UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

OR

(  ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2017March 31, 2023


Commission file number: 001-15985


UNION BANKSHARES, INC.
VERMONTVT03-0283552

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


Registrant’s telephone number:      802-888-6600


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


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


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]      No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” ”accelerated filer”“accelerated filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [  ]Accelerated filer [ X ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)Smaller reporting company [ ]
Emerging growth company [ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [  ]      No [X]


Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of OctoberApril 28, 2017.2023.
Common Stock, $2 par value4,507,437 shares



UNION BANKSHARES, INC.
TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
Common Stock, $2 par value4,462,522
shares



UNION BANKSHARES, INC.
TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
PART II OTHER INFORMATION







PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, 2017December 31, 2016March 31, 2023December 31, 2022
(Unaudited) (Unaudited)
Assets(Dollars in thousands)Assets(Dollars in thousands)
Cash and due from banks$3,512
$4,272
Cash and due from banks$4,340 $4,504 
Federal funds sold and overnight deposits8,885
35,003
Federal funds sold and overnight deposits17,479 33,381 
Cash and cash equivalents12,397
39,275
Cash and cash equivalents21,819 37,885 
Interest bearing deposits in banks8,356
9,504
Interest bearing deposits in banks16,428 16,428 
Investment securities available-for-sale63,970
65,556
Investment securities available-for-sale275,417 250,267 
Investment securities held-to-maturity (fair value $999 thousand
at September 30, 2017 and December 31, 2016)
1,000
999
Other investmentsOther investments1,350 1,264 
Total investmentsTotal investments276,767 251,531 
Loans held for sale5,675
7,803
Loans held for sale2,849 1,178 
Loans578,902
533,290
Loans972,409 958,157 
Allowance for loan losses(5,259)(5,247)
Allowance for credit losses on loansAllowance for credit losses on loans(6,934)(8,339)
Net deferred loan costs749
649
Net deferred loan costs1,358 1,336 
Net loans574,392
528,692
Net loans966,833 951,154 
Accrued interest receivable2,196
2,259
Premises and equipment, net13,244
13,525
Premises and equipment, net20,256 20,479 
Core deposit intangible625
754
Goodwill2,223
2,223
Investment in real estate limited partnerships3,323
2,783
Company-owned life insurance8,802
8,617
Company-owned life insurance18,625 18,518 
Other assets9,143
9,391
Other assets38,478 39,316 
Total assets$705,346
$691,381
Total assets$1,362,055 $1,336,489 
Liabilities and Stockholders’ Equity Liabilities and Stockholders’ Equity
Liabilities  Liabilities 
Deposits  Deposits 
Noninterest bearing$119,203
$112,384
Noninterest bearing$262,488 $286,145 
Interest bearing387,707
382,083
Interest bearing709,401 762,722 
Time99,714
103,193
Time254,089 153,045 
Total deposits606,624
597,660
Total deposits1,225,978 1,201,912 
Borrowed funds32,520
31,595
Borrowed funds45,106 50,000 
Subordinated notesSubordinated notes16,213 16,205 
Accrued interest and other liabilities6,595
5,847
Accrued interest and other liabilities14,166 13,152 
Total liabilities645,739
635,102
Total liabilities1,301,463 1,281,269 
Commitments and Contingencies

Commitments and Contingencies
Stockholders’ Equity Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,937,652 shares
issued at September 30, 2017 and 4,936,652 shares issued at December 31, 2016
9,876
9,874
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,982,523 shares
issued at March 31, 2023 and 4,982,523 shares issued at December 31, 2022
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,982,523 shares
issued at March 31, 2023 and 4,982,523 shares issued at December 31, 2022
9,965 9,965 
Additional paid-in capital753
620
Additional paid-in capital2,353 2,225 
Retained earnings55,731
53,086
Retained earnings86,060 84,669 
Treasury stock at cost; 475,135 shares at September 30, 2017
and 474,517 shares at December 31, 2016
(4,061)(4,022)
Treasury stock at cost; 475,573 shares at March 31, 2023
and 473,936 shares at December 31, 2022
Treasury stock at cost; 475,573 shares at March 31, 2023
and 473,936 shares at December 31, 2022
(4,272)(4,220)
Accumulated other comprehensive loss(2,692)(3,279)Accumulated other comprehensive loss(33,514)(37,419)
Total stockholders' equity59,607
56,279
Total stockholders' equity60,592 55,220 
Total liabilities and stockholders' equity$705,346
$691,381
Total liabilities and stockholders' equity$1,362,055 $1,336,489 
See accompanying notes to unaudited interim consolidated financial statements.

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

 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2017201620172016
 (Dollars in thousands, except per share data)
Interest and dividend income    
Interest and fees on loans$6,893
$6,355
$19,823
$18,604
Interest on debt securities:    
Taxable250
211
741
683
Tax exempt159
144
486
427
Dividends42
27
114
62
Interest on federal funds sold and overnight deposits15
12
64
23
Interest on interest bearing deposits in banks38
37
109
123
Total interest and dividend income7,397
6,786
21,337
19,922
Interest expense    
Interest on deposits453
363
1,271
1,200
Interest on borrowed funds134
108
369
303
Total interest expense587
471
1,640
1,503
    Net interest income6,810
6,315
19,697
18,419
Provision for loan losses150

150
150
    Net interest income after provision for loan losses6,660
6,315
19,547
18,269
Noninterest income    
Trust income179
171
548
523
Service fees1,553
1,538
4,444
4,377
Net gains on sales of investment securities available-for-sale24
53
33
71
Net gains on sales of loans held for sale657
921
1,762
2,196
Other income93
121
285
420
Total noninterest income2,506
2,804
7,072
7,587
Noninterest expenses    
Salaries and wages2,570
2,622
7,642
7,522
Pension and employee benefits954
865
2,784
2,659
Occupancy expense, net320
297
1,073
923
Equipment expense532
553
1,589
1,603
Other expenses1,565
1,687
4,665
4,828
Total noninterest expenses5,941
6,024
17,753
17,535
        Income before provision for income taxes3,225
3,095
8,866
8,321
Provision for income taxes855
827
2,339
2,155
        Net income$2,370
$2,268
$6,527
$6,166
Earnings per common share$0.53
$0.51
$1.46
$1.38
Weighted average number of common shares outstanding4,462,414
4,459,602
4,462,113
4,458,755
Dividends per common share$0.29
$0.28
$0.87
$0.83
     

See accompanying notes to unaudited interim consolidated financial statements.

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


 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2017201620172016
 (Dollars in thousands)
Net income$2,370
$2,268
$6,527
$6,166
Other comprehensive income (loss), net of tax:    
Investment securities available-for-sale:    
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale46
(182)609
714
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income(16)(35)(22)(47)
Total other comprehensive income (loss)30
(217)587
667
Total comprehensive income$2,400
$2,051
$7,114
$6,833


See accompanying notes to unaudited interim consolidated financial statements.



Union Bankshares, Inc. Page 1


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYINCOME (Unaudited)
Nine Months Ended September 30, 2017 and 2016(Unaudited)

 Common Stock     
 
Shares,
net of
treasury
Amount
Additional
paid-in
capital
Retained
earnings
Treasury
stock
Accumulated
other
comprehensive loss
Total
stockholders’
equity
 (Dollars in thousands, except per share data)
Balances December 31, 20164,462,135
$9,874
$620
$53,086
$(4,022)$(3,279)$56,279
   Net income


6,527


6,527
   Other comprehensive income




587
587
   Dividend reinvestment plan422

14

4

18
   Cash dividends declared
       ($0.87 per share)



(3,882)

(3,882)
   Stock based compensation
  expense


102



102
   Exercise of stock options1,000
2
17



19
   Purchase of treasury stock(1,040)


(43)
(43)
Balances September 30, 20174,462,517
$9,876
$753
$55,731
$(4,061)$(2,692)$59,607
        
Balances, December 31, 20154,457,177
$9,864
$501
$49,524
$(4,019)$(2,302)$53,568
   Net income


6,166


6,166
   Other comprehensive income




667
667
   Dividend reinvestment plan190

4

2

6
   Cash dividends declared
  ($0.83 per share)



(3,701)

(3,701)
   Stock based compensation
  expense


49



49
   Exercise of stock options2,500
5
51



56
   Purchase of treasury stock(213)


(6)
(6)
Balances, September 30, 20164,459,654
$9,869
$605
$51,989
$(4,023)$(1,635)$56,805

 Three Months Ended
March 31,
 20232022
Interest and dividend income(Dollars in thousands, except per share data)
Interest and fees on loans$11,205 $8,474 
Interest on debt securities:
Taxable1,174 972 
Tax exempt413 222 
Dividends41 
Interest on federal funds sold and overnight deposits104 19 
Interest on interest bearing deposits in banks107 33 
Total interest and dividend income13,044 9,726 
Interest expense
Interest on deposits2,443 621 
Interest on borrowed funds484 — 
Interest on subordinated notes142 142 
Total interest expense3,069 763 
    Net interest income9,975 8,963 
Credit loss expense, net74 — 
    Net interest income after credit loss expense9,901 8,963 
Noninterest income
Wealth management income211 209 
Service fees1,694 1,635 
Net gains on sales of investment securities available-for-sale— 26 
Net gains on sales of loans held for sale194 14 
Net gains on other investments46 82 
Other income140 264 
Total noninterest income2,285 2,230 
Noninterest expenses
Salaries and wages3,502 3,410 
Employee benefits1,377 1,305 
Occupancy expense, net578 527 
Equipment expense897 916 
Other expenses2,396 2,131 
Total noninterest expenses8,750 8,289 
        Income before provision for income taxes3,436 2,904 
Provision for income taxes459 422 
        Net income$2,977 $2,482 
Basic earnings per common share$0.66 $0.55 
Diluted earnings per common share$0.66 $0.55 
Weighted average number of common shares outstanding4,509,099 4,494,871 
Weighted average common and potential common shares for diluted EPS4,519,989 4,506,764 
Dividends per common share$0.36 $0.35 
See accompanying notes to unaudited interim consolidated financial statements.




Union Bankshares, Inc. Page 2


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

 Nine Months Ended
September 30,
 20172016
 (Dollars in thousands)
Cash Flows From Operating Activities  
Net income$6,527
$6,166
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation914
967
Provision for loan losses150
150
Deferred income tax provision226
259
Net amortization of investment securities314
261
Equity in losses of limited partnerships471
391
Stock based compensation expense102
49
Net increase in unamortized loan costs(100)(134)
Proceeds from sales of loans held for sale92,231
101,213
Origination of loans held for sale(88,341)(103,596)
Net gains on sales of loans held for sale(1,762)(2,196)
Net loss on disposals of premises and equipment13

Net gains on sales of investment securities available-for-sale(33)(71)
Decrease (increase) in accrued interest receivable63
(130)
Amortization of core deposit intangible129
129
Increase in other assets(490)(403)
Contribution to defined benefit pension plan(750)(750)
Increase in other liabilities926
1,486
Net cash provided by operating activities10,590
3,791
Cash Flows From Investing Activities  
Interest bearing deposits in banks  
Proceeds from maturities and redemptions4,384
3,995
Purchases(3,236)(996)
Investment securities held-to-maturity  
Proceeds from maturities, calls and paydowns
4,220
Investment securities available-for-sale  
Proceeds from sales3,962
6,617
Proceeds from maturities, calls and paydowns5,310
8,403
Purchases(7,078)(19,761)
Purchase of nonmarketable stock(518)(1,110)
Redemption of nonmarketable stock541
543
Net increase in loans(45,803)(22,015)
Recoveries of loans charged off53
35
Purchases of premises and equipment(646)(1,289)
Proceeds from Company-owned life insurance death benefit
73
Investments in limited partnerships(438)(975)
Net cash used in investing activities(43,469)(22,260)
   
Three Months Ended
March 31,
20232022
(Dollars in thousands)
Net income$2,977 $2,482 
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale:
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale3,905(15,853)
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income— (21)
Total other comprehensive income (loss)3,905 (15,874)
Total comprehensive income (loss)$6,882 $(13,392)


Cash Flows From Financing Activities  
Advances on long-term borrowings10,000
25,452
Repayment of long-term debt(10,208)(229)
Net increase in short-term borrowings outstanding1,133
2,726
Net increase in noninterest bearing deposits6,819
16,555
Net increase in interest bearing deposits5,624
40,173
Net decrease in time deposits(3,479)(44,950)
Issuance of common stock19
56
Purchase of treasury stock(43)(6)
Dividends paid(3,864)(3,695)
Net cash provided by financing activities6,001
36,082
Net (decrease) increase in cash and cash equivalents(26,878)17,613
Cash and cash equivalents  
Beginning of period39,275
17,961
End of period$12,397
$35,574
Supplemental Disclosures of Cash Flow Information  
Interest paid$1,648
$1,674
Income taxes paid$1,020
$975
   
Dividends paid on Common Stock:  
Dividends declared$3,882
$3,701
Dividends reinvested(18)(6)
 $3,864
$3,695
   


See accompanying notes to unaudited interim consolidated financial statements.



Union Bankshares, Inc. Page 3


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
Three Month Periods Ended March 31, 2023 and 2022
 Common Stock   Accumulated
other
comprehensive loss
 
 Shares,
net of
treasury
AmountAdditional
paid-in
capital
Retained
earnings
Treasury
stock
Total
stockholders’
equity
 (Dollars in thousands, except per share data)
Balances, December 31, 20224,508,587 $9,965 $2,225 $84,669 $(4,220)$(37,419)$55,220 
  Impact of adoption of ASU No.
      2016-13
— — — 37 — — 37 
  Net income— — — 2,977 — — 2,977 
  Other comprehensive income— — — — — 3,905 3,905 
  Dividend reinvestment plan893 — 15 — — 23 
  Cash dividends declared
      ($0.36 per share)
— — — (1,623)— — (1,623)
  Stock based compensation expense— — 113 — — — 113 
  Purchase of treasury stock(2,530)— — — (60)— (60)
Balances, March 31, 20234,506,950 $9,965 $2,353 $86,060 $(4,272)$(33,514)$60,592 
Balances, December 31, 20214,493,655 $9,934 $1,769 $78,350 $(4,160)$(1,552)$84,341 
  Net income— — — 2,482 — — 2,482 
  Other comprehensive loss— — — — — (15,874)(15,874)
  Dividend reinvestment plan416 — — — 13 
  Cash dividends declared
  ($0.35 per share)
— — — (1,573)— — (1,573)
  Stock based compensation expense1,599 100 — — — 103 
  Purchase of treasury stock(2,500)— — — (75)— (75)
Balances, March 31, 20224,493,170 $9,937 $1,878 $79,259 $(4,231)$(17,426)$69,417 
See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 4


UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months Ended
March 31,
 20232022
Cash Flows From Operating Activities(Dollars in thousands)
Net income$2,977 $2,482 
Adjustments to reconcile net income to net cash provided by operating activities: 
Depreciation408 459 
Credit loss expense74 — 
Deferred income tax provision32 11 
Net amortization of premiums on investment securities128 160 
Equity in losses of limited partnerships331 256 
Stock based compensation expense113 103 
Net increase in unamortized loan costs(22)(302)
Proceeds from sales of loans held for sale11,946 16,430 
Origination of loans held for sale(13,423)(4,936)
Net gains on sales of loans held for sale(194)(14)
Net gains on disposals of premises and equipment(1)— 
Net gains on sales of investment securities available-for-sale— (26)
Net gains on other investments(46)(82)
Increase in accrued interest receivable(15)(49)
Amortization of debt issuance costs
Increase in other assets(264)(436)
Increase in other liabilities32 704 
Net cash provided by operating activities2,084 14,768 
Cash Flows From Investing Activities 
Interest bearing deposits in banks 
Proceeds from maturities and redemptions996 1,992 
Purchases(996)(2,988)
Investment securities available-for-sale
Proceeds from sales— 6,827 
Proceeds from maturities, calls and paydowns4,062 7,304 
Purchases(24,923)(38,691)
Net purchases of other investments(40)(59)
Net decrease in nonmarketable stock135 276 
Net increase in loans(14,252)(40,558)
Recoveries of loans charged off— 
Net purchases of premises and equipment(200)(164)
Investments in limited partnerships(460)(1,355)
Proceeds from sales of premises and equipment16 — 
Net cash used in investing activities(35,662)(67,415)

Union Bankshares, Inc. Page 5


 Three Months Ended
March 31,
 20232022
Cash Flows From Financing Activities(Dollars in thousands)
Advances on long-term borrowings106 — 
Net decrease in short-term borrowings outstanding(5,000)— 
Net (decrease) increase in noninterest bearing deposits(23,657)38,189 
Net (decrease) increase in interest bearing deposits(53,321)3,385 
Net increase (decrease) in time deposits101,044 (2,412)
Purchase of treasury stock(60)(75)
Dividends paid(1,600)(1,560)
Net cash provided by financing activities17,512 37,527 
Net decrease in cash and cash equivalents(16,066)(15,120)
Cash and cash equivalents
Beginning of period37,885 65,922 
End of period$21,819 $50,802 
Supplemental Disclosures of Cash Flow Information 
Interest paid$3,028 $911 
Supplemental Schedule of Noncash Investing Activities
Investment in limited partnerships acquired by capital contributions payable$— $3,494 
Dividends paid on Common Stock:
Dividends declared$1,623 $1,573 
Dividends reinvested(23)(13)
$1,600 $1,560 

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 6


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

Note 1.Basis of Presentation
Note 1.    Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of September 30, 2017,March 31, 2023, and for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, have been prepared in conformity with GAAP for interim financial information, general practices within the banking industry, and the accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162022 (2022 Annual Report), except as amended ("2016 Annual Report on Form 10-K").disclosed in the Summary of Significant Accounting Policies below. The Company's sole subsidiary is Union Bank. In the opinion of the Company’s management, all adjustments, consisting only of normal recurring adjustments and disclosures necessary for a fair presentation of the information contained herein, have been made. This information should be read in conjunction with the Company’s 20162022 Annual Report on Form 10-K.Report. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2017,2023, or any future interim period.
The Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in stockholders’ equity for a two year, rather than three year, period. The Company has also elected to provide certain other scaled disclosures in this report, as permitted for smaller reporting companies. Certain amounts in the 20162022 consolidated financial statements have been reclassified to conform to the 2017current year presentation.
In addition to the definitions set forth elsewhere in this report, the acronyms, abbreviations and capitalized terms identified below are used throughout this Form 10-Q, including Part I. "Financial Information" and Part II. "Other Information". The following is provided to aid the reader and provide a reference page when reviewing this Form 10-Q.
AFS:ACL:Available-for-saleAllowance for credit lossesIRS:HTM:Internal Revenue ServiceHeld-to-maturity
ALCO:AFS:Asset Liability CommitteeAvailable-for-saleMBS:HUD:Mortgage-backed securityU.S. Department of Housing and Urban Development
ALL:ASC:Allowance for loan lossesAccounting Standards CodificationMSRs:ICS:Insured Cash Sweeps of the Promontory Interfinancial Network
ASU:Accounting Standards UpdateMBS:Mortgage-backed security
Board:Board of DirectorsMSRs:Mortgage servicing rights
ASC:bp or bps:Accounting Standards CodificationBasis point(s)OAO:Other assets owned
ASU:CDARS:Accounting Standards UpdateOCI:Other comprehensive income (loss)
Board:Board of DirectorsOFAC:U.S. Office of Foreign Assets Control
bp or bps:Basis point(s)OREO:Other real estate owned
Branch Acquisition:The acquisition of three New Hampshire branches in May 2011OTTI:Other-than-temporary impairment
CDARS:Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial NetworkOTT:OCI:Other-than-temporaryOther comprehensive income (loss)
Company:Union Bankshares, Inc. and SubsidiaryPlan:OREO:The Union Bank Pension PlanOther real estate owned
DRIP:CECL:Current Expected Credit LossesRD:USDA Rural Development
DCF:Discounted cash flowRSU:Restricted Stock Unit
DRIP:Dividend Reinvestment PlanRD:SBA:USDA Rural DevelopmentU.S. Small Business Administration
FASB:Financial Accounting Standards BoardRSU:SEC:Restricted Stock Unit
FDIC:Federal Deposit Insurance CorporationSBA:U.S. Small Business Administration
FHA:U.S. Federal Housing AdministrationSEC:U.S. Securities and Exchange Commission
FHLB:FDIC:Federal Home Loan Bank of BostonDeposit Insurance CorporationTDR:Troubled-debt restructuring
FRB:FHA:U.S. Federal Reserve BoardHousing AdministrationUnion:Union Bank, the sole subsidiary of Union Bankshares, Inc
FHLB:Federal Home Loan Bank of BostonUSDA:U.S. Department of Agriculture
FRB:Federal Reserve BoardVA:U.S. Veterans Administration
FHLMC/Freddie Mac:Federal Home Loan Mortgage CorporationUSDA:2014 Equity Plan:U.S. Department of Agriculture2014 Equity Incentive Plan, as amended
GAAP:Generally Accepted Accounting Principles in the United StatesVA:2022 Annual Report:U.S. Veterans Administration
HTM:Held-to-maturity2008 ISO Plan:2008 Incentive Stock Option Plan ofAnnual Report on Form 10-K for the Company
HUD:U.S. Department of Housing and Urban Development2014 Equity Plan:2014 Equity Incentive Plan
ICS:Insured Cash Sweeps of the Promontory Interfinancial Networkyear ended December 31, 2022
Summary of Significant Accounting Policies

The disclosures below supplement and update the accounting policies previously disclosed in Note 1. Significant Accounting Policies in the Company’s 2022 Annual Report. The updates reflect the adoption of the FASB ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, more commonly referred to as Current Expected Credit Losses (CECL), effective January 1, 2023.



