Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UNB > SEC Filings for UNB > Form 10-Q on 14-May-2014All Recent SEC Filings

Show all filings for UNION BANKSHARES INC

Form 10-Q for UNION BANKSHARES INC


14-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of Union Bankshares, Inc. (the Company) as of March 31, 2014 and December 31, 2013, and its results of operations for the three months ended March 31, 2014 and 2013. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's Annual Report on Form 10-K for the year ended December 31, 2013. In the opinion of the Company's management, the interim unaudited data reflects all adjustments, consisting only of normal recurring adjustments, and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after March 31, 2014 which would materially affect the information presented.

CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS

The Company may from time to time make written or oral statements that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections, statements of plans and objectives for future operations, estimates of future economic performance or conditions and assumptions relating thereto. The Company may include forward-looking statements in its filings with the Securities and Exchange Commission (SEC), in its reports to stockholders, including this quarterly report, in press releases, other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others.

Forward-looking statements reflect management's current expectations and are subject to uncertainties, both general and specific, and risk exists that actual results will differ from those predictions, forecasts, projections and other estimates contained in forward-looking statements. These risks cannot be readily quantified. When management uses any of the words "believes," "expects," "anticipates," "intends," "projects," "plans," "seeks," "estimates," "targets," "goals," "may," "might," "could," "would," "should," or similar expressions, they are making forward-looking statements. Many possible events or factors, including those beyond the control of management, could affect the future financial results and performance of the Company.

Factors that may cause results or performance to differ materially from those expressed in forward-looking statements include, but are not limited to: (1) continuing general economic conditions and financial instability, either nationally, internationally, regionally or locally resulting from elevated unemployment rates, changes in monetary and fiscal policies, and adverse changes in the credit rating of U.S. government debt; (2) increased competitive pressures from tax-advantaged credit unions and other financial service providers in the Company's northern Vermont and northwestern New Hampshire market area or in the financial services industry generally, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems; (3) interest rates change in such a way that continues to put pressure on the Company's margins, or result in lower fee income and lower gain on sale of real estate loans; (4) changes in laws or government rules, or the way in which courts or government agencies interpret or implement those laws or rules, that increase our costs of doing business or otherwise adversely affect the Company's business; (5) changes in federal or state tax policy; (6) the effect of federal and state health care reform efforts; (7) changes in the level of nonperforming assets and charge-offs; (8) changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements; (9) changes in information technology that require increased capital spending; (10) changes in consumer and business spending, borrowing and savings habits; (11) further changes to the calculation of the Company's regulatory capital ratios which, among other things, would require additional regulatory capital, change the framework for risk-weighting of assets and require accumulated other comprehensive income to be reflected in regulatory capital; and (12) the effect of and changes in the United States monetary and fiscal policies, including interest rate policies and regulation of the money supply by the Federal Reserve Board ("FRB").

When evaluating forward-looking statements to make decisions with respect to the Company, investors and others are cautioned to consider these and other risks and uncertainties, and are reminded not to place undue reliance on such statements. Investors should not consider the foregoing list of factors to be a complete list of risks or uncertainties. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update them to reflect new or changed information or events, except as may be required by federal securities laws.

Union Bankshares, Inc. Page 25


CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the application of U.S. Generally Accepted Accounting Principles (GAAP) in the preparation of the Company's financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the reported amount of assets, liabilities, capital, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Based on this definition, management has identified the accounting policies and judgments most critical to the Company. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, or capital, and/or the results of operations of the Company.

Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2013 for a more in-depth discussion of the Company's critical accounting policies. There have been no changes to the Company's critical accounting policies since the filing of that report.

OVERVIEW

The Company's net income was $1.8 million for the quarter ended March 31, 2014 compared to $1.7 million for the quarter ended March 31, 2013, an increase of $27 thousand, or 1.6%. These results reflected the net effect of an increase in net interest income of $246 thousand, or 4.7%, partially offset by a decrease in noninterest income of $193 thousand, or 9.0%, an increase in noninterest expenses of $10 thousand, or 0.2%, an increase in the provision for loan losses of $15 thousand, or 25.0%, and an increase in the provision for income taxes of $1 thousand.

