Company Quick10K Filing
Union Bankshares
Price31.22 EPS2
Shares4 P/E19
MCap140 P/FCF95
Net Debt0 EBIT14
TEV140 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-13
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-08
10-K 2018-12-31 Filed 2019-03-15
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
10-Q 2017-09-30 Filed 2017-11-09
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-15
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-09
10-Q 2016-03-31 Filed 2016-05-10
10-K 2015-12-31 Filed 2016-03-15
10-K 2014-12-31 Filed 2015-03-13
10-K 2013-12-31 Filed 2014-03-31
10-Q 2013-09-30 Filed 2013-11-14
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-14
10-K 2011-12-31 Filed 2012-03-30
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-15
10-Q 2011-03-31 Filed 2011-05-16
10-K 2010-12-31 Filed 2011-03-28
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-31
8-K 2020-07-15 Earnings, Other Events, Exhibits
8-K 2020-05-22
8-K 2020-05-07
8-K 2020-04-15
8-K 2020-02-06
8-K 2020-01-02
8-K 2019-11-07
8-K 2019-10-16
8-K 2019-08-08
8-K 2019-07-17
8-K 2019-05-15
8-K 2019-05-09
8-K 2019-04-17
8-K 2019-02-07
8-K 2018-12-19
8-K 2018-10-17
8-K 2018-08-09
8-K 2018-07-18
8-K 2018-05-16
8-K 2018-05-10
8-K 2018-04-18
8-K 2018-02-08
8-K 2018-01-17
8-K 2017-10-18

UNB 10Q Quarterly Report

Part I Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Risks and Uncertainties
Note 3. Legal Contingencies
Note 4. per Share Information
Note 5. Recent Accounting Pronouncements
Note 6. Goodwill and Other Intangible Assets
Note 7. Investment Securities
Note 8. Loans
Note 9. Allowance for Loan Losses and Credit Quality
Note 10. Stock Based Compensation
Note 11. Other Comprehensive Income
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 a33120exhibit311.htm
EX-31.2 a33120exhibit312.htm
EX-32.1 a33120exhibit321.htm
EX-32.2 a33120exhibit322.htm

Union Bankshares Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 a2020unb10-qx1stquarter.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: March 31, 2020

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
UNB
Nasdaq Stock Market
 
 
(Title of class)
(Trading Symbol)
(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 [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]
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 April 27, 2020.
 
Common Stock, $2 par value
 
4,473,246

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
 
March 31, 2020
December 31, 2019
 
(Unaudited)
 
Assets
(Dollars in thousands)
Cash and due from banks
$
6,224

$
5,405

Federal funds sold and overnight deposits
35,488

45,729

Cash and cash equivalents
41,712

51,134

Interest bearing deposits in banks
6,067

6,565

Investment securities available-for-sale
89,447

87,393

Other investments
581

690

Total investments
90,028

88,083

Loans held for sale
16,456

7,442

Loans
676,531

670,244

Allowance for loan losses
(6,391
)
(6,122
)
Net deferred loan costs
1,056

1,043

Net loans
671,196

665,165

Premises and equipment, net
20,528

20,923

Goodwill
2,223

2,223

Company-owned life insurance
12,403

12,322

Other assets
22,474

19,055

Total assets
$
883,087

$
872,912

Liabilities and Stockholders’ Equity
 
 
Liabilities
 
 
Deposits
 
 
Noninterest bearing
$
139,963

$
136,434

Interest bearing
449,943

458,940

Time
146,154

148,653

Total deposits
736,060

744,027

Borrowed funds
62,164

47,164

Accrued interest and other liabilities
11,075

9,878

Total liabilities
809,299

801,069

Commitments and Contingencies


Stockholders’ Equity
 
 
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,949,246 shares
  issued at March 31, 2020 and 4,948,245 shares issued at December 31, 2019
9,899

9,897

Additional paid-in capital
1,226

1,124

Retained earnings
64,783

64,019

Treasury stock at cost; 476,046 shares at March 31, 2020
  and 476,268 shares at December 31, 2019
(4,181
)
(4,183
)
Accumulated other comprehensive income
2,061

986

Total stockholders' equity
73,788

71,843

Total liabilities and stockholders' equity
$
883,087

$
872,912


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
March 31,
 
2020
2019
 
(Dollars in thousands, except per share data)
Interest and dividend income
 
 
Interest and fees on loans
$
8,291

$
7,902

Interest on debt securities:
 