Union Bankshares, Inc. Page 7


The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with the incurred loss methodology under previously applicable GAAP.
Allowance for Credit Losses on AFS Debt Securities: Upon adoption of CECL, effective January 1, 2023, for AFS debt securities in an unrealized loss position, management first assesses whether it intends to sell, or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through earnings. For AFS debt securities that do not meet the above criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment 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 that the fair value of the security is less than its amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes.
A change in the ACL on AFS debt securities is recorded as expense (credit) within the Credit loss expense on the consolidated statement of income. Losses are charged against the ACL when management believes the uncollectibility of an AFS debt security is confirmed based on the above described analysis. As of March 31, 2023 and CECL adoption date of January 1, 2023, there was no ACL carried on the Company's AFS debt securities. Refer to Note 5 of the consolidated financial statements for further discussion.
Allowance for Credit Losses on Loans: The ACL on loans is a significant accounting estimate used in the preparation of the Company's consolidated financial statements. The level of the ACL on loans represents management's estimate of expected credit losses over the expected life of the loans at the balance sheet date. The expected life of the loans is based on the contractual term of the loans adjusted for estimated prepayments. The contractual life is calculated based on the maturity date and excludes expected extensions, renewals, and modifications.
Upon adoption of CECL on January 1, 2023, the Company replaced the incurred loss model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL on loans when they are deemed uncollectible. The ACL on loans is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis, generally larger non-accruing commercial loans.
The Company uses the DCF method to estimate expected credit losses for all loan pools. For each of the loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on historical benchmark data.
The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts national unemployment as a loss driver.
For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over four quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period.
The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level that represents the sum of expected losses to determine the estimated ACL on loans.
The ACL on loans evaluation also considers various qualitative factors, including changes in policy and/or underwriting standards, actual or expected changes in economic trends and conditions, changes in the nature and volume of the portfolio, changes in credit and lending staff/administration, problem loan trends, credit risk concentrations, loan review results, changes in the value of underlying collateral for loans, and changes in the regulatory and business environment.

Union Bankshares, Inc. Page 8


Certain loans are individually evaluated for estimated credit losses, including those greater than $500,000 that are classified as substandard or doubtful and are on nonaccrual or that have other unique characteristics differing from the segment. Specific reserves are established when appropriate for such loans based on the present value of expected future cash flows of the loan or the estimated realizable value of the collateral, if any.
Management may also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management's assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the ACL are continually refined and enhanced.
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The ACL on off-balance sheet credit exposures is a component of Accrued interest and other liabilities on the Company's consolidated balance sheets and represents the estimate of probable credit losses inherent in unfunded commitments to extend credit as of the balance sheet date. Unfunded commitments to extend credit include unused portions of lines of credit, commitments to originate loans and standby and commercial letters of credit. The process used to determine the ACL for these exposures is consistent with the process for determining the ACL on loans, as adjusted for estimated funding probabilities or loan equivalency factors. A charge or credit to Credit loss expense on the consolidated statements of income is made to account for the change in the ACL on off-balance sheet exposures between reporting periods.
Accrued Interest: Upon adoption of CECL on January 1, 2023, the Company elected to present accrued interest receivable balances in Other assets on the consolidated balance sheets and exclude accrued interest from the ACL on loans and AFS debt securities. The Company will continue to write-off accrued interest receivable by reversing interest income when a security or loan is placed in nonaccrual, which is generally when payments on a security or loan are 90 days or more past due.


Union Bankshares, Inc. Page 9


Impact of Adoption:
The following table illustrates the adoption of ASU No. 2013-16 on January 1, 2023. As noted above, there was no ACL on AFS debt securities required to be recorded upon adoption of the ASU.
Pre-CECL AdoptionReclassification to CECL Portfolio SegmentationPre-CECL Adoption Portfolio SegmentationPost-CECL AdoptionImpact of CECL Adoption
Assets(Dollars in thousands)
Loans
Residential real estate$352,433 $(352,433)$— $— $— 
Non-revolving residential real estate— 335,470 335,470 335,470 — 
Revolving residential real estate— 16,963 16,963 16,963 — 
Construction real estate96,620 (96,620)— — — 
Commercial construction real estate— 56,501 56,501 56,501 — 
Residential construction real estate— 40,119 40,119 40,119 — 
Commercial real estate377,947 (377,947)— — 
Non-residential commercial real estate282,397282,397 282,397— 
Multi-family residential real estate95,55095,550 95,550— 
Commercial40,973 — 40,973 40,973 — 
Consumer2,204 — 2,204 2,204 — 
Municipal87,980 — 87,980 87,980 — 
Total loans$958,157 $— $958,157 $958,157 $— 
ACL on loans
Residential real estate$2,417 $(2,417)$— $— $— 
Non-revolving residential real estate— 2,294 2,294 2,024 (270)
Revolving residential real estate— 123 123 148 25 
Construction real estate1,032 (1,032)— — — 
Commercial construction real estate— 611 611 1,593 982 
Residential construction real estate— 421 421 131 (290)
Commercial real estate3,935 (3,935)— — — 
Non-residential commercial real estate2,9312,931 2,174(757)
Multi-family residential real estate1,0041,004 224(780)
Commercial301 — 301 492 191 
Consumer10 — 10 (5)
Municipal95 — 95 53 (42)
Unallocated549 — 549 — (549)
Total ACL on loans$8,339 $— $8,339 $6,844 $(1,495)
Liabilities
ACL on off-balance sheet credit exposures$— $1,458 $1,458 
Retained earnings
Decrease in ACL on loans$1,495 
Increase in ACL on off-balance sheet credit exposures(1,458)
Increase to retained earnings$37 



Union Bankshares, Inc. Page 10


Note 2. Legal Contingencies
In the normal course of business, the Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such proceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.


Note 3. Per Share Information
Earnings per common share are computedThe following table presents the reconciliation between the calculation of basic EPS and diluted EPS for the three months ended March 31, 2023 and 2022:
For the Three Months
Ended March 31,
20232022
(Dollars in thousands, except per share data)
Net income$2,977 $2,482 
Weighted average common shares outstanding for basic EPS4,509,099 4,494,871 
Dilutive effect of stock-based awards (1)10,890 11,893 
Weighted average common and potential common shares for diluted EPS4,519,989 4,506,764 
Earnings per common share:
Basic EPS$0.66 $0.55 
Diluted EPS$0.66 $0.55 
____________________
(1)Dilutive effect of stock based onawards represents the weighted average numbereffect of shares of common stock outstanding during the period and reduced for shares held in treasury. The assumed exercise of outstanding exercisable stock options and vesting of restricted stock units doesunits. Unvested awards do not result in material dilution and is not included in the calculation.have dividend or dividend equivalent rights.


Note 4. Recent Accounting Pronouncements
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation , Scope of Modification Accounting (Topic 718). The ASU was issued to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718, Compensation-Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU includes guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied on a prospective basis to an award modified on or after the adoption date. The ASU will not have a material effect on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company will adopt the guidance as of January 1, 2018 using a modified retrospective method with a cumulative-effect adjustment to opening retained earnings. While the guidance will replace most existing revenue recognition guidance in GAAP, the ASU is not applicable to financial instruments and, therefore, will not impact a majority of the Company’s revenues, including net interest income. While in scope of the new guidance, the Company does not expect a material change in the timing or measurement of revenues related to deposit fees. Mortgage servicing fees have been concluded to be out of scope of the standard and therefore will not be impacted by the issuance of this guidance. The Company continues to evaluate the effect that the guidance will have on other revenue streams within its scope, as well as changes in disclosures required by the new guidance. Based on the Company’s current interpretations of the new guidance, the overall impact to net income is expected to be immaterial.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Previous lease accounting did not require the inclusion of operating leases in the balance sheet. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. UnderThe guidance in the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expectedcredit losses. The new guidance, which is referred to as the current expected credit loss model ("CECL"),ASU requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these requirements also applies to debt securities classified as availableAFS. The ASU became effective for sale. The ASU is effective forfiscal years beginning after December 15, 2019, including interim periods within those the Company beginning with the 2023 fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within such years.year. The Company has established a CECL implementation team and developed a transition project plan. Team members have been assigned specific tasks to facilitate the implementation process and evaluation of the potential impactof the ASU on the Company's consolidated financial statements.statements is discussed in Note 1, Summary of Significant Accounting Policies.


Note 5. Goodwill and Other Intangible Assets
As a resultIn March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the 2011 Branch Acquisition,Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the Company recorded goodwill amountingpotential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to $2.2 millioncontract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The transition away from LIBOR is not expected to have a material impact on the Company's consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures. The goodwillguidance amends ASC 326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is not amortizable. Goodwill is evaluated for impairment annually, in accordance with current authoritative accounting guidance. Management assesses qualitative factors toexperiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of an existing loan. These amendments are also intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the existenceamendments to ASC 326 require that an entity disclose current-period gross write-offs by year of events or circumstances leads to a determinationorigination within the vintage disclosures, which requires that itan entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance is more likely than notonly for entities that have adopted the fair valueamendments in ASU No. 2016-13 for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company adopted ASU No. 2022-02 effective January 1, 2023. The adoption of the Company, in total, is less than its carrying amount. Management isprovisions contained within ASU No. 2022-02 did not aware of any such events or circumstances that would cause it to conclude that the fair value of the Company is less than its carrying amount.



The Company also initially recorded $1.7 million of acquired identifiable intangible assets in connection with the 2011 Branch Acquisition, representing the core deposit intangible which is subject to straight-line amortization over the estimated 10 year average life of the core deposit base, absent any future impairment. Management will evaluate the core deposit intangible for impairment if conditions warrant.

Amortization expense for the core deposit intangible was $43 thousand for the three months ended September 30, 2017 and 2016 and $129 thousand for the nine months ended September 30, 2017 and 2016. The amortization expense is included in other expenseshave a material impact on the consolidated statementsfinancial statements.

Union Bankshares, Inc. Page 11



In March 2023, the FASB issued ASU No. 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. ASU No. 2014-01, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects, previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and is deductible forother income tax purposes. Asbenefits when certain requirements are met; however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures. The proportional amortization method results in the cost of September 30, 2017, the remaining amortization expense relatedinvestment being amortized in proportion to the core deposit intangible, absentincome tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit). Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items. The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. For public business entities, the amendments in this update are effective for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years. Early adoption is permitted in any future impairment,interim period. If early adoption is expected toelected, adoption must be as follows:of the beginning of the fiscal year that includes the interim period of adoption. The amendments in this update must be applied on either a modified retrospective or a retrospective basis. The Company is currently evaluating the impact of this standard for its tax equity investments and the impact to noninterest income, noninterest expense, and income tax expense within the consolidated financial statements.
 (Dollars in thousands)
2017$42
2018171
2019171
2020171
202170
Total$625


Note 6.5. Investment Securities
InvestmentDebt securities AFS as of the balance sheet dates consisted of the following:
March 31, 2023Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 (Dollars in thousands)
U.S. Government-sponsored enterprises$44,699 $— $(4,985)$39,714 
Agency mortgage-backed194,772 177 (31,311)163,638 
State and political subdivisions72,547 404 (7,018)65,933 
Corporate6,347 — (215)6,132 
Total$318,365 $581 $(43,529)$275,417 
December 31, 2022Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 (Dollars in thousands)
U.S. Government-sponsored enterprises$45,090 $— $(5,845)$39,245 
Agency mortgage-backed198,478 104 (34,150)164,432 
State and political subdivisions47,722 281 (7,537)40,466 
Corporate6,343 — (219)6,124 
Total$297,633 $385 $(47,751)$250,267 
September 30, 2017
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 (Dollars in thousands)
Available-for-sale    
Debt securities:    
U.S. Government-sponsored enterprises$9,535
$18
$(143)$9,410
Agency mortgage-backed18,820
47
(126)18,741
State and political subdivisions25,304
259
(249)25,314
Corporate9,927
150
(72)10,005
Total debt securities63,586
474
(590)63,470
Mutual funds500


500
Total$64,086
$474
$(590)$63,970
Held-to-maturity    
U.S. Government-sponsored enterprises$1,000
$
$(1)$999



December 31, 2016
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
 (Dollars in thousands)
Available-for-sale    
Debt securities:    
U.S. Government-sponsored enterprises$10,221
$15
$(196)$10,040
Agency mortgage-backed18,283
27
(269)18,041
State and political subdivisions27,909
113
(650)27,372
Corporate9,745
84
(129)9,700
Total debt securities66,158
239
(1,244)65,153
Mutual funds403


403
Total$66,561
$239
$(1,244)$65,556
Held-to-maturity    
U.S. Government-sponsored enterprises$999
$
$
$999

There were no investment securities HTM at March 31, 2023 or December 31, 2022. Investment securities AFS with a carrying amountamounts of $4.9 million$999 thousand and $8.4 million at September 30, 2017 and December 31, 2016, respectively,$433 thousand were pledged as collateral for public unit deposits andor for other purposes as required or permitted by law.law at March 31, 2023 and December 31, 2022, respectively.




Union Bankshares, Inc. Page 12


The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of September 30, 2017March 31, 2023 were as follows:
Amortized
Cost
Fair
Value
Available-for-sale(Dollars in thousands)
Due in one year or less$502 $495 
Due from one to five years24,431 22,354 
Due from five to ten years25,463 23,036 
Due after ten years73,197 65,894 
 123,593 111,779 
Agency mortgage-backed194,772 163,638 
Total debt securities available-for-sale$318,365 $275,417 
 
Amortized
Cost
Fair
Value
 (Dollars in thousands)
Available-for-sale  
Due in one year or less$250
$251
Due from one to five years5,470
5,561
Due from five to ten years22,143
22,178
Due after ten years16,903
16,739
 44,766
44,729
Agency mortgage-backed18,820
18,741
Total debt securities available-for-sale$63,586
$63,470
Held-to-maturity  
Due in one year or less$1,000
$999
Total debt securities held-to-maturity$1,000
$999


Actual maturities may differ for certain debt securities that may be called by the issuer prior to the contractual maturity. Actual maturities usually differ from contractual maturities on agency MBS because the mortgages underlying the securities may be prepaid, usually without any penalties. Therefore, these agency MBS are shown separately and are not included in the contractual maturity categories in the above maturity summary.




Information pertaining to all investmentAFS debt securities with gross unrealized losses, for which an ACL has not been recorded, as of the balance sheet dates, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:
March 31, 2023Less Than 12 Months12 Months and overTotal
 Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)
U.S. Government-
  sponsored enterprises
$2,970 $(4)34 $36,608 $(4,981)35 $39,578 $(4,985)
Agency mortgage-backed9,714 (375)89 148,189 (30,936)93 157,903 (31,311)
State and political
  subdivisions
15 25,647 (644)60 32,923 (6,374)75 58,570 (7,018)
Corporate3,255 (92)2,877 (123)13 6,132 (215)
Total27 $41,586 $(1,115)189 $220,597 $(42,414)216 $262,183 $(43,529)
December 31, 2022December 31, 2022Less Than 12 Months12 Months and overTotal
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
(Dollars in thousands)
September 30, 2017Less Than 12 Months12 Months and overTotal
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
 (Dollars in thousands)
Debt securities:      
U.S. Government-
sponsored enterprises
8
$4,855
$(47)8
$3,801
$(97)16
$8,656
$(144)U.S. Government-
sponsored enterprises
$8,000 $(533)31 $31,103 $(5,312)35 $39,103 $(5,845)
Agency mortgage-backed11
6,448
(43)6
4,332
(83)17
10,780
(126)Agency mortgage-backed31 24,306 (2,192)62 134,297 (31,958)93 158,603 (34,150)
State and political
subdivisions
15
6,541
(44)15
6,312
(205)30
12,853
(249)State and political
subdivisions
39 15,457 (1,846)27 18,613 (5,691)66 34,070 (7,537)
Corporate1
478
(22)4
1,948
(50)5
2,426
(72)Corporate10 4,719 (124)1,405 (95)13 6,124 (219)
Total35
$18,322
$(156)33
$16,393
$(435)68
$34,715
$(591)Total84 $52,482 $(4,695)123 $185,418 $(43,056)207 $237,900 $(47,751)

December 31, 2016Less Than 12 Months12 Months and overTotal
 
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
Number
of
Securities
Fair
Value
Gross
Unrealized
Losses
  (Dollars in thousands)
Debt securities:         
U.S. Government-
  sponsored enterprises
13
$8,351
$(180)3
$1,172
$(16)16
$9,523
$(196)
Agency mortgage-backed22
15,141
(261)1
344
(8)23
15,485
(269)
State and political
  subdivisions
40
16,481
(650)


40
16,481
(650)
Corporate8
3,973
(56)4
1,627
(73)12
5,600
(129)
Total83
$43,946
$(1,147)8
$3,143
$(97)91
$47,089
$(1,244)
The Company evaluates all investmentAFS debt securities on a quarterly basis, and more frequently when economic conditions warrant,in unrealized loss positions are evaluated for impairment related to determine ifcredit losses at least quarterly. For AFS debt securities in an OTTI exists. A security is considered impaired if the fair value is lower than its amortized cost basis at the report date. If impaired,unrealized loss position, management thenfirst assesses whether the unrealized loss is OTT.

An unrealized loss on a debt security is generally deemed to be OTT and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. The credit loss component of OTTI write-down is recorded, net of tax effect, through net income as a component of net OTTI losses in the consolidated statements of income, while the remaining portion of the impairment loss is recognized in OCI, provided the Company does not intendit intends to sell, the underlying debt security andor it is "moremore likely than not"not that the Company will not havebe required to sell, the debt security priorbefore recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to recovery. Declines insell is met, the security’s amortized cost basis is written down to fair values of individual equityvalue through earnings. For AFS debt securities that are deemed bydo not meet the above criteria, management to be OTT are reflectedevaluates whether the decline in noninterest income when identified.

Managementfair value has resulted from credit losses or other factors. In making this assessment, management considers the following factors in determining whether OTTI exists and the period over which the security is expected to recover:
The length of time, and extent to which the fair value has beenis less than the amortized cost;
Adverse conditions specifically related to the security, industry, or geographic area;
The historical and implied volatility of the fair value of the security;
The payment structure of the debt security and the likelihood of the issuer being able to make payments that may increase in the future;
Failure of the issuer of the security to make scheduled interest or principal payments;
Anycost, any changes to the rating of the security by a rating agency;agency, and adverse conditions specifically related to the
Recoveries or additional declines

Union Bankshares, Inc. Page 13


security and the issuer, among other factors. If this assessment 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 that the fair value of the security is less than its amortized cost basis. For AFS debt securities, any decline in fair value subsequent to the balance sheet date;that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes.

No ACL for AFS debt securities was recorded at adoption of ASU No. 2016-13 or at March 31, 2023 or December 31, 2022. Accrued interest receivable on AFS debt securities totaled $1.1 million and
The nature of the issuer, including whether it is a private company, public entity or government-sponsored enterprise, and the existence or likelihood of any government or third party guaranty.



The Company has the ability to hold the investment securities that had unrealized losses $1.0 million at September 30, 2017March 31, 2023 and December 31, 20162022, respectively, and is excluded from the estimate of credit losses.

There were no sales or calls of securities for the foreseeable future and no declines were deemed by management to be OTT.

three months ended March 31, 2023. The following table presents the proceeds from sales resulting in gross realized gains and gross realized losses from the saledisposition of AFS securities:securities for the three months ended March 31, 2022:
For The Three Months Ended March 31,
2022
(Dollars in thousands)
Proceeds from sales$6,827 
Gross gains76 
Gross losses(50)
Net gains on sales of investment securities AFS$26 
 For the Three Months
Ended September 30,
For The Nine Months
Ended September 30,
 2017201620172016
 (Dollars in thousands)
Proceeds$2,517
$3,944
$3,962
$6,617
     
Gross gains24
112
56
131
Gross losses
(59)(23)(60)
Net gains on sales of investment securities AFS$24
$53
$33
$71


Note 7.6.  Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL,ACL, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.
Loan interest income is accrued daily on outstanding balances. The following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. In general, loans that are 90 days or more past due are placed in nonaccrual, unless there are circumstances that cause management to believe the collection of interest is not doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on nonaccrual loans is generally not recognized unless a loan is returned to accrual status or after all principal has been collected. Interest income generally is not recognized on impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are generally applied as a reduction of the loan principal balance. Delinquency status is determined based on contractual terms for all portfolio segments and loan classes. Loans past due 30 days or more are considered delinquent. Loans are considered in process of foreclosure when a judgment of foreclosure has been issued by the court.
Loan origination fees and direct loan origination costs are deferred and amortized as an adjustment of the related loan's yield using methods that approximate the interest method. The Company generally amortizes these amounts over the estimated average life of the related loans.
Effective with the adoption of CECL on January 1, 2023, the Company evaluates the risk characteristics of its loans based on regulatory call report code with segmentation based on the underlying collateral or purpose for certain loan types. Prior to the adoption of CECL, under the incurred loss model, the Company evaluated the risk characteristics of its loans based on the underlying collateral securing the loans.


Union Bankshares, Inc. Page 14


The composition of Net loans as of the balance sheet dates, wereby regulatory call report code segmentation based on underlying collateral or purpose for certain loan types, was as follows:
March 31,
2023
December 31,
2022
(Dollars in thousands)
Residential real estate
Non-revolving residential real estate$341,880 $335,470 
Revolving residential real estate16,299 16,963 
Construction real estate
Commercial construction real estate60,847 56,501 
Residential construction real estate46,320 40,119 
Commercial real estate
Non-residential commercial real estate278,366 282,397 
Multi-family residential real estate93,953 95,550 
Commercial41,553 40,973 
Consumer2,373 2,204 
Municipal90,818 87,980 
    Gross loans972,409 958,157 
ACL losses on loans(6,934)(8,339)
Net deferred loan costs1,358 1,336 
    Net loans$966,833 $951,154 
 September 30,
2017
December 31,
2016
 (Dollars in thousands)
Residential real estate$176,399
$172,727
Construction real estate36,796
34,189
Commercial real estate257,192
249,063
Commercial48,166
41,999
Consumer3,832
3,962
Municipal56,517
31,350
    Gross loans578,902
533,290
Allowance for loan losses(5,259)(5,247)
Net deferred loan costs749
649
    Net loans$574,392
$528,692
There were no loans pledged as collateral on deposits of municipalities at September 30, 2017 and December 31, 2016. Qualifying residential first mortgage loans and certain commercial real estate loans held by Union may bewith an aggregate carrying value of $265.8 million and $272.9 million were pledged as collateral for borrowings from the FHLB under a blanket lien.lien at March 31, 2023 and December 31, 2022, respectively.

Accrued interest receivable on loans totaled $3.1 million at March 31, 2023 and December 31, 2022 and is excluded from the estimate of credit losses within Note 7.



