UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 20222023
Commission file number: 001-15985
20 LOWER MAIN STREET, P.O. BOX 667
MORRISVILLE, VT 05661
Registrant’s telephone number: 802-888-6600
Former name, former address and former fiscal year, if changed since last report: Not applicable
Securities registered pursuant to section 12(b) of the Act:
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| Common Stock, $2.00 par value | UNB | Nasdaq Stock Market | |
| (Title of class) | (Trading Symbol) | (Exchanges registered on) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 29, 2022.28, 2023.
| | | | | | | | | | | | | | |
| Common Stock, $2 par value | | 4,495,6724,507,437 | | shares |
UNION BANKSHARES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
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PART II OTHER INFORMATION | |
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
| | | March 31, 2022 | December 31, 2021 | | March 31, 2023 | December 31, 2022 |
| | (Unaudited) | | | (Unaudited) | |
Assets | Assets | (Dollars in thousands) | Assets | (Dollars in thousands) |
Cash and due from banks | Cash and due from banks | $ | 5,047 | | $ | 4,659 | | Cash and due from banks | $ | 4,340 | | $ | 4,504 | |
Federal funds sold and overnight deposits | Federal funds sold and overnight deposits | 45,755 | | 61,263 | | Federal funds sold and overnight deposits | 17,479 | | 33,381 | |
Cash and cash equivalents | Cash and cash equivalents | 50,802 | | 65,922 | | Cash and cash equivalents | 21,819 | | 37,885 | |
Interest bearing deposits in banks | Interest bearing deposits in banks | 14,192 | | 13,196 | | Interest bearing deposits in banks | 16,428 | | 16,428 | |
Investment securities available-for-sale | Investment securities available-for-sale | 272,151 | | 267,819 | | Investment securities available-for-sale | 275,417 | | 250,267 | |
| Other investments | Other investments | 1,273 | | 1,132 | | Other investments | 1,350 | | 1,264 | |
Total investments | Total investments | 273,424 | | 268,951 | | Total investments | 276,767 | | 251,531 | |
Loans held for sale | Loans held for sale | 2,349 | | 13,829 | | Loans held for sale | 2,849 | | 1,178 | |
Loans | Loans | 827,607 | | 787,050 | | Loans | 972,409 | | 958,157 | |
Allowance for loan losses | (8,336) | | (8,336) | | |
Allowance for credit losses on loans | | Allowance for credit losses on loans | (6,934) | | (8,339) | |
Net deferred loan costs | Net deferred loan costs | 1,007 | | 705 | | Net deferred loan costs | 1,358 | | 1,336 | |
Net loans | Net loans | 820,278 | | 779,419 | | Net loans | 966,833 | | 951,154 | |
| Premises and equipment, net | Premises and equipment, net | 21,320 | | 21,615 | | Premises and equipment, net | 20,256 | | 20,479 | |
| Company-owned life insurance | Company-owned life insurance | 18,192 | | 18,764 | | Company-owned life insurance | 18,625 | | 18,518 | |
Other assets | Other assets | 32,986 | | 23,677 | | Other assets | 38,478 | | 39,316 | |
Total assets | Total assets | $ | 1,233,543 | | $ | 1,205,373 | | Total assets | $ | 1,362,055 | | $ | 1,336,489 | |
Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | Liabilities and Stockholders’ Equity | |
Liabilities | Liabilities | | | Liabilities | | |
Deposits | Deposits | | | Deposits | | |
Noninterest bearing | Noninterest bearing | $ | 303,077 | | $ | 264,888 | | Noninterest bearing | $ | 262,488 | | $ | 286,145 | |
Interest bearing | Interest bearing | 726,864 | | 723,479 | | Interest bearing | 709,401 | | 762,722 | |
Time | Time | 104,303 | | 106,715 | | Time | 254,089 | | 153,045 | |
Total deposits | Total deposits | 1,134,244 | | 1,095,082 | | Total deposits | 1,225,978 | | 1,201,912 | |
| Borrowed funds | | Borrowed funds | 45,106 | | 50,000 | |
Subordinated notes | Subordinated notes | 16,179 | | 16,171 | | Subordinated notes | 16,213 | | 16,205 | |
Accrued interest and other liabilities | Accrued interest and other liabilities | 13,703 | | 9,779 | | Accrued interest and other liabilities | 14,166 | | 13,152 | |
Total liabilities | Total liabilities | 1,164,126 | | 1,121,032 | | Total liabilities | 1,301,463 | | 1,281,269 | |
Commitments and Contingencies | Commitments and Contingencies | 0 | Commitments and Contingencies | |
Stockholders’ Equity | Stockholders’ Equity | | Stockholders’ Equity | |
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,968,692 shares issued at March 31, 2022 and 4,967,093 shares issued at December 31, 2021 | 9,937 | | 9,934 | | |
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,982,523 shares issued at March 31, 2023 and 4,982,523 shares issued at December 31, 2022 | | Common stock, $2.00 par value; 7,500,000 shares authorized; 4,982,523 shares issued at March 31, 2023 and 4,982,523 shares issued at December 31, 2022 | 9,965 | | 9,965 | |
Additional paid-in capital | Additional paid-in capital | 1,878 | | 1,769 | | Additional paid-in capital | 2,353 | | 2,225 | |
Retained earnings | Retained earnings | 79,259 | | 78,350 | | Retained earnings | 86,060 | | 84,669 | |
Treasury stock at cost; 475,522 shares at March 31, 2022 and 473,438 shares at December 31, 2021 | (4,231) | | (4,160) | | |
Treasury stock at cost; 475,573 shares at March 31, 2023 and 473,936 shares at December 31, 2022 | | Treasury stock at cost; 475,573 shares at March 31, 2023 and 473,936 shares at December 31, 2022 | (4,272) | | (4,220) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (17,426) | | (1,552) | | Accumulated other comprehensive loss | (33,514) | | (37,419) | |
Total stockholders' equity | Total stockholders' equity | 69,417 | | 84,341 | | Total stockholders' equity | 60,592 | | 55,220 | |
Total liabilities and stockholders' equity | Total liabilities and stockholders' equity | $ | 1,233,543 | | $ | 1,205,373 | | Total liabilities and stockholders' equity | $ | 1,362,055 | | $ | 1,336,489 | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 1
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| | | Three Months Ended March 31, | | | | | | | | | | |
| | 2022 | 2021 | | | Three Months Ended March 31, | |
| | (Dollars in thousands, except per share data) | | 2023 | 2022 | |
Interest and dividend income | Interest and dividend income | | | Interest and dividend income | (Dollars in thousands, except per share data) |
Interest and fees on loans | Interest and fees on loans | $ | 8,474 | | $ | 8,885 | | | Interest and fees on loans | $ | 11,205 | | $ | 8,474 | | |
Interest on debt securities: | Interest on debt securities: | | | Interest on debt securities: | | |
Taxable | Taxable | 972 | | 404 | | | Taxable | 1,174 | | 972 | | |
Tax exempt | Tax exempt | 222 | | 151 | | | Tax exempt | 413 | | 222 | | |
Dividends | Dividends | 6 | | 4 | | | Dividends | 41 | | 6 | | |
Interest on federal funds sold and overnight deposits | Interest on federal funds sold and overnight deposits | 19 | | 19 | | | Interest on federal funds sold and overnight deposits | 104 | | 19 | | |
Interest on interest bearing deposits in banks | Interest on interest bearing deposits in banks | 33 | | 37 | | | Interest on interest bearing deposits in banks | 107 | | 33 | | |
Total interest and dividend income | Total interest and dividend income | 9,726 | | 9,500 | | | Total interest and dividend income | 13,044 | | 9,726 | | |
Interest expense | Interest expense | | | Interest expense | | |
Interest on deposits | Interest on deposits | 621 | | 1,047 | | | Interest on deposits | 2,443 | | 621 | | |
Interest on borrowed funds | Interest on borrowed funds | — | | 54 | | | Interest on borrowed funds | 484 | | — | | |
Interest on subordinated notes | Interest on subordinated notes | 142 | | — | | | Interest on subordinated notes | 142 | | 142 | | |
Total interest expense | Total interest expense | 763 | | 1,101 | | | Total interest expense | 3,069 | | 763 | | |
Net interest income | Net interest income | 8,963 | | 8,399 | | | Net interest income | 9,975 | | 8,963 | | |
Provision for loan losses | — | | 150 | | | |
Net interest income after provision for loan losses | 8,963 | | 8,249 | | | |
Credit loss expense, net | | Credit loss expense, net | 74 | | — | | |
Net interest income after credit loss expense | | Net interest income after credit loss expense | 9,901 | | 8,963 | | |
Noninterest income | Noninterest income | | | Noninterest income | | |
Trust income | 209 | | 185 | | | |
Wealth management income | | Wealth management income | 211 | | 209 | | |
Service fees | Service fees | 1,635 | | 1,523 | | | Service fees | 1,694 | | 1,635 | | |
Net gains on sales of investment securities available-for-sale | Net gains on sales of investment securities available-for-sale | 26 | | — | | | Net gains on sales of investment securities available-for-sale | — | | 26 | | |
Net gains on sales of loans held for sale | Net gains on sales of loans held for sale | 14 | | 894 | | | Net gains on sales of loans held for sale | 194 | | 14 | | |
Net gains on other investments | Net gains on other investments | 82 | | 44 | | | Net gains on other investments | 46 | | 82 | | |
Other income (loss) | 89 | | (25) | | | |
Other income | | Other income | 140 | | 264 | | |
Total noninterest income | Total noninterest income | 2,055 | | 2,621 | | | Total noninterest income | 2,285 | | 2,230 | | |
Noninterest expenses | Noninterest expenses | | | Noninterest expenses | | |
Salaries and wages | Salaries and wages | 3,410 | | 3,083 | | | Salaries and wages | 3,502 | | 3,410 | | |
Employee benefits | Employee benefits | 1,305 | | 1,169 | | | Employee benefits | 1,377 | | 1,305 | | |
Occupancy expense, net | Occupancy expense, net | 527 | | 477 | | | Occupancy expense, net | 578 | | 527 | | |
Equipment expense | Equipment expense | 916 | | 798 | | | Equipment expense | 897 | | 916 | | |
Other expenses | Other expenses | 1,956 | | 1,926 | | | Other expenses | 2,396 | | 2,131 | | |
Total noninterest expenses | Total noninterest expenses | 8,114 | | 7,453 | | | Total noninterest expenses | 8,750 | | 8,289 | | |
Income before provision for income taxes | Income before provision for income taxes | 2,904 | | 3,417 | | | Income before provision for income taxes | 3,436 | | 2,904 | | |
Provision for income taxes | Provision for income taxes | 422 | | 541 | | | Provision for income taxes | 459 | | 422 | | |
Net income | Net income | $ | 2,482 | | $ | 2,876 | | | Net income | $ | 2,977 | | $ | 2,482 | | |
Basic earnings per common share | Basic earnings per common share | $ | 0.55 | | $ | 0.64 | | | Basic earnings per common share | $ | 0.66 | | $ | 0.55 | | |
| Diluted earnings per common share | | Diluted earnings per common share | $ | 0.66 | | $ | 0.55 | | |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | 4,494,871 | | 4,480,339 | | | Weighted average number of common shares outstanding | 4,509,099 | | 4,494,871 | | |
| Weighted average common and potential common shares for diluted EPS | | Weighted average common and potential common shares for diluted EPS | 4,519,989 | | 4,506,764 | | |
Dividends per common share | Dividends per common share | $ | 0.35 | | $ | 0.33 | | | Dividends per common share | $ | 0.36 | | $ | 0.35 | | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 2
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
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| Three Months Ended March 31, | |
| 2022 | 2021 | | |
| (Dollars in thousands) |
Net income | $ | 2,482 | | $ | 2,876 | | | |
Other comprehensive loss, net of tax: | | | | |
Investment securities available-for-sale: | | | | |
Net unrealized holding losses arising during the period on investment securities available-for-sale | (15,853) | (2,555) | | | |
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income | (21) | | — | | | |
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Total other comprehensive loss | (15,874) | | (2,555) | | | |
Total comprehensive (loss) income | $ | (13,392) | | $ | 321 | | | |
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| Three Months Ended March 31, | |
| 2023 | 2022 | | |
| (Dollars in thousands) |
Net income | $ | 2,977 | | $ | 2,482 | | | |
Other comprehensive income (loss), net of tax: | | | | |
Investment securities available-for-sale: | | | | |
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale | 3,905 | (15,853) | | | |
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income | — | | (21) | | | |
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Total other comprehensive income (loss) | 3,905 | | (15,874) | | | |
Total comprehensive income (loss) | $ | 6,882 | | $ | (13,392) | | | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 3
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
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| Three Month Periods Ended March 31, 2022 and 2021 |
| Common Stock | | | | Accumulated other comprehensive (loss) income | |
| Shares, net of treasury | Amount | Additional paid-in capital | Retained earnings | Treasury stock | Total stockholders’ equity |
| (Dollars in thousands, except per share data) |
Balances, December 31, 2021 | 4,493,655 | | $ | 9,934 | | $ | 1,769 | | $ | 78,350 | | $ | (4,160) | | $ | (1,552) | | $ | 84,341 | |
Net income | — | | — | | — | | 2,482 | | — | | — | | 2,482 | |
Other comprehensive loss | — | | — | | — | | — | | — | | (15,874) | | (15,874) | |
Dividend reinvestment plan | 416 | | — | | 9 | | — | | 4 | | — | | 13 | |
Cash dividends declared ($0.35 per share) | — | | — | | — | | (1,573) | | — | | — | | (1,573) | |
Stock based compensation expense | 1,599 | | 3 | | 100 | | — | | — | | — | | 103 | |
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Purchase of treasury stock | (2,500) | | — | | — | | — | | (75) | | — | | (75) | |
Balances, March 31, 2022 | 4,493,170 | | $ | 9,937 | | $ | 1,878 | | $ | 79,259 | | $ | (4,231) | | $ | (17,426) | | $ | 69,417 | |
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Balances, December 31, 2020 | 4,480,100 | | $ | 9,910 | | $ | 1,393 | | $ | 71,097 | | $ | (4,169) | | $ | 2,636 | | $ | 80,867 | |
Net income | — | | — | | — | | 2,876 | | — | | — | | 2,876 | |
Other comprehensive loss | — | | — | | — | | — | | — | | (2,555) | | (2,555) | |
Dividend reinvestment plan | 451 | | — | | 8 | | — | | 4 | | — | | 12 | |
Cash dividends declared ($0.33 per share) | — | | — | | — | | (1,479) | | — | | — | | (1,479) | |
Stock based compensation expense | — | | — | | 92 | | — | | — | | — | | 92 | |
Exercise of stock options | 500 | | 1 | | 11 | | — | | — | | — | | 12 | |
Purchase of treasury stock | (97) | | — | | — | | — | | (2) | | — | | (2) | |
Balances, March 31, 2021 | 4,480,954 | | $ | 9,911 | | $ | 1,504 | | $ | 72,494 | | $ | (4,167) | | $ | 81 | | $ | 79,823 | |
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| Three Month Periods Ended March 31, 2023 and 2022 |
| Common Stock | | | | Accumulated other comprehensive loss | |
| Shares, net of treasury | Amount | Additional paid-in capital | Retained earnings | Treasury stock | Total stockholders’ equity |
| (Dollars in thousands, except per share data) |
Balances, December 31, 2022 | 4,508,587 | | $ | 9,965 | | $ | 2,225 | | $ | 84,669 | | $ | (4,220) | | $ | (37,419) | | $ | 55,220 | |
Impact of adoption of ASU No. 2016-13 | — | | — | | — | | 37 | | — | | — | | 37 | |
Net income | — | | — | | — | | 2,977 | | — | | — | | 2,977 | |
Other comprehensive income | — | | — | | — | | — | | — | | 3,905 | | 3,905 | |
Dividend reinvestment plan | 893 | | — | | 15 | | — | | 8 | | — | | 23 | |
Cash dividends declared ($0.36 per share) | — | | — | | — | | (1,623) | | — | | — | | (1,623) | |
Stock based compensation expense | — | | — | | 113 | | — | | — | | — | | 113 | |
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Purchase of treasury stock | (2,530) | | — | | — | | — | | (60) | | — | | (60) | |
Balances, March 31, 2023 | 4,506,950 | | $ | 9,965 | | $ | 2,353 | | $ | 86,060 | | $ | (4,272) | | $ | (33,514) | | $ | 60,592 | |
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Balances, December 31, 2021 | 4,493,655 | | $ | 9,934 | | $ | 1,769 | | $ | 78,350 | | $ | (4,160) | | $ | (1,552) | | $ | 84,341 | |
Net income | — | | — | | — | | 2,482 | | — | | — | | 2,482 | |
Other comprehensive loss | — | | — | | — | | — | | — | | (15,874) | | (15,874) | |
Dividend reinvestment plan | 416 | | — | | 9 | | — | | 4 | | — | | 13 | |
Cash dividends declared ($0.35 per share) | — | | — | | — | | (1,573) | | — | | — | | (1,573) | |
Stock based compensation expense | 1,599 | | 3 | | 100 | | — | | — | | — | | 103 | |
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Purchase of treasury stock | (2,500) | | — | | — | | — | | (75) | | — | | (75) | |
Balances, March 31, 2022 | 4,493,170 | | $ | 9,937 | | $ | 1,878 | | $ | 79,259 | | $ | (4,231) | | $ | (17,426) | | $ | 69,417 | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 4
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) | | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | 2021 | | 2023 | 2022 |
Cash Flows From Operating Activities | Cash Flows From Operating Activities | (Dollars in thousands) | Cash Flows From Operating Activities | (Dollars in thousands) |
Net income | Net income | $ | 2,482 | | $ | 2,876 | | Net income | $ | 2,977 | | $ | 2,482 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation | Depreciation | 459 | | 459 | | Depreciation | 408 | | 459 | |
Provision for loan losses | — | | 150 | | |
Credit loss expense | | Credit loss expense | 74 | | — | |
Deferred income tax provision | Deferred income tax provision | 11 | | 14 | | Deferred income tax provision | 32 | | 11 | |
Net amortization of premiums on investment securities | Net amortization of premiums on investment securities | 160 | | 168 | | Net amortization of premiums on investment securities | 128 | | 160 | |
Equity in losses of limited partnerships | Equity in losses of limited partnerships | 256 | | 262 | | Equity in losses of limited partnerships | 331 | | 256 | |
Stock based compensation expense | Stock based compensation expense | 103 | | 92 | | Stock based compensation expense | 113 | | 103 | |
Net (increase) decrease in unamortized loan costs | (302) | | 619 | | |
Net increase in unamortized loan costs | | Net increase in unamortized loan costs | (22) | | (302) | |
Proceeds from sales of loans held for sale | Proceeds from sales of loans held for sale | 16,430 | | 30,574 | | Proceeds from sales of loans held for sale | 11,946 | | 16,430 | |
Origination of loans held for sale | Origination of loans held for sale | (4,936) | | (37,704) | | Origination of loans held for sale | (13,423) | | (4,936) | |
Net gains on sales of loans held for sale | Net gains on sales of loans held for sale | (14) | | (894) | | Net gains on sales of loans held for sale | (194) | | (14) | |
| Net gains on disposals of premises and equipment | | Net gains on disposals of premises and equipment | (1) | | — | |
Net gains on sales of investment securities available-for-sale | Net gains on sales of investment securities available-for-sale | (26) | | — | | Net gains on sales of investment securities available-for-sale | — | | (26) | |
| Net gains on sales of other real estate owned | — | | (11) | | |
| Net gains on other investments | Net gains on other investments | (82) | | (44) | | Net gains on other investments | (46) | | (82) | |
Increase in accrued interest receivable | Increase in accrued interest receivable | (49) | | (95) | | Increase in accrued interest receivable | (15) | | (49) | |
Amortization of core deposit intangible | — | | 43 | | |
| Amortization of debt issuance costs | Amortization of debt issuance costs | 8 | | — | | Amortization of debt issuance costs | 8 | | 8 | |
Increase in other assets | Increase in other assets | (436) | | (412) | | Increase in other assets | (264) | | (436) | |
| Increase (decrease) in other liabilities | 704 | | (873) | | |
Net cash provided by (used in) operating activities | 14,768 | | (4,776) | | |
Increase in other liabilities | | Increase in other liabilities | 32 | | 704 | |
Net cash provided by operating activities | | Net cash provided by operating activities | 2,084 | | 14,768 | |
Cash Flows From Investing Activities | Cash Flows From Investing Activities | | | Cash Flows From Investing Activities | | |
Interest bearing deposits in banks | Interest bearing deposits in banks | | | Interest bearing deposits in banks | | |
Proceeds from maturities and redemptions | Proceeds from maturities and redemptions | 1,992 | | 498 | | Proceeds from maturities and redemptions | 996 | | 1,992 | |
Purchases | Purchases | (2,988) | | (2,490) | | Purchases | (996) | | (2,988) | |
| Investment securities available-for-sale | Investment securities available-for-sale | | Investment securities available-for-sale | |
Proceeds from sales | Proceeds from sales | 6,827 | | — | | Proceeds from sales | — | | 6,827 | |
Proceeds from maturities, calls and paydowns | Proceeds from maturities, calls and paydowns | 7,304 | | 7,310 | | Proceeds from maturities, calls and paydowns | 4,062 | | 7,304 | |
Purchases | Purchases | (38,691) | | (46,880) | | Purchases | (24,923) | | (38,691) | |
Net purchases of other investments | Net purchases of other investments | (59) | | (41) | | Net purchases of other investments | (40) | | (59) | |
Net decrease in nonmarketable stock | Net decrease in nonmarketable stock | 276 | | — | | Net decrease in nonmarketable stock | 135 | | 276 | |
| Net increase in loans | Net increase in loans | (40,558) | | (31,085) | | Net increase in loans | (14,252) | | (40,558) | |
Recoveries of loans charged off | Recoveries of loans charged off | 1 | | 8 | | Recoveries of loans charged off | — | | 1 | |
Net purchases of premises and equipment | Net purchases of premises and equipment | (164) | | (302) | | Net purchases of premises and equipment | (200) | | (164) | |
| Investments in limited partnerships | Investments in limited partnerships | (1,355) | | (700) | | Investments in limited partnerships | (460) | | (1,355) | |
Proceeds from sales of premises and equipment | | Proceeds from sales of premises and equipment | 16 | | — | |
| Proceeds from sales of other real estate owned | — | | 61 | | |
| Net cash used in investing activities | Net cash used in investing activities | (67,415) | | (73,621) | | Net cash used in investing activities | (35,662) | | (67,415) | |
Union Bankshares, Inc. Page 5
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | 2021 | | 2023 | 2022 |
| Cash Flows From Financing Activities | Cash Flows From Financing Activities | (Dollars in thousands) | Cash Flows From Financing Activities | (Dollars in thousands) |
Advances on long-term borrowings | | Advances on long-term borrowings | 106 | | — | |
| Net decrease in short-term borrowings outstanding | | Net decrease in short-term borrowings outstanding | (5,000) | | — | |
Net (decrease) increase in noninterest bearing deposits | | Net (decrease) increase in noninterest bearing deposits | (23,657) | | 38,189 | |
Net (decrease) increase in interest bearing deposits | | Net (decrease) increase in interest bearing deposits | (53,321) | | 3,385 | |
Net increase (decrease) in time deposits | | Net increase (decrease) in time deposits | 101,044 | | (2,412) | |
| Net increase in noninterest bearing deposits | 38,189 | | 16,747 | | |
Net increase in interest bearing deposits | 3,385 | | 11,591 | | |
Net decrease in time deposits | (2,412) | | (14,749) | | |
| Exercise of stock options | — | | 12 | | |
Purchase of treasury stock | Purchase of treasury stock | (75) | | (2) | | Purchase of treasury stock | (60) | | (75) | |
Dividends paid | Dividends paid | (1,560) | | (1,467) | | Dividends paid | (1,600) | | (1,560) | |
Net cash provided by financing activities | Net cash provided by financing activities | 37,527 | | 12,132 | | Net cash provided by financing activities | 17,512 | | 37,527 | |
Net decrease in cash and cash equivalents | Net decrease in cash and cash equivalents | (15,120) | | (66,265) | | Net decrease in cash and cash equivalents | (16,066) | | (15,120) | |
Cash and cash equivalents | Cash and cash equivalents | | Cash and cash equivalents | |
Beginning of period | Beginning of period | 65,922 | | 122,771 | | Beginning of period | 37,885 | | 65,922 | |
End of period | End of period | $ | 50,802 | | $ | 56,506 | | End of period | $ | 21,819 | | $ | 50,802 | |
Supplemental Disclosures of Cash Flow Information | Supplemental Disclosures of Cash Flow Information | | | Supplemental Disclosures of Cash Flow Information | | |
Interest paid | Interest paid | $ | 911 | | $ | 1,122 | | Interest paid | $ | 3,028 | | $ | 911 | |
| | Supplemental Schedule of Noncash Investing Activities | Supplemental Schedule of Noncash Investing Activities | | Supplemental Schedule of Noncash Investing Activities | |
| Investment in limited partnerships acquired by capital contributions payable | Investment in limited partnerships acquired by capital contributions payable | $ | 3,494 | | $ | — | | Investment in limited partnerships acquired by capital contributions payable | $ | — | | $ | 3,494 | |
| | Dividends paid on Common Stock: | Dividends paid on Common Stock: | | Dividends paid on Common Stock: | |
Dividends declared | Dividends declared | $ | 1,573 | | $ | 1,479 | | Dividends declared | $ | 1,623 | | $ | 1,573 | |
Dividends reinvested | Dividends reinvested | (13) | | (12) | | Dividends reinvested | (23) | | (13) | |
| | $ | 1,560 | | $ | 1,467 | | | $ | 1,600 | | $ | 1,560 | |
| |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 6
UNION BANKSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of March 31, 2022,2023, and for the three months ended March 31, 20222023 and 2021,2022, have been prepared in conformity with GAAP for interim financial information, general practices within the banking industry, and the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021,2022 (2022 Annual Report), except as amended by Amendment No. 1 on Form 10-K/A (2021 Annual Report).disclosed in the Summary of Significant Accounting Policies below. The Company's sole subsidiary is Union Bank. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair presentation of the information contained herein, have been made. This information should be read in conjunction with the Company’s 20212022 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022,2023, or any future interim period.
The Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ equity for a two year, rather than three year, period. The Company has also elected to provide certain other scaled disclosures in this report, as permitted for smaller reporting companies. Certain amounts in the 2022 consolidated financial statements have been reclassified to conform to the current year presentation.
In addition to the definitions set forth elsewhere in this report, the acronyms, abbreviations and capitalized terms identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
| | | | | | | | | | | |
ACL: | Allowance for credit losses | HTM: | Held-to-maturity |
AFS: | Available-for-sale | HUD: | U.S. Department of Housing and Urban Development |
ASC: | Accounting Standards Codification | ICS: | Insured Cash Sweeps of the Promontory Interfinancial Network |
ALCO: | Asset Liability Committee | IRS: | Internal Revenue Service |
ALL: | Allowance for loan losses | MBS: | Mortgage-backed security |
ASC: | Accounting Standards Codification | MSRs: | Mortgage servicing rights |
ASU: | Accounting Standards Update | OAO:MBS: | Other assets ownedMortgage-backed security |
Board: | Board of Directors | OCI:MSRs: | Other comprehensive income (loss)Mortgage servicing rights |
bp or bps: | Basis point(s) | OFAC: | U.S. Office of Foreign Assets Control |
CARES Act: | Coronavirus Aid, Relief and Economic Security Act | OREO:OAO: | Other real estateassets owned |
CDARS: | Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network | OTTI:OCI: | Other-than-temporary impairmentOther comprehensive income (loss) |
Company: | Union Bankshares, Inc. and Subsidiary | OTT:OREO: | Other-than-temporaryOther real estate owned |
COVID-19:CECL: | Novel Coronavirus | PPP: | Paycheck Protection Program |
Dodd-Frank Act: | The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 | PPPLF: | PPP Liquidity Facility of the FRB |
DRIP: | Dividend Reinvestment PlanCurrent Expected Credit Losses | RD: | USDA Rural Development |
FASB:DCF: | Financial Accounting Standards BoardDiscounted cash flow | RSU: | Restricted Stock Unit |
FDIC:DRIP: | Federal Deposit Insurance CorporationDividend Reinvestment Plan | SBA: | U.S. Small Business Administration |
FHA:FASB: | U.S. Federal Housing AdministrationFinancial Accounting Standards Board | SEC: | U.S. Securities and Exchange Commission |
FHLB:FDIC: | Federal Home Loan Bank of BostonDeposit Insurance Corporation | TDR: | Troubled-debt restructuring |
FRB:FHA: | U.S. Federal Reserve BoardHousing Administration | Union: | Union Bank, the sole subsidiary of Union Bankshares, Inc |
FHLB: | Federal Home Loan Bank of Boston | USDA: | U.S. Department of Agriculture |
FRB: | Federal Reserve Board | VA: | U.S. Veterans Administration |
FHLMC/Freddie Mac: | Federal Home Loan Mortgage Corporation | USDA:2014 Equity Plan: | U.S. Department of Agriculture2014 Equity Incentive Plan, as amended |
GAAP: | Generally Accepted Accounting Principles in the United States | VA: | U.S. Veterans Administration |
HTM: | Held-to-maturity | 2014 Equity Plan: | 2014 Equity Incentive Plan |
HUD: | U.S. Department of Housing and Urban Development | 20212022 Annual ReportReport: | Annual Report on Form 10-K for the year ended December 31, 2021, as amended by Amendment No. 1 on Form 10-K/A2022 |
Summary of Significant Accounting Policies
The disclosures below supplement and update the accounting policies previously disclosed in Note 1. Significant Accounting Policies in the Company’s 2022 Annual Report. The updates reflect the adoption of the FASB ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, more commonly referred to as Current Expected Credit Losses (CECL), effective January 1, 2023.
Union Bankshares, Inc. Page 7
The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss methodology under previously applicable GAAP.
Allowance for Credit Losses on AFS Debt Securities: Upon adoption of CECL, effective January 1, 2023, for AFS debt securities in an unrealized loss position, management first assesses whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For AFS debt securities that do not meet the above criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes.
A change in the ACL on AFS debt securities is recorded as expense (credit) within the Credit loss expense on the consolidated statement of income. Losses are charged against the ACL when management believes the uncollectibility of an AFS debt security is confirmed based on the above described analysis. As of March 31, 2023 and CECL adoption date of January 1, 2023, there was no ACL carried on the Company's AFS debt securities. Refer to Note 5 of the consolidated financial statements for further discussion.
Allowance for Credit Losses on Loans: The ACL on loans is a significant accounting estimate used in the preparation of the Company's consolidated financial statements. The level of the ACL on loans represents management's estimate of expected credit losses over the expected life of the loans at the balance sheet date. The expected life of the loans is based on the contractual term of the loans adjusted for estimated prepayments. The contractual life is calculated based on the maturity date and excludes expected extensions, renewals, and modifications.
Upon adoption of CECL on January 1, 2023, the Company replaced the incurred loss model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL on loans when they are deemed uncollectible. The ACL on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.
The Company uses the DCF method to estimate expected credit losses for all loan pools. For each of the loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical benchmark data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts national unemployment as a loss driver.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level that represents the sum of expected losses to determine the estimated ACL on loans.
The ACL on loans evaluation also considers various qualitative factors, including changes in policy and/or underwriting standards, actual or expected changes in economic trends and conditions, changes in the nature and volume of the portfolio, changes in credit and lending staff/administration, problem loan trends, credit risk concentrations, loan review results, changes in the value of underlying collateral for loans, and changes in the regulatory and business environment.
Union Bankshares, Inc. Page 8
Certain loans are individually evaluated for estimated credit losses, including those greater than $500,000 that are classified as substandard or doubtful and are on nonaccrual or that have other unique characteristics differing from the segment. Specific reserves are established when appropriate for such loans based on the present value of expected future cash flows of the loan or the estimated realizable value of the collateral, if any.
Management may also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management's assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the ACL are continually refined and enhanced.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The ACL on off-balance sheet credit exposures is a component of Accrued interest and other liabilities on the Company's consolidated balance sheets and represents the estimate of probable credit losses inherent in unfunded commitments to extend credit as of the balance sheet date. Unfunded commitments to extend credit include unused portions of lines of credit, commitments to originate loans and standby and commercial letters of credit. The process used to determine the ACL for these exposures is consistent with the process for determining the ACL on loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge or credit to Credit loss expense on the consolidated statements of income is made to account for the change in the ACL on off-balance sheet exposures between reporting periods.
Accrued Interest: Upon adoption of CECL on January 1, 2023, the Company elected to present accrued interest receivable balances in Other assets on the consolidated balance sheets and exclude accrued interest from the ACL on loans and AFS debt securities. The Company will continue to write-off accrued interest receivable by reversing interest income when a security or loan is placed in nonaccrual, which is generally when payments on a security or loan are 90 days or more past due.
Union Bankshares, Inc. Page 9
Impact of Adoption:
The following table illustrates the adoption of ASU No. 2013-16 on January 1, 2023. As noted above, there was no ACL on AFS debt securities required to be recorded upon adoption of the ASU.
| | | | | | | | | | | | | | | | | |
| Pre-CECL Adoption | Reclassification to CECL Portfolio Segmentation | Pre-CECL Adoption Portfolio Segmentation | Post-CECL Adoption | Impact of CECL Adoption |
Assets | (Dollars in thousands) |
Loans | | | | | |
Residential real estate | $ | 352,433 | | $ | (352,433) | | $ | — | | $ | — | | $ | — | |
Non-revolving residential real estate | — | | 335,470 | | 335,470 | | 335,470 | | — | |
Revolving residential real estate | — | | 16,963 | | 16,963 | | 16,963 | | — | |
Construction real estate | 96,620 | | (96,620) | | — | | — | | — | |
Commercial construction real estate | — | | 56,501 | | 56,501 | | 56,501 | | — | |
Residential construction real estate | — | | 40,119 | | 40,119 | | 40,119 | | — | |
Commercial real estate | 377,947 | | (377,947) | | — | | | — | |
Non-residential commercial real estate | — | 282,397 | 282,397 | | 282,397 | — | |
Multi-family residential real estate | — | 95,550 | 95,550 | | 95,550 | — | |
Commercial | 40,973 | | — | | 40,973 | | 40,973 | | — | |
Consumer | 2,204 | | — | | 2,204 | | 2,204 | | — | |
Municipal | 87,980 | | — | | 87,980 | | 87,980 | | — | |
Total loans | $ | 958,157 | | $ | — | | $ | 958,157 | | $ | 958,157 | | $ | — | |
| | | | | |
ACL on loans | | | | | |
Residential real estate | $ | 2,417 | | $ | (2,417) | | $ | — | | $ | — | | $ | — | |
Non-revolving residential real estate | — | | 2,294 | | 2,294 | | 2,024 | | (270) | |
Revolving residential real estate | — | | 123 | | 123 | | 148 | | 25 | |
Construction real estate | 1,032 | | (1,032) | | — | | — | | — | |
Commercial construction real estate | — | | 611 | | 611 | | 1,593 | | 982 | |
Residential construction real estate | — | | 421 | | 421 | | 131 | | (290) | |
Commercial real estate | 3,935 | | (3,935) | | — | | — | | — | |
Non-residential commercial real estate | — | 2,931 | 2,931 | | 2,174 | (757) | |
Multi-family residential real estate | — | 1,004 | 1,004 | | 224 | (780) | |
Commercial | 301 | | — | | 301 | | 492 | | 191 | |
Consumer | 10 | | — | | 10 | | 5 | | (5) | |
Municipal | 95 | | — | | 95 | | 53 | | (42) | |
Unallocated | 549 | | — | | 549 | | — | | (549) | |
Total ACL on loans | $ | 8,339 | | $ | — | | $ | 8,339 | | $ | 6,844 | | $ | (1,495) | |
| | | | | |
Liabilities | | | | | |
ACL on off-balance sheet credit exposures | | | $ | — | | $ | 1,458 | | $ | 1,458 | |
| | | | | |
Retained earnings | | | | | |
Decrease in ACL on loans | | | | | $ | 1,495 | |
Increase in ACL on off-balance sheet credit exposures | | | | (1,458) | |
Increase to retained earnings | | | | | $ | 37 | |
Union Bankshares, Inc. Page 10
Note 2. Legal Contingencies
In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.
Note 3. Per Share Information
Earnings per common share are computed based onThe following table presents the weighted average numberreconciliation between the calculation of shares of common stock outstanding during the periodbasic EPS and reduced for shares held in treasury. The dilutive effect of outstanding stock-based awards, consisting of RSUs with respect to 11,893 sharesdiluted EPS for the three months ended March 31, 2022,2023 and both RSUs and2022:
| | | | | | | | | | | |
| | | | | |
| For the Three Months Ended March 31, | | |
| 2023 | 2022 | | | |
| (Dollars in thousands, except per share data) |
Net income | $ | 2,977 | | $ | 2,482 | | | | |
Weighted average common shares outstanding for basic EPS | 4,509,099 | | 4,494,871 | | | | |
Dilutive effect of stock-based awards (1) | 10,890 | | 11,893 | | | | |
Weighted average common and potential common shares for diluted EPS | 4,519,989 | | 4,506,764 | | | | |
Earnings per common share: | | | | | |
Basic EPS | $ | 0.66 | | $ | 0.55 | | | | |
Diluted EPS | $ | 0.66 | | $ | 0.55 | | | | |
____________________(1)Dilutive effect of stock options with respect to 17,697 shares forbased awards represents the same period last year, dideffect of vesting of restricted stock units. Unvested awards do not result in material dilution and is not included in the calculation.
have dividend or dividend equivalent rights.
Note 4. Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. UnderThe guidance in the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expectedcredit losses. The new guidance, which is referred to as the current expected credit loss model ("CECL"),ASU requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these requirements also applies to debt securities classified as AFS. As initially proposed, theThe ASU was to become effective forfiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted for fiscal years beginning after December 15, 2018, including interim periods within such years. In October 2019, the FASB approved amendments to delay the effective date of the ASU to fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The Company did not choose to early adopt the ASU. As the Company is a smaller reporting company, the ASU will becomebecame effective for the Company beginning with the 2023 fiscal year. The Company has established a CECL implementation team and developed a transition project plan. The Company utilizes a software package for its current calculation of the allowance for loan losses that will also be utilized for CECL implementation. Historical data has been compiled and training on utilizing the software for the existing incurred loss model has been completed. The Company continues the collection of historical data and training is ongoing surrounding CECL implementation and methodologies. In addition, the Company is conducting parallel calculations under the existing incurred loss model and the CECL model throughout 2022. The measures will facilitate the eventual implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.statements is discussed in Note 1, Summary of Significant Accounting Policies.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022.2024. The transition away from LIBOR is not expected to have a material impact on the Company's consolidated financial statements.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures which eliminates. The guidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancingsrefinancing and restructuringsrestructuring activities by creditors when a borrower is experiencing financial difficulty. The ASUSpecifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of an existing loan. These amendments are also requiresintended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of current period charge offsreceivables made to borrowers experiencing financial difficulty. Additionally, the amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is only for loans and leases.entities that have adopted the amendments in ASU No. 2022-02 is effective2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU No. 2022-02 iseffective January 1, 2023. The adoption of the provisions contained within ASU No. 2022-02 did not expected to have a material impact on the Company’s consolidated financial statements.
Union Bankshares, Inc. Page 811
In March 2023, the FASB issued ASU No. 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU No. 2014-01, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met; however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures. The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit). Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. For public business entities, the amendments in this update are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. Early adoption is permitted in any interim period. If early adoption is elected, adoption must be as of the beginning of the fiscal year that includes the interim period of adoption. The amendments in this update must be applied on either a modified retrospective or a retrospective basis. The Company is currently evaluating the impact of this standard for its tax equity investments and the impact to noninterest income, noninterest expense, and income tax expense within the consolidated financial statements.
Note 5. Investment Securities
Debt securities AFS as of the balance sheet dates consisted of the following:
| March 31, 2022 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
March 31, 2023 | | March 31, 2023 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| | (Dollars in thousands) | | (Dollars in thousands) |
| U.S. Government-sponsored enterprises | U.S. Government-sponsored enterprises | $ | 45,993 | | $ | — | | $ | (2,683) | | $ | 43,310 | | U.S. Government-sponsored enterprises | $ | 44,699 | | $ | — | | $ | (4,985) | | $ | 39,714 | |
Agency mortgage-backed | Agency mortgage-backed | 197,776 | | 38 | | (16,214) | | 181,600 | | Agency mortgage-backed | 194,772 | | 177 | | (31,311) | | 163,638 | |
State and political subdivisions | State and political subdivisions | 43,611 | | 148 | | (3,427) | | 40,332 | | State and political subdivisions | 72,547 | | 404 | | (7,018) | | 65,933 | |
Corporate | Corporate | 6,829 | | 114 | | (34) | | 6,909 | | Corporate | 6,347 | | — | | (215) | | 6,132 | |
Total | Total | $ | 294,209 | | $ | 300 | | $ | (22,358) | | $ | 272,151 | | Total | $ | 318,365 | | $ | 581 | | $ | (43,529) | | $ | 275,417 | |
|
| December 31, 2021 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |
December 31, 2022 | | December 31, 2022 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| | (Dollars in thousands) | | (Dollars in thousands) |
| U.S. Government-sponsored enterprises | U.S. Government-sponsored enterprises | $ | 37,176 | | $ | 55 | | $ | (593) | | $ | 36,638 | | U.S. Government-sponsored enterprises | $ | 45,090 | | $ | — | | $ | (5,845) | | $ | 39,245 | |
Agency mortgage-backed | Agency mortgage-backed | 181,216 | | 574 | | (3,540) | | 178,250 | | Agency mortgage-backed | 198,478 | | 104 | | (34,150) | | 164,432 | |
State and political subdivisions | State and political subdivisions | 44,068 | | 1,293 | | (107) | | 45,254 | | State and political subdivisions | 47,722 | | 281 | | (7,537) | | 40,466 | |
Corporate | Corporate | 7,323 | | 381 | | (27) | | 7,677 | | Corporate | 6,343 | | — | | (219) | | 6,124 | |
Total | Total | $ | 269,783 | | $ | 2,303 | | $ | (4,267) | | $ | 267,819 | | Total | $ | 297,633 | | $ | 385 | | $ | (47,751) | | $ | 250,267 | |
|
There were no investment securities HTM at March 31, 20222023 or December 31, 2021.2022. Investment securities AFS with a carrying amountamounts of $551$999 thousand and $589$433 thousand were pledged as collateral for public unit deposits or for other purposes as required or permitted by law at March 31, 20222023 and December 31, 2021,2022, respectively.
Union Bankshares, Inc. Page 12
The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of March 31, 20222023 were as follows:
| | | Amortized Cost | Fair Value | | Amortized Cost | Fair Value |
Available-for-sale | Available-for-sale | (Dollars in thousands) | Available-for-sale | (Dollars in thousands) |
| Due in one year or less | | Due in one year or less | $ | 502 | | $ | 495 | |
Due from one to five years | Due from one to five years | $ | 10,246 | | $ | 10,008 | | Due from one to five years | 24,431 | | 22,354 | |
Due from five to ten years | Due from five to ten years | 39,883 | | 37,834 | | Due from five to ten years | 25,463 | | 23,036 | |
Due after ten years | Due after ten years | 46,304 | | 42,709 | | Due after ten years | 73,197 | | 65,894 | |
| | 96,433 | | 90,551 | | | 123,593 | | 111,779 | |
Agency mortgage-backed | Agency mortgage-backed | 197,776 | | 181,600 | | Agency mortgage-backed | 194,772 | | 163,638 | |
Total debt securities available-for-sale | Total debt securities available-for-sale | $ | 294,209 | | $ | 272,151 | | Total debt securities available-for-sale | $ | 318,365 | | $ | 275,417 | |
|
Actual maturities may differ for certain debt securities that may be called by the issuer prior to the contractual maturity. Actual maturities usually differ from contractual maturities on agency MBS because the mortgages underlying the securities may be prepaid, usually without any penalties. Therefore, these agency MBS are shown separately and are not included in the contractual maturity categories in the above maturity summary.
Union Bankshares, Inc. Page 9
Information pertaining to all AFS debt securities AFS with gross unrealized losses, for which an ACL has not been recorded, as of the balance sheet dates, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
| March 31, 2022 | Less Than 12 Months | 12 Months and over | Total | |
March 31, 2023 | | March 31, 2023 | Less Than 12 Months | 12 Months and over | Total |
| | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses |
| | | (Dollars in thousands) | | | (Dollars in thousands) |
| U.S. Government- sponsored enterprises | U.S. Government- sponsored enterprises | 26 | | $ | 38,477 | | $ | (2,146) | | 10 | | $ | 4,833 | | $ | (537) | | 36 | | $ | 43,310 | | $ | (2,683) | | U.S. Government- sponsored enterprises | 1 | | $ | 2,970 | | $ | (4) | | 34 | | $ | 36,608 | | $ | (4,981) | | 35 | | $ | 39,578 | | $ | (4,985) | |
Agency mortgage-backed | Agency mortgage-backed | 61 | | 132,852 | | (10,717) | | 25 | | 44,787 | | (5,497) | | 86 | | 177,639 | | (16,214) | | Agency mortgage-backed | 4 | | 9,714 | | (375) | | 89 | | 148,189 | | (30,936) | | 93 | | 157,903 | | (31,311) | |
State and political subdivisions | State and political subdivisions | 56 | | 34,049 | | (3,427) | | — | | — | | — | | 56 | | 34,049 | | (3,427) | | State and political subdivisions | 15 | | 25,647 | | (644) | | 60 | | 32,923 | | (6,374) | | 75 | | 58,570 | | (7,018) | |
Corporate | Corporate | 4 | | 1,980 | | (20) | | 1 | | 486 | | (14) | | 5 | | 2,466 | | (34) | | Corporate | 7 | | 3,255 | | (92) | | 6 | | 2,877 | | (123) | | 13 | | 6,132 | | (215) | |
| Total | Total | 147 | | $ | 207,358 | | $ | (16,310) | | 36 | | $ | 50,106 | | $ | (6,048) | | 183 | | $ | 257,464 | | $ | (22,358) | | Total | 27 | | $ | 41,586 | | $ | (1,115) | | 189 | | $ | 220,597 | | $ | (42,414) | | 216 | | $ | 262,183 | | $ | (43,529) | |
| December 31, 2021 | Less Than 12 Months | 12 Months and over | Total | |
December 31, 2022 | | December 31, 2022 | Less Than 12 Months | 12 Months and over | Total |
| | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses |
| | | (Dollars in thousands) | | | (Dollars in thousands) |
| U.S. Government- sponsored enterprises | U.S. Government- sponsored enterprises | 18 | | $ | 29,754 | | $ | (464) | | 14 | | $ | 3,885 | | $ | (129) | | 32 | | $ | 33,639 | | $ | (593) | | U.S. Government- sponsored enterprises | 4 | | $ | 8,000 | | $ | (533) | | 31 | | $ | 31,103 | | $ | (5,312) | | 35 | | $ | 39,103 | | $ | (5,845) | |
Agency mortgage-backed | Agency mortgage-backed | 41 | | 130,742 | | (2,252) | | 17 | | 32,955 | | (1,288) | | 58 | | 163,697 | | (3,540) | | Agency mortgage-backed | 31 | | 24,306 | | (2,192) | | 62 | | 134,297 | | (31,958) | | 93 | | 158,603 | | (34,150) | |
State and political subdivisions | State and political subdivisions | 17 | | 17,483 | | (107) | | — | | — | | — | | 17 | | 17,483 | | (107) | | State and political subdivisions | 39 | | 15,457 | | (1,846) | | 27 | | 18,613 | | (5,691) | | 66 | | 34,070 | | (7,537) | |
Corporate | Corporate | 2 | | 985 | | (15) | | 1 | | 488 | | (12) | | 3 | | 1,473 | | (27) | | Corporate | 10 | | 4,719 | | (124) | | 3 | | 1,405 | | (95) | | 13 | | 6,124 | | (219) | |
| Total | Total | 78 | | $ | 178,964 | | $ | (2,838) | | 32 | | $ | 37,328 | | $ | (1,429) | | 110 | | $ | 216,292 | | $ | (4,267) | | Total | 84 | | $ | 52,482 | | $ | (4,695) | | 123 | | $ | 185,418 | | $ | (43,056) | | 207 | | $ | 237,900 | | $ | (47,751) | |
The Company evaluates all investmentAFS debt securities on a quarterly basis, and more frequently when economic conditions warrant,in unrealized loss positions are evaluated for impairment related to determine ifcredit losses at least quarterly. For AFS debt securities in an OTTI exists. A security is considered impaired if the fair value is lower than its amortized cost basis at the report date. If impaired,unrealized loss position, management thenfirst assesses whether the unrealized loss is OTT.
An unrealized loss on a debt security is generally deemed to be OTT and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. The credit loss component of OTTI write-down is recorded, net of tax effect, through net income as a component of net OTTI losses in the consolidated statements of income, while the remaining portion of the impairment loss is recognized in OCI, provided the Company does not intendit intends to sell, the underlying debt security andor it is "moremore likely than not"not that the Company will not havebe required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For AFS debt security prior to recovery.
Managementsecurities that do not meet the above criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the following factors in determining whether OTTI exists and the period over which the security is expected to recover:
•The length of time, and extent to which the fair value has beenis less than the amortized cost;
•Adverse conditions specifically related to the security, industry, or geographic area;
•The historical and implied volatility of the fair value of the security;
•The payment structure of the debt security and the likelihood of the issuer being able to make payments that may increase in the future;
•Failure of the issuer of the security to make scheduled interest or principal payments;
•Anycost, any changes to the rating of the security by a rating agency;
•Recoveries or additional declines in fair value subsequentagency, and adverse conditions specifically related to the balance sheet date; and
•The nature of the issuer, including whether it is a private company, public entity or government-sponsored enterprise, and the existence or likelihood of any government or third party guaranty.
The Company has the ability to hold the investment securities that had unrealized losses at March 31, 2022 and December 31, 2021 for the foreseeable future. The decline in value is the result of market conditions and not attributable to credit quality in the investment securities and no declines were deemed by management to be OTT.
Union Bankshares, Inc. Page 1013
security and the issuer, among other factors. If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount that the fair value of the security is less than its amortized cost basis. For AFS debt securities, any decline in fair value that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes.