 
Taxable
387

401

Tax exempt
157

131

Dividends
34

42

Interest on federal funds sold and overnight deposits
53

61

Interest on interest bearing deposits in banks
41

55

Total interest and dividend income
8,963

8,592

Interest expense
 
 
Interest on deposits
1,309

1,065

Interest on borrowed funds
148

162

Total interest expense
1,457

1,227

    Net interest income
7,506

7,365

Provision for loan losses
300

50

    Net interest income after provision for loan losses
7,206

7,315

Noninterest income
 
 
Trust income
173

168

Service fees
1,497

1,426

Net gains on sales of investment securities available-for-sale
11

4

Net gains on sales of loans held for sale
812

374

Net (loss) gain on other investments
(124
)
62

Other income
149

198

Total noninterest income
2,518

2,232

Noninterest expenses
 
 
Salaries and wages
3,121

2,798

Employee benefits
982

999

Occupancy expense, net
514

438

Equipment expense
740

565

Other expenses
1,815

1,727

Total noninterest expenses
7,172

6,527

        Income before provision for income taxes
2,552

3,020

Provision for income taxes
356

399

        Net income
$
2,196

$
2,621

Earnings per common share
$
0.49

$
0.59

Weighted average number of common shares outstanding
4,472,886

4,467,376

Dividends per common share
$
0.32

$
0.31

 
 
 

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
March 31,
 
2020
2019
 
(Dollars in thousands)
Net income
$
2,196

$
2,621

Other comprehensive income, net of tax:
 
 
Investment securities available-for-sale:
 
 
Net unrealized holding gains arising during the period on investment securities available-for-sale
1,084

943

Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income
(9
)
(3
)
Total other comprehensive income
1,075

940

Total comprehensive income
$
3,271

$
3,561


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 Periods Ended March 31, 2020 and 2019
 
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, 2019
4,471,977

$
9,897

$
1,124

$
64,019

$
(4,183
)
$
986

$
71,843

   Net income



2,196



2,196

   Other comprehensive income





1,075

1,075

   Dividend reinvestment plan
223


6


2


8

   Cash dividends declared
       ($0.32 per share)



(1,432
)


(1,432
)
   Stock based compensation expense


76




76

   Exercise of stock options
1,000

2

20




22

Balances, March 31, 2020
4,473,200

$
9,899

$
1,226

$
64,783

$
(4,181
)
$
2,061

$
73,788

 
 
 
 
 
 
 
 
Balances, December 31, 2018
4,466,679

$
9,888

$
894

$
58,911

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

   Net income



2,621



2,621

   Other comprehensive income





940

940

   Dividend reinvestment plan
246


10


2


12

   Cash dividends declared
  ($0.31 per share)



(1,385
)


(1,385
)
   Stock based compensation expense


43




43

   Exercise of stock options
1,000

2

20




22

   Purchase of treasury stock
(300
)



(13
)

(13
)
Balances, March 31, 2019
4,467,625

$
9,890

$
967

$
60,147

$
(4,190
)
$
(83
)
$
66,731

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)

 
Three Months Ended
March 31,
 
2020
2019
Cash Flows From Operating Activities
(Dollars in thousands)
Net income
$
2,196

$
2,621

Adjustments to reconcile net income to net cash (used in) provided by operating activities:
 
 
Depreciation
476

337

Provision for loan losses
300

50

Deferred income tax provision
10

8

Net amortization of premiums on investment securities
113

87

Equity in losses of limited partnerships
188

162

Stock based compensation expense
76

43

Net increase in unamortized loan costs
(13
)
(13
)
Proceeds from sales of loans held for sale
43,322

21,779

Origination of loans held for sale
(51,524
)
(24,153
)
Net gains on sales of loans held for sale
(812
)
(374
)
Net gains on sales of investment securities available-for-sale
(11
)
(4
)
Decrease (increase) in other investments
109

(65
)
Increase in accrued interest receivable
(275
)
(248
)
Amortization of core deposit intangible
43

43

Decrease in other assets
209

281

(Decrease) increase in other liabilities
(1,339
)
492

Net cash (used in) provided by operating activities
(6,932
)
1,046

Cash Flows From Investing Activities
 
 
Interest bearing deposits in banks
 
 
Proceeds from maturities and redemptions
498

996

Purchases

(249
)
Investment securities available-for-sale
 
 
Proceeds from sales
3,076

6,510

Proceeds from maturities, calls and paydowns
3,980

1,580

Purchases
(7,851
)
(13,092
)
Net increase in nonmarketable stock
(599
)
(213
)
Net increase in loans
(6,341
)
(7,578
)
Recoveries of loans charged off
23

4

Purchases of premises and equipment
(81
)
(1,545
)
Investments in limited partnerships
(826
)
(358
)
Net cash used in investing activities
(8,121
)
(13,945
)
 
