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Section 1: 10-Q (BODY OF FORM 10-Q)

unb-20200630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2020

Commission file number: 001-15985

UNION BANKSHARES, INC.
VT03-0283552

20 LOWER MAIN STREET, P.O. BOX 667
MORRISVILLE, VT 05661

Registrant’s telephone number:      802-888-6600

Former name, former address and former fiscal year, if changed since last report: Not applicable

Securities registered pursuant to section 12(b) of the Act:
Common Stock, $2.00 par valueUNBNasdaq Stock Market
(Title of class)(Trading Symbol)(Exchanges registered on)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes      No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of July 27, 2020.
Common Stock, $2 par value 4,474,902  shares



 
UNION BANKSHARES, INC.
TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
 
 
 
PART II OTHER INFORMATION
 
 




PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 2020December 31, 2019
(Unaudited)
Assets(Dollars in thousands)
Cash and due from banks$6,049  $5,405  
Federal funds sold and overnight deposits30,579  45,729  
Cash and cash equivalents36,628  51,134  
Interest bearing deposits in banks9,802  6,565  
Investment securities available-for-sale85,430  87,393  
Other investments791  690  
Total investments86,221  88,083  
Loans held for sale43,550  7,442  
Loans692,658  670,244  
Allowance for loan losses(6,888) (6,122) 
Net deferred loan (fees) costs(821) 1,043  
Net loans684,949  665,165  
Premises and equipment, net20,379  20,923  
Goodwill2,223  2,223  
Company-owned life insurance12,481  12,322  
Other assets20,850  19,055  
Total assets$917,083  $872,912  
Liabilities and Stockholders’ Equity
Liabilities 
Deposits 
Noninterest bearing$188,741  $136,434  
Interest bearing484,496  458,940  
Time146,255  148,653  
Total deposits819,492  744,027  
Borrowed funds9,497  47,164  
Accrued interest and other liabilities12,327  9,878  
Total liabilities841,316  801,069  
Commitments and Contingencies
Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,950,430 shares
issued at June 30, 2020 and 4,948,245 shares issued at December 31, 2019
9,901  9,897  
Additional paid-in capital1,306  1,124  
Retained earnings66,020  64,019  
Treasury stock at cost; 475,531 shares at June 30, 2020
and 476,268 shares at December 31, 2019
(4,177) (4,183) 
Accumulated other comprehensive income2,717  986  
Total stockholders' equity75,767  71,843  
Total liabilities and stockholders' equity$917,083  $872,912  

See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 1


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
 Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
 (Dollars in thousands, except per share data)
Interest and dividend income  
Interest and fees on loans$8,565  $8,200  $16,856  $16,102  
Interest on debt securities:
Taxable337  461  724  862  
Tax exempt160  111  317  242  
Dividends26  30  60  72  
Interest on federal funds sold and overnight deposits11  50  64  111  
Interest on interest bearing deposits in banks40  52  81  107  
Total interest and dividend income9,139  8,904  18,102  17,496  
Interest expense
Interest on deposits1,252  1,176  2,561  2,241  
Interest on borrowed funds109  221  257  383  
Total interest expense1,361  1,397  2,818  2,624  
    Net interest income7,778  7,507  15,284  14,872  
Provision for loan losses500  150  800  200  
    Net interest income after provision for loan losses7,278  7,357  14,484  14,672  
Noninterest income
Trust income178  183  351  351  
Service fees1,284  1,504  2,781  2,930  
Net gains on sales of investment securities available-for-sale  4  11  8  
Net gains on sales of loans held for sale1,227  683  2,039  1,057  
Net gain on other investments162  19  38  81  
Other income137  78  286  276  
Total noninterest income2,988  2,471  5,506  4,703  
Noninterest expenses
Salaries and wages2,829  2,903  5,950  5,701  
Employee benefits1,231  1,062  2,213  2,061  
Occupancy expense, net477  421  991  859  
Equipment expense756  574  1,496  1,139  
Other expenses1,818  1,840  3,633  3,567  
Total noninterest expenses7,111  6,800  14,283  13,327  
        Income before provision for income taxes3,155  3,028  5,707  6,048  
Provision for income taxes487  498  843  897  
        Net income$2,668  $2,530  $4,864  $5,151  
Earnings per common share$0.60  $0.56  $1.09  $1.15  
Weighted average number of common shares outstanding4,474,139  4,467,748  4,473,512  4,467,563  
Dividends per common share$0.32  $0.31  $0.64  $0.62  

