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 March 31, 2003
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 or 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 such 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 by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 14, 2003
----- -----------------------------
(Common Stock, $12.50 Par Value) 573,369
1
UNION BANKSHARES COMPANY
INDEX TO FORM 10-Q
PART I Financial Information Page No.
- ------ --------------------- --------
Item l: Financial Statements (Unaudited)
Independent Accountants' Report 3
Consolidated Balance Sheets -
March 31, 2003, March 31, 2002,
December 31, 2002 4
Consolidated Statements of Income -
three months ended March 31, 2003
and March 31, 2002 5
Consolidated Statements of Cash Flows -
three months ended March 31, 2003
and March 31, 2002 6
Consolidated Statements of Changes
in Shareholders' Equity -
three months ended March 31, 2003
and March 31, 2002 7
Notes to Consolidated Financial Statements 8-10
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11-17
Item 3: Quantitative and Qualitative Disclosures
About Market Risk 17
Item 4: Controls and Procedures 17-18
PART II Other Information
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote
of Security Holders 18
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 18
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 March 31, 2003
and 2002, and for the three-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
April 25, 2003
3
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
March 31 March 31 December 31
2003 2002 2002
(Unaudited) (Unaudited) (Audited)*
----------- ----------- -----------
<s> <c> <c> <c>
ASSETS
- ------
Cash and due from banks $ 9,509,659 $ 9,184,352 $ 10,977,028
Federal funds sold 402 146,181 5,669,733
--------------------------------------------
Cash and cash equivalents 9,510,061 9,330,533 16,646,761
Available for sale securities 118,591,169 97,264,122 106,176,496
Held to maturity securities, at cost 3,068,655 3,625,677 3,316,653
Other investment securities, at cost 5,508,319 5,039,950 5,496,492
Loans (net of deferred fees) 228,448,455 218,572,751 226,225,857
Less: Allowance for loan losses 3,850,290 3,554,551 3,678,608
--------------------------------------------
Net Loans 224,598,165 215,018,200 222,547,249
--------------------------------------------
Premises, furniture & equipment, net 6,094,530 6,235,469 6,129,058
Cash surrender value of life insurance 7,933,104 7,526,144 7,832,370
Core deposit intangible 202,549 249,291 214,235
Goodwill 6,305,130 6,305,130 6,305,130
Other assets 6,609,493 6,176,792 6,364,457
--------------------------------------------
Total Assets $388,421,175 $356,771,308 $381,028,901
============================================
LIABILITIES
- -----------
Deposits:
Demand $ 2,816,787 $ 29,145,723 $ 34,630,217
Savings and money market 137,176,525 124,792,537 142,146,193
Time 101,719,613 100,223,491 98,988,284
--------------------------------------------
Total Deposits 271,712,925 254,161,751 275,764,694
--------------------------------------------
Borrowed funds 57,078,147 54,271,735 45,959,829
Sweep repurchase agreements 12,130,633 7,168,598 13,063,631
Accrued expenses & other liabilities 8,070,050 6,570,859 7,922,352
Total Liabilities $348,991,755 $322,172,943 $342,710,506
============================================
Commitments (Note E)
SHAREHOLDERS' EQUITY
- --------------------
Common Stock, $12.50 par value. Authorized
1,200,000 shares, issued 582,394 shares
in 2003 and 2002 $ 7,279,925 $ 7,279,925 $ 7,279,925
Surplus 4,013,064 3,963,116 4,024,564
Retained Earnings 26,642,109 23,490,378 25,744,448
Accumulated Other Comprehensive Income
Net Unrealized Gain on Securities
Available for Sale 2,484,042 227,939 2,250,696
Minimum pension liability adjustment (326,168) 0 (326,168)
Less: Treasury Stock (8,493 shares as of
March 31, 2003, 5,394 shares as of March
31, 2002 and 8,256 shares as of December
31, 2002) 663,552 362,993 655,070
--------------------------------------------
Total Shareholders' Equity $ 39,429,420 $ 34,598,365 $ 38,318,395
--------------------------------------------
Total Liabilities & Shareholders' Equity $388,421,175 $356,771,308 $381,028,901
============================================
<FN>
* Refer to Company's Annual Report on Form 10K dated December 31, 2002.