No ACL for AFS debt securities was recorded at adoption of ASU No. 2016-13 or at March 31, 2023 or December 31, 2022. Accrued interest receivable on AFS debt securities totaled $1.1 million and $1.0 million at March 31, 2023 and December 31, 2022, respectively, and is excluded from the estimate of credit losses.
There were no sales or calls of securities for the three months ended March 31, 2023. The following table presents the proceeds from sales resulting in gross realized gains and gross realized losses from the salesdisposition of AFS securities for the three months ended March 31, 2022:
| | | | | | | | |
| | | | |
| | For The Three Months Ended March 31, 2022 | |
| | 2022 | | |
| | | (Dollars in thousands) |
Proceeds from sales | | | $ | 6,827 | | | |
| | | | |
| | | | |
Gross gains | | | 76 | | | |
Gross losses | | | (50) | | | |
Net gains on sales of investment securities AFS | | | $ | 26 | | | |
There were no sales of AFS securities during the three months ended March 31, 2021.
Note 6. Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL,ACL, 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 following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. In general, loans that are 90 days or more past due are placed in nonaccrual, unless there are circumstances that cause management to believe the collection of interest is not doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on nonaccrual loans is generally not recognized unless a loan is returned to accrual status or after all principal has been collected. Interest income generally is not recognized on 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. Delinquency status is determined based on contractual terms for all portfolio segments and loan classes. Loans past due 30 days or more are considered delinquent. Loans are considered in process of foreclosure when a judgment of foreclosure has been issued by the court.
Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company generally amortizes these amounts over the estimated average life of the related loans.
Effective with the adoption of CECL on January 1, 2023, the Company evaluates the risk characteristics of its loans based on regulatory call report code with segmentation based on the underlying collateral or purpose for certain loan types. Prior to the adoption of CECL, under the incurred loss model, the Company evaluated the risk characteristics of its loans based on the underlying collateral securing the loans.
Union Bankshares, Inc. Page 14
The composition of Net loans as of the balance sheet dates, by regulatory call report code segmentation based on underlying collateral or purpose for certain loan types, was as follows:
| | | | | | | | |
| March 31, 2022 | December 31, 2021 |
| (Dollars in thousands) |
Residential real estate | $ | 282,662 | | $ | 246,827 | |
Construction real estate | 68,730 | | 65,149 | |
Commercial real estate | 348,378 | | 344,816 | |
Commercial | 44,808 | | 49,788 | |
Consumer | 2,241 | | 2,376 | |
Municipal | 80,788 | | 78,094 | |
Gross loans | 827,607 | | 787,050 | |
Allowance for loan losses | (8,336) | | (8,336) | |
Net deferred loan costs | 1,007 | | 705 | |
Net loans | $ | 820,278 | | $ | 779,419 | |
There were 80 and 154 PPP loans totaling $6.8 million and $13.6 million classified as commercial loans as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, remaining PPP deferred origination fees of $271 thousand and $558 thousand, respectively, will be amortized into interest income over the lives of the respective loans.
Union Bankshares, Inc. Page 11
PPP loan origination fees of $287 thousand and $668 thousand were recognized in earnings during the three months ended March 31, 2022 and 2021, respectively. | | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| (Dollars in thousands) |
Residential real estate | | |
Non-revolving residential real estate | $ | 341,880 | | $ | 335,470 | |
Revolving residential real estate | 16,299 | | 16,963 | |
Construction real estate | | |
Commercial construction real estate | 60,847 | | 56,501 | |
Residential construction real estate | 46,320 | | 40,119 | |
Commercial real estate | | |
Non-residential commercial real estate | 278,366 | | 282,397 | |
Multi-family residential real estate | 93,953 | | 95,550 | |
Commercial | 41,553 | | 40,973 | |
Consumer | 2,373 | | 2,204 | |
Municipal | 90,818 | | 87,980 | |
Gross loans | 972,409 | | 958,157 | |
ACL losses on loans | (6,934) | | (8,339) | |
Net deferred loan costs | 1,358 | | 1,336 | |
Net loans | $ | 966,833 | | $ | 951,154 | |
Qualifying residential first mortgage loans and certain commercial real estate loans with an aggregate carrying value of $172.5$265.8 million and $224.4$272.9 million were pledged as collateral for borrowings from the FHLB under a blanket lien at March 31, 20222023 and December 31, 2021,2022, respectively.
A summary of current, past due and nonaccrualAccrued interest receivable on loans as of the balance sheet dates follows:
| | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | Current | 30-59 Days | 60-89 Days | 90 Days and Over and Accruing | Nonaccrual | Total |
| (Dollars in thousands) |
Residential real estate | $ | 281,011 | | $ | 1,361 | | $ | 88 | | $ | 80 | | $ | 122 | | $ | 282,662 | |
Construction real estate | 68,550 | | 45 | | — | | — | | 135 | | 68,730 | |
Commercial real estate | 344,137 | | 93 | | — | | — | | 4,148 | | 348,378 | |
Commercial | 44,644 | | 13 | | 2 | | 149 | | — | | 44,808 | |
Consumer | 2,223 | | 18 | | — | | — | | — | | 2,241 | |
Municipal | 80,788 | | — | | — | | — | | — | | 80,788 | |
Total | $ | 821,353 | | $ | 1,530 | | $ | 90 | | $ | 229 | | $ | 4,405 | | $ | 827,607 | |
| | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Current | 30-59 Days | 60-89 Days | 90 Days and Over and Accruing | Nonaccrual | Total |
| (Dollars in thousands) |
Residential real estate | $ | 245,169 | | $ | 1,328 | | $ | 130 | | $ | 53 | | $ | 147 | | $ | 246,827 | |
Construction real estate | 64,939 | | 72 | | — | | — | | 138 | | 65,149 | |
Commercial real estate | 340,209 | | 242 | | — | | — | | 4,365 | | 344,816 | |
Commercial | 49,699 | | 36 | | 8 | | 45 | | — | | 49,788 | |
Consumer | 2,376 | | — | | — | | — | | — | | 2,376 | |
Municipal | 78,094 | | — | | — | | — | | — | | 78,094 | |
Total | $ | 780,486 | | $ | 1,678 | | $ | 138 | | $ | 98 | | $ | 4,650 | | $ | 787,050 | |
There was 1 residential real estate loan totaling $118 thousand in process of foreclosuretotaled $3.1 million at March 31, 20222023 and no loans in process of foreclosure at December 31, 2021. Aggregate interest on nonaccrual loans not recognized was $527 thousand as of March 31, 2022 and $504 thousand asis excluded from the estimate of December 31, 2021.credit losses within Note 7.
Note 7. Allowance for LoanCredit Losses on Loans and Off-Balance Sheet Credit QualityExposures
Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported under the incurred loss model in accordance with previously applicable GAAP as described in the 2022 Annual Report.
The ALL is established for estimatedlevel of the ACL on loans represents management's estimate of expected credit losses inover the loan portfolio through a provision for loan losses charged to earnings.expected life of the loans at the balance sheet date. For all loan classes, loan losses are charged against the ALLACL on loans when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.ACL on loans.
Upon adoption of CECL on January 1, 2023, the Company replaced the incurred loss model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. The ACL on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.
The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALL is based on management's periodic evaluation of the collectability of the loan portfolio, including the nature, volume and risk characteristics of the portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. There was no change to the methodology used to estimate the ALL during the first quarter of 2022. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.
In addition, various regulatory agencies, as an integral part of their examination process, regularly review the Company's ALL. Such agencies may require the Company to recognize additions to the ALL, with a corresponding charge to earnings, based on their judgments about information available to them at the time of their examination, which may not be currently available to management.
Union Bankshares, Inc. Page 12
The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would otherwise not be granted. A TDR classification may result from the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan's terms (such as reduction of stated interest rates below market rates, extension of maturity that does not conform to the Company's policies, reduction of the face amount of the loan, reduction of accrued interest, or reduction or deferment of loan payments), or a combination. A specific reserve amount is allocated to the ALL for individual loans that have been classified as impaired based on management's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The Company accounts for the change in present value attributable to the passage of time in the loan loss reserve. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management has established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.
The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the various risk characteristics of each portfolio segment. Risk characteristics relevant to each portfolio segment are as follows:
•Residential real estate - Loans in this segment are collateralized by owner-occupied 1-4 family residential real estate, second and vacation homes, 1-4 family investment properties, home equity and second mortgage loans. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality of this segment.
•Construction real estate - Loans in this segment include residential and commercial construction properties, commercial real estate development loans (while in the construction phase of the projects), land and land development loans.
Union Bankshares, Inc. Page 15
Repayment is dependent on the credit quality of the individual borrower and/or the underlying cash flows generated by the properties being constructed. The overall health of the economy, including unemployment rates, housing prices, vacancy rates and material costs, could have an effect on the credit quality of this segment.
•Commercial real estate - Loans in this segment are primarily properties occupied by businesses or income-producing properties. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by a general slowdown in business or increased vacancy rates which, in turn, could have an effect on the credit quality of this segment. Management requests business financial statements at least annually and monitors the cash flows of these loans.
•Commercial - Loans in this segment are made to businesses and are generally secured by non-real estate assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer or business spending, could have an effect on the credit quality of this segment.
•Consumer - Loans in this segment are made to individuals for personal expenditures, such as an automobile purchase, and include unsecured loans. Repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment, could have an effect on the credit quality of this segment.
•Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment.
Management increased certain economic qualitative factors utilized to estimate the ALL during 2020 at the onset of the COVID-19 pandemic. During 2021, the economic qualitative reserve factor assigned to each loan portfolio in the ALL estimate was decreased due to continued indications of economic improvement. COVID-19 restrictions were lifted in June 2021 and the majority of borrowers that had executed loan modifications due to COVID-19 were no longer subject to modified terms. Based on these continued improving economic trends, the economic qualitative reserve factor assigned to all loan portfolios, except the municipal loan portfolio, was decreased 5 bps during the first quarter of 2022.
Union Bankshares, Inc. Page 13
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
All evaluations are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available or as changes occur in economic conditions or other relevant factors. Despite the allocation shown in the tables below, the ALL is general in nature and is available to absorb losses from any class of loan.
Changes in the ALL,ACL on loans, by class of loans, for the three months ended March 31, 2022 and 20212023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
For The Three Months Ended March 31, 2022 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, December 31, 2021 | $ | 2,068 | | $ | 837 | | $ | 4,122 | | $ | 275 | | $ | 11 | | $ | 86 | | $ | 937 | | $ | 8,336 | |
Provision (credit) for loan losses | 156 | | 6 | | (125) | | 14 | | (1) | | 2 | | (52) | | — | |
Recoveries of amounts charged off | — | | — | | — | | — | | 1 | | — | | — | | 1 | |
| 2,224 | | 843 | | 3,997 | | 289 | | 11 | | 88 | | 885 | | 8,337 | |
Amounts charged off | — | | — | | — | | — | | (1) | | — | | — | | (1) | |
Balance, March 31, 2022 | $ | 2,224 | | $ | 843 | | $ | 3,997 | | $ | 289 | | $ | 10 | | $ | 88 | | $ | 885 | | $ | 8,336 | |
| | | | | | | | | | | | | | | | | | | | |
For The Three Months Ended March 31, 2023 | Balance, December 31, 2022 | Impact of Adoption of ASU No. 2016-13 | Charge Offs | Recoveries | Credit Loss Expense (Benefit) | Balance, March 31, 2023 |
| (Dollars in thousands) |
Non-revolving residential real estate | $ | 2,294 | | $ | (270) | | $ | — | | $ | — | | $ | 47 | | $ | 2,071 | |
Revolving residential real estate | 123 | | 25 | | — | | — | | (5) | | 143 | |
Residential real estate | 2,417 | | (245) | | — | | — | | 42 | | 2,214 | |
Commercial construction real estate | 611 | | 982 | | — | | — | | 120 | | 1,713 | |
Residential construction real estate | 421 | | (290) | | — | | — | | 17 | | 148 | |
Construction real estate | 1,032 | | 692 | | — | | — | | 137 | | 1,861 | |
Non-residential commercial real estate | 2,931 | | (757) | | — | | — | | 12 | | 2,186 | |
Multi-family residential real estate | 1,004 | | (780) | | — | | — | | (3) | | 221 | |
Commercial real estate | 3,935 | | (1,537) | | — | | — | | 9 | | 2,407 | |
Commercial | 301 | | 191 | | — | | — | | (124) | | 368 | |
Consumer | 10 | | (5) | | — | | — | | — | | 5 | |
Municipal | 95 | | (42) | | — | | — | | 26 | | 79 | |
Unallocated | 549 | | (549) | | — | | — | | — | | — | |
Total | $ | 8,339 | | $ | (1,495) | | $ | — | | $ | — | | $ | 90 | | $ | 6,934 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
For The Three Months Ended March 31, 2021 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, December 31, 2020 | $ | 1,776 | | $ | 763 | | $ | 4,199 | | $ | 458 | | $ | 15 | | $ | 214 | | $ | 846 | | $ | 8,271 | |
Provision (credit) for loan losses | 212 | | 118 | | (66) | | (15) | | (2) | | (15) | | (82) | | 150 | |
Recoveries of amounts charged off | 8 | | — | | — | | — | | — | | — | | — | | 8 | |
| 1,996 | | 881 | | 4,133 | | 443 | | 13 | | 199 | | 764 | | 8,429 | |
Amounts charged off | — | | — | | — | | — | | — | | — | | — | | — | |
Balance, March 31, 2021 | $ | 1,996 | | $ | 881 | | $ | 4,133 | | $ | 443 | | $ | 13 | | $ | 199 | | $ | 764 | | $ | 8,429 | |
Union Bankshares, Inc. Page 16
Changes in the ACL on loans, by class of loans under the incurred loss methodology, for the three months ended March 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | |
For The Three Months Ended March 31, 2022 | Balance, December 31, 2021 | Charge Offs | Recoveries | Credit Loss Expense (Benefit) | Balance, March 31, 2022 |
| (Dollars in thousands |
Residential real estate | $ | 2,068 | | $ | — | | $ | — | | $ | 156 | | $ | 2,224 | |
Construction real estate | 837 | | — | | — | | 6 | | 843 | |
Commercial real estate | 4,122 | | — | | — | | (125) | | 3,997 | |
Commercial | 275 | | — | | — | | 14 | | 289 | |
Consumer | 11 | | (1) | | 1 | | (1) | | 10 | |
Municipal | 86 | | — | | — | | 2 | | 88 | |
Unallocated | 937 | | — | | — | | (52) | | 885 | |
Total | $ | 8,336 | | $ | (1) | | $ | 1 | | $ | — | | $ | 8,336 | |
The allocationEffective with the adoption of ASU No, 2016-13 on January 1, 2023, the ALL, summarizedCompany's ACL on off-balance sheet credit exposures is recognized as a liability (Accrued interest and other liabilities on the basisconsolidated balance sheet), with adjustments to the ACL recognized in Credit loss expense in the consolidated statement of income. In accordance with previously applicable GAAP, there was no ACL on off-balance sheet credit exposures required during the three months ended March 31, 2022. The Company's impairment methodology by class of loan, as ofactivity in the balanceACL on off-balance sheet dates,credit exposures for the three months ended March 31, 2023 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 24 | | $ | — | | $ | 20 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 44 | |
Collectively evaluated for impairment | 2,200 | | 843 | | 3,977 | | 289 | | 10 | | 88 | | 885 | | 8,292 | |
Total allocated | $ | 2,224 | | $ | 843 | | $ | 3,997 | | $ | 289 | | $ | 10 | | $ | 88 | | $ | 885 | | $ | 8,336 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 26 | | $ | — | | $ | 20 | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 46 | |
Collectively evaluated for impairment | 2,042 | | 837 | | 4,102 | | 275 | | 11 | | 86 | | 937 | | 8,290 | |
Total allocated | $ | 2,068 | | $ | 837 | | $ | 4,122 | | $ | 275 | | $ | 11 | | $ | 86 | | $ | 937 | | $ | 8,336 | |
Union Bankshares, Inc. Page 14
The recorded investment in loans, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 1,728 | | $ | 193 | | $ | 4,601 | | $ | 8 | | $ | — | | $ | — | | $ | 6,530 | |
Collectively evaluated for impairment | 280,934 | | 68,537 | | 343,777 | | 44,800 | | 2,241 | | 80,788 | | 821,077 | |
| | | | | | | |
| | | | | | | |
Total | $ | 282,662 | | $ | 68,730 | | $ | 348,378 | | $ | 44,808 | | $ | 2,241 | | $ | 80,788 | | $ | 827,607 | |
| | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2021 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 1,750 | | $ | 198 | | $ | 4,819 | | $ | 9 | | $ | — | | $ | — | | $ | 6,776 | |
Collectively evaluated for impairment | 245,077 | | 64,951 | | 339,997 | | 49,779 | | 2,376 | | 78,094 | | 780,274 | |
| | | | | | | |
| | | | | | | |
Total | $ | 246,827 | | $ | 65,149 | | $ | 344,816 | | $ | 49,788 | | $ | 2,376 | | $ | 78,094 | | $ | 787,050 | |
| | | | | |
ACL on Off-Balance Sheet Credit Exposures | (Dollars in thousands) |
Balance, December 31, 2022 | $ | — | |
Impact of adoption of ASU No. 2016-13 | 1,458 | |
Credit loss benefit | (16) | |
Balance, March 31, 2023 | $ | 1,442 | |
Risk and collateral ratings are assigned to loans and are subject to ongoing monitoring by lending and credit personnel, with such ratings updated annually or more frequently if warranted. The following is an overview of the Company's loan rating system:
1-3 Rating - Pass
Risk-rating grades "1" through "3" comprise those loans ranging from those with lower than average credit risk, defined as borrowers with high liquidity, excellent financial condition, strong management, favorable industry trends or loans secured by highly liquid assets, through those with marginal credit risk, defined as borrowers that, while creditworthy, exhibit some characteristics requiring special attention by the account officer.
4-4.5 Rating - Satisfactory/Monitor
Borrowers exhibit potential credit weaknesses or downward trends warranting management's attention. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. When warranted, these credits may be monitored on the watch list.
5-7 Rating - Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. The loan may be inadequately protected by the net worth and paying capacity of the obligor and/or the underlying collateral is inadequate.
Union Bankshares, Inc. Page 17
The following tables summarizetable summarizes the Company's loans by year of origination and by loan ratings applied by management to the Company's loans by class as of the balance sheet dates:March 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2022 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Pass | $ | 263,222 | | $ | 39,536 | | $ | 214,846 | | $ | 40,217 | | $ | 2,236 | | $ | 80,788 | | $ | 640,845 | |
Satisfactory/Monitor | 17,115 | | 29,001 | | 128,492 | | 4,524 | | 5 | | — | | 179,137 | |
Substandard | 2,325 | | 193 | | 5,040 | | 67 | | — | | — | | 7,625 | |
| | | | | | | |
| | | | | | | |
Total | $ | 282,662 | | $ | 68,730 | | $ | 348,378 | | $ | 44,808 | | $ | 2,241 | | $ | 80,788 | | $ | 827,607 | |
Union Bankshares, Inc. Page 15
| December 31, 2021 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total | |
| | (Dollars in thousands) | | 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Revolving | Total |
Residential Real Estate | | Residential Real Estate | (Dollars in thousands) |
Pass | Pass | $ | 227,684 | | $ | 39,135 | | $ | 191,902 | | $ | 45,407 | | $ | 2,371 | | $ | 78,094 | | $ | 584,593 | | Pass | $ | 12,874 | | $ | 118,684 | | $ | 90,284 | | $ | 31,278 | | $ | 9,907 | | $ | 58,333 | | $ | — | | $ | 321,360 | |
Satisfactory/Monitor | Satisfactory/Monitor | 16,820 | | 25,816 | | 147,645 | | 4,301 | | 5 | | — | | 194,587 | | Satisfactory/Monitor | — | | 6,866 | | 4,448 | | 2,355 | | 345 | | 5,882 | | — | | 19,896 | |
Substandard | Substandard | 2,323 | | 198 | | 5,269 | | 80 | | — | | — | | 7,870 | | Substandard | — | | — | | — | | 40 | | — | | 584 | | — | | 624 | |
| Total | $ | 246,827 | | $ | 65,149 | | $ | 344,816 | | $ | 49,788 | | $ | 2,376 | | $ | 78,094 | | $ | 787,050 | | |
Non-revolving residential real estate | | Non-revolving residential real estate | 12,874 | | 125,550 | | 94,732 | | 33,673 | | 10,252 | | 64,799 | | — | | 341,880 | |
Pass | | Pass | — | | — | | — | | — | | — | | — | | 14,623 | | 14,623 | |
Satisfactory/Monitor | | Satisfactory/Monitor | — | | — | | — | | — | | — | | — | | 1,604 | | 1,604 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | — | | 72 | | 72 | |
Revolving residential real estate | | Revolving residential real estate | — | | — | | — | | — | | — | | — | | 16,299 | | 16,299 | |
Construction Real Estate | | Construction Real Estate | |
Pass | | Pass | 435 | | 7,138 | | 6,877 | | 694 | | 1,983 | | 1,147 | | — | | 18,274 | |
Satisfactory/Monitor | | Satisfactory/Monitor | 827 | | 18,108 | | 21,321 | | 236 | | 287 | | 1,792 | | — | | 42,571 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | 2 | | — | | 2 | |
Commercial construction real estate | | Commercial construction real estate | 1,262 | | 25,246 | | 28,198 | | 930 | | 2,270 | | 2,941 | | — | | 60,847 | |
Pass | | Pass | 869 | | 30,865 | | 5,511 | | — | | — | | 1 | | — | | 37,246 | |
Satisfactory/Monitor | | Satisfactory/Monitor | — | | 3,991 | | 4,585 | | 498 | | — | | — | | — | | 9,074 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | |
Residential construction real estate | | Residential construction real estate | 869 | | 34,856 | | 10,096 | | 498 | | — | | 1 | | — | | 46,320 | |
Commercial Real Estate | | Commercial Real Estate | |
Pass | | Pass | 732 | | 38,378 | | 37,091 | | 18,291 | | 24,673 | | 65,640 | | 16,535 | | 201,340 | |
Satisfactory/Monitor | | Satisfactory/Monitor | 4,204 | | 28,577 | | 4,006 | | 6,536 | | 7,120 | | 20,987 | | 1,063 | | 72,493 | |
Substandard | | Substandard | — | | — | | — | | 1,940 | | 53 | | 2,412 | | 128 | | 4,533 | |
Non-residential commercial real estate | | Non-residential commercial real estate | 4,936 | | 66,955 | | 41,097 | | 26,767 | | 31,846 | | 89,039 | | 17,726 | | 278,366 | |
Pass | | Pass | — | | 2,524 | | 2,168 | | 2,163 | | 8,920 | | 35,355 | | — | | 51,130 | |
Satisfactory/Monitor | | Satisfactory/Monitor | — | | 6,481 | | 15,943 | | 5,755 | | 10,213 | | 3,042 | | — | | 41,434 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | 1,389 | | — | | 1,389 | |
Multi-family residential real estate | | Multi-family residential real estate | — | | 9,005 | | 18,111 | | 7,918 | | 19,133 | | 39,786 | | — | | 93,953 | |
Pass | | Pass | 1,091 | | 7,169 | | 4,748 | | 967 | | 3,613 | | 14,730 | | 4,316 | | 36,634 | |
Satisfactory/Monitor | | Satisfactory/Monitor | 314 | | 739 | | 874 | | 749 | | 233 | | 620 | | 1,137 | | 4,666 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | — | | 253 | | 253 | |
Commercial | | Commercial | 1,405 | | 7,908 | | 5,622 | | 1,716 | | 3,846 | | 15,350 | | 5,706 | | 41,553 | |
Pass | | Pass | 566 | | 632 | | 398 | | 192 | | 253 | | 281 | | 21 | | 2,343 | |
Satisfactory/Monitor | | Satisfactory/Monitor | 24 | | 4 | | — | | 2 | | — | | — | | — | | 30 | |
Substandard | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | |
Consumer | | Consumer | 590 | | 636 | | 398 | | 194 | | 253 | | 281 | | 21 | | 2,373 | |
Pass | | Pass | 4,414 | | 73,877 | | 1,993 | | 5,057 | | 196 | | 5,281 | | — | | 90,818 | |
Satisfactory/Monitor | | Satisfactory/Monitor | — | | — | | — | | — | | — | | — | | — | | — | |
Substandard | | Substandard | — | | — | | — | | — | | — | | — | | — | | — | |
Municipal | | Municipal | 4,414 | | 73,877 | | 1,993 | | 5,057 | | 196 | | 5,281 | | — | | 90,818 | |
Total Loans | | Total Loans | $ | 26,350 | | $ | 344,033 | | $ | 200,247 | | $ | 76,753 | | $ | 67,796 | | $ | 217,478 | | $ | 39,752 | | $ | 972,409 | |
The following tables provide information with respect to impaired loans by class of loan as of andThere were no gross charge offs for the three months ended March 31, 2022 and March 31, 2021:
| | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | For The Three Months Ended March 31, 2022 | |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized | | |
| (Dollars in thousands) |
Residential real estate | $ | 197 | | $ | 207 | | $ | 24 | | | | | |
| | | | | | | |
Commercial real estate | 1,587 | | 1,762 | | 20 | | | | | |
| | | | | | | |
With an allowance recorded | 1,784 | | 1,969 | | 44 | | | | | |
| | | | | | | |
Residential real estate | 1,531 | | 2,028 | | — | | | | | |
Construction real estate | 193 | | 216 | | — | | | | | |
Commercial real estate | 3,014 | | 3,120 | | — | | | | | |
Commercial | 8 | | 8 | | — | | | | | |
With no allowance recorded | 4,746 | | 5,372 | | — | | | | | |
| | | | | | | |
Residential real estate | 1,728 | | 2,235 | | 24 | | $ | 1,739 | | $ | 30 | | | |
Construction real estate | 193 | | 216 | | — | | 195 | | 1 | | | |
Commercial real estate | 4,601 | | 4,882 | | 20 | | 4,710 | | 7 | | | |
Commercial | 8 | | 8 | | — | | 9 | | — | | | |
Total | $ | 6,530 | | $ | 7,341 | | $ | 44 | | $ | 6,653 | | $ | 38 | | | |
____________________
(1)Does not reflect government guaranties on impaired loans as of March 31, 2022 totaling $420 thousand.
| | | | | | | | | | | | | | | | | | | |
| As of March 31, 2021 | For The Three Months Ended March 31, 2021 | |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized | | |
| (Dollars in thousands) |
Residential real estate | $ | 1,740 | | $ | 2,333 | | $ | 27 | | $ | 1,761 | | $ | 55 | | | |
Construction real estate | 210 | | 230 | | — | | 210 | | 1 | | | |
Commercial real estate | 5,275 | | 5,532 | | 31 | | 3,849 | | 13 | | | |
Commercial | 170 | | 173 | | — | | 184 | | 5 | | | |
Total | $ | 7,395 | | $ | 8,268 | | $ | 58 | | $ | 6,004 | | $ | 74 | | | |
____________________
(1)Does not reflect government guaranties on impaired loans as of March 31, 2021 totaling $489 thousand.2023.