See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 2


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
(Dollars in thousands)
Net income$2,668  $2,530  $4,864  $5,151  
Other comprehensive income, net of tax:
Investment securities available-for-sale:
Net unrealized holding gains arising during the period on investment securities available-for-sale656  808  1,740  1,751  
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income  (3) (9) (6) 
Total other comprehensive income656  805  1,731  1,745  
Total comprehensive income$3,324  $3,335  $6,595  $6,896  

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 3


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Three Month Period Ended June 30, 2020 and 2019
 Common Stock   Accumulated
other
comprehensive income (loss)
 
 Shares,
net of
treasury
AmountAdditional
paid-in
capital
Retained
earnings
Treasury
stock
Total
stockholders’
equity
 (Dollars in thousands, except per share data)
Balances March 31, 20204,473,200  $9,899  $1,226  $64,783  $(4,181) $2,061  $73,788  
   Net income—  —  —  2,668  —  —  2,668  
   Other comprehensive income—  —  —  —  —  656  656  
   Dividend reinvestment plan514  —  7  —  4  —  11  
   Cash dividends declared
 ($0.32 per share)
—  —  —  (1,431) —  —  (1,431) 
   Stock based compensation expense1,185  2  73  —  —  —  75  
Balances, June 30, 20204,474,899  $9,901  $1,306  $66,020  $(4,177) $2,717  $75,767  
Balances March 31, 20194,467,625  $9,890  $967  $60,147  $(4,190) $(83) $66,731  
   Net income—  —  —  2,530  —  —  2,530  
   Other comprehensive income—  —  —  —  —  805  805  
   Dividend reinvestment plan220  —  6  —  2  —  8  
   Cash dividends declared
  ($0.31 per share)
—  —  —  (1,385) —  —  (1,385) 
   Stock based compensation expense—  —  47  —  —  —  47  
Balances, June 30, 20194,467,845  $9,890  $1,020  $61,292  $(4,188) $722  $68,736  
Six Month Period Ended June 30, 2020 and 2019
 Common Stock   Accumulated
other
comprehensive income (loss)
 
 Shares,
net of
treasury
AmountAdditional
paid-in
capital
Retained
earnings
Treasury
stock
Total
stockholders’
equity
 (Dollars in thousands, except per share data)
Balances, December 31, 20194,471,977  $9,897  $1,124  $64,019  $(4,183) $986  $71,843  
   Net income—  —  —  4,864  —  —  4,864  
   Other comprehensive income—  —  —  —  —  1,731  1,731  
   Dividend reinvestment plan737  —  13  —  6  —  19  
   Cash dividends declared
 ($0.64 per share)
—  —  —  (2,863) —  —  (2,863) 
   Stock based compensation expense1,185  2  149  —  —  —  151  
   Exercise of stock options1,000  2  20  —  —  —  22  
Balances, June 30, 20204,474,899  $9,901  $1,306  $66,020  $(4,177) $2,717  $75,767  
Balances, December 31, 20184,466,679  $9,888  $894  $58,911  $(4,179) $(1,023) $64,491  
   Net income—  —  —  5,151  —  —  5,151  
   Other comprehensive income—  —  —  —  —  1,745  1,745  
   Dividend reinvestment plan466  —  16  —  4  —  20  
   Cash dividends declared
  ($0.62 per share)
—  —  —  (2,770) —  —  (2,770) 
   Stock based compensation expense—  —  90  —  —  —  90  
   Exercise of stock options1,000  2  20  —  —  —  22  
   Purchase of treasury stock(300) —  —  —  (13) —  (13) 
Balances, June 30, 20194,467,845  $9,890  $1,020  $61,292  $(4,188) $722  $68,736  
See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 4


