Union Bankshares(UNB) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents the Company's unaudited interim consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with detailed notes providing context and disclosures on various financial components and accounting policies Item 1. Financial Statements This section presents the Company's unaudited interim consolidated financial statements, including balance sheets, income statements, comprehensive income statements, statements of changes in stockholders' equity, and cash flow statements, along with detailed notes providing context and disclosures on various financial components and accounting policies Consolidated Balance Sheets Presents the Company's financial position at specific dates, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (Dollars in thousands) | Total Stockholders' Equity | $71,258 | $66,480 | $4,778 | Consolidated Statements of Income Details the Company's revenues, expenses, and net income over specific periods, reflecting operational profitability Consolidated Statements of Income Highlights (Dollars in thousands, except per share data) | Dividends per common share | $0.36 | $0.36 | $0.72 | $0.72 | Consolidated Statements of Comprehensive Income Reports changes in equity during a period from non-owner sources, including net income and other comprehensive income items Consolidated Statements of Comprehensive Income Highlights (Dollars in thousands) | Total comprehensive income | $2,598 | $1,690 | $7,662 | $1,168 | Consolidated Statements of Changes in Stockholders' Equity Outlines the movements in each component of stockholders' equity over a period, such as net income, dividends, and stock issuances Changes in Stockholders' Equity (Six Months Ended June 30, 2025, Dollars in thousands) | Balances, June 30, 2025 | $71,258 | Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities over a period Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, Dollars in thousands) | Cash and cash equivalents, End of period | $29,267 | $30,507 | Notes to Unaudited Interim Consolidated Financial Statements Provides detailed explanations and additional information supporting the interim consolidated financial statements Note 1. Basis of Presentation Explains the accounting principles and conventions used in preparing the interim financial statements - The unaudited interim consolidated financial statements are prepared in conformity with GAAP for interim financial information and general banking industry practices, consistent with the Company's 2024 Annual Report[20] - The Company is a 'smaller reporting company' and has elected to provide scaled disclosures, including a two-year period for consolidated statements of income, comprehensive income, cash flows, and changes in stockholders' equity[21] Note 2. Legal Contingencies Discloses potential liabilities arising from legal actions and other proceedings - Management believes any liability from ongoing legal and other proceedings is not expected to have a material adverse effect on the Company's consolidated financial condition or results of operations[24] Note 3. Per Share Information Presents earnings and dividends per common share, reflecting profitability on a per-share basis Per Share Information (Three Months Ended June 30, Dollars in thousands, except per share data) | Diluted EPS | $0.52 | $0.45 | Note 4. Recent Accounting Pronouncements Outlines the impact of newly issued accounting standards on the Company's financial reporting - FASB ASU No. 2023-09 (Income Taxes) is effective for the Company in 2025 and is not expected to have a material impact on consolidated financial statements[26] - FASB ASU No. 2024-03 (Income Statement Expenses) is effective for annual reporting periods beginning after December 15, 2026, and is not expected to have a material impact on consolidated financial statements[27] Note 5. Investment Securities Details the composition, fair value, and credit quality of the Company's investment securities portfolio Debt Securities Available-for-Sale (AFS) (Dollars in thousands) | Fair Value | $240,537 | $250,504 | - No Allowance for Credit Losses (ACL) for AFS debt securities was recorded at June 30, 2025, or December 31, 2024[35] - No sales of investment securities AFS occurred for the three and six months ended June 30, 2025, and 2024[36] Note 6. Loans Provides a breakdown of the loan portfolio by type and collateral, along with related pledges Composition of Net Loans (Dollars in thousands) | Net loans | $1,096,615 | $1,150,218 | - Qualifying residential first mortgage loans and certain commercial real estate loans with an aggregate carrying value of $488.3 million were pledged as collateral for FHLB borrowings at June 30, 2025[40] Note 7. Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures Details the methodology and changes in the allowance for credit losses for both loans and off-balance sheet exposures Changes in ACL on Loans (Six Months Ended June 30, Dollars in thousands) | Balance, end of period | $8,307 | $6,893 | ACL on Off-Balance Sheet Credit Exposures (Dollars in thousands) | Balance at end of period | $906 | $1,075 | - Collateral dependent loans to borrowers experiencing financial difficulty totaled $17.1 million at June 30, 2025, a significant increase from $4.7 million at December 31, 2024[63] Note 8. Stock Based Compensation Describes the Company's equity compensation plans and the related accounting for stock-based awards - The Union Bankshares, Inc. 2024 Equity Plan reserves 250,000 shares for equity awards, replacing the 2014 Equity Plan[68] RSUs Awarded and Unvested (June 30, 2025) | 2023 | 19,282 | 2,508 | - Unrecognized compensation expense related to unvested RSUs was $493 thousand at June 30, 2025, compared to $393 thousand at December 31, 2024[72] Note 9. Subordinated Notes Details the terms and conditions of the Company's subordinated debt, including interest rates and maturity - The Company has $16.5 million in fixed-to-floating rate subordinated notes due 2031, bearing interest at 3.25% until September 1, 2026, then resetting quarterly to SOFR plus 263 basis points[74] - These Notes qualify as Tier 2 capital instruments for the Company under bank holding company regulatory capital guidelines[74] - Unamortized issuance costs for the Notes were $210 thousand at June 30, 2025, down from $227 thousand at December 31, 2024[76] Note 10. Other Comprehensive Income (Loss) Reports items of comprehensive income not included in net income, such as unrealized gains or losses on available-for-sale securities Accumulated Other Comprehensive Income (Loss) (Dollars in thousands) | Net unrealized losses on investment securities AFS | $(31,231) | $(33,997) | - Net unrealized holding gains (losses) arising during the period on AFS investment securities were $2.766 million for the six months ended June 30, 2025, compared to $(3.268) million for the same period in 2024[78] Note 11. Fair Value Measurement Explains the valuation techniques and inputs used to measure the fair value of financial instruments - The majority of the Company's AFS securities are valued using Level 2 inputs, while mutual funds are valued using Level 1 inputs[80][82] - There were no Level 3 assets at June 30, 2025, or December 31, 2024, and no transfers between Levels 1 and 2 during the periods[82] Fair Value of Financial Assets (June 30, 2025, Dollars in thousands) | Loans, net (total) | $1,096,615 | $1,013,465 | — | — | $1,013,465 | Note 12. Subsequent Events Discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On July 16, 2025, the Company declared a regular quarterly cash dividend of $0.36 per share, payable August 7, 2025[88] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, highlighting positive trends in net interest income and profitability, alongside detailed discussions of assets, liabilities, capital, and risk management strategies GENERAL Provides an overview of the scope and focus of the management's discussion and analysis - The discussion focuses on material factors affecting the Company's financial position as of June 30, 2025, and December 31, 2024, and its results of operations for the three and six months ended June 30, 2025, and 2024[91] CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS Warns readers about the inherent uncertainties and risks associated with forward-looking statements - Forward-looking statements are subject to various risks, including changes in interest rates, competitive pressures, general economic conditions, and regulatory changes, which could cause actual results to differ materially[95] - The banking industry continues to face an inverted yield curve, unrealized securities losses, and higher funding costs[96] Non-GAAP Financial Measures Explains the use and reconciliation of financial measures not prepared in accordance with Generally Accepted Accounting Principles (GAAP) - The Company uses non-GAAP financial measures, such as tax-equivalent net interest income and net interest margin, to evaluate financial performance and facilitate comparisons with other financial institutions[100] - These non-GAAP measures are considered supplemental and not a substitute for related financial information prepared in accordance with GAAP[100] CRITICAL ACCOUNTING POLICIES Identifies and discusses accounting policies that require significant management judgment and estimates - Critical accounting policies include establishing the Allowance for Credit Losses (ACL) and valuing intangible assets, which involve significant management judgments and assumptions[102] - No changes to the Company's critical accounting policies have occurred since the filing of its 2024 Annual Report on Form 10-K[103] OVERVIEW Provides a high-level summary of the Company's financial performance and condition for the reporting period - Consolidated net income increased by $376 thousand (18.6%) to $2.4 million for Q2 2025 year-over-year, and by $460 thousand (10.4%) to $4.9 million for H1 2025 year-over-year[106][107] - Total consolidated assets were $1.48 billion at June 30, 2025, a 3.1% decrease from December 31, 2024, but a 5.9% increase compared to June 30, 2024[108][142] Key Performance Ratios | Dividends paid per share | $0.36 | $0.36 | $0.72 | $0.72 | RESULTS OF OPERATIONS Analyzes the Company's revenues, expenses, and profitability trends over the reporting period Net Interest Income Examines the primary source of revenue for financial institutions, derived from interest-earning assets and interest-bearing liabilities - Net interest income increased by $962 thousand (Q2 year-over-year) and $2.2 million (H1 year-over-year), driven by higher interest earned on average earning assets and increased loan volume[106][107][134] - The net interest spread increased by 8 basis points to 2.43% (Q2 year-over-year) and 13 basis points to 2.42% (H1 year-over-year), while net interest margin increased by 8 basis points to 2.89% (Q2 year-over-year) and 14 basis points to 2.88% (H1 year-over-year)[122][126] - Interest income on loans increased by $2.0 million (Q2 year-over-year) and $4.7 million (H1 year-over-year) due to increases in average loan volume and average loan yield[120][123] Credit Loss Expense Reports the expense recognized for expected credit losses on loans and other financial assets Credit Loss Expense (Dollars in thousands) | Credit loss expense, net | $221 | $388 | $456 | $158 | Noninterest Income Details income generated from sources other than interest, such as service charges, fees, and gains on asset sales Noninterest Income (Dollars in thousands) | Total noninterest income | $2,759 | $2,765 | $5,199 | $5,332 | - Net gains on sales of loans held for sale increased by 40.8% (Q2 year-over-year) and 38.4% (H1 year-over-year) due to higher sales volume and premiums[137] - Income from Company-owned life insurance decreased significantly due to a $235 thousand death benefit received in Q2 2024 that did not recur in 2025[137] Noninterest Expenses Outlines operating expenses not directly related to interest-earning activities, such as salaries, benefits, and occupancy costs Noninterest Expenses (Dollars in thousands) | Total noninterest expenses | $10,487 | $9,781 | $20,311 | $19,004 | - Salaries and wages increased by 8.2% (Q2 year-over-year) and 9.1% (H1 year-over-year) due to annual salary adjustments, increased incentive plan payments, and lower deferred loan origination costs[138] - Employee benefits increased by 20.8% (Q2 year-over-over) and 13.8% (H1 year-over-year), primarily due to higher medical and dental plan premiums and payroll taxes[138] - FDIC insurance assessment increased by 39.8% (Q2 year-over-year) and 39.7% (H1 year-over-year) due to an increased assessment rate and overall growth in net average assets[138] Provision for Income Taxes Reports the expense recognized for federal, state, and local income taxes based on the Company's taxable income Provision for Income Taxes (Dollars in thousands) | Effective federal corporate income tax rate | 4.4 % | 2.9 % | 4.6 % | 6.2 % | - Amortization expense related to limited partnership investments was $457 thousand (Q2 2025) and $909 thousand (H1 2025), providing tax benefits including tax credits[140] FINANCIAL CONDITION Assesses the Company's financial position, including assets, liabilities, and equity, at the end of the reporting period Loans Held for Sale and Loan Portfolio Details the composition and trends of the Company's loan portfolio, including loans held for sale - Total loans (including loans held for sale) decreased by $49.2 million (4.2%) to $1.11 billion at June 30, 2025, primarily due to a seasonal decrease in the municipal portfolio[146] Loan Portfolio Composition (Dollars in thousands) | Total loans | $1,111,758 | 100.0 % | $1,160,940 | 100.0 % | - The Company serviced a $1.18 billion residential real estate mortgage portfolio at June 30, 2025, with $705.0 million serviced for unaffiliated third parties[147] Asset Quality Evaluates the credit risk within the Company's asset portfolio, including nonperforming assets and related ratios Nonperforming Assets (Dollars in thousands) | Total nonperforming assets | $15,261 | $1,893 | $1,928 | - The increase in nonaccrual loans at June 30, 2025, primarily relates to a commercial construction loan placed in nonaccrual status during Q1 2025[154] Asset Quality Ratios | Nonperforming assets to total assets | 1.03 % | 0.12 % | 0.14 % | Allowance for Credit Losses on Loans Discusses the adequacy and changes in the allowance for credit losses, reflecting expected future loan defaults - The ACL on loans increased to $8.3 million at June 30, 2025, from $7.7 million at December 31, 2024, reflecting management's estimate of expected credit losses[159][160] - Management believes the ACL is appropriate to cover expected credit losses, but acknowledges that banking regulators may require adjustments[163] ACL on Loans by Risk Component (Dollars in thousands) | Total | $8,307 | 100.0 % | $7,680 | 100.0 % | Investment Activities Reviews the Company's investment portfolio, including changes in fair value and unrealized gains or losses - Investment securities AFS decreased by $10.0 million to $240.5 million at June 30, 2025, primarily due to principal returns and a decrease in unrealized losses[164] - Net unrealized losses in the AFS portfolio improved to $40.0 million