# Union Bankshares Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [Union Bankshares Inc](/companies/unb.md) (CIK 706863)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 21:34 ET
- Period: 2023-09-30
- Accession: 0000706863-23-000065
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/706863/000070686323000065/unb-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/706863/000070686323000065/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $5.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $13.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $296.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $2.5m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $8.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.55 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.81 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.56 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.82 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 4,540,026 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 4,536,851 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $6.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.1m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $4.9m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $115.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2023-09-30 | $1.40bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $1.35bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $49.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 82,446 characters.

### MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

### RESULTS OF OPERATIONS

### GENERAL

The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of the Company as of September 30, 2023 and December 31, 2022, and its results of operations for the three and nine months ended September 30, 2023 and 2022. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's 2022 Annual Report. In the opinion of the Company's management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after September 30, 2023 which would materially affect the information presented.

Please refer to Note 1 in the Company's unaudited interim consolidated financial statements at Part I, Item 1 of this Report for definitions of acronyms, abbreviations and capitalized terms used throughout the following discussion and analysis.

### CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS

The Company, "we," "us," "our," may from time to time make written or oral statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections, statements of plans and objectives for future operations, estimates of future economic performance or conditions and assumptions relating thereto. The Company may include forward-looking statements in its filings with the SEC, in its reports to stockholders, including this quarterly report, in press releases, other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others.

Forward-looking statements are based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are only expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable when made, the Company’s actual results could differ materially from those projected in the forward-looking statements as a result of, among other factors, changes in interest rates; competitive pressures from other financial institutions; general economic conditions on a national basis or in the local markets in which the Company operates; downgrades of U.S. government securities; eroding public confidence in the banking system; changes in consumer behavior due to changing political, business and economic conditions, including concerns about inflation, or legislative or regulatory initiatives; changes in the value of securities and other assets in the Company’s investment portfolio; increases in loan and lease default and charge-off rates; the adequacy of the ACL; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, but not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in regulation, war, terrorism, civil unrest; changes in economic assumptions and adverse economic developments; the risk that goodwill and intangibles recorded in the Company’s financial statements will become impaired; changes in assumptions used in making such forward-looking statements; and the other risks and uncertainties detailed in the Company’s 2022 Annual Report.

In addition to the uncertainties detailed in the Company's 2022 Annual Report the banking industry has experienced significant volatility during 2023 with industry concerns related to liquidity, deposit outflows, unrealized securities losses, and interest rates.

When evaluating forward-looking statements to make decisions about the Company and our stock, investors and others are cautioned to consider these and other risks and uncertainties, and are reminded not to place undue reliance on such statements. Investors should not consider the foregoing list of factors to be a complete list of risks or uncertainties. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update them to reflect new or changed information or events, except as may be required by federal securities laws.

### Non-GAAP Financial Measures

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, two non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Yields Earned and Rates Paid), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G. Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

### CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the application of GAAP in the preparation of the Company's consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by management which have a material impact on the reported amount of assets, liabilities, capital, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require management to make its most difficult and subjective judgments, often as a result of the need to make estimates on matters that are inherently uncertain. Based on this definition, management has identified the accounting policies and judgments most critical to the Company. They include establishing the amount of ACL and valuing our intangible assets. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, or capital, and/or the results of operations of the Company.

Please refer to the Company's 2022 Annual Report and the Summary of Significant Accounting Policies in Note 1 to the unaudited consolidated financial statements contained in this report for a more in-depth discussion of the Company's critical accounting policies and adoption of CECL. There have been no changes to the Company's critical accounting policies, other than those described in Note 1 to the unaudited interim consolidated financial statements since the filing of the 2022 Annual Report.

### OVERVIEW

The Company, like others, has experienced earnings pressure due to the prolonged and steep yield curve inversion. The sharp increases in short term rates has had a significant impact on the Company's funding costs due to customer expectation of higher rates on deposit accounts and increased utilization of wholesale funding at higher costs. The Company’s financial position remains strong, supported by a diverse deposit base, a strong liquidity position, excellent asset quality, and regulatory capital in excess of all required levels. The Company continues to focus on gathering deposits, optimization of the net interest margin and maintaining strong asset quality.

As was previously reported, Union’s Jeffersonville and Johnson branch offices suffered flood damage during extreme weather in July of 2023. The Jeffersonville branch has been restored and is operational while we are choosing to upgrade the Johnson facility to improve customer access as well as operational and energy efficiency. While customers and our community have lingering impacts from the extensive flooding, the Company has not suffered material financial impacts. Some Vermont communities, notably Montpelier, the capital city of Vermont, will require years to fully recover.

Union opened a commercial loan production office in North Conway, New Hampshire in 2019. Since that time, we have originated approximately $115 million in commercial loans in the White Mountain Valley region. This success encouraged management to develop a full-service banking office to support the loan origination side of the business with deposit services. A new full-service bank branch located on the North South Road in North Conway opened at the end of October 2023.

The Company's earnings have been impacted by the inverted yield curve, as deposit and funding costs have risen at a faster pace than assets have repriced, which has resulted in compression of the net interest margin and spread. The net interest margin was 2.95% for the nine months ended September 30, 2023 compared to 3.29% for the nine months ended September 30, 2022, while the net interest spreads for the same periods were 2.59% and 3.18%, respectively. We continue to manage the net interest margin and spread, by remaining disciplined on loan and deposit pricing, utilizing brokered and retail CDs when appropriate to reduce our exposure to high short-term interest rates, and maximizing our balance sheet collateral (i.e. loans and investment securities) to obtain wholesale funding in a cost effective way to fund loan growth.

Consolidated net income decreased $1.2 million, or 32.6%, to $2.5 million for the third quarter of 2023 compared to $3.8 million for the third quarter of 2022 due to the combined effects of a decrease of $1.3 million in net interest income, a decrease of $73 thousand in noninterest income, and an increase of $487 thousand in noninterest expenses, partially offset by $139 thousand of credit loss benefit, and a decrease of $487 thousand in income tax expense.

Consolidated net income decreased $963 thousand, or 10.5%, to $8.2 million for the nine months ended September 30, 2023 compared to $9.2 million for the nine months ended September 30, 2022 due to the combined effects of a decrease in net interest income of $333 thousand and an increase in noninterest expenses of $1.6 million, partially offset by an increase in noninterest income of $186 thousand, a credit loss benefit of $161 thousand and a reduction in income tax expense of $625 thousand.

At September 30, 2023, the Company had total consolidated assets of $1.40 billion, including gross loans and loans held for sale (total loans) of $1.03 billion, deposits of $1.22 billion, borrowed funds of $90.7 million, subordinated notes of $16.2 million and stockholders' equity of $49.2 million.

The Company's total capital decreased to $49.2 million at September 30, 2023 from $55.2 million at December 31, 2022. This decrease primarily reflects an increase of $9.6 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS investment securities, regular cash dividends declared of $4.9 million, partially offset by net income of $8.2 million for the first nine months of 2023. (See *Capital Resources* on page 46.) These changes also resulted in a decrease in the Company's book value per share to $10.92 at September 30, 2023 from $12.25 as of December 31, 2022.