The Company continues to face a challenging low interest rate environment as the prime rate has remained unchanged at 3.25% since December 2008. Total interest income increased $175 thousand, or 2.9%, to $6.1 million for the first quarter of 2014, versus $5.9 million for the first quarter of 2013, while interest expense decreased $71 thousand, or 11.0%, from $648 thousand for the first quarter of 2013 to $577 thousand for the first quarter of 2014. These changes in interest income and interest expense resulted in net interest income of $5.5 million for the first quarter of 2014, up $246 thousand, or 4.7%, from the first quarter of 2013 of $5.3 million.
Noninterest income decreased $193 thousand, or 9.0%, for the quarter due to lower net gains on sales of loans held for sale, which decreased $234 thousand, or 35.1%, from $667 thousand for the quarter ended March 31, 2013 to $433 thousand for the quarter ended March 31, 2014. The decrease in net gains was a result of a decrease in the volume of residential loans sold to the secondary market from $33.7 million in the first quarter of 2013 to $20.3 million in the first quarter of 2014, a decrease of $13.3 million, or 39.6%, as well as lower margins on sales. The decrease in net gains on sales of loans for the quarter was partially offset by an increase in service fees of $83 thousand, or 7.0%, between periods, an increase in gains on sales of investment securities available-for-sale of $40 thousand and an increase of 12 thousand in trust income.

Noninterest expenses increased $10 thousand, or 0.2%, for the three month period ended March 31, 2014 compared to the same period for 2013, resulting from an increase in salaries and wages of $90 thousand, or 4.2%, a decrease in pension and employee benefits of $16 thousand, or 2.3%, a decrease in equipment expenses of $39 thousand, or 9.2%, and a net decrease in other noninterest expenses of $25 thousand, or 0.6%, between periods.

The Company's effective tax rate decreased slightly to 21.0% for the three months ended March 31, 2014 from 21.3% for the same period in 2013, resulting from the increase in taxable income being offset by an increase in tax exempt income.

At March 31, 2014, the Company had total consolidated assets of $586.1 million, including gross loans and loans held for sale (total loans) of $476.3 million, deposits of $517.7 million, borrowed funds of $13.8 million and stockholders' equity of $50.8 million. The Company's total assets increased $682 thousand, or 0.1%, from $585.4 million at December 31, 2013 to $586.1 million at March 31, 2014. Although total assets did not change significantly from December 31, 2013 to March 31, 2014, the asset mix changed with cash and cash equivalents decreasing $15.7 million, net loans and loans held for sale increasing $11.3 million and investment securities increasing $6.8 million compared to levels at December 31, 2013.

Net loans and loans held for sale increased $11.3 million, or 2.5%, to $471.8 million, or 80.5%, of total assets at March 31, 2014, compared to $460.5 million, or 78.7%, of total assets at December 31, 2013. The increase is primarily attributable to growth in commercial real estate and municipal loans.

Union Bankshares, Inc. Page 26


Deposits decreased $697 thousand, or 0.1%, from $518.4 million at December 31, 2013 to $517.7 million at March 31, 2014. The decrease in deposits was primarily related to a drop in municipal NOW and certificate of deposit accounts between periods, partially offset by increases in demand deposit, savings, money market and other NOW accounts.

The Company's total capital increased from $49.8 million at December 31, 2013 to $50.8 million at March 31, 2014. While continuing to meet the regulatory guidelines for the well capitalized capital category, the total risk based capital ratio declined slightly to 13.06% at March 31, 2014 from 13.23% at December 31, 2013. The regulatory guideline for well capitalized is 10.0% and the minimum requirement is 8.0%.

The following unaudited per share information and key ratios depict several measurements of performance or financial condition for the three months ended March 31, 2014 and 2013, respectively:

                                                                 Three Months Ended or At
                                                                         March 31,
                                                                    2014           2013
Return on average assets (ROA) (1)                                    1.21 %          1.23 %
Return on average equity (1)                                         14.09 %         15.36 %
Net interest margin (1)(2)                                            4.21 %          4.16 %
Efficiency ratio (3)                                                 68.03 %         68.13 %
Net interest spread (4)                                               4.10 %          4.05 %
Loan to deposit ratio                                                92.01 %         90.64 %
Net loan charge-offs to average loans not held for sale (1)           0.02 %             - %
Allowance for loan losses to loans not held for sale (5)              0.99 %          1.07 %
Nonperforming assets to total assets (6)                              0.39 %          0.53 %
Equity to assets                                                      8.66 %          8.11 %
Total capital to risk weighted assets                                13.06 %         13.23 %
Book value per share                                           $     11.39     $     10.24
Earnings per share                                             $      0.40     $      0.39
Dividends paid per share                                       $      0.26     $      0.25
Dividend payout ratio (7)                                            65.00 %         64.10 %


____________________
(1) Annualized.

(2) The ratio of tax equivalent net interest income to average earning assets. See page 28 for more information.

(3) The ratio of noninterest expense ($5.2 million in 2014 and 2013) to tax equivalent net interest income ($5.7 million in 2014 and $5.4 million in 2013) and noninterest income ($1.9 million in 2014 and $2.2 million in 2013) excluding securities gains ($43 thousand in 2014 and $3 thousand in 2013) for the three months ended March 31, 2014 and 2013, respectively.

