UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ 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, 2020~~March 31, 2021

Commission file number: 001-15985

UNION BANKSHARES, INC.

03-0283552

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~


Large accelerated filer	☐	Accelerated filer	☒☐
Non-accelerated filer	☐☒	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 ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of ~~October 30, 2020.~~May 1, 2021.

Common Stock, $2 par value

~~4,475,314~~4,481,456

UNION BANKSHARES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Unaudited)					(Unaudited)
Assets	Assets	(Dollars in thousands)				Assets	(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	5,100	$	5,405	Cash and due from banks	$	4,684	$	5,413
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	59,377		45,729		Federal funds sold and overnight deposits	51,822		117,358
Cash and cash equivalents	Cash and cash equivalents	64,477		51,134		Cash and cash equivalents	56,506		122,771
Interest bearing deposits in banks	Interest bearing deposits in banks	8,964		6,565		Interest bearing deposits in banks	14,691		12,699
Investment securities available-for-sale	Investment securities available-for-sale	88,120		87,393		Investment securities available-for-sale	141,931		105,763

Other investments	Other investments	874		690		Other investments	1,132		1,047
Total investments	Total investments	88,994		88,083		Total investments	143,063		106,810
Loans held for sale	Loans held for sale	32,803		7,442		Loans held for sale	40,212		32,188
Loans	Loans	766,050		670,244		Loans	802,254		771,169
Allowance for loan losses	Allowance for loan losses	(7,691)		(6,122)		Allowance for loan losses	(8,429)		(8,271)
Net deferred loan (fees) costs		(536)		1,043
Net deferred loan fees						Net deferred loan fees	(765)		(146)
Net loans	Net loans	757,823		665,165		Net loans	793,060		762,752

Premises and equipment, net	Premises and equipment, net	20,452		20,923		Premises and equipment, net	19,882		20,039

Goodwill		2,223		2,223

Company-owned life insurance	Company-owned life insurance	12,562		12,322		Company-owned life insurance	12,708		12,640
Other assets	Other assets	20,837		19,055		Other assets	24,196		23,655
Total assets	Total assets	$	1,009,135	$	872,912	Total assets	$	1,104,318	$	1,093,554
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Noninterest bearing	Noninterest bearing	$	204,555	$	136,434	Noninterest bearing	$	231,992	$	215,245
Interest bearing	Interest bearing	562,970		458,940		Interest bearing	648,960		637,369
Time	Time	142,554		148,653		Time	126,939		141,688
Total deposits	Total deposits	910,079		744,027		Total deposits	1,007,891		994,302
Borrowed funds	Borrowed funds	9,497		47,164		Borrowed funds	7,164		7,164

Accrued interest and other liabilities	Accrued interest and other liabilities	11,135		9,878		Accrued interest and other liabilities	9,440		11,221
Total liabilities	Total liabilities	930,711		801,069		Total liabilities	1,024,495		1,012,687
Commitments and Contingencies	Commitments and Contingencies					Commitments and Contingencies	0
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,950,430 shares issued at September 30, 2020 and 4,948,245 shares issued at December 31, 2019		9,901		9,897
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,955,232 shares issued at March 31, 2021 and 4,954,732 shares issued at December 31, 2020						Common stock, $2.00 par value; 7,500,000 shares authorized; 4,955,232 shares issued at March 31, 2021 and 4,954,732 shares issued at December 31, 2020	9,911		9,910
Additional paid-in capital	Additional paid-in capital	1,368		1,124		Additional paid-in capital	1,504		1,393
Retained earnings	Retained earnings	68,735		64,019		Retained earnings	72,494		71,097
Treasury stock at cost; 475,124 shares at September 30, 2020 and 476,268 shares at December 31, 2019		(4,173)		(4,183)
Treasury stock at cost; 474,278 shares at March 31, 2021 and 474,632 shares at December 31, 2020						Treasury stock at cost; 474,278 shares at March 31, 2021 and 474,632 shares at December 31, 2020	(4,167)		(4,169)
Accumulated other comprehensive income	Accumulated other comprehensive income	2,593		986		Accumulated other comprehensive income	81		2,636
Total stockholders' equity	Total stockholders' equity	78,424		71,843		Total stockholders' equity	79,823		80,867
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,009,135	$	872,912	Total liabilities and stockholders' equity	$	1,104,318	$	1,093,554

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 1

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands, except per share data)									(Dollars in thousands, except per share data)
Interest and dividend income	Interest and dividend income									Interest and dividend income
Interest and fees on loans	Interest and fees on loans	$	8,803	$	8,502	$	25,659	$	24,604	Interest and fees on loans	$	8,885	$	8,291
Interest on debt securities:	Interest on debt securities:									Interest on debt securities:
Taxable	Taxable	305		409		1,029		1,271		Taxable	404		387
Tax exempt	Tax exempt	160		131		477		373		Tax exempt	151		157
Dividends	Dividends	27		33		87		105		Dividends	4		34
Interest on federal funds sold and overnight deposits	Interest on federal funds sold and overnight deposits	7		19		71		130		Interest on federal funds sold and overnight deposits	19		53
Interest on interest bearing deposits in banks	Interest on interest bearing deposits in banks	41		46		122		153		Interest on interest bearing deposits in banks	37		41
Total interest and dividend income	Total interest and dividend income	9,343		9,140		27,445		26,636		Total interest and dividend income	9,500		8,963
Interest expense	Interest expense									Interest expense
Interest on deposits	Interest on deposits	1,101		1,198		3,662		3,439		Interest on deposits	1,047		1,309
Interest on borrowed funds	Interest on borrowed funds	57		295		314		678		Interest on borrowed funds	54		148
Total interest expense	Total interest expense	1,158		1,493		3,976		4,117		Total interest expense	1,101		1,457
Net interest income	Net interest income	8,185		7,647		23,469		22,519		Net interest income	8,399		7,506
Provision for loan losses	Provision for loan losses	800		150		1,600		350		Provision for loan losses	150		300
Net interest income after provision for loan losses	Net interest income after provision for loan losses	7,385		7,497		21,869		22,169		Net interest income after provision for loan losses	8,249		7,206
Noninterest income	Noninterest income									Noninterest income
Trust income	Trust income	173		168		524		519		Trust income	185		173
Service fees	Service fees	1,539		1,617		4,320		4,547		Service fees	1,523		1,497
Net gains on sales of investment securities available-for-sale	Net gains on sales of investment securities available-for-sale	0		0		11		8		Net gains on sales of investment securities available-for-sale	0		11
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	3,315		824		5,354		1,881		Net gains on sales of loans held for sale	894		812
Net gain (loss) on other investments	Net gain (loss) on other investments	76		(9)		114		72		Net gain (loss) on other investments	44		(124)
Other income		405		123		691		399
Other (loss) income										Other (loss) income	(25)		149
Total noninterest income	Total noninterest income	5,508		2,723		11,014		7,426		Total noninterest income	2,621		2,518
Noninterest expenses	Noninterest expenses									Noninterest expenses
Salaries and wages	Salaries and wages	3,718		3,072		9,668		8,773		Salaries and wages	3,083		3,121
Employee benefits	Employee benefits	1,204		1,047		3,417		3,108		Employee benefits	1,169		982
Occupancy expense, net	Occupancy expense, net	420		428		1,411		1,287		Occupancy expense, net	477		514
Equipment expense	Equipment expense	770		625		2,266		1,764		Equipment expense	798		740
Other expenses	Other expenses	1,883		1,833		5,516		5,400		Other expenses	1,926		1,815
Total noninterest expenses	Total noninterest expenses	7,995		7,005		22,278		20,332		Total noninterest expenses	7,453		7,172
Income before provision for income taxes	Income before provision for income taxes	4,898		3,215		10,605		9,263		Income before provision for income taxes	3,417		2,552
Provision for income taxes	Provision for income taxes	751		477		1,594		1,374		Provision for income taxes	541		356
Net income	Net income	$	4,147	$	2,738	$	9,011	$	7,889	Net income	$	2,876	$	2,196
Earnings per common share	Earnings per common share	$	0.92	$	0.62	$	2.01	$	1.77	Earnings per common share	$	0.64	$	0.49
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	4,475,145		4,468,400		4,474,061		4,467,845		Weighted average number of common shares outstanding	4,480,339		4,472,886
Dividends per common share	Dividends per common share	$	0.32	$	0.31	$	0.96	$	0.93	Dividends per common share	$	0.33	$	0.32

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 2

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Net income	Net income	$	4,147	$	2,738	$	9,011	$	7,889	Net income	$	2,876	$	2,196
Other comprehensive (loss) income, net of tax:	Other comprehensive (loss) income, net of tax:									Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	(124)		441		1,616		2,192		Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	(2,555)		1,084
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income	Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income	0		0		(9)		(6)		Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income	0		(9)

Total other comprehensive (loss) income	Total other comprehensive (loss) income	(124)		441		1,607		2,186		Total other comprehensive (loss) income	(2,555)		1,075
Total comprehensive income	Total comprehensive income	$	4,023	$	3,179	$	10,618	$	10,075	Total comprehensive income	$	321	$	3,271

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 Period Ended September 30, 2020 and 2019
Common Stock Accumulated
other
comprehensive income (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 June 30, 2020 4,474,899 $ 9,901 $ 1,306 $ 66,020 $ (4,177) $ 2,717 $ 75,767
   Net income — — — 4,147 — — 4,147
   Other comprehensive loss — — — — — (124) (124)
   Dividend reinvestment plan 407 — 4 — 4 — 8
   Cash dividends declared
       ($0.32 per share)
— — — (1,432) — — (1,432)
   Stock based compensation expense 0 0 58 — — — 58
Balances, September 30, 2020 4,475,306 $ 9,901 $ 1,368 $ 68,735 $ (4,173) $ 2,593 $ 78,424
Balances June 30, 2019 4,467,845 $ 9,890 $ 1,020 $ 61,292 $ (4,188) $ 722 $ 68,736
   Net income — — — 2,738 — — 2,738
   Other comprehensive income — — — — — 441 441
   Dividend reinvestment plan 198 — 5 — 2 — 7
   Cash dividends declared
($0.31 per share)
— — — (1,385) — — (1,385)
   Stock based compensation expense — — 54 — — — 54
   Exercise of stock options 1,000 2 20 — — — 22
Balances, September 30, 2019 4,469,043 $ 9,892 $ 1,099 $ 62,645 $ (4,186) $ 1,163 $ 70,613


		Nine Month Period Ended September 30, 2020 and 2019														Three Month Periods Ended March 31, 2021 and 2020
		Common Stock									Accumulated other comprehensive income (loss)					Common Stock									Accumulated other comprehensive income
		Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity			Shares, net of treasury	Amount		Additional paid-in capital		Retained earnings		Treasury stock				Total stockholders’ equity
		(Dollars in thousands, except per share data)														(Dollars in thousands, except per share data)
Balances, December 31, 2020															Balances, December 31, 2020	4,480,100	$	9,910	$	1,393	$	71,097	$	(4,169)	$	2,636	$	80,867
Net income															Net income	—	—		—		2,876		—		—		2,876
Other comprehensive loss															Other comprehensive loss	—	—		—		—		—		(2,555)		(2,555)
Dividend reinvestment plan															Dividend reinvestment plan	451	—		8		—		4		—		12
Cash dividends declared ($0.33 per share)															Cash dividends declared ($0.33 per share)	—	—		—		(1,479)		—		—		(1,479)
Stock based compensation expense															Stock based compensation expense	—	—		92		—		—		—		92
Exercise of stock options															Exercise of stock options	500	1		11		—		—		—		12
Purchase of treasury stock															Purchase of treasury stock	(97)	—		—		—		(2)		—		(2)
Balances, March 31, 2021															Balances, March 31, 2021	4,480,954	$	9,911	$	1,504	$	72,494	$	(4,167)	$	81	$	79,823

Balances, December 31, 2019	Balances, December 31, 2019	4,471,977	$	9,897	$	1,124	$	64,019	$	(4,183)	$	986	$	71,843	Balances, December 31, 2019	4,471,977	$	9,897	$	1,124	$	64,019	$	(4,183)	$	986	$	71,843
Net income	Net income	—	—		—		9,011		—		—		9,011		Net income	—	—		—		2,196		—		—		2,196
Other comprehensive income	Other comprehensive income	—	—		—		—		—		1,607		1,607		Other comprehensive income	—	—		—		—		—		1,075		1,075
Dividend reinvestment plan	Dividend reinvestment plan	1,144	—		17		—		10		—		27		Dividend reinvestment plan	223	—		6		—		2		—		8
Cash dividends declared ($0.96 per share)		—	—		—		(4,295)		—		—		(4,295)
Cash dividends declared ($0.32 per share)															Cash dividends declared ($0.32 per share)	—	—		—		(1,432)		—		—		(1,432)
Stock based compensation expense	Stock based compensation expense	1,185	2		207		—		—		—		209		Stock based compensation expense	—	—		76		—		—		—		76
Exercise of stock options	Exercise of stock options	1,000	2		20		—		—		—		22		Exercise of stock options	1,000	2		20		—		—		—		22

Balances, September 30, 2020		4,475,306	$	9,901	$	1,368	$	68,735	$	(4,173)	$	2,593	$	78,424

Balances, December 31, 2018		4,466,679	$	9,888	$	894	$	58,911	$	(4,179)	$	(1,023)	$	64,491
Net income		—	—		—		7,889		—		—		7,889
Other comprehensive income		—	—		—		—		—		2,186		2,186
Dividend reinvestment plan		664	—		21		—		6		—		27
Cash dividends declared $0.93 per share)		—	—		—		(4,155)		—		—		(4,155)
Stock based compensation expense		—	—		144		—		—		—		144
Exercise of stock options		2,000	4		40		—		—		—		44
Purchase of treasury stock		(300)	—		—		—		(13)		—		(13)
Balances, September 30, 2019		4,469,043	$	9,892	$	1,099	$	62,645	$	(4,186)	$	1,163	$	70,613
Balances, March 31, 2020															Balances, March 31, 2020	4,473,200	$	9,899	$	1,226	$	64,783	$	(4,181)	$	2,061	$	73,788

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)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020
Cash Flows From Operating Activities	Cash Flows From Operating Activities	(Dollars in thousands)				Cash Flows From Operating Activities	(Dollars in thousands)
Net income	Net income	$	9,011	$	7,889	Net income	$	2,876	$	2,196
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:						Adjustments to reconcile net income to net cash used in operating activities:
Depreciation	Depreciation	1,408		1,122		Depreciation	459		476
Provision for loan losses	Provision for loan losses	1,600		350		Provision for loan losses	150		300
Deferred income tax provision (benefit)		20		(26)
Deferred income tax provision						Deferred income tax provision	14		10
Net amortization of premiums on investment securities	Net amortization of premiums on investment securities	389		305		Net amortization of premiums on investment securities	168		113
Equity in losses of limited partnerships	Equity in losses of limited partnerships	679		534		Equity in losses of limited partnerships	262		188
Stock based compensation expense	Stock based compensation expense	209		144		Stock based compensation expense	92		76
Net decrease (increase) in unamortized loan costs	Net decrease (increase) in unamortized loan costs	1,579		(50)		Net decrease (increase) in unamortized loan costs	619		(13)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	193,016		103,207		Proceeds from sales of loans held for sale	30,574		43,322
Origination of loans held for sale	Origination of loans held for sale	(213,023)		(111,988)		Origination of loans held for sale	(37,704)		(51,524)
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	(5,354)		(1,881)		Net gains on sales of loans held for sale	(894)		(812)

Net gains on sales of investment securities available-for-sale	Net gains on sales of investment securities available-for-sale	(11)		(8)		Net gains on sales of investment securities available-for-sale	0		(11)

Net gain on sales of other real estate owned						Net gain on sales of other real estate owned	(11)		0
Net (gain) loss on other investments						Net (gain) loss on other investments	(44)		124
Increase in accrued interest receivable						Increase in accrued interest receivable	(95)		(275)
Amortization of core deposit intangible						Amortization of core deposit intangible	43		43
(Increase) decrease in other assets						(Increase) decrease in other assets	(412)		209

Net gain on other investments		(114)		(72)
(Increase) decrease in accrued interest receivable		(1,167)		110
Amortization of core deposit intangible		129		129
Increase in other assets		(5)		(851)

(Decrease) increase in other liabilities		(48)		2,478
Net cash (used in) provided by operating activities		(11,682)		1,392
Decrease in other liabilities						Decrease in other liabilities	(873)		(1,339)
Net cash used in operating activities						Net cash used in operating activities	(4,776)		(6,917)
Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Interest bearing deposits in banks	Interest bearing deposits in banks					Interest bearing deposits in banks
Proceeds from maturities and redemptions	Proceeds from maturities and redemptions	1,336		2,487		Proceeds from maturities and redemptions	498		498
Purchases	Purchases	(3,735)		(249)		Purchases	(2,490)		0

Investment securities available-for-sale	Investment securities available-for-sale					Investment securities available-for-sale
Proceeds from sales	Proceeds from sales	3,076		8,785		Proceeds from sales	0		3,076
Proceeds from maturities, calls and paydowns	Proceeds from maturities, calls and paydowns	14,528		6,567		Proceeds from maturities, calls and paydowns	7,310		3,980
Purchases	Purchases	(16,675)		(24,752)		Purchases	(46,880)		(7,851)
Net (purchases) sales of other investments		(70)		16
Net decrease (increase) in nonmarketable stock		1,457		(231)
Net purchases of other investments						Net purchases of other investments	(41)		(15)
Net increase in nonmarketable stock						Net increase in nonmarketable stock	0		(599)

Net increase in loans	Net increase in loans	(95,866)		(15,746)		Net increase in loans	(31,085)		(6,341)
Recoveries of loans charged off	Recoveries of loans charged off	29		10		Recoveries of loans charged off	8		23
Purchases of premises and equipment	Purchases of premises and equipment	(937)		(6,070)		Purchases of premises and equipment	(302)		(81)
Purchase of Company-owned life insurance		0		(3,000)

Investments in limited partnerships	Investments in limited partnerships	(2,257)		(1,803)		Investments in limited partnerships	(700)		(826)

Proceeds from sales of other real estate owned						Proceeds from sales of other real estate owned	61		0

Net cash used in investing activities	Net cash used in investing activities	(99,114)		(33,986)		Net cash used in investing activities	(73,621)		(8,136)

Union Bankshares, Inc. Page 5


		Nine Months Ended September 30,					Three Months Ended March 31,
		2020		2019			2021		2020

Cash Flows From Financing Activities	Cash Flows From Financing Activities	(Dollars in thousands)				Cash Flows From Financing Activities	(Dollars in thousands)

Repayment of long-term debt		0		(20,070)
Net (decrease) increase in short-term borrowings outstanding		(37,667)		39,413

Net increase in short-term borrowings outstanding						Net increase in short-term borrowings outstanding	0		15,000
Net increase in noninterest bearing deposits	Net increase in noninterest bearing deposits	68,121		4,268		Net increase in noninterest bearing deposits	16,747		3,529
Net increase (decrease) in interest bearing deposits	Net increase (decrease) in interest bearing deposits	104,030		(25,076)		Net increase (decrease) in interest bearing deposits	11,591		(8,997)
Net (decrease) increase in time deposits		(6,099)		30,767
Net decrease in time deposits						Net decrease in time deposits	(14,749)		(2,499)
Issuance of common stock	Issuance of common stock	22		44		Issuance of common stock	12		22
Purchase of treasury stock	Purchase of treasury stock	0		(13)		Purchase of treasury stock	(2)		0
Dividends paid	Dividends paid	(4,268)		(4,128)		Dividends paid	(1,467)		(1,424)
Net cash provided by financing activities	Net cash provided by financing activities	124,139		25,205		Net cash provided by financing activities	12,132		5,631
Net increase (decrease) in cash and cash equivalents		13,343		(7,389)
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(66,265)		(9,422)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	51,134		37,289		Beginning of period	122,771		51,134
End of period	End of period	$	64,477	$	29,900	End of period	$	56,506	$	41,712
Supplemental Disclosures of Cash Flow Information	Supplemental Disclosures of Cash Flow Information					Supplemental Disclosures of Cash Flow Information
Interest paid	Interest paid	$	4,498	$	3,787	Interest paid	$	1,122	$	1,925
Income taxes paid	Income taxes paid	$	400	$	575	Income taxes paid	$	0	$	0

Supplemental Schedule of Noncash Investing Activities	Supplemental Schedule of Noncash Investing Activities					Supplemental Schedule of Noncash Investing Activities

Investment in limited partnerships acquired by capital contributions payable	Investment in limited partnerships acquired by capital contributions payable	$	2,722	$	619	Investment in limited partnerships acquired by capital contributions payable	$	0	$	2,722
Right-of-use operating lease assets obtained in exchange for operating lease liabilities		$	0	$	2,002

Dividends paid on Common Stock:	Dividends paid on Common Stock:					Dividends paid on Common Stock:
Dividends declared	Dividends declared	$	4,295	$	4,155	Dividends declared	$	1,479	$	1,432
Dividends reinvested	Dividends reinvested	(27)		(27)		Dividends reinvested	(12)		(8)
		$	4,268	$	4,128		$	1,467	$	1,424

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

The accompanying unaudited interim consolidated financial statements of Union Bankshares, Inc. and Subsidiary (together, the Company) as of ~~September 30, 2020,~~March 31, 2021, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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, ~~2019 (2019~~2020 (2020 Annual Report). 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 ~~2019~~2020 Annual 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, ~~2020,~~2021, 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 ~~2019~~2020 consolidated financial statements have been reclassified to conform to the ~~2020~~current year presentation.

