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

~~( )~~☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: ~~September 30, 2017~~March 31, 2023

Commission file number: 001-15985

UNION BANKSHARES, INC.

~~VERMONT~~VT

03-0283552

~~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 value

UNB

Nasdaq 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 ~~October~~April 28, ~~2017.~~2023.

Common Stock, $2 par value

4,507,437

UNION BANKSHARES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION


			~~Common Stock, $2 par value~~		~~4,462,522~~		~~shares~~

~~UNION BANKSHARES, INC.~~

~~TABLE OF CONTENTS~~

~~PART I FINANCIAL INFORMATION~~



Item 1. Financial Statements.
Unaudited Interim Consolidated Financial Statements of Union Bankshares, Inc. and Subsidiary
Consolidated Balance Sheets			~~Page~~ 1
Consolidated Statements of Income			~~Page~~ 2
Consolidated Statements of Comprehensive Income (Loss)			~~Page~~ 3
Consolidated Statements of Changes in Stockholders' Equity			~~Page~~ 4
Consolidated Statements of Cash Flows			~~Page~~ 5
Notes to Unaudited Interim Consolidated Financial Statements			~~Page~~ 7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			~~Page~~ 27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			~~Page 46~~44
Item 4. Controls and Procedures.			~~Page 46~~44

PART II OTHER INFORMATION

Item 1. Legal Proceedings.			~~Page 46~~44
Item 1A. Risk Factors.			~~Page 46~~44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			~~Page 46~~45
Item 6. Exhibits.			~~Page 47~~45

Signatures			~~Page 47~~46

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


	September 30, 2017			December 31, 2016				March 31, 2023		December 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 deposits	8,885			35,003			Federal funds sold and overnight deposits	17,479		33,381
Cash and cash equivalents	12,397			39,275			Cash and cash equivalents	21,819		37,885
Interest bearing deposits in banks	8,356			9,504			Interest bearing deposits in banks	16,428		16,428
Investment securities available-for-sale	63,970			65,556			Investment securities available-for-sale	275,417		250,267
Investment securities held-to-maturity (fair value $999 thousand at September 30, 2017 and December 31, 2016)	1,000			999

Other investments							Other investments	1,350		1,264
Total investments							Total investments	276,767		251,531
Loans held for sale	5,675			7,803			Loans held for sale	2,849		1,178
Loans	578,902			533,290			Loans	972,409		958,157
Allowance for loan losses	(5,259		)	(5,247		)
Allowance for credit losses on loans							Allowance for credit losses on loans	(6,934)		(8,339)
Net deferred loan costs	749			649			Net deferred loan costs	1,358		1,336
Net loans	574,392			528,692			Net loans	966,833		951,154
Accrued interest receivable	2,196			2,259

Premises and equipment, net	13,244			13,525			Premises and equipment, net	20,256		20,479
Core deposit intangible	625			754
Goodwill	2,223			2,223
Investment in real estate limited partnerships	3,323			2,783

Company-owned life insurance	8,802			8,617			Company-owned life insurance	18,625		18,518
Other assets	9,143			9,391			Other assets	38,478		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 bearing	387,707			382,083			Interest bearing	709,401		762,722
Time	99,714			103,193			Time	254,089		153,045
Total deposits	606,624			597,660			Total deposits	1,225,978		1,201,912
Borrowed funds	32,520			31,595			Borrowed funds	45,106		50,000
Subordinated notes							Subordinated notes	16,213		16,205
Accrued interest and other liabilities	6,595			5,847			Accrued interest and other liabilities	14,166		13,152
Total liabilities	645,739			635,102			Total liabilities	1,301,463		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 capital	753			620			Additional paid-in capital	2,353		2,225
Retained earnings	55,731			53,086			Retained earnings	86,060		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' equity	59,607			56,279			Total stockholders' equity	60,592		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,
2017 2016 2017 2016
(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:
Taxable 250
211
741
683
Tax exempt 159
144
486
427
Dividends 42
27
114
62
Interest on federal funds sold and overnight deposits 15
12
64
23
Interest on interest bearing deposits in banks 38
37
109
123
Total interest and dividend income 7,397
6,786
21,337
19,922
Interest expense
Interest on deposits 453
363
1,271
1,200
Interest on borrowed funds 134
108
369
303
Total interest expense 587
471
1,640
1,503
    Net interest income 6,810
6,315
19,697
18,419
Provision for loan losses 150
—
150
150
    Net interest income after provision for loan losses 6,660
6,315
19,547
18,269
Noninterest income
Trust income 179
171
548
523
Service fees 1,553
1,538
4,444
4,377
Net gains on sales of investment securities available-for-sale 24
53
33
71
Net gains on sales of loans held for sale 657
921
1,762
2,196
Other income 93
121
285
420
Total noninterest income 2,506
2,804
7,072
7,587
Noninterest expenses
Salaries and wages 2,570
2,622
7,642
7,522
Pension and employee benefits 954
865
2,784
2,659
Occupancy expense, net 320
297
1,073
923
Equipment expense 532
553
1,589
1,603
Other expenses 1,565
1,687
4,665
4,828
Total noninterest expenses 5,941
6,024
17,753
17,535
        Income before provision for income taxes 3,225
3,095
8,866
8,321
Provision for income taxes 855
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 outstanding 4,462,414
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,
2017 2016 2017 2016
(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-sale 46
(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' EQUITY~~INCOME (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, 2016 4,462,135
$ 9,874
$ 620
$ 53,086
$ (4,022 ) $ (3,279 ) $ 56,279
   Net income —
—
—
6,527
—
—
6,527
   Other comprehensive income —
—
—
—
—
587
587
   Dividend reinvestment plan 422
—
14
—
4
—
18
   Cash dividends declared
       ($0.87 per share)
—
—
—
(3,882 ) —
—
(3,882 )
   Stock based compensation
expense —
—
102
—
—
—
102
   Exercise of stock options 1,000
2
17
—
—
—
19
   Purchase of treasury stock (1,040 ) —
—
—
(43 ) —
(43 )
Balances September 30, 2017 4,462,517
$ 9,876
$ 753
$ 55,731
$ (4,061 ) $ (2,692 ) $ 59,607

Balances, December 31, 2015 4,457,177
$ 9,864
$ 501
$ 49,524
$ (4,019 ) $ (2,302 ) $ 53,568
   Net income —
—
—
6,166
—
—
6,166
   Other comprehensive income —
—
—
—
—
667
667
   Dividend reinvestment plan 190
—
4
—
2
—
6
   Cash dividends declared
($0.83 per share)
—
—
—
(3,701 ) —
—
(3,701 )
   Stock based compensation
expense
—
—
49
—
—
—
49
   Exercise of stock options 2,500
5
51
—
—
—
56
   Purchase of treasury stock (213 ) —
—
—
(6 ) —
(6 )
Balances, September 30, 2016 4,459,654
$ 9,869
$ 605
$ 51,989
$ (4,023 ) $ (1,635 ) $ 56,805


	Three Months Ended March 31,
	2023		2022
Interest and dividend income	(Dollars in thousands, except per share data)
Interest and fees on loans	$	11,205	$	8,474
Interest on debt securities:
Taxable	1,174		972
Tax exempt	413		222
Dividends	41		6
Interest on federal funds sold and overnight deposits	104		19
Interest on interest bearing deposits in banks	107		33
Total interest and dividend income	13,044		9,726
Interest expense
Interest on deposits	2,443		621
Interest on borrowed funds	484		—
Interest on subordinated notes	142		142
Total interest expense	3,069		763
Net interest income	9,975		8,963
Credit loss expense, net	74		—
Net interest income after credit loss expense	9,901		8,963
Noninterest income
Wealth management income	211		209
Service fees	1,694		1,635
Net gains on sales of investment securities available-for-sale	—		26
Net gains on sales of loans held for sale	194		14
Net gains on other investments	46		82
Other income	140		264
Total noninterest income	2,285		2,230
Noninterest expenses
Salaries and wages	3,502		3,410
Employee benefits	1,377		1,305
Occupancy expense, net	578		527
Equipment expense	897		916
Other expenses	2,396		2,131
Total noninterest expenses	8,750		8,289
Income before provision for income taxes	3,436		2,904
Provision for income taxes	459		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 outstanding	4,509,099		4,494,871
Weighted average common and potential common shares for diluted EPS	4,519,989		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,
2017 2016
(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:
Depreciation 914
967
Provision for loan losses 150
150
Deferred income tax provision 226
259
Net amortization of investment securities 314
261
Equity in losses of limited partnerships 471
391
Stock based compensation expense 102
49
Net increase in unamortized loan costs (100 ) (134 )
Proceeds from sales of loans held for sale 92,231
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 equipment 13
—
Net gains on sales of investment securities available-for-sale (33 ) (71 )
Decrease (increase) in accrued interest receivable 63
(130 )
Amortization of core deposit intangible 129
129
Increase in other assets (490 ) (403 )
Contribution to defined benefit pension plan (750 ) (750 )
Increase in other liabilities 926
1,486
Net cash provided by operating activities 10,590
3,791
Cash Flows From Investing Activities
Interest bearing deposits in banks
Proceeds from maturities and redemptions 4,384
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 sales 3,962
6,617
Proceeds from maturities, calls and paydowns 5,310
8,403
Purchases (7,078 ) (19,761 )
Purchase of nonmarketable stock (518 ) (1,110 )
Redemption of nonmarketable stock 541
543
Net increase in loans (45,803 ) (22,015 )
Recoveries of loans charged off 53
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,
	2023		2022
	(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-sale	3,905		(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 borrowings 10,000
25,452
Repayment of long-term debt (10,208 ) (229 )
Net increase in short-term borrowings outstanding 1,133
2,726
Net increase in noninterest bearing deposits 6,819
16,555
Net increase in interest bearing deposits 5,624
40,173
Net decrease in time deposits (3,479 ) (44,950 )
Issuance of common stock 19
56
Purchase of treasury stock (43 ) (6 )
Dividends paid (3,864 ) (3,695 )
Net cash provided by financing activities 6,001
36,082
Net (decrease) increase in cash and cash equivalents (26,878 ) 17,613
Cash and cash equivalents
Beginning of period 39,275
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	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity
	(Dollars in thousands, except per share data)
Balances, December 31, 2022	4,508,587	$	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 plan	893	—		15		—		8		—		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, 2023	4,506,950	$	9,965	$	2,353	$	86,060	$	(4,272)	$	(33,514)	$	60,592

