Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2018
Commission file number: 001-15985
UNION BANKSHARES, INC.
P.O. BOX 667
20 LOWER MAIN STREET
MORRISVILLE, VT 05661
Registrant’s telephone number: 802-888-6600
Former name, former address and former fiscal year, if changed since last report: Not applicable
Securities registered pursuant to section 12(b) of the Act:
|
| | | | |
| Common Stock, $2.00 par value | | Nasdaq Stock Market | |
| (Title of class) | | (Exchanges registered on) | |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” ”accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
|
| |
Large accelerated filer [ ] | Accelerated filer [ X ] |
Non-accelerated filer [ ] | Smaller reporting company [ X ] |
| Emerging growth company [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of October 29, 2018.
|
| | | | | |
| Common Stock, $2 par value | | 4,465,951 |
| shares |
UNION BANKSHARES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
PART II OTHER INFORMATION | |
| |
| |
| |
| |
| |
| |
| |
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS |
| | | | | | |
| September 30, 2018 | December 31, 2017 |
| (Unaudited) | |
Assets | (Dollars in thousands) |
Cash and due from banks | $ | 4,063 |
| $ | 3,857 |
|
Federal funds sold and overnight deposits | 9,837 |
| 34,651 |
|
Cash and cash equivalents | 13,900 |
| 38,508 |
|
Interest bearing deposits in banks | 9,747 |
| 9,352 |
|
Investment securities available-for-sale | 71,536 |
| 65,439 |
|
Investment securities held-to-maturity (fair value $999 thousand at December 31, 2017) | — |
| 1,000 |
|
Other investments | 597 |
| — |
|
Total investments | 72,133 |
| 66,439 |
|
Loans held for sale | 7,457 |
| 7,947 |
|
Loans | 636,239 |
| 586,615 |
|
Allowance for loan losses | (5,610 | ) | (5,408 | ) |
Net deferred loan costs | 891 |
| 795 |
|
Net loans | 631,520 |
| 582,002 |
|
Accrued interest receivable | 2,570 |
| 2,500 |
|
Premises and equipment, net | 15,747 |
| 14,255 |
|
Core deposit intangible | 454 |
| 583 |
|
Goodwill | 2,223 |
| 2,223 |
|
Investment in real estate limited partnerships | 4,208 |
| 3,166 |
|
Company-owned life insurance | 8,984 |
| 8,861 |
|
Other assets | 10,715 |
| 9,995 |
|
Total assets | $ | 779,658 |
| $ | 745,831 |
|
Liabilities and Stockholders’ Equity | | |
Liabilities | | |
Deposits | | |
Noninterest bearing | $ | 126,596 |
| $ | 127,824 |
|
Interest bearing | 407,965 |
| 418,621 |
|
Time | 133,162 |
| 101,129 |
|
Total deposits | 667,723 |
| 647,574 |
|
Borrowed funds | 41,990 |
| 31,581 |
|
Accrued interest and other liabilities | 9,168 |
| 8,015 |
|
Total liabilities | 718,881 |
| 687,170 |
|
Commitments and Contingencies |
|
|
Stockholders’ Equity | | |
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,940,961 shares issued at September 30, 2018 and December 31, 2017 | 9,882 |
| 9,882 |
|
Additional paid-in capital | 897 |
| 755 |
|
Retained earnings | 60,686 |
| 57,197 |
|
Treasury stock at cost; 475,015 shares at September 30, 2018 and 475,385 shares at December 31, 2017 | (4,076 | ) | (4,077 | ) |
Accumulated other comprehensive loss | (6,612 | ) | (5,096 | ) |
Total stockholders' equity | 60,777 |
| 58,661 |
|
Total liabilities and stockholders' equity | $ | 779,658 |
| $ | 745,831 |
|
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 1
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
| | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2018 | 2017 | 2018 | 2017 |
| (Dollars in thousands, except per share data) |
Interest and dividend income | | | | |
Interest and fees on loans | $ | 7,482 |
| $ | 6,893 |
| $ | 21,855 |
| $ | 19,823 |
|
Interest on debt securities: | | | | |
Taxable | 321 |
| 250 |
| 918 |
| 741 |
|
Tax exempt | 145 |
| 159 |
| 436 |
| 486 |
|
Dividends | 65 |
| 42 |
| 160 |
| 114 |
|
Interest on federal funds sold and overnight deposits | 26 |
| 15 |
| 88 |
| 64 |
|
Interest on interest bearing deposits in banks | 56 |
| 38 |
| 152 |
| 109 |
|
Total interest and dividend income | 8,095 |
| 7,397 |
| 23,609 |
| 21,337 |
|
Interest expense | | | | |
Interest on deposits | 842 |
| 453 |
| 1,949 |
| 1,271 |
|
Interest on borrowed funds | 244 |
| 134 |
| 515 |
| 369 |
|
Total interest expense | 1,086 |
| 587 |
| 2,464 |
| 1,640 |
|
Net interest income | 7,009 |
| 6,810 |
| 21,145 |
| 19,697 |
|
Provision for loan losses | 150 |
| 150 |
| 300 |
| 150 |
|
Net interest income after provision for loan losses | 6,859 |
| 6,660 |
| 20,845 |
| 19,547 |
|
Noninterest income | | | | |
Trust income | 195 |
| 179 |
| 579 |
| 548 |
|
Service fees | 1,568 |
| 1,553 |
| 4,538 |
| 4,444 |
|
Net gains on sales of investment securities available-for-sale | — |
| 24 |
| — |
| 33 |
|
Net gains on sales of loans held for sale | 596 |
| 657 |
| 1,322 |
| 1,762 |
|
Other income | 93 |
| 93 |
| 636 |
| 285 |
|
Total noninterest income | 2,452 |
| 2,506 |
| 7,075 |
| 7,072 |
|
Noninterest expenses | | | | |
Salaries and wages | 2,745 |
| 2,570 |
| 8,008 |
| 7,642 |
|
Pension and employee benefits | 1,144 |
| 954 |
| 3,299 |
| 2,784 |
|
Occupancy expense, net | 338 |
| 320 |
| 1,069 |
| 1,073 |
|
Equipment expense | 528 |
| 532 |
| 1,574 |
| 1,589 |
|
Other expenses | 1,792 |
| 1,565 |
| 5,050 |
| 4,665 |
|
Total noninterest expenses | 6,547 |
| 5,941 |
| 19,000 |
| 17,753 |
|
Income before provision for income taxes | 2,764 |
| 3,225 |
| 8,920 |
| 8,866 |
|
Provision for income taxes | 453 |
| 855 |
| 1,412 |
| 2,339 |
|
Net income | $ | 2,311 |
| $ | 2,370 |
| $ | 7,508 |
| $ | 6,527 |
|
Earnings per common share | $ | 0.52 |
| $ | 0.53 |
| $ | 1.68 |
| $ | 1.46 |
|
Weighted average number of common shares outstanding | 4,465,882 |
| 4,462,414 |
| 4,465,741 |
| 4,462,113 |
|
Dividends per common share | $ | 0.30 |
| $ | 0.29 |
| $ | 0.90 |
| $ | 0.87 |
|
| | | | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 2
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
|
| | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2018 | 2017 | 2018 | 2017 |
| (Dollars in thousands) |
Net income | $ | 2,311 |
| $ | 2,370 |
| $ | 7,508 |
| $ | 6,527 |
|
Other comprehensive (loss) income, net of tax: | | | | |
Investment securities available-for-sale: | | | | |
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale | (352 | ) | 46 |
| (1,516 | ) | 609 |
|
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income | — |
| (16 | ) | — |
| (22 | ) |
Total other comprehensive (loss) income | (352 | ) | 30 |
| (1,516 | ) | 587 |
|
Total comprehensive income | $ | 1,959 |
| $ | 2,400 |
| $ | 5,992 |
| $ | 7,114 |
|
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 3