Union Bankshares, Inc. Page 7

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:	Available-for-sale	~~MBS:~~ICS:	~~Mortgage-backed security~~Insured Cash Sweeps of the Promontory Interfinancial Network
ALCO:	Asset Liability Committee	~~MSRs:~~IRS:	~~Mortgage servicing rights~~Internal Revenue Service
ALL:	Allowance for loan losses	MBS:	Mortgage-backed security
ASC:	Accounting Standards Codification	MSRs:	Mortgage servicing rights
ASU:	Accounting Standards Update	OAO:	Other assets owned
~~ASC:~~Board:	~~Accounting Standards Codification~~Board of Directors	OCI:	Other comprehensive income (loss)
~~ASU:~~bp or bps:	~~Accounting Standards Update~~Basis point(s)	OFAC:	U.S. Office of Foreign Assets Control
~~Board:~~	~~Board of Directors~~	~~OREO:~~	~~Other real estate owned~~
~~bp or bps:~~	~~Basis point(s)~~	~~OTTI:~~	~~Other-than-temporary impairment~~
~~Branch Acquisition:~~	~~The acquisition of three New Hampshire branches in May 2011~~	~~OTT:~~	~~Other-than-temporary~~
CARES Act:	Coronavirus Aid, Relief and Economic Security Act	~~Plan:~~OREO:	~~The Union Bank Pension Plan~~Other real estate owned
CDARS:	Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network	~~PPP:~~OTTI:	~~Paycheck Protection Program~~Other-than-temporary impairment
Company:	Union Bankshares, Inc. and Subsidiary	OTT:	Other-than-temporary
COVID-19:	Novel Coronavirus	PPP:	Paycheck Protection Program
Dodd-Frank Act:	The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010	PPPLF:	PPP Liquidity Facility of the FRB
~~COVID-19:~~DRIP:	~~Novel Coronavirus~~Dividend Reinvestment Plan	RD:	USDA Rural Development
~~DRIP:~~	~~Dividend Reinvestment Plan~~	~~RSU:~~	~~Restricted Stock Unit~~
FASB:	Financial Accounting Standards Board	RSU:	Restricted Stock Unit
FDIC:	Federal Deposit Insurance Corporation	SBA:	U.S. Small Business Administration
~~FDIC:~~FHA:	U.S. Federal ~~Deposit Insurance Corporation~~Housing Administration	SEC:	U.S. Securities and Exchange Commission
~~FHA:~~FHLB:	~~U.S.~~ Federal ~~Housing Administration~~Home Loan Bank of Boston	TDR:	Troubled-debt restructuring
~~FHLB:~~FRB:	Federal ~~Home Loan Bank of Boston~~Reserve Board	Union:	Union Bank, the sole subsidiary of Union Bankshares, Inc
~~FRB:~~	~~Federal Reserve Board~~	~~USDA:~~	~~U.S. Department of Agriculture~~
FHLMC/Freddie Mac:	Federal Home Loan Mortgage Corporation	~~VA:~~USDA:	U.S. ~~Veterans Administration~~Department of Agriculture
GAAP:	Generally Accepted Accounting Principles in the United States	~~WHO:~~VA:	~~World Health Organization~~U.S. Veterans Administration
HTM:	Held-to-maturity	~~2008 ISO~~2014 Equity Plan:	~~2008~~2014 Equity Incentive ~~Stock Option~~ Plan ~~of 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~~	~~2019~~2020 Annual Report	Annual Report of Form 10-K for the year ended December 31, ~~2019~~
~~IRS:~~	~~Internal Revenue Service~~	~~2017 Tax Act:~~	~~Tax Cut and Jobs Act of 2017~~2020

Note 2. Risks and Uncertainties

~~The~~Significant progress has been made to combat the outbreak of ~~COVID-19~~COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the ~~Company’s~~Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The ~~spread~~Company’s business is dependent upon the willingness and ability of ~~the outbreak has caused significant disruptions in the U.S. economy~~its employees and ~~has disrupted~~customers to conduct banking and other financial ~~activity~~transactions. While it appears that health and economic conditions are trending in a positive direction as of March 31, 2021, if there is a resurgence in the ~~areas in which~~virus, the Company ~~operates.~~could experience further adverse effects on its business, financial condition, results of operations and cash flows. While ~~there has been no~~it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material ~~impact to the Company’s employees to date, COVID-19 could also potentially create widespread operating issues for the Company.~~items of which it is aware.

Congress, the President, and the ~~FRB~~Federal Reserve have taken several actions designed to cushion the economic ~~fallout. Most notably,~~fallout of the pandemic. The CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act was to ~~prevent a severe~~curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry ~~sectors. The package also included extensive emergency funding for small businesses, hospitals and health care providers. In addition to~~sectors through programs like the ~~general impact of COVID-19, certain~~PPP. During December 2020, many provisions of the CARES Act ~~as well as other recent legislative~~were extended through the end of 2021. Additionally, The American Rescue Plan Act of 2021, a $1.9 trillion economic stimulus bill, was signed into law by the President. This package builds upon many of the measures in the CARES Act and ~~regulatory relief efforts are expected~~is intended to ~~have a material impact on~~speed up the ~~Company’s operations in future periods.~~recovery from the economic and health effects of COVID-19.

Union Bankshares, Inc. Page 8

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global, national or state response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

Financial position and results of operations

The Company ~~continues~~has not yet experienced any charge-offs related to ~~work with COVID-19 affected customers~~COVID-19. See Note 8. Should economic conditions worsen as a result of a resurgence in the virus and resulting measures to waive a variety of fees, including but not limited to, insufficient funds and overdraft fees, ATM fees and account maintenance fees. (See further discussion of fee income in Results of Operations beginning on page 31.) These reductions in fees are thought, at this time, to be temporary, while the COVID-19 related economic crisis persists. At this time,curtail its spread, the Company could experience increases in the required ALL and record additional provision for loan losses. The use of payment deferrals assisted the ratio of past due loans to total loans as well other asset quality ratios at March 31, 2021. It is ~~unable to project~~possible that asset quality measures could worsen at future measurement periods if the ~~duration or materiality~~effects of ~~such an impact, but recognizes that the scope of the economic impact is likely to impact its fee income in future periods. Also,~~COVID-19 are prolonged.

In keeping with guidance from regulators, the Company ~~has collected fee income from the SBA for participating in the PPP and processing PPP loans, which will offset the above mentioned reduction in fee income.~~

~~The Company’s interest income could be reduced due to COVID-19. The Company~~ continues to ~~actively~~ work with COVID-19 affected borrowers to defer their ~~loan~~principal payments, interest, and fees. While interest and fees ~~will still~~continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would ~~need to~~ be reversed. In such a scenario, interest income in future periods could be negatively impacted. ~~At this time, the Company is unable to project the materiality of such an impact, but recognizes the scope of the economic impact may affect its borrowers’ ability to repay in future periods.~~

Capital and liquidity

As of March 31, 2021, all of the Company's and Union's capital ratios were in excess of all regulatory requirements. While the Company believes ~~that~~ it has sufficient capital to withstand ~~an extended~~a double-dip economic recession brought about by a resurgence in COVID-19, ~~its~~the reported and regulatory capital ratios could be adversely impacted by further credit ~~losses.~~loss expense. The Company relies on cash on hand as well as dividends from its subsidiary bank to pay dividends to shareholders. If the Company’s capital deteriorates such that its subsidiary bank is unable to pay dividends to it for an extended period of time, the Company may not be able to maintain its dividend to shareholders at the current level. Management continues to analyze the Company's current capital levels and its ability to maintain growth projections and absorb future credit losses while maintaining sufficient levels of capital.

The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to the Company. If funding costs are elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s deposit customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding. To date in ~~2020,~~2021, primarily as a result of the deposit of PPP loan proceeds and government assistance payments under the CARES Act and The American Rescue Plan Act of 2021, the Company has experienced a significant increase in customer ~~deposits, although that effect will likely be temporary as borrowers spend down their loan proceeds and government assistance payments.~~

deposits.

Asset valuation

~~Currently,~~COVID-19 has not affected the ~~Company does not expect COVID-19 to affect its~~Company's ability to account timely for the assets on ~~its~~the balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

COVID-19 could cause a ~~further and sustained~~ decline in the Company’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause the Company to perform a goodwill impairment test, an intangible asset impairment test, or both, resulting in an impairment charge being recorded for that period. In the event that the Company concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

The Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. As of March 31, 2021, goodwill was not impaired and there was no impairment with respect to our intangible assets, premises and equipment or other long-lived assets.

Processes, controls and business continuity plan

The ~~Company~~Company’s preparedness efforts, coupled with quick and decisive plan implementation, has ~~implemented its Pandemic and Business Continuity Plans~~resulted in minimal impacts to ~~address the operating risks associated with the global COVID-19 pandemic and has followed guidance~~operations as events evolved from the Centers for Disease Control & Prevention (CDC), the WHO, State Health Officials and other available resources. Since implementing the Pandemic and Business Continuity Plans, the Company has taken a ~~series~~result of ~~actions to safeguard its employees and customers while continuing to provide essential banking services to its communities.~~COVID-19. At ~~the onset of COVID-19, the Company developed and executed a plan to decentralize employees, including working remotely, to isolate certain personnel essential to critical business continuity~~

~~Union Bankshares, Inc. Page 9~~

operations, canceled business travel and outside vendor appointments, limit inter-branch visits, and increase the use of video conferencing to avoid large gatherings. Also, social distancing and enhanced hygiene practices were put into place as well as rigorous cleaning of all bank facilities. Throughout these changes, employees and customers have been kept informed with regular communications.

On May 27, 2020, branch lobby service was reopened to customers following guidance provided by state government as to occupancy limits and social distancing requirements. Branch lobbies had been closed to all customers, under state emergency orders since March ~~25, 2020. In addition to limited in branch capacity, Union's~~31, 2021, several employees continue to work ~~in a decentralized manner, including working~~ remotely ~~from home or at other banking facilities. Management continues~~with no disruption to ~~limit business travel and inter-branch visits.~~

Management continues to evaluate current events and put appropriate protocols in place to ensure the safety of staff and customers while continuing to provide essential banking services our customers rely on. Nooperations. The Company has not incurred additional material ~~operational or internal control challenges or risks~~cost related to ~~COVID-19 have been identified~~the remote working strategy to ~~date. The Company~~date, nor are material costs anticipated in future periods.

As of March 31, 2021, management does not anticipate significant challenges to its ability to maintain ~~its~~the systems and controls in light of the measures ~~the Company has~~ taken to prevent the spread of COVID-19. The Company does not currently face any material resource ~~constraints~~constraint through the implementation of ~~its Pandemic and Business Continuity Plans.~~our business continuity plans.

Lending operations and accommodations to borrowers

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, the Company is ~~continuing to approve short-term~~executing a payment ~~deferrals~~deferral program for its ~~borrowers~~clients that are adversely affected by ~~the pandemic.~~COVID-19. Depending on the demonstrated need of the customer, the Company is deferring either the full loan payment or the principal component of the loan payment for up to 180 days for the majority of the deferral requests. ~~As of June 30, 2020, the~~The Company had executed ~~406~~352 of these deferrals on outstanding loan balances of ~~$173.3 million. As~~$167.2 million as of ~~September 30, 2020, 75 of these~~March 31, 2021. Of the total deferrals executed, 53 remained in effect on outstanding loan balances of ~~$39.1 million.~~$28.0 million as of March 31, 2021. In accordance with interagency guidance issued in March 2020 and updated in April 2020, and confirmed by the FASB, these short term deferrals are not considered ~~troubled debt restructurings.~~TDRs. In August

Union Bankshares, Inc. Page 9

2020, the federal banking regulators issued supplemental guidance for working with borrowers as their loans near the end of their accommodation period. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on deferred loans is unknown.

With the passage of the PPP, administered by the SBA, the Company assisted its customers with applications for resources through the program. PPP loans bear a mandated annual interest rate of 1.0%. The PPP was initially launched with loans having a two-year term, but subsequent revisions to the PPP currently allow the maximum term be extended to five years. The majority of the Company's PPP loans were originated with the two-year term and have not been extended to five years. The Company believes that a significant amount of these loans will ultimately be forgiven by the SBA during 2021 in accordance with the terms of the program. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. Government. Should those circumstances change, the Company could be required to establish additional allowance for credit losses through additional credit loss expense charged to earnings.

Further, in sensitivity and service to its communities during this unprecedented time, the Company is waiving late payment and overdraft fees on a case by case basis and has temporarily suspended collection and foreclosure efforts on past due loans in accordance with CARES Act guidance and state emergency orders.

Note 3. 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 4. Per Share Information

Earnings per common share are computed based on the weighted average number 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 RSUs does not result in material dilution and is not included in the ~~calculation.~~calculation for the three months ended March 31, 2021 or 2020.

Note 5. Recent Accounting Pronouncements

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 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 expected credit losses. The new guidance, which is referred to as the current expected credit loss model ("CECL"), requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit

~~Union Bankshares, Inc. Page 10~~

losses. A modified version of these requirements also applies to debt securities classified as AFS. As initially proposed, the ASU was to become effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption was permitted for fiscal years beginning after December 15, 2018, including interim periods within such years. In October 2019, the FASB approved amendments to delay the effective date of the ASU to fiscal years beginning after December 31, 2022, including interim periods within those fiscal years, for smaller reporting companies, as defined by the SEC, and other non-SEC reporting entities. As the Company is a smaller reporting company, the delay is applicable to the Company and the Company does not intend to early adopt the ASU at this time. The Company has established a CECL implementation team and developed a transition project plan. The Company utilizes a software package for its current calculation of the allowance for loan losses that will also be utilized for CECL implementation. Historical data has been compiled and training on utilizing the software for the existing incurred loss model has been completed. The Company continues the collection of historical data and training is ongoing surrounding CECL implementation and methodologies. This will facilitate the eventual implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.

In ~~January 2017, the FASB issued ASU No. 2017-04,~~ ~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. The ASU was issued to reduce the cost and complexity of the goodwill impairment test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated. Instead, a company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its fair value (i.e. step one). The ASU was effective for the Company on January 1, 2020 and did not have a material impact on the Company's consolidated financial statements.

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~.This guidance, which is a part of the FASB’s disclosure framework project to improve disclosure effectiveness, eliminates certain disclosure requirements for fair value measurements regarding the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, an entity’s policy for the timing of transfers between levels of the fair value hierarchy and an entity’s valuation processes for Level 3 fair value measurements. This guidance also adds new disclosure requirements for public entities regarding changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements of instruments held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop recurring and nonrecurring Level 3 fair value measurements, including how the weighted average is calculated. In addition, this guidance modifies certain requirements regarding the disclosure of transfers into and out of Level 3 of the fair value hierarchy, purchases and issuances of Level 3 assets and liabilities, and information about the measurement uncertainty of Level 3 fair value measurements as of the reporting date. This ASU was effective for the Company on January 1, 2020 and did not have a material impact on the Company's financial statement disclosures.

In March 2020, various financial institution regulatory agencies, including the FRB and the FDIC (“the agencies”), issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The guidance was subsequently amended following passage of the CARES Act, which included a provision for addressing certain COVID-19 related loan modifications. The interagency statement was effective immediately and impacted accounting for loan modifications. Under ASC No. 310-40, Receivables – Troubled Debt Restructurings by Creditors, a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months or less) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. The agencies supplemented their interagency guidance on August 3, 2020 to provide prudent risk management

Union Bankshares, Inc. Page 10

and consumer protection principles for financial institutions to consider while working with borrowers near the end of their initial loan accommodation period. The interagency guidance is not expected to have a material impact on the Company’s financial statements.

~~Note 6. Goodwill and Other Intangible Assets~~

As a result of the 2011 Branch Acquisition, the Company recorded goodwill amounting to $2.2 million. The goodwill is not amortizable. Goodwill is evaluated for impairment annually, in accordance with current authoritative accounting guidance. Management assesses qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the Company, in total, is less than its carrying amount. Management is 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.

~~Union Bankshares, Inc. Page 11~~

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. The net core deposit intangible balance of $114 thousand and $242 thousand at September 30, 2020 and December 31, 2019, respectively, is included in Other assets on the consolidated balance sheets. 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, 2020 and 2019 and $129 thousand for the nine months ended September 30, 2020 and 2019. The amortization expense is included in Other expenses on the consolidated statements of income and is deductible for tax purposes. As of September 30, 2020, the remaining amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:

(Dollars in thousands)
2020 $ 43
2021 71
Total $ 114

Note 7.6. Investment Securities

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


September 30, 2020		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2021										March 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)
Available-for-sale
Debt securities:

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	4,658	$	139	$	(39)	$	4,758	U.S. Government-sponsored enterprises	$	17,131	$	57	$	(429)	$	16,759
Agency mortgage-backed	Agency mortgage-backed	44,357		1,434		(38)		45,753		Agency mortgage-backed	90,555		934		(2,122)		89,367
State and political subdivisions	State and political subdivisions	28,008		1,229		(12)		29,225		State and political subdivisions	26,322		1,166		(9)		27,479
Corporate	Corporate	7,814		647		(77)		8,384		Corporate	7,821		534		(29)		8,326
Total	Total	$	84,837	$	3,449	$	(166)	$	88,120	Total	$	141,829	$	2,691	$	(2,589)	$	141,931


December 31, 2019		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2020										December 31, 2020	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)
Available-for-sale
Debt securities:

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,349	$	19	$	(76)	$	6,292	U.S. Government-sponsored enterprises	$	6,462	$	137	$	(51)	$	6,548
Agency mortgage-backed	Agency mortgage-backed	45,503		602		(81)		46,024		Agency mortgage-backed	61,123		1,307		(78)		62,352
State and political subdivisions	State and political subdivisions	26,489		515		(39)		26,965		State and political subdivisions	27,025		1,439		(3)		28,461
Corporate	Corporate	7,804		378		(70)		8,112		Corporate	7,817		660		(75)		8,402
Total	Total	$	86,145	$	1,514	$	(266)	$	87,393	Total	$	102,427	$	3,543	$	(207)	$	105,763

There were 0 investment securities HTM at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. There were 0 investment securities pledged as collateral at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

~~Union Bankshares, Inc. Page 12~~

The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of ~~September 30, 2020~~March 31, 2021 were as follows:


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Available-for-sale	Available-for-sale	(Dollars in thousands)				Available-for-sale	(Dollars in thousands)
Due in one year or less		$	940	$	943

Due from one to five years	Due from one to five years	4,823		5,142		Due from one to five years	$	6,477	$	6,827
Due from five to ten years	Due from five to ten years	12,861		13,523		Due from five to ten years	24,958		25,189
Due after ten years	Due after ten years	21,856		22,759		Due after ten years	19,839		20,548
		40,480		42,367			51,274		52,564
Agency mortgage-backed	Agency mortgage-backed	44,357		45,753		Agency mortgage-backed	90,555		89,367
Total debt securities available-for-sale	Total debt securities available-for-sale	$	84,837	$	88,120	Total debt securities available-for-sale	$	141,829	$	141,931

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.