 
 

Union Bankshares, Inc. Page 5



Cash Flows From Financing Activities
 
 
Repayment of long-term debt

(10,000
)
Net increase in short-term borrowings outstanding
15,000

19,963

Net increase (decrease) in noninterest bearing deposits
3,529

(5,133
)
Net decrease in interest bearing deposits
(8,997
)
(18,825
)
Net (decrease) increase in time deposits
(2,499
)
17,561

Issuance of common stock
22

22

Purchase of treasury stock

(13
)
Dividends paid
(1,424
)
(1,373
)
Net cash provided by financing activities
5,631

2,202

Net decrease in cash and cash equivalents
(9,422
)
(10,697
)
Cash and cash equivalents
 
 
Beginning of period
51,134

37,289

End of period
$
41,712

$
26,592

Supplemental Disclosures of Cash Flow Information
 
 
Interest paid
$
1,925

$
1,174

Income taxes paid
$

$

 
 
 
Supplemental Schedule of Noncash Investing Activities
 
 
Investment in limited partnerships acquired by capital contributions payable
$
2,722

$

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

$
2,002

 
 
 
Dividends paid on Common Stock:
 
 
Dividends declared
$
1,432

$
1,385

Dividends reinvested
(8
)
(12
)
 
$
1,424

$
1,373

 
 
 

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 March 31, 2020, and for the three months ended March 31, 2020 and 2019, 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, 2019 (2019 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 2019 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, 2020, or any future interim period.
The Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in stockholder’ equity for a two year, rather than three year, period. The Company has also elected to provide certain other scaled disclosures in this report, as permitted for smaller reporting companies.
Certain amounts in the 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation.
On May 7, 2020, Union Bankshares, Inc. distributed its First Quarter 2020 unaudited Report to Shareholders presenting information concerning the Company's results of operations and financial condition for the three months ended March 31, 2020. Subsequent to the compilation of this report, the gain or loss on other investments has been reclassified from dividend income to noninterest income for both the March 31, 2020 and 2019 comparison periods.

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.

Union Bankshares, Inc. Page 7



AFS:
Available-for-sale
MBS:
Mortgage-backed security
ALCO:
Asset Liability Committee
MSRs:
Mortgage servicing rights
ALL:
Allowance for loan losses
OAO:
Other assets owned
ASC:
Accounting Standards Codification
OCI:
Other comprehensive income (loss)
ASU:
Accounting Standards Update
OFAC:
U.S. Office of Foreign Assets Control
Board:
Board of Directors
OREO:
Other real estate owned
bp or bps:
Basis point(s)
OTTI:
Other-than-temporary impairment
Branch Acquisition:
The acquisition of three New Hampshire branches in May 2011
OTT:
Other-than-temporary
CARES Act:
Coronavirus Aid, Relief and Economic Security Act
Plan:
The Union Bank Pension Plan
CDARS:
Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network
PPP:
Paycheck Protection Program
Company:
Union Bankshares, Inc. and Subsidiary
PPPLF:
PPP Liquidity Facility of the FRB
COVID-19:
Novel Coronavirus
RD:
USDA Rural Development
DRIP:
Dividend Reinvestment Plan
RSU:
Restricted Stock Unit
FASB:
Financial Accounting Standards Board
SBA:
U.S. Small Business Administration
FDIC:
Federal Deposit Insurance Corporation
SEC:
U.S. Securities and Exchange Commission
FHA:
U.S. Federal Housing Administration
TDR:
Troubled-debt restructuring
FHLB:
Federal Home Loan Bank of Boston
Union:
Union Bank, the sole subsidiary of Union Bankshares, Inc
FRB:
Federal Reserve Board
USDA:
U.S. Department of Agriculture
FHLMC/Freddie Mac:
Federal Home Loan Mortgage Corporation
VA:
U.S. Veterans Administration
GAAP:
Generally Accepted Accounting Principles in the United States
WHO:
World Health Organization
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
2019 Annual Report
Annual Report of Form 10-K for the year ended December 31, 2019
IRS:
Internal Revenue Service
2017 Tax Act:
Tax Cut and Jobs Act of 2017

Note 2. Risks and Uncertainties
The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The WHO has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread operating issues for the Company.
Congress, the President, and the FRB have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for small businesses, hospitals and health care providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations in future periods.
The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible

Union Bankshares, Inc. Page 8



to know the full extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

Financial position and results of operations
The Company’s fee income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is working with COVID-19 affected customers to waive a variety of fees, including but not limited to, insufficient funds and overdraft fees, ATM fees and account maintenance fees. These reductions in fees are thought, at this time, to be temporary, while the COVID-19 related economic crisis persists. At this time, the Company is unable to project the duration or materiality of such an impact, but recognizes that the scope of the economic impact is likely to impact its fee income in future periods. Also, the Company expects to collect fee income from the SBA for participating in the PPP and processing PPP loans, which will offset the above mentioned reduction in fee income.
The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their loan payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the scope of the economic impact may affect its borrowers’ ability to repay in future periods.