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2018 and 2017 (Unaudited)
|
| | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | |
| Shares, net of treasury | Amount | Additional paid-in capital | Retained earnings | Treasury stock | Accumulated other comprehensive loss | Total stockholders’ equity |
| (Dollars in thousands, except per share data) |
Balances December 31, 2017 | 4,465,576 |
| $ | 9,882 |
| $ | 755 |
| $ | 57,197 |
| $ | (4,077 | ) | $ | (5,096 | ) | $ | 58,661 |
|
Net income | — |
| — |
| — |
| 7,508 |
| — |
| — |
| 7,508 |
|
Other comprehensive loss | — |
| — |
| — |
| — |
| — |
| (1,516 | ) | (1,516 | ) |
Dividend reinvestment plan | 430 |
| — |
| 19 |
| — |
| 4 |
| — |
| 23 |
|
Cash dividends declared ($0.90 per share) | — |
| — |
| — |
| (4,019 | ) | — |
| — |
| (4,019 | ) |
Stock based compensation expense | — |
| — |
| 123 |
| — |
| — |
| — |
| 123 |
|
Purchase of treasury stock | (60 | ) | — |
| — |
| — |
| (3 | ) | — |
| (3 | ) |
Balances September 30, 2018 | 4,465,946 |
| $ | 9,882 |
| $ | 897 |
| $ | 60,686 |
| $ | (4,076 | ) | $ | (6,612 | ) | $ | 60,777 |
|
| | | | | | | |
Balances, December 31, 2016 | 4,462,135 |
| $ | 9,874 |
| $ | 620 |
| $ | 53,086 |
| $ | (4,022 | ) | $ | (3,279 | ) | $ | 56,279 |
|
Net income | — |
| — |
| — |
| 6,527 |
| — |
| — |
| 6,527 |
|
Other comprehensive income | — |
| — |
| — |
| — |
| — |
| 587 |
| 587 |
|
Dividend reinvestment plan | 422 |
| — |
| 14 |
| — |
| 4 |
| — |
| 18 |
|
Cash dividends declared ($0.87 per share) | — |
| — |
| — |
| (3,882 | ) | — |
| — |
| (3,882 | ) |
Stock based compensation expense | — |
| — |
| 102 |
| — |
| — |
| — |
| 102 |
|
Exercise of stock options | 1,000 |
| 2 |
| 17 |
| — |
| — |
| — |
| 19 |
|
Purchase of treasury stock | (1,040 | ) | — |
| — |
| — |
| (43 | ) | — |
| (43 | ) |
Balances, September 30, 2017 | 4,462,517 |
| $ | 9,876 |
| $ | 753 |
| $ | 55,731 |
| $ | (4,061 | ) | $ | (2,692 | ) | $ | 59,607 |
|
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 4
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
| | | | | | |
| Nine Months Ended September 30, |
| 2018 | 2017 |
Cash Flows From Operating Activities | (Dollars in thousands) |
Net income | $ | 7,508 |
| $ | 6,527 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | |
Depreciation | 886 |
| 914 |
|
Provision for loan losses | 300 |
| 150 |
|
Deferred income tax (credit) provision | (57 | ) | 226 |
|
Net amortization of investment securities | 294 |
| 314 |
|
Equity in losses of limited partnerships | 428 |
| 471 |
|
Stock based compensation expense | 123 |
| 102 |
|
Net increase in unamortized loan costs | (96 | ) | (100 | ) |
Proceeds from sales of loans held for sale | 84,541 |
| 92,231 |
|
Origination of loans held for sale | (82,729 | ) | (88,341 | ) |
Net gain on sales of loans held for sale | (1,322 | ) | (1,762 | ) |
Net (gain) loss on disposals of premises and equipment | (191 | ) | 13 |
|
Net gain on sales of investment securities available-for-sale | — |
| (33 | ) |
Net gain on sales of other real estate owned | (11 | ) | — |
|
(Increase) decrease in accrued interest receivable | (70 | ) | 63 |
|
Amortization of core deposit intangible | 129 |
| 129 |
|
Increase in other assets | (258 | ) | (490 | ) |
Contribution to defined benefit pension plan | (850 | ) | (750 | ) |
Increase in other liabilities | 1,228 |
| 926 |
|
Net cash provided by operating activities | 9,853 |
| 10,590 |
|
Cash Flows From Investing Activities | | |
Interest bearing deposits in banks | | |
Proceeds from maturities and redemptions | 1,843 |
| 4,384 |
|
Purchases | (2,238 | ) | (3,236 | ) |
Investment securities held-to-maturity | | |
Proceeds from maturities, calls and paydowns | 1,000 |
| — |
|
Investment securities available-for-sale | | |
Proceeds from sales | — |
| 3,962 |
|
Proceeds from maturities, calls and paydowns | 4,222 |
| 5,310 |
|
Purchases | (13,053 | ) | (7,078 | ) |
Other investments | | |
Proceeds from sales | 44 |
| — |
|
Purchases | (120 | ) | — |
|
Purchase of nonmarketable stock | (2,844 | ) | (518 | ) |
Redemption of nonmarketable stock | 2,376 |
| 541 |
|
Net increase in loans | (49,739 | ) | (45,803 | ) |
Recoveries of loans charged off | 17 |
| 53 |
|
Purchases of premises and equipment | (2,391 | ) | (646 | ) |
Proceeds from Company-owned life insurance death benefit | 307 |
| — |
|
Investments in limited partnerships | (695 | ) | (438 | ) |
Proceeds from sales of premises and equipment | 204 |
| — |
|
Proceeds from sales of other real estate owned | 47 |
| — |
|
Net cash used in investing activities | (61,020 | ) | (43,469 | ) |
| | |
Union Bankshares, Inc. Page 5
|
| | | | | | |
Cash Flows From Financing Activities | | |
Advances on long-term borrowings | 164,175 |
| 10,000 |
|
Repayment of long-term debt | (156,940 | ) | (10,208 | ) |
Net increase in short-term borrowings outstanding | 3,174 |
| 1,133 |
|
Net (decrease) increase in noninterest bearing deposits | (1,228 | ) | 6,819 |
|
Net (decrease) increase in interest bearing deposits | (10,656 | ) | 5,624 |
|
Net increase (decrease) in time deposits | 32,033 |
| (3,479 | ) |
Issuance of common stock | — |
| 19 |
|
Purchase of treasury stock | (3 | ) | (43 | ) |
Dividends paid | (3,996 | ) | (3,864 | ) |
Net cash provided by financing activities | 26,559 |
| 6,001 |
|
Net decrease in cash and cash equivalents | (24,608 | ) | (26,878 | ) |
Cash and cash equivalents | | |
Beginning of period | 38,508 |
| 39,275 |
|
End of period | $ | 13,900 |
| $ | 12,397 |
|
Supplemental Disclosures of Cash Flow Information | | |
Interest paid | $ | 2,440 |
| $ | 1,648 |
|
Income taxes paid | $ | 1,350 |
| $ | 1,020 |
|
| | |
Dividends paid on Common Stock: | | |
Dividends declared | $ | 4,019 |
| $ | 3,882 |
|
Dividends reinvested | (23 | ) | (18 | ) |
| $ | 3,996 |
| $ | 3,864 |
|
| | |
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 6
UNION BANKSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
| |
Note 1. | Basis of Presentation |
The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of September 30, 2018, and for the three and nine months ended September 30, 2018 and 2017, have been prepared in conformity with GAAP for interim financial information, general practices within the banking industry, and the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Annual Report). The Company's sole subsidiary is Union Bank. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair presentation of the information contained herein, have been made. This information should be read in conjunction with the Company’s 2017 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2018, or any future interim period.
