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What changed in UNION BANKSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of UNION BANKSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+361 added−362 removedSource: 10-K (2024-03-26) vs 10-K (2023-03-24)

Top changes in UNION BANKSHARES INC's 2023 10-K

361 paragraphs added · 362 removed · 252 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

40 edited+7 added−0 removed108 unchanged
Biggest changeOur next say-on-pay and say-on-frequency advisory votes are scheduled to occur at the 2025 annual meeting, 7 • Requirements that the SEC adopt rules directing the securities exchanges to adopt listing standards with respect to compensation committee independence and the use of consultants , • Provisions calling for the SEC to adopt expanded disclosure requirements for annual proxy statements and other filings, particularly in the area of executive compensation, such as disclosure of pay versus performance, policies with regard to hedging transactions conducted by employees and directors, and, for public companies other than smaller reporting companies, the ratio of CEO pay to the pay of a median employee, • Provisions requiring the adoption or revision of certain other corporate policies, such as compensation "clawback" policies providing for the recovery of executive compensation in the event of a financial restatement, and • A provision clarifying the SEC's authority to adopt rules requiring issuers to include in their proxy statements solicitations for shareholder nominations for directors.
Biggest changeOur next say-on-pay and say-on-frequency advisory votes are scheduled to occur at the 2025 annual meeting; • Requirements that the SEC adopt rules directing the securities exchanges to adopt listing standards with respect to compensation committee independence and the use of consultants; • Provisions calling for the SEC to adopt expanded disclosure requirements for annual proxy statements and other filings, particularly in the area of executive compensation, such as disclosure of pay versus performance, policies with regard to hedging transactions conducted by employees and directors, and, for public companies other than smaller reporting companies, the ratio of CEO pay to the pay of a median employee.
Competition: The Company and Union face substantial competition for loans and deposits in northern Vermont and New Hampshire from local and regional commercial banks, savings banks, tax exempt credit unions, mortgage brokers, and financial services affiliates of bank holding companies, as well as from national financial service providers such as mutual funds, brokerage houses, insurance companies, consumer finance companies and internet banks.
Competition: The Company and Union face substantial competition for loans and deposits in northern Vermont and New Hampshire from local and regional commercial banks, savings banks, tax exempt credit unions, mortgage brokers, and financial services affiliates of bank holding companies, as well as from national and regional financial service providers such as mutual funds, brokerage houses, insurance companies, consumer finance companies and internet banks.
There are no enforcement actions currently in place against the Company. The FRB has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
There are no FRB enforcement actions currently in place against the Company. The FRB has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
The CFPB is charged with enforcing consumer protection laws against banks with assets in excess of 10 $10 billion, while community banks continue to be subject to the enforcement authority of their primary regulator. This supervisory structure may lead to conflicting regulatory guidance for community banks versus larger banks and increase regulatory costs and burdens.
The CFPB is charged with enforcing consumer protection laws against banks with assets in excess of $10 billion, while community banks continue to be subject to the enforcement authority of their primary regulator. This supervisory structure may lead to conflicting regulatory guidance for community banks versus larger banks and increase regulatory costs and burdens.
The Company has a Related Persons Transactions Approval Policy administered by the Company's Audit Committee which incorporates applicable regulatory guidelines and requirements. 11 Interstate Banking.
The Company has a Related Persons 11 Transactions Approval Policy administered by the Company's Audit Committee which incorporates applicable regulatory guidelines and requirements. Interstate Banking.
The SOX Act includes provisions addressing, among other matters, the duties, functions and qualifications of audit committees for all public companies; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by 12 directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers, except (in the case of banking companies) loans in the normal course of business; expedited filing requirements for reports of beneficial ownership of company stock by insiders; disclosure of a code of ethics for senior officers, and of any change or waiver of such code; the formation of a public accounting oversight board; auditor independence; disclosure of fees paid to the company's auditors for non-audit services and limitations on the provision of such services; attestation requirements for company management and external auditors, relating to internal controls and procedures; and various increased criminal penalties for violations of federal securities laws.
The SOX Act includes provisions addressing, among other matters, the duties, functions and qualifications of audit 12 committees for all public companies; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers, except (in the case of banking companies) loans in the normal course of business; expedited filing requirements for reports of beneficial ownership of company stock by insiders; disclosure of a code of ethics for senior officers, and of any change or waiver of such code; the formation of a public accounting oversight board; auditor independence; disclosure of fees paid to the company's auditors for non-audit services and limitations on the provision of such services; attestation requirements for company management and external auditors, relating to internal controls and procedures; and various increased criminal penalties for violations of federal securities laws.
Additionally, Union accepts reciprocal time and money market deposits primarily through its membership with the IntraFi Network in CDARS and ICS, respectively. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 allows the Company to hold reciprocal deposits up to 20 percent of total liabilities without those deposits being treated as brokered for regulatory purposes.
Additionally, Union accepts 8 reciprocal time and money market deposits primarily through its membership with the IntraFi Network in CDARS and ICS, respectively. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 allows the Company to hold reciprocal deposits up to 20 percent of total liabilities without those deposits being treated as brokered for regulatory purposes.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services. Further, the Dodd-Frank Act established the CFPB, which has the responsibility for making rules and regulations under the federal consumer protection laws relating to financial products and services.
These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services. Further, the Dodd-Frank Act established the 10 CFPB, which has the responsibility for making rules and regulations under the federal consumer protection laws relating to financial products and services.
The ability to branch interstate has also benefited Union, as it permitted the expansion of its banking operations into New Hampshire, with the conversion of its loan production office in Littleton to a full service branch in March of 2006, the May 2011 acquisition of three New Hampshire branches, the opening of a full service branch in Lincoln in 2014, and the planned opening of a full-service branch in North Conway in 2023.
The ability to branch interstate has also benefited Union, as it permitted the expansion of its banking operations into New Hampshire, with the conversion of its loan production office in Littleton to a full service branch in March of 2006, the May 2011 acquisition of three New Hampshire branches, the opening of a full service branch in Lincoln in 2014, and the opening of a full-service branch in North Conway in 2023.
An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. 9 The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan.
An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan.
Union Bank was organized and chartered as a State bank in 1891 and became a wholly owned subsidiary of the Company upon completion of the holding company reorganization in 1982. Both Union Bankshares, Inc. and Union Bank are headquartered in Morrisville, Vermont. The Company's business is that of a community bank in the financial services industry.
Union Bank was organized and 4 chartered as a State bank in 1891 and became a wholly owned subsidiary of the Company upon completion of the holding company reorganization in 1982. Both Union Bankshares, Inc. and Union Bank are headquartered in Morrisville, Vermont. The Company's business is that of a community bank in the financial services industry.
FDICIA, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal banking agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements.
FDICIA, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal banking agencies to implement systems for “prompt corrective action” for insured depository 9 institutions that do not meet minimum capital requirements.
FDICIA, as amended, directs each Federal banking agency to prescribe safety and soundness standards for depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset quality, earnings and stock valuation.
FDICIA, as amended, directs each Federal banking agency to prescribe safety and soundness standards for insured depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset quality, earnings and stock valuation.
This regulatory framework is intended primarily for the protection of depositors, the Federal Deposit Insurance Fund (“DIF”), and the banking system as a whole, rather than the protection of shareholders or non-depository creditors of a bank holding company such as the Company.
This regulatory framework is intended primarily for the protection of depositors, the Federal Deposit Insurance 6 Fund (“DIF”), and the banking system as a whole, rather than the protection of shareholders or non-depository creditors of a bank holding company such as the Company.
The various federal banking agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the Tier 1 Capital, Common Equity Tier 1 Capital, Total Capital and Leverage Ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered undercapitalized.
The various federal banking agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the Tier 1 Capital, Common Equity Tier 1 Capital, Total Capital and Leverage Ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an insured depository institution is considered undercapitalized.
The information on our website is not incorporated by reference into this report. The Company will also provide copies of this 2022 Annual Report on Form 10-K, free of charge, upon written request to its Treasurer at the Company's main address, PO Box 667, Morrisville, VT 05661-0667.
The information on our website is not incorporated by reference into this report. The Company will also provide copies of this 2023 Annual Report on Form 10-K, free of charge, upon written request to its Treasurer at the Company's main address, PO Box 667, Morrisville, VT 05661-0667.
Item 1. Business Certain Definitions: Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 52 of this Annual Report. General: Union Bankshares, Inc.
Item 1. Business Certain Definitions: Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 55 of this Annual Report. General: Union Bankshares, Inc.
We compete for deposit accounts by offering customers competitive products and rates, personal service, local area expertise, convenient locations and access, and an array of financial services and products. The rapid increase in interest rates initiated by the Fed in 2022 and so far in 2023 has resulted in higher deposit rates.
We compete for deposit accounts by offering customers competitive products and rates, personal service, local area expertise, convenient locations and access, and an array of financial services and products. The rapid increase in interest rates initiated by the Fed in 2022 and 2023 has resulted in higher deposit rates.
Under the regulations as in effect during 2022, a “well capitalized” institution must have a Tier 1 capital ratio of at least 8.0%, a Common Equity Tier 1 ratio of 6.5%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order.
Under the regulations as in effect during 2023, a “well capitalized” institution must have a Tier 1 capital ratio of at least 8.0%, a Common Equity Tier 1 ratio of 6.5%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order.
The Company and Union have filed separate tax returns for each state jurisdiction affected for 2021 and will do the same for 2022. No tax return is currently being examined or audited by any taxing authority that the Company is aware of.
The Company and Union have filed separate tax returns for each state jurisdiction affected for 2022 and will do the same for 2023. No tax return is currently being examined or audited by any taxing authority that the Company is aware of.
Shareholder meeting materials for our 2023 Annual Meeting, including this Annual Report on Form 10-K, are available at www.materials.proxyvote.com/905400 no later than the date on which they are mailed to shareholders.
Shareholder meeting materials for our 2024 Annual Meeting, including this Annual Report on Form 10-K, are available at www.materials.proxyvote.com/905400 no later than the date on which they are mailed to shareholders.
Description of Services: Services or products offered to our customers include, but are not limited to, the following: • Commercial loans for business purposes to business owners and investors for plant and equipment, working capital, real estate renovation and other sound business purposes; • Commercial real estate loans on income producing properties, including commercial construction loans; • SBA guaranteed loans; • Residential construction and mortgage loans; • Online cash management services, including account reconciliation, credit card depository, Automated Clearing House (ACH) origination, wire transfers and night depository; • Merchant credit card services for the deposit and immediate credit of sales drafts; • Remote deposit capture for merchants; • Online mortgage applications; 5 • Online consumer deposit account opening; • Business checking accounts; • Standby letters of credit, bank checks or money orders, and safe deposit boxes; • ATM services; • Debit MasterCard and ATM cards; • Telephone, internet, and mobile banking services, including bill pay; • Home improvement loans and overdraft checking privileges against preauthorized lines of credit; • Retail depository services including personal checking accounts, checking accounts with interest, savings accounts, money market accounts, certificates of deposit, IRA/SEP/KEOGH accounts and Health Savings accounts; and • Wealth management and trust services to individuals and organizations.
