Capital expenditures (317,635) (842,458)
------------ ------------
Net cash provided by (used in) investing activities (24,048,533) 9,503,102
------------ ------------
Cash Flows From Financing Activities:
Net decrease in other borrowed funds (926,524) (4,580,473)
Net increase/(decrease) in advances from FHLB 5,876,838 (12,551,116)
Net increase in demand, savings and money market accounts 24,610,479 24,439,283
Net decrease in time deposits (4,521,928) (1,590,113)
Purchase of treasury stock (345,989) (40,906)
Proceeds from sale of treasury stock 143,236 47,500
Dividends paid (952,122) (895,275)
------------ ------------
Net cash provided by financing activities 23,883,990 4,828,900
------------ ------------
Net increase in cash and cash equivalents 4,926,650 15,122,841
Cash and cash equivalents at beginning of year 21,865,732 10,353,478
------------ ------------
Cash and cash equivalents at end of period $ 26,792,382 $ 25,476,319
============ ============
Supplemental Schedule of Non-Cash Investing and Financing Activities
2002 2001
---- ----
<s> <c> <c>
Net change as a result of adopting Statement
of Financial Accounting Standards No. 115
Available for sale securities $ 2,465,624 $ 2,635,043
Deferred income tax liability (838,312) (802,359)
------------ ------------
Net unrealized gain on available for sale securities $ 1,627,312 $ 1,832,684
In 2002, the Company converted construction in process costs totaling
$69,509 to premises of the same amount.
In 2002, the Company transferred $113,174 from the Loans Held for Sale
portfolio to the loan portfolio.
In 2001, the Company converted construction in process costs totaling
$421,340 to premises of the same amount. In addition, the Company disposed
of assets with a cost of $77,662 and accumulated depreciation of $77,662.
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
7
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 2002 and 2001
(Unaudited)
ACCUMULATED
OTHER
COMPREHENSIVE SHARE-
COMMON TREASURY RETAINED INCOME HOLDERS'
STOCK SURPLUS STOCK EARNINGS (LOSS) EQUITY
<s> <c> <c> <c> <c> <c> <c>
Balance at December 31, 2000 $7,279,925 $3,963,472 $ (339,347) $20,682,146 $ (466,522) $31,119,674
Net income, nine months ended
September 30, 2001 0 0 0 2,146,801 0 2,146,801
Change in net unrealized gain on
available for sale securities, net of
tax of $802,359 0 0 0 0 1,832,684 1,832,684
---------- ---------- ---------- ----------- ----------- -----------
Total comprehensive income 0 0 0 2,146,801 1,832,684 3,979,485
Sale of 563 shares Treasury stock 0 (356) 47,856 0 0 47,500
Repurchase of 562 shares Treasury stock 0 0 (40,906) 0 0 (40,906)
Cash dividends declared 0 0 0 (895,275) 0 (895,275)
---------- ---------- ---------- ----------- ----------- -----------
Balance at September 30, 2001 $7,279,925 $3,963,116 $ (332,397) $21,933,672 $ 1,366,162 $34,210,478
---------- ---------- ---------- ----------- ----------- -----------
Balance at December 31, 2001 $7,279,925 $3,963,116 $ (332,398) $22,695,422 $ 530,290 $34,136,355
Net income, nine months ended
September 30, 2002 0 0 0 3,420,137 0 3,420,137
Change in net unrealized gain on
available for sale securities, net of
tax of $838,312 0 0 0 0 1,627,312 1,627,312
---------- ---------- ---------- ----------- ----------- -----------
Total comprehensive income 0 0 0 3,420,137 1,627,312 5,047,449
Sale of 2,149 shares Treasury stock 0 0 143,236 0 0 143,236
Repurchase of 4,812 shares Treasury
stock 0 0 (345,989) 0 0 (345,989)
Cash dividends declared 0 0 0 (952,122) 0 (952,122)
---------- ---------- ---------- ----------- ----------- -----------
Balance at September 30, 2002 $7,279,925 $3,963,116 $ (535,151) $25,163,437 $ 2,157,602 $38,028,929
========== ========== ========== =========== =========== ===========
8
Notes to Consolidated Financial Statements
------------------------------------------
Unaudited
---------
(A) Basis of Presentation
---------------------
The accompanying consolidated financial statements of Union Bankshares
Company (the "Company") and its subsidiary, Union Trust Company (the
"Bank"), as of September 30, 2002 and 2001 and for the three- and nine
month periods then ended are unaudited. However, in the opinion of the
Company, all adjustments consisting of normal, recurring accruals necessary
for a fair presentation have been reflected therein. Interim results are
not necessarily indicative of results to be expected for the entire year.