(4) The difference between the average rate earned on earning assets and the average rate paid on interest bearing liabilities. See page 28 for more information.

(5) Calculation includes the net carrying amount of loans recorded at fair value from the 2011 branch acquisition as of March 31, 2014 ($16.8 million) and March 31, 2013 ($22.0 million). Excluding such loans, the allowance for loan losses to loans not purchased and not held for sale was 1.03% at March 31, 2014 and 1.13% at March 31, 2013.

(6) Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as Other Real Estate Owned (OREO) or Other Assets Owned (OAO).

(7) Cash dividends declared and paid per share divided by consolidated net income per share.

RESULTS OF OPERATIONS

Net Interest Income. The largest component of the Company's operating income is net interest income, which is the difference between interest and dividend income received from interest earning assets and the interest expense paid on interest bearing liabilities. The Company's net interest income increased $246 thousand, or 4.7%, to $5.5 million for the three months ended March 31, 2014 from $5.3 million for the three months ended March 31, 2013. Despite a drop of 2 basis points in the average yield earned on interest earning assets, from 4.65% for the three months ended March 31, 2013 to 4.63% for the three month period ended March 31, 2014, the net interest spread increased 5 basis points to 4.10% for the first quarter of 2014, from 4.05% for the same period last year, reflecting a 7 basis point drop in the average interest rate paid on interest bearing liabilities, from

Union Bankshares, Inc. Page 27


0.60% for the first quarter of 2013 to 0.53% for the first quarter of 2014. The net interest margin for the first quarter of 2014 increased 5 basis points to 4.21% from 4.16% for the first quarter of 2013. The prolonged low rate environment continues to put pressure on the Company's net interest spread and margin.

Yields Earned and Rates Paid. The following tables show for the periods indicated the total amount of income recorded from average interest earning assets, the related average tax equivalent yields, the interest expense associated with average interest bearing liabilities, the related average rates paid, and the resulting tax equivalent net interest spread and margin. Yield and rate information is average information for the period, and is calculated by dividing the annualized tax equivalent income or expense item for the period by the average balance of the appropriate balance sheet item during the period. Net interest margin is annualized tax equivalent net interest income divided by average earning assets. Nonaccrual loans or investments are included in asset balances for the appropriate periods, but recognition of interest on such loans or investments is discontinued and any remaining accrued interest receivable is reversed in conformity with federal regulations.

                                                     Three Months Ended March 31,
                                                2014                               2013
                                               Interest    Average                Interest    Average
                                   Average     Earned/     Yield/     Average     Earned/     Yield/
                                   Balance       Paid       Rate      Balance       Paid       Rate
                                                        (Dollars in thousands)
Average Assets:
Federal funds sold and overnight
deposits                         $  13,093   $        4      0.14 % $  27,879   $       13      0.18 %
Interest bearing deposits in
banks                               17,096           45      1.08 %    22,647           60      1.08 %
Investment securities (1), (2)      50,397          293      2.63 %    29,263          194      3.12 %
Loans, net (1), (3)                467,500        5,762      5.11 %   449,565        5,668      5.23 %
Nonmarketable equity securities      2,053            8      1.48 %     1,937            2      0.37 %
Total interest earning assets
(1)                                550,139        6,112      4.63 %   531,291        5,937      4.65 %
Cash and due from banks              4,709                              4,774
Premises and equipment              10,769                             10,304
Other assets                        15,487                             19,700
Total assets                     $ 581,104                          $ 566,069
Average Liabilities and
Stockholders' Equity:
Interest bearing checking
accounts                         $  97,539   $       18      0.08 % $  90,737   $       21      0.09 %
Savings/money market accounts      177,451           83      0.19 %   178,018           90      0.21 %
Time deposits                      154,916          371      0.97 %   149,089          407      1.11 %
Borrowed funds                      14,139          105      2.97 %    16,704          130      3.12 %
Total interest bearing
liabilities                        444,045          577      0.53 %   434,548          648      0.60 %
Noninterest bearing deposits        85,979                             80,821
Other liabilities                    1,021                              5,470
Total liabilities                  531,045                            520,839
Stockholders' equity                50,059                             45,230
Total liabilities and
stockholders' equity             $ 581,104                          $ 566,069
Net interest income                          $    5,535                         $    5,289
Net interest spread (1)                                      4.10 %                             4.05 %
Net interest margin (1)                                      4.21 %                             4.16 %


__________________


(1) Average yields reported on a tax equivalent basis using a marginal tax rate of 34%.

(2) Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.

(3) Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses.