Union Bankshares, Inc. Page 11

Information pertaining to all ~~investment~~debt securities AFS with gross unrealized losses 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:

September 30, 2020 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 0 $ 0 $ 0 8 $ 1,787 $ (39) 8 $ 1,787 $ (39)
Agency mortgage-backed 10 9,900 (32) 1 696 (6) 11 10,596 (38)
State and political
subdivisions 1 569 (12) 0 0 0 1 569 (12)
Corporate 0 0 0 3 1,423 (77) 3 1,423 (77)
Total 11 $ 10,469 $ (44) 12 $ 3,906 $ (122) 23 $ 14,375 $ (166)


March 31, 2021	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	20	$	12,505	$	(398)	8	$	1,579	$	(31)	28	$	14,084	$	(429)
Agency mortgage-backed	35	62,192		(2,121)		1	68		(1)		36	62,260		(2,122)
State and political subdivisions	1	567		(9)		0	0		0		1	567		(9)
Corporate	0	0		0		2	972		(29)		2	972		(29)


Total	56	$	75,264	$	(2,528)	11	$	2,619	$	(61)	67	$	77,883	$	(2,589)

December 31, 2019 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 4 $ 2,376 $ (22) 8 $ 2,772 $ (54) 12 $ 5,148 $ (76)
Agency mortgage-backed 8 6,193 (38) 8 4,861 (43) 16 11,054 (81)
State and political
subdivisions 9 3,813 (38) 1 304 (1) 10 4,117 (39)
Corporate 0 0 0 3 1,430 (70) 3 1,430 (70)
Total 21 $ 12,382 $ (98) 20 $ 9,367 $ (168) 41 $ 21,749 $ (266)


December 31, 2020	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	15	$	2,005	$	(16)	8	$	1,661	$	(35)	23	$	3,666	$	(51)
Agency mortgage-backed	19	21,698		(78)		0	0		0		19	21,698		(78)
State and political subdivisions	1	575		(3)		0	0		0		1	575		(3)
Corporate	0	0		0		3	1,424		(75)		3	1,424		(75)


Total	35	$	24,278	$	(97)	11	$	3,085	$	(110)	46	$	27,363	$	(207)

The Company evaluates all investment securities on a quarterly basis, and more frequently when economic conditions warrant, to determine if 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, management then assesses whether the unrealized loss is OTT.

~~Union Bankshares, Inc. Page 13~~

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 intend to sell the underlying debt security and it is "more likely than not" that the Company will not have to sell the debt security prior to recovery.

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 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 changes to the rating of the security by a rating agency;

•Recoveries or additional declines in fair value subsequent to the balance sheet date; 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 at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 for the foreseeable ~~future~~future. The decline in value is the result of market conditions and not attributable to credit quality in the investment securities and 0 declines were deemed by management to be OTT.

Union Bankshares, Inc. Page 12

There were 0 sales of AFS securities during the three months ended ~~September 30, 2020 and 2019.~~March 31, 2021. The following table presents the proceeds, gross realized gains and gross realized losses from the sales of AFS securities for the ~~nine~~three months ended ~~September 30, 2020 and 2019:~~March 31, 2020:

For The Nine Months
Ended September 30,
2020 2019
(Dollars in thousands)
Proceeds $ 3,076 $ 8,785
Gross gains 32 45
Gross losses (21) (37)
Net gains on sales of investment securities AFS $ 11 $ 8




	For The Three Months Ended March 31, 2020

	(Dollars in thousands)
Proceeds	$	3,076

Gross gains	32
Gross losses	(21)
Net gains on sales of investment securities AFS	$	11

Note 8.7. 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, 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. 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.

~~Union Bankshares, Inc. Page 14~~

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.

The composition of Net loans as of the balance sheet dates was as follows:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Residential real estate	Residential real estate	$	182,935	$	192,125	Residential real estate	$	206,562	$	183,166
Construction real estate	Construction real estate	49,668		69,617		Construction real estate	65,470		57,417
Commercial real estate	Commercial real estate	317,985		289,883		Commercial real estate	317,739		320,627
Commercial	Commercial	114,868		47,699		Commercial	118,321		108,861
Consumer	Consumer	2,833		3,562		Consumer	2,532		2,601
Municipal	Municipal	97,761		67,358		Municipal	91,630		98,497
Gross loans	Gross loans	766,050		670,244		Gross loans	802,254		771,169
Allowance for loan losses	Allowance for loan losses	(7,691)		(6,122)		Allowance for loan losses	(8,429)		(8,271)
Net deferred loan (fees) costs		(536)		1,043
Net deferred loan fees						Net deferred loan fees	(765)		(146)
Net loans	Net loans	$	757,823	$	665,165	Net loans	$	793,060	$	762,752

~~The Company originated 718~~There were 803 and 679 PPP loans totaling ~~$69.8~~$77.2 million and $66.2 million classified as commercial loans as of ~~September 30, 2020. There was a total of $2.5 million in origination~~March 31, 2021 and December 31, 2020, respectively. Origination fees received from the SBA on these PPP loans ~~that~~totaled $3.1 million and $2.4 million at March 31, 2021 and December 31, 2020, respectively, and will be amortized over the respective lives of the ~~loans,~~loans. PPP loan origination fees of ~~which $311~~$668 thousand ~~and $545 thousand was~~were recognized in earnings during the three ~~and nine~~ months ended ~~September 30, 2020, respectively. PPP loans with a carrying value of $2.3 million were pledged as collateral for borrowings from the FRB at September 30, 2020.~~March 31, 2021.

Union Bankshares, Inc. Page 13

Qualifying residential first mortgage loans and certain commercial real estate loans with an aggregate carrying value of ~~$207.9~~$203.8 million and ~~$207.7~~$210.0 million were pledged as collateral for borrowings from the FHLB under a blanket lien at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

A summary of current, past due and nonaccrual loans as of the balance sheet dates follows:


September 30, 2020		Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
March 31, 2021														March 31, 2021	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
		(Dollars in thousands)													(Dollars in thousands)
Residential real estate	Residential real estate	$	180,973	$	542	$	251	$	520	$	649	$	182,935	Residential real estate	$	202,910	$	2,253	$	34	$	244	$	1,121	$	206,562
Construction real estate	Construction real estate	48,337		865		0		444		22		49,668		Construction real estate	65,243		10		52		19		146		65,470
Commercial real estate	Commercial real estate	315,296		0		924		0		1,765		317,985		Commercial real estate	313,124		6		0		0		4,609		317,739
Commercial	Commercial	114,843		3		7		0		15		114,868		Commercial	118,319		0		0		0		2		118,321
Consumer	Consumer	2,817		11		5		0		0		2,833		Consumer	2,532		0		0		0		0		2,532
Municipal	Municipal	97,761		0		0		0		0		97,761		Municipal	91,630		0		0		0		0		91,630
Total	Total	$	760,027	$	1,421	$	1,187	$	964	$	2,451	$	766,050	Total	$	793,758	$	2,269	$	86	$	263	$	5,878	$	802,254

December 31, 2019 Current 30-59 Days 60-89 Days 90 Days and Over and Accruing Nonaccrual Total
(Dollars in thousands)
Residential real estate $ 187,022 $ 2,716 $ 1,304 $ 811 $ 272 $ 192,125
Construction real estate 68,731 470 19 368 29 69,617
Commercial real estate 286,795 940 150 0 1,998 289,883
Commercial 47,673 0 5 0 21 47,699
Consumer 3,532 21 6 0 3 3,562
Municipal 67,358 0 0 0 0 67,358
Total $ 661,111 $ 4,147 $ 1,484 $ 1,179 $ 2,323 $ 670,244

~~Union Bankshares, Inc. Page 15~~


December 31, 2020	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
	(Dollars in thousands)
Residential real estate	$	179,794	$	2,166	$	211	$	368	$	627	$	183,166
Construction real estate	57,116		70		67		143		21		57,417
Commercial real estate	317,748		1,130		0		0		1,749		320,627
Commercial	108,749		99		0		0		13		108,861
Consumer	2,595		6		0		0		0		2,601
Municipal	98,497		0		0		0		0		98,497
Total	$	764,499	$	3,471	$	278	$	511	$	2,410	$	771,169

There were 0 loans in process of foreclosure at ~~September 30, 2020 and 2 residential real estate loans totaling $64 thousand in process of foreclosure at~~March 31, 2021 or December 31, ~~2019. In April 2020,~~2020. A moratorium on residential mortgage foreclosures instituted by the State of Vermont ~~issued a temporary moratorium on foreclosure actions, which remains~~in April 2020 related to the COVID-19 pandemic remained in effect ~~until the end~~as of ~~the COVID-19 emergency.~~March 31, 2021. Aggregate interest on nonaccrual loans not recognized was ~~$371~~$466 thousand as of ~~September 30, 2020~~March 31, 2021 and ~~$271~~$420 thousand as of December 31, ~~2019.~~2020.

Note 9.8. 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. For all loan classes, loan losses are charged against the ALL when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.

The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALL is 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 was no change to the methodology used to estimate the ALL during the ~~third~~first quarter of ~~2020.~~2021. 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 impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan

Union Bankshares, Inc. Page 14

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. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management has established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.

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 various risk characteristics of each portfolio segment. 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. 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.

~~Union Bankshares, Inc. Page 16~~

•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.

Union Bankshares, Inc. Page 15

Changes in the ALL, by class of loans, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


For The Three Months Ended September 30, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)
Balance, June 30, 2020		$	1,590	$	594	$	3,832	$	491	$	23	$	79	$	279	$	6,888
For The Three Months Ended March 31, 2021																		For The Three Months Ended March 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
																			(Dollars in thousands)
Balance, December 31, 2020																		Balance, December 31, 2020	$	1,776	$	763	$	4,199	$	458	$	15	$	214	$	846	$	8,271
Provision (credit) for loan losses	Provision (credit) for loan losses	5		75		313		1		(4)		133		277		800		Provision (credit) for loan losses	212		118		(66)		(15)		(2)		(15)		(82)		150
Recoveries of amounts charged off	Recoveries of amounts charged off	5		0		0		0		1		0		0		6		Recoveries of amounts charged off	8		0		0		0		0		0		0		8
		1,600		669		4,145		492		20		212		556		7,694			1,996		881		4,133		443		13		199		764		8,429
Amounts charged off	Amounts charged off	0		0		0		0		(3)		0		0		(3)		Amounts charged off	0		0		0		0		0		0		0		0
Balance, September 30, 2020		$	1,600	$	669	$	4,145	$	492	$	17	$	212	$	556	$	7,691
Balance, March 31, 2021																		Balance, March 31, 2021	$	1,996	$	881	$	4,133	$	443	$	13	$	199	$	764	$	8,429


For The Three Months Ended September 30, 2019		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
For The Three Months Ended March 31, 2020																		For The Three Months Ended March 31, 2020	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Balance, June 30, 2019		$	1,396	$	646	$	3,011	$	313	$	23	$	33	$	254	$	5,676
Balance, December 31, 2019																		Balance, December 31, 2019	$	1,392	$	774	$	3,178	$	394	$	23	$	76	$	285	$	6,122
Provision (credit) for loan losses	Provision (credit) for loan losses	31		43		156		13		2		45		(140)		150		Provision (credit) for loan losses	98		(152)		335		13		0		9		(3)		300
Recoveries of amounts charged off	Recoveries of amounts charged off	0		0		0		0		0		0		0		0		Recoveries of amounts charged off	23		0		0		0		0		0		0		23
		1,427		689		3,167		326		25		78		114		5,826			1,513		622		3,513		407		23		85		282		6,445
Amounts charged off	Amounts charged off	(18)		0		0		0		0		0		0		(18)		Amounts charged off	0		0		(54)		0		0		0		0		(54)
Balance, September 30, 2019		$	1,409	$	689	$	3,167	$	326	$	25	$	78	$	114	$	5,808
Balance, March 31, 2020																		Balance, March 31, 2020	$	1,513	$	622	$	3,459	$	407	$	23	$	85	$	282	$	6,391

~~Union Bankshares, Inc. Page 17~~

For The Nine Months Ended September 30, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, December 31, 2019 $ 1,392 $ 774 $ 3,178 $ 394 $ 23 $ 76 $ 285 $ 6,122
Provision (credit) for loan
losses 180 (105) 1,021 98 (1) 136 271 1,600
Recoveries of amounts
charged off 28 0 0 0 1 0 0 29
1,600 669 4,199 492 23 212 556 7,751
Amounts charged off 0 0 (54) 0 (6) 0 0 (60)
Balance, September 30, 2020 $ 1,600 $ 669 $ 4,145 $ 492 $ 17 $ 212 $ 556 $ 7,691

For The Nine Months Ended September 30, 2019 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, December 31, 2018 $ 1,368 $ 617 $ 2,933 $ 354 $ 23 $ 82 $ 362 $ 5,739
Provision (credit) for loan
losses 116 72 234 171 9 (4) (248) 350
Recoveries of amounts
charged off 5 0 0 1 4 0 0 10
1,489 689 3,167 526 36 78 114 6,099
Amounts charged off (80) 0 0 (200) (11) 0 0 (291)
Balance, September 30, 2019 $ 1,409 $ 689 $ 3,167 $ 326 $ 25 $ 78 $ 114 $ 5,808

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, was as follows:

September 30, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Individually evaluated
for impairment $ 33 $ 0 $ 36 $ 7 $ 0 $ 0 $ 0 $ 76
Collectively evaluated
for impairment 1,567 669 4,109 485 17 212 556 7,615
Total allocated $ 1,600 $ 669 $ 4,145 $ 492 $ 17 $ 212 $ 556 $ 7,691


March 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	27	$	0	$	31	$	0	$	0	$	0	$	0	$	58
Collectively evaluated for impairment	1,969		881		4,102		443		13		199		764		8,371
Total allocated	$	1,996	$	881	$	4,133	$	443	$	13	$	199	$	764	$	8,429

December 31, 2019 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Individually evaluated
for impairment $ 39 $ 0 $ 149 $ 8 $ 0 $ 0 $ 0 $ 196
Collectively evaluated
for impairment 1,353 774 3,029 386 23 76 285 5,926
Total allocated $ 1,392 $ 774 $ 3,178 $ 394 $ 23 $ 76 $ 285 $ 6,122


December 31, 2020	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	30	$	0	$	21	$	7	$	0	$	0	$	0	$	58
Collectively evaluated for impairment	1,746		763		4,178		451		15		214		846		8,213
Total allocated	$	1,776	$	763	$	4,199	$	458	$	15	$	214	$	846	$	8,271

Union Bankshares, Inc. Page 16

The recorded investment in loans, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:

September 30, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Individually evaluated
for impairment $ 1,805 $ 212 $ 3,018 $ 229 $ 0 $ 0 $ 5,264
Collectively evaluated
for impairment 181,130 49,456 314,967 114,639 2,833 97,761 760,786
Total $ 182,935 $ 49,668 $ 317,985 $ 114,868 $ 2,833 $ 97,761 $ 766,050


March 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	1,740	$	210	$	5,275	$	170	$	0	$	0	$	7,395
Collectively evaluated for impairment	204,822		65,260		312,464		118,151		2,532		91,630		794,859


Total	$	206,562	$	65,470	$	317,739	$	118,321	$	2,532	$	91,630	$	802,254

~~Union Bankshares, Inc. Page 18~~

December 31, 2019 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Individually evaluated
for impairment $ 1,515 $ 223 $ 3,204 $ 299 $ 0 $ 0 $ 5,241
Collectively evaluated
for impairment 190,610 69,394 286,679 47,400 3,562 67,358 665,003
Total $ 192,125 $ 69,617 $ 289,883 $ 47,699 $ 3,562 $ 67,358 $ 670,244


December 31, 2020	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	1,782	$	210	$	2,422	$	207	$	0	$	0	$	4,621
Collectively evaluated for impairment	181,384		57,207		318,205		108,654		2,601		98,497		766,548


Total	$	183,166	$	57,417	$	320,627	$	108,861	$	2,601	$	98,497	$	771,169

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 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.

The following tables summarize the loan ratings applied by management to the Company's loans by class as of the balance sheet dates:

September 30, 2020 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Pass $ 164,691 $ 36,439 $ 173,011 $ 102,144 $ 2,820 $ 97,761 $ 576,866
Satisfactory/Monitor 15,003 12,696 141,017 12,251 12 0 180,979
Substandard 3,241 533 3,957 473 1 0 8,205
Total $ 182,935 $ 49,668 $ 317,985 $ 114,868 $ 2,833 $ 97,761 $ 766,050

December 31, 2019 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Pass $ 174,798 $ 47,326 $ 168,654 $ 35,625 $ 3,499 $ 67,358 $ 497,260
Satisfactory/Monitor 14,520 21,819 117,004 10,974 57 0 164,374
Substandard 2,807 472 4,225 1,100 6 0 8,610
Total $ 192,125 $ 69,617 $ 289,883 $ 47,699 $ 3,562 $ 67,358 $ 670,244


March 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	189,900	$	46,150	$	168,141	$	108,646	$	2,522	$	91,630	$	606,989
Satisfactory/Monitor	13,280		19,091		143,075		9,411		10		0		184,867
Substandard	3,382		229		6,523		264		0		0		10,398


Total	$	206,562	$	65,470	$	317,739	$	118,321	$	2,532	$	91,630	$	802,254

Union Bankshares, Inc. Page 1917


December 31, 2020	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	166,119	$	42,853	$	172,048	$	98,314	$	2,595	$	98,497	$	580,426
Satisfactory/Monitor	13,756		14,319		144,784		10,116		6		0		182,981
Substandard	3,291		245		3,795		431		0		0		7,762


Total	$	183,166	$	57,417	$	320,627	$	108,861	$	2,601	$	98,497	$	771,169

The following tables provide information with respect to impaired loans by class of loan as of and for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~September 30, 2019:~~March 31, 2020:


		As of September 30, 2020						For The Three Months Ended September 30, 2020				For The Nine Months Ended September 30, 2020					As of March 31, 2021						For The Three Months Ended March 31, 2021
		Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
		(Dollars in thousands)															(Dollars in thousands)
Residential real estate	Residential real estate	$	211	$	221	$	33									Residential real estate	$	205	$	215	$	27

Commercial real estate	Commercial real estate	1,650		1,776		36										Commercial real estate	1,617		1,771		31
Commercial		9		11		7

With an allowance recorded	With an allowance recorded	1,870		2,008		76										With an allowance recorded	1,822		1,986		58

Residential real estate	Residential real estate	1,594		2,192		—										Residential real estate	1,535		2,118		—
Construction real estate	Construction real estate	212		233		—										Construction real estate	210		230		—
Commercial real estate	Commercial real estate	1,368		1,469		—										Commercial real estate	3,658		3,761		—
Commercial	Commercial	220		222		—										Commercial	170		173		—
With no allowance recorded	With no allowance recorded	3,394		4,116		—										With no allowance recorded	5,573		6,282		—

Residential real estate	Residential real estate	1,805		2,413		33		$	1,882	$	19	$	1,692	$	47	Residential real estate	1,740		2,333		27		$	1,761	$	55
Construction real estate	Construction real estate	212		233		0		215		1		218		3		Construction real estate	210		230		0		210		1
Commercial real estate	Commercial real estate	3,018		3,245		36		3,051		26		3,116		64		Commercial real estate	5,275		5,532		31		3,849		13
Commercial	Commercial	229		233		7		240		4		264		16		Commercial	170		173		0		184		5
Total	Total	$	5,264	$	6,124	$	76	$	5,388	$	50	$	5,290	$	130	Total	$	7,395	$	8,268	$	58	$	6,004	$	74

____________________

(1)Does not reflect government guaranties on impaired loans as of ~~September 30, 2020~~March 31, 2021 totaling ~~$535~~$489 thousand.


