Union Bankshares, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance sheet comparisons are with December 31, 2023. The unaudited consolidated statements cover Union Bankshares and its subsidiary, Union Bank. Dollar figures below are in millions unless otherwise noted.
Financial performance
| Metric | Q1 2024 | Comparable period / change |
|---|---|---|
| Interest and dividend income | $15.62 | $13.04 in Q1 2023 |
| Net interest income | $9.01 | $9.98 in Q1 2023, down 9.7% |
| Net interest margin | 2.68% | 3.14% in Q1 2023 |
| Noninterest income | $2.57 | $2.29 in Q1 2023 |
| Noninterest expense | $9.22 | $8.75 in Q1 2023, up 5.4% |
| Net income / diluted EPS | $2.42 / $0.53 | $2.98 / $0.66 in Q1 2023 |
| Efficiency ratio | 79.68% | 70.46% in Q1 2023 |
| Operating cash flow | $1.86 | $2.08 in Q1 2023 |
Net income declined 18.8% year over year. Higher funding costs more than offset growth in interest income: interest expense increased to $6.61 million from $3.07 million. Credit loss benefit was $0.23 million, versus $0.07 million of expense a year earlier; noninterest income rose $0.28 million, while noninterest expense rose $0.47 million. The effective federal income tax rate was 8.8%, compared with 14.3% in Q1 2023.
Net cash and cash equivalents declined $55.0 million during the quarter, to $22.7 million. Investing activities used $6.3 million and financing activities used $50.6 million; financing outflows included deposit reductions, partly offset by increased borrowings.
Financial position and liquidity
| Metric at March 31, 2024 | Value | Comparison |
|---|---|---|
| Total assets | $1,417.6 | $1,468.9 at December 31, 2023 |
| Total loans, including held for sale | $1,037.6 | $1,031.3 at December 31, 2023 |
| Total deposits | $1,171.6 | $1,305.6 at December 31, 2023 |
| Borrowed funds | $150.7 | $65.7 at December 31, 2023 |
| Subordinated notes | $16.2 | $16.2 at December 31, 2023 |
| Stockholders’ equity | $63.8 | $65.8 at December 31, 2023 |
| Loan-to-deposit ratio | 88.56% | 79.55% in Q1 2023 |
Deposits fell $134.0 million from year-end, including declines in noninterest-bearing and interest-bearing balances, partly offset by higher time deposits. Management cited seasonal municipal outflows, customer spending and movement of balances to higher-yielding alternatives. At quarter-end, estimated uninsured deposits were $389.2 million, or 33.2% of deposits; $100.0 million of retail brokered deposits carried a weighted average rate of 5.31%.
Borrowed funds included $115.7 million of FHLB advances and $35.0 million of Federal Reserve borrowings under the Bank Term Funding Program (BTFP). The Federal Reserve stopped making new BTFP loans in March 2024. The company reported $26.1 million of unused FHLB borrowing capacity at quarter-end; a subsequent April collateral pledge increased reported availability to $109.7 million.
Available-for-sale securities were $257.7 million. Their pretax net unrealized losses were approximately $44.7 million; accumulated other comprehensive loss was $34.9 million after tax. The quarter’s $2.9 million after-tax securities-related OCI loss contributed to the decline in equity. Management reported no credit impairment in the securities portfolio and recorded no allowance for credit losses on these securities.
Regulatory capital ratios at quarter-end included 13.36% total capital to risk-weighted assets for the holding company and 13.34% for Union Bank. The bank exceeded the thresholds for “well capitalized” status under the prompt corrective action framework. Book value was $14.12 per share, versus $14.56 at year-end. The quarterly dividend was $0.36 per share; a further $0.36 dividend was declared in April for payment May 2, 2024.
Material changes and asset quality
- Average earning assets increased $74.0 million year over year, and their average yield rose 51 basis points to 4.60%. Average interest-bearing liabilities increased $120.8 million, while their average rate rose 112 basis points to 2.37%; net interest spread narrowed to 2.23% from 2.84%.
- Loans grew modestly from year-end and were $62.3 million higher than at March 31, 2023. Real estate-secured lending represented 87.9% of total loans.
- Nonperforming assets were $1.87 million, or 0.13% of assets, compared with $2.35 million and 0.17% a year earlier. Nonaccrual loans were $1.81 million. There were no gross loan charge-offs in Q1 2024.
- The loan allowance was $6.65 million, or 0.64% of loans, versus $6.93 million, or 0.71%, a year earlier. The allowance for off-balance-sheet exposures was $0.93 million, down from $1.23 million at year-end.
- Residential mortgage loan sales were $21.7 million, compared with $11.8 million in Q1 2023. Noninterest income also included $117,000 of loan prepayment penalties; management said there were none in the prior-year quarter.
Outlook, risks and contingencies
The filing provides no specific earnings or financial guidance. Management said the inverted yield curve and higher deposit and wholesale funding costs continue to pressure margins; it is focusing on deposit gathering, net interest margin optimization and asset quality. Management described the company’s liquidity position and regulatory capital as adequate, while cautioning that future cash needs and flows are uncertain.
Disclosed risks include interest-rate and securities-value changes, deposit outflows and reliance on more costly funding, economic weakness and loan losses, adequacy of the credit allowance, competition, cybersecurity, fraud, regulatory changes and other operational or geopolitical risks. The filing says there were no material changes to the risk factors in the 2023 Form 10-K. Management does not expect ordinary-course legal proceedings to have a material adverse effect. The company had $230.9 million of reported off-balance-sheet commitments and related credit-risk instruments; these contractual amounts do not necessarily represent future cash requirements. No derivatives or hedging instruments were held at quarter-end.
The interim results are not necessarily indicative of full-year results. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether deposit outflows stabilize, particularly noninterest-bearing and interest-bearing accounts, and whether brokered and time-deposit funding costs remain elevated.
- Whether higher funding costs continue to compress net interest margin and earnings, and how management’s pricing and funding actions affect that trend.
- Liquidity capacity after the BTFP stopped making new loans, including the availability and cost of FHLB borrowing and other contingent funding sources.
- Changes in the fair value of available-for-sale securities and the resulting effect on accumulated OCI, equity and potential liquidity decisions.
- Loan performance, especially commercial real estate and construction exposures, and whether delinquencies, nonperforming loans or required credit allowances increase.
- Whether reported capital ratios, dividend payments and the April increase in FHLB borrowing availability remain consistent with the company’s liquidity and capital needs.