Balances, December 31, 2021	4,493,655	$	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 plan	416	—		9		—		4		—		13
Cash dividends declared ($0.35 per share)	—	—		—		(1,573)		—		—		(1,573)
Stock based compensation expense	1,599	3		100		—		—		—		103

Purchase of treasury stock	(2,500)	—		—		—		(75)		—		(75)
Balances, March 31, 2022	4,493,170	$	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,
	2023		2022
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:
Depreciation	408		459
Credit loss expense	74		—
Deferred income tax provision	32		11
Net amortization of premiums on investment securities	128		160
Equity in losses of limited partnerships	331		256
Stock based compensation expense	113		103
Net increase in unamortized loan costs	(22)		(302)
Proceeds from sales of loans held for sale	11,946		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	8		8
Increase in other assets	(264)		(436)

Increase in other liabilities	32		704
Net cash provided by operating activities	2,084		14,768
Cash Flows From Investing Activities
Interest bearing deposits in banks
Proceeds from maturities and redemptions	996		1,992
Purchases	(996)		(2,988)



Investment securities available-for-sale
Proceeds from sales	—		6,827
Proceeds from maturities, calls and paydowns	4,062		7,304
Purchases	(24,923)		(38,691)
Net purchases of other investments	(40)		(59)
Net decrease in nonmarketable stock	135		276

Net increase in loans	(14,252)		(40,558)
Recoveries of loans charged off	—		1
Net purchases of premises and equipment	(200)		(164)



Investments in limited partnerships	(460)		(1,355)
Proceeds from sales of premises and equipment	16		—


Net cash used in investing activities	(35,662)		(67,415)

Union Bankshares, Inc. Page 5


	Three Months Ended March 31,
	2023		2022

Cash Flows From Financing Activities	(Dollars in thousands)
Advances on long-term borrowings	106		—

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 deposits	101,044		(2,412)



Purchase of treasury stock	(60)		(75)
Dividends paid	(1,600)		(1,560)
Net cash provided by financing activities	17,512		37,527
Net decrease in cash and cash equivalents	(16,066)		(15,120)
Cash and cash equivalents
Beginning of period	37,885		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, 2017~~March 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, ~~2016~~2022 (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 ~~2016~~2022 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 ~~2016~~2022 consolidated financial statements have been reclassified to conform to the ~~2017~~current 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-sale~~Allowance for credit losses		~~IRS:~~HTM:		~~Internal Revenue Service~~Held-to-maturity
~~ALCO:~~AFS:			~~Asset Liability Committee~~Available-for-sale		~~MBS:~~HUD:		~~Mortgage-backed security~~U.S. Department of Housing and Urban Development
~~ALL:~~ASC:			~~Allowance for loan losses~~Accounting Standards Codification		~~MSRs:~~ICS:		Insured Cash Sweeps of the Promontory Interfinancial Network
ASU:			Accounting Standards Update		MBS:		Mortgage-backed security
Board:			Board of Directors		MSRs:		Mortgage servicing rights
~~ASC:~~bp or bps:			~~Accounting Standards Codification~~Basis point(s)		OAO:		Other assets owned
~~ASU:~~CDARS:			~~Accounting Standards Update~~		~~OCI:~~	~~Other comprehensive income (loss)~~
~~Board:~~	~~Board of Directors~~	~~OFAC:~~	~~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 2011~~	~~OTTI:~~	~~Other-than-temporary impairment~~
~~CDARS:~~	Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network	~~OTT:~~OCI:		~~Other-than-temporary~~Other comprehensive income (loss)
Company:			Union Bankshares, Inc. and Subsidiary		~~Plan:~~OREO:		~~The Union Bank Pension Plan~~Other real estate owned
~~DRIP:~~CECL:			Current Expected Credit Losses		RD:		USDA Rural Development
DCF:			Discounted cash flow		RSU:		Restricted Stock Unit
DRIP:			Dividend Reinvestment Plan		~~RD:~~SBA:		~~USDA Rural Development~~U.S. Small Business Administration
FASB:			Financial Accounting Standards Board		~~RSU:~~SEC:		~~Restricted Stock Unit~~
~~FDIC:~~	~~Federal Deposit Insurance Corporation~~	~~SBA:~~	~~U.S. Small Business Administration~~
~~FHA:~~	~~U.S. Federal Housing Administration~~	~~SEC:~~	U.S. Securities and Exchange Commission
~~FHLB:~~FDIC:			Federal ~~Home Loan Bank of Boston~~Deposit Insurance Corporation		TDR:		Troubled-debt restructuring
~~FRB:~~FHA:			U.S. Federal ~~Reserve Board~~Housing Administration		Union:		Union Bank, the sole subsidiary of Union Bankshares, Inc
FHLB:			Federal Home Loan Bank of Boston		USDA:		U.S. Department of Agriculture
FRB:			Federal Reserve Board		VA:		U.S. Veterans Administration
FHLMC/Freddie Mac:			Federal Home Loan Mortgage Corporation		~~USDA:~~2014 Equity Plan:		~~U.S. Department of Agriculture~~2014 Equity Incentive Plan, as amended
GAAP:			Generally Accepted Accounting Principles in the United States		~~VA:~~2022 Annual Report:		~~U.S. Veterans Administration~~
~~HTM:~~	~~Held-to-maturity~~	~~2008 ISO Plan:~~	~~2008 Incentive Stock Option Plan of~~Annual Report on Form 10-K for the ~~Company~~
~~HUD:~~	~~U.S. Department of Housing and Urban Development~~	~~2014 Equity Plan:~~	~~2014 Equity Incentive Plan~~
~~ICS:~~	~~Insured Cash Sweeps of the Promontory Interfinancial Network~~		year 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.

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 Adoption		Reclassification to CECL Portfolio Segmentation		Pre-CECL Adoption Portfolio Segmentation		Post-CECL Adoption		Impact 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 estate	96,620		(96,620)		—		—		—
Commercial construction real estate	—		56,501		56,501		56,501		—
Residential construction real estate	—		40,119		40,119		40,119		—
Commercial real estate	377,947		(377,947)		—				—
Non-residential commercial real estate	—		282,397		282,397		282,397		—
Multi-family residential real estate	—		95,550		95,550		95,550		—
Commercial	40,973		—		40,973		40,973		—
Consumer	2,204		—		2,204		2,204		—
Municipal	87,980		—		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 estate	1,032		(1,032)		—		—		—
Commercial construction real estate	—		611		611		1,593		982
Residential construction real estate	—		421		421		131		(290)
Commercial real estate	3,935		(3,935)		—		—		—
Non-residential commercial real estate	—		2,931		2,931		2,174		(757)
Multi-family residential real estate	—		1,004		1,004		224		(780)
Commercial	301		—		301		492		191
Consumer	10		—		10		5		(5)
Municipal	95		—		95		53		(42)
Unallocated	549		—		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 computed~~The 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,
	2023		2022
	(Dollars in thousands, except per share data)
Net income	$	2,977	$	2,482
Weighted average common shares outstanding for basic EPS	4,509,099		4,494,871
Dilutive effect of stock-based awards (1)	10,890		11,893
Weighted average common and potential common shares for diluted EPS	4,519,989		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 number~~effect 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 does~~units. 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. ~~Under~~The 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 ~~available~~AFS. The ASU became effective for ~~sale. T~~h~~e ASU~~ i~~s effec~~ti~~ve forfiscal years be~~g~~inn~~in~~g after De~~c~~ember 15, 2019, in~~clud~~ing interim p~~e~~riods w~~it~~hin~~ 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 result~~In 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 amounting~~potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to ~~$2.2 million~~contract 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 ~~goodwill~~guidance 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 to~~experiencing 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 ~~existence~~amendments to ASC 326 require that an entity disclose current-period gross write-offs by year of ~~events or circumstances leads to a determination~~origination 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 not~~only for entities that have adopted the ~~fair value~~amendments 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 is~~provisions 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 ~~statements~~financial 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 for~~other income tax ~~purposes. As~~benefits 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 related~~investment being amortized in proportion to the ~~core deposit intangible, absent~~income 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 to~~elected, 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
2018 171
2019 171
2020 171
2021 70
Total $ 625

Note 6.5. Investment Securities

~~Investment~~Debt securities AFS as of the balance sheet dates consisted of the following:


March 31, 2023	Amortized 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-backed	194,772		177		(31,311)		163,638
State and political subdivisions	72,547		404		(7,018)		65,933
Corporate	6,347		—		(215)		6,132
Total	$	318,365	$	581	$	(43,529)	$	275,417


December 31, 2022	Amortized 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-backed	198,478		104		(34,150)		164,432
State and political subdivisions	47,722		281		(7,537)		40,466
Corporate	6,343		—		(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-backed 18,820
47
(126 ) 18,741
State and political subdivisions 25,304
259
(249 ) 25,314
Corporate 9,927
150
(72 ) 10,005
Total debt securities 63,586
474
(590 ) 63,470
Mutual funds 500
—
—
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-backed 18,283
27
(269 ) 18,041
State and political subdivisions 27,909
113
(650 ) 27,372
Corporate 9,745
84
(129 ) 9,700
Total debt securities 66,158
239
(1,244 ) 65,153
Mutual funds 403
—
—
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 ~~amount~~amounts 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 ~~and~~or 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, 2017~~March 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 years	24,431		22,354
Due from five to ten years	25,463		23,036
Due after ten years	73,197		65,894
	123,593		111,779
Agency mortgage-backed	194,772		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 years 5,470
5,561
Due from five to ten years 22,143
22,178
Due after ten years 16,903
16,739
44,766
44,729
Agency mortgage-backed 18,820
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 ~~investment~~AFS 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, 2023	Less Than 12 Months					12 Months and over					Total
	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	1	$	2,970	$	(4)	34	$	36,608	$	(4,981)	35	$	39,578	$	(4,985)
Agency mortgage-backed	4	9,714		(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)
Corporate	7	3,255		(92)		6	2,877		(123)		13	6,132		(215)