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three and nine months ended September 30, 2023 and 2022, respectively:

|  | Three Months Ended or At September 30, 2023 | 2022 | Nine Months Ended or At September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Return on average assets (1) | 0.73% | 1.18% | 0.80% | 0.98% |
| Return on average equity (1) | 17.65% | 24.19% | 18.82% | 17.78% |
| Net interest margin (1)(2) | 2.76% | 3.40% | 2.95% | 3.29% |
| Efficiency ratio (3) | 75.37% | 64.14% | 73.17% | 68.65% |
| Net interest spread (4) | 2.34% | 3.26% | 2.59% | 3.18% |
| Loan to deposit ratio | 84.11% | 78.67% | 84.11% | 78.67% |
| Net loan charge-offs to average loans not held for sale (1) | —% | —% | —% | —% |
| ACL on loans to loans not held for sale | 0.67% | 0.89% | 0.67% | 0.89% |
| Nonperforming assets to total assets (5) | 0.15% | 0.13% | 0.15% | 0.13% |
| Equity to assets | 3.53% | 3.82% | 3.53% | 3.82% |
| Total capital to risk weighted assets | 13.19% | 13.69% | 13.19% | 13.69% |
| Book value per share | $10.92 | $11.06 | $10.92 | $11.06 |
| Basic earnings per share | $0.56 | $0.84 | $1.82 | $2.04 |
| Diluted earnings per share | $0.55 | $0.83 | $1.81 | $2.03 |
| Dividends paid per share | $0.36 | $0.35 | $1.08 | $1.05 |
| Dividend payout ratio (6) | 64.29% | 41.67% | 59.34% | 51.47% |

#### (1) Annualized.

*(2) The ratio of tax equivalent net interest income to average earning assets. See pages 33 and 34 for more information.*

*(3) The ratio of noninterest expenses to tax equivalent net interest income and noninterest income, excluding securities gains (losses).*

*(4) The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See pages 33 and 34 for more information.*

*(5) Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.*

*(6) Cash dividends declared and paid per share divided by consolidated net income per share.*

### RESULTS OF OPERATIONS

***Net Interest Income.*** The largest component of the Company’s operating income is net interest income, which is the difference between interest and dividend income received from earning assets and interest expense paid on interest bearing liabilities. Net interest income is affected by various factors including, but not limited to changes in interest rates, loan and deposit pricing strategies, funding strategies, the volume and mix of interest earning assets and interest bearing liabilities, and the level of nonperforming assets. Net interest margin is calculated as the net interest income on a fully tax equivalent basis as a percentage of average earning assets.

Interest earned on average earning assets for the three months ended September 30, 2023 was $14.8 million compared to $11.5 million for the three months ended September 30, 2022, an increase of $3.4 million, or 29.5%. The average earning asset base increased $117.5 million between periods and the average yield on average earning assets increased 70 bps to 4.43% for the three months ended September 30, 2023 compared to 3.73% for the three months ended September 30, 2022.

The average yield on federal funds sold and overnight deposits increased 207 bps between the three month comparison periods due to an increase in the interest rate paid on balances maintained in Union's master account at the FRB. Interest income on investment securities increased $347 thousand between the three month comparison periods due to an increase of $16.9 million in the average balance of the portfolio and an increase of 41 bps in the average yield.

Interest income on loans increased $2.8 million between the three month comparison periods due to an increase in the average volume of loans outstanding of $90.7 million and an increase of 72 bps in the average yield. Loan demand has remained stable during 2023 despite increases in interest rates and low housing inventory.

Average interest bearing liabilities increased $214.5 million between the three month comparison periods due to growth in customer time deposit balances, utilization of brokered deposits included in time deposits, and an increase in borrowed funds. The average rate paid on interest bearing liabilities increased 162 bps to 2.09% for the third quarter of 2023 compared to 0.47% for the third quarter of 2022. Interest expense increased $4.7 million, to $5.7 million the three months ended September 30, 2023 compared to $1.0 million the three months ended September 30, 2022. Higher rates paid on customer deposit accounts and utilization of higher cost funding of brokered deposits and advances from the FHLB were drivers of the increase in interest expense.

The net interest spread decreased 92 bps to 2.34% for the third quarter of 2023, from 3.26% for the same period last year, reflecting the net effect of the 162 bps increase in the average rate paid on interest bearing liabilities, which was only partially offset by the 70 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 64 bps during the third quarter of 2023 compared to the same period last year as a result of the changes discussed above.

Net interest income was $28.7 million, on a fully tax equivalent basis for the nine months ended September 30, 2023 compared to $29.1 million for the nine months ended September 30, 2022, a decrease of $333 thousand, or 1.15%. The average volume of earning assets increased $134.4 million and the average yield on earning assets increased 68 bps to 4.25% compared to 3.57% for the comparison period. Interest income on investment securities increased $1.1 million between the nine month comparison periods due to an increase of $21.4 million in the average balance of the portfolio and an increase of 42 bps in the average yield. Average loans increased $131.2 million, or 15.42%, to $982.1 million for the nine months ended September 30, 2023. The increases in average loan volume and average yield resulted in a $8.4 million increase in interest income on loans between periods.

The average cost of funds increased 127 bps to 1.66% for the nine months ended September 30, 2023 compared to 0.39% for the nine months ended September 30, 2022. Interest expense increased $10.4 million, to $13.0 million for the nine months ended September 30, 2023 compared to $2.5 million for the nine months ended September 30, 2022. The increases in the average cost of funds and in interest expense were due to an increase of $190.4 million in the average balance of interest bearing liabilities and increases in average rates paid in all liability categories between periods. Management expects the average cost of funds to continue to increase over the next quarter as customers may continue to expect higher rates on their deposit accounts in light of the recent increases in prevailing interest rates, and as the Company continues to rely on higher cost wholesale funding.

During the first nine months of 2023, Union, like many other financial institutions, offered higher rate paying time deposit specials to attract new deposit dollars and retain existing customer deposits. Although some new money was obtained, a shift of funds from non-maturity deposits to time deposit specials occurred. Interest expense on time deposits increased $5.4 million to $5.9 million for the nine months ended September 30, 2023 compared to $497 thousand for the nine months ended September 30, 2022 due to increases in the average volume of $132.5 million and 263 bps in the average rate paid. Despite a decrease of $40.8 million in the average balance of savings/money market accounts, interest expense increased $1.5 million between the nine month comparison periods due to an increase of 53 bps in the average rate paid.

The net interest spread decreased 59 bps to 2.59% for the nine months ended September 30, 2023, from 3.18% for the same period last year, reflecting the net effect of the 127 bps increase in the average rate paid on interest bearing liabilities, partially offset by the 68 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 34 bps for the nine months ended September 30, 2023 compared to the same period last year as a result of the changes discussed above.

The following tables show for the periods indicated the total amount of tax equivalent interest income recorded from average interest earning assets, the related average tax equivalent yields, the tax equivalent interest expense associated with average interest bearing liabilities, the related tax equivalent average rates paid, and the resulting tax equivalent net interest spread and margin.