In addition to the definitions set forth elsewhere in this report, the acronyms, abbreviations and capitalized terms identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
|
| | | |
AFS: | Available-for-sale | IRS: | Internal Revenue Service |
ALCO: | Asset Liability Committee | MBS: | Mortgage-backed security |
ALL: | Allowance for loan losses | MSRs: | Mortgage servicing rights |
ASC: | Accounting Standards Codification | OAO: | Other assets owned |
ASU: | Accounting Standards Update | OCI: | Other comprehensive income (loss) |
Board: | Board of Directors | OFAC: | U.S. Office of Foreign Assets Control |
bp or bps: | Basis point(s) | OREO: | Other real estate owned |
Branch Acquisition: | The acquisition of three New Hampshire branches in May 2011 | OTTI: | Other-than-temporary impairment |
CDARS: | Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network | OTT: | Other-than-temporary |
Company: | Union Bankshares, Inc. and Subsidiary | Plan: | The Union Bank Pension Plan |
DRIP: | Dividend Reinvestment Plan | RD: | USDA Rural Development |
FASB: | Financial Accounting Standards Board | RSU: | Restricted Stock Unit |
FDIC: | Federal Deposit Insurance Corporation | SBA: | U.S. Small Business Administration |
FHA: | U.S. Federal Housing Administration | SEC: | U.S. Securities and Exchange Commission |
FHLB: | Federal Home Loan Bank of Boston | TDR: | Troubled-debt restructuring |
FRB: | Federal Reserve Board | Union: | Union Bank, the sole subsidiary of Union Bankshares, Inc |
FHLMC/Freddie Mac: | Federal Home Loan Mortgage Corporation | USDA: | U.S. Department of Agriculture |
GAAP: | Generally Accepted Accounting Principles in the United States | VA: | U.S. Veterans Administration |
HTM: | Held-to-maturity | 2008 ISO Plan: | 2008 Incentive Stock Option Plan of the Company |
HUD: | U.S. Department of Housing and Urban Development | 2014 Equity Plan: | 2014 Equity Incentive Plan |
ICS: | Insured Cash Sweeps of the Promontory Interfinancial Network | 2017 Annual Report | Annual Report of Form 10-K for the year ended December 31, 2017 |
| | 2017 Tax Act: | Tax Cut and Jobs Act of 2017 |
Note 2. Legal Contingencies
In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.
Union Bankshares, Inc. Page 7
Note 3. Per Share Information
Earnings per common share are computed based on the weighted average number of shares of common stock outstanding during the period and reduced for shares held in treasury. The assumed exercise of outstanding exercisable stock options and vesting of RSUs does not result in material dilution and is not included in the calculation.
Note 4. Recent Accounting Pronouncements
The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) using a modified-retrospective transition method, as of January 1, 2018. The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. While the guidance replaces most existing revenue recognition guidance in GAAP, the ASU is not applicable to financial instruments and, therefore, did not impact a majority of the Company’s revenues, including net interest income. The Company's assessment determined that no cumulative-effect adjustment to beginning stockholders' equity would be required under the modified retrospective transition method within the consolidated financial statements as there was no change in revenue recognition upon adoption of ASU No. 2014-09.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU was issued to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This ASU changes how entities account for equity investments that do not result in consolidation and are not accounted for under the equity method of accounting. The ASU also changes certain disclosure requirements and other aspects of GAAP, including a requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The ASU became effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of the ASU did not have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Previous lease accounting did not require the inclusion of operating leases in the balance sheet. In July 2018, the FASB provided additional guidance on implementation of Topic 842 as well as an additional transition method. The ASU, including the updated guidance, is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements by reviewing its lease contracts.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses. The new guidance, which is referred to as the current expected credit loss model ("CECL"), requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these requirements also applies to debt securities classified as AFS. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within such years. The Company has established a CECL implementation team and developed a transition project plan. The team members have evaluated CECL implementation software providers and the Company has entered into an agreement with Sageworks. Historical data has been compiled and training on utilizing the software for the existing incurred loss model has been completed. Training is ongoing during 2018 surrounding CECL implementation and methodologies, including the running of parallel calculations throughout the year. This will facilitate the implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU was issued to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, a company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). The ASU will be effective for the Company on January 1, 2020 and will be applied prospectively. The Company does not expect the implementation to have a material effect on the Company's consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (Loss). This ASU was issued to allow a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the 2017 Tax Act. Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 Tax Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the 2017 Tax Act, the underlying guidance that requires that the effect of a change in
Union Bankshares, Inc. Page 8
tax laws or rates be included in income from continuing operations is not affected. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted for financial statements which have not yet been issued. The Company adopted the ASU for the December 31, 2017 consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This guidance, which is a part of the FASB’s disclosure framework project to improve disclosure effectiveness, eliminates certain disclosure requirements for fair value measurements regarding the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities regarding changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. In addition, this guidance modifies certain requirements regarding the disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not expect the adoption of the ASU to have a material impact on the Company’s consolidated financial statements.
Note 5. Goodwill and Other Intangible Assets
As a result of the 2011 Branch Acquisition, the Company recorded goodwill amounting to $2.2 million. The goodwill is not amortizable. Goodwill is evaluated for impairment annually, in accordance with current authoritative accounting guidance. Management assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Company, in total, is less than its carrying amount. Management is not aware of any such events or circumstances that would cause it to conclude that the fair value of the Company is less than its carrying amount.
The Company also initially recorded $1.7 million of acquired identifiable intangible assets in connection with the 2011 Branch Acquisition, representing the core deposit intangible which is subject to straight-line amortization over the estimated 10 year average life of the core deposit base, absent any future impairment. Management will evaluate the core deposit intangible for impairment if conditions warrant.
Amortization expense for the core deposit intangible was $43 thousand for the three months ended September 30, 2018 and 2017 and $129 thousand for the nine months ended September 30, 2018 and 2017. The amortization expense is included in other expenses on the consolidated statements of income and is deductible for tax purposes. As of September 30, 2018, the remaining amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:
|
| | | |
| (Dollars in thousands) |
2018 | $ | 42 |
|
2019 | 171 |
|
2020 | 171 |
|
2021 | 70 |
|
Total | $ | 454 |
|
Union Bankshares, Inc. Page 9
Note 6. Investment Securities
AFS and HTM investment securities as of the balance sheet dates consisted of the following:
|
| | | | | | | | | | | | |
September 30, 2018 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| (Dollars in thousands) |
Available-for-sale | | | | |
Debt securities: | | | | |
U.S. Government-sponsored enterprises | $ | 6,826 |
| $ | — |
| $ | (265 | ) | $ | 6,561 |
|
Agency mortgage-backed | 37,884 |
| — |
| (1,263 | ) | 36,621 |
|
State and political subdivisions | 24,715 |
| 93 |
| (734 | ) | 24,074 |
|
Corporate | 4,411 |
| 12 |
| (143 | ) | 4,280 |
|
Total | $ | 73,836 |
| $ | 105 |
| $ | (2,405 | ) | $ | 71,536 |
|
|
| | | | | | | | | | | | |
December 31, 2017 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| (Dollars in thousands) |
Available-for-sale | | | | |
Debt securities: | | | | |
U.S. Government-sponsored enterprises | $ | 7,805 |
| $ | 12 |
| $ | (122 | ) | $ | 7,695 |
|
Agency mortgage-backed | 28,378 |
| 12 |
| (274 | ) | 28,116 |
|
State and political subdivisions | 24,704 |
| 249 |
| (239 | ) | 24,714 |
|
Corporate | 4,412 |
| 48 |
| (67 | ) | 4,393 |
|
Total debt securities | 65,299 |
| 321 |
| (702 | ) | 64,918 |
|
Mutual funds (1) | 521 |
| — |
| — |
| 521 |
|
Total | $ | 65,820 |
| $ | 321 |
| $ | (702 | ) | $ | 65,439 |
|
Held-to-maturity | | | | |
U.S. Government-sponsored enterprises | $ | 1,000 |
| $ | — |
| $ | (1 | ) | $ | 999 |
|
____________________
| |
(1) | As of December 31, 2017, mutual funds were classified as AFS investment securities. Effective January 1, 2018, these investments were reclassified to other investments on the consolidated balance sheets as they are no longer eligible to be classified as AFS upon adoption of ASU No. 2016-01. |
There were no investment securities HTM at September 30, 2018. Investment securities AFS with a carrying amount of $3.7 million and $4.6 million at September 30, 2018 and December 31, 2017, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.