A summaryNote 7.  Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures
Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported under the incurred loss model in accordance with previously applicable GAAP as described in the 2022 Annual Report.
The level of current, past due and nonaccrualthe ACL on loans asrepresents management's estimate of expected credit losses over the expected life of the loans at the balance sheet dates follows:
September 30, 2017Current30-59 Days60-89 Days90 Days and Over and AccruingNonaccrualTotal
 (Dollars in thousands)
Residential real estate$173,964
$231
$748
$207
$1,249
$176,399
Construction real estate36,572

142
22
60
36,796
Commercial real estate256,186
266
32

708
257,192
Commercial48,141
2
11

12
48,166
Consumer3,760
68
4


3,832
Municipal56,517




56,517
Total$575,140
$567
$937
$229
$2,029
$578,902

December 31, 2016Current30-59 Days60-89 Days90 Days and Over and AccruingNonaccrualTotal
 (Dollars in thousands)
Residential real estate$168,125
$1,661
$472
$672
$1,797
$172,727
Construction real estate34,148
17


24
34,189
Commercial real estate245,402
1,642
153
157
1,709
249,063
Commercial41,920
12
42
10
15
41,999
Consumer3,946
12
3
1

3,962
Municipal31,350




31,350
Total$524,891
$3,344
$670
$840
$3,545
$533,290
There were three residential real estate loans totaling $373 thousand in process of foreclosure at September 30, 2017. Aggregate interest on nonaccrual loans not recognized was $1.3 million as of September 30, 2017 and 2016 and $1.3 million as of December 31, 2016.

Note 8.  Allowance for Loan Losses and Credit Quality
The ALL is established for estimated losses in the loan portfolio through a provision for loan losses charged to earnings.date. For all loan classes, loan losses are charged against the ALLACL on loans when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.ACL on loans.

Upon adoption of CECL on January 1, 2023, the Company replaced the incurred loss model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses. The ALLACL on loans is maintained at a level believed by managementvaluation account that is deducted from the amortized cost basis of loans to present the net amount expected to be appropriate to absorb probable credit losses inherent incollected on the loan portfolio asloans. The ACL on loans is comprised of the balance sheet date. The amount of the ALL isreserves measured on a collective (pool) basis based on management's periodic evaluation of the collectability of the loan portfolio, including the nature, volume and risk characteristics of the portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. There has been no change to the methodology used to estimate the ALL during the third quarter of 2017. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.

In addition, various regulatory agencies, as an integral part of their examination process, regularly review the Company's ALL. Such agencies may require the Company to recognize additions to the ALL, with a corresponding charge to earnings, based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impairedlifetime loss-rate model when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would otherwise not be granted. A TDR classification may result from the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a


loan's terms (such as reduction of stated interest rates below market rates, extension of maturity that does not conform to the Company's policies, reduction of the face amount of the loan, reduction of accrued interest, or reduction or deferment of loan payments), or a combination. A specific reserve amount is allocated to the ALL for individual loans that have been classified as impaired based on management's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The Company accounts for the change in present value attributable to the passage of time in the loan loss reserve. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. Management has established the threshold for individual impairment evaluation for commercial loans with balances greater than $500 thousand, based on an evaluation of the Company's historical loss experience on substandard commercial loans.

The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the variousexist. Loans that do not share risk characteristics of each portfolio segment. are evaluated on an individual basis, generally larger non-accruing commercial loans.

Risk characteristics relevant to each portfolio segment are as follows:
Residential real estate - Loans in this segment are collateralized by owner-occupied 1-4 family residential real estate, second and vacation homes, 1-4 family investment properties, home equity and second mortgage loans. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality of this segment.

Construction real estate - Loans in this segment include residential and commercial construction properties, commercial real estate development loans (while in the construction phase of the projects), land and land development loans.

Union Bankshares, Inc. Page 15


Repayment is dependent on the credit quality of the individual borrower and/or the underlying cash flows generated by the properties being constructed. The overall health of the economy, including unemployment rates, housing prices, vacancy rates and material costs, could have an effect on the credit quality of this segment.

Commercial real estate - Loans in this segment are primarily properties occupied by businesses or income-producing properties. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by a general slowdown in business or increased vacancy rates which, in turn, could have an effect on the credit quality of this segment. Management requests business financial statements at least annually and monitors the cash flows of these loans.

Commercial - Loans in this segment are made to businesses and are generally secured by non-real estate assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer or business spending, could have an effect on the credit quality of this segment.

Consumer - Loans in this segment are made to individuals for personal expenditures, such as an automobile purchase, and include unsecured loans. Repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment, could have an effect on the credit quality of this segment.

Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment.
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

All evaluations are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available or as changes occur in economic conditions or other relevant factors. Despite the allocation shown in the tables below, the ALL is general in nature and is available to absorb losses from any class of loan.



Changes in the ALL,ACL on loans, by class of loans, for the three and nine months ended September 30, 2017 and 2016 were as follows:
For The Three Months Ended September 30, 2017Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Balance, June 30, 2017$1,387
$481
$2,753
$362
$24
$26
$135
$5,168
Provision (credit) for loan losses56
(76)37
(6)3
39
97
150
Recoveries of amounts charged off36
3

3
1


43
 1,479
408
2,790
359
28
65
232
5,361
Amounts charged off(100)


(2)

(102)
Balance, September 30, 2017$1,379
$408
$2,790
$359
$26
$65
$232
$5,259
For The Three Months Ended September 30, 2016Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Balance, June 30, 2016$1,382
$373
$2,837
$240
$27
$26
$341
$5,226
Provision (credit) for loan losses11
28
(64)5
4
20
(4)
Recoveries of amounts charged off
3

1



4
 1,393
404
2,773
246
31
46
337
5,230
Amounts charged off



(4)

(4)
Balance, September 30, 2016$1,393
$404
$2,773
$246
$27
$46
$337
$5,226
For The Nine Months Ended September 30, 2017Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Balance, December 31, 2016$1,399
$391
$2,687
$342
$26
$40
$362
$5,247
Provision (credit) for loan
  losses
124
8
103
13
7
25
(130)150
Recoveries of amounts
  charged off
38
9

4
2


53
 1,561
408
2,790
359
35
65
232
5,450
Amounts charged off(182)


(9)

(191)
Balance, September 30, 2017$1,379
$408
$2,790
$359
$26
$65
$232
$5,259
For The Nine Months Ended September 30, 2016Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Balance, December 31, 2015$1,419
$514
$2,792
$209
$28
$38
$201
$5,201
Provision (credit) for loan
  losses
79
(119)(19)62
3
8
136
150
Recoveries of amounts
  charged off
15
9

8
3


35
 1,513
404
2,773
279
34
46
337
5,386
Amounts charged off(120)

(33)(7)

(160)
Balance, September 30, 2016$1,393
$404
$2,773
$246
$27
$46
$337
$5,226



The allocation of the ALL, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet datesMarch 31, 2023 were as follows:
For The Three Months
Ended March 31, 2023
Balance, December 31, 2022Impact of Adoption of ASU No. 2016-13Charge OffsRecoveriesCredit Loss Expense (Benefit)Balance, March 31, 2023
(Dollars in thousands)
Non-revolving residential real estate$2,294 $(270)$— $— $47 $2,071 
Revolving residential real estate123 25 — — (5)143 
Residential real estate2,417 (245)— — 42 2,214 
Commercial construction real estate611 982 — — 120 1,713 
Residential construction real estate421 (290)— — 17 148 
Construction real estate1,032 692 — — 137 1,861 
Non-residential commercial real estate2,931 (757)— — 12 2,186 
Multi-family residential real estate1,004 (780)— — (3)221 
Commercial real estate3,935 (1,537)— — 2,407 
Commercial301 191 — — (124)368 
Consumer10 (5)— — — 
Municipal95 (42)— — 26 79 
Unallocated549 (549)— — — — 
Total$8,339 $(1,495)$— $— $90 $6,934 


Union Bankshares, Inc. Page 16


September 30, 2017Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Individually evaluated
   for impairment
$57
$
$4
$
$
$
$
$61
Collectively evaluated
   for impairment
1,322
408
2,786
359
26
65
232
5,198
Total allocated$1,379
$408
$2,790
$359
$26
$65
$232
$5,259
December 31, 2016Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
 (Dollars in thousands)
Individually evaluated
   for impairment
$63
$
$40
$
$
$
$
$103
Collectively evaluated
   for impairment
1,336
391
2,647
342
26
40
362
5,144
Total allocated$1,399
$391
$2,687
$342
$26
$40
$362
$5,247

The recorded investmentChanges in loans, summarizedthe ACL on the basis of the Company's impairment methodologyloans, by class of loan, as ofloans under the balance sheet datesincurred loss methodology, for the three months ended March 31, 2022 were as follows:
For The Three Months
Ended March 31, 2022
Balance, December 31, 2021Charge OffsRecoveriesCredit Loss Expense (Benefit)Balance, March 31, 2022
(Dollars in thousands
Residential real estate$2,068 $— $— $156 $2,224 
Construction real estate837 — — 843 
Commercial real estate4,122 — — (125)3,997 
Commercial275 — — 14 289 
Consumer11 (1)(1)10 
Municipal86 — — 88 
Unallocated937 — — (52)885 
Total$8,336 $(1)$$— $8,336 
September 30, 2017Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
 (Dollars in thousands)
Individually evaluated
   for impairment
$1,939
$84
$1,484
$393
$
$
$3,900
Collectively evaluated
   for impairment
174,460
36,712
255,708
47,773
3,832
56,517
575,002
Total$176,399
$36,796
$257,192
$48,166
$3,832
$56,517
$578,902
December 31, 2016Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
 (Dollars in thousands)
Individually evaluated
   for impairment
$1,448
$88
$3,328
$432
$
$
$5,296
Collectively evaluated
   for impairment
171,279
34,101
245,735
41,567
3,962
31,350
527,994
Total$172,727
$34,189
$249,063
$41,999
$3,962
$31,350
$533,290
Effective with the adoption of ASU No, 2016-13 on January 1, 2023, the Company's ACL on off-balance sheet credit exposures is recognized as a liability (Accrued interest and other liabilities on the consolidated balance sheet), with adjustments to the ACL recognized in Credit loss expense in the consolidated statement of income. In accordance with previously applicable GAAP, there was no ACL on off-balance sheet credit exposures required during the three months ended March 31, 2022. The Company's activity in the ACL on off-balance sheet credit exposures for the three months ended March 31, 2023 was as follows:

ACL on Off-Balance Sheet Credit Exposures(Dollars in thousands)
Balance, December 31, 2022$— 
Impact of adoption of ASU No. 2016-131,458 
Credit loss benefit(16)
Balance, March 31, 2023$1,442 

Risk and collateral ratings are assigned to loans and are subject to ongoing monitoring by lending and credit personnel, with such ratings updated annually or more frequently if warranted. The following is an overview of the Company's loan rating system:

1-3 Rating - Pass
Risk-rating grades "1" through "3" comprise those loans ranging from those with lower than average credit risk, defined as borrowers with high liquidity, excellent financial condition, strong management, favorable industry trends or loans secured by highly liquid assets, through those with marginal credit risk, defined as borrowers that, while creditworthy, exhibit some characteristics requiring special attention by the account officer.

4/M4-4.5 Rating - Satisfactory/Monitor
Borrowers exhibit potential credit weaknesses or downward trends warranting management's attention. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. When warranted, these credits may be monitored on the watch list.



5-7 Rating - Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. The loan may be inadequately protected by the net worth and paying capacity of the obligor and/or the underlying collateral is inadequate.




Union Bankshares, Inc. Page 17


The following tables summarizetable summarizes the Company's loans by year of origination and by loan ratings applied by management to the Company's loans by class as of March 31, 2023:
20232022202120202019PriorRevolvingTotal
Residential Real Estate(Dollars in thousands)
Pass$12,874 $118,684 $90,284 $31,278 $9,907 $58,333 $— $321,360 
Satisfactory/Monitor— 6,866 4,448 2,355 345 5,882 — 19,896 
Substandard— — — 40 — 584 — 624 
Non-revolving residential real estate12,874 125,550 94,732 33,673 10,252 64,799 — 341,880 
Pass— — — — — — 14,623 14,623 
Satisfactory/Monitor— — — — — — 1,604 1,604 
Substandard— — — — — — 72 72 
Revolving residential real estate— — — — — — 16,299 16,299 
Construction Real Estate
Pass435 7,138 6,877 694 1,983 1,147 — 18,274 
Satisfactory/Monitor827 18,108 21,321 236 287 1,792 — 42,571 
Substandard— — — — — — 
Commercial construction real estate1,262 25,246 28,198 930 2,270 2,941 — 60,847 
Pass869 30,865 5,511 — — — 37,246 
Satisfactory/Monitor— 3,991 4,585 498 — — — 9,074 
Substandard— — — — — — — — 
Residential construction real estate869 34,856 10,096 498 — — 46,320 
Commercial Real Estate
Pass732 38,378 37,091 18,291 24,673 65,640 16,535 201,340 
Satisfactory/Monitor4,204 28,577 4,006 6,536 7,120 20,987 1,063 72,493 
Substandard— — — 1,940 53 2,412 128 4,533 
Non-residential commercial real estate4,936 66,955 41,097 26,767 31,846 89,039 17,726 278,366 
Pass— 2,524 2,168 2,163 8,920 35,355 — 51,130 
Satisfactory/Monitor— 6,481 15,943 5,755 10,213 3,042 — 41,434 
Substandard— — — — — 1,389 — 1,389 
Multi-family residential real estate— 9,005 18,111 7,918 19,133 39,786 — 93,953 
Pass1,091 7,169 4,748 967 3,613 14,730 4,316 36,634 
Satisfactory/Monitor314 739 874 749 233 620 1,137 4,666 
Substandard— — — — — — 253 253 
Commercial1,405 7,908 5,622 1,716 3,846 15,350 5,706 41,553 
Pass566 632 398 192 253 281 21 2,343 
Satisfactory/Monitor24 — — — — 30 
Substandard— — — — — — — — 
Consumer590 636 398 194 253 281 21 2,373 
Pass4,414 73,877 1,993 5,057 196 5,281 — 90,818 
Satisfactory/Monitor— — — — — — — — 
Substandard— — — — — — — — 
Municipal4,414 73,877 1,993 5,057 196 5,281 — 90,818 
Total Loans$26,350 $344,033 $200,247 $76,753 $67,796 $217,478 $39,752 $972,409 

There were no gross charge offs for the balance sheet dates:three months ended March 31, 2023.



Union Bankshares, Inc. Page 18
September 30, 2017Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
 (Dollars in thousands)
Pass$163,064
$29,466
$166,776
$43,323
$3,797
$56,517
$462,943
Satisfactory/Monitor9,921
7,164
86,809
4,181
32

108,107
Substandard3,414
166
3,607
662
3

7,852
Total$176,399
$36,796
$257,192
$48,166
$3,832
$56,517
$578,902



December 31, 2016Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
 (Dollars in thousands)
Pass$158,140
$29,248
$182,247
$38,219
$3,928
$31,350
$443,132
Satisfactory/Monitor10,641
4,830
62,193
3,109
34

80,807
Substandard3,946
111
4,623
671


9,351
Total$172,727
$34,189
$249,063
$41,999
$3,962
$31,350
$533,290

The following tables provide information with respecttable summarizes the loan ratings applied by management to impairedthe Company's loans by class, of loanunder the incurred loss methodology, as of December 31, 2022:
December 31, 2022Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
(Dollars in thousands)
Pass$328,885 $47,356 $258,175 $36,338 $2,197 $87,980 $760,931 
Satisfactory/Monitor21,429 49,206 111,077 4,368 — 186,087 
Substandard2,119 58 8,695 267 — — 11,139 
Total$352,433 $96,620 $377,947 $40,973 $2,204 $87,980 $958,157 

A summary of current and forpast due loans as of March 31, 2023 follows:
March 31, 202330-59 Days60-89 Days90 Days and OverTotal Past DueCurrentTotal
(Dollars in thousands)
Residential real estate
Non-revolving residential real estate$1,040 $$237 $1,286 $340,594 $341,880 
Revolving residential real estate— — 42 42 16,257 16,299 
Construction real estate
Commercial construction real estate— — 60,845 60,847 
Residential construction real estate— — — — 46,320 46,320 
Commercial real estate
Non-residential commercial real estate153 — 2,068 2,221 276,145 278,366 
Multi-family residential real estate— — — — 93,953 93,953 
Commercial— — — — 41,553 41,553 
Consumer— — — — 2,373 2,373 
Municipal— — — — 90,818 90,818 
Total$1,195 $$2,347 $3,551 $968,858 $972,409 

A summary of current and past due loans as of December 31, 2022, under the three and nine months ended September 30, 2017 and September 30, 2016:incurred loss methodology, follows:
December 31, 202230-59 Days60-89 Days90 Days and OverTotal Past DueCurrentTotal
(Dollars in thousands)
Residential real estate$1,724 $79 $289 $2,092 $350,341 $352,433 
Construction real estate535 — — 535 96,085 96,620 
Commercial real estate515 2,087 34 2,636 375,311 377,947 
Commercial160 — 167 40,806 40,973 
Consumer— — 2,197 2,204 
Municipal— — — — 87,980 87,980 
Total$2,788 $2,326 $323 $5,437 $952,720 $958,157 



Union Bankshares, Inc. Page 19


 As of September 30, 2017For The Three Months Ended September 30, 2017For The Nine Months Ended September 30, 2017
 
Recorded Investment
(1)
Principal Balance
(1)
Related AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
 (Dollars in thousands)
Residential real estate$300
$310
$57
    
Commercial real estate140
143
4
    
With an allowance recorded440
453
61
    
        
Residential real estate1,639
2,168

    
Construction real estate84
84

    
Commercial real estate1,344
1,417

    
Commercial393
393

    
With no allowance recorded3,460
4,062

    
        
Residential real estate1,939
2,478
57
$1,855
$23
$1,684
$54
Construction real estate84
84

84
1
86
3
Commercial real estate1,484
1,560
4
1,626
18
2,200
72
Commercial393
393

400
7
412
19
Total$3,900
$4,515
$61
$3,965
$49
$4,382
$148
A summary of nonaccrual loans as of March 31, 2023 follows:
____________________
(1)Does not reflect government guaranties on impaired loans as of September 30, 2017 totaling $564 thousand.

March 31, 2023NonaccrualNonaccrual With No Allowance for Credit Losses90 Days and Over and Accruing
Residential real estate(Dollars in thousands)
Non-revolving residential real estate$104 $— $133 
Revolving residential real estate— — 42 
Construction real estate
Commercial construction real estate— — 
Residential construction real estate— — — 
Commercial real estate
Non-residential commercial real estate2,068 — — 
Multi-family residential real estate— — — 
Commercial— — — 
Consumer— — — 
Municipal— — — 
Total$2,174 $— $175 



A summary of nonaccrual loans as of December 31, 2022, under the incurred loss methodology, follows:
December 31, 2022NonaccrualNonaccrual With No Allowance for Credit Losses90 Days and Over and Accruing
(Dollars in thousands)
Residential real estate$103 $— $186 
Construction real estate— 
Commercial real estate2,102 — — 
Commercial— — — 
Consumer— — — 
Municipal— — — 
Total$2,211 $$186 
 As of September 30, 2016For The Three Months Ended September 30, 2016For The Nine Months Ended September 30, 2016
 
Recorded Investment
(1)
Principal Balance
(1)
Related AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
 (Dollars in thousands)
Residential real estate$1,388
$1,788
$57
$1,346
$7
$1,266
$23
Construction real estate89
89

89
1
91
3
Commercial real estate2,883
2,981
61
3,018
28
3,059
59
Commercial451
451

456

470

Total$4,811
$5,309
$118
$4,909
$36
$4,886
$85

____________________
(1)Does not reflect government guaranties on impaired loans as of September 30, 2016 totaling $654 thousand.

There was one residential real estate loan totaling $40 thousand in process of foreclosure at March 31, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. Aggregate interest on nonaccrual loans not recognized was $98 thousand as of March 31, 2023 and $59 thousand as of December 31, 2022.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans that are individually evaluated and collateral dependent represent loans that the Company has determined foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the sale of the collateral. For these loans, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan at the measurement date.
The following table provides information with respect to impaired loans as of December 31, 2016:
 December 31, 2016  
 
Recorded Investment
(1)
Principal Balance
(1)
Related Allowance  
 (Dollars in thousands)  
Residential real estate$308
$317
$63
  
Commercial real estate488
520
40
  
With an allowance recorded796
837
103
  
      
Residential real estate1,140
1,561

  
Construction real estate88
88

  
Commercial real estate2,840
2,910

  
Commercial432
432

  
With no allowance recorded4,500
4,991

  
      
Residential real estate1,448
1,878
63
  
Construction real estate88
88

  
Commercial real estate3,328
3,430
40
  
Commercial432
432

  
Total$5,296
$5,828
$103
  
____________________
(1)
Does not reflect government guaranties on impaired loans as of December 31, 2016 totaling $637 thousand.

The following is a summary of TDRpresents collateral dependent loans by loan class of loanand collateral type as of the balance sheet dates:
March 31, 2023December 31, 2022
Real EstateReal Estate
(Dollars in thousands)
Non-residential commercial real estate$2,068 $2,068 
 September 30, 2017December 31, 2016
 Number of LoansPrincipal BalanceNumber of LoansPrincipal Balance
 (Dollars in thousands)
Residential real estate28
$1,939
20
$1,448
Construction real estate1
84
1
88
Commercial real estate10
1,091
10
1,452
Commercial2
393
2
431
Total41
$3,507
33
$3,419



The TDR loans above represent loan modifications in which a concession was providedFor periods prior to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgivenessadoption of accrued interest. TroubledCECL, loans that are restructuredwere evaluated for impairment and meet established thresholds, aremay have been classified as impaired when management believed it was probable that the Company would not collect all the contractual interest and principal payments as scheduled in the loan agreement. Under previously applicable GAAP, a specific reserve amount iswas allocated to the ALLACL for individual loans that had been classified as impaired based on the basismanagement's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The

Union Bankshares, Inc. Page 20


Company accounted for the change in present value attributable to the passage of time in the ACL. Large groups of smaller balance homogeneous loans were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans were subject to a restructuring agreement or had been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.