*(Dollars in thousands)*

| Average Assets: | Three Months Ended September 30, 2023 Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate | 2022 Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and overnight deposits | $18,188 | $153 | 3.30% | $12,850 | $41 | 1.23% |
| Interest bearing deposits in banks | 14,826 | 95 | 2.54% | 14,016 | 43 | 1.24% |
| Investment securities (2), (3) | 312,074 | 1,645 | 2.23% | 295,197 | 1,298 | 1.82% |
| Loans, net (2), (4) | 1,001,353 | 12,874 | 5.15% | 910,614 | 10,074 | 4.43% |
| Nonmarketable equity securities | 4,657 | 80 | 6.80% | 939 | 7 | 3.06% |
| Total interest earning assets (2) | 1,351,098 | 14,847 | 4.43% | 1,233,616 | 11,463 | 3.73% |
| Cash and due from banks | 4,846 |  |  | 4,724 |  |  |
| Premises and equipment | 20,216 |  |  | 20,938 |  |  |
| Other assets | 11,459 |  |  | 18,336 |  |  |
| Total assets | $1,387,619 |  |  | $1,277,614 |  |  |
| Average Liabilities and Stockholders' Equity: |  |  |  |  |  |  |
| Interest bearing checking accounts | $317,918 | 1,043 | 1.30% | $299,180 | 251 | 0.33% |
| Savings/money market accounts | 376,878 | 1,169 | 1.23% | 425,629 | 350 | 0.33% |
| Time deposits | 279,288 | 2,531 | 3.60% | 123,660 | 267 | 0.86% |
| Borrowed funds and other liabilities | 91,403 | 814 | 3.48% | 2,503 | 14 | 2.22% |
| Subordinated notes | 16,226 | 142 | 3.49% | 16,192 | 141 | 3.47% |
| Total interest bearing liabilities | 1,081,713 | 5,699 | 2.09% | 867,164 | 1,023 | 0.47% |
| Noninterest bearing deposits | 230,557 |  |  | 334,523 |  |  |
| Other liabilities | 17,979 |  |  | 13,789 |  |  |
| Total liabilities | 1,330,249 |  |  | 1,215,476 |  |  |
| Stockholders' equity | 57,370 |  |  | 62,138 |  |  |
| Total liabilities and stockholders’ equity | $1,387,619 |  |  | $1,277,614 |  |  |
| Net interest income |  | $9,148 |  |  | $10,440 |  |
| Net interest spread (2) |  |  | 2.34% |  |  | 3.26% |
| Net interest margin (2) |  |  | 2.76% |  |  | 3.40% |

Union Bankshares, Inc. Page 33

*(Dollars in thousands)*

| Average Assets: | Nine Months Ended September 30, 2023 Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate | 2022 Average Balance (1) | Interest Earned/ Paid | Average Yield/ Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and overnight deposits | $15,144 | $367 | 3.20% | $38,470 | $154 | 0.53% |
| Interest bearing deposits in banks | 15,995 | 304 | 2.54% | 13,695 | 113 | 1.11% |
| Investment securities (2), (3) | 312,982 | 4,900 | 2.20% | 291,595 | 3,751 | 1.78% |
| Loans, net (2), (4) | 982,071 | 35,955 | 4.94% | 850,869 | 27,558 | 4.36% |
| Nonmarketable equity securities | 3,783 | 168 | 5.93% | 907 | 17 | 2.53% |
| Total interest earning assets (2) | 1,329,975 | 41,694 | 4.25% | 1,195,536 | 31,593 | 3.57% |
| Cash and due from banks | 4,629 |  |  | 4,580 |  |  |
| Premises and equipment | 20,268 |  |  | 21,216 |  |  |
| Other assets | 11,054 |  |  | 25,617 |  |  |
| Total assets | $1,365,926 |  |  | $1,246,949 |  |  |
| Average Liabilities and Stockholders' Equity: |  |  |  |  |  |  |
| Interest bearing checking accounts | $316,193 | 2,113 | 0.89% | $287,296 | 553 | 0.26% |
| Savings/money market accounts | 396,813 | 2,489 | 0.84% | 437,586 | 1,030 | 0.31% |
| Time deposits | 243,730 | 5,883 | 3.23% | 111,202 | 497 | 0.60% |
| Borrowed funds and other liabilities | 70,512 | 2,041 | 3.82% | 845 | 14 | 2.21% |
| Subordinated notes | 16,218 | 427 | 3.52% | 16,184 | 425 | 3.51% |
| Total interest bearing liabilities | 1,043,466 | 12,953 | 1.66% | 853,113 | 2,519 | 0.39% |
| Noninterest bearing deposits | 248,222 |  |  | 312,331 |  |  |
| Other liabilities | 16,086 |  |  | 12,748 |  |  |
| Total liabilities | 1,307,774 |  |  | 1,178,192 |  |  |
| Stockholders' equity | 58,152 |  |  | 68,757 |  |  |
| Total liabilities and stockholders’ equity | $1,365,926 |  |  | $1,246,949 |  |  |
| Net interest income |  | $28,741 |  |  | $29,074 |  |
| Net interest spread (2) |  |  | 2.59% |  |  | 3.18% |
| Net interest margin (2) |  |  | 2.95% |  |  | 3.29% |

#### (1) Average balances are calculated based on a daily averaging method.

*(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 loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the ACL on loans.*

Tax exempt interest income amounted to $1.2 million and $623 thousand for the three months ended September 30, 2023 and 2022, respectively, and $3.0 million and $1.6 million for the nine months ended September 30, 2023 and 2022, respectively. 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 2023 and 2022 three and nine month comparison periods:

*(Dollars in thousands)*

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net interest income, as presented | $9,148 | $10,440 | $28,741 | $29,074 |
| Effect of tax-exempt interest |  |  |  |  |
| Investment securities | 98 | 48 | 274 | 146 |
| Loans | 130 | 88 | 295 | 210 |
| Net interest income, tax equivalent | $9,376 | $10,576 | $29,310 | $29,430 |

*Rate/Volume Analysis.* The following table describes the extent to which changes in average interest rates earned and paid (on a fully tax-equivalent basis) and changes in volume of average interest earning assets and interest bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to:

- changes in volume (change in volume multiplied by prior rate);
- changes in rate (change in rate multiplied by prior volume); and
- total change in rate and volume.

Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.

*(Dollars in thousands)*

| Interest earning assets: | Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 Increase/(Decrease) Due to Change In Volume | Rate | Net | Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 Increase/(Decrease) Due to Change In Volume | Rate | Net |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and overnight deposits | $23 | $89 | $112 | $(146) | $359 | $213 |
| Interest bearing deposits in banks | 3 | 49 | 52 | 21 | 170 | 191 |
| Investment securities | 53 | 294 | 347 | 234 | 915 | 1,149 |
| Loans, net | 1,055 | 1,745 | 2,800 | 4,543 | 3,854 | 8,397 |
| Nonmarketable equity securities | 56 | 17 | 73 | 106 | 45 | 151 |
| Total interest earning assets | $1,190 | $2,194 | $3,384 | $4,758 | $5,343 | $10,101 |
| Interest bearing liabilities: |  |  |  |  |  |  |
| Interest bearing checking accounts | $17 | $775 | $792 | $60 | $1,500 | $1,560 |
| Savings/money market accounts | (44) | 863 | 819 | (104) | 1,563 | 1,459 |
| Time deposits | 643 | 1,621 | 2,264 | 1,146 | 4,240 | 5,386 |
| Borrowed funds | 781 | 19 | 800 | 1,997 | 30 | 2,027 |
| Subordinated notes | — | 1 | 1 | 1 | 1 | 2 |
| Total interest bearing liabilities | $1,397 | $3,279 | $4,676 | $3,100 | $7,334 | $10,434 |
| Net change in net interest income | $(207) | $(1,085) | $(1,292) | $1,658 | $(1,991) | $(333) |

**Credit Loss Expense (Benefit).** The Company adopted ASU No. 2016-13 to account for the ACL, effective January 1, 2023. As such, ACL and credit loss expense as of and for the three and nine months ended September 30, 2023 were accounted for under CECL in accordance with the ASU. In accordance with previously applicable GAAP, the ACL and credit loss expense as of and for the three and nine months ended September 30, 2022 were accounted for under the incurred loss methodology. Refer to Note 1, Summary of Significant Accounting Policies for a description of the Company's accounting policies for the ACL.