Union Bankshares, Inc. Page 10
The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of September 30, 2018 were as follows:
|
| | | | | | |
| Amortized Cost | Fair Value |
Available-for-sale | (Dollars in thousands) |
Due in one year or less | $ | 111 |
| $ | 112 |
|
Due from one to five years | 5,293 |
| 5,289 |
|
Due from five to ten years | 16,348 |
| 15,865 |
|
Due after ten years | 14,200 |
| 13,649 |
|
| 35,952 |
| 34,915 |
|
Agency mortgage-backed | 37,884 |
| 36,621 |
|
Total debt securities available-for-sale | $ | 73,836 |
| $ | 71,536 |
|
Actual maturities may differ for certain debt securities that may be called by the issuer prior to the contractual maturity. Actual maturities usually differ from contractual maturities on agency MBS because the mortgages underlying the securities may be prepaid, usually without any penalties. Therefore, these agency MBS are shown separately and are not included in the contractual maturity categories in the above maturity summary.
As of September 30, 2018, other investments consisted of mutual funds with a fair value of $597 thousand, a cost basis of $477 thousand and unrealized gains of $120 thousand.
Information pertaining to all investment securities with gross unrealized losses as of the balance sheet dates, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2018 | Less Than 12 Months | 12 Months and over | Total |
| Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses |
| | (Dollars in thousands) |
Debt securities: | | | | | | | | | |
U.S. Government- sponsored enterprises | 4 |
| $ | 2,144 |
| $ | (33 | ) | 11 |
| $ | 4,417 |
| $ | (232 | ) | 15 |
| $ | 6,561 |
| $ | (265 | ) |
Agency mortgage-backed | 39 |
| 29,164 |
| (856 | ) | 13 |
| 7,457 |
| (407 | ) | 52 |
| 36,621 |
| (1,263 | ) |
State and political subdivisions | 25 |
| 8,974 |
| (137 | ) | 25 |
| 10,901 |
| (597 | ) | 50 |
| 19,875 |
| (734 | ) |
Corporate | 5 |
| 2,463 |
| (47 | ) | 3 |
| 1,305 |
| (96 | ) | 8 |
| 3,768 |
| (143 | ) |
Total | 73 |
| $ | 42,745 |
| $ | (1,073 | ) | 52 |
| $ | 24,080 |
| $ | (1,332 | ) | 125 |
| $ | 66,825 |
| $ | (2,405 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | Less Than 12 Months | 12 Months and over | Total |
| Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses | Number of Securities | Fair Value | Gross Unrealized Losses |
| | (Dollars in thousands) |
Debt securities: | | | | | | | | | |
U.S. Government- sponsored enterprises | 3 |
| $ | 1,824 |
| $ | (7 | ) | 9 |
| $ | 4,374 |
| $ | (116 | ) | 12 |
| $ | 6,198 |
| $ | (123 | ) |
Agency mortgage-backed | 26 |
| 19,315 |
| (143 | ) | 7 |
| 5,222 |
| (131 | ) | 33 |
| 24,537 |
| (274 | ) |
State and political subdivisions | 8 |
| 3,803 |
| (22 | ) | 18 |
| 7,899 |
| (217 | ) | 26 |
| 11,702 |
| (239 | ) |
Corporate | 2 |
| 870 |
| (31 | ) | 2 |
| 964 |
| (36 | ) | 4 |
| 1,834 |
| (67 | ) |
Total | 39 |
| $ | 25,812 |
| $ | (203 | ) | 36 |
| $ | 18,459 |
| $ | (500 | ) | 75 |
| $ | 44,271 |
| $ | (703 | ) |
Union Bankshares, Inc. Page 11
The Company evaluates all investment securities on a quarterly basis, and more frequently when economic conditions warrant, to determine if an OTTI exists. A security is considered impaired if the fair value is lower than its amortized cost basis at the report date. If impaired, management then assesses whether the unrealized loss is OTT.
An unrealized loss on a debt security is generally deemed to be OTT and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. The credit loss component of OTTI write-down is recorded, net of tax effect, through net income as a component of net OTTI losses in the consolidated statements of income, while the remaining portion of the impairment loss is recognized in OCI, provided the Company does not intend to sell the underlying debt security and it is "more likely than not" that the Company will not have to sell the debt security prior to recovery. Declines in the fair values of individual equity securities that are deemed by management to be OTT are reflected in noninterest income when identified.
Management considers the following factors in determining whether OTTI exists and the period over which the security is expected to recover:
| |
• | The length of time, and extent to which, the fair value has been less than the amortized cost; |
| |
• | Adverse conditions specifically related to the security, industry, or geographic area; |
| |
• | The historical and implied volatility of the fair value of the security; |
| |
• | The payment structure of the debt security and the likelihood of the issuer being able to make payments that may increase in the future; |
| |
• | Failure of the issuer of the security to make scheduled interest or principal payments; |
| |
• | Any changes to the rating of the security by a rating agency; |
| |
• | Recoveries or additional declines in fair value subsequent to the balance sheet date; and |
| |
• | The nature of the issuer, including whether it is a private company, public entity or government-sponsored enterprise, and the existence or likelihood of any government or third party guaranty. |
The Company has the ability to hold the investment securities that had unrealized losses at September 30, 2018 and December 31, 2017 for the foreseeable future and no declines were deemed by management to be OTT.
There were no sales of AFS securities during the three and nine months ended September 30, 2018. The following table presents the proceeds, gross realized gains and gross realized losses from the sale of AFS securities for the three and nine months ended September 30, 2017.
|
| | | | | | |
| For The Three Months Ended September 30, 2017 | For The Nine Months Ended September 30, 2017 |
| (Dollars in thousands) |
Proceeds | $ | 2,517 |
| $ | 3,962 |
|
| | |
Gross gains | 24 |
| 56 |
|
Gross losses | — |
| (23 | ) |
Net gains on sales of investment securities AFS | $ | 24 |
| $ | 33 |
|
Note 7. Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
Loan interest income is accrued daily on outstanding balances. The following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on nonaccrual loans is generally not recognized unless a loan is returned to accrual status or after all principal has been collected. Interest income generally is not recognized on impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Delinquency status is determined based
Union Bankshares, Inc. Page 12
on contractual terms for all portfolio segments and loan classes. Loans past due 30 days or more are considered delinquent. Loans are considered in process of foreclosure when a judgment of foreclosure has been issued by the court.
Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company generally amortizes these amounts over the estimated average life of the related loans.
