Union Bankshares Inc. 10-Q Summary: Q3 2024
Business Context and Reporting Period
Union Bankshares, Inc. (UNB) is a smaller reporting company and non-accelerated filer headquartered in Morrisville, Vermont. The filing covers the quarterly period ended September 30, 2024. The Company operates primarily through its sole subsidiary, Union Bank, providing commercial and consumer banking services. As of the reporting date, the Company had 4,524,553 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Net Income | $1.32 million | $2.53 million | $5.76 million | $8.21 million |
| Diluted EPS | $0.29 | $0.55 | $1.27 | $1.81 |
| Net Interest Income | $9.43 million | $9.15 million | $27.92 million | $28.74 million |
| Net Interest Margin | 2.71% | 2.76% | 2.73% | 2.95% |
| Total Assets | $1.52 billion | $1.47 billion (Dec 2023) | N/A | |
| Total Loans (Gross) | $1.12 billion | $1.03 billion (Dec 2023) | N/A | |
| Total Deposits | $1.17 billion | $1.31 billion (Dec 2023) | N/A | |
| Borrowed Funds | $240.7 million | $65.7 million (Dec 2023) | N/A | |
| Stockholders' Equity | $72.3 million | $65.8 million (Dec 2023) | N/A | |
| Return on Average Assets | 0.36% | 0.73% | 0.53% | 0.80% |
| Return on Average Equity | 7.90% | 17.65% | 12.00% | 18.82% |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 47.7% in Q3 2024 compared to Q3 2023. This was primarily driven by a $1.29 million pre-tax realized loss on the sale of available-for-sale (AFS) investment securities executed in August 2024 as part of a balance sheet repositioning strategy.
- Asset Growth: Total assets increased by $50.6 million (3.4%) from year-end 2023. Gross loans increased by $89.2 million, while total deposits decreased by $132.3 million.
- Funding Shift: To offset deposit outflows, borrowed funds increased significantly from $65.7 million at year-end 2023 to $240.7 million in Q3 2024, primarily consisting of FHLB advances.
- Margin Compression: Net interest margin decreased to 2.71% in Q3 2024 from 2.76% in Q3 2023 due to higher funding costs on deposits and borrowed funds outpacing asset yield increases.
- Asset Quality: Nonperforming assets remained low at 0.13% of total assets. The Allowance for Credit Losses (ACL) on loans increased to $7.37 million (0.66% of loans) from $6.57 million at year-end 2023.
Guidance, Outlook, and Risks
- Balance Sheet Repositioning: Management sold lower-yielding AFS securities ($38.5 million book value) to realize a loss, intending to recoup the cost within one year by reinvesting proceeds into higher-yielding securities and funding loan growth.
- Interest Rate Environment: The Company continues to face pressure from an inverted yield curve. While the Federal Reserve reduced rates by 50 bps in September 2024, management noted minimal immediate impact on Q3 results.
- Liquidity: Liquidity remains strong with $47.3 million in cash and cash equivalents, plus significant unused borrowing capacity at the FHLB ($34.8 million) and access to brokered deposits.
- Capital: The Company is well-capitalized, exceeding all regulatory requirements. Total capital to risk-weighted assets was 12.77%.
- Risks: Key risks include continued deposit outflows necessitating higher-cost wholesale funding, potential credit deterioration in commercial real estate, and the impact of interest rate volatility on the investment portfolio.
Investor Verification Checklist
- Realized Loss Impact: Verify the timeline for recouping the $1.29 million loss on AFS securities sales and the yield improvement on reinvested funds.
- Deposit Stability: Monitor the trend of deposit outflows and the sustainability of the shift toward higher-cost time deposits and wholesale funding.
- Loan Growth Quality: Assess the composition of the $89 million loan growth, specifically the increase in commercial construction and municipal loans.
- Dividend Coverage: Note that the dividend payout ratio was 124.14% for Q3 2024 due to the one-time loss; verify if this is sustainable without the loss.
- Nonperforming Assets: Track the $1.71 million in nonaccrual loans, specifically the $1.71 million in non-residential commercial real estate.