Credit loss (benefit) expense was made up of the following components for the following periods:

*(Dollars in thousands)*

|  | For The Three Months Ended September 30, 2023 (CECL) | 2022 (Incurred Loss) | For the Nine Months Ended September 30, 2023 (CECL) | 2022 (Incurred Loss) |
| --- | ---: | ---: | ---: | ---: |
| Credit loss expense for loans | $116 | $— | $55 | $— |
| Credit loss benefit for off-balance sheet credit exposures | (255) | — | (216) | — |
| Credit loss benefit, net | $(139) | $— | $(161) | $— |

**Noninterest Income.** The following table sets forth the components of noninterest income and changes between the three and nine month comparison periods of 2023 and 2022:

*(Dollars in thousands)*

|  | For The Three Months Ended September 30, 2023 | 2022 | $ Variance | % Variance | For the Nine Months Ended September 30, 2023 | 2022 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Wealth management income | $244 | $203 | $41 | 20.2 | $695 | $629 | $66 | 10.5 |
| Service fees | 1,785 | 1,803 | (18) | (1.0) | 5,219 | 5,176 | 43 | 0.8 |
| Net gains on sales of loans held for sale | 336 | 448 | (112) | (25.0) | 836 | 748 | 88 | 11.8 |
| Income from Company-owned life insurance | 118 | 112 | 6 | 5.4 | 334 | 401 | (67) | (16.7) |
| Other income | 25 | 34 | (9) | (26.5) | 90 | 184 | (94) | (51.1) |
| Net (losses) gains on other investments | (41) | (60) | 19 | (31.7) | 61 | (120) | 181 | (150.8) |
| Net gains on sales of investment securities AFS | — | — | — | — | — | 31 | (31) | (100.0) |
| Total noninterest income | $2,467 | $2,540 | $(73) | (2.9) | $7,235 | $7,049 | $186 | 2.6 |

The significant changes in noninterest income for the three and nine months ended September 30, 2023 compared to the same periods of 2022 are described below:

- Wealth management income: Wealth management income increased as managed fiduciary accounts grew between September 30, 2023 and 2022, as did the value of assets within those accounts.
- Service fees. Service fees increased $43 thousand for the nine months ended September 30, 2023, compared to the same period in 2022 primarily due to increases of $38 thousand in ATM network fees, $19 thousand in service charge income, and $14 thousand in overdraft fee income, partially offset by a $29 thousand decrease in merchant program fees. Service fees decreased $18 thousand for the three months ended September 30, 2023, compared to 2022 primarily due to decreases in loan servicing fees and merchant program fees.
- Net gains on sales of loans held for sale. Residential mortgage loans totaling $24.7 million and $54.2 million were sold during the three and nine months ended September 30, 2023, respectively, compared to sales of $25.8 million and $60.2 million during the same periods in 2022, respectively. The decrease of $112 thousand in net gains on sales of loans held for sale for the three months ended September 30, 2023, compared to 2022 reflects the lower sales volume and lower premiums obtained on sales during the three months ended September 30, 2023. In addition, there was $10 thousand of fees and gain recapture recorded in the third quarter of 2023 due to early payment default of two loans that were sold in 2022. The increase of $88 thousand in net gains on sales of loans held for sale despite the lower sales volumes for the nine months ended September 30, 2023 compared to the same period in 2022 reflects higher premiums obtained on sales in the first half of 2023 and $31 thousand of recapture on gains from 2021 recorded in the first quarter of 2022 that did not recur in 2023.
- Income from Company-owned life insurance. Death benefit proceeds of $77 thousand were received in the first quarter of 2022 that did not repeat in 2023.
- Other income. The decrease in other income between the nine month comparison periods primarily reflects $90 thousand in prepayment penalties received from the early payoff of loans during the nine months ended September 30, 2022 that did not recur for the same period in 2023.
- Net (losses) gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net losses of $41 thousand and net gains of $61 thousand for the three and nine months ended September 30, 2023, respectively, and net losses of $60 thousand and $120 thousand for the three and nine months ended September 30, 2022, respectively.

**Noninterest Expenses.** The following table sets forth the components of noninterest expenses and changes between the three and nine month comparison periods ended September 30, 2023 and 2022:

*(Dollars in thousands)*

|  | For The Three Months Ended September 30, 2023 | 2022 | $ Variance | % Variance | For the Nine Months Ended September 30, 2023 | 2022 | $ Variance | % Variance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Salaries and wages | $3,720 | $3,575 | $145 | 4.1 | $10,895 | $10,505 | $390 | 3.7 |
| Employee benefits | 1,217 | 1,154 | 63 | 5.5 | 4,065 | 3,754 | 311 | 8.3 |
| Occupancy expense, net | 459 | 448 | 11 | 2.5 | 1,519 | 1,437 | 82 | 5.7 |
| Equipment expense | 935 | 948 | (13) | (1.4) | 2,714 | 2,798 | (84) | (3.0) |
| FDIC insurance assessment | 267 | 179 | 88 | 49.2 | 734 | 452 | 282 | 62.4 |
| Training and development | 53 | 29 | 24 | 82.8 | 172 | 108 | 64 | 59.3 |
| Communication expense | 105 | 73 | 32 | 43.8 | 295 | 229 | 66 | 28.8 |
| Amortization of MSRs, net | 47 | 73 | (26) | (35.6) | 248 | 362 | (114) | (31.5) |
| ATM and debit card expense | 283 | 260 | 23 | 8.8 | 817 | 717 | 100 | 13.9 |
| Other losses | 37 | 17 | 20 | 117.6 | 127 | 36 | 91 | 252.8 |
| Donations | 135 | 38 | 97 | 255.3 | 238 | 139 | 99 | 71.2 |
| Loan related expense | 158 | 119 | 39 | 32.8 | 355 | 289 | 66 | 22.8 |
| Other expenses | 1,510 | 1,526 | (16) | (1.0) | 4,560 | 4,311 | 249 | 5.8 |
| Total noninterest expenses | $8,926 | $8,439 | $487 | 5.8 | $26,739 | $25,137 | $1,602 | 6.4 |

The significant changes in noninterest expenses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are described below:

- Salaries and wages. Salaries and wages increased $145 thousand and $390 thousand for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022 primarily due to annual salary adjustments for the 2023 fiscal year.
- Employee benefits. Employee benefit expense increased $63 thousand for the three months ended September 30, 2023 compared to the same period in 2022 due primarily to increases of $23 thousand in 401k contributions, $22 thousand in the Company's deferred compensation plans, and $13 thousand in payroll taxes. The increase of $311 thousand for the nine months ended September 30, 2023 compared to the same period in 2022 was primarily due to increases of $161 thousand in employee benefits related to the Company's deferred compensation plans and $141 thousand in premium expense for the Company's medical and dental plans between periods.
- Occupancy expense, net. The increase in occupancy expense for the three and nine month comparison periods is due to increases in utilities and taxes, partially offset by a decrease in repair and maintenance expenses. Also, lease expense increased $14 thousand and $55 thousand, respectively for the three and nine month periods ended September 30, 2023 compared to the same periods last year, primarily due to a new lease for a full service branch location in North Conway, NH.
- Equipment expense. Equipment expenses decreased between periods primarily due to decreases of $51 thousand and $159 thousand in office equipment and ATM depreciation expense for the three and nine month comparison periods,

respectively, related to the timing of ATM and equipment replacement purchases. These decreases were partially offset by increases in software license and maintenance costs.