Capital and liquidity
While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. The Company relies on cash on hand as well as dividends from its subsidiary bank to pay dividends to shareholders. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to maintain its dividend to shareholders at the current level.
The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company, but rates for short term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

Asset valuation
Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.
COVID-19 could cause a further and sustained decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

Processes, controls and business continuity plan
The Company has implemented its Pandemic and Business Continuity Plans to address the operating risks associated with the global COVID-19 pandemic and has followed guidance as events evolved from the Centers for Disease Control & Prevention (CDC), the WHO and other available resources. Since enacting the Pandemic and Business Continuity Plans, the Company has taken a series of actions to safeguard its employees and customers while continuing to provide essential banking services to its communities. The Company has developed and executed a plan to decentralize employees, including working remotely, to isolate certain personnel essential to critical business continuity operations, canceled business travel and outside vendor appointments, limited inter-branch visits, and increased the use of video conferencing to avoid large gatherings. Also, social distancing and

Union Bankshares, Inc. Page 9



enhanced hygiene practices were put into place as well as rigorous cleaning of all bank facilities. Throughout these changes, employees and customers have been kept informed with regular communications.
On March 17, 2020, branch lobby service was limited to appointment-only, and new capabilities were implemented  to execute lobby transactions electronically or via its drive-up facilities. Effective March 25, 2020, a "Stay Home, Stay Safe" emergency order issued in the State of Vermont resulted in branch lobbies being closed to all customers.
Management continues to evaluate current events and put appropriate protocols in place to ensure the safety of staff and customers while continuing to provide essential banking services our customers rely on. No material operational or internal control challenges or risks related to COVID-19 have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraints through the implementation of its Pandemic and Business Continuity Plans.

Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is continuing to approve payment deferrals for its borrowers that are adversely affected by the pandemic. Depending on the demonstrated need of the customer, the Company is deferring either the full loan payment or the principal component of the loan payment for up to 180 days. As of April 30, 2020, the Company has executed 335 of these deferrals on outstanding loan balances of $160.5 million. In accordance with interagency guidance issued in March 2020 and confirmed by the FASB, these short term deferrals are not considered troubled debt restructurings.
With the passage of the PPP, administered by the SBA, the Company is actively participating in assisting its customers with applications for resources through the program. PPP loans have a two-year term and earn interest at 1%. The Company believes that a significant amount of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. Government. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.
Further, in sensitivity and service to its communities during this unprecedented time, the Company is waiving late payment and overdraft fees on a case by case basis and has temporarily suspended collection and foreclosure efforts on past due loans in accordance with CARES Act guidance.

Note 3. 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 4. 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 5. Recent Accounting Pronouncements
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 was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was 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. As the Company is a smaller reporting company, the delay is 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

Union Bankshares, Inc. Page 10



and training is ongoing 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 was effective for the Company on January 1, 2020 and 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 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 ASU was effective for the Company on January 1, 2020 and did not have a material impact on the Company's financial statement disclosures.

In March 2020, various regulatory agencies, including the FRB and the FDIC (“the agencies”), issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC No. 310-40, Receivables – Troubled Debt Restructurings by Creditors, a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time.

Note 6. 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. The net core deposit intangible balance of $199 thousand and $242 thousand at March 31, 2020 and December 31, 2019, respectively, is included in Other assets on the consolidated balance sheets. Management will evaluate the core deposit intangible for impairment if conditions warrant.

