Company Quick10K Filing
Union Bankshares
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 4 $155
10-Q 2019-11-08 Quarter: 2019-09-30
10-Q 2019-08-08 Quarter: 2019-06-30
10-Q 2019-05-08 Quarter: 2019-03-31
10-K 2019-03-15 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-09 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-16 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-09 Quarter: 2017-06-30
10-Q 2017-05-10 Quarter: 2017-03-31
10-K 2017-03-15 Annual: 2016-12-31
10-Q 2016-11-09 Quarter: 2016-09-30
10-Q 2016-08-09 Quarter: 2016-06-30
10-Q 2016-05-10 Quarter: 2016-03-31
10-K 2016-03-15 Annual: 2015-12-31
10-K 2015-03-13 Annual: 2014-12-31
10-K 2014-03-31 Annual: 2013-12-31
10-Q 2013-11-14 Quarter: 2013-09-30
10-Q 2013-08-14 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-K 2013-04-01 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-14 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-16 Quarter: 2011-03-31
10-K 2011-03-28 Annual: 2010-12-31
10-Q 2010-11-12 Quarter: 2010-09-30
10-Q 2010-08-13 Quarter: 2010-06-30
10-Q 2010-05-14 Quarter: 2010-03-31
10-K 2010-03-31 Annual: 2009-12-31
8-K 2020-01-02 Earnings, Other Events, Exhibits
8-K 2019-11-07 Earnings, Exhibits
8-K 2019-08-08 Earnings, Exhibits
8-K 2019-07-17 Earnings, Other Events, Exhibits
8-K 2019-05-15 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2019-05-09 Earnings, Exhibits
8-K 2019-04-17 Earnings, Other Events, Exhibits
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-12-19 Earnings, Other Events, Exhibits
8-K 2018-10-17 Earnings, Other Events, Exhibits
8-K 2018-08-09 Earnings, Exhibits
8-K 2018-07-18 Earnings, Other Events, Exhibits
8-K 2018-05-16 Shareholder Vote
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-04-18 Earnings, Other Events, Exhibits
8-K 2018-02-08 Earnings, Exhibits
8-K 2018-01-17 Earnings, Other Events, Exhibits
8-K 2017-10-18 Leave Agreement, Earnings, Exhibits
UNB 2019-09-30
Part I Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Legal Contingencies
Note 3. per Share Information
Note 4. Recent Accounting Pronouncements
Note 5. Goodwill and Other Intangible Assets
Note 6. Investment Securities
Note 7. Loans
Note 8. Allowance for Loan Losses and Credit Quality
Note 9. Leases
Note 10. Stock Based Compensation
Note 11. Other Comprehensive Income (Loss)
Note 12. Fair Value Measurement
Note 13. Subsequent Events
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 6. Exhibits.
EX-31.1 a93019exhibit311.htm
EX-31.2 a93019exhibit312.htm
EX-32.1 a93019exhibit321.htm
EX-32.2 a93019exhibit322.htm

Union Bankshares Earnings 2019-09-30

UNB 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BSVN 168 798 699 0 0 23 35 44 1.2 3%
CBNK 167 1,234 1,111 0 0 11 27 87 3.3 1%
PEBK 165 1,111 985 0 0 14 19 114 6.0 1%
HWBK 165 1,471 1,362 0 0 15 35 136 3.9 1%
OVLY 159 1,069 962 0 0 12 18 68 3.7 1%
FNCB 158 1,199 1,069 1 0 14 31 226 0% 7.4 1%
OPBK 158 1,128 992 2 0 16 36 75 0% 2.1 1%
UNB 155 774 705 0 0 7 13 155 11.6 1%
FFNW 154 1,298 1,144 3 0 10 30 124 0% 4.1 1%
CBAN 152 1,507 1,380 0 0 11 24 77 3.2 1%

10-Q 1 a2019unb10-qx3rdquarter.htm BODY OF FORM 10-Q 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, 2019

Commission file number: 001-15985

UNION BANKSHARES, INC.
 