The composition of Net loans as of the balance sheet dates were as follows:
|
| | | | | | |
| September 30, 2018 | December 31, 2017 |
| (Dollars in thousands) |
Residential real estate | $ | 185,620 |
| $ | 178,999 |
|
Construction real estate | 54,076 |
| 42,935 |
|
Commercial real estate | 272,266 |
| 254,291 |
|
Commercial | 47,382 |
| 50,719 |
|
Consumer | 3,367 |
| 3,894 |
|
Municipal | 73,528 |
| 55,777 |
|
Gross loans | 636,239 |
| 586,615 |
|
Allowance for loan losses | (5,610 | ) | (5,408 | ) |
Net deferred loan costs | 891 |
| 795 |
|
Net loans | $ | 631,520 |
| $ | 582,002 |
|
Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of $165.9 million and $164.5 million were pledged as collateral for borrowings from the FHLB under a blanket lien at September 30, 2018 and December 31, 2017, respectively.
A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:
|
| | | | | | | | | | | | | | | | | | |
September 30, 2018 | Current | 30-59 Days | 60-89 Days | 90 Days and Over and Accruing | Nonaccrual | Total |
| (Dollars in thousands) |
Residential real estate | $ | 183,758 |
| $ | 23 |
| $ | 823 |
| $ | 314 |
| $ | 702 |
| $ | 185,620 |
|
Construction real estate | 53,186 |
| 422 |
| 386 |
| 36 |
| 46 |
| 54,076 |
|
Commercial real estate | 271,269 |
| — |
| 713 |
| — |
| 284 |
| 272,266 |
|
Commercial | 47,329 |
| 9 |
| 7 |
| — |
| 37 |
| 47,382 |
|
Consumer | 3,344 |
| 16 |
| 5 |
| 2 |
| — |
| 3,367 |
|
Municipal | 73,528 |
| — |
| — |
| — |
| — |
| 73,528 |
|
Total | $ | 632,414 |
| $ | 470 |
| $ | 1,934 |
| $ | 352 |
| $ | 1,069 |
| $ | 636,239 |
|
|
| | | | | | | | | | | | | | | | | | |
December 31, 2017 | Current | 30-59 Days | 60-89 Days | 90 Days and Over and Accruing | Nonaccrual | Total |
| (Dollars in thousands) |
Residential real estate | $ | 173,914 |
| $ | 3,047 |
| $ | 750 |
| $ | 472 |
| $ | 816 |
| $ | 178,999 |
|
Construction real estate | 42,857 |
| — |
| — |
| 22 |
| 56 |
| 42,935 |
|
Commercial real estate | 253,266 |
| 357 |
| 361 |
| — |
| 307 |
| 254,291 |
|
Commercial | 50,675 |
| 21 |
| 11 |
| — |
| 12 |
| 50,719 |
|
Consumer | 3,884 |
| 7 |
| 3 |
| — |
| — |
| 3,894 |
|
Municipal | 55,777 |
| — |
| — |
| — |
| — |
| 55,777 |
|
Total | $ | 580,373 |
| $ | 3,432 |
| $ | 1,125 |
| $ | 494 |
| $ | 1,191 |
| $ | 586,615 |
|
Union Bankshares, Inc. Page 13
There was one residential real estate loan totaling $131 thousand in process of foreclosure at September 30, 2018. Aggregate interest on nonaccrual loans not recognized was $1.3 million as of September 30, 2018 and 2017, and $1.2 million as of December 31, 2017.
Note 8. Allowance for Loan Losses and Credit Quality
The ALL is established for estimated losses in the loan portfolio through a provision for loan losses charged to earnings. For all loan classes, loan losses are charged against the ALL when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.
The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALL is based on management's periodic evaluation of the collectability of the loan portfolio, including the nature, volume and risk characteristics of the portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. There was no change to the methodology used to estimate the ALL during the third quarter of 2018. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.
In addition, various regulatory agencies, as an integral part of their examination process, regularly review the Company's ALL. Such agencies may require the Company to recognize additions to the ALL, with a corresponding charge to earnings, based on their judgments about information available to them at the time of their examination, which may not be currently available to management.
The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would otherwise not be granted. A TDR classification may result from the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan's terms (such as reduction of stated interest rates below market rates, extension of maturity that does not conform to the Company's policies, reduction of the face amount of the loan, reduction of accrued interest, or reduction or deferment of loan payments), or a combination. A specific reserve amount is allocated to the ALL for individual loans that have been classified as impaired based on management's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The Company accounts for the change in present value attributable to the passage of time in the loan loss reserve. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management has established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.
The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the various risk characteristics of each portfolio segment. Risk characteristics relevant to each portfolio segment are as follows:
| |
• | Residential real estate - Loans in this segment are collateralized by owner-occupied 1-4 family residential real estate, second and vacation homes, 1-4 family investment properties, home equity and second mortgage loans. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality of this segment. |
| |
• | Construction real estate - Loans in this segment include residential and commercial construction properties, commercial real estate development loans (while in the construction phase of the projects), land and land development loans. Repayment is dependent on the credit quality of the individual borrower and/or the underlying cash flows generated by the properties being constructed. The overall health of the economy, including unemployment rates, housing prices, vacancy rates and material costs, could have an effect on the credit quality of this segment. |
Union Bankshares, Inc. Page 14
| |
• | Commercial real estate - Loans in this segment are primarily properties occupied by businesses or income-producing properties. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by a general slowdown in business or increased vacancy rates which, in turn, could have an effect on the credit quality of this segment. Management requests business financial statements at least annually and monitors the cash flows of these loans. |
| |
• | Commercial - Loans in this segment are made to businesses and are generally secured by non-real estate assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer or business spending, could have an effect on the credit quality of this segment. |
| |
• | Consumer - Loans in this segment are made to individuals for personal expenditures, such as an automobile purchase, and include unsecured loans. Repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment, could have an effect on the credit quality of this segment. |
| |
• | Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment. |
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
All evaluations are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available or as changes occur in economic conditions or other relevant factors. Despite the allocation shown in the tables below, the ALL is general in nature and is available to absorb losses from any class of loan.