Description of Services: Services or products offered to our customers include, but are not limited to, the following: • Commercial loans for business purposes to business owners and investors for plant and equipment, working capital, real estate renovation and other sound business purposes; • Commercial real estate loans on income producing properties, including commercial construction loans; • SBA guaranteed loans; • Residential construction and mortgage loans; • Municipal financing, including loans and excess deposits secured by FHLBB letters of credit; • Online cash management services, including account reconciliation, credit card depository, Automated Clearing House (ACH) origination, wire transfers, positive pay and night depository; • Merchant credit card services for the deposit and immediate credit of sales drafts; • Remote deposit capture for merchants; • Online mortgage applications; • Online consumer deposit account opening; • Business checking accounts; • Standby letters of credit, bank checks or money orders, and safe deposit boxes; • ATM services; • Debit MasterCard and ATM cards; • Telephone, internet, and mobile banking services, including bill pay; • Home improvement loans and overdraft checking privileges against preauthorized lines of credit; 5 • Retail depository services including personal checking accounts, checking accounts with interest, savings accounts, money market accounts, certificates of deposit, IRA/SEP/KEOGH accounts and Health Savings accounts; and • Wealth management and trust services to individuals and organizations.
The Company has one definable business segment, Union Bank, which provides full retail, commercial, municipal banking, and wealth management and trust services throughout its 18 banking offices, three loan centers, and several ATMs covering northern Vermont and northern New Hampshire. Also, many of Union's services are provided via the telephone, mobile devices, and through its website, www.ublocal.com .
The Company has one definable business segment, Union Bank, which provides full retail, commercial, municipal banking, and wealth management and trust services throughout its 20 banking offices, two loan centers, and several ATMs covering northern Vermont and northern New Hampshire. Also, many of Union's services are provided via the telephone, mobile devices, and through its website, www.ublocal.com .
The Company emphasizes residential mortgage lending, commercial real estate and construction lending, as well as municipal loans and both conventional and SBA guaranteed commercial lending. Factors that affect our ability to compete for loans include general and local economic conditions, prevailing interest rates including the Federal Home Loan Bank rates, prime rate, and pricing volatility of the secondary loan markets.
The Company emphasizes residential mortgage lending, commercial real estate and construction lending, as well as municipal loans and both conventional and SBA guaranteed commercial lending. Factors that affect our ability to compete for loans include general and local economic conditions, prevailing interest rates including FHLB rates, the prime rate, and pricing volatility of the secondary loan markets.
In addition, failure of a bank subsidiary to receive at least a "Satisfactory" rating would disqualify a bank holding company from eligibility to become or remain a financial holding company under the GLBA. Union has received an "Outstanding" rating from its most recent CRA compliance examination by the FDIC. Federal Reserve Board Policies.
In addition, failure of a bank subsidiary to receive at least a "Satisfactory" rating would disqualify a bank holding company from eligibility to become or remain a financial holding company under the GLBA. Union has received an "Outstanding" rating from its most recent CRA compliance examination by the FDIC.
To the extent that this information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. The Company is also under the jurisdiction of the SEC for matters relating to the offer and sale of its securities as well as investor reporting requirements.
To the extent that this information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions. The Company is also under the jurisdiction of the SEC for matters relating to the offer and sale of its securities as well as public disclosure requirements.
Our profitability is also dependent on the level of noninterest income (primarily gains on sale of real estate loans, loan servicing income, and service fees), provision for loan losses, noninterest expenses and income taxes.
Our profitability is also dependent on the level of noninterest income (primarily gains on sale of real estate loans, loan servicing income, and service fees), allowance for credit losses, noninterest expenses and income taxes.
While the Dodd-Frank Act is focused principally on changes to the financial regulatory system, it includes several corporate governance, disclosure and compensation provisions applicable to public companies.
While the Dodd-Frank Act is focused principally on changes to the financial regulatory system, it includes several corporate governance, disclosure and compensation provisions applicable to public companies, such as the Company.
Under this assessment system, risk is defined and measured using an institution's 8 supervisory ratings, combined with certain other risk measures, including certain financial ratios and long-term debt issuer ratings. For the year ended December 31, 2022, the Bank's total FDIC insurance assessment expense was $622 thousand. Brokered Deposits .
Under this assessment system, risk is defined and measured using an institution's supervisory ratings, combined with certain other risk measures, including certain financial ratios and long-term debt issuer ratings. For the year ended December 31, 2023, the Bank's total FDIC insurance assessment expense was $998 thousand. Brokered Deposits .
FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements.
FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject an insured depository institution to capital raising requirements.
Our employees play a vital role in our company-wide vision of delivering the best banking experience to all of our customers, employees, communities, and shareholders. As of December 31, 2022, Union employed 188 full time employees.
Our employees play a vital role in our company-wide vision of delivering the best banking experience to all of our customers, employees, communities, and shareholders. As of December 31, 2023, Union employed 197 full time employees.
Consistent with the Company's objective of serving the financial needs of individuals, businesses and others within our market areas, we seek to concentrate our assets in loans. For the year ended December 31, 2022, the Company's rate of average loans to average deposits was 75.6%.
Consistent with the Company's objective of serving the financial needs of individuals, businesses and others within our market areas, we seek to concentrate our assets in loans. For the year ended December 31, 2023, the Company's rate of average loans to average deposits was 81.8%.
We are hopeful that these trends will continue. The Company seeks to capitalize upon the extensive business and personal contacts and relationships of our directors, advisory board members and officers within our communities to continue to develop our customer base, as well as relying on director and advisory board referrals, officer-originated calling programs and customer and shareholder referrals.
The Company seeks to capitalize upon the extensive business and personal contacts and relationships of our directors, advisory board members and officers within our communities to continue to develop our customer base, as well as relying on director and advisory board referrals, officer-originated calling programs and customer and shareholder referrals.
We have seen over the last few years, a trend by customers to turn to local community banks to fulfill their financial needs with organizations and people they know and trust. Also, as a result of COVID-19, customers have looked to perform traditional banking transactions electronically either via the internet or Union's mobile app.
We have seen over the last few years, a trend by customers to turn to local community banks to fulfill their financial needs with organizations and people they know and trust. Customers continue to look to perform traditional banking transactions electronically either via the internet or Union's mobile app.
Other funding sources may include brokered deposits purchased through CDARS, ICS or through other deposit brokers, and borrowings from the FHLB, correspondent banks or the Federal Reserve discount window.
Other funding sources may include brokered deposits purchased through CDARS, ICS or through other deposit brokers, and borrowings from the FHLB, correspondent banks or FRB loan facilities, including the discount window.
At December 31, 2022, Union's Tier I and Total Risk Based Capital Ratios were 12.9% and 14.0% respectively, and its Leverage Capital Ratio was 7.8%, and it is considered well capitalized under applicable regulatory guidelines in effect as of such date. Safety and Soundness Standards.
At December 31, 2023, Union's Tier I and Total Risk Based Capital Ratios were 12.5% and 13.4% respectively, and its Leverage Capital Ratio was 7.6%, and it is considered well capitalized under applicable regulatory guidelines in effect as of such date. Safety and Soundness Standards.
Effective May 11, 2018, banks are required to comply with enhanced customer due diligence regulations requiring collection of information on beneficial owners and control persons of legal entity customers.
Since 2018, banks have been required to comply with enhanced customer due diligence regulations requiring collection of information on beneficial owners and control persons of legal entity customers.
We promote an increased level of personal service and expertise within the community to position Union as a lender to small to middle market business and residential customers, which tend to be under-served by larger institutions. 6 Through Union's Wealth Management Group we compete for personal and institutional wealth management and trust business with trust companies, commercial banks having trust departments, investment advisory firms, brokerage firms, mutual funds and insurance companies.
We promote an increased level of personal service and expertise within the community to position Union as a lender to small to middle market business and residential customers, which tend to be under-served by larger institutions.
Regulation and Supervision General The following discussion addresses elements of the regulatory framework applicable to bank holding companies and their subsidiaries.
Through Union's Wealth Management Group we compete for personal and institutional wealth management and trust business with trust companies, commercial banks having trust departments, investment advisory firms, brokerage firms, mutual funds and insurance companies. Regulation and Supervision General The following discussion addresses elements of the regulatory framework applicable to bank holding companies and their subsidiaries.
The unprecedented levels of liquidity experienced throughout 2020 and 2021 have essentially evaporated due to high levels of inflation, resulting in greater competitive pressures for deposits than in recent years. Union is utilizing a combination of higher rates on non-maturity deposits and time deposit specials to attract and retain customer deposits.
Competitive pressures for deposits increased during 2023 as customers sought out the highest yield on their savings dollars and were willing to relocate funds to other institutions or brokerage firms. Union is utilizing a combination of higher rates on non-maturity deposits and time deposit specials to retain customer deposits and attract new customers in our new market areas.
Added
The Company included the required pay versus performance disclosures beginning with its 2023 proxy statement; 7 • Provisions requiring the adoption or revision of certain other corporate policies, such as compensation "clawback" policies providing for the recovery of executive compensation in the event of a financial restatement.
Added
The Company adopted a clawback policy in November 2023; and • A provision clarifying the SEC's authority to adopt rules requiring issuers to include in their proxy statements solicitations for shareholder nominations for directors.
Added
In October 2023, the FDIC and other federal bank regulatory agencies jointly issued a final rule that is designed to strengthen and modernize regulations implementing the CRA.
Added
Under the new regulations, banks with $2 billion or more in assets will be evaluated under a Retail Lending Test, a Retail Services and Products Test, a Community Development Financing Test, and a Community Development Services Test.
Added
Banks, such as Union, with total assets of $600 million or more and less than $2 billion will be evaluated under the Retail Lending Test and, at the bank's option, either the current Intermediate Bank Community Development Test or the new Community Development Financing Test.
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The final rule takes effect on April 1, 2024 with staggered compliance dates of January 1, 2026 and January 1, 2027. In February 2024, several trade groups filed a complaint in the U.S. District Court for the Northern District of Texas seeking to vacate the final rule.
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It is not known at this time what the final outcome of that litigation will be or how it would impact our CRA requirements. Federal Reserve Board Policies.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+41 added−23 removed79 unchanged
Biggest changeIn this event, we might be required to remedy these violations at the affected properties at our sole cost and expense. The cost of remedial action could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owners or other responsible parties and could find it difficult or impossible to sell the affected properties.
Biggest changeWe may not have adequate remedies against the prior owners or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on our financial condition and results of operations.
Pursuant to GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, reserves related to litigation and the fair value of certain assets and liabilities, among other items. If the assumptions or estimates underlying our financial statements are incorrect, we may experience material losses.
Pursuant to GAAP, we are required to use certain assumptions and estimates in preparing our financial statements, including in determining credit loss reserves, the fair value of certain assets and liabilities and reserves related to litigation, among other items. If the assumptions or estimates underlying our financial statements are incorrect, we may experience material losses.