</FN>
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
4
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended - March 31,
------------------------------
2003 2002
---- ----
<s> <c> <c>
INTEREST AND DIVIDEND INCOME
Interest and Fees on Loans $3,678,380 $3,998,979
Interest and Fees on Municipal Loans and Bonds 222,570 250,830
Interest and Dividends on Securities 1,218,532 1,227,578
Interest on Federal Funds Sold 12,517 22,679
Amortization & Accretion - Net (221,161) (165,741)
----------------------------
Total Interest and Dividend Income 4,910,838 5,334,325
----------------------------
INTEREST EXPENSE
Interest on Deposits 905,644 1,228,732
Interest on Funds Purchased/Borrowed 586,637 587,281
----------------------------
Total Interest Expense 1,492,281 1,816,013
----------------------------
NET INTEREST INCOME 3,418,557 3,518,312
Provision for Loan Losses 105,000 90,000
----------------------------
NET INTEREST INCOME AFTER LOAN LOSS PROVISION 3,313,557 3,428,312
----------------------------
NONINTEREST INCOME
Exchange, Commission & Fees 316,092 293,965
Financial Services 439,157 348,352
Loan Department Income 495,806 292,645
Visa Income 152,617 173,861
Other Income 270,647 145,475
----------------------------
Total Noninterest Income 1,674,319 1,254,298
----------------------------
NONINTEREST EXPENSE
Salaries and Employee Benefits 1,821,724 1,621,285
Building Maintenance & Operations 250,873 227,531
FDIC Insurance 22,864 23,777
Other Expenses 1,198,955 1,207,711
----------------------------
Total Noninterest Expense 3,294,416 3,080,304
----------------------------
INCOME BEFORE TAXES 1,693,460 1,602,306
Income Taxes 480,000 490,000
----------------------------
NET INCOME $1,213,460 $1,112,306
============================
Weighted Average Shares 574,199 577,028
Per Share Data:
Net Income $ 2.11 $ 1.93
Dividends Declared $ .55 $ .55
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
5
UNION BANKSHARES COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2003 and 2002
(Unaudited)
2003 2002
---- ----
<s> <c> <c>
Net Cash Flows Provided by Operating Activities:
Net Income $ 1,213,460 $ 1,112,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 233,418 203,475
Provision for loan losses 105,000 90,000
Net change in other assets (454,552) (207,453)
Net change in other liabilities 136,272 704,323
Net amortization of premium (accretion of discount) on investments 221,161 165,741
Net change in deferred loan origination fees (22,493) (45,350)
Origination of loans held for sale (17,369,525) (8,777,589)
Proceeds from loans held for sale 23,314,674 10,750,879
------------------------------
Total adjustments 6,163,955 2,884,026
------------------------------
Net cash provided by operating activities 7,377,415 3,996,332
------------------------------
Cash Flows From Investing Activities:
Purchase of securities available for sale (24,115,492) (10,198,240)
Purchase of securities held to maturity 0 (102,005)
Proceeds from calls or maturities of securities available for sale 8,805,564 7,517,398
Proceeds from maturities of securities held to maturity 245,000 0
Net change in loans to customers (5,105,997) (6,948,105)
Capital expenditures (140,960) (54,553)
------------------------------
Net cash used in investing activities (20,311,885) (9,785,505)
------------------------------
Cash Flows From Financing Activities:
Net decrease in other borrowed funds (932,998) (4,966,800)
Net increase in advances from FHLB 11,118,318 12,314,094
Net increase (decrease) in demand, savings and money market accounts (6,783,098) 8,768,570
Net increase (decrease) in time deposits 2,731,329 (22,513,945)
Purchase of treasury stock (131,544) (68,355)
Proceeds from sale of treasury stock 111,636 37,760
Dividends paid (315,873) (317,350)
------------------------------
Net cash provided by (used in) financing activities 5,797,770 (6,746,026)
------------------------------
Net decrease in cash and cash equivalents (7,136,700) (12,535,199)
Cash and cash equivalents at beginning of year 16,646,761 21,865,732
------------------------------
Cash and cash equivalents at end of period $ 9,510,061 $ 9,330,533
==============================
Supplemental Schedule of Non-Cash Investing Activities
2003 2002
---- ----
<s> <c> <c>
Net changes required by Statement
of Financial Accounting Standards No. 115
Available for sale securities $ 353,555 $ (458,105)
Deferred income tax asset (liability) (120,209) 155,754
------------------------------
Net unrealized gain (loss) on available for sale securities $ 233,346 $ (302,351)
In 2002, the Company transferred $2,972,574 from the Loans Held for Sale
portfolio to the loan portfolio.