VERMONT
 
03-0283552
 

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 every Interactive Data File required to be submitted 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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth 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 28, 2019.
 
Common Stock, $2 par value
 
4,469,048

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, 2019
December 31, 2018
 
(Unaudited)
 
Assets
(Dollars in thousands)
Cash and due from banks
$
5,126

$
4,045

Federal funds sold and overnight deposits
24,774

33,244

Cash and cash equivalents
29,900

37,289

Interest bearing deposits in banks
7,062

9,300

Investment securities available-for-sale
85,274

73,405

Other investments
612

556

Total investments
85,886

73,961

Loans held for sale
13,561

2,899

Loans
657,916

642,461

Allowance for loan losses
(5,808
)
(5,739
)
Net deferred loan costs
988

938

Net loans
653,096

637,660

Premises and equipment, net
22,507

16,073

Company-owned life insurance
12,240

9,040

Other assets
20,636

19,115

Total assets
$
844,888

$
805,337

Liabilities and Stockholders’ Equity
 
 
Liabilities
 
 
Deposits
 
 
Noninterest bearing
$
137,239

$
132,971

Interest bearing
419,646

444,722

Time
159,844

129,077

Total deposits
716,729

706,770

Borrowed funds
47,164

27,821

Accrued interest and other liabilities
10,382

6,255

Total liabilities
774,275

740,846

Commitments and Contingencies


Stockholders’ Equity
 
 
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,945,690 shares
  issued at September 30, 2019 and 4,943,690 shares issued at December 31, 2018
9,892

9,888

Additional paid-in capital
1,099

894

Retained earnings
62,645

58,911

Treasury stock at cost; 476,647 shares at September 30, 2019
  and 477,011 shares at December 31, 2018
(4,186
)
(4,179
)
Accumulated other comprehensive income (loss)
1,163

(1,023
)
Total stockholders' equity
70,613

64,491

Total liabilities and stockholders' equity
$
844,888

$
805,337


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,
 
2019
2018
2019
2018
 
(Dollars in thousands, except per share data)
Interest and dividend income
 
 
 
 
Interest and fees on loans
$
8,502

$
7,482

$
24,604

$
21,855

Interest on debt securities:
 
 
 
 
Taxable
409

321

1,271

918

Tax exempt
131

145

373

436

Dividends
24

65

177

160

Interest on federal funds sold and overnight deposits
19

26

130

88

Interest on interest bearing deposits in banks
46

56

153

152

Total interest and dividend income
9,131

8,095

26,708

23,609

Interest expense
 
 
 
 
Interest on deposits
1,198

842

3,439

1,949

Interest on borrowed funds
299

244

689

515

Total interest expense
1,497

1,086

4,128

2,464

    Net interest income
7,634

7,009

22,580

21,145

Provision for loan losses
150

150

350

300

    Net interest income after provision for loan losses
7,484

6,859

22,230

20,845

Noninterest income
 
 
 
 
Trust income
168

195

519

579

Service fees
1,617

1,568

4,547

4,538

Net gains on sales of investment securities available-for-sale


8


Net gains on sales of loans held for sale
824

596

1,881

1,322

Other income
123

93

399

636

Total noninterest income
2,732

2,452

7,354

7,075

Noninterest expenses
 
 
 
 
Salaries and wages
3,072

2,745

8,773

8,008

Employee benefits
1,043

1,144

3,097

3,299

Occupancy expense, net
428

338

1,287

1,069

Equipment expense
625

528

1,764

1,574

Other expenses
1,833

1,770

5,400

5,005

Total noninterest expenses
7,001

6,525

20,321

18,955

        Income before provision for income taxes
3,215

2,786

9,263

8,965

Provision for income taxes
477

475

1,374

1,457

        Net income
$
2,738

$
2,311

$
7,889

$
7,508

Earnings per common share
$
0.62

$
0.52

$
1.77

$
1.68

Weighted average number of common shares outstanding
4,468,400

4,465,882

4,467,845

4,465,741

Dividends per common share
$
0.31

$
0.30

$
0.93

$
0.90

 
 
 
 
 

