AGM 2021

May 19, 2021

Good afternoon and welcome everyone. Thank you for joining us today. While we're sorry not to be able to see you in person and have a chance to gather after the meeting has been our tradition, we also recognize that hosting our meeting virtually allows us to be more inclusive and reach a greater number of our shareholders. We will conduct the business portion of our meeting first and answer questions at the end of the meeting. Should you have any comments about the proposals to be voted on or a question you would wish to ask during our Q and A session, we ask that you submit your comments or questions by clicking on Q and A on the bottom right of the meeting webpage, which will open the Q and A column of the meeting webpage. Only validated shareholders may comment on proposals or ask questions. If you entered the meeting as a guest, without your control number, the question box will not appear on your screen. Please feel free to type in questions at any point during the meeting. We'll open that up shortly and we'll queue them up to address at the appropriate time. So you don't need to wait until we get to the Q and A section to ask a question. We'll get to them as soon as we can. Though we may not be able to answer every question, we'll do our best to provide a response to as many as possible. Please note that this meeting is being recorded. However, no 1 attending via the webcast or telephone is permitted to use any audio recording device. It is now shortly after 3 p. M. Eastern Standard Time on May 19, and this meeting of Union Bank chairs is officially called the quarter. Now I'd like to have those standing for election to the Board of Directors introduce themselves. I'll start with myself. My name is Neil Van Dyke. I'm the Chair of the Board. I joined the Board of Union Bank in 2010 and became Chair last year on the retirement of former Chair Ken Gibbons. I serve on the compensation committee as well. My background is as a former lodging business owner in STOW and I currently work for the Vermont Department of Public Safety. The next director that's going to introduce himself is Joel Barraza. Good afternoon. I'm employed as the Chief Officer for a large hospitality and development company in New Hampshire's Mount Washington Valley. I'm on the bank's compensation committee, and I'll be guiding by New Hampshire. Thank you, Joel. And now Dawn Bugbee. Yes. Hello. This is Dawn Bugbee. I'm here and I live in South Hero and I'm representing the bank. I sit on the compensation committee and the audit committee. And my previous employment was with Green Mountain Power, where I was there for about 14 years serving as their Chief Financial Officer. Welcome, everybody. And next will be Greg Sargent. Hi. This is Greg Sargent. I'm the managing shareholder of KBS in St. Albans, Vermont. We serve clients primarily in Vermont and New Hampshire. I was elected to the Board a year ago and I serve on the Asset Management Committee and I've recently been appointed to the Audit Committee. It's a privilege for me to be serving on this board. Thank you, Greg. John Goodrich? John, are you with us? Disconnected. Okay. We'll try to come back to John later. Can we move on to Nancy Putnam? Hi, this is Nancy Putnam. I've been on the Board since 2017. I chair the Asset Management Committee and I'm on the Audit Committee. I am a retired CPA from the Morris Ville area and I live in Jeffersonville. Thank you, Nancy. John Goodrich, are you back on the call? Okay. How about Tim Sargent? Good afternoon, everyone. My name is Tim Sargent and I am an attorney here in Morrisville, Vermont and I'm the owner of Sargent Law Office And I serve on the Audit Committee and I'm also Vice Chair, and I live in Elmore, Vermont. Thank you, Tim. David Silverman. Good afternoon, everybody. My name is David Silverman. I joined the Union Bankshare subsidiary, Union Bank, in 1986. I was appointed CEO of the bank and the holding company in 2012, and I live in Morrisville, Vermont. Thank you, David. John Steele. My wife Anne in Sterling Valley outside of Stowe. I've been with the Union Bank on the Union Bank Board for 20 plus years. I currently serve on the Compensation Committee, the Asset Management Group Committee and the 401 Committee. And thank you all for being here. Thank you, John. Is John Goodrich with us? Can you hear me now, Neil? We can. Please go ahead. Okay. Well, this is John Goodrich. Yes, I've been in St. Johnsbury most of my tenure on the Board. I just moved 16 miles to the east just across the river in New Hampshire in Littleton. I've been on since I believe 2014. I come out of the manufacturing world. I am Chair of the Comp Committee, very proud to do that and proud to be on this Board. And thank you all for coming. Thank you, John. So those are the directors that are standing for election to the Bank's shares of Board. I'd also like to introduce the newest member of the Union Bank Board, Janet Spedler, and have Janet introduce herself and tell us a little bit about her background. Hi. This is Janet Spittler. I joined the bank board in April and I'm a member of the Asset Management Committee. I'm currently the CFO for Evernorth, a group that develops affordable housing and