EX-13 4 uni-x13.txt EXHIBIT 13 Exhibit 13 UNION BANKSHARES, INC. 2001 ANNUAL REPORT Union Bank Logo CITIZENS SAVINGS BANK AND TRUST COMPANY Logo Union Bank & Citizens Savings Bank grow to meet the needs of their communities. UNION BANKSHARES, INC. * HISTORY OF GROWTH (In Millions of Dollars) 1997 1998 1999 2000 2001 Capital 29,023 31,762 32,220 35,157 37,215 Loans 201,918 202,468 209,353 224,796 250,943 Deposits 239,229 248,919 267,593 258,737 285,722 Assets 273,280 290,129 295,476 303,394 337,475 Union Bankshares, Inc., is a bank holding company consisting of two community banks whose employees, officers and boards live, work and recreate in the areas the banks serve. Those connections help to sustain a time-tested community approach to banking through a powerful commitment to customer service and an equally firm commitment to meeting the financial needs of the communities they serve. Our approach has proven to be a successful alternative to its larger competitors in the financial services arena. Union Bankshares, 2001, Total Dollars Capital $ 37,215,036 Loans $251,206,280 Deposits $285,721,655 Assets $337,475,356 [PHOTO] Service. Integrity. Trust. For over a century, community banking with a hometown touch. Contents ----------------------------------------------------------- Union Bankshares Gives Back Page 2 Save for Success Page 4 On the Cutting Edge of Technology Page 5 New in 2001 & 2002 Page 6 Merchant Services & HomeTown Trust Page 7 To Our Shareholders Page 8 Selected Financial Information Page 10 Management's Responsibility Page 11 Independent Auditor's Report Page 12 Financial Statements Consolidated Balance Sheets Page 13 Consolidated Statements of Income Page 14 Consolidated Statements of Changes in Stockholders' Equity Page 15 Consolidated Statements of Cash Flows Page 16 Notes to Consolidated Financial Statements Page 17 Management's Discussion and Analysis of the Results of Operations Page 42 Market for Union Bankshares' Common Stock and Related Shareholder Matters Page 55 Shareholder Assistance and Investor Information Page 56 1 UNION BANKSHARES GIVES BACK [PHOTO] Stowe Performing Arts Every summer, music fills the Trapp Family Lodge concert meadow for Stowe Performing Arts' "Music in the Meadow" series. For over 15 years Union Bank has proudly sponsored these concerts, which bring over 6,500 people to the region. Not only do the summer concerts help support the arts in the Lamoille Valley region, but the weekly musical celebrations bring economic vitality to Stowe and surrounding towns. "It's fair to say that the traveling public now sees the Stowe region as a musical destination in the summer, and the combination of Stowe Performing Arts and the International Music Festival at Stowe are largely responsible for that," says Johannes von Trapp, president of Trapp Family Lodge in Stowe. "Without the corporate support, these types of events would be dead." Lynn Paparella, Stowe Performing Art's managing director, concurs: "Union Bank recognizes that the arts are essential in a healthy community, and its long-standing and generous support of Stowe Performing Arts demonstrates its concern for this community and this organization." St. Johnsbury Athenaeum Citizens Savings Bank and Trust Company supported the St. Johnsbury Athenaeum's Landmark and Legacy Capital Campaign to address many renovations needed at the town's only library and art gallery. Designated as a National Historic Landmark, the Athenaeum is one of only 13 national historic landmarks in Vermont and only one of 10 libraries with that distinction nationwide. The 130-year-old building is considered a treasure in the St. Johnsbury community not only for its library but also for the beauty of its distinguished art collection. ------------------- "THANKS TO THE GENEROUS SUPPORT OF THE CITIZENS BANK, THE ATHENAEUM IS ABLE TO FULFILL ITS MISSION TO PROMOTE LIFE-LONG LEARNING THROUGH ART, LITERATURE AND INFORMATION SERVICES, AND TO PRESERVE ITS NATIONAL HISTORIC LANDMARK BUILDING, COLLECTIONS AND FURNISHINGS. WITH THE HELP OF THE CITIZENS BANK, MAJOR EXTERIOR RESTORATION HAS BEEN COMPLETED. IT'S A GRAND COLLABORATION OF A BUSINESS AND A NON-PROFIT WORKING TOGETHER FOR THE BENEFIT OF THE COMMUNITY." LISA VON KANN, LIBRARY DIRECTOR, ST. JOHNSBURY ATHENAEUM "THE UNION BANK IS INCREDIBLE IN ITS SUPPORT OF OUR COUNTY PROGRAMS. THROUGH BANK EMPLOYEE VOLUNTEERS TO FINANCIAL ASSISTANCE, THE BANK IS ALWAYS THERE WHEN WE NEED THEM." DAWN ARCHBOLD, EXECUTIVE DIRECTOR UNITED WAY OF LAMOILLE COUNTY 2 [PHOTO] The Sept. 11 Fund benefited from a collaboration between the Union Bank, its employees and its customers, who raised over $29,000 for victims of the terrorism attacks in New York City and Washington. ------------------- EMPLOYEES HELP BRING PARK BACK TO LIFE In St. Johnsbury, staff at the Citizens Bank share in the same community- minded spirit. The bank took the lead in creating and landscaping a flower garden and "green space" as a gateway to Vermont's Northeast Kingdom. This historic park, in dire need of refurbishment, was rededicated in the summer of 2001 and boasts gardens, a fountain and a welcome kiosk for out-of-town visitors. "This park project," says Michael Welch, town manager in St. Johnsbury, "will always remind me that there are a lot of wonderful people, especially the employees at the Citizens Bank, doing some tremendous things in our town." Pictured at the park's dedication are Jerry Santerre, Barb Olden, Tracy Verge, Lucille Towle and Tracey Holbrook. Lamoille Home Health and Hospice The non-profit Lamoille Home Health and Hospice brings quality home medical care to countless folks throughout Lamoille County. Union Bank supports this organization through direct assistance to services from prenatal care to care for the terminally ill. "The Union Bank is full of community-minded people," says Ann Mallett, R.N. and Executive Director of Lamoille Home Health and Hospice. "Whether it's a visit by one of our therapists, a flu clinic, or bereavement services, the Union Bank's support helps make it all happen." 3 SAVE FOR SUCCESS [PHOTO] A parent volunteer and other students watch as Dylan Zukswert makes a deposit into his Save for Success program account at Morrisville Elementary School. In 1995 the Union Bank, local schools and parent volunteers teamed up to help area children Save for Success -- literally! The Save for Success program helps youths develop the life-long skill of saving. Kid-friendly savings accounts -- the bank opens each young saver's account with a $1 deposit -- enables kids to set saving goals, create the habit of saving, and develop responsibility. Today, over 2,000 children participate in the program. "Without Save for Success," explains Michele Walker, the program coordinator, "there would be a lot of kids who would not be developing these lifelong skills." Participating schools host a weekly banking day where students, assisted by adult volunteers, can make deposits to their savings accounts in any amount. Banking days, usually held before school, do not interfere with instructional hours. Besides the savings aspect, Save for Success features an extensive educational component. Children learn how to read a bank statement, balance a checking account, manage their own money, and apply for mock loans. Walker, who does money-management presentations at area elementary, middle and high schools throughout the year, has also created a Small Savers CD. They work like regular CDs, but with a lower minimum deposit requirement of $200. "Savings is a learned skill, and Union Bank is in this for the long haul," says Walker. Citizens Bank is in the process of introducing its own Save for Success program. SAVE FOR SUCCESS SCHOOLS * BELVIDERE CENTRAL * CAMBRIDGE ELEMENTARY * EDEN CENTRAL * ELMORE SCHOOL * HYDE PARK ELEMENTARY * JOHNSON ELEMENTARY * MORRISTOWN ELEMENTARY * STOWE ELEMENTARY * WALDEN SCHOOL * WATERVILLE CENTRAL * FLETCHER ELEMENTARY * PEOPLES ACADEMY MIDDLE LEVEL * CRAFTSBURY ELEMENTARY * CRAFTSBURY ACADEMY * WOLCOTT ELEMENTARY * BISHOP MARSHALL SCHOOL 4 ON THE CUTTING EDGE OF TECHNOLOGY NetTeller(TM) & bill paying online Just as the assembly line revolutionized American manufacturing, technology -- particularly the Internet -- is revolutionizing banking. There's never been a more convenient, fast or easy way to bank. The Citizens Bank's and Union Bank's Internet banking product NetTeller(TM) allows customers to view account balances, transfer funds, view cleared transactions, make loan payments and more from the comfort of home or office -- 24/7. All one needs is a connection to the Internet. For the banks, NetTeller(TM) meets the needs of a different market base while enhancing the banks' already high customer service quotient. It allows us to increase customer options and meet many customer needs more quickly -- any time of the day or night -- without compromising service or impacting the bottom line. "One month we had 18,000 NetTeller(TM) and Express Telebanking(TM) transactions," explains Rhonda Bennett, a Vice President at Union Bank. "That makes a huge difference." Senior Vice President David Silverman echoes those sentiments: "The goal is to grow the bank without growing overhead." When the ability to pay bills via the Internet debuts in 2002, customers will enjoy the added service and convenience of writing online checks to pay bills. Customers can build a unique personal payee list online and schedule payments to be made one time in the future or on a recurring schedule. The benefits to the bank are enormous as well, as the cost per electronic transaction is just a fraction of a cent compared to paper checks. Both Citizens Bank and Union Bank will feature this online bill-paying service. Union Bankshares, Inc. Electronic Transactions, 2001 In thousands Net Teller 67,707 Express Telebanking 190,979 Debit Card 461,072 ATM 530,289 Express Telebanking(TM) & Xpress Phone Banking For customers without an Internet connection, Union Bank's Express Telebanking(TM) service and Citizens Bank's Xpress Phone Banking(TM) service provide account access via any touch-tone telephone. Both business and retail customers can transfer funds, check account balances or hear current interest rates. ATM Card ATM cards issued by us give customers access to cash, the ability to make deposits, transfer funds between accounts, and make balance inquires at most of our ATMs. We are members of the Vermont Independent Network Affiliation (VINA), which gives customers access to free services at nearly 70 locations across the state. MasterMoney(TM) Card Featuring all of the advantages of an ATM card, the banks also offer the MasterMoney(TM) card, which provides customers with the benefits of a credit card, without the interest charges. Purchases are automatically debited from checking accounts, providing convenience to the customer and cost-savings to the banks. ------------------- "Electronic avenues to access customer accounts can lead to substantial deposit growth without adding or changing staffing needs." Ken Gibbons President & CEO Union Bank 5 WHAT'S NEW IN 2001 & 2002 [PHOTO] Union Bank branches out Union Bank is moving into Franklin County. With eight offices in Lamoille County and Hardwick, the neighboring town of Fairfax is a logical next step for expansion. "Fairfax is about 10 miles from the Jeffersonville branch, is a fast- growing community and until now there's been no bank in town," explains Steve Kendall, manager of the Fairfax branch. Besides Steve -- a customer service representative, two tellers -- and a part-time teller will staff the office. Located on Route 104, the full- service branch will also feature a drive-up window and ATM. Kendall feels Fairfax residents -- and those in neighboring towns such as Westford and Georgia -- will be well served by the Union Bank philosophy. "We're not like big banks. They're square peg, square hole -- one size fits all. This is a bank that remembers it's still in business for the customer." An April 2002 opening is planned. [PHOTO] Citizens opens loan service center Citizens Bank opened a loan origination office on Main Street in Littleton, N.H., in June 2001. The office has helped the bank achieve good growth in consumer, residential and commercial loans. 6 MERCHANT SERVICES, HOMETOWN TRUST [PHOTO] Merchant Services expands While many banks have discontinued credit card transaction processing services, we have placed significant emphasis on providing this necessary service to our business customers. Under the banner of Merchant Services, Stacey L.B. Chase at Union Bank and Lucille Towle at Citizens Bank provide their customers with personalized credit card processing services. "Rather than walking a customer through this process over the phone, we prefer to do this in person to develop a relationship and build customer loyalty," says Chase. "That is very important to us and I think we do it well." Jerry Rowe, President of Citizens Bank, says, "In addition to providing a steadily growing source of non-interest income to the banks, our personal service in this area helps us to be a total banking solution for our business clients." Credit card sales the banks will process for their customers are expected to exceed $70 million in 2002. We currently serve over 600 business clients. HomeTown Trust keeps pace with investment trends [PHOTO] While not a new service, managing customers' investments remains a priority. While many banks -- large and small -- provide similar financial planning services, our financial planners take customer service to a higher level. HomeTown Trust, a division of Citizens Bank, provides investment management, trust accounts, estate settlement, retirement accounts and custody services at both banks. "We go out of our way to provide the best service possible," says Deb Partlow, Certified Financial Planner and Trust officer. "I work between both banks and will meet with clients just about anywhere at anytime; we make this service as flexible as possible for the client." Preservation of purchasing power and the ultimate growth of assets over a period of time are the primary investment goals of HomeTown Trust. The investment division adheres to a conservative investment policy in both the purchase of financial assets and in managing a client's investment portfolio. In this age of mega-mergers, it's comforting to know that clients can deal with an organization that is operated with local interests in mind. ------------------- At Top: Stacey L.B. Chase installs a credit card terminal and gives Sunset Motel owner Madeline Bourgeois a hands-on lesson. Deb Partlow meets with Morrisville business owners Pete and Pat Couture about HomeTown Trust services. 7 UNION BANKSHARES, INC. To our shareholders March 29, 2002 This year's annual report once again contains important financial statements, footnotes and required information for our shareholders. In addition, we have included a few pictures, charts and information that tells you a little about some of the staff's responsibilities. Both Union Bank and Citizens Bank are "community banks" and, as such, our employees devote considerable time and effort assisting the communities we serve to grow and prosper. These activities help us gain a better understanding of where our resources should be applied to continue the growth of your company. Any discussion about financial results in 2001 should probably begin with a comment about interest rates. During the year the "Prime Rate" dropped from 9.5% in January to 4.75% in December. This decrease (50%) reduced the prime rate to a 40-year low and was the result of actions taken by the Federal Reserve in anticipation of a recession. The decline in interest rates had a negative effect on our net interest margin, but also fed a surge in refinancing and new loan requests. Loans outstanding at year-end increased $26 million (11.6%), which kept our lending and support staff on their toes all year. Deposits also increased $26 million (10.4%) due to natural growth and to some extent a shift from the equities markets to bank deposits by some investors. Total assets grew 11.2% and capital, as a percentage of assets, exceeded 11% at year-end. Electronic banking continues to grow in popularity as two more ATMs were added to our network this past year. In addition, Citizens will be installing a full-service ATM at its Littleton, N.H., loan center sometime this spring. This office has had good acceptance and is contributing to our growth in loans. In 2002 we will be introducing electronic bill pay and cash management banking products as well as marketing our current line of ATM, Internet and telephone access products. Union's newest full-service branch located on Route 104 in Fairfax is scheduled to open in mid-April. The staff has been selected and looks forward to making a substantial impact in an area that we believe is under served by the banking community. Clearly, for a community bank to continue to grow, it must offer service delivery channels for those wishing conventional banking access as well as electronic banking options. In addition to new products and new facilities in 2002, we are continuing to bring the cultures and operations of the two banks together. Although certain aspects, such as our commitment to ------------------- DEPOSITS ALSO INCREASED $26 MILLION (10.4%) DUE TO NATURAL GROWTH AND TO SOME EXTENT A SHIFT FROM THE EQUITIES MARKETS TO BANK DEPOSITS BY SOME INVESTORS. TOTAL ASSETS GREW 11.2% AND CAPITAL, AS A PERCENTAGE OF ASSETS, EXCEEDED 11% AT YEAR-END. 8 [PHOTO] Union Bankshares, Inc., Board of Directors. Front row: Richard C. Marron, Kenneth D. Gibbons, W. Arlen Smith, William T. Costa, Jr. Back row: Robert P. Rollins, Franklin G. Hovey II, Richard C. Sargent, Jerry S. Rowe, and Cynthia D. Borck. training, are on-going, the majority of the backroom consolidation of the two banks is scheduled to be completed this summer, enabling Citizens to focus further on developing its market share. In the proxy statement you will notice the board is recommending John H. Steel of Stowe as a director. Mr. Steel has been a resident of Stowe for many years, owns a successful residential construction company, and is very active within the community. He has served on the Board of Union Bank for over a year and provides good insight on this important part of our market area. This past year was one of challenge and growth. We would like, once again, to acknowledge the dedication and hard work of our employees. They are an integral part of what makes us successful community banks. Our loyal customers and shareholders are also valued components of our success and we appreciate their business and support. Sincerely, /s/ W. Arlen Smith /s/ Kenneth D. Gibbons W. Arlen Smith Kenneth D. Gibbons Chairman President & CEO 9 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- SELECTED FINANCIAL INFORMATION
At or For The Years Ended December 31 (4) --------------------------------------------------------------------- 2001 2000 1999 1998 1997 (Dollars in thousands, except per share data) --------------------------------------------------------------------- Balance Sheet Data: Total Assets $ 337,475 $ 303,394 $ 295,476 $ 290,129 $ 273,280 Investment Securities 49,613 56,642 60,441 58,585 45,900 Loans, net of unearned income 250,943 224,796 209,353 202,468 201,918 Allowance for loan losses (2,801) (2,863) (2,870) (2,845) (2,811) Deposits 285,722 258,737 257,593 248,919 239,229 Borrowed funds 10,344 6,382 2,872 6,084 1,636 Shareholders' equity (1) 37,215 35,157 32,220 31,762 29,023 Income Statement Data: Total interest income $ 24,124 $ 24,126 $ 22,868 $ 22,626 $ 21,666 Total interest expense (9,565) (9,877) (9,122) (9,252) (8,782) --------------------------------------------------------------------- Net interest and dividend income 14,559 14,249 13,746 13,374 12,884 Provision for loan losses (320) (250) (359) (400) (425) Noninterest income 3,073 2,569 2,568 2,911 2,412 Noninterest expenses (10,496) (9,944) (10,065) (9,279) (8,567) --------------------------------------------------------------------- Income before income taxes 6,816 6,625 5,890 6,606 6,304 Income tax expense (1,984) (1,825) (1,815) (2,055) (1,949) --------------------------------------------------------------------- Net income $ 4,832 $ 4,800 $ 4,075 $ 4,551 $ 4,355 ===================================================================== Per Common Share Data: (2) Net income (3) $ 1.59 $ 1.58 $ 1.35 $ 1.51 $ 1.44 Cash dividends paid 1.06 0.98 0.90 0.82 0.75 Book value (1) 12.29 11.60 10.64 10.50 9.60 Weighted average # of shares outstanding 3,030,973 3,029,627 3,028,457 3,022,223 3,025,978 Number of shares outstanding 3,027,557 3,029,729 3,029,529 3,025,438 3,023,558 -------------------- Shareholders' equity includes unrealized gains or losses, net of applicable income taxes, on investment securities classified as "available-for-sale". Adjusted to reflect a two-for-one stock split of Union's common stock, completed June 6, 1997 and effected in the form of a 100% stock dividend. Computed using the weighted average number of shares outstanding for the period. Restated for all periods presented to reflect the merger with Citizens accomplished through a merger transaction accounted for as a pooling of interests.
