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Union Bankshares Inc Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 16, 2011 12:19PM
Union Bankshares Inc (UNB) filed Quarterly Report for the period ended 2011-03-31. Union Bankshares Inc. has a market cap of $89.03 million; its shares were traded at around $19.98 with a P/E ratio of 16.65 and P/S ratio of 3.09. The dividend yield of Union Bankshares Inc. stocks is 5.01%.
Highlight of Business Operations:
The Company's net income was $1.0 million for the quarter ended March 31, 2011 compared to $1.2 million for the quarter ended March 31, 2010, a decrease of $191 thousand, or 15.7%. These results reflected the net effect of a decrease in net interest income of $51 thousand, or 1.1%, an increase of $182 thousand, or 14.9%, in noninterest income, an increase of $441 thousand, or 10.7%, in noninterest expenses, an increase of $60 thousand, or 66.7%, in the provision for loan losses and a $179 thousand, or 49.9%, decrease in the provision for income taxes.
The Company continued to face a challenging low interest rate environment as the prime rate has remained unchanged at 3.25% for the last 27 months. Total interest income decreased by $146 thousand, or 2.6%, to $5.5 million in the first quarter of 2011, versus total interest income of $5.6 million in the first quarter of 2010, but that decrease was partially offset by the decrease in interest expense from $1.1 million in 2010 to $961 thousand in 2011, a decrease of $95 thousand, or 9.0%, between periods. The result of the changes in interest income and interest expense was that net interest income for the first quarter of 2011 was $4.5 million, down $51 thousand, or 1.1%, from the first quarter of 2010 of $4.6 million. The decrease in net interest income was mainly attributable to the decrease in interest earned on investment securities and loans but was partially mitigated by the decrease in interest paid on interest-bearing deposits. During the first quarter of 2011, the Company's net interest margin decreased 22 basis points to 4.43%, from 4.65% for the first quarter of 2010. The Company's net interest spread decreased 20 basis points to 4.21% for the first quarter of 2011, compared to 4.41% for the same period last year. Further drops in the prime rate and/or increases in competitors' deposit or market borrowing rates could be problematic if individual variable rate loan and investment instruments continue to reprice downward at a faster rate than the downward repricing of deposit products.
The increase in noninterest income was partially due to the increase of $66 thousand in net gains on sales of loans held for sale from $102 thousand for the quarter ended March 31, 2010 to $168 thousand for the quarter ended March 31, 2011, as the volume of loans sold to the secondary market to mitigate long term interest rate risk more than doubled from $8.2 million in the first quarter of 2010 to $16.7 million in the first quarter of 2011. The volume increase was driven by the continuing low long term mortgage rates creating loan demand mainly from customers either purchasing properties or financing properties through Union when their previous mortgage was held elsewhere. There was also an increase of $42 thousand, or 4.4%, in service fee income, which was mainly due to the increase in debit card and ATM income as well as increases in loan servicing fees and merchant program income. These increases were partially offset by the decrease in overdraft and service fee income on deposit accounts. Both trust income and mortgage servicing rights income increased in the first quarter of 2011 compared to the similar period in 2010.
The Company's total assets increased from $453.0 million at December 31, 2010, to $459.7 million at March 31, 2011, an increase of $6.7 million, or 1.5%. Deposits increased from $376.7 million at December 31, 2010 to $384.0 million at March 31, 2011, an increase of $7.3 million, or 1.9%. Borrowed funds decreased from $29.0 million at December 31, 2010 to $26.9 million at March 31, 2011, a decrease of $2.1 million, or 7.2%. Total loans, including loans held for sale, decreased by $10.2 million, or 2.7%, from $381.9 million at December 31, 2010 to $371.7 million at March 31, 2011. Total loans at March 31, 2011 are net of $16.7 million residential real estate loans sold by the Company during the first three months of 2011 to mitigate future interest rate risk.
Although nonperforming assets increased during the first quarter, the Company's asset quality remained strong, with March 31, 2011 total nonperforming assets at $5.8 million, or 1.27% of total assets, compared to $5.2 million, or 1.15% of total assets, at December 31, 2010 and $4.9 million, or 1.12% of total assets, at March 31, 2010. The loan loss provision for the quarter ended March 31, 2011 was $150 thousand, up from $90 thousand for the same period in 2010. The higher provision was deemed by management to be appropriate in light of the increase in nonperforming loans, an increase in the qualitative reserve economic factor for residential, junior lien and construction portfolios, a change in the mix of the portfolio and the outlook for future economic conditions.
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 interest earning assets and the interest expense paid on interest bearing liabilities. The Company s net interest income decreased $51 thousand, or 1.1%, to $4.5 million for the three months ended March 31, 2011, from $4.6 million for the three months ended March 31, 2010. The net interest spread decreased 20 basis points to 4.21% for the three months ended March 31, 2011, from 4.41% for the three months ended March 31, 2010. The decrease in the net interest spread was primarily the result of the drop in average interest rates earned on interest earning assets from 5.69% for the quarter ended March 31, 2010 to 5.34% for the quarter ended March 31, 2011. The net interest margin for the first quarter of 2011 decreased 22 basis points to 4.43% from the 2010 comparison period at 4.65%, reflecting the net effect of a decrease in net interest income of $51 thousand and an increase of $17.4 million, or 4.2%, in average earning assets.
Stocks Discussed: UNB,