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,
 
2019
2018
2019
2018
 
(Dollars in thousands)
Net income
$
2,738

$
2,311

$
7,889

$
7,508

Other comprehensive income (loss), net of tax:
 
 
 
 
Investment securities available-for-sale:
 
 
 
 
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale
441

(352
)
2,192

(1,516
)
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income


(6
)

Total other comprehensive income (loss)
441

(352
)
2,186

(1,516
)
Total comprehensive income
$
3,179

$
1,959

$
10,075

$
5,992


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 (Unaudited)
 
Three Month Period Ended September 30, 2019 and 2018
 
Common Stock
 
 
 
Accumulated
other
comprehensive income (loss)
 
 
Shares,
net of
treasury
Amount
Additional
paid-in
capital
Retained
earnings
Treasury
stock
Total
stockholders’
equity
 
(Dollars in thousands, except per share data)
Balances June 30, 2019
4,467,845

$
9,890

$
1,020

$
61,292

$
(4,188
)
$
722

$
68,736

   Net income



2,738



2,738

   Other comprehensive income





441

441

   Dividend reinvestment plan
198


5


2


7

   Cash dividends declared
       ($0.31 per share)



(1,385
)


(1,385
)
   Stock based compensation expense


54




54

   Exercise of stock options
1,000

2

20




22

Balances, September 30, 2019
4,469,043

$
9,892

$
1,099

$
62,645

$
(4,186
)
$
1,163

$
70,613

 
 
 
 
 
 
 
 
Balances June 30, 2018
4,465,803

$
9,882

$
850

$
59,715

$
(4,078
)
$
(6,260
)
$
60,109

   Net income



2,311



2,311

   Other comprehensive loss





(352
)
(352
)
   Dividend reinvestment plan
143


6


2


8

   Cash dividends declared
  ($0.30 per share)



(1,340
)


(1,340
)
   Stock based compensation expense


41




41

Balances, September 30, 2018
4,465,946

$
9,882

$
897

$
60,686

$
(4,076
)
$
(6,612
)
$
60,777

 
Nine Month Period Ended September 30, 2019 and 2018
 
Common Stock
 
 
 
Accumulated
other
comprehensive income (loss)
 
 
Shares,
net of
treasury
Amount
Additional
paid-in
capital
Retained
earnings
Treasury
stock
Total
stockholders’
equity
 
(Dollars in thousands, except per share data)
Balances, December 31, 2018
4,466,679

$
9,888

$
894

$
58,911

$
(4,179
)
$
(1,023
)
$
64,491

   Net income



7,889



7,889

   Other comprehensive income





2,186

2,186

   Dividend reinvestment plan
664


21


6


27

   Cash dividends declared
       ($0.93 per share)



(4,155
)


(4,155
)
   Stock based compensation expense


144




144

   Exercise of stock options
2,000

4

40




44

   Purchase of treasury stock
(300
)



(13
)

(13
)
Balances, September 30, 2019
4,469,043

$
9,892

$
1,099

$
62,645

$
(4,186
)
$
1,163

$
70,613

 
 
 
 
 
 
 
 
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

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,
 
2019
2018
Cash Flows From Operating Activities
(Dollars in thousands)
Net income
$
7,889

$
7,508

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation
1,122

886

Provision for loan losses
350

300

Deferred income tax credit
(26
)
(57
)
Net amortization of investment securities
305

294

Equity in losses of limited partnerships
534

428

Stock based compensation expense
144

123

Net increase in unamortized loan costs
(50
)
(96
)
Proceeds from sales of loans held for sale
103,207

84,541

Origination of loans held for sale
(111,988
)
(82,729
)
Net gains on sales of loans held for sale
(1,881
)
(1,322
)
Net gain on disposals of premises and equipment

(191
)
Net gain on sales of investment securities available-for-sale
(8
)

Net gain on sales of other real estate owned

(11
)
Decrease (increase) in accrued interest receivable
110

(70
)
Amortization of core deposit intangible
129

129

Increase in other assets
(851
)
(258
)
Contribution to defined benefit pension plan