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 CHANGES IN SHAREHOLDERS' EQUITY
Three months ended March 31, 2003 and 2002
(Unaudited)
ACCUMULATED
OTHER SHARE-
COMMON TREASURY RETAINED COMPREHENSIVE HOLDERS'
STOCK SURPLUS STOCK EARNINGS INCOME EQUITY
--------------------------------------------------------------------------------
<s> <c> <c> <c> <c> <c> <c>
Balance at December 31, 2001 $7,279,925 $3,963,116 $(332,398) $22,695,422 $ 530,290 $34,136,355
Net income, three months ended March 31, 2002 0 0 0 1,112,306 0 1,112,306
Change in net unrealized gain on available
for sale securities, net of tax of $(155,754) 0 0 0 0 (302,351) (302,351)
--------------------------------------------------------------------------------
Total comprehensive income 0 0 0 1,112,306 (302,351) 809,955
Sale of 1,134 shares Treasury stock 0 0 37,760 0 0 37,760
Repurchase of 1,629 shares Treasury stock 0 0 (68,355) 0 0 (68,355)
Cash dividends declared 0 0 0 (317,350) 0 (317,350)
Balance at March 31, 2002 $7,279,925 $3,963,116 $(362,993) $23,490,378 $ 227,939 $34,598,365
================================================================================
Balance at December 31, 2002 $7,279,925 $4,024,564 $(655,070) $25,744,448 $1,924,528 $38,318,395
Net income, three months ended March 31, 2003 0 0 0 1,213,460 0 1,213,460
Change in net unrealized gain on available
for sale securities, net of tax of $120,209 0 0 0 0 233,346 233,346
--------------------------------------------------------------------------------
Total comprehensive income 0 0 0 1,213,460 233,346 1,446,806
Sale of 1,329 shares Treasury stock 0 (11,500) 123,062 74 0 111,636
Repurchase of 1,566 shares Treasury stock 0 0 (131,544) 0 0 (131,544)
Cash dividends declared 0 0 0 (315,873) 0 (315,874)
--------------------------------------------------------------------------------
Balance at March 31, 2003 $7,279,925 $4,013,064 $(663,552) $26,642,109 $2,157,874 $39,429,420
================================================================================
See Independent Accountants' review report. The accompanying notes are an
integral part of these consolidated financial statements.
7
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 March 31, 2003 and 2002 and for the three 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, 2002.
(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 as of March
31, 2003 and 2002, and as of December 31, 2002. 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.
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:
March 31, 2003 March 31, 2002 December 31, 2002
-------------- -------------- -----------------
<s> <c> <c> <c>
Core deposit intangible, cost $323,000 $323,000 $323,000
Accumulated amortization 120,451 73,709 108,765
----------------------------------------------
Core deposit intangible, net $202,549 $249,291 $214,235
Amortization expense related to the core deposit intangible amounted to
$11,686 for the three months ended March 31, 2003 and 2002. The expected
amortization expense is estimated to be $46,744 per year through 2006 and
$27,259 in 2007.