		As of September 30, 2019						For The Three Months Ended September 30, 2019				For The Nine Months Ended September 30, 2019					As of March 31, 2020						For The Three Months Ended March 31, 2020
		Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized			Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
		(Dollars in thousands)															(Dollars in thousands)
Residential real estate	Residential real estate	$	1,595	$	2,168	$	41	$	1,606	$	17	$	1,653	$	55	Residential real estate	$	1,488	$	2,044	$	68	$	1,502	$	19
Construction real estate	Construction real estate	229		247		0		170		1		143		3		Construction real estate	218		237		0		220		1
Commercial real estate	Commercial real estate	3,264		3,359		176		2,380		24		2,176		89		Commercial real estate	3,158		3,290		133		3,181		22
Commercial	Commercial	297		300		8		309		8		327		19		Commercial	280		284		7		290		7
Total	Total	$	5,385	$	6,074	$	225	$	4,465	$	50	$	4,299	$	166	Total	$	5,144	$	5,855	$	208	$	5,193	$	49

____________________

(1)Does not reflect government guaranties on impaired loans as of ~~September 30, 2019~~March 31, 2020 totaling ~~$592~~$570 thousand.

Union Bankshares, Inc. Page 2018

The following table provides information with respect to impaired loans by class of loan as of December 31, ~~2019:~~2020:


		December 31, 2019							December 31, 2020
		Recorded Investment (1)		Principal Balance (1)		Related Allowance			Recorded Investment (1)		Principal Balance (1)		Related Allowance
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	218	$	228	$	39	Residential real estate	$	208	$	218	$	30

Commercial real estate	Commercial real estate	1,762		1,783		149		Commercial real estate	1,634		1,774		21
Commercial	Commercial	11		12		8		Commercial	9		11		7
With an allowance recorded	With an allowance recorded	1,991		2,023		196		With an allowance recorded	1,851		2,003		58

Residential real estate	Residential real estate	1,297		1,832		—		Residential real estate	1,574		2,182		—
Construction real estate	Construction real estate	223		241		—		Construction real estate	210		231		—
Commercial real estate	Commercial real estate	1,442		1,539		—		Commercial real estate	788		890		—
Commercial	Commercial	288		290		—		Commercial	198		200		—
With no allowance recorded	With no allowance recorded	3,250		3,902		—		With no allowance recorded	2,770		3,503		—

Residential real estate	Residential real estate	1,515		2,060		39		Residential real estate	1,782		2,400		30
Construction real estate	Construction real estate	223		241		0		Construction real estate	210		231		0
Commercial real estate	Commercial real estate	3,204		3,322		149		Commercial real estate	2,422		2,664		21
Commercial	Commercial	299		302		8		Commercial	207		211		7
Total	Total	$	5,241	$	5,925	$	196	Total	$	4,621	$	5,506	$	58

____________________

(1)Does not reflect government guaranties on impaired loans as of December 31, ~~2019~~2020 totaling ~~$587~~$514 thousand.

The following is a summary of TDR loans by class of loan as of the balance sheet dates:


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
		Number of Loans	Principal Balance		Number of Loans	Principal Balance			Number of Loans	Principal Balance		Number of Loans	Principal Balance
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	32	$	1,805	25	$	1,515	Residential real estate	30	$	1,740	32	$	1,782
Construction real estate	Construction real estate	2	89		2	100		Construction real estate	2	85		2	87
Commercial real estate	Commercial real estate	8	930		8	966		Commercial real estate	6	771		6	788
Commercial	Commercial	5	229		5	290		Commercial	4	170		5	207
Total	Total	47	$	3,053	40	$	2,871	Total	42	$	2,766	45	$	2,864

The TDR loans above represent loan modifications in which a concession was provided to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgiveness of accrued interest. Troubled loans that are restructured and meet established thresholds are classified as impaired and a specific reserve amount is allocated to the ALL on the basis 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 following tables provide~~

There was 0 new TDR activity for the three ~~and nine~~ months ended ~~September 30, 2020 and 2019:~~March 31, 2021 or 2020.

New TDRs During the New TDRs During the
Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
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 2 $ 54 $ 56 8 $ 547 $ 549

~~Union Bankshares, Inc. Page 21~~

New TDRs During the New TDRs During the
Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
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 0 $ 0 $ 0 1 $ 77 $ 79

There were 0 TDR loans modified within the previous twelve months that subsequently defaulted during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 or 2020. There was 1 residential TDR loan with a recorded investment balance of $78 thousand that had been modified within the previous twelve months that subsequently defaulted during the three and nine months ended September 30, 2019. TDR loans are considered defaulted at 90 days past due.

In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain short-term modifications made to loans to borrowers affected by the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified circumstances (See Notes 2 and 5). ~~The~~Through March 31, 2021, the Company had executed modifications under this guidance on outstanding loan balances of ~~$172.1~~$167.2 million that carried accrued interest of ~~$1.7 million as of September 30, 2020.~~$1.1 million. Of the total modifications executed, outstanding loan balances of ~~$39.1~~$28.0 million remained subject to ~~modification~~modified terms and carried accrued interest of ~~$735~~$287 thousand as of ~~September 30, 2020.~~March 31, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.

Union Bankshares, Inc. Page 19

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.

Note ~~10.~~9. Stock Based Compensation

Under the Union Bankshares, Inc. 2014 Equity Incentive Plan, 50,000 shares of the Company’s common stock were 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, 2020,~~March 31, 2021, there were outstanding grants of RSUs and incentive stock options under the 2014 Equity Plan with respect to an aggregate of 18,123 shares of common stock.

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 ~~2019~~2020 Annual Report. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights.

The following table summarizes the RSUs awarded to Company executives in ~~2018,~~ 2019, 2020 and ~~2020,~~2021, and the number of such RSUs remaining unvested as of ~~September 30, 2020:~~March 31, 2021:


		Number of RSUs Granted	Weighted-Average Grant Date Fair Value		Number of Unvested RSUs		Number of RSUs Granted	Weighted-Average Grant Date Fair Value		Number of Unvested RSUs
2018 Award		3,225	$	52.95	433
2019 Award	2019 Award	3,734	47.75		2,120	2019 Award	3,734	$	47.75	500
2020 Award	2020 Award	8,918	36.26		8,918	2020 Award	8,918	36.26		5,139
2021 Award						2021 Award	17,685	26.73		17,685
Total	Total	15,877			11,471	Total	30,337			23,324

Unrecognized compensation expense related to the unvested RSUs as of ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$270~~$471 thousand and $167 thousand, respectively.

On April 15, 2020, the Compensation Committee adopted criteria for provisional 2021 RSU awards, including performance goals, with one half of the 2021 grants to be in the form of Time-Based RSUs and one-half in the form of Performance-Based RSUs. Actual awards will be subject to Compensation Committee approval and made in the first quarter of 2021, with the number of RSUs actually granted to be determined based on the Company’s stock price on the 2021 approval date, and in the case of Performance-Based RSUs, also on the level of achievement of 2020 performance goals.

On May 22, 2020, the Company's board of directors, as a component of total director compensation, granted an aggregate of 2,152 RSUs to the Company's non-employee directors. Each RSU represents the right to receive one share of the Company's common stock upon satisfaction of applicable vesting conditions. The RSUs will vest in May 2021, subject to continued board

~~Union Bankshares, Inc. Page 22~~

service through the vesting date, other than in the case of the director's death or disability. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. Unrecognized director compensation expense related to the unvested RSUs as of ~~September 30, 2020~~March 31, 2021 was ~~$38~~$7 thousand.

Stock options. As of ~~September 30, 2020, 4,500~~March 31, 2021, 4,000 incentive stock options granted in December 2014 under the 2014 Equity Plan remained outstanding and exercisable and will expire in December 2021. The intrinsic value of those options was $24 thousand as of March 31, 2021. During the three months ended March 31, 2021, 500 incentive stock options under the 2014 Equity Plan were exercised. There was 0 unrecognized compensation expense related to ~~those~~the remaining options as of ~~September 30, 2020. The intrinsic value of those options was $0 due to the stock options not being in the money as of September 30, 2020.~~March 31, 2021.

During the nine months ended September 30, 2020, 1,000 incentive stock options granted under the 2008 ISO Plan were exercised. There are no remaining options outstanding under the 2008 ISO Plan. There was 0 unrecognized compensation expense related to those options as of September 30, 2020.

Note ~~11.~~10. Other Comprehensive Income

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 not OTTI, 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:

September 30, 2020 December 31, 2019
(Dollars in thousands)
Net unrealized gain on investment securities available-for-sale $ 2,593 $ 986


	March 31, 2021		December 31, 2020
	(Dollars in thousands)
Net unrealized gain on investment securities available-for-sale	$	81	$	2,636

Union Bankshares, Inc. Page 20

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													Three Months Ended
		September 30, 2020						September 30, 2019							March 31, 2021						March 31, 2020
		Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount			Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount
Investment securities available-for-sale:	Investment securities available-for-sale:	(Dollars in thousands)												Investment securities available-for-sale:	(Dollars in thousands)
Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	$	(157)	$	33	$	(124)	$	558	$	(117)	$	441	Net unrealized holding (losses) gains arising during the period on investment securities available-for-sale	$	(3,234)	$	679	$	(2,555)	$	1,372	$	(288)	$	1,084

Reclassification adjustment for net gains on investment securities available-for-sale realized in net income														Reclassification adjustment for net gains on investment securities available-for-sale realized in net income	0		0		0		(11)		2		(9)

Total other comprehensive (loss) income	Total other comprehensive (loss) income	$	(157)	$	33	$	(124)	$	558	$	(117)	$	441	Total other comprehensive (loss) income	$	(3,234)	$	679	$	(2,555)	$	1,361	$	(286)	$	1,075

Nine Months Ended
September 30, 2020 September 30, 2019
Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount Before-Tax Amount Tax (Expense) Benefit Net-of-Tax Amount
Investment securities available-for-sale: (Dollars in thousands)
Net unrealized holding gains arising during the period on investment securities available-for-sale $ 2,045 $ (429) $ 1,616 $ 2,775 $ (583) $ 2,192
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income (11) 2 (9) (8) 2 (6)
Total other comprehensive income $ 2,034 $ (427) $ 1,607 $ 2,767 $ (581) $ 2,186

~~Union Bankshares, Inc. Page 23~~

There were 0 reclassification adjustments from OCI for the three months ended ~~September 30, 2020 and 2019.~~March 31, 2021. The following table discloses information concerning reclassification adjustments from OCI for the ~~nine~~three months ended ~~September 30, 2020 and 2019:~~March 31, 2020:

Nine Months Ended
Reclassification Adjustment Description September 30, 2020 September 30, 2019 Affected Line Item in
Consolidated Statement of Income
(Dollars in thousands)
Investment securities available-for-sale:
Net gains on investment securities available-for-sale $ (11) $ (8) Net gains on sales of investment securities available-for-sale
Tax expense 2 2 Provision for income taxes
Total reclassifications $ (9) $ (6) Net income

Three Months Ended

Reclassification Adjustment Description

March 31, 2020

Affected Line Item in
Consolidated Statement of Income

(Dollars in thousands)

Investment securities available-for-sale:

Net gains on investment securities available-for-sale

(11)

Net gains on sales of investment securities available-for-sale

Tax expense

Provision for income taxes

Total reclassifications

(9)

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.

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: 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.

Union Bankshares, Inc. Page 2421

Assets measured at fair value on a recurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, segregated by fair value hierarchy level, are summarized below:


		Fair Value Measurements									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)			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, 2020:		(Dollars in thousands)
March 31, 2021:										March 31, 2021:	(Dollars in thousands)
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	4,758	$	0	$	4,758	$	0	U.S. Government-sponsored enterprises	$	16,759	$	0	$	16,759	$	0
Agency mortgage-backed	Agency mortgage-backed	45,753		0		45,753		0		Agency mortgage-backed	89,367		0		89,367		0
State and political subdivisions	State and political subdivisions	29,225		0		29,225		0		State and political subdivisions	27,479		0		27,479		0
Corporate	Corporate	8,384		0		8,384		0		Corporate	8,326		0		8,326		0
Total debt securities	Total debt securities	$	88,120	$	0	$	88,120	$	0	Total debt securities	$	141,931	$	0	$	141,931	$	0

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	874	$	874	$	0	$	0	Mutual funds	$	1,132	$	1,132	$	0	$	0

December 31, 2019:
December 31, 2020:										December 31, 2020:
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,292	$	0	$	6,292	$	0	U.S. Government-sponsored enterprises	$	6,548	$	0	$	6,548	$	0
Agency mortgage-backed	Agency mortgage-backed	46,024		0		46,024		0		Agency mortgage-backed	62,352		0		62,352		0
State and political subdivisions	State and political subdivisions	26,965		0		26,965		0		State and political subdivisions	28,461		0		28,461		0
Corporate	Corporate	8,112		0		8,112		0		Corporate	8,402		0		8,402		0
Total debt securities	Total debt securities	$	87,393	$	0	$	87,393	$	0	Total debt securities	$	105,763	$	0	$	105,763	$	0

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	690	$	690	$	0	$	0	Mutual funds	$	1,047	$	1,047	$	0	$	—

There were no transfers in or out of Levels 1 and 2 during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 or the year ended December 31, 2020, ~~and 2019,~~ nor were there any Level 3 assets at any time during either period. 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 collateral-dependent impaired loans, MSRs and OREO, were not considered material at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. The Company has 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.

Union Bankshares, Inc. Page 2522

As of the balance sheet dates, the estimated fair values and related carrying amounts of the Company's significant financial instruments were as follows:


		September 30, 2020											March 31, 2021
		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											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	64,477	$	64,477	$	64,477	$	0	$	0	Cash and cash equivalents	$	56,506	$	56,506	$	56,506	$	0	$	0
Interest bearing deposits in banks	Interest bearing deposits in banks	8,964		9,174		0		9,174		0		Interest bearing deposits in banks	14,691		14,691		0		14,691		0
Investment securities	Investment securities	88,994		88,994		874		88,120		0		Investment securities	143,063		143,063		1,132		141,931		0
Loans held for sale	Loans held for sale	32,803		34,326		0		34,326		0		Loans held for sale	40,212		41,101		0		41,101		0
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	181,207		186,566		0		0		186,566		Residential real estate	204,369		208,056		0		0		208,056
Construction real estate	Construction real estate	48,964		49,273		0		0		49,273		Construction real estate	64,526		64,766		0		0		64,766
Commercial real estate	Commercial real estate	313,061		328,895		0		0		328,895		Commercial real estate	312,539		316,520		0		0		316,520
Commercial	Commercial	114,296		111,188		0		0		111,188		Commercial	117,765		116,041		0		0		116,041
Consumer	Consumer	2,814		2,788		0		0		2,788		Consumer	2,517		2,492		0		0		2,492
Municipal	Municipal	97,481		97,711		0		0		97,711		Municipal	91,344		91,833		0		0		91,833
Accrued interest receivable	Accrued interest receivable	3,647		3,647		0		440		3,207		Accrued interest receivable	4,224		4,224		0		485		3,739
Nonmarketable equity securities	Nonmarketable equity securities	1,150		N/A								Nonmarketable equity securities	1,150		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	204,555	$	204,555	$	204,555	$	0	$	0	Noninterest bearing	$	231,992	$	231,992	$	231,992	$	0	$	0
Interest bearing	Interest bearing	562,970		562,970		562,970		0		0		Interest bearing	648,960		648,960		648,960		0		0
Time	Time	142,554		143,724		0		143,724		0		Time	126,939		127,530		0		127,530		0
Borrowed funds	Borrowed funds											Borrowed funds

Long-term	Long-term	9,497		9,962		0		9,962		0		Long-term	7,164		7,535		0		7,535		0
Accrued interest payable	Accrued interest payable	107		107		0		107		0		Accrued interest payable	87		87		0		87		0

Union Bankshares, Inc. Page 2623


		December 31, 2019											December 31, 2020
		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											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	51,134	$	51,134	$	51,134	$	0	$	0	Cash and cash equivalents	$	122,771	$	122,771	$	122,771	$	0	$	0
Interest bearing deposits in banks	Interest bearing deposits in banks	6,565		6,671		0		6,671		0		Interest bearing deposits in banks	12,699		12,699		0		12,699		0
Investment securities	Investment securities	88,083		88,083		690		87,393		0		Investment securities	106,810		106,810		1,047		105,763		0
Loans held for sale	Loans held for sale	7,442		7,587		0		7,587		0		Loans held for sale	32,188		33,437		0		33,437		0
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	191,032		192,955		0		0		192,955		Residential real estate	181,355		185,890		0		0		185,890
Construction real estate	Construction real estate	68,951		68,381		0		0		68,381		Construction real estate	56,643		56,882		0		0		56,882
Commercial real estate	Commercial real estate	286,871		288,931		0		0		288,931		Commercial real estate	315,522		324,085		0		0		324,085
Commercial	Commercial	47,379		45,872		0		0		45,872		Commercial	108,382		106,358		0		0		106,358
Consumer	Consumer	3,545		3,483		0		0		3,483		Consumer	2,586		2,557		0		0		2,557
Municipal	Municipal	67,387		67,103		0		0		67,103		Municipal	98,264		98,973		0		0		98,973
Accrued interest receivable	Accrued interest receivable	2,702		2,702		0		435		2,267		Accrued interest receivable	4,129		4,129		0		446		3,683
Nonmarketable equity securities	Nonmarketable equity securities	2,607		N/A								Nonmarketable equity securities	1,150		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	136,434	$	136,434	$	136,434	$	0	$	0	Noninterest bearing	$	215,245	$	215,245	$	215,245	$	0	$	0
Interest bearing	Interest bearing	458,940		458,940		458,940		0		0		Interest bearing	637,369		637,369		637,369		0		0
Time	Time	148,653		148,542		0		148,542		0		Time	141,688		142,605		0		142,605		0
Borrowed funds	Borrowed funds											Borrowed funds
Short-term		40,000		40,000		40,000		0		0

Long-term	Long-term	7,164		7,416		0		7,416		—		Long-term	7,164		7,585		0		7,585		0
Accrued interest payable	Accrued interest payable	673		673		0		673		0		Accrued interest payable	108		108		0		108		0

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, 2020~~March 31, 2021 have been evaluated as to their potential impact to the consolidated financial statements.

On ~~October~~April 21, ~~2020,~~2021, the Company declared a regular quarterly cash dividend of ~~$0.32~~$0.33 per share, payable ~~November~~May 6, ~~2020,~~2021, to stockholders of record on ~~October 31, 2020.~~May 1, 2021.

Union Bankshares, Inc. Page 2724

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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, and its results of operations for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. 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 ~~2019~~2020 Annual Report. In the opinion of the Company's management, the interim unaudited 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, 2020~~March 31, 2021 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 current expectations and are subject to uncertainties, both general and specific, and risk exists that 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,” “predicts,” “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 in forward-looking statements include, but are not limited to:

•General economic conditions and financial instability, either nationally, internationally, regionally or locally;

•Increased competitive pressures, including those from tax-advantaged credit unions and other financial service providers in our northern Vermont and New Hampshire market area or in the financial services industry generally, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems;

•Interest rates change in a way that puts pressure on the Company's margins, or that results in lower fee income and lower gain on sale of real estate loans, or that increases our interest costs;

•Changes in laws or government rules, or the way in which courts or government agencies interpret or implement those laws or rules, that increase our costs of doing business or otherwise adversely affect our business;

•Further changes in federal or state tax policy;

•Changes in our level of nonperforming assets and charge-offs;

•Changes in depositor behavior resulting in movement of funds out of bank deposits and into the stock market or other higher-yielding investments;

•Changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements;

•Changes in information technology that require increased capital spending or that result in new or increased risks;

•Changes in consumer and business spending, borrowing and savings habits;

•Changes in accounting principles, including those governing the manner of estimating our credit risk and calculating our loan loss reserve;

•Further changes to the regulations governing the calculation of the Company’s regulatory capital ratios;

•Increased competitive pressures affecting the ability of the Company to attract, develop and retain employees;

•Increased cybersecurity threats; and

~~Union Bankshares, Inc. Page 28~~

•The effect of and changes in the United States monetary and fiscal policies, including interest rate policies and regulation of the money supply by the FRB.