(850
)
Increase in other liabilities
2,478

1,228

Net cash provided by operating activities
1,464

9,853

Cash Flows From Investing Activities
 
 
Interest bearing deposits in banks
 
 
Proceeds from maturities and redemptions
2,487

1,843

Purchases
(249
)
(2,238
)
Investment securities held-to-maturity
 
 
Proceeds from maturities, calls and paydowns

1,000

Investment securities available-for-sale
 
 
Proceeds from sales
8,785


Proceeds from maturities, calls and paydowns
6,567

4,222

Purchases
(24,752
)
(13,053
)
Other investments
 
 
Proceeds from sales
47

44

Purchases
(103
)
(120
)
Net increase in nonmarketable stock
(231
)
(468
)
Net increase in loans
(15,746
)
(49,739
)
Recoveries of loans charged off
10

17

Purchases of premises and equipment
(6,070
)
(2,391
)
Purchase of Company-owned life insurance
(3,000
)

Proceeds from Company-owned life insurance death benefit

307

Investments in limited partnerships
(1,803
)
(695
)
Proceeds from sales of premises and equipment

204

Proceeds from sales of other real estate owned

47

Net cash used in investing activities
(34,058
)
(61,020
)
 
 
 

Union Bankshares, Inc. Page 5



Cash Flows From Financing Activities
 
 
Advances on long-term borrowings
150,000

164,175

Repayment of long-term debt
(130,287
)
(156,940
)
Net (decrease) increase in short-term borrowings outstanding
(370
)
3,174

Net increase (decrease) in noninterest bearing deposits
4,268

(1,228
)
Net decrease in interest bearing deposits
(25,076
)
(10,656
)
Net increase in time deposits
30,767

32,033

Issuance of common stock
44


Purchase of treasury stock
(13
)
(3
)
Dividends paid
(4,128
)
(3,996
)
Net cash provided by financing activities
25,205

26,559

Net decrease in cash and cash equivalents
(7,389
)
(24,608
)
Cash and cash equivalents
 
 
Beginning of period
37,289

38,508

End of period
$
29,900

$
13,900

Supplemental Disclosures of Cash Flow Information
 
 
Interest paid
$
3,787

$
2,440

Income taxes paid
$
575

$
1,350

 
 
 
Supplemental Schedule of Noncash Investing Activities
 
 
Investment in limited partnerships acquired by capital contributions payable
$
619

$
1,321

Right-of-use operating lease assets obtained in exchange for operating lease liabilities
$
516

$

Right-of-use finance lease assets obtained in exchange for finance lease liabilities
$
1,486

$

 
 
 
Dividends paid on Common Stock:
 
 
Dividends declared
$
4,155

$
4,019

Dividends reinvested
(27
)
(23
)
 
$
4,128

$
3,996

 
 
 

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, 2019, and for the three and nine months ended September 30, 2019 and 2018, 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, 2018 (2018 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 2018 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, 2019, or any future interim period.
Certain amounts in the 2018 consolidated financial statements have been reclassified to conform to the 2019 presentation.
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
2018 Annual Report
Annual Report of Form 10-K for the year ended December 31, 2018
 
 
2017 Tax Act:
Tax Cut and Jobs Act of 2017


Union Bankshares, Inc. Page 7



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.

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
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. The Company adopted this guidance in the first quarter of 2019. The guidance did not significantly change lease accounting requirements applicable to lessors and did not significantly impact the consolidated financial statements in relation to contracts whereby the Company acts as a lessor. Implementation of the guidance resulted in the recording of right-of-use assets and lease liabilities on the consolidated balance sheet, but did not have a material impact on the Company's consolidated statements of income. See Note 9 for additional disclosures relating to the Company's lease assets and liabilities.
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. As initially proposed, 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. In October 2019, the FASB approved amendments to delay the effective date of the ASU to fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. The final ASU is expected to be issued in November 2019. As the Company is a smaller reporting company, the delay will be applicable to the Company and the Company does not intend to early adopt the ASU at this time. The Company has established a CECL implementation team and developed a transition project plan. The Company has entered into an agreement with a software provider, historical data has been compiled and training on utilizing the software for the existing incurred loss model has been completed. The Company continues the collection of historical data and training is ongoing during 2019 surrounding CECL implementation and methodologies, including the running of parallel calculations throughout the year. This will facilitate the eventual 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 August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU was issued to make certain specific improvements to hedge accounting to better align hedge accounting with risk management activities, eliminate the separate measurement and recording of hedge ineffectiveness, improve presentation and disclosure, and other simplifications. The ASU became effective for the Company on January 1, 2019. All transition requirements and elections were applied to existing hedging relationships upon adoption. Adoption of the ASU did not have a material effect on the Company's 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