Although amendments to the QM Rule adopted by the CFPB in March 2021 will make it less challenging for a loan to meet the definition, the QM Rule and related ability-to-repay requirements and similar rules could nevertheless still limit Union's ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and time-consuming to make these loans, which could limit the Bank’s growth or profitability.
Although amendments to the QM Rule adopted by the CFPB in March 2021 will make it less challenging for a loan to meet the definition, the QM Rule and related ability-to-repay requirements and similar rules could nevertheless still limit Union's ability to make certain types of loans or loans to certain 16 borrowers, or could make it more expensive and time-consuming to make these loans, which could limit the Bank’s growth or profitability.
If these areas experience adverse economic, political or business conditions, or significant natural hazards, we would likely experience higher rates of loss and delinquency on our loan portfolio than if the portfolio were more geographically diverse. 13 If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings could decrease.
If these areas experience adverse economic, political or business conditions, or significant natural hazards, we would likely experience higher rates of loss and delinquency on our loan portfolio than if the portfolio were more geographically diverse. 13 If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.
It is impossible to predict the competitive impact that any such changes would have on the banking and financial services industry in general or on our business in particular. Such changes may, among other things, increase the cost of doing business, limit permissible activities, or affect the competitive balance between banks and other financial institutions.
It is impossible to predict the competitive impact that any such future changes would have on the banking and financial services industry in general or on our business in particular. Such changes may, among other things, increase the cost of doing business, limit permissible activities, or affect the competitive balance between banks and other financial institutions.
Our business performance and the trading price of shares of our common stock may be affected by many factors affecting financial institutions, including volatility in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and the value of debt and mortgage-backed and other securities that we hold in our investment portfolio.
Our business performance and the trading price of our common stock may be affected by many factors affecting financial institutions, including volatility in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and the value of debt and mortgage-backed and other securities that we hold in our investment portfolio.
These cybersecurity threats and attacks may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service or other events.
These cybersecurity threats and attacks may include, but are not limited to, attempts to access information, including customer and company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, ransomware attacks or other events.
These monetary policies also affect the valuation of our investment securities and have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally, including Union Bank. 15 The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.
These monetary policies also affect the valuation of our investment securities and have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally, including Union Bank. The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change.
Despite our efforts to mitigate these threats through product improvements, use of encryption and authentication technology to secure online transmission of confidential consumer information, and customer and employee education, such attempted frauds against us or 19 our merchants and our third party service providers remain a serious issue.
Despite our efforts to mitigate these threats through product improvements, use of encryption and authentication technology to secure online transmission of confidential consumer information, and customer and employee education, such attempted frauds against us or our merchants and our third party service providers remain a serious issue.
These types of threats may result from human error, fraud or malice on the part of external or internal parties, or from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems.
These types of threats may result 19 from human error, fraud or malice on the part of external or internal parties, or from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems.
In particular, we compete for loans, deposits and other financial products and services with local independent banks, thrift institutions, savings institutions, mortgage brokerage firms, credit unions, finance companies, trust companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally as well as nationally.
In particular, we compete for loans, deposits and other financial products and services with local independent banks, thrift institutions, savings 20 institutions, mortgage brokerage firms, credit unions, finance companies, trust companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally as well as nationally.
An interruption or breach in security of our information systems or those related to merchants and third party vendors, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, or result in financial losses.
An interruption or breach in security of our information systems or those related to merchants and third party vendors, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of confidential customer or proprietary information, damage our reputation, or result in financial losses.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for 20 convenience, as well as to create additional efficiencies in our operations.
Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations.
These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, unemployment and the strength of the U.S. economy and the local economies in which we operate, all of which are beyond our control.
These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, unemployment and the condition of the U.S. economy and the local economies in which we operate, all of which are beyond our control.
However, there can be no assurance that a change in interest rates will not negatively impact our results of operations or financial condition. Because market interest rates may change by differing magnitudes and at different times, significant changes in interest rates over an extended period of time could reduce overall net interest income.
However, despite these measures there can be no assurance that a change in interest rates will not negatively impact our results of operations or financial condition. Because market interest rates may change by differing magnitudes and at different times, significant changes in interest rates over an extended period of time could reduce overall net interest income.
Additionally, banks and other financial institutions with larger capitalization, as well as financial intermediaries not subject to bank regulatory restrictions, have larger lending limits and are able to serve the credit and investment needs of larger customers. There is also increased competition by out-of-market competitors through the Internet.
Additionally, we compete with banks and other financial institutions with larger capitalization, as well as financial intermediaries not subject to bank regulatory restrictions, which have larger lending limits and are able to serve the credit and investment needs of larger customers. There is also increased competition by out-of-market competitors through the Internet.
We rely heavily on communications and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including internet connections, and network access.
We rely heavily on communications and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including internet connections, network access and processing services.
Deterioration or continued weakness in any of these conditions could result in increases in loan delinquencies and nonperforming assets, decreases in loan collateral values, the value of our investment portfolio and demand for our products and services. General Risks We may be unable to attract and retain key personnel.
Deterioration or continued weakness in any of these factors could result in increases in loan delinquencies and 21 nonperforming assets, decreases in loan collateral values, the value of our investment portfolio and demand for our products and services. General Risks We may be unable to attract and retain key personnel.
We invest significant resources in information technology system enhancements in order to provide functionality and security at an appropriate level. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs.
We invest significant resources in information technology system enhancements in order to meet customer expectations and provide functionality and security at an appropriate level. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs.
As a result, if future events differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures.
As a result, if future events differ significantly from management's judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures. 22
At December 31, 2022, approximately 44% of our loan portfolio was comprised of commercial and commercial real estate loans. In general, commercial and commercial real estate loans have historically posed greater credit risks than owner occupied residential mortgage loans. The repayment of commercial real estate loans depends on the business and financial condition of borrowers.
At December 31, 2023, approximately 43% of our loan portfolio was comprised of commercial and commercial real estate loans. In general, commercial and commercial real estate loans have historically posed greater credit risks than owner occupied residential mortgage loans. The repayment of commercial real estate loans depends on the business and financial condition of borrowers.
As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operations systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns.
As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operations systems and infrastructure must be continually safeguarded and monitored for potential failures, disruptions and breakdowns.
A security breach or other significant disruption could: 1) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; 2) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial information; 3) result in a violation of applicable privacy, data breach and other laws, subjecting the Bank to additional regulatory scrutiny and exposing the Bank to civil litigation, governmental fines and possible financial liability; 4) require significant management attention and resources to remedy the damages that result; or 5) harm our reputation or cause a decrease in the number of customers that choose to do business with us or reduce the level of business that our customers do with us.
A security breach or other significant disruption could: (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial information; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting the Bank to additional regulatory scrutiny and exposing the Bank to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us or reduce the level of business that our customers do with us.
These and other initiatives from federal and state officials could result in judgments, settlements, fines or penalties, or cause us to be required to restructure our operations and activities, all of which could lead to reputational damage, or higher operational costs, thereby reducing our revenue.
These and other initiatives from federal and state officials could result in judgments, settlements, fines or penalties, or require us to restructure our operations and activities, all of which could lead to reputational damage, or higher operational costs, or both, thereby reducing our revenue.
The fair value of our investment securities can fluctuate due to factors outside of our control, and impairment of investment securities could require charges to earnings, which could result in a negative impact on our results of operations. As of December 31, 2022, the carrying value of our investment securities portfolio was approximately $250.3 million.
The fair value of our investment securities can fluctuate due to factors outside of our control, and impairment of investment securities could require charges to earnings, which could result in a negative impact on our results of operations. As of December 31, 2023, the carrying value of our investment securities portfolio was approximately $264.4 million.
Our right, and consequently the right of our shareholders, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors (including depositors, in the case of Union Bank), except to the extent that certain claims of Union in a creditor capacity may be recognized. 17 Our stockholders may not receive dividends on our common stock.
Our right, and consequently the right of our shareholders, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors (including depositors, in the case of Union Bank), except to the extent that certain claims of Union in a creditor capacity may be recognized.
The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes in light of government intervention in the financial services sector. Other changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways.
The Dodd-Frank Act instituted major changes to the regulatory regimes governing banks and other financial institutions, resulting in increased government intervention in the financial services sector. Other changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet our expenses, pay dividends to our stockholders or fulfill obligations such as repaying our borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
Any decline in funding could adversely impact the Company’s ability to originate loans, invest in securities, pay expenses, or fulfill obligations such as repaying its borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations.
We are a holding company and depend on Union Bank for dividends, distributions and other payments. We are a legal entity that is separate and distinct from Union Bank. Our revenue (on a parent company only basis) is derived primarily from interest and dividends paid to us by Union Bank.
We are a legal entity that is separate and distinct from Union Bank. Our revenue (on a parent company only basis) is derived primarily from interest and dividends paid to us by Union Bank.
Our actual or perceived failure to (a) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy issues; (b) meet legal and regulatory requirements applicable to the Bank and to the Company; (c) maintain the privacy of customer and accompanying personal information; or (d) maintain adequate record keeping; and (e) identify the legal, reputational, credit, liquidity and market risks inherent in our products, could give rise to reputational risk that could harm our business prospects and adversely affect our financial condition and results of operations.
Our actual or perceived failure to (i) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy issues; (ii) meet legal and regulatory requirements applicable to Union and to the Company; (iii) maintain the privacy of customer and accompanying personal information; or (iv) maintain adequate record keeping; and (v) identify the legal, reputational, credit, liquidity and market risks inherent in our products, could give rise to reputational risk that could harm our business prospects and adversely affect our financial condition and results of operations.
Certain provisions of our articles of incorporation may have an anti-takeover effect. Provisions of our certificate of incorporation and bylaws and regulations and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
Provisions of our articles of incorporation and bylaws and regulations and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
The Dodd-Frank Act comprehensively reformed the regulation of financial institutions, products and services. Among other things, the Dodd-Frank Act established the CFPB as an independent bureau of the FRB.
The Dodd-Frank Act comprehensively reformed the regulation of financial institutions, products and services. Among other things, the Dodd-Frank Act established the CFPB as an independent government bureau which derives its funding from the FRB.
In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time. Economic Risks Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation rose sharply at the end of 2021 and throughout 2022.
In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time. Economic Risks Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation continued at elevated levels in 2023.
We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations. However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance 16 was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance.
However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance.
Holders of our common stock are entitled to receive dividends only when, as and if declared by our board of directors. Although we have historically declared cash dividends on our common stock, we are not required to do so and our board of directors may reduce or eliminate our common stock dividend in the future.
Although we have historically declared regular cash dividends on our common stock, we are not required to do so and our board of directors may reduce or eliminate our common stock dividend in the future.
We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us. From time to time we are named as a defendant or are otherwise involved in various legal proceedings. There is no assurance that litigation with private parties will not increase in the future.
From time to time we are named as a defendant or are otherwise involved in various legal proceedings. There is no assurance that litigation with private parties will not increase in the future.
Inflationary pressures are currently expected to remain elevated throughout 2023. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.