- FDIC insurance assessment. The FDIC insurance assessment increased by $88 thousand and $282 thousand, respectively, during the three and nine month periods ended September 30, 2023 compared to the same periods in 2022, primarily due to an increase in the assessment rate as well as overall growth in net assets.
- Training and development. Training and development events that were suspended or held as virtual events in the prior year due to the impacts of COVID-19 have resumed in-person, resulting in increased expense of $24 thousand and $64 thousand for the three and nine month comparison periods, respectively.
- Communication expense. The respective increases in expense between the three and nine month comparison periods were due to the increase in remote ATM telecommunication expense.
- Amortization of MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. 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 mortgages. The amortization of MSRs exceeded new capitalized MSRs which resulted in net expense of $47 thousand and $248 thousand for the three and nine months ended September 30, 2023, respectively, and $73 thousand and $362 thousand for the three and nine months ended September 30, 2022, respectively.
- ATM and debit card expense. The respective increases between the three and nine month comparison periods relate to increases in the volume of ATM and debit card transactions and new card issuance costs.
- Other losses. Other losses primarily consists of debit card fraud on customer accounts, charged off checking accounts, and fraudulent check cashing schemes. Hackers continue to become more sophisticated and are being more successful in hacking customer debit cards, resulting in an increase in losses sustained by the Company. New debit cards are issued to customers whose accounts have been compromised.
- Donations. Charitable donations are made as part of the Company's on-going commitment to enhancing the economic vitality and social welfare of our communities. Donations increased for the three and nine month comparison periods due to contributions made to assist communities with recovery efforts related to the July 2023 historic flood that occurred in the State of Vermont.
- Loan related expense. There was an increase in the costs incurred for originating and servicing loans during the the three and nine months ended September 30, 2023, compared to the same periods in 2022. These costs include insurance and property tax tracking expenses, credit report fees, and other real estate closing costs.

**Provision for Income Taxes.** The Company has provided for current and deferred federal income taxes for the three and nine months ended September 30, 2023 and 2022. The Company's net provision for income taxes was $296 thousand and $1.2 million for the three and nine months ended September 30, 2023, respectively, compared to $783 thousand and $1.8 million for the same periods in 2022, respectively. The Company's effective federal corporate income tax rate was 10.8% and 12.9% for the three and nine months ended September 30, 2023 compared to 16.6% and 16.1% for the same period in 2022, respectively.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $363 thousand and $1.0 million for the three and nine months ended September 30, 2023, respectively, compared to $316 and $864 thousand for the same periods in 2022, respectively. These investments provide tax benefits, including tax credits. Low income housing and rehabilitation tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $358 thousand and $1.1 million for the three and nine months ended September 30, 2023, respectively, and $310 thousand and $833 thousand for the three and nine months ended September 30, 2022, respectively.

### FINANCIAL CONDITION

At September 30, 2023, the Company had total consolidated assets of $1.40 billion, including gross loans and loans held for sale (total loans) of $1.03 billion, investment securities AFS of $249.0 million, deposits of $1.22 billion, borrowed funds of $90.7 million, subordinated notes of $16.2 million and stockholders' equity of $49.2 million. The Company’s total assets at September 30, 2023 increased $59.1 million, or 4.4%, from $1.34 billion at December 31, 2022, and increased $95.3 million, or 7.3%, compared to September 30, 2022.

Net loans and loans held for sale increased $70.5 million, or 7.4%, to $1.02 billion, representing 73.3% of total assets at September 30, 2023, compared to $952.3 million, or 71.3% of total assets at December 31, 2022. (See *Loans Held for Sale and Loan Portfolio* below.)

Total deposits increased $20.4 million, or 1.7%, to $1.22 billion at September 30, 2023, from $1.20 billion at December 31, 2022. There was an increase in time deposits of $132.3 million, or 86.4%, which was partially offset by decreases in noninterest bearing deposits of $57.0 million, or 19.9%, and interest bearing deposits of $54.9 million, or 7.2%. (See *Deposits* on page 43.)

Borrowed funds, which consist of FHLB advances, were $90.7 million and $50.0 million at September 30, 2023 and December 31, 2022, respectively. (See *Borrowings* on page 44.)

Stockholders’ equity decreased from $55.2 million at December 31, 2022 to $49.2 million at September 30, 2023, reflecting an increase of $9.6 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS investment securities, cash dividends declared of $4.9 million and stock repurchases of $115 thousand during the nine months ended September 30, 2023. These decreases were partially offset by net income of $8.2 million for the first nine months of 2023, an increase of $348 thousand to common stock and additional paid in capital from the vesting of stock based compensation, a $37 thousand increase to retained earnings from the impact of adoption of ASU No. 2016-13 and a $61 thousand increase due to the issuance of common stock under the DRIP. (See *Capital Resources* on page 46.)

***Loans Held for Sale and Loan Portfolio***. Total loans (including loans held for sale) increased $68.7 million, or 7.2%, to $1.03 billion, representing 73.7% of assets at September 30, 2023, from $959.3 million, representing 71.8% of assets at December 31, 2022. The total loan portfolio at September 30, 2023 increased $86.8 million compared to the September 30, 2022 level of $941.2 million, which represented 72.4% of assets. 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. Real estate secured loans represented $903.9 million, or 87.9% of total loans at September 30, 2023 and $828.2 million, or 86.3% of total loans at December 31, 2022. The net change in the Company's loan portfolio from December 31, 2022 (see table below) resulted primarily from an increase in the volume of residential, commercial real estate, and residential construction loans originated.

The composition of the Company's loan portfolio, including loans held for sale, as of September 30, 2023 and December 31, 2022 was as follows:

*(Dollars in thousands)*

| Loan Class Residential real estate | September 30, 2023 Amount | Percent | December 31, 2022 Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Non-revolving residential real estate | $382,332 | 37.2 | $335,470 | 35.0 |
| Revolving residential real estate | 17,652 | 1.7 | 16,963 | 1.8 |
| Construction real estate |  |  |  |  |
| Commercial construction real estate | 52,423 | 5.1 | 56,501 | 5.9 |
| Residential construction real estate | 49,826 | 4.9 | 40,119 | 4.2 |
| Commercial real estate |  |  |  |  |
| Non-residential commercial real estate | 292,337 | 28.5 | 282,397 | 29.4 |
| Multi-family residential real estate | 102,855 | 10.0 | 95,550 | 9.9 |
| Commercial | 41,258 | 4.0 | 40,973 | 4.3 |
| Consumer | 2,289 | 0.2 | 2,204 | 0.2 |
| Municipal | 80,611 | 7.8 | 87,980 | 9.2 |
| Loans held for sale | 6,452 | 0.6 | 1,178 | 0.1 |
| Total loans | 1,028,035 | 100.0 | 959,335 | 100.0 |
| ACL on loans | (6,895) |  | (8,339) |  |
| Unamortized net loan costs | 1,700 |  | 1,336 |  |
| Net loans and loans held for sale | $1,022,840 |  | $952,332 |  |

The Company originates and sells qualified residential mortgage loans in various secondary market avenues to mitigate long-term interest rate risk and generate fee income, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At September 30, 2023, the Company serviced a $1.05 billion residential real estate mortgage portfolio, of which $6.5 million was held for sale and approximately $642.9 million of which was serviced for unaffiliated third parties.

