Union Bankshares Inc (UNB) is a community bank that has been serving the people of Vermont for over a century. Headquartered in Morrisville, Vermont, the company has a rich history of providing personalized banking services to individuals and businesses throughout the state. Despite facing headwinds in recent years, Union Bankshares has demonstrated its ability to adapt and grow, positioning itself as a resilient and innovative player in the regional banking landscape.
Business Overview Union Bankshares traces its roots back to 1864, when it was founded as a community bank in Morrisville, Vermont. For over 150 years, the company has served the banking needs of individuals and businesses in its home state, steadily growing its operations and expanding its footprint. In the early years, Union Bank, the company’s wholly-owned subsidiary, focused on providing traditional banking services such as personal and commercial loans, deposit accounts, and basic financial advice to its local community.
The bank weathered various economic downturns and crises, including the Great Depression, by maintaining prudent lending practices and a conservative, customer-centric approach. In 1972, the company achieved a significant milestone by becoming a publicly traded entity, listing its shares on the NASDAQ stock exchange. This move allowed it to access capital markets and fund further growth. During the 1980s and 1990s, Union Bankshares expanded its geographic reach by opening new branch locations throughout Vermont, responding to the evolving needs of its customer base.
The company has faced its share of challenges over the years. In the early 2000s, Union Bankshares encountered an issue with its mortgage servicing rights, resulting in a decline in earnings and necessitating a strategic review of its operations. The company worked diligently to address the problem, ultimately emerging stronger and more resilient. More recently, in 2023, the bank dealt with the fallout from a historic flood in Vermont, supporting its local communities through the recovery process.
Throughout its history, Union Bankshares has remained committed to its core values of community banking, customer service, and financial stability. The company’s long-tenured management team and experienced workforce have been instrumental in navigating the various ups and downs, allowing Union Bankshares to maintain its position as a trusted financial institution in Vermont.
Today, Union Bankshares operates a network of 20 full-service branches across Vermont, serving a diverse customer base of individuals, families, and small-to-medium-sized businesses. The bank’s core services include traditional banking products, such as personal and commercial loans, deposit accounts, and wealth management services. Additionally, the company has a strong focus on community engagement, supporting local organizations and initiatives that contribute to the economic and social well-being of the communities it serves.
Financial Performance and Resilience Union Bankshares has demonstrated its financial resilience in recent years, navigating through challenges with discipline and prudence. In 2023, the company reported revenue of $46.84 million and net income of $11.3 million, or $2.50 per share, a slight decrease from the prior year’s $12.6 million, or $2.81 per share. This decline was largely attributable to the continued pressure on net interest margins, as the company grappled with the impact of rising interest rates and a competitive deposit market.
Despite these headwinds, Union Bankshares maintained a strong balance sheet, with total assets reaching $1.5 billion as of December 31, 2023, a 9.9% increase from the previous year. This growth was driven by a combination of loan growth and strategic investments in the company’s securities portfolio. The bank’s loan portfolio grew to $1.03 billion, up from $976.6 million in the prior year, reflecting its commitment to supporting the financial needs of its local communities.
Importantly, Union Bankshares maintained a healthy capital position, with a total risk-based capital ratio of 12.8% as of September 30, 2024, well above the regulatory requirements for a well-capitalized institution. This solid capital base provides the company with the flexibility to navigate through economic cycles and pursue strategic initiatives to drive long-term growth.
The most recent quarter (Q3 2024) showed some challenges, with revenue of $20.10 million and net income of $1.32 million. The decrease in net income for the quarter was primarily due to a $1.30 million loss on the sale of lower-yielding investment securities as part of a balance sheet repositioning, as well as increases in noninterest expenses and credit loss expense, partially offset by increases in net interest income and noninterest income.
Liquidity Union Bankshares has maintained a strong liquidity position, ensuring its ability to meet customer withdrawals and fund new loans. The company’s liquidity management strategy includes maintaining adequate levels of cash and cash equivalents, as well as access to various funding sources such as Federal Home Loan Bank borrowings and brokered deposits. This diversified approach to liquidity management has helped Union Bankshares navigate through periods of market volatility and economic uncertainty.
As of the most recent reporting period, Union Bankshares had a debt-to-equity ratio of 3.55, indicating a moderate level of leverage. The company’s cash and cash equivalents stood at $77.67 million, providing a solid foundation for immediate liquidity needs. Additionally, Union Bankshares has access to a $34.80 million FHLB credit line (over and above $276.50 million in outstanding FHLB borrowings) and a $15.00 million Federal Funds line of credit, further enhancing its liquidity position.
Navigating Challenges with Innovation and Resilience In recent years, Union Bankshares has faced a number of challenges, including the ongoing impact of the COVID-19 pandemic, rising interest rates, and increased competition from larger regional and national banks. However, the company has demonstrated its ability to adapt and innovate in the face of these obstacles.
One notable example is the company’s strategic balance sheet repositioning, executed in the third quarter of 2024. Union Bankshares sold $38.8 million in book value of its lower-yielding available-for-sale debt securities, realizing an after-tax loss of approximately $1.0 million. The proceeds from this sale were then deployed into higher-yielding bonds and loan funding, ultimately expected to yield approximately 341 basis points more than the securities that were sold. This proactive move allowed the company to enhance its net interest margin and improve its long-term profitability.
Furthermore, Union Bankshares has invested in technology and digital banking solutions to enhance the customer experience and improve operational efficiency. The company’s mobile banking app and online banking platform have been well-received by customers, enabling them to conveniently access their accounts and manage their finances from anywhere.
The company has also maintained a strong focus on community engagement, supporting local organizations and initiatives that align with its values. This commitment to the communities it serves has been a hallmark of Union Bankshares’ approach and has helped to strengthen its reputation and customer loyalty.
Product Segments and Market Position Union Bankshares has a diverse loan portfolio, with several key product segments contributing to its overall business:
Commercial and Commercial Real Estate: This segment, which includes commercial construction loans ($59.13 million), non-residential commercial real estate loans ($313.39 million), and multi-family residential real estate loans ($102.25 million), accounts for 42.1% of UNB’s loan portfolio. The company has experienced growth in the commercial construction loan component, which increased from $36.97 million at the end of 2023.
Municipal: This segment, consisting of loans made to municipalities within UNB’s service area, has grown to $102.63 million, or 9.1% of total loans, up from $76.80 million at the end of 2023. This represents a significant increase in this product line.
Consumer and Other: The remaining loan segments include consumer loans ($2.16 million) and commercial loans ($38.60 million), which together account for 3.6% of the total loan portfolio.
Union Bankshares primarily operates within the state of Vermont and does not have significant geographic diversification outside of its home state. This focus on its local market has allowed the company to build strong relationships and maintain a deep understanding of the communities it serves.
Outlook and Risks Looking ahead, Union Bankshares remains cautiously optimistic about its future prospects. The company’s management team has outlined a strategic plan focused on organic growth, prudent risk management, and continued investment in technology and talent. However, the banking industry continues to face a challenging operating environment, with persistent pressure on net interest margins, heightened competition, and ongoing regulatory scrutiny.
One of the key risks facing Union Bankshares is the potential for an economic downturn, which could lead to increased credit losses and pressure on the company’s profitability. Additionally, the company’s reliance on its Vermont market exposes it to regional economic fluctuations, which could impact loan demand and deposit growth.
To mitigate these risks, Union Bankshares has implemented robust risk management practices, including rigorous underwriting standards, diversification of its loan portfolio, and proactive monitoring of credit quality. The company also maintains a well-capitalized balance sheet, providing a buffer against potential economic headwinds.
Credit quality remains strong, with nonperforming assets to total assets at 0.13% as of September 30, 2024, down from 0.15% a year earlier. The allowance for credit losses on loans was $7.37 million, or 0.65% of total loans, at the end of the third quarter of 2024, indicating a conservative approach to potential credit risks.
Conclusion Union Bankshares Inc (UNB) is a community bank that has demonstrated its resilience and adaptability in the face of various challenges. With a rich history of serving Vermont’s communities, the company has navigated through economic cycles, industry changes, and the recent pandemic with a steadfast commitment to innovation and customer service.
Despite the ongoing pressures on the banking industry, Union Bankshares has maintained a strong financial position, with a healthy balance sheet and capital base. The company’s strategic initiatives, such as the recent balance sheet repositioning, have positioned it well to enhance its profitability and long-term sustainability.
As Union Bankshares continues to evolve and adapt to the changing landscape, investors and customers can take comfort in the company’s proven track record of resilience and its unwavering dedication to supporting the communities it serves. With a diverse loan portfolio, strong credit quality, and a focus on its core Vermont market, Union Bankshares is well-positioned to navigate future challenges and capitalize on opportunities for growth in the years to come.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.