Union Bankshares, Inc. Page 1618
The following table provides information with respectsummarizes the loan ratings applied by management to impairedthe Company's loans by class, of loanunder the incurred loss methodology, as of December 31, 2021:2022:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | | |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | | |
| (Dollars in thousands) | | |
Residential real estate | $ | 199 | | $ | 209 | | $ | 26 | | | |
| | | | | |
Commercial real estate | 1,591 | | 1,764 | | 20 | | | |
| | | | | |
With an allowance recorded | 1,790 | | 1,973 | | 46 | | | |
| | | | | |
Residential real estate | 1,551 | | 2,043 | | — | | | |
Construction real estate | 198 | | 218 | | — | | | |
Commercial real estate | 3,228 | | 3,274 | | — | | | |
Commercial | 9 | | 9 | | — | | | |
With no allowance recorded | 4,986 | | 5,544 | | — | | | |
| | | | | |
Residential real estate | 1,750 | | 2,252 | | 26 | | | |
Construction real estate | 198 | | 218 | | — | | | |
Commercial real estate | 4,819 | | 5,038 | | 20 | | | |
Commercial | 9 | | 9 | | — | | | |
Total | $ | 6,776 | | $ | 7,517 | | $ | 46 | | | |
____________________ | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Pass | $ | 328,885 | | $ | 47,356 | | $ | 258,175 | | $ | 36,338 | | $ | 2,197 | | $ | 87,980 | | $ | 760,931 | |
Satisfactory/Monitor | 21,429 | | 49,206 | | 111,077 | | 4,368 | | 7 | | — | | 186,087 | |
Substandard | 2,119 | | 58 | | 8,695 | | 267 | | — | | — | | 11,139 | |
| | | | | | | |
| | | | | | | |
Total | $ | 352,433 | | $ | 96,620 | | $ | 377,947 | | $ | 40,973 | | $ | 2,204 | | $ | 87,980 | | $ | 958,157 | |
(1)
A summary of current and past due loans as of March 31, 2023 follows:
| | | | | | | | | | | | | | | | | | | | |
March 31, 2023 | 30-59 Days | 60-89 Days | 90 Days and Over | Total Past Due | Current | Total |
| (Dollars in thousands) |
Residential real estate | | | | | | |
Non-revolving residential real estate | $ | 1,040 | | $ | 9 | | $ | 237 | | $ | 1,286 | | $ | 340,594 | | $ | 341,880 | |
Revolving residential real estate | — | | — | | 42 | | 42 | | 16,257 | | 16,299 | |
Construction real estate | | | | | | |
Commercial construction real estate | 2 | | — | | — | | 2 | | 60,845 | | 60,847 | |
Residential construction real estate | — | | — | | — | | — | | 46,320 | | 46,320 | |
Commercial real estate | | | | | | |
Non-residential commercial real estate | 153 | | — | | 2,068 | | 2,221 | | 276,145 | | 278,366 | |
Multi-family residential real estate | — | | — | | — | | — | | 93,953 | | 93,953 | |
Commercial | — | | — | | — | | — | | 41,553 | | 41,553 | |
Consumer | — | | — | | — | | — | | 2,373 | | 2,373 | |
Municipal | — | | — | | — | | — | | 90,818 | | 90,818 | |
Total | $ | 1,195 | | $ | 9 | | $ | 2,347 | | $ | 3,551 | | $ | 968,858 | | $ | 972,409 | |
Does not reflect government guaranties on impaired
A summary of current and past due loans as of December 31, 2021 totaling $423 thousand.2022, under the incurred loss methodology, follows:
| | | | | | | | | | | | | | | | | | | | |
December 31, 2022 | 30-59 Days | 60-89 Days | 90 Days and Over | Total Past Due | Current | Total |
| (Dollars in thousands) |
Residential real estate | $ | 1,724 | | $ | 79 | | $ | 289 | | $ | 2,092 | | $ | 350,341 | | $ | 352,433 | |
Construction real estate | 535 | | — | | — | | 535 | | 96,085 | | 96,620 | |
Commercial real estate | 515 | | 2,087 | | 34 | | 2,636 | | 375,311 | | 377,947 | |
Commercial | 7 | | 160 | | — | | 167 | | 40,806 | | 40,973 | |
Consumer | 7 | | — | | — | | 7 | | 2,197 | | 2,204 | |
Municipal | — | | — | | — | | — | | 87,980 | | 87,980 | |
Total | $ | 2,788 | | $ | 2,326 | | $ | 323 | | $ | 5,437 | | $ | 952,720 | | $ | 958,157 | |
Union Bankshares, Inc. Page 19
A summary of nonaccrual loans as of March 31, 2023 follows:
| | | | | | | | | | | |
March 31, 2023 | Nonaccrual | Nonaccrual With No Allowance for Credit Losses | 90 Days and Over and Accruing |
Residential real estate | (Dollars in thousands) |
Non-revolving residential real estate | $ | 104 | | $ | — | | $ | 133 | |
Revolving residential real estate | — | | — | | 42 | |
Construction real estate | | | |
Commercial construction real estate | 2 | | — | | — | |
Residential construction real estate | — | | — | | — | |
Commercial real estate | | | |
Non-residential commercial real estate | 2,068 | | — | | — | |
Multi-family residential real estate | — | | — | | — | |
Commercial | — | | — | | — | |
Consumer | — | | — | | — | |
Municipal | — | | — | | — | |
Total | $ | 2,174 | | $ | — | | $ | 175 | |
A summary of nonaccrual loans as of December 31, 2022, under the incurred loss methodology, follows:
| | | | | | | | | | | |
December 31, 2022 | Nonaccrual | Nonaccrual With No Allowance for Credit Losses | 90 Days and Over and Accruing |
| (Dollars in thousands) |
Residential real estate | $ | 103 | | $ | — | | $ | 186 | |
Construction real estate | 6 | | 6 | | — | |
Commercial real estate | 2,102 | | — | | — | |
Commercial | — | | — | | — | |
Consumer | — | | — | | — | |
Municipal | — | | — | | — | |
Total | $ | 2,211 | | $ | 6 | | $ | 186 | |
There was one residential real estate loan totaling $40 thousand in process of foreclosure at March 31, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. Aggregate interest on nonaccrual loans not recognized was $98 thousand as of March 31, 2023 and $59 thousand as of December 31, 2022.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans that are individually evaluated and collateral dependent represent loans that the Company has determined foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the sale of the collateral. For these loans, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan at the measurement date.
The following is a summary of TDRtable presents collateral dependent loans by loan class of loanand collateral type as of the balance sheet dates:
| | | | | | | | | | | | | | |
| March 31, 2022 | December 31, 2021 |
| Number of Loans | Principal Balance | Number of Loans | Principal Balance |
| (Dollars in thousands) |
Residential real estate | 29 | | $ | 1,728 | | 29 | | $ | 1,750 | |
Construction real estate | 2 | | 75 | | 2 | | 81 | |
Commercial real estate | 3 | | 370 | | 3 | | 375 | |
Commercial | 1 | | 8 | | 1 | | 9 | |
Total | 35 | | $ | 2,181 | | 35 | | $ | 2,215 | |
| | | | | | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| Real Estate | | | Real Estate | | |
| (Dollars in thousands) | | |
| | | | | | |
| | | | | | |
Non-residential commercial real estate | $ | 2,068 | | | | $ | 2,068 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
The TDR loans above represent loan modifications in which a concession was providedFor periods prior to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgivenessadoption of accrued interest. TroubledCECL, loans that are restructuredwere evaluated for impairment and meet established thresholds aremay have been classified as impaired when management believed it was probable that the Company would not collect all the contractual interest and principal payments as scheduled in the loan agreement. Under previously applicable GAAP, a specific reserve amount iswas allocated to the ALLACL for individual loans that had been classified as impaired based on the basismanagement's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The
Union Bankshares, Inc. Page 20
Company accounted for the change in present value attributable to the passage of time in the ACL. Large groups of smaller balance homogeneous loans were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans were subject to a restructuring agreement or had been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.
There was no new TDR activityThe following table provides information with respect to impaired loans by class of loan as of and for the three monthsyear ended MarchDecember 31, 2022, or 2021.prior to the adoption of CECL:
There were no TDR loans modified within the previous twelve months that subsequently defaulted during the three months ended March 31, 2022 or 2021. TDR loans are considered defaulted at 90 days past due.
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | For The Year Ended December 31, 2022 |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized |
| (Dollars in thousands) |
Residential real estate | $ | 190 | | $ | 200 | | $ | 21 | | | |
| | | | | |
Commercial real estate | 2,068 | | 2,068 | | 9 | | | |
| | | | | |
With an allowance recorded | 2,258 | | 2,268 | | 30 | | | |
| | | | | |
Residential real estate | 1,283 | | 1,787 | | — | | | |
Construction real estate | 58 | | 83 | | — | | | |
Commercial real estate | 5,865 | | 6,403 | | — | | | |
Commercial | 7 | | 7 | | — | | | |
With no allowance recorded | 7,213 | | 8,280 | | — | | | |
| | | | | |
Residential real estate | 1,473 | | 1,987 | | 21 | | 1,570 | | 101 | |
Construction real estate | 58 | | 83 | | — | | 116 | | 27 | |
Commercial real estate | 7,933 | | 8,471 | | 9 | | 5,822 | | 185 | |
Commercial | 7 | | 7 | | — | | 8 | | 1 | |
Total | $ | 9,471 | | $ | 10,548 | | $ | 30 | | $ | 7,516 | | $ | 314 | |
____________________
(1)Does not reflect government guaranties on impaired loans as of December 31, 2022 totaling $423 thousand.
Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing interest rate reductions, term extensions, payment deferrals or principal forgiveness. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL on loans. The following table summarizes loan modifications to borrowers experiencing financial difficulty by loan class, type of modification and the financial effect of the modifications as of and for the three months ended March 31, 2023:
| | | | | | | | | | | | | |
| Interest Rate Reduction | |
| Amortized Cost Basis | % of Loan Class | Financial Effect | | |
| (Dollars in thousands) | | | |
| | | | | |
| | | | | |
Non-residential commercial real estate | $ | 416 | | 0.15 | % | Reduced weighted average contractual interest rate from 8.75% to 6.85% | | |
Multi-family residential real estate | 449 | | 0.48 | % | Reduced weighted average contractual interest rate from 9.25% to 7.75% | | |
| | | | | |
| | | | | |
Union Bankshares, Inc. Page 21
The following table presents the performance of loans as of March 31, 2023 that have been modified in the last twelve months:
| | |
| | |
| | | | | | |
March 31, 2023 | Current | Past Due 30-89 Days | Past Due 90 Days and Over |
| (Dollars in thousands) | |
| | | |
| | | |
Non-residential commercial real estate | $ | 416 | | $ | — | | $ | — | |
Multi-family residential real estate | 449 | | — | | — | |
| | | |
| | | |
| | | |
| | | |
In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain short-term modifications made to
There were no loans to borrowers affected byexperiencing financial difficulty that were modified within the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified circumstances. As ofprevious twelve months that had subsequently defaulted during the three months ended March 31, 2022, 4 loans with outstanding loan balances of $545 thousand remained subject to modified terms and carried accrued interest of $10 thousand.2023. Loans are considered defaulted at 90 days past due.
At March 31, 2022 and December 31, 2021,2023, the Company was not committed to lend any additional funds to borrowers whoseexperiencing financial difficulty for which the Company modified the terms of the loans were nonperforming, impairedin the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or restructured.a term extension.
Union Bankshares, Inc. Page 17
Note 8. Stock Based Compensation
Under the Union Bankshares, Inc. 2014 Equity Incentive Plan, 50,000as amended in May 2022, a total of 150,000 shares of the Company’s common stock werehave been reserved for equity awards of incentive stock options, nonqualified stock options, restricted stock and RSUs to eligible officers and (except for awards of incentive stock options) nonemployee directors. Shares available for issuance of awards under the 2014 Equity Plan consist of unissued shares of the Company’s common stock and/or shares held in treasury. As of March 31, 2022,2023, there were outstanding grants of RSUs under the 2014 Equity Plan as noted in the table below.
RSUs. Each outstanding RSU represents the right to receive 1one share of the Company's common stock upon satisfaction of applicable vesting conditions. The general terms of the awards are described in the Company's 20212022 Annual Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.
The following table summarizes the RSUs awarded to Company executives in 2020, 2021, 2022 and 2022,2023, and the number of such RSUs remaining unvested as of March 31, 2022:2023:
| | | Number of RSUs Granted | Weighted Average Grant Date Fair Value | Number of Unvested RSUs | | Number of RSUs Granted | Weighted Average Grant Date Fair Value | Number of Unvested RSUs |
2020 Award | 8,918 | | $ | 36.26 | | 1,355 | | |
2021 Award | 2021 Award | 17,685 | | 26.73 | | 10,051 | | 2021 Award | 17,685 | $ | 26.73 | | 1,745 |
2022 Award | 2022 Award | 1,407 | 31.99 | | 1,407 | 2022 Award | 15,705 | 31.99 | | 7,822 |
2023 Award | | 2023 Award | 19,282 | 26.90 | | 19,282 |
Total | Total | 28,010 | | 12,813 | Total | 52,672 | | 28,849 |
Unrecognized compensation expense related to the unvested RSUs as of March 31, 2023 and 2022 was $700 thousand and $288 thousand, respectively, and was $317$297 thousand as of December 31, 2021.2022.
On May 19, 2021,18, 2022, the Company's board of directors, as a component of total director compensation, granted an aggregate of 1,2201,323 RSUs to the Company's non-employee directors. Each RSU represents the right to receive 1one share of the Company's common stock upon satisfaction of applicable vesting conditions. The RSUs will vest in May 2022,2023, subject to continued board service through the vesting date, other than in the case of the director's death or disability. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the unvested RSUs as of March 31, 20222023 was $7$6 thousand.
Note 9. Subordinated Notes
In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. TheAt its option, the Company may at its option,redeem the Notes, in whole or in part, beginning with the interest payment date of September 1, 2026 but not generally prior thereto, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part.thereafter. The Notes qualify as Tier 2 capital instruments for the Company under bank holding company regulatory capital guidelines.
Union Bankshares, Inc. Page 22
The Company used the proceeds primarily to provide additional Tier 1 capital support to the Company's wholly-owned subsidiary, Union Bank, to support growth and for other general corporate purposes.
The unamortized issuance costs of the Notes were $321$287 thousand and $329$295 thousand at March 31, 20222023 and December 31, 2021,2022, respectively. ForThe Company recorded $8 thousand of issuance costs in interest expense for the three months ended March 31, 2022, $8 thousand in issuance costs were recorded in interest expense.2023 and 2022. The Notes are presented net of unamortized issuance costs in the consolidated balance sheets.
Note 10. Other Comprehensive LossIncome (Loss)
Accounting principles generally require recognized revenue, expenses, gains and losses be included in net income or loss. Certain changes in assets and liabilities, such as the after tax effect of unrealized gains and losses on investment securities AFS that arehave not OTTI,been recorded through an ACL are not reflected in the consolidated statements of income. The cumulative effect of such items, net of tax effect, is reported as a separate component of the equity section of the consolidated balance sheets (Accumulated OCI). OCI, along with net income, comprises the Company's total comprehensive income or loss.
Union Bankshares, Inc. Page 18
As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:
| | | | | | | | |
| March 31, 2022 | December 31, 2021 |
| (Dollars in thousands) |
Net unrealized losses on investment securities AFS | $ | (17,426) | | $ | (1,552) | |
| | |
| | |
| | |
| | |
| | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| (Dollars in thousands) |
Net unrealized losses on investment securities AFS | $ | (33,514) | | $ | (37,419) | |
| | |
| | |
| | |
| | |
The following tables disclose the tax effects allocated to each component of OCI for the three months ended March 31:
| | | Three Months Ended | | Three Months Ended |
| | March 31, 2022 | March 31, 2021 | | March 31, 2023 | March 31, 2022 |
| | Before-Tax Amount | Tax Benefit | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit | Net-of-Tax Amount | | Before-Tax Amount | Tax Expense | Net-of-Tax Amount | Before-Tax Amount | Tax Benefit/Expense | Net-of-Tax Amount |
Investment securities AFS: | Investment securities AFS: | (Dollars in thousands) | Investment securities AFS: | (Dollars in thousands) |
Net unrealized holding losses arising during the period on investment securities AFS | $ | (20,067) | | $ | 4,214 | | $ | (15,853) | | $ | (3,234) | | $ | 679 | | $ | (2,555) | | |
Net unrealized holding gains (losses) arising during the period on investment securities AFS | | Net unrealized holding gains (losses) arising during the period on investment securities AFS | $ | 4,943 | | $ | (1,038) | | $ | 3,905 | | $ | (20,067) | | $ | 4,214 | | $ | (15,853) | |
Reclassification adjustment for net gains on investment securities AFS realized in net income | Reclassification adjustment for net gains on investment securities AFS realized in net income | (26) | | 5 | | (21) | | — | | — | | — | | Reclassification adjustment for net gains on investment securities AFS realized in net income | — | | — | | — | | (26) | | 5 | | (21) | |
| Total other comprehensive loss | $ | (20,093) | | $ | 4,219 | | $ | (15,874) | | $ | (3,234) | | $ | 679 | | $ | (2,555) | | |
Total other comprehensive income (loss) | | Total other comprehensive income (loss) | $ | 4,943 | | $ | (1,038) | | $ | 3,905 | | $ | (20,093) | | $ | 4,219 | | $ | (15,874) | |
The following table discloses information concerning reclassification adjustments from OCI for the three months ended March 31, 20222023 and 2021:2022:
| | | | | | | | | | | | | |
| | | | | |
| Three Months Ended | | |
Reclassification Adjustment Description | March 31, 20222023 | March 31, 20212022 | | | Affected Line Item in Consolidated Statement of Income |
| (Dollars in thousands) | |
Investment securities AFS: | | | | | |
Net gains on investment securities AFS | (26)— | | — (26) | | | | Net gains on sales of investment securities available-for-sale |
Tax benefitexpense | 5— | | —5 | | | | Provision for income taxes |
| | | | | |
| | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total reclassifications | $ | (21)— | | $ | — (21) | | | | Net income |
Note 11. Fair Value Measurement
The Company utilizes FASB ASC Topic 820, Fair Value Measurement, as guidance for accounting for assets and liabilities carried at fair value. This standard defines fair value as the price that would be received, without adjustment for transaction costs, to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance in FASB ASC Topic 820 establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Union Bankshares, Inc. Page 23
The three levels of the fair value hierarchy are:
•Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
•Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
•Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following is a description of the valuation methodologies used for the Company’s assets that are measured on a recurring basis at estimated fair value:
Investment securities AFS: Certain U.S. Treasury notes have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1. However, the majority of the Company’s AFS securities have
Union Bankshares, Inc. Page 19
been valued utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.
Mutual funds: Mutual funds have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1.
Assets measured at fair value on a recurring basis at March 31, 20222023 and December 31, 2021,2022, segregated by fair value hierarchy level, are summarized below:
| | | Fair Value Measurements | | Fair Value Measurements |
| | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
March 31, 2022: | (Dollars in thousands) | |
March 31, 2023: | | March 31, 2023: | (Dollars in thousands) |
Debt securities AFS: | Debt securities AFS: | | Debt securities AFS: | |
U.S. Government-sponsored enterprises | U.S. Government-sponsored enterprises | $ | 43,310 | | $ | 2,711 | | $ | 40,599 | | $ | — | | U.S. Government-sponsored enterprises | $ | 39,714 | | $ | 2,615 | | $ | 37,099 | | $ | — | |
Agency mortgage-backed | Agency mortgage-backed | 181,600 | | — | | 181,600 | | — | | Agency mortgage-backed | 163,638 | | — | | 163,638 | | — | |
State and political subdivisions | State and political subdivisions | 40,332 | | — | | 40,332 | | — | | State and political subdivisions | 65,933 | | — | | 65,933 | | — | |
Corporate | Corporate | 6,909 | | — | | 6,909 | | — | | Corporate | 6,132 | | — | | 6,132 | | — | |
Total debt securities | Total debt securities | $ | 272,151 | | $ | 2,711 | | $ | 269,440 | | $ | — | | Total debt securities | $ | 275,417 | | $ | 2,615 | | $ | 272,802 | | $ | — | |
| | Other investments: | Other investments: | | Other investments: | |
Mutual funds | Mutual funds | $ | 1,273 | | $ | 1,273 | | $ | — | | $ | — | | Mutual funds | $ | 1,350 | | $ | 1,350 | | $ | — | | $ | — | |
| | December 31, 2021: | | |
December 31, 2022: | | December 31, 2022: | |
Debt securities AFS: | Debt securities AFS: | | Debt securities AFS: | |
U.S. Government-sponsored enterprises | U.S. Government-sponsored enterprises | $ | 36,638 | | $ | 2,875 | | $ | 33,763 | | $ | — | | U.S. Government-sponsored enterprises | $ | 39,245 | | $ | 2,551 | | $ | 36,694 | | $ | — | |
Agency mortgage-backed | Agency mortgage-backed | 178,250 | | — | | 178,250 | | — | | Agency mortgage-backed | 164,432 | | — | | 164,432 | | — | |
State and political subdivisions | State and political subdivisions | 45,254 | | — | | 45,254 | | — | | State and political subdivisions | 40,466 | | — | | 40,466 | | — | |
Corporate | Corporate | 7,677 | | — | | 7,677 | | — | | Corporate | 6,124 | | — | | 6,124 | | — | |
Total debt securities | Total debt securities | $ | 267,819 | | $ | 2,875 | | $ | 264,944 | | $ | — | | Total debt securities | $ | 250,267 | | $ | 2,551 | | $ | 247,716 | | $ | — | |
| | Other investments: | Other investments: | | Other investments: | |
Mutual funds | Mutual funds | $ | 1,132 | | $ | 1,132 | | $ | — | | $ | — | | Mutual funds | $ | 1,264 | | $ | 1,264 | | $ | — | | $ | — | |
|
There were no transfers in or out of Levels 1 and 2 during the three months ended March 31, 20222023 or the year ended December 31, 2021,2022, nor were there any Level 3 assets at any time during either period.these periods. Certain other assets and liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis in periods after initial recognition, such as collateral-dependent impairedcollateral dependent individually evaluated loans, MSRs and OREO, were not considered material at March 31, 20222023 or December 31, 2021.2022. The Company has
Union Bankshares, Inc. Page 24
not elected to apply the fair value method to any financial assets or liabilities other than those situations where other accounting pronouncements require fair value measurements.
FASB ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of financial instruments. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Management’s estimates and assumptions are inherently subjective and involve uncertainties and matters of significant judgment. Changes in assumptions could dramatically affect the estimated fair values.
Union Bankshares, Inc. Page 20
Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments may be excluded from disclosure requirements. Thus, the aggregate fair value amounts presented may not necessarily represent the actual underlying fair value of such instruments of the Company.