The Company sold $54.2 million of qualified residential real estate loans to the secondary market during the first nine months of 2023 compared to sales of $60.2 million during the first nine months of 2022. Residential mortgage loan origination activity was strong during the third quarter of 2023. Despite low housing inventory and rising interest rates, purchase activity in the Company's markets continues to be stable with an increase in construction loan activity. The Company originates and sells

FHA, VA, and RD residential mortgage loans, and also has an Unconditional Direct Endorsement Approval from HUD which allows the Company to approve FHA loans originated in any of its Vermont or New Hampshire markets without needing prior HUD underwriting approval. The Company sells FHA, VA and RD loans as originated with servicing released. 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 mitigate the Company's exposure to credit risk.

The Company also originates commercial real estate and commercial loans under various SBA, USDA and State sponsored programs which provide a government agency guaranty for a portion of the loan amount. There was $2.8 million guaranteed under these various programs at September 30, 2023 on an aggregate balance of $3.8 million in subject loans.

The Company serviced $27.5 million of commercial and commercial real estate loans for unaffiliated third parties as of September 30, 2023. This included $26.5 million of commercial or commercial real estate loans the Company originated and participated out to other financial institutions. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

The Company capitalizes MSRs for all loans sold with servicing retained. The unamortized balance of MSRs on loans sold with servicing retained was $1.8 million at September 30, 2023, with an estimated market value in excess of the carrying value as of such date. Management periodically evaluates and measures the servicing assets for impairment.

Qualifying residential first lien mortgage loans and certain commercial real estate loans with a combined carrying value of $350.4 million were pledged as collateral for borrowings from the FHLB under a blanket lien at September 30, 2023.

***Asset Quality.*** The Company, like all financial institutions, is exposed to certain credit risks, including those related to the value of the collateral that secures its loans and the ability of borrowers to repay their loans. Consistent application of the Company’s conservative loan policies has helped to mitigate this risk and has been prudent for both the Company and its customers. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO for potential problems and reports to the Company’s and Union’s Board at regularly scheduled meetings. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates large credits out to other financial institutions to further mitigate that risk.

Repossessed assets, nonaccrual loans, and loans that are 90 days or more past due are considered to be nonperforming assets. The following table details the composition of the Company's nonperforming assets and amounts utilized to calculate certain asset quality ratios monitored by the Company's management as of the balance sheet dates and September 30, 2022:

*(Dollars in thousands)*

|  | September 30, 2023 | December 31, 2022 | September 30, 2022 |
| --- | ---: | ---: | ---: |
| Nonaccrual loans | $1,882 | $2,211 | $1,381 |
| Loans past due 90 days or more and still accruing interest | 245 | 186 | 308 |
| Total nonperforming assets | $2,127 | $2,397 | $1,689 |
| Guarantees of U.S. or state government agencies on the above nonperforming loans | $— | $76 | $131 |
| TDR loans | $— | $179 | $1,757 |
| ACL on loans | $6,895 | $8,339 | $8,340 |
| Net charge-offs (recoveries) | $4 | $(3) | $(4) |
| Total loans outstanding | $1,028,035 | $959,335 | $941,191 |
| Total average loans outstanding | $982,071 | $875,528 | $850,869 |

Union Bankshares, Inc. Page 40

The following table shows trends of certain asset quality ratios monitored by the Company's management as of the balance sheet dates and September 30, 2022:

*(Dollars in thousands)*

|  | September 30, 2023 | December 31, 2022 | September 30, 2022 |
| --- | ---: | ---: | ---: |
| ACL on loans to total loans outstanding | 0.67% | 0.87% | 0.89% |
| ACL on loans to nonperforming loans | 324.17% | 347.89% | 493.78% |
| ACL on loans to nonaccrual loans | 366.37% | 377.16% | 603.91% |
| Nonperforming loans to total loans | 0.21% | 0.25% | 0.18% |
| Nonperforming assets to total assets | 0.15% | 0.18% | 0.13% |
| Nonaccrual loans to total loans | 0.18% | 0.23% | 0.15% |
| Delinquent loans (30 days to nonaccruing) to total loans | 0.22% | 0.57% | 0.54% |
| Net charge-offs (recoveries) to total average loans | —% | —% | —% |
| Residential real estate | —% | —% | —% |
| Net recoveries | $(1) | $— | $— |
| Total average loans | $371,088 | $304,778 | $292,147 |
| Commercial | —% | —% | —% |
| Net recoveries | $— | $(1) | $(1) |
| Total average loans | $40,862 | $43,710 | $44,477 |
| Consumer | 0.21% | (0.09)% | (0.13)% |
| Net charge-offs (recoveries) | $5 | $(2) | $(3) |
| Total average loans | $2,365 | $2,262 | $2,258 |

All other loan categories did not have charge-offs or recoveries for the periods presented above.

There were no loans in process of foreclosure at September 30, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. The aggregate interest income not recognized on nonaccrual loans approximated $120 thousand as of September 30, 2023 and $59 thousand as of December 31, 2022.

The Company had loans rated substandard that were on performing status totaling $1.3 million at September 30, 2023 and December 31, 2022. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future.

***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. The level of the ACL on loans at September 30, 2023 represents management's estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company's policy and methodologies for establishing the ACL on loans under previously applicable GAAP for the 2022 comparison periods presented are described in the Company's 2022 Annual Report, while the Company's policy and methodologies related to the adoption of CECL as of January 1, 2023 and for the first nine months of 2023 are described in the Summary of Significant Accounting Policies in Note 1 to the unaudited interim consolidated financial statements included in this report. The Company's ACL on loans was $6.9 million and $8.3 million at September 30, 2023 and December 31, 2022, respectively.

The following table reflects activity in the ACL on loans for the three and nine months ended September 30, 2023 and 2022:

*(Dollars in thousands)*

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Balance at beginning of period | $6,780 | $8,340 | $8,339 | $8,336 |
| Impact of adoption of ASU No. 2016-13 | — | — | (1,495) | — |
| Charge-offs | (4) | — | (8) | (2) |
| Recoveries | 3 | — | 4 | 6 |
| Net (charge-offs) recoveries | (1) | — | (4) | 4 |
| Credit loss expense | 116 | — | 55 | — |
| Balance at end of period | $6,895 | $8,340 | $6,895 | $8,340 |

The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ACL on loans and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:

*(Dollars in thousands)*

| Residential real estate | September 30, 2023 Amount | Percent | December 31, 2022 Amount | Percent |
| --- | ---: | ---: | ---: | ---: |
| Non-revolving residential real estate | $2,300 | 37.4 | $2,294 | 35.0 |
| Revolving residential real estate | 150 | 1.7 | 123 | 1.8 |
| Construction real estate |  |  |  |  |
| Commercial construction real estate | 1,465 | 5.1 | 611 | 5.9 |
| Residential construction real estate | 159 | 4.9 | 421 | 4.2 |
| Commercial real estate |  |  |  |  |
| Non-residential commercial real estate | 2,149 | 28.6 | 2,931 | 29.5 |
| Multi-family residential real estate | 239 | 10.1 | 1,004 | 9.9 |
| Commercial | 357 | 4.1 | 301 | 4.3 |
| Consumer | 5 | 0.2 | 10 | 0.2 |
| Municipal | 71 | 7.9 | 95 | 9.2 |
| Unallocated | — | — | 549 | — |
| Total | $6,895 | 100.0 | $8,339 | 100.0 |

Notwithstanding the categories shown in the table above or any specific allocation under the Company's ACL methodology, all funds in the ACL on loans are available to absorb loan losses in the portfolio, regardless of loan category or specific allocation.