Certain financial information which is normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but which is not required for interim reporting purposes, has
been omitted. The accompanying consolidated financial statements should be
read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended December 31, 2001.
(B) Earnings Per Share
------------------
Earnings per common share are computed by dividing the net income available
for common stock by the weighted average number of common shares
outstanding during this period.
(C) Intangible Assets
-----------------
The Company has goodwill with a carrying amount of $6,305,130 and
$6,418,231 as of September 30, 2002 and 2001, respectively and $6,305,130
as of December 31, 2001. Upon adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets", on January 1, 2002, amortization of goodwill was discontinued and
the goodwill is evaluated for impairment at least annually. Prior to the
adoption of SFAS No. 142, goodwill was amortized on a straight-line basis
over 15 years.
Following is the effect on net income and earnings per share had
amortization of goodwill not been recorded in each period presented.
<CATION>
For the nine months ended For the three months ended
September 30, 2002 September 30, 2001 September 30, 2002 September 30, 2001
------------------- ------------------- ------------------- -------------------
<s> <c> <c> <c> <c>
Reported net income $3,420,137 $2,146,801 $1,265,383 $814,383
Add: Goodwill amortization 0 338,565 0 113,101
---------- ---------- ---------- --------
Adjusted net income $3,420,137 $2,485,366 $1,265,383 $927,484
Earnings per share:
Reported $ 5.93 $ 3.72 $ 2.20 $ 1.41
Add: Goodwill amortization .00 .59 .00 .20
---------- ---------- ---------- --------
Adjusted $ 5.93 $ 4.31 $ 2.20 $ 1.61
The Company has an intangible asset subject to amortization related to the
acquisition of a bank in 2000. The core deposit intangible is being
amortized on a straight-line basis over 7 years, and reviewed for possible
impairment when it is determined that events or changed circumstances may
affect the underlying basis of the asset. The carrying amount is as
follows:
September 30, 2002 September 30, 2001 December 31, 2001
------------------- ------------------- -----------------
<s> <c> <c> <c>
Core deposit intangible, cost $323,000 $323,000 $323,000
Accumulated amortization 97,080 50,338 62,023
-------- -------- --------
Core deposit intangible, net $225,920 $272,662 $260,977
Amortization expense related to the core deposit intangible for the nine
months ended September 30, 2002 and 2001 amounted to $35,057 and $34,957,
respectively. Amortization expense for each of the three month periods
ended September 30, 2002 and 2001 amounted to $11,686. The expected
amortization expense for each year in the five-year period ending December
31, 2006 is estimated to be $46,744.
9
(D) Comprehensive Income
--------------------
Total comprehensive income was $2,926,793 and $3,499,958 for the three
months ended September 30, 2002 and 2001, respectively, and $5,047,449 and
$3,979,485 for the nine months ended September 30, 2002 and 2001,
respectively.
(E) Off-Balance Sheet Items
-----------------------
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 balance
sheet. The contract amounts of these instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
At September 30, 2002, and September 30, 2001, the following financial
instruments, whose contract amounts represent credit risk, were
outstanding.
September 30
(000's omitted)
2002 2001
---- ----
<s> <c> <c>
1. Unused Commitments:
-------------------
A. Revolving, open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines $ 8,687 $ 7,221
B. Credit card lines 6,347 6,493
C. Secured real estate loans 15,155 11,402
D. Other 23,869 16,114
2. Financial Standby Letters of Credit: 217 86
------------------------------------
(F) Regulatory Agencies
-------------------
The Bank's primary regulators are the Federal Reserve Bank of Boston and,
as a state chartered bank, the Bureau of Financial Institutions of the
State of Maine.
(G) Classified Loans
----------------
Any loans classified for regulatory purposes as loss, doubtful, substandard
or special mention that were not disclosed under Item III of Securities and
Exchange Commission Industry Guide 3 do not (1) represent or result from
trends or uncertainties which management reasonably expects will materially
impact future operating results, liquidity or capital resources or (2)
represent material credits about which management is aware of any
information which causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
(H) Impact of Inflation and Changing Prices
---------------------------------------
The Consolidated Financial Statements 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 considering changes in the relative purchasing power of money over
time due to inflation.
Unlike many industrial companies, substantially all of the assets and
liabilities of the Company are financial in nature. As a result, interest
rates have a more significant impact on the Company's performance than 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.
(I) Recent Accounting Developments
------------------------------
Statement of Position (SOP) 01-6, "Accounting by Certain Entities
(Including Entities with Trade Receivables) That Lend to or Finance the
Activities of Others," was issued in December 2001. The SOP is effective
for financial statements issued for fiscal years beginning after December
15, 2001. The SOP reconciles and conforms the accounting and financial
reporting provisions established by various Audit and Accounting Industry
Guides. The adoption of this statement did not affect the Company's
consolidated financial condition and results of operations.