Changes in the ALL, by class of loans, for the three and nine months ended September 30, 2018 and 2017 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
For The Three Months Ended September 30, 2018 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, June 30, 2018 | $ | 1,375 |
| $ | 556 |
| $ | 2,855 |
| $ | 374 |
| $ | 26 |
| $ | 30 |
| $ | 337 |
| $ | 5,553 |
|
Provision (credit) for loan losses | 133 |
| 46 |
| 21 |
| (10 | ) | (10 | ) | 51 |
| (81 | ) | 150 |
|
Recoveries of amounts charged off | — |
| — |
| — |
| — |
| 13 |
| — |
| — |
| 13 |
|
| 1,508 |
| 602 |
| 2,876 |
| 364 |
| 29 |
| 81 |
| 256 |
| 5,716 |
|
Amounts charged off | (100 | ) | — |
| — |
| — |
| (6 | ) | — |
| — |
| (106 | ) |
Balance, September 30, 2018 | $ | 1,408 |
| $ | 602 |
| $ | 2,876 |
| $ | 364 |
| $ | 23 |
| $ | 81 |
| $ | 256 |
| $ | 5,610 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
For The Three Months Ended September 30, 2017 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, June 30, 2017 | $ | 1,387 |
| $ | 481 |
| $ | 2,753 |
| $ | 362 |
| $ | 24 |
| $ | 26 |
| $ | 135 |
| $ | 5,168 |
|
Provision (credit) for loan losses | 56 |
| (76 | ) | 37 |
| (6 | ) | 3 |
| 39 |
| 97 |
| 150 |
|
Recoveries of amounts charged off | 36 |
| 3 |
| — |
| 3 |
| 1 |
| — |
| — |
| 43 |
|
| 1,479 |
| 408 |
| 2,790 |
| 359 |
| 28 |
| 65 |
| 232 |
| 5,361 |
|
Amounts charged off | (100 | ) | — |
| — |
| — |
| (2 | ) | — |
| — |
| (102 | ) |
Balance, September 30, 2017 | $ | 1,379 |
| $ | 408 |
| $ | 2,790 |
| $ | 359 |
| $ | 26 |
| $ | 65 |
| $ | 232 |
| $ | 5,259 |
|
Union Bankshares, Inc. Page 15
|
| | | | | | | | | | | | | | | | | | | | | | | | |
For The Nine Months Ended September 30, 2018 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, December 31, 2017 | $ | 1,361 |
| $ | 488 |
| $ | 2,707 |
| $ | 395 |
| $ | 30 |
| $ | 64 |
| $ | 363 |
| $ | 5,408 |
|
Provision (credit) for loan losses | 147 |
| 114 |
| 169 |
| (29 | ) | (11 | ) | 17 |
| (107 | ) | 300 |
|
Recoveries of amounts charged off | — |
| — |
| — |
| — |
| 17 |
| — |
| — |
| 17 |
|
| 1,508 |
| 602 |
| 2,876 |
| 366 |
| 36 |
| 81 |
| 256 |
| 5,725 |
|
Amounts charged off | (100 | ) | — |
| — |
| (2 | ) | (13 | ) | — |
| — |
| (115 | ) |
Balance, September 30, 2018 | $ | 1,408 |
| $ | 602 |
| $ | 2,876 |
| $ | 364 |
| $ | 23 |
| $ | 81 |
| $ | 256 |
| $ | 5,610 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
For The Nine Months Ended September 30, 2017 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Balance, December 31, 2016 | $ | 1,399 |
| $ | 391 |
| $ | 2,687 |
| $ | 342 |
| $ | 26 |
| $ | 40 |
| $ | 362 |
| $ | 5,247 |
|
Provision (credit) for loan losses | 124 |
| 8 |
| 103 |
| 13 |
| 7 |
| 25 |
| (130 | ) | 150 |
|
Recoveries of amounts charged off | 38 |
| 9 |
| — |
| 4 |
| 2 |
| — |
| — |
| 53 |
|
| 1,561 |
| 408 |
| 2,790 |
| 359 |
| 35 |
| 65 |
| 232 |
| 5,450 |
|
Amounts charged off | (182 | ) | — |
| — |
| — |
| (9 | ) | — |
| — |
| (191 | ) |
Balance, September 30, 2017 | $ | 1,379 |
| $ | 408 |
| $ | 2,790 |
| $ | 359 |
| $ | 26 |
| $ | 65 |
| $ | 232 |
| $ | 5,259 |
|
The allocation of the ALL, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
September 30, 2018 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 49 |
| $ | — |
| $ | 9 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 58 |
|
Collectively evaluated for impairment | 1,359 |
| 602 |
| 2,867 |
| 364 |
| 23 |
| 81 |
| 256 |
| 5,552 |
|
Total allocated | $ | 1,408 |
| $ | 602 |
| $ | 2,876 |
| $ | 364 |
| $ | 23 |
| $ | 81 |
| $ | 256 |
| $ | 5,610 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Unallocated | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 47 |
| $ | — |
| $ | 1 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 48 |
|
Collectively evaluated for impairment | 1,314 |
| 488 |
| 2,706 |
| 395 |
| 30 |
| 64 |
| 363 |
| 5,360 |
|
Total allocated | $ | 1,361 |
| $ | 488 |
| $ | 2,707 |
| $ | 395 |
| $ | 30 |
| $ | 64 |
| $ | 363 |
| $ | 5,408 |
|
The recorded investment in loans, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:
|
| | | | | | | | | | | | | | | | | | | | | |
September 30, 2018 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 1,688 |
| $ | 78 |
| $ | 2,318 |
| $ | 370 |
| $ | — |
| $ | — |
| $ | 4,454 |
|
Collectively evaluated for impairment | 183,932 |
| 53,998 |
| 269,948 |
| 47,012 |
| 3,367 |
| 73,528 |
| 631,785 |
|
Total | $ | 185,620 |
| $ | 54,076 |
| $ | 272,266 |
| $ | 47,382 |
| $ | 3,367 |
| $ | 73,528 |
| $ | 636,239 |
|
Union Bankshares, Inc. Page 16
|
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Individually evaluated for impairment | $ | 1,718 |
| $ | 82 |
| $ | 1,074 |
| $ | 378 |
| $ | — |
| $ | — |
| $ | 3,252 |
|
Collectively evaluated for impairment | 177,281 |
| 42,853 |
| 253,217 |
| 50,341 |
| 3,894 |
| 55,777 |
| 583,363 |
|
Total | $ | 178,999 |
| $ | 42,935 |
| $ | 254,291 |
| $ | 50,719 |
| $ | 3,894 |
| $ | 55,777 |
| $ | 586,615 |
|
Risk and collateral ratings are assigned to loans and are subject to ongoing monitoring by lending and credit personnel with such ratings updated annually or more frequently if warranted. The following is an overview of the Company's loan rating system:
1-3 Rating - Pass
Risk-rating grades "1" through "3" comprise those loans ranging from those with lower than average credit risk, defined as borrowers with high liquidity, excellent financial condition, strong management, favorable industry trends or loans secured by highly liquid assets, through those with marginal credit risk, defined as borrowers that, while creditworthy, exhibit some characteristics requiring special attention by the account officer.
4/M Rating - Satisfactory/Monitor
Borrowers exhibit potential credit weaknesses or downward trends warranting management's attention. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. When warranted, these credits may be monitored on the watch list.
5-7 Rating - Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. The loan may be inadequately protected by the net worth and paying capacity of the obligor and/or the underlying collateral is inadequate.