Total	27	$	41,586	$	(1,115)	189	$	220,597	$	(42,414)	216	$	262,183	$	(43,529)


December 31, 2022																			December 31, 2022	Less Than 12 Months					12 Months and over					Total
																				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, 2017	Less Than 12 Months						12 Months and over						Total
	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	4	$	8,000	$	(533)	31	$	31,103	$	(5,312)	35	$	39,103	$	(5,845)
Agency mortgage-backed	11	6,448		(43		)	6	4,332		(83		)	17	10,780		(126		)	Agency mortgage-backed	31	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)
Corporate	1	478		(22		)	4	1,948		(50		)	5	2,426		(72		)	Corporate	10	4,719		(124)		3	1,405		(95)		13	6,124		(219)

Total	35	$	18,322	$	(156	)	33	$	16,393	$	(435	)	68	$	34,715	$	(591	)	Total	84	$	52,482	$	(4,695)	123	$	185,418	$	(43,056)	207	$	237,900	$	(47,751)

December 31, 2016 Less Than 12 Months 12 Months and over Total

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-backed 22
15,141
(261 ) 1
344
(8 ) 23
15,485
(269 )
State and political
subdivisions
40
16,481
(650 ) —
—
—
40
16,481
(650 )
Corporate 8
3,973
(56 ) 4
1,627
(73 ) 12
5,600
(129 )
Total 83
$ 43,946
$ (1,147 ) 8
$ 3,143
$ (97 ) 91
$ 47,089
$ (1,244 )

~~The Company evaluates all investment~~AFS debt securities ~~on a quarterly basis, and more frequently when economic conditions warrant,~~in unrealized loss positions are evaluated for impairment related to ~~determine if~~credit 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 ~~then~~first 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 and~~or it is ~~"more~~more likely than ~~not"~~not that the Company will ~~not have~~be required to sell, the ~~debt~~ security ~~prior~~before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to ~~recovery. Declines in~~sell is met, the security’s amortized cost basis is written down to fair ~~values of individual equity~~value through earnings. For AFS debt securities that ~~are deemed by~~do not meet the above criteria, management ~~to be OTT are reflected~~evaluates whether the decline in ~~noninterest income when identified.~~

~~Management~~fair 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 been~~is 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;~~

~~Any~~cost, 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, 2017~~March 31, 2023 and December 31, ~~2016~~2022, 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 ~~sale~~disposition 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 gains	76
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,
2017 2016 2017 2016
(Dollars in thousands)
Proceeds $ 2,517
$ 3,944
$ 3,962
$ 6,617

Gross gains 24
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, ~~were~~by 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 estate	16,299		16,963
Construction real estate
Commercial construction real estate	60,847		56,501
Residential construction real estate	46,320		40,119
Commercial real estate
Non-residential commercial real estate	278,366		282,397
Multi-family residential real estate	93,953		95,550
Commercial	41,553		40,973
Consumer	2,373		2,204
Municipal	90,818		87,980
Gross loans	972,409		958,157
ACL losses on loans	(6,934)		(8,339)
Net deferred loan costs	1,358		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 estate 36,796
34,189
Commercial real estate 257,192
249,063
Commercial 48,166
41,999
Consumer 3,832
3,962
Municipal 56,517
31,350
Gross loans 578,902
533,290
Allowance for loan losses (5,259 ) (5,247 )
Net deferred loan costs 749
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 be~~with 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 summary~~Note 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 nonaccrual~~the 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, 2017 Current 30-59 Days 60-89 Days 90 Days and Over and Accruing Nonaccrual Total
(Dollars in thousands)
Residential real estate $ 173,964
$ 231
$ 748
$ 207
$ 1,249
$ 176,399
Construction real estate 36,572
—
142
22
60
36,796
Commercial real estate 256,186
266
32
—
708
257,192
Commercial 48,141
2
11
—
12
48,166
Consumer 3,760
68
4
—
—
3,832
Municipal 56,517
—
—
—
—
56,517
Total $ 575,140
$ 567
$ 937
$ 229
$ 2,029
$ 578,902

December 31, 2016 Current 30-59 Days 60-89 Days 90 Days and Over and Accruing Nonaccrual Total
(Dollars in thousands)
Residential real estate $ 168,125
$ 1,661
$ 472
$ 672
$ 1,797
$ 172,727
Construction real estate 34,148
17
—
—
24
34,189
Commercial real estate 245,402
1,642
153
157
1,709
249,063
Commercial 41,920
12
42
10
15
41,999
Consumer 3,946
12
3
1
—
3,962
Municipal 31,350
—
—
—
—
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 ~~ALL~~ACL 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 ~~ALL~~ACL on loans is ~~maintained at~~ a ~~level believed by management~~valuation 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 in~~collected on the ~~loan portfolio as~~loans. The ACL on loans is comprised of ~~the balance sheet date. The amount of the ALL is~~reserves 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, 2017 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, June 30, 2017 $ 1,387
$ 481
$ 2,753
$ 362
$ 24
$ 26
$ 135
$ 5,168
Provision (credit) for loan losses 56
(76 ) 37
(6 ) 3
39
97
150
Recoveries of amounts charged off 36
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, 2016 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, June 30, 2016 $ 1,382
$ 373
$ 2,837
$ 240
$ 27
$ 26
$ 341
$ 5,226
Provision (credit) for loan losses 11
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, 2017 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(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, 2016 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(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 dates~~March 31, 2023 were as follows:


For The Three Months Ended March 31, 2023	Balance, December 31, 2022		Impact of Adoption of ASU No. 2016-13		Charge Offs		Recoveries		Credit Loss Expense (Benefit)		Balance, March 31, 2023
	(Dollars in thousands)
Non-revolving residential real estate	$	2,294	$	(270)	$	—	$	—	$	47	$	2,071
Revolving residential real estate	123		25		—		—		(5)		143
Residential real estate	2,417		(245)		—		—		42		2,214
Commercial construction real estate	611		982		—		—		120		1,713
Residential construction real estate	421		(290)		—		—		17		148
Construction real estate	1,032		692		—		—		137		1,861
Non-residential commercial real estate	2,931		(757)		—		—		12		2,186
Multi-family residential real estate	1,004		(780)		—		—		(3)		221
Commercial real estate	3,935		(1,537)		—		—		9		2,407
Commercial	301		191		—		—		(124)		368
Consumer	10		(5)		—		—		—		5
Municipal	95		(42)		—		—		26		79
Unallocated	549		(549)		—		—		—		—
Total	$	8,339	$	(1,495)	$	—	$	—	$	90	$	6,934

Union Bankshares, Inc. Page 16

September 30, 2017 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(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, 2016 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(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 investment~~Changes in ~~loans, summarized~~the ACL on ~~the basis of the Company's impairment methodology~~loans, by class of ~~loan, as of~~loans under the ~~balance sheet dates~~incurred loss methodology, for the three months ended March 31, 2022 were as follows:


For The Three Months Ended March 31, 2022	Balance, December 31, 2021		Charge Offs		Recoveries		Credit Loss Expense (Benefit)		Balance, March 31, 2022
	(Dollars in thousands
Residential real estate	$	2,068	$	—	$	—	$	156	$	2,224
Construction real estate	837		—		—		6		843
Commercial real estate	4,122		—		—		(125)		3,997
Commercial	275		—		—		14		289
Consumer	11		(1)		1		(1)		10
Municipal	86		—		—		2		88
Unallocated	937		—		—		(52)		885
Total	$	8,336	$	(1)	$	1	$	—	$	8,336

September 30, 2017 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(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, 2016 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(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. 2016-13	1,458
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/M~~4-4.5 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 summarize~~table 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:


	2023		2022		2021		2020		2019		Prior		Revolving		Total
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 estate	12,874		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
Pass	435		7,138		6,877		694		1,983		1,147		—		18,274
Satisfactory/Monitor	827		18,108		21,321		236		287		1,792		—		42,571
Substandard	—		—		—		—		—		2		—		2
Commercial construction real estate	1,262		25,246		28,198		930		2,270		2,941		—		60,847
Pass	869		30,865		5,511		—		—		1		—		37,246
Satisfactory/Monitor	—		3,991		4,585		498		—		—		—		9,074
Substandard	—		—		—		—		—		—		—		—
Residential construction real estate	869		34,856		10,096		498		—		1		—		46,320
Commercial Real Estate
Pass	732		38,378		37,091		18,291		24,673		65,640		16,535		201,340
Satisfactory/Monitor	4,204		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 estate	4,936		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
Pass	1,091		7,169		4,748		967		3,613		14,730		4,316		36,634
Satisfactory/Monitor	314		739		874		749		233		620		1,137		4,666
Substandard	—		—		—		—		—		—		253		253
Commercial	1,405		7,908		5,622		1,716		3,846		15,350		5,706		41,553
Pass	566		632		398		192		253		281		21		2,343
Satisfactory/Monitor	24		4		—		2		—		—		—		30
Substandard	—		—		—		—		—		—		—		—
Consumer	590		636		398		194		253		281		21		2,373
Pass	4,414		73,877		1,993		5,057		196		5,281		—		90,818
Satisfactory/Monitor	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Municipal	4,414		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, 2017 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Pass $ 163,064
$ 29,466
$ 166,776
$ 43,323
$ 3,797
$ 56,517
$ 462,943
Satisfactory/Monitor 9,921
7,164
86,809
4,181
32
—
108,107
Substandard 3,414
166
3,607
662
3
—
7,852
Total $ 176,399
$ 36,796
$ 257,192
$ 48,166
$ 3,832
$ 56,517
$ 578,902

December 31, 2016 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Pass $ 158,140
$ 29,248
$ 182,247
$ 38,219
$ 3,928
$ 31,350
$ 443,132
Satisfactory/Monitor 10,641
4,830
62,193
3,109
34
—
80,807
Substandard 3,946
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 respect~~table summarizes the loan ratings applied by management to ~~impaired~~the Company's loans by class, ~~of loan~~under the incurred loss methodology, as of December 31, 2022:


December 31, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	328,885	$	47,356	$	258,175	$	36,338	$	2,197	$	87,980	$	760,931
Satisfactory/Monitor	21,429		49,206		111,077		4,368		7		—		186,087
Substandard	2,119		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 ~~for~~past due loans as of March 31, 2023 follows:


March 31, 2023	30-59 Days		60-89 Days		90 Days and Over		Total Past Due		Current		Total
	(Dollars in thousands)
Residential real estate
Non-revolving residential real estate	$	1,040	$	9	$	237	$	1,286	$	340,594	$	341,880
Revolving residential real estate	—		—		42		42		16,257		16,299
Construction real estate
Commercial construction real estate	2		—		—		2		60,845		60,847
Residential construction real estate	—		—		—		—		46,320		46,320
Commercial real estate
Non-residential commercial real estate	153		—		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	$	9	$	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, 2022	30-59 Days		60-89 Days		90 Days and Over		Total Past Due		Current		Total
	(Dollars in thousands)
Residential real estate	$	1,724	$	79	$	289	$	2,092	$	350,341	$	352,433
Construction real estate	535		—		—		535		96,085		96,620
Commercial real estate	515		2,087		34		2,636		375,311		377,947
Commercial	7		160		—		167		40,806		40,973
Consumer	7		—		—		7		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, 2017 For The Three Months Ended September 30, 2017 For The Nine Months Ended September 30, 2017

Recorded Investment
(1)
Principal Balance
(1)
Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(Dollars in thousands)
Residential real estate $ 300
$ 310
$ 57

Commercial real estate 140
143
4

With an allowance recorded 440
453
61

Residential real estate 1,639
2,168
—

Construction real estate 84
84
—

Commercial real estate 1,344
1,417
—

Commercial 393
393
—

With no allowance recorded 3,460
4,062
—

Residential real estate 1,939
2,478
57
$ 1,855
$ 23
$ 1,684
$ 54
Construction real estate 84
84
—
84
1
86
3
Commercial real estate 1,484
1,560
4
1,626
18
2,200
72
Commercial 393
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, 2023	Nonaccrual		Nonaccrual With No Allowance for Credit Losses		90 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	2		—		—
Residential construction real estate	—		—		—
Commercial real estate
Non-residential commercial real estate	2,068		—		—
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, 2022	Nonaccrual		Nonaccrual With No Allowance for Credit Losses		90 Days and Over and Accruing
	(Dollars in thousands)
Residential real estate	$	103	$	—	$	186
Construction real estate	6		6		—
Commercial real estate	2,102		—		—
Commercial	—		—		—
Consumer	—		—		—
Municipal	—		—		—
Total	$	2,211	$	6	$	186

As of September 30, 2016 For The Three Months Ended September 30, 2016 For The Nine Months Ended September 30, 2016

Recorded Investment
(1)
Principal Balance
(1)
Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(Dollars in thousands)
Residential real estate $ 1,388
$ 1,788
$ 57
$ 1,346
$ 7
$ 1,266
$ 23
Construction real estate 89
89
—
89
1
91
3
Commercial real estate 2,883
2,981
61
3,018
28
3,059
59
Commercial 451
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 estate 488
520
40

With an allowance recorded 796
837
103

Residential real estate 1,140
1,561
—

Construction real estate 88
88
—

Commercial real estate 2,840
2,910
—

Commercial 432
432
—

With no allowance recorded 4,500
4,991
—

Residential real estate 1,448
1,878
63

Construction real estate 88
88
—

Commercial real estate 3,328
3,430
40

Commercial 432
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 TDR~~presents collateral dependent loans by loan class ~~of loan~~and collateral type as of the balance sheet dates:


	March 31, 2023		December 31, 2022
	Real Estate			Real Estate
	(Dollars in thousands)


Non-residential commercial real estate	$	2,068		$	2,068

September 30, 2017 December 31, 2016
Number of Loans Principal Balance Number of Loans Principal Balance
(Dollars in thousands)
Residential real estate 28
$ 1,939
20
$ 1,448
Construction real estate 1
84
1
88
Commercial real estate 10
1,091
10
1,452
Commercial 2
393
2
431
Total 41
$ 3,507
33
$ 3,419

~~The TDR loans above represent loan modifications in which a concession was provided~~For periods prior to the ~~borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgiveness~~adoption of ~~accrued interest. Troubled~~CECL, loans ~~that are restructured~~were evaluated for impairment and ~~meet established thresholds, are~~may 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 ~~ALL~~ACL for individual loans that had been classified as impaired based on ~~the basis~~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

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 activity~~table 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, 2022						For The Year Ended December 31, 2022
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	190	$	200	$	21

Commercial real estate	2,068		2,068		9

With an allowance recorded	2,258		2,268		30

Residential real estate	1,283		1,787		—
Construction real estate	58		83		—
Commercial real estate	5,865		6,403		—
Commercial	7		7		—
With no allowance recorded	7,213		8,280		—

Residential real estate	1,473		1,987		21		1,570		101
Construction real estate	58		83		—		116		27
Commercial real estate	7,933		8,471		9		5,822		185
Commercial	7		7		—		8		1
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 Class		Financial 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 estate	449		0.48	%	Reduced weighted average contractual interest rate from 9.25% to 7.75%

Union Bankshares, Inc. Page 21

New TDRs During the New TDRs During the
Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Residential real estate 3
$ 269
$ 276
9
$ 649
$ 673
Commercial real estate 1
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, 2023	Current		Past Due 30-89 Days		Past Due 90 Days and Over
	(Dollars in thousands)


Non-residential commercial real estate	$	416	$	—	$	—
Multi-family residential real estate	449		—		—

New TDRs During the New TDRs During the
Three Months Ended September 30, 2016 Nine Months Ended September 30, 2016
Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
(Dollars in thousands)
Residential real estate 3
$ 89
$ 99
6
$ 278
$ 295
Commercial real estate 4
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 periods~~months ended ~~September 30, 2017 or September 30, 2016. TDR loans~~March 31, 2023. Loans are considered defaulted at 90 days past due.

At ~~September 30, 2017~~ ~~and~~ ~~December~~March 31, ~~2016~~,2023, the Company was not committed to lend any additional funds to borrowers ~~whose~~experiencing 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 that~~form 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,
2017 2016 2017 2016
(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 loss 51
41
153
123
Net periodic benefit $ (20 ) $ (43 ) $ (60 ) $ (129 )

Note ~~10.~~8. Stock Based Compensation

~~The Company's current stock based compensation plan is~~Under the Union Bankshares, Inc. 2014 Equity Incentive ~~Plan. Under the 2014 Equity~~ Plan, ~~50,000~~as amended in May 2022, a total of 150,000 shares of the Company’s common stock ~~are available~~have 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 ~~2016~~2022 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 summary~~summarizes the RSUs awarded to Company executives in 2021, 2022 and 2023, and the number of ~~the~~such RSUs remaining unvested ~~RSUs from the 2015 and 2016 Award Plan Summaries~~ as of ~~September 30, 2017:~~March 31, 2023:

Number of Unvested RSUs Weighted-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 Granted	Weighted Average Grant Date Fair Value		Number of Unvested RSUs
2021 Award	17,685	$	26.73	1,745
2022 Award	15,705	31.99		7,822
2023 Award	19,282	26.90		19,282
Total	52,672			28,849

Unrecognized compensation expense related to the unvested RSUs as of ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016~~2022 was ~~$62~~$700 thousand and ~~$105~~$288 thousand, ~~respectively.~~respectively, and $297 thousand as of December 31, 2022.

~~During~~On 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 contingent~~1,323 RSUs ~~were provisionally granted. The estimated number of contingent RSUs provisionally granted was based on target performance-based payout amounts detailed in~~to the ~~2017 Award Plan Summary approved by~~Company's non-employee directors. Each RSU represents the ~~Board of Directors and on the closing market price~~right 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 grant~~vesting date, ~~($41.20 per share). As with the 2015 and 2016 grants, one half is~~other 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 as~~case 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 unrecognized~~do not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the ~~provisionally granted~~unvested RSUs ~~based~~as 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 price~~Company 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 on~~Notes 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 date~~three 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 ~~are~~have 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, 2023		December 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, 2023						March 31, 2022
	Before-Tax Amount		Tax Expense		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit/Expense		Net-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)		5		(21)






Total other comprehensive income (loss)	$	4,943	$	(1,038)	$	3,905	$	(20,093)	$	4,219	$	(15,874)

Three Months Ended
September 30, 2017 September 30, 2016
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Before-Tax Amount Tax (Expense) Benefit Net-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, 2017 September 30, 2016
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Before-Tax Amount Tax (Expense) Benefit Net-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, 2017~~March 31, 2023 and ~~2016.~~2022:

Three Months Ended

Reclassification Adjustment Description

March 31, 2023

March 31, 2022

Affected 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 Ended Nine Months Ended
Reclassification Adjustment Description September 30, 2017 September 30, 2016 September 30, 2017 September 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 benefit 8
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 funds~~Certain 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, 2017~~March 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-backed	163,638		—		163,638		—
State and political subdivisions	65,933		—		65,933		—
Corporate	6,132		—		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-backed	164,432		—		164,432		—
State and political subdivisions	40,466		—		40,466		—
Corporate	6,124		—		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-backed 18,741
—
18,741
—
State and political subdivisions 25,314
—
25,314
—
Corporate 10,005
—
10,005
—
Total debt securities 63,470
—
63,470
—
Mutual funds 500
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-backed 18,041
—
18,041
—
State and political subdivisions 27,372
—
27,372
—
Corporate 9,700
—
9,700
—
Total debt securities 65,153
—
65,153
—
Mutual funds 403
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 ~~impaired~~collateral dependent individually evaluated loans, ~~HTM securities,~~ MSRs and OREO, were not considered material at ~~September 30, 2017~~March 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 banks	16,428		16,428		—		16,428		—
Investment securities	276,767		276,767		3,965		272,802		—
Loans held for sale	2,849		2,893		—		2,893		—
Loans, net
Residential real estate	356,465		322,577		—		—		322,577
Construction real estate	105,456		103,544		—		—		103,544
Commercial real estate	370,432		353,857		—		—		353,857
Commercial	41,243		38,632		—		—		38,632
Consumer	2,371		2,321		—		—		2,321
Municipal	90,866		89,267		—		—		89,267
Accrued interest receivable	4,178		4,178		—		1,065		3,113
Nonmarketable equity securities	2,681		N/A		N/A		N/A		N/A
Financial liabilities
Deposits
Noninterest bearing	$	262,488	$	262,488	$	262,488	$	—	$	—
Interest bearing	709,401		709,401		709,401		—		—
Time	254,089		250,567		—		250,567		—
Borrowed funds
Short-term	45,000		44,970		—		44,970		—
Long-term	106		106		—		106		—
Subordinated notes	16,213		16,506		—		16,506		—
Accrued interest payable	396		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 banks 8,356
8,365
—
8,365
—
Investment securities 64,970
64,969
500
64,469
—
Loans held for sale 5,675
5,777
—
5,777
—
Loans, net
Residential real estate 175,248
177,201
—
—
177,201
Construction real estate 36,436
36,208
—
—
36,208
Commercial real estate 254,503
252,903
—
—
252,903
Commercial 47,869
47,021
—
—
47,021
Consumer 3,811
3,875
—
—
3,875
Municipal 56,525
56,715
—
—
56,715
Accrued interest receivable 2,196
2,196
—
426
1,770
Nonmarketable equity securities 2,331
N/A
N/A
N/A
N/A
Financial liabilities
Deposits
Noninterest bearing $ 119,203
$ 119,203
$ 119,203
$ —
$ —
Interest bearing 387,707
387,707
387,707
—
—
Time 99,714
98,925
—
98,925
—
Borrowed funds
Short-term 2,232
2,231
2,231
—
—
Long-term 30,288
29,300
—
29,300
—
Accrued interest payable 84
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 banks	9,504		9,528		—		9,528		—		Interest bearing deposits in banks	16,428		16,428		—		16,428		—
Investment securities	66,555		66,555		403		66,152		—		Investment securities	251,531		251,531		3,815		247,716		—
Loans held for sale	7,803		7,958		—		7,958		—		Loans held for sale	1,178		1,202		—		1,202		—
Loans, net											Loans, net
Residential real estate	171,538		173,024		—		—		173,024		Residential real estate	350,507		319,066		—		—		319,066
Construction real estate	33,840		33,963		—		—		33,963		Construction real estate	95,723		94,231		—		—		94,231
Commercial real estate	246,317		245,979		—		—		245,979		Commercial real estate	373,990		358,897		—		—		358,897
Commercial	41,708		41,491		—		—		41,491		Commercial	40,729		38,588		—		—		38,588
Consumer	3,941		4,014		—		—		4,014		Consumer	2,197		2,161		—		—		2,161
Municipal	31,348		31,749		—		—		31,749		Municipal	88,008		86,306		—		—		86,306
Accrued interest receivable	2,259		2,259		—		414		1,845		Accrued interest receivable	4,163		4,163		—		1,014		3,149
Nonmarketable equity securities	2,354		N/A		N/A		N/A		N/A		Nonmarketable equity securities	2,816		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 bearing	382,083		382,083		382,083		—		—		Interest bearing	762,722		762,722		762,722		—		—
Time	103,193		102,594		—		102,594		—		Time	153,045		149,166		—		149,166		—
Borrowed funds
Short-term	1,099		1,099		1,099		—		—
Long-term	30,496		30,423		—		30,423		—

Short-term borrowed funds											Short-term borrowed funds	50,000		49,997		—		49,997		—

Subordinated notes											Subordinated notes	16,205		14,037		—		14,037		—
Accrued interest payable	92		92		—		92		—		Accrued interest payable	354		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, 2017~~March 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, 2017~~March 31, 2023 and December 31, ~~2016~~,2022, and its results of operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 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 reflects~~consolidated 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, 2017~~March 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's~~are 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 exists~~only 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 ~~expressed~~projected 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 from~~local markets in which the Company operates; eroding public confidence in the banking system; changes in ~~technology~~consumer behavior due to changing political, business and ~~delivery systems; (3) the effect of and~~economic conditions, including concerns about inflation, or legislative or regulatory initiatives; changes in the ~~United States monetary~~value 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 rates~~but 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, or~~economic assumptions and adverse economic developments; the ~~way~~risk 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 federal~~other risks and ~~state health care reform efforts; (7) changes~~uncertainties 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 to~~about 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 ~~2016~~2022 Annual Report ~~on Form 10-K~~and 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's~~Concerns 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 $2.4~~increased $495 thousand, or 19.9%, to $3.0 million for the first quarter ~~ended September 30, 2017~~of 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 increase~~2022 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 decrease~~in credit loss expense, $461 thousand in noninterest expenses, ~~of $83~~and $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 income~~a 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 ~~less~~and net income of $3.0 million partially offset by regular cash dividends ~~paid~~declared 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, 2017~~March 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,							2023			2022
	2017			2016			2017			2016
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 ratio	96.37		%	92.93		%	96.37		%	92.93		%	Loan to deposit ratio	79.55		%	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 sale	0.91		%	1.00		%	0.91		%	1.00		%
ACL on loans to loans not held for sale													ACL on loans to loans not held for sale	0.71		%	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 assets	8.45		%	8.80		%	8.45		%	8.80		%	Equity to assets	4.45		%	5.63		%
Total capital to risk weighted assets	13.37		%	13.41		%	13.37		%	13.41		%	Total capital to risk weighted assets	13.69		%	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 share													Basic earnings per share	$	0.66		$	0.55
Diluted earnings per share													Diluted 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 caused~~OREO 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 $6.3~~March 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 ~~third~~first quarter of ~~2017,~~2023, from ~~4.18%~~3.08% for the same period last year, reflecting ~~a 2~~the 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% for~~decreased 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,
	2023						2022
	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 banks	17,122		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 securities	2,579		41		6.49	%	894		6		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 banks	4,639						4,693
Premises and equipment	20,406						21,517
Other assets	9,587						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 accounts	428,438		696		0.66	%	445,038		354		0.32	%
Time deposits	195,772		1,241		2.57	%	106,369		118		0.45	%
Borrowed funds and other liabilities	41,532		484		4.66	%	—		—		—	%
Subordinated notes	16,209		142		3.56	%	16,175		142		3.55	%
Total interest bearing liabilities	996,107		3,069		1.25	%	847,399		763		0.36	%
Noninterest bearing deposits	273,971						281,367
Other liabilities	15,096						10,688
Total liabilities	1,285,174						1,139,454
Stockholders' equity	56,985						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,
2017 2016

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 banks 8,356
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 securities 2,576
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 banks 4,408
4,688

Premises and equipment 13,226
13,219

Other assets 22,848
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 accounts 232,132
211
0.36 % 214,232
154
0.29 %
Time deposits 105,693
187
0.70 % 108,569
179
0.66 %
Borrowed funds 40,033
134
1.31 % 25,169
108
1.69 %
Total interest bearing liabilities 524,363
587
0.44 % 478,198
471
0.39 %
Noninterest bearing deposits 112,974
109,077

Other liabilities 5,719
4,971

Total liabilities 643,056
592,246

Stockholders' equity 58,937
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,
2017 2016

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 banks 8,700
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 securities 2,455
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 banks 4,199
4,603

Premises and equipment 13,286
13,091

Other assets 22,313
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 accounts 229,938
610
0.35 % 196,903
325
0.22 %
Time deposits 103,763
525
0.68 % 133,351
796
0.80 %
Borrowed funds 35,713
369
1.36 % 23,905
303
1.67 %
Total interest bearing liabilities 514,375
1,640
0.42 % 479,566
1,503
0.42 %
Noninterest bearing deposits 108,395
103,870

Other liabilities 5,363
4,693

Total liabilities 628,133
588,129

Stockholders' equity 57,629
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, 2017~~March 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 ~~2017~~2023 and ~~2016~~2022 three ~~and nine~~ month comparison periods:


	For the Three Months Ended March 31,
	2023		2022
	(Dollars in thousands)
Net interest income, as presented	$	9,975	$	8,963
Effect of tax-exempt interest
Investment securities	78		49
Loans	80		62
Net interest income, tax equivalent	$	10,133	$	9,074

For the Three Months
Ended September 30, For The Nine Months
Ended September 30,
2017 2016 2017 2016
(Dollars in thousands)
Net interest income as presented $ 6,810
$ 6,315
$ 19,697
$ 18,419
Effect of tax-exempt interest
Investment securities 77
64
235
192
Loans 168
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
	Volume		Rate		Net
	(Dollars in thousands)
Interest earning assets:
Federal funds sold and overnight deposits	$	(22)	$	107	$	85
Interest bearing deposits in banks	11		63		74
Investment securities	93		300		393

Loans, net	1,774		957		2,731
Nonmarketable equity securities	18		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 deposits	168		955		1,123
Borrowed funds	484		—		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

Volume Rate Net Volume Rate Net
(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 securities 62
2
64
144
5
149
Loans, net 598
(60 ) 538
1,256
(37 ) 1,219
Nonmarketable equity securities 3
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 accounts 14
43
57
61
224
285
Time deposits (4 ) 12
8
(162 ) (109 ) (271 )
Borrowed funds 53
(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

~~Provision~~Credit Loss Expense. The Company adopted ASU No. 2016-13 to account for ~~Loan Losses.~~ ~~There was $150 thousand loan~~the 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 loan~~March 31, 2023 were accounted for in accordance with the ASU. In accordance with previously applicable GAAP, the ACL and credit loss ~~provision~~expense as of and for the three months ended ~~September 30, 2016. A loan~~March 31, 2022 were accounted for under the incurred loss ~~provision~~methodology. Refer to Note 1, Summary of ~~$150 thousand was recorded~~Significant Accounting Policies for a description of the Company's accounting policies for the ~~nine months ended September 30, 2017 and~~ ~~2016. The provision~~ACL.