Union Bankshares, Inc. Page 25

In addition, statements about the potential effects of the COVID-19 pandemic on the Company's financial position and results of operations reflect inherent uncertainties and may constitute forward-looking statements. Such statements may include, but are not limited to, statements concerning:

•the continuing ability of our employees to work remotely;

•our ability to staff our branches and keep our branches open;

•the continuing strength of our capital and liquidity positions;

•our continued ability to access sources of contingent liquidity;

•the continuing strength of the asset quality in our lending portfolios; and

•the potential effectiveness of relief measures and programs for customers affected by COVID-19.

When evaluating forward-looking statements to make decisions 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 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 ALL, evaluating our investment securities for OTTI, 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 ~~2019~~2020 Annual Report on Form 10-K for a more in-depth discussion of the Company's critical accounting policies. There have been no changes to the Company's critical accounting policies since the filing of that report.

~~Union Bankshares, Inc. Page 29~~

OVERVIEW

Consolidated net income increased ~~$1.4 million,~~$680 thousand, or ~~51.5%~~31.0%, to ~~$4.1~~$2.9 million for the ~~third~~first quarter of 2021 compared to $2.2 million for the first quarter of 2020 ~~compared~~due to ~~$2.7 million for~~ the ~~third quarter~~combined effect of ~~2019 due to~~ increases in net interest income of ~~$538~~$893 thousand and noninterest income of ~~$2.8 million, partially offset by increases~~$103 thousand, and a decrease in the provision for loan losses of ~~$650~~$150 thousand, ~~and noninterest expenses of $990 thousand.~~

Union originated $69.8 million in PPP loans as of September 30, 2020 to assist customers during the economic disruption caused by COVID-19. Interest income and origination fees from PPP loans was $486 thousand and $850 thousand for the three and nine months ended September 30, 2020, respectively.

Additionally, sales of qualifying residential loans to the secondary market for the third quarter of 2020 were $89.8 million resulting in gain on sales of $3.3 million, compared to sales of $44.7 million and gain on sales of $824 thousand for the third quarter of 2019. The increased volume of loan sales reflects an increase in residential mortgage financing activity likely due to the drop in interest rates.

Consolidated net income was $9.0 million, or $2.01 per share, compared to $7.9 million, or $1.77 per share, for the nine months ended September 30, 2020 and 2019, respectively. The increase in earnings from the 2019 comparison period was primarily due to increases in net interest income of $950 thousand and noninterest income of $3.6 million, partially offset by increases of ~~$1.3 million in the provision for loan losses and $1.9 million~~$281 thousand in noninterest ~~expenses.~~expenses and $185 thousand in income tax expense.

Net interest income increased ~~$950~~$893 thousand, or ~~4.2%~~11.9%, to ~~$23.5~~$8.4 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$22.5~~$7.5 million for the ~~nine~~three months ended ~~September 30, 2019. Despite the FRB initiating a 150 basis point reduction in short term interest rates in~~ March ~~2020, interest~~31, 2020. Interest income increased ~~$809~~$537 thousand primarily due to higher volumes of loans during the first ~~nine~~three months of ~~2020~~2021 compared to the same period in ~~2019;~~2020; however, that increase was partially offset by a reduction in earnings from the investment ~~portfolio.~~portfolio and other earning assets of $57 thousand. Interest expense was ~~$4.0~~$1.1 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$4.1~~$1.5 million for the ~~nine~~three months ended ~~September 30, 2019,~~

Union Bankshares, Inc. Page 26

March 31, 2020, reflecting lower rates paid on deposits despite an increase in interest-bearing liabilities between periods of ~~$75.9~~$155.6 million.

The provision for loan losses was ~~$1.6 million~~$150 thousand for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$350~~$300 thousand for the same period in ~~2019.~~2020. The ~~increase in~~provision for loan losses was higher for the ~~provision resulted from~~three months ended March 31, 2020 due to management's adjustment to the economic qualitative factors utilized to estimate the allowance for loan losses due to the economic ~~disruption currently impacting our borrowers.~~uncertainty at the onset of the COVID-19 pandemic. There ~~was~~were no ~~change~~changes to the methodology for calculating the allowance for loan ~~losses.~~

losses during either of the three month comparison period.

Total noninterest income amounted to ~~$11.0~~$2.6 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$7.4~~$2.5 million for the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, an increase of ~~$3.6 million,~~$103 thousand, or ~~48.3%~~4.1%. The increase is primarily due to an increase in the gain on sale of residential loans. Sales of qualifying residential loans amounted to ~~$187.5~~$29.7 million with net gains of ~~$5.4 million~~$894 thousand for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, compared to ~~$101.3~~residential loan sales of $42.4 million with net gains of ~~$1.9~~$812 thousand for the same period in 2020. The decrease in the volume of loan sales reflects management's decision to slow sales in the first three months of 2021 to utilize some excess liquidity and increase interest income on loans.

Total noninterest expenses were $7.5 million for the three months ended March 31, 2021, compared to $7.2 million for the same period in ~~2019, reflecting both increased volume and more favorable pricing.~~

~~Total noninterest expenses were $22.3 million for the nine months ended September 30, 2020, compared to $20.3 million for the same period in 2019.~~2020. Increases of ~~$895~~$187 thousand in employee benefits, $58 thousand in equipment expenses, and $111 thousand in other expenses, partially offset by decreases of $38 thousand in salaries and wages ~~$309 thousand in employee benefits, $124~~and $37 thousand in occupancy expenses, ~~$502 thousand in equipment expenses, and $116 thousand in other expenses~~ occurred between the ~~nine~~three month comparison periods of ~~2020~~2021 and ~~2019 due to planned technology infrastructure spending, discretionary hiring of high value staff to allow continued growth in the franchise, and continued development of newer branch locations.~~2020.

At ~~September 30, 2020,~~March 31, 2021, the Company had total consolidated assets of ~~$1.009~~$1.1 billion, including gross loans and loans held for sale (total loans) of ~~$798.9~~$842.5 million, deposits of ~~$910.1 million,~~$1.01 billion, borrowed funds of ~~$9.5~~$7.2 million, and stockholders' equity of ~~$78.4~~$79.8 million.

The Company's total capital ~~increased~~decreased from ~~$71.8~~$80.9 million at December 31, ~~2019~~2020 to ~~$78.4~~$79.8 million at ~~September 30, 2020.~~March 31, 2021. This ~~increase~~decrease primarily reflects net income of ~~$9.0~~$2.9 million for the first ~~nine~~three months of ~~2020 and an increase~~2021 offset by decreases of ~~$1.6~~$2.6 million in accumulated other comprehensive income ~~partially offset by~~and regular cash dividends declared of ~~$4.3~~$1.5 million. (See Capital Resources on page ~~45.~~39.)

~~Union Bankshares, Inc. Page 30~~

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,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:


		Three Months Ended or At September 30,						Nine Months Ended or At September 30,							Three Months Ended or At March 31,
		2020			2019			2020			2019				2021			2020
Return on average assets (1)	Return on average assets (1)	1.68		%	1.34		%	1.29		%	1.31		%	Return on average assets (1)	1.05		%	1.03		%
Return on average equity (1)	Return on average equity (1)	21.50		%	15.79		%	16.09		%	15.64		%	Return on average equity (1)	14.27		%	12.09		%
Net interest margin (1)(2)	Net interest margin (1)(2)	3.57		%	4.06		%	3.66		%	4.06		%	Net interest margin (1)(2)	3.32		%	3.88		%
Efficiency ratio (3)	Efficiency ratio (3)	57.85		%	66.72		%	63.93		%	67.05		%	Efficiency ratio (3)	66.90		%	70.75		%
Net interest spread (4)	Net interest spread (4)	3.42		%	3.87		%	3.49		%	3.88		%	Net interest spread (4)	3.19		%	3.70		%
Loan to deposit ratio	Loan to deposit ratio	87.78		%	93.69		%	87.78		%	93.69		%	Loan to deposit ratio	83.59		%	94.15		%
Net loan charge-offs to average loans not held for sale (1)	Net loan charge-offs to average loans not held for sale (1)	—		%	0.01		%	0.01		%	0.06		%	Net loan charge-offs to average loans not held for sale (1)	—		%	0.02		%
Allowance for loan losses to loans not held for sale	Allowance for loan losses to loans not held for sale	1.00		%	0.88		%	1.00		%	0.88		%	Allowance for loan losses to loans not held for sale	1.05		%	0.94		%
Nonperforming assets to total assets (5)	Nonperforming assets to total assets (5)	0.34		%	0.23		%	0.34		%	0.23		%	Nonperforming assets to total assets (5)	0.56		%	0.45		%
Equity to assets	Equity to assets	7.77		%	8.36		%	7.77		%	8.36		%	Equity to assets	7.23		%	8.36		%
Total capital to risk weighted assets	Total capital to risk weighted assets	13.65		%	12.95		%	13.65		%	12.95		%	Total capital to risk weighted assets	13.48		%	13.20		%
Book value per share	Book value per share	$	17.52		$	15.80		$	17.52		$	15.80		Book value per share	$	17.81		$	16.50
Earnings per share	Earnings per share	$	0.92		$	0.62		$	2.01		$	1.77		Earnings per share	$	0.64		$	0.49
Dividends paid per share	Dividends paid per share	$	0.32		$	0.31		$	0.96		$	0.93		Dividends paid per share	$	0.33		$	0.32
Dividend payout ratio (6)	Dividend payout ratio (6)	34.78		%	50.00		%	47.76		%	52.54		%	Dividend payout ratio (6)	51.56		%	65.31		%

__________________

(1)Annualized.

(2)The ratio of tax equivalent net interest income to average earning assets. See ~~pages 33 and 34~~page 29 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 ~~pages 33 and 34~~page 29 for more information.

Union Bankshares, Inc. Page 27

(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.

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 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.

~~On March 3, 2020,~~The fed funds target range remains at 0% to 0.25% since the reductions made by the Federal Open Market Committee (FOMC) ~~reduced the target federal funds rate by 50 basis points to a range of 1.00% to 1.25%. This rate was further reduced to a target range of 0% to 0.25% on~~in March ~~16,~~ 2020. The most recent meeting of the FOMC, held on ~~November 5, 2020,~~April 28, 2021, indicated that this low target range will remain in effect until members of the FOMC are confident the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals, which ~~may not~~likely will be ~~until late in 2021 or beyond. Prolonged reductions in interest rates and other effects of the COVID-19 outbreak may continue to adversely affect the Company’s net interest income.~~beyond 2021.

The average yield on average earning assets was ~~4.07%~~3.76% for the three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~4.83%~~4.62% for the three months ended ~~September 30, 2019,~~March 31, 2020, a decrease of 7686 bps despite an increase in average earning assets of ~~$165.0~~$246.9 million. The low interest rate environment continues to put downward pressure on asset yields. The average balance of federal funds sold and overnight deposit balances increased to $82.9 million for the three months ended March 31, 2021 compared to $18.2 million for the three months ended March 31, 2020 but resulted in a decrease of $34 thousand in interest income due to the decrease in average yield from 1.15% to 0.09%. The decrease in average yield was caused by the reduction in interest paid by the Federal Reserve on excess balances. Interest income on investment securities ~~decreased $75~~increased $11 thousand between the three month comparison periods due to an increase in the average balances of $40.9 million, despite a decrease of 4282 bps in the average yield. The average balance of PPP loans was $73.6 million for the three months ended March 31, 2021 with an average yield ~~even though an increase in average balances~~ of ~~$2.5 million occurred between~~4.71%, which takes into account the ~~comparison periods.~~1.0% interest charged on PPP loans and related fee income recognized during the first three months of 2021. The Company did not begin to originate PPP loans until the second quarter of 2020. Interest income on loans, ~~increased $301~~excluding PPP loans, decreased $261 thousand between comparison periods ~~due to~~despite an increase in the average volume of loans outstanding of ~~$136.6 million, despite a decrease in the average yield of 73 bps.~~$61.3 million. The current interest rate environment and competition for quality loans continues to put downward pressure on loan ~~yields. The~~yields resulting in a decrease in the average yield ~~between the three month comparison periods also reflects the lower yield~~of 52 bps on ~~the~~loans other than PPP ~~loans originated during the~~

~~Union Bankshares, Inc. Page 31~~

~~second quarter of 2020. The average balance of PPP loans for the three months ended September 30, 2020 was $69.7 million with an average yield of 2.78%.~~loans.

Interest expense for the ~~third~~first quarter of ~~2020~~2021 decreased ~~$335~~$356 thousand compared to the ~~third~~first quarter of ~~2019~~2020 due to lower rates paid on customer deposit accounts, partially offset by increases in average balances of ~~$97.4~~$155.6 million. The increase in average balances was primarily attributable to customer deposits of proceeds from PPP loans and government stimulus payments. The average rate paid on interest bearing liabilities decreased 3135 bps, to ~~0.65%~~0.57% for the ~~third~~first quarter of ~~2020~~2021 compared to ~~0.96%~~0.92% for the ~~third~~first quarter of ~~2019.~~2020. The average rates paid on interest bearing checking accounts and savings and money market accounts decreased ~~two~~15 bps and 1133 bps, respectively, as the low rate environment afforded opportunity to decrease rates and implement a tiered rate structure in these accounts. The decreases in these interest rates ~~on these accounts were offset by increases~~resulted in ~~volumes, resulting in an increase~~decreases in interest expense of ~~$25~~$23 thousand and ~~$88~~$67 thousand, ~~for~~respectively, between the three month comparison periods. ~~The average rate paid~~Interest expense on time deposits decreased 41$172 thousand due to decreases in the average volume of $12.8 million and 38 bps in the average rate paid for the ~~third~~first quarter of ~~2020~~2021 compared to the same period in ~~2019, which reflects~~2020. The decrease in the ~~renewal~~average volume is likely due to customers transferring proceeds from matured CDs into non-maturity deposits in hopes of obtaining higher yields in future periods. As the higher rate ~~CD specials offered~~paying CDs continue to mature, further reduction in ~~2019 into lower~~the rate ~~paying instruments in 2020.~~paid on time deposits is expected to continue. Higher customer deposit balances have allowed for less reliance on borrowed funds, ~~during~~as evidenced by decreases between the three month comparison periods ~~as evidenced by decreases~~ of ~~$39.5~~$26.1 million in the average outstanding balance of borrowed funds and ~~$238~~$94 thousand in related interest expense, despite a 13125 bp increase in the rate paid on the average outstanding balances.

The net interest spread decreased 4551 bps to ~~3.42%~~3.19% for the ~~third~~first quarter of ~~2020,~~2021, from ~~3.87%~~3.70% for the same period last year, reflecting the net effect of the 3135 bps decrease in the average rate paid on interest bearing liabilities and the 7686 bps decrease in the average yield earned on interest earning assets between periods. The net interest margin decreased 4956 bps during the ~~third~~first quarter of ~~2020~~2021 compared to the same period last year as a result of the changes discussed above.

Net interest income was $23.5 million, on a fully tax equivalent basis for the nine months ended September 30, 2020 compared to $22.5 million for the nine months ended September 30, 2019, an increase of $950 thousand, or 4.22%. The average volume of earning assets increased $116.7 million and the average yield on earning assets decreased 52 bps to 4.27% compared to 4.79% for the comparison period. Average loans increased $89.4 million, or 13.71%, to $741.4 million for the nine months ended September 30, 2020. Despite a decrease in average yield, interest income on loans increased $1.1 million between periods, due to the increase in the average loan volume. As discussed above, the current interest rate environment and competition for quality loans continues to put downward pressure on loan yields; this coupled with the origination of low yielding PPP loans during the second quarter of 2020 contributed to the decline in the average yield on loans for the nine months ended September 30, 2020 compared the nine months ended September 30, 2019. The average balance of PPP loans for the nine months ended September 30, 2020 was $41.2 million with an average yield of 2.77%.

The average cost of funds, which is tied primarily to customer deposit accounts, decreased 13 bps to 0.78% for the nine months ended September 30, 2020 compared to 0.91% for the nine months ended September 30, 2019. Interest expense decreased $141 thousand, to $4.0 million for the nine months ended September 30, 2020 compared to $4.1 million for the nine months ended September 30, 2019. The decrease in interest expense was primarily due to lower rates paid on interest bearing liabilities partially offset by an increase in average balances of $75.9 million between periods. Management expects further reduction in the average cost of funds in future periods due to lowering of interest rates on time deposit and savings account products, and has no plans at this time to offer any time deposit specials.