The following tables provide new TDR activitytable provides information with respect to impaired loans by class of loan as of and for the year ended December 31, 2022, prior to the adoption of CECL:
December 31, 2022For The Year Ended
December 31, 2022
Recorded Investment
(1)
Principal Balance
(1)
Related AllowanceAverage Recorded InvestmentInterest Income Recognized
(Dollars in thousands)
Residential real estate$190 $200 $21 
Commercial real estate2,068 2,068 
With an allowance recorded2,258 2,268 30 
Residential real estate1,283 1,787 — 
Construction real estate58 83 — 
Commercial real estate5,865 6,403 — 
Commercial— 
With no allowance recorded7,213 8,280 — 
Residential real estate1,473 1,987 21 1,570 101 
Construction real estate58 83 — 116 27 
Commercial real estate7,933 8,471 5,822 185 
Commercial— 
Total$9,471 $10,548 $30 $7,516 $314 
____________________
(1)Does not reflect government guaranties on impaired loans as of December 31, 2022 totaling $423 thousand.

Occasionally, the Company modifies loans to borrowers experiencing financial difficulty by providing interest rate reductions, term extensions, payment deferrals or principal forgiveness. When principal forgiveness is provided, the amount of forgiveness is charged off against the ACL on loans. The following table summarizes loan modifications to borrowers experiencing financial difficulty by loan class, type of modification and the financial effect of the modifications as of and for the three and nine months ended September 30, 2017 and September 30, 2016:March 31, 2023:
Interest Rate Reduction
Amortized Cost Basis% of Loan ClassFinancial Effect
(Dollars in thousands)
Non-residential commercial real estate$416 0.15 %Reduced weighted average contractual interest rate from 8.75% to 6.85%
Multi-family residential real estate449 0.48 %Reduced weighted average contractual interest rate from 9.25% to 7.75%



Union Bankshares, Inc. Page 21


 New TDRs During theNew TDRs During the
 Three Months Ended September 30, 2017Nine Months Ended September 30, 2017
 Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
 (Dollars in thousands)
Residential real estate3
$269
$276
9
$649
$673
Commercial real estate1
149
149
2
293
293
The following table presents the performance of loans as of March 31, 2023 that have been modified in the last twelve months:

March 31, 2023CurrentPast Due
30-89 Days
Past Due 90 Days and Over
(Dollars in thousands)
Non-residential commercial real estate$416 $— $— 
Multi-family residential real estate449 — — 
 New TDRs During theNew TDRs During the
 Three Months Ended September 30, 2016Nine Months Ended September 30, 2016
 Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
 (Dollars in thousands)
Residential real estate3
$89
$99
6
$278
$295
Commercial real estate4
643
647
6
803
807


There were no TDR loans to borrowers experiencing financial difficulty that were modified within the previous twelve months that had subsequently defaulted during the three and nine month periodsmonths ended September 30, 2017 or September 30, 2016. TDR loansMarch 31, 2023. Loans are considered defaulted at 90 days past due.


At September 30, 2017 and DecemberMarch 31, 2016,2023, the Company was not committed to lend any additional funds to borrowers whoseexperiencing financial difficulty for which the Company modified the terms of the loans were nonperforming, impaired or restructured.

Note 9. Defined Benefit Pension Plan
On October 18, 2017 the Board of Directors voted to terminate Union Bank’s Pension Plan. Benefit accruals have been frozen and the Plan closed to new participants since October 5, 2012.
Based on the estimated value of assets held in the Plan, the Company currently estimates thatform of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a cash contribution of approximately $1.1 million will be required to fully fund the Plan's liabilities at termination. In addition, the Company expects to record a charge to earnings of approximately $3.2 million at termination, which is expected to occur during the fourth quarter of 2018. Actual amounts may differ from these estimates.term extension.
Until the effective date of termination of the Plan, the Company will continue to recognize the pension benefit and cash funding obligations for the frozen benefits under the Plan. The Plan provides defined benefits based on years of service and final average salary prior to October 5, 2012.


The Company's pension benefit obligation and net periodic benefit costs for the Plan are actuarially determined based on assumptions regarding the appropriate discount rate, current and expected future return on Plan assets, and anticipated mortality rates. Weighted average assumptions used to determine the net periodic pension benefit for the three and nine months ended September 30, 2017 and 2016 have remained consistent with assumptions disclosed in the Company's 2016 Annual Report on Form 10-K, except for the annual expected rate of return on Plan assets, which has been reduced in 2017 to 4.25% compared to 6.75% as disclosed in the 2016 Annual Report on Form 10-K.



Net periodic pension benefit for the three and nine months ended September 30 consisted of the following components:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2017201620172016
 (Dollars in thousands)
Interest cost on projected benefit obligation$172
$175
$516
$525
Expected return on plan assets(243)(259)(729)(777)
Amortization of net loss51
41
153
123
Net periodic benefit$(20)$(43)$(60)$(129)

Note 10.8.  Stock Based Compensation
The Company's current stock based compensation plan isUnder the Union Bankshares, Inc. 2014 Equity Incentive Plan. Under the 2014 Equity Plan, 50,000as amended in May 2022, a total of 150,000 shares of the Company’s common stock are availablehave been reserved for equity awards of incentive stock options, nonqualified stock options, restricted stock and RSUs to eligible officers and (except for awards of incentive stock options) nonemployee directors. Shares available for issuance of awards under the 2014 Equity Plan consist of unissued shares of the Company’s common stock and/or shares held in treasury. As of September 30, 2017,March 31, 2023, there were outstanding grants of RSUs under the plan of RSUs and incentive stock options.2014 Equity Plan as noted in the table below.


RSUs. Each outstanding RSU represents the right to receive one share of the Company's common stock upon satisfaction of applicable vesting conditions. The general terms of the awards are described in the Company's 20162022 Annual Report on Form 10-K.Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.

The following table presents a summarysummarizes the RSUs awarded to Company executives in 2021, 2022 and 2023, and the number of thesuch RSUs remaining unvested RSUs from the 2015 and 2016 Award Plan Summaries as of September 30, 2017:March 31, 2023:
  Number of Unvested RSUsWeighted-Average Grant Date Fair Value
2015 Award 3,089
$27.91
2016 Award 3,569
45.45
Total 6,658$37.31
Number of RSUs GrantedWeighted Average Grant Date Fair ValueNumber of Unvested RSUs
2021 Award17,685$26.73 1,745
2022 Award15,70531.99 7,822
2023 Award19,28226.90 19,282
Total52,67228,849
Unrecognized compensation expense related to the unvested RSUs as of September 30, 2017March 31, 2023 and September 30, 20162022 was $62$700 thousand and $105$288 thousand, respectively.respectively, and $297 thousand as of December 31, 2022.
DuringOn May 18, 2022, the nine months ended September 30, 2017,Company's board of directors, as a component of total director compensation, granted an aggregate of 3,308 contingent1,323 RSUs were provisionally granted. The estimated number of contingent RSUs provisionally granted was based on target performance-based payout amounts detailed into the 2017 Award Plan Summary approved byCompany's non-employee directors. Each RSU represents the Board of Directors and on the closing market priceright to receive one share of the Company's common stock onupon satisfaction of applicable vesting conditions. The RSUs will vest in May 2023, subject to continued board service through the March 15, 2017 grantvesting date, ($41.20 per share). As with the 2015 and 2016 grants, one half isother than in the form of Time-Based RSUs and one-half is in the form of Performance-Based RSUs. The actual number of Time-Based RSUs granted (if any) will be determined ascase of the earned date of December 31, 2017, while the actual number of Performance-Based RSUs granted (if any) will be determined during the first quarter of 2018, based on actual 2017 performance. The contingent RSUs were granted on substantially the same terms and conditions asdirector's death or disability. Prior to vesting, the RSUs granted under the 2016 Award Plan Summary. As of September 30, 2017, the estimated unrecognizeddo not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the provisionally grantedunvested RSUs basedas of March 31, 2023 was $6 thousand.

Note 9. Subordinated Notes
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. At its option, the Company may redeem the Notes, in whole or in part, beginning with the interest payment date of September 1, 2026 but not generally prior thereto, and on any scheduled interest payment date thereafter. The Notes qualify as Tier 2 capital instruments for the closing market priceCompany under bank holding company regulatory capital guidelines.

Union Bankshares, Inc. Page 22


The Company used the proceeds primarily to provide additional Tier 1 capital support to the Company's wholly-owned subsidiary, Union Bank, to support growth and for other general corporate purposes.
The unamortized issuance costs of the Company's stock onNotes were $287 thousand and $295 thousand at March 31, 2023 and December 31, 2022, respectively. The Company recorded $8 thousand of issuance costs in interest expense for the grant datethree months ended March 31, 2023 and 2022. The Notes are presented net of March 15, 2017 was $136 thousand.unamortized issuance costs in the consolidated balance sheets.

Stock options. As of September 30, 2017, 4,500 incentive stock options granted in December 2014 under the 2014 Equity Plan remained outstanding and exercisable and will expire in December 2021. There was no unrecognized compensation cost related to these options as of September 30, 2017. The estimated intrinsic value of these options was $110 thousand as of September 30, 2017.

As of September 30, 2017, 34,986 shares remained available for future equity awards under the 2014 Equity Plan.

As of September 30, 2017, 3,000 incentive stock options granted under the 2008 ISO Plan remained outstanding and exercisable, with the last of such options expiring in December 2020. There was no unrecognized compensation cost related to these options as of September 30, 2017. The estimated intrinsic value of these options was $79 thousand as of September 30, 2017.




Note 11.10. Other Comprehensive Income (Loss)
Accounting principles generally require recognized revenue, expenses, gains and losses be included in net income or loss. Certain changes in assets and liabilities, such as the after tax effect of unrealized gains and losses on investment securities AFS that arehave not OTTI and the unfunded liability for the defined benefit pension plan,been recorded through an ACL are not reflected in the consolidated statements of income. The cumulative effect of such items, net of tax effect, is reported as a separate component of the equity section of the consolidated balance sheets (Accumulated OCI). OCI, along with net income, comprises the Company's total comprehensive income or loss.


As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:
March 31, 2023December 31, 2022
 (Dollars in thousands)
Net unrealized losses on investment securities AFS$(33,514)$(37,419)
 September 30,
2017
December 31,
2016
 (Dollars in thousands)
Net unrealized loss on investment securities available-for-sale$(77)$(664)
Defined benefit pension plan net unrealized actuarial loss(2,615)(2,615)
Total$(2,692)$(3,279)


The following tables disclose the tax effects allocated to each component of OCI for the three and nine months ended September 30:March 31:
 Three Months Ended
March 31, 2023March 31, 2022
Before-Tax AmountTax ExpenseNet-of-Tax AmountBefore-Tax AmountTax Benefit/ExpenseNet-of-Tax Amount
Investment securities AFS:(Dollars in thousands)
Net unrealized holding gains (losses) arising during the period on investment securities AFS$4,943 $(1,038)$3,905 $(20,067)$4,214 $(15,853)
Reclassification adjustment for net gains on investment securities AFS realized in net income— — — (26)(21)
Total other comprehensive income (loss)$4,943 $(1,038)$3,905 $(20,093)$4,219 $(15,874)
 Three Months Ended
 September 30, 2017September 30, 2016
 Before-Tax AmountTax (Expense) BenefitNet-of-Tax AmountBefore-Tax AmountTax (Expense) BenefitNet-of-Tax Amount
 (Dollars in thousands)
Investment securities available-for-sale:      
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale$70
$(24)$46
$(276)$94
$(182)
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income(24)8
(16)(53)18
(35)
Total other comprehensive income (loss)$46
$(16)$30
$(329)$112
$(217)
 Nine Months Ended
 September 30, 2017September 30, 2016
 Before-Tax AmountTax (Expense) BenefitNet-of-Tax AmountBefore-Tax AmountTax (Expense) BenefitNet-of-Tax Amount
 (Dollars in thousands)
Investment securities available-for-sale:      
Net unrealized holding gains arising during the period on investment securities available-for-sale$923
$(314)$609
$1,082
$(368)$714
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income(33)11
(22)(71)24
(47)
Total other comprehensive income$890
$(303)$587
$1,011
$(344)$667



The following table discloses information concerning the reclassification adjustments from OCI for the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022:
Three Months Ended
Reclassification Adjustment DescriptionMarch 31, 2023March 31, 2022Affected Line Item in
Consolidated Statement of Income
(Dollars in thousands)
Investment securities AFS:
Net gains on investment securities AFS— (26)Net gains on sales of investment securities available-for-sale
Tax expense— Provision for income taxes
Total reclassifications$— $(21)Net income

 Three Months EndedNine Months Ended 
Reclassification Adjustment DescriptionSeptember 30, 2017September 30, 2016September 30, 2017September 30, 2016
Affected Line Item in
Consolidated Statement of Income
 (Dollars in thousands) 
Investment securities available-for-sale:    
Net gains on investment securities available-for-sale$(24)$(53)$(33)$(71)Net gains on sales of investment securities available-for-sale
Tax benefit8
18
11
24
Provision for income taxes
Total reclassifications$(16)$(35)$(22)$(47)Net income

Note 12.11. Fair Value Measurement
The Company utilizes FASB ASC Topic 820, Fair Value Measurement, as guidance for accounting for assets and liabilities carried at fair value. This standard defines fair value as the price that would be received, without adjustment for transaction costs, to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The guidance in FASB ASC Topic 820 establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.



Union Bankshares, Inc. Page 23


The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).


The following is a description of the valuation methodologies used for the Company’s assets that are measured on a recurring basis at estimated fair value:
Investment securities AFS: Marketable equity securities and mutual fundsCertain U.S. Treasury notes have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1. However, the majority of the Company’s AFS securities have been valued utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.

Mutual funds: Mutual funds have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1.


Assets measured at fair value on a recurring basis at September 30, 2017March 31, 2023 and December 31, 2016,2022, segregated by fair value hierarchy level, are summarized below:
 Fair Value Measurements
 Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
March 31, 2023:(Dollars in thousands)
Debt securities AFS:
U.S. Government-sponsored enterprises$39,714 $2,615 $37,099 $— 
Agency mortgage-backed163,638 — 163,638 — 
State and political subdivisions65,933 — 65,933 — 
Corporate6,132 — 6,132 — 
Total debt securities$275,417 $2,615 $272,802 $— 
Other investments:
Mutual funds$1,350 $1,350 $— $— 
December 31, 2022:    
Debt securities AFS:    
U.S. Government-sponsored enterprises$39,245 $2,551 $36,694 $— 
Agency mortgage-backed164,432 — 164,432 — 
State and political subdivisions40,466 — 40,466 — 
Corporate6,124 — 6,124 — 
Total debt securities$250,267 $2,551 $247,716 $— 
Other investments:
Mutual funds$1,264 $1,264 $— $— 
 Fair Value Measurements
 
Fair
Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
September 30, 2017:(Dollars in thousands)
Investment securities available-for-sale (market approach)    
Debt securities:    
U.S. Government-sponsored enterprises$9,410
$
$9,410
$
Agency mortgage-backed18,741

18,741

State and political subdivisions25,314

25,314

Corporate10,005

10,005

Total debt securities63,470

63,470

Mutual funds500
500


Total$63,970
$500
$63,470
$
     
December 31, 2016:    
Investment securities available-for-sale (market approach)    
Debt securities:    
U.S. Government-sponsored enterprises$10,040
$
$10,040
$
Agency mortgage-backed18,041

18,041

State and political subdivisions27,372

27,372

Corporate9,700

9,700

Total debt securities65,153

65,153

Mutual funds403
403


Total$65,556
$403
$65,153
$

There were no significant transfers in or out of Levels 1 and 2 during the three and nine months ended September 30, 2017,March 31, 2023 or the year ended December 31, 2022, nor were there any Level 3 assets at any time during either period.these periods. Certain other assets and liabilities are measured at fair value on a nonrecurring basis, that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis in periods after initial recognition, such as impairedcollateral dependent individually evaluated loans, HTM securities, MSRs and OREO, were not considered material at September 30, 2017March 31, 2023 or December 31, 2016.2022. The Company has

Union Bankshares, Inc. Page 24


not elected to apply the fair value method to any financial assets or liabilities other than those situations where other accounting pronouncements require fair value measurements.


FASB ASC Topic 825, Financial Instruments, requires disclosure of the estimated fair value of financial instruments. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Management’s estimates and assumptions are inherently subjective and involve uncertainties and matters of significant judgment. Changes in assumptions could dramatically affect the estimated fair values.


Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments may be excluded from disclosure requirements. Thus, the aggregate fair value amounts presented may not necessarily represent the actual underlying fair value of such instruments of the Company.



The following methods and assumptions were used by the Company in estimating the fair value of its significant financial instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet for cash and cash equivalents approximate those assets' fair values and are classified as Level 1.

Interest bearing deposits in banks: Fair values for interest bearing deposits in banks are based on discounted present values of cash flows and are classified as Level 2.

Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value measurements consider observable data which may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows. Investment securities are classified as Level 1 or Level 2 depending on availability of recent trade information.

Loans held for sale: The fair value of loans held for sale is estimated based on quotes from third party vendors, resulting in a Level 2 classification.

Loans: The fair values of loans are estimated for portfolios of loans with similar financial characteristics and segregated by loan class or segment. For variable-rate loan categories that reprice frequently and with no significant change in credit risk, fair values are based on carrying amounts adjusted for credit risk. The fair values for other loans (for example, fixed-rate residential, commercial real estate, and rental property mortgage loans as well as commercial and industrial loans) are estimated using discounted cash flow analysis, based on interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Loan fair value estimates include judgments regarding future cash flows, future expected loss experience and risk characteristics. Fair values for impaired loans are estimated using discounted cash flow analysis or underlying collateral values, where applicable. The fair value methods and assumptions that utilize unobservable inputs as defined by current accounting standards are classified as Level 3.

Accrued interest receivable and payable: The carrying amounts of accrued interest approximate their fair values and are classified as Level 1, 2, or 3 in accordance with the classification of the related principal's valuation.

Nonmarketable equity securities: It is not practical to determine the fair value of the nonmarketable securities, such as FHLB stock, due to restrictions placed on their transferability.

Deposits: The fair values disclosed for noninterest bearing deposits and other interest bearing nontime deposits are, by definition, equal to the amount payable on demand at the reporting date, resulting in a Level 1 classification. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar deposits to a schedule of aggregated expected maturities on such deposits, resulting in a Level 2 classification.

Borrowed funds: The fair values of the Company’s long-term debt are estimated using discounted cash flow analysis based on interest rates currently being offered on similar debt instruments, resulting in a Level 2 classification. The fair values of the Company’s short-term debt approximate the carrying amounts reported in the balance sheet, resulting in a Level 1 classification.

Off-balance-sheet financial instruments: Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The only commitments to extend credit that are normally longer than one year in duration are the home equity lines whose interest rates are variable quarterly. The only fees collected for commitments are an annual fee on credit card arrangements and often a flat fee on commercial lines of credit and standby letters of credit. The fair value of off-balance-sheet financial instruments as of the balance sheet dates was not significant.




As of the balance sheet dates, the estimated fair values and related carrying amounts of the Company's significant financial instruments were as follows:
March 31, 2023
Fair Value Measurements
Carrying
Amount
Estimated Fair
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in thousands)
Financial assets
Cash and cash equivalents$21,819 $21,819 $21,819 $— $— 
Interest bearing deposits in banks16,428 16,428 — 16,428 — 
Investment securities276,767 276,767 3,965 272,802 — 
Loans held for sale2,849 2,893 — 2,893 — 
Loans, net
Residential real estate356,465 322,577 — — 322,577 
Construction real estate105,456 103,544 — — 103,544 
Commercial real estate370,432 353,857 — — 353,857 
Commercial41,243 38,632 — — 38,632 
Consumer2,371 2,321 — — 2,321 
Municipal90,866 89,267 — — 89,267 
Accrued interest receivable4,178 4,178 — 1,065 3,113 
Nonmarketable equity securities2,681 N/AN/AN/AN/A
Financial liabilities
Deposits
Noninterest bearing$262,488 $262,488 $262,488 $— $— 
Interest bearing709,401 709,401 709,401 — — 
Time254,089 250,567 — 250,567 — 
Borrowed funds
Short-term45,000 44,970 — 44,970 — 
Long-term106 106 — 106 — 
Subordinated notes16,213 16,506 — 16,506 — 
Accrued interest payable396 396 — 396 — 

Union Bankshares, Inc. Page 25


 September 30, 2017
 Fair Value Measurements
 
Carrying
Amount
Estimated Fair
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
 (Dollars in thousands)
Financial assets     
Cash and cash equivalents$12,397
$12,397
$12,397
$
$
Interest bearing deposits in banks8,356
8,365

8,365

Investment securities64,970
64,969
500
64,469

Loans held for sale5,675
5,777

5,777

Loans, net     
Residential real estate175,248
177,201


177,201
Construction real estate36,436
36,208


36,208
Commercial real estate254,503
252,903


252,903
Commercial47,869
47,021


47,021
Consumer3,811
3,875


3,875
Municipal56,525
56,715


56,715
Accrued interest receivable2,196
2,196

426
1,770
Nonmarketable equity securities2,331
N/A
N/A
N/A
N/A
Financial liabilities     
Deposits     
Noninterest bearing$119,203
$119,203
$119,203
$
$
Interest bearing387,707
387,707
387,707


Time99,714
98,925

98,925

Borrowed funds     
Short-term2,232
2,231
2,231


Long-term30,288
29,300

29,300

Accrued interest payable84
84

84



December 31, 2016 December 31, 2022
Fair Value Measurements Fair Value Measurements
Carrying
Amount
Estimated Fair
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Amount
Estimated Fair
Value
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(Dollars in thousands)(Dollars in thousands)
Financial assets Financial assets
Cash and cash equivalents$39,275
$39,275
$39,275
$
$
Cash and cash equivalents$37,885 $37,885 $37,885 $— $— 
Interest bearing deposits in banks9,504
9,528

9,528

Interest bearing deposits in banks16,428 16,428 — 16,428 — 
Investment securities66,555
66,555
403
66,152

Investment securities251,531 251,531 3,815 247,716 — 
Loans held for sale7,803
7,958

7,958

Loans held for sale1,178 1,202 — 1,202 — 
Loans, net Loans, net
Residential real estate171,538
173,024


173,024
Residential real estate350,507 319,066 — — 319,066 
Construction real estate33,840
33,963


33,963
Construction real estate95,723 94,231 — — 94,231 
Commercial real estate246,317
245,979


245,979
Commercial real estate373,990 358,897 — — 358,897 
Commercial41,708
41,491


41,491
Commercial40,729 38,588 — — 38,588 
Consumer3,941
4,014


4,014
Consumer2,197 2,161 — — 2,161 
Municipal31,348
31,749


31,749
Municipal88,008 86,306 — — 86,306 
Accrued interest receivable2,259
2,259

414
1,845
Accrued interest receivable4,163 4,163 — 1,014 3,149 
Nonmarketable equity securities2,354
N/A
N/A
N/A
N/A
Nonmarketable equity securities2,816 N/A
Financial liabilities Financial liabilities
Deposits Deposits
Noninterest bearing$112,384
$112,384
$112,384
$
$
Noninterest bearing$286,145 $286,145 $286,145 $— $— 
Interest bearing382,083
382,083
382,083


Interest bearing762,722 762,722 762,722 — — 
Time103,193
102,594

102,594

Time153,045 149,166 — 149,166 — 
Borrowed funds 
Short-term1,099
1,099
1,099


Long-term30,496
30,423

30,423

Short-term borrowed fundsShort-term borrowed funds50,000 49,997 — 49,997 — 
Subordinated notesSubordinated notes16,205 14,037 — 14,037 — 
Accrued interest payable92
92

92

Accrued interest payable354 354 — 354 — 
The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions. Accrued interest receivable and nonmarketable equity securities are included in Other assets in the consolidated balance sheets.