10
SFAS No. 147, "Acquisitions of Certain Financial Institutions" amends SFAS
72, "Accounting for Certain Acquistitions of Banking or Thrift
Institutions" to exclude from its scope most acquisitions of financial
institutions. Such transactions should be accounted for in accordance with
SFAS No. 141, "Business Combinations". SFAS No 147 is effective on October
1, 2002. SFAS No. 147 does not affect the Company's consolidated financial
condition and results of operations.
(J) Stock Repurchase Plan
---------------------
On April 10, 2002, the Board of Directors voted to authorize the Company to
purchase up to 28,850 shares or approximately 5% of its outstanding common
stock. The authority may be exercised from time to time and in such
amounts as market condition warrants. Any purchases are intended to make
appropriate adjustments to the Company's capital structure, including
meeting share requirements related to employee stock purchase plans and for
general corporate purposes. The Company repurchased 1,651 shares as part
of this plan during the third quarter of 2002 at an average price of
$83.00.
(K) Reclassification
----------------
Certain items from the prior year were reclassified on the financial
statements to conform with the current year presentation. The
reclassifications do not have a material impact to the balance sheet and
income statement presentation.
11
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
- ---------------------------------------------------------------------------
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. The Company and the Bank disclaim any
obligation to publicly announce future events or developments which may
affect the forward-looking statements contained herewith.
Critical Accounting Policies
- ----------------------------
Management's discussion and analysis of the Company's financial condition
are based on the consolidated financial statements which are prepared in
accordance with accounting principles generally accepted in the United
States. The preparation of such financial statements requires management
to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosure of
contingent assets and liabilities. On an ongoing basis, management
evaluates its estimates, including those related to the allowance for loan
losses. Management bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis in making judgments
about the carrying values of assets that are not readily apparent from
other sources. Actual results could differ from the amount derived from
management's estimates and assumptions under different assumptions or
conditions.
Management believes the allowance for loan losses is a critical accounting
policy that requires the most significant estimates and assumptions used in
the preparation of the consolidated financial statements. The allowance
for loan losses is based on management's evaluation of the level of the
allowance required in relation to the estimated loss exposure in the loan
portfolio. Management believes the allowance for loan losses is a
significant estimate and therefore regularly evaluates it for adequacy by
taking into consideration factors such as prior loan loss experience, the
character and size of the loan portfolio, business and economic conditions
and management's estimation of potential losses. The use of different
estimates or assumptions could produce different provisions for loan
losses.
Earnings and Performance Overview
- ---------------------------------
The following discussion compares the financial condition of Union
Bankshares Company (the "Company") and its wholly owned subsidiary, Union
Trust Company (the "Bank"), at September 30, 2002 to December 31, 2001, and
the results of operations for the three- and nine months ended September
30, 2002, compared to the same periods in 2001. This discussion and
analysis should be read in conjunction with the unaudited consolidated
financial statements and related notes thereto included within this report.
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; noninterest income,
12
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. Net income for the first three quarters of 2002 was
$3,420,137, or $5.93 per share, a 59.3% increase compared to $2,146,801, or
$3.72 per share for the first three quarters of 2001. The increase was
primarily a result of an increase in net interest income of $1,134,144, an
increase in noninterest income of $735,638 and a decrease in goodwill
amortization expense offset by a slight increase in noninterest expense and
an increase in the provision for income taxes of $606,000. Upon adoption
of SFAS No. 142, "Goodwill and Other Intangible Assets," on January 1,
2002, amortization of goodwill was discontinued. As a result, amortization
charged to operations for the nine months ended September 30, 2002 was
$35,057, as compared to $373,521 for the nine months ended September 30,
2001. The Bank expects this trend to continue throughout 2002. Net income
for the third quarter of 2002 was $1,265,383, or $2.20 per share, a 55.4%
increase compared to $814,383 or $1.41 per share for the third quarter of
2001. The increase was primarily a result of increases in all categories
of noninterest income, a decrease in noninterest expenses of $64,377 and a
decrease in interest expense of $631,131 or 25.9%.
The following table summarizes the status of the Company's earnings and
performance for the periods stated:
Nine months ended
September 30,
2002 2001
---- ----
<s> <c> <c>
Earnings Per Share $5.93 $3.72
Return on Average Shareholders' Equity 9.46%A 6.72%B
Return on Average Assets 0.91%A 0.60%B
Return on Average Earning Assets 1.00%A 0.66%B
<FN>
A=annualized returns are: 12.61%, 1.21%, and 1.33%, respectively.
B=annualized returns are: 8.96%, 0.80%, and 0.88%, respectively.