Union Bankshares, Inc. Page 11



Amortization expense for the core deposit intangible was $43 thousand for the three months ended March 31, 2020 and 2019. The amortization expense is included in Other expenses on the consolidated statements of income and is deductible for tax purposes. As of March 31, 2020, the remaining amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:
 
(Dollars in thousands)
2020
$
128

2021
71

Total
$
199


Note 7. Investment Securities
AFS securities as of the balance sheet dates consisted of the following:
March 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(Dollars in thousands)
Available-for-sale
 
 
 
 
Debt securities:
 
 
 
 
U.S. Government-sponsored enterprises
$
5,050

$
49

$
(42
)
$
5,057

Agency mortgage-backed
46,212

1,881

(14
)
48,079

State and political subdivisions
27,767

611

(39
)
28,339

Corporate
7,808

304

(140
)
7,972

Total
$
86,837

$
2,845

$
(235
)
$
89,447

December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 
(Dollars in thousands)
Available-for-sale
 
 
 
 
Debt securities:
 
 
 
 
U.S. Government-sponsored enterprises
$
6,349

$
19

$
(76
)
$
6,292

Agency mortgage-backed
45,503

602

(81
)
46,024

State and political subdivisions
26,489

515

(39
)
26,965

Corporate
7,804

378

(70
)
8,112

Total
$
86,145

$
1,514

$
(266
)
$
87,393


There were no investment securities HTM at March 31, 2020 or December 31, 2019. There were no investment securities pledged as collateral at March 31, 2020 or December 31, 2019.


Union Bankshares, Inc. Page 12



The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of March 31, 2020 were as follows:
 
Amortized
Cost
Fair
Value
Available-for-sale
(Dollars in thousands)
Due in one year or less
$
940

$
947

Due from one to five years
3,679

3,784

Due from five to ten years
14,136

14,406

Due after ten years
21,870

22,231

 
40,625

41,368

Agency mortgage-backed
46,212

48,079

Total debt securities available-for-sale
$
86,837

$
89,447


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:
March 31, 2020
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

$
1,112

$
(3
)
7

$
1,614

$
(39
)
9

$
2,726

$
(42
)
Agency mortgage-backed



1

703

(14
)
1

703

(14
)
State and political
  subdivisions
10

4,923

(39
)



10

4,923

(39
)
Corporate
1

497

(3
)
3

1,363

(137
)
4

1,860

(140
)
Total
13

$
6,532

$
(45
)
11

$
3,680

$
(190
)
24

$
10,212

$
(235
)
December 31, 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
4

$
2,376

$
(22
)
8

$
2,772

$
(54
)
12

$
5,148

$
(76
)
Agency mortgage-backed
8

6,193

(38
)
8

4,861

(43
)
16

11,054

(81
)
State and political
  subdivisions
9

3,813

(38
)
1

304

(1
)
10

4,117

(39
)
Corporate



3

1,430

(70
)
3

1,430

(70
)
Total
21

$
12,382

$
(98
)
20

$
9,367

$
(168
)
41

$
21,749

$
(266
)
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.


Union Bankshares, Inc. Page 13



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 March 31, 2020 and December 31, 2019 for the foreseeable future and no declines were deemed by management to be OTT.

The following table presents the proceeds, gross realized gains and gross realized losses from the sales of AFS securities:
 
For The Three Months Ended March 31, 2020
For The Three Months Ended March 31, 2019
 
(Dollars in thousands)
Proceeds
$
3,076

$
6,510

 
 
 
Gross gains
32

38

Gross losses
(21
)
(34
)
Net gains on sales of investment securities AFS
$
11

$
4


Note 8.  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.

Union Bankshares, Inc. Page 14



The composition of Net loans as of the balance sheet dates was as follows:
 
March 31,
2020
December 31,
2019
 
(Dollars in thousands)
Residential real estate
$
190,420

$
192,125

Construction real estate
54,207

69,617

Commercial real estate
304,204

289,883

Commercial
47,633

47,699

Consumer
3,460

3,562

Municipal
76,607

67,358

    Gross loans
676,531

670,244

Allowance for loan losses
(6,391
)
(6,122
)
Net deferred loan costs
1,056

1,043

    Net loans
$
671,196

$
665,165

Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of $221.8 million and $207.7 million were pledged as collateral for borrowings from the FHLB under a blanket lien at March 31, 2020 and December 31, 2019, respectively.
A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:
March 31, 2020
Current
30-59 Days
60-89 Days
90 Days and Over and Accruing
Nonaccrual
Total
 
(Dollars in thousands)
Residential real estate
$
185,549

$
3,305

$
35

$
1,233

$
298

$
190,420

Construction real estate
53,550

263


369

25

54,207

Commercial real estate
300,689

1,576


73

1,866

304,204

Commercial
47,541

29


45

18

47,633

Consumer
3,445

6

5

2

2

3,460

Municipal
76,571

36




76,607

Total
$
667,345

$
5,215

$
40

$
1,722

$
2,209

$
676,531


December 31, 2019
Current
30-59 Days
60-89 Days
90 Days and Over and Accruing
Nonaccrual
Total
 