Note 13.12. Subsequent Events
Subsequent events represent events or transactions occurring after the balance sheet date but before the financial statements are issued. Financial statements are considered “issued” when they are widely distributed to shareholders and others for general use and reliance in a form and format that complies with GAAP. Events occurring subsequent to September 30, 2017March 31, 2023 have been evaluated as to their potential impact to the consolidated financial statements.

On October 18, 2017,April 19, 2023, the Company declared a regular quarterly cash dividend of $0.29$0.36 per share, payable November 8, 2017,May 4, 2023, to stockholders of record on October 28, 2017.April 29, 2023.


On October 18, 2017, the Company's Board of Directors voted to terminate

Union Bank’s Defined Benefit Pension Plan. Benefit accruals have been frozen and the Plan closed to new participants since October 5, 2012. The termination of the Plan is expected to take affect in the fourth quarter of 2018. See Note 9.Bankshares, Inc. Page 26




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 financial position of the Company as of September 30, 2017March 31, 2023 and December 31, 2016,2022, and its results of operations for the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's 2022 Annual Report on Form 10-K for the year ended December 31, 2016, as amended ("2016 Annual Report on Form 10-K").Report. In the opinion of the Company's management, the interim unaudited data reflectsconsolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after September 30, 2017March 31, 2023 which would materially affect the information presented.
Please refer to Note 1 in the Company's unaudited interim consolidated financial statements at Part I, Item 1 of this Report for definitions of acronyms, abbreviations and capitalized terms used throughout the following discussion and analysis.

CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS
The Company, "we," "us," "our," may from time to time make written or oral statements that are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include financial projections, statements of plans and objectives for future operations, estimates of future economic performance or conditions and assumptions relating thereto. The Company may include forward-looking statements in its filings with the SEC, in its reports to stockholders, including this quarterly report, in press releases, other written materials, and in statements made by senior management to analysts, rating agencies, institutional investors, representatives of the media and others.

Forward-looking statements reflect management'sare based on the current assumptions underlying the statements and other information with respect to the beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions of management and the financial condition, results of operations, future performance and business are subject to uncertainties, both general and specific, and risk existsonly expectations of future results. Although the Company believes that the expectations reflected in the Company’s forward-looking statements are reasonable when made, the Company’s actual results will differ from those predictions, forecasts, projections and other estimates contained in forward-looking statements. These risks cannot be readily quantified. When management uses any of the words “believes,” “expects,” “anticipates,” “intends,” "projects," “plans,” “seeks,” “estimates,” "targets," "goals," “may,” "might," “could,” “would,” “should,” or similar expressions, they are making forward-looking statements. Many possible events or factors, including those beyond the control of management, could affect the future financial results and performance of the Company.

Factors that may cause results or performance to differ materially from those expressedprojected in the forward-looking statements include, but are not limited to: (1)as a result of, among other factors, changes in interest rates; competitive pressures from other financial institutions; general economic conditions and financial instability, either nationally, internationally, regionally or locally; (2) increased competitive pressures including those from tax-advantaged credit unions and other financial service providers in the Company's northern Vermont and New Hampshire market areaon a national basis or in the financial services industry generally, from increasing consolidation and integration of financial service providers, and fromlocal markets in which the Company operates; eroding public confidence in the banking system; changes in technologyconsumer behavior due to changing political, business and delivery systems; (3) the effect of andeconomic conditions, including concerns about inflation, or legislative or regulatory initiatives; changes in the United States monetaryvalue of securities and fiscal policies,other assets in the Company’s investment portfolio; increases in loan and lease default and charge-off rates; the adequacy of the ACL; decreases in deposit levels that necessitate increases in borrowing to fund loans and investments; operational risks including, interest ratesbut not limited to, cybersecurity incidents, fraud, natural disasters and future pandemics; changes in ways that continues to put pressure on the Company's interest spread or margins as depositors will be seeking higher rates on deposit accounts (4)regulation, war, terrorism, civil unrest; changes in laws or government rules, oreconomic assumptions and adverse economic developments; the wayrisk that goodwill and intangibles recorded in which courts or government agencies interpret or implement those laws or rules, that increase our costs of doing business or otherwise adversely affect the Company's business; (5)Company’s financial statements will become impaired; changes in federal or state tax policy; (6)assumptions used in making such forward-looking statements; and the effect of federalother risks and state health care reform efforts; (7) changesuncertainties detailed in the level of nonperforming assets and charge-offs; (8) changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements; (9) changes in information technology that require increased capital spending; (10) changes in consumer and business spending, borrowing and savings habits; (11) increased cyber security threats.

Company’s 2022 Annual Report.
When evaluating forward-looking statements to make decisions with respect toabout the Company and our stock, investors and others are cautioned to consider these and other risks and uncertainties, and are reminded not to place undue reliance on such statements. Investors should not consider the foregoing list of factors to be a complete list of risks or uncertainties. Forward-looking statements speak only as of the date they are made and the Company undertakes no obligation to update them to reflect new or changed information or events, except as may be required by federal securities laws.


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

Union Bankshares, Inc. Page 27


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 consolidated 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. They include establishing the amount of ACL and valuing our intangible assets. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. Because of the nature of the judgments and assumptions made by management, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, or capital, and/or the results of operations of the Company.

Please refer to the Company's 20162022 Annual Report on Form 10-Kand the Summary of Significant Accounting Policies in Note 1 to the unaudited consolidated financial statements contained in this report for a more in-depth discussion of the Company's critical accounting policies.policies and adoption of CECL. There have been no changes to the Company's critical accounting policies, other than those described in Note 1 since the filing of that report.the 2022 Annual Report.


OVERVIEW

During the first quarter of 2023, the banking industry experienced significant volatility with three high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits, not including purchased brokered deposits, decreased by 4.4% as compared to December 31, 2022, to $1.1 billion at March 31, 2023 as we experienced minimal deposit outflow in the first quarter, primarily due to the seasonal fluctuation in municipal deposit accounts. The Company also took a number of preemptive actions, which included pro-active outreach to clients regarding FDIC insurance coverage for their deposits in response to these recent developments. Furthermore, the Company remains well capitalized with Common Equity Tier 1 and Total Capital ratios of 10.80% and 13.69%, respectively, as of March 31, 2023.
The Company'sConcerns over interest rate levels, energy prices, domestic and global policy issues, trade policy in the U.S. and geopolitical events, as well as the implications of those events on the markets in general, add to the global uncertainty. There is also a risk that interest rate increases to fight inflation could lead to a recession. Interest rate levels and energy prices, in combination with global economic conditions, fiscal and monetary policy and the level of regulatory and government scrutiny of financial institutions will continue to impact our results in 2023 and beyond.
Consolidated net income was $2.4increased $495 thousand, or 19.9%, to $3.0 million for the first quarter ended September 30, 2017of 2023 compared to $2.3$2.5 million for the first quarter ended September 30, 2016, an increase of $102 thousand, or 4.5%. These results reflected an increase2022 due to the combined effects of increases of $1.0 million in the Company's net interest income and $55 thousand in noninterest income, partially offset by increases of $495$74 thousand or 7.8%, and a decreasein credit loss expense, $461 thousand in noninterest expenses, of $83and $37 thousand or 1.4%. These positive changes were partially offset by an increase in the provision for loan losses of $150 thousand, a decrease in noninterest income of $298 thousand, or 10.6%, and an increase in the provision for income taxes of $28 thousand, or 3.4%.tax expense.

Year to date net income for 2017 was $6.5 million, or $1.46 per share, compared to $6.2 million, or $1.38 per share, for the same period in 2016, an increase of 5.9% year over year. Net interest income improved $1.3 million, or 6.9%, and was partially offset by a decrease in noninterest income of $515 thousand, or 6.8%, an increase in noninterest expense of $218 thousand, or 1.2%, and an increase in the provision for income taxes of $184 thousand, or 8.5%.

At September 30, 2017,March 31, 2023, the Company had total consolidated assets of $705.3 million,$1.36 billion, including gross loans and loans held for sale (total loans) of $584.6$975.3 million, deposits of $606.6$1.23 billion, borrowed funds of $45.1 million, subordinated debt of $16.2 million and stockholders' equity of $59.6$60.6 million. The Company’s total assets at September 30, 2017 increased $14.0 million, or 2.0%, from $691.4 million at December 31, 2016, and increased $32.8 million, or 4.9%, compared to September 30, 2016. (See Financial Condition on page 36.)

The Company's total capital increased to $60.6 million at March 31, 2023 from $56.3$55.2 million at December 31, 2016 to $59.6 million at September 30, 2017.2022. This increase primarily reflects net incomea decrease of $6.5$3.9 million for the first nine months of 2017 and a reduction of $587 thousand in accumulated other comprehensive loss lessand net income of $3.0 million partially offset by regular cash dividends paiddeclared of $3.9 million.$1.6 million, for the first three months of 2023. (See Capital Resources on page 43.) These changes also resulted in an increase in the Company's book value per share to $13.44 at March 31, 2023 from $12.25 as of December 31, 2022.

Return on average assets is a financial metric often utilized as an indicator of a financial institution's performance. The Company's return on average assets increased 8 bps for the three months ended March 31, 2023 compared to the same period in 2022, primarily due to an increase in net income of $495 thousand between periods.



Union Bankshares, Inc. Page 28


The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, respectively:
Three Months Ended or At March 31,
Three Months Ended or At September 30,Nine Months Ended or At September 30, 20232022
2017201620172016
Return on average assets (ROA) (1)1.35%1.32 %1.27%1.22%
Return on average assets (1)Return on average assets (1)0.89 %0.81 %
Return on average equity (1)16.08%15.50 %15.10%14.20%Return on average equity (1)20.90 %12.38 %
Net interest margin (1)(2)4.23%4.26 %4.22%4.21%Net interest margin (1)(2)3.14 %3.17 %
Efficiency ratio (3)62.31%66.22 %64.79%68.05%Efficiency ratio (3)70.46 %73.08 %
Net interest spread (4)4.15%4.18 %4.13%4.12%Net interest spread (4)2.84 %3.08 %
Loan to deposit ratio96.37%92.93 %96.37%92.93%Loan to deposit ratio79.55 %73.17 %
Net loan charge-offs to average loans not held for sale (1)0.04%(0.02)%0.03%0.03%Net loan charge-offs to average loans not held for sale (1)— %— %
Allowance for loan losses to loans not held for sale0.91%1.00 %0.91%1.00%
ACL on loans to loans not held for saleACL on loans to loans not held for sale0.71 %1.01 %
Nonperforming assets to total assets (5)0.32%0.51 %0.32%0.51%Nonperforming assets to total assets (5)0.17 %0.38 %
Equity to assets8.45%8.80 %8.45%8.80%Equity to assets4.45 %5.63 %
Total capital to risk weighted assets13.37%13.41 %13.37%13.41%Total capital to risk weighted assets13.69 %14.84 %
Book value per share$13.36
$12.74
$13.36
$12.74
Book value per share$13.44 $15.45 
Earnings per share$0.53
$0.51
$1.46
$1.38
Basic earnings per shareBasic earnings per share$0.66 $0.55 
Diluted earnings per shareDiluted earnings per share$0.66 $0.55 
Dividends paid per share$0.29
$0.28
$0.87
$0.83
Dividends paid per share$0.36 $0.35 
Dividend payout ratio (6)54.72%54.90 %59.59%60.14%Dividend payout ratio (6)54.55 %63.64 %
__________________
(1)Annualized.
(2)The ratio of tax equivalent net interest income to average earning assets. See pages 31 and 32 for more information.
(3)The ratio of noninterest expense to tax equivalent net interest income and noninterest income, excluding securities gains (losses).
(4)The difference between the average rate earned on earning assets and the average rate paid on  interest bearing liabilities. See pages 31 and 32 for more information.
(5)
(1)Annualized.
(2)The ratio of tax equivalent net interest income to average earning assets. See page 31 for more information.
(3)The ratio of noninterest expense to tax equivalent net interest income and noninterest income, excluding securities gains (losses).
(4)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 31 for more information.
(5)Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.
(6)Cash dividends declared and paid per share divided by consolidated net income per share.

Recent Developments

On October 18, 2017, the Company's Board of Directors voted to terminate Union Bank’s Defined Benefit Pension Plan. Benefit accruals have been frozen and the Plan closed to new participants since October 5, 2012, due to the rapidly escalating cost of maintaining the Plan as well as balance sheet volatility causedOREO or OAO.
(6)Cash dividends declared and paid per share divided by changes in the market value of the Plan assets. The Board of Directors carefully weighed the consequences of terminating the Plan, including the impact on the Company's financial condition and results of operation and the impact to Plan participants. After consideration of these factors the Board determined that 2018 is the appropriate time to terminate the Plan.consolidated net income per share.
Based on the estimated value of assets held in the Plan, the Company currently expects that a cash contribution of approximately $1.1 million will be required to fully fund the Plan's liabilities at termination. In addition, the Company expects to record a charge to earnings of approximately $3.2 million at termination, which is expected to occur during the fourth quarter of 2018. Actual amounts may differ from these estimates.
Until the effective date of termination of the Plan, the Company will continue to recognize the pension benefit and cash funding obligations for the frozen benefits under the Plan, which are included in the Company's financial statements as of and for the periods ended September 30, 2017. The Plan provides defined benefits based on years of service and final average salary prior to October 5, 2012.




RESULTS OF OPERATIONS
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 interest expense 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. Net interest margin is calculated as the net interest income on a fully tax equivalent basis as a percentage of average earning assets.
The Company’s net interest income increased $495 thousand, or 7.8%,Interest earned on average earning assets for the three months ended March 31, 2023 was $13.0 million compared to $6.8$9.7 million for the three months ended September 30, 2017 from $6.3March 31, 2022, an increase of $3.3 million, or 34.1%. The increase is due to an increase in average earning assets of $150.0 million and to a lesser extent an increase in the average yields of 65 bps. The average yield on average earning assets was 4.09% for the three months ended March 31, 2023 compared to 3.44% for the three months ended March 31, 2022.
The average yield on federal funds sold and overnight deposits increased 263 bps between the three month comparison periods due to an increase in the interest rate being paid by the Federal Reserve on balances maintained in Union's master account at the FRB. The interest rate is set by the FRB Board of Governors and was set at 4.40% on January 1, 2023 and increased to 4.90% throughout the quarter ended March 31, 2023 compared to 0.15% on January 1, 2022, increasing to 0.40% throughout the quarter ended March 31, 2022. Interest income on investment securities increased $393 thousand between the three month comparison periods due to an increase in the average balances of $23.3 million, and an increase of 42 bps in the average yield.
Interest income on loans increased $2.7 million between the three month comparison periods due to an increase in the average volume of loans outstanding of $157.5 million and an increase of 45 bps in the average yield. The average volume of loans

Union Bankshares, Inc. Page 29


increased between the three month comparisons due to strong loan demand in the markets the Company serves as well as retaining higher volumes of residential loans on the Company's balance sheet. The increase in interest rates has also contributed to higher yields in the Company's loan portfolio.
Average interest bearing deposit balances increased $107.1 million between the three month comparison periods due to overall growth of the Company and the utilization of $63.0 million in average brokered deposits included in time deposits as of March 31, 2023. The average rate paid on interest bearing liabilities increased 89 bps to 1.25% for the first quarter of 2023 compared to 0.36% for the first quarter of 2022. Interest expense increased $2.3 million, to $3.1 million for the three months ended September 30, 2016. March 31, 2023 compared to $763 thousand for the three months ended March 31, 2022. Higher rates paid on customer deposit accounts and utilization of higher cost funding of brokered deposits and advances from the FHLB were drivers of the increase in interest expense.
The average balance in interest bearing checking accounts increased $34.3 million, or 12.27%, to $314.2 million for the three months ended March 31, 2023 compared to $279.8 million for the three months ended March 31, 2022. The increase in the average balance was primarily attributable to an increase in municipal deposit accounts between the three month comparison periods as well as growth in consumer and business checking accounts. The $357 thousand increase in interest expense for interest bearing checking accounts was primarily driven by the 43 bps increase in the rates paid on the deposit accounts and to a lesser extent the increase in average balances.
Several banks, including Union, offered higher rate paying time deposit specials to retain existing customer deposits and gain new deposit dollars. In offering these specials, Union was able to attract new deposit dollars but primarily saw a shift of funds from savings and money market accounts, and other non-maturity deposits, into time deposits specials. Interest expense on time deposits increased $1.1 million due to increases in the average volume of $89.4 million and 212 bps in the average rate paid during the first quarter of 2023 compared to the same period in 2022. Several time deposit specials have been offered since August of 2022, the most recent of which offers an APY of 4.25%, for new money not already on deposit with Union, for a term of 12 months. Despite a decrease of $16.6 million in the average balance of savings/money market accounts, interest expense increased $342 thousand between the three month comparison periods due to an increase of 34 bps in the average rate paid.
The net interest spread decreased 324 bps to 4.15%2.84% for the thirdfirst quarter of 2017,2023, from 4.18%3.08% for the same period last year, reflecting a 2the net effect of the 89 bps increase in the average rate paid on interest bearing liabilities offset by the 65 bps increase in the average yield earned on interest earning assets between periods, which was more than offset by a 5 bps increase in the average rate paid on interest bearing liabilities. Average yields increased in all asset categories during the three month comparison periods with the exception of loans which decreased 4 bps. The decrease in average yield for loans was more than offset by an increase in average volume of $49.5 million during the three month comparison period. The increase in the average volume of loans contributed to the $538 thousand increase in interest income on loans, as noted below under the caption "Rate Volume Analysis."
The average rate paid on interest bearing liabilities increased 5 bps, to 0.44% for the third quarter of 2017 compared to 0.39% for the third quarter of 2016. Average rates paid increased in all deposit categories. The average rate paid on borrowed funds for the third quarter of 2017 decreased 38 bps and the average volume increased $14.9 million during the three month comparison periods. The net interest margin was 4.23% and 4.26% fordecreased 3 bps during the three months ended September 30, 2017 and September 30, 2016, respectively.
Net interest income was $19.7 million, on a fully tax equivalent basis for the nine months ended September 30, 2017,first quarter of 2023 compared to $18.4 million for the nine months ended September 30, 2016, an increase of $1.3 million, or 6.94%. The volume of earning assets increased $42.9 million and the average yield on earning assets increased 1 bps to 4.55% compared to 4.54% for the comparison period. Average loans increased $35.0 million to $552.5 million for the nine months ended September 30, 2017 compared to $517.4 million for the nine months ended September 30, 2016. The increase in volume is the primary contributor to the $1.2 million increase in interest income on loans. While the FRB initiated three 25 bp increases in short-term rates since December 2016, not all of our loans are set to reprice immediately, or may be in the initial fixed period.
The average cost of funds, which is tied primarily to our customer deposits, remained consistent at 0.42% for the nine months ended September 30, 2017 and September 30, 2016. For the three months ended September 30, 2017,same period last year as a year-over-year increase in the average balances and rates paid on interest bearing checking accounts and savings and money market accounts occurred, with a corresponding decrease in time deposits due to increased useresult of the Promontory Interfinancial Network beginning in the third quarter of 2016. See the following table for details.changes discussed above.




