Union Bankshares Announces Balance Sheet Repositioning

Rhea-AI Summary

Union Bankshares, Inc. (NASDAQ: UNB) has completed a strategic balance sheet repositioning involving its investment securities portfolio. The company's subsidiary, Union Bank, sold $38.8 million in book value of lower-yielding available-for-sale debt securities, resulting in an estimated after-tax realized loss of $1.0 million for Q3 2024. The proceeds were reinvested in higher-yielding bonds and loans, expected to yield 341 basis points more than the sold securities. This move is projected to be earnings accretive, improve net interest margin and return on assets, and enhance balance sheet management flexibility. The loss is estimated to be recouped within a year and has a neutral impact on stockholders' equity and book value per share.

Positive

• Reinvestment in higher-yielding assets expected to increase yield by 341 basis points
• Projected to be accretive to earnings, net interest margin, and return on assets
• Estimated loss of $1.0 million to be recouped within approximately one year
• Neutral impact on stockholders' equity and book value per share
• Improved flexibility in managing balance sheet growth and liquidity

Negative

• After-tax realized loss of approximately $1.0 million to be recorded in Q3 2024
• Sale of $38.8 million in book value of lower-yielding securities

Insights

Financial Analyst

Union Bankshares' strategic move to reposition its balance sheet demonstrates a proactive approach to enhance profitability in a rising interest rate environment. The sale of $38.8 million in low-yielding securities, despite an immediate $1 million after-tax loss, is projected to yield significant benefits. The 341 basis points increase in yield from reinvested proceeds is substantial, potentially boosting the bank's net interest margin considerably. This move should improve earnings and return on assets in upcoming quarters, with the loss expected to be recouped within a year. Importantly, the transaction's neutral impact on equity and book value preserves shareholder value while positioning for future growth. This calculated risk showcases management's commitment to optimizing the balance sheet for long-term performance.

Market Research Analyst

Union Bankshares' balance sheet repositioning aligns with broader industry trends as banks adapt to the current interest rate landscape. This move reflects a growing strategy among regional banks to optimize their securities portfolios for higher yields. The 3.41% yield improvement is significant and could potentially outperform industry averages. Investors should note that while such strategies can boost profitability, they also indicate a shift in risk appetite. The bank's ability to maintain this yield advantage will be important to watch, especially if interest rates stabilize or decline. This repositioning also suggests Union Bank's confidence in loan demand, as part of the proceeds are allocated to funding loans, potentially signaling positive economic sentiment in their operating regions.

Legal Expert

From a regulatory perspective, Union Bankshares' balance sheet repositioning appears to be a well-executed maneuver within the bounds of banking regulations. The transparent disclosure of the $1 million after-tax loss and its expected recoup timeline demonstrates compliance with financial reporting standards. The neutral impact on stockholders' equity and book value per share suggests the transaction was structured to avoid regulatory red flags that could arise from significant capital impairments. However, investors should be aware that such strategies, while legal, may attract increased regulatory scrutiny, especially if they become more frequent or aggressive. The bank's management will need to ensure ongoing compliance with liquidity and capital adequacy requirements as they navigate this new balance sheet structure.

MORRISVILLE, Vt., Sept. 04, 2024 (GLOBE NEWSWIRE) -- Union Bankshares, Inc. (NASDAQ - UNB) today announced the completion of a balance sheet repositioning related to its investment securities portfolio.

The Company's wholly-owned subsidiary, Union Bank, executed the sale of $38.8 million in book value of its lower-yielding available-for-sale debt securities for an estimated after-tax realized loss of approximately $1.0 million, which will be recorded in the third quarter of 2024. Proceeds from the sale of the securities were redeployed into higher yielding bonds and funding loans that on a combined basis are expected to yield approximately 341 basis points more than the securities that were sold. The Company estimates the loss will be recouped within approximately one year.

The loss on the sale of securities has a neutral impact on stockholders' equity and the Company's book value per share. This repositioning will be accretive to earnings, net interest margin and return on assets in future periods, and simultaneously provide the Company with greater flexibility in managing balance sheet growth and liquidity.

About Union Bankshares, Inc.

Union Bankshares, Inc., headquartered in Morrisville, Vermont, is the bank holding company parent of Union Bank, which provides commercial, retail, and municipal banking services, as well as, wealth management services throughout northern Vermont and New Hampshire. Union Bank operates 19 banking offices, three loan centers, and multiple ATMs throughout its geographical footprint.

Since 1891, Union Bank has helped people achieve their dreams of owning a home, saving for retirement, starting or expanding a business and assisting municipalities to improve their communities. Union Bank has earned an exceptional reputation for residential lending programs and has been recognized by the US Department of Agriculture, Rural Development for the positive impact made in lives of low to moderate home buyers. Union Bank is consistently one of the top Vermont Housing Finance Agency mortgage originators and has also been designated as an SBA Preferred lender for its participation in small business lending. Union Bank's employees contribute to the communities where they work and reside, serving on non-profit boards, raising funds for worthwhile causes, and giving countless hours in serving our fellow residents. All of these efforts have resulted in Union receiving an "Outstanding" rating for its compliance with the Community Reinvestment Act ("CRA") in its most recent examination. Union Bank is proud to be one of the few independent community banks serving Vermont and New Hampshire and we maintain a strong commitment to our core traditional values of keeping deposits safe, giving customers convenient financial choices and making loans to help people in our local communities buy homes, grow businesses, and create jobs. These values--combined with financial expertise, quality products and the latest technology--make Union Bank the premier choice for your banking services, both personal and business. Member FDIC. Equal Housing Lender.

Forward-Looking Statements

Statements made in this press release that are not historical facts are forward-looking statements. Investors are cautioned that all forward- looking statements necessarily involve risks and uncertainties, and many factors could cause actual results and events to differ materially from those contemplated in the forward-looking statements. When we use any of the words “believes,” “expects,” “anticipates” or similar expressions, we are making forward-looking statements. The following factors, among others, could cause actual results and events to differ from those contemplated in the forward-looking statements: uncertainties associated with general economic conditions; changes in the interest rate environment; inflation; political, legislative or regulatory developments; acts of war or terrorism; the markets' acceptance of and demand for the Company's products and services; technological changes, including the impact of the internet on the Company's business and on the financial services market place generally; the impact of competitive products and pricing; and dependence on third party suppliers. For further information, please refer to the Company's reports filed with the Securities and Exchange Commission at www.sec.gov or on our investor page at www.ublocal.com.

Contact: David S. Silverman
(802) 888-6600

FAQ

What was the purpose of Union Bankshares' balance sheet repositioning in September 2024?

Union Bankshares repositioned its balance sheet to improve its investment securities portfolio yield. The company sold lower-yielding securities and reinvested in higher-yielding bonds and loans to enhance earnings, net interest margin, and return on assets.

How much did Union Bankshares (UNB) sell in securities during the September 2024 repositioning?

Union Bankshares sold $38.8 million in book value of its lower-yielding available-for-sale debt securities as part of its balance sheet repositioning strategy.

What is the expected yield improvement from Union Bankshares' (UNB) September 2024 balance sheet repositioning?

The reinvestment of proceeds into higher-yielding bonds and loans is expected to yield approximately 341 basis points more than the securities that were sold.

How will the September 2024 balance sheet repositioning affect Union Bankshares' (UNB) Q3 2024 financial results?

Union Bankshares will record an estimated after-tax realized loss of approximately $1.0 million in the third quarter of 2024 due to the sale of securities. However, this loss is expected to be recouped within about one year.