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Six Months Ended
June 30,
 20202019
Cash Flows From Operating Activities(Dollars in thousands)
Net income$4,864  $5,151  
Adjustments to reconcile net income to net cash (used in) provided by operating activities: 
Depreciation943  699  
Provision for loan losses800  200  
Deferred income tax provision (benefit)6  (26) 
Net amortization of premiums on investment securities245  173  
Equity in losses of limited partnerships376  323  
Stock based compensation expense151  90  
Net decrease (increase) in unamortized loan costs1,864  (46) 
Proceeds from sales of loans held for sale99,950  57,710  
Origination of loans held for sale(134,019) (62,737) 
Net gains on sales of loans held for sale(2,039) (1,057) 
Net gains on sales of investment securities available-for-sale(11) (8) 
Net gain on other investments(38) (81) 
(Increase) decrease in accrued interest receivable(713) 330  
Amortization of core deposit intangible86  86  
Increase in other assets(45) (248) 
Increase in other liabilities526  1,600  
Net cash (used in) provided by operating activities(27,054) 2,159  
Cash Flows From Investing Activities 
Interest bearing deposits in banks 
Proceeds from maturities and redemptions498  2,238  
Purchases(3,735) (249) 
Investment securities available-for-sale
Proceeds from sales3,076  8,785  
Proceeds from maturities, calls and paydowns8,695  3,446  
Purchases(7,851) (16,733) 
Net (purchases) sales of other investments(63) 20  
Net decrease (increase) in nonmarketable stock1,457  (204) 
Net (increase) decrease in loans(22,471) 36,698  
Recoveries of loans charged off23  10  
Purchases of premises and equipment(399) (4,399) 
Investments in limited partnerships(1,658) (1,220) 
Net cash (used in) provided by investing activities(22,428) 28,392  
Union Bankshares, Inc. Page 5


Cash Flows From Financing Activities
Repayment of long-term debt  (10,070) 
Net (decrease) increase in short-term borrowings outstanding(37,667) 24,630  
Net increase (decrease) in noninterest bearing deposits52,307  (4,961) 
Net increase (decrease) in interest bearing deposits25,556  (79,077) 
Net (decrease) increase in time deposits(2,398) 30,068  
Issuance of common stock22  22  
Purchase of treasury stock  (13) 
Dividends paid(2,844) (2,750) 
Net cash provided by (used in) financing activities34,976  (42,151) 
Net decrease in cash and cash equivalents(14,506) (11,600) 
Cash and cash equivalents
Beginning of period51,134  37,289  
End of period$36,628  $25,689  
Supplemental Disclosures of Cash Flow Information 
Interest paid$3,326  $2,559  
Income taxes paid$  $250  
Supplemental Schedule of Noncash Investing Activities
Investment in limited partnerships acquired by capital contributions payable$2,722  $1,203  
Right-of-use operating lease assets obtained in exchange for operating lease liabilities$  $2,002  
Dividends paid on Common Stock:
Dividends declared$2,863  $2,770  
Dividends reinvested(19) (20) 
$2,844  $2,750  

See accompanying notes to unaudited interim consolidated financial statements.
Union Bankshares, Inc. Page 6


UNION BANKSHARES, INC. AND SUBSIDIARY
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of June 30, 2020, and for the three and six months ended June 30, 2020 and 2019, have been prepared in conformity with GAAP for interim financial information, general practices within the banking industry, and the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Annual Report). The Company's sole subsidiary is Union Bank. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair presentation of the information contained herein, have been made. This information should be read in conjunction with the Company’s 2019 Annual Report. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2020, or any future interim period.
The Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in stockholder’ equity for a two year, rather than three year, period. The Company has also elected to provide certain other scaled disclosures in this report, as permitted for smaller reporting companies.
Certain amounts in the 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation.