at June 30, 2025, from $43.6 million at December 31, 2024[165] - No declines in value were deemed impairment related to credit losses at June 30, 2025[165] Deposits Analyzes the composition and trends of the Company's deposit base, including insured and uninsured balances Average Deposits by Account Type (Six Months Ended June 30, Dollars in thousands) | Total deposits | $1,189,529 | 100.0 % | 1.87 % | $1,180,783 | 100.0 % | 1.72 % | - Total deposits decreased by $65.5 million (5.6%) to $1.10 billion at June 30, 2025, from December 31, 2024, primarily due to seasonal municipal customer activity[144] - Uninsured deposits were estimated at $451.4 million, or 40.9% of total deposits, at June 30, 2025[171] Borrowings Details the Company's borrowed funds, including FHLB advances and subordinated notes, and their associated costs - Borrowed funds, primarily FHLB advances, increased to $270.7 million at June 30, 2025, from $259.7 million at December 31, 2024, with a weighted average rate of 4.07%[173] - The Company has $16.5 million in fixed-to-floating rate subordinated notes due 2031, which qualify as Tier 2 capital[175] - FHLB letters of credit totaling $42.7 million were utilized as collateral for public unit deposits at June 30, 2025[174] Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements Outlines the Company's contractual obligations and potential liabilities not recognized on the balance sheet Contractual or Notional Amount of Financial Instruments Representing Credit Risk (Dollars in thousands) | Total | $292,723 | $243,747 | - Commitments to originate loans significantly increased due to the fiscal cycle of local municipalities and school districts[179] - The ACL on off-balance sheet credit exposures totaled $906 thousand at June 30, 2025, compared to $1.1 million at December 31, 2024[181] Liquidity Assesses the Company's ability to meet its short-term financial obligations and funding needs - Union had access to unused FHLB lines of credit totaling $59.5 million at June 30, 2025, in addition to $315.9 million in outstanding FHLB borrowings[183] - The Company maintains a pre-approved federal funds line of credit of $15.0 million with a correspondent bank and utilizes brokered deposit agreements and one-way buy options with CDARS and ICS[185] - Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs[187] Capital Resources Evaluates the Company's capital adequacy, including stockholders' equity and regulatory capital ratios - Stockholders' equity increased to $71.3 million at June 30, 2025, from $66.5 million at December 31, 2024, driven by net income, reduced accumulated other comprehensive loss, and proceeds from common stock issuance[191] - The Company and Union met all regulatory capital adequacy requirements as of June 30, 2025, with Union exceeding the requirements for a 'well capitalized' bank[198] Company Capital Ratios (As of June 30, 2025, Dollars in thousands) | Tier I capital to average assets | $100,266 | 6.34 % | $63,259 | 4.00 % | Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is omitted from the report in accordance with regulatory relief available to smaller reporting companies - This item is omitted in accordance with regulatory relief available to smaller reporting companies[201] Item 4. Controls and Procedures The Company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of June 30, 2025[202] - There was no material change in the Company's internal control over financial reporting during the most recent fiscal quarter[203] PART II OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings The Company is involved in various legal and other proceedings, but management does not anticipate any material adverse effect on its financial condition or results of operations - Management does not expect any liability from legal proceedings to have a material adverse effect on the Company's financial condition or results of operations[204] Item 1A. Risk Factors There have been no material changes in the risk factors previously discussed in the Company's 2024 Annual Report on Form 10-K - No material changes in the risk factors discussed in the Company's 2024 Annual Report since its filing date[205] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no repurchases of the Company's equity securities or sales of unregistered securities during the quarter ended June 30, 2025 - No repurchases of the Company's equity securities or sales of unregistered securities occurred during the quarter ended June 30, 2025[206] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial statements formatted in iXBRL - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[210][212] - The unaudited consolidated financial statements are formatted in Inline eXtensible Business Reporting Language (iXBRL)[210][212] Signatures The report is duly signed on behalf of Union Bankshares, Inc. by its Director, President and Chief Executive Officer, and Chief Financial Officer on August 13, 2025 - The report was signed by David S. Silverman, Director, President and Chief Executive Officer, and Karyn J. Hale, Chief Financial Officer, on August 13, 2025[209]