(Dollars in thousands)
Residential real estate
$
187,022

$
2,716

$
1,304

$
811

$
272

$
192,125

Construction real estate
68,731

470

19

368

29

69,617

Commercial real estate
286,795

940

150


1,998

289,883

Commercial
47,673


5


21

47,699

Consumer
3,532

21

6


3

3,562

Municipal
67,358





67,358

Total
$
661,111

$
4,147

$
1,484

$
1,179

$
2,323

$
670,244

There was one residential real estate loan totaling $50 thousand in process of foreclosure at March 31, 2020 and two residential real estate loans totaling $64 thousand in process of foreclosure at December 31, 2019. In April 2020, the State of Vermont issued a temporary moratorium on foreclosure actions until the end of the COVID-19 emergency period. Aggregate interest on nonaccrual loans not recognized was $280 thousand as of March 31, 2020 and $271 thousand as of December 31, 2019.


Union Bankshares, Inc. Page 15



Note 9.  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 first quarter of 2020. 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.

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.


Union Bankshares, Inc. Page 16



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 months ended March 31, 2020 and 2019 were as follows:
For The Three Months Ended March 31, 2020
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Balance, December 31, 2019
$
1,392

$
774

$
3,178

$
394

$
23

$
76

$
285

$
6,122

Provision (credit) for loan losses
98

(152
)
335

13


9

(3
)
300

Recoveries of amounts charged off
23







23

 
1,513

622

3,513

407

23

85

282

6,445

Amounts charged off


(54
)




(54
)
Balance, March 31, 2020
$
1,513

$
622

$
3,459

$
407

$
23

$
85

$
282

$
6,391

For The Three Months Ended March 31, 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
37

26

(70
)
177

2

10

(132
)
50

Recoveries of amounts charged off



1

3



4

 
1,405

643

2,863

532

28

92

230

5,793

Amounts charged off
(16
)


(200
)
(5
)


(221
)
Balance, March 31, 2019
$
1,389

$
643

$
2,863

$
332

$
23

$
92

$
230

$
5,572

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Union Bankshares, Inc. Page 17



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:
March 31, 2020
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
68

$

$
133

$
7

$

$

$

$
208

Collectively evaluated
   for impairment
1,445

622

3,326

400

23

85

282

6,183

Total allocated
$
1,513

$
622

$
3,459

$
407

$
23

$
85

$
282

$
6,391

December 31, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Unallocated
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
39

$

$
149

$
8

$

$

$

$
196

Collectively evaluated
   for impairment
1,353

774

3,029

386

23

76

285

5,926

Total allocated
$
1,392

$
774

$
3,178

$
394

$
23

$
76

$
285

$
6,122


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:
March 31, 2020
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
1,488

$
218

$
3,158

$
280

$

$

$
5,144

Collectively evaluated
   for impairment
188,932

53,989

301,046

47,353

3,460

76,607

671,387

Total
$
190,420

$
54,207

$
304,204

$
47,633

$
3,460

$
76,607

$
676,531

December 31, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Individually evaluated
   for impairment
$
1,515

$
223

$
3,204

$
299

$

$

$
5,241

Collectively evaluated
   for impairment
190,610

69,394

286,679

47,400

3,562

67,358

665,003

Total
$
192,125

$
69,617

$
289,883

$
47,699

$
3,562

$
67,358

$
670,244


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.

Union Bankshares, Inc. Page 18




The following tables summarize the loan ratings applied by management to the Company's loans by class as of the balance sheet dates:
March 31, 2020
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Pass
$
172,425

$
33,632

$
174,365

$
35,464

$
3,364

$
76,607

$
495,857

Satisfactory/Monitor
15,078

20,091

125,767

11,595

91


172,622

Substandard
2,917

484

4,072

574

5


8,052

Total
$
190,420

$
54,207

$
304,204

$
47,633

$
3,460

$
76,607

$
676,531


December 31, 2019
Residential Real Estate
Construction Real Estate
Commercial Real Estate
Commercial
Consumer
Municipal
Total
 
(Dollars in thousands)
Pass
$
174,798

$
47,326

$
168,654

$
35,625

$
3,499

$
67,358

$
497,260

Satisfactory/Monitor
14,520

21,819

117,004

10,974

57


164,374

Substandard
2,807

472

4,225

1,100

6


8,610

Total
$
192,125

$
69,617

$
289,883

$
47,699

$
3,562

$
67,358

$
670,244


The following tables provide information with respect to impaired loans by class of loan as of and for the three months ended March 31, 2020 and March 31, 2019:
 
As of March 31, 2020
For The Three Months Ended March 31, 2020
 
Recorded Investment
(1)
Principal Balance
(1)
Related Allowance
Average Recorded Investment
Interest Income Recognized
 