As of the balance sheet dates, the estimated fair values and related carrying amounts of the Company's significant financial instruments were as follows:
| | | March 31, 2022 | | March 31, 2023 |
| | Fair Value Measurements | | Fair Value Measurements |
| | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| | (Dollars in thousands) | | (Dollars in thousands) |
Financial assets | Financial assets | | Financial assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 50,802 | | $ | 50,802 | | $ | 50,802 | | $ | — | | $ | — | | Cash and cash equivalents | $ | 21,819 | | $ | 21,819 | | $ | 21,819 | | $ | — | | $ | — | |
Interest bearing deposits in banks | Interest bearing deposits in banks | 14,192 | | 14,192 | | — | | 14,192 | | — | | Interest bearing deposits in banks | 16,428 | | 16,428 | | — | | 16,428 | | — | |
Investment securities | Investment securities | 273,424 | | 273,424 | | 3,984 | | 269,440 | | — | | Investment securities | 276,767 | | 276,767 | | 3,965 | | 272,802 | | — | |
Loans held for sale | Loans held for sale | 2,349 | | 2,398 | | — | | 2,398 | | — | | Loans held for sale | 2,849 | | 2,893 | | — | | 2,893 | | — | |
Loans, net | Loans, net | | Loans, net | |
Residential real estate | Residential real estate | 280,781 | | 271,384 | | — | | — | | 271,384 | | Residential real estate | 356,465 | | 322,577 | | — | | — | | 322,577 | |
Construction real estate | Construction real estate | 67,971 | | 68,104 | | — | | — | | 68,104 | | Construction real estate | 105,456 | | 103,544 | | — | | — | | 103,544 | |
Commercial real estate | Commercial real estate | 343,920 | | 345,769 | | — | | — | | 345,769 | | Commercial real estate | 370,432 | | 353,857 | | — | | — | | 353,857 | |
Commercial | Commercial | 44,574 | | 43,754 | | — | | — | | 43,754 | | Commercial | 41,243 | | 38,632 | | — | | — | | 38,632 | |
Consumer | Consumer | 2,234 | | 2,222 | | — | | — | | 2,222 | | Consumer | 2,371 | | 2,321 | | — | | — | | 2,321 | |
Municipal | Municipal | 80,798 | | 81,782 | | — | | — | | 81,782 | | Municipal | 90,866 | | 89,267 | | — | | — | | 89,267 | |
Accrued interest receivable | Accrued interest receivable | 3,248 | | 3,248 | | — | | 837 | | 2,411 | | Accrued interest receivable | 4,178 | | 4,178 | | — | | 1,065 | | 3,113 | |
Nonmarketable equity securities | Nonmarketable equity securities | 1,164 | | N/A | Nonmarketable equity securities | 2,681 | | N/A |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits | Deposits | | Deposits | |
Noninterest bearing | Noninterest bearing | $ | 303,077 | | $ | 303,077 | | $ | 303,077 | | $ | — | | $ | — | | Noninterest bearing | $ | 262,488 | | $ | 262,488 | | $ | 262,488 | | $ | — | | $ | — | |
Interest bearing | Interest bearing | 726,864 | | 726,864 | | 726,864 | | — | | — | | Interest bearing | 709,401 | | 709,401 | | 709,401 | | — | | — | |
Time | Time | 104,303 | | 103,028 | | — | | 103,028 | | — | | Time | 254,089 | | 250,567 | | — | | 250,567 | | — | |
| Borrowed funds | | Borrowed funds | |
Short-term | | Short-term | 45,000 | | 44,970 | | — | | 44,970 | | — | |
Long-term | | Long-term | 106 | | 106 | | — | | 106 | | — | |
Subordinated notes | Subordinated notes | 16,179 | | 15,448 | | — | | 15,448 | | — | | Subordinated notes | 16,213 | | 16,506 | | — | | 16,506 | | — | |
Accrued interest payable | Accrued interest payable | 76 | | 76 | | — | | 76 | | — | | Accrued interest payable | 396 | | 396 | | — | | 396 | | — | |
Union Bankshares, Inc. Page 2125
| | | December 31, 2021 | | December 31, 2022 |
| | Fair Value Measurements | | Fair Value Measurements |
| | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | | Carrying Amount | Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) |
| | (Dollars in thousands) | | (Dollars in thousands) |
Financial assets | Financial assets | | Financial assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 65,922 | | $ | 65,922 | | $ | 65,922 | | $ | — | | $ | — | | Cash and cash equivalents | $ | 37,885 | | $ | 37,885 | | $ | 37,885 | | $ | — | | $ | — | |
Interest bearing deposits in banks | Interest bearing deposits in banks | 13,196 | | 13,196 | | — | | 13,196 | | — | | Interest bearing deposits in banks | 16,428 | | 16,428 | | — | | 16,428 | | — | |
Investment securities | Investment securities | 268,951 | | 268,951 | | 4,007 | | 264,944 | | — | | Investment securities | 251,531 | | 251,531 | | 3,815 | | 247,716 | | — | |
Loans held for sale | Loans held for sale | 13,829 | | 14,088 | | — | | 14,088 | | — | | Loans held for sale | 1,178 | | 1,202 | | — | | 1,202 | | — | |
Loans, net | Loans, net | | Loans, net | |
Residential real estate | Residential real estate | 244,980 | | 246,573 | | — | | — | | 246,573 | | Residential real estate | 350,507 | | 319,066 | | — | | — | | 319,066 | |
Construction real estate | Construction real estate | 64,370 | | 64,539 | | — | | — | | 64,539 | | Construction real estate | 95,723 | | 94,231 | | — | | — | | 94,231 | |
Commercial real estate | Commercial real estate | 340,066 | | 341,451 | | — | | — | | 341,451 | | Commercial real estate | 373,990 | | 358,897 | | — | | — | | 358,897 | |
Commercial | Commercial | 49,558 | | 48,682 | | — | | — | | 48,682 | | Commercial | 40,729 | | 38,588 | | — | | — | | 38,588 | |
Consumer | Consumer | 2,367 | | 2,350 | | — | | — | | 2,350 | | Consumer | 2,197 | | 2,161 | | — | | — | | 2,161 | |
Municipal | Municipal | 78,078 | | 78,748 | | — | | — | | 78,748 | | Municipal | 88,008 | | 86,306 | | — | | — | | 86,306 | |
Accrued interest receivable | Accrued interest receivable | 3,248 | | 3,248 | | — | | 734 | | 2,514 | | Accrued interest receivable | 4,163 | | 4,163 | | — | | 1,014 | | 3,149 | |
Nonmarketable equity securities | Nonmarketable equity securities | 1,164 | | N/A | Nonmarketable equity securities | 2,816 | | N/A |
Financial liabilities | Financial liabilities | | Financial liabilities | |
Deposits | Deposits | | Deposits | |
Noninterest bearing | Noninterest bearing | $ | 264,888 | | $ | 264,888 | | $ | 264,888 | | $ | — | | $ | — | | Noninterest bearing | $ | 286,145 | | $ | 286,145 | | $ | 286,145 | | $ | — | | $ | — | |
Interest bearing | Interest bearing | 723,479 | | 723,479 | | 723,479 | | — | | — | | Interest bearing | 762,722 | | 762,722 | | 762,722 | | — | | — | |
Time | Time | 106,715 | | 106,588 | | — | | 106,588 | | — | | Time | 153,045 | | 149,166 | | — | | 149,166 | | — | |
| Short-term borrowed funds | | Short-term borrowed funds | 50,000 | | 49,997 | | — | | 49,997 | | — | |
| Subordinated notes | Subordinated notes | 16,171 | | 16,179 | | — | | 16,179 | | — | | Subordinated notes | 16,205 | | 14,037 | | — | | 14,037 | | — | |
Accrued interest payable | Accrued interest payable | 225 | | 225 | | — | | 225 | | — | | Accrued interest payable | 354 | | 354 | | — | | 354 | | — | |
The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. Accrued interest receivable and nonmarketable equity securities are included in Other assets in the consolidated balance sheets.
Note 12. Subsequent Events
Subsequent events represent events or transactions occurring after the balance sheet date but before the financial statements are issued. Financial statements are considered “issued” when they are widely distributed to shareholders and others for general use and reliance in a form and format that complies with GAAP. Events occurring subsequent to March 31, 20222023 have been evaluated as to their potential impact to the consolidated financial statements.
On April 20, 2022,19, 2023, the Company declared a regular quarterly cash dividend of $0.35$0.36 per share, payable May 5, 2022,4, 2023, to stockholders of record on April 30, 2022.29, 2023.
Union Bankshares, Inc. Page 2226
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of the Company as of March 31, 20222023 and December 31, 2021,2022, and its results of operations for the three months ended March 31, 20222023 and 2021.2022. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's 20212022 Annual Report. In the opinion of the Company's management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after March 31, 20222023 which would materially affect the information presented.
Please refer to Note 1 in the Company's unaudited interim consolidated financial statements at Part I, Item 1 of this Report for definitions of acronyms, abbreviations and capitalized terms used throughout the following discussion and analysis.
CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS
The Company, "we," "us," "our," 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 or conditions and assumptions relating thereto. The Company may include forward-looking statements in its filings with the SEC, in its reports to stockholders, including this quarterly report, in press releases, other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others.
Forward-looking statements reflect management'sare based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are subject to uncertainties, both general and specific, and risk existsonly expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable when made, the Company’s actual results will differ from those predictions, forecasts, projections and other estimates contained in forward-looking statements. These risks cannot be readily quantified. When management uses any of the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “projects,” “plans,” “seeks,” “estimates,” “targets,” “goals,” “may,” “might,” “could,” “would,” “should,” or similar expressions, they are making forward-looking statements. Many possible events or factors, including those beyond the control of management, could affect the future financial results and performance of the Company.
Factors that may cause results or performance to differ materially from those expressedprojected in the forward-looking statements include, but are not limited to:
•Generalas a result of, among other factors, changes in interest rates; competitive pressures from other financial institutions; general economic conditions and financial instability, either nationally, internationally, regionally or locally;
•Increased competitive pressures, including those from tax-advantaged credit unions and other financial service providers in our northern Vermont and New Hampshire market areaon a national basis or in the financial services industry generally, from increasing consolidation and integration of financial service providers, and fromlocal markets in which the Company operates; eroding public confidence in the banking system; changes in technologyconsumer behavior due to changing political, business and delivery systems;
•Interest rates change in a way that puts pressure on the Company's margins,economic conditions, including concerns about inflation, or that results in lower fee income and lower gain on sale of real estate loans,legislative or that increases our interest costs;
•Changes in laws or government rules, or the way in which courts or government agencies interpret or implement those laws or rules, that increase our costs of doing business or otherwise adversely affect our business;
•Further changes in federal or state tax policy;
•Changes in our level of nonperforming assets and charge-offs;
•Changes in depositor behavior resulting in movement of funds out of bank deposits and into the stock market or other higher-yielding investments;
•Changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements;
•Changes in information technology that require increased capital spending or that result in new or increased risks;
•Changes in consumer and business spending, borrowing and savings habits;
•Changes in accounting principles, including those governing the manner of estimating our credit risk and calculating our loan loss reserve;
•Further changes to the regulations governing the calculation of the Company’s regulatory capital ratios;
•Increased competitive pressures affecting the ability of the Company to attract, develop and retain employees;
•Increased inflationary pressures on our customers;
•Increased cybersecurity threats; and
Union Bankshares, Inc. Page 23
•The effect of andinitiatives; changes in the United States monetaryvalue of securities and fiscal policies, including interest rate policiesother assets in the Company’s investment portfolio; increases in loan and regulationlease default and charge-off rates; the adequacy of the money supply by the FRB.
In addition, statements about the continuingACL; decreases in deposit levels that necessitate increases in borrowing to fund loans and potential future effects of the COVID-19 pandemic,investments; operational risks including, emergence of virus variants, on the Company's financial position and results of operations reflect inherent uncertainties and may constitute forward-looking statements. Such statements may include, but are not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation, war, terrorism, civil unrest; changes in economic assumptions and adverse economic developments; the risk that goodwill and intangibles recorded in the Company’s financial statements concerning:
•will become impaired; changes in assumptions used in making such forward-looking statements; and the continuing ability of our employees to work remotely;
•our ability to staff our branchesother risks and keep our branches open;
•uncertainties detailed in the continuing strength of our capital and liquidity positions;
•our continued ability to access sources of contingent liquidity;
•the continuing strength of the asset quality in our lending portfolios; and
•the effectiveness of relief measures and programs for customers affected by COVID-19.Company’s 2022 Annual Report.
When evaluating forward-looking statements to make decisions about the Company and our stock, investors and others are cautioned to consider these and other risks and uncertainties, and are reminded not to place undue reliance on such statements. Investors should not consider the foregoing list of factors to be a complete list of risks or uncertainties. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update them to reflect new or changed information or events, except as may be required by federal securities laws.
Non-GAAP Financial Measures
Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Yields Earned and Rates Paid), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that these non-GAAP financial
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measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.
CRITICAL ACCOUNTING POLICIES
The Company has established various accounting policies which govern the application of GAAP in the preparation of the Company's consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the reported amount of assets, liabilities, capital, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Based on this definition, management has identified the accounting policies and judgments most critical to the Company. They include establishing the amount of ALL, evaluating our investment securities for OTTI,ACL and valuing our intangible assets. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, or capital, and/or the results of operations of the Company.
Please refer to the Company's 20212022 Annual Report on Form 10-Kand the Summary of Significant Accounting Policies in Note 1 to the unaudited consolidated financial statements contained in this report for a more in-depth discussion of the Company's critical accounting policies.policies and adoption of CECL. There have been no changes to the Company's critical accounting policies, other than those described in Note 1 since the filing of that report.the 2022 Annual Report.
OVERVIEW
During the first quarter of 2023, the banking industry experienced significant volatility with three high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Federal Reserve initiated its planned short termCompany’s total deposits, not including purchased brokered deposits, decreased by 4.4% as compared to December 31, 2022, to $1.1 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter, primarily due to the seasonal fluctuation in municipal deposit accounts. The Company also took a number of preemptive actions, which included pro-active outreach to clients regarding FDIC insurance coverage for their deposits in response to these recent developments. Furthermore, the Company remains well capitalized with Common Equity Tier 1 and Total Capital ratios of 10.80% and 13.69%, respectively, as of March 31, 2023.
Concerns over interest rate levels, energy prices, domestic and global policy issues, trade policy in the U.S. and geopolitical events, as well as the implications of those events on the markets in general, add to the global uncertainty. There is also a risk that interest rate increases by increasingto fight inflation could lead to a recession. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the federal funds target rate 25 bpslevel of regulatory and government scrutiny of financial institutions will continue to 50 bpsimpact our results in March2023 and by another 50 bps to one percent in May. This also resulted in an increase in the Prime Rate to 4.0%. In addition to these increases in interest rates, the 10-year treasury rate began 2022 at 1.512%, increased to 2.327% at the end of March, to 2.885% at the end of April and continued to rise in May. Mortgage rates and investment yields for mortgage-backed securities are primarily driven by the 10-year treasury index. The rapid increase in the 10-year treasury rate has impacted the fair market value of the investment portfolio, pricing on loans held for sale, and mortgage rates offered to customers which have
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increased approximately 200 bps since the beginning of the year. However, asset yields have not yet increased as a result of these increases nor have interest rates on interest bearing liabilities.beyond.
Consolidated net income decreased $394increased $495 thousand, or 13.7%19.9%, to $3.0 million for the first quarter of 2023 compared to $2.5 million for the first quarter of 2022 compared to $2.9 million for the first quarter of 2021 due to the combined effecteffects of a decreaseincreases of $1.0 million in net interest income and $55 thousand in noninterest income, partially offset by increases of $566$74 thousand and an increase of $661in credit loss expense, $461 thousand in noninterest expenses, partially offset by an increase in net interest income of $564 thousand and decreases of $150 thousand in the provision for loan losses and $119$37 thousand in income tax expense.
Net interest income increased $564 thousand, or 6.7%, to $9.0 million for the three months ended March 31, 2022, compared to $8.4 million for the three months ended March 31, 2021. Interest income increased $226 thousand primarily due to higher volumes of earning assets despite lower yields; and despite recognition of $411 thousand less in fee income between periods, primarily due to lower fee income recognized from PPP loans. Interest expense was $763 thousand for the three months ended March 31, 2022 compared to $1.1 million for the three months ended March 31, 2021, reflecting lower rates paid on deposits despite an increase in average interest bearing liabilities between periods of $59.0 million.
The was no provision for loan losses for the three months ended March 31, 2022 compared to a provision of $150 thousand for the same period in 2021. There were no changes to the methodology for calculating the allowance for loan losses during either of the three month comparison periods.
Total noninterest income amounted to $2.1 million for the three months ended March 31, 2022 compared to $2.6 million for the three months ended March 31, 2021, a decrease of $566 thousand, or 21.6%. The decrease is primarily due to a decrease in sales of qualifying residential loans. There were $16.4 million in residential loan sales with net gains of $14 thousand for the three months ended March 31, 2022, compared to residential loan sales of $29.7 million with net gains of $894 thousand for the same period in 2021. The decrease in the volume of loan sales reflects management's decision to slow sales in the first quarter of 2022 to utilize some excess liquidity and increase interest income on loans.
Total noninterest expenses were $8.1 million for the three months ended March 31, 2022, compared to $7.5 million for the same period in 2021. Increases of $327 thousand in salaries and wages, $136 thousand in employee benefits, $118 thousand in equipment expenses, $50 thousand in occupancy expenses and $30 thousand in other expenses, occurred between the three month comparison period of 2022 and 2021.
At March 31, 2022,2023, the Company had total consolidated assets of $1.23$1.36 billion, including gross loans and loans held for sale (total loans) of $830.0$975.3 million, deposits of $1.13$1.23 billion, borrowed funds of $45.1 million, subordinated debt of $16.2 million and stockholders' equity of $69.4$60.6 million.
The Company's total capital decreasedincreased to $60.6 million at March 31, 2023 from $84.3$55.2 million at December 31, 2021 to $69.4 million at March 31, 2022. This decreaseincrease primarily reflects an increasea decrease of $15.9$3.9 million in accumulated other comprehensive loss and net income of $3.0 million partially offset by regular cash dividends declared of $1.6 million, offset by net income of $2.5 million for the first three months of 2022.2023. (See Capital Resources on page 40.43.) These changes also resulted in an increase in the Company's book value per share to $13.44 at March 31, 2023 from $12.25 as of December 31, 2022.
Return on average assets is a financial metric often utilized as an indicator of a financial institution's performance. The Company's return on average assets increased 8 bps for the three months ended March 31, 2023 compared to the same period in 2022, primarily due to an increase in net income of $495 thousand between periods.
Union Bankshares, Inc. Page 2528
The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three months ended March 31, 20222023 and 2021,2022, respectively:
| | | Three Months Ended or At March 31, | | | Three Months Ended or At March 31, | |
| | 2022 | 2021 | | | 2023 | 2022 | |
Return on average assets (1) | Return on average assets (1) | 0.81 | % | 1.05 | % | | Return on average assets (1) | 0.89 | % | 0.81 | % | |
Return on average equity (1) | Return on average equity (1) | 12.38 | % | 14.27 | % | | Return on average equity (1) | 20.90 | % | 12.38 | % | |
Net interest margin (1)(2) | Net interest margin (1)(2) | 3.17 | % | 3.32 | % | | Net interest margin (1)(2) | 3.14 | % | 3.17 | % | |
Efficiency ratio (3) | Efficiency ratio (3) | 73.08 | % | 66.90 | % | | Efficiency ratio (3) | 70.46 | % | 73.08 | % | |
Net interest spread (4) | Net interest spread (4) | 3.08 | % | 3.19 | % | | Net interest spread (4) | 2.84 | % | 3.08 | % | |
Loan to deposit ratio | Loan to deposit ratio | 73.17 | % | 83.59 | % | | Loan to deposit ratio | 79.55 | % | 73.17 | % | |
Net loan charge-offs to average loans not held for sale (1) | Net loan charge-offs to average loans not held for sale (1) | — | % | — | % | | Net loan charge-offs to average loans not held for sale (1) | — | % | — | % | |
Allowance for loan losses to loans not held for sale | 1.01 | % | 1.05 | % | | |
ACL on loans to loans not held for sale | | ACL on loans to loans not held for sale | 0.71 | % | 1.01 | % | |
Nonperforming assets to total assets (5) | Nonperforming assets to total assets (5) | 0.38 | % | 0.56 | % | | Nonperforming assets to total assets (5) | 0.17 | % | 0.38 | % | |
Equity to assets | Equity to assets | 5.63 | % | 7.23 | % | | Equity to assets | 4.45 | % | 5.63 | % | |
Total capital to risk weighted assets | Total capital to risk weighted assets | 14.84 | % | 13.48 | % | | Total capital to risk weighted assets | 13.69 | % | 14.84 | % | |
Book value per share | Book value per share | $ | 15.45 | | $ | 17.81 | | | Book value per share | $ | 13.44 | | $ | 15.45 | | |
Basic earnings per share (6) | Basic earnings per share (6) | $ | 0.55 | | $ | 0.64 | | | Basic earnings per share (6) | $ | 0.66 | | $ | 0.55 | | |
| Diluted earnings per share | | Diluted earnings per share | $ | 0.66 | | $ | 0.55 | | |
Dividends paid per share | Dividends paid per share | $ | 0.35 | | $ | 0.33 | | | Dividends paid per share | $ | 0.36 | | $ | 0.35 | | |
Dividend payout ratio (7)(6) | Dividend payout ratio (7)(6) | 63.64 | % | 51.56 | % | | Dividend payout ratio (7)(6) | 54.55 | % | 63.64 | % | |
__________________
(1)Annualized.
(2)The ratio of tax equivalent net interest income to average earning assets. See page 2831 for more information.
(3)The ratio of noninterest expense to tax equivalent net interest income and noninterest income, excluding securities gains (losses).
(4)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 2831 for more information.
(5)Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.
(6)The assumed vesting of RSUs, and for 2021 also the assumed exercise of stock options, does not result in a material dilution for the three months ended March 31, 2022 or 2021.
(7)Cash dividends declared and paid per share divided by consolidated net income per share.
RESULTS OF OPERATIONS
Net Interest Income. The largest component of the Company’s operating income is net interest income, which is the difference between interest and dividend income received from earning assets and interest expense paid on interest bearing liabilities. Net interest income is affected by various factors including, but not limited to changes in interest rates, loan and deposit pricing strategies, the volume and mix of interest earning assets and interest bearing liabilities, and the level of nonperforming assets. Net interest margin is calculated as the net interest income on a fully tax equivalent basis as a percentage of average earning assets.
As discussed above,Interest earned on average earning assets for the Federal Reserve initiated its planned short term interest rate increases by increasingthree months ended March 31, 2023 was $13.0 million compared to $9.7 million for the federal funds target rate 25 bpsthree months ended March 31, 2022, an increase of $3.3 million, or 34.1%. The increase is due to 50 bpsan increase in Marchaverage earning assets of $150.0 million and by another 50 bps to one percent in May. This also resulted ina lesser extent an increase in the Prime Rate to 4.0%. In addition, the 10-year treasury rate increased from 1.512% at the beginningaverage yields of the year to 2.327% at the end of March, to 2.885% at the end of April and continued to rise in May. These increases in interest rates have not yet increased asset yields or rates paid on interest bearing liabilities. However, further increases in short term rates by the Federal Reserve may result in increases in interest rates paid on customer deposit accounts which may impact future earnings of the Company.
65 bps. The average yield on average earning assets was 4.09% for the three months ended March 31, 2023 compared to 3.44% for the three months ended March 31, 2022 compared to 3.76% for2022.
The average yield on federal funds sold and overnight deposits increased 263 bps between the three monthsmonth comparison periods due to an increase in the interest rate being paid by the Federal Reserve on balances maintained in Union's master account at the FRB. The interest rate is set by the FRB Board of Governors and was set at 4.40% on January 1, 2023 and increased to 4.90% throughout the quarter ended March 31, 2021, a decrease of 32 bps despite an increase in average earning assets of $119.7 million. The prolonged low interest rate environment which prevailed2023 compared to 0.15% on January 1, 2022, increasing to 0.40% throughout the first quarter continued to put downward pressure on asset yields for the three months ended March 31, 2022. Interest income on investment securities increased $639$393 thousand between the three month comparison periods due to an increase in the average balances of $159.8$23.3 million, despite a decreaseand an increase of 1142 bps in the average yield. The average balance of PPP loans was $9.4 million for the three months ended March 31, 2022
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with an average yield of 13.43%, which takes into account the 1.0% interest charged on PPP loans and related fee income recognized during the three months ended March 31, 2022. Interest income on loans excluding PPP loans, increased $133 thousand$2.7 million between the three month comparison periods due to an increase in the average volume of loans outstanding of $56.7$157.5 million partially offset by a decreaseand an increase of 2745 bps in the average yield. The average volume of loans
Interest expense for
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increased between the first quarter of 2022 decreased $338 thousand compared to the first quarter of 2021three month comparisons due to lower rates paidstrong loan demand in the markets the Company serves as well as retaining higher volumes of residential loans on customer deposit accounts, despite increases in average deposit balances of $50.0 million, partially offset by the addition of $142 thousand of interest expense on subordinated notes with an averageCompany's balance of $16.2 million.sheet. The increase in average customerinterest rates has also contributed to higher yields in the Company's loan portfolio.