</FN>
Interest and Dividend Income. Total interest and dividend income decreased
by $1.7 million or 9.8% to $16.1 million for the nine month period ended
September 30, 2002 from $17.8 million for the nine month period ended
September 30, 2001 and decreased by $324,310 or 5.7% to $5.4 million for
the three month period ended September 30, 2002 from $5.7 million for the
three month period ended September 30, 2001. The decrease in interest
income for the first three quarters and for the third quarter was primarily
the result of lower yields on earning assets, offset in part by a higher
level of loans and investments. The average balance of net loans for the
period ended September 30, 2002 was $216.8 million compared to $206.5
million for the period ended September 30, 2001. The average yield on
loans was 7.4% for the period ended September 30, 2002 compared to 8.5% for
the period ended September 30, 2001. The average balance of investments
for the period ended September 30, 2002 was $109.2 million compared to
$97.1 million for the period ended September 30, 2001. The average yield
on investments was 5.2% for the period ended September 30, 2002 compared to
6.7% for the period ended September 30, 2001.
Interest Expense. Total interest expense decreased by $2.9 million or
34.7% to $5.4 million for the nine month period ended September 30, 2002
from $8.3 million for the nine month period ended September 30, 2001 and
decreased by $631,131 or 25.9% to $1.8 million for the three month period
ended September 30, 2002 from $2.4 million for the three month period ended
September 30, 2001. The decrease in interest expense for the first three
quarters and for the third quarter was primarily the result of lower cost
on deposits and borrowings due to the lower interest rate environment,
offset in part by a higher level of deposits and borrowings. Average
interest-bearing deposits increased by $12.4 million or 5.0% to $262.0
million for the period ended September 30, 2002. Average borrowings of
$55.6 million for the period ended September 30, 2002 were up $7.6 million
or 15.8% from September 30, 2001 levels. The average rate on interest-
bearing deposits decreased 140 basis points to 1.8% for the period ended
September 30, 2002 from 3.2% for the period ended September 30, 2001, while
the average rate on borrowed funds decreased 192 basis points to 4.5% from
6.5% during the same period.
Net Interest Income. Net interest income for the nine month period ended
September 30, 2002 was $10.7 million compared to $9.5 million for the nine
month period ended September 30, 2001 and for the three months ended
September 30, 2002 was $3.6 million compared to $3.3 million for the three
months ended September 30, 2001. The $1.1 million or 11.9% increase for
the first three quarters is attributed to the $2.9 million decrease in
interest expense on deposits and borrowings offset in part by the $1.7
million decrease in interest and dividend income. The increase for the
three months ended September 30, 2002 is attributed to the $631,131
decrease in interest expense on deposits and borrowings offset in part by
the $324,310 decrease in interest and dividend income. The average yield
on interest earning assets decreased 128 basis points to 6.6% for the nine
month period ended September 30, 2002 from 7.9% for the nine month period
ended September 30, 2001, while the average cost on
13
interest-bearing liabilities decreased by 144 basis points to 2.3% for the
nine month period ended September 30, 2002 from 3.7% for the nine month
period ended September 30, 2001. The interest rate spread increased due to
interest bearing liabilities repricing faster than interest earning assets
in a period of falling interest rates.
The net interest margin calculation for the nine month periods ended
September 30, 2002 and 2001 is shown below (interest income and average
rate on non-taxable securities and loans are reflected on a tax equivalent
basis, assuming a 34% federal income tax rate for 2002 and 2001).
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Dollars In Thousands)
(On a Tax Equivalent Basis)
September 30
2002 2001
----------------------------------- -----------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
(annualized) (annualized)
<s> <c> <c> <c> <c> <c> <c>
Assets
Interest Earning Assets:
Securities available for sale $105,640 $ 5,403 5.11 $ 93,319 $ 6,174 6.62
Securities held to maturity 3,593 271 7.54 3,776 296 7.85
Federal funds sold 2,425 29 1.61 2,382 106 4.43
Loans (net) (1) 216,849 16,010 7.38 206,485 17,577 8.51
-------- ------- ---- -------- ------- ----
Total interest earning assets 328,507 $21,713 6.61 305,962 $24,153 7.89
======= =======
Other nonearning assets 40,274 39,643
-------- --------
$368,781 $345,605
======== ========
Liabilities
Interest Bearing Liabilities:
Savings deposits $143,945 $ 1,836 1.28 $126,373 $ 2,683 2.12
Time deposits 99,344 2,440 2.46 108,992 4,799 4.40
Money market accounts 18,695 398 2.13 14,197 445 3.14
Borrowings 55,630 2,523 4.54 48,049 3,105 6.46
-------- ------- ---- -------- ------- ----
Total interest bearing liabilities 317,614 $ 7,197 2.27 297,611 $11,032 3.71
======= =======
Other noninterest bearing liabilities
& shareholders' equity 51,167 47,994
-------- --------
$368,781 $345,605
======== ========
Net interest income $14,516 $13,121
Net interest rate spread 4.34 4.18
Net interest margin 4.42 4.29
<FN>
<F1> Nonaccrual loans are included in the average balance, however, these
loans are not earning any interest.