(D) Comprehensive Income
--------------------
Total comprehensive income was $1,446,806 and $809,955 for the three months
ended March 31, 2003 and 2002, 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 March 31, 2003 and 2002, the following financial instruments, whose
contract amounts represent credit risk, were outstanding.
8
March 31
(000's omitted)
2003 2002
---- ----
<s> <c> <c>
1. Unused Commitments:
-------------------
A. Revolving, open-end lines secured by
1-4 family residential properties,
e.g., Home Equity lines $11,310 $9,380
B. Credit card lines 6,343 6,590
C. Secured real estate loans 11,252 8,701
D. Other 21,496 32,337
2. Financial Standby Letters of Credit: 206 217
------------------------------------
(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
------------------------------
Financial Accounting Standards Board (FASB) Interpretation Number 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" an interpretation
of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation
No. 34 was issued in November 2002.
The initial recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in this Interpretation are effective
for financial statements of interim or annual periods ending after December
15, 2002.
Financial and standby letters of credit are included in the scope of FIN
45, while commercial letters of credit are not. A guarantor of financial
and standby letters of credit is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee.
This Interpretation contains disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under certain
guarantees that it has issued. This interpretation does not have a
material effect on the Company's consolidated financial statements.
In 2003, FASB issued Statement of Financial Accounting Standards (SFAS) No.
149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." The Statement amends and clarifies accounting for derivative
9
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement 133.
The amendment requires contracts with comparable characteristics be
accounted for similarly. This Statement clarifies under what circumstances
a contract with an initial net investment meets the characteristic of a
derivative as discussed in Statement 133. In addition, it clarifies when a
derivative contains a financing component that warrants special reporting
in the statement of cash flows and amends certain other existing
pronouncements.
SFAS 149 is effective for contracts entered into or modified after June 30,
2003, except as stated below and for hedging relationships designated after
June 30, 2003. The guidance should be applied prospectively.
The provisions of this Statement that relate to Statement 133
Implementation Issues that have been effective for fiscal quarters that
began prior to June 15, 2003, should continue to be applied in accordance
with their respective effective dates. In addition, certain provisions
relating to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to existing contracts
as well as new contracts entered into after June 30, 2003. SFAS No. 149
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 1,566 shares as part
of this plan during the first quarter of 2003 at an average price of $84.
(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 on the balance sheet and
income statement presentation.
10
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Forward Looking Statements
- --------------------------
This Form 10-Q contains "forward-looking statements" which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-
looking statements include, but are not limited to, estimates with respect
to our financial condition, results of operations and business that are
subject to various factors which could cause actual results to differ
materially from these estimates. These factors include, but are not
limited to:
General and local economic conditions;
Changes in interest rates, deposit flows, demand for mortgages and
other loans, real estate values, and competition;
Changes in accounting principles, policies, or guidelines;
Changes in legislation or regulation; and
Other economic, competitive, governmental, regulatory, and
technological factors affecting our operations, pricing, products
and services.
Any or all of our forward-looking statements in this prospectus and in any
other public statements we make may turn out to be wrong. They can be
affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Consequently, no forward-looking statement can be
guaranteed.
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 March 31, 2003 to December 31, 2002, and the
results of operations for the three months ended March 31, 2003, compared
to the same period in 2002. 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, 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.
11
Net Income. Net income for the first quarter of 2003 was $1,213,460, or
$2.11 per share, a 9.1% increase compared to $1,112,306, or $1.93 per share
for the first quarter of 2002. The increase was primarily a result of an
increase in noninterest income of $420,021 offset by a slight increase in
noninterest expenses of $214,112 and a slight decrease in the provision for
income taxes of $10,000.