Union Bankshares, Inc. Page 30


The following table shows for the periods indicated the total amount of tax equivalent interest income recorded 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.
 Three Months Ended March 31,
 20232022
 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$15,008 $104 2.78 %$51,148 $19 0.15 %
Interest bearing deposits in banks17,122 107 2.52 %13,356 33 1.01 %
Investment securities (2), (3)310,293 1,587 2.15 %287,014 1,194 1.73 %
Loans, net (2), (4)962,525 11,205 4.75 %805,074 8,474 4.30 %
Nonmarketable equity securities2,579 41 6.49 %894 2.48 %
Total interest earning assets (2)1,307,527 13,044 4.09 %1,157,486 9,726 3.44 %
Cash and due from banks4,639   4,693 
Premises and equipment20,406   21,517 
Other assets9,587   35,978 
Total assets$1,342,159   $1,219,674 
Average Liabilities and Stockholders' Equity:  
Interest bearing checking accounts$314,156 506 0.65 %$279,817 149 0.22 %
Savings/money market accounts428,438 696 0.66 %445,038 354 0.32 %
Time deposits195,772 1,241 2.57 %106,369 118 0.45 %
Borrowed funds and other liabilities41,532 484 4.66 %— — — %
Subordinated notes16,209 142 3.56 %16,175 142 3.55 %
Total interest bearing liabilities996,107 3,069 1.25 %847,399 763 0.36 %
Noninterest bearing deposits273,971   281,367 
Other liabilities15,096   10,688 
Total liabilities1,285,174   1,139,454 
Stockholders' equity56,985   80,220 
Total liabilities and stockholders’ equity$1,342,159   $1,219,674 
Net interest income $9,975   $8,963 
Net interest spread (2)  2.84 %  3.08 %
Net interest margin (2) 3.14 %  3.17 %
 Three Months Ended September 30,
 20172016
 
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
 (Dollars in thousands)
Average Assets:      
Federal funds sold and overnight deposits$11,185
$15
0.53%$15,513
$12
0.30%
Interest bearing deposits in banks8,356
38
1.77%9,830
37
1.51%
Investment securities (1), (2)65,882
426
3.06%55,943
362
3.04%
Loans, net (1), (3)573,512
6,893
4.88%523,973
6,355
4.92%
Nonmarketable equity securities2,576
25
3.85%2,220
20
3.61%
Total interest earning assets (1)661,511
7,397
4.59%607,479
6,786
4.57%
Cash and due from banks4,408
  4,688
  
Premises and equipment13,226
  13,219
  
Other assets22,848
  23,388
  
Total assets$701,993
  $648,774
  
Average Liabilities and Stockholders' Equity:      
Interest bearing checking accounts$146,505
55
0.15%$130,228
30
0.09%
Savings/money market accounts232,132
211
0.36%214,232
154
0.29%
Time deposits105,693
187
0.70%108,569
179
0.66%
Borrowed funds40,033
134
1.31%25,169
108
1.69%
Total interest bearing liabilities524,363
587
0.44%478,198
471
0.39%
Noninterest bearing deposits112,974
  109,077
  
Other liabilities5,719
  4,971
  
Total liabilities643,056
  592,246
  
Stockholders' equity58,937
  56,528
  
Total liabilities and stockholders’ equity$701,993
  $648,774
  
Net interest income $6,810
  $6,315
 
Net interest spread (1)  4.15%  4.18%
Net interest margin (1)  4.23%  4.26%


 Nine Months Ended September 30,
 20172016
 
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
Average
Balance
Interest
Earned/
Paid
Average
Yield/
Rate
 (Dollars in thousands)
Average Assets:      
Federal funds sold and overnight deposits$14,751
$64
0.57%$12,202
$23
0.25%
Interest bearing deposits in banks8,700
109
1.67%11,201
123
1.46%
Investment securities (1), (2)67,585
1,269
2.97%60,140
1,120
2.91%
Loans, net (1), (3)552,473
19,823
4.90%517,446
18,604
4.90%
Nonmarketable equity securities2,455
72
3.94%2,121
52
3.30%
Total interest earning assets (1)645,964
21,337
4.55%603,110
19,922
4.54%
Cash and due from banks4,199
  4,603
  
Premises and equipment13,286
  13,091
  
Other assets22,313
  22,777
  
Total assets$685,762
  $643,581
  
Average Liabilities and Stockholders' Equity:      
Interest bearing checking accounts$144,961
136
0.13%$125,407
79
0.08%
Savings/money market accounts229,938
610
0.35%196,903
325
0.22%
Time deposits103,763
525
0.68%133,351
796
0.80%
Borrowed funds35,713
369
1.36%23,905
303
1.67%
Total interest bearing liabilities514,375
1,640
0.42%479,566
1,503
0.42%
Noninterest bearing deposits108,395
  103,870
  
Other liabilities5,363
  4,693
  
Total liabilities628,133
  588,129
  
Stockholders' equity57,629
  55,452
  
Total liabilities and stockholders’ equity$685,762
  $643,581
  
Net interest income $19,697
  $18,419
 
Net interest spread (1)  4.13%  4.12%
Net interest margin (1)  4.22%  4.21%
__________________
(1)
Average yields reported on a tax equivalent basis using a marginal tax rate of 34%.
(2)
Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.
(3)
Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses.

__________________
(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.



Union Bankshares, Inc. Page 31


Tax exempt interest income amounted to $507$832 thousand and $431$502 thousandfor the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $1.4 million and $1.3 million for the 2017 and 2016 nine month comparison periods,2022, 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 34%21% for the 20172023 and 20162022 three and nine month comparison periods:
 For the Three Months
Ended March 31,
 20232022
 (Dollars in thousands)
Net interest income, as presented$9,975 $8,963 
Effect of tax-exempt interest  
Investment securities78 49 
Loans80 62 
Net interest income, tax equivalent$10,133 $9,074 
 For the Three Months
Ended September 30,
For The Nine Months
Ended September 30,
 2017201620172016
 (Dollars in thousands)
Net interest income as presented$6,810
$6,315
$19,697
$18,419
Effect of tax-exempt interest    
Investment securities77
64
235
192
Loans168
130
431
395
Net interest income, tax equivalent$7,055
$6,509
$20,363
$19,006




Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates earned and paid (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.
 Three Months Ended March 31, 2023
Compared to
Three Months Ended March 31, 2022
Increase/(Decrease) Due to Change In
 VolumeRateNet
 (Dollars in thousands)
Interest earning assets:   
Federal funds sold and overnight deposits$(22)$107 $85 
Interest bearing deposits in banks11 63 74 
Investment securities93 300 393 
Loans, net1,774 957 2,731 
Nonmarketable equity securities18 17 35 
Total interest earning assets$1,874 $1,444 $3,318 
Interest bearing liabilities:
Interest bearing checking accounts$19 $338 $357 
Savings/money market accounts(13)355 342 
Time deposits168 955 1,123 
Borrowed funds484 — 484 
Subordinated notes— — — 
Total interest bearing liabilities$658 $1,648 $2,306 
Net change in net interest income$1,216 $(204)$1,012 
 
Three Months Ended September 30, 2017
Compared to
Three Months Ended September 30, 2016
Increase/(Decrease) Due to Change In
Nine Months Ended September 30, 2017
Compared to
Nine Months Ended September 30, 2016
Increase/(Decrease) Due to Change In

 VolumeRateNetVolumeRateNet
 (Dollars in thousands)
Interest earning assets:      
Federal funds sold and overnight deposits$(4)$7
$3
$6
$35
$41
Interest bearing deposits in banks(5)6
1
(29)15
(14)
Investment securities62
2
64
144
5
149
Loans, net598
(60)538
1,256
(37)1,219
Nonmarketable equity securities3
2
5
9
11
20
Total interest earning assets$654
$(43)$611
$1,386
$29
$1,415
Interest bearing liabilities:      
Interest bearing checking accounts$4
$21
$25
$14
$43
$57
Savings/money market accounts14
43
57
61
224
285
Time deposits(4)12
8
(162)(109)(271)
Borrowed funds53
(27)26
127
(61)66
Total interest bearing liabilities$67
$49
$116
$40
$97
$137
Net change in net interest income$587
$(92)$495
$1,346
$(68)$1,278


ProvisionCredit Loss Expense. The Company adopted ASU No. 2016-13 to account for Loan Losses. There was $150 thousand loanthe ACL, effective January 1, 2023. As such, ACL and credit loss provision recorded expense as of and for the three months ended September 30, 2017 compared to no loanMarch 31, 2023 were accounted for in accordance with the ASU. In accordance with previously applicable GAAP, the ACL and credit loss provisionexpense as of and for the three months ended September 30, 2016. A loanMarch 31, 2022 were accounted for under the incurred loss provisionmethodology. Refer to Note 1, Summary of $150 thousand was recordedSignificant Accounting Policies for a description of the Company's accounting policies for the nine months ended September 30, 2017 and 2016. The provisionACL.


Union Bankshares, Inc. Page 32


Credit loss expense was made up of the following components for the three and nine months of 2017 was deemed appropriate by management based on the size and mix of the loan portfolio, the level of nonperforming loans, the results of the qualitative factor review and the existing economic conditions. For further details, see FINANCIAL CONDITION- Allowance for Loan Losses and Asset Quality below.following periods:

For the Three Months
Ended March 31,
2023
(CECL)
2022
(Incurred Loss)
(Dollars in thousands)
Credit loss expense for loans$90 $— 
Credit loss benefit for off-balance sheet credit exposures(16)— 
Credit loss expense, net$74 $— 



Noninterest Income. Noninterest income was $2.5 million, or 25.3% of total income for the three months ended September 30, 2017, compared to $2.8 million, or 29.2% of total income for the three months ended September 30, 2016 and $7.1 million, or 24.9% of total income for the nine months ended September 30, 2017 compared to $7.6 million, or 27.6% of total income for the nine months ended September 30, 2016. The following table sets forth the components of noninterest income and changes from 2016 to 2017:between the three month comparison periods of 2023 and 2022:
 For The Three Months Ended March 31,
 20232022$ Variance% Variance
 (Dollars in thousands)
Wealth management income$211 $209 $1.0 
Service fees1,694 1,635 59 3.6 
Net gains on sales of loans held for sale194 14 180 1,285.7 
Income from Company-owned life insurance107 182 (75)(41.2)
Other income33 82 (49)(59.8)
Net gains on other investments46 82 (36)(43.9)
Net gains on sales of investment securities AFS— 26 (26)(100.0)
Total noninterest income$2,285 $2,230 $55 2.5 
 For The Three Months Ended September 30,For The Nine Months Ended September 30,
 20172016$ Variance% Variance20172016$ Variance% Variance
 (Dollars in thousands)
Trust income$179
$171
$8
4.7
$548
$523
$25
4.8
Service fees1,553
1,538
15
1.0
4,444
4,377
67
1.5
Net gains on sales of loans held for sale657
921
(264)(28.7)1,762
2,196
(434)(19.8)
Income from Company-owned life insurance66
64
2
3.1
185
278
(93)(33.5)
Other income27
57
(30)(52.6)100
142
(42)(29.6)
Net gains on sales of investment securities AFS24
53
(29)(54.7)33
71
(38)(53.5)
Total noninterest income$2,506
$2,804
$(298)(10.6)$7,072
$7,587
$(515)(6.8)


The significant changes in noninterest income for the three and nine months ended September 30, 2017March 31, 2023 compared to the same periodsperiod of 20162022 are described below:

Service fees. Service fees increased $59 thousand for the three months ended March 31, 2023, compared to the same period in 2022 primarily due to increases of $8 thousand in overdraft fee income, $18 thousand in loan servicing fee income, and $30 thousand in ATM network fees.
Net gains on sales of loans held for sale. Continuing the Company's strategy to mitigate long-term interest rate risk, residential and commercial Residential mortgage loans totaling $32.0$11.8 million were sold during the third quarter of 2017, versus residential loanthree months ended March 31, 2023, compared to sales of $40.7$16.4 million during the third quartersame period in 2022. The increase of 2016. Residential and commercial loans of $90.6 million were sold during the first nine months of 2017, versus sales of $99.0 million the first nine months of 2016. The decline$180 thousand in net gains on sales of real estate loans is due to a combination ofheld for sale despite lower volumes of loans sold and lower average premiums on sold loans for the three and nine month comparison periods.

Income from Company-owned life insurance. Proceeds from the death benefit on an insurance policy on the life of a former director, resulting in $73 thousand of additional income were received during the second quarter of 2016 that did not reoccur in 2017. Additionally, the total yield on the policies has decreased as insurance costs have increased as each insured individual is another year older.

Other income. Other income decreased for the three and nine month comparison periods due to decreases in MSR income of $27 thousand and $25 thousand, respectively. Additionally, miscellaneous noninterest income decreased $2 thousand and $17 thousand for the three and nine month comparison periods.



Noninterest Expense. Noninterest expense decreased $83 thousand, or 1.4%, sales volume for the three months ended September 30, 2017 and increased $218 thousand, or 1.2% for the nine months ended September 30, 2017March 31, 2023 compared to the same periodsperiod in 2016.2022, reflects higher premiums obtained on sales in 2023 and $31 thousand of recapture on gains from 2021 recorded for the three months ended March 31, 2022 that did not occur in 2023.
Income from Company-owned life insurance. Death benefit proceeds of $77 thousand were received in the first quarter of 2022 that did not repeat in 2023.
Other income. The Company received $44 thousand in prepayment penalties for the three months ended March 31, 2022 that did not repeat for the same period in 2023.
Net gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess 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 $46 thousand and $82 thousand for the three months ended March 31, 2023 and March 31, 2022, respectively.



Union Bankshares, Inc. Page 33


Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three and nine month comparison periods of 2017ended March 31, 2023 and 2016:2022:
 For The Three Months Ended March 31,
 20232022$ Variance% Variance
 (Dollars in thousands)
Salaries and wages$3,502 $3,410 $92 2.7 
Employee benefits1,377 1,305 72 5.5 
Occupancy expense, net578 527 51 9.7 
Equipment expense897 916 (19)(2.1)
Professional fees269 216 53 24.5 
FDIC insurance assessment184 127 57 44.9 
Advertising and public relations143 108 35 32.4 
Vermont franchise tax289 261 28 10.7 
Amortization of MSRs, net124 175 (51)(29.1)
ATM and debit card expense273 203 70 34.5 
Board related expenses114 135 (21)(15.6)
Other expenses1,000 906 94 10.4 
Total noninterest expense$8,750 $8,289 $461 5.6 
 For The Three Months Ended September 30,For The Nine Months Ended September 30,
 20172016$ Variance% Variance20172016$ Variance% Variance
 (Dollars in thousands)
Salaries and wages$2,570
$2,622
$(52)(2.0)$7,642
$7,522
$120
1.6
Pension and employee benefits954
865
89
10.3
2,784
2,659
125
4.7
Occupancy expense, net320
297
23
7.7
1,073
923
150
16.3
Equipment expense532
553
(21)(3.8)1,589
1,603
(14)(0.9)
Vermont franchise tax146
139
7
5.0
434
414
20
4.8
FDIC insurance assessment84
81
3
3.7
255
246
9
3.7
Other expenses1,335
1,467
(132)(9.0)3,976
4,168
(192)(4.6)
Total noninterest expense$5,941
$6,024
$(83)(1.4)$17,753
$17,535
$218
1.2

The significant changes in noninterest expense for the three and nine months ended September 30, 2017March 31, 2023 compared to the same periods of 2016in 2022 are described below:

Salaries and wages. Salaries and wages decreased $52increased $92 thousand for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 primarily due to a reduction in commissions paid to mortgage loan originators. Salaries and wages increased $120 thousand for the nine months ended September 30, 2017 compared to the same period of 2016 due to normal salary increases, partially offset by a reduction in commissions paid to mortgage loan originators.
Pension and employee benefits. Pension and employee benefits increased $89 thousand and $125 thousand for the three and nine months ended September 30, 2017, respectively, compared to the same periods in 2016. The increase for the three month comparison period is primarily the result of an increase in the cost of the Company's medical plan of $61 thousand, a reduction of $22 thousand in the benefit received from the pension plan, and an increase of $11 thousand in other employee benefit costs. The increase for the nine month comparison periods is the result of a reduction in the benefit received from the pension plan of $67 thousand, a $40 thousand increase in other employee benefits, and an increase in the cost of the Company's medical plan of $30 thousand. Additionally, the Company's 401k contribution expense was $15 thousand less for the nine months ended September 30, 2017March 31, 2023 compared to the same period in 20162022 primarily due to annual salary adjustments for the 2023 fiscal year. Wage pressures ensued for most of 2022 as the 2016 profit sharing contribution paidemployees, current and new hires, sought higher wages to employees was less than the amount accrued based on the end of year employee census information.
offset inflationary pressures.
Occupancy expense. The Company experienced increases of $12Employee benefits. Employee benefit expense increased $72 thousand and $91 thousand in repairs and maintenance for its facilities for the three and nine months ended September 30, 2017, respectively,March 31, 2023 compared to the same periodsperiod in 2022 due to an increase of 2016. The mild winter experienced$184 thousand in Vermont and New Hampshire in 2016 resulted in lower than normal plowing costs. Also,premium expense for the Company's janitorial services increased approximately $9medical and dental plans between periods, partially offset by decreases of $24 thousand in payroll taxes, $26 thousand in retirement plan contributions, and $33 during$63 thousand in employee benefits related to the Company's deferred compensation plans.
Occupancy expense, net. The increase in occupancy expense for the three and nine month comparison periods respectively,is due to increases in utilities and repair and maintenance expenses. Also, lease expense increased $27 thousand primarily due to a changenew lease for a full service branch location in vendor. Additionally, lease expenseNorth Conway, NH.
Professional fees. Professional fees increased $7 thousand and $26$53 thousand for the three and nine months ended September 30, 2017, respectively,March 31, 2023 compared to the same periods of 2016. Lastly, an increase of $18period in 2022 due to annual increases in engagement fees and payment for additional tax consulting services and internal audit expenses.
FDIC insurance assessment. The FDIC insurance assessment increased $57 thousand in depreciation expense occurred during the ninecomparison periods primarily due to overall growth in net assets.
Advertising and public relations. The increase in advertising and public relations costs primarily related to advertising campaigns and product specific advertising in 2023 that did not occur in 2022.
Vermont franchise tax. The increase in expense between the three month comparison periods.
periods is due to the increase in average deposit balances for customer accounts allocated to Vermont.
Other expenses. Other expenses have decreased $132 thousandAmortization from MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. Capitalized servicing rights are initially recorded at fair value and $192 thousand foramortized in proportion to, and over the three and nine months ended September 30, 2017, respectively. Professional and legal fees decreased $70period of, the estimated future servicing period of the underlying mortgages. The amortization of MSRs exceeded new capitalized MSRs which resulted in net expense of $124 thousand and $184$175 thousand, for the three months ended March 31, 2023 and nine month2022, respectively.
ATM and debit card expenses. The increase between comparison periods as various consulting engagements occurringrelates to increases in 2016 were not repeated in 2017.the volume of ATM and debit card transactions and new card issuance costs.

Union Bankshares, Inc. Page 34


Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the quarters and ninethree months ended September 30, 2017March 31, 2023 and 2016.2022. The Company's net provision for income taxes was $855$459 thousand and $2.3 million for the quarter and ninethree months ended September 30, 2017, respectively,March 31, 2023 compared to $827$422 thousand and $2.2 million for the same periodsperiod in 2016.2022. The Company's effective federal corporate income tax rate was 26.5% and 26.4%14.3% for the quarter and ninethree months ended September 30, 2017, respectively,March 31, 2023 compared to an effective tax rate of 26.7% and 25.9%14.7% for the same periodsperiod in 2016.2022.
Amortization expense related to limited partnership investments is included as a component of tax expense and amounted to $157 and $471$331 thousand for the three and nine months ended September 30, 2017, respectively,March 31, 2023 and $155 thousand and $391$256 thousand for the three and nine months ended September 30, 2016, respectively.same period in 2022. These investments provide tax benefits, including tax


credits. Low income housing and rehabilitation tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $158 thousand and $474$347 thousand for the three and nine months ended September 30, 2017, respectively,March 31, 2023 and $169 thousand and $429$251 thousand for the three and nine months ended September 30, 2016, respectively.March 31, 2022.


FINANCIAL CONDITION

At September 30, 2017,March 31, 2023, the Company had total consolidated assets of $705.3 million,$1.36 billion, including gross loans and loans held for sale (total loans) of $584.6$975.3 million,, investment securities AFS of $275.4 million, deposits of $606.6$1.23 billion, borrowed funds of $45.1 million, subordinated notes of $16.2 million and stockholders' equity of $59.6 million.$60.6 million. The Company’s total assets at September 30, 2017March 31, 2023 increased $14.0$25.6 million,, or 2.0%1.9%, from $691.4 million$1.34 billion at December 31, 2016,2022, and increased $32.8$128.5 million,, or 4.9%10.4%, compared to September 30, 2016.March 31, 2022.

Net loans and loans held for sale increased a total of $43.6$17.4 million,, or 8.1%1.8%, to $580.1$969.7 million,, or 82.2% representing 71.2% of total assets at September 30, 2017,March 31, 2023, compared to $536.5$952.3 million,, or 77.6%71.3% of total assets at December 31, 2016.2022. (See Loans Held for Sale and Loan Portfolio below.)

Total deposits increased $9.0$24.1 million,, or 1.5%2.0%, to $606.6 million$1.23 billion at September 30, 2017,March 31, 2023, from $597.7 million$1.20 billion at December 31, 2016.2022. There were increaseswas an increase in time deposits of $101.0 million, or 66.0%, which was partially offset by decreases in noninterest bearing deposits of $23.7 million, or 8.3%, and interest bearing deposits of $5.6$53.3 million, or 1.5%, and noninterest bearing deposits of $6.8 million, or 6.1%, which were partially offset by a decrease in time deposits of $3.5 million, or 3.4%7.0%. (See average balances and rates in the Yields Earned and Rates Paid tables table on pagespage 31.)
Borrowed funds, which consist of FHLB advances, were $45.1 million and $50.0 million at March 31, 2023 and 32.)

Total borrowed funds increased $925 thousand, or 2.9%, from $31.6 million at December 31, 2016 to $32.5 million at September 30, 2017. There was $255 thousand in federal funds purchased at September 30, 2017 and customer overnight collateralized repurchase sweeps increased $879 thousand, while FHLB advances decreased $209 thousand between December 31, 2016 and September 30, 2017.2022, respectively. (See Borrowings on page 41.)

Total stockholders’Stockholders’ equity increased $3.3from $55.2 million to $59.6 millionat September 30, 2017 from $56.3 million at December 31, 2016.2022 to $60.6 million at March 31, 2023, reflecting a decrease of $3.9 million in accumulated other comprehensive loss due to an increase in the fair market value of the Company's AFS investment securities, net income of $3.0 million for the first three months of 2023, an increase of $113 thousand from stock based compensation, a $37 thousand increase from the impact of adoption of ASU No. 2016-13 and a $23 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by cash dividends declared of $1.6 million and stock repurchases of $60 thousand during the three months ended March 31, 2023. (See Capital Resources on page 43.)

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased $43.5$15.9 million,, or 8.0%1.7%, to $584.6$975.3 million,, representing 82.9%71.6% of assets at September 30, 2017,March 31, 2023, from $541.1$959.3 million,, representing 78.3%71.8% of assets at December 31, 2016.2022. The total loan portfolio at September 30, 2017March 31, 2023 increased $52.0$145.3 million compared to the September 30, 2016March 31, 2022 level of $532.6$830.0 million,, representing 79.2% which represented 67.3% of assets. 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 $476.1$840.5 million,, or 81.4%86.2% of total loans at September 30, 2017March 31, 2023 and $463.8$828.2 million,, or 85.7%86.3% of total loans at December 31, 2016. Although competition for good2022. Changes in the Company's loan portfolio from December 31, 2022 (see table below) resulted primarily from an increase in the volume of construction, residential, and municipal loans is strong, especiallyoriginated, partially offset by a decrease in the commercial sector, the Company has been able to originate loans to both current and new customers while maintaining credit quality. Other than the increase in the municipal portfolio reflecting the successful bid season for municipal lending opportunities, the composition of the Company’s loan portfolio remained relatively unchanged from December 31, 2016. There was no material change in the Company’s lending programs or terms during the nine months ended September 30, 2017.real estate portfolio.





Union Bankshares, Inc. Page 35


The composition of the Company's loan portfolio, including loans held for sale, as of September 30, 2017March 31, 2023 and December 31, 20162022 was as follows:
 March 31, 2023December 31, 2022
Loan ClassAmountPercentAmountPercent
Residential real estate(Dollars in thousands)
Non-revolving residential real estate$341,880 35.1 $335,470 35.0 
Revolving residential real estate16,299 1.7 16,963 1.8 
Construction real estate
Commercial construction real estate60,847 6.2 56,501 5.9 
Residential construction real estate46,320 4.8 40,119 4.2 
Commercial real estate
Non-residential commercial real estate278,366 28.5 282,397 29.4 
Multi-family residential real estate93,953 9.6 95,550 9.9 
Commercial41,553 4.3 40,973 4.3 
Consumer2,373 0.2 2,204 0.2 
Municipal90,818 9.3 87,980 9.2 
Loans held for sale2,849 0.3 1,178 0.1 
Total loans975,258 100.0 959,335 100.0 
ACL on loans(6,934) (8,339) 
Unamortized net loan costs1,358  1,336  
Net loans and loans held for sale$969,682  $952,332  
 September 30, 2017December 31, 2016
Loan ClassAmountPercentAmountPercent
 (Dollars in thousands)
Residential real estate$176,399
30.2$172,727
31.9
Construction real estate36,796
6.334,189
6.3
Commercial real estate257,192
44.0249,063
46.0
Commercial48,166
8.241,999
7.8
Consumer3,832
0.63,962
0.7
Municipal56,517
9.731,350
5.8
Loans held for sale5,675
1.07,803
1.5
Total loans584,577
100.0541,093
100.0
Allowance for loan losses(5,259) (5,247) 
Unamortized net loan costs749
 649
 
Net loans and loans held for sale$580,067
 $536,495
 
The Company originates and sells qualified residential mortgage loans in various secondary market avenues to mitigate long-term interest rate risk and generate fee income, with a majority of sales made to the FHLMC/Freddie Mac.Mac, generally with servicing rights retained. At September 30, 2017,March 31, 2023, the Company serviced a $654.3$994.2 million residential real estate mortgage portfolio, of which $5.7$2.8 million was held for sale and approximately $472.2$633.2 million of which was serviced for unaffiliated third parties.

The Company sold $90.3$11.8 million of qualified residential real estate loans primarily originated during the first nine months of 2017to the secondary market to mitigate long-term interest rate risk and to generate fee income,during the first three months of 2023 compared to sales of $98.8$16.4 million during the first ninethree months of 2016. The Company generally retains the servicing rights on sold residential2022. Residential mortgage loans. origination activity continued to be relatively stable during the first quarter of 2023. Despite low housing inventory and rising interest rates, purchase activity in the Company's markets continues to be stable with an increase in 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 locationsmarkets without needing prior HUD underwriting approval. The Company sells FHA, VA and FHARD 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 we serve,served, including low and moderate income borrowers, while the loan sales and government guaranty mitigates ourmitigate 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 $4.9$3.1 million guaranteed under these various programs at September 30, 2017March 31, 2023 on an aggregate balance of $6.2$4.2 million in subject loans. The Company occasionally sells the guaranteed portion of thea loan to other financial concernsinstitutions and retains servicing rights, which generates fee income. There were $226 thousand ofno commercial loans sold in the first ninethree months of 20172023 and $251 thousand of commercial loans sold in the first nine months of 2016.2022. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.

The Company serviced $17.1$28.0 million of commercial and commercial real estate loans for unaffiliated third parties as of September 30, 2017.March 31, 2023. This includes $12.7included $26.9 million of commercial or commercial real estate loans the Company hasoriginated and participated out to other financial institutions,institutions. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

As of September 30, 2017, total loans serviced had grown to $1.1 billion, which includes total loans on the balance sheet of $584.6 million as well as total loans sold with servicing retained of $489.2 million, compared to total loans serviced of $993.1 million as of December 31, 2016.

The Company capitalizes MSRs for all loans sold with servicing retained and recognizes gains and losses on the sale of the principal portion of these loans as they occur.retained. The unamortized balance of MSRs on loans sold with servicing retained was $1.7$1.9 million at September 30, 2017,March 31, 2023, with an estimated market value in excess of the carrying value as of such date. Management periodically evaluates and measures the servicing assets for impairment.



Union Bankshares, Inc. Page 36



There were no loans pledged to secure municipal deposits above the FDIC insurance coverage level as of September 30, 2017. QualifiedQualifying residential first mortgage loans and certain commercial real estate loans held by Union are eligible to bewith a carrying value of $265.8 million were pledged as collateral for borrowings from the FHLB under a blanket lien.lien at March 31, 2023.


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. Renewed market volatility, high unemployment rates or weakness in the general economic condition of the country or our market area, may have a negative effect on our customers’ ability to make their loan payments on a timely basis and/or on underlying collateral values. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO for potential problems and reports to the Company’s and Union’s Board at regularly scheduled meetings. Repossessed assets and loans or investments that are 90 days or more past due are considered to be nonperforming assets. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates large credits out to other financial institutions to further mitigate that risk.
Repossessed assets, nonaccrual loans, and loans that are 90 days or more past due are considered to be nonperforming assets. The following table showsdetails the composition of the Company's nonperforming assets at the dates indicated and trends ofamounts utilized to calculate certain asset quality ratios monitored by the Company's management in reviewingas of the balance sheet dates and March 31, 2022:
March 31,
2023
December 31,
2022
March 31,
2022
 (Dollars in thousands)
Nonaccrual loans$2,174 $2,211 $4,405 
Loans past due 90 days or more and still accruing interest175 186 229 
Total nonperforming assets$2,349 $2,397 $4,634 
Guarantees of U.S. or state government agencies on the above nonperforming loans$76 $76 $177 
TDR loans$— $1,710 $2,181 
ACL on loans$6,934 $8,339 $8,336 
Net recoveries$— $(3)$— 
Total loans outstanding$975,258 $959,335 $829,956 
Total average loans outstanding$962,525 $875,528 $805,074 


Union Bankshares, Inc. Page 37


The following table shows trends of certain asset quality:quality ratios monitored by the Company's management as of the balance sheet dates and March 31, 2022:
 March 31,
2023
December 31,
2022
March 31,
2022
(Dollars in thousands)
ACL on loans to total loans outstanding0.71 %0.87 %1.00 %
ACL on loans to nonperforming loans295.19 %347.89 %179.89 %
ACL on loans to nonaccrual loans318.95 %377.16 %189.24 %
Nonperforming loans to total loans0.24 %0.25 %0.56 %
Nonperforming assets to total assets0.17 %0.18 %0.38 %
Nonaccrual loans to total loans0.22 %0.23 %0.53 %
Delinquent loans (30 days to nonaccruing) to total loans0.36 %0.57 %0.75 %
Net (recoveries) charge-offs to total average loans (annualized)— %— %— %
Residential real estate— %— %— %
Net (recoveries) charge-offs$— $— $— 
Total average loans$354,114 $304,778 $266,089 
Construction real estate— %— %— %
Net (recoveries) charge-offs$— $— $— 
Total average loans$92,065 $67,272 $54,370 
Commercial real estate— %— %— %
Net (recoveries) charge-offs$— $— $— 
Total average loans$384,590 $373,657 $356,548 
Commercial— %— %— %
Net (recoveries) charge-offs$— $(1)$— 
Total average loans$40,601 $43,710 $46,275 
Consumer— %(0.09)%— %
Net (recoveries) charge-offs$— $(2)$— 
Total average loans$2,235 $2,262 $2,333 
Municipal— %— %— %
Net (recoveries) charge-offs$— $— $— 
Total average loans$88,920 $83,849 $79,459 
 As of or for the nine months endedAs of or for the year endedAs of or for the nine months ended
 September 30,
2017
December 31,
2016
September 30,
2016
 (Dollars in thousands)
Nonaccrual loans$2,029
$3,545
$2,414
Accruing loans 90+ days delinquent229
840
1,002
Total nonperforming assets (1)$2,258
$4,385
$3,416
Allowance for loan losses to loans not held for sale0.91%0.98%1.00%
Allowance for loan losses to nonperforming loans232.91%119.66%152.99%
Nonperforming loans to total loans0.39%0.81%0.64%
Nonperforming assets to total assets0.32%0.63%0.51%
Delinquent loans (30 days to nonaccruing) to total loans0.64%1.55%0.82%
Net charge-offs (annualized) to average loans not held for sale0.03%0.02%0.03%

____________________
(1)
The Company had guarantees of U.S. or state government agencies on the above nonperforming loans totaling $135 thousand at September 30, 2017, $599 thousand at December 31, 2016, and $500 thousand at September 30, 2016.

The level of nonaccrual loans decreased$1.5 million, or 42.8%, since December 31, 2016, and accruing loans delinquent 90 days or more decreased$611 thousand, or 72.7%, during the same time period. The percentage of nonperforming loans to total loans decreased from 0.81% to 0.39%. There were threewas one residential real estate loan totaling $373$40 thousand in process of foreclosure at September 30, 2017.March 31, 2023 and one residential real estate loan totaling $28 thousand in process of foreclosure at December 31, 2022. The aggregate interest income not recognized on nonaccrual loans amounted to approximately $1.3 millionapproximated $98 thousand as of September 30, 2017March 31, 2023 and 2016 and $1.3 million$59 thousand as of December 31, 2016.2022.
At September 30, 2017, theThe Company had loans rated substandard that were on performing status totaling $2.9 million, compared to $1.8$1.3 million at March 31, 2023 and December 31, 2016.2022. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future. The Company’s management is focused on the impact that the economy may have on its borrowers and closely monitors industry and geographic concentrations for evidence of financial problems. In contrast to the lack of snow in the prior year winter season which strained the local tourism industry, this past winter season brought cold temperatures and abundant snowfall to the area, which appears to have had a positive impact after the difficult 2015/2016 winter season. Improvement in local economic indicators have also been identified over the past year. The unemployment rate has stabilized in Vermont and was 2.9% for September 2017 compared to 3.3% for September 2016. The New Hampshire unemployment rate was 2.7% for September 2017 compared to 2.9% for September 2016. These rates compare favorably with the nationwide unemployment rate of 4.2% and 5.0% for the comparable periods. Management will continue to monitor the national, regional and local economic environment and its impact on unemployment, business failures and real estate values in the Company’s market area.
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 the 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. There were no such declines for the three and nine months ended September 30, 2017, or September 30, 2016. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at September 30, 2017 or December 31, 2016.
Allowance for LoanCredit 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 ALLACL to absorb such losses. The ALL is maintainedlevel of the ACL on loans at a level believed by management to be appropriate to absorb probableMarch 31, 2023 represents management's estimate of expected credit losses inherent inover the loan portfolio asexpected life of the evaluation date; however, actual loan losses may vary from current estimates.loans at the balance sheet date. The Company's policy and methodologies for establishing the ALL,ACL on loans for the 2022 comparison period presented are described in the Company's 2022 Annual Report on Form 10-Kand the Summary of Significant Accounting Policies in Note 1 to the unaudited interim financial statements included in this report describes the Company's policy and methodologies related to the adoption of CECL as of January 1, 2023 and for the year ended first three months of 2023. The Company's ACL on loans was $6.9 million and $8.3 million at March 31, 2023 and December 31, 2016, did not change during the first nine months of 2017.2022, respectively.
Impaired loans, including $3.5 million of TDR loans, were $3.9 million at September 30, 2017, with government guaranties of $564 thousand and a specific reserve amount allocated of $61 thousand. Impaired loans, including $3.4 million of TDR loans, at December 31, 2016 were $5.3 million, with government guaranties of $637 thousand and a specific reserve amount allocated of $103 thousand. Based on management's evaluation of the Company's historical loss experience on substandard commercial loans, commercial loans with balances greater than $500 thousand was established as the threshold for individual impairment evaluation with a specific reserve allocated when warranted. Commercial loans with balances under this threshold are collectively evaluated for impairment as a homogeneous pool of loans, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. The specific reserve amount allocated to individually identified impaired loans decreased $42 thousand as a result of the September 30, 2017 impairment evaluation.

Union Bankshares, Inc. Page 38


The following table reflects activity in the ALLACL on loans for the three and nine months ended September 30, 2017March 31, 2023 and 2016:2022:
For the Three Months
Ended September 30,
For The Nine Months
Ended September 30,
For the Three Months
Ended March 31,
2017201620172016 20232022
(Dollars in thousands) (Dollars in thousands)
Balance at beginning of period$5,168
$5,226
$5,247
$5,201
Balance at beginning of period$8,339 $8,336 
Impact of adoption of ASU No. 2016-13Impact of adoption of ASU No. 2016-13(1,495)— 
Charge-offs(102)(4)(191)(160)Charge-offs— (1)
Recoveries43
4
53
35
Recoveries— 
Net charge-offs(59)
(138)(125)
Provision for loan losses150

150
150
Net recoveries (charge-offs)Net recoveries (charge-offs)— — 
Credit loss expenseCredit loss expense90 — 
Balance at end of period$5,259
$5,226
$5,259
$5,226
Balance at end of period$6,934 $8,336 
The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ALLACL on loans and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:
 March 31, 2023December 31, 2022
 AmountPercentAmountPercent
Residential real estate(Dollars in thousands)
Non-revolving residential real estate$2,071 35.2 $2,294 35.0 
Revolving residential real estate143 1.7 123 1.8 
Construction real estate
Commercial construction real estate1,713 6.2 611 5.9 
Residential construction real estate148 4.8 421 4.2 
Commercial real estate
Non-residential commercial real estate2,186 28.6 2,931 29.5 
Multi-family residential real estate221 9.7 1,004 9.9 
Commercial368 4.3 301 4.3 
Consumer0.2 10 0.2 
Municipal79 9.3 95 9.2 
Unallocated— — 549 — 
Total$6,934 100.0 $8,339 100.0 
 September 30, 2017December 31, 2016
 AmountPercentAmountPercent
 (Dollars in thousands)
Residential real estate$1,379
30.5$1,399
32.4
Construction real estate408
6.4391
6.4
Commercial real estate2,790
44.42,687
46.7
Commercial359
8.3342
7.9
Consumer26
0.626
0.7
Municipal65
9.840
5.9
Unallocated232
362
Total$5,259
100.0$5,247
100.0


Notwithstanding the categories shown in the table above or any specific allocation under the Company's ALLACL methodology, all funds in the ALLACL on loans are available to absorb loan losses in the portfolio, regardless of loan category or specific allocation.

There were no changes to the reserve factors assigned to any of the loan portfolios based on the qualitative factor reviews performed during the first nine months of 2017. Management of the Company believes, in its best estimate, that the ALLACL on loans at September 30,


2017March 31, 2023 is appropriate to cover probableexpected credit losses inherent inover 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 ALLACL on loans at September 30, 2017.March 31, 2023. In addition, our banking regulators, as an integral part of their examination process, periodically review our ALL.ACL. Such agencies may require us to recognize adjustments to the ALLACL based on their judgments about information available to them at the time of their examination. A large adjustment to the ALLACL on loans for losses in future periods maycould require increased provisionscredit loss expense to replenish the ALL,ACL on loans, which could negatively affect earnings. While
Investment Activities. During the Company recognizes that economic slowdowns or financial and credit market turmoil may adversely impact its borrowers' financial performance and ultimately their ability to repay their loans, management continues to be cautiously optimistic about the collectabilityfirst three months of the Company's loan portfolio.

Investment Activities. At September 30, 2017,2023, investment securities classified as AFS, totaled $64.0which are carried at fair value, increased $25.2 million and securities classified as HTM totaled $1.0 to $275.4 million,, or $65.0 million combined, comprising 9.2%20.2% of total assets. Total investment securities decreased $1.6assets, compared to $250.3 million,, or 2.4%, from $66.6 million, or 9.6%18.7% of total assets at December 31, 2016. 2022. The increase is due to purchases of higher yielding municipal securities of $24.9 million and a reduction in unrealized losses of $4.4 million, partially offset by returns of principal of $4.1 million.
Net unrealized losses forin the Company’s AFS investment securities portfolio were $116 thousand$42.9 million as of September 30, 2017,March 31, 2023, compared to net unrealized losses of $1.0$47.4 million as of December 31, 2016. Net unrealized losses of $77 thousand, net of income tax effect, were reflected in the2022. The Company’s accumulated OCI component of stockholders’ equity at September 30, 2017. There was $1 thousand inMarch 31, 2023 reflected cumulative net unrealized losses in the Company's HTMon investment securities portfolioof $33.5 million. There were no securities classified as HTM at September 30, 2017 and no unrealized gainMarch 31, 2023 or loss at December 31, 2016. 2022. The increase in interest rates over the

Union Bankshares, Inc. Page 39


past year has negatively impacted the fair value of the investment portfolio. No declines in value were deemed by management to be OTTimpairment related to credit losses at September 30, 2017.March 31, 2023. Deterioration in credit quality and/or imbalances in liquidity that may existresult from changes in the financial marketplacemarket 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 certain resulting unrealizedcredit losses willmay be designated as OTTidentified in future periods, resulting in write-downscredit loss expense recorded in earnings.
Investment securities AFS with a carrying amount of $999 thousand and charges to earnings. There was $4.9 million of investment securities$433 thousand were pledged to secure variousas collateral for public unit deposits or customer repurchase agreementsfor other purposes as of September 30, 2017, compared to $8.4 millionrequired or permitted by law at March 31, 2023 and December 31, 2016.2022, respectively.

Deposits. The following table shows information concerning the Company's average deposits by account type and weighted average nominal rates at which interest was paid on such deposits for the ninethree months ended September 30, 2017March 31, 2023 and year2022:
 Three Months Ended
March 31, 2023
Three Months Ended
March 31, 2022
 Average
Amount
Percent
of Total
Deposits
Average
Rate
Average
Amount
Percent
of Total
Deposits
Average
Rate
 (Dollars in thousands)
Nontime deposits:      
Noninterest bearing deposits$273,971 22.6 — $281,367 25.3 — 
Interest bearing checking accounts314,156 25.9 0.65 %279,817 25.2 0.22 %
Money market accounts249,195 20.5 1.11 %259,670 23.3 0.53 %
Savings accounts179,243 14.8 0.04 %185,368 16.7 0.04 %
Total nontime deposits1,016,565 83.8 0.48 %1,006,222 90.5 0.20 %
Total time deposits195,772 16.2 2.57 %106,369 9.5 0.45 %
Total deposits$1,212,337 100.0 0.82 %$1,112,591 100.0 0.23 %
During the first three months of 2023, average total deposits grew $99.7 million, or 9.0%, compared to the three months ended DecemberMarch 31, 2016:
 Nine Months Ended
September 30, 2017
Year Ended
December 31, 2016
 
Average
Amount
Percent
of Total
Deposits
Average
Rate
Average
Amount
Percent
of Total
Deposits
Average
Rate
 (Dollars in thousands)
Nontime deposits:      
Noninterest bearing deposits$108,395
18.5
$105,596
18.7
Interest bearing checking accounts144,961
24.70.13%128,977
22.80.09%
Money market accounts131,008
22.30.51%110,938
19.60.35%
Savings accounts98,930
16.80.15%93,118
16.50.15%
Total nontime deposits483,294
82.30.21%438,629
77.60.15%
Time deposits:      
Less than $100,00061,787
10.50.65%63,720
11.30.66%
$100,000 and over41,976
7.20.72%62,528
11.10.90%
Total time deposits103,763
17.70.68%126,248
22.40.77%
Total deposits$587,057
100.00.29%$564,877
100.00.29%
2022. The average balance of total nontime deposit balances increased $10.3 million between periods primarily due to an increase of $34.3 million in interest bearing checking accounts, partially offset by a combined decrease of $24.0 million in all other categories. The increase in interest bearing checking accounts is primarily attributable to an increase in municipal deposit accounts. The decreases in the other categories are attributable to both loss of deposit dollars to competing financial institutions and brokerage firms, and customers shifting monies into time deposits as they continue to seek higher yields. The average balance in total time deposits increased $89.4 million between periods due to an increase of $63.0 million in average brokered deposits and an increase of $26.4 million in average customer time deposit accounts as customers took advantage of higher rate paying CDs.
The Company participates in CDARS, which permits the Companyit 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 $11.2no purchased CDARS deposits as of March 31, 2023 or December 31, 2022. There were $13.3 million and $12.3 million of time deposits of $250,000 or less on the balance sheet at September 30, 2017March 31, 2023 and $10.9 million at December 31, 2016,2022, respectively, which were exchanged with other CDARS participants and are therefore considered for certain regulatory purposes to be “brokered” deposits. There were no purchased CDARS deposits at September 30, 2017 or December 31, 2016.

participants.
The Company also participates in the ICS program, a service through which Unionit can offer its customers ademand or savings productproducts 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 for the customer,of excess balances, thereby helping Unionthe 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. During the third quarter of 2016,


Union began offering an ICS money market account to its municipal and commercial customers. Several municipal customers began utilizing this account and as monies in time deposits matured they were placed into these money market accounts. There were $37.7$182.2 million and $52.6$209.3 million in exchanged ICS demand and money market deposits on the balance sheet at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively. As a result, an increase in the average balance and rate paid on money market accounts and total non-time deposit accounts occurred during the nine months ended September 30, 2017 compared to the year ended December 31, 2016, with corresponding decreases in time deposits $100,000 and over. There were no purchased ICS deposits at September 30, 2017March 31, 2023 or December 31, 2016.

2022.
At September 30, 2017,March 31, 2023 there was $2.0were $108.0 million inof retail brokered deposits at a weighted average rate of 4.64% issued under a master certificatescertificate of deposit toprogram with a deposit broker for the purpose of providing a supplemental source of funding and liquidity. These deposits will mature in $1.0 million increments in each of the next two years. There were $3.0$33.0 million of retail brokered deposits at December 31, 2016.2022 at a rate of 3.45% for a three month term that matured in January 2023.