10 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- MANAGEMENT'S RESPONSIBILITY The management of Union Bankshares, Inc. is responsible for the integrity and objectivity of the information and representations in this annual report, including the consolidated financial statements. These statements have been prepared in conformity with accounting principles generally accepted in the United States of America using informed estimates where appropriate, to reflect the Company's financial condition, results of operations, and cash flows. The information in other sections of the annual report is consistent with these statements. The Company's Board of Directors has oversight responsibilities for determining that management has fulfilled its obligation in the preparation of the financial statements and in the ongoing examination of the Company's established internal control structure over financial reporting. The Audit Committee, which consists solely of outside directors and which reports directly to the Board of Directors, meets regularly with management, Urbach Kahn & Werlin LLP, Certified Public Accountants and the Company's internal auditor to discuss accounting, auditing and reporting matters. To ensure auditor independence, both Urbach Kahn & Werlin LLP and the internal auditor have unrestricted access to the Audit Committee. The financial statements have been audited by Urbach Kahn & Werlin LLP, whose report appears on the next page. The auditors provide an objective, independent review as to management's discharge of its responsibilities insofar as they relate to the fairness of the Company's reported financial condition, results of operations, and cash flows. Their audit includes procedures believed by them to provide reasonable assurance that the financial statements are free of material misstatement. /s/ Marsha A. Mongeon /s/ Kenneth D. Gibbons --------------------- ------------------------------------ Marsha A. Mongeon Kenneth D. Gibbons Chief Financial Officer Chief Executive Officer 11 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT DECEMBER 31, 2001 To the Board of Directors and Stockholders of Union Bankshares, Inc. We have audited the accompanying consolidated balance sheet of Union Bankshares, Inc. and Subsidiaries as of December 31, 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Union Bankshares, Inc. and Subsidiaries for December 31, 2000 and 1999, were audited by other auditors whose report dated January 12, 2000, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Union Bankshares, Inc. and Subsidiaries as of December 31, 2001, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. URBACH KAHN & WERLIN LLP Albany, New York February 1, 2002 VT Reg. No. 092-0000-026 12 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ---------------------------- ASSETS Cash and due from banks $ 13,926,457 $ 10,353,570 Federal funds sold and overnight deposits 7,630,393 1,144,604 ---------------------------- Cash and cash equivalents 21,556,850 11,498,174 Interest bearing deposits 4,700,230 1,646,804 Securities available-for-sale 49,612,631 56,641,687 Federal Home Loan Bank stock 1,063,500 1,016,800 Loans held for sale 16,332,646 9,153,305 Loans 234,873,634 215,892,669 Allowance for loan losses (2,800,963) (2,862,707) Unearned net loan fees (263,080) (250,374) ---------------------------- Net loans 231,809,591 212,779,588 Accrued interest receivable 2,036,566 2,596,891 Premises and equipment, net 4,156,095 3,964,314 Other real estate owned 1,296,192 116,293 Other assets 4,911,055 3,980,553 ---------------------------- Total assets $337,475,356 $303,394,409 ============================ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest bearing $ 39,546,401 $ 33,546,985 Interest bearing 246,175,254 225,189,595 ---------------------------- Total deposits 285,721,655 258,736,580 Borrowed funds 10,344,441 6,381,778 Accrued expenses and other liabilities 4,194,224 3,118,996 ---------------------------- Total liabilities 300,260,320 268,237,354 ---------------------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, $2.00 par value; 5,000,000 shares authorized; 3,268,189 shares issued in 2001; 3,263,689 shares issued in 2000 6,536,378 6,527,378 Paid-in capital 277,254 239,903 Retained earnings 31,628,920 30,010,683 Treasury stock, at cost; 240,632 shares in 2001 and 233,960 shares in 2000 (1,721,931) (1,592,451) Accumulated other comprehensive income (loss) 494,415 (28,458) ---------------------------- Total stockholders' equity 37,215,036 35,157,055 ---------------------------- Total liabilities and stockholders' equity $337,475,356 $303,394,409 ============================
See notes to consolidated financial statements. 13 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ----------------------------------------- Interest income Interest and fees on loans $20,541,133 $20,058,057 $18,635,371 Interest on debt securities Taxable 2,788,067 3,284,256 3,363,022 Tax exempt 226,684 216,101 207,222 Dividends 109,230 114,908 115,282 Interest on federal funds sold 306,598 333,105 425,389 Interest on interest bearing deposits 152,116 119,898 122,300 ----------------------------------------- Total interest income 24,123,828 24,126,325 22,868,586 ----------------------------------------- Interest expense Interest on deposits 8,798,903 9,455,437 8,833,767 Interest on federal funds purchased 3,933 4,955 1,796 Interest on other borrowed money 761,610 416,965 286,008 ----------------------------------------- Total interest expense 9,564,446 9,877,357 9,121,571 ----------------------------------------- Net interest income 14,559,382 14,248,968 13,747,015 Provision for loan losses 320,000 250,000 359,496 ----------------------------------------- Net interest income after provision for loan losses 14,239,382 13,998,968 13,387,519 ----------------------------------------- Other income Trust income 246,609 181,611 165,770 Service fees 2,375,460 2,209,651 2,228,873 Gain on sale of securities 156,642 24,648 2,976 Gain on sale of loans 156,248 33,747 39,991 Other income 137,719 119,603 130,602 ----------------------------------------- 3,072,678 2,569,260 2,568,212 Other expenses Salaries and wages 4,753,569 4,493,992 4,233,731 Pension and employee benefits 1,450,794 1,122,965 1,082,679 Occupancy expense, net 633,531 560,477 534,813 Equipment expense 835,263 993,943 1,124,755 Other expenses 2,822,879 2,772,299 3,089,023 ----------------------------------------- 10,496,036 9,943,676 10,065,001 ----------------------------------------- Income before income taxes 6,816,024 6,624, 5,890,730 Income tax expense 1,984,006 1,825,010 1,815,259 ----------------------------------------- Net income $ 4,832,018 $ 4,799,542 $ 4,075,471 ========================================= Earnings per common share $ 1.59 $ 1.58 $ 1.35 =========================================
See notes to consolidated financial statements. 14 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Accumulated Common Stock other Total ------------------ Paid-in Retained Treasury comprehensive stockholders' Shares Amount capital earnings stock income (loss) equity ---------------------------------------------------------------------------------------------- Balances, December 31, 1998 3,025,438 $6,518,796 $211,394 $26,029,355 $(1,592,451) $ 595,129 $31,762,223 Comprehensive income Net income 0 0 0 4,075,471 0 0 4,075,471 Change in net unrealized gain (loss) on securities available- for-sale, net of reclassification adjustment and tax effects 0 0 0 0 0 (1,728,175) (1,728,175) ----------- Total comprehensive income 2,347,296 ----------- Cash dividends declared ($.90 per share) 0 0 0 (1,924,646) 0 0 (1,924,646) Exercise of stock option 4,300 8,600 31,325 0 0 0 39,925 Retirement of common stock (209) (418) (4,366) 0 0 0 (4,784) -------------------------------------------------------------------------------------------- Balances, December 31, 1999 3,029,529 6,526,978 238,353 28,180,180 (1,592,451) (1,133,046) 32,220,014 Comprehensive income Net income 0 0 0 4,799,542 0 0 4,799,542 Change in net unrealized gain (loss) on securities available- for-sale, net of reclassification adjustment and tax effects 0 0 0 0 0 1,104,588 1,104,588 ----------- Total comprehensive income 5,904,130 ----------- Cash dividends declared ($.98 per share) 0 0 0 (2,969,039) 0 0 (2,969,039) Exercise of stock option 200 400 1,550 0 0 0 1,950 -------------------------------------------------------------------------------------------- Balances, December 31, 2000 3,029,729 6,527,378 239,903 30,010,683 (1,592,451) (28,458) 35,157,055 Comprehensive income Net income 0 0 0 4,832,018 0 0 4,832,018 Change in net unrealized gain (loss) on securities available- for-sale, net of reclassification adjustment and tax effects 0 0 0 0 0 522,873 522,873 ----------- Total comprehensive income 5,354,891 ----------- Cash dividends declared ($1.06 per share) 0 0 0 (3,213,781) 0 0 (3,213,781) Purchase of treasury stock (6,672) 0 0 0 (129,480) 0 (129,480) Exercise of stock option 4,500 9,000 37,351 0 0 0 46,351 -------------------------------------------------------------------------------------------- Balances, December 31, 2001 3,027,557 $6,536,378 $277,254 $31,628,920 $(1,721,931) $ 494,415 $37,215,036 ============================================================================================
See notes to condolidated financial statements. 15 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CAHS FLOWS YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 --------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,832,018 $ 4,799,542 $ 4,075,471 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 608,145 789,027 867,114 Provision for loan losses 320,000 250,000 359,496 (Credit) provision for deferred income taxes (49,714) (18,339) 52,958 Net amortization on securities 89,117 51,389 123,705 Equity in losses of limited partnerships 70,423 45,103 21,523 Write-downs of other real estate owned 0 12,008 7,421 Increase (decrease) in unamortized loan fees 12,706 (22,931) 7,837 Increase in loans held for resale (7,023,093) (1,017,743) (661,968) Decrease (increase) in accrued interest receivable 560,325 (397,465) (93,724) Decrease (increase) in other assets (219,583) 102,923 (339,262) Increase (decrease) in income taxes 223,687 (196,601) 24,281 (Decrease) increase in accrued interest payable (9,360) 288,879 (107,210) Increase (decrease) in other liabilities 8,748 39,217 (127,072) Gain on sale of securities (156,642) (24,648) (2,976) Gain on sale of loans (156,248) (33,747) (39,991) Loss (gain) on sale of other real estate owned 18,321 (6,785) (4,779) Loss on disposal of fixed assets 8,630 3,750 15,530 ---------------------------------------------- Net cash provided by (used in) operating activities (862,520) 4,663,579 4,178,354 ---------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Interest bearing deposits Maturities and redemptions 981,975 935,342 923,322 Purchases (4,035,401) (656,330) (1,065,999) Securities available-for-sale Sales and maturities 30,112,548 11,353,211 18,581,808 Purchases (22,223,736) (5,907,600) (23,176,008) Purchase of Federal Home Loan Bank stock (46,700) (78,000) (34,800) Increase in loans, net (20,785,053) (14,936,084) (6,696,985) Recoveries of loans charged off 93,771 123,590 94,194 Purchase of premises and equipment, net (1,020,873) (737,316) (350,659) Investments in limited partnerships (154,125) (190,575) (472,883) Proceeds from sales of premises and equipment 212,317 23,261 2,200 Proceeds from sales of other real estate owned 104,702 42,241 559,498 Proceeds from sales of repossessed property 30,943 43,487 73,930 ---------------------------------------------- Net cash used in investing activities (16,729,632) (9,984,773) (11,562,382) ---------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings, net of repayments 3,962,663 3,509,849 (3,212,439) Proceeds from exercise of stock options 46,351 1,950 39,925 Net increase in noninterest bearing deposits 5,999,416 558,093 40,271 Net increase in interest bearing deposits 20,985,659 585,684 8,634,316 Purchase of treasury stock (129,480) 0 (4,784) Dividends paid (3,213,781) (2,969,039) (2,266,646) ---------------------------------------------- Net cash provided by financing activities 27,650,828 1,686,537 3,230,643 ---------------------------------------------- Increase (decrease) in cash and cash equivalents 10,058,676 (3,634,657) (4,153,385) Cash and cash equivalents: Beginning 11,498,174 15,132,831 19,286,216 ---------------------------------------------- Ending $ 21,556,850 $ 11,498,174 $ 15,132,831 ============================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 9,573,806 $ 9,588,478 $ 9,228,781 ============================================== Income taxes paid $ 1,819,250 $ 2,039,950 $ 1,738,020 ============================================== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Other real estate acquired in settlement of loans $ 1,302,922 $ 137,090 $ 102,658 ============================================== Repossessed property acquired in settlement of loans $ 25,651 $ 143,325 $ 151,356 ============================================== Investment in limited partnerships acquired by capital contributions payable $ 1,099,800 $ 0 $ 0 ============================================== Total change in unrealized gain (loss) on securities available-for-sale $ 792,232 $ 1,673,618 $ (2,618,447) ==============================================
See notes to consolidated financial statements. 16 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Significant Accounting Policies The accounting policies of Union Bankshares, Inc. and Subsidiaries (the "Company") are in conformity with U. S. generally accepted accounting principles and general practices within the banking industry. The following is a description of the more significant policies. Basis of presentation and consolidation The consolidated financial statements include the accounts of Union Bankshares, Inc., and its wholly-owned subsidiaries, Union Bank ("Union"), and Citizens Savings Bank and Trust Company ("Citizens"). All financial information has been restated historically for the acquisition of Citizens accounted for as pooling of interests as described in Note 19. All significant intercompany transactions and balances have been eliminated. Nature of operations The Company provides a variety of financial services to individuals and corporate customers through its branches, ATM's, telebanking, and Internet Banking systems in northern Vermont and New Hampshire which encompasses primarily retail consumers, small businesses, agriculture, and the tourism industry. The Company's primary deposit products are checking, savings, money market accounts, and certificates of deposit. Its primary lending products are commercial, real estate, municipal, and consumer loans. Concentration of risk The Company's operations are affected by various risk factors, including interest-rate risk, credit risk, and risk from geographic concentration of lending activities. Management attempts to manage interest rate risk through various asset/liability management techniques designed to match maturities of assets and liabilities. Loan policies and administration are designed to provide assurance that loans will only be granted to credit- worthy borrowers, although credit losses are expected to occur because of subjective factors and factors beyond the control of the Company. Although the Company has a diversified loan portfolio and economic conditions are relatively stable, most of its lending activities are conducted within the geographic area where it is located. As a result, the Company and its borrowers may be especially vulnerable to the consequences of changes in the local economy. Note 4 discusses the types of securities that the Bank invests in. Note 5 discusses the types of lending which the Bank engages in. In addition, a substantial portion of the Company's loans are secured by real estate and/or are SBA guaranteed. Use of estimates The preparation of consolidated financial statements in conformity with U. S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and deferred tax assets. The amount of the change that is reasonably possible cannot be estimated. Presentation of cash flows For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing), federal funds sold (generally purchased and sold for one day periods), and overnight deposits. Trust assets Assets of the Trust Department, other than trust cash on deposit, are not included in these consolidated financial statements because they are not assets of the Company. 17 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1. Significant Accounting Policies (Continued) Investment securities Investment securities purchased and held primarily for resale in the near future are classified as trading securities and are carried at fair value with unrealized gains and losses included in earnings. Debt securities the Company has the positive intent and ability to hold to maturity are classified as held to maturity and carried at cost, adjusted for amortization of premium and accretion of discounts using methods approximating the interest method. Debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale. Investments classified as available-for-sale are carried at fair value. Unrealized gains and losses on available-for-sale securities are reported as a net amount in other comprehensive income, net of tax and reclassification adjustment. Declines in the fair value of held- to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. The specific identification method is used to determine realized gains and losses on sales of securities available-for-sale. Federal Home Loan Bank stock As members of the Federal Home Loan Bank, Union and Citizens are required to invest in $100 par value stock of the Federal Home Loan Bank. The stock is nonmarketable, and when redeemed, they would receive from the Federal Home Loan Bank an amount equal to the par value of the stock. Loans held for sale Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. All sales are made without recourse. Net unrealized losses are recognized through a valuation allowance by charges to income. Loans Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their unpaid principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans. Loan interest income is accrued daily on outstanding balances. The accrual of interest is discontinued when a loan is specifically determined to be impaired or management believes, after considering collection efforts and other factors, that the borrowers financial condition is such that collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. Loan origination and commitment fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company is generally amortizing these amounts over the contractual life. Allowance for loan losses The allowance for loan losses is maintained at a level which, in management's judgment, is adequate to absorb credit losses inherent in the loan portfolio. The amount of the allowance is based on management's periodic evaluation of the collectibility of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for impaired loans are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense, and reduced by charge-offs, net of recoveries. 