Union Bankshares, Inc. Page 7


In addition to the definitions set forth elsewhere in this report, the acronyms, abbreviations and capitalized terms identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
AFS:Available-for-saleMBS:Mortgage-backed security
ALCO:Asset Liability CommitteeMSRs:Mortgage servicing rights
ALL:Allowance for loan lossesOAO:Other assets owned
ASC:Accounting Standards CodificationOCI:Other comprehensive income (loss)
ASU:Accounting Standards UpdateOFAC:U.S. Office of Foreign Assets Control
Board:Board of DirectorsOREO:Other real estate owned
bp or bps:Basis point(s)OTTI:Other-than-temporary impairment
Branch Acquisition:The acquisition of three New Hampshire branches in May 2011OTT:Other-than-temporary
CARES Act:Coronavirus Aid, Relief and Economic Security ActPlan:The Union Bank Pension Plan
CDARS:Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial NetworkPPP:Paycheck Protection Program
Company:Union Bankshares, Inc. and SubsidiaryPPPLF:PPP Liquidity Facility of the FRB
COVID-19:Novel CoronavirusRD:USDA Rural Development
DRIP:Dividend Reinvestment PlanRSU:Restricted Stock Unit
FASB:Financial Accounting Standards BoardSBA:U.S. Small Business Administration
FDIC:Federal Deposit Insurance CorporationSEC:U.S. Securities and Exchange Commission
FHA:U.S. Federal Housing AdministrationTDR:Troubled-debt restructuring
FHLB:Federal Home Loan Bank of BostonUnion:Union Bank, the sole subsidiary of Union Bankshares, Inc
FRB:Federal Reserve BoardUSDA:U.S. Department of Agriculture
FHLMC/Freddie Mac:Federal Home Loan Mortgage CorporationVA:U.S. Veterans Administration
GAAP:Generally Accepted Accounting Principles in the United StatesWHO:World Health Organization
HTM:Held-to-maturity2008 ISO Plan:2008 Incentive Stock Option Plan of the Company
HUD:U.S. Department of Housing and Urban Development2014 Equity Plan:2014 Equity Incentive Plan
ICS:Insured Cash Sweeps of the Promontory Interfinancial Network2019 Annual ReportAnnual Report of Form 10-K for the year ended December 31, 2019
IRS:Internal Revenue Service2017 Tax Act:Tax Cut and Jobs Act of 2017

Note 2. Risks and Uncertainties
The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The WHO has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread operating issues for the Company.
Congress, the President, and the FRB have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for small businesses, hospitals and health care providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on the Company’s operations in future periods.
Union Bankshares, Inc. Page 8


The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global, national or state, response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

Financial position and results of operations
The Company’s fee income has been reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected customers to waive a variety of fees, including but not limited to, insufficient funds and overdraft fees, ATM fees and account maintenance fees (See further discussion of fee income in Result of Operations beginning on page 31.) These reductions in fees are thought, at this time, to be temporary, while the COVID-19 related economic crisis persists. At this time, the Company is unable to project the duration or materiality of such an impact, but recognizes that the scope of the economic impact is likely to impact its fee income in future periods. Also, the Company has collected fee income from the SBA for participating in the PPP and processing PPP loans, which will offset the above mentioned reduction in fee income.
The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their loan payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, the Company is unable to project the materiality of such an impact, but recognizes the scope of the economic impact may affect its borrowers’ ability to repay in future periods.

Capital and liquidity
While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by credit losses. The Company relies on cash on hand as well as dividends from its subsidiary bank to pay dividends to shareholders. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to maintain its dividend to shareholders at the current level. Management is analyzing the Company's current capital levels and the ability to maintain growth projections and absorb future credit losses while maintaining sufficient levels of capital.
The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company, but rates for short term funding have recently been volatile. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding. To date in 2020, primarily as a result of the deposit of PPP loan proceeds and government assistance payments under the CARES Act, the Company has experienced a significant increase in customer deposits, although that effect will likely be temporary as borrowers spend down their loan proceeds and government assistance payments.