The following tables summarize the loan ratings applied by management to the Company's loans by class as of the balance sheet dates:
|
| | | | | | | | | | | | | | | | | | | | | |
September 30, 2018 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Pass | $ | 170,256 |
| $ | 42,065 |
| $ | 175,757 |
| $ | 33,609 |
| $ | 3,333 |
| $ | 73,528 |
| $ | 498,548 |
|
Satisfactory/Monitor | 12,606 |
| 11,886 |
| 93,125 |
| 12,946 |
| 33 |
| — |
| 130,596 |
|
Substandard | 2,758 |
| 125 |
| 3,384 |
| 827 |
| 1 |
| — |
| 7,095 |
|
Total | $ | 185,620 |
| $ | 54,076 |
| $ | 272,266 |
| $ | 47,382 |
| $ | 3,367 |
| $ | 73,528 |
| $ | 636,239 |
|
|
| | | | | | | | | | | | | | | | | | | | | |
December 31, 2017 | Residential Real Estate | Construction Real Estate | Commercial Real Estate | Commercial | Consumer | Municipal | Total |
| (Dollars in thousands) |
Pass | $ | 164,733 |
| $ | 33,401 |
| $ | 177,388 |
| $ | 38,877 |
| $ | 3,859 |
| $ | 55,777 |
| $ | 474,035 |
|
Satisfactory/Monitor | 11,296 |
| 9,374 |
| 73,772 |
| 11,165 |
| 30 |
| — |
| 105,637 |
|
Substandard | 2,970 |
| 160 |
| 3,131 |
| 677 |
| 5 |
| — |
| 6,943 |
|
Total | $ | 178,999 |
| $ | 42,935 |
| $ | 254,291 |
| $ | 50,719 |
| $ | 3,894 |
| $ | 55,777 |
| $ | 586,615 |
|
Union Bankshares, Inc. Page 17
The following tables provide information with respect to impaired loans by class of loan as of and for the three and nine months ended September 30, 2018 and September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2018 | For The Three Months Ended September 30, 2018 | For The Nine Months Ended September 30, 2018 |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized |
| (Dollars in thousands) |
Residential real estate | $ | 231 |
| $ | 240 |
| $ | 49 |
| | | | |
Commercial real estate | 196 |
| 196 |
| 9 |
| | | | |
With an allowance recorded | 427 |
| 436 |
| 58 |
| | | | |
| | | | | | | |
Residential real estate | 1,457 |
| 2,028 |
| — |
| | | | |
Construction real estate | 78 |
| 78 |
| — |
| | | | |
Commercial real estate | 2,122 |
| 2,210 |
| — |
| | | | |
Commercial | 370 |
| 370 |
| — |
| | | | |
With no allowance recorded | 4,027 |
| 4,686 |
| — |
| | | | |
| | | | | | | |
Residential real estate | 1,688 |
| 2,268 |
| 49 |
| $ | 1,743 |
| $ | 17 |
| $ | 1,749 |
| $ | 46 |
|
Construction real estate | 78 |
| 78 |
| — |
| 79 |
| 1 |
| 80 |
| 3 |
|
Commercial real estate | 2,318 |
| 2,406 |
| 9 |
| 2,045 |
| 21 |
| 1,555 |
| 52 |
|
Commercial | 370 |
| 370 |
| — |
| 365 |
| 9 |
| 371 |
| 23 |
|
Total | $ | 4,454 |
| $ | 5,122 |
| $ | 58 |
| $ | 4,232 |
| $ | 48 |
| $ | 3,755 |
| $ | 124 |
|
____________________
| |
(1) | Does not reflect government guaranties on impaired loans as of September 30, 2018 totaling $656 thousand. |
|
| | | | | | | | | | | | | | | | | | | | | |
| As of September 30, 2017 | For The Three Months Ended September 30, 2017 | For The Nine Months Ended September 30, 2017 |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized |
| (Dollars in thousands) |
Residential real estate | $ | 1,939 |
| $ | 2,478 |
| $ | 57 |
| $ | 1,855 |
| $ | 23 |
| $ | 1,684 |
| $ | 54 |
|
Construction real estate | 84 |
| 84 |
| — |
| 84 |
| 1 |
| 86 |
| 3 |
|
Commercial real estate | 1,484 |
| 1,560 |
| 4 |
| 1,626 |
| 18 |
| 2,200 |
| 72 |
|
Commercial | 393 |
| 393 |
| — |
| 400 |
| 7 |
| 412 |
| 19 |
|
Total | $ | 3,900 |
| $ | 4,515 |
| $ | 61 |
| $ | 3,965 |
| $ | 49 |
| $ | 4,382 |
| $ | 148 |
|
____________________
| |
(1) | Does not reflect government guaranties on impaired loans as of September 30, 2017 totaling $564 thousand. |
Union Bankshares, Inc. Page 18
The following table provides information with respect to impaired loans by class of loan as of December 31, 2017:
|
| | | | | | | | | | | |
| December 31, 2017 | | |
| Recorded Investment (1) | Principal Balance (1) | Related Allowance | | |
| (Dollars in thousands) | | |
Residential real estate | $ | 238 |
| $ | 247 |
| $ | 47 |
| | |
Commercial real estate | 137 |
| 141 |
| 1 |
| | |
With an allowance recorded | 375 |
| 388 |
| 48 |
| | |
| | | | | |
Residential real estate | 1,480 |
| 1,983 |
| — |
| | |
Construction real estate | 82 |
| 82 |
| — |
| | |
Commercial real estate | 937 |
| 1,011 |
| — |
| | |
Commercial | 378 |
| 378 |
| — |
| | |
With no allowance recorded | 2,877 |
| 3,454 |
| — |
| | |
| | | | | |
Residential real estate | 1,718 |
| 2,230 |
| 47 |
| | |
Construction real estate | 82 |
| 82 |
| — |
| | |
Commercial real estate | 1,074 |
| 1,152 |
| 1 |
| | |
Commercial | 378 |
| 378 |
| — |
| | |
Total | $ | 3,252 |
| $ | 3,842 |
| $ | 48 |
| | |
____________________
| |
(1) | Does not reflect government guaranties on impaired loans as of December 31, 2017 totaling $550 thousand. |
The following is a summary of TDR loans by class of loan as of the balance sheet dates:
|
| | | | | | | | | | |
| September 30, 2018 | December 31, 2017 |
| Number of Loans | Principal Balance | Number of Loans | Principal Balance |
| (Dollars in thousands) |
Residential real estate | 26 |
| $ | 1,688 |
| 24 |
| $ | 1,718 |
|
Construction real estate | 1 |
| 78 |
| 1 |
| 82 |
|
Commercial real estate | 9 |
| 1,191 |
| 10 |
| 1,074 |
|
Commercial | 4 |
| 358 |
| 2 |
| 378 |
|
Total | 40 |
| $ | 3,315 |
| 37 |
| $ | 3,252 |
|
The TDR loans above represent loan modifications in which a concession was provided to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgiveness of accrued interest. Troubled loans, that are restructured and meet established thresholds, are classified as impaired and a specific reserve amount is allocated to the ALL on the basis of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows.
Union Bankshares, Inc. Page 19
The following tables provide new TDR activity for the three and nine months ended September 30, 2018 and 2017:
|
| | | | | | | | | | | | | | | | |
| New TDRs During the | New TDRs During the |
| Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 |
| Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment |
| (Dollars in thousands) |
Residential real estate | 1 |
| $ | 80 |
| $ | 81 |
| 2 |
| $ | 176 |
| $ | 179 |
|
Commercial real estate | — |
| — |
| — |
| 1 |
| 204 |
| 204 |
|
Commercial | 1 |
| 18 |
| 18 |
| 2 |
| 31 |
| 31 |
|
|
| | | | | | | | | | | | | | | | |
| New TDRs During the | New TDRs During the |
| Three Months Ended September 30, 2017 | Nine Months Ended September 30, 2017 |
| Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment | Number of Loans | Pre-Modification Outstanding Recorded Investment | Post-Modification Outstanding Recorded Investment |
| (Dollars in thousands) |
Residential real estate | 3 |
| $ | 269 |
| $ | 276 |
| 9 |
| $ | 649 |
| $ | 673 |
|
Commercial real estate | 1 |
| 149 |
| 149 |
| 2 |
| 293 |
| 293 |
|
There were no TDR loans modified within the previous twelve months that had subsequently defaulted during the three and nine month periods ended September 30, 2018 or September 30, 2017. TDR loans are considered defaulted at 90 days past due.
At September 30, 2018 and December 31, 2017, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.
Note 9. Defined Benefit Pension Plan
On October 18, 2017, the Company's Board of Directors voted to terminate Union Bank’s Defined Benefit Pension Plan. In order to settle the liabilities under the Plan, the Company offered participants the option to receive an annuity purchased from an insurance carrier, a lump-sum cash payment, or a direct rollover into a qualifying retirement plan. As of September 30, 2018, all participants had selected a payout option and as of October 11, 2018 an annuity provider had been selected. A cash contribution of $850 thousand was made to the Plan during the third quarter to cover lump-sum payments and annuity purchases. No additional contribution to the Plan is expected. The Company estimates that in addition to the net periodic pension cost of $507 thousand recognized as of September 30, 2018, an additional $3.2 million reduction in net income will be recorded in the fourth quarter of 2018 as a result of the Plan termination and settlement of Plan assets and liabilities. The Company anticipates completing the transfer of all liabilities and administrative responsibilities under the Plan by December 31, 2018. Once the process is complete, the Company will no longer have any remaining defined benefit pension plan obligations and thus no periodic pension expense.