syndicates tax credits. And prior to that, I was the CFO of Merchants Bank for 17 years. And I live in South Wellington, and I'm delighted to be on the Board of Union Bank. Thank you, Janet. We're very pleased to have you join us as well. I'd like to take a moment now to acknowledge Steve Bourgeois' service on the Board as he has reached his mandatory retirement age and is retiring this year. Steve has been a member of the Bank Board since 2, 005. He's served for many years on the Audit Committee as a financial expert and most recently as Chair of that committee for many years. He's also been a member of the Disclosure Control Committee and is a longtime member of the Franklin County Advisory Board, on which we're pleased he will continue to serve. As some of you may know, Steve has been a lifetime banker, starting on the teller line and moving up to become a bank President. This expertise that he has brought to the Board will be sorely missed. I'd like to ask Steve if he'd like to take a moment to reflect on his service on the Board. Steve? Thank you, Neil. Just have a couple of brief comments. First of all, it's been an absolute privilege to serve on this Board. You really can't share that with anyone that hasn't sat on the Board, especially this 1. I've been on the Board 16 years. I've been in banking a little over 51. And it's interesting, a third of my banking career has been with the Union Bank, again, which I thoroughly enjoy. But I want to comment just a little bit about the Union Bank itself. Every community that has a local bank, the bank serves as the economic engine that drives the community or pulls the community or whatever. For 130 years, the Union Bank Group has been the economic engine in many, many communities throughout Vermont and throughout now throughout New Hampshire. And I think they can be very proud of what they've created in the communities that they serve. And it's been over 130 years And I can tell you that we have the most professional staff to thank and all of us, I mean, probably beyond. And I think that's why I so much is just for the just a tremendous staff. So again, thank you for letting me be on the Board. I certainly wish the bank everything that is coming their way. Thanks. Steve, thank you very much. I appreciate your comments and you will be missed on the Board. I'm now going to call on our Secretary, John Steele, to read the notice of the annual meeting. The notice of the 2021 Annual Meeting of the Shareholders to be held on Wednesday, May 19, 2021. To the shareholders of Union Bancshares Inc, the annual meeting of shareholders of Union Bancshares Inc. Will be held at 3 pm local time on Wednesday, May 19, 2021 as a virtual meeting for the following purposes. 1, to fix the number of directors at 9 for the ensuing year and to elect 9 directors or such lesser number as circumstances may warrant to serve a 1 year term until their successors are elected and qualified. 2, to ratify the appointment of the independent public accounting firm of Barry, Dunn, McNeil and Parker LLC as the company's external auditors for 2021 and 3, to consider and act upon any other business that may properly come before the meeting or any adjournment thereof. The Board of Directors has fixed the close of business on March 26, 2021, as the record date for the determination of shareholders entitled to notice of and to vote at the meeting or any adjournment of the meeting by the order of the Board of Directors. Thank you, John. And finally, the company has appointed Cristi Alfiore and Carrie Lachman as ballot tellers. Also with us today is Inspector of Elections from Broadridge, who is responsible for telling and recording the votes of the virtual shareholder meeting today. Now, I'd like to present the matters to be voted upon. Proposal 1 of notice, Tim Sergeant, will you make the motion? Yes. I make a motion to set the number of directors for the ensuing year at 9 with the slate recommended by the directors. Joel S. Baraza, Don D. Bugbee, John M. Goodrich, Nancy C. Putnam, Gregory D. Sargent, Timothy W. Sargent, David S. Silverman, John H. Steele and Cornelius J. Van Dyke. Thank you, Tim. Do we have a second? John Steele? I can okay, excuse me. I second that motion. Thank you. We have a motion and a second on proposal 1. We'll now call the question. Proposal number 2 of notice. Steve, would you like to make the motion? I make a motion to verify the appointment of the independent public accounting firm of Harry Dunn, McNeil and Parker LLC as the company's external auditors for 2021. And do we have a second? John Goodrich? Yes, I second the motion. Thank you, John. We have a motion and a second on proposal 2. We will now call to questions. It is now a little before 3:15 on Wednesday, May 19, 2021, and the polls are now open. Any shareholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. Management is now going to provide a brief presentation about the activities of Union Bankshares' subsidiary, Union Bank. First off is going to be Karen Hale, our Chief Financial Officer. Thank you, Neil, and good afternoon, everyone. I'm going to take a few minutes and discuss some of the financial highlights of 2020 and how the pandemic and related actions and events played a role in our results. In a few minutes, David will share some slides that illustrate some of our financial trends. So I'm going to focus my comments on 2020 and significant changes from 2019. The first slide that you're viewing is the company's comparative balance sheet. And at the beginning of any year, we set out with a budget, which includes estimated growth projections. 