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,
	2023		2022		$ Variance		% Variance
	(Dollars in thousands)
Wealth management income	$	211	$	209	$	2	1.0
Service fees	1,694		1,635		59		3.6
Net gains on sales of loans held for sale	194		14		180		1,285.7
Income from Company-owned life insurance	107		182		(75)		(41.2)

Other income	33		82		(49)		(59.8)

Net gains on other investments	46		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,
2017 2016 $ Variance % Variance 2017 2016 $ Variance % Variance
(Dollars in thousands)
Trust income $ 179
$ 171
$ 8
4.7
$ 548
$ 523
$ 25
4.8
Service fees 1,553
1,538
15
1.0
4,444
4,377
67
1.5
Net gains on sales of loans held for sale 657
921
(264 ) (28.7 ) 1,762
2,196
(434 ) (19.8 )
Income from Company-owned life insurance 66
64
2
3.1
185
278
(93 ) (33.5 )
Other income 27
57
(30 ) (52.6 ) 100
142
(42 ) (29.6 )
Net gains on sales of investment securities AFS 24
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, 2017~~March 31, 2023 compared to the same ~~periods~~period of ~~2016~~2022 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 loan~~three months ended March 31, 2023, compared to sales of ~~$40.7~~$16.4 million during the ~~third~~ ~~quarter~~same 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 of~~held 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, 2017~~March 31, 2023 compared to the same ~~periods~~period 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 2017~~ended March 31, 2023 and ~~2016:~~2022:


	For The Three Months Ended March 31,
	2023		2022		$ Variance		% Variance
	(Dollars in thousands)
Salaries and wages	$	3,502	$	3,410	$	92	2.7
Employee benefits	1,377		1,305		72		5.5
Occupancy expense, net	578		527		51		9.7
Equipment expense	897		916		(19)		(2.1)
Professional fees	269		216		53		24.5
FDIC insurance assessment	184		127		57		44.9
Advertising and public relations	143		108		35		32.4
Vermont franchise tax	289		261		28		10.7


Amortization of MSRs, net	124		175		(51)		(29.1)
ATM and debit card expense	273		203		70		34.5

Board related expenses	114		135		(21)		(15.6)
Other expenses	1,000		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,
2017 2016 $ Variance % Variance 2017 2016 $ 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 benefits 954
865
89
10.3
2,784
2,659
125
4.7
Occupancy expense, net 320
297
23
7.7
1,073
923
150
16.3
Equipment expense 532
553
(21 ) (3.8 ) 1,589
1,603
(14 ) (0.9 )
Vermont franchise tax 146
139
7
5.0
434
414
20
4.8
FDIC insurance assessment 84
81
3
3.7
255
246
9
3.7
Other expenses 1,335
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, 2017~~March 31, 2023 compared to the same periods ~~of 2016~~in 2022 are described below:

•Salaries and wages. Salaries and wages ~~decreased $52~~increased $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 ~~2016~~2022 primarily due to annual salary adjustments for the 2023 fiscal year. Wage pressures ensued for most of 2022 as ~~the 2016 profit sharing contribution paid~~employees, 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 $12~~•Employee 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 ~~periods~~period 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 $9~~medical 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 ~~change~~new lease for a full service branch location in ~~vendor. Additionally, lease expense~~North 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 $18~~period 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 ~~nine~~comparison 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 thousand~~•Amortization 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~~ ~~for~~amortized in proportion to, and over the ~~three and nine months ended September 30, 2017, respectively. Professional and legal fees decreased $70~~period 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 month~~2022, respectively.

•ATM and debit card expenses. The increase between comparison periods ~~as various consulting engagements occurring~~relates 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 nine~~three months ended ~~September 30, 2017~~March 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 nine~~three months ended ~~September 30, 2017, respectively,~~March 31, 2023 compared to ~~$827~~$422 thousand ~~and $2.2 million~~ for the same ~~periods~~period in ~~2016.~~2022. The Company's effective federal corporate income tax rate was ~~26.5% and 26.4%~~14.3% for the ~~quarter and nine~~three 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 ~~periods~~period 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, 2017~~March 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 increases~~was 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 ~~pages~~page 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 ~~$3.3~~from $55.2 million to ~~$59.6 million~~at ~~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, 2017~~March 31, 2023 increased ~~$52.0~~$145.3 million compared to the ~~September 30, 2016~~March 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, 2017~~March 31, 2023 and ~~$463.8~~$828.2 million,, or ~~85.7%~~86.3% of total loans at December 31, ~~2016. Although competition for good~~2022. 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, especially~~originated, 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, 2017~~March 31, 2023 and December 31, ~~2016~~2022 was as follows:


	March 31, 2023			December 31, 2022
Loan Class	Amount		Percent	Amount		Percent
Residential real estate	(Dollars in thousands)
Non-revolving residential real estate	$	341,880	35.1	$	335,470	35.0
Revolving residential real estate	16,299		1.7	16,963		1.8
Construction real estate
Commercial construction real estate	60,847		6.2	56,501		5.9
Residential construction real estate	46,320		4.8	40,119		4.2
Commercial real estate
Non-residential commercial real estate	278,366		28.5	282,397		29.4
Multi-family residential real estate	93,953		9.6	95,550		9.9
Commercial	41,553		4.3	40,973		4.3
Consumer	2,373		0.2	2,204		0.2
Municipal	90,818		9.3	87,980		9.2
Loans held for sale	2,849		0.3	1,178		0.1
Total loans	975,258		100.0	959,335		100.0
ACL on loans	(6,934)			(8,339)
Unamortized net loan costs	1,358			1,336
Net loans and loans held for sale	$	969,682		$	952,332

September 30, 2017 December 31, 2016
Loan Class Amount Percent Amount Percent
(Dollars in thousands)
Residential real estate $ 176,399
30.2 $ 172,727
31.9
Construction real estate 36,796
6.3 34,189
6.3
Commercial real estate 257,192
44.0 249,063
46.0
Commercial 48,166
8.2 41,999
7.8
Consumer 3,832
0.6 3,962
0.7
Municipal 56,517
9.7 31,350
5.8
Loans held for sale 5,675
1.0 7,803
1.5
Total loans 584,577
100.0 541,093
100.0
Allowance for loan losses (5,259 ) (5,247 )
Unamortized net loan costs 749
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 ~~2017~~to 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 ~~nine~~three months of ~~2016. The Company generally retains the servicing rights on sold residential~~2022. 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 ~~locations~~markets without needing prior HUD underwriting approval. The Company sells FHA, VA and ~~FHA~~RD loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities ~~we serve,~~served, including low and moderate income borrowers, while the loan sales and government guaranty ~~mitigates our~~mitigate 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, 2017~~March 31, 2023 on an aggregate balance of ~~$6.2~~$4.2 million in subject loans. The Company occasionally sells the guaranteed portion of ~~the~~a loan to other financial ~~concerns~~institutions and retains servicing rights, which generates fee income. There were ~~$226 thousand of~~no commercial loans sold in the first ~~nine~~three months of ~~2017~~2023 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~~ ~~$12.7~~included $26.9 million of commercial or commercial real estate loans the Company ~~has~~originated 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. Qualified~~Qualifying residential first mortgage loans and certain commercial real estate loans ~~held by Union are eligible to be~~with 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 ~~shows~~details the composition of the Company's nonperforming assets ~~at the dates indicated~~ and ~~trends of~~amounts utilized to calculate certain asset quality ratios monitored by the Company's management ~~in reviewing~~as 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 interest	175		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 outstanding	0.71		%	0.87		%	1.00		%

ACL on loans to nonperforming loans	295.19		%	347.89		%	179.89		%
ACL on loans to nonaccrual loans	318.95		%	377.16		%	189.24		%
Nonperforming loans to total loans	0.24		%	0.25		%	0.56		%
Nonperforming assets to total assets	0.17		%	0.18		%	0.38		%
Nonaccrual loans to total loans	0.22		%	0.23		%	0.53		%
Delinquent loans (30 days to nonaccruing) to total loans	0.36		%	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 ended As of or for the year ended As 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 delinquent 229
840
1,002
Total nonperforming assets (1) $ 2,258
$ 4,385
$ 3,416
Allowance for loan losses to loans not held for sale 0.91 % 0.98 % 1.00 %
Allowance for loan losses to nonperforming loans 232.91 % 119.66 % 152.99 %
Nonperforming loans to total loans 0.39 % 0.81 % 0.64 %
Nonperforming assets to total assets 0.32 % 0.63 % 0.51 %
Delinquent loans (30 days to nonaccruing) to total loans 0.64 % 1.55 % 0.82 %
Net charge-offs (annualized) to average loans not held for sale 0.03 % 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 three~~was 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 million~~approximated $98 thousand as of ~~September 30, 2017~~March 31, 2023 and ~~2016~~ ~~and $1.3 million~~$59 thousand as of December 31, ~~2016~~.2022.