Average interest bearing deposit balances isincreased $107.1 million between the three month comparison periods due to an increaseoverall growth of the Company and the utilization of $63.0 million in the money supply from proceedsaverage brokered deposits included in time deposits as of PPP loans, government stimulus payments, and other economic recovery payments.March 31, 2023. The average rate paid on interest bearing liabilities decreased 21increased 89 bps to 1.25% for the first quarter of 2023 compared to 0.36% for the first quarter of 20222022. Interest expense increased $2.3 million, to $3.1 million for the three months ended March 31, 2023 compared to 0.57%$763 thousand for the first quarter of 2021. The averagethree months ended March 31, 2022. Higher rates paid on customer deposit accounts and utilization of higher cost funding of brokered deposits and advances from the FHLB were drivers of the increase in interest expense.
The average balance in interest bearing checking accounts and savings and money market accounts decreased 3 bps and 22 bps, respectively, betweenincreased $34.3 million, or 12.27%, to $314.2 million for the first quarter comparison periods. The Company decreased interest rates paid on deposit accounts early in 2021 and again in June of 2021 and implemented a tiered rate structure in these accounts which remained in place as ofthree months ended March 31, 2023 compared to $279.8 million for the three months ended March 31, 2022. The decreasesincrease in these interest rates resultedthe average balance was primarily attributable to an increase in a decrease in interest expense of $195 thousand on savings and money marketmunicipal deposit accounts between the three month comparison periods.periods as well as growth in consumer and business checking accounts. The $357 thousand increase in interest expense for interest bearing checking accounts was primarily driven by the 43 bps increase in the rates paid on the deposit accounts and to a lesser extent the increase in average balances.
Several banks, including Union, offered higher rate paying time deposit specials to retain existing customer deposits and gain new deposit dollars. In offering these specials, Union was able to attract new deposit dollars but primarily saw a shift of funds from savings and money market accounts, and other non-maturity deposits, into time deposits specials. Interest expense on time deposits decreased $233 thousandincreased $1.1 million due to decreasesincreases in the average volume of $27.2$89.4 million and 61212 bps in the average rate paid during the first quarter of 20222023 compared to the same period in 2021. Management believes that2022. Several time deposit specials have been offered since August of 2022, the most recent of which offers an APY of 4.25%, for new money not already on deposit with Union, for a term of 12 months. Despite a decrease of $16.6 million in the average volume is primarily due to customers transferring proceeds from matured CDs into non-maturity deposits in hopesbalance of obtaining higher yields in future periods as well as some funds leaving Union to seek a higher return. Higher customer deposit balances reduced reliance on wholesale funding, as evidenced by decreasessavings/money market accounts, interest expense increased $342 thousand between the three month comparison periods due to an increase of $7.2 million34 bps in the average outstanding balance of borrowed funds and $54 thousand in related interest expense. The issuance of subordinated debt during the third quarter of 2021 resulted in an average balance of $16.2 million for the first quarter of 2022 and an average rate of 3.55% and interest expense of $142 thousand.paid.
The net interest spread decreased 1124 bps to 3.08%2.84% for the first quarter of 2022,2023, from 3.19%3.08% for the same period last year, reflecting the net effect of the 2189 bps decreaseincrease in the average rate paid on interest bearing liabilities andoffset by the 3265 bps decreaseincrease in the average yield earned on interest earning assets between periods. The net interest margin decreased 153 bps during the first quarter of 20222023 compared to the same period last year as a result of the changes discussed above.
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The following table shows for the periods indicated the total amount of tax equivalent interest income recorded from average interest earning assets, the related average tax equivalent yields, the tax equivalent interest expense associated with average interest bearing liabilities, the related tax equivalent average rates paid, and the resulting tax equivalent net interest spread and margin.
| | | | Three Months Ended March 31, | | Three Months Ended March 31, |
| | 2022 | 2021 | | 2023 | 2022 |
| | Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate | Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate | | Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate | Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate |
| | (Dollars in thousands) | | (Dollars in thousands) |
Average Assets: | Average Assets: | | Average Assets: | |
Federal funds sold and overnight deposits | Federal funds sold and overnight deposits | $ | 51,148 | | $ | 19 | | 0.15 | % | $ | 82,856 | | $ | 19 | | 0.09 | % | Federal funds sold and overnight deposits | $ | 15,008 | | $ | 104 | | 2.78 | % | $ | 51,148 | | $ | 19 | | 0.15 | % |
Interest bearing deposits in banks | Interest bearing deposits in banks | 13,356 | | 33 | | 1.01 | % | 13,966 | | 37 | | 1.07 | % | Interest bearing deposits in banks | 17,122 | | 107 | | 2.52 | % | 13,356 | | 33 | | 1.01 | % |
Investment securities (2), (3) | Investment securities (2), (3) | 287,014 | | 1,194 | | 1.73 | % | 127,233 | | 555 | | 1.84 | % | Investment securities (2), (3) | 310,293 | | 1,587 | | 2.15 | % | 287,014 | | 1,194 | | 1.73 | % |
PPP loans, net (4) | 9,380 | | 311 | | 13.43 | % | 73,619 | | 855 | | 4.71 | % | |
| Loans, net (2), (5)(4) | Loans, net (2), (5)(4) | 795,694 | | 8,163 | | 4.19 | % | 739,009 | | 8,030 | | 4.46 | % | Loans, net (2), (5)(4) | 962,525 | | 11,205 | | 4.75 | % | 805,074 | | 8,474 | | 4.30 | % |
Nonmarketable equity securities | Nonmarketable equity securities | 894 | | 6 | | 2.48 | % | 1,150 | | 4 | | 1.47 | % | Nonmarketable equity securities | 2,579 | | 41 | | 6.49 | % | 894 | | 6 | | 2.48 | % |
Total interest earning assets (2) | Total interest earning assets (2) | 1,157,486 | | 9,726 | | 3.44 | % | 1,037,833 | | 9,500 | | 3.76 | % | Total interest earning assets (2) | 1,307,527 | | 13,044 | | 4.09 | % | 1,157,486 | | 9,726 | | 3.44 | % |
Cash and due from banks | Cash and due from banks | 4,693 | | | 5,094 | | | Cash and due from banks | 4,639 | | | 4,693 | | |
Premises and equipment | Premises and equipment | 21,517 | | | 19,996 | | | Premises and equipment | 20,406 | | | 21,517 | | |
Other assets | Other assets | 35,978 | | | 37,420 | | | Other assets | 9,587 | | | 35,978 | | |
Total assets | Total assets | $ | 1,219,674 | | | $ | 1,100,343 | | | Total assets | $ | 1,342,159 | | | $ | 1,219,674 | | |
Average Liabilities and Stockholders' Equity: | Average Liabilities and Stockholders' Equity: | | | | | Average Liabilities and Stockholders' Equity: | | | | |
Interest bearing checking accounts | Interest bearing checking accounts | $ | 279,817 | | 149 | | 0.22 | % | $ | 234,339 | | 147 | | 0.25 | % | Interest bearing checking accounts | $ | 314,156 | | 506 | | 0.65 | % | $ | 279,817 | | 149 | | 0.22 | % |
Savings/money market accounts | Savings/money market accounts | 445,038 | | 354 | | 0.32 | % | 413,269 | | 549 | | 0.54 | % | Savings/money market accounts | 428,438 | | 696 | | 0.66 | % | 445,038 | | 354 | | 0.32 | % |
Time deposits | Time deposits | 106,369 | | 118 | | 0.45 | % | 133,616 | | 351 | | 1.06 | % | Time deposits | 195,772 | | 1,241 | | 2.57 | % | 106,369 | | 118 | | 0.45 | % |
Borrowed funds and other liabilities | Borrowed funds and other liabilities | — | | — | | — | % | 7,164 | | 54 | | 3.02 | % | Borrowed funds and other liabilities | 41,532 | | 484 | | 4.66 | % | — | | — | | — | % |
Subordinated notes | Subordinated notes | 16,175 | | 142 | | 3.55 | % | — | | — | | — | % | Subordinated notes | 16,209 | | 142 | | 3.56 | % | 16,175 | | 142 | | 3.55 | % |
Total interest bearing liabilities | Total interest bearing liabilities | 847,399 | | 763 | | 0.36 | % | 788,388 | | 1,101 | | 0.57 | % | Total interest bearing liabilities | 996,107 | | 3,069 | | 1.25 | % | 847,399 | | 763 | | 0.36 | % |
Noninterest bearing deposits | Noninterest bearing deposits | 281,367 | | | 221,344 | | | Noninterest bearing deposits | 273,971 | | | 281,367 | | |
Other liabilities | Other liabilities | 10,688 | | | 9,975 | | | Other liabilities | 15,096 | | | 10,688 | | |
Total liabilities | Total liabilities | 1,139,454 | | | 1,019,707 | | | Total liabilities | 1,285,174 | | | 1,139,454 | | |
Stockholders' equity | Stockholders' equity | 80,220 | | | 80,636 | | | Stockholders' equity | 56,985 | | | 80,220 | | |
Total liabilities and stockholders’ equity | Total liabilities and stockholders’ equity | $ | 1,219,674 | | | $ | 1,100,343 | | | Total liabilities and stockholders’ equity | $ | 1,342,159 | | | $ | 1,219,674 | | |
Net interest income | Net interest income | | $ | 8,963 | | | | $ | 8,399 | | | Net interest income | | $ | 9,975 | | | | $ | 8,963 | | |
Net interest spread (2) | Net interest spread (2) | | | 3.08 | % | | | 3.19 | % | Net interest spread (2) | | | 2.84 | % | | | 3.08 | % |
Net interest margin (2) | Net interest margin (2) | | | 3.17 | % | | 3.32 | % | Net interest margin (2) | | | 3.14 | % | | 3.17 | % |
__________________
(1)Average balances are calculated based on a daily averaging method.
(2)Average yields reported on a tax equivalent basis using a marginal federal corporate income tax rate of 21%.
(3)Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.
(4)Includes unamortized costs and unamortized premiums.
(5)Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses.ACL on loans.
Union Bankshares, Inc. Page 2831
Tax exempt interest income amounted to $502$832 thousand and $606$502 thousand for the three months ended March 31, 20222023 and 2021,2022, respectively. The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the 20222023 and 20212022 three month comparison periods:
| | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, | |
| | 2022 | 2021 | | | 2023 | 2022 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Net interest income, as presented | Net interest income, as presented | $ | 8,963 | | $ | 8,399 | | | Net interest income, as presented | $ | 9,975 | | $ | 8,963 | | |
Effect of tax-exempt interest | Effect of tax-exempt interest | | | Effect of tax-exempt interest | | |
Investment securities | Investment securities | 49 | | 30 | | | Investment securities | 78 | | 49 | | |
Loans | Loans | 62 | | 91 | | | Loans | 80 | | 62 | | |
Net interest income, tax equivalent | Net interest income, tax equivalent | $ | 9,074 | | $ | 8,520 | | | Net interest income, tax equivalent | $ | 10,133 | | $ | 9,074 | | |
Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates earned and paid (on a fully tax-equivalent basis) and changes in volume of average interest earning assets and interest bearing liabilities have affected the Company'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 prior 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.
| | | Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 Increase/(Decrease) Due to Change In | | | Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022 Increase/(Decrease) Due to Change In | |
| | Volume | Rate | Net | | | Volume | Rate | Net | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Interest earning assets: | Interest earning assets: | | | Interest earning assets: | | |
Federal funds sold and overnight deposits | Federal funds sold and overnight deposits | $ | (8) | | $ | 8 | | $ | — | | | Federal funds sold and overnight deposits | $ | (22) | | $ | 107 | | $ | 85 | | |
Interest bearing deposits in banks | Interest bearing deposits in banks | (2) | | (2) | | (4) | | | Interest bearing deposits in banks | 11 | | 63 | | 74 | | |
Investment securities | Investment securities | 684 | | (45) | | 639 | | | Investment securities | 93 | | 300 | | 393 | | |
PPP loans, net | (1,185) | | 641 | | (544) | | | |
Loans (excluding PPP loans), net | 618 | | (485) | | 133 | | | |
| Loans, net | | Loans, net | 1,774 | | 957 | | 2,731 | | |
Nonmarketable equity securities | Nonmarketable equity securities | (1) | | 3 | | 2 | | | Nonmarketable equity securities | 18 | | 17 | | 35 | | |
Total interest earning assets | Total interest earning assets | $ | 106 | | $ | 120 | | $ | 226 | | | Total interest earning assets | $ | 1,874 | | $ | 1,444 | | $ | 3,318 | | |
Interest bearing liabilities: | Interest bearing liabilities: | | | Interest bearing liabilities: | | |
Interest bearing checking accounts | Interest bearing checking accounts | $ | 27 | | $ | (25) | | $ | 2 | | | Interest bearing checking accounts | $ | 19 | | $ | 338 | | $ | 357 | | |
Savings/money market accounts | Savings/money market accounts | 39 | | (234) | | (195) | | | Savings/money market accounts | (13) | | 355 | | 342 | | |
Time deposits | Time deposits | (61) | | (172) | | (233) | | | Time deposits | 168 | | 955 | | 1,123 | | |
Borrowed funds | Borrowed funds | (27) | | (27) | | (54) | | | Borrowed funds | 484 | | — | | 484 | | |
Subordinated notes | Subordinated notes | 142 | | — | | 142 | | | Subordinated notes | — | | — | | — | | |
Total interest bearing liabilities | Total interest bearing liabilities | $ | 120 | | $ | (458) | | $ | (338) | | | Total interest bearing liabilities | $ | 658 | | $ | 1,648 | | $ | 2,306 | | |
Net change in net interest income | Net change in net interest income | $ | (14) | | $ | 578 | | $ | 564 | | | Net change in net interest income | $ | 1,216 | | $ | (204) | | $ | 1,012 | | |
ProvisionCredit Loss Expense. The Company adopted ASU No. 2016-13 to account for Loan Losses. There was no provision for loan losses recordedthe ACL, effective January 1, 2023. As such, ACL and credit loss expense as of and for the three months ended March 31, 2022. A $150 thousand provision was recorded2023 were accounted for in accordance with the three months ended March 31, 2021. No provisionASU. In accordance with previously applicable GAAP, the ACL and credit loss expense as of and for the three months ended March 31, 2022 was deemed appropriate by management based onwere accounted for under the size and mixincurred loss methodology. Refer to Note 1, Summary of Significant Accounting Policies for a description of the loan portfolio,Company's accounting policies for the level of nonperforming loans, the results of the qualitative factor review and prevailing economic conditions For further details, see FINANCIAL CONDITION- ACL.
Allowance for Loan Losses and Asset Quality below.
Union Bankshares, Inc. Page 2932
Credit loss expense was made up of the following components for the following periods:
| | | | | | | | |
| For the Three Months Ended March 31, |
| 2023 (CECL) | 2022 (Incurred Loss) |
| (Dollars in thousands) |
Credit loss expense for loans | $ | 90 | | $ | — | |
| | |
Credit loss benefit for off-balance sheet credit exposures | (16) | | — | |
Credit loss expense, net | $ | 74 | | $ | — | |
Noninterest Income. The following table sets forth the components of noninterest income and changes between the three month comparison periods of 20222023 and 2021:2022:
| | | For The Three Months Ended March 31, | | | For The Three Months Ended March 31, | |
| | 2022 | 2021 | $ Variance | % Variance | | | 2023 | 2022 | $ Variance | % Variance | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Trust income | $ | 209 | | $ | 185 | | $ | 24 | | 13.0 | | | |
Wealth management income | | Wealth management income | $ | 211 | | $ | 209 | | $ | 2 | | 1.0 | | |
Service fees | Service fees | 1,635 | | 1,523 | | 112 | | 7.4 | | | Service fees | 1,694 | | 1,635 | | 59 | | 3.6 | | |
Net gains on sales of loans held for sale | Net gains on sales of loans held for sale | 14 | | 894 | | (880) | | (98.4) | | | Net gains on sales of loans held for sale | 194 | | 14 | | 180 | | 1,285.7 | | |
Income from Company-owned life insurance | Income from Company-owned life insurance | 182 | | 68 | | 114 | | 167.6 | | | Income from Company-owned life insurance | 107 | | 182 | | (75) | | (41.2) | | |
Expense from MSRs, net | (175) | | (125) | | (50) | | 40.0 | | | |
| Other income | Other income | 82 | | 32 | | 50 | | 156.3 | | | Other income | 33 | | 82 | | (49) | | (59.8) | | |
| Net gains on other investments | Net gains on other investments | 82 | | 44 | | 38 | | 86.4 | | | Net gains on other investments | 46 | | 82 | | (36) | | (43.9) | | |
Net gains on sales of investment securities AFS | Net gains on sales of investment securities AFS | 26 | | — | | 26 | | — | | | Net gains on sales of investment securities AFS | — | | 26 | | (26) | | (100.0) | | |
Total noninterest income | Total noninterest income | $ | 2,055 | | $ | 2,621 | | $ | (566) | | (21.6) | | | Total noninterest income | $ | 2,285 | | $ | 2,230 | | $ | 55 | | 2.5 | | |
The significant changes in noninterest income for the three months ended March 31, 20222023 compared to the same period of 20212022 are described below:
•Trust income. Trust income increased as dollars in managed fiduciary accounts grew between March 31, 2022 and 2021.
•Service fees. Service fees increased $112$59 thousand for the three months ended March 31, 2022,2023, compared to the same period in 20212022 primarily due to increases of $52$8 thousand in overdraft fee income, $23 thousand in ATM network fees, $18 thousand in loan servicing fee income, and $28$30 thousand in merchant program fee income, partially offset by decreases of $2 thousand in safe deposit income and $7 thousand in other service chargeATM network fees.
•Net gains on sales of loans held for sale. The Company mitigates long-term interest rate risk by selling qualifying residential loans to the secondary market. In an effort to utilize some excess liquidity along with the rapid increase in the 10-year treasury rate in 2022 and the related impact on the pricing of loans held for sale, management reduced the volume of loan sales in 2022 compared to 2021. Residential mortgage loans totaling $16.4$11.8 million were sold during the three months ended March 31, 20222023, compared to sales of $29.7$16.4 million during the same period in 2021.2022. The decreaseincrease of $880$180 thousand in net gains on sales of loans held for sale between periods is reflective of thedespite lower sales volumes and lowervolume for the three months ended March 31, 2023 compared to the same period in 2022, reflects higher premiums obtained on those sales.sales in 2023 and $31 thousand of recapture on gains from 2021 recorded for the three months ended March 31, 2022 that did not occur in 2023.
•Income from Company-owned life insurance. Death benefit proceeds of $77 thousand were received in the first quarter of 2022 that did not repeat in 2023.
•Other income.The Company purchased $5.8 million of Company owned life insurance covering select officers of Union during the fourth quarter of 2021. In addition, $77received $44 thousand was received in proceeds from a death benefit, resulting in increased incomeprepayment penalties for the three months ended March 31, 2022 compared tothat did not repeat for the same period in 2021.
•Expense from MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the future estimate of servicing the underlying mortgages. The amortization of MSRs exceeded new capitalized MSRs for the three months ended March 31, 2022 and 2021 which resulted in expense of $175 thousand and $125 thousand, respectively.
•Other income. The increase in Other income during the comparison period is primarily reflective of $44 thousand in prepayment penalties received from the early payoff of loans during the three months ended March 31, 2022, in addition to an increase of $3 thousand in gains on the utilization of tax credits compared to the same period in 2021.2023.
•Net gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net gains of $46 thousand and $82 thousand for the three months ended March 31, 2023 and March 31, 2022, compared to net gains of $44 thousand for the same period in 2021.respectively.
Union Bankshares, Inc. Page 3033
Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three month comparison periods ended March 31, 20222023 and 2021:2022:
| | | For The Three Months Ended March 31, | | | For The Three Months Ended March 31, | |
| | 2022 | 2021 | $ Variance | % Variance | | | 2023 | 2022 | $ Variance | % Variance | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Salaries and wages | Salaries and wages | $ | 3,410 | | $ | 3,083 | | $ | 327 | | 10.6 | | | Salaries and wages | $ | 3,502 | | $ | 3,410 | | $ | 92 | | 2.7 | | |
Employee benefits | Employee benefits | 1,305 | | 1,169 | | 136 | | 11.6 | | | Employee benefits | 1,377 | | 1,305 | | 72 | | 5.5 | | |
Occupancy expense, net | Occupancy expense, net | 527 | | 477 | | 50 | | 10.5 | | | Occupancy expense, net | 578 | | 527 | | 51 | | 9.7 | | |
Equipment expense | Equipment expense | 916 | | 798 | | 118 | | 14.8 | | | Equipment expense | 897 | | 916 | | (19) | | (2.1) | | |
Professional fees | Professional fees | 216 | | 196 | | 20 | | 10.2 | | | Professional fees | 269 | | 216 | | 53 | | 24.5 | | |
FDIC insurance assessment | FDIC insurance assessment | 127 | | 156 | | (29) | | (18.6) | | | FDIC insurance assessment | 184 | | 127 | | 57 | | 44.9 | | |
Other loan related expenses | 73 | | 84 | | (11) | | (13.1) | | | |
Advertising and public relations | | Advertising and public relations | 143 | | 108 | | 35 | | 32.4 | | |
Vermont franchise tax | Vermont franchise tax | 261 | | 223 | | 38 | | 17.0 | | | Vermont franchise tax | 289 | | 261 | | 28 | | 10.7 | | |
Donations | 39 | | 24 | | 15 | | 62.5 | | | |
| Travel and entertainment | 33 | | 17 | | 16 | | 94.1 | | | |
Amortization of core deposit intangible | — | | 43 | | (43) | | (100.0) | | | |
Amortization of MSRs, net | | Amortization of MSRs, net | 124 | | 175 | | (51) | | (29.1) | | |
ATM and debit card expense | | ATM and debit card expense | 273 | | 203 | | 70 | | 34.5 | | |
| Board related expenses | | Board related expenses | 114 | | 135 | | (21) | | (15.6) | | |
Other expenses | Other expenses | 1,207 | | 1,183 | | 24 | | 2.0 | | | Other expenses | 1,000 | | 906 | | 94 | | 10.4 | | |
Total noninterest expense | Total noninterest expense | $ | 8,114 | | $ | 7,453 | | $ | 661 | | 8.9 | | | Total noninterest expense | $ | 8,750 | | $ | 8,289 | | $ | 461 | | 5.6 | | |
The significant changes in noninterest expense for the three months ended March 31, 20222023 compared to the same periodperiods in 20212022 are described below:
•Salaries and wages. The increase in salariesSalaries and wages of $327increased $92 thousand for the three months ended March 31, 20222023 compared to the same period in 2021 was2022 primarily due to annual increases in employee's salaries, increases in accruals for annual incentive plan payments, and the deferral of loan origination costs. Also, the number of full time equivalent employees has increased from 195 at March 31, 2021 to 203 as of March 31, 2022. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by $35 thousandsalary adjustments for the three months ended March 31,2023 fiscal year. Wage pressures ensued for most of 2022 comparedas employees, current and new hires, sought higher wages to $185 thousand for the same period in 2021. The lower deferred loan origination costs for 2022 compared to 2021 is primarily attributable to the timing of origination and forgiveness of PPP loans during 2021 and 2022.offset inflationary pressures.
•Employee benefits. Employee benefit expense increased $136$72 thousand for the three months ended March 31, 2022,2023 compared to the same period in 20212022 due to increasesan increase of $21$184 thousand in premium expense for the costCompany's medical and dental plans between periods, partially offset by decreases of $24 thousand in payroll taxes, $37$26 thousand in group health insurance, $13 thousand in 401(k)retirement plan contributions, and $65$63 thousand in employee benefits related to the Company's deferred compensation plans.
•Occupancy expense, net. The Company openedincrease in occupancy expense for the three month comparison periods is due to increases in utilities and repair and maintenance expenses. Also, lease expense increased $27 thousand primarily due to a new lease for a full service branch location during the fourth quarter of 2021. Increase in occupancy expense, net, was due to increases of $22 thousand in utilities, primarily fuel cost, $12 thousand in property taxes, and $14 thousand in repairs and maintenance.North Conway, NH.
•Equipment expense.Professional fees Equipment expenses. Professional fees increased between periods primarily due to increases of $99$53 thousand in software license and maintenance costs and $19 thousand in computer operation expense for the three months ended March 31, 20222023 compared to the same period in 2021.
•Professional2022 due to annual increases in engagement fees. During the first three months of 2022, and payment for additional consultants were engaged to assist with advisorytax consulting services that were not utilized in 2021, resulting in increases of $20 thousand compared to the same period in 2021.and internal audit expenses.
•FDIC insurance assessment. The FDIC insurance assessment rate decreased resultingincreased $57 thousand during the comparison periods primarily due to overall growth in a decrease in expense for the three months ended March 31, 2022 compared to the same period in 2021.net assets.
•Other loanAdvertising and public relations. The increase in advertising and public relations costs primarily related expenses. Other loan related expenses consist of other costs incurred for originatingto advertising campaigns and servicing loans such as insurance and property tax tracking expenses, credit report fees, and other real estate closing costs. These expenses decreased for the three months ended March 31, 2022 compared to the same periodproduct specific advertising in 2021 due to a decrease2023 that did not occur in real estate closing costs between the three month comparison periods.2022.
Union Bankshares, Inc. Page 31
•Vermont franchise tax. The increase in expense between the three month comparison periods of 2021 and 2022 is due to the increase in average deposit balances for customer accounts allocated to Vermont.
•Donations.Amortization from MSRs, net. Charitable donationsIncome from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. Capitalized servicing rights are made as partinitially recorded at fair value and amortized in proportion to, and over the period of, the Company's commitment to continually help enhanceestimated future servicing period of the economic vitality and social welfareunderlying mortgages. The amortization of our communities. Donations increased by $15 thousand between the three month comparison periods of 2021 and 2022.
