Union Bankshares Inc.
03/20/2026 | Press release | Distributed by Public on 03/20/2026 10:58
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
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 consolidated financial position of Union Bankshares, Inc. ("the Company," "our," "we," "us") and its subsidiary, Union Bank ("Union"), as of December 31, 2025 and 2024, and its consolidated results of operations for the years then ended. The Company is considered a "smaller reporting company" under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its audited statements of income, comprehensive income, cash flows, and changes in stockholders' equity for a two year, rather than a three year, period and intends to provide smaller reporting company scaled disclosures where management deems appropriate.
This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and related notes and with other financial data contained in Item 8, Part II of this Annual Report. The purpose of this presentation is to enhance overall financial disclosures and to provide information about historical financial performance and developing trends as a means to assess to what extent past performance can be used to evaluate the prospects for future performance. Management is not aware of the occurrence of any events after December 31, 2025 which would materially affect the information presented.
CERTAIN DEFINITIONS
Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 55 of this Annual Report.
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 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. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Nevertheless, because the nature of the judgments and assumptions made by management is inherently subject to a degree of uncertainty, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, capital, or the results of operations of the Company.
Allowance for credit losses on loans and on off-balance sheet credit exposures
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is more commonly referred to as Current Expected Credit Losses (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 over the expected life of the asset. CECL also applies to certain off-balance sheet credit exposures, such as loan commitments, standby letters of credit, financial guarantees and other similar investments. The Company believes the allowance for credit losses (ACL) on loans and off-balance sheet credit exposures is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. CECL may create volatility in the level of the ACL from quarter to quarter as the ACL is dependent upon macroeconomic forecasts and conditions, loan portfolio volumes and credit quality, among other things.
Allowance for credit losses on AFS debt securities
CECL also impacts the accounting for AFS debt securities. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The Company believes the ACL on AFS debt securities is a critical accounting policy due to the level of judgment involved to determine if credit-related impairment exists. If the impairment analysis indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount by which the amortized cost basis of the security exceeds its fair value.
Mortgage servicing rights
MSRs associated with loans originated and sold, where servicing is retained, are required to be capitalized and initially recorded at fair value on the acquisition date and are subsequently accounted for using the "amortization method". Mortgage servicing rights are amortized against non-interest income in proportion to, and over the period of, estimated future net servicing income of the underlying financial assets. The value of capitalized servicing rights represents the estimated present value of the future servicing fees arising from the right to service loans for third parties. The carrying value of the mortgage servicing rights is periodically reviewed for impairment based on a determination of estimated fair value compared to amortized cost, and impairment, if any, is recognized through a valuation allowance and is recorded as a reduction of non-interest income. Subsequent improvement (if any) in the estimated fair value of impaired mortgage servicing rights is reflected in a positive valuation adjustment and is recognized in non-interest income up to (but not in excess of) the amount of the prior impairment. Critical accounting policies for mortgage servicing rights relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of mortgage servicing rights requires the development and use of a number of estimates, including anticipated principal amortization and prepayments. Factors that may significantly affect the estimates used are changes in interest rates and the payment performance of the underlying loans. The Company analyzes and accounts for the value of its servicing rights with the assistance of a third party consultant.
Intangible assets
The Company's intangible assets include goodwill, which represents the excess of the purchase price over the fair value of net assets acquired in the 2011 Branch Acquisition. In accordance with current authoritative guidance, the Company assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Company is less than its carrying amount, which could result in goodwill impairment.
Other
The Company also has other key accounting policies, which involve the use of estimates, judgments and assumptions, that are significant to understanding the Company's financial condition and results of operations, including investment securities. The most significant accounting policies followed by the Company are presented in Note 1 of the consolidated financial statements and in the section below under the caption "FINANCIAL CONDITION" and the subcaptions "Asset Quality", "Allowance for Credit Losses" and "Investment Activities." Although management believes that its estimates, assumptions and judgments are reasonable, they are based upon information available when such estimates, assumptions and judgments are made and can be impacted by future events and events outside the control of the Company. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
OVERVIEW
Despite a persistently challenging operating environment in 2025, characterized by elevated interest rates for much of the year, funding cost pressures, and ongoing economic and geopolitical uncertainty, the Company delivered solid financial performance and continued to strengthen its balance sheet. While the Federal Reserve implemented a series of interest rate reductions during the second half of the year, rates remained relatively high overall, requiring continued discipline in balance sheet management and pricing strategies. Through prudent execution and a sustained focus on core relationship banking, the Company achieved meaningful growth in net income, expanded net interest margin, and improved key profitability and capital metrics year over year. These results underscore the resilience of the Company's business model and its ability to adapt effectively to evolving monetary policy and market conditions while maintaining strong capital and liquidity positions.
Net interest income, the largest component of net income, saw an increase due to higher interest earned on average earning assets and an increase in average loan volume. Interest expense increased, primarily driven by increased utilization of wholesale funding and an overall increase in rates on customer deposits. The net interest spread and net interest margin both improved, reflecting the overall positive impact of these changes, despite higher funding costs.
The net interest margin was 2.93% for the year ended December 31, 2025 compared to 2.77% for the year ended December 31, 2024, while the net interest spread for the same periods were 2.47% and 2.30%, respectively. We continue to manage the net interest margin and spread by remaining disciplined on loan and deposit pricing, utilizing FHLB advances and brokered 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 was $11.1 million, with basic earnings per share of $2.43 for 2025 compared to consolidated net income of $8.8 million, and basic earnings per share of $1.94 for 2024, while diluted earnings per share for the same periods were $2.41 and $1.92, respectively. The increase in net income was due to the combined effects of the $1.3 million pre-tax realized loss on the sale of AFS debt securities during 2024 that did not recur in 2025, increases in net interest income of $4.7 million and noninterest income of $446 thousand, and a decrease of $156 thousand in credit loss expense, partially offset by increases in noninterest expenses of $3.7 million and the provision for income taxes of $559 thousand.
Sales of qualifying residential loans to the secondary market for the year ended December 31, 2025 were $143.5 million, resulting in gain on sales of $2.1 million, compared to sales of $113.5 million and gain on sales of $1.7 million for the year ended December 31, 2024.
As of December 31, 2025, the Company had total consolidated assets of $1.62 billion, an increase of 5.8% compared to total consolidated assets of $1.53 billion at December 31, 2024. Total investments increased $76.0 million, or 30.1%, to $328.3 million, or 20.3% of total assets at December 31, 2025 compared to $252.3 million, or 16.5% of total assets, as of December 31, 2024. Net loans and loans held for sale increased $17.1 million or 1.5%, to $1.17 billion, or 72.5% of total assets, at December 31, 2025, compared to $1.16 billion, or 75.6% of total assets, at December 31, 2024. The level of federal funds sold decreased $3.0 million, or 28.4%, to $7.6 million at December 31, 2025 compared to $10.7 million at December 31, 2024.
Total deposits were $1.21 billion at December 31, 2025 compared to $1.17 billion at December 31, 2024, an increase of $46.1 million, or 3.9%. There were $10.0 million of retail brokered deposits and $248 thousand of purchased CDARS deposits at December 31, 2025 and no retail brokered deposits or purchased CDARS deposits at December 31, 2024. Borrowed funds were $286.5 million at December 31, 2025 compared to $259.7 million at December 31, 2024.
The Company's total capital increased from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025. This increase primarily reflects net income of $11.1 million for 2025 and a decrease of $8.1 million in accumulated other comprehensive loss, partially offset by regular cash dividends paid of $6.6 million. (See Capital Resourceson pages 46 to 47.) These changes also resulted in an increase in the Company's book value per share to $17.53 at December 31, 2025 from $14.65 as of December 31, 2024.
The current macroeconomic and geopolitical environment is subject to a number of uncertainties, including geopolitical conflicts, tariffs or changes in trade policies, the impact of federal government shutdowns, capital markets volatility, and inflation. These and other factors may contribute to slower or negative economic growth and a challenging business environment for our customers. While we remain confident in the resilience and strength of our business and financial model, the current macroeconomic and geopolitical environment could negatively impact our financial condition and results of operations. For more information about risks the Company faces, please see "Part I, Item 1A. Risk Factors".
The following per share information and key ratios presented in the table below depict several measurements of performance or financial condition at or for the years ended December 31, 2025 and 2024:
| 2025 | 2024 | |||||||
| Return on average assets | 0.71 | % | 0.60 | % | ||||
| Return on average equity | 15.29 | % | 13.38 | % | ||||
| Net interest margin (1) | 2.93 | % | 2.77 | % | ||||
| Efficiency ratio (2) | 75.14 | % | 77.62 | % | ||||
| Net interest spread (3) | 2.47 | % | 2.30 | % | ||||
| Loan to deposit ratio | 97.03 | % | 99.32 | % | ||||
|
Net charge-offs (recoveries) to total average loans
|
- | % | - | % | ||||
| ACL on loans to loans not held for sale | 0.72 | % | 0.66 | % | ||||
| Nonperforming assets to total assets (4) | 0.85 | % | 0.12 | % | ||||
| Equity to assets | 5.00 | % | 4.35 | % | ||||
|
Total capital to risk weighted assets (5)
|
12.80 | % | 12.53 | % | ||||
| Book value per share | $ | 17.53 | $ | 14.65 | ||||
| Basic earnings per share | $ | 2.43 | $ | 1.94 | ||||
| Diluted earnings per share | $ | 2.41 | $ | 1.92 | ||||
| Dividends paid per share | $ | 1.44 | $ | 1.44 | ||||
|
Dividend payout ratio (6)
|
59.26 | % | 74.23 | % | ||||
__________________
(1)The ratio of tax equivalent net interest income to average earning assets. See page 33 for more information.
(2)The ratio of noninterest expenses to tax equivalent net interest income and noninterest income, excluding securities gains (losses).
(3)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 33 for more information.
(4)Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.
(5)The ratio of total capital to risk weighted assets is a regulatory capital measurement. See Note 23 to the Company's consolidated financial statements for more information.
(6)Cash dividends declared and paid per share divided by consolidated net income per share.
RESULTS OF OPERATIONS
For the year ended December 31, 2025, net income was $11.1 million compared to $8.8 million for the year ended December 31, 2024. The primary components of these results, which include net interest income, credit loss expense, noninterest income, noninterest expenses, and provision for income taxes, are discussed below:
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 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, the volume and mix of interest earning assets and interest bearing liabilities, and the level of nonperforming assets. The net interest margin is calculated as net interest income on a fully tax equivalent basis as a percentage of average interest earning assets.
Interest earned, on a fully tax equivalent basis, on average earning assets for the year ended December 31, 2025 was $76.8 million compared to $68.9 million for the year ended December 31, 2024, an increase of $7.9 million, or 11.5%. The average earning asset base increased $87.3 million between periods and the average yield on average earning assets increased 24 bps to 5.09% for the year ended December 31, 2025 compared to 4.85% for the year ended December 31, 2024.
The average yield on federal funds sold and overnight deposits decreased 103 bps between the twelve month comparison periods due to a decrease in the average balance maintained in Union's master account at the FRB and the average rate paid on these balances.
Interest income, on a fully tax equivalent basis, on investment securities increased $985 thousand between the comparison periods due to an increase of $2.0 million in the average balance of the portfolio and an increase of 32 bps in the average yield. The improvement in the average yield and interest income was attributable in part to the balance sheet repositioning completed in the third quarter of 2024, in which the Company sold lower-yielding AFS debt securities at a loss and used the proceeds to purchase higher yielding AFS debt securities and fund loans, as well as the strategic decision to position the investment portfolio for improved future cash flows and earnings with the purchase of approximately $75.0 million of investment securities AFS during the fourth quarter of 2025.
Interest income, on a fully tax equivalent basis, on loans increased $7.2 million between the twelve month comparison periods due to an increase in the average volume of loans outstanding of $90.4 million and an increase of 19 bps in the average yield. Interest income on loans increased $563 thousand and $445 thousand during the year ended December 31, 2025 and 2024, respectively, due to recoveries of interest from the payoff of loans that had previously been in nonaccrual. This resulted in a 5 bps increase in the average loan yield for the years ended December 31, 2025 and 2024.
Average interest bearing liabilities increased $89.8 million between the twelve month comparison periods due to increases in average borrowed funds of $65.5 million and average interest bearing deposits of $24.2 million. The average rate paid on interest bearing liabilities increased 7 bps to 2.62% for the year ended December 31, 2025 compared to 2.55% for the year ended December 31, 2024 due to continued customer expectation of higher rates on deposit accounts along with utilization of wholesale funding at rates higher than deposit rates. Interest expense increased $3.2 million, to $32.8 million for the year ended December 31, 2025 compared to $29.6 million for the year ended December 31, 2024.
The net interest spread increased 17 bps to 2.47% for the year ended December 31, 2025, from 2.30% for the same period last year, reflecting the net effect of the 24 bps increase in the average yield earned on interest earning assets, partially offset by the 7 bps increase in the average rate paid on interest bearing liabilities between periods. The net interest margin increased 16 bps for the year ended December 31, 2025 compared to the year ended December 31, 2024 as a result of the changes discussed above.
Net interest income, on a fully tax equivalent basis, increased $4.8 million to $44.0 million for the year ended December 31, 2025 compared to $39.3 million for the year ended December 31, 2024.
The following table shows for the periods indicated the total amount of tax equivalent interest income 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:
| Years Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||
|
Average Balance (1) |
Interest Earned/ Paid |
Average Yield/ Rate |
Average Balance (1) |
Interest Earned/ Paid |
Average Yield/ Rate |
|||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Average Assets: | ||||||||||||||||||||
| Federal funds sold and overnight deposits | $ | 23,095 | $ | 740 | 3.16 | % | $ | 26,576 | $ | 1,132 | 4.19 | % | ||||||||
| Interest bearing deposits in banks | 8,108 | 342 | 4.22 | % | 13,242 | 480 | 3.63 | % | ||||||||||||
| Investment securities (2), (3) | 296,683 | 7,674 | 2.59 | % | 294,669 | 6,689 | 2.27 | % | ||||||||||||
| Loans, net (2), (4) | 1,167,901 | 67,215 | 5.76 | % | 1,077,543 | 60,018 | 5.57 | % | ||||||||||||
| Nonmarketable equity securities | 11,733 | 831 | 7.09 | % | 8,207 | 541 | 6.58 | % | ||||||||||||
| Total interest earning assets (2) | 1,507,520 | 76,802 | 5.09 | % | 1,420,237 | 68,860 | 4.85 | % | ||||||||||||
| Cash and due from banks | 4,769 | 4,560 | ||||||||||||||||||
| Premises and equipment | 20,115 | 20,657 | ||||||||||||||||||
| Other assets | 26,084 | 19,972 | ||||||||||||||||||
| Total assets | $ | 1,558,488 | $ | 1,465,426 | ||||||||||||||||
| Average Liabilities and Stockholders' Equity: | ||||||||||||||||||||
| Interest bearing checking accounts | $ | 305,321 | $ | 4,259 | 1.39 | % | $ | 295,088 | $ | 3,605 | 1.22 | % | ||||||||
| Savings/money market accounts | 371,935 | 5,821 | 1.57 | % | 367,620 | 5,418 | 1.47 | % | ||||||||||||
| Time deposits | 288,878 | 11,332 | 3.92 | % | 279,180 | 11,551 | 4.14 | % | ||||||||||||
| Borrowed funds and other liabilities | 264,263 | 10,786 | 4.03 | % | 198,745 | 8,446 | 4.18 | % | ||||||||||||
| Subordinated notes | 16,289 | 570 | 3.50 | % | 16,255 | 570 | 3.51 | % | ||||||||||||
| Total interest bearing liabilities | 1,246,686 | 32,768 | 2.62 | % | 1,156,888 | 29,590 | 2.55 | % | ||||||||||||
| Noninterest bearing deposits | 220,993 | 226,388 | ||||||||||||||||||
| Other liabilities | 18,352 | 16,688 | ||||||||||||||||||
| Total liabilities | 1,486,031 | 1,399,964 | ||||||||||||||||||
| Stockholders' equity | 72,457 | 65,462 | ||||||||||||||||||
| Total liabilities and stockholders' equity | $ | 1,558,488 | $ | 1,465,426 | ||||||||||||||||
| Net interest income | $ | 44,034 | $ | 39,270 | ||||||||||||||||
|
Net interest spread (2) (5)
|
2.47 | % | 2.30 | % | ||||||||||||||||
|
Net interest margin (2) (6)
|
2.93 | % | 2.77 | % | ||||||||||||||||
____________________
(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.
(5)Net interest spread is the tax equivalent average yield on average interest earning assets less the average rate paid on interest bearing liabilities.
(6)Net interest margin is the ratio of net interest income, on a tax equivalent basis, to average interest earning assets.
Tax exempt interest income amounted to $6.7 million and $5.8 million for the years ended December 31, 2025 and 2024, 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 years ended December 31, 2025 and 2024:
| Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Net interest income as presented | $ | 43,020 | $ | 38,364 | ||||
| Effect of tax-exempt interest | ||||||||
| Investment securities | 139 | 201 | ||||||
| Loans | 875 | 705 | ||||||
| Net interest income, tax equivalent | $ | 44,034 | $ | 39,270 | ||||
Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates (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.
|
Year Ended December 31, 2025 Compared to Year Ended December 31, 2024 Increase/(Decrease) Due to Change In |
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Increase/(Decrease) Due to Change In |
|||||||||||||||||||
| Volume | Rate | Net | Volume | Rate | Net | |||||||||||||||
| Interest earning assets: | (Dollars in thousands) | |||||||||||||||||||
| Federal funds sold and overnight deposits | $ | (136) | $ | (256) | $ | (392) | $ | 339 | $ | 163 | $ | 502 | ||||||||
| Interest bearing deposits in banks | (208) | 70 | (138) | (65) | 144 | 79 | ||||||||||||||
| Investment securities | 40 | 945 | 985 | (303) | 258 | (45) | ||||||||||||||
| Loans, net | 5,154 | 2,043 | 7,197 | 4,255 | 5,775 | 10,030 | ||||||||||||||
| Nonmarketable equity securities | 246 | 44 | 290 | 291 | (13) | 278 | ||||||||||||||
| Total interest earning assets | $ | 5,096 | $ | 2,846 | $ | 7,942 | $ | 4,517 | $ | 6,327 | $ | 10,844 | ||||||||
| Interest bearing liabilities: | ||||||||||||||||||||
| Interest bearing checking accounts | $ | 129 | $ | 525 | $ | 654 | $ | (267) | $ | 602 | $ | 335 | ||||||||
| Savings/money market accounts | 64 | 339 | 403 | (320) | 1,767 | 1,447 | ||||||||||||||
| Time deposits | 393 | (612) | (219) | 895 | 2,004 | 2,899 | ||||||||||||||
| Borrowed funds | 2,651 | (311) | 2,340 | 5,282 | 360 | 5,642 | ||||||||||||||
| Total interest bearing liabilities | $ | 3,237 | $ | (59) | $ | 3,178 | $ | 5,590 | $ | 4,733 | $ | 10,323 | ||||||||
| Net change in net interest income | $ | 1,859 | $ | 2,905 | $ | 4,764 | $ | (1,073) | $ | 1,594 | $ | 521 | ||||||||
Credit Loss Expense.Credit loss expense or benefit is made up of credit loss expense on loans and credit loss expense on off-balance sheet credit exposures. Credit loss expense on loans results from net charge-offs, changes to the projected loss drivers, prepayment speeds, curtailments and time to recovery that the Company forecasted over the reasonable and supportable forecast periods and changes in the volume and mix of the loan portfolio. Credit loss expense on off-balance sheet credit exposures results from changes in outstanding commitments and changes in funding rates and assumed loss rates period over period. For further details, see FINANCIAL CONDITION - Allowance for Credit Losses on Loansand Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements below.
Credit loss expense was made up of the following components for the following periods:
| For the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Credit loss expense for loans | $ | 755 | $ | 1,092 | ||||
| Credit loss expense (benefit) for off-balance sheet credit exposures | 19 | (162) | ||||||
| Credit loss expense, net | $ | 774 | $ | 930 | ||||
Noninterest Income.The following table sets forth the components of noninterest income for the years ended December 31, 2025 and 2024 :
| For the Years Ended December 31, | ||||||||||||||
| 2025 | 2024 | $ Variance | % Variance | |||||||||||
| (Dollars in thousands) | ||||||||||||||
| Wealth management income | $ | 1,187 | $ | 1,067 | $ | 120 | 11.2 | |||||||
| Service fees | 6,939 | 7,040 | (101) | (1.4) | ||||||||||
| Net gains on sales of loans held for sale | 2,148 | 1,697 | 451 | 26.6 | ||||||||||
| Income from Company-owned life insurance | 696 | 716 | (20) | (2.8) | ||||||||||
| Income from MSRs, net | 128 | - | 128 | 100.0 | ||||||||||
| Other income | 161 | 280 | (119) | (42.5) | ||||||||||
| Net gains on other investments | 203 | 216 | (13) | (6.0) | ||||||||||
| Net losses on sales of investment securities AFS | - | (1,293) | 1,293 | (100.0) | ||||||||||
| Total noninterest income | $ | 11,462 | $ | 9,723 | $ | 1,739 | 17.9 | |||||||
The significant changes in noninterest income for the year ended December 31, 2025 compared to the year ended December 31, 2024 are described below:
•Wealth management income.Wealth management income increased as managed fiduciary accounts grew between December 31, 2024 and 2025, as did the value of assets within those accounts.
•Service fees.Service fee income decreased $101 thousand for the year ended December 31, 2025 compared to the same period in 2024, primarily due to decreases in ATM and debit card network fees, merchant program fees, overdraft fees, and other loan related fees, partially offset by an increase in loan servicing fees.
•Net gains on sales of loans held for sale.Residential loans totaling $143.5 million were sold to the secondary market during 2025, compared to residential loan sales of $113.5 million during 2024. The increase of $451 thousand in net gains on sales of loans reflects the higher sales volume and higher premiums obtained on sales in 2025.
•Income from Company-owned life insurance.Death benefit proceeds of $197 thousand were received in 2025 compared to death benefit proceeds of $235 thousand received in 2024.
•Income of MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans on which 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 loans. The increase in the volume of residential loan sales discussed above resulted in new capitalized MSRs that exceeded the amortization of MSRs by $128 thousand for the year ended December 31, 2025. The amortization of MSRs exceeded the new capitalized MSRs for the 2024 comparison period and the amortization is included in Other expenses in the consolidated statements of income.
•Other income.The Company received $25 thousand of prepayment penalties from the early payoff of loans during 2025 compared to $117 thousand of prepayment penalties received during 2024.
•Net gains on other investments.Participants in the 2020 Amended and Restated Nonqualified Excess Plan (the "2020 Deferred Compensation 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 gains of $203 thousand and $216 thousand for the years ended December 31, 2025 and 2024, respectively.
•Net losses on sales of investment securities AFS.During the third quarter of 2024, the Company completed a balance sheet repositioning related to its investment securities portfolio in which the sale of lower-yielding AFS debt securities resulted in a pre-tax realized loss on the sale of $1.3 million.
Noninterest Expenses.The following table sets forth the components of noninterest expenses for the years ended December 31, 2025 and 2024:
| For the Years Ended December 31, | ||||||||||||||
| 2025 | 2024 | $ Variance | % Variance | |||||||||||
| (Dollars in thousands) | ||||||||||||||
| Salaries and wages | $ | 17,452 | $ | 15,678 | $ | 1,774 | 11.3 | |||||||
| Employee benefits | 6,479 | 5,716 | 763 | 13.3 | ||||||||||
| Occupancy expense, net | 2,335 | 2,194 | 141 | 6.4 | ||||||||||
| Equipment expense | 4,381 | 3,992 | 389 | 9.7 | ||||||||||
| FDIC insurance assessment | 1,477 | 1,167 | 310 | 26.6 | ||||||||||
| Donations | 211 | 344 | (133) | (38.7) | ||||||||||
| Electronic banking expense | 640 | 504 | 136 | 27.0 | ||||||||||
| Communications | 287 | 343 | (56) | (16.3) | ||||||||||
| Wealth management expenses | 544 | 491 | 53 | 10.8 | ||||||||||
| Professional fees | 1,147 | 1,062 | 85 | 8.0 | ||||||||||
| Advertising and public relations | 860 | 704 | 156 | 22.2 | ||||||||||
| Other expenses | 5,887 | 5,832 | 55 | 0.9 | ||||||||||
| Total noninterest expense | $ | 41,700 | $ | 38,027 | $ | 3,673 | 9.7 | |||||||
The significant changes in noninterest expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024 are described below:
•Salaries and wages.Salaries and wages increased $1.8 million primarily due to annual salary adjustments and new positions for the 2025 fiscal year, a $408 thousand increase in the accrual amount for the annual incentive plan payments to select officers of Union for 2025 compared to 2024, and a change in the paid time off (PTO) policy during 2025 resulting in an increase of $392 thousand from an accrual adjustment for the carryover of unused PTO outstanding as of December 31, 2025. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by $13 thousand and $257 thousand for the years ended December 31, 2025 and 2024, respectively. The lower deferred loan origination cost for 2025 compared to 2024 is primarily attributable to loan origination levels. These increases were partially offset by a $397 thousand decrease related to a cash bonus payment to employees in December 2024 in lieu of a 401k profit sharing contribution that was included in employee benefits expense in 2025.
•Employee benefits.Employee benefit expense increased $763 thousand due to increases of $598 thousand in 401k plan contribution expense, $119 thousand in payroll tax expense and $81 thousand in premium expense for the Company's medical and dental plans. The increase in the 401k plan contribution expense resulted primarily from there being no profit sharing contribution in 2024 as discussed above compared to a $466 thousand profit sharing accrual in 2025.
•Occupancy expense, net.The increase in occupancy expense of $141 thousand is primarily due to utilities, repairs and maintenance, and depreciation expenses related to projects completed during 2025 compared to 2024. In addition, real estate tax expense increased $24 thousand between years due to rate increases in the towns with branch locations
•Equipment expense.Equipment expense increased between years primarily due to an increase in software license and maintenance costs.
•FDIC insurance assessment.The FDIC insurance assessment increased by $310 thousand due to an increase in the assessment rate as well as overall growth in net average assets.
•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 decreased between years primarily due to contributions made in 2024 related to a state tax credit program to assist a local affordable housing project and local non-profit rehabilitation projects that did not recur in 2025.
•Electronic banking expense.Electronic banking expense increased $136 thousand primarily due to software initiatives that were implemented to the online banking platform in the fourth quarter of 2024.
•Communications.The decrease in communications expense relates primarily to contract changes taking effect during 2025 related to network and ATM communication systems.
•Wealth management expenses.The $53 thousand increase was primarily attributable to the growth in managed fiduciary accounts and the associated data processing and professional services.
•Professional fees.Professional fees increased $85 thousand due to increases in engagement fees and additional consultants that were engaged to assist with employment searches and other consulting services in 2025.
•Advertising and public relations.Advertising and public relations costs increased $156 thousand primarily related to a focus on advertising campaigns and business development activities in 2025 and the increased costs of these campaigns and activities compared to 2024.
Provision for Income Taxes.The Company has provided for current and deferred federal income taxes for the current and prior period presented. The Company's net provision for income taxes was $928 thousand and $369 thousand for 2025 and 2024, respectively, reflecting higher net income, the impact of tax-exempt income, as well as the impact of limited partnership investments and related tax credits, discussed below. The Company's effective federal corporate income tax rate was 7.0% and 4.6% for 2025 and 2024, respectively.
Amortization expense related to limited partnership investments included as a component of income tax expense amounted to $1.8 million and $1.7 million for the years ended December 31, 2025 and 2024, respectively. These investments provide tax benefits, including tax credits. Low income housing tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $1.9 million and $1.8 million for the years ended December 31, 2025 and 2024, respectively. See Note 10 to the Company's consolidated financial statements.
FINANCIAL CONDITION
At December 31, 2025, the Company had total consolidated assets of $1.62 billion, including gross loans and loans held for sale (total loans) of $1.18 billion, investment securities AFS of $326.3 million, deposits of $1.21 billion, borrowed funds of $286.5 million, subordinated notes of $16.3 million and stockholders' equity of $80.9 million. The Company's total assets increased $88.8 million, or 5.8%, from $1.53 billion at December 31, 2024.
Net loans and loans held for sale increased $17.1 million, or 1.5%, to $1.17 billion, or 72.5% of total assets, at December 31, 2025, compared to $1.16 billion, or 75.6% of total assets, at December 31, 2024. (See Loan Portfoliobelow.)
Total deposits increased $46.1 million, or 3.9% to $1.21 billion at December 31, 2025, from $1.17 billion at December 31, 2024. There were increases in noninterest bearing deposits of $891 thousand, or 0.4%, interest bearing deposits of $11.1 million, or 1.6%, and in time deposits of $34.1 million, or 14.9% .
Borrowed funds consisted of FHLB advances of $286.5 million and $259.7 million at December 31, 2025 and 2024, respectively. (See Borrowingson page 44.)
Total stockholders' equity increased $14.4 million, or 21.6%, from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025. (See Capital Resourceson pages 46 to 47.)
Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased $18.0 million, or 1.5%, to $1.18 billion, representing 72.9% of assets at December 31, 2025, from $1.16 billion, representing 76.0% of assets at December 31, 2024. 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 $1.03 billion, or 87.2% of total loans, at December 31, 2025 compared to $1.01 billion, or 87.3% of total loans, at December 31, 2024. The net change in the Company's loan portfolio from December 31, 2024 (see table below) resulted primarily from an increase in the volume of revolving residential, commercial real estate and municipal loans. There was no material change in the Company's lending programs or terms during 2025.
The composition of the Company's loan portfolio, including loans held for sale, was as follows as of December 31:
| December 31, 2025 | December 31, 2024 | |||||||||||||
| Loan Class | Amount | Percent | Amount | Percent | ||||||||||
| Residential real estate | (Dollars in thousands) | |||||||||||||
| Non-revolving residential real estate | $ | 445,199 | 37.8 | $ | 445,425 | 38.4 | ||||||||
| Revolving residential real estate | 29,075 | 2.5 | 21,884 | 1.9 | ||||||||||
| Construction real estate | ||||||||||||||
| Commercial construction real estate | 51,347 | 4.4 | 54,985 | 4.7 | ||||||||||
| Residential construction real estate | 52,478 | 4.5 | 51,202 | 4.4 | ||||||||||
| Commercial real estate | ||||||||||||||
| Non-residential commercial real estate | 345,900 | 29.3 | 330,010 | 28.4 | ||||||||||
| Multi-family residential real estate | 99,269 | 8.4 | 104,328 | 9.0 | ||||||||||
| Commercial | 31,159 | 2.6 | 35,175 | 3.0 | ||||||||||
| Consumer | 2,414 | 0.1 | 2,523 | 0.3 | ||||||||||
| Municipal | 117,893 | 10.0 | 110,204 | 9.5 | ||||||||||
| Loans held for sale | 4,172 | 0.4 | 5,204 | 0.4 | ||||||||||
| Total loans | 1,178,906 | 100.0 | 1,160,940 | 100.0 | ||||||||||
| ACL on loans | (8,407) | (7,680) | ||||||||||||
| Unamortized net loan costs | 2,066 | 2,162 | ||||||||||||
| Net loans and loans held for sale | $ | 1,172,565 | $ | 1,155,422 | ||||||||||
The Company originates and sells qualified residential mortgage loans in various secondary market avenues, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At December 31, 2025, the Company serviced a $1.21 billion residential real estate mortgage portfolio, of which $4.2 million was held for sale and approximately $734.8 million was serviced for unaffiliated third parties. This compares to a residential real estate mortgage servicing portfolio of $1.16 billion at December 31, 2024, of which $5.2 million was held for sale and approximately $684.8 million was serviced for unaffiliated third parties. Loans held for sale are accounted for at the lower of cost or fair value and are reviewed by management at least quarterly based on current market pricing.
The Company sold $143.5 million of qualified residential real estate loans originated during 2025 to the secondary market compared to sales of $113.5 million during 2024. Residential mortgage loan origination activity was strong throughout 2025. Despite low housing inventory and higher interest rates, purchase activity in the Company's markets is stable, with continued 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 locations 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 mitigates 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 $1.7 million and $2.0 million guaranteed under these various programs at December 31, 2025 and 2024, respectively, on aggregate balances of $2.2 million and $2.6 million in subject loans as of such dates, respectively. The Company occasionally sells the guaranteed portion of a loan to other financial concerns and retains servicing rights, which generates fee income. There were no commercial real estate or commercial loans sold during 2025 or 2024. The Company recognizes gains and losses on the sale of the principal portion of these loans at the time of sale.
The Company serviced $38.1 million and $37.3 million of commercial and commercial real estate loans for unaffiliated third parties as of December 31, 2025 and 2024, respectively. This includes $33.6 million and $36.3 million of commercial or commercial real estate loans the Company had participated out to other financial institutions at December 31, 2025 and 2024, respectively. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.
As of December 31, 2025, total loans serviced had grown to $1.95 billion, which includes total loans on the balance sheet of $1.18 billion as well as total loans sold with servicing retained of $773.0 million, compared to total loans serviced of $1.88 billion as of December 31, 2024.
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 and $1.7 million at December 31, 2025 and 2024, respectively, with an estimated market value in excess of the carrying value at both year ends. Management periodically evaluates and measures the servicing assets for impairment.
Qualifying residential first lien mortgage loans and certain commercial real estate loans with a carrying value of $492.9 million and $394.5 million were pledged as collateral for borrowings from the FHLB under a blanket lien at December 31, 2025 and 2024, respectively.
The following table breaks down by classification the contractual maturities of the gross loans held in portfolio and for sale as of December 31, 2025:
| Within 1 Year | 2-5 Years | 6-15 Years | Over 15 Years | Total | |||||||||||||
| Fixed rate | (Dollars in thousands) | ||||||||||||||||
| Residential real estate | |||||||||||||||||
| Non-revolving residential real estate | $ | 11 | $ | 1,588 | $ | 67,682 | $ | 298,722 | $ | 368,003 | |||||||
| Revolving residential real estate | 8 | - | - | - | 8 | ||||||||||||
| Construction real estate | |||||||||||||||||
| Commercial construction real estate | - | 282 | 7,342 | - | 7,624 | ||||||||||||
| Residential construction real estate | 46,249 | 3,657 | - | - | 49,906 | ||||||||||||
| Commercial real estate | |||||||||||||||||
| Non-residential commercial real estate | 24 | 3,241 | 19,835 | - | 23,100 | ||||||||||||
| Multi-family residential real estate | - | 32 | 15,735 | - | 15,767 | ||||||||||||
| Commercial | 234 | 7,714 | 11,716 | - | 19,664 | ||||||||||||
| Consumer | 1,881 | 519 | - | - | 2,400 | ||||||||||||
| Municipal | 92,015 | 7,773 | 16,805 | - | 116,593 | ||||||||||||
| Total fixed rate | 140,422 | 24,806 | 139,115 | 298,722 | 603,065 | ||||||||||||
| Variable rate | |||||||||||||||||
| Residential real estate | |||||||||||||||||
| Non-revolving residential real estate | 1,981 | 851 | 46,481 | 32,055 | 81,368 | ||||||||||||
| Revolving residential real estate | 1 | 58 | 29,000 | 8 | 29,067 | ||||||||||||
| Construction real estate | |||||||||||||||||
| Commercial construction real estate | 5,163 | 283 | 6,556 | 31,721 | 43,723 | ||||||||||||
| Residential construction real estate | 1,464 | 613 | - | 495 | 2,572 | ||||||||||||
| Commercial real estate | |||||||||||||||||
| Non-residential commercial real estate | 20,721 | 2,666 | 215,158 | 84,255 | 322,800 | ||||||||||||
| Multi-family residential real estate | 1,721 | 2,310 | 53,012 | 26,459 | 83,502 | ||||||||||||
| Commercial | 4,839 | 1,523 | 5,133 | - | 11,495 | ||||||||||||
| Consumer | 14 | - | - | - | 14 | ||||||||||||
| Municipal | - | 1,300 | - | - | 1,300 | ||||||||||||
| Total variable rate | 35,904 | 9,604 | 355,340 | 174,993 | 575,841 | ||||||||||||
| $ | 176,326 | $ | 34,410 | $ | 494,455 | $ | 473,715 | $ | 1,178,906 | ||||||||
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. The Company's Board has set forth well-defined lending policies (which are periodically reviewed and revised as appropriate) that include conservative individual lending limits for officers, aggregate and Executive Loan Committee approval levels, Board approval for large credit relationships, a quality control program, a loan review program and other limits or standards deemed necessary and prudent. The Company's loan review program encompasses a review process for loan documentation and
underwriting for select loans as well as a monitoring process for credit extensions to assess the credit quality and degree of risk in the loan portfolio. Management performs, and shares with the Board, periodic concentration analyses based on various factors such as industries, collateral types, location, large credit sizes and officer portfolio loads. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates a portion of significant loan balances to other financial institutions to further mitigate that risk. The Company has established underwriting guidelines to be followed by its officers; material exceptions are required to be approved by a senior loan officer, the President or the Board.
The Company does not make loans that are interest only, have teaser rates or that result in negative amortization of the principal, except for construction, lines of credit and other short-term loans for either commercial or consumer purposes where the credit risk is evaluated on a borrower-by-borrower basis. The Company evaluates the borrower's ability to pay on variable-rate loans over a variety of interest rate scenarios, not only the rate at origination.
The majority of the Company's loan portfolio is secured by real estate located throughout the Company's primary market area of northern Vermont and New Hampshire. For residential loans, the Company generally does not lend more than 80% of the appraised value of the home without a government guaranty or the borrower purchasing private mortgage insurance. The Company may lend up to 80% of the collateral value on commercial real estate loans to strong borrowers. Rarely, the loan to value may go up to 100% on loans with government guarantees or other mitigating circumstances. Although the Company's loan portfolio consists of different business segments, there is a portion of the loan portfolio centered in leisure travel tourism related loans. The Company has implemented risk management strategies to mitigate exposure to this industry through utilizing government guaranty programs as well as participations with other financial institutions as discussed above. Additionally, the loan portfolio contains many loans to seasoned and well established businesses and/or well secured loans which further reduce the Company's risk. Management closely follows the local and national economies and their impact on the local businesses, especially on the tourism industry, as part of the Company's risk management program.
The region's economic environment displays continued resilience. There has been consistent demand for leisure travel and dining out which is supporting the region's tourist and restaurant industries; however, the industries also continue to face some challenges due to staffing and inflation. The Company's management is focused on the economy and the related impact on its borrowers and closely monitors industry and geographic concentrations, specifically the region's tourist and restaurant industries. The Vermont unemployment rate was reported at 2.6% for December 2025 compared to 2.4% for December 2024 and the New Hampshire unemployment rate was 3.1% for December 2025 compared to 2.6% for December 2024. These rates compare favorably with the nationwide unemployment rate of 4.4% and 4.1%, respectively, for the comparable periods.
The Company also monitors its delinquency levels for any adverse trends. Management closely monitors the Company's loan and investment portfolios, OREO and OAO; if any, for potential problems and reports to the Boards of the Company and Union at regularly scheduled meetings.
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 Company's management as of or for the years ended December 31:
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Nonaccrual loans | $ | 13,562 | $ | 1,652 | ||||
| Loans past due 90 days or more and still accruing interest | 241 | 241 | ||||||
| Total nonperforming loans and assets | $ | 13,803 | $ | 1,893 | ||||
| ACL on loans | $ | 8,407 | $ | 7,680 | ||||
| Net charge-offs (recoveries) | $ | 28 | $ | (22) | ||||
| Total loans outstanding | $ | 1,178,906 | $ | 1,160,940 | ||||
| Total average loans outstanding | $ | 1,167,901 | $ | 1,077,543 | ||||
The increase in nonaccrual loans at December 31, 2025 primarily relates to a commercial real estate loan relationship that was placed in nonaccrual during the first quarter of 2025.
The following table shows trends of certain asset quality ratios monitored by Company's management at or for the years ended December 31:
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| ACL on loans to total loans outstanding | 0.71 | % | 0.66 | % | ||||
| ACL on loans to nonperforming loans | 60.91 | % | 405.71 | % | ||||
| ACL on loans to nonaccrual loans | 61.99 | % | 464.89 | % | ||||
| Nonperforming loans to total loans | 1.17 | % | 0.16 | % | ||||
| Nonperforming assets to total assets | 0.85 | % | 0.12 | % | ||||
| Nonaccrual loans to total loans | 1.15 | % | 0.14 | % | ||||
| Delinquent loans (30 days to nonaccruing) to total loans | 1.49 | % | 0.43 | % | ||||
| Net charge-offs (recoveries) to total average loans | - | % | - | % | ||||
| Residential real estate | - | % | (0.01) | % | ||||
| Net recoveries | $ | (16) | $ | (24) | ||||
| Total average loans | $ | 473,743 | $ | 441,561 | ||||
| Commercial | 0.12 | % | - | % | ||||
| Net charge-offs (recoveries) | $ | 39 | $ | (1) | ||||
| Total average loans | $ | 33,246 | $ | 38,949 | ||||
| Consumer | 0.19 | % | 0.12 | % | ||||
| Net charge-offs | $ | 5 | $ | 3 | ||||
| Total average loans | $ | 2,676 | $ | 2,499 | ||||
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 December 31, 2025 and one residential real estate loan totaling $8 thousand in process of foreclosure at December 31, 2024. The aggregate interest on nonaccrual loans not recognized was $791 thousand and $235 thousand for the years ended December 31, 2025 and 2024, respectively.
The Company had loans rated substandard that were on a performing status totaling $531 thousand and $768 thousand at December 31, 2025 and 2024, respectively. In management's view, such loans represent a higher degree of risk of becoming nonperforming loans in the future. While still on a performing status, in accordance with the Company's credit policy, loans are internally classified when a review indicates the existence of any of the following conditions, making the likelihood of collection questionable:
•the financial condition of the borrower is unsatisfactory;
•repayment terms have not been met;
•the borrower has sustained losses that are sizable, either in absolute terms or relative to net worth;
•confidence in the borrower's ability to repay is diminished;
•loan covenants have been violated;
•collateral is inadequate; or
•other unfavorable factors are present.
On occasion, the Company acquires residential or commercial real estate properties through or in lieu of loan foreclosure. These properties are held for sale and are initially recorded as OREO at fair value less estimated selling costs at the date of the Company's acquisition of the property, with fair value based on an appraisal for more significant properties and on a broker's price opinion for less significant properties. Holding costs and declines in fair value of properties acquired are expensed as incurred. Declines in the fair value after acquisition of the property result in charges against income before tax. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at December 31, 2025 or 2024.
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 December 31, 2025 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 related to establishing the ACL on loans are described in Note 1, Significant Accounting Policies and Note 7, Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures, to the Company's consolidated
financial statements. The Company's ACL on loans was $8.4 million and $7.7 million at December 31, 2025 and 2024, respectively.
The following table reflects activity in the ACL on loans for the years ended December 31:
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Balance at beginning of period | $ | 7,680 | $ | 6,566 | ||||
| Charge-offs | (47) | (3) | ||||||
| Recoveries | 19 | 25 | ||||||
| Net (charge-offs) recoveries | (28) | 22 | ||||||
| Credit loss expense | 755 | 1,092 | ||||||
| Balance at end of period | $ | 8,407 | $ | 7,680 | ||||
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 December 31:
| 2025 | 2024 | |||||||||||||
| Amount | Percent | Amount | Percent | |||||||||||
| Residential real estate | (Dollars in thousands) | |||||||||||||
| Non-revolving residential real estate | $ | 2,913 | 34.6 | $ | 3,212 | 38.5 | ||||||||
| Revolving residential real estate | 263 | 3.1 | 280 | 1.9 | ||||||||||
| Construction real estate | ||||||||||||||
| Commercial construction real estate | 654 | 7.8 | 651 | 4.8 | ||||||||||
| Residential construction real estate | 186 | 2.2 | 102 | 4.4 | ||||||||||
| Commercial real estate | ||||||||||||||
| Non-residential commercial real estate | 3,755 | 44.7 | 2,766 | 28.6 | ||||||||||
| Multi-family residential real estate | 239 | 2.8 | 212 | 9.0 | ||||||||||
| Commercial | 292 | 3.5 | 377 | 3.0 | ||||||||||
| Consumer | 5 | 0.1 | 6 | 0.2 | ||||||||||
| Municipal | 100 | 1.2 | 74 | 9.6 | ||||||||||
| Total | $ | 8,407 | 100.0 | $ | 7,680 | 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 December 31, 2025 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 December 31, 2025. 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. The investment portfolio is used to generate interest and dividend income, manage liquidity and mitigate interest rate sensitivity. During the fourth quarter of 2025, the Company made a strategic decision to position the investment portfolio for improved future cash flows and earnings with the purchase of approximately $75.0 million of investment securities AFS.
At December 31, 2025, investment securities classified as AFS, which are carried at fair value, increased $75.8 million to $326.3 million, or 20.2% of total assets, compared to $250.5 million, or 16.4% of total assets, at December 31, 2024. The increase between periods is primarily due to purchases of $97.0 million in AFS debt securities, and improvement in unrealized losses of $10.4 million, partially offset by returns of principal of $31.2 million.
Net unrealized losses in the Company's AFS investment securities portfolio were $33.1 million at December 31, 2025 compared to net unrealized losses of $43.6 million at December 31, 2024. The Company's accumulated OCI component of stockholders' equity at December 31, 2025 and 2024 reflected cumulative net unrealized losses on investment securities of $25.9 million and $34.0 million, respectively. There were no investment securities classified as HTM or as trading at December 31, 2025 or 2024.
Investment securities classified as AFS are marked-to-market, with any unrealized gain or loss after estimated taxes charged to the equity portion of the balance sheet through the accumulated OCI component of stockholders' equity. The unrealized losses are primarily attributable to changes 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 December 31, 2025 and 2024. 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 fair value of $87.8 million and $96.0 million were pledged as collateral for FHLB borrowings and other credit subject to collateralization, for public unit deposits or for other purposes as required or permitted by law at December 31, 2025 and 2024, respectively. Investment securities AFS pledged as collateral for the discount window at the FRB consisted of mortgage-backed securities with a fair value of $9.4 million and $9.7 million at December 31, 2025 and 2024, respectively.
Federal Home Loan Bank of Boston Stock. Union is a member of the FHLB and is required to invest in $100 par value stock of the FHLB in an amount tied to the unpaid principal balances on qualifying loans, plus an amount to satisfy an activity based requirement. The stock is nonmarketable, and is redeemable by the FHLB at par value. With the increase in FHLB advances outstanding of $26.8 million, the investment in FHLB Class B common stock has increased to $12.2 million at December 31, 2025 compared to $11.2 million at December 31, 2024. Although the FHLB was in compliance with all regulatory capital ratios as of December 31, 2025 and 2024, there is the possibility of future capital calls by the FHLB on member banks to ensure compliance with its capital plan. Union's investment in FHLB stock is classified as restricted and carried at cost in Other assets on the consolidated balance sheets. Similar to evaluating investment securities for potential credit losses, the Company periodically evaluates its investment in the FHLB. Management's most recent evaluation of the Company's holdings of FHLB common stock concluded that the investment was not impaired at December 31, 2025.
Deposits.The following table shows information concerning the Company's average deposits by account type and the weighted average nominal rates at which interest was paid on such deposits for the years ended December 31:
| 2025 | 2024 | |||||||||||||||||||
|
Average Balance |
Percent of Total Deposits |
Average Rate Paid |
Average Balance |
Percent of Total Deposits |
Average Rate Paid |
|||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Nontime deposits: | ||||||||||||||||||||
| Noninterest bearing deposits | $ | 220,993 | 18.6 | - | $ | 226,388 | 19.4 | - | ||||||||||||
| Interest bearing checking accounts | 305,321 | 25.7 | 1.39 | % | 295,088 | 25.3 | 1.22 | % | ||||||||||||
| Money market accounts | 227,936 | 19.2 | 2.53 | % | 222,871 | 19.0 | 2.40 | % | ||||||||||||
| Savings accounts | 143,999 | 12.1 | 0.04 | % | 144,749 | 12.4 | 0.05 | % | ||||||||||||
| Total nontime deposits | 898,249 | 75.6 | 1.12 | % | 889,096 | 76.1 | 1.01 | % | ||||||||||||
| Total time deposits | 288,878 | 24.4 | 3.92 | % | 279,180 | 23.9 | 4.14 | % | ||||||||||||
| Total deposits | $ | 1,187,127 | 100.0 | 1.80 | % | $ | 1,168,276 | 100.0 | 1.76 | % | ||||||||||
Total average deposits increased by $18.9 million, or 1.6%, between years, with average time deposits increasing $9.7 million, or 3.5%, and average nontime deposits increasing $9.2 million, or 1.0%. The deposit mix has remained consistent between periods. The increase in the average balance of total time deposits consisted of increases of $37.1 million in average customer time deposits as customers took advantage of higher rate paying CDs, and $13.5 million in average purchased CDARS deposits, partially offset by a $40.9 million decrease in average retail brokered deposits. The increase in the average balance of total nontime deposits reflected increases of $10.2 million in interest bearing checking accounts and $5.1 million in money market accounts, partially offset by decreases of $5.4 million in noninterest bearing deposits and $750 thousand in saving accounts.
The Company participates in CDARS, which permits the Company 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 $248 thousand in purchased CDARS deposits at December 31, 2025 and none at December 31, 2024. There were $11.3 million and $13.3 million of time deposits of $250,000 or less on the balance sheets at December 31, 2025 and 2024, respectively, which were exchanged with other CDARS participants.
The Company also participates in the ICS program, a service through which Union 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 $270.5 million and $256.5 million in exchanged ICS demand and money market deposits on the balance sheets at December 31, 2025 and 2024, respectively. There were no purchased ICS deposits at December 31, 2025 or December 31, 2024.
At December 31, 2025, there were $10.0 million of retail brokered deposits at a weighted average rate of 3.85% issued under a master certificate of deposit program with a deposit broker for a twelve month term, which provided a supplemental source of funding and liquidity. There were no retail brokered deposits at December 31, 2024.
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 December 31, 2025, the Company had estimated uninsured deposit accounts totaling $437.6 million, or 36.0% of total deposits. Uninsured deposits include $22.0 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at December 31, 2025, 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 December 31:
| 2025 | 2024 | |||||||
| (Dollars in thousands) | ||||||||
| Three months or less | $ | 29,593 | $ | 24,544 | ||||
| Over three months through six months | 17,267 | 16,004 | ||||||
| Over six months through twelve months | 21,713 | 20,257 | ||||||
| Over twelve months | 523 | 918 | ||||||
| $ | 69,096 | $ | 61,723 | |||||
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. Borrowed funds included FHLB advances of $286.5 million with a weighted average rate of 4.05% at December 31, 2025 and $259.7 million with a weighted average rate of 4.17% at December 31, 2024.
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 $42.9 million and $47.3 million were utilized as collateral for these deposits at December 31, 2025 and 2024, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $50 thousand and $44 thousand for the years ended December 31, 2025 and 2024, 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 (the "Notes") 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 $193 thousand and $227 thousand at December 31, 2025 and 2024, respectively. See Note 13 to the Company's consolidated financial statements.
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 instrument.
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, 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 December 31, 2025:
| Contract or Notional Amount | |||||||||||||||||||||||
| 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | Total | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
| Commitments to originate loans | $ | 65,558 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 65,558 | |||||||||
| Unused lines of credit | 137,083 | 26,879 | 2,984 | 20 | 1,823 | 5,242 | 174,031 | ||||||||||||||||
| Standby and commercial letters of credit | 440 | 309 | 10 | - | 28 | 786 | 1,573 | ||||||||||||||||
| Credit card arrangements | 125 | - | - | - | - | - | 125 | ||||||||||||||||
| MPF credit enhancement obligation, net | 1,233 | - | - | - | - | - | 1,233 | ||||||||||||||||
|
Commitment to purchase investment in a real estate limited partnership |
1,000 | - | - | - | - | - | 1,000 | ||||||||||||||||
| Total | $ | 205,439 | $ | 27,188 | $ | 2,994 | $ | 20 | $ | 1,851 | $ | 6,028 | $ | 243,520 | |||||||||
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. Commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. The unused lines of credit total includes $14.6 million of lines available under the overdraft privilege program and is included in the 2026 funding period. Approximately $43.6 million of the unused lines of credit relate to real estate construction loans that are expected to fund within the next twelve months. The remaining lines primarily relate to revolving lines of credit for other real estate or commercial loans. 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 may, from time-to-time, enter into commitments to purchase, participate or sell loans, securities, certificates of deposit, or other investment instruments which involve market and interest rate risk. At December 31, 2025, the Company had binding commitments to sell residential mortgage loans at fixed rates totaling $4.2 million.
The Company sells 1-4 family residential mortgage loans under the MPF loss-sharing program with FHLB, when management believes it is economically advantageous to do so. Under this program the Company shares in the credit risk of each mortgage, while receiving fee income in return. The Company is responsible for a Credit Enhancement Obligation based on the credit quality of these loans. FHLB funds a first loss account based on the Company's outstanding MPF mortgage balances. This creates a laddered approach to sharing in any losses. In the event of default, homeowner's equity and private mortgage insurance, if any, are the first sources of repayment; the FHLB first loss account funds are then utilized, followed by the member's Credit Enhancement Obligation, with the balance the responsibility of FHLB. These loans must meet specific underwriting standards of the FHLB. As of December 31, 2025, the Company had sold loans through the MPF program totaling $68.7 million with an outstanding balance of $35.5 million. The volume of loans sold to the MPF program and the corresponding Credit Enhancement Obligation are closely monitored by management. As of December 31, 2025, the notional amount of the maximum contingent contractual liability related to this program was $1.3 million, of which $19 thousand was recorded as a reserve through Accrued interest and other liabilities. Since inception of the Company's MPF participation in 2015, the Company has not experienced any losses under this program.
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 credit exposures between reporting periods. The ACL on off-balance sheet credit exposures totaled $1.1 million at December 31, 2025 and 2024 and was included in Accrued interest and other liabilities on the consolidated balance sheets. There was $19 thousand of credit loss expense and $162 thousand of credit loss benefit for off-balance sheet credit exposures recorded for the years ended December 31, 2025 and 2024, respectively.
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 cash flow needs in the most economical and expedient manner. The Company's
principal sources of funds are deposits; wholesale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities AFS and loans; earnings; and funds provided from operations. Contractual principal repayments on loans are a relatively predictable source of funds; however, 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.
At December 31, 2025, Union, as a member of FHLB, had access to unused lines of credit up to $48.3 million, over and above the $332.2 million in combined outstanding 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 as of December 31, 2025 and 2024. 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. There were $10.0 million of retail brokered deposits issued under a master certificate of deposit program with a broker, $248 thousand in purchased CDARS deposits, and no purchased ICS deposits or outstanding advances on the Union correspondent line as of December 31, 2025.
Union's investment and residential loan portfolios 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 and the FRB discount window. 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.
On May 20, 2025, the Company and Union entered into an Equity Distribution Agreement with Piper Sandler & Co., as sales agent, pursuant to which the Company may sell from time to time shares of the Company's common stock, par value $2.00, having an aggregate gross sale price of up to $40,000,000. Sales of common stock under the Equity Distribution Agreement may be made in any transactions that are deemed to be "at-the-market offerings" as defined in Rule 415(a)(4) under the Securities Act, or subject to the Company's consent, in privately negotiated transactions. The shares offered and sold in the offering have been registered by the Company under the Securities Act. During the year ended December 31, 2025, the Company issued 56,260 shares for aggregate gross sale proceeds of $1.5 million, at an average gross sale price of $26.51 per share, which yielded net proceeds to the Company of $1.2 million, after issuance costs, including sales commissions equal to 3% of gross sale proceeds. As of December 31, 2025, approximately $38.5 million remains available for issuance under the offering.
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 during the first five years after issuance, with Tier 2 capital treatment thereafter declining by 20% per year. 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 increased from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025, reflecting net income of $11.1 million for 2025, a decrease of $8.1 million in accumulated other comprehensive loss due to an increase in the fair market value of the Company's AFS securities, an increase of $1.2 million due to net proceeds from the issuance of common stock under the Company's at-the-market offering, an increase of $494 thousand in common stock and additional paid in capital from the vesting of stock based compensation, and a $74 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by cash dividends declared of $6.6 million during 2025.
The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of December 31, 2025, the Company had 5,084,635 shares issued, of which 4,613,205 were outstanding and 471,430 were held in treasury. As of December 31, 2025, there were outstanding unvested RSUs under the Company's 2024 Equity Plan with respect to 12,090 shares under RSU grants in 2025, and outstanding unvested RSUs under the Company's 2014 Equity Plan with respect to 2,658 shares under RSU grants in 2024.
In December 2024, the Company's Board reauthorized for 2025 and 2026 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 may deem 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 Company had no repurchases under this program during 2025. Since inception, as of December 31, 2025, the Company had repurchased 26,140 shares under the program, for a total cost of $682 thousand. The quarterly repurchase authorization expires on December 31, 2026, unless reauthorized.
The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and 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 December 31, 2025, 15,819 shares of stock had been issued from treasury stock since inception of the DRIP, including 2,645 shares in 2025.
The Company's total capital to risk weighted assets increased to 12.8% at December 31, 2025, from 12.5% at December 31, 2024. Tier I capital to risk weighted assets increased to 10.3% at December 31, 2025, from 10.0% at December 31, 2024, and Tier I capital to average assets increased to 6.4% at December 31, 2025 from 6.3% at December 31, 2024. At December 31, 2025 and 2024, Union was categorized as well capitalized under the Prompt Corrective Action regulatory framework and the Company exceeded applicable minimum capital adequacy requirements. There were no conditions or events between December 31, 2025 and the date of this report that management believes have changed either the Company's or Union's regulatory capital category. See Note 23 to the Company's consolidated financial statements for additional discussion of the Company's and Union's regulatory capital ratios.
Impact of Inflation and Changing Prices. The Company's consolidated financial statements have been prepared in accordance with GAAP, which allows for the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Banks have asset and liability structures that are essentially monetary in nature, and their general and administrative costs constitute relatively small percentages of total expenses. Thus, increases in the general price levels for goods and services have a relatively minor effect on the Company's total expenses but could have an impact on our loan customers' financial condition and on the savings rate and deposit balances of our deposit customers. Interest rates have a more significant impact on the Company's financial performance than the effect of general inflation.
Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. The Company is aware of and evaluates interest rate risk along with others in making business decisions. The levels of deficit spending by federal, state and local governments and control of the money supply by the FRB, including further changes to monetary or fiscal policies, may have unanticipated effects on interest rates or inflation in future periods that could have an unfavorable impact on the future operating results of the Company.
The federal funds rate, and greater industry-wide competition for deposits have had a significant impact on our cost of interest-bearing liabilities. To assist in meeting our loan-growth needs, we have placed additional reliance on wholesale funding in the form of borrowings and purchased brokered deposits. These funding sources generally have a higher cost than deposits originating within the markets we serve and are not our preferred sources of funding.
The cost of funds, which is primarily tied to rates paid on customer deposits, increased 7 bps during 2025. Management is projecting some relief in the cost of funds for 2026 as interest rates on customer deposits decline in 2026 due to the cumulative 75 bps decrease in the Federal Funds target range during 2025. Market rates are out of the Company's control but can have a significant impact on net interest income.
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