At ~~September 30, 2017, the~~The 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 ~~Loan~~Credit Losses on Loans. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ~~ALL~~ACL to absorb such losses. The ~~ALL is maintained~~level of the ACL on loans at ~~a level believed by management to be appropriate to absorb probable~~March 31, 2023 represents management's estimate of expected credit losses ~~inherent in~~over the ~~loan portfolio as~~expected 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-K~~and 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 ~~ALL~~ACL on loans for the three ~~and nine~~ months ended ~~September 30, 2017~~March 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,
	2017			2016			2017			2016				2023		2022
	(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. 2016-13													Impact of adoption of ASU No. 2016-13	(1,495)		—
Charge-offs	(102		)	(4		)	(191		)	(160		)	Charge-offs	—		(1)
Recoveries	43			4			53			35			Recoveries	—		1
Net charge-offs	(59		)	—			(138		)	(125		)
Provision for loan losses	150			—			150			150
Net recoveries (charge-offs)													Net recoveries (charge-offs)	—		—
Credit loss expense													Credit loss expense	90		—
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 ~~ALL~~ACL on loans and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:


	March 31, 2023			December 31, 2022
	Amount		Percent	Amount		Percent
Residential real estate	(Dollars in thousands)
Non-revolving residential real estate	$	2,071	35.2	$	2,294	35.0
Revolving residential real estate	143		1.7	123		1.8
Construction real estate
Commercial construction real estate	1,713		6.2	611		5.9
Residential construction real estate	148		4.8	421		4.2
Commercial real estate
Non-residential commercial real estate	2,186		28.6	2,931		29.5
Multi-family residential real estate	221		9.7	1,004		9.9
Commercial	368		4.3	301		4.3
Consumer	5		0.2	10		0.2
Municipal	79		9.3	95		9.2
Unallocated	—		—	549		—
Total	$	6,934	100.0	$	8,339	100.0

September 30, 2017 December 31, 2016
Amount Percent Amount Percent
(Dollars in thousands)
Residential real estate $ 1,379
30.5 $ 1,399
32.4
Construction real estate 408
6.4 391
6.4
Commercial real estate 2,790
44.4 2,687
46.7
Commercial 359
8.3 342
7.9
Consumer 26
0.6 26
0.7
Municipal 65
9.8 40
5.9
Unallocated 232
— 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 ~~ALL~~ACL methodology, all funds in the ~~ALL~~ACL 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 ~~ALL~~ACL on loans at ~~September 30,~~

~~2017~~March 31, 2023 is appropriate to cover ~~probable~~expected credit losses ~~inherent in~~over the expected life of the Company’s loan portfolio as of such date. However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ~~ALL~~ACL 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 ~~ALL~~ACL based on their judgments about information available to them at the time of their examination. A large adjustment to the ~~ALL~~ACL on loans for losses in future periods ~~may~~could require increased ~~provisions~~credit 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~~ ~~$64.0~~which 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~~ ~~$1.6~~assets, 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 ~~for~~in 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 the~~2022. The Company’s accumulated OCI component of stockholders’ equity at ~~September 30, 2017. There was $1 thousand in~~March 31, 2023 reflected cumulative net unrealized losses ~~in the Company's HTM~~on investment securities ~~portfolio~~of $33.5 million. There were no securities classified as HTM at ~~September 30, 2017~~ ~~and~~ no ~~unrealized gain~~March 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 ~~OTT~~impairment related to credit losses at ~~September 30, 2017~~.March 31, 2023. Deterioration in credit quality and/or imbalances in liquidity that may ~~exist~~result from changes in ~~the~~ financial ~~marketplace~~market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities and may also increase the potential that ~~certain resulting unrealized~~credit losses ~~will~~may be ~~designated as OTT~~identified in future periods, resulting in ~~write-downs~~credit 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 various~~as collateral for public unit deposits or ~~customer repurchase agreements~~for other purposes as ~~of September 30, 2017, compared to $8.4 million~~required 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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~year~~2022:


	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 accounts	314,156		25.9	0.65	%	279,817		25.2	0.22	%
Money market accounts	249,195		20.5	1.11	%	259,670		23.3	0.53	%
Savings accounts	179,243		14.8	0.04	%	185,368		16.7	0.04	%
Total nontime deposits	1,016,565		83.8	0.48	%	1,006,222		90.5	0.20	%



Total time deposits	195,772		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 ~~December~~March 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 accounts 144,961
24.7 0.13 % 128,977
22.8 0.09 %
Money market accounts 131,008
22.3 0.51 % 110,938
19.6 0.35 %
Savings accounts 98,930
16.8 0.15 % 93,118
16.5 0.15 %
Total nontime deposits 483,294
82.3 0.21 % 438,629
77.6 0.15 %
Time deposits:
Less than $100,000 61,787
10.5 0.65 % 63,720
11.3 0.66 %
$100,000 and over 41,976
7.2 0.72 % 62,528
11.1 0.90 %
Total time deposits 103,763
17.7 0.68 % 126,248
22.4 0.77 %
Total deposits $ 587,057
100.0 0.29 % $ 564,877
100.0 0.29 %
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 Company~~it 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 ~~$11.2~~no 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, 2017~~March 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 ~~Union~~it can offer its customers ademand or savings ~~product~~products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage ~~for the customer,~~of excess balances, thereby helping ~~Union~~the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. ~~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, 2017~~March 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, 2017~~March 31, 2023 or December 31, ~~2016.~~

2022.

At ~~September 30, 2017,~~March 31, 2023 there ~~was $2.0~~were $108.0 million inof retail brokered deposits at a weighted average rate of 4.64% issued under a master ~~certificates~~certificate 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 ~~$100,000~~the $250 thousand FDIC insurance limit at March 31, 2023 and ~~over at~~ ~~September 30, 2017~~ ~~and~~ December 31, ~~2016~~:2022:


	March 31, 2023		December 31, 2022
	(Dollars in thousands)
Within 3 months	$	3,296	$	1,011
3 to 6 months	1,426		4,001
6 to 12 months	22,681		11,462
Over 12 months	5,735		9,883
	$	33,138	$	26,357

September 30, 2017 December 31, 2016
(Dollars in thousands)
Within 3 months $ 6,145
$ 5,202
3 to 6 months 5,708
9,927
6 to 12 months 15,220
12,051
Over 12 months 12,996
13,401
$ 40,069
$ 40,581

~~During~~ Borrowings. Advances from the ~~first nine months~~FHLB are another key source of ~~2017, average total deposits grew $22.2 million, or 3.9%, compared~~funds 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.~~ ~~Total~~Company's borrowed funds at ~~September 30, 2017~~March 31, 2023 were ~~$32.5~~comprised 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 ~~decrease~~Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the ~~balance~~amount 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 sweeps~~in 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 average~~the rate of ~~0.25%, compared~~3.25% 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, 2017		December 31, 2016			March 31, 2023		December 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 credit	93,278		76,544		Unused lines of credit	172,263		185,539
Standby and commercial letters of credit	2,158		1,624		Standby and commercial letters of credit	1,542		1,762
Credit card arrangements	1,290		1,341		Credit card arrangements	146		241
FHLB Mortgage Partnership Finance credit enhancement obligation, net	615		610		FHLB Mortgage Partnership Finance credit enhancement obligation, net	461		396

Commitment to purchase investment in a real estate limited partnership	1,470		980		Commitment to purchase investment in a real estate limited partnership	3,000		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. ~~Commitments~~Loan 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, 2017~~March 31, 2023 or December 31, ~~2016.~~2022.

~~The~~In 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 reserve~~time for the ~~14 day maintenance period~~purchase or lease of property, including ~~September 30, 2017~~real 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 million~~included 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 payouts 971
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 ~~are~~have been a relatively predictable source of ~~funds, however, deposit~~funds. 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 with~~FHLB 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 access~~ICS. In addition to the ~~FRB discount window, which would require pledging of qualified assets. Core deposits are the lowest cost of funds~~funding 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 cost~~maintains a $5.0 million revolving line of ~~these other funding sources, an agreement was entered into~~credit 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, 2017~~March 31, 2023, there were no purchased ICS ~~deposits under this agreement, no purchased~~or 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 line~~Union 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 additional~~Additional 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, ~~2016~~2022 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 ~~$102~~due 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 $18~~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 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 ~~paid~~declared of ~~$3.9~~$1.6 million and stock repurchases of ~~$43~~$60 thousand during the ~~nine~~three 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 ~~4,937,652~~4,982,523 shares issued, of which ~~4,462,517~~4,506,950 were outstanding and ~~475,135~~475,573 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 ~~1,040~~2,500 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, the~~2023 at a cost of $1 thousand.

The Company ~~adopted~~maintains a ~~Dividend Reinvestment and Stock Purchase Plan~~DRIP 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, 737~~March 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 a~~minimum total ~~risk based~~risk-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 leverage~~increasing the minimum required total risk-based capital, ~~ratio of 5.0% or greater;~~Tier I risk-based and ~~(iv) is not subject~~common equity Tier I capital to ~~any written agreement, order, capital directive, or prompt corrective action directive~~risk-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 losses~~avoid 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, 2017~~March 31, 2023 and the date of this report that management believes have changed either ~~Company’s~~company’s regulatory capital category.


	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Company:
Total capital to risk weighted assets	$	116,472	13.69	%	$	68,063	8.00	%	N/A		N/A
Tier I capital to risk weighted assets	91,882		10.80	%	51,046		6.00	%	N/A		N/A
Common Equity Tier 1 to risk weighted assets	91,882		10.80	%	38,284		4.50	%	N/A		N/A
Tier I capital to average assets	91,882		6.63	%	55,434		4.00	%	N/A		N/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 assets	107,974		12.70	%	51,011		6.00	%	68,015		8.00	%
Common Equity Tier 1 to risk weighted assets	107,974		12.70	%	38,259		4.50	%	55,262		6.50	%
Tier I capital to average assets	107,974		7.79	%	55,442		4.00	%	69,303		5.00	%

Actual For Capital Adequacy Purposes To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2017 Amount Ratio Amount Ratio Amount Ratio
(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 assets 59,573
12.42 % 28,779
6.00 % N/A
N/A
Common Equity Tier 1 to risk weighted assets 59,573
12.42 % 21,584
4.50 % N/A
N/A
Tier I capital to average assets 59,573
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 assets 59,233
12.37 % 28,731
6.00 % 38,308
8.00 %
Common Equity Tier 1 to risk weighted assets 59,233
12.37 % 21,548
4.50 % 31,125
6.50 %
Tier I capital to average assets 59,233
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 goals~~Quarterly 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 ~~was~~were 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 Change Percent Change in Net Interest Income Limit Percent 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 incorporated~~Omitted, in accordance with the regulatory relief available to ~~Part I, Item 2, reference~~smaller 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 report~~SEC 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 in~~In 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 ~~liability~~proceedings 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 2016~~the 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.

~~During~~The 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
Period Total Number of Shares Purchased Average Price Paid per Share Total 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 2017 215
$41.70 215
2,785
August 2017 —
—
—
2,785
September 2017 150
$43.16 150
—



Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share	Total 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	$24.00		2,500
February 2023	—	—	—	2,500
March 2023	2,500	$23.89	2,500	—

__________________

~~(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.