Inflationary pressures, including the impact of recent increases in inflation, may remain elevated in 2024. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economies of scale to mitigate cost pressures compared to larger businesses.
Our growth strategy has two principal components: internal growth and external growth. Our ability to generate internal growth is affected by the competitive factors described below as well as by the primarily rural characteristics and related demographic features of the markets we serve.
Our growth strategy has two principal components: internal growth and external growth. Our ability to generate internal growth is affected by the competitive factors described below as well as by the primarily rural characteristics and related demographic features of the markets we serve. We are a holding company and depend on Union Bank for dividends, distributions and other payments.
If we fail to correct any material weakness that we subsequently identify in our internal control over financial reporting or otherwise fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, and the price of our common stock may decline.
The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock. 18 If we identify any material weakness in our internal control over financial reporting and fail to correct it, or otherwise fail to maintain effective internal control over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, and the price of our common stock may decline.
Government action and legislation may also impact us and the value of our common stock. We cannot predict what impact, if any, market volatility will have on our business or share price and for these and other reasons our shares of common stock may trade at a price lower than that at which they were purchased.
We cannot predict what impact, if any, market volatility will have on our business or share price and for these and other reasons our shares of common stock may trade at a price lower than that at which they were purchased. Certain provisions of our articles of incorporation may have an anti-takeover effect.
In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, the Federal Reserve, the FDIC, or other regulatory authorities, which could require additional financial and management resources.
In addition, we could become subject to investigations by the stock exchange on which our securities are listed, the SEC, the FRB, the FDIC, or other regulatory authorities, which could require additional financial and management resources. These events could have an adverse effect on our business, financial condition and results of operations.
The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate. The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes.
Any of these factors, among others, could cause impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have an adverse effect on our business, financial condition and results of operations. An AFS investment security is considered impaired when it experiences a decline in fair value below its amortized cost basis.
Any of these factors, among others, could cause impairments and realized and/or unrealized losses in 14 future periods and declines in other comprehensive income, which could have an adverse effect on our business, financial condition and results of operations.
Some investors have begun to consider how corporations, such as the Company, are addressing environmental, social, and governance matters, commonly referred to as "ESG" matters, when making investment decisions. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights.
Our businesses and operations are also subject to increasing regulatory oversight and scrutiny, which could lead to regulatory investigations or enforcement actions.
We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us. Our businesses and operations are subject to increasing regulatory oversight and scrutiny, which could lead to regulatory investigations or enforcement actions.
We recently completed our goodwill impairment analysis as of December 31, 2022 and concluded goodwill was not impaired. We conduct a review of our other intangible assets for impairment should events or circumstances warrant. We cannot provide assurance that we will not be required to take an impairment charge in the future.
We conduct an annual review, or more frequently if events or circumstances warrant such, to determine whether goodwill is impaired. We recently completed our goodwill impairment analysis as of December 31, 2023 and concluded goodwill was not impaired. We conduct a review of our other intangible assets for impairment should events or circumstances warrant.
In addition, bank regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, which may have a material adverse effect on our financial condition or results of operations. Our commercial, commercial real estate and construction loan portfolio may expose us to increased credit risks.
As a result of this input, we may be required to assign different risk ratings to specific credits, increase our provision for credit losses, and/or recognize further loan charge offs which could have a material adverse effect on our net income and financial condition. Our commercial, commercial real estate and construction loan portfolio may expose us to increased credit risks.
If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, our interest income will be reduced. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.
The speed at which such prepayments occur, as well as the size of such prepayments, are within our customers’ discretion. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or 15 higher interest rates, our interest income will be reduced.
Environmental liability associated with our lending activities could result in losses. In the course of business, we may acquire, through foreclosure, properties securing loans we have originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that material environmental violations could be discovered at these properties.
A significant reduction in interest income could have a negative impact on our results of operations and financial condition. Environmental liability associated with our lending activities could result in losses. In the course of business, we may acquire, through foreclosure, properties securing loans we have originated or purchased that are in default.
These and other restrictions limit the manner in which we may conduct business and obtain financing. We are subject to deposit insurance assessments by the FDIC to fund the DIF.
These and other restrictions limit the manner in which we may conduct business and obtain financing. We are also affected by the monetary policies of the FRB.
These events could have an adverse effect on our financial condition and results of operations. Risks Relating to Regulation of the Industry We operate in a highly regulated environment and may be adversely affected by changes in laws, regulations and monetary policy.
Risks Relating to Regulation of the Industry We operate in a highly regulated environment and may be adversely affected by changes in laws, regulations and monetary policy. We are subject to regulation and supervision by the FRB and Union Bank is subject to regulation and supervision by the FDIC and the DFR.
From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to anticipate and implement and can materially impact how we record and report our financial condition and results of operations.
From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of our financial statements.
If our assumptions prove to be incorrect, our allowance for loan losses may not be sufficient to cover the losses we could experience, resulting in additions to our allowance and a related charge to our income.
In determining the size of the allowance for credit losses, we rely on an analysis of our loan portfolio, our experience and a third-party economic forecast. If our assumptions prove to be incorrect, our current allowance for credit losses may not be sufficient to cover the losses.
Any impairment that is not credit related is recognized in other comprehensive income, net of applicable taxes. A lack of liquidity could adversely affect our operations and jeopardize our business, financial condition and results of operations. Liquidity is essential to our business.
Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes. A lack of liquidity could adversely affect the Company’s financial condition and results of operations and result in regulatory restrictions. The Company must maintain sufficient funds to respond to the needs of depositors and borrowers.
The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. At December 31, 2022, there was no remaining unamortized identifiable intangible asset and our goodwill was approximately $2.2 million.
When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired.
Under current accounting standards, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets to fair value. We conduct an annual review, or more frequently if events or circumstances warrant such, to 21 determine whether goodwill is impaired.
At December 31, 2023, there was no remaining unamortized identifiable intangible asset and our goodwill was approximately $2.2 million. Under current accounting standards, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets to fair value.
The Final Capital Rule established a minimum common equity Tier I capital ratio of 6.5% of risk-weighted assets for a “well capitalized” institution and increased the minimum Tier I capital ratio for a “well capitalized” institution from 6.0% to 8.0%.
The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%.
If we increase interest rates paid to retain deposits, our earnings may be adversely affected, which could have an adverse effect on our business, financial condition and results of operations.
If we are not able to access funding through the FHLB, we may not be able to meet our liquidity needs, which could have an adverse effect on our results of operations or financial condition.
Any impairment charge would have a negative effect on our shareholders’ equity and financial results and may cause a decline in our stock price. The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.
We cannot provide assurance that we will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on our shareholders’ equity and financial results and may cause a decline in our stock price.
Prepayments of loans may negatively impact our business . Generally, our customers may prepay the principal amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of such prepayments, are within our customers’ discretion.
Similarly, if we deem all or part of our investment in FHLB stock impaired, such action could have an adverse effect on our financial condition or results of operations. Prepayments of loans may negatively impact our business . Generally, our customers may prepay the principal amount of their outstanding loans at any time.
Our ability to increase our level of interest earning assets or to allocate those assets in the best manner to generate interest income may be adversely affected. We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.
We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations. We maintain systems and procedures designed to ensure that we comply with applicable laws and regulations.
Removed
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans.
Added
As a lender, we are exposed to the risk that our loan customers may not repay their loans according to their terms and that the collateral or guarantees securing these loans may be insufficient to assure repayment.
Removed
On a quarterly basis the allowance for loan loss is presented to Union's Board of Directors for discussion, review, and approval. We rely on our loan reviews, our experience, and our evaluation of economic conditions, among other factors, in determining the amount of the allowance for loan losses.
Added
The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Removed
At each measurement date, we determine how much of the decline in fair value below amortized cost basis is due to credit-related factors and how much of the decline is due to noncredit-related factors. Credit-related impairment is recognized as an allowance on our balance sheet with a corresponding adjustment to earnings.
Added
We maintain an allowance for credit losses to provide for loan defaults and non-performance, which also includes increases for new loan growth.
Removed
We rely on our ability to generate deposits and effectively manage the repayment and maturity schedules of our loans and investment securities, respectively, to ensure that we have adequate liquidity to fund our operations.
Added
While we believe that our allowance for credit losses is appropriate to cover expected losses, we cannot provide assurance that we will not increase the allowance for credit losses further or that regulators will not require us to increase the allowance for credit losses which could have a material adverse effect on our net income and financial condition.
Removed
An inability to raise funds through deposits, borrowings, the sale of our investment securities, FHLB advances, and the sale of loans and other sources could have a substantial negative effect on our liquidity. Our most important source of funds consists of core deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff.
Added
Management makes various assumptions and judgments about the collectability of our loan portfolio, which are regularly reevaluated and are based in part on: • current and forecasted economic conditions and their estimated effects on specific borrowers; • an evaluation of the existing relationships among loans, potential credit losses and the present level of the allowance for credit losses; • results of examinations of our loan portfolios by regulatory agencies; and • management's internal review of the loan portfolio.
Removed
If customers move money out of the bank and into other investments, we would lose a relatively low-cost source of funds, increasing our funding costs and reducing our net interest income and net income. 14 Other primary sources of funds consist of cash flows from operations and investment securities.
Added
In addition, third parties, including our federal and state regulators, periodically evaluate the adequacy of our allowance for credit losses and may communicate with us concerning the methodology or judgments that we have raised in determining the allowance for credit losses.
Removed
Additional liquidity is provided by the ability to borrow from the FHLB and our ability to raise brokered deposits. We also may borrow funds from the FRB's discount window or from third-party lenders, such as other financial institutions.
Added
AFS debt securities in an unrealized loss position, are evaluated by management for impairment, to determine whether the decline in fair value has resulted from credit losses or other factors.
Removed
Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable to us, could be impaired by factors that affect us directly or indirectly, such as disruptions in the financial markets or negative views and expectations about the prospects for the bank or non-bank financial services industries.
Added
In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors.
Removed
As of December 31, 2022, approximately $762.7 million or, 63.46% of our deposits consisted of interest-bearing demand deposits, savings and money market accounts. Based on past experience, we believe that our deposit accounts are a relatively stable sources of funds.
Added
If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.
Removed
If rapid loan growth were to occur and we are unable to successfully grow transactional deposits organically we will likely be required to rely on higher cost sources of funding, such as certificates of deposit, to fund continued loan growth, which could have an adverse effect on our business, financial condition and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeUnion owns, free of encumbrances, 16 of its branch locations and its headquarters and leases two branch locations, the NH loan center location, the land the Williston branch and loan center was built on and certain ATM premises from third parties under terms and conditions considered by management to be favorable to Union.
Biggest changeUnion leases three branch locations, one loan production office, land upon which the Williston branch was built, and certain ATM premises from third parties under terms and conditions considered by management to be favorable to Union. Union also owns or leases certain properties contiguous to its branch locations for staff and customer parking convenience.