18 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1. Significant Accounting Policies (Continued) Premises and equipment Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed principally by the straight-line method over their estimated useful lives. The cost of assets sold or otherwise disposed of and the related allowance for depreciation is eliminated from the accounts and the resulting gains or losses are reflected in the income statement. Maintenance and repairs are charged to current expense as incurred and the cost of major renewals and betterments are capitalized. Other real estate owned Real estate properties acquired through or in lieu of loan foreclosure are to be sold and are initially recorded at fair value at the date of foreclosure establishing a new carrying basis. After foreclosure, valuations are periodically performed by management, and the real estate is carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation are included in other income and expenses. Mortgage servicing Servicing assets are recognized as separate assets when rights are acquired through purchase or sale of financial assets. Capitalized servicing rights are reported in other assets and are amortized into noninterest expense in proportion to, and over the period of, the estimated future net servicing income of the underlying financial assets. Servicing assets are evaluated for impairment based upon the fair value of the rights as compared to amortized cost. Impairment is determined by stratifying rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance for an individual stratum, to the extent that fair value is less than the capitalized amount for the stratum. Pension plans Union maintains a non-contributory defined benefit pension plan covering all eligible employees who meet certain service requirements. Union also has a contributory 401(k) pension plan covering all employees who meet certain service requirements. This plan is voluntary, and in 2001, 2000, and 1999, Union contributed fifty cents for every dollar contributed by participants, up to six percent of each participant's salary. Citizens has a contributory 401(k) pension plan covering all employees who meet certain age and service requirements. The plan is voluntary, and Citizens contributes fifty cents for every dollar contributed by participants, up to six percent of each participant's salary. Pension costs are charged to pension and other employee benefits expense and are funded as accrued. Advertising costs The Company expenses advertising costs as incurred. Earnings per common share Earnings per common share are computed based on the weighted average number of shares of common stock outstanding during the period, retroactively adjusted for stock splits, stock dividends, and stock issues relating to the acquisition of Citizens in a merger accounted for as a pooling of interests as described in Note 19 and reduced for shares held in treasury. The weighted average shares outstanding were 3,030,973, 3,029,627, and 3,028,457 for the years ended December 31, 2001, 2000, and 1999, respectively. 19 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1. Significant Accounting Policies (Continued) Income taxes The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. Adjustments to the Company's deferred tax assets are recognized as deferred income tax expense or benefit based on management's judgment relating to the realizability of such assets. Off-balance-sheet financial instruments In the ordinary course of business, the Company has entered into off balance sheet financial instrument arrangements consisting of commitments to extend credit, commitments under credit card arrangements, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable. Fair values of financial instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values. Investment securities and interest bearing deposits: Fair values for investment securities and interest bearing deposits are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or discounted present values of cash flows. Federal Home Loan Bank stock: The carrying amount of this stock approximates its fair value. Loans and loans held for sale: For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts. The fair values for other loans (for example, fixed-rate residential, commercial real estate, and rental property mortgage loans, and commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future expected loss experience and risk characteristics. The carrying amounts reported in the balance sheet for loans that are held for sale approximate their fair market values. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable. Deposits: The fair values disclosed for demand deposits (for example, checking and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable rate certificates of deposit approximate their fair values at the reporting date. The fair values for fixed rate certificates of deposit and borrowed funds are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates and debt to a schedule of aggregated contractual maturities on such time deposits and debt. Accrued interest: The carrying amounts of accrued interest approximates their fair values. Borrowed funds: The fair values of the Company's long term debt are estimated using discounted cash flow analysis based on interest rates currently being offered on similar debt instruments. Other liabilities: Commitments to extend credit were evaluated and fair value was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. 20 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1. Significant Accounting Policies (Continued) Comprehensive income Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available- for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income. The components of other comprehensive income and related tax effects at December 31 are as follows:
2001 2000 1999 ---------------------------------------- Unrealized holding gains (losses) on available-for-sale securities $ 948,874 $1,698,266 $(2,615,471) Reclassification adjustment for gains realized in income (156,642) (24,648) (2,976) ---------------------------------------- Net unrealized gains (losses) 792,232 1,673,618 (2,618,447) Tax effect (269,359) (569,030) 890,272 ---------------------------------------- Net of tax amount $ 522,873 $1,104,588 $(1,728,175) ========================================
Stock option plan The Company accounts for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeds the exercise price. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 and provide pro forma net income disclosures for employee stock-based awards made in 1995 and future years as if the fair value based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures of SFAS No. 123. See Note 18. Transfers of financial assets Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. Segment reporting SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," establishes standards relative to public companies for the reporting of certain information about operating segments within their financial statements. Management has determined that the Company has two reportable segments as defined within the SFAS No. 131. These segments are disclosed in Note 20 of the financial statements. 21 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 1. Significant Accounting Policies (Continued) Recent accounting pronouncements Effective January 1, 2001, the Company adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivative as either assets or liabilities in the balance sheet and measure those derivatives at fair value. The accounting for the changes in fair value of the derivative financial instrument depends on the intended use and whether it qualifies for hedge accounting. The adoption of SFAS No. 133 did not materially impact the financial position or results of operations of the Company, as the Company does not utilize derivative instruments in its operations. In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 supercedes APB Opinion No. 16, "Business Combinations," and requires all business combinations to be accounted for under the purchase method of accounting, thus eliminating the pooling of interests method of accounting. SFAS No. 141 did not change many of the provisions of APB Opinion No. 16 related to the application of purchase method. However, SFAS No. 141 does specify criteria for recognizing intangible assets separate from goodwill and requires additional disclosures regarding business combinations. SFAS No. 141 is effective for business combinations initiated after June 30, 2001. Management is currently evaluating the impact of SFAS No. 141 on the Company's financial statements but does not anticipate it will have a material impact. SFAS No. 142 requires acquired intangible assets (other than goodwill) to be amortized over their useful economic life, while goodwill and any acquired intangible assets with indefinite useful economic life would not be amortized, but would be reviewed for impairment on an annual basis based upon guidelines specified by SFAS No. 142. SFAS No. 142 also requires additional disclosures pertaining to goodwill and intangible assets. The provisions of SFAS No. 142 are required to be adopted starting with fiscal years beginning after December 15, 2001. Management is currently evaluating the impact of SFAS No. 142 on the Company's financial statements but does not anticipate it will have a material impact. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long- lived assets. SFAS No. 144 supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," but retains the basic recognition and measurement model for assets held for use and held for sale. The provisions of SFAS No. 144 are required to be adopted starting with fiscal years beginning after December 15, 2001. Management is currently evaluating the impact of this Statement on the Company's financial statements but does not anticipate it will have a material impact. Reclassifications Certain amounts in the 2000 and 1999 financial statements have been reclassified to conform to the current year presentation. Note 2. Restrictions on Cash and Due From Banks The Company is required to maintain reserve balances in cash with Federal Reserve Banks. The totals of those reserve balances were approximately $3,144,000 and $2,819,000 at December 31, 2001 and 2000, respectively. The nature of the Bank's business requires that it maintain amounts due from banks which, at times, may exceed federally insured limits. The balance in these accounts at December 31, is as follows:
2001 2000 ------------------------ Noninterest-bearing accounts $2,256,258 $1,725,716 Federal Reserve Bank 8,175,818 5,732,135 Federal funds sold 7,522,886 1,070,000
No losses have been experienced in these accounts. In addition, the Company was required to maintain contracted clearing balances of $1,950,000 and $750,000 at December 31, 2001 and 2000, respectively. 22 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 3. Interest Bearing Deposits Interest bearing deposits consist of certificates of deposit purchased from various financial institutions. Deposits at each institution are maintained at or below the FDIC insurable limits of $100,000. These certificates were issued with rates ranging from 2.25% to 7.15% and mature at various dates through 2006 with approximately $1,862,000 scheduled to mature in 2002. Note 4. Investment Securities Securities available-for-sale consist of the following:
Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------------------------------------------------ December 31, 2001: U.S. Government and agency and corporation securities $ 4,470,503 $ 80,443 $ 16,851 $ 4,534,095 Mortgage-backed securities 15,667,878 230,905 20,438 15,878,345 State and political subdivisions 5,916,570 31,100 47,240 5,900,430 Corporate debt securities 22,197,546 403,063 140,893 22,459,716 Marketable equity securities 611,020 231,480 2,455 840,045 ------------------------------------------------------ $48,863,517 $976,991 $ 27,877 $49,612,631 ====================================================== December 31, 2000: U.S. Government and agency and corporation securities $22,400,816 $ 49,316 $143,106 $22,307,026 Mortgage-backed securities 7,767,747 45,956 47,242 7,766,461 State and political subdivisions 4,914,973 0 117,777 4,797,196 Corporate debt securities 20,973,602 43,677 360,051 20,657,228 Marketable equity securities 627,667 486,109 0 1,113,776 ------------------------------------------------------ $56,684,805 $625,058 $668,176 $56,641,687 ======================================================
Investment securities with a carrying amount of $3,996,329 and $7,494,231 at December 31, 2001 and 2000, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law. All realized gains and losses in 2001, 2000, and 1999 were from the sale of securities available-for-sale. Proceeds from the sale of securities available-for-sale were $7,497,628, $7,409,118, and $9,651,088 in 2001, 2000, and 1999, respectively. Realized gains from sales of investments available-for-sale were $182,087, $69,765, and $7,751 with realized losses of $25,445, $45,117, and $4,775 for the years 2001, 2000, and 1999, respectively. 23 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 4. Investment Securities (Continued) The scheduled maturities of securities available-for-sale as of December 31, 2001 were as follows:
Amortized Fair Cost Value -------------------------- Due in one year or less $ 4,764,685 $ 4,803,997 Due from one to five years 18,390,953 18,762,471 Due from five to ten years 8,689,825 8,596,710 Due after ten years 739,156 731,063 -------------------------- 33,806,659 32,894,241 Mortgage-backed securities 15,667,878 15,878,345 Marketable equity securities 611,020 840,045 -------------------------- $48,863,517 $49,612,631 ==========================
Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or repaid without any penalties. Therefore, these securities are not included in the maturity categories in the above maturity summary. Note 5. Loans The composition of net loans at December 31 is as follows:
2001 2000 ---------------------------- Real estate, other than commercial $112,563,554 $104,416,879 Commercial real estate 78,898,511 66,185,904 Commercial 20,658,734 18,215,289 Consumer 12,201,046 14,626,249 Municipal loans 10,551,789 12,448,348 ---------------------------- Gross Loans 234,873,634 215,892,669 ---------------------------- Deduct: Allowance for loan losses 2,800,963 2,862,707 Net deferred loan fees, premiums, and discounts 263,080 250,374 ---------------------------- 3,064,043 3,113,081 ---------------------------- Net Loans $231,809,591 $212,779,588 ============================
Commercial and mortgage loans serviced for others are not included in the accompanying balance sheets. The unpaid principal balances of commercial and mortgage loans serviced for others were $53,994,767, $59,999,703, and $59,590,014 at December 31, 2001, 2000, and 1999, respectively. Mortgage servicing rights of $58,654, $44,283, and $48,015 were capitalized in 2001, 2000, and 1999, respectively. Amortization of mortgage servicing rights was $64,092, $34,990, and $52,334 in 2001, 2000, and 1999, respectively. Impairment of loans having recorded investments of $1,193,779 at December 31, 2001 and $1,323,938 at December 31, 2000 has been recognized in conformity with SFAS No. 114, as amended by SFAS No. 118. The average recorded investment in impaired loans during 2001, 2000, and 1999 was $1,204,199, $1,358,358, and $693,000, respectively. The total allowance for loan losses related to these loans was $185,963 and $217,577 at December 31, 2001 and 2000, respectively. Interest income on impaired loans of $61,861, $10,500, and $2,835 was recognized for cash payments received in 2001, 2000, and 1999, respectively. The Company is not committed to lend additional funds to borrowers with impaired loans. 24 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 5. Loans (Continued) Residential real estate loans aggregating $14,031,920 and $5,187,749 at December 31, 2001 and 2000, respectively, were pledged as collateral on deposits of municipalities. Note 6. Allowance for Loan Losses Changes in the allowance for loan losses for the years ended December 31 are as follows:
2001 2000 1999 ----------------------------------------- Balance, beginning $2,862,707 $2,869,983 $2,844,929 Provision for loan losses 320,000 250,000 359,496 Recoveries of amounts charged off 93,771 123,590 94,194 ----------------------------------------- 3,276,478 3,243,573 3,298,619 Amounts charged off (475,515) (380,866) (428,636) ----------------------------------------- Balance, ending $2,800,963 $2,862,707 $2,869,983 =========================================
Note 7. Premises and Equipment The major classes of premises and equipment and accumulated depreciation at December 31 are as follows:
2001 2000 --------------------------- Land and land improvements $ 665,474 $ 614,244 Buildings and improvements 4,108,901 3,958,379 Furniture and equipment 6,475,640 6,211,970 --------------------------- 11,250,015 10,784,593 Less accumulated depreciation (7,093,920) (6,820,279) --------------------------- $ 4,156,095 $3,964,314 ===========================
Depreciation included in occupancy and equipment expenses amounted to $608,145, $789,027, and $867,114 for the years ended December 31, 2001, 2000, and 1999, respectively. The Company is obligated under noncancelable operating leases for premises expiring in various years through the year 2006. Options to renew for additional periods are available with these leases. Future minimum rental commitments for these leases with terms of one year or more at December 31, 2001 were as follows:
2002 $ 97,779 2003 82,773 2004 74,920 2005 60,920 2006 46,920 -------- $363,312 ========
Rent expense for 2001, 2000, and 1999 amounted to $84,307, $72,086, and $69,555, respectively. Occupancy expense is shown in the consolidated statements net of rental income of $64,241 in 2001, $55,025 in 2000, $55,585 in 1999. 25 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 8. Other Real Estate Owned A summary of foreclosed real estate at December 31 is as follows:
2001 2000 ----------------------- Other real estate owned $1,296,192 $120,250 Less allowance for losses on other real estate owned (0) (3,957) ----------------------- Other real estate owned, net $1,296,192 $116,293 =======================
Changes in the allowance for losses on other real estate owned for the years ended December 31 were as follows:
2001 2000 1999 ------------------------------- Balance, beginning $ 3,957 $ 0 $ 42,588 Provision for losses 0 12,008 7,421 Charge-offs, net (3,957) (8,051) (50,009) ------------------------------- Balance, ending $ 0 $3,957 $ 0 ===============================
Note 9. Investments Carried at Equity The Company has purchased various partnership interests in low income housing limited partnerships. These partnerships were established to acquire, own and rent residential housing for low and moderate income Vermonters located in Northern Vermont. The investments are accounted for under the equity method of accounting. These equity investments, which are included in other assets, are recorded at cost and adjusted for the Company's proportionate share of the partnerships' undistributed earnings or losses. Certain of these partnerships have provisions for capital contributions payable for future years which are included in accrued expenses and other liabilities. The carrying values of these investments were $1,805,222 and $621,721 at December 31, 2001 and 2000, respectively. The capital contributions payable related to these investments were $1,099,800 at December 31, 2001. There were no such amounts payable at December 31, 2000. The provision for undistributed net losses of the partnerships charged to earnings was $70,423, $45,103 and $21,523 for 2001, 2000 and 1999, respectively. Note 10. Deposits The following is a summary of interest bearing deposits at December 31:
2001 2000 ---------------------------- NOW accounts $ 41,020,135 $ 38,353,841 Savings and money market 100,991,335 85,919,417 Time, $100,000 and over 29,869,386 26,193,826 Other time 74,294,398 74,722,511 ---------------------------- $246,175,254 $225,189,595 ============================
The following is a summary of time certificates of deposit by maturity at December 31, 2001:
2001 $ 76,355,852 2002 19,148,956 2003 4,297,227 2004 2,986,390 2005 and thereafter 1,375,359 ------------ $104,163,784 ============
26 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 10. Deposits (Continued) A maturity distribution of time certificates of deposit in denominations of $100,000 or more at December 31, 2001 is as follows: Three months or less $ 6,288,293 Over three months through six months 13,681,064 Over six months through twelve months 3,188,753 Over twelve months 6,711,276 ----------- $29,869,386 ===========
Note 11. Borrowed Funds Borrowings from the Federal Home Loan Bank of Boston (the "FHLB") for the years ended December 31, were as follows:
2001 2000 -------------------------- Option Advances 6.06% note payable to FHLB, payable in monthly installments of $11,178, including interest, through May 6, 2008 $ 717,468 $ 804,363 6.06% note payable to FHLB, payable in monthly installments of $5,589, including interest, through March 24, 2008 351,215 395,113 5.95% note payable to FHLB, payable in monthly installments of $13,354, including interest, through March 24, 2003 0 347,938 6.06% note payable to FHLB, payable in monthly installments of $7,341, including interest, through March 23, 2005 0 334,364 6.74% term borrowing from FHLB, maturing January 22, 2001 0 2,000,000 6.92% term borrowing from FHLB, maturing August 4, 2003 0 2,500,000 5.62% note payable to FHLB, payable in monthly installments of $19,717 including interest, with a balloon payment of $1,046,818 on May 31, 2006 1,732,875 0 5.34% note payable to FHLB, payable in monthly installments of $13,347 including interest through February 27, 2006 606,950 0 5.62% note payable to FHLB, payable in monthly installments of $4,896 including interest with a balloon payment of $596,221 on February 27, 2006 685,933 0 4.22% note payable to FHLB, payable in monthly installments of $22,692 including interest with a balloon payment of $2,221,300 on November 6, 2006 3,000,000 0 5.23% note payable to FHLB, payable in monthly installments of $6,798 including interest with a balloon payment of $765,579 on December 5, 2008 1,000,000 0 2.97% note payable to FHLB, payable in monthly installments of $7,289 including interest through December 6, 2004 250,000 0 5.20% term borrowing from FHLB, maturing January 22, 2002 2,000,000 0 -------------------------- $10,344,441 $6,381,778 ==========================
27 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 11. Borrowed Funds (Continued) Principal maturities of borrowed funds as of December 31, 2001 are as follows: 2002 $ 2,680,700 2003 725,529 2004 761,456 2005 720,486 2006 4,339,012 Thereafter 1,117,258 ----------- $10,344,441 ===========
Additionally, Union and Citizens each maintain an IDEAL Way Line of Credit with the Federal Home Loan Bank of Boston. As of December 31, 2001, the total amounts of these lines approximated $3,551,000 and $3,040,000 for Union and Citizens, respectively. There were no borrowings outstanding on these lines at December 31, 2001. Interest on these borrowings is chargeable at a rate determined by the Federal Home Loan Bank and payable monthly. Collateral on these borrowings consists of Federal Home Loan Bank stock purchased by each Bank, all funds placed in deposit with the Federal Home Loan Bank, and qualified first mortgages held by each Bank, and any additional holdings which may be pledged as security. Union Bank also maintains a line of credit with Fleet Bank for the purchase of overnight Federal Funds. As of December 31, 2001, the total amount of this line approximated $4,000,000, with no outstanding borrowings. Interest on this borrowing is chargeable at the Federal Funds rate at the time of the borrowing and payable daily. Note 12. Income Taxes The Company prepares its Federal income tax return on a consolidated basis. Federal income taxes are allocated to members of the consolidated group based on taxable income. Income taxes for the years ended December 31 were as follows:
2001 2000 1999 ---------------------------------------- Currently paid or payable $2,033,720 $1,843,349 $1,762,301 Deferred (49,714) (18,339) 52,958 ---------------------------------------- $1,984,006 $1,825,010 $1,815,259 ========================================
28 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12. Income Taxes (Continued) Total income tax expense differs from the amounts computed at the statutory federal income tax rate of 34% primarily due to the following at December 31:
2001 2000 1999 ---------------------------------------- Computed "expected" tax expense $2,317,448 $2,252,348 $2,002,848 Tax exempt interest (253,456) (267,148) (223,150) Disallowed interest expense 33,562 36,851 29,902 Dividend exclusion (9,283) (10,224) (11,737) Increase in cash surrender value life insurance (35,012) (36,063) (27,990) Nondeductible acquisition costs 0 631 169,708 Tax credits on limited partnership investments (78,280) (167,618) (141,484) Other 9,027 16,233 17,162 ---------------------------------------- $1,984,006 $1,825,010 $1,815,259 ========================================
The deferred income tax provision consisted of the following for the years ended December 31:
2001 2000 1999 ---------------------------------- Bad debts $ 24,525 $ 3,491 $(50,219) Mark-to-market, loans 10,070 (41,506) 16,223 Deferred loan fees 6,911 8,022 17,389 Nonaccrual loan interest (54,946) (36,007) (24,371) Other real estate owned 1,345 (1,345) 14,480 Deferred compensation 25,186 37,575 57,208 Pension (11,859) 8,248 6,001 Depreciation (3,879) (45,763) (41,922) Limited partnership basis adjustments 12,563 65,375 60,316 Mortgage servicing rights (1,850) 3,160 (1,468) Other (57,780) (19,589) (679) ---------------------------------- $(49,714) $(18,339) $ 52,958 ==================================
29 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 12. Income Taxes (Continued) Listed below are the significant components of the net deferred tax asset at December 31:
2001 2000 ------------------------- Components of the deferred tax asset: Bad debts $ 747,472 $ 771,997 Mark-to-market loans 49,260 59,330 Deferred loan fees 18,757 25,668 Nonaccrual loan interest 153,040 98,094 Other real estate owned writedowns 0 1,345 Deferred compensation 498,896 524,082 Pension 26,262 14,403 Unrealized loss on securities available-for-sale 0 14,660 ------------------------- Total deferred tax asset 1,493,687 1,509,579 Valuation allowance 0 0 ------------------------- Total deferred tax asset, net of valuation allowance 1,493,687 1,509,579 ------------------------- Components of the deferred tax liability: Depreciation (65,224) (69,103) Mortgage servicing rights (30,204) (32,054) Limited partnership tax credits (138,254) (125,691) Unrealized gain on securities available-for-sale (254,699) 0 Other (12,327) (70,107) ------------------------- Total deferred tax liability (500,708) (296,955) ------------------------- Net deferred tax asset $ 992,979 $1,212,624 -------------------------
SFAS No. 109 allows for recognition and measurement of deductible temporary differences (including general valuation allowances) to the extent that it is more likely than not that the deferred asset will be realized. Net deferred income tax assets are included in the caption "Other assets" on the balance sheets at December 31, 2001 and 2000, respectively. Note 13. Employee Benefits Union sponsors a non-contributory defined benefit pension plan covering all eligible employees. Union's policy is to accrue annually an amount equal to the actuarially calculated expense. Net pension cost for Union's defined benefit pension plan consisted of the following components at December 31:
2001 2000 ----------------------- Service cost $ 222,076 $ 195,070 Interest cost on projected benefit obligation 351,028 293,450 Actual return on plan assets (300,826) (263,794) Net amortization and deferral (7,444) 3,642 ----------------------- $ 264,834 $ 228,368 =======================
30 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 13. Employee Benefits (Continued) The following table sets forth the Plan's funded status and amounts recognized in the accompanying consolidated balance sheets at December 31:
2001 2000 --------------------------- Actuarial present value of benefit obligations: Vested benefits $ 3,661,909 $ 3,259,533 Nonvested benefits 19,661 38,432 --------------------------- Accumulated benefits 3,681,570 3,297,965 --------------------------- Projected benefits (5,528,348) (4,621,211) Plan assets at fair value 4,307,478 4,136,716 --------------------------- Projected benefit obligation in excess of plan assets (1,220,870) (484,495) Unrecognized transition amount (15,305) (22,961) Unrecognized net loss 1,158,935 465,095 --------------------------- Accrued pension $ (77,240) $ (42,361) ===========================
Assumptions used by Union in the determination of pension plan information consisted of the following:
2001 2000 -------------- Discount rate 7.00% 7.00% Rate of increase in compensation levels 5.25% 4.25% Expected long-term rate of return of plan assets 7.25% 7.25%
Contributions to the plan are invested in diversified portfolios, mainly corporate stocks and bonds. Contributions to Union's defined contribution 401(k) plan, including employer matching amounts, are at the discretion of the Board of Directors. Employer contributions to the plan were $71,260, $67,440, and $65,785 for 2001, 2000, and 1999, respectively. Additionally, the Company and Union have a non-qualified Deferred Compensation Plan for Directors and certain key officers. Under the plan, compensation may be deferred that would otherwise be currently payable. Deferrals are made to an uninsured interest bearing account and are payable upon attainment of a certain age or death over a 15 year period. The Company and Union have purchased life insurance contracts for each participant in order to fund these benefits. The benefits accrued under this plan aggregated $1,423,930 and $1,541,417 at December 31, 2001 and 2000, respectively, and is included in the financial statement caption "Accrued expenses and other liabilities". The cash surrender value of the life insurance policies purchased to fund these plans aggregated $1,333,269 and $1,230,291 at December 31, 2001 and 2000, respectively. These amounts are included in the financial statement caption "Other assets". The annual net cost of the plan is immaterial to the operations of the Company. Citizens maintains separately a 401(k) plan and a discretionary profit sharing plan. The 401(k) plan covers all employees meeting certain eligibility requirements. Employees are permitted to contribute any amount, up to 10% of their compensation, to the 401(k) plan. Citizens makes matching contributions up to 6% of an employee's compensation. Matching contributions to this plan were $25,381, $30,800, and $37,178 for 2001, 2000, and 1999, respectively. Contributions to the profit sharing plan are at the discretion of Citizens' Board of Directors. Contributions to this plan were $89,540, $66,384, and $42,003 for 2001, 2000, and 1999, respectively. 31 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 14. Financial Instruments With Off-Balance-Sheet Risk The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors written on adjustable rate loans, and commitments to sell loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance- sheet instruments. For interest rate caps and floors written on adjustable rate loans, the contract or notional amounts do not represent exposure to credit loss. The Company controls the risk of interest rate cap agreements through credit approvals, limits, and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.
Contract or Notional Amount 2001 ----------- Financial instruments whose contract amount represent credit risk: Commitments to extend credit $23,697,012 =========== Standby letters of credit and commercial letters of credit $ 692,860 =========== Credit card arrangements $ 1,996,823 =========== Home equity lines $ 3,916,790 ===========
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include real estate, accounts receivables, inventory, property, plant and equipment, and income-producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Note 15. Commitments and Contingencies In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, after consulting with the Company's legal counsel, any liability resulting from such proceedings would not have a material adverse effect on the Company's financial statements. 32 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 16. Fair Values of Financial Instruments The estimated fair values of the Company's financial instruments at December 31, 2001 are as follows:
Carrying Estimated Amount Fair Value ----------------------------- Financial assets: Cash and cash equivalents $ 21,556,850 $ 21,556,850 Interest bearing deposits 4,700,230 4,827,613 Securities available-for-sale 49,612,631 49,612,631 Federal Home Loan Bank stock 1,063,500 1,063,500 Loans and loans held for sale, net 248,142,237 251,542,872 Accrued interest receivable 2,036,566 2,036,566 Financial liabilities: Deposits 285,721,655 286,696,649 Borrowed funds 10,344,441 9,073,258 Accrued interest payable 829,232 829,232
The estimated fair values of the Company's financial instruments at December 31, 2000 are as follows:
Carrying Estimated Amount Fair Value ----------------------------- Financial assets: Cash and cash equivalents $ 11,498,174 $ 11,498,174 Interest bearing deposits 1,646,804 1,646,986 Securities available-for-sale 56,641,687 56,641,687 Federal Home Loan Bank stock 1,016,800 1,016,800 Loans and loans held for sale, net 221,932,893 218,612,116 Accrued interest receivable 2,596,891 2,596,891 Financial liabilities: Deposits 258,736,580 259,091,587 Borrowed funds 6,381,778 6,476,126 Accrued interest payable 838,592 838,592
The estimated fair values of deferred fees on commitments to extend credit and letters of credit were immaterial at December 31, 2001 and 2000. The carrying amounts in the preceding table are included in the balance sheet under the applicable captions. Note 17. Transactions With Related Parties The Company has had, and may be expected to have in the future, banking transactions in the ordinary course of business with directors, principal officers, their immediate families and affiliated companies in which they are principal stockholders (commonly referred to as related parties), all of which have been, in the opinion of management, on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with others. 33 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 17. Transactions With Related Parties (Continued) Aggregate loan transactions with related parties for the year ended December 31 were as follows:
2001 2000 ------------------------- Balance, beginning $ 979,356 $ 863,663 New loans 968,674 447,942 Repayments (1,031,616) (332,250) Other, net (2,216) 0 ------------------------- Balance, ending $ 914,198 $ 979,355 ========================= Balance available on lines of credit $ 230,556 $ 131,854 =========================
Deposit accounts with related parties were $677,455 and $706,318 at December 31, 2001 and 2000, respectively. Note 18. Incentive Stock Option Plan Under the terms of a Stock Option Plan with certain key employees, options to purchase shares of the Company's common stock are granted at a price equal to the market price of the stock at the date of grant. These stock options are exercisable within five years from the date of grant. Following is a summary of transactions:
Shares Under Option -------------------------- 2001 2000 1999 -------------------------- Outstanding, January 1 11,700 11,900 13,700 Granted during the year 3,000 0 2,500 Exercised during the year (4,200 shares at $9.75 per share and 300 shares at $18.00 in 2001; 200 shares at $9.75 per share in 2000; 4,000 shares at $9.25 per share and 300 shares at $9.75 in 1999) (4,500) (200) (4,300) -------------------------- Outstanding, December 31 10,200 11,700 11,900 ========================== Eligible, December 31, for exercise currently at: $ 9.75 per share 0 4,200 4,400 $18.00 per share 2,200 2,500 2,500 $19.00 per share 3,000 0 0 $20.25 per share 2,500 2,500 2,500 $22.00 per share 2,500 2,500 2,500 -------------------------- 10,200 11,700 11,900 ==========================
Had compensation cost been determined on the basis of fair value pursuant to FASB Statement No. 123, net income would have been reduced as follows at December 31:
2001 2000 1999 ---------------------------------------- Net income As reported $4,832,018 $4,799,542 $4,075,471 ======================================== Pro forma $4,827,989 $4,795,130 $4,071,059 ========================================
34 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 19. Acquisitions Effective November 30, 1999, Union Bankshares, Inc. acquired Citizens Savings Bank and Trust Company in a merger accounted for in a tax-free transaction as a pooling of interests with the exchange of 991,089 shares (net of 196 fractional shares redeemed for approximately $4,516) of newly- issued Company common stock in exchange for all of the outstanding shares of Citizens' common stock. Interest income, net income and earnings per share (as restated) for the Company and Citizens Savings Bank and Trust Company prior to the acquisition are as follows:
Eleven Months Ended November 30, 1999 ------------- Interest income Union Bankshares, Inc. $13,694,631 Citizens Savings Bank and Trust Company 7,178,879 ----------- Combined $20,873,510 =========== Net income, giving effect to pro forma income taxes Union Bankshares, Inc. $ 2,937,645 Citizens Savings Bank and Trust Company 987,109 ----------- Combined $ 3,924,754 =========== Basic earnings per share Union Bankshares, Inc. $ 1.44 Citizens Savings Bank and Trust Company 1.00 ----------- Combined $ 1.30 ===========
Note 20. Reportable Segments The Company has two reportable operating segments, Union and Citizens. The accounting policies, including the operation of each, are the same as those described in the summary of significant accounting policies in Note 1. Management regularly evaluates separate financial information for each segment in deciding how to allocate resources and in assessing performance. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices. 35 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 20. Reportable Segments (Continued) Information about reportable segments, and reconciliation of such information to the consolidated financial statements as of and for the years ended December 31, follows:
Intersegment Consolidated 2001 Union Citizens Elimination Other Totals --------------------------------------------------------------------------------------------------------- Interest income $ 16,525,283 $ 7,598,545 $ 0 $ 0 $ 24,123,828 Interest expense 6,381,878 3,181,578 0 990 9,564,446 Provision for loan loss 95,000 225,000 0 0 320,000 Service fee income 1,839,739 535,721 0 0 2,375,460 Income tax expense (benefit) 1,537,848 505,864 0 (59,706) 1,984,006 Net income (loss) 3,893,103 1,036,251 0 (97,336) 4,832,018 Assets 231,538,869 105,565,465 (33,691) 404,713 337,475,356 Intersegment Consolidated 2000 Union Citizens Elimination Other Totals --------------------------------------------------------------------------------------------------------- Interest income $ 16,331,233 $ 7,795,092 $ 0 $ 0 $ 24,126,325 Interest expense 6,369,555 3,506,590 0 1,212 9,877,357 Provision for loan loss 0 250,000 0 0 250,000 Service fee income 1,696,478 513,173 0 0 2,209,651 Income tax expense (benefit) 1,420,800 479,000 0 (74,790) 1,825,010 Net income (loss) 3,957,914 976,252 0 (134,624) 4,799,542 Assets 204,051,287 98,844,191 0 498,931 303,394,409 Intersegment Consolidated 1999 Union Citizens Elimination Other Totals --------------------------------------------------------------------------------------------------------- Interest income $ 15,035,945 $ 7,832,641 $ 0 $ 0 $ 22,868,586 Interest expense 5,757,892 3,362,522 0 1,157 9,121,571 Provision for loan loss 62,500 296,996 0 0 359,496 Service fee income 1,666,244 562,629 0 0 2,228,873 Income tax expense (benefit) 1,277,950 560,195 0 (22,886) 1,815,259 Net income (loss) 3,496,397 937,342 0 (358,268) 4,075,471 Assets 197,648,845 97,512,372 (79,755) 394,184 295,475,646
Amounts in the "Other" column encompass activity in Union Bankshares, Inc., the "parent company". Holding company assets are stated after intercompany eliminations. Note 21. Regulatory Capital Requirements Union and Citizens (the "Banks") are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and 36 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 21. Regulatory Capital Requirements (Continued) of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2001, that the Banks meet all capital adequacy requirements to which they are subject. As of December 31, 2001, the most recent notification from the FDIC categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the Banks' category. The Banks' actual capital amounts (000's omitted) and ratios are also presented in the table.
Minimums To be Well Minimums Capitalized Under For Capital Prompt Corrective Actual Requirements Action Provisions ----------------- ---------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ---------------------------------------------------------- As of December 31, 2001: Total capital to risk weighted assets Union $27,149 17.40% $12,482 8.0% $15,603 10.0% Citizens 11,883 16.78% 5,665 8.0% 7,081 10.0% Tier I capital to risk weighted assets Union 25,280 16.21% 6,238 4.0% 9,357 6.0% Citizens 10,996 15.53% 2,832 4.0% 4,248 6.0% Tier I capital to average assets Union 25,280 11.13% 9,085 4.0% 11,357 5.0% Citizens 10,996 10.52% 4,183 4.0% 5,228 5.0% Minimums To be Well Minimums Capitalized Under For Capital Prompt Corrective Actual Requirements Action Provisions ----------------- ---------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ---------------------------------------------------------- As of December 31, 2000: Total capital to risk weighted assets Union $25,818 17.44% $11,845 8.0% $14,807 10.0% Citizens 11,975 18.06% 5,304 8.0% 6,630 10.0% Tier I capital to risk weighted assets Union 23,808 16.08% 5,923 4.0% 8,884 6.0% Citizens 11,143 16.81% 2,652 4.0% 3,978 6.0% Tier I capital to average assets Union 23,808 11.49% 8,287 4.0% 10,358 5.0% Citizens 11,143 11.00% 4,050 4.0% 5,063 5.0%
Note 22. Subsequent Events On January 4, 2002, Union Bankshares, Inc. declared a $0.28 per share dividend payable January 17, 2002 to stockholders of record on January 14, 2002. 37 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 23. Condensed Financial Information (Parent Company Only) The following financial statements are for Union Bankshares, Inc. (Parent Company Only), and should be read in conjunction with the consolidated financial statements of Union Bankshares, Inc. and Subsidiaries. UNION BANKSHARES, INC. (PARENT COMPANY ONLY) CONDENSED BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 --------------------------- ASSETS Cash $ 474,822 $ 144,411 Investment in Subsidiary-Union 25,580,441 23,823,428 Investment in Subsidiary-Citizens 11,190,820 11,100,606 Other assets 418,239 390,541 --------------------------- Total assets $37,664,322 $35,458,986 =========================== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Other liabilities $ 449,286 $ 301,931 --------------------------- Total liabilities 449,286 301,931 --------------------------- Stockholders' equity Common stock, $2 par value; 5,000,000 shares authorized; 3,268,189 shares issued in 2001 and 3,263,689 shares issued in 2000 6,536,378 6,527,378 Paid-in capital 277,254 239,903 Retained earnings 31,628,920 30,010,683 Less treasury stock, at cost; 240,632 shares in 2001 and 233,960 shares in 2000 (1,721,931) (1,592,451) Accumulated other comprehensive (loss) income 494,415 (28,458) --------------------------- Total stockholders' equity 37,215,036 35,157,055 --------------------------- Total liabilities and stockholders' equity $37,664,322 $35,575,635 ===========================
The investment in the subsidiary banks is carried under the equity method of accounting. The investment and cash, which is on deposit with the Bank, has been eliminated in consolidation. 38 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 23. Condensed Financial Information (Parent Company Only) (Continued) UNION BANKSHARES, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF INCOME Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999 -------------------------------------- Revenues Dividends Bank subsidiaries $3,605,000 $3,060,000 $2,300,000 Loss on sale of securities 0 0 (109) -------------------------------------- Total revenues 3,605,000 3,060,000 2,299,891 -------------------------------------- Expenses Interest 990 1,212 1,157 Merger and acquisition costs 0 1,026 332,940 Administrative and other 156,052 207,176 46,948 -------------------------------------- Total expenses 157,042 209,414 381,045 -------------------------------------- Income before applicable income tax and equity in undistributed net income of subsidiaries 3,447,958 2,850,586 1,918,846 Applicable income tax (benefit) (59,706) (74,790) (22,886) -------------------------------------- Income before equity (deficit) in undistributed net income of subsidiaries 3,507,664 2,925,376 1,941,732 Equity in undistributed net income-Union 1,473,102 1,917,914 1,196,398 Deficit in undistributed net income-Citizens (148,748) (43,748) (49,768) -------------------------------------- Net income $4,832,018 $4,799,542 $3,088,362 ======================================
Equity in undistributed net income of Citizens for the year ended December 31, 1999 represents earnings of Citizens subsequent to the merger occurring November 30, 1999. 39 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 23. Condensed Financial Information (Parent Company Only) (Continued) UNION BANKSHARES, INC. (PARENT COMPANY ONLY) CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999 ----------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,832,018 $ 4,799,542 $ 3,088,362 Adjustments to reconcile net income to net cash provided by operating activities Equity in undistributed net income of Union (1,473,102) (1,917,914) (1,196,398) Deficit in undistributed net loss of Citizens 148,748 43,748 49,768 Increase in other assets (27,698) (36,653) (23,891) Loss on sale of securities 0 0 109 Increase (decrease) in other liabilities 147,355 (121,937) 15,570 ----------------------------------------- Net cash provided by operating activities 3,627,321 2,766,786 1,933,520 ----------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of securities 0 0 17,693 ----------------------------------------- Net cash provided by investing activities 0 0 17,693 ----------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Purchase of treasury stock (129,480) 0 0 Dividends paid (3,213,781) (2,969,039) (1,833,446) Proceeds from exercise of stock option 46,351 1,950 39,925 Purchase of fractional shares 0 0 (4,516) ----------------------------------------- Net cash used in financing activities (3,296,910) (2,967,089) (1,798,037) ----------------------------------------- Net increase (decrease) in cash 330,411 (200,303) 153,176 Beginning cash 144,411 344,714 191,538 ----------------------------------------- Ending cash $ 474,822 $ 144,411 $ 344,714 ========================================= SUPPLEMENTAL SCHEDULE OF CASH PAID (RECEIVED) DURING THE YEAR Interest $ 990 $ 1,212 $ 1,157 ========================================= Income taxes $ 250 $ 5,250 $ (34,247) =========================================
40 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note 24. Quarterly Financial Data (Unaudited) A summary of financial data for the four quarters of 2001, 2000, and 1999 is presented below (dollars in thousands): UNION BANKSHARES, INC. AND SUBSIDIARIES
Quarters in 2001 Ended ---------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, ---------------------------------------------- Interest income $6,023 $6,098 $6,085 $5,918 Interest expense 2,527 2,461 2,331 2,245 Provision for loan losses 56 57 86 121 Securities gains (loss) (2) 76 5 78 Other operating expenses 2,524 2,620 2,577 2,775 Net income 1,168 1,245 1,222 1,197 Earnings per common share $ 0.39 $ 0.41 $ 0.40 $ 0.39 Quarters in 2000 Ended ---------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, ---------------------------------------------- Interest income $5,739 $5,912 $6,174 $6,301 Interest expense 2,266 2,379 2,593 2,639 Provision for loan losses 62 63 63 62 Securities gains (loss) 37 (3) 0 (9) Other operating expenses 2,517 2,609 2,394 2,424 Net income 1,078 1,168 1,247 1,307 Earnings per common share $ 0.36 $ 0.38 $ 0.41 $ 0.43 Quarters in 1999 Ended ---------------------------------------------- March 31, June 30, Sept. 30, Dec. 31, ---------------------------------------------- Interest income $5,525 $5,617 $5,824 $5,903 Interest expense 2,248 2,249 2,302 2,323 Provision for loan losses 100 88 62 109 Securities gains (loss) 0 3 0 0 Other operating expenses 2,426 2,426 2,450 2,763 Net income 973 1,042 1,134 926 Earnings per common share $ 0.32 $ 0.34 $ 0.38 $ 0.31
Note 25. Other Income and Other Expenses The components of other income and other expenses which are in excess of one percent of total revenues in any of the three years disclosed are as follows:
2001 2000 1999 ------------------------------------- Expenses State franchise tax $ 298,329 $ 296,321 $ 281,480 Legal fees 55,766 60,200 280,503 Professional fees 109,072 198,777 308,431 Fees to directors 220,872 237,012 261,609 Postage and shipping 264,019 242,987 246,321 Other 1,874,821 1,737,002 1,710,679 ---------------------------------------- $2,822,879 $2,772,299 $3,089,023 ========================================
41 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion and analysis by Management focuses on those factors that had a material effect on Union Bankshares, Inc.'s (Union's) financial position as of December 31, 2001 and 2000, and its results of operations for the years ended December 31, 2001, 2000, and 1999. This discussion should be read in conjunction with the consolidated Financial Statements and related notes and with other financial data appearing elsewhere. Management is not aware of the occurrence of any events after December 31, 2001, which would materially affect the information presented below. The Company may from time to time make written or oral statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections, statements of plans and objectives for future operations, estimates of future economic performance and assumptions relating thereto. The Company may include forward-looking statements in its filings with the Securities and Exchange Commission, in its reports to stockholders, including this Annual Report, in other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others. By their very nature, forward-looking statements are subject to uncertainties, both general and specific, and risk exists those predictions, forecasts, projections and other estimates contained in forward-looking statements will not be achieved. Also when we use any of the words "believes," "expects," "anticipates" or similar expressions, we are making forward-looking statements. Many possible events or factors could affect the future financial results and performance of our company. This could cause results or performance to differ materially from those expressed in our forward-looking statements. The possible events or factors that might affect our forward-looking statements include, but are not limited to, the following: * uses of monetary, fiscal and tax policy by various governments * political, legislative or regulatory developments in Vermont, New Hampshire or the United States including changes in laws concerning taxes, banking and other aspects of the financial services industry * developments in general economic or business conditions, including interest rate fluctuations, market fluctuations and perceptions, and inflation * changes in the competitive environment for financial services organizations * the Company's ability to retain key personnel * changes in technology including demands for greater automation * unanticipated lower revenues, loss of customers or business, or higher operating expenses * adverse changes in the securities market When relying on forward-looking statements to make decisions with respect to the Company, investors and others are cautioned to consider these and other risks and uncertainties. ACQUISITION Effective November 30, 1999, following the receipt of all required stockholder, state and federal regulatory approvals, Union Bankshares, Inc. acquired Citizens Savings Bank and Trust Co. This makes Union a two bank holding company. The accompanying consolidated financial statements reflect the accounting for the acquisition as a pooling of interests and are presented as if the companies were combined as of the earliest period presented. However, the financial information is not necessarily indicative of the results of operations, financial position or cash flows that would have occurred had the acquisition been consummated for the periods for which it is given effect, nor is it necessarily indicative of future results of operations, financial position, or cash flows. The financial statements reflect the conversion of each outstanding share of Citizens common stock into 6.5217 shares of Union common stock. Additional information with respect to this acquisition can be found in Note 19 to the Financial Statements. RESULTS OF OPERATIONS The Company's net income for the year ended December 31, 2001 was $4.832 million compared with net income of $4.800 million for the year 2000. Net income per share was $1.59 for 2001 compared to $1.58 for 2000. Net Interest Income. The largest component of Union's operating income is net interest income, which is the difference between interest and dividend income received from interest-earning assets and the interest expense paid on its interest-bearing liabilities. 42 Yields Earned and Rates Paid. The following table shows for the periods indicated, the total amount of income recorded from interest-earning assets, and the related average yields, the interest expense associated with interest-bearing liabilities, expressed in dollars and average rates, and the relative net interest spread and net interest margin. Yield and rate information for a period is average information for the period, and is calculated by dividing the income or expense item for the period by the average balances of the appropriate balance sheet item during the period. Net interest margin is net interest income divided by average interest- earning assets. Nonaccrual loans are included in asset balances for the appropriate periods, but recognition of interest on such loans is discontinued and any remaining accrued interest receivable is reversed, in conformity with federal regulations. The yields and net interest margins appearing in the following table have been calculated on a pre-tax basis:
Years ended December 31 --------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------- ------------------------------- ------------------------------- Average Income/ Average Average Income/ Average Average Income/ Average Balance Expense Yield/Rate Balance Expense Yield/Rate Balance Expense Yield/Rate --------------------------------------------------------------------------------------------------- (Dollars in thousands) Average Assets: Federal funds sold $ 8,030 $ 307 3.82% $ 5,379 $ 333 6.19% $ 8,604 $ 425 4.94% Interest bearing deposits 2,867 152 5.30% 1,962 120 6.12% 2,223 122 5.49% Investments (1), (2) 51,634 3,124 6.25% 58,680 3,615 6.34% 61,097 3,685 6.21% Loans, net (1), (3) 235,433 20,541 8.82% 215,450 20,058 9.42% 202,674 18,636 9.31% ------------------ ------------------ ------------------ Total interest-earning assets (1) 297,964 24,124 8.21% 281,471 24,126 8.69% 274,598 22,868 8.45% Cash and due from banks 10,518 9,042 9,195 Premises and equipment 3,952 3,989 4,330 Other assets 6,535 5,204 5,621 -------- -------- -------- Total assets $318,969 $299,706 $293,744 ======== ======== ======== Average Liabilities and Stockholders' Equity: NOW accounts $ 36,320 $ 592 1.63% $ 34,383 $ 702 2.04% $ 34,654 $ 676 1.95% Savings/money market accounts 92,517 2,745 2.97% 90,923 3,375 3.71% 87,360 3,072 3.52% Certificates of deposit 105,595 5,462 5.17% 98,571 5,378 5.46% 98,901 5,086 5.14% Borrowed funds 9,571 766 8.00% 6,340 422 6.66% 4,948 287 5.80% ------------------ ------------------ ------------------ Total interest-bearing liabilities 244,003 9,565 3.92% 230,217 9,877 4.29% 225,863 9,121 4.04% Non-interest bearing deposits 35,251 32,906 32,505 Other liabilities 3,507 3,575 3,292 -------- -------- -------- Total liabilities 282,761 266,698 261,660 Stockholders' equity 36,208 33,008 32,084 -------- -------- -------- Total liabilities and stockholders' equity $318,969 $299,706 $293,774 ======== ======== ======== Net interest income (1) $14,559 $14,249 $13,747 ======= ======= ======= Net interest spread 4.29% 4.40% 4.41% Net interest margin 4.99% 5.19% 5.13% -------------------- Average yield reported on a tax-equivalent basis. Average balance of investments calculated on the amortized cost basis. Net of unearned income and allowance for loan losses.