Union Bankshares, Inc. Page 3228

The following tables show 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 September 30,
2020 2019
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 $ 33,783 $ 7 0.08 % $ 8,468 $ 19 0.89 %
Interest bearing deposits in banks 9,459 41 1.71 % 7,309 46 2.48 %
Investment securities (1), (2) 85,122 465 2.33 % 82,592 540 2.75 %
Loans, net (1), (3) 797,181 8,803 4.44 % 660,570 8,502 5.17 %
Nonmarketable equity securities 1,150 27 9.34 % 2,739 33 4.75 %
Total interest earning assets (1) 926,695 9,343 4.07 % 761,678 9,140 4.83 %
Cash and due from banks 4,927 5,077
Premises and equipment 20,384 22,142
Other assets 36,597 30,191
Total assets $ 988,603 $ 819,088
Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts $ 202,751 161 0.31 % $ 163,278 136 0.33 %
Savings/money market accounts 351,455 486 0.55 % 240,176 398 0.66 %
Time deposits 144,071 454 1.26 % 157,868 664 1.67 %
Borrowed funds and other liabilities 9,497 57 2.36 % 49,035 295 2.23 %
Total interest bearing liabilities 707,774 1,158 0.65 % 610,357 1,493 0.96 %
Noninterest bearing deposits 193,145 130,854
Other liabilities 10,517 8,498
Total liabilities 911,436 749,709
Stockholders' equity 77,167 69,379
Total liabilities and stockholders’ equity $ 988,603 $ 819,088
Net interest income $ 8,185 $ 7,647
Net interest spread (1) 3.42 % 3.87 %
Net interest margin (1) 3.57 % 4.06 %

~~Union Bankshares, Inc. Page 33~~


		Nine Months Ended September 30,													Three Months Ended March 31,
		2020						2019							2021						2020
		Average Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Balance		Interest Earned/ Paid		Average Yield/ Rate
		(Dollars in thousands)													(Dollars in thousands)
Average Assets:	Average Assets:													Average Assets:
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	$	34,025	$	71	0.28	%	$	12,089	$	130	1.42	%	Federal funds sold and overnight deposits	$	82,856	$	19	0.09	%	$	18,222	$	53	1.15	%
Interest bearing deposits in banks	Interest bearing deposits in banks	7,985		122		2.03	%	8,164		153		2.50	%	Interest bearing deposits in banks	13,966		37		1.07	%	6,541		41		2.52	%
Investment securities (1), (2)	Investment securities (1), (2)	85,437		1,506		2.49	%	79,519		1,644		2.89	%	Investment securities (1), (2)	127,233		555		1.84	%	86,311		544		2.66	%
Loans, net (1), (3)		741,410		25,659		4.67	%	652,019		24,604		5.11	%
PPP loans, net (3)														PPP loans, net (3)	73,619		855		4.71	%	—		—		—	%
Loans (excluding PPP loans), net (1), (4)														Loans (excluding PPP loans), net (1), (4)	739,009		8,030		4.46	%	677,702		8,291		4.98	%
Nonmarketable equity securities	Nonmarketable equity securities	2,011		87		5.79	%	2,375		105		5.92	%	Nonmarketable equity securities	1,150		4		1.47	%	2,152		34		6.43	%
Total interest earning assets (1)	Total interest earning assets (1)	870,868		27,445		4.27	%	754,166		26,636		4.79	%	Total interest earning assets (1)	1,037,833		9,500		3.76	%	790,928		8,963		4.62	%
Cash and due from banks	Cash and due from banks	5,214						4,699						Cash and due from banks	5,094						5,188
Premises and equipment	Premises and equipment	20,562						19,582						Premises and equipment	19,996						20,826
Other assets	Other assets	35,630						27,213						Other assets	37,420						32,590
Total assets	Total assets	$	932,274					$	805,660					Total assets	$	1,100,343					$	849,532
Average Liabilities and Stockholders' Equity:	Average Liabilities and Stockholders' Equity:													Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	Interest bearing checking accounts	$	188,286	534		0.38	%	$	157,102	296		0.25	%	Interest bearing checking accounts	$	234,339	147		0.25	%	$	169,513	170		0.40	%
Savings/money market accounts	Savings/money market accounts	316,742		1,662		0.70	%	264,472		1,478		0.75	%	Savings/money market accounts	413,269		549		0.54	%	283,570		616		0.87	%
Time deposits	Time deposits	145,574		1,466		1.35	%	143,439		1,665		1.55	%	Time deposits	133,616		351		1.06	%	146,396		523		1.44	%
Borrowed funds and other liabilities	Borrowed funds and other liabilities	29,035		314		1.42	%	38,685		678		2.31	%	Borrowed funds and other liabilities	7,164		54		3.02	%	33,260		148		1.77	%
Total interest bearing liabilities	Total interest bearing liabilities	679,637		3,976		0.78	%	603,698		4,117		0.91	%	Total interest bearing liabilities	788,388		1,101		0.57	%	632,739		1,457		0.92	%
Noninterest bearing deposits	Noninterest bearing deposits	167,845						127,077						Noninterest bearing deposits	221,344						135,561
Other liabilities	Other liabilities	10,113						7,646						Other liabilities	9,975						8,607
Total liabilities	Total liabilities	857,595						738,421						Total liabilities	1,019,707						776,907
Stockholders' equity	Stockholders' equity	74,679						67,239						Stockholders' equity	80,636						72,625
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	932,274					$	805,660					Total liabilities and stockholders’ equity	$	1,100,343					$	849,532
Net interest income	Net interest income			$	23,469					$	22,519			Net interest income			$	8,399					$	7,506
Net interest spread (1)	Net interest spread (1)					3.49	%					3.88	%	Net interest spread (1)					3.19	%					3.70	%
Net interest margin (1)	Net interest margin (1)					3.66	%					4.06	%	Net interest margin (1)					3.32	%					3.88	%

__________________

(1)Average yields reported on a tax equivalent basis using a marginal federal corporate income tax rate of 21%.

(2)Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.

(3)Includes unamortized costs and unamortized premiums.

(4)Includes loans held for sale as well as nonaccrual loans, unamortized costs and unamortized premiums and is net of the allowance for loan losses.

Union Bankshares, Inc. Page 3429

Tax exempt interest income amounted to ~~$667~~$606 thousand and ~~$606~~$653 thousand for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and $2.0 million and $1.8 million for the 2020 and 2019 nine month comparison periods,~~ respectively. The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the 2021 and 2020 ~~and 2019~~ three ~~and nine~~ month comparison periods:


		For the Three Months Ended September 30,				For The Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Net interest income, as presented	Net interest income, as presented	$	8,185	$	7,647	$	23,469	$	22,519	Net interest income, as presented	$	8,399	$	7,506
Effect of tax-exempt interest	Effect of tax-exempt interest									Effect of tax-exempt interest
Investment securities	Investment securities	31		28		91		79		Investment securities	30		30
Loans	Loans	96		100		287		301		Loans	91		94
Net interest income, tax equivalent	Net interest income, tax equivalent	$	8,312	$	7,775	$	23,847	$	22,899	Net interest income, tax equivalent	$	8,520	$	7,630

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 September 30, 2020 Compared to Three Months Ended September 30, 2019 Increase/(Decrease) Due to Change In						Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Increase/(Decrease) Due to Change In							Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020 Increase/(Decrease) Due to Change In
		Volume		Rate		Net		Volume		Rate		Net			Volume		Rate		Net
		(Dollars in thousands)													(Dollars in thousands)
Interest earning assets:	Interest earning assets:													Interest earning assets:
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	$	18	$	(30)	$	(12)	$	106	$	(165)	$	(59)	Federal funds sold and overnight deposits	$	49	$	(83)	$	(34)
Interest bearing deposits in banks	Interest bearing deposits in banks	11		(16)		(5)		(3)		(28)		(31)		Interest bearing deposits in banks	28		(32)		(4)
Investment securities	Investment securities	17		(92)		(75)		119		(257)		(138)		Investment securities	221		(210)		11
Loans, net		1,615		(1,314)		301		3,257		(2,202)		1,055
PPP loans, net														PPP loans, net	855		—		855
Loans (excluding PPP loans), net														Loans (excluding PPP loans), net	683		(944)		(261)
Nonmarketable equity securities	Nonmarketable equity securities	(26)		20		(6)		(16)		(2)		(18)		Nonmarketable equity securities	(11)		(19)		(30)
Total interest earning assets	Total interest earning assets	$	1,635	$	(1,432)	$	203	$	3,463	$	(2,654)	$	809	Total interest earning assets	$	1,825	$	(1,288)	$	537
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Interest bearing checking accounts	Interest bearing checking accounts	$	31	$	(7)	$	24	$	68	$	170	$	238	Interest bearing checking accounts	$	52	$	(75)	$	(23)
Savings/money market accounts	Savings/money market accounts	161		(73)		88		279		(95)		184		Savings/money market accounts	219		(286)		(67)
Time deposits	Time deposits	(54)		(155)		(209)		25		(224)		(199)		Time deposits	(45)		(127)		(172)
Borrowed funds	Borrowed funds	(244)		6		(238)		(143)		(221)		(364)		Borrowed funds	(158)		64		(94)
Total interest bearing liabilities	Total interest bearing liabilities	$	(106)	$	(229)	$	(335)	$	229	$	(370)	$	(141)	Total interest bearing liabilities	$	68	$	(424)	$	(356)
Net change in net interest income	Net change in net interest income	$	1,741	$	(1,203)	$	538	$	3,234	$	(2,284)	$	950	Net change in net interest income	$	1,757	$	(864)	$	893

Provision for Loan Losses. A provision for loan losses of ~~$800~~$150 thousand ~~and $1.6 million~~ was recorded for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 compared to ~~$150 thousand and $350~~$300 thousand for the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020. The ~~increases~~higher provision in ~~the provision for the three and nine month periods~~2020 resulted from management's adjustment to the economic qualitative factors utilized to estimate the allowance for loan losses due to the economic disruption related to the COVID-19 pandemic impacting Union's borrowers. The provision for loan losses for the first ~~nine~~three months of ~~2020~~2021 was deemed appropriate by management based on the size and mix of the loan portfolio, the level of

~~Union Bankshares, Inc. Page 35~~

nonperforming loans, the results of the qualitative factor review and prevailing economic conditions. For further details, see FINANCIAL CONDITION- Allowance for Loan Losses and Asset Quality below.

Union Bankshares, Inc. Page 30

Noninterest Income. The following table sets forth the components of noninterest income and changes between the three ~~and nine~~ month comparison periods of ~~2020~~2021 and ~~2019:~~2020:


		For The Three Months Ended September 30,							For The Nine Months Ended September 30,								For The Three Months Ended March 31,
		2020		2019		$ Variance		% Variance	2020		2019		$ Variance		% Variance		2021		2020		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Trust income	Trust income	$	173	$	168	$	5	3.0	$	524	$	519	$	5	1.0	Trust income	$	185	$	173	$	12	6.9
Service fees	Service fees	1,539		1,617		(78)		(4.8)	4,320		4,547		(227)		(5.0)	Service fees	1,523		1,497		26		1.7
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	3,315		824		2,491		302.3	5,354		1,881		3,473		184.6	Net gains on sales of loans held for sale	894		812		82		10.1
Income from Company-owned life insurance	Income from Company-owned life insurance	82		89		(7)		(7.9)	241		200		41		20.5	Income from Company-owned life insurance	68		81		(13)		(16.0)
Income from mortgage servicing rights, net		297		—		297		100.0	376		(53)		429		58.3
(Loss) income from mortgage servicing rights, net																(Loss) income from mortgage servicing rights, net	(125)		39		(164)		(420.5)
Other income	Other income	26		34		(8)		(23.5)	74		252		(178)		(70.6)	Other income	32		29		3		10.3

Net gain on other investments		76		(9)		85		(944.4)	114		72		42		58.3
Net gain (loss) on other investments																Net gain (loss) on other investments	44		(124)		168		(135.5)
Net gains on sales of investment securities AFS	Net gains on sales of investment securities AFS	—		—		—		—	11		8		3		37.5	Net gains on sales of investment securities AFS	—		11		(11)		(100.0)
Total noninterest income	Total noninterest income	$	5,508	$	2,723	$	2,785	102.3	$	11,014	$	7,426	$	3,588	48.3	Total noninterest income	$	2,621	$	2,518	$	103	4.1

The significant changes in noninterest income for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period of ~~2019~~2020 are described below:

•Service fees. The Company's service fee income has been reduced as customers have managed account balances due to receipt of government stimulus money and general lack of spending opportunities due to the economic disruption caused by COVID-19. Service fees decreased $78increased $26 thousand for the three months ended ~~September 30, 2020,~~March 31, 2021, compared to the same period ~~of 2019~~in 2020 due to ~~decreases of $84 thousand in overdraft fee income, $27 thousand in service charge fees, partially offset by~~ increases of ~~$25~~$95 thousand in ATM network fees and $8$21 thousand in loan and other fee income. Service fees decreased $227 thousand for the nine months ended September 30, 2020 primarily due to reductions in service charge and overdraft fee income on customer accounts of $241 thousand and a decrease of $50 thousand in other fee income, partially offset by ~~increases~~decreases of $82 thousand in ~~ATM network income of $30 thousand and loan service~~overdraft fee income ~~of $39 thousand.~~and $8 thousand in service charge fees.

•Net gains on sales of loans held for sale. Continuing the Company's strategy to mitigate long-term interest rate risk, residential loans totaling ~~$89.8 million and $187.7~~$29.7 million were sold during the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 versus sales of ~~$44.7 million and $101.3~~$42.5 million during the same ~~periods~~period in ~~2019, respectively.~~2020. The increase in net gains on sales of real estate loans is reflective of ~~increases in volumes of loans sold and~~ higher premiums obtained on ~~those~~loan sales during the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period of ~~2019.~~2020.

•Income from Company-owned life insurance. The Company purchased $3.0 million of company owned life insurance covering select officers of Union during the third quarter of 2019, resulting in increased income for the nine months ended September 30, 2020. The decrease in income for the three months ended ~~September 30, 2020~~March 31, 2021 was due to lower yields earned on the underlying life insurance policies.

•~~Income~~(Loss) income from mortgage serving ~~rights.~~rights, net. Income from ~~mortgage servicing rights~~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 amortized in proportion to, and over the period of, the future estimate of servicing the underlying mortgages. The ~~increase~~amortization of MSRs exceeded new capitalized MSRs for the three months ended March 31, 2021 which resulted in expense of $125 thousand, compared to income of $39 thousand from the higher volume of sales of residential loans ~~as discussed above has resulted in increased income from mortgage servicing rights~~during for the three ~~and nine~~ months ended ~~September 30, 2020 compared to the same periods in 2019.~~

•~~Other income.~~ Other income for the nine months ended September 30, 2019 included $131 thousand in prepayment penalties from the early payoff of commercial loans and $50 thousand related to oil and gas income, which were not repeated inMarch 31, 2020.

~~Union Bankshares, Inc. Page 36~~

•Net gain on other investments. Participants in the ~~2006 Executive~~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 ~~$114~~$44 thousand ~~for the nine month period ended September 30, 2020 compared to net gains of $72 thousand for the same period in 2019. Net gains on the underlying assets of $76 thousand were recognized~~ for the three months ended ~~September 30, 2020~~March 31, 2021 compared to a net ~~losses~~loss of $9$124 thousand ~~for~~ for the three months ended ~~September 30, 2019.~~March 31, 2020.

Union Bankshares, Inc. Page 31

Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three ~~and nine~~ month comparison periods ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		For The Three Months Ended September 30,							For The Nine Months Ended September 30,								For The Three Months Ended March 31,
		2020		2019		$ Variance		% Variance	2020		2019		$ Variance		% Variance		2021		2020		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Salaries and wages	Salaries and wages	$	3,718	$	3,072	$	646	21.0	$	9,668	$	8,773	$	895	10.2	Salaries and wages	$	3,083	$	3,121	$	(38)	(1.2)
Employee benefits	Employee benefits	1,204		1,047		157		15.0	3,417		3,108		309		9.9	Employee benefits	1,169		982		187		19.0
Occupancy expense, net	Occupancy expense, net	420		428		(8)		(1.9)	1,411		1,287		124		9.6	Occupancy expense, net	477		514		(37)		(7.2)
Equipment expense	Equipment expense	770		625		145		23.2	2,266		1,764		502		28.5	Equipment expense	798		740		58		7.8

FDIC insurance assessment	FDIC insurance assessment	121		5		116		2,320.0	328		233		95		40.8	FDIC insurance assessment	156		111		45		40.5
Other loan related expenses	Other loan related expenses	98		74		24		32.4	244		189		55		29.1	Other loan related expenses	84		65		19		29.2
Vermont franchise tax	Vermont franchise tax	193		172		21		12.2	552		503		49		9.7	Vermont franchise tax	223		177		46		26.0
Advertising and public relations	Advertising and public relations	132		176		(44)		(25.0)	385		394		(9)		(2.3)	Advertising and public relations	96		118		(22)		(18.6)
Electronic banking expenses	Electronic banking expenses	83		77		6		7.8	245		218		27		12.4	Electronic banking expenses	92		78		14		17.9
Printing and supplies		99		109		(10)		(9.2)	263		299		(36)		(12.0)
Travel and entertainment		19		58		(39)		(67.2)	69		126		(57)		(45.2)

Other expenses	Other expenses	1,138		1,162		(24)		(2.1)	3,430		3,438		(8)		(0.2)	Other expenses	1,275		1,266		9		0.7
Total noninterest expense	Total noninterest expense	$	7,995	$	7,005	$	990	14.1	$	22,278	$	20,332	$	1,946	9.6	Total noninterest expense	$	7,453	$	7,172	$	281	3.9

The significant changes in noninterest expense for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period in ~~2019~~2020 are described below:

•Salaries and wages. The ~~increase~~decrease in salaries and wages for the comparison periods was due to increases in commissions earned by mortgage loan originators, annual salary adjustments, and an increase in accrual amounts for the annual incentive plan payments. Commissions paid to mortgage loan originators increased $165 thousand and $433of $38 thousand for the three ~~and nine~~ months ended ~~September 30, 2020. Accruals for~~March 31, 2021, compared to the same period in 2020 is primarily due to deferral of loan origination costs, partially offset by annual ~~incentive plans increased $186 thousand~~increases in employee's salaries and $247 thousand for the three and nine months ended September 30, 2020 Additionally, a one-time holiday gift was paid to all full and part-time employees in the third quarter of 2020 totaling $192 thousand.wages. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by ~~$445~~$185 thousand for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$89~~$30 thousand for ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The higher deferred loan origination costs for the ~~nine~~three month period ended ~~September 30, 2020~~March 31, 2021 compared to ~~2019~~2020 is primarily attributable to the origination of PPP loans.

•Employee benefits. Employee benefit expense increased ~~$157 thousand for the three months ended September 30, 2020 compared to the same period in 2019~~ due to a ~~$90~~quarterly adjustment of $41 thousand ~~net increase in employee benefit expenses~~ related to the ~~valuation adjustment~~increase in value of the underlying assets supporting the ~~2006 Non-Qualified Excess Plan and increases in payroll taxes and 401k~~deferred compensation plan ~~contributions of $60 thousand. Employee benefits increased $309 thousand~~ for the ~~nine~~three months ended ~~September 30, 2020 due~~March 31, 2021, compared to ~~increases~~a reduction in expense of ~~$87~~$122 thousand ~~in payroll taxes, $126 thousand in 401k plan contributions, $41 thousand~~related to a decline in the ~~cost~~value of ~~group health insurance,~~the deferred compensation plan assets for the three months ended March 31, 2020. Also, costs associated with the Company's medical and ~~a $56~~dental plans increased $29 thousand ~~increase in employee benefit expenses related to the 2006 Non-Qualified Excess Plan.~~between periods.

•Occupancy expense, net. ~~In May 2020, the Company moved forward with the planned closure of two full service branches. These closures were not~~The decrease in occupancy expenses primarily relates to a ~~result of COVID-19~~. One of the branch closures was a leased property with respect to which a loss on the disposal of leasehold improvements of $34 thousand was recorded for the nine months ended September 30, 2020. Property tax expense increased $4 thousand and $65 thousand for the three and nine months ended September 30, 2020, respectively, primarilyreduction in services needed due to the ~~two new full service branches opened in 2019. Also, increases~~closure of ~~$37 thousand in lease expense, and $19 thousand in repairs and maintenance occurred for~~branch lobbies during the ~~three and nine months ended September 30,~~COVID-19 pandemic.

~~Union Bankshares, Inc. Page 37~~

~~2020. These increases in expenses were partially offset by a reduction in depreciation expense of $31 thousand and $26 thousand for the three and nine months ended September 30, 2020.~~

•Equipment expense. Equipment expenses increased ~~during the comparison~~between periods primarily due to increases of ~~$72 thousand and $311 thousand in depreciation expense, $51 thousand and $124~~$69 thousand in software license and maintenance costs, ~~and $27 thousand and $83~~partially offset by a decrease of $14 thousand in ~~equipment rental and service contracts for the three and nine months ended September 30, 2020, respectively, compared to the same periods last year.~~depreciation expense.

•FDIC insurance assessment. ~~Union was awarded a one-time assessment credit of $179 thousand to be utilized to offset the~~The deposit insurance assessment ~~of which $110 thousand was utilized~~base and assessment rate both increased for the three months ended March 31, 2021 compared to the 2020 comparison period, resulting in ~~the third quarter of 2019.~~an increase in expense.

•Other loan related expenses. Other loan related expenses consist of other costs incurred for originating and servicing loans such as insurance and property tax tracking expenses, credit report fees, and other real estate closing costs. These expenses for the three ~~and nine~~ months ended ~~September 30, 2020 have~~March 31, 2021 increased compared to the same ~~periods~~period in ~~2019~~2020 due to the increase in loan volumes throughout the Company's market areas.

•Vermont franchise tax. The ~~Vermont franchise tax~~increase in expense between the comparison periods is ~~determined based on a quarterly tax rate applied~~due to the Company's average balance of Vermont customer deposit balances. The tax rate has remained unchanged throughout the three and nine month comparison periods of 2020 and 2019; however the average balances in Vermont deposit accounts increased for the three and nine months ended September 30, 2020, resulting in an increase in ~~expense.~~average deposit balances for customer accounts allocated to Vermont.

•Advertising and public relations. Advertising and public relations costs decreased for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to the same ~~periods~~period in ~~2019~~2020 due to less advertising and business development activity as a result of the economic disruption caused by COVID-19.

•Electronic banking expenses.Electronic banking expenses increased ~~$6 thousand and $27~~$14 thousand for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 compared to the same periods in ~~2019~~2020 due to changes in services with ATM and debit card service providers.