The following table summarizes the status of the Company's earnings and
performance for the periods stated:
Three months ended
March 31,
2003 2002
---- ----
<s> <c> <c>
Earnings Per Share 2.11 1.93
Return on Average Shareholders' Equity 3.32%A 3.27%B
Return on Average Assets 0.32%A 0.31%B
Return on Average Earning Assets 0.34%A 0.34%B
<FN>
A=annualized returns are: 13.28%, 1.28% and 1.36%, respectively.
B=annualized returns are: 13.09%, 1.24% and 1.36%, respectively.
</FN>
Interest and Dividend Income. Total interest and dividend income decreased
by $423,487 or 7.9% to $4.9 million for the period ended March 31, 2003
from $5.3 million for the period ended March 31, 2002. The decrease in
interest income 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 March 31, 2003 was $224.9 million
compared to $211.2 million for the period ended March 31, 2002. The
average yield on loans was 6.6% for the period ended March 31, 2003
compared to 7.5% for the period ended March 31, 2002. The average balance
of investments for the period ended March 31, 2003 was $113.2 million
compared to $109.3 million for the period ended March 31, 2002. The
average yield on investments was 4.4% for the period ended March 31, 2003
compared to 5.1% for the period ended March 31, 2002.
Interest Expense. Total interest expense decreased by $323,732 or 17.8% to
$1.5 million for the period ended March 31, 2003 from $1.8 million for the
period ended March 31, 2002. The decrease in interest expense 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
$12.7 million or 5.6% to $239.4 million for the period ended March 31,
2003. Average borrowings of $60.9 million for the period ended March 31,
2003 increased $9.8 million or 19.2% from March 31, 2002 levels. The
average rate on interest-bearing deposits decreased 66 basis points to
1.51% for the period ended March 31, 2003 from 2.17% for the period ended
March 31, 2002, while the average rate on borrowed funds decreased 74 basis
points to 3.82% from 4.56% during the same period.
Net Interest Income. Net interest income for the period ended March 31,
2003 was $3.4 million compared to $3.5 million for the period ended March
31, 2002. The $99,755 or 2.8% decrease is attributed to the $423,487
decrease in interest income offset in part by a $323,732 decrease in
interest expense on deposits and borrowings. The average yield on interest
earning assets decreased 79 basis points to 5.90% for the period ended
March 31, 2003 from 6.69% for the period ended March 31, 2002, while the
average cost on interest-bearing liabilities decreased by 63 basis points
to 1.98% for the period ended March 31, 2003 from 2.61% for the period
ended March 31, 2002. The interest rate spread decreased due to interest
earning assets repricing at lower yields and the inability to reprice
interest bearing liabilities at the same pace.
The net interest margin calculation for the three month periods ended March
31, 2003 and 2002 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 2003 and 2002).
12
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
(Dollars In Thousands)
(On a Tax Equivalent Basis)
March 31
2003 2002
---- ----
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 $110,007 $ 4,800 4.36 $105,781 $ 5,308 5.02
Securities held to maturity 3,267 240 7.35 3,564 268 7.52
Federal funds sold 2,338 28 1.20 486 7 1.44
Loans (net) (1) 221,131 14,816 6.70 211,208 15,900 7.53
----------------------------------------------------------------------
Total interest earning assets 336,743 $19,884 5.90 321,039 $21,483 6.69
Other nonearning assets 42,614 30,050
-------- --------
$379,357 $351,089
======== ========
Liabilities
- -----------
Interest Bearing Liabilities:
- -----------------------------
Savings deposits $117,207 $ 756 0.65 $107,438 $ 1,877 1.75
Time deposits 100,304 2,592 2.58 101,562 2,701 2.66
Money market accounts 21,980 272 1.24 17,743 338 1.90
Borrowings 60,880 2,324 3.82 51,088 2,328 4.56
----------------------------------------------------------------------
Total interest bearing liabilities 300,371 $ 5,944 1.98 277,831 $ 7,244 2.61
======= ========
Other noninterest bearing liabilities
& shareholders' equity 78,986 73,258
-------- --------
$379,357 $351,089
======== ========
Net interest income $13,940 $14,239
Net interest rate spread 3.92 4.08
Net interest margin 4.09 4.44
<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 three
month period ended March 31, 2003, increased $15,000 to $105,000 from the
same period last year, resulting from management's ongoing evaluation of
the allowance for loan losses. The allowance for loan losses was $3.8
million or 1.7% of total loans as of March 31, 2003 and 1.6% at March 31,
2002. The increase in the provision for loan losses is primarily due to
the increase in the loan portfolio (in particular, the residential
portfolio), general economic conditions and a sluggish local economy. 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 which include among other factors, the current loan mix and loan
volume, loan growth, delinquency trends and historical net loan loss
experience for each loan type. Please refer to page 16 "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 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 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 other factors, both within and
outside of management's control.