43 Union's net interest income increased by $310 thousand, or 2.18%, to $14.6 million for the year ended December 31, 2001, from $14.2 million for the year ended December 31, 2000. This increase was primarily due to the growth in our loan portfolio that had an average yield of 8.82% in 2001 while the combined lower yielding investment, interest-bearing deposits and federal funds sold average balances decreased. On average for the year 93.4% of our assets were earning interest in 2001 versus 93.9% in 2000. The net interest spread decreased by 11 basis points to 4.29% for the year ended December 31, 2001, from 4.40% for the year ended December 31, 2000. The net interest margin for the 2001 period decreased by 20 basis points to 4.99% from 5.19% for the 2000 period. Rate/Volume Analysis. The following table describes the extent to which changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities have affected Union's interest income and interest expense during the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: * changes in volume (change in volume multiplied by prior rate); * changes in rate (change in rate multiplied by current volume); and * total change in rate and volume. Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate. All changes are expressed as Dollars in thousands.
Year Ended December 31, 2001 Year Ended December 31, 2000 Compared to Year Ended Compared to Year Ended December 31, 2000 Increase/ December 31, 1999 Increase/ (Decrease) Due to Change In (Decrease) Due to Change In ---------------------------- --------------------------- Volume Rate Net Volume Rate Net ----------------------------------------------------------- Interest-earning assets: Federal funds sold $ 164 $ (190) $ (26) $ (159) $ 67 $ (92) Interest bearing deposits 55 (23) 32 (14) 12 (2) Investments (446) (45) (491) (150) 80 (70) Loans, net 1,889 (1,406) 483 1,189 233 1,422 ---------------------------------------------------------- Total interest-earning assets $1,662 $(1,664) $ (2) $ 866 $ 392 $1,258 Interest-bearing liabilities: NOW accounts $ 39 $ (149) $(110) $ (5) $ 31 $ 26 Savings/money market accounts 59 (689) (630) 125 178 303 Certificates of deposit 384 (300) 84 (18) 310 292 Borrowed funds 215 129 344 81 54 135 ---------------------------------------------------------- Total interest-bearing liabilities $ 697 $ (1,009) $(312) $ 183 $ 573 $ 756 ---------------------------------------------------------- Change in net interest income $ 965 $ (655) $ 310 $ 683 $(181) $ 502 ==========================================================
Interest and Dividend Income. Union's interest and dividend income decreased by $2,000, to $24.124 million for the year ended December 31, 2001, from $24.126 million for the year ended December 31, 2000. Average earning assets increased by $16.5 million, or 5.86%, to $298.0 million for the year ended December 31, 2001, from $281.5 million for the year ended December 31, 2000. Average loans were $235.4 million for the year ended December 31, 2001 up $19.9 million or 9.23% from $215.5 million for the year ended December 31, 2000. Increases in commercial, construction and real estate secured loans were partially offset by a decrease in average consumer loans. Increases in loan volume offset the decreases in interest rates led by the average prime rate for 2001 being 6.91%, down 232 basis points from 9.23% in 2000. This mainly accounted for the increase in loan interest income of $483,000 or 2.41%. The average balance of investment securities (including mortgage-backed securities) decreased by $7.0 million, or 12.01%, to $51.6 million for the year ended December 31, 2001, from $58.7 million for the year ended December 31, 2000. The average level of federal funds sold increased by $2.65 million, or 49.3%, to $8.0 million for the year ended December 31, 2001, from $5.4 million for the year ended December 31, 2000. The average balances invested in interest-bearing deposits increased to $2.9 million at December 31, 2001 from $2.0 million, or 46.1%, at December 31, 2000. These deposits are FDIC insured. Interest Expense. Union's interest expense decreased by $312,000, or 3.16%, to $9.565 million for the year ended December 31, 2001, from $9.877 million for the year ended December 31, 2000. Average interest-bearing liabilities increased by $13.8 million, or 44 6.0% to $244.0 million for the year ended December 31, 2001, from $230.2 million for the year ended December 31, 2000. Average time deposits increased $7.0 million, or 7.13%, to $105.6 million for the year ended December 31, 2001, from $98.6 million for the year ended December 31, 2000. The average balances for NOW accounts increased by $1.9 million to $36.3 million for the year ended December 31, 2001, from $34.4 million for the year ended December 31, 2000. The average balances in savings and money market accounts grew to $92.5 million in 2001 from $90.9 million in 2000 or a 1.75% increase. Average borrowed funds grew $3.2 million or 50.96% from $6.3 million for the year ended December 31, 2000 to $9.6 million for the year ended December 31, 2001. Lower interest rates offered prevailed for the majority of interest-bearing liabilities for the current year but the average rate paid on Certificates of Deposit edged up slightly from 5.14% in 2000 to 5.17% in 2001. The average rate paid for Borrowed Funds rose from 6.66% in 2000 to 8.00% in 2001 due to pre-payment penalties assessed and paid to the Federal Home Loan Bank to pay off high rate debt in order to take advantage of one of the lowest rate cycles in memory. Noninterest Income. Union's noninterest income increased by $503,000 for the year ended December 31, 2001. The results for the period reflected a net gain of $156 thousand from the sale of loans compared to a net gain of $34 thousand from these sales during 2000. The net gain on sales of securities was $157 thousand for 2001 compared to $25 thousand for 2000. Service fees (sources of which include deposit fees, loan servicing fees, and ATM fees) increased by $166 thousand, or 7.50%, to $2.38 million for the year ended December 31, 2001, from $2.21 million for the year ended December 31, 2000. Trust income increased to $247,000 in 2001 from $182,000 in 2000 or a 35.79% increase due to a fee increase and a number of estate settlements. Other noninterest income increased by $18,000, or 15.15%, to $138 thousand for 2001 from $120 thousand for 2000. Noninterest Expense. Union's noninterest expense increased $552,000, or 5.55%, to $10.5 million for the year ended December 31, 2001, from $9.9 million for the year ended December 31, 2000. Salaries increased $260,000, or 5.78%, to $4.8 million for the year ended December 31, 2001, from $4.5 million for the year ended December 31, 2000, reflecting normal salary activity. Pension and employee benefits increased $328 thousand or 29.19% to $1.45 million for the year ended December 31, 2001, from $1.12 million for the year ended December 31, 2000 mainly due to the increase in the accrual for the Defined Benefit Pension Plan caused by anticipated increases in future salaries and the performance decline in the underlying investment instruments and the increase in the cost of medical insurance coverage. Office occupancy expense increased $73 thousand, or 13.03%, to $633,000 for the year ended December 31, 2001, from $560,000 for the year ended December 31, 2000, which was partially attributable to the opening of a loan production office in Littleton, New Hampshire and the acquisition of more corporate office space in Morrisville, Vermont. Equipment expense decreased $159 thousand to $835 thousand for the year ended December 31, 2001, from $994 thousand for 2000 primarily resulting from decreased depreciation cost on computer equipment and software purchases that are depreciated as an expense over a time period of three to five years. Other operating expense increased $51,000 to $2.82 million for the year ended December 31, 2001 compared to $2.77 million for 2000 or a 1.82% increase. Income Tax Expense. Union's income tax expense increased by $159,000, or 8.71%, to $1.98 million for the year ended December 31, 2001, from $1.83 million for 2000 mainly due to increased taxable income offset by the low income housing credits that are available to us in both the 2001 and 2000 tax years related to our partnership investments in low income housing projects sponsored by Housing Vermont in our market area. Our effective tax rate for 2001 was 29.1% compared to 27.5% for 2000 when we had historic rehabilitation tax credits available because of our investments in low- income housing projects. Year Ended December 31, 2000 Compared to Year Ended December 31, 1999. Interest and Dividend Income. Union's interest and dividend income increased by $1,258,000, or 5.5% to $24.1 million for the year ended December 31, 2000, from $22.9 million for the year ended December 31, 1999. Average earning assets increased by $6.9 million, or 2.5%, to $281.5 million for the year ended December 31, 2000, from $274.6 million for the year ended December 31, 1999. Average loans were $215.5 million for the year ended December 31, 2000 up from $202.7 million for the year ended December 31, 1999. Increases in commercial, municipal, construction and real estate secured loans were partially offset by a decrease in average consumer loans. Increases in loan volume and interest rates led by the average prime rate for 2000 being 9.23%, up from 7.99% in 1999, was partially offset by the ever increasing competition, and the lower volume of consumer loans. This mainly accounted for the increase in loan interest income of $1,423,000 or 7.6%. The average balance of investment securities (including mortgage-backed securities) decreased by $2.4 million, or 4.0%, to $58.7 million for the year ended December 31, 2000, from $61.1 million for the year ended December 31, 1999. Higher interest rates during 2000 partially offset the volume decrease in the investment portfolio as total interest and dividend income was down only 1.9%. Union extended the investment maturity window during 2000 in order to take advantage of the higher interest rates. The average level of federal funds sold decreased by $3.2 million, or 37.5%, to $5.4 million for the year ended December 31, 2000, from $8.6 million for the year ended December 31, 1999. The average balances invested in interest-bearing deposits decreased to $2.0 million at December 31, 2000 from $2.2 million, or 11.7%, at December 31, 1999. These deposits are FDIC insured. Interest Expense. Union's interest expense increased by $756,000, or 8.3%, to $9.9 million for the year ended December 31, 2000, from $9.1 million for the year ended December 31, 1999. Average interest-bearing liabilities increased by $4.4 million, or 1.9% to 45 $230.2 million for the year ended December 31, 2000, from $225.9 million for the year ended December 31, 1999. Average time deposits decreased $330 thousand to $98.6 million for the year ended December 31, 2000, from $98.9 million for the year ended December 31, 1999. The average balances for NOW accounts decreased by $271 thousand to $34.4 million for the year ended December 31, 2000, from $34.7 million for the year ended December 31, 1999. The average balances in savings and money market accounts grew to $90.9 million in 2000 from $87.4 million in 1999 or a 4.1% increase. Higher interest rates prevailed for all interest-bearing liabilities for 2000. Noninterest Income. Union's noninterest income increased only $1,000 for the year ended December 31, 2000. The results for the period reflected a net gain of $34 thousand from the sale of loans compared to a net gain of $40 thousand from these sales during 1999. The net gain on Sales of Securities was $25 thousand for 2000 compared to $3 thousand for 1999. Service fees decreased by $19,000, or .9%, to $2.21 million for the year ended December 31, 2000, from $2.23 million for the year ended December 31, 1999. Trust income increased to $182,000 in 2000 from $166,000 in 1999 or a 9.6% increase. Other noninterest income decreased by $11,000, or 8.4%, to $120 thousand for 2000 from $131 thousand for 1999. Noninterest Expense. Union's noninterest expense decreased $121,000, or 1.2%, to $9.9 million for the year ended December 31, 2000, from $10.1 million for the year ended December 31, 1999. Salaries increased $260,000, or 6.1%, to $4.5 million for the year ended December 31, 2000, from $4.2 million for the year ended December 31, 1999, reflecting normal salary activity and severance pay to three former Citizens employees whose jobs were eliminated as a result of the merger and the conversion of their EDP processing to Union Bank. Pension and employee benefits increased $40 thousand or 3.7% to $1.12 million for the year ended December 31, 2000, from $1.08 million for the year ended December 31, 1999 mainly due to the increase in the accrual for the Defined Benefit Pension Plan caused by anticipated increases in future salaries and the performance decline in the underlying investment instruments. Office occupancy expense increased $26 thousand, or 4.8%, to $560,000 for the year ended December 31, 2000, from $535,000 for the year ended December 31, 1999. Equipment expense decreased $131 thousand to $994 thousand for the year ended December 31, 2000, from $1.1 million for 1999 primarily resulting from decreased depreciation cost on computer equipment and software purchases that are depreciated as an expense over a time period of three to five years. Other operating expense includes approximately $500 thousand for the year ended December 31, 1999 and $1,900 for 2000, for expenses related to the merger, including legal and advisory fees. The other one time only expense in 1999 was for Year 2000 preparations. Union had $59 thousand of non- payroll-related expenses in 1999 and $1.5 thousand in 2000. Netting out these one-time only expenses would leave $2.77 million of other operating expenses for the year ended December 31, 2000 compared to $2.53 million for 1999 or a 9.4% increase. The increase was mainly attributable to the listing of the Company on the American Stock Exchange, increases in State franchise taxes paid, FDIC assessments paid, communications expense, charitable contributions, training expense, travel expense and fees paid to the Small Business Administration. Income Tax Expense. Union's income tax expense increased by $10,000, or 0.5%, to $1.825 million for the year ended December 31, 2000, from $1.815 million for 1999 mainly due to increased taxable income offset by the low income housing and historic rehabilitation credits that are available to us in both the 2000 and 1999 tax years related to our partnership investments in low-income housing projects sponsored by Housing Vermont in our market area. Our effective tax rate for 2000 was 27.5% compared to 30.8% for 1999 as our merger related expenses in 1999 were not tax deductible. FINANCIAL CONDITION At December 31, 2001, Union had total consolidated assets of $337.5 million, including net loans and loans held for sale of $248.1 million, deposits of $285.7 million and shareholders' equity of $37.2 million. Based on the most recent information published by the Vermont Banking Commissioner, in terms of total assets at December 31, 2000, Union Bank ranked as the 10th largest institution of the 23 commercial banks and savings institutions headquartered in Vermont and Citizens ranked 19th. Union's total assets increased by $34.1 million, or 11.23% to $337.5 million at December 31, 2001 from $303.4 million at December 31, 2000. Total net loans and loans held for sale increased by $26.2 million or 11.81% to $248.1 million or 73.5% of total assets at December 31, 2001 as compared to $221.9 million or 73.1% of total assets at December 31, 2000. This was due to increases of $12.1 million in commercial real estate loans, $16.1 million real estate loans, other than commercial, $2.3 million in commercial loans, that were partially offset by a $1.9 million decrease in municipal loans and a $2.4 million decrease in loans to consumers. Cash and Due from banks increased from $10.4 million to $13.9 million between year- ends. Federal funds sold increased approximately $6.5 million to $7.6 million at December 31, 2001 from $1.1 million at December 31, 2000. Total deposits increased $27.0 million or 10.43% to $285.7 million at December 31, 2001 from $258.7 million at December 31, 2000. A $2.7 million increase in NOW accounts to $41.0 million at December 31, 2001 from $38.4 million the previous year end, a $15.1 million or 17.54% increase in money market and savings accounts to $101.0 million from $85.9 million, an increase in time deposits of $3.2 million or 3.22% raising time deposits to $104.2 million at December 31, 2001 from $100.9 million at December 31, 2000, and a $6.0 million or 17.88% increase in non-interest bearing deposits between years accounts for the increase. Total borrowings increased approximately $4.0 million to $10.3 million at December 31, 2001 from $6.4 million at December 31, 2000 due to match funding 46 of certain loan commitments and the decision to take advantage of the low interest rate environment to lock in funding with the Federal Home Loan Bank. Total equity increased by $2.0 million or 5.85% to $37.2 million at December 31, 2001 from $35.2 million at December 31, 2000 as a result of an increase of $523 thousand in the net unrealized holding gain on securities available-for-sale, net income of $4.8 million, and the exercise of employee stock options for $46,000, these increases were partially offset by dividend payments of $3.2 million and the repurchase of Treasury Stock for $129,000. Loan Portfolio. Union's loan portfolio primarily consists of adjustable- and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate. The composition of Union's gross loan portfolio net of loans held for sale at December 31 for each of the last five years was as follows:
2001 2000 1999 1998 1997 -------------------------------------------------------- Real Estate, other than commercial $112,564 $104,417 $ 87,154 $ 76,832 $ 81,760 Commercial Real Estate 78,898 66,186 69,807 67,707 52,797 Commercial 20,659 18,215 16,246 17,446 15,786 Consumer 12,201 14,626 18,661 23,519 26,599 Municipal & Other 10,552 12,449 9,657 9,830 19,034 -------------------------------------------------------- Total Loans $234,874 $215,893 $201,525 $195,344 $195,976 ========================================================
Union originates and sells residential mortgages into the secondary market, with most such sales made to the Federal Home Loan Mortgage Corporation (FHLMC). Union services a $169.8 million residential mortgage portfolio, approximately $45.0 million of which is serviced for unaffiliated third parties at December 31, 2001. Additionally, Union originates commercial real estate and commercial loans under various SBA programs that provide an agency guarantee for a portion of the loan amount. Union occasionally will sell the guaranteed portion of the loan to other financial concerns and will retain servicing rights, which generates fee income. Union capitalizes mortgage-servicing rights on these fees and recognizes gains and losses on the sale of the principal portion of these notes as they occur. Union services approximately $8.6 million of commercial and commercial real estate loans that have been previously sold. Total loans not held for sale have increased $19.0 million or 8.79% since December 31, 2000. The majority of this increase is due to management's decision to hold in portfolio many loans that could be sold on the secondary market. This strategy will increase our interest margin and combined with our increased deposit base and overall borrowing capacity has not affected our liquidity adversely. The following table breaks down by classification the maturities of the loans held in portfolio and held for sale as of December 31, 2001:
Within 1 2-5 Over 5 Year Years Years ------------------------------ (Dollars in thousands) Real Estate, other than commerical Fixed Rate $16,619 $17,575 $ 44,301 Variable Rate 1,085 4,355 23,594 Commercial Real Estate Fixed Rate 4,280 17,475 10,725 Variable Rate 9,177 16,259 45,507 Commercial Fixed Rate 2,430 3,780 764 Variable Rate 5,298 3,369 1,463 Municipal Fixed Rate 8,620 577 1,355 Variable Rate 0 0 0 Consumer Fixed Rate 6,243 5,971 244 Variable Rate 86 15 39 ------------------------------- Total $53,838 $69,376 $127,992 ===============================
47 Asset Quality. Union, like all financial institutions, is exposed to certain credit risks related to the value of the collateral that secures its loans and the ability of borrowers to repay their loans. Management closely monitors Union's loan and investment portfolios and other real estate owned for potential problems on a periodic basis and reports to Union's Board of Directors at regularly scheduled meetings. Union had loans on non-accrual status totaling $1.8 million at December 31, 2001 and $1.5 million at December 31, 2000. The aggregate interest on non- accrual loans not recognized through December 31, 2001 was $450,118, through 2000 was $288,512, and through 1999 was $182,610. Union had $3.0 million and $2.9 million in loans past due 90 days or more and still accruing at December 31, 2001 and 2000, respectively. At December 31, 2001, Union had internally classified certain loans totaling $793 thousand and $1.3 million at December 31. 2000. In management's view, such loans represent a higher degree of risk and could become nonperforming loans in the future. While still on a performing status, in accordance with Union's credit policy, loans are internally classified when a review indicates any of the following conditions making the likelihood of collection questionable: * the financial condition of the borrower is unsatisfactory; * repayment terms have not been met; * the borrower has sustained losses that are sizable, either in absolute terms or relative to net worth; * confidence is diminished; * loan covenants have been violated; * collateral is inadequate; or * other unfavorable factors are present. At December 31, 2001, Union had acquired by foreclosure or through repossession real estate worth $1.3 million, consisting of commercial property, a residential property and undeveloped land. The balance at December 31, 2000 was $116 thousand. Allowance for Loan Losses. Some of Union's loan customers ultimately do not make all of their contractually scheduled payments, requiring Union to charge off the remaining principal balance due. Union maintains an allowance for loan losses to absorb such losses. While Union allocates the allowance for loan losses based on the percentage category to total loans, the portion of the allowance for loan losses allocated to each category does not represent the total available for future losses which may occur within the loan category since the total allowance for possible loan losses is a valuation reserve applicable to the entire portfolio. The following table reflects activity in the allowance for loan losses for the years ended December 31, 2001, 2000, 1999, 1998,and 1997.
Year Ended December 31, ---------------------------------------------- 2001 2000 1999 1998 1997 ---------------------------------------------- (Dollars in thousands) Balance at the beginning of period $2,863 $2,870 $2,845 $2,811 $2,844 Charge-offs: Real Estate 70 0 41 49 31 Commercial 245 152 49 67 150 Consumer and other 161 229 338 371 368 ---------------------------------------------- Total charge-offs 476 381 428 487 549 ---------------------------------------------- Recoveries: Real Estate 1 1 3 0 4 Commercial 23 34 14 33 15 Consumer and other 70 89 77 88 72 ---------------------------------------------- Total recoveries 94 124 94 121 91 ---------------------------------------------- Net charge-offs (382) (257) (334) (366) (458) Provision for loan losses 320 250 359 400 425 Transfer from Other Reserve 0 0 0 0 0 ---------------------------------------------- Balance at end of period $2,801 $2,863 $2,870 $2,845 $2,811 ==============================================
48 The following table shows the breakdown of Union's allowance for loan loss by category of loan and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:
December 31, December 31, December 31, December 31, December 31, 2001 2000 1999 1998 1997 ----------------- ----------------- ----------------- ----------------- ------------------ Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent ------------------------------------------------------------------------------------------------------ (Dollars in thousands) Real Estate Residential $ 610 41.3% $ 595 40.5% $ 557 42.3% $ 255 39.5% $ 278 36.8% Commercial 1,342 34.1% 1,193 32.3% 1,014 30.6% 754 29.5% 774 27.9% Construction 116 4.6% 102 4.5% 77 3.7% 12 3.8% 10 2.1% Other Loans Commercial 421 9.1% 401 9.1% 416 8.1% 498 9.0% 601 9.3% Consumer installment 253 4.9% 319 6.5% 448 8.6% 545 11.3% 659 12.9% Home equity loans 29 1.6% 31 1.8% 28 1.8% 21 2.3% 25 2.8% Municipal, Other and Unallocated 30 4.4% 222 5.3% 330 4.9% 760 4.6% 464 8.2% ------------------------------------------------------------------------------------------------------ Total $2,801 100.0% $2,863 100.0% $2,870 100.0% $2,845 100.0% $2,811 100.0% =================================================================================================== Ratio of Net Charge-Offs to Average Loans .16% .12% .16% .19% .24% Ratio of Allowance for Loan Losses to Loans 1.12% 1.27% 1.37% 1.41% 1.39%
Investment Activities. At December 31, 2001, the reported value of investment securities available-for-sale was $49.6 million or 14.7% of assets. Union had no securities classified as held-to-maturity or trading. The adoption of FASB No. 115, "Accounting for Certain Investments in Debt and Equity Securities," has had an impact on our investment portfolio. This accounting standard, effective for 1994 statements, requires banks to recognize all appreciation or depreciation of the investment portfolio either on the balance sheet or through the income statement even though a gain or loss has not been realized. These changes require securities classified as "trading securities" to be marked to market with any gain or loss charged to income. Securities classified as "available-for-sale" are marked to market with any gain or loss after taxes charged to the equity portion of the balance sheet. Securities classified as "held-to-maturity" are to be held at book value. The reported value of securities available- for-sale at December 31, 2001 reflects a positive valuation adjustment of $749 thousand. The offset of this adjustment, net of income tax effect, was a $494 thousand increase in Union's other comprehensive income component of shareholders' equity and a decrease in net deferred tax assets of $255 thousand. The following tables show as of December 31, 2001 and 2000 the amortized cost of Union's investment portfolio maturing within the stated period.
At December 31, 2001 -------------------------------------------------------------------------- Maturities -------------------------------------------------------------------------- Within One to Five to Over Total Weighted One Year Five Years Ten Years Ten Years Cost Average Yield -------------------------------------------------------------------------- (Dollars in thousands) Securities available-for-sale: U.S. Government, Agency and Corporation securities $1,500 $ 2,059 $ 912 $ 0 $ 4,471 6.03% Mortgage-backed securities 0 2,900 1,802 10,965 15,667 5.47% State and political subdivisions 11 1,295 3,872 739 5,917 5.90% Corporate debt securities 3,255 15,037 3,906 0 22,198 6.20% Marketable equity securities 0 0 0 611 611 7.90% -------------------------------------------------------------------- Total Investment Securities $4,766 $21,291 $10,492 $12,315 $48,864 5.93% ==================================================================== Fair Value $4,804 $21,736 $10,439 $12,634 $49,613 ========================================================= Weighted Average Yield 6.32% 6.07% 6.03% 5.47% 5.93% 49 At December 31, 2000 -------------------------------------------------------------------------- Maturities -------------------------------------------------------------------------- Within One to Five to Over Total Weighted One Year Five Years Ten Years Ten Years Cost Average Yield -------------------------------------------------------------------------- (Dollars in thousands) Securities available-for-sale: U.S. Government, Agency and Corporation securities $5,998 $10,706 $ 5,196 $ 500 $22,400 6.23% Mortgage-backed securities 137 1,155 3,039 3,437 7,768 6.54% State and political subdivisions 25 682 3,993 215 4,915 6.19% Corporate debt securities 1,001 15,840 2,890 1,243 20,974 6.39% Marketable equity securities 0 0 0 628 628 8.47% -------------------------------------------------------------------- Total Investment Securities $7,161 $28,383 $15,118 $6,023 $56,685 6.35% ==================================================================== Fair Value $7,146 $28,740 $14,346 $6,410 $56,642 ==================================================================== Weighted Average Yield 5.62% 6.52% 6.12% 6.91% 6.35%
Deposits. The following table shows information concerning Union's deposits by account type, and the weighted average nominal rates at which interest was paid on such deposits as of December 31, 2001 and December 31, 2000:
Year Ended December 31, Year Ended December 31, 2001 2000 ------------------------------- ------------------------------- Percent Percent Average of Total Average Average of Total Average Amount Deposits Rate Amount Deposits Rate ------------------------------------------------------------------ (Dollars in thousands) Non-certificate deposits: Demand deposits $ 35,251 13.07% $ 32,906 12.81% Now accounts 36,320 13.47% 1.63% 34,383 13.39% 2.04% Money Markets 56,875 21.09% 3.50% 53,770 20.94% 4.45% Savings and other 35,642 13.21% 2.13% 37,153 14.47% 2.72% ------------------ ------------------ Total non-certificate deposits 164,088 60.84% 158,212 61.61% ------------------ ------------------ Certificates of deposit: Less than $100,000 76,641 28.42% 5.03% 75,483 29.40% 5.29% $100,000 and over 28,954 10.74% 5.53% 23,088 8.99% 5.89% ------------------ ------------------ Total certificates of deposit 105,595 39.16% 98,571 38.39% ------------------ ------------------ Total deposits $269,683 100.00% 3.26% $256,783 100.00% 3.68% ===============================================================
The following table sets forth information regarding the amounts of Union's certificates of deposit in amounts of $100,000 or more at December 31,2001 and December 31, 2000 that mature during the periods indicated:
December 31, 2001 December 31, 2000 ----------------- ----------------- (Dollars in thousands) Within 3 months $ 6,288 $ 6,757 3 to 6 months 13,681 11,259 6 to 12 months 3,189 4,439 Over 12 months 6,711 3,739 ----------------------------- $29,869 $26,194 =============================
Borrowings. Borrowings from the Federal Home Loan Bank of Boston were $10.3 million at December 31, 2001 at a weighted average rate of 5.06%. Borrowings totaled $6.4 million at December 31, 2000 have a weighted average rate of 6.6%. (See Footnote 11 to the Financial Statements for details.) 50 Quantitative and Qualitative Disclosures About Market Risk Market Risk and Asset and Liability Management (ALM). Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Union's market risk arises primarily from interest rate risk inherent in its lending, investing, and deposit taking activities. To that end, management actively monitors and manages its interest rate risk exposure. Union does not have any market risk sensitive instruments acquired for trading purposes. Union attempts to structure its balance sheet to maximize net interest income while controlling its exposure to interest rate risks. Union's Asset/Liability Committee formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity, and various business strategies. Union's Asset/Liability Committee's methods for evaluating interest rate risk include an analysis of Union's interest-rate sensitivity "gap", which provides a static analysis of the maturity and repricing characteristics of Union's entire balance sheet, and a simulation analysis, which calculates projected net interest income based on alternative balance sheet and interest rate scenarios, including "rate shock" scenarios involving substantial increases or decreases in market rates of interest. Union's Asset/Liability Committee meets at least weekly to set loan and deposit rates, make investment decisions, monitor liquidity and evaluate the loan demand pipeline. Deposit runoff is monitored daily and loan prepayments evaluated monthly. Union historically has maintained a substantial portion of its loan portfolio on a variable rate basis and plans to continue this ALM strategy in the future. The investment portfolio is all classified as available for sale and the modified duration is relatively short. Union does not utilize any derivative products or invest in any "high risk" instruments. Our interest rate sensitivity analysis (simulation) as of December 2000 for a simulated flat rate environment projected a Net Interest Income of $16.0 million for 2001 based on average assets for 2001 of $307.6 million compared to actual results of $14.6 million on average assets of $319.0 million or an 8.75% difference. The Prime rate dropped from 9.5% on January 1, 2001 to 4.75% on December 31, 2001. Interest rates were down in 2001 on interest earning assets 48 basis points and 37 basis points on interest paying liabilities. We continued to have higher demand for loans ($235.4 milllion on average for 2001) than anticipated ($226.3 million) which resulted in our percentage of loans to interest earning assets growing from 76.54% to 79.01% as we shifted resources from lower yielding assets to loans. Our net interest margin for 2001 was 4.99% and our net interest spread was 4.29%. Net income was projected to be $5.9 million in a simulated flat rate environment compared to actual results of $4.8 million. Of the $1.1 million difference, $1.4 million relates to the decrease in net interest income offset by Trust income being $61 thousand higher than budgeted, Gain on Sale of Securities was $106 thousand higher than anticipated, and Gain on Sale of Loans was $121 thousand higher than expected. Return on Assets was 1.51% compared to our simulated flat rate projection of 1.91%. Return on Equity was 13.34% compared to our simulated flat rate projection of 16.06%. These two ratios were lower based on lower net income as explained above and higher average balances than anticipated. The Company generally requires collateral or other security to support financial instruments with credit risk. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. (See Footnote 14 to the Financial Statements for details.) Interest Rate Sensitivity "Gap" Analysis. An interest rate sensitivity "gap" is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities. A gap is considered negative when the amount of interest rate sensitive liabilities exceeds the amount of interest rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market interest rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category. Union prepares its interest rate sensitivity "gap" analysis by scheduling interest-earning assets and interest-bearing liabilities into periods based upon the next date on which such assets and liabilities could mature or reprice. The amounts of assets and liabilities shown within a particular period were determined in accordance with the contractual terms of the assets and liabilities, except that: * adjustable-rate loans, securities, and FHLB advances are included in the period when they are first scheduled to adjust and not in the period in which they mature; * fixed-rate mortgage-related securities reflect estimated prepayments, which were estimated based on analyses of broker estimates, the results of a prepayment model utilized by Union, and empirical data; 51 * fixed-rate loans reflect scheduled contractual amortization, with no estimated prepayments; and * NOW, money markets, and savings deposits, which do not have contractual maturities, reflect estimated levels of attrition, which are based on detailed studies by Union of the sensitivity of each such category of deposit to changes in interest rates. Management believes that these assumptions approximate actual experience and considers them reasonable. However, the interest rate sensitivity of Union's assets and liabilities in the tables could vary substantially if different assumptions were used or actual experience differs from the historical experience on which the assumptions are based. The following tables show Union's rate sensitivity analysis as of December 31, 2001 and 2000:
December 31, 2001 Cumulative repriced within -------------------------------------------------------------------- 3 Months 4 to 12 1 to 3 3 to 5 Over 5 or Less Months Years Years Years Total -------------------------------------------------------------------- (Dollars in thousands, by repricing date) Interest sensitive assets: Federal Funds Sold $ 7,630 $ 0 $ 0 $ 0 $ 0 $ 7,630 Interest-bearing deposits 871 991 2,149 689 0 4,700 Investments available for sale (1) 4,855 5,255 16,273 10,864 11,526 48,773 FHLB Stock 0 0 0 0 1,064 1,064 Loans (2) 72,424 39,174 42,321 39,384 57,640 250,943 -------------------------------------------------------------------- Total interest sensitive assets $85,780 $45,420 $60,743 $50,937 $70,230 $313,110 ==================================================================== Interest sensitive liabilities: Time deposits $25,758 $51,582 $22,462 $ 4,359 $ 3 $104,164 Money markets 23,852 0 0 0 40,844 64,696 Regular savings 4,329 0 0 0 31,966 36,295 Now accounts 31,501 0 0 0 9,519 41,020 Borrowed funds (3) 2,174 585 1,750 4,756 1,079 10,344 -------------------------------------------------------------------- Total interest sensitive liabilities $87,614 $52,167 $24,212 $ 9,115 $83,411 $256,519 ==================================================================== Net interest rate sensitivity gap (1,834) (6,747) 36,531 41,822 (13,181) 56,591 Cumulative net interest rate sensitivity gap (1,834) (8,581) 27,950 69,772 56,591 Cumulative net interest rate sensitivity gap as a percentage of total assets (.54%) (2.54%) 8.28% 20.67% 16.77% Cumulative interest sensitivity gap as a percentage of total interest-earning assets (.59%) (2.74%) 8.93% 22.28% 18.07% Cumulative net interest earning assets as a percentage of cumulative interest-bearing liabilities (.71%) (3.34%) 10.90% 27.20% 22.06% -------------------- Investments available for sale exclude marketable equity securities with a fair value of $840,045 that may be sold by Union at any time. Balances shown net of unearned income of $263,080. Estimated repayment assumptions considered in Asset/Liability model.