Union Bankshares, Inc. Page 28
--------------------------------------------------------------------------------


Tax exempt interest income amounted to $380 thousand and $349 thousand for the
three months ended March 31, 2014 and 2013, respectively. The following table
presents the effect of tax exempt income on the calculation of net interest
income, using a marginal tax rate of 34% for 2014 and 2013:
                                                            For The Three Months Ended
                                                                     March 31,
                                                                 2014          2013
                                                              (Dollars in thousands)
Net interest income as presented                            $      5,535   $    5,289
Effect of tax-exempt interest
Investment securities                                                 38           34
Loans                                                                135          125
Net interest income, tax equivalent                         $      5,708   $    5,448

Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates (on a fully tax-equivalent basis) and changes in volume of average interest earning assets and interest bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to:

changes in volume (change in volume multiplied by prior rate);

changes in rate (change in rate multiplied by prior volume); and

total change in rate and volume.

Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.

                                                        Three Months Ended March 31, 2014
                                                                   Compared to
                                                        Three Months Ended March 31, 2013
                                                      Increase/(Decrease) Due to Change In
                                                    Volume             Rate              Net
                                                             (Dollars in thousands)
Interest earning assets:
Federal funds sold and overnight deposits      $          (6 )   $          (3 )   $          (9 )
Interest bearing deposits in banks                       (15 )               -               (15 )
Investment securities                                    142               (43 )              99
Loans, net                                               223              (129 )              94
Nonmarketable equity securities                            -                 6                 6
Total interest earning assets                  $         344     $        (169 )   $         175
Interest bearing liabilities:
Interest bearing checking accounts             $           2     $          (5 )   $          (3 )
Savings/money market accounts                              -                (7 )              (7 )
Time deposits                                             16               (52 )             (36 )
Borrowed funds                                           (19 )              (6 )             (25 )
Total interest bearing liabilities             $          (1 )   $         (70 )   $         (71 )
Net change in net interest income              $         345     $         (99 )   $         246

Three Months Ended March 31, 2014, Compared to Three Months Ended March 31, 2013

Interest and Dividend Income. The Company's interest and dividend income increased to $6.1 million for the three months ended March 31, 2014 compared to $5.9 million for the same period last year, driven by an overall increase in average earning assets of $18.8 million, or 3.5%, to $550.1 million, from $531.3 million for the three months ended March 31, 2013. However, the positive effect on interest income resulting from the rise in the average volume of earning assets was partially offset by the lower rates earned on all interest earning assets except nonmarketable equity securities and interest bearing deposits. The persistent low interest rate environment resulted in lower yields earned on new earning assets or refinanced loans in the first quarter of 2014

Union Bankshares, Inc. Page 29


versus 2013. Interest income on loans increased $94 thousand, or 1.7%, to $5.8 million for the first quarter of 2014 versus $5.7 million for the 2013 comparison period, in conjunction with an increase in average loan volume between periods. Average loan volume approximated $467.5 million at an average yield of 5.11% for the three months ended March 31, 2014, up $17.9 million, or 4.0%, from an average volume of $449.6 million at an average yield of 5.23% for the three months ended March 31, 2013. The positive impact of the increase in average total loan volume was offset by a 12 basis point decrease in average yield.

The average balance of nonloan instruments increased $913 thousand, or 1.1%, with the average balance of investments increasing $21.1 million, or 72.2%, to $50.4 million for the quarter ended March 31, 2014, from $29.3 million for the quarter ended March 31, 2013, partially offset by a decrease in federal funds sold and overnight deposits of $14.8 million, or 53.0%, to $13.1 million for the three months ended March 31, 2014, from $27.9 million for the three months ended March 31, 2013. The average balance in interest bearing deposits in banks for the quarter ended March 31, 2014 also decreased $5.6 million, or 24.5%, to $17.1 million versus $22.6 million for the 2013 comparison period. These changes in average volume combined with a drop in yields resulted in an increase in interest income from average nonloan instruments of $81 thousand between periods.

Interest Expense. The Company's interest expense decreased $71 thousand, or 11.0%, to $577 thousand for the three months ended March 31, 2014, from $648 thousand for the three months ended March 31, 2013, despite an increase of $9.5 million, or 2.2%, in the average volume of interest bearing liabilities between periods. The decrease was attributable to lower rates paid on all interest bearing liabilities, reflecting the persistent low interest rate environment and the subsequent payoff of higher rate Federal Home Loan Bank (FHLB) of Boston advances that were outstanding during the first quarter of 2013.

Interest expense on deposits decreased $46 thousand, or 8.9%, to $472 thousand for the quarter ended March 31, 2014, from $518 thousand for the quarter ended March 31, 2013, despite an increase of $12.1 million, or 2.9%, in the average balance of interest bearing deposits to $429.9 million for the quarter ended March 31, 2014, compared to $417.8 million for the same period last year, reflecting the overall growth in the franchise. Average time deposits increased $5.8 million, or 3.9%, to $154.9 million for the three months ended March 31, . . .

  Add UNB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UNB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.