2020 at the start was no different and we started the year anticipating growth of approximately 5%. This estimate was a bit modest from the 8% growth we saw in 2018 2019, but nonetheless with our expectations based on the assumptions used preparing our budget. Well, by the end of the Q1, the pandemic was causing economic disruption. The Federal Reserve decreased short term interest rates by 150 basis points and a $2, 000, 000, 000, 000 legislative package, the CARES Act, was signed into law. All of these events had an impact on the company's financials. If we had kept to our original 5% growth estimate, we would have ended 2020 with total assets of approximately $917, 000, 000 But as you can see, total assets at the end of 2020 were $1, 100, 000, 000 representing growth of about 25.3%. Reaching the $1, 000, 000, 000 mark certainly was a milestone we expected to achieve just not quite so soon. So let me talk about some of the key elements driving our growth for 2020. And I'll start with loans, which is our largest earning assets. And on this slide, it's just about in the middle of the asset section that you're seeing. Total loans grew to $803, 200, 000 in 2020, which is growth of 124 18.3%. I'm sure many of you have heard of the Paycheck Protection Program or PPP. PPP loans were a component of the CARES Act, which which were developed to assist businesses in managing through the economic disruptions caused by the pandemic. David will share some additional details about the PPP loans that we originated, but included on our balance sheet at the end of 2020 was $66, 200, 000 of PPP loans. This significantly contributed to the loan and asset growth for 2020. In addition to PPP loans, we experienced growth in many of our other loan categories. Our municipal loan portfolio grew $31, 200, 000 commercial real estate loans increased $11, 700, 000 and the residential loan portfolio increased $22, 600, 000 The residential loan business area or line has been extremely busy over the last 14 months. We have experienced a surge in residential refinances due to low interest rates, and we saw an increase in the already strong real estate purchase market fueled by increased migration into Vermont, New Hampshire as people were fleeing the heavily populated cities. In addition to the growth on the balance sheet of $22, 600, 000 we also originated and sold $263, 100, 000 of experienced a significant increase in our federal funds sold and overnight deposits. This is also often referred to as on balance sheet liquidity. And 2020 ended with this amount being $117, 400, 000 compared to $45, 700, 000 a year ago. The balance sheet growth was funded primarily by customer deposits whose balances increased $250, 300, 000 or 33.6 percent during 2020 to end the year at $994, 300, 000 The increase in deposits was attributable to proceeds from PPP loans deposited into customer accounts at Union, customers' receipt of government stimulus payments and the general lack of spending due to the economic disruption caused by the pandemic. The high level of customer deposits and on balance sheet liquidity allows for less utilization of wholesale funding, which traditionally consists of advances from the Federal Home Loan Bank, broker deposits or other lines of credit. During 2020, our total borrower funds decreased 40, 000, 000 to end the year at $7, 200, 000 Moving to the rest of the balance sheet. There isn't a subtotal for this on the slide that you're seeing, but from common stock to treasury stock is considered the company's total capital. Total capital ended 2020 at 80.9 $1, 000, 000 compared to $71, 800, 000 for 20 19, an increase of $9, 000, 000 or 12.6 percent. The increase was due to net income of $12, 800, 000 a $1, 600, 000 increase in accumulated other comprehensive income, and these were partially offset by dividends paid to shareholders of $5, 500, 000 Next slide please. The slide that you're seeing now is our income statement and this compares our results of operations for the 12 months ended December 31, 2020, to that same period for 2019. I'd like to draw your attention to net interest income. This is the 3rd line item down on the slide as the first subtotal that you'll see. Net interest income is the difference between income on earning assets such as loan or investments and interest paid on liabilities like our customer deposits and borrowed funds. Net interest income as of December 31, 2020 is $31, 600, 000 which represents 66.4 of our total revenue. So as you can imagine, the components of net interest income play a significant role in our overall results. Net interest income did increase 4.4% over 2019. However, there were some challenges in achieving this increase. I mentioned earlier that the Federal Reserve decreased interest rates in March of 2020. The low interest rate environment along with a mandated 1 