13
Noninterest Income. Noninterest income was $1.7 million for the period
ended March 31, 2003 compared to $1.3 million for the period ended March
31, 2002. The $420,021 or 33.5% increase 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 other income
to average assets ratio was 0.43% for the three months ended March 31, 2003
compared to 0.36% for the same period in 2002.
Loan fees increased $203,161 or 69.4% during the first quarter of 2003
compared to $123,000 in 2002. The increase is due primarily to the
decline in mortgage loan interest rates and the corresponding increased new
loan and refinancing activity. In addition, related mortgage servicing
income increased $102,818 or 292.7% during the same period.
Financial services income increased by 26.1% or $90,805 to $439,157 for the
first quarter of 2003 compared to $348,352 for the similar period in 2002.
Financial services income is derived, in part, from trust fees, which are
derived from the market value of trust assets under management and
transactional charges. Trust assets under management were $206.5 million as
of March 31, 2003 compared to $198.7 million as of March 31, 2002.
Financial services income is also derived from financial planning and
investment brokerage commissions.
Cash surrender value of life insurance increased by 20.1% or $16,868 to
$100,734 for the first quarter of 2003 compared to $86,866 for the similar
period in 2002. Life insurance policies were purchased to offset certain
benefit costs.
Noninterest Expense. Noninterest expenses increased slightly by $214,112
or 6.9% to $3.3 million for the period ended March 31,2003 over the same
period in 2002. Salaries and employee benefits increased $200,439, due
primarily to additional staff in the financial services area. Other
noninterest expenses increased $13,673 or .9% due to cost containment
efforts.
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
----------- --------------
2003 2002 2003 2002
---- ---- ---- ----
<s> <c> <c> <c> <c>
Three Months Ended March 31, $480,000 $490,000 28.3% 30.6%
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 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 March 31, 2003
the Company's basic surplus was $49.9 million or 13.2% of total assets.
Total basic surplus (basic surplus plus funding available by using
qualifying loans to secure Federal Home Loan Bank ("FHLB") advances) was
$83.7 million, or 22.2% 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.
14
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 March 31, 2003, the Bank had borrowings of $57.1 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 March 31,
2003, the Company and the Bank had exceeded all the minimum capital ratios.
The Bank's capital position at March 31, 2003 was as follows:
Minimum Regulatory
March 31, 2003 Requirements
-------------- ------------------
<s> <c> <c>
Leverage Capital Ratio 8.00% 4.0%
Risk Based Ratio 14.92% 8.0%
Tier 1 Ratio 13.66% 4.0%
Aggregate Contractual Obligations
Payments due by period
Less than 1-3 3-5 More than
Contractual Obligations Total 1 year years years 5 years
----- --------- ------ ----- ---------
(in thousands)
<s> <c> <c> <c> <c> <c>
FHLB borrowings $57,078 $14,000 $15,782 $19,130 $8,166
Operating leases 36 23 9 4 0
------- ------- ------- ------- ------
Total $57,114 $14,023 $15,791 $19,134 $8,166
Financial Condition
- -------------------
The Company's total assets amounted to $388.4 million at March 31, 2003
compared to $381.0 million at December 31, 2002, an increase of $7.4
million or 1.9%. The increase in total assets is primarily attributable to
a decrease in cash and cash equivalents offset in part by an increase in
net loans and an increase in investment securities. Year on year, total
assets increased $31.6 million or 8.9%. The increase in total assets from
March 31, 2002 to March 31, 2003 is primarily attributable to an increase
in net loans of $9.6 million or 4.5% and an increase in investment
securities of $21.2 million or 15.9%.