•~~Printing and supplies.~~ Printing and supplies expense decreased for the comparison periods primarily due to the economic disruption caused by COVID-19. Branch lobbies were closed to customers for approximately two months and several employees were working remotely, resulting in less demand for operational supplies.

•~~Travel and entertainment.~~ Travel and entertainment expenses decreased for the three and nine months ended September 30, 2020 compared to the same periods in 2019 primarily due to the economic disruption caused by COVID-19. The Company suspended business travel and intercompany travel between locations for the majority of the second quarter of 2020 and currently limits employee travel only for essential purposes.

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. The Company's net provision for income taxes was ~~$751~~$541 thousand and ~~$1.6 million~~$356 thousand for the

Union Bankshares, Inc. Page 32

three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared to $477 thousand and $1.4 million for the same periods in 2019,~~ respectively. The Company's effective federal corporate income tax rate was ~~15.8% and 15.1%~~15.2% for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 compared to ~~15.2% and 14.7%~~13.8% for the same ~~periods~~period in ~~2019, respectively.~~2020.

Amortization expense related to limited partnership investments is included as a component of tax expense and amounted to ~~$303 thousand and $679~~$262 thousand for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 and ~~$211 thousand and $534~~$188 thousand for the same ~~periods~~period in ~~2019, respectively.~~2020. 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 ~~$358 thousand and $748~~$241 thousand for the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 and ~~$220 thousand and $554~~$195 thousand for the three ~~and nine~~ months ended ~~September 30, 2019, respectively.~~March 31, 2020.

FINANCIAL CONDITION

At ~~September 30, 2020,~~March 31, 2021, the Company had total consolidated assets of ~~$1.009~~$1.104 billion, including gross loans and loans held for sale (total loans) of ~~$798.9~~$842.5 million, deposits of ~~$910.1 million,~~$1.008 billion, borrowed funds of ~~$9.5~~$7.2 million and stockholders' equity of ~~$78.4~~$79.8 million. The Company’s total assets at ~~September 30, 2020~~March 31, 2021 increased ~~$136.2~~$10.8 million, or ~~15.6%~~1.0%, from ~~$872.9 million~~$1.094 billion at December 31, ~~2019,~~2020, and increased ~~$164.2~~$221.2 million, or ~~19.4%~~25.1%, compared to ~~September 30, 2019.~~March 31, 2020.

Net loans and loans held for sale increased ~~$118.0~~$38.3 million, or ~~17.5%~~4.8%, to ~~$790.6~~$833.3 million, ~~or 78.3%~~representing 75.5% of total assets at ~~September 30, 2020,~~March 31, 2021, compared to ~~$672.6~~$794.9 million, or ~~77.1%~~72.7% of total assets at December 31, ~~2019.~~2020. (See Loans Held for Sale and Loan Portfolio below.)

~~Union Bankshares, Inc. Page 38~~

Total deposits increased ~~$166.1~~$13.6 million, or ~~22.3%~~1.4%, to ~~$910.1 million~~$1.008 billion at ~~September 30, 2020,~~March 31, 2021, from ~~$744.0~~$994.3 million at December 31, ~~2019.~~2020. There were increases in noninterest bearing deposits of ~~$68.1~~$16.7 million, or ~~49.9%~~7.8%, and interest bearing deposits of ~~$104.0~~$11.6 million, or ~~22.7%~~1.8%, which were partially offset by a decrease in time deposits of ~~$6.1~~$14.7 million, or ~~4.1%~~10.4%. (See average balances and rates in the Yields Earned and Rates Paid table on ~~pages 33 and 34.~~page 29.)

Total borrowed funds ~~decreased $37.7 million, or 79.9%, from $47.2~~were $7.2 million at March 31, 2021 and December 31, ~~2019 to $9.5 million at September 30,~~ 2020. (See Borrowings on page ~~44.~~38.)

Total stockholders’ equity ~~increased $6.6~~decreased $1.1 million to ~~$78.4~~$79.8 million at ~~September 30, 2020~~March 31, 2021 from ~~$71.8~~$80.9 million at December 31, ~~2019.~~2020. (See Capital Resources on page ~~45.~~39.)

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased ~~$121.2~~$39.1 million, or ~~17.9%~~4.9%, to ~~$798.9~~$842.5 million, representing ~~79.2%~~76.3% of assets at ~~September 30, 2020,~~March 31, 2021, from ~~$677.7~~$803.4 million, representing ~~77.6%~~73.5% of assets at December 31, ~~2019.~~2020. The total loan portfolio at ~~September 30, 2020~~March 31, 2021 increased ~~$127.4~~$171.0 million compared to the ~~September 30, 2019~~March 31, 2020 level of $671.5 million, representing ~~79.5%~~76.0% 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 ~~$583.4~~$630.0 million, or ~~73.0%~~74.8% of total loans at ~~September 30, 2020~~March 31, 2021 and ~~$559.1~~$593.4 million, or ~~82.5%~~73.9% of total loans at December 31, ~~2019.~~2020. The Company had ~~originated 718~~803 and 679 PPP loans totaling ~~$69.8~~$77.2 million and $66.2 million classified as commercial loans as of ~~September 30, 2020. Changes in the~~March 31, 2021 and December 31, 2020, respectively. The composition of the Company's loan portfolio remained relatively unchanged from December 31, ~~2019~~2020 (see table below) resulted from the increase in the commercial portfolio related to PPP loan originations, an increase in the volume of residential loans originated for sale to the secondary market, a decrease in the outstanding balance of construction loans and an increase in the municipal portfolio.. There was no material change in the Company’s lending programs or terms during the ~~nine~~three months ended ~~September 30, 2020.~~

March 31, 2021.

The composition of the Company's loan portfolio as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was as follows:


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
Loan Class	Loan Class	Amount		Percent	Amount		Percent	Loan Class	Amount		Percent	Amount		Percent
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	182,935	22.9	$	192,125	28.4	Residential real estate	$	206,562	24.5	$	183,166	22.8
Construction real estate	Construction real estate	49,668		6.2	69,617		10.3	Construction real estate	65,470		7.8	57,417		7.1
Commercial real estate	Commercial real estate	317,985		39.8	289,883		42.8	Commercial real estate	317,739		37.7	320,627		39.9
Commercial	Commercial	114,868		14.4	47,699		7.0	Commercial	118,321		14.0	108,861		13.6
Consumer	Consumer	2,833		0.4	3,562		0.5	Consumer	2,532		0.3	2,601		0.3
Municipal	Municipal	97,761		12.2	67,358		9.9	Municipal	91,630		10.9	98,497		12.3
Loans held for sale	Loans held for sale	32,803		4.1	7,442		1.1	Loans held for sale	40,212		4.8	32,188		4.0
Total loans	Total loans	798,853		100.0	677,686		100.0	Total loans	842,466		100.0	803,357		100.0
Allowance for loan losses	Allowance for loan losses	(7,691)			(6,122)			Allowance for loan losses	(8,429)			(8,271)
Unamortized net loan (fees) costs		(536)			1,043
Unamortized net loan fees								Unamortized net loan fees	(765)			(146)
Net loans and loans held for sale	Net loans and loans held for sale	$	790,626		$	672,607		Net loans and loans held for sale	$	833,272		$	794,940

Union Bankshares, Inc. Page 33

The Company originates and sells qualified residential mortgage loans in various secondary market avenues, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At ~~September 30, 2020,~~March 31, 2021, the Company serviced an ~~$802.7~~$827.6 million residential real estate mortgage portfolio, of which ~~$32.8~~$40.2 million was held for sale and approximately ~~$587.0~~$580.9 million of which was serviced for unaffiliated third parties.

During the first ~~nine~~three months of ~~2020,~~2021, the Company sold ~~$187.5~~$29.7 million of qualified residential real estate loans to the secondary market to mitigate long-term interest rate risk and to generate fee income, compared to sales of ~~$101.3~~$42.4 million during the first ~~nine~~three months of ~~2019.~~2020. Residential mortgage loan origination activity ~~was~~continued to be strong during the ~~third~~first quarter of ~~2020, reflecting the~~2021, consisting of both refinancing and purchase activity. Customers continue to refinance existing mortgages in order to obtain lower rates. Despite low ~~interest rate environment resulting from the FOMC target rate reduction beginning in March in response~~housing inventory, purchase activity continues to ~~the COVID-19 emergency.~~ be strong. 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 markets ~~without~~without needing prior HUD underwriting approval. The Company sells FHA, VA and RD loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the loan sales and government guaranty mitigate the Company's exposure to credit risk.

~~Union Bankshares, Inc. Page 39~~

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 ~~$74.1~~$81.1 million guaranteed under these various programs at ~~September 30, 2020~~March 31, 2021 on an aggregate balance of ~~$75.5~~$82.4 million in subject loans. This includes the ~~$69.8~~$77.2 million of PPP loans that are guaranteed 100% by ~~SBA.~~SBA, subject to borrower eligibility requirements. The Company occasionally sells the guaranteed portion of a loan to other financial institutions and retains servicing rights, which generates fee income. There were ~~$131 thousand in commercial loans sold in the first nine months of 2020 and~~ no commercial loans sold in the first ~~nine~~three months of ~~2019.~~2021 and $131 thousand in commercial loans were sold in the first three months of 2020. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.

The Company serviced ~~$24.2~~$20.8 million of commercial and commercial real estate loans for unaffiliated third parties as of ~~September 30, 2020.~~March 31, 2021. This included ~~$22.3~~$19.3 million of commercial or commercial real estate loans the Company had participated out to other financial institutions. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

The Company capitalizes MSRs for all loans sold with servicing retained. The unamortized balance of MSRs on loans sold with servicing retained was $2.1 million at ~~September 30, 2020,~~March 31, 2021, 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.

Qualifying residential first mortgage loans and certain commercial real estate loans with a carrying value of ~~$207.9~~$203.8 million were pledged as collateral for borrowings from the FHLB under a blanket lien at ~~September 30, 2020.~~March 31, 2021.

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. 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. 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.

As a result of the current economic environment caused by the COVID-19 pandemic, numerous industries and individuals have and will continue to experience adverse impacts which may affect our borrowers’ ability to make their loan payments on a timely basis. The Company’s management is focused on the impact ~~that the~~ COVID-19 ~~economic disruption~~ is having on its borrowers and closely monitors industry and geographic concentrations, specifically the impact on the region's tourist and restaurant industries. As a result of the economic disruption including government mandated business shutdowns and curtailed re-openings, the nationwide unemployment rate was reported at 7.9% for September 2020 compared to 3.5% for September 2019. The Vermont unemployment rate was reported at ~~4.2%~~2.9% for ~~September 2020~~March 2021 compared to ~~2.2%~~3.2% for ~~September 2019~~March 2020 and the New Hampshire unemployment rate was ~~6.0%~~3.0% for ~~September 2020~~March 2021 compared to ~~2.5%~~2.6% for ~~September 2019.~~March 2020. These rates compare favorably with the nationwide unemployment rate of 6.0% and 4.4%, respectively, for the comparable periods. Management will continue to monitor the national, regional and local economic environment in relation to ~~the~~ COVID-19 ~~crisis~~ and its impact on unemployment, business outlook and real estate values in the Company’s market area.

Union Bankshares, Inc. Page 34

Repossessed assets, nonaccrual loans, and loans ~~or investments~~ that are 90 days or more past due are considered to be nonperforming assets. The following table shows the composition of nonperforming assets at the dates indicated and trends in certain ratios monitored by the Company's management in reviewing asset quality:


		September 30, 2020			December 31, 2019			September 30, 2019				March 31, 2021			December 31, 2020			March 31, 2020
		(Dollars in thousands)										(Dollars in thousands)
Nonaccrual loans	Nonaccrual loans	$	2,451		$	2,323		$	723		Nonaccrual loans	$	5,878		$	2,410		$	2,209
Accruing loans 90+ days delinquent	Accruing loans 90+ days delinquent	964			1,179			1,232			Accruing loans 90+ days delinquent	263			511			1,722

Total nonperforming loans (1)											Total nonperforming loans (1)	6,141			2,921			3,931
OREO											OREO	—			50			—

Total nonperforming assets ~~(1)~~	Total nonperforming assets ~~(1)~~	$	3,415		$	3,502		$	1,955		Total nonperforming assets ~~(1)~~	$	6,141		$	2,971		$	3,931
ALL to loans not held for sale	ALL to loans not held for sale	1.00		%	0.91		%	0.88		%	ALL to loans not held for sale	1.05		%	1.07		%	0.94		%
ALL to nonperforming loans	ALL to nonperforming loans	225.21		%	174.81		%	297.08		%	ALL to nonperforming loans	137.26		%	283.16		%	162.58		%
Nonperforming loans to total loans	Nonperforming loans to total loans	0.43		%	0.52		%	0.29		%	Nonperforming loans to total loans	0.73		%	0.36		%	0.57		%
Nonperforming assets to total assets	Nonperforming assets to total assets	0.34		%	0.40		%	0.23		%	Nonperforming assets to total assets	0.56		%	0.27		%	0.45		%
Delinquent loans (30 days to nonaccruing) to total loans	Delinquent loans (30 days to nonaccruing) to total loans	0.75		%	1.35		%	0.77		%	Delinquent loans (30 days to nonaccruing) to total loans	1.01		%	0.83		%	1.33		%
Net charge-offs (annualized) to average loans not held for sale	Net charge-offs (annualized) to average loans not held for sale	0.01		%	0.06		%	0.06		%	Net charge-offs (annualized) to average loans not held for sale	—		%	0.01		%	0.02		%

____________________

(1)The Company had guarantees of U.S. or state government agencies on certain of the above nonperforming loans totaling ~~$178~~$168 thousand at ~~September 30, 2020, $286~~March 31, 2021, $177 thousand at December 31, ~~2019,~~2020, and ~~$286~~$92 thousand at ~~September 30, 2019.~~March 31, 2020.

~~Union Bankshares, Inc. Page 40~~

The level of nonaccrual loans increased ~~$128 thousand,~~$3.5 million, or ~~5.5%~~143.9%, since December 31, ~~2019, and accruing~~2020 primarily due to a CRE hospitality relationship that was placed into non-accrual during the first quarter of 2021. Accruing loans delinquent 90 days or more decreased ~~$215~~$248 thousand, or ~~18.2%~~48.5%, during the same time period. There were no loans in process of foreclosure at ~~September 30, 2020. In April 2020, the State of Vermont issued~~March 31, 2021, as a ~~temporary~~state-mandated moratorium on ~~foreclosure actions, which remains in effect until the end of~~foreclosures related to the COVID-19 emergency ~~period.~~remained in effect. The aggregate interest income not recognized on nonaccrual loans approximated ~~$371~~$466 thousand as of ~~September 30, 2020~~March 31, 2021 and ~~$271~~$420 thousand as of December 31, ~~2019.~~2020.

The Company had loans rated substandard that were on performing status totaling ~~$1.6~~$1.7 million at ~~September 30, 2020~~March 31, 2021 compared to ~~$1.7~~$2.2 million at December 31, ~~2019.~~2020. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future.

In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain modifications made into loans to a borrower affected by the COVID-19 pandemic and government shutdown orders would not be considered ~~a TDR~~TDRs under specified circumstances (See Notes 2 and 5). ~~Pursuant to this guidance,~~Through March 31, 2021, the Company had executed ~~short-term~~ modifications under this guidance on outstanding loan balances of ~~$172.1~~$167.2 million that carried accrued interest of ~~$1.7 million as of September 30, 2020.~~$1.1 million. Of the total modifications executed, outstanding loan balances of ~~$39.1~~$28.0 million remained subject to ~~modification~~modified terms and carried accrued interest of ~~$735~~$287 thousand as of ~~September 30, 2020.~~March 31, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.

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. 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,~~March 31, 2021 or March 31, 2020 ~~September 30, 2019 or~~and one residential real estate property valued at $50 thousand classified as OREO at December 31, ~~2019.~~2020 which was sold during the first quarter of 2021.

Allowance for Loan Losses. 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 to absorb such losses. The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the evaluation date; however, actual loan losses may vary from current estimates. The Company's policy and methodologies for establishing the ALL, described in the Company's ~~2019~~2020 Annual Report did not change during the first ~~nine~~three months of ~~2020.~~2021.

~~Due~~

Union Bankshares, Inc. Page 35

Management adjusted certain economic qualitative factors utilized to estimate the ALL during the quarter ended March 31, 2020 at the onset of the COVID-19 pandemic. There were no changes to the ~~economic disruption currently impacting our borrowers, the economic qualitative~~ reserve ~~factor~~factors assigned to ~~each~~any of the loan ~~portfolio in~~portfolios based on the ~~ALL estimate was increased~~qualitative factor reviews performed during the first ~~nine~~three months of 2020 to incorporate the current economic implications and rising unemployment resulting from the COVID-19 pandemic. The economic qualitative reserve factor was increased 25 bps for the construction real estate, commercial real estate and commercial loan portfolios, 15 bps for the residential real estate and consumer loan portfolios and 10 bps for the municipal loan portfolio.2021.

Impaired loans, including ~~$3.1~~$2.8 million of TDR loans, were ~~$5.3~~$7.4 million at ~~September 30, 2020,~~March 31, 2021, with government guaranties of ~~$535~~$489 thousand and a specific reserve amount allocated of ~~$76~~$58 thousand. Impaired loans, including $2.9 million of TDR loans, were ~~$5.2~~$4.6 million at December 31, ~~2019,~~2020, with government guaranties of ~~$587~~$514 thousand and a specific reserve amount allocated of ~~$196~~$58 thousand. Based on management's evaluation of the Company's historical loss experience on substandard commercial loans, commercial loan relationships with aggregate balances greater than $500 thousand are evaluated individually for impairment, 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~~There was no change to the specific reserve amount allocated to individually identified impaired loans ~~decreased $120 thousand~~ as a result of the ~~September 30, 2020~~March 31, 2021 impairment evaluation.

~~Union Bankshares, Inc. Page 41~~

The following table reflects activity in the ALL for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		For the Three Months Ended September 30,				For The Nine Months Ended September 30,					For the Three Months Ended March 31,
		2020		2019		2020		2019			2021		2020
		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	6,888	$	5,676	$	6,122	$	5,739	Balance at beginning of period	$	8,271	$	6,122
Charge-offs	Charge-offs	(3)		(18)		(60)		(291)		Charge-offs	—		(54)
Recoveries	Recoveries	6		—		29		10		Recoveries	8		23
Net charge-offs	Net charge-offs	3		(18)		(31)		(281)		Net charge-offs	8		(31)
Provision for loan losses	Provision for loan losses	800		150		1,600		350		Provision for loan losses	150		300
Balance at end of period	Balance at end of period	$	7,691	$	5,808	$	7,691	$	5,808	Balance at end of period	$	8,429	$	6,391

The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ALL and the percentage of loans in each category to total loans in the respective portfolios at the dates indicated:


		September 30, 2020			December 31, 2019				March 31, 2021			December 31, 2020
		Amount		Percent	Amount		Percent		Amount		Percent	Amount		Percent
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	1,600	23.9	$	1,392	28.7	Residential real estate	$	1,996	25.7	$	1,776	23.8
Construction real estate	Construction real estate	669		6.5	774		10.4	Construction real estate	881		8.2	763		7.4
Commercial real estate	Commercial real estate	4,145		41.5	3,178		43.3	Commercial real estate	4,133		39.6	4,199		41.6
Commercial	Commercial	492		15.0	394		7.1	Commercial	443		14.8	458		14.1
Consumer	Consumer	17		0.4	23		0.5	Consumer	13		0.3	15		0.3
Municipal	Municipal	212		12.7	76		10.0	Municipal	199		11.4	214		12.8
Unallocated	Unallocated	556		—	285		—	Unallocated	764		—	846		—
Total	Total	$	7,691	100.0	$	6,122	100.0	Total	$	8,429	100.0	$	8,271	100.0

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

Management believes, in its best estimate, that the ALL at ~~September 30, 2020~~March 31, 2021 is appropriate to cover probable credit losses inherent in 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 at ~~September 30, 2020.~~March 31, 2021. In addition, our banking regulators, as an integral part of their examination process, periodically review our ALL. Such agencies may require us to recognize adjustments to the ALL based on their judgments about information available to them at the time of their examination. A large adjustment to the ALL for losses in future periods could require increased provisions to replenish the ALL, which could negatively affect earnings.

