Union Bankshares(UNB) - 2020 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Financial Statements Union Bankshares, Inc.'s unaudited interim consolidated financial statements detail financial position, performance, and cash flows Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $1,009,135 | $872,912 | | Net Loans | $757,823 | $665,165 | | Total Deposits | $910,079 | $744,027 | | Borrowed Funds | $9,497 | $47,164 | | Total Stockholders' Equity | $78,424 | $71,843 | - Total assets grew by 15.6% to over $1 billion as of September 30, 2020, from December 31, 2019, primarily driven by a significant 22.3% increase in total deposits and a 13.9% increase in net loans[8] Consolidated Statements of Income Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $8,185 | $7,647 | $23,469 | $22,519 | | Provision for Loan Losses | $800 | $150 | $1,600 | $350 | | Noninterest Income | $5,508 | $2,723 | $11,014 | $7,426 | | Net Income | $4,147 | $2,738 | $9,011 | $7,889 | | Earnings Per Share | $0.92 | $0.62 | $2.01 | $1.77 | - Net income for Q3 2020 increased by 51.5% year-over-year, driven by higher net interest income and a more than doubling of noninterest income, largely from gains on sales of loans, with the provision for loan losses also increasing significantly[10] Consolidated Statements of Comprehensive Income Comprehensive Income (in thousands) | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $4,147 | $2,738 | $9,011 | $7,889 | | Other Comprehensive (Loss) Income | ($124) | $441 | $1,607 | $2,186 | | Total Comprehensive Income | $4,023 | $3,179 | $10,618 | $10,075 | Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $71.8 million at the end of 2019 to $78.4 million as of September 30, 2020, primarily due to $9.0 million in net income and a $1.6 million increase in other comprehensive income, partially offset by $4.3 million in cash dividends declared[17] Consolidated Statements of Cash Flows Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | ($11,682) | $1,392 | | Net Cash Used in Investing Activities | ($99,114) | ($33,986) | | Net Cash Provided by Financing Activities | $124,139 | $25,205 | - For the first nine months of 2020, a significant increase in deposits led to strong cash inflows from financing activities ($124.1 million), which funded a net increase in loans (reflected in investing activities) and a net decrease in short-term borrowings[19][20] Notes to Unaudited Interim Consolidated Financial Statements - The company is actively managing risks associated with the COVID-19 pandemic, including offering loan payment deferrals to affected borrowers, with $39.1 million in loans remaining under deferral as of September 30, 2020, a significant decrease from $173.3 million at June 30, 2020[28][41] - The company participated in the Paycheck Protection Program (PPP), originating 718 loans totaling $69.8 million, which are classified as commercial loans and fully guaranteed by the U.S. Government[42][63] - The Allowance for Loan Losses (ALL) increased to $7.7 million at September 30, 2020, from $6.1 million at year-end 2019, with the provision for loan losses for the first nine months of 2020 at $1.6 million, a substantial increase from $350 thousand in the prior year, reflecting adjustments for economic disruption from COVID-19[75][131] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance and condition, highlighting Q3 2020 net income growth and COVID-19 impact Overview - Consolidated net income for Q3 2020 increased 51.5% to $4.1 million compared to Q3 2019, driven by a $538 thousand increase in net interest income and a $2.8 million increase in noninterest income[126] - The company originated $69.8 million in PPP loans, which contributed $486 thousand in interest and fee income for Q3 2020[127] - Sales of residential loans to the secondary market surged to $89.8 million in Q3 2020, generating gains of $3.3 million, compared to sales of $44.7 million and gains of $824 thousand in Q3 2019[128] Results of Operations Net Interest Margin and Spread | Metric | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Margin | 3.57% | 4.06% | 3.66% | 4.06% | | Net Interest Spread | 3.42% | 3.87% | 3.49% | 3.88% | - The provision for loan losses increased to $1.6 million for the first nine months of 2020, compared to $350 thousand for the same period in 2019, due to management's adjustment of economic factors related to the COVID-19 pandemic[153] - Noninterest income for the first nine months of 2020 grew 48.3% to $11.0 million, primarily due to a $3.5 million increase in net gains on sales of residential loans[154] - Noninterest expense for the first nine months of 2020 increased 9.6% to $22.3 million, driven by higher salaries and wages (including commissions for mortgage originators), employee benefits, and equipment expenses[156] Financial Condition - Total assets grew 15.6% to $1.009 billion at September 30, 2020, from $872.9 million at year-end 2019[162] - Total deposits increased by $166.1 million (22.3%) since year-end 2019, driven by increases in both noninterest and interest-bearing accounts, reflecting customer deposits of PPP loan proceeds and government stimulus payments[164][185] Asset Quality Ratios | Ratio | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Nonperforming assets to total assets | 0.34% | 0.40% | | Allowance for loan losses to loans not held for sale | 1.00% | 0.91% | - The company and its subsidiary bank met all capital adequacy requirements and were considered "well capitalized" under regulatory frameworks, with a consolidated total capital to risk-weighted assets ratio of 13.65% as of September 30, 2020[215][217] 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 omitted this disclosure in accordance with SEC regulatory relief[219] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2020, and concluded they were effective, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2020[220] - There were no material changes in the company's internal control over financial reporting during the most recent fiscal quarter[221] PART II OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings in the normal course of business, but management does not expect any resulting liability to have a material adverse effect on its financial condition or results of operations - In the opinion of management, any liability resulting from ongoing legal proceedings is not expected to have a material adverse effect on the Company's consolidated financial condition or results of operations[222] Risk Factors This section updates the risk factors from the 2019 Annual Report, adding a specific and material risk related to the ongoing COVID-19 pandemic, highlighting significant uncertainty and potential for material adverse effects on the business - A new risk factor has been added to address the potential material adverse effects of the ongoing COVID-19 pandemic, which is highly uncertain and difficult to predict[223] - Key risks from the pandemic include potential credit losses from borrower financial stress (particularly in hospitality and retail), declines in collateral values, negative pressure on net interest income, and increased cyber fraud risk[224][227] Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered equity securities or repurchase any of its equity securities during the quarter ended September 30, 2020 - During the quarter ended September 30, 2020, the Company did not issue any unregistered equity securities and did not repurchase any of its equity securities[228] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications under the Sarbanes-Oxley Act and the financial statements formatted in iXBRL - The report includes certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[232] - Financial statements and related notes are provided in Inline eXtensible Business Reporting Language (iXBRL) format[232]