</FN>
Provision For Loan Losses. The provision for loan losses for the nine
month period ended September 30, 2002, increased $45,000 to $270,000 from
the same period last year, resulting from management's ongoing evaluation
of the allowance for loan losses. The provision for loan losses for the
three month period ended September 30, 2002, increased $15,000 to $90,000
from the same period last year. The allowance for loan losses was $3.7
million or 1.6% of total loans as of September 30, 2002 and 1.6% at
September 30, 2001. The increase in the provision for loan loss is
primarily due to the increase in the loan portfolio (in particular, the
residential portfolio) and general economic conditions. The Company
establishes provisions for loan losses, which are charged to operations, in
order to maintain the allowance for loan losses at a level which is deemed
to be appropriate based upon an assessment of a number of factors. Please
refer to page 17 "Allowance for Loan Losses" for further details.
The Bank has a Loan Review Program whereby an independent loan review
service firm conducts a periodic review of the commercial loan portfolio.
The review includes updates to comments on all criticized and classified
assets
14
over $100,000, all loans delinquent over 30 days and over $100,000, non
accrual loans over $100,000, new (closed) and renewed loans over $100,000
as well as the adequacy of the loan loss reserve.
Although management utilizes 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 other factors, both within and
outside of management's control.
Noninterest Income. Noninterest income was $4.3 million for the nine month
period ended September 30, 2002 compared to $3.6 million for the nine month
period ended September 30, 2001. Noninterest income was $1.6million for the
three month period ended September 30, 2002 compared to $1.3 million for the
three month period ended September 30, 2001. The $735,638 or 20.6% increase
for the nine month period was the result of an increase in loan fees, financial
services income, mortgage servicing income and an increase in the cash
surrender value of life insurance. The $292,802 or 21.8% increase for the
three month period was the result of an increase in loan fees, financial
services income, Visa income, mortgage servicing income and an increase in the
cash surrender value of life insurance. The other income to average assets
ratio was 0.44% for the three months ended September 30, 2002 compared to 0.37%
for the same period in 2001.
Loan fees increased $319,345 or 56.2% during the first three quarters of
2002 from the comparable period in 2001 and $114,420 or .6% during the
third quarter of 2002 from the comparable period in 2001. The increase is
due primarily to the decline in mortgage loan interest rates and the
corresponding increased new loan and refinancing activity. Related
mortgage servicing income increased $88,883 during the nine month period.
Financial services income increased by 21.1% or $203,223 to $1.1 million
for the nine months ended September 30, 2002 and 26.7% or $87,615 to
$415,404 for the three months ended September 30, 2002 compared to $960,998
and $327,789 for the similar periods in 2001. Trust fees are derived from
the market value of trust assets under management and transactional
charges. Trust assets under management were $202.4 million as of September
30, 2002 compared to $192.2 million as of September 30, 2001. Financial
services income is also derived from financial planning and investment
brokerage commissions.
Noninterest Expense. Noninterest expenses decreased slightly by $54,554 or
6% to $9.8 million for the nine month period ended September 30, 2002 from
the same period in 2001 and decreased by $64,377 or 1.9% to $3.3 million
for the three month period ended September 30, 2002 from the same period in
2001. Salaries and employee benefits increased $127,463 and $440,115 for
the three and nine month periods due primarily to additional staff in the
financial services area. Other noninterest expenses for the nine month
period ended September 30, 2002 decreased $546,724 or 12.4% due primarily
to the decrease in goodwill amortization expense. Upon adoption of SFAS
No. 142, on January 1, 2002, amortization of goodwill was discontinued. As
a result, amortization charged to other expenses for the nine months ended
September 30, 2002 was $35,057 as compared to $373,521 for the nine months
ended September 30, 2001. The Bank expects this trend to continue
throughout 2002. See note (C) to Notes to Consolidated Financial
Statements (Unaudited) on page 9 for more information.
Income Taxes. Income taxes are provided in accordance with the
comprehensive income tax allocation method which recognizes the tax effects
of all income and expense transactions in each year's statement of income,
regardless of the year the transactions are reported for tax purposes.
Deferred income taxes are recognized in the consolidated balance sheets for
income and expense items that are reported in different years for financial
reporting purposes and income tax purposes using the tax rate applicable
for the year of the calculation.