Union also owns or leases certain properties contiguous to its branch locations for staff and customer parking convenience. Additional information relating to the Company's properties as of December 31, 2022, is set forth in Notes 8 and 9 to the Company's audited consolidated financial statements contained in Part II, Item 8 of this Annual Report.
Additional information relating to the Company's properties as of December 31, 2023, is set forth in Notes 8 and 9 to the Company's audited consolidated financial statements contained in Part II, Item 8 of this Annual Report.
Item 2. Properties As of December 31, 2022, Union operated 14 community banking locations in Lamoille, Caledonia, Chittenden, Franklin and Washington counties of Vermont and five in Grafton and Coos counties of New Hampshire. Union has also leased space to establish a full service branch location in North Conway, in Carroll County New Hampshire.
Item 2. Properties As of December 31, 2023, Union operated 14 community banking locations in Lamoille, Caledonia, Chittenden, Franklin and Washington counties of Vermont and five in Grafton and Coos counties of New Hampshire. Union also operates three loan centers in St. Johnsbury and Williston, Vermont and Plymouth, New Hampshire.
Union also operates three loan centers in St. Johnsbury and Williston, Vermont and North Conway, New Hampshire. In addition as of such date, Union also operated several ATMs in northern Vermont and New Hampshire.
In addition as of such date, Union owns, free of encumbrances, 16 of its branch locations and its headquarters and operated several ATMs in northern Vermont and New Hampshire.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe number of stockholders does not reflect the number of beneficial owners, including persons or entities who may hold the stock in nominee or “street name.” Repurchase of Common Stock There was no repurchase of the Company's equity securities during the quarter ended December 31, 2022. 22 Securities Authorized for Issuance Under Equity Compensation Plans Information regarding equity securities authorized for issuance under the Company's equity compensation plans is included in Part III, Item 12 of this Annual Report under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”, and is incorporated herein by reference.
Biggest changeSecurities Authorized for Issuance Under Equity Compensation Plans Information regarding equity securities authorized for issuance under the Company's equity compensation plan is included in Part III, Item 12 of this Annual Report under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”, and is incorporated herein by reference. 25 Five Year Performance Graph The following graph illustrates the annual percentage change in the cumulative total shareholder return of the Company's common stock for the period December 31, 2018 through December 31, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Trading Market for Common Stock The common stock of the Company is traded on the NASDAQ Global Select Market under the trading symbol "UNB." On February 28, 2022, there were 4,509,425 shares of common stock outstanding held by 508 stockholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Trading Market for Common Stock The common stock of the Company is traded on the NASDAQ Global Select Market under the trading symbol "UNB." On February 28, 2024, there were 4,519,384 shares of common stock outstanding held by 492 stockholders of record.
SmallCap Banks Index 100.00 83.44 104.69 95.08 132.36 116.69 The performance graph and related information furnished under Part II, Item 5 of this Annual Report on Form 10-K shall not be deemed to be “soliciting material” or “filed” with the SEC, nor subject to Exchange Act Regulations 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act.
SmallCap Banks Index 100.00 125.46 113.94 158.62 139.85 140.55 The performance graph and related information furnished under Part II, Item 5 of this Annual Report on Form 10-K shall not be deemed to be “soliciting material” or “filed” with the SEC, nor subject to Exchange Act Regulations 14A or 14C, other than as provided in Item 201 of Regulation S-K, or to the liabilities of Section 18 of the Exchange Act.
The graph assumes a $100 investment on December 31, 2016 in each case and measures the amount by which the market value, assuming reinvestment of dividends, has changed during the five year period ended December 31, 2022.
For purposes of comparison, the graph illustrates comparable shareholder returns of the S&P U.S. SmallCap Banks Index and the NASDAQ Composite Index. The graph assumes a $100 investment on December 31, 2018 in each case and measures the amount by which the market value, assuming reinvestment of dividends, has changed during the five year period ended December 31, 2023.
Period Ended Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Union Bankshares, Inc. 100.00 92.33 72.46 54.20 65.61 55.48 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 S&P U.S.
Period Ended Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Union Bankshares, Inc. 100.00 78.48 58.70 71.06 60.09 81.30 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 S&P U.S.
Removed
Five Year Performance Graph: The following graph illustrates the annual percentage change in the cumulative total shareholder return of the Company's common stock for the period December 31, 2016 through December 31, 2022. For purposes of comparison, the graph illustrates comparable shareholder returns of the S&P U.S. SmallCap Banks Index and the NASDAQ Composite Index.
Added
The number of stockholders does not reflect the number of beneficial owners, including persons or entities who may hold the stock in nominee or “street name.” 24 Repurchases of Common Stock The following table summarizes repurchases of the Company's equity securities during the quarter ended December 31, 2023.
Added
Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet be Purchased Under the Plans or Program (1) October 2023 700 $21.51 700 1,800 November 2023 — — — 1,800 December 2023 — — — — __________________ (1) All repurchases were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 2,500 shares of its common stock each calendar quarter, in open market or privately negotiated transactions, in management's discretion.
Added
The repurchase authorization for a calendar quarter expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The program was initially authorized in 2010 and was reauthorized most recently in December 2023. The program will expire on December 31, 2024, unless reauthorized by the Board of Directors.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

142 edited+58 added−86 removed57 unchanged
Biggest changeThe following table details the composition of the Company's nonperforming assets and amounts utilized to calculate certain asset quality ratios monitored by Company's management as of December 31: 2022 2021 (Dollars in thousands) Nonaccrual loans $ 2,211 $ 4,650 Loans past due 90 days or more and still accruing interest 186 98 Total nonperforming loans and assets $ 2,397 $ 4,748 Guarantees of U.S. or state government agencies on the above nonperforming loans $ 76 $ 113 TDR loans $ 1,710 $ 2,215 Allowance for loan losses $ 8,339 $ 8,336 Net recoveries $ (3) $ (65) Total loans outstanding $ 959,335 $ 800,879 Total average loans outstanding $ 875,528 $ 808,894 36 The following table shows trends of certain asset quality ratios monitored by Company's management at December 31: 2022 2021 (Dollars in thousands) Allowance for loan losses to total loans outstanding 0.87 % 1.04 % Allowance for loan losses to nonperforming loans 347.89 % 175.57 % Allowance for loan losses to nonaccrual loans 377.16 % 179.27 % Nonperforming loans to total loans 0.25 % 0.59 % Nonperforming assets to total assets 0.18 % 0.39 % Nonaccrual loans to total loans 0.23 % 0.58 % Delinquent loans (30 days to nonaccruing) to total loans 0.57 % 0.82 % Net recoveries to total average loans — % (0.01) % Residential real estate — % (0.03) % Net recoveries $ — $ (66) Total average loans $ 304,778 $ 243,212 Construction real estate — % — % Net charge-offs $ — $ — Total average loans $ 67,272 $ 62,678 Commercial real estate — % — % Net recoveries $ — $ — Total average loans $ 373,657 $ 324,101 Commercial — % — % Net recoveries $ (1) $ — Total average loans $ 43,710 $ 88,626 Consumer (0.09) % 0.04 % Net (recoveries) charge-offs $ (2) $ 1 Total average loans $ 2,262 $ 2,608 Municipal — % — % Net charge-offs $ — $ — Total average loans $ 83,849 $ 87,669 Nonperforming loans at December 31, 2022 decreased $2.4 million, or 49.5% and decreased as a percentage of assets from 0.39% at December 31, 2021 to 0.18% at December 31, 2022, with the ALL as a percentage of nonperforming loans increasing from 175.57% to 347.89%.
Biggest changeRepossessed assets and loans or investments that are 90 days or more past due or in nonaccrual status are considered to be nonperforming assets. 39 The following table details the composition of the Company's nonperforming assets and amounts utilized to calculate certain asset quality ratios monitored by Company's management as of December 31: 2023 2022 (Dollars in thousands) Nonaccrual loans $ 1,858 $ 2,211 Loans past due 90 days or more and still accruing interest 162 186 Total nonperforming loans and assets $ 2,020 $ 2,397 Guarantees of U.S. or state government agencies on the above nonperforming loans $ 73 $ 76 ACL on loans $ 6,566 $ 8,339 Net charge-offs (recoveries) $ 4 $ (3) Total loans outstanding $ 1,031,340 $ 959,335 Total average loans outstanding $ 993,959 $ 875,528 The following table shows trends of certain asset quality ratios monitored by Company's management at December 31: 2023 2022 (Dollars in thousands) ACL on loans to total loans outstanding 0.64 % 0.87 % ACL on loans to nonperforming loans 325.05 % 347.89 % ACL on loans to nonaccrual loans 353.39 % 377.16 % Nonperforming loans to total loans 0.20 % 0.25 % Nonperforming assets to total assets 0.14 % 0.18 % Nonaccrual loans to total loans 0.18 % 0.23 % Delinquent loans (30 days to nonaccruing) to total loans 0.55 % 0.57 % Net charge-offs (recoveries) to total average loans — % — % Residential real estate — % — % Net recoveries $ (1) $ — Total average loans $ 380,755 $ 304,778 Commercial — % — % Net recoveries $ — $ (1) Total average loans $ 40,759 $ 43,710 Consumer 0.21 % (0.09) % Net charge-offs (recoveries) $ 5 $ (2) Total average loans $ 2,430 $ 2,262 All other loan categories did not have charge-offs or recoveries for the periods presented above.
Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the government guaranty mitigates the Company's exposure to credit risk.
Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the loan sales and government guaranty mitigates the Company's exposure to credit risk.
Additionally, the loan portfolio contains many loans to seasoned and well established businesses and/or well secured loans which further reduce the Company's 35 risk. Management closely follows the local and national economies and their impact on the local businesses, especially on the tourism industry, as part of the Company's risk management program.
Additionally, the loan portfolio contains many loans to seasoned and well established businesses and/or well secured loans which further reduce the Company's risk. Management closely follows the local and national economies and their impact on the local businesses, especially on the tourism industry, as part of the Company's risk management program.
The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet our cash flow needs in the most economical and expedient manner.
The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet cash flow needs in the most economical and expedient manner.
Contractual principal repayments on loans are a relatively predictable source of funds; however, deposit flows and loan and investment prepayments are less predictable and can be significantly influenced by market interest 42 rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.
Contractual principal repayments on loans are a relatively predictable source of funds; however, deposit flows and loan and investment prepayments are less predictable and can be significantly 45 influenced by market interest rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.
At December 31, 2022 and 2021, Union was categorized as well capitalized under the Prompt Corrective Action regulatory framework and the Company exceeded applicable minimum capital adequacy requirements. There were no conditions or events between December 31, 2022 and the date of this report that management believes have changed either the Company’s or Union's regulatory capital category.
At December 31, 2023 and 2022, Union was categorized as well capitalized under the Prompt Corrective Action regulatory framework and the Company exceeded applicable minimum capital adequacy requirements. There were no conditions or events between December 31, 2023 and the date of this report that management believes have changed either the Company’s or Union's regulatory capital category.
For interest rate caps and floors written on adjustable-rate loans, the contractual or notional amounts do not represent the Company’s exposure to credit loss. The Company controls the risk of interest rate cap agreements through 41 credit approvals, limits and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.
For interest rate caps and floors written on adjustable-rate loans, the contractual or notional amounts do not represent the Company’s exposure to credit loss. The Company controls the risk of interest rate cap agreements through 44 credit approvals, limits and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.
The Company participates in CDARS, which permits the Company to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARS deposits as of December 31, 2022 or December 31, 2021.
The Company participates in CDARS, which permits the Company to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARS deposits as of December 31, 2023 or December 31, 2022.
This line of credit can be used for either short-term or long-term liquidity or other funding needs. Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at December 31, 2022. There were no borrowings against this line of credit as of such date.
This line of credit can be used for either short-term or long-term liquidity or other funding needs. Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at December 31, 2023. There were no borrowings against this line of credit as of such date.
Although the FHLB was in compliance with all regulatory capital ratios as of December 31, 2022 and 2021, there is the possibility of future capital calls by the FHLB on member banks to ensure compliance with its capital plan. Union's investment in FHLB stock is carried at cost in Other assets on the consolidated balance sheets.
Although the FHLB was in compliance with all regulatory capital ratios as of December 31, 2023 and 2022, there is the possibility of future capital calls by the FHLB on member banks to ensure compliance with its capital plan. Union's investment in FHLB stock is carried at cost in Other assets on the consolidated balance sheets.
The Vermont franchise tax is determined based on a quarterly tax rate applied to the Company's average balance of Vermont customer deposit balances. The tax rate remained unchanged throughout 2022 and 2021; however, the average balances in Vermont deposit account balances increased for the year ended December 31, 2022, resulting in an increase in expense. • Professional fees.
The Vermont franchise tax is determined based on a quarterly tax rate applied to the Company's average balance of Vermont customer deposit balances. The tax rate remained unchanged throughout 2023 and 2022; however, the average balances in Vermont deposit account balances increased for the year ended December 31, 2023, resulting in an increase in expense. • Professional fees.
Holding costs and declines in fair value of properties acquired are expensed as incurred. Declines in the fair value after acquisition of the property result in charges against income before tax. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at December 31, 2022 or 2021.
Holding costs and declines in fair value of properties acquired are expensed as incurred. Declines in the fair value after acquisition of the property result in charges against income before tax. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at December 31, 2023 or 2022.
CERTAIN DEFINITIONS Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 52 of this Annual Report.
CERTAIN DEFINITIONS Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 55 of this Annual Report.
See page 29 for more information. (2) The ratio of noninterest expenses to tax equivalent net interest income and noninterest income, excluding securities gains (losses). (3) The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 29 for more information.
See page 32 for more information. (2) The ratio of noninterest expenses to tax equivalent net interest income and noninterest income, excluding securities gains (losses). (3) The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 32 for more information.
("the Company," "our," "we," "us") and its subsidiary, Union Bank ("Union"), as of December 31, 2022 and 2021, and its consolidated results of operations for the years then ended. The Company is considered a "smaller reporting company" under the disclosure rules of the SEC.
("the Company," "our," "we," "us") and its subsidiary, Union Bank ("Union"), as of December 31, 2023 and 2022, and its consolidated results of operations for the years then ended. The Company is considered a "smaller reporting company" under the disclosure rules of the SEC.
The most significant accounting policies followed by the Company are presented in Note 1 of the consolidated financial statements and in the section below under the caption “FINANCIAL CONDITION” and the subcaptions “Allowance for Loan Losses and Credit Quality” and ”Investment Activities.” Although management believes that its estimates, assumptions and judgments are reasonable, they are based upon information available when such estimates, assumptions and judgments are made and can be impacted by future events and events outside the control of the Company.
The most significant accounting policies followed by the Company are presented in Note 1 of the consolidated financial statements and in the section below under the caption “FINANCIAL CONDITION” and the subcaptions "Asset Quality", “Allowance for Credit Losses" and ”Investment Activities.” Although management believes that its estimates, assumptions and judgments are reasonable, they are based upon information available when such estimates, assumptions and judgments are made and can be impacted by future events and events outside the control of the Company.
From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented in the consolidated balance sheets net of unamortized issuance costs of $295 thousand and $329 thousand at December 31, 2022 and 2021, respectively.
From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented in the consolidated balance sheets net of unamortized issuance costs of $261 thousand and $295 thousand at December 31, 2023 and 2022, respectively.
The Vermont unemployment rate was reported at 2.6% for December 2022 compared to 2.5% for December 2021 and the New Hampshire unemployment rate was 2.7% for December 2022 compared to 2.6% for December 2021. These rates compare favorably with the nationwide unemployment rate of 3.5% and 3.9%, respectively, for the comparable periods.
The Vermont unemployment rate was reported at 2.2% for December 2023 compared to 2.6% for December 2022 and the New Hampshire unemployment rate was 2.5% for December 2023 compared to 2.7% for December 2022. These rates compare favorably with the nationwide unemployment rate of 3.7% and 3.5%, respectively, for the comparable periods.
Low income housing tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $1.1 million for the years ended December 31, 2022 and 2021. See Note 10 to the Company's consolidated financial statements.
Low income housing tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $1.4 million and $1.1 million for the years ended December 31, 2023 and 2022, respectively. See Note 10 to the Company's consolidated financial statements.
Management is not aware of the occurrence of any events after December 31, 2022 which would materially affect the information presented.
Management is not aware of the occurrence of any events after December 31, 2023 which would materially affect the information presented.
Commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. The unused lines of credit total includes $13.4 million of lines available under the overdraft privilege program and is included in the 2023 funding period.
Commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. The unused lines of credit total includes $13.7 million of lines available under the overdraft privilege program and is included in the 2024 funding period.
Allowance for Loan Losses . Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ALL to absorb such losses.
Allowance for Credit Losses on Loans . Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ACL to absorb such losses.
As of December 31, 2022, the notional amount of the maximum contingent contractual liability related to this program was $415 thousand, of which $19 thousand was recorded as a reserve through Other liabilities. Since inception of the Company's MPF participation in 2015, the Company has not experienced any losses under this program. Liquidity .
As of December 31, 2023, the notional amount of the maximum contingent contractual liability related to this program was $763 thousand, of which $19 thousand was recorded as a reserve through Other liabilities. Since inception of the Company's MPF participation in 2015, the Company has not experienced any losses under this program.
Amortization expense related to limited partnership investments included as a component of tax expense amounted to $1.1 million and $1.0 million for the years ended December 31, 2022 and 2021, respectively. These investments provide tax benefits, including tax credits.
Amortization expense related to limited partnership investments included as a component of tax expense amounted to $1.4 million and $1.1 million for the years ended December 31, 2023 and 2022, respectively. These investments provide tax benefits, including tax credits.
Approximately $48.7 million of the unused lines of credit relate to real estate construction loans that are expected to fund within the next twelve months. The remaining lines primarily relate to revolving lines of credit for other real estate or commercial loans.
Approximately $37.6 million of the unused lines of credit relate to real estate construction loans that are expected to fund within the next twelve months. The remaining lines primarily relate to revolving lines of credit for other real estate or commercial loans.
However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ALL at December 31, 2022. In addition, our banking regulators, as an integral part of their examination process, periodically review our ALL.
However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ACL on loans at December 31, 2023. In addition, our banking regulators, as an integral part of their examination process, periodically review our ACL.
(2) Average yields reported on a tax equivalent basis using a marginal federal corporate income tax rate of 21%. (3) Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable. (4) Includes unamortized costs and unamortized premiums.
(2) Average yields reported on a tax equivalent basis using a marginal federal corporate income tax rate of 21%. (3) Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.
The guidance in the ASU, 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.
The ASU, which is more commonly referred to as Current Expected 27 Credit Losses (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.
The repurchase authorization for a calendar quarter (currently 2,500 shares) expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The Company repurchased 2,650 shares under this program during 2022 at a total cost of $79 thousand.
The repurchase authorization for a calendar quarter (currently 2,500 shares) expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The Company repurchased 5,700 shares under this program during 2023 at a total cost of $129 thousand.
The Company had loans rated substandard that were on a performing status totaling $1.3 million at December 31, 2022 and $769 thousand at December 31, 2021. In management's view, such loans represent a higher degree of risk of becoming nonperforming loans in the future.
The Company had loans rated substandard that were on a performing status totaling $1.2 million and $1.3 million at December 31, 2023 and December 31, 2022, respectively. In management's view, such loans represent a higher degree of risk of becoming nonperforming loans in the future.
Such agencies may require us to recognize adjustments to the ALL based on their judgments about information available to them at the time of their examination. A large adjustment to the ALL for losses in future periods may require increased provisions to replenish the ALL, which could negatively affect earnings. Investment Activities .
Such agencies may require us to recognize adjustments to the ACL based on their judgments about information available to them at the time of their examination. A large adjustment to the ACL on loans for losses in future periods could require increased credit loss expense to replenish the ACL on loans, which could negatively affect earnings. Investment Activities .
RESULTS OF OPERATIONS For the year ended December 31, 2022, net income was $12.6 million compared to $13.2 million for the year ended December 31, 2021. The primary components of these results, which include net interest income, noninterest income, noninterest expenses, and provision for income taxes, are discussed below: Net Interest Income .
RESULTS OF OPERATIONS For the year ended December 31, 2023, net income was $11.3 million compared to $12.6 million for the year ended December 31, 2022. The primary components of these results, which include net interest income, noninterest income, noninterest expenses, and provision for income taxes, are discussed below: Net Interest Income .
At December 31, 2022, the Company serviced a $987.4 million residential real estate mortgage portfolio, of which $1.2 million was held for sale and approximately $633.7 million was serviced for unaffiliated third parties.
This compares to a residential real estate mortgage servicing portfolio of $987.4 million at December 31, 2022, of which $1.2 million was held for sale and approximately $633.7 million was serviced for unaffiliated third parties.
Uninsured deposits include $30.4 million of municipal deposits and were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at December 31, 2022, as described below under Borrowings.
Uninsured deposits include $26.7 million of municipal deposits and were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at December 31, 2023, as described below under Borrowings.
There was one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022 and no loans in process of foreclosure at December 31, 2021. The aggregate interest on nonaccrual loans not recognized was $59 thousand and $504 thousand for the years ended December 31, 2022 and 2021, respectively.
There was one revolving residential real estate loan totaling $17 thousand in process of foreclosure at December 31, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. The aggregate interest on nonaccrual loans not recognized was $143 thousand and $59 thousand for the years ended December 31, 2023 and 2022, respectively.
There were $12.3 million of time deposits of $250,000 or less on the balance sheets at December 31, 2022 and $13.6 million at December 31, 2021, which were exchanged with other CDARS participants.
There were $11.7 million of time deposits of $250,000 or less on the balance sheets at December 31, 2023 and $12.3 million at December 31, 2022, which were exchanged with other CDARS participants.
As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were $209.3 million and $155.3 million in exchanged ICS demand and money market deposits on the balance sheets at December 31, 2022 and December 31, 2021, respectively. There were no purchased ICS deposits at December 31, 2022 or December 31, 2021.