percent interest rate on PPP loans and the high levels of excess liquidity earning minimal interest caused the yield on earning assets to decrease from 4.77 percent in 2019 to 4.14 percent for 2020. The impact of the lower yields was more offset by the increase in volume of earning assets and increases in loan fee income from PPP loans and the high volumes of residential loans originated in 2020, resulting in interest income of $36, 800, 000 compared to $35, 900, 000 for 20 19. In addition to the increase in interest income, a decrease in interest expense of $453, 000 occurred despite the significant increase in customer deposit balances, again due to the low interest rate environment. If you would like further details of the discussion of net interest income, the discussion of this begins on Page 27 in our annual report on Form 10 ks. Continuing on down the income statement, the provision for loan losses increased to $2, 200, 000 for 20.20 compared to $775, 000 in 20 19. The increase year over year resulted from growth in the loan portfolio and management's assessment of the economic qualitative factors utilized to estimate the allowance for loan losses. Non interest income for 2020 increased 56.7% compared to 2019. The increase year over year is primarily due to an increase in the gain on the sale of residential loans, which was $8, 200, 000 for 2020 compared to $2, 900, 000 in 'nineteen. This year over year increase was due to higher premiums earned on the sales and the increase in the volume of sales, which I previously mentioned, was $263, 100, 000 for 2020 compared to $158, 300, 000 in 19. As I move on to the non interest expense items, the largest component of which is salaries and wages. Salaries and wages increased 11.8% year over year due to a combination of annual salary increases, higher commissions paid to our mortgage loan originators, which is consistent with the increase in residential volume and increases in annual incentive compensation for select officers of the bank. Additionally, an increase in the annual holiday gift was paid to all full and part time employees and a 1 time payout of unused employee earned time off was made. These increases in salaries and wages also resulted in an increase in employee benefits, which includes payroll taxes and 401 contributions, which often have a direct correlation with salaries. For further details on non interest expense items, please refer to Page 32 in our annual report on Form 10 ks. To wrap things up, we ended 2020 with net income of $12, 800, 000 compared to $10, 600, 000 for 2019, an increase of 20.3%. Despite the economic disruption caused by the pandemic, many segments of the economy have survived, allowing us to be optimistic for the future. The financial results for the company are better than expected given the pandemic, which could not have been accomplished without a strong team of dedicated professionals. I believe that's all I have for today. And if you have any questions, please submit them through the queue and we can address them during the Q and A portion of the meeting. Thank you, Karen. Great report. Next up is our David Silverman, our President and CEO, that's going to talk a little bit about the year 2020 and review. Good afternoon, everybody. Thank you for attending. We have some 50 attendees that have called in. I will tell you from a personal note, I can't wait for our annual meeting in 2022 when we're able to greet you all in person and enjoy your company and questions. We really miss seeing you for the last 2 years. But nevertheless, we forge on. So I do have a few things I want to comment on sort of in a graphical way. The first thing that we do have to hit is the legal cautionary advice. I don't plan on reading this all the way through. But from time to time, I may make some comments that are forward looking statements. And those forward looking statements are subject to all kinds of things that the bank cannot control going forward. So you should be very careful about your reliance on some of those comments. Next slide please. So Karen touched on our growth. Our balance sheet grew 25.3 percent from 2019 2020. But I did want to point out simply that from about 2016 on, we've grown at a pace significantly ahead of inflation with a high rate of growth of 9.9% and a lower rate of growth of 7.9 throughout those several years. So that's been a lot of hard work on our team, but that's gone quite well. The second thing I wanted to point out is the growth in our loan portfolio. Karen touched on the fact that we've had some very good success in generating secondary market lending. And as a result, you can see in the green bar that our loans serviced for others has grown up to $629, 000, 000 at the end of the year. And the total loan portfolio is, well a lot higher than that, over $1, 200, 000 over $1, 400, 000 And then the top line shows what our servicing income is, which is the revenue that we obtained by servicing loans for others. And you can see that in the analysis period, it's gone from $579, 000 to over $1, 500, 000 which is very helpful to our results. Deposit growth, I think this really jumps out at you. Thank you. We had 34% growth in deposits for the year. This is a combination