The Company's pension benefit obligation and net periodic benefit costs for the Plan are actuarially determined based on assumptions regarding the appropriate discount rate, current and expected future return on Plan assets, and anticipated mortality rates. Weighted average assumptions used to determine the net periodic pension cost (benefit) for the three and nine months ended September 30, 2018 and 2017 have remained consistent with assumptions disclosed in the Company's 2017 Annual Report.
Net periodic pension cost (benefit) for the three and nine months ended September 30 consisted of the following components:
|
| | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
| 2018 | 2017 | 2018 | 2017 |
| (Dollars in thousands) |
Interest cost on projected benefit obligation | $ | 179 |
| $ | 172 |
| $ | 537 |
| $ | 516 |
|
Expected return on plan assets | (161 | ) | (243 | ) | (483 | ) | (729 | ) |
Amortization of net loss | 151 |
| 51 |
| 453 |
| 153 |
|
Net periodic cost (benefit) | $ | 169 |
| $ | (20 | ) | $ | 507 |
| $ | (60 | ) |
Union Bankshares, Inc. Page 20
Note 10. Stock Based Compensation
The Company's current stock based compensation plan is the Union Bankshares, Inc. 2014 Equity Incentive Plan. Under the 2014 Equity Plan, 50,000 shares of the Company’s common stock are available for equity awards of incentive stock options, nonqualified stock options, restricted stock and RSUs to eligible officers and (except for awards of incentive stock options) nonemployee directors. Shares available for issuance of awards under the 2014 Equity Plan consist of unissued shares of the Company’s common stock and/or shares held in treasury. As of September 30, 2018, there were outstanding grants under the plan of RSUs and incentive stock options.
RSUs. Each RSU represents the right to receive one share of the Company's common stock upon satisfaction of applicable vesting conditions. The general terms of the awards are described in the Company's 2017 Annual Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.
The following table presents a summary of the RSUs awarded in accordance with the 2015, 2016, and 2017 Award Plan Summaries, as of September 30, 2018:
|
| | | | | | | |
| Number of RSUs Granted | Weighted-Average Grant Date Fair Value | Number of Unvested RSUs |
2015 Award | 5,445 |
| $ | 27.91 |
| 730 |
|
2016 Award | 3,569 |
| 45.45 |
| 2,026 |
|
2017 Award | 3,225 | $ | 52.95 |
| 3,225 |
|
Total | 12,239 |
| 5,981 |
Unrecognized compensation expense related to the unvested RSUs as of September 30, 2018 and September 30, 2017 was $71 thousand and $62 thousand, respectively.
During the nine months ended September 30, 2018, a total of 2,645 contingent RSUs were provisionally granted in accordance with a 2018 Award Plan Summary. The estimated number of contingent RSUs provisionally granted was based on target performance-based payout amounts detailed in the 2018 Award Plan Summary approved by the Board of Directors and on the closing market price of the Company's stock on the March 21, 2018 provisional grant date ($53.95 per share). As with the 2015, 2016, and 2017 grants, one half is in the form of Time-Based RSUs and one-half is in the form of Performance-Based RSUs. The actual number of Time-Based RSUs granted (if any) will be determined as of the earned date of December 31, 2018, based on the closing market price of the Company's stock on that date, while the actual number of Performance-Based RSUs granted (if any) will be determined during the first quarter of 2019, based on actual 2018 performance. The contingent RSUs were granted on substantially the same terms and conditions as the RSUs granted under the previous annual Award Plan Summaries. As of September 30, 2018, the estimated unrecognized compensation expense related to the provisionally granted RSUs, based on the closing market price of the Company's stock on the provisional grant date of March 21, 2018, was $143 thousand.
Stock options. As of September 30, 2018, 4,500 incentive stock options granted in December 2014 under the 2014 Equity Plan remained outstanding and exercisable and will expire in December 2021. There was no unrecognized compensation expense related to those options as of September 30, 2018. The estimated intrinsic value of those options was $131 thousand as of September 30, 2018.
As of September 30, 2018, 3,000 incentive stock options granted under the 2008 ISO Plan remained outstanding and exercisable, with the last of such options expiring in December 2020. There was no unrecognized compensation expense related to those options as of September 30, 2018. The estimated intrinsic value of those options was $93 thousand as of September 30, 2018.
Note 11. Other Comprehensive Income (Loss)
Accounting principles generally require recognized revenue, expenses, gains and losses be included in net income or loss. Certain changes in assets and liabilities, such as the after tax effect of unrealized gains and losses on investment securities AFS that are not OTTI and the unfunded liability for the defined benefit pension plan, are not reflected in the consolidated statements of income. The cumulative effect of such items, net of tax effect, is reported as a separate component of the equity section of the consolidated balance sheets (Accumulated OCI). OCI, along with net income, comprises the Company's total comprehensive income or loss.
Union Bankshares, Inc. Page 21
As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:
|
| | | | | | |
| September 30, 2018 | December 31, 2017 |
| (Dollars in thousands) |
Net unrealized loss on investment securities available-for-sale | $ | (1,817 | ) | $ | (301 | ) |
Defined benefit pension plan net unrealized actuarial loss | (4,795 | ) | (4,795 | ) |
Total | $ | (6,612 | ) | $ | (5,096 | ) |
The following tables disclose the tax effects allocated to each component of OCI for the three and nine months ended September 30:
|
| | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| September 30, 2018 | September 30, 2017 |
| Before-Tax Amount | Tax (Expense) Benefit (1) | Net-of-Tax Amount | Before-Tax Amount | Tax (Expense) Benefit (1) | Net-of-Tax Amount |
| (Dollars in thousands) |
Investment securities available-for-sale: | | | | | | |
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale | $ | (446 | ) | $ | 94 |
| $ | (352 | ) | $ | 70 |
| $ | (24 | ) | $ | 46 |
|
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income | — |
| — |
| — |
| (24 | ) | 8 |
| (16 | ) |
Total other comprehensive (loss) income | $ | (446 | ) | $ | 94 |
| $ | (352 | ) | $ | 46 |
| $ | (16 | ) | $ | 30 |
|
|
| | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| September 30, 2018 | September 30, 2017 |
| Before-Tax Amount | Tax (Expense) Benefit (1) | Net-of-Tax Amount | Before-Tax Amount | Tax (Expense) Benefit (1) | Net-of-Tax Amount |
| (Dollars in thousands) |
Investment securities available-for-sale: | | | | | | |
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale | $ | (1,920 | ) | $ | 404 |
| $ | (1,516 | ) | $ | 923 |
| $ | (314 | ) | $ | 609 |
|
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income | — |
| — |
| — |
| (33 | ) | 11 |
| (22 | ) |
Total other comprehensive (loss) income | $ | (1,920 | ) | $ | 404 |
| $ | (1,516 | ) | $ | 890 |
| $ | (303 | ) | $ | 587 |
|
__________________
| |
(1) | Tax expense/benefit is calculated using a marginal tax rate of 21% and 34% for the three and nine months ended September 30, 2018 and 2017, respectively. |
Union Bankshares, Inc. Page 22
The following table discloses information concerning reclassification adjustments from OCI for the three and nine months ended September 30, 2018 and 2017.
|
| | | | | | | | | | | | | |
| Three Months Ended | Nine Months Ended | |
Reclassification Adjustment Description | September 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 2017 | Affected Line Item in Consolidated Statement of Income |
| (Dollars in thousands) | |