The status of the Company's income tax expense is as follows:
Tax Expense Effective Rate
----------------------- --------------
2002 2001 2002 2001
---- ---- ---- ----
<s> <c> <c> <c> <c>
Nine Months Ended September 30, $1,465,000 $859,000 30.0% 28.6%
Liquidity and Capital Resources. The Company's primary sources of funds
consist of deposits, borrowings, repayments and prepayments of loans, sales
and participation of loans, maturities of securities and interest-bearing
deposits and funds provided from operations. While scheduled repayments of
loans and maturities of securities are predictable sources of funds,
deposit flows and loan prepayments are greatly influenced by the general
level of interest rates, economic conditions and competition. The Company
uses its liquidity resources primarily to fund
15
existing and future loan commitments, to fund net deposit outflows, to
invest in other interest-earning assets, to maintain liquidity and to meet
operating expenses.
The Company is required to maintain adequate levels of liquid assets. This
guideline, which may be varied depending upon economic conditions and
deposit flows, is measured by the core basic surplus. As of September 30,
2002 the Company's basic surplus was $67.2 million or 17.7% of total
assets. Total basic surplus (basic surplus plus funding available by using
qualifying loans to secure Federal Home Loan Bank ("FHLB") advances) was
$103.3 million, or 27.2% of total assets. This provides the Bank with
meaningful capacity and flexibility to fund new loan and investment
opportunities, and provide protection for unanticipated deposit
fluctuations.
A major portion of the Company's liquidity consists of cash and cash
equivalents, short-term U.S. Government and federal agency obligations and
corporate bonds. The level of these assets is dependent upon the Company's
operating, investing, lending and financing activities during any given
period.
Liquidity management is both a daily and long-term function of management.
If the Company requires funds beyond its ability to generate them
internally, the Bank has the ability to borrow additional funds from the
FHLB. At September 30, 2002, the Bank had borrowings of $47.8 million from
the FHLB. The Company anticipates that it will continue to have sufficient
funds, through repayments, deposits and borrowings, to meet its current
commitments.
The Federal Reserve Board guidelines for risk-based approach to measuring
the capital adequacy of bank holding companies and state-chartered banks
that are members of the Federal Reserve System generally call for an 8%
total capital ratio of which 4% must be comprised of Tier I capital. Risk-
based capital ratios are calculated by weighing assets and off-balance
sheet instruments according to their relative credit risks. At September
30, 2002, the Company and the Bank had exceeded all the minimum capital
ratios. The Bank's capital position at September 30, 2002 was as follows:
Minimum Regulatory
September 30, 2002 Requirements
------------------ ------------------
<s> <c> <c>
Leverage Capital Ratio 7.68% 4.0%
Risk Based Ratio 14.55% 8.0%
Tier 1 Ratio 13.30% 4.0%
Financial Condition
- -------------------
The Company's total assets amounted to $392.3 million at September 30, 2002
compared to $362.0 million at December 31, 2001, an increase of $30.3
million or 8.4%. The increase in total assets is primarily attributable to
an increase in net loans and an increase in cash and cash equivalents.
Year on year, total assets increased $34.8 million or 9.7%. The increase
in total assets from September 30, 2001 to September 30, 2002 is primarily
attributable to an increase in net loans of $12.7 million or 6.0% and
investment securities of $19.2 million or 22.1%.
Cash and Cash Equivalents. Cash and cash equivalents were $26.8 million at
September 30, 2002 compared to $21.9 million at December 31, 2001. Cash
and cash equivalents increased primarily due to an increase in federal
funds sold of $5.3 million to $14.2 million at September 30, 2002 from $8.9
million at December 31, 2001. As of September 30, 2002, cash and cash
equivalents increased $1.3 million or 5.2% from $25.5 million as of
September 30, 2001. The increase in federal funds sold was caused by an
increase in deposits resulting from normal seasonal activity.
Securities. The Bank manages its securities portfolio to provide a source
of both liquidity and earnings. The Bank's asset/liability committee
develops an investment policy based upon the Bank's operating need and
market circumstances. The investment policy is reviewed and approved
annually by the Board of Directors in terms of its objectives, investment
guidelines and consistency with overall Bank performance and risk
management goals. The asset/liability committee is responsible for
reporting and monitoring compliance with the investment policy. Reports
are provided to the board of directors on a regular basis.
Securities are classified as available for sale and they may be sold as
part of the Bank's asset/liability management strategy in response to
changes in interest rates, liquidity needs or significant prepayment risk.
Securities available for sale are carried at fair value, with related
unrealized net gains or losses, net of deferred income taxes, recorded as
an adjustment to shareholders' equity. At September 30, 2002, unrealized
gains, net of taxes on securities available for sale were $2,157,602
compared to unrealized gains of $530,290 at December 31, 2001. The
increase in net unrealized gains on securities available for sale resulted
in a $1,627,312 increase in shareholders' equity.