Management believes, in its best estimate, that the ACL on loans at September 30, 2023 is appropriate to cover expected credit losses over the expected life of the Company’s loan portfolio as of such date. 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 September 30, 2023. In addition, our banking regulators, as an integral part of their examination process, periodically review our ACL. 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***. During the first nine months of 2023, investment securities classified as AFS, which are carried at fair value, decreased $1.3 million to $249.0 million, comprising 17.8% of total assets, compared to $250.3 million, or 18.7% of total assets, at December 31, 2022. The decrease between periods is due to an increase in unrealized losses of $12.9 million and returns of principal of $12.9 million, partially offset by purchases of higher yielding municipal securities of $24.9 million during the first quarter of 2023.

Net unrealized losses in the Company’s AFS investment securities portfolio were $60.3 million as of September 30, 2023, compared to net unrealized losses of $47.4 million as of December 31, 2022. The Company’s accumulated OCI component of stockholders’ equity at September 30, 2023 reflected cumulative net unrealized losses on investment securities of $47.1 million. There were no securities classified as HTM at September 30, 2023 or December 31, 2022. The increase in unrealized losses is primarily attributable to increases in long term interest rates which are tied to the pricing indexes for the securities. No declines in value were deemed by management to be impairment related to credit losses at September 30, 2023. Deterioration in credit quality and/or imbalances in liquidity that may result from changes in financial market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities and may also increase the potential that credit losses may be identified in future periods, resulting in credit loss expense recorded in earnings.

Investment securities AFS with a carrying amount of $874 thousand and $433 thousand were pledged as collateral for public unit deposits or for other purposes as required or permitted by law at September 30, 2023 and December 31, 2022, respectively.

***Deposits.*** The following table shows information concerning the Company's average deposits by account type and weighted average nominal rates at which interest was paid on such deposits for the nine months ended September 30, 2023 and 2022:

*(Dollars in thousands)*

| Nontime deposits: | Nine Months Ended September 30, 2023 Average Amount | Percent of Total Deposits | Average Rate | Nine Months Ended September 30, 2022 Average Amount | Percent of Total Deposits | Average Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Noninterest bearing deposits | $248,222 | 20.6 | — | $312,331 | 27.2 | — |
| Interest bearing checking accounts | 316,193 | 26.2 | 0.89% | 287,296 | 25.0 | 0.26% |
| Money market accounts | 228,262 | 18.9 | 1.43% | 249,018 | 21.7 | 0.53% |
| Savings accounts | 168,551 | 14.0 | 0.03% | 188,568 | 16.4 | 0.04% |
| Total nontime deposits | 961,228 | 79.7 | 0.64% | 1,037,213 | 90.3 | 0.20% |
| Total time deposits | 243,730 | 20.3 | 3.23% | 111,202 | 9.7 | 0.60% |
| Total deposits | $1,204,958 | 100.0 | 1.16% | $1,148,415 | 100.0 | 0.24% |

During the first nine months of 2023, average total deposits grew $56.5 million, or 4.9%, compared to the nine months ended September 30, 2022. The average balance of total non-time deposit balances decreased $76.0 million between periods primarily due to decreases of $64.1 million in noninterest bearing deposits, $20.8 million in money market accounts, and $20.0 million in saving accounts, partially offset by an increase of $28.9 million in interest bearing checking accounts. The increase in interest bearing checking accounts is primarily attributable to the purchase of nonreciprocal ICS deposits from IntraFi as described below for the the nine months ended September 30, 2023. The decreases in the other categories are attributable to customers spending down deposit balances (including COVID-19 relief funds), the loss of deposit dollars to competing financial institutions and brokerage firms, and customers shifting monies into time deposits as they continue to seek higher yields. The average balance in total time deposits increased $132.5 million between periods due to an increase of $82.0 million in average brokered deposits and an increase of $50.5 million in average customer time deposit accounts as customers took advantage of higher rate paying CDs.

The Company participates in CDARS, which permits it 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 September 30, 2023 or December 31, 2022. There were $14.3 million and $12.3 million of time deposits of $250,000 or less on the balance sheet at September 30, 2023 and December 31, 2022, respectively, which were exchanged with other CDARS participants.

The Company also participates in the ICS program, a service through which it can offer its customers demand or savings products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage of excess balances, thereby helping the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were $106.6 million and $209.3 million in exchanged ICS demand and money market deposits on the balance sheet at September 30, 2023 and December 31, 2022, respectively. Additionally, there were $50.2 million of purchased ICS deposits at September 30, 2023 and no purchased ICS deposits at December 31, 2022.

At September 30, 2023 there were $103.0 million of retail brokered deposits at a weighted average rate of 5.07% issued under a master certificate of deposit program with a deposit broker for six, nine and twelve month terms for the purpose of providing a supplemental source of funding and liquidity. There were $33.0 million of retail brokered deposits at December 31, 2022 at a weighted average rate of 3.45% for a three month term that matured in January 2023.

Uninsured deposits have been estimated to include deposits with balances greater than the FDIC insurance coverage limit of $250 thousand. This estimate is based on the same methodologies and assumptions used for regulatory reporting requirements. At September 30, 2023, the Company had total estimated uninsured deposit accounts totaling $362.7 million, or 29.7% of total deposits. Uninsured deposits include $31.1 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at September 30, 2023, as described below under *Borrowings.*

The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of the $250 thousand FDIC insurance limit at September 30, 2023 and December 31, 2022:

*(Dollars in thousands)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Within 3 months | $14,143 | $1,011 |
| 3 to 6 months | 11,727 | 4,001 |
| 6 to 12 months | 14,742 | 11,462 |
| Over 12 months | 621 | 9,883 |
|  | $41,233 | $26,357 |

***Borrowings.*** Advances from the FHLB are another key source of funds to support earning assets. These funds are also used to manage the Bank's interest rate and liquidity risk exposures. The Company's borrowed funds at September 30, 2023 were comprised of borrowings from the FHLB of $90.7 million at a weighted average rate of 3.57%. At December 31, 2022, borrowed funds were comprised of borrowings from the FHLB of $50.0 million at a weighted average rate of 4.41%.

The Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the amount of $42.4 million and $42.5 million were utilized as collateral for these deposits at September 30, 2023 and December 31, 2022, respectively. The Company's reimbursement obligations to the FHLB relating to these letters of credit are secured by pledged collateral, which reduces the Company's available borrowing capacity with the FHLB. Total fees paid by the Company in connection with the issuance of these letters of credit were $11 thousand and $34 thousand for the three and nine months ended September 30, 2023, respectively and $8 thousand and $23 thousand for the three and nine months ended September 30, 2022, respectively.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. 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 $270 thousand and $295 thousand at September 30, 2023 and December 31, 2022, respectively.

***Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements.*** The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers, to reduce its own exposure to fluctuations in interest rates and to implement its strategic objectives. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors written on adjustable-rate loans, commitments to participate in or sell loans, commitments to buy or sell securities, certificates of deposit or other investment instruments and risk-sharing commitments or guarantees on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contractual or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

The Company's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. 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 credit approvals, borrowing limits, and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.