Asset valuation
Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.
COVID-19 could cause a further and sustained decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.
It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

Processes, controls and business continuity plan
Union Bankshares, Inc. Page 9


The Company has implemented its Pandemic and Business Continuity Plans to address the operating risks associated with the global COVID-19 pandemic and has followed guidance as events evolved from the Centers for Disease Control & Prevention (CDC), the WHO, State Health Officials and other available resources. Since enacting the Pandemic and Business Continuity Plans, the Company has taken a series of actions to safeguard its employees and customers while continuing to provide essential banking services to its communities. At the onset of COVID-19, the Company developed and executed a plan to decentralize employees, including working remotely, to isolate certain personnel essential to critical business continuity operations, canceled business travel and outside vendor appointments, limited inter-branch visits, and increased the use of video conferencing to avoid large gatherings. Also, social distancing and enhanced hygiene practices were put into place as well as rigorous cleaning of all bank facilities. Throughout these changes, employees and customers have been kept informed with regular communications. The Company has established a working committee for the development of a structured plan of bringing employees back to work in the banking facilities.
On May 27, 2020 branch lobby service was reopened to customers following guidance provided by state government as to occupancy limits and social distancing requirements. Branch lobbies had been closed to all customers, under state emergency orders since March 25, 2020.
Management continues to evaluate current events and put appropriate protocols in place to ensure the safety of staff and customers while continuing to provide essential banking services our customers rely on. No material operational or internal control challenges or risks related to COVID-19 have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraints through the implementation of its Pandemic and Business Continuity Plans.

Lending operations and accommodations to borrowers
In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is continuing to approve payment deferrals for its borrowers that are adversely affected by the pandemic. Depending on the demonstrated need of the customer, the Company is deferring either the full loan payment or the principal component of the loan payment for up to 180 days. As of June 30, 2020, the Company had executed 406 of these deferrals on outstanding loan balances of $173.3 million. In August 2020 the federal banking regulators issued supplemental guidance for working with borrowers as their loans near the end of their accommodation period. In accordance with interagency guidance issued in March 2020 and confirmed by the FASB, these short term deferrals are not considered troubled debt restructurings.
With the passage of the PPP, administered by the SBA, the Company is actively participating in assisting its customers with applications for resources through the program. PPP loans bear a mandated annual interest rate of 1.0%. The PPP was initially launched with loans having a two-year term, but subsequent revisions to the PPP currently allow the maximum term be extended to five years. The majority of the Company's PPP loans were originated with the two-year term and have not been extended to five years. The Company believes that a significant amount of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. Government. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.
Further, in sensitivity and service to its communities during this unprecedented time, the Company is waiving late payment and overdraft fees on a case by case basis and has temporarily suspended collection and foreclosure efforts on past due loans in accordance with CARES Act guidance and state emergency orders.

Note 3. Legal Contingencies
In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

Note 4. Per Share Information
Earnings per common share are computed based on the weighted average number of shares of common stock outstanding during the period and reduced for shares held in treasury. The assumed exercise of outstanding exercisable stock options and vesting of RSUs does not result in material dilution and is not included in the calculation.

Note 5. Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses. The
Union Bankshares, Inc. Page 10


new guidance, which is referred to as the current expected credit loss model ("CECL"), requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these requirements also applies to debt securities classified as AFS. As initially proposed, the ASU was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted for fiscal years beginning after December 15, 2018, including interim periods within such years. In October 2019, the FASB approved amendments to delay the effective date of the ASU to fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. As the Company is a smaller reporting company, the delay is applicable to the Company and the Company does not intend to early adopt the ASU at this time. The Company has established a CECL implementation team and developed a transition project plan. The Company utilizes a software package for its current calculation of the allowance for loan losses that will also be utilized for CECL implementation. Historical data has been compiled and training on utilizing the software for the existing incurred loss model has been completed. The Company continues the collection of historical data and training is ongoing surrounding CECL implementation and methodologies. This will facilitate the eventual implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The ASU was issued to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, a company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). The ASU was effective for the Company on January 1, 2020 and did not have a material impact on the Company's consolidated financial statements.

In August 2018, the FA