Investment Activities. During the first ~~nine~~three months of ~~2020,~~2021, investment securities classified as AFS increased ~~$727 thousand~~$36.2 million to ~~$88.1~~$141.9 million, comprising ~~8.7%~~12.9% of total assets, compared to ~~$87.4~~$105.8 million, or ~~10.0%~~9.7% of total assets at December 31, ~~2019.~~2020. Net unrealized gains for the Company’s AFS investment securities portfolio were ~~$3.3 million~~$102 thousand as of ~~September 30, 2020,~~ March 31, 2021,

Union Bankshares, Inc. Page 36

compared to net unrealized gains of ~~$1.2~~$3.3 million as of December 31, ~~2019.~~2020. The Company’s accumulated OCI component of stockholders’ equity at ~~September 30, 2020~~March 31, 2021 reflected cumulative net unrealized gains on investment securities of ~~$2.6 million.~~$81 thousand. There were no securities classified as HTM at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. No declines in value were deemed by management to be OTT at ~~September 30, 2020.~~March 31, 2021. Deterioration in credit quality and/or imbalances in liquidity that may result from changes in financial market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities, and may also increase the potential that unrealized losses will be designated as OTT in future periods, resulting in write-downs and charges to earnings. There were no investment securities pledged as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~

~~Union Bankshares, Inc. Page 42~~

2020.

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, 2020~~March 31, 2021 and ~~2019:~~2020:


		Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019						Three Months Ended March 31, 2021					Three Months Ended March 31, 2020
		Average Amount		Percent of Total Deposits	Average Rate		Average Amount		Percent of Total Deposits	Average Rate			Average Amount		Percent of Total Deposits	Average Rate		Average Amount		Percent of Total Deposits	Average Rate
		(Dollars in thousands)											(Dollars in thousands)
Nontime deposits:	Nontime deposits:											Nontime deposits:
Noninterest bearing deposits	Noninterest bearing deposits	$	167,845	20.5	—		$	127,077	18.4	—		Noninterest bearing deposits	$	221,344	22.1	—		$	135,561	18.4	—
Interest bearing checking accounts	Interest bearing checking accounts	188,286		23.0	0.38	%	157,102		22.7	0.25	%	Interest bearing checking accounts	234,339		23.4	0.25	%	169,513		23.1	0.40	%
Money market accounts	Money market accounts	197,637		24.1	1.05	%	159,386		23.0	1.14	%	Money market accounts	264,499		26.4	0.80	%	176,150		24.0	1.32	%
Savings accounts	Savings accounts	119,105		14.6	0.12	%	105,086		15.2	0.15	%	Savings accounts	148,770		14.8	0.07	%	107,420		14.6	0.15	%
Total nontime deposits	Total nontime deposits	672,873		82.2	0.44	%	548,651		79.3	0.43	%	Total nontime deposits	868,952		86.7	0.32	%	588,644		80.1	0.54	%
Time deposits:	Time deposits:											Time deposits:
Less than $100,000	Less than $100,000	74,643		9.1	1.17	%	74,726		10.8	1.32	%	Less than $100,000	67,423		6.7	0.89	%	75,132		10.2	1.26	%
$100,000 and over	$100,000 and over	70,931		8.7	1.53	%	68,713		9.9	1.81	%	$100,000 and over	66,193		6.6	1.25	%	71,264		9.7	1.62	%
Total time deposits	Total time deposits	145,574		17.8	1.35	%	143,439		20.7	1.55	%	Total time deposits	133,616		13.3	1.06	%	146,396		19.9	1.44	%
Total deposits	Total deposits	$	818,447	100.0	0.60	%	$	692,090	100.0	0.66	%	Total deposits	$	1,002,568	100.0	0.42	%	$	735,040	100.0	0.72	%

During the first ~~nine~~three months of ~~2020,~~2021, average total deposits grew ~~$126.4~~$267.5 million, or ~~18.3%~~36.4%, compared to the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, with growth in all ~~categories.~~categories except time deposits. The increase in average balances was attributable to proceeds from PPP loans deposited into customer accounts at Union, customer's receipt of government stimulus payments, and the general ~~lack of~~reduction in spending by customers due to ~~the economic disruption caused by~~ COVID-19.

The Company participates in CDARS, which permits the Company to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARs deposits as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020. There were ~~$14.1~~$12.2 million of time deposits of $250,000 or less on the balance sheet at ~~September 30, 2020~~March 31, 2021 and ~~$12.0~~$14.2 million at December 31, ~~2019,~~2020, which were exchanged with other CDARS participants.

The Company also participates in the ICS program, a service through which it can offer its customers demand or savings products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage of excess balances, thereby helping the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were ~~$104.2~~$132.7 million and ~~$115.3~~$146.2 million in exchanged ICS demand and money market deposits on the balance sheet at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. There were no purchased ICS deposits at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~

The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 allows the Company to hold reciprocal deposits up to 20 percent of total liabilities without those deposits being treated as brokered for regulatory purposes.2020.

At ~~September 30, 2020,~~March 31, 2021, there were ~~$15.0~~$9.0 million in retail brokered deposits issued under a master certificate of deposit program with a deposit broker for the purpose of providing a supplemental source of funding and liquidity. These deposits will mature in ~~February and~~ May 2021. There were ~~$12.0~~$15.0 million of retail brokered deposits at December 31, ~~2019.~~2020.

Union Bankshares, Inc. Page 37

The following table provides a maturity distribution of the Company’s time deposits in amounts of $100,000 and over at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020 December 31, 2019
(Dollars in thousands)
Within 3 months $ 11,098 $ 27,377
3 to 6 months 22,391 7,351
6 to 12 months 27,055 20,160
Over 12 months 10,150 18,161
$ 70,694 $ 73,049

~~Union Bankshares, Inc. Page 43~~


	March 31, 2021		December 31, 2020
	(Dollars in thousands)
Within 3 months	$	15,988	$	22,722
3 to 6 months	18,338		15,828
6 to 12 months	20,080		22,629
Over 12 months	8,023		9,194
	$	62,429	$	70,373

The Company's time deposits in amounts of $100 thousand and over decreased ~~$2.4~~$7.9 million, or ~~3.2%~~11.3%, between December 31, ~~2019~~2020 and ~~September 30, 2020,~~March 31, 2021, resulting primarily from the maturity, without renewal, of customer time deposits originated ~~during 2019~~in prior periods when promotions were offered.

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, 2020,~~March 31, 2021, the Company had deposit accounts with less than the maximum FDIC insured deposit amount of $250 thousand totaling ~~$646.8~~$704.4 million, or ~~71.1%~~69.9% of total deposits. An additional ~~$20.6~~$22.7 million of municipal deposits were over the FDIC insurance coverage limit at ~~September 30, 2020~~March 31, 2021 and were collateralized under applicable state regulations by letters of credit issued by the FHLB.

Borrowings. ~~Total~~The Company's borrowed funds at ~~September 30,~~March 31, 2021 and December 31, 2020 were ~~$9.5 million compared to $47.2 million at December 31, 2019, a net decrease~~comprised of ~~$37.7 million, or 79.9%. Borrowings~~borrowings from the FHLB ~~were~~of $7.2 million ~~at September 30, 2020,~~ at a weighted average rate of 3.07%~~, compared to $47.2 million at December 31, 2019, at a weighted average rate of 2.01%~~. The decrease in FHLB borrowings reflects the net maturity of $40.0 million in advances during the first nine months of 2020. In anticipation of cash flow needs resulting from COVID-19, $30.0 million in advances were taken at the end of the first quarter of 2020. Due to excess liquidity on hand from customer deposits of PPP loan proceeds and stimulus payments, these advances were prepaid during the second quarter of 2020, resulting in penalties paid of $66 thousand which are included in Other expenses on the Company's unaudited consolidated statement of income for the nine months ended September 30, 2020. Borrowed funds also included $2.3 million from the FRB under the PPPLF at a weighted average rate of 0.35% at September 30, 2020.

The Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the amount of ~~$23.6~~$28.6 million and ~~$24.8~~$23.6 million were utilized as collateral for these deposits at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $7$9 thousand and ~~$23~~$8 thousand for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, and $7 thousand and $21 thousand for the three and nine months ended September 30, 2019,~~ 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.

The following table details the contractual or notional amount of financial instruments that represented credit risk at the balance sheet dates:


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
		(Dollars in thousands)					(Dollars in thousands)
Commitments to originate loans	Commitments to originate loans	$	53,593	$	35,689	Commitments to originate loans	$	59,645	$	61,431
Unused lines of credit	Unused lines of credit	146,143		103,623		Unused lines of credit	136,032		132,502
Standby and commercial letters of credit	Standby and commercial letters of credit	3,113		2,308		Standby and commercial letters of credit	2,609		3,115
Credit card arrangements	Credit card arrangements	306		311		Credit card arrangements	301		308
FHLB Mortgage Partnership Finance credit enhancement obligation, net	FHLB Mortgage Partnership Finance credit enhancement obligation, net	698		687		FHLB Mortgage Partnership Finance credit enhancement obligation, net	782		728

Commitment to purchase investment in a real estate limited partnership						Commitment to purchase investment in a real estate limited partnership	1,780		2,000

Total	Total	$	203,853	$	142,618	Total	$	201,149	$	200,084

Union Bankshares, Inc. Page 38

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

~~Union Bankshares, Inc. Page 44~~

seasonal volume fluctuations due to the nature of some customers' businesses, such as tourism and maple syrup products production. The increase in commitments to originate loans at September 30, 2020 from December 31, 2019 is primarily the result of a $13.0 million increase in commitments to originate residential mortgage loans. The increase in unused lines of credit at September 30, 2020 from December 31, 2019 is primarily related to an increase in lines approved for municipalities in anticipation of future needs due to COVID-19 of $13.8 million and an increase in construction loan availability of $14.6 million.

The Company did not hold any derivative or hedging instruments at ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

In addition to commitments arising from the Company’s financial instruments, in the normal course of business the Company enters into contractual commitments from time to time for the purchase or lease of property, including real property for its banking premises. In March, 2021, the Company entered into a commitment to purchase real property in Shelburne, Vermont for establishment of a future branch office, at a purchase price of $2.2 million. Subject to satisfaction of closing conditions, the purchase is expected to occur during the second quarter of 2021.

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 have been a relatively predictable source of funds; however, payment deferrals approved for borrowers as a result of COVID-19 will delay receipt of contractual payments. 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, 2020,~~March 31, 2021, Union, as a member of FHLB, had access to unused lines of credit up to ~~$101.3~~$93.3 million over and above the ~~$31.7~~$36.8 million in combined ~~outstanding~~FHLB borrowings and other credit subject to collateralization, subject 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, 2020.~~March 31, 2021. There were no borrowings against this line of credit as of such date. Interest on this line is chargeable at a rate determined by the FHLB and payable monthly. Should Union utilize this line of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings.

In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved federal funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, and one-way buy options with CDARS and ICS. In addition to the funding sources available to Union, the Company maintains a $5.0 million revolving line of credit with a correspondent bank. At ~~September 30, 2020,~~March 31, 2021, there were no purchased ICS or CDARS deposits, ~~$15.0~~$9.0 million in retail brokered deposits issued under a master certificate of deposit program with a deposit broker, and no outstanding advances on the Union or Company correspondent lines.

Additionally, during 2020 the FRB ~~authorized~~established the PPPLF, which provides funding to facilitate lending by eligible borrowers to small businesses under the PPP. Under the PPPLF, the FRB lends to banks and other eligible institutional borrowers on a non-recourse basis, taking PPP loans, including purchased loans, as collateral. Union was approved by the FRB to participate in the ~~PPPLF and,~~PPPLF. There were no outstanding advances under this program as of ~~September 30, 2020, had an outstanding advance in the amount of $2.3 million.~~March 31, 2021. Union also has qualifying investment securities that are available to be pledged as collateral to the FRB to have access to the discount window borrowing facility. As of ~~September 30, 2020,~~March 31, 2021, there were no outstanding advances from the discount window.

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. Additional contingent liquidity sources are available with further access to the brokered deposit market. These sources are considered as liquidity alternatives in our contingent liquidity plan. Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. However, any projections of future cash needs and flows are subject to substantial uncertainty, including factors outside the Company's control.

Capital Resources. Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value. Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic

Union Bankshares, Inc. Page 39

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.

Stockholders’ equity ~~increased~~decreased from ~~$71.8~~$80.9 million at December 31, ~~2019~~2020 to ~~$78.4~~$79.8 million at ~~September 30, 2020,~~March 31, 2021, reflecting ~~net income~~a decrease of ~~$9.0 million for the first nine months of 2020, an increase of $1.6~~$2.6 million in accumulated other comprehensive income due to ~~an increase~~a decrease in the fair market value of the Company's AFS securities, cash dividends declared of $1.5 million and stock repurchases of $2 thousand during the three months ended March 31, 2021. These decreases were partially offset by net income of $2.9 million for the first three months of 2021, an increase of ~~$209~~$92 thousand from stock

~~Union Bankshares, Inc. Page 45~~

based compensation, a ~~$22~~$12 thousand increase due to the issuance of ~~1,000~~500 shares of common stock from the exercise of incentive stock options and a ~~$27~~$12 thousand increase due to the issuance of common stock under the DRIP. ~~These increases were partially offset by cash dividends declared of $4.3 million during the nine months ended September 30, 2020.~~ The components of other comprehensive income 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, 2020,~~March 31, 2021, the Company had ~~4,950,430~~4,955,232 shares issued, of which ~~4,475,306~~4,480,954 were outstanding and ~~475,124~~474,278 were held in treasury.

In January ~~2020,~~2021, the Company's Board reauthorized for ~~2020~~2021 the limited stock repurchase plan that was initially established in May of 2010. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter in open market purchases or privately negotiated transactions, as management 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, ~~2020,~~2021, unless reauthorized. The Company ~~had no repurchases~~repurchased 97 shares under this program during the first ~~nine~~three months of ~~2020.~~2021 at a total cost of $2 thousand.

The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and optional cash contributions to purchase additional shares of the Company's common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of ~~September 30, 2020, 3,647~~March 31, 2021, 4,590 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 the current guidelines, banking organizations must have a minimum total risk-based capital ratio of 8.0%, a minimum Tier I risk-based capital ratio of 6.0%, a minimum common equity Tier I risk-based capital ratio of 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, increasing the minimum required total risk-based capital, Tier I risk-based and common equity Tier I capital to risk-weighted assets they must maintain to avoid limits on capital distributions and certain bonus payments to executive officers and similar employees.

The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 directed the federal banking regulators to adopt rules providing for a simplified regulatory capital framework for qualifying community banking organizations. In September 2019, the banking regulators finalized a rule that introduced the community bank leverage ratio (CBLR) framework as an optional simplified measure of capital adequacy for qualifying institutions. Beginning with the March 31, 2020 regulatory capital calculation, a banking organization with a Tier I leverage ratio greater than 9.0%, less than $10 billion in average consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities may opt into the CBLR framework and will be deemed "well capitalized" and will not be required to report or calculate risk-based capital. A community banking organization that does not meet the requirements for use of the simplified CBLR framework will continue to calculate its regulatory capital ratios under existing guidelines. A provision of the CARES Act temporarily lowers the minimum Tier 1 leverage ratio to 8.0% for a banking organization to elect to use the CBLR framework, with a phased increase back to 9.0% by the end of 2021. As of ~~September 30, 2020,~~March 31, 2021, the Tier I leverage ~~ratio was 7.47% and 7.44%~~ratios for the Company and Union were 7.07% and 7.01%, respectively.

Union Bankshares, Inc. Page 40

As shown in the table below, as of ~~September 30, 2020,~~March 31, 2021, both the Company and Union met all capital adequacy requirements to which they are currently 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, 2020~~March 31, 2021 and the date of this report that management believes have changed either Company’s regulatory capital category.

~~Union Bankshares, Inc. Page 46~~


		Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2020		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2021														As of March 31, 2021	Amount		Ratio		Amount		Ratio		Amount		Ratio
		(Dollars in thousands)													(Dollars in thousands)
Company:	Company:													Company:
Total capital to risk weighted assets	Total capital to risk weighted assets	$	80,901	13.65	%	$	48,541	8.00	%	N/A				Total capital to risk weighted assets	$	85,413	13.48	%	$	50,690	8.00	%	N/A
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	73,490		12.40	%	36,413		6.00	%	N/A				Tier I capital to risk weighted assets	77,487		12.23	%	38,015		6.00	%	N/A
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	73,490		12.40	%	27,310		4.50	%	N/A				Common Equity Tier 1 to risk weighted assets	77,487		12.23	%	28,511		4.50	%	N/A
Tier I capital to average assets	Tier I capital to average assets	73,490		7.47	%	39,354		4.00	%	N/A				Tier I capital to average assets	77,487		7.07	%	43,840		4.00	%	N/A

Union:	Union:													Union:
Total capital to risk weighted assets	Total capital to risk weighted assets	$	80,431	13.60	%	$	48,449	8.00	%	$	60,561	10.00	%	Total capital to risk weighted assets	$	84,750	13.40	%	$	50,597	8.00	%	$	63,246	10.00	%
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	73,033		12.35	%	36,337		6.00	%	48,449		8.00	%	Tier I capital to risk weighted assets	76,838		12.15	%	37,945		6.00	%	50,593		8.00	%
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	73,033		12.35	%	27,253		4.50	%	39,365		6.50	%	Common Equity Tier 1 to risk weighted assets	76,838		12.15	%	28,459		4.50	%	41,107		6.50	%
Tier I capital to average assets	Tier I capital to average assets	73,033		7.44	%	39,267		4.00	%	49,084		5.00	%	Tier I capital to average assets	76,838		7.01	%	43,845		4.00	%	54,806		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.

Cash dividends of ~~$0.32~~$0.33 per share were paid during ~~each of~~ the first ~~three quarters~~quarter of ~~2020~~2021 and have been declared for the ~~fourth~~second quarter, payable on ~~November~~May 6, ~~2020~~2021 to stockholders of record on ~~October 31, 2020.~~May 1, 2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Omitted, in accordance with the regulatory relief available to smaller reporting companies in 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, 2020.~~March 31, 2021. 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.

Union Bankshares, Inc. Page 41

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

~~Union Bankshares, Inc. Page 47~~

Item 1A. Risk Factors

There have been no material changes in the ~~Company’s~~ risk factors ~~from those disclosed~~discussed in Part I-Item 1A, "Risk Factors" in the Company’s ~~Annual Report on Form 10-K for~~2020 since the ~~year ended December 31, 2019, with the exception~~date of the ~~following:~~

~~The ongoing COVID-19 pandemic and measures intended to prevent its spread could have a material adverse effect on our business, results~~filing of ~~operations and financial condition, and such effects will depend on future developments, which are highly uncertain and are difficult to predict.~~

Global health concerns relating to the COVID-19 outbreak and related government actions taken to reduce the spread of the virus have been weighing on the macroeconomic environment, and the outbreak has significantly increased economic uncertainty and reduced economic activity, including in our Vermont and New Hampshire markets. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders and business limitations and shutdowns. Such measures have significantly contributed to rising unemployment and negatively impacted consumer and business spending. The United States government has taken steps to attempt to mitigate some of the more severe anticipated economic effects of the virus, including the passage of the CARES Act, but there can be no assurance that ~~such steps will be effective or achieve their desired results in a timely fashion.~~report.

The outbreak has adversely impacted and is likely to further adversely impact our workforce and operations and the operations of our borrowers, customers and business partners. In particular, we may experience financial losses due to a number of operational factors impacting us or our borrowers, customers or business partners, including but not limited to:

•credit losses resulting from financial stress being experienced by our borrowers as