16
Securities available for sale increased $8.9 million or 9.1% to $106.0
million at September 30, 2002 compared to $97.2 million at December 31,
2001. Securities available for sale increased $19.2 million or 22.1% to
$106.0 million at September 30, 2002 from $86.8 million at September 30,
2001. Securities held to maturity decreased $106,961 or 3.0%, from $3.5
million at December 31, 2001 to $3.4 million at September 30, 2002.
Securities held to maturity decreased $209,907 or 5.8%, from $3.6 million
at September 30, 2001 to $3.4 million at September 30, 2002.
Net Loans. Net loans increased by $14.8 million or 7.1% to $222.9 million
or 56.8% of total assets at September 30, 2002 as compared to $208.1
million or 57.5% of total assets at December 31, 2001. Year on year, net
loans increased by $12.7 million or 6.0% as of September 30, 2002, from
$210.2 million or 58.8% of total assets at September 30, 2001. This
increase in loans is due to the Bank's efforts to develop new lending
relationships and also due to lower interest rates, expand existing
borrowing relationships. The Bank has also added individuals to its
lending personnel.
Residential real estate loans increased $10.7 million, or 8.7%, to $133.4
million at September 30, 2002 from $122.7 million at December 31, 2001.
Year on year, residential real estate loans increased $17.0 million, or
14.6% to $133.4 million at September 30, 2002 from $116.4 million as of
September 30, 2001. Residential real estate loans consist of loans secured
by one to four family residences. The Bank generally retains adjustable
rate mortgages in its portfolio but will, from time to time, retain fixed
rate mortgages in its portfolio. The Bank has also sold and serviced $90.9
million of real estate loans and $1.1 million of commercial mortgages and
has $2.7 million of loans held for sale at September 30, 2002.
Commercial loans at September 30, 2002 increased by $1.7 million or 2.9% to
$60.6 million from $58.9 million at December 31, 2001. Year on year,
commercial loans increased by $2.0 million or 3.5%. 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, which may be
secured or unsecured. The Bank focuses on lending to what it believes a
wide array of financially sound, small to medium-sized businesses within
its service area.
Consumer loans increased at September 30, 2002 by $728,464 or 3.2% to $23.2
million at September 30, 2002 from $22.5 million at December 31, 2001.
Year on year, consumer loans increased by $359,259 or 1.6% from $22.8
million as of September 30, 2001. Consumer loans are originated by the
Bank for a wide variety of purposes to meet our customers' needs, and
include personal notes, reserve checking, installment and VISA loans.
Allowance for Loan Losses. The allowance for loan losses is a general
allowance established by management to absorb possible loan losses as they
may exist in the loan portfolio. This allowance is increased by provisions
charged to operating expenses and by recoveries on loans previously
charged-off. Management determines the adequacy of the allowance from
independent reviews of the quality of new and existing loans, from the
results of reviews of the loan portfolio by regulatory agency examiners,
evaluation of past loan loss experience, the character and size of the loan
portfolio, current economic conditions and other observable data.
The process of evaluating the adequacy of the allowance for loan losses
involves a high degree of management judgment, based in part on systematic
methods. Actual losses could vary from these estimates. A detailed
analysis of the allowance for loan losses is reviewed quarterly, at which
time necessary increases or decreases are made to the allowance for loan
losses, with a related adjustment to the provision for loan losses. The
Bank's board of directors reviews and approves the analysis of the adequacy
of the allowance for loan losses quarterly.
The allocated portion of the allowance for loan losses is comprised of
general reserves for specific loan types and specific reserves for impaired
loans. The general reserve categories consist of reserve checking,
personal and commercial installments, commercial notes and mortgages,
residential mortgages and Visa loans. A general reserve has also been
established for contingent liabilities such as lines of credit, letters of
credit and residential and commercial construction lines.
A reserve percentage is assigned to each general reserve category. The
factors used in determining the reserve percentage for each category starts
with the five year historical average of loan losses to loans and makes
adjustments for factors such as loan volumes, trends in non-performing
loans, economic and industrial conditions, credit concentrations and
changes in lending policies, procedures and practices.
The specific allocation for impaired loans is determined based on a loan by
loan review of impaired loans and specific loans under close monitoring by
management for potential problems.
17
As of September 30, 2002, the Bank had impaired loans (consisting of real
estate loans) totaling $1,785,610, down $36,994 or 2.0% from $1,822,604 as
of December 31, 2001. The fair value of the collateral was used to
evaluate the adequacy of the allowance for loan losses allocated to these
loans.