•Travel and entertainment. The Company has resumed business travels, intercompany travel and events that were suspended due to the economic disruption caused by COVID-19, resultingMSRs exceeded new capitalized MSRs which resulted in increasednet expense of $16$124 thousand and $175 thousand, for the three months ended March 31, 2023 and 2022, compared to the same period in 2021.respectively.
•Amortization of core deposit intangible.ATM and debit card expenses. The core deposit intangible was fully amortizedincrease between comparison periods relates to increases in 2021 resulting in no amortization expense in 2022.the volume of ATM and debit card transactions and new card issuance costs.
Union Bankshares, Inc. Page 34
Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three months ended March 31, 20222023 and 2021.2022. The Company's net provision for income taxes was $422$459 thousand for the three months ended March 31, 20222023 compared to $541$422 thousand for the same period in 2021.2022. The Company's effective federal corporate income tax rate was 14.7%14.3% for the three months ended March 31, 20222023 compared to 15.2%14.7% for the same period in 2021.2022.
Amortization expense related to limited partnership investments is included as a component of tax expense and amounted to $256$331 thousand for the three months ended March 31, 20222023 and $262$256 thousand for the same period in 2021.2022. These investments provide tax benefits, including tax credits. Low income housing and rehabilitation tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $251 thousand and $241$347 thousand for the three months ended March 31, 20222023 and 2021, respectively.$251 thousand for the three months ended March 31, 2022.
FINANCIAL CONDITION
At March 31, 2022,2023, the Company had total consolidated assets of $1.23$1.36 billion, including gross loans and loans held for sale (total loans) of $830.0$975.3 million, investment securities AFS of $275.4 million, deposits of $1.13$1.23 billion, borrowed funds of $45.1 million, subordinated notes of $16.2 million and stockholders' equity of $69.4$60.6 million. The Company’s total assets at March 31, 20222023 increased $28.2$25.6 million, or 2.3%1.9%, from $1.21$1.34 billion at December 31, 2021,2022, and increased $129.2$128.5 million, or 11.7%10.4%, compared to March 31, 2021.2022.
Net loans and loans held for sale increased $29.4$17.4 million, or 3.7%1.8%, to $822.6$969.7 million, representing 66.7%71.2% of total assets at March 31, 2022,2023, compared to $793.2$952.3 million, or 65.8%71.3% of total assets at December 31, 2021.2022. (See Loans Held for Sale and Loan Portfolio below.)
Total deposits increased $39.2$24.1 million, or 3.6%2.0%, to $1.13$1.23 billion at March 31, 2022,2023, from $1.10$1.20 billion at December 31, 2021.2022. There were increaseswas an increase in time deposits of $101.0 million, or 66.0%, which was partially offset by decreases in noninterest bearing deposits of $38.2$23.7 million, or 14.4%8.3%, and interest bearing deposits of $3.4$53.3 million, or 0.5%, which were partially offset by a decrease in time deposits of $2.4 million, or 2.3%7.0%. (See average balances and rates in the Yields Earned and Rates Paid table on page 28.31.)
In August 2021, the Company completed the private placementBorrowed funds, which consist of $16.5FHLB advances, were $45.1 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes are presented net of unamortized issuance costs of $321 thousand and $329 thousand$50.0 million at March 31, 20222023 and December 31, 2021, respectively, in the consolidated balance sheets.2022, respectively. (See Borrowings on page 41.)
Stockholders’ equity decreasedincreased from $84.3$55.2 million at December 31, 20212022 to $69.4$60.6 million at March 31, 2022,2023, reflecting an increasea decrease of $15.9$3.9 million in accumulated other comprehensive loss due to a decreasean increase in the fair market value of the Company's AFS investment securities, cash dividends declared of $1.6 million and stock repurchases of $75 thousand during the three months ended March 31, 2022. These decreases were partially offset by net income of $2.5$3.0 million for the first three months of 2022,2023, an increase of $103$113 thousand from stock based compensation, a $37 thousand increase from the impact of adoption of ASU No. 2016-13 and a $13$23 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by cash dividends declared of $1.6 million and stock repurchases of $60 thousand during the three months ended March 31, 2023. (See Capital Resources on page 40.43.)
Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased $29.1$15.9 million, or 3.6%1.7%, to $830.0$975.3 million, representing 67.3%71.6% of assets at March 31, 2022,2023, from $800.9$959.3 million, representing 66.4%71.8% of assets at December 31, 2021.2022. The total loan portfolio at March 31, 2022 decreased $12.52023 increased $145.3 million compared to the March 31, 20212022 level of $842.5$830.0 million, which represented 76.3%67.3% of assets, when the amount of PPP loans was at a high.assets. The Company’s loans consist primarily of adjustable-rate and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate. Real estate secured loans represented $702.1$840.5 million, or 84.6%86.2% of total loans at March 31, 20222023 and $670.6$828.2 million, or 83.7%86.3% of total loans at December 31, 2021. The Company had 80 and 154 PPP loans totaling $6.8 million and $13.6 million classified as commercial loans as of March 31, 2022 and December 31, 2021, respectively.2022. Changes in the composition of the Company's loan portfolio from December 31, 20212022 (see table below) resulted primarily from an increase in the volume of construction, residential, construction and commercial real estatemunicipal loans originated, partially offset by a decrease in the commercial real estate portfolio.
Union Bankshares, Inc. Page 3235
commercial portfolio related to PPP loan forgiveness. There was no material change in the Company’s lending programs or terms during the three months ended March 31, 2022.
The composition of the Company's loan portfolio, including loans held for sale, as of March 31, 20222023 and December 31, 20212022 was as follows:
| | | March 31, 2022 | December 31, 2021 | | March 31, 2023 | December 31, 2022 |
Loan Class | Loan Class | Amount | Percent | Amount | Percent | Loan Class | Amount | Percent | Amount | Percent |
| (Dollars in thousands) | |
Residential real estate | Residential real estate | $ | 282,662 | | 34.0 | | $ | 246,827 | | 30.8 | | Residential real estate | (Dollars in thousands) |
Non-revolving residential real estate | | Non-revolving residential real estate | $ | 341,880 | | 35.1 | | $ | 335,470 | | 35.0 | |
Revolving residential real estate | | Revolving residential real estate | 16,299 | | 1.7 | | 16,963 | | 1.8 | |
Construction real estate | Construction real estate | 68,730 | | 8.3 | | 65,149 | | 8.1 | | Construction real estate | |
Commercial construction real estate | | Commercial construction real estate | 60,847 | | 6.2 | | 56,501 | | 5.9 | |
Residential construction real estate | | Residential construction real estate | 46,320 | | 4.8 | | 40,119 | | 4.2 | |
Commercial real estate | Commercial real estate | 348,378 | | 42.0 | | 344,816 | | 43.1 | | Commercial real estate | |
Non-residential commercial real estate | | Non-residential commercial real estate | 278,366 | | 28.5 | | 282,397 | | 29.4 | |
Multi-family residential real estate | | Multi-family residential real estate | 93,953 | | 9.6 | | 95,550 | | 9.9 | |
Commercial | Commercial | 44,808 | | 5.4 | | 49,788 | | 6.2 | | Commercial | 41,553 | | 4.3 | | 40,973 | | 4.3 | |
Consumer | Consumer | 2,241 | | 0.3 | | 2,376 | | 0.3 | | Consumer | 2,373 | | 0.2 | | 2,204 | | 0.2 | |
Municipal | Municipal | 80,788 | | 9.7 | | 78,094 | | 9.8 | | Municipal | 90,818 | | 9.3 | | 87,980 | | 9.2 | |
Loans held for sale | Loans held for sale | 2,349 | | 0.3 | | 13,829 | | 1.7 | | Loans held for sale | 2,849 | | 0.3 | | 1,178 | | 0.1 | |
Total loans | Total loans | 829,956 | | 100.0 | | 800,879 | | 100.0 | | Total loans | 975,258 | | 100.0 | | 959,335 | | 100.0 | |
Allowance for loan losses | (8,336) | | | (8,336) | | | |
ACL on loans | | ACL on loans | (6,934) | | | (8,339) | | |
Unamortized net loan costs | Unamortized net loan costs | 1,007 | | | 705 | | | Unamortized net loan costs | 1,358 | | | 1,336 | | |
Net loans and loans held for sale | Net loans and loans held for sale | $ | 822,627 | | | $ | 793,248 | | | Net loans and loans held for sale | $ | 969,682 | | | $ | 952,332 | | |
The Company originates and sells qualified residential mortgage loans in various secondary market avenues to mitigate long-term interest rate risk and generate fee income, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At March 31, 2022,2023, the Company serviced a $914.6$994.2 million residential real estate mortgage portfolio, of which $2.3$2.8 million was held for sale and approximately $629.6$633.2 million of which was serviced for unaffiliated third parties.
In an effort to utilize some excess liquidity along with the rapid increase in the 10-year treasury rate in 2022 and the related impact on the pricing of loans held for sale, the Company elected to retain the majority of residential real estate loans originated in the first quarter of 2022. The Company sold $16.4$11.8 million of qualified residential real estate loans to the secondary market during the first three months of 20222023 compared to sales of $29.7$16.4 million during the first three months of 2021.2022. Residential mortgage loan origination activity continued to be strongrelatively stable during the first quarter of 2022, consisting of both refinancing and purchase activity. Customers continue to refinance existing mortgages and despite2023. Despite low housing inventory and rising interest rates, purchase activity in the Company's markets continues to be strong.stable with an increase in construction loan activity. The Company originates and sells FHA, VA, and RD residential mortgage loans, and also has an Unconditional Direct Endorsement Approval from HUD which allows the Company to approve FHA loans originated in any of its Vermont or New Hampshire markets withoutwithout needing prior HUD underwriting approval. The Company sells FHA, VA and RD loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the loan sales and government guaranty mitigate the Company's exposure to credit risk.
The Company also originates commercial real estate and commercial loans under various SBA, USDA and State sponsored programs which provide a government agency guaranty for a portion of the loan amount. There was $10.3$3.1 million guaranteed under these various programs at March 31, 20222023 on an aggregate balance of $11.5$4.2 million in subject loans. This includes $6.8 million of PPP loans that are guaranteed 100% by SBA, subject to borrower eligibility requirements. The Company occasionally sells the guaranteed portion of a loan to other financial institutions and retains servicing rights, which generates fee income. There were no commercial loans sold in the first three months of 20222023 and 2021.2022. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.
The Company serviced $22.1$28.0 million of commercial and commercial real estate loans for unaffiliated third parties as of March 31, 2022.2023. This included $20.6$26.9 million of commercial or commercial real estate loans the Company originated and participated out to other financial institutions. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.
The Company capitalizes MSRs for all loans sold with servicing retained. The unamortized balance of MSRs on loans sold with servicing retained was $2.3$1.9 million at March 31, 2022,2023, with an estimated market value in excess of the carrying value as of such date. Management periodically evaluates and measures the servicing assets for impairment.
Union Bankshares, Inc. Page 36
Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of $172.5$265.8 million were pledged as collateral for borrowings from the FHLB under a blanket lien at March 31, 2022.
Union Bankshares, Inc. Page 33
Asset Quality. The Company, like all financial institutions, is exposed to certain credit risks, including those related to the value of the collateral that secures its loans and the ability of borrowers to repay their loans. Consistent application of the Company’s conservative loan policies has helped to mitigate this risk and has been prudent for both the Company and its customers. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO for potential problems and reports to the Company’s and Union’s Board at regularly scheduled meetings. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates large credits out to other financial institutions to further mitigate that risk.
The region's economic environment continues to see signs of improvement and the states of Vermont and New Hampshire have been fully opened since June 2021, after the COVID-19 pandemic closure of large segments of the economy. There is demand for leisure travel and dining out which is supporting the region's tourist and restaurant industries; however, the industry is also facing some staffing challenges as workforce participation is lagging. Demand for homes has surged with the general safety and desirability of the region and the increased ability of working remotely. The Company’s management is focused on the lingering impact of COVID-19 on its borrowers and closely monitors industry and geographic concentrations, specifically the continuing impact on the region's tourist and restaurant industries. The Vermont unemployment rate was reported at 2.5% for March 2022 compared to 2.9% for March 2021 and the New Hampshire unemployment rate was 2.6% for March 2022 compared to 3.0% for March 2021. These rates compare favorably with the nationwide unemployment rate of 3.9% and 6.0%, respectively, for the comparable periods. Management will continue to monitor the national, regional and local economic environment in relation to COVID-19 and its impact on unemployment, business outlook and real estate values in the Company’s market area.
Repossessed assets, nonaccrual loans, and loans that are 90 days or more past due are considered to be nonperforming assets. The following table details the composition of the Company's nonperforming assets and amounts utilized to calculate certain asset quality ratios monitored by the Company's management as of the balance sheet dates and March 31, 2021:2022:
| | | | | | | | | | | |
| March 31, 2022 | December 31, 2021 | March 31, 2021 |
| (Dollars in thousands) |
Nonaccrual loans | $ | 4,405 | | $ | 4,650 | | $ | 5,878 | |
Loans past due 90 days or more and still accruing interest | 229 | | 98 | | 263 | |
Total nonperforming loans | 4,634 | | 4,748 | | 6,141 | |
OREO | — | | — | | — | |
| | | |
Total nonperforming assets | $ | 4,634 | | $ | 4,748 | | $ | 6,141 | |
| | | |
Guarantees of U.S. or state government agencies on the above nonperforming loans | $ | 177 | | $ | 113 | | $ | 168 | |
TDR loans | $ | 2,181 | | $ | 2,215 | | $ | 2,766 | |
Allowance for loan losses | $ | 8,336 | | $ | 8,336 | | $ | 8,429 | |
Net recoveries | $ | — | | $ | (65) | | $ | (8) | |
Total loans outstanding | $ | 829,956 | | $ | 800,879 | | $ | 842,466 | |
Total average loans outstanding | $ | 805,074 | | $ | 808,894 | | $ | 812,628 | |
| | | | | | | | | | | |
| March 31, 2023 | December 31, 2022 | March 31, 2022 |
| (Dollars in thousands) |
Nonaccrual loans | $ | 2,174 | | $ | 2,211 | | $ | 4,405 | |
Loans past due 90 days or more and still accruing interest | 175 | | 186 | | 229 | |
| | | |
| | | |
| | | |
Total nonperforming assets | $ | 2,349 | | $ | 2,397 | | $ | 4,634 | |
| | | |
Guarantees of U.S. or state government agencies on the above nonperforming loans | $ | 76 | | $ | 76 | | $ | 177 | |
TDR loans | $ | — | | $ | 1,710 | | $ | 2,181 | |
ACL on loans | $ | 6,934 | | $ | 8,339 | | $ | 8,336 | |
Net recoveries | $ | — | | $ | (3) | | $ | — | |
Total loans outstanding | $ | 975,258 | | $ | 959,335 | | $ | 829,956 | |
Total average loans outstanding | $ | 962,525 | | $ | 875,528 | | $ | 805,074 | |
Union Bankshares, Inc. Page 3437
The following table shows trends of certain asset quality ratios monitored by the Company's management as of the balance sheet dates and March 31, 2021:2022:
| | | March 31, 2022 | December 31, 2021 | March 31, 2021 | | March 31, 2023 | December 31, 2022 | March 31, 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
Allowance for loan losses to total loans outstanding | 1.00 | % | 1.04 | % | 1.00 | % | |
ACL on loans to total loans outstanding | | ACL on loans to total loans outstanding | 0.71 | % | 0.87 | % | 1.00 | % |
| Allowance for loan losses to nonperforming loans | 179.89 | % | 175.57 | % | 137.26 | % | |
Allowance for loan losses to nonaccrual loans | 189.24 | % | 179.27 | % | 143.40 | % | |
ACL on loans to nonperforming loans | | ACL on loans to nonperforming loans | 295.19 | % | 347.89 | % | 179.89 | % |
ACL on loans to nonaccrual loans | | ACL on loans to nonaccrual loans | 318.95 | % | 377.16 | % | 189.24 | % |
Nonperforming loans to total loans | Nonperforming loans to total loans | 0.56 | % | 0.59 | % | 0.73 | % | Nonperforming loans to total loans | 0.24 | % | 0.25 | % | 0.56 | % |
Nonperforming assets to total assets | Nonperforming assets to total assets | 0.38 | % | 0.39 | % | 0.56 | % | Nonperforming assets to total assets | 0.17 | % | 0.18 | % | 0.38 | % |
Nonaccrual loans to total loans | Nonaccrual loans to total loans | 0.53 | % | 0.58 | % | 0.70 | % | Nonaccrual loans to total loans | 0.22 | % | 0.23 | % | 0.53 | % |
Delinquent loans (30 days to nonaccruing) to total loans | Delinquent loans (30 days to nonaccruing) to total loans | 0.75 | % | 0.82 | % | 1.01 | % | Delinquent loans (30 days to nonaccruing) to total loans | 0.36 | % | 0.57 | % | 0.75 | % |
Net (recoveries) charge-offs (annualized) to total average loans | — | % | (0.01) | % | — | % | |
Net (recoveries) charge-offs to total average loans (annualized) | | Net (recoveries) charge-offs to total average loans (annualized) | — | % | — | % | — | % |
Residential real estate | Residential real estate | — | % | (0.03) | % | (0.01) | % | Residential real estate | — | % | — | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | (66) | | $ | (8) | | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | |
Total average loans | Total average loans | $ | 266,089 | | $ | 243,212 | | $ | 222,766 | | Total average loans | $ | 354,114 | | $ | 304,778 | | $ | 266,089 | |
Construction real estate | Construction real estate | — | % | — | % | — | % | Construction real estate | — | % | — | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | |
Total average loans | Total average loans | $ | 54,370 | | $ | 62,678 | | $ | 60,861 | | Total average loans | $ | 92,065 | | $ | 67,272 | | $ | 54,370 | |
Commercial real estate | Commercial real estate | — | % | — | % | — | % | Commercial real estate | — | % | — | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | |
Total average loans | Total average loans | $ | 356,548 | | $ | 324,101 | | $ | 314,642 | | Total average loans | $ | 384,590 | | $ | 373,657 | | $ | 356,548 | |
Commercial | Commercial | — | % | — | % | — | % | Commercial | — | % | — | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | | Net (recoveries) charge-offs | $ | — | | $ | (1) | | $ | — | |
Total average loans | Total average loans | $ | 46,275 | | $ | 88,626 | | $ | 114,911 | | Total average loans | $ | 40,601 | | $ | 43,710 | | $ | 46,275 | |
Consumer | Consumer | — | % | 0.04 | % | — | % | Consumer | — | % | (0.09) | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | 1 | | $ | — | | Net (recoveries) charge-offs | $ | — | | $ | (2) | | $ | — | |
Total average loans | Total average loans | $ | 2,333 | | $ | 2,608 | | $ | 2,556 | | Total average loans | $ | 2,235 | | $ | 2,262 | | $ | 2,333 | |
Municipal | Municipal | — | % | — | % | — | % | Municipal | — | % | — | % | — | % |
Net (recoveries) charge-offs | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | | Net (recoveries) charge-offs | $ | — | | $ | — | | $ | — | |
Total average loans | Total average loans | $ | 79,459 | | $ | 87,669 | | $ | 96,892 | | Total average loans | $ | 88,920 | | $ | 83,849 | | $ | 79,459 | |
|
There was one residential real estate loan totaling $118$40 thousand in process of foreclosure at March 31, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. The aggregate interest income not recognized on nonaccrual loans approximated $527$98 thousand as of March 31, 20222023 and $504$59 thousand as of December 31, 2021.2022.
The Company had loans rated substandard that were on performing status totaling $756 thousand$1.3 million at March 31, 2022 compared to $769 thousand at2023 and December 31, 2021.2022. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future.
In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain short-term modifications made to loans to borrowers affected by the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified circumstances. As of March 31, 2022, four loans with outstanding loan balances of $545 thousand remained subject to modified terms and carried accrued interest of $10 thousand.
Allowance for LoanCredit Losses on Loans. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, whether due to the effects of the COVID-19 pandemic or otherwise, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ALLACL to absorb such losses. The ALL is maintainedlevel of the ACL on loans at a level believed by management to be appropriate to absorb probableMarch 31, 2023 represents management's estimate of expected credit losses inherent inover the loan portfolio asexpected life of the evaluation date; however, actual loan losses may vary from current estimates.loans at the balance sheet date. The Company's policy and methodologies for establishing the ALL,ACL on loans for the 2022 comparison period presented are described in the Company's 20212022 Annual Report did not change duringand the Summary of Significant Accounting Policies in Note 1 to the unaudited interim financial statements included in this report describes the Company's policy and methodologies related to the adoption of CECL as of January 1, 2023 and for the first three months of 2022.2023. The Company's ALLACL on loans was $6.9 million and $8.3 million at March 31, 20222023 and December 31, 2021.2022, respectively.
Union Bankshares, Inc. Page 3538
Management increased certain economic qualitative factors utilized to estimate the ALL during 2020 at the onset of the COVID-19 pandemic. During 2021, the economic qualitative reserve factor assigned to each loan portfolio in the ALL estimate was decreased due to continued indications of economic improvement. COVID-19 restrictions were lifted in June 2021 and the majority of borrowers that had executed loan modifications due to COVID-19 were no longer subject to modified terms. Based on these continued improving economic trends, the economic qualitative reserve factor assigned to all loan portfolios, except the municipal loan portfolio, was decreased 5 bps during the first quarter of 2022.
Impaired loans, including $2.2 million of TDR loans, were $6.5 million at March 31, 2022, with government guaranties of $420 thousand and a specific reserve amount allocated of $44 thousand. Impaired loans, including $2.2 million of TDR loans, were $6.8 million at December 31, 2021, with government guaranties of $423 thousand and a specific reserve amount allocated of $46 thousand. Based on management's evaluation of the Company's historical loss experience on substandard commercial loans, commercial loan relationships with aggregate balances greater than $500 thousand are evaluated individually for impairment, with a specific reserve allocated when warranted. Commercial loans with balances under this threshold are collectively evaluated for impairment as a homogeneous pool of loans, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. The specific reserve amount allocated to individually identified impaired loans decreased $2 thousand as a result of the March 31, 2022 impairment evaluation.
The following table reflects activity in the ALLACL on loans for the three months ended March 31, 20222023 and 2021:2022:
| | | For the Three Months Ended March 31, | | | For the Three Months Ended March 31, | |
| | 2022 | 2021 | | | 2023 | 2022 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Balance at beginning of period | Balance at beginning of period | $ | 8,336 | | $ | 8,271 | | | Balance at beginning of period | $ | 8,339 | | $ | 8,336 | | |
Impact of adoption of ASU No. 2016-13 | | Impact of adoption of ASU No. 2016-13 | (1,495) | | — | | |
Charge-offs | Charge-offs | (1) | | — | | | Charge-offs | — | | (1) | | |
Recoveries | Recoveries | 1 | | 8 | | | Recoveries | — | | 1 | | |
Net recoveries | — | | 8 | | | |
Provision for loan losses | — | | 150 | | | |
Net recoveries (charge-offs) | | Net recoveries (charge-offs) | — | | — | | |
Credit loss expense | | Credit loss expense | 90 | | — | | |
Balance at end of period | Balance at end of period | $ | 8,336 | | 8,429 | | | Balance at end of period | $ | 6,934 | | $ | 8,336 | | |
The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ALLACL on loans and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:
| | | March 31, 2022 | December 31, 2021 | | | | | | | | | | | | | | |
| | Amount | Percent | Amount | Percent | | March 31, 2023 | December 31, 2022 |
| | (Dollars in thousands) | | Amount | Percent | Amount | Percent |
Residential real estate | Residential real estate | $ | 2,224 | | 34.1 | | $ | 2,068 | | 31.4 | | Residential real estate | (Dollars in thousands) |
Non-revolving residential real estate | | Non-revolving residential real estate | $ | 2,071 | | 35.2 | | $ | 2,294 | | 35.0 | |
Revolving residential real estate | | Revolving residential real estate | 143 | | 1.7 | | 123 | | 1.8 | |
Construction real estate | Construction real estate | 843 | | 8.3 | | 837 | | 8.3 | | Construction real estate | |
Commercial construction real estate | | Commercial construction real estate | 1,713 | | 6.2 | | 611 | | 5.9 | |
Residential construction real estate | | Residential construction real estate | 148 | | 4.8 | | 421 | | 4.2 | |
Commercial real estate | Commercial real estate | 3,997 | | 42.1 | | 4,122 | | 43.8 | | Commercial real estate | |
Non-residential commercial real estate | | Non-residential commercial real estate | 2,186 | | 28.6 | | 2,931 | | 29.5 | |
Multi-family residential real estate | | Multi-family residential real estate | 221 | | 9.7 | | 1,004 | | 9.9 | |
Commercial | Commercial | 289 | | 5.4 | | 275 | | 6.3 | | Commercial | 368 | | 4.3 | | 301 | | 4.3 | |
Consumer | Consumer | 10 | | 0.3 | | 11 | | 0.3 | | Consumer | 5 | | 0.2 | | 10 | | 0.2 | |
Municipal | Municipal | 88 | | 9.8 | | 86 | | 9.9 | | Municipal | 79 | | 9.3 | | 95 | | 9.2 | |
Unallocated | Unallocated | 885 | | — | | 937 | | — | | Unallocated | — | | — | | 549 | | — | |
Total | Total | $ | 8,336 | | 100.0 | | $ | 8,336 | | 100.0 | | Total | $ | 6,934 | | 100.0 | | $ | 8,339 | | 100.0 | |
Notwithstanding the categories shown in the table above or any specific allocation under the Company's ALLACL methodology, all funds in the ALLACL on loans are available to absorb loan losses in the portfolio, regardless of loan category or specific allocation.
