Union Bankshares(UNB) - 2020 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements Unaudited interim consolidated financial statements for Union Bankshares, Inc. as of March 31, 2020, detailing financial position and performance Consolidated Balance Sheets Total assets increased to $883.1 million by March 31, 2020, driven by loans, with equity rising to $73.8 million Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Assets | $883,087 | $872,912 | | Cash and cash equivalents | $41,712 | $51,134 | | Net loans | $671,196 | $665,165 | | Total Liabilities | $809,299 | $801,069 | | Total deposits | $736,060 | $744,027 | | Borrowed funds | $62,164 | $47,164 | | Total Stockholders' Equity | $73,788 | $71,843 | Consolidated Statements of Income Q1 2020 net income decreased to $2.2 million, impacted by higher loan loss provisions and noninterest expenses Q1 Income Statement Summary (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Interest Income | $7,506 | $7,365 | | Provision for loan losses | $300 | $50 | | Noninterest Income | $2,518 | $2,232 | | Noninterest Expenses | $7,172 | $6,527 | | Net Income | $2,196 | $2,621 | | Earnings per common share | $0.49 | $0.59 | | Dividends per common share | $0.32 | $0.31 | Consolidated Statements of Comprehensive Income Total comprehensive income for Q1 2020 was $3.3 million, including net income and unrealized gains on investments Comprehensive Income Summary (in thousands) | Component | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Income | $2,196 | $2,621 | | Other Comprehensive Income | $1,075 | $940 | | Total Comprehensive Income | $3,271 | $3,561 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $73.8 million by March 31, 2020, driven by net income and comprehensive income - Key drivers for the change in stockholders' equity in Q1 2020 included net income of $2.2 million, other comprehensive income of $1.1 million, and cash dividends declared of $1.4 million[14] Consolidated Statements of Cash Flows Q1 2020 saw a net decrease of $9.4 million in cash, with $6.9 million used in operations Cash Flow Summary (in thousands) | Cash Flow Category | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(6,932) | $1,046 | | Net cash used in investing activities | $(8,121) | $(13,945) | | Net cash provided by financing activities | $5,631 | $2,202 | | Net decrease in cash and cash equivalents | $(9,422) | $(10,697) | Notes to Unaudited Interim Consolidated Financial Statements Detailed explanations of accounting policies and financial data, including COVID-19 impacts, CECL delay, and PPP participation - The company has delayed the adoption of the new credit loss standard, CECL (ASU 2016-13), to fiscal years beginning after December 31, 2022, as permitted for smaller reporting companies[47] - Due to the COVID-19 pandemic, the company is offering short-term loan modifications (e.g., payment deferrals for up to 180 days) to affected borrowers. Per interagency guidance, these modifications are not considered Troubled Debt Restructurings (TDRs). As of April 30, 2020, 335 such deferrals were executed on loan balances of $160.5 million[42][51][90] - Subsequent to the quarter end, the company began participating in the SBA's Paycheck Protection Program (PPP). As of April 30, 2020, it had received approval for 626 applications totaling over $66.7 million in PPP loans, expecting to collect approximately $2.4 million in origination fees[113] - The company is also utilizing the Federal Reserve's PPP Liquidity Facility (PPPLF) for funding, with an outstanding advance of $2.3 million as of April 30, 2020[114] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2020 financial results, highlighting decreased net income due to higher loan loss provisions and operating expenses Overview Q1 2020 net income was $2.2 million ($0.49/share), down from $2.6 million, impacted by higher loan loss provisions Key Financial Metrics | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Return on average assets | 1.03% | 1.32% | | Return on average equity | 12.09% | 16.09% | | Net interest margin | 3.88% | 4.07% | | Efficiency ratio | 70.75% | 67.14% | | Earnings per share | $0.49 | $0.59 | - The reduction in earnings was attributed to a combination of a flat interest rate environment, planned technology spending, strategic hiring, and the initial impacts of the COVID-19 public health emergency[133] Results of Operations Q1 2020 operating results showed mixed performance with increased net interest income but compressed margin and higher expenses - Tax-equivalent net interest income increased by $141 thousand to $7.5 million, but the net interest margin decreased by 19 bps to 3.88% compared to Q1 2019[146] - The provision for loan losses was increased to $300 thousand from $50 thousand in the prior year, reflecting management's adjustment to economic factors due to the COVID-19 pandemic[151] - Noninterest income increased by $286 thousand (12.8%), primarily due to a $438 thousand (117.1%) increase in net gains on sales of loans held for sale[152][153] - Noninterest expense rose by $645 thousand (9.9%), driven by increases in salaries and wages ($323 thousand) and equipment expense ($175 thousand) related to branch expansion and technology upgrades[154][157] Financial Condition Total assets reached $883.1 million, with increased loans, higher loan loss allowance, and strong capital levels - Total loans, including loans held for sale, increased by $15.3 million (2.3%) to $693.0 million at March 31, 2020, from year-end 2019. Real estate secured loans represented 81.6% of the total loan portfolio[160][161] Asset Quality Trends | Metric | March 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.45% | 0.40% | | ALL to loans not held for sale | 0.94% | 0.91% | | Net charge-offs (annualized) | 0.02% | 0.06% | - The allowance for loan losses (ALL) was increased during the quarter, with the economic qualitative reserve factor for each loan portfolio raised by 5 bps to incorporate the economic implications of the COVID-19 pandemic[176] - Borrowed funds from the FHLB increased by $15.0 million (31.8%) to $62.2 million to fund loan demand and prepare for potential cash flow needs resulting from COVID-19 disruptions[190] - Both the Company and its subsidiary bank, Union, met all capital adequacy requirements and were considered 'well capitalized' under regulatory frameworks as of March 31, 2020[212][214] Quantitative and Qualitative Disclosures About Market Risk This section is omitted as permitted for smaller reporting companies under SEC regulations - The company, as a smaller reporting company, has elected to omit the Quantitative and Qualitative Disclosures About Market Risk section in accordance with available regulatory relief[216] Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[217] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[218] PART II OTHER INFORMATION Legal Proceedings No pending legal proceedings are expected to have a material adverse effect on the company's financials - There are no known pending legal proceedings, outside of ordinary business litigation, expected to have a material adverse effect on the company[220] Risk Factors No material changes to risk factors except for a new one concerning the COVID-19 pandemic's potential adverse effects - A new material risk factor has been added regarding the COVID-19 pandemic and its potential adverse effects on the business, results of operations, and financial condition[221] - Specific pandemic-related risks include increased credit losses from borrower financial stress, declines in collateral values, pressure on net interest income, and increased cyber fraud risk[226] - The ultimate impact of the outbreak is highly uncertain and could heighten many of the known risks previously disclosed in the 2019 Annual Report on Form 10-K[227] Unregistered Sales of Equity Securities and Use of Proceeds The company issued 1,000 shares of common stock via incentive stock options; no equity repurchases occurred - 1,000 shares of common stock were issued via the exercise of incentive stock options in an unregistered transaction[228] - There were no repurchases of the Company's equity securities during the quarter ended March 31, 2020[229] Exhibits This section lists filed exhibits, including CEO/CFO certifications and financial statements in XBRL format - The report includes required CEO and CFO certifications under the Sarbanes-Oxley Act[231] - Financial data is also provided in eXtensible Business Reporting Language (XBRL) format as an exhibit[231]