Union Bankshares, Inc. Page 8



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 which is included in Other assets on the consolidated balance sheets. 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. The net core deposit intangible balance of $284 thousand and $412 thousand at September 30, 2019 and December 31, 2018, respectively, is included in Other assets on the consolidated balance sheets. 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, 2019 and 2018 and $129 thousand for the nine months ended September 30, 2019 and 2018. The amortization expense is included in Other expenses on the consolidated statements of income and is deductible for tax purposes. As of September 30, 2019, the remaining amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:
 
(Dollars in thousands)
2019
$
43

2020
171

2021
70

Total
$
284


Note 6. Investment Securities
AFS securities as of the balance sheet dates consisted of the following:
September 30, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(Dollars in thousands)
Available-for-sale
 
 
 
 
Debt securities:
 
 
 
 
U.S. Government-sponsored enterprises
$
6,610

$
60

$
(58
)
$
6,612

Agency mortgage-backed
46,403

687

(56
)
47,034

State and political subdivisions
22,987

547

(7
)
23,527

Corporate
7,801

383

(83
)
8,101

Total
$
83,801

$
1,677

$
(204
)
$
85,274


Union Bankshares, Inc. Page 9



December 31, 2018
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(Dollars in thousands)
Available-for-sale
 
 
 
 
Debt securities:
 
 
 
 
U.S. Government-sponsored enterprises
$
6,528

$
1

$
(208
)
$
6,321

Agency mortgage-backed
36,851

84

(683
)
36,252

State and political subdivisions
23,527

130

(486
)
23,171

Corporate
7,792

18

(149
)
7,661

Total
$
74,698

$
233

$
(1,526
)
$
73,405


There were no investment securities HTM at September 30, 2019 or December 31, 2018. There were no investment securities pledged as collateral at September 30, 2019. At December 31, 2018, investment securities AFS with a carrying amount of $2.5 million were pledged as collateral for public deposits and for other purposes as required or permitted by law.

The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of September 30, 2019 were as follows:
 
Amortized
Cost
Fair
Value
Available-for-sale
(Dollars in thousands)
Due in one year or less
$
90

$
90

Due from one to five years
3,998

4,126

Due from five to ten years
17,193

17,608

Due after ten years
16,117

16,416

 
37,398

38,240

Agency mortgage-backed
46,403

47,034

Total debt securities available-for-sale
$
83,801

$
85,274


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.

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, 2019
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
2

$
1,185

$
(4
)
9

$
2,997

$
(54
)
11

$
4,182

$
(58
)
Agency mortgage-backed
7

8,272

(19
)
8

5,165

(37
)
15

13,437

(56
)
State and political
  subdivisions
2

752

(6
)
1

305

(1
)
3

1,057

(7
)
Corporate



3

1,417

(83
)
3

1,417

(83
)
Total
11

$
10,209

$
(29
)
21

$
9,884

$
(175
)
32

$
20,093

$
(204
)

Union Bankshares, Inc. Page 10



December 31, 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
2

$
1,184

$
(11
)
12

$
4,854

$
(197
)
14

$
6,038

$
(208
)
Agency mortgage-backed
5

3,516

(21
)
40

26,198

(662
)
45

29,714

(683
)
State and political
  subdivisions
4

1,301

(16
)
36

15,067

(470
)
40

16,368

(486
)
Corporate
5

2,424

(12
)
5

2,285

(137
)
10

4,709

(149
)
Total
16

$
8,425

$
(60
)
93

$
48,404

$
(1,466
)
109

$
56,829

$
(1,526
)
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.