(Dollars in thousands)
Residential real estate
$
216

$
226

$
68

 
 
Commercial real estate
1,746

1,781

133

 
 
Commercial
25

27

7

 
 
With an allowance recorded
1,987

2,034

208

 
 
 
 
 
 
 
 
Residential real estate
1,272

1,818


 
 
Construction real estate
218

237


 
 
Commercial real estate
1,412

1,509


 
 
Commercial
255

257


 
 
With no allowance recorded
3,157

3,821


 
 
 
 
 
 
 
 
Residential real estate
1,488

2,044

68

$
1,502

$
19

Construction real estate
218

237


220

1

Commercial real estate
3,158

3,290

133

3,181

22

Commercial
280

284

7

290

7

Total
$
5,144

$
5,855

$
208

$
5,193

$
49

____________________
(1)
Does not reflect government guaranties on impaired loans as of March 31, 2020 totaling $570 thousand.


Union Bankshares, Inc. Page 19



 
As of March 31, 2019
For The Three Months Ended March 31, 2019
 
Recorded Investment
(1)
Principal Balance
(1)
Related Allowance
Average Recorded Investment
Interest Income Recognized
 
(Dollars in thousands)
Residential real estate
$
1,720

$
2,344

$
46

$
1,699

$
19

Construction real estate
114

131


116

1

Commercial real estate
1,669

1,761

11

1,973

40

Commercial
340

342

10

346

5

Total
$
3,843

$
4,578

$
67

$
4,134

$
65

____________________
(1)
Does not reflect government guaranties on impaired loans as of March 31, 2019 totaling $630 thousand.

The following table provides information with respect to impaired loans by class of loan as of December 31, 2019:
 
December 31, 2019
 
 
 
Recorded Investment
(1)
Principal Balance
(1)
Related Allowance
 
 
 
(Dollars in thousands)
 
 
Residential real estate
$
218

$
228

$
39

 
 
Commercial real estate
1,762

1,783

149

 
 
Commercial
11

12

8

 
 
With an allowance recorded
1,991

2,023

196

 
 
 
 
 
 
 
 
Residential real estate
1,297

1,832


 
 
Construction real estate
223

241


 
 
Commercial real estate
1,442

1,539


 
 
Commercial
288

290


 
 
With no allowance recorded
3,250

3,902


 
 
 
 
 
 
 
 
Residential real estate
1,515

2,060

39

 
 
Construction real estate
223

241


 
 
Commercial real estate
3,204

3,322

149

 
 
Commercial
299

302

8

 
 
Total
$
5,241

$
5,925

$
196

 
 
____________________
(1)
Does not reflect government guaranties on impaired loans as of December 31, 2019 totaling $587 thousand.

The following is a summary of TDR loans by class of loan as of the balance sheet dates:
 
March 31, 2020
December 31, 2019
 
Number of Loans
Principal Balance
Number of Loans
Principal Balance
 
(Dollars in thousands)
Residential real estate
25

$
1,488

25

$
1,515

Construction real estate
2

96

2

100

Commercial real estate
8

950

8

966

Commercial
5

271

5

290

Total
40

$
2,805

40

$
2,871


Union Bankshares, Inc. Page 20



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.
The following tables provide new TDR activity for the three months ended March 31, 2020 and 2019:
 
New TDRs During the
New TDRs During the
 
Three Months Ended March 31, 2020
Three Months Ended March 31, 2019
 
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

$
77

$
79

 
 
 
 
 
 
 
There were no TDR loans modified within the previous twelve months that subsequently defaulted during the three months ended March 31, 2020 or 2019. TDR loans are considered defaulted at 90 days past due.
In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain modifications made in loans to a borrower affected by the COVID-19 pandemic and government shutdown orders would not be considered a TDR under specified circumstances (See Note 2). As of April 30, 2020, the Company has executed 335 of these modifications on outstanding loan balances of $160.5 million. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.

At March 31, 2020 and December 31, 2019, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.

Note 10.  Stock Based Compensation
Under the Union Bankshares, Inc. 2014 Equity Incentive Plan, 50,000 shares of the Company’s common stock were reserved 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 March 31, 2020, there were outstanding grants of RSUs and incentive stock options under the 2014 Equity Plan with respect to an aggregate of 15,971 shares of common stock.