The following table details the contractual or notional amount of financial instruments that represented credit risk at the balance sheet dates:

*(Dollars in thousands)*

|  | September 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Commitments to originate loans | $29,484 | $39,217 |
| Unused lines of credit | 194,234 | 185,539 |
| Standby and commercial letters of credit | 1,532 | 1,762 |
| Credit card arrangements | 146 | 241 |
| FHLB Mortgage Partnership Finance credit enhancement obligation, net | 765 | 396 |
| Commitment to purchase investment in a real estate limited partnership | — | 3,000 |
| Total | $226,161 | $230,155 |

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. Since many of the loan commitments are expected to expire without being drawn upon and not all credit lines will be utilized, the total commitment amounts do not necessarily represent future cash requirements. Lines of credit incur seasonal volume fluctuations due to the nature of some customers' businesses, such as tourism.

The Company did not hold any derivative or hedging instruments at September 30, 2023 or December 31, 2022.

In addition to commitments arising from the Company’s financial instruments, in the normal course of business the Company enters into contractual commitments from time to time for the purchase or lease of property, including real property for its banking premises.

With the adoption of CECL, effective January 1, 2023, the Company records an ACL on off-balance sheet credit exposures through a charge or credit to Credit loss expense on the consolidated statements of income to account for the change in the ACL on off-balance sheet exposures between reporting periods. The ACL on off-balance sheet credit exposures totaled $1.2 million at September 30, 2023 and was included in Accrued interest and other liabilities on the September 30, 2023 consolidated balance sheet. There was $255 thousand and $216 thousand of credit loss benefit for off-balance sheet credit exposures recorded for the three and nine months ended September 30, 2023, respectively. Under previously applicable GAAP, there was no ACL on off-balance sheet credit exposures required at December 31, 2022.

***Liquidity.*** Liquidity is a measurement of the Company’s ability to meet potential cash requirements, including ongoing commitments to fund deposit withdrawals, repay borrowings, fund investment and lending activities, purchase and lease commitments, and for other general business purposes. 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 Company’s principal sources of funds are deposits; whole-sale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities and loans AFS; earnings; and funds provided from operations. Contractual principal repayments on loans have been a relatively predictable source of funds. Deposit flows and loan and investment prepayments are less predictable and can be significantly 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.

As of September 30, 2023, Union, as a member of FHLB, had access to unused lines of credit up to $102.8 million over and above the $134.7 million in combined outstanding FHLB 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. 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 September 30, 2023. There were no borrowings against this line of credit as of such date. Interest on this line is chargeable at a rate determined by the FHLB and payable monthly. Should Union utilize this line of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings.

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. At September 30, 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 or Company correspondent lines.

In response to the recent bank failures, the Federal Reserve created a Bank Term Funding Program to provide liquidity to U.S. Depository institutions which allows any federally insured depository institution to pledge as collateral its investment portfolio at par, not at fair market value. The Company continues to evaluate the program and has not yet taken any advances under this facility.

Union's investment and residential loan portfolios also provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. Additional contingent liquidity sources are available with further access to the brokered deposit market. These sources are considered as liquidity alternatives in our contingent liquidity plan. Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. 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. 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.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes are structured to qualify as Tier 2 capital for the Company under regulatory capital guidelines for bank holding companies. Proceeds from the sale of the Notes were utilized primarily to provide additional Tier 1 capital to Union to support its growth and for other general corporate purposes.

Stockholders’ equity decreased from $55.2 million at December 31, 2022 to $49.2 million at September 30, 2023, reflecting an increase of $9.6 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS investment securities, cash dividends declared of $4.9 million and stock repurchases of $115 thousand during the nine months ended September 30, 2023. These decreases were partially offset by net income of $8.2 million for the first nine months of 2023, an increase of $348 thousand to common stock and additional paid in capital from the vesting of stock based compensation, a $37 thousand increase to retained earnings from the impact of adoption of ASU No. 2016-13 and a $61 thousand increase due to the issuance of common stock under the DRIP. The components of other comprehensive loss are illustrated in Note 10 of the unaudited consolidated financial statements.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of September 30, 2023, the Company had 4,984,311 shares issued, of which 4,507,905 were outstanding and 476,406 were held in treasury.

In January 2023, the Company's Board reauthorized for 2023 the limited stock repurchase plan that was initially established in May of 2010. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter in open market purchases or privately negotiated transactions, as management deems advisable and as market conditions may warrant. 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 quarterly repurchase authorization expires on December 31, 2023, unless reauthorized. The Company repurchased 5,000 shares under this program during the first nine months of 2023 at a total cost of $114 thousand. The Company also purchased 30 shares outside of the limited stock repurchase program during the first quarter of 2023 at a cost of $1 thousand.

The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and make optional cash contributions to purchase additional shares of the Company's common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of September 30, 2023, 10,143 shares of stock had been issued from treasury stock under the DRIP.

The Company (on a consolidated basis) and Union are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's and Union's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Union must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Union's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Under the standard regulatory capital guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.

As shown in the table below, as of September 30, 2023, both the Company and Union met all capital adequacy requirements to which they are subject and Union exceeded the requirements for a "well capitalized" bank under the FDIC's Prompt Corrective Action framework. There were no conditions or events between September 30, 2023 and the date of this report that management believes have changed either company’s regulatory capital category.

*(Dollars in thousands)*

| As of September 30, 2023 Company: | Actual Amount | Ratio | For Capital Adequacy Purposes Amount | Ratio | To Be Well Capitalized Under Prompt Corrective Action Provisions Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total capital to risk weighted assets | $118,453 | 13.19% | $71,844 | 8.00% | N/A | N/A |
| Tier I capital to risk weighted assets | 94,085 | 10.48% | 53,865 | 6.00% | N/A | N/A |
| Common Equity Tier 1 to risk weighted assets | 94,085 | 10.48% | 40,399 | 4.50% | N/A | N/A |
| Tier I capital to average assets | 94,085 | 6.56% | 57,369 | 4.00% | N/A | N/A |
| Union: |  |  |  |  |  |  |
| Total capital to risk weighted assets | $118,274 | 13.18% | $71,790 | 8.00% | $89,737 | 10.00% |
| Tier I capital to risk weighted assets | 110,136 | 12.27% | 53,856 | 6.00% | 71,808 | 8.00% |
| Common Equity Tier 1 to risk weighted assets | 110,136 | 12.27% | 40,392 | 4.50% | 58,344 | 6.50% |
| Tier I capital to average assets | 110,136 | 7.68% | 57,363 | 4.00% | 71,703 | 5.00% |

Dividends paid by Union are the primary source of funds available to the Company for payment of dividends to its stockholders. Union is subject to certain requirements imposed by federal banking laws and regulations, which among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by Union to the Company.

Quarterly cash dividends of $0.36 per share were paid during the second quarter of 2023 and were declared for the third quarter, payable on November 2, 2023 to stockholders of record on October 28, 2023.

## Market risk

As filed, 151 characters.

Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 (effective September 10, 2018).

## Controls and procedures

As filed, 1,554 characters.

**Evaluation of Disclosure Controls and Procedures.** The Company’s Chief Executive Officer and Chief Financial Officer, with the assistance of the Disclosure Control Committee, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2023. Based on this evaluation they concluded that those disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files with the Commission is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required information.

**Changes in Internal Controls over Financial Reporting.** There was no change in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 180 characters.

There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in the Company’s 2022 Annual Report since the date of the filing of that report.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0000706863-23-000065. Last ingested by Listed: Oct 24, 2026, 14:56 ET. No prices; not investment advice.