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, 2019 and December 31, 2018 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, 2019:
 
For The Three Months Ended September 30, 2019
For The Nine Months Ended September 30, 2019
 
(Dollars in thousands)
Proceeds
$

$
8,785

 
 
 
Gross gains

45

Gross losses

(37
)
Net gains on sales of investment securities AFS
$

$
8



Union Bankshares, Inc. Page 11



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 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,
2019
December 31,
2018
 
(Dollars in thousands)
Residential real estate
$
192,617

$
187,320

Construction real estate
63,245

55,322

Commercial real estate
284,271

276,500

Commercial
44,536

47,228

Consumer
3,566

3,241

Municipal
69,681

72,850

    Gross loans
657,916

642,461

Allowance for loan losses
(5,808
)
(5,739
)
Net deferred loan costs
988

938

    Net loans
$
653,096

$
637,660

Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of $207.8 million and $167.7 million were pledged as collateral for borrowings from the FHLB under a blanket lien at September 30, 2019 and December 31, 2018, respectively.
A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:
September 30, 2019
Current
30-59 Days
60-89 Days
90 Days and Over and Accruing
Nonaccrual
Total
 
(Dollars in thousands)
Residential real estate
$
190,021

$
168

$
1,075

$
955

$
398

$
192,617

Construction real estate
62,764

98

122

228

33

63,245

Commercial real estate
282,238

1,549

192

24

268

284,271

Commercial
44,481


6

25

24

44,536

Consumer
3,545

19

2



3,566

Municipal
69,681





69,681

Total
$
652,730

$
1,834

$
1,397

$
1,232

$
723

$
657,916



Union Bankshares, Inc. Page 12



December 31, 2018
Current
30-59 Days
60-89 Days
90 Days and Over and Accruing
Nonaccrual
Total
 
(Dollars in thousands)
Residential real estate
$
183,624

$
1,984

$
696

$
422

$
594

$
187,320

Construction real estate
52,807

1,451

1,023


41

55,322

Commercial real estate
273,778

1,703

153

718

148

276,500

Commercial
47,163

24

8


33

47,228

Consumer
3,215

21

5



3,241

Municipal
72,789

61




72,850

Total
$
633,376

$
5,244

$
1,885

$
1,140

$
816

$
642,461

There were three residential real estate loans totaling $207 thousand and three commercial real estate loans totaling $137 thousand in process of foreclosure at September 30, 2019 and three residential real estate loans totaling $255 thousand and one commercial real estate loan totaling $146 thousand in process of foreclosure at December 31, 2018. Aggregate interest on nonaccrual loans not recognized was $1.2 million as of September 30, 2019 and $1.3 million as of December 31, 2018 and September 30, 2018.

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 2019. 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

Union Bankshares, Inc. Page 13



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.

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, 2019 and 2018 were as follows:
For The Three Months Ended September 30, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Balance, June 30, 2019
$
1,396

$
646

$
3,011

$
313

$
23

$
33

$
254

$
5,676

Provision (credit) for loan losses
31

43

156

13

2

45

(140
)
150

Recoveries of amounts charged off








 
1,427

689

3,167

326

25

78

114

5,826

Amounts charged off
(18
)






(18
)
Balance, September 30, 2019
$
1,409

$
689

$
3,167

$
326

$
25

$
78

$
114

$
5,808


Union Bankshares, Inc. Page 14



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 Nine Months Ended September 30, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Balance, December 31, 2018
$
1,368

$
617

$
2,933

$
354

$
23

$
82

$
362

$
5,739

Provision (credit) for loan
  losses
116

72

234

171

9

(4
)
(248
)
350

Recoveries of amounts
  charged off
5



1

4



10

 
1,489

689

3,167

526

36

78

114

6,099

Amounts charged off
(80
)


(200
)
(11
)