RSUs. Each outstanding 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 2019 Annual Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.
The following table summarizes the RSUs awarded to Company executives in 2018, 2019 and 2020, and the number of such RSUs remaining unvested as of March 31, 2020:
 
Number of RSUs Granted
Weighted-Average Grant Date Fair Value
Number of Unvested RSUs
2018 Award
3,225

$
52.95

433

2019 Award
3,734

47.75

2,120

2020 Award
8,918
$
36.26

8,918

Total
15,877

11,471
Unrecognized compensation expense related to the unvested RSUs as of March 31, 2020 and 2019 was $167 thousand and $254 thousand, respectively.
On April 15, 2020, the Compensation Committee adopted criteria for provisional 2021 RSU awards, including performance goals, with one half of the 2021 grants to be in the form of Time-Based RSUs and one-half in the form of Performance-Based RSUs.  Under the 2021 award criteria and solely for modeling purposes, assuming achievement of 2020 performance goals at the target level and assuming a stock price of $25.76 per share (the closing price on April 15, 2020),  approximately 15,751 RSUs would

Union Bankshares, Inc. Page 21



be granted in 2021. However, actual awards will be subject to Compensation Committee approval and made in the first quarter of 2021, with the number of RSUs actually granted to be determined based on the Company’s stock price on the 2021 approval date, and in the case of Performance-Based RSUs, also on the level of achievement of 2020 performance goals. The number of potential grantees for 2021 RSU awards is 15, compared to seven grantees in 2020 and prior years. As of March 31, 2020, the estimated unrecognized executive compensation expense related to the modeled 2021 target level RSU grants, based on the April 15, 2020 closing market price of the Company's stock, would be $294 thousand.
On May 15, 2019, the Company's board of directors, as a component of total director compensation, granted an aggregate of 1,185 RSUs to the Company's non-employee directors. Each RSU represents the right to receive one share of the Company's common stock upon satisfaction of applicable vesting conditions. The RSUs will vest on May 19, 2020, subject to continued board service through the vesting date, other than in the case of the director's death or disability. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the unvested RSUs as of March 31, 2020 was $7 thousand.
Stock options. As of March 31, 2020, 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 March 31, 2020. The intrinsic value of those options was $0 due to the stock options not being in the money as of March 31, 2020.
During the quarter ended March 31, 2020, 1,000 incentive stock options granted under the 2008 ISO Plan were exercised. There are no remaining options outstanding under the 2008 ISO Plan. There was no unrecognized compensation expense related to those options as of March 31, 2020.

Note 11. Other Comprehensive Income
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, 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.
As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:
 
March 31, 2020
December 31, 2019
 
(Dollars in thousands)
Net unrealized gain on investment securities available-for-sale
$
2,061

$
986

The following tables disclose the tax effects allocated to each component of OCI for the three months ended March 31:
 
Three Months Ended
 
March 31, 2020
March 31, 2019
 
Before-Tax Amount
Tax (Expense) Benefit
Net-of-Tax Amount
Before-Tax Amount
Tax (Expense) Benefit
Net-of-Tax Amount
Investment securities available-for-sale:
(Dollars in thousands)
Net unrealized holding gains arising during the period on investment securities available-for-sale
$
1,372

$
(288
)
$
1,084

$
1,194

$
(251
)
$
943

Reclassification adjustment for net gains on investment securities available-for-sale realized in net income
(11
)
2

(9
)
(4
)
1

(3
)
Total other comprehensive income
$
1,361

$
(286
)
$
1,075

$
1,190

$
(250
)
$
940

 
 
 
 
 
 
 

Union Bankshares, Inc. Page 22



The following table discloses information concerning reclassification adjustments from OCI for the three months ended March 31, 2020 and 2019:
 
Three Months Ended
 
Reclassification Adjustment Description
March 31, 2020
March 31, 2019
Affected Line Item in
Consolidated Statement of Income
 
(Dollars in thousands)
 
Investment securities available-for-sale:
 
 
 
Net gains on investment securities available-for-sale
$
(11
)
$
(4
)
Net gains on sales of investment securities available-for-sale
Tax expense
2

1

Provision for income taxes
Total reclassifications
$
(9
)
$
(3
)
Net income

Note 12. Fair Value Measurement
The Company utilizes FASB ASC Topic 820, Fair Value Measurement, as guidance for accounting for assets and liabilities carried at fair value. This standard defines fair value as the price that would be received, without adjustment for transaction costs, to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance in FASB ASC Topic 820 establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following is a description of the valuation methodologies used for the Company’s assets that are measured on a recurring basis at estimated fair value:
Investment securities AFS: The Company’s AFS securities have been valued utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.
Mutual funds: Mutual funds have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1.

Union Bankshares, Inc. Page 23



Assets measured at fair value on a recurring basis at March 31, 2020 and December 31, 2019, segregated by fair value hierarchy level, are summarized below: