I really want you to become familiar with the still unknown Union Bankshares, Inc. (NASDAQ:UNB). The million dollar question is "why?" Well I like this name because it is a slow growing, under-appreciated regional bank that yields almost 4%. I am also pleased that the stock itself has slowly risen since my coverage began two years ago. Not only has it slowly risen over time, it rarely suffers any problematic pullbacks. Combined with the dividend, those few who actually have followed my advice on this name had absolutely solid returns. No, they are of course not dramatic returns, but solid respectable returns. This stock is so under-followed but should not be. I will ask directly. Please let me know in the comments below if you have bought in and how you've done in the name. Today, I am revisiting the name to see if I should keep that buy rating on the name.
I understand that everyone wants to be in the big names, but you should realize it's the smaller regionals that can really move. The regional banks are potential powerhouses for returns on investment. Recognizing growth potential is perhaps the best way to gauge when one of these smaller regional banks has a chance to move significantly higher. I think investors need to give these banks a chance. Small regional banks should be able to increase loan profits once rates rise, and they are on the way given that the Fed finally raised rates for the first time in a decade. So how is the bank doing? Well it just announced that its Q1 2016 net interest income was $5.9 million. This is again slow and steady improvement (a rise of 6.9%) compared to net interest income of $5.6 million a year ago. Earnings per share were solid at $0.39, or 1.8 million in net income. This was sadly down $0.03 year over year, but I stand behind the name for several reasons.
What went into this earnings report? Well, there was of course the solid increase in net interest income. There was also a reduction in the provision for loan losses of $25 thousand, or 25.0%, and a reduction in income taxes of $47 thousand, or 9.2%, compared to last year. However, there was a decrease in noninterest income of $149 thousand, or 6.4%, and an increase in noninterest expenses of $431 thousand, or 8.0%. What is the deal here? Well there was an increase of $135 thousand, or 5.8%, in salaries and wages. There was also a big $209 thousand, or 28.5%, in pension and employee benefits expenses as well as a $102 thousand, or 25.1%, jump in equipment expenses.
Although expenses jumped which hit net income, the company's real strength is in its operations. I'm talking about its slow and steady growth in loans and deposits. Total assets grew to $$640.8 million or 3% higher than in Q1 2015. This is steady growth of $18.3 million. Total loans grew to a strong $519.8 million, rising $18.1 million. Following this solid growth was a nice bump in total deposits, which grew to $559 million compared to the prior year's $546.8 million. This is a rise of $12.3 million, or 2.2%. Finally the company also grew total capital and book value. The bank had total capital of $54.7 million with a book value per share of $12.26 to end Q1 2016 versus $52.4 million and $11.75 per share to end Q1 2015.
Bottom line, the name is solid. I will point out that with low volume the name could be susceptible to large swings if volume picked up. At the end of the day the bank continues to do just what I said it would do in 2013. It will continue its slow expansion and be a stable name. It has been paying a nice dividend, which is at $0.27 quarterly, or almost 4% annually based on the current share price of $28.99. I see no reason to lift my buy rating in light of the Fed finally raising rates. Think about a position in this one.
Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.