(291
)
Balance, September 30, 2019
$
1,409

$
689

$
3,167

$
326

$
25

$
78

$
114

$
5,808

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

171

(31
)
(11
)
17

(107
)
300

Recoveries of amounts
  charged off




17



17

 
1,508

602

2,878

364

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


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, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
41

$

$
176

$
8

$

$

$

$
225

Collectively evaluated
   for impairment
1,368

689

2,991

318

25

78

114

5,583

Total allocated
$
1,409

$
689

$
3,167

$
326

$
25

$
78

$
114

$
5,808

December 31, 2018
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
47

$

$
9

$
10

$

$

$

$
66

Collectively evaluated
   for impairment
1,321

617

2,924

344

23

82

362

5,673

Total allocated
$
1,368

$
617

$
2,933

$
354

$
23

$
82

$
362

$
5,739


Union Bankshares, Inc. Page 15




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, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
1,595

$
229

$
3,264

$
297

$

$

$
5,385

Collectively evaluated
   for impairment
191,022

63,016

281,007

44,239

3,566

69,681

652,531

Total
$
192,617

$
63,245

$
284,271

$
44,536

$
3,566

$
69,681

$
657,916

December 31, 2018
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
1,678

$
119

$
2,276

$
352

$

$

$
4,425

Collectively evaluated
   for impairment
185,642

55,203

274,224

46,876

3,241

72,850

638,036

Total
$
187,320

$
55,322

$
276,500

$
47,228

$
3,241

$
72,850

$
642,461


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, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Pass
$
172,225

$
43,262

$
174,061

$
31,718

$
3,494

$
69,681

$
494,441

Satisfactory/Monitor
17,177

19,749

105,849

11,695

69


154,539

Substandard
3,215

234

4,361

1,123

3


8,936

Total
$
192,617

$
63,245

$
284,271

$
44,536

$
3,566

$
69,681

$
657,916



Union Bankshares, Inc. Page 16



December 31, 2018
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Pass
$
170,416

$
41,141

$
174,802

$
34,303

$
3,209

$
72,850

$
496,721

Satisfactory/Monitor
14,008

14,053

98,327

12,150

31


138,569

Substandard
2,896

128

3,371

775

1


7,171

Total
$
187,320

$
55,322

$
276,500

$
47,228

$
3,241

$
72,850

$
642,461


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, 2019 and September 30, 2018:
 
As of September 30, 2019
For The Three Months Ended September 30, 2019
For The Nine Months Ended September 30, 2019
 
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
$
221

$
231

$
41

 
 
 
 
Commercial real estate
1,789

1,789

176

 
 
 
 
Commercial
11

12

8

 
 
 
 
With an allowance recorded
2,021

2,032

225

 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
1,374

1,937


 
 
 
 
Construction real estate
229

247


 
 
 
 
Commercial real estate
1,475

1,570


 
 
 
 
Commercial
286

288


 
 
 
 
With no allowance recorded
3,364

4,042


 
 
 
 
 
 
 
 
 
 
 
 
Residential real estate
1,595

2,168

41

$
1,606

$
17

$
1,653

$
55

Construction real estate
229

247


170

1

143

3

Commercial real estate
3,264

3,359

176

2,380

24

2,176

89

Commercial
297

300

8

309

8

327

19

Total
$
5,385

$
6,074

$
225

$
4,465

$
50

$
4,299

$
166

____________________
(1)
Does not reflect government guaranties on impaired loans as of September 30, 2019 totaling $592 thousand.

 
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
$
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.


Union Bankshares, Inc. Page 17



The following table provides information with respect to impaired loans by class of loan as of December 31, 2018:
 
December 31, 2018
 
 
 
Recorded Investment
(1)
Principal Balance
(1)
Related Allowance
 
 
 
(Dollars in thousands)
 
 
Residential real estate
$
228

$
238

$
47

 
 
Commercial real estate
193

193

9

 
 
Commercial
12

13

10

 
 
With an allowance recorded
433

444

66

 
 
 
 
 
 
 
 
Residential real estate
1,450

2,039


 
 
Construction real estate
119

135


 
 
Commercial real estate
2,083

2,174