52
December 31, 2000 Cumulative repriced within -------------------------------------------------------------------- 3 Months 4 to 12 1 to 3 3 to 5 Over 5 or Less Months Years Years Years Total -------------------------------------------------------------------- (Dollars in thousands, by repricing date) Interest sensitive assets: Federal Funds Sold $ 1,144 $ 0 $ 0 $ 0 $ 0 $ 1,144 Interest-bearing deposits 100 586 770 191 0 1,647 Investments available for sale (1) 2,245 6,641 15,785 13,455 17,402 55,528 FHLB Stock 0 0 0 0 1,017 1,017 Loans (2) 59,092 41,549 36,150 29,462 58,543 224,796 -------------------------------------------------------------------- Total interest sensitive assets $62,581 $48,776 $52,705 $43,108 $76,962 $284,132 ==================================================================== Interest sensitive liabilities: Time deposits $29,006 $56,150 $14,100 $ 1,658 $ 2 $100,916 Money markets 18,215 0 0 0 32,495 50,710 Regular savings 4,297 0 0 0 30,912 35,209 Now accounts 20,698 0 0 0 17,656 38,354 Borrowed funds (3) 2,072 265 3,295 591 159 6,382 -------------------------------------------------------------------- Total interest sensitive liabilities $74,288 $56,415 $17,395 $ 2,249 $81,224 $231,571 ==================================================================== Net interest rate sensitivity gap (11,707) (7,639) 35,310 40,859 (4,262) 52,561 Cumulative net interest rate sensitivity gap (11,707) (19,346) 15,964 56,823 52,561 Cumulative net interest rate sensitivity gap as a percentage of total assets (3.86%) (6.38%) 5.26% 18.73% 17.32% Cumulative interest sensitivity gap as a percentage of total interest-earning assets (4.12%) (6.81%) 5.62% 20.00% 18.50% Cumulative net interest earning assets as a percentage of cumulative interest-bearing liabilities (5.06%) (8.35%) 6.89% 24.54% 22.70% -------------------- Investments available for sale exclude marketable equity securities with a fair value of $1,114,000 that may be sold by Union at any time. Balances shown net of unearned income of $250,374. Estimated repayment assumptions considered in Asset/Liability model.
Simulation Analysis. In its simulation analysis, Union uses computer software to simulate the estimated impact on net interest income and capital under various interest rate scenarios, balance sheet trends, and strategies. These simulations incorporate assumptions about balance sheet dynamics such as loans and deposit growth, product pricing, changes in funding mix, and asset and liability repricing and maturity characteristics. Based on the results of these simulations, Union is able to quantify its interest rate risk and develop and implement appropriate strategies. The following chart reflects the results of our latest simulation analysis for next year-end on Net Interest Income, Net Income, Return on Assets, Return on Equity and Capital Value. The projection utilizes a rate shock of 300 basis points from the year-end prime rate of 4.75%; this is the highest internal slope monitored and shows the best and worse scenarios analyzed. This slope range was determined to be the most relevant during this economic cycle. 53 UNION BANKSHARES, INC. INTEREST RATE SENSITIVITY ANALYSIS MATRIX DECEMBER 31, 2001 (in thousands)
Year Prime Net Interest Change Net Return on Return on Capital Change Ending Rate Income % Income Assets % Equity % Value % ------------------------------------------------------------------------------------------------------- December-02 7.75 $16,480 9.72 $5,911 1.64 15.68 $28,514 (32.85) 4.75 15,021 0.00 4,926 1.37 13.23 42,464 0.00 1.75 13,442 (10.51) 3,862 1.08 10.50 56,305 32.59
Liquidity. Liquidity is a measurement of Union's ability to meet potential cash requirements, including ongoing commitments to fund deposit withdrawals, repay borrowings, fund investment and lending activities, and for other general business purposes. Union's principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities and other short-term investments, sales of securities available-for-sale, and earnings and funds provided from operations. In addition, as both subsidiary banks are members of the FHLB, Union has access to preapproved lines of credit up to 1.95% of total assets. Union also has a $4 million short term preapproved line of credit with one of their correspondent banks. The Banks maintain IDEAL Way Lines of Credit with the Federal Home Loan Bank of Boston. The total line available to Union Bank was $3,551,000 and $3,356,000 as of December 31, 2001 and December 31, 2000, respectively. The total line available to Citizens Savings Bank and Trust Company was $3,040,000 as of both December 31, 2001 and 2000. There were no borrowings against these lines of credit at December 31, 2001 or 2000. Interest on these borrowings is chargeable at a rate determined by the Federal Home Loan Bank and payable monthly. Should the Company utilize these lines of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings. While scheduled loan and securities payments and FHLB advances are relatively predictable sources of funds, deposit flows and prepayments on loans and mortgage-backed securities are greatly influenced by general interest rates, economic conditions, and competition. Union's liquidity is actively managed on a daily basis, monitored by the Asset/Liability Committee, and reviewed periodically with the Board of Directors. Union's Asset/Liability Committee sets liquidity targets based on Union's financial condition and existing and projected economic and market conditions. The committee measures Union's net loan to deposit ratio, the 90 day and 1 year maturity gaps and long term (>3 years) assets repricing compared to total assets on a quarterly basis. The committee's primary objective is to manage Union's liquidity position and funding sources in order to ensure that it has the ability to meet its ongoing commitment to its depositors, to fund loan commitments, and to maintain a portfolio of investment securities. Since many of the loan commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Union's management monitors current and projected cash flows and adjusts positions as necessary to maintain adequate levels of liquidity. Although approximately 73.30% of Union's time deposits will mature within twelve months, management believes, based upon past experience, that Union will retain a substantial portion of these deposits. Management will continue to offer a competitive but prudent pricing strategy to facilitate retention of such deposits. Any reduction in total deposits could be offset by purchases of federal funds, short-term FHLB borrowings, or liquidation of investment securities or loans held for sale. Such steps could result in an increase in Union's cost of funds and adversely impact the net interest margin. Regulatory Capital Requirements. As of December 31, 2001, the most recent notification from the FDIC categorized Union Bank and Citizens Savings Bank & Trust Co. as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the banks must maintain a minimum total risk-based capital ratio of 10%, Tier I risk-based capital ratio of 6% and Tier I leverage ratio of 5%. (See Footnote 21 to the Financial Statements for details on the individual banks' capital ratios). Union's total risk based capital ratio is 17.43%, Tier 1 risk based capital ratio is 16.16%, and Tier 1 leverage ratio is 11.06% as of December 31, 2001. There are no conditions or events since the date of the most recent notification that management believes might result in an adverse change to either banks' or Union's regulatory capital category. Impact of Inflation and Changing Prices. Union's consolidated financial statements, included in this document, have been prepared in accordance with accounting principles, generally accepted in the United States of America which require the measurements of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Banks have asset and liability structures that are essentially monetary in nature, and their general and administrative costs constitute relatively small percentages of total expenses. Thus, increases in the general price levels for goods and services have a relatively minor effect on Union's total expenses. Interest rates have a more significant impact on Union's financial performance than the effect of general inflation. Interest rates do not necessarily move in the same direction or change in the same magnitude as the prices of goods and services, although periods of increased inflation may accompany a rising interest rate environment. 54 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- MARKET FOR UNION'S COMMON SHARES AND RELATED SHAREHOLDER MATTERS On March 15, 2002 there were 3,027,557 shares of common stock outstanding held by 722 shareholders of record. The number of shareholders does not reflect the number of persons or entities who may hold the stock in nominee or "street name." Union common stock was listed on the American Stock Exchange on July 13, 2000. The Company's stock trades under the symbol UNB. LaBranche & Co. of New York City are the market specialists for Union Bankshares, Inc. stock. Prior to July 13, 2000 no broker made a market in Union Common stock and trading was sporadic. The trades that occurred cannot be characterized as an established public trading market. The stock was traded from time to time by holders in private transactions or through brokers, and information on bid and ask prices was not publicly reported. Therefore, the stock prices shown below for that period reflect only the transactions known to management. Due to the limited information available, the stock prices shown may not accurately reflect the actual market value of Union's Common stock. The high and low prices for shares of the Company's Common stock for 2001 and 2000, as well as cash dividends paid thereon is presented below:
2001 2000 ----------------------------- ----------------------------- High Low Dividends High Low Dividends -------------------------------------------------------------- First Quarter $18.20 $16.70 $ .26 $21.00 $15.00 $ .24 Second Quarter $18.25 $17.10 $ .26 $18.25 $15.00 $ .24 Third Quarter $20.20 $18.00 $ .26 $18.75 $14.94 $ .24 Fourth Quarter $23.25 $18.85 $ .28 $17.75 $16.00 $ .26
On January 4, 2002 the Company declared a dividend of $.28 per share to stockholders of record as of January 14, 2002, payable January 17, 2002. 55 UNION BANKSHARES, INC. AND SUBSIDIARIES --------------------------------------------------------------------------- SHAREHOLDER ASSISTANCE AND INVESTOR INFORMATION If you need assistance with a change in registration of certificates, reporting lost certificates, non-receipt or loss of dividend checks, information about the Company, or to receive copies of financial reports, please contact: JoAnn A. Tallman, Assistant Secretary Union Bankshares, Inc. P.O. Box 667 Morrisville, VT 05661-0667 Phone: 802-888-6600 Facsimile: 802-888-4921 E-mail: ubexec@unionbankvt.com Form 10-K A copy of the Form 10-K Report filed with the Securities and Exchange Commission may be obtained without charge upon written request to: Marsha A. Mongeon, Treasurer and Chief Financial Officer Union Bankshares, Inc. P.O. Box 667 Morrisville, VT 05661-0667 Corporate Name: Union Bankshares, Inc. Corporate Transfer Agent: Union Bank, P.O. Box 667, Morrisville, VT 05661-0667 56 Officers of Union Bankshares W. Arlen Smith Chairman Cynthia D. Borck Vice President Kenneth D. Gibbons President & CEO Marsha A. Mongeon Treasurer & Vice President Robert P. Rollins Secretary Jerry S. Rowe Vice President JoAnn A. Tallman Assistant Secretary Officers of Union Bank Wanda L. Allaire Assistant Vice President Rhonda L. Bennett Vice President Cynthia D. Borck Senior Vice President Shawn M. Davis Commercial Loan Officer Fern C. Farmer Assistant Vice President Patsy S. French Assistant Vice President Kenneth D. Gibbons President & CEO Lorraine M. Gordon Assistant Vice President Claire A. Hindes Assistant Vice President Patricia N. Hogan Vice President Peter R. Jones Vice President Stephen H. Kendall Assistant Vice President Margaret S. Lambert Assistant Vice President Susan F. Lassiter Assistant Vice President Philip L. Martin Assistant Vice President Marsha A. Mongeon Treasurer & Sr. Vice President Freda T. Moody Assistant Vice President Colleen D. Putvain Assistant Treasurer Donna M. Russo Vice President Ruth P. Schwartz Vice President David S. Silverman Senior Vice President JoAnn A. Tallman Assistant Secretary Francis E. Welch Assistant Vice President Craig S. Wiltshire Vice President Officers of Citizens Bank Karen C. Gammell Assistant Treasurer Tracey D. Holbrook Vice President Susan O. Laferriere Vice President Dennis J. Lamothe Treasurer Mildred R. Nelson Assistant Vice President Barbara A. Olden Assistant Vice President Deborah J. Partlow Trust Officer Jerry S. Rowe President David A. Weed Vice President DIRECTORS OF UNION BANK [PHOTO] Front row: Richard C. Marron, Kenneth D. Gibbons, W. Arlen Smith and Richard C. Sargent. Back row: Robert P. Rollins, Cynthia D. Borck and John H. Steel. DIRECTORS OF CITIZENS SAVINGS BANK & TRUST CO. [PHOTO] Front row: Joseph M. Sherman, Cynthia D. Borck, J.R. Alexis Clouatre and William T. Costa, Jr. Back: Franklin G. Hovey II, Kenneth D. Gibbons, Jerry S. Rowe and Dwight A. Davis. * Union Bank Offices www.unionbankvt.com Morrisville Main Office * 20 Lower Main Street 802-888-6600 Northgate Plaza * Route 100 802-888-6860 Stowe Stowe Village * Park & Pond Streets 802-253-6600 Johnson 198 Lower Main Street * 802-635-6600 Hardwick 103 VT Route 15 * 802-472-8100 Jeffersonville 80 Main Street * 802-644-6600 Hyde Park 250 Main Street 802-888-6880 Fairfax Route 104 * 802-849-2600 Remote ATM Locations Smugglers' Notch Resort (2) Dewey Center, Johnson State College Copley Hospital Cold Hollow Cider Mill Trapp Family Lodge Stowe Mountain Resort (3) Stowe Mountain Road Big John's Riverside Store, Jericho Cold Hollow Cider, Waterbury Center Ben & Jerry's Factory, Waterbury Taft Corners, Williston * Express Telebanking 802-888-6448 800-583-2869 * Citizens Savings Bank & Trust Company Offices www.csbtc.com St. Johnsbury 364 Railroad St * 802-748-3131 325 Portland St. 802-748-3121 Lyndonville 183 Depot Street * 802-626-3100 St. Johnsbury Center Green Mountain Mall * 1998 Memorial Drive 802-748-2454 Littleton Loan Center 241 Main Street Littleton, NH 603-444-7136 Remote ATM Locations East Burke, Route 114 Danville , Route 2 Burke Mountain Ski Area Littleton, NH Loan Center * Xpress Phone Banking 802-748-0815 800-748-1018 * ATM locations