8-K: Union Bankshares Reports Lower Q4 Earnings, Declares Quarterly Dividend

Union Bankshares announced a decrease in net income for the fourth quarter of 2023 compared to the same period in 2022, while also declaring a regular quarterly cash dividend.

Summary

• Union Bankshares reported a net income of $3.0 million, or $0.68 per share, for the three months ended December 31, 2023, down from $3.4 million, or $0.77 per share, in the same period of 2022.
• For the full year 2023, net income was $11.3 million, or $2.50 per share, compared to $12.6 million, or $2.81 per share, in 2022.
• Total assets increased to $1.5 billion as of December 31, 2023, up from $1.3 billion the previous year, driven by loan growth and increases in investment securities and overnight deposits.
• Total loans outstanding reached $1.0 billion, including $3.1 million in loans held for sale.
• The company's investment securities were valued at $265.9 million, with unrealized losses of $41.0 million due to interest rate changes.
• Total deposits were $1.31 billion, including $153.0 million in purchased brokered deposits.
• Borrowed funds totaled $65.7 million, including advances from the Federal Home Loan Bank and the Federal Reserve's Bank Term Funding Program.
• The company's total equity capital was $65.8 million, with a book value per share of $14.56.
• Net interest income decreased by $1.2 million in the fourth quarter of 2023 compared to the same period in 2022.
• Interest income increased by $3.1 million, while interest expense increased by $4.3 million in the fourth quarter of 2023.
• For the full year, interest income increased by $13.2 million, while interest expense increased by $14.7 million.
• The Board of Directors declared a cash dividend of $0.36 per share for the quarter, payable February 1, 2024.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to decreased earnings and increased expenses, offset by asset growth and a dividend declaration. The impact of interest rate changes is a concern.

Positives

• Total assets increased by 9.9% year-over-year, reaching $1.5 billion.
• Total loans outstanding grew to $1.0 billion.
• Interest income increased by 24.8% in Q4 and 30% for the full year due to a larger earning asset base and higher interest rates.
• The company declared a quarterly cash dividend of $0.36 per share.
• The company's book value per share increased to $14.56 from $12.25 year-over-year.
• Asset quality remains strong with net charge-offs of only $4 thousand for the year.

Negatives

• Net income decreased by 11.5% in Q4 2023 compared to Q4 2022.
• Full year net income decreased by 10.8% compared to 2022.
• Net interest income decreased by 12.1% in Q4 2023.
• Interest expense increased significantly, by 215% in Q4 and 325.9% for the full year, due to higher rates on deposits and wholesale funding.
• The company experienced unrealized losses of $41.0 million in its investment portfolio due to interest rate changes.
• Noninterest expenses increased by 5.2% for the year.

Risks

• The company faces risks associated with general economic conditions, changes in the interest rate environment, and inflation.
• There are risks related to political, legislative, or regulatory developments, as well as acts of war or terrorism.
• The company's performance is subject to market acceptance of its products and services, technological changes, and competitive pressures.
• Dependence on third-party suppliers also poses a risk.
• The unrealized losses in the investment portfolio due to interest rate changes could impact future performance.

Future Outlook

The document includes forward-looking statements and cautions that actual results could differ materially from those anticipated due to various factors, including economic conditions, interest rate changes, and competitive pressures.

Management Comments

• Union Bank is proud to be one of the few independent community banks serving Vermont and New Hampshire and we maintain a strong commitment to our core traditional values of keeping deposits safe, giving customers convenient financial choices and making loans to help people in our local communities buy homes, grow businesses, and create jobs.
• These values--combined with financial expertise, quality products and the latest technology--make Union Bank the premier choice for your banking services, both personal and business.

Industry Context

The results reflect the challenges faced by many banks in the current interest rate environment, where increased funding costs are impacting net interest income. The company's focus on community banking and traditional values is a common theme among smaller regional banks.

Comparison to Industry Standards

• The decrease in net income and net interest income is consistent with trends seen in the banking sector due to rising interest rates, which increase funding costs.
• Compared to larger national banks, Union Bankshares' asset growth of 9.9% is a solid result, indicating a healthy expansion of its loan portfolio and investment activities.
• The unrealized losses of $41.0 million in the investment portfolio are a common issue across the industry, as many banks hold securities with lower coupon rates than current market rates.
• The increase in interest expense is a widespread trend, as banks compete for deposits by offering higher rates, similar to what has been seen at other regional banks such as Community Bancorp and Northeast Bancorp.
• The company's strong asset quality, with minimal net charge-offs, is a positive sign compared to some peers that have seen increased credit losses.

Stakeholder Impact

• Shareholders will receive a quarterly dividend of $0.36 per share.
• Customers may benefit from higher interest rates on deposits, but also face higher borrowing costs.
• Employees may be impacted by the company's overall financial performance.
• The company's commitment to community reinvestment and local lending continues to benefit the communities it serves.

Next Steps

• The company will continue to operate its limited stock repurchase program.
• The company will pay the declared quarterly dividend on February 1, 2024.

Key Dates

Keywords

earnings, dividend, net income, interest income, interest expense, loans, deposits, assets, investment securities, bank, financial results