Management believes, in its best estimate, that the ALLACL on loans at March 31, 20222023 is appropriate to cover probableexpected credit losses inherent inover the expected life of the Company’s loan portfolio as of such date. However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ALLACL on loans at March 31, 2022.2023. In addition, our banking regulators, as an integral part of their examination process, periodically review our ALL.ACL. Such agencies may require us to recognize adjustments to the ALLACL based on their judgments about information available to them at the time of their examination. A large adjustment to the ALLACL on loans for losses in future periods could require increased provisionscredit loss expense to replenish the ALL,ACL on loans, which could negatively affect earnings.
Union Bankshares, Inc. Page 36
Investment Activities. During the first three months of 2022,2023, investment securities classified as AFS, which are carried at fair value, increased $4.3$25.2 million to $272.2$275.4 million, comprising 22.1%20.2% of total assets, compared to $267.8$250.3 million, or 22.2%18.7% of total assets at December 31, 2021.2022. The Company used excess liquidityincrease is due to increase the investment portfolio during 2021purchases of higher yielding municipal securities of $24.9 million and the first quartera reduction in unrealized losses of 2022 to obtain higher yields than what would have been earned at the Federal Funds rate.$4.4 million, partially offset by returns of principal of $4.1 million.
Net unrealized losses forin the Company’s AFS investment securities portfolio were $22.1$42.9 million as of March 31, 2022,2023, compared to net unrealized losses of $2.0$47.4 million as of December 31, 2021.2022. The Company’s accumulated OCI component of stockholders’ equity at March 31, 20222023 reflected cumulative net unrealized losses on investment securities of $17.4$33.5 million. There were no securities classified as HTM at March 31, 20222023 or December 31, 2021.2022. The rapid increase in interest rates over the 10-year treasury rate in 2022
Union Bankshares, Inc. Page 39
past year has negatively impacted the fair market value of the investment portfolio as this index is typically tied to mortgage-backed securities.portfolio. No declines in value were deemed by management to be OTTimpairment related to credit losses at March 31, 2022.2023. Deterioration in credit quality and/or imbalances in liquidity that may result from changes in financial market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities and may also increase the potential that unrealizedcredit losses willmay be designated as OTTidentified in future periods, resulting in write-downs and charges tocredit loss expense recorded in earnings.
Investment securities AFS with a carrying amount of $551$999 thousand and $589$433 thousand were pledged as collateral for public unit deposits or for other purposes as required or permitted by law at March 31, 20222023 and December 31, 2021,2022, respectively.
Deposits. The following table shows information concerning the Company's average deposits by account type and weighted average nominal rates at which interest was paid on such deposits for the three months ended March 31, 20222023 and 2021:2022:
| | | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 |
| | Average Amount | Percent of Total Deposits | Average Rate | Average Amount | Percent of Total Deposits | Average Rate | | Average Amount | Percent of Total Deposits | Average Rate | Average Amount | Percent of Total Deposits | Average Rate |
| | (Dollars in thousands) | | (Dollars in thousands) |
Nontime deposits: | Nontime deposits: | | Nontime deposits: | |
Noninterest bearing deposits | Noninterest bearing deposits | $ | 281,367 | | 25.3 | | — | | $ | 221,344 | | 22.1 | | — | | Noninterest bearing deposits | $ | 273,971 | | 22.6 | | — | | $ | 281,367 | | 25.3 | | — | |
Interest bearing checking accounts | Interest bearing checking accounts | 279,817 | | 25.2 | | 0.22 | % | 234,339 | | 23.4 | | 0.25 | % | Interest bearing checking accounts | 314,156 | | 25.9 | | 0.65 | % | 279,817 | | 25.2 | | 0.22 | % |
Money market accounts | Money market accounts | 259,670 | | 23.3 | | 0.53 | % | 264,499 | | 26.4 | | 0.80 | % | Money market accounts | 249,195 | | 20.5 | | 1.11 | % | 259,670 | | 23.3 | | 0.53 | % |
Savings accounts | Savings accounts | 185,368 | | 16.7 | | 0.04 | % | 148,770 | | 14.8 | | 0.07 | % | Savings accounts | 179,243 | | 14.8 | | 0.04 | % | 185,368 | | 16.7 | | 0.04 | % |
Total nontime deposits | Total nontime deposits | 1,006,222 | | 90.5 | | 0.20 | % | 868,952 | | 86.7 | | 0.32 | % | Total nontime deposits | 1,016,565 | | 83.8 | | 0.48 | % | 1,006,222 | | 90.5 | | 0.20 | % |
Time deposits: | | |
Less than $100,000 | 49,733 | | 4.4 | | 0.42 | % | 67,423 | | 6.7 | | 0.89 | % | |
$100,000 and over | 56,636 | | 5.1 | | 0.47 | % | 66,193 | | 6.6 | | 1.25 | % | |
| Total time deposits | Total time deposits | 106,369 | | 9.5 | | 0.45 | % | 133,616 | | 13.3 | | 1.06 | % | Total time deposits | 195,772 | | 16.2 | | 2.57 | % | 106,369 | | 9.5 | | 0.45 | % |
Total deposits | Total deposits | $ | 1,112,591 | | 100.0 | | 0.23 | % | $ | 1,002,568 | | 100.0 | | 0.42 | % | Total deposits | $ | 1,212,337 | | 100.0 | | 0.82 | % | $ | 1,112,591 | | 100.0 | | 0.23 | % |
During the first three months of 2022,2023, average total deposits grew $110.0$99.7 million, or 11.0%9.0%, compared to the three months ended March 31, 2021, with growth2022. The average balance of total nontime deposit balances increased $10.3 million between periods primarily due to an increase of $34.3 million in interest bearing checking accounts, partially offset by a combined decrease of $24.0 million in all categories except time deposits and money market accounts.other categories. The increase in average balances for nontime deposits wasinterest bearing checking accounts is primarily attributable to proceeds from PPP loans depositedan increase in municipal deposit accounts. The decreases in the other categories are attributable to both loss of deposit dollars to competing financial institutions and brokerage firms, and customers shifting monies into customer accounts at Union, customer's receipt of government stimulus payments, and the general reductiontime deposits as they continue to seek higher yields. The average balance in spending by customerstotal time deposits increased $89.4 million between periods due to COVID-19. Thean increase of $63.0 million in average balancesbrokered deposits and an increase of $26.4 million in average customer time deposits decreased due todeposit accounts as customers took advantage of higher rate paying time deposit accounts that matured and customers primarily transferred those funds into other deposit accounts.CDs.
The Company participates in CDARS, which permits the Companyit to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARS deposits as of March 31, 20222023 or December 31, 2021.2022. There were $13.6$13.3 million and $12.3 million of time deposits of $250,000 or less on the balance sheet at March 31, 20222023 and December 31, 2021,2022, respectively, which were exchanged with other CDARS participants.
The Company also participates in the ICS program, a service through which it can offer its customers demand or savings products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage of excess balances, thereby helping the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were $134.2$182.2 million and $155.3$209.3 million in exchanged ICS demand and money market
Union Bankshares, Inc. Page 37
deposits on the balance sheet at March 31, 20222023 and December 31, 2021,2022, respectively. There were no purchased ICS deposits at March 31, 20222023 or December 31, 2021.2022.
RetailAt March 31, 2023 there were $108.0 million of retail brokered deposits areat a weighted average rate of 4.64% issued under a master certificate of deposit program with a deposit broker for the purpose of providing a supplemental source of funding and liquidity. There were no$33.0 million of retail brokered deposits at MarchDecember 31, 2022 or at December 31, 2021.
The following table provides a maturity distributionrate of the Company’s time deposits3.45% for a three month term that matured in amounts in excess of the $250 thousand FDIC insurance limit at March 31, 2022 and December 31, 2021:
| | | | | | | | |
| March 31, 2022 | December 31, 2021 |
| (Dollars in thousands) |
Within 3 months | $ | 5,585 | | $ | 4,249 | |
3 to 6 months | 3,347 | | 5,576 | |
6 to 12 months | 4,193 | | 4,536 | |
Over 12 months | 1,832 | | 1,862 | |
| $ | 14,957 | | $ | 16,223 | |
January 2023.A provision of the Dodd-Frank Act permanently raised FDIC deposit insurance coverage to $250 thousand per depositor per insured depository institution for each account ownership category.
Union Bankshares, Inc. Page 40
Uninsured deposits have been estimated to include deposits with balances greater than the FDIC insurance coverage limit of $250 thousand. This estimate is based on the same methodologies and assumptions used for regulatory reporting requirement.requirements. At March 31, 2022,2023, the Company had total estimated uninsured deposit accounts totaling $449.1$350.9 million, or 39.6%28.6% of total deposits. Uninsured deposits include $28.3$26.6 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at March 31, 2022,2023, as described below under Borrowings.
The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of the $250 thousand FDIC insurance limit at March 31, 2023 and December 31, 2022:
| | | | | | | | |
| March 31, 2023 | December 31, 2022 |
| (Dollars in thousands) |
Within 3 months | $ | 3,296 | | $ | 1,011 | |
3 to 6 months | 1,426 | | 4,001 | |
6 to 12 months | 22,681 | | 11,462 | |
Over 12 months | 5,735 | | 9,883 | |
| $ | 33,138 | | $ | 26,357 | |
Borrowings. Advances from the FHLB are another key source of funds to support earning assets. These funds are also used to manage the Bank's interest rate and liquidity risk exposures. The Company had noCompany's borrowed funds at March 31, 2022, and2023 were comprised of borrowings from the FHLB of $45.1 million at a weighted average rate of 5.02%. At December 31, 2021.2022, borrowed funds were comprised of borrowings from the FHLB of $50.0 million at a weighted average rate of 4.41%
The Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the amount of $35.7$38.5 million and $37.5$42.5 million were utilized as collateral for these deposits at March 31, 20222023 and December 31, 2021,2022, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $8$13 thousand and $9$8 thousand for the three months ended March 31, 20222023 and 2021,2022 respectively.
In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented in the consolidated balance sheets net of unamortized issuance costs of $321$287 thousand and $329$295 thousand at March 31, 20222023 and December 31, 2021, respectively, in the consolidated balance sheets.2022, respectively.
Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements. 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, to reduce its own exposure to fluctuations in interest rates and to implement its strategic objectives. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors written on adjustable-rate loans, commitments to participate in or sell loans, commitments to buy or sell securities, certificates of deposit or other investment instruments and risk-sharing commitments or guarantees on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contractual or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instruments.
The Company's maximum 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 or 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 contractual or notional amounts do not represent the Company’s 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.
Union Bankshares, Inc. Page 3841
The following table details the contractual or notional amount of financial instruments that represented credit risk at the balance sheet dates:
| | | March 31, 2022 | December 31, 2021 | | March 31, 2023 | December 31, 2022 |
| | (Dollars in thousands) | | (Dollars in thousands) |
Commitments to originate loans | Commitments to originate loans | $ | 62,248 | | $ | 48,910 | | Commitments to originate loans | $ | 43,874 | | $ | 39,217 | |
Unused lines of credit | Unused lines of credit | 163,083 | | 168,442 | | Unused lines of credit | 172,263 | | 185,539 | |
Standby and commercial letters of credit | Standby and commercial letters of credit | 2,143 | | 2,158 | | Standby and commercial letters of credit | 1,542 | | 1,762 | |
Credit card arrangements | Credit card arrangements | 170 | | 170 | | Credit card arrangements | 146 | | 241 | |
FHLB Mortgage Partnership Finance credit enhancement obligation, net | FHLB Mortgage Partnership Finance credit enhancement obligation, net | 826 | | 818 | | FHLB Mortgage Partnership Finance credit enhancement obligation, net | 461 | | 396 | |
| Commitment to purchase investment in a real estate limited partnership | Commitment to purchase investment in a real estate limited partnership | — | | 4,574 | | Commitment to purchase investment in a real estate limited partnership | 3,000 | | 3,000 | |
| Total | Total | $ | 228,470 | | $ | 225,072 | | Total | $ | 221,286 | | $ | 230,155 | |
Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. Since many of the loan commitments are expected to expire without being drawn upon and not all credit lines will be utilized, the total commitment amounts do not necessarily represent future cash requirements. Lines of credit incur seasonal volume fluctuations due to the nature of some customers' businesses, such as tourism. The increase in commitments to originate loans at March 31, 2022 from December 31, 2021 is primarily the result of a $9.0 million increase in commitments to originate residential construction and commercial construction loans.
The Company did not hold any derivative or hedging instruments at March 31, 20222023 or December 31, 2021.2022.
In addition to commitments arising from the Company’s financial instruments, in the normal course of business the Company enters into contractual commitments from time to time for the purchase or lease of property, including real property for its banking premises.
With the adoption of CECL, effective January 1, 2023, the Company records an ACL on off-balance sheet credit exposures through a charge or credit to Credit loss expense on the consolidated statements of income to account for the change in the ACL on off-balance sheet exposures between reporting periods. The ACL on off-balance sheet credit exposures totaled $1.4 million at March 31, 2023 and was included in Accrued interest and other liabilities on the consolidated balance sheets. There was $16 thousand of credit loss benefit for off-balance sheet credit exposures recorded for the three months ended March 31, 2023. Under previously applicable GAAP, there was no ACL on off-balance sheet credit exposures required at December 31, 2022.
Liquidity. Liquidity is a measurement of the Company’s ability to meet potential cash requirements, including ongoing commitments to fund deposit withdrawals, repay borrowings, fund investment and lending activities, purchase and lease commitments, and for other general business purposes. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner. The Company’s principal sources of funds are deposits; whole-sale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities and loans AFS; earnings; and funds provided from operations. Contractual principal repayments on loans have been a relatively predictable source of funds. Deposit flows and loan and investment prepayments are less predictable and can be significantly influenced by market interest rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.
As of March 31, 2022,2023, Union, as a member of FHLB, had access to unused lines of credit up to $69.1$95.3 million over and above the $36.7$84.7 million in combined outstanding FHLB borrowings and other credit, subject to collateralization and to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available. This line of credit can be used for either short-term or long-term liquidity or other funding needs.
Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at March 31, 2022.2023. There were no borrowings against this line of credit as of such date. Interest on this line is chargeable at a rate determined by the FHLB and payable monthly. Should Union utilize this line of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings.
In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved federal funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, and one-way buy options with CDARS and ICS. In addition to the funding sources available to Union, the Company maintains a $5.0 million revolving line of credit with a correspondent bank. At March 31, 2022,2023, there were no purchased ICS or CDARS deposits, no$108.0 million in retail brokered deposits issued under a master certificate of deposit program with a broker, and no outstanding advances on the Union or Company correspondent lines.
In response to the recent bank failures, the Federal Reserve created a Bank Term Funding Program to provide liquidity to U.S. Depository institutions which allows any federally insured depository institution to pledge as collateral its investment portfolio
Union Bankshares, Inc. Page 42
at par, not at fair market value. The Company continues to evaluate the program and has not yet taken any advances under this facility.
Union's investment and residential loan portfolios also provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. Additional contingent liquidity sources are available with further access to the brokered deposit market. These sources are considered as liquidity alternatives in our contingent liquidity plan. Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. However, any projections of future cash needs and flows are subject to substantial uncertainty, including factors outside the Company's control.
Union Bankshares, Inc. Page 39
Capital Resources. Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value. Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic investments, maintain required regulatory capital levels and provide continued support for deposits. The Company continues to evaluate growth opportunities both through internal growth or potential acquisitions.
In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes are structured to qualify as Tier 2 capital for the Company under regulatory capital guidelines for bank regulatory guidelines. The proceedsholding companies. Proceeds from the sale of the Notes were utilized primarily to provide additional Tier 1 capital to Union to support its growth and for other general corporate purposes.
Stockholders’ equity decreasedincreased from $84.3$55.2 million at December 31, 20212022 to $69.4$60.6 million at March 31, 2022,2023, reflecting an increasea decrease of $15.9$3.9 million in accumulated other comprehensive loss due to a decreaseimprovement in the fair market value of the Company's AFS investment securities, cash dividends declared of $1.6 million and stock repurchases of $75 thousand during the three months ended March 31, 2022. These decreases were partially offset by net income of $2.5$3.0 million for the first three months of 2022,2023, an increase of $103$113 thousand from stock based compensation, a $37 thousand increase from the impact of adoption of ASU No. 2016-13 and a $13$23 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by cash dividends declared of $1.6 million and stock repurchases of $60 thousand during the three months ended March 31, 2023. The components of other comprehensive loss are illustrated in Note 10 of the unaudited consolidated financial statements.
The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of March 31, 2022,2023, the Company had 4,968,6924,982,523 shares issued, of which 4,493,1704,506,950 were outstanding and 475,522475,573 were held in treasury.
In January 2022,2023, the Company's Board reauthorized for 20222023 the limited stock repurchase plan that was initially established in May of 2010. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter in open market purchases or privately negotiated transactions, as management deems advisable and as market conditions may warrant. The repurchase authorization for a calendar quarter (currently 2,500 shares) expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The quarterly repurchase authorization expires on December 31, 2022,2023, unless reauthorized. The Company repurchased 2,500 shares under this program during the first three months of 20222023 at a total cost of $75$59 thousand. The Company also purchased 30 shares outside of the limited stock repurchase program during the first quarter of 2023 at a cost of $1 thousand.
The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and make optional cash contributions to purchase additional shares of the Company's common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of March 31, 2022, 5,8462023, 8,476 shares of stock had been issued from treasury stock under the DRIP.
The Company (on a consolidated basis) and Union 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 Company's and Union's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Union must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Union's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Under the standard regulatory capital guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 directed the federal banking regulators to adopt rules providing for a simplified regulatory capital framework for qualifying community banking organizations. In September 2019, the banking regulators finalized a rule that introduced the community bank leverage ratio ("CBLR") framework as an optional simplified measure of capital adequacy for qualifying institutions. Beginning with the March 31, 2020 regulatory capital calculation, a banking organization with a Tier I leverage ratio greater than 9.0%, less than $10 billion in average consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities may opt into the CBLR framework and will be deemed "well capitalized" and will not be required to report or calculate risk-based capital. A community banking organization that does not meet the requirements for use of the simplified CBLR framework will continue to calculate its regulatory capital ratios under standard guidelines. As of March 31, 2022, the Tier I leverage ratios for the Company and Union were 6.91% and 8.19%, respectively.
Union Bankshares, Inc. Page 4043
As shown in the table below, as of March 31, 2022,2023, both the Company and Union met all capital adequacy requirements to which they are currently subject and Union exceeded the requirements for a "well capitalized" bank under the FDIC's Prompt Corrective Action framework. There were no conditions or events between March 31, 20222023 and the date of this report that management believes have changed either Company’scompany’s regulatory capital category.
| | | Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions | | Actual | For Capital Adequacy Purposes | To Be Well Capitalized Under Prompt Corrective Action Provisions |
As of March 31, 2022 | Amount | Ratio | Amount | Ratio | Amount | Ratio | |
As of March 31, 2023 | | As of March 31, 2023 | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| | (Dollars in thousands) | | (Dollars in thousands) |
Company: | Company: | | Company: | |
Total capital to risk weighted assets | Total capital to risk weighted assets | $ | 109,133 | | 14.84 | % | $ | 58,832 | | 8.00 | % | N/A | Total capital to risk weighted assets | $ | 116,472 | | 13.69 | % | $ | 68,063 | | 8.00 | % | N/A |
Tier I capital to risk weighted assets | Tier I capital to risk weighted assets | 84,618 | | 11.50 | % | 44,149 | | 6.00 | % | N/A | Tier I capital to risk weighted assets | 91,882 | | 10.80 | % | 51,046 | | 6.00 | % | N/A |
Common Equity Tier 1 to risk weighted assets | Common Equity Tier 1 to risk weighted assets | 84,618 | | 11.50 | % | 33,111 | | 4.50 | % | N/A | Common Equity Tier 1 to risk weighted assets | 91,882 | | 10.80 | % | 38,284 | | 4.50 | % | N/A |
Tier I capital to average assets | Tier I capital to average assets | 84,618 | | 6.91 | % | 48,983 | | 4.00 | % | N/A | Tier I capital to average assets | 91,882 | | 6.63 | % | 55,434 | | 4.00 | % | N/A |
| Union: | Union: | | Union: | |
Total capital to risk weighted assets | Total capital to risk weighted assets | $ | 108,642 | | 14.79 | % | $ | 58,765 | | 8.00 | % | $ | 73,456 | | 10.00 | % | Total capital to risk weighted assets | $ | 116,351 | | 13.68 | % | $ | 68,042 | | 8.00 | % | $ | 85,052 | | 10.00 | % |
Tier I capital to risk weighted assets | Tier I capital to risk weighted assets | 100,306 | | 13.65 | % | 44,091 | | 6.00 | % | 58,787 | | 8.00 | % | Tier I capital to risk weighted assets | 107,974 | | 12.70 | % | 51,011 | | 6.00 | % | 68,015 | | 8.00 | % |
Common Equity Tier 1 to risk weighted assets | Common Equity Tier 1 to risk weighted assets | 100,306 | | 13.65 | % | 33,068 | | 4.50 | % | 47,765 | | 6.50 | % | Common Equity Tier 1 to risk weighted assets | 107,974 | | 12.70 | % | 38,259 | | 4.50 | % | 55,262 | | 6.50 | % |
Tier I capital to average assets | Tier I capital to average assets | 100,306 | | 8.19 | % | 48,989 | | 4.00 | % | 61,237 | | 5.00 | % | Tier I capital to average assets | 107,974 | | 7.79 | % | 55,442 | | 4.00 | % | 69,303 | | 5.00 | % |
Dividends paid by Union are the primary source of funds available to the Company for payment of dividends to its stockholders. Union is subject to certain requirements imposed by federal banking laws and regulations, which among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by Union to the Company.
CashQuarterly cash dividends of $0.35$0.36 per share were paid during the first quarter of 20222023 and were declared for the second quarter, payable on May 5, 20224, 2023 to stockholders of record on April 30, 2022.29, 2023.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 (effective September 10, 2018).
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, with the assistance of the Disclosure Control Committee, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of March 31, 2022.2023. Based on this evaluation they concluded that those disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files with the Commission is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required information.
Changes in Internal Controls over Financial Reporting. There was no change in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.
Union Bankshares, Inc. Page 4144
Item 1A. Risk Factors
There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in the Company’s 20212022 Annual Report since the date of the filing of that report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The Company did not issue any unregistered shares during the quarter ended March 31, 2022.2023.
The following table summarizes repurchases of the Company's equity securities during the quarter ended March 31, 2022.2023:
| | | | | | | | | | | | | | |
| | | | |
Issuer Purchases of Equity Securities |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | Maximum Number of Shares that May Yet be Purchased Under the Plans or Program (1) |
January 2022 | — | | — | | — | | 2,500 | |
February 2022 | — | | — | | — | | 2,500 | |
March 2022 | 2,500 | | $30.03 | 2,500 | | — | |
| | | | | | | | | | | | | | |
| | | | |
Issuer Purchases of Equity Securities |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2) |
January 2023 (1) | 30 | | $24.00 | | 2,500 | |
February 2023 | — | | — | | — | | 2,500 | |
March 2023 | 2,500 | | $23.89 | 2,500 | | — | |
__________________
(1)All repurchases shownRepurchase was made in a privately negotiated transaction outside the tablequarterly repurchase program.
(2)Repurchases were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 2,500 shares of its common stock each calendar quarter, in open market or privately negotiated transactions.transactions, in management's discretion. The repurchase authorization for a calendar quarter expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The program was initially authorized in 2010 and was reauthorized most recently in January 2022.2023. The program will expire on December 31, 2022,2023, unless reauthorized.reauthorized by the Board of Directors.
Item 6. Exhibits.
| | | | | |
31.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
101 | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 20222023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three months ended March 31, 20222023 and 2021,2022, (iii) the unaudited consolidated statements of comprehensive income for the three months ended March 31, 20222023 and 2021,2022, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes. |
104 | Cover page interactive data file (embedded within exhibit 101). |
____________________
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Union Bankshares, Inc. Page 4245
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | Union Bankshares, Inc. |
| | |
May 13, 202215, 2023 | | /s/ David S. Silverman |
| | David S. Silverman |
| | Director, President and Chief Executive Officer |
| | |
| | |
May 13, 202215, 2023 | | /s/ Karyn J. Hale |
| | Karyn J. Hale |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
EXHIBIT INDEX
| | | | | |
| Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
| Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
| Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| |
101 | The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 20222023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three months ended March 31, 20222023 and 2021,2022, (iii) the unaudited consolidated statements of comprehensive income for the three months ended March 31, 20222023 and 2021,2022, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes. |
| |
104 | Cover page interactive data file (embedded within exhibit 101). |
____________________
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Union Bankshares, Inc. Page 4346