A loan is considered impaired by management when it is probable that the
creditor will be unable to collect all amounts due under the contractual
terms of the loan, including principal and interest. Based upon
management's periodic review of loans on nonaccrual status, impairment is
based on a loan by loan analysis and not set by a defined period of
delinquency before a loan is considered impaired.
The unallocated component of the allowance for loan losses represents
management's view that, given the complexities of the loan portfolio, there
are estimated losses that have been incurred within the portfolio but not
yet specifically identified. Management has provided for these probable
losses in the allowance for loan losses accordingly.
The allowance for loan losses was $3.5 million or 1.6% of total loans as of
September 30, 2002 compared to $3.5 million or 1.6% of total loans at
December 31, 2001.
Deposits. Total deposits increased $20.1 million or 7.5% to $288.0 million
at September 30, 2002 from $267.9 million at December 31, 2001. The
increase occurred primarily in the savings and NOW account categories.
Savings deposits increased to $51.4 million at September 30, 2002 from
$45.0 million at December 31, 2001, an increase of $6.4 million or 14.2%.
NOW deposits increased to $56.9 million at September 30, 2002 from $54.3
million at December 31, 2001, an increase of $2.6 million or 4.8%. Money
market deposits increased to $21.8 million at September 30, 2002 from $17.7
million at December 31, 2001, an increase of $4.1 million or 23.2%.
Prestige investment accounts increased to $14.4 million at September 30,
2002 from $11.0 million at December 31, 2001, an increase of $3.4 million
or 30.9%. Demand deposits increased to $42.1 million at September 30, 2002
from $34.7 million at September 30, 2001, an increase of $7.4 million or
21.3%. Certificates of deposit decreased to $101.4 million at September
30, 2002 from $104.6 million at December 31, 2001, a decrease of $4.2
million or 4.0%.
Borrowings. Total advances from the FHLB as of September 30, 2002
increased by $5.9 million to $47.8 million from $42.0 million at December
31, 2001. The continued use of borrowed funds reflects additional funding
needed to support its growth in net loans and is a low cost funding
alternative.
Shareholders' Equity. Shareholders' equity increased by $3.9 million or
11.4% from $34.1 million at December 31, 2001 to $38.0 million at September
30, 2002. The increase was due to cumulative earnings exceeding dividends
declared and a $1,627,312 increase in accumulated other comprehensive
income.
Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
In Management's opinion, there have been no material changes in the
reported market risks since December 31, 2001 as reported in Item 7A of the
Annual Report on Form 10K.
Item 4: CONTROLS AND PROCEDURES
During the 90-day period prior to the filing date of this report,
management, including the Company's President and Chief Executive Officer
and Senior Vice President/Treasurer, evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures.
Based upon, and as of the date of that evaluation, the President and Chief
Executive Officer and Senior Vice President/Treasurer concluded that the
disclosure controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reported as and when required.
There have been no significant changes in the Company's internal controls
or in other factors which could significantly affect internal controls
subsequent to the date the Company carried out its evaluation. There were
no significant deficiencies or material weaknesses identified in the
evaluation and therefore, no corrective actions were taken.
18
PART II
-------
Item 1: N/A
Item 2: N/A
Item 3: N/A
Item 4: N/A
Item 5: Other Information
The Company's Principal Executive Officer and Principal Financial Officer
have furnished statements relating to its Form 10-Q for the quarter ended
September 30, 2002 pursuant to 18 U.S.C. section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002. The statements are
attached hereto as Exhibit 99.1.
Item 6: Exhibits, Financial Statement Schedules and Reports on Form 8-K
A. Exhibit 99.1 Certification of CEO and Treasurer
B. Reports on Form 8-K
During the Registrants' fiscal quarter ended September 30, 2002, the
Registrant did not file any reports on Form 8-K.
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934 , the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION BANKSHARES COMPANY
/s/ Peter A. Blyberg
------------------------------------
Peter A. Blyberg, President and
Chief Executive Officer
November 12, 2002 /s/ Sally J. Hutchins
- ----------------- -----------------------------------
Date Sally J. Hutchins, Senior Vice
President /Treasurer
20
CERTIFICATIONS
I, Peter A. Blyberg, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Union
Bankshares Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
November 12, 2002 /s/ Peter A. Blyberg
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Date: Peter A. Blyberg
President & CEO
. 21
CERTIFICATIONS
I, Sally J. Hutchins , certify that:
1. I have reviewed this quarterly report on Form 10-Q of Union
Bankshares Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-
14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b. evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within 90
days prior to the filing date of this quarterly report
(the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material
weaknesses.
November 12, 2002 /s/ Sally J. Hutchins
- ----------------- ------------------------------------
Date: Sally J. Hutchins
Senior Vice President/Treasurer
22