of monetary and fiscal policy that has been responding to the pandemic and we certainly got at least our share of that. Although I will tell you that our peer banks look much alike this, although I think we may be on the high end of the growth compared to our peers. Karen referred to our net gain on sale. This graph is also pretty dramatic in showing you the volume that we did compared to 2019. Last year was just an amazing year and originating and selling over $250, 000, 000 in residential loans and the corresponding gain on sale that you can see. And finally, in this series, this is a graphical representation of our net income. And the steepness from 2018 through 2020 would have been mitigated substantially had we not written down $3, 400, 000 in 2018 when we froze our pension plan. We like to compare ourselves to our peers, sometimes for better or worse. In this case, looking at return on assets, there is a small change in accounting that happened in 2019 20 20 in that banks are now reporting gain on unrealized gain on securities as part of their net income and that has changed some of our peer behavior. And then looking again also at return on equity. And we take some pride in being among the top in that category. Let's go right to the timeline. Okay. So 2020 was a good year with financial results. There's no denying that. It was not an easy year to get through despite those fine financial results that we had. We had a lot of decisions that we had to make in 2020, just like everybody else in the rest of the country. And that started with essentially declaring essentially a pandemic emergency and responding likewise. And it started in March and essentially we started with closing our branch network in on March 18 as a result of the pandemic. And we at that time had to go through a process of determining who we would send home to work from remote, who we would send to different branches to have a smaller concentration in our operations center and do all of that while we are serving our customers. Sorry, folks. I was having a hard a senior moment, having a hard time reading my slide and I just turned the lights up in our room. So my apologies. So from closing our branches in March, we actually went through and reopened them in May 27, went through, formed an internal reopening task force, went and went to the Board and got a remote office work arrangement policy passed and eventually reclosed our branches in November and then reopened them actually in March of this year on 29th. So we also wanted to talk a little bit about the PPP loan that we did. The SBA PPP loans were a vital component of the federal stimulus package that helped many of our borrowers. And as of December 31, 2020, we had originated 7 18 loans for a total of almost $70, 000, 000 And by the end of the year, we had had 40 loans forgiven for a total of $3, 600, 000 1 of the really important things that we are able to do assisted by guidance from the federal regulators was to work with our commercial borrowers and granting forbearances and loan modifications to our industries and borrowers that were most affected by the pandemic. And during 2020, we issued 278 commercial loan modifications with balances of 164, 000, 000 dollars which is a pretty significant chunk of our commercial portfolio. And back when we were doing that, we naturally had some significant concern. As of March 31, 2021, we're really happy to report that we're down to 18 loans still in forbearance for a total of $26, 000, 000 And here's 1 of those forward looking statements. We expect that all of those will come out of forbearance between June July of this year. That's what we're expecting and that's what we're hoping for. On the residential side, we were granted some of the same authorities and powers by the federal regulators and we were working with our residential customers and granted 368, forbearances, representing about 7.4% of our outstanding portfolio. And as of April 19, 2021, we're down to having 2 69% and of that 73% have asked to exit their forbearance. We dealt with a lot of unexpected things through the pandemic. The liquidity event was 1 of the significant ones. But the other 1, as Karen mentioned, was the real uptick in or really I would call it a surge in residential activity. And we've recently seen some statistics come out of various press agencies that have indicated that the anecdotal volume that we felt we were having, especially with people coming in from out of state, was actually factual. And there was a dramatic increase, really a generational increase in people buying homes that live outside of New Hampshire and Vermont. And this slide shows you some of those numbers. And the next slide gives you a graphic representation of that through a series starting in January 2017. And you can see the dramatic spike of purchase money activity in Vermont from out of state buyers. And we certainly felt it and it was beneficial to us because we were able to issue loans to those folks. Deposit growth, nothing short of amazing 34% year over year. We think that will slow down in 2021. But thus far, based on our March numbers, we're still seeing some growth. Amongst everything else we had going on in 2020, we had not 1 