31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2			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, 2017~~March 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, 2017~~March 31, 2023 and ~~2016,~~2022, (iii) the unaudited consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 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.
104			Cover 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, 2023		~~Union Bankshares, Inc.~~

~~November 9, 2017~~	/s/ David S. Silverman
		David S. Silverman
		Director, President and Chief Executive Officer


~~November 9, 2017~~May 15, 2023		/s/ Karyn J. Hale
		Karyn J. Hale
		Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX



31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2			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, 2017~~March 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, 2017~~March 31, 2023 and ~~2016,~~2022, (iii) the unaudited consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 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.

~~____________________~~


*104			~~This~~Cover 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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
	(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:
Taxable	250		211		741		683
Tax exempt	159		144		486		427
Dividends	42		27		114		62
Interest on federal funds sold and overnight deposits	15		12		64		23
Interest on interest bearing deposits in banks	38		37		109		123
Total interest and dividend income	7,397		6,786		21,337		19,922
Interest expense
Interest on deposits	453		363		1,271		1,200
Interest on borrowed funds	134		108		369		303
Total interest expense	587		471		1,640		1,503
Net interest income	6,810		6,315		19,697		18,419
Provision for loan losses	150		—		150		150
Net interest income after provision for loan losses	6,660		6,315		19,547		18,269
Noninterest income
Trust income	179		171		548		523
Service fees	1,553		1,538		4,444		4,377
Net gains on sales of investment securities available-for-sale	24		53		33		71
Net gains on sales of loans held for sale	657		921		1,762		2,196
Other income	93		121		285		420
Total noninterest income	2,506		2,804		7,072		7,587
Noninterest expenses
Salaries and wages	2,570		2,622		7,642		7,522
Pension and employee benefits	954		865		2,784		2,659
Occupancy expense, net	320		297		1,073		923
Equipment expense	532		553		1,589		1,603
Other expenses	1,565		1,687		4,665		4,828
Total noninterest expenses	5,941		6,024		17,753		17,535
Income before provision for income taxes	3,225		3,095		8,866		8,321
Provision for income taxes	855		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 outstanding	4,462,414		4,459,602		4,462,113		4,458,755
Dividends per common share	$	0.29	$	0.28	$	0.87	$	0.83



Cash Flows From Financing Activities
Advances on long-term borrowings	10,000			25,452
Repayment of long-term debt	(10,208		)	(229		)
Net increase in short-term borrowings outstanding	1,133			2,726
Net increase in noninterest bearing deposits	6,819			16,555
Net increase in interest bearing deposits	5,624			40,173
Net decrease in time deposits	(3,479		)	(44,950		)
Issuance of common stock	19			56
Purchase of treasury stock	(43		)	(6		)
Dividends paid	(3,864		)	(3,695		)
Net cash provided by financing activities	6,001			36,082
Net (decrease) increase in cash and cash equivalents	(26,878		)	17,613
Cash and cash equivalents
Beginning of period	39,275			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



	(Dollars in thousands)
2017	$	42
2018	171
2019	171
2020	171
2021	70
Total	$	625



	September 30, 2017			December 31, 2016
	(Dollars in thousands)
Residential real estate	$	176,399		$	172,727
Construction real estate	36,796			34,189
Commercial real estate	257,192			249,063
Commercial	48,166			41,999
Consumer	3,832			3,962
Municipal	56,517			31,350
Gross loans	578,902			533,290
Allowance for loan losses	(5,259		)	(5,247		)
Net deferred loan costs	749			649
Net loans	$	574,392		$	528,692



	As of September 30, 2017						For The Three Months Ended September 30, 2017				For The Nine Months Ended September 30, 2017
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	300	$	310	$	57
Commercial real estate	140		143		4
With an allowance recorded	440		453		61

Residential real estate	1,639		2,168		—
Construction real estate	84		84		—
Commercial real estate	1,344		1,417		—
Commercial	393		393		—
With no allowance recorded	3,460		4,062		—

Residential real estate	1,939		2,478		57		$	1,855	$	23	$	1,684	$	54
Construction real estate	84		84		—		84		1		86		3
Commercial real estate	1,484		1,560		4		1,626		18		2,200		72
Commercial	393		393		—		400		7		412		19
Total	$	3,900	$	4,515	$	61	$	3,965	$	49	$	4,382	$	148



	As of September 30, 2016						For The Three Months Ended September 30, 2016				For The Nine Months Ended September 30, 2016
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	1,388	$	1,788	$	57	$	1,346	$	7	$	1,266	$	23
Construction real estate	89		89		—		89		1		91		3
Commercial real estate	2,883		2,981		61		3,018		28		3,059		59
Commercial	451		451		—		456		—		470		—
Total	$	4,811	$	5,309	$	118	$	4,909	$	36	$	4,886	$	85



	September 30, 2017			December 31, 2016
	Number of Loans	Principal Balance		Number of Loans	Principal Balance
	(Dollars in thousands)
Residential real estate	28	$	1,939	20	$	1,448
Construction real estate	1	84		1	88
Commercial real estate	10	1,091		10	1,452
Commercial	2	393		2	431
Total	41	$	3,507	33	$	3,419



	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2017					Nine Months Ended September 30, 2017
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Residential real estate	3	$	269	$	276	9	$	649	$	673
Commercial real estate	1	149		149		2	293		293



	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2016					Nine Months Ended September 30, 2016
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Residential real estate	3	$	89	$	99	6	$	278	$	295
Commercial real estate	4	643		647		6	803		807



	Number of Unvested RSUs	Weighted-Average Grant Date Fair Value
2015 Award	3,089	$	27.91
2016 Award	3,569	45.45
Total	6,658	$	37.31



	Three Months Ended
	September 30, 2017									September 30, 2016
	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount			Tax (Expense) Benefit		Net-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, 2017									September 30, 2016
	Before-Tax Amount			Tax (Expense) Benefit			Net-of-Tax Amount			Before-Tax Amount			Tax (Expense) Benefit			Net-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



	Three Months Ended September 30,
	2017						2016
	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 banks	8,356		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 securities	2,576		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 banks	4,408						4,688
Premises and equipment	13,226						13,219
Other assets	22,848						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 accounts	232,132		211		0.36	%	214,232		154		0.29	%
Time deposits	105,693		187		0.70	%	108,569		179		0.66	%
Borrowed funds	40,033		134		1.31	%	25,169		108		1.69	%
Total interest bearing liabilities	524,363		587		0.44	%	478,198		471		0.39	%
Noninterest bearing deposits	112,974						109,077
Other liabilities	5,719						4,971
Total liabilities	643,056						592,246
Stockholders' equity	58,937						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,
	2017						2016
	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 banks	8,700		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 securities	2,455		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 banks	4,199						4,603
Premises and equipment	13,286						13,091
Other assets	22,313						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 accounts	229,938		610		0.35	%	196,903		325		0.22	%
Time deposits	103,763		525		0.68	%	133,351		796		0.80	%
Borrowed funds	35,713		369		1.36	%	23,905		303		1.67	%
Total interest bearing liabilities	514,375		1,640		0.42	%	479,566		1,503		0.42	%
Noninterest bearing deposits	108,395						103,870
Other liabilities	5,363						4,693
Total liabilities	628,133						588,129
Stockholders' equity	57,629						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	%



	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
	Volume			Rate			Net		Volume			Rate			Net
	(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 securities	62			2			64		144			5			149
Loans, net	598			(60		)	538		1,256			(37		)	1,219
Nonmarketable equity securities	3			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 accounts	14			43			57		61			224			285
Time deposits	(4		)	12			8		(162		)	(109		)	(271		)
Borrowed funds	53			(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



	For The Three Months Ended September 30,									For The Nine Months Ended September 30,
	2017		2016		$ Variance			% Variance		2017		2016		$ Variance			% Variance
	(Dollars in thousands)
Trust income	$	179	$	171	$	8		4.7		$	548	$	523	$	25		4.8
Service fees	1,553		1,538		15			1.0		4,444		4,377		67			1.5
Net gains on sales of loans held for sale	657		921		(264		)	(28.7	)	1,762		2,196		(434		)	(19.8	)
Income from Company-owned life insurance	66		64		2			3.1		185		278		(93		)	(33.5	)
Other income	27		57		(30		)	(52.6	)	100		142		(42		)	(29.6	)
Net gains on sales of investment securities AFS	24		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	)



	As of or for the nine months ended			As of or for the year ended			As 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 delinquent	229			840			1,002
Total nonperforming assets (1)	$	2,258		$	4,385		$	3,416
Allowance for loan losses to loans not held for sale	0.91		%	0.98		%	1.00		%
Allowance for loan losses to nonperforming loans	232.91		%	119.66		%	152.99		%
Nonperforming loans to total loans	0.39		%	0.81		%	0.64		%
Nonperforming assets to total assets	0.32		%	0.63		%	0.51		%
Delinquent loans (30 days to nonaccruing) to total loans	0.64		%	1.55		%	0.82		%
Net charge-offs (annualized) to average loans not held for sale	0.03		%	0.02		%	0.03		%



	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 accounts	144,961		24.7	0.13	%	128,977		22.8	0.09	%
Money market accounts	131,008		22.3	0.51	%	110,938		19.6	0.35	%
Savings accounts	98,930		16.8	0.15	%	93,118		16.5	0.15	%
Total nontime deposits	483,294		82.3	0.21	%	438,629		77.6	0.15	%
Time deposits:
Less than $100,000	61,787		10.5	0.65	%	63,720		11.3	0.66	%
$100,000 and over	41,976		7.2	0.72	%	62,528		11.1	0.90	%
Total time deposits	103,763		17.7	0.68	%	126,248		22.4	0.77	%
Total deposits	$	587,057	100.0	0.29	%	$	564,877	100.0	0.29	%



	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 payouts	971
Total	$	640,439



Rate Change	Percent Change in Net Interest Income Limit		Percent Change in Net Interest Income
Up 300 basis points	(21.00	)%	1.6	%
Up 200 basis points	(14.00	)%	1.4	%