As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were $232.6 million and $209.3 million in exchanged ICS demand and money market deposits on the balance sheets at December 31, 2023 and December 31, 2022, respectively.
At December 31, 2022, Union, as a member of FHLB, had access to unused lines of credit of $76.9 million, over and above the $93.5 million in combined outstanding borrowings and other credit subject to collateralization, subject to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available.
At December 31, 2023, Union, as a member of FHLB, had access to unused lines of credit up to $135.9 million, over and above the $99.6 million in combined outstanding borrowings and other credit subject to collateralization and to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available.
The Company capitalizes MSRs for all loans sold with servicing retained and recognizes gains and losses on the sale of the principal portion of these loans as they occur.
The Company capitalizes MSRs for all loans sold with servicing retained and recognizes gains and losses on the sale of the principal portion of these loans at the time of sale.
The Company expects that CECL may create more volatility in the level of the ALL from quarter to quarter as the ALL will be dependent upon macroeconomic forecasts and conditions, loan portfolio volumes and credit quality, among other things. For additional information on CECL, refer to Note 1 of the consolidated financial statements.
CECL may create more volatility in the level of the ACL from quarter to quarter as the ACL is now dependent upon macroeconomic forecasts and conditions, loan portfolio volumes and credit quality, among other things. For additional information on CECL, refer to Note 1 of the consolidated financial statements.
As of December 31, 2022, the Company had total consolidated assets of $1.3 billion, an increase of 10.9% compared to December 31, 2021.
As of December 31, 2023, the Company had total consolidated assets of $1.5 billion, an increase of 9.9% compared to total consolidated assets of $1.3 billion at December 31, 2022.
Under this program the Company shares in the credit risk of each mortgage, while receiving fee income in return. The Company is responsible for a Credit Enhancement Obligation based on the credit quality of these loans. FHLB funds a first loss account based on the Company's outstanding MPF mortgage balances. This creates a laddered approach to sharing in any losses.
The Company is responsible for a Credit Enhancement Obligation based on the credit quality of these loans. FHLB funds a first loss account based on the Company's outstanding MPF mortgage balances. This creates a laddered approach to sharing in any losses.
As of December 31, 2022, the Company had sold loans through the MPF program totaling $33.9 million with an outstanding balance of $9.1 million. The volume of loans sold to the MPF program and the corresponding Credit Enhancement Obligation are closely monitored by management.
As of December 31, 2023, the Company had sold loans through the MPF program totaling $40.2 million with an outstanding balance of $14.7 million. The volume of loans sold to the MPF program and the corresponding Credit Enhancement Obligation are closely monitored by management.
Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic investments, maintain required regulatory capital levels and provide continued support for deposits.
Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic investments, maintain required regulatory capital levels and provide continued support for deposits. The Company continues to evaluate growth opportunities both through internal growth or potential acquisitions.
Sales of qualifying residential loans to the secondary market for the year ended December 31, 2022 were $78.0 million resulting in gain on sales of $1.0 million, compared to sales of $216.8 million and gain on sales of $5.0 million for the year ended December 31, 2021.
Sales of qualifying residential loans to the secondary market for the year ended December 31, 2023 were $75.6 million resulting in gain on sales of $1.2 million, compared to sales of $78.0 million and gain on sales of $1.0 million for the year ended December 31, 2022.
(See Capital Resources on pages 43 to 44.) These changes also resulted in a decrease in the Company's book value per share to $12.25 at December 31, 2022 from $18.77 as of December 31, 2021. Return on average assets is a financial metric often utilized as an indicator of a financial institution's performance.
(See Capital Resources on pages 46 to 47.) These changes also resulted in an increase in the Company's book value per share to $14.56 at December 31, 2023 from $12.25 as of December 31, 2022. Return on average assets is a financial metric often utilized as an indicator of a financial institution's performance.
Federal Home Loan Bank of Boston Stock. Union is a member of the FHLB, with an investment of $2.7 million and $1.1 million in its Class B common stock at December 31, 2022 and 2021, respectively.
Union is a member of the FHLB, with an investment of $3.1 million and $2.7 million in its Class B common stock at December 31, 2023 and 2022, respectively.
The core deposit intangible was fully amortized in 2021. 25 Other The Company also has other key accounting policies, which involve the use of estimates, judgments and assumptions, that are significant to understanding the Company's financial condition and results of operations, including investment securities.
Other The Company also has other key accounting policies, which involve the use of estimates, judgments and assumptions, that are significant to understanding the Company's financial condition and results of operations, including investment securities.
Tier I capital to risk weighted assets decreased to 11.0% at December 31, 2022, from 11.9% at December 31, 2021, and Tier I capital to average assets decreased to 6.7% at December 31, 2022 from 7.1% at December 31, 2021.
Tier I capital to risk weighted assets decreased to 10.7% at December 31, 2023, from 11.0% at December 31, 2022, and Tier I capital to average assets decreased to 6.5% at December 31, 2023 from 6.7% at December 31, 2022.
As of December 31, 2022, total loans serviced had grown to $1.6 billion, which includes total loans on the balance sheet of $959.3 million as well as total loans sold with servicing retained of $660.7 million, compared to total loans serviced of $1.5 billion as of December 31, 2021.
As of December 31, 2023, total loans serviced had grown to $1.7 billion, which includes total loans on the balance sheet of $1.0 billion as well as total loans sold with servicing retained of $672.2 million, compared to total loans serviced of $1.6 billion as of December 31, 2022.
The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 (Dollars in thousands) Net interest income as presented $ 39,424 $ 35,708 Effect of tax-exempt interest Investment securities 201 125 Loans 301 299 Net interest income, tax equivalent $ 39,926 $ 36,132 Rate/Volume Analysis.
The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the years ended December 31, 2023 and 2022: Years Ended December 31, 2023 2022 (Dollars in thousands) Net interest income as presented $ 37,843 $ 39,424 Effect of tax-exempt interest Investment securities 372 201 Loans 448 301 Net interest income, tax equivalent $ 38,663 $ 39,926 Rate/Volume Analysis.
There were no investment securities classified as HTM or as trading at December 31, 2022 or 2021. Investment securities classified as AFS are marked-to-market, with any unrealized gain or loss after estimated taxes charged to the equity portion of the balance sheet through the accumulated OCI component of stockholders' equity.
Investment securities classified as AFS are marked-to-market, with any unrealized gain or loss after estimated taxes charged to the equity portion of the balance sheet through the accumulated OCI component of stockholders' equity.
This estimate is based on the same methodologies and assumptions used for regulatory reporting requirements. At December 31, 2022, the Company had estimated uninsured deposit accounts totaling $342.8 million, or 28.5% of total deposits.
This estimate is based on the same methodologies and assumptions used for regulatory reporting requirements. At December 31, 2023, the Company had estimated uninsured deposit accounts totaling $390.4 million, or 29.9% of total deposits.
The Company's gross loan portfolio (including loans held for sale) increased $158.5 million, or 19.8%, to $959.3 million, representing 71.8% of assets at December 31, 2022, from $800.9 million, representing 66.4% of assets at December 31, 2021. The Company's loans consist primarily of adjustable-rate and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate.
The Company's gross loan portfolio (including loans held for sale) increased $72.0 million, or 7.5%, to $1.0 billion, representing 70.2% of assets at December 31, 2023, from $959.3 million, representing 71.8% of assets at December 31, 2022. The Company's loans consist primarily of adjustable-rate and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate.
Similar to evaluating investment securities for OTTI, the Company has evaluated its investment in the FHLB. Management's most recent evaluation of the Company's holdings of FHLB common stock concluded that the investment was not impaired at December 31, 2022. Deposits.
Similar to evaluating investment securities for potential credit losses, the Company periodically evaluates its investment in the FHLB. Management's most recent evaluation of the Company's holdings of FHLB common stock concluded that the investment was not impaired at December 31, 2023. Deposits.
The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of December 31, 2022, 7,583 shares of stock had been issued from treasury stock since inception of the DRIP, including 2,153 shares in 2022.
The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of December 31, 2023, 10,749 shares of stock had been issued from treasury stock since inception of the DRIP, including 3,166 shares in 2023.
The unamortized balance of MSRs on loans sold with servicing retained was $2.0 million and $2.5 million as of December 31, 2022 and 2021, respectively, with an estimated market value in excess of the carrying value at both year ends.
The unamortized balance of MSRs on loans sold with servicing retained was $1.7 million and $2.0 million as of December 31, 2023 and 2022, respectively, with an estimated market value in excess of the carrying value at both year ends. Management periodically evaluates and measures the servicing assets for impairment.
In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved Federal Funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, one-way buy options with CDARS and ICS as well as access to the FRB discount window, which would require pledging of qualifying investment securities or loans.
In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved federal funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, and one-way buy options with CDARS and ICS.
The Company's total capital to risk weighted assets decreased to 14.0% at December 31, 2022, from 15.4% at December 31, 2021.
The Company's total capital to risk weighted assets decreased to 13.3% at December 31, 2023, from 14.0% at December 31, 2022.
The Company's total capital decreased from $84.3 million at December 31, 2021 to $55.2 million at December 31, 2022. This decrease primarily reflects an increase of $35.9 million in accumulated other comprehensive loss and regular cash dividends paid of $6.3 million, partially offset by net income of $12.6 million for 2022.
The Company's total capital increased from $55.2 million at December 31, 2022 to $65.8 million at December 31, 2023. This increase primarily reflects net income of $11.3 million for 2023 and a decrease of $5.5 million in accumulated other comprehensive loss, partially offset by regular cash dividends paid of $6.5 million.
Allowance for loan losses The Company believes the ALL is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements.
The Company believes the allowance for credit losses (ACL) on loans and off-balance sheet credit exposures is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements.
(5) Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses. 29 Tax exempt interest income amounted to $2.3 million and $2.1 million for the years ended December 31, 2022 and 2021, respectively.
(4) Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the ACL on loans. 32 Tax exempt interest income amounted to $4.3 million and $2.3 million for the years ended December 31, 2023 and 2022, respectively.
Management periodically evaluates and measures the servicing assets for impairment. 34 Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of $272.9 million and $224.4 million were pledged as collateral for borrowings from the FHLB under a blanket lien at December 31, 2022 and 2021, respectively.
Qualifying residential first lien mortgage loans and certain commercial real estate loans with a carrying value of $343.7 million and $272.9 million were pledged as collateral for borrowings from the FHLB under a blanket lien at December 31, 2023 and 2022, respectively.
FINANCIAL CONDITION At December 31, 2022, the Company had total consolidated assets of $1.3 billion, including gross loans and loans held for sale (total loans) of $959.3 million, deposits of $1.2 billion and stockholders' equity of $55.2 million. The Company’s total assets increased $131.1 million, or 10.9%, from $1.2 billion at December 31, 2021.
FINANCIAL CONDITION At December 31, 2023, the Company had total consolidated assets of $1.5 billion, including gross loans and loans held for sale (total loans) of $1.0 billion, deposits of $1.3 billion and stockholders' equity of $65.8 million. The Company’s total assets increased $132.4 million, or 9.9%, from $1.3 billion at December 31, 2022.