Union Bankshares, Inc. Page 40


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 March 31, 2023, the Company had total estimated uninsured deposit accounts totaling $350.9 million, or 28.6% of total deposits. Uninsured deposits include $26.6 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at March 31, 2023, as described below under Borrowings.
The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of $100,000the $250 thousand FDIC insurance limit at March 31, 2023 and over at September 30, 2017 and December 31, 2016:2022:
March 31, 2023December 31, 2022
 (Dollars in thousands)
Within 3 months$3,296 $1,011 
3 to 6 months1,426 4,001 
6 to 12 months22,681 11,462 
Over 12 months5,735 9,883 
 $33,138 $26,357 
 September 30, 2017December 31, 2016
 (Dollars in thousands)
Within 3 months$6,145
$5,202
3 to 6 months5,708
9,927
6 to 12 months15,220
12,051
Over 12 months12,996
13,401
 $40,069
$40,581

During Borrowings. Advances from the first nine monthsFHLB are another key source of 2017, average total deposits grew $22.2 million, or 3.9%, comparedfunds to support earning assets. These funds are also used to manage the year ended December 31, 2016, with growth in all categories except time deposits. In total, time deposits at September 30, 2017 decreased $3.5 million, or 3.4%, from December 31, 2016, with the average balance decreasing $22.5 million.Bank's interest rate and liquidity risk exposures. The Company’s time deposits in amounts of $100 thousand and over decreased $512 thousand, or 1.3%, between December 31, 2016 and September 30, 2017, while the average balance decreased from $62.5 million to $42.0 million. The decrease in the average time deposits is primarily the result of the third quarter 2016 shift in municipal deposit funds from time deposits to the fully insured ICS money market product.

A provision of the Dodd-Frank Act permanently raised FDIC deposit insurance coverage to $250 thousand per depositor per insured depository institution for each account ownership category. At September 30, 2017, the Company had deposit accounts with less than $250 thousand totaling $447.0 million, or 73.7% of its deposits, with FDIC insurance protection. An additional $3.5 million of municipal deposits were over the FDIC insurance coverage limit at September 30, 2017 and were collateralized by Union under applicable state regulations by investment securities.

Borrowings. TotalCompany's borrowed funds at September 30, 2017March 31, 2023 were $32.5comprised of borrowings from the FHLB of $45.1 million compared to $31.6 million at December 31, 2016, a net increase of $925 thousand, or 2.9%. The increase in borrowed funds reflects a balance of $255 thousand in overnight federal funds purchased at a rate of 1.30% from FHLB at September 30, 2017, versus no federal funds purchased at December 31, 2016. The FHLB option advance borrowings were $30.3 million at September 30, 2017, at a weighted average rate of 1.38%, and $30.5 million at 5.02%. At December 31, 2016,2022, borrowed funds were comprised of borrowings from the FHLB of $50.0 million at a weighted average rate of 1.42%. 4.41%
The decreaseCompany 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 balanceamount of option advances reflects scheduled monthly payments of $208 thousand on long-term FHLB amortizing advances during the first nine months of 2017. In addition,$38.5 million and $42.5 million were utilized as collateral for these deposits at March 31, 2023 and December 31, 2022, respectively. Total fees paid by the Company had overnight secured customer repurchase agreement sweepsin connection with the issuance of these letters of credit were $13 thousand and $8 thousand for the three months ended March 31, 2023 and 2022 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 to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at September 30, 2017 of $2.0 million, at a weighted averagethe rate of 0.25%, compared3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to $1.1 million,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 $287 thousand and $295 thousand at a weighted average rate of 0.23% at March 31, 2023 and December 31, 2016, an increase of $879 thousand, or 80.0%. The volume of the overnight secured customer repurchase agreement sweeps is volatile and is a function of our customers' cash flow needs.2022, respectively.


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 instruments.

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.



Union Bankshares, Inc. Page 41


The following table details the contractual or notional amount of financial instruments that represented credit risk at the balance sheet dates:
September 30, 2017December 31, 2016March 31, 2023December 31, 2022
(Dollars in thousands) (Dollars in thousands)
Commitments to originate loans$22,287
$31,404
Commitments to originate loans$43,874 $39,217 
Unused lines of credit93,278
76,544
Unused lines of credit172,263 185,539 
Standby and commercial letters of credit2,158
1,624
Standby and commercial letters of credit1,542 1,762 
Credit card arrangements1,290
1,341
Credit card arrangements146 241 
FHLB Mortgage Partnership Finance credit enhancement obligation, net615
610
FHLB Mortgage Partnership Finance credit enhancement obligation, net461 396 
Commitment to purchase investment in a real estate limited partnership1,470
980
Commitment to purchase investment in a real estate limited partnership3,000 3,000 
Total$121,098
$112,503
Total$221,286 $230,155 
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. CommitmentsLoan commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. 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 and maple syrup products production. The large increase in unused lines of credit at September 30, 2017 from December 31, 2016 is primarily related to an increase in construction loan availability of $14.3 million.tourism.
The Company did not hold any derivative or hedging instruments at September 30, 2017March 31, 2023 or December 31, 2016.2022.
TheIn addition to commitments arising from the Company’s subsidiary bank is required (as are all banks)financial instruments, in the normal course of business the Company enters into contractual commitments from time to maintain vault cash or a noninterest bearing reserve balance as established by FRB regulations. The Bank’s average total required reservetime for the 14 day maintenance periodpurchase or lease of property, including September 30, 2017real property for its banking premises.
With the adoption of CECL, effective January 1, 2023, 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 exposures between reporting periods. The ACL on off-balance sheet credit exposures totaled $1.4 million at March 31, 2023 and was $1.0 millionincluded in Accrued interest and other liabilities on the consolidated balance sheets. There was $16 thousand of credit loss benefit for off-balance sheet credit exposures recorded for the three months ended March 31, 2023. Under previously applicable GAAP, there was no ACL on off-balance sheet credit exposures required at December 31, 2016 was $891 thousand, both of which were satisfied by vault cash.2022.

Contractual Obligations. The Company and Union have various financial obligations, including contractual obligations that may require future cash payments. The following table presents, as of September 30, 2017, significant fixed and determinable contractual obligations to third parties:
 September 30, 2017
 (Dollars in thousands)
Operating lease commitments$324
Contractual payments on borrowed funds (1)32,520
Deposits without stated maturity (1) (2)506,910
Certificates of deposit (1) (2)99,714
Deferred compensation payouts971
Total$640,439
____________________
(1)The amounts exclude interest payable.
(2)While Union has a contractual obligation to depositors should they wish to withdraw all or some of the funds on deposit, management believes, based on historical analysis as well as current conditions in the financial markets, that the majority of these deposits will remain on deposit for the foreseeable future.

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 our cash flow needs in the most economical and expedient manner. The Company’s principal sources of funds are deposits; whole-sale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities and loans AFS; earnings; and funds provided from operations. Contractual principal repayments on loans arehave been a relatively predictable source of funds, however, depositfunds. 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.

As of September 30, 2017,March 31, 2023, Union, as a member of FHLB, had access to unused lines of credit up to $58.0$95.3 million over and above the $30.3$84.7 million in combined outstanding term advances withFHLB 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 at September 30, 2017.March 31, 2023. 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 $10.0$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 as well as accessICS. In addition to the FRB discount window, which would require pledging of qualified assets. Core deposits are the lowest cost of fundsfunding sources available to Union, the Company has access to but these deposits may not be sufficient to cover the on balance sheet liquidity needs which makes using these other sources necessary. In an attempt to control the costmaintains a $5.0 million revolving line of these other funding sources, an agreement was entered intocredit with Promontory Interfinancial Network that locks in the cost of funds on purchased ICS deposits at 10 basis points over the federal funds rate for a period of one year.correspondent bank. At September 30, 2017March 31, 2023, there were no purchased ICS deposits under this agreement, no purchasedor CDARS deposits, $108.0 million in retail brokered deposits issued under a master certificate of deposit program with a broker, and no outstanding advances on the federal funds lineUnion or Company correspondent lines.
In response to the recent bank failures, the Federal Reserve created a Bank Term Funding Program to provide liquidity to U.S. Depository institutions which allows any federally insured depository institution to pledge as collateral its investment portfolio

Union Bankshares, Inc. Page 42


at par, not at fair market value. The Company continues to evaluate the discount window.

program and has not yet taken any advances under this facility.
Union's investment and residential loan portfolios also provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We also have additionalAdditional contingent liquidity sources are available with further access to the brokered deposit market and the FRB discount window.market. These sources are considered as liquidity alternatives in our contingent liquidity plan. At September 30, 2017, there was $2.0 million in retail brokered deposits issued under master certificates of deposit to a deposit broker. 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.

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. 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 $56.3$55.2 million at December 31, 20162022 to $59.6$60.6 million at September 30, 2017,March 31, 2023, reflecting net income of $6.5 million for the first nine months of 2017, a decrease of $587 thousand$3.9 million in accumulated other comprehensive loss $102due to improvement in the fair market value of the Company's AFS investment securities, net income of $3.0 million for the first three months of 2023, an increase of $113 thousand offrom stock based compensation, an $18a $37 thousand increase from the impact of adoption of ASU No. 2016-13 and a $23 thousand increase due to the issuance of common stock under the DRIP and a $19 thousand increase due to the issuance of 1,000 shares of common stock from the exercise of incentive stock options.DRIP. These increases were partially offset by cash dividends paiddeclared of $3.9$1.6 million and stock repurchases of $43$60 thousand during the ninethree months ended September 30, 2017.March 31, 2023. The components of the other comprehensive loss are illustrated in Note 1110 of the unaudited consolidated financial statements.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of September 30, 2017,March 31, 2023, the Company had 4,937,6524,982,523 shares issued, of which 4,462,5174,506,950 were outstanding and 475,135475,573 were held in treasury.

In January 2017,2023, the Company's Board reauthorized for 2023 the limited stock repurchase plan that was initially established in May of 2010 and has been reauthorized annually since that time.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 (currently 3,000 shares) in open market purchases or privately negotiated transactions, as management deems 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 quarterly repurchase authorization expires on December 31, 2017,2023, unless reauthorized. The Company repurchased 1,0402,500 shares during the first nine months of 2017 under this program during the first three months of 2023 at a total cost of $43$59 thousand.

During The Company also purchased 30 shares outside of the limited stock repurchase program during the first quarter of 2016, the2023 at a cost of $1 thousand.
The Company adoptedmaintains a Dividend Reinvestment and Stock Purchase PlanDRIP whereby registered stockholders may elect to reinvest cash dividends and make 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 September 30, 2017, 737March 31, 2023, 8,476 shares of stock had been issued from treasury stock under the DRIP.

The Company (on a consolidated basis) and Union are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company's and Union's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Union must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Union's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
Under rules effective January 1, 2015,the standard regulatory capital guidelines, banking organizations must have a bank holding company, such as the Company, is considered “well capitalized” if the bank holding company (i) has aminimum total risk basedrisk-based capital ratio of at least 10%8.0%, (ii) has a minimum Tier I risk-based capital ratio of at least 8%6.0%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. In addition, the FDIC has amended its prompt corrective action rules to reflect the revisions made by the new capital rules implementing Basel III. Under the FDIC’s revised rules, which became effective January 1, 2015, an FDIC supervised institution is considered “well capitalized” if it (i) has a total risk-based capital ratio of 10.0% or greater; (ii) aminimum common equity Tier I risk-based capital ratio of 8.0% or greater; (iii)4.5%, and a minimum leverage ratio of 4.0% in order to be "adequately capitalized." In addition to these requirements, banking organizations must maintain a 2.5% capital conservation buffer consisting of common Tier I equity, ratio of at least 6.5% or greater, (iv) a leverageincreasing the minimum required total risk-based capital, ratio of 5.0% or greater;Tier I risk-based and (iv) is not subjectcommon equity Tier I capital to any written agreement, order, capital directive, or prompt corrective action directiverisk-weighted assets they must maintain to meet and maintain a specific capital level for any capital measure. The final rule also requires unrealized gains and lossesavoid limits on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The Bank elected to opt-out of this regulatory capital provision. By opting out of the provision, the bank retains what is known as the accumulated other comprehensive income filter. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.executive officers and similar employees.


Union Bankshares, Inc. Page 43


As shown in the table below, as of September 30, 2017,March 31, 2023, both the Company and Union met all capital adequacy requirements to which they are subject.subject and Union exceeded the requirements for a "well capitalized" bank under the FDIC's Prompt Corrective Action framework. There were no conditions or events between September 30, 2017March 31, 2023 and the date of this report that management believes have changed either Company’scompany’s regulatory capital category.
 ActualFor Capital Adequacy PurposesTo Be Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2023AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
Company:
Total capital to risk weighted assets$116,472 13.69 %$68,063 8.00 %N/AN/A
Tier I capital to risk weighted assets91,882 10.80 %51,046 6.00 %N/AN/A
Common Equity Tier 1 to risk weighted assets91,882 10.80 %38,284 4.50 %N/AN/A
Tier I capital to average assets91,882 6.63 %55,434 4.00 %N/AN/A
Union:
Total capital to risk weighted assets$116,351 13.68 %$68,042 8.00 %$85,052 10.00 %
Tier I capital to risk weighted assets107,974 12.70 %51,011 6.00 %68,015 8.00 %
Common Equity Tier 1 to risk weighted assets107,974 12.70 %38,259 4.50 %55,262 6.50 %
Tier I capital to average assets107,974 7.79 %55,442 4.00 %69,303 5.00 %
 ActualFor Capital Adequacy PurposesTo Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2017AmountRatioAmountRatioAmountRatio
 (Dollars in thousands)
Company:      
Total capital to risk weighted assets$64,832
13.51%$38,391
8.00%N/A
N/A
Tier I capital to risk weighted assets59,573
12.42%28,779
6.00%N/A
N/A
Common Equity Tier 1 to risk weighted assets59,573
12.42%21,584
4.50%N/A
N/A
Tier I capital to average assets59,573
8.54%27,903
4.00%N/A
N/A
       
Union:      
Total capital to risk weighted assets$64,492
13.47%$38,303
8.00%$47,878
10.00%
Tier I capital to risk weighted assets59,233
12.37%28,731
6.00%38,308
8.00%
Common Equity Tier 1 to risk weighted assets59,233
12.37%21,548
4.50%31,125
6.50%
Tier I capital to average assets59,233
8.49%27,907
4.00%34,884
5.00%
Dividends paid by Union are the primary source of funds available to the Company for payment of dividends to its stockholders. Union is subject to certain requirements imposed by federal banking laws and regulations, which among other things, establish minimum levels of capital and restrict the amount of dividends that may be distributed by Union to the Company.
The Company remains focused on achieving its goalsQuarterly cash dividends of long-term growth and an above-average shareholder return, while maintaining a strong capital position. Management is aware of the particular importance in today’s uncertain economic environment of maintaining strong capital reserves and planning for future capital needs, including those required by the Basel III capital standards through the final phase in period ending on January 1, 2019.

A quarterly cash dividend of $0.29$0.36 per share waswere paid during the first quarter of 2023 and were declared for the second quarter, payable on May 4, 2023 to stockholders of record on October 28, 2017, payable November 8, 2017. The dividend for the previous quarter was $0.29 per share.April 29, 2023.

Regulatory Matters. The Company and Union are subject to periodic examinations by the various regulatory agencies. These examinations include, but are not limited to, procedures designed to review lending practices, risk management, credit quality, liquidity, compliance and capital adequacy. In May of 2017, the FDIC performed its regular, periodic safety and soundness examination of Union. In February of 2017, the FDIC performed its regular periodic compliance examination of Union. In January of 2016, the FRB performed its regular, periodic examination of the Company. During 2015, the Vermont Department of Financial Regulation performed a regular safety and soundness examination of Union. No comments were received that would have a material adverse effect on the Company’s or Union’s liquidity, financial position, capital resources, or results of operations.



OTHER FINANCIAL CONSIDERATIONS
Market Risk and Interest Rate Risk. Market risk is the potential of loss in a financial instrument arising from adverse changes in market prices, interest rates, foreign currency exchange rates, commodity prices, and equity prices. As of September 30, 2017, the Company did not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending, investing, deposit taking and borrowing activities. Management of interest rate risk is an important component of our asset and liability management process, which is governed by established policies that are reviewed and approved annually. Our investment policy details the types of securities that may be purchased, and establishes portfolio limits and maturity limits for the various sectors. Our investment policy also establishes specific investment quality limits. The ALCO develops guidelines and strategies impacting our asset and liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. Members of the ALCO also manage the investment portfolio to maximize net interest income while mitigating market and interest rate risk.
Interest rate risk arises naturally from imbalances in repricing, maturity and cash flow characteristics of our assets and liabilities. The ALCO takes into consideration the cash flow and repricing attributes of balance sheet and off-balance sheet items and their relation to possible changes in interest rates. The ALCO manages interest rate exposure primarily by using on-balance sheet strategies, generally accomplished through the management of the duration, rate sensitivity and average lives of our various investments, and by extending or shortening maturities of borrowed funds, as well as carefully managing and monitoring the maturities and pricing of loans and deposits.
An outside consultant is utilized to perform rate shocks to our balance sheet to assess our risk to earnings in different interest rate environments, and to perform a variety of other analyses. The consultant’s most recent completed analysis was as of September 30, 2017. The base simulation assumed no changes in rates, as well as 200 and 300 basis point rising interest rate scenarios which assume a parallel shift of the yield curve over a one-year period, and no growth assumptions. Management is not aware of any significant changes in the Company's risk profile since the analysis was performed as of September 30, 2017. A summary of the results is as follows:
Current/Flat Rates: If rates remain at current levels net interest income is projected to trend sideways for the entire simulation as declining asset yields are similarly offset by reductions to funding costs.
Rising Rates: Higher rates indicate positive results under all scenarios. Under the rising rate scenarios if rates rise in a parallel fashion, net interest income is expected to trend close to the base case scenario over the near term as higher funding costs match increasing asset yields. Once funding cost increases stabilize, net interest income is projected to increase for the duration of the simulation as assets reprice at higher rates and investment and loan cash flow continues to cycle into the elevated environment. The timing of recovery will depend on the slope and shape of the yield curve as rates rise.
The net interest income simulation as of September 30, 2017 showed that the change in net interest income for the next 12 months from our expected or “most likely” forecast was as follows:
 Rate ChangePercent Change in Net Interest Income LimitPercent Change in Net Interest Income 
 Up 300 basis points(21.00)%1.6%  
 Up 200 basis points(14.00)%1.4%  
The preceding sensitivity analysis does not represent our forecast and should not be relied upon as being indicative of expected operating results. These estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit run-off rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.
The model used to perform the base case balance sheet simulation assumes a parallel shift of the yield curve over twelve months and reprices every interest earning asset and interest bearing liability on our balance sheet, simultaneously. The use of pricing betas help simulate the expected pricing behavior regarding non-maturing deposits, limiting the rate increases that occur when market rates rise. A historic analysis of the bank's prepayment history was performed and the results were used as a basis for future prepayment expectations. Investment securities with call provisions are examined on an individual basis to estimate the likelihood of a call.
As market conditions vary from those assumed in the sensitivity analysis, actual results will likely differ due to: the varying impact of changes in the balances and mix of loans and deposits differing from those assumed, the impact of possible off balance sheet


commitments, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect all actions that the ALCO might take in responding to or anticipating changes in interest rates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information called for by this item is incorporatedOmitted, in accordance with the regulatory relief available to Part I, Item 2, referencesmaller reporting companies in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption OTHER FINANCIAL CONSIDERATIONS on page 45 of this reportSEC Release Nos. 33-10513 (effective September 10, 2018).


Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. The Company’s Chief Executive Officer and Chief Financial Officer, with the assistance of the Disclosure Control Committee, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of September 30, 2017.March 31, 2023. Based on this evaluation they concluded that those disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files with the Commission is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required information.
Changes in Internal Controls over Financial Reporting. There was no change in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II  OTHER INFORMATION


Item 1. Legal Proceedings.
There are no known pending legal proceedings to which the Company or its subsidiary is a party, or to which any of their properties is subject, other than ordinary litigation arising inIn the normal course of business, activities. Although the amount of any ultimate liability with respect to such proceedings cannot be determined,Company is involved in various legal and other proceedings. In the opinion of management, any liability resulting from such liabilityproceedings is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations of the Company and its subsidiary.operations.


Union Bankshares, Inc. Page 44



Item 1A. Risk Factors
There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in our 2016the Company’s 2022 Annual Report on Form 10-K, since the date of the filing of that report.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
DuringThe Company did not issue any unregistered shares during the quarter ended September 30, 2017, the only unregistered issuance of the Company's equity securities was pursuant to the exercise of incentive stock options issued under the 2008 ISO Plan, resulting in the issuance of 1,000 shares of the Company's common stock. The shares were issued in reliance upon an exemption in section 4(a)(2) of the Securities Act of 1933 for distributions not involving a public offering.March 31, 2023.
The following table summarizes repurchases of the Company's equity securities during the quarter ended September 30, 2017:March 31, 2023:
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)Maximum Number of Shares that May Yet be Purchased Under the Plans or Program (1)
July 2017215
$41.70215
2,785
August 2017


2,785
September 2017150
$43.16150

Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (2)
January 2023 (1)30 $24.002,500 
February 2023— — — 2,500 
March 20232,500 $23.892,500 — 
__________________
(1)All repurchases shown in the table were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 3,000 shares of its common stock each calendar quarter, in open market or privately negotiated transactions. The repurchase authorization for a calendar quarter expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The program was initially authorized

(1)Repurchase was made in a privately negotiated transaction outside the quarterly repurchase program.

(2)Repurchases were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 2,500 shares of its common stock each calendar quarter, in open market or privately negotiated transactions, in management's discretion. The repurchase authorization for a calendar quarter expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The program was initially authorized in 2010 and was reauthorized most recently in January 2017.2023. The program will expire on December 31, 2017,2023, unless reauthorized.reauthorized by the Board of Directors.


Item 6. Exhibits.
31.1Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017March 31, 2023 formatted in Inline eXtensible Business Reporting Language (XBRL)(iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, (iii) the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
104Cover page interactive data file (embedded within exhibit 101).
____________________
*
*    This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Union Bankshares, Inc. Page 45


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Union Bankshares, Inc.
May 15, 2023Union Bankshares, Inc.
November 9, 2017/s/ David S. Silverman
David S. Silverman
Director, President and Chief Executive Officer
November 9, 2017May 15, 2023/s/ Karyn J. Hale
Karyn J. Hale
Chief Financial Officer
(Principal Financial Officer)



EXHIBIT INDEX
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101
The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017March 31, 2023 formatted in Inline eXtensible Business Reporting Language (XBRL)(iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, (iii) the unaudited consolidated statements of comprehensive income for the three and nine months ended September 30, 2017March 31, 2023 and 2016,2022, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
____________________
*104ThisCover page interactive data file (embedded within exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.101).

____________________
*    This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Union Bankshares, Inc. Page 4846