but 2 FDIC exams. The first 1 we had in March well, it was January, February March, ended up being the 1st entirely virtual compliance exam that the Eastern region of FDIC had done. And we did this exam entirely remotely. And 1 of the things that we were very proud about is that at the end of that compliance exam, we received an outstanding rating for the our compliance with the Community Reinvestment Act. And other accolades, we have always been a very active Vermont Housing Finance Agency lender. These are programs that are targeted at first time homebuyers. And in 2020, we were FHA's 1 of their top lenders. And our loan originator, Sue Ryan, was their top originator, which we're very proud about. Finally, in very early part of 2021, we had an opportunity that we seized on. And we acquired a facility in Shelburne, Vermont, 5068 Shelburne Road. This is a former bank branch, and we will be opening a branch facility in that as soon as we're able to do some renovations on the facility, hopefully, sometime in Q3. We are very excited about this become available become available for sale and we seize the opportunity. In conclusion, I wanted to take an opportunity to thank our employees, our staff, our officers for their diligence and hard work during 2020. As I said before, 2020 was not an easy year. And the activity hasn't really slackened during 2021. And we're very, very fortunate as shareholders to have a very dedicated staff working with us day in and day out. So my thank you to them. And those are that's the conclusion of my remarks. Thank you, David. We'll have the Q and A open for just a couple of more minutes. So if you have any questions for David, feel free to go ahead and enter those at this time. Now that everybody has had the opportunity to vote, I am going to declare polls for the 2021 Union Bankshares Inc. Annual Shareholder Meeting closed at 3:40 p. M. Eastern Time on May 19, 2021. Christie and Carrie, do we have preliminary voting results? We do. Okay. We've been informed by the ballot tellers that the preliminary vote report shows that the nominees for election to the Board have been duly elected. The motion was approved by a vote of 2, 610, 838 shares in favor out of a total of 2, 726, 890 shares 96 shares voted on Article 1, representing 95.7 percent of the shares voted. And the accounting firm of Berrytown McNeil and Parker has been ratified as external auditors for 2021. The motion was approved by a vote of 3, 600 and 45, 890 in favor of a total of 3, 672, 618 shares voted on Article 2, representing 99.3% of the shares voted. David, do we have any questions that have been answered in the queue? Neil, we have no questions. Okay. Well, either means we're doing a great job or people have fallen asleep, hopefully the former. So thank you for that. We're then going to close out the Q and A. And before we wrap up the meeting, I just wanted to mention that the Board would very much like to convene a shareholders information session and reception perhaps this fall, government orders and common sense allowing, but I think we're feeling increasingly optimistic that we may be able to make that happen. So if it does, we will certainly share details with all of you and hope that you can join us in person, perhaps even before next year's annual meeting. So with that said, I'd like to thank you all for attending today. So we have a question. Okay. So the question is essentially please discuss your views on what has been driving UNV's price to book multiple, which have which seems to have returned to a range of around 2 times book? Great question. Although that's also a phrase used to stall for an answer oftentimes. And I think I maybe have used it for that, but I will give you my thoughts. So There seems to be a correlation between our performance and our price to book over very long periods of time. But on short periods of time, I think that we have seen valuations that in some cases have been very rich. There was a period of time when I believe that our stock price was influenced by our inclusion in the Russell 2000 and we fell out of that. And now I think that what's happening is that the market may be looking well, first of all, our as many of the financials did, when the pandemic was first happening, naturally the market, I believe, looked at financials as having some significant risks because of the unknown. And the unknown is not a friend to banks, community banks and otherwise. And I think that as the country has been lifting from the pandemic, there are people that have seen the opportunity in the relative valuation of our company and the performance and is moving more to where we've traded historically. And so I think that getting back to a higher price to book is a recognition of our long term performance. But I will also say that the market is fickle. And we don't what we try to do is we try to run the bank the best we can for long term performance and profitability and look less at the day to day movements of our stock. Okay. Thank you, David, for addressing that. Good question. So if there is no further business to come before this meeting, the 2021 Annual Meeting of Shareholders of Union Bankshares has now adjourned. Thank you and have a good day.