At December 31, 2022 there were no purchased CDARS or ICS deposits, $33.0 million in retail brokered deposits issued under a master certificate of deposit program with a broker, and no outstanding advances at the FRB discount window or on the Union or Company correspondent lines.
At December 31, 2023, there were no purchased CDARS deposits, $50.2 million in purchased ICS deposits, $103.0 million in retail brokered deposits issued under a master certificate of deposit program with a broker, and no outstanding advances on the Union correspondent line.
The Company's return on average assets decreased 16 bps for the year ended December 31, 2022 compared to 2021 primarily due to an increase in average assets of $128.3 million for the year ended December 31, 2022. 26 The following per share information and key ratios presented in the table below depict several measurements of performance or financial condition at or for the years ended December 31, 2022 and 2021: 2022 2021 Return on average assets 1.00 % 1.16 % Return on average equity 19.65 % 15.92 % Net interest margin (1) 3.28 % 3.38 % Efficiency ratio (2) 67.84 % 73.13 % Net interest spread (3) 3.13 % 3.27 % Loan to deposit ratio 79.82 % 73.13 % Net recoveries to total average loans — % (0.01) % Allowance for loan losses to loans not held for sale 0.87 % 1.06 % Nonperforming assets to total assets (4) 0.18 % 0.39 % Equity to assets 4.13 % 7.00 % Total capital to risk weighted assets 13.98 % 15.39 % Book value per share $ 12.25 $ 18.77 Basic earnings per share $ 2.81 $ 2.94 Diluted earnings per share $ 2.79 $ 2.92 Dividends paid per share $ 1.40 $ 1.32 Dividend payout ratio (5) 49.82 % 44.90 % __________________ (1) The ratio of tax equivalent net interest income to average earning assets.
The Company's return on average assets decreased 18 bps for the year ended December 31, 2023 compared to 2022 due to an increase in average assets of $115.2 million and a decrease in net income of $1.4 million for the year ended December 31, 2023. 29 The following per share information and key ratios presented in the table below depict several measurements of performance or financial condition at or for the years ended December 31, 2023 and 2022: 2023 2022 Return on average assets 0.82 % 1.00 % Return on average equity 20.01 % 19.65 % Net interest margin (1) 2.88 % 3.28 % Efficiency ratio (2) 72.83 % 67.84 % Net interest spread (3) 2.50 % 3.13 % Loan to deposit ratio 78.99 % 79.82 % Net charge-offs (recoveries) to total average loans — % — % ACL on loans to loans not held for sale 0.64 % 0.87 % Nonperforming assets to total assets (4) 0.14 % 0.18 % Equity to assets 4.48 % 4.13 % Total capital to risk weighted assets 13.34 % 13.98 % Book value per share $ 14.56 $ 12.25 Basic earnings per share $ 2.50 $ 2.81 Diluted earnings per share $ 2.48 $ 2.79 Dividends paid per share $ 1.44 $ 1.40 Dividend payout ratio (5) 57.60 % 49.82 % __________________ (1) The ratio of tax equivalent net interest income to average earning assets.
Interest income on investment securities increased $2.4 million year over year due to an increase in average balances of $127.1 million and an increase of 8 bps in average yield between the comparison periods.
Interest income on investment securities increased $1.4 million between the comparison periods due to an increase of $19.1 million in the average balance of the portfolio and an increase of 40 bps in the average yield.
While still on a performing status, in accordance with the Company's credit policy, loans are internally classified when a review indicates the existence of any of the following conditions, making the likelihood of collection questionable: • the financial condition of the borrower is unsatisfactory; • repayment terms have not been met; • the borrower has sustained losses that are sizable, either in absolute terms or relative to net worth; • confidence in the borrower's ability to repay is diminished; • loan covenants have been violated; • collateral is inadequate; or • other unfavorable factors are present. 37 Although management believes that the Company's nonperforming and internally classified loans are generally well-secured and that probable credit losses inherent in the loan portfolio are provided for in the Company's ALL, there can be no assurance that future deterioration in economic conditions and/or collateral values, or changes in other relevant factors will not result in future credit losses.
While still on a performing status, in accordance with the Company's credit policy, loans are internally classified when a review indicates the existence of any of the following conditions, making the likelihood of collection questionable: • the financial condition of the borrower is unsatisfactory; • repayment terms have not been met; • the borrower has sustained losses that are sizable, either in absolute terms or relative to net worth; • confidence in the borrower's ability to repay is diminished; 40 • loan covenants have been violated; • collateral is inadequate; or • other unfavorable factors are present.
Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value.
However, any projections of future cash needs and flows are subject to substantial uncertainty, including factors outside the Company's control. Capital Resources . Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value.
(See average balances and rates in the Yields Earned and Rates Paid table on page 29.) Borrowed funds consisted of $50.0 million in FHLB advances at December 31, 2022 and there were no borrowed funds at December 31, 2021.
(See average balances and rates in the Yields Earned and Rates Paid table on page 32.) Borrowed funds at December 31, 2023 were $65.7 million and consisted of $55.7 million of FHLB advances and $10.0 million of borrowings from the FRB. Borrowed funds at December 31, 2022 consisted of FHLB advances of $50.0 million.
Net loans and loans held for sale increased $159.1 million or 20.1%, to $952.3 million, or 71.3% of total assets, at December 31, 2022, compared to $793.2 million, or 65.8% of total assets, at December 31, 2021.
Net loans and loans held for sale increased $74.2 million or 7.8%, to $1.0 billion, or 69.9% of total assets, at December 31, 2023, compared to $952.3 million, or 71.3% of total assets, at December 31, 2022.
Net loans and loans held for sale increased $159.1 million, or 20.1%, to $952.3 million, or 71.3% of total assets, at December 31, 2022, compared to $793.2 million, or 65.8% of total assets, at December 31, 2021.
Net loans and loans held for sale increased $74.2 million, or 7.8%, to $1.0 billion, or 69.9% of total assets, at December 31, 2023, compared to $952.3 million, or 71.3% of total assets, at December 31, 2022.
Management of the Company believes, in its best estimate, that the ALL at December 31, 2022 is appropriate to cover probable credit losses inherent in the Company’s loan portfolio as of such date.
Management believes, in its best estimate, that the ACL on loans at December 31, 2023 is appropriate to cover expected credit losses over the expected life of the Company’s loan portfolio as of such date.
Commitments to originate loans decreased $9.7 million, or 19.8%, from $48.9 million at December 31, 2021 to $39.2 million at December 31, 2022. The Company may, from time-to-time, enter into commitments to purchase, participate or sell loans, securities, certificates of deposit, or other investment instruments which involve market and interest rate risk.
The Company may, from time-to-time, enter into commitments to purchase, participate or sell loans, securities, certificates of deposit, or other investment instruments which involve market and interest rate risk. At December 31, 2023, the Company had binding commitments to sell residential mortgage loans at fixed rates totaling $2.7 million.
The investment portfolio is used to generate interest and dividend income, manage liquidity and mitigate interest rate sensitivity. At December 31, 2022, the fair value of investment securities AFS was $250.3 million, or 18.7% of total assets, compared to $267.8 million, or 22.2% of total assets, at December 31, 2021.
The investment portfolio is used to generate interest and dividend income, manage liquidity and mitigate interest rate sensitivity. At December 31, 2023, investment securities classified as AFS, which are carried at fair value, increased $14.1 million to $264.4 million, or 18.0% of total assets, compared to $250.3 million, or 18.7% of total assets, at December 31, 2022.
The following table shows information concerning the Company's average deposits by account type and the weighted average nominal rates at which interest was paid on such deposits for the years ended December 31: 2022 2021 Average Balance Percent of Total Deposits Average Rate Paid Average Balance Percent of Total Deposits Average Rate Paid (Dollars in thousands) Nontime deposits: Noninterest bearing deposits $ 311,444 26.9 — $ 238,572 23.2 — Interest bearing checking accounts 292,850 25.3 0.31 % 255,031 24.8 0.23 % Money market accounts 246,867 21.3 0.62 % 248,864 24.2 0.62 % Savings accounts 187,625 16.2 0.04 % 167,381 16.3 0.06 % Total nontime deposits 1,038,786 89.7 0.24 % 909,848 88.5 0.25 % Total time deposits 119,081 10.3 0.85 % 118,145 11.5 0.78 % Total deposits $ 1,157,867 100.0 0.30 % $ 1,027,993 100.0 0.31 % Deposits grew $106.8 million, or 9.8%, from $1.1 billion at December 31, 2021 to $1.2 billion at December 31, 2022.
The following table shows information concerning the Company's average deposits by account type and the weighted average nominal rates at which interest was paid on such deposits for the years ended December 31: 2023 2022 Average Balance Percent of Total Deposits Average Rate Paid Average Balance Percent of Total Deposits Average Rate Paid (Dollars in thousands) Nontime deposits: Noninterest bearing deposits $ 243,655 20.0 — $ 311,444 26.9 — Interest bearing checking accounts 319,824 26.3 1.02 % 292,850 25.3 0.31 % Money market accounts 233,225 19.2 1.68 % 246,867 21.3 0.62 % Savings accounts 164,453 13.5 0.04 % 187,625 16.2 0.04 % Total nontime deposits 961,157 79.0 0.75 % 1,038,786 89.7 0.24 % Total time deposits 254,499 21.0 3.40 % 119,081 10.3 0.85 % Total deposits $ 1,215,656 100.0 1.31 % $ 1,157,867 100.0 0.30 % Deposits grew $103.7 million, or 8.6%, from $1.2 billion at December 31, 2022 to $1.3 billion at December 31, 2023.
The Company's net provision for income taxes was $2.6 million for 2022 and 2021. The Company’s effective federal corporate income tax rate was 16.3% and 16.1% for 2022 and 2021, respectively.
Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the current and prior period presented. The Company's net provision for income taxes was $1.6 million and $2.6 million for 2023 and 2022, respectively. The Company’s effective federal corporate income tax rate was 12.5% and 16.3% for 2023 and 2022, respectively.
The Notes are structured to qualify as a Tier 2 capital for the Company under bank regulatory guidelines. The proceeds from the sale of the Notes were utilized to provide additional capital to Union to support its growth and for other general corporate purposes.
The proceeds from the sale of the Notes were utilized to provide additional capital to Union to support its growth and for other general corporate purposes.
Effective January 1, 2023, the Company will adopt ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments .
Allowance for credit losses on loans and on off-balance sheet credit exposures Effective January 1, 2023, the Company adopted ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments .
Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the future estimate of servicing the underlying mortgages. The amortization of MSRs exceeded new capitalized MSRs which resulted in an expense of $465 thousand for 2022 compared to income of $243 thousand in 2021.
Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the estimated future servicing period of the underlying loans. The amortization of MSRs exceeded new capitalized MSRs which resulted in net expense of $316 thousand and $465 thousand for the years ended December 31, 2023 and 2022, respectively. • Donations.

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