Cash and Cash Equivalents. Cash and cash equivalents were $9.5 million at
March 31, 2003 compared to $16.6 million at December 31, 2002. Cash and
cash equivalents decreased primarily due to a decrease in federal funds
sold of $5.7 million to $402 at March 31, 2003 from $5.7 million at
December 31, 2002. As of March 31, 2003, cash and cash equivalents
increased $179,528 or 1.9% from $9.3 million as of March 31, 2002 to $9.5
million at March 31, 2003. The decrease in federal funds sold was caused
by a decrease in deposits resulting from normal seasonal deposit outflows
and to fund new loan growth.
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 Company'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 March 31, 2003, unrealized
gains, net of taxes on securities available for sale were $2.5 million
compared to unrealized gains of $2.3 million at December 31, 2002. The
increase in net unrealized gains on securities available for sale resulted
in a $233,346 increase in shareholders' equity.
15
Securities available for sale increased by $12.4 million or 11.7% to $118.6
million at March 31, 2003 compared to $106.2 million at December 31, 2002.
Securities available for sale increased $21.3 million or 21.9% to $118.6
million at March 31, 2003 from $97.3 million at March 31, 2002. Securities
held to maturity decreased $247,998 or 7.5%, from $3.3 million at December
31, 2002 to $3.1 million at March 31, 2003. Securities held to maturity
decreased $557,022 or 15.4%, from $3.7 million at March 31, 2002 to $3.1
million at March 31, 2003. The increases were primarily due to an overall
investment portfolio strategy to maintain interest income revenue levels
while maintaining adequate liquidity on the balance sheet.
Net Loans. Net loans increased by $2.1 million or .9% to $224.6 million or
57.8% of total assets at March 31, 2003 as compared to $222.5 million or
58.4% of total assets at December 31, 2002. Year on year, net loans
increased by $9.6 million or 4.5% as of March 31, 2003, from $215.0 million
or 60.3% of total assets at March 31, 2002. This increase in loans is due
to the Bank's efforts to develop new lending relationships and also due to
lower interest rates and the expansion of existing borrowing relationships.
The Bank has also added individuals to its lending personnel.
Residential real estate loans increased $2.6 million, or 2.0%, to $134.3
million at March 31, 2003 from $131.7 million at December 31, 2002. Year
on year, residential real estate loans increased $2.9 million, or 2.2% from
$131.4 million as of March 31, 2002. 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 $111.4 million of real estate loans and $1.0 million of
commercial mortgages and has $2.4 million of loans held for sale at March
31, 2003.
Commercial loans at March 31, 2003 decreased by $2.6 million or 4.2% to
$59.2 million from $61.8 million at December 31, 2002. Year on year,
commercial loans increased by $2.3 million or 4.0%. 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 at March 31, 2003 increased by $745,420 or 2.7% to $27.9
million from $27.2 million at December 31, 2002. Year on year, consumer
loans increased by $1.2 million or 4.7% from $26.7 million as of March 31,
2002. 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.
Municipal loans at March 31, 2003 increased by $1.4 million or 25.5% to
$7.0 million from $5.6 million at December 31, 2002, primarily due to the
Bank being successful in the loan bidding process. Year on year, municipal
loans increased by $3.5 million or 100.2% from $3.5 million as of March 31,
2002.
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.
16
The specific allocation for impaired loans is determined based on a loan by
loan review of impaired loans and specific loans under close monitoring by
management for potential problems.
As of March 31, 2003, the Bank had impaired loans (consisting of real
estate loans) totaling $1,697,198, up $224,328 or 15.2% from $1,472,870 as
of December 31, 2002. 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 $3.8 million or 1.7% of total loans as of
March 31, 2003 compared to $3.7 million or 1.6% of total loans at December
31, 2002.
Deposits. Total deposits decreased $4.1 million or 1.5% to $271.7 million
at March 31, 2003 from $275.8 million at December 31, 2002. The decrease
occurred in most of the deposit categories with the exception of savings
and time deposits. Savings deposits increased to $50.1 million at March 31,
2003 from $49.6 million at December 31, 2002, an increase of $494,832 or
1.0%. NOW deposits decreased to $52.6 million at March 31, 2003 from $54.4
million at December 31, 2002, a decrease of $1.8 million or 3.4%. Money
market deposits decreased to $20.8 million at March 31, 2003 from $23.1
million at December 31, 2002, a decrease of $2.3 million or 10.0%.
Prestige investment accounts decreased to $13.8 million at March 31, 2003
from $15.1 million at December 31, 2002, a decrease of $1.3 million or
8.7%. Demand deposits decreased to $32.8 million at March 31, 2003 from
$34.6 million at December 31, 2002, a decrease of $1.8 million or 5.2%.
Certificates of deposit increased to $101.7 million at March 31, 2003 from
$99.0 million at December 31, 2002, an increase of $2.7 million or 2.8%.
The net decreases in total deposits from year end is not unexpected.
Seasonal deposit outflows normally occur starting in December and continue
through May or June.
Borrowings. Total advances from the FHLB as of March 31, 2003 increased by
$11.1 million to $57.1 million from $46.0 million at December 31, 2002.
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 $1.1 million or
2.9% from $38.3 million at December 31, 2002 to $39.4 million at March 31,
2003. The increase was due to cumulative earnings exceeding dividends
declared and a $233,346 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, 2002 as reported in Item 7A of the
Annual Report on Form 10K.
Item 4: CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
As required by new Rule 13a-15 under the Securities Exchange Act of 1934,
within the 90 days prior to the date of this report, the Company carried
out an evaluation under the supervision and with the participation of the
Company's management, including the Company's President and Chief Executive
Officer and the Senior Vice President/Treasurer, of the effectiveness of
the design and operation of the Company's disclosure controls and
procedures. In designing and evaluating the Company's disclosure controls
and procedures, the Company and its management recognize that any controls
and procedures, no matter how well designed and operated, can provide only
a reasonable assurance of achieving the desired control objectives, and
management necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. Based upon that evaluation,
the President and Chief Executive Officer and the Senior Vice
President/Treasurer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be
disclosed by the Company in the reports it files or submits under the
17
Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Securities and Exchange Commission's rules
and forms.
(b) Changes in internal controls.
In connection with the rules regarding disclosure and control procedures,
we intend to continue to review and document our disclosure controls and
procedures, including our internal controls and procedures for financial
reporting, and may from time to time make changes aimed at enhancing their
effectiveness and to ensure that our systems evolve with our business.
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.
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
March 31, 2003 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 Registrant's fiscal quarter ended March 31, 2003, the Registrant
did not file any reports on Form 8-K.
18
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
------------------------------------
By: Peter A. Blyberg, President
May 13, 2003
/s/ Sally J. Hutchins
------------------------------------
Sally J. Hutchins, Senior Vice
President and Clerk
19
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.
Date: May 13, 2003 By /s/ Peter A. Blyberg
---------------------------------
Peter A. Blyberg
President & CEO
20
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. 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.
Date: May 13, 2003 By /s/ Sally J. Hutchins
---------------------------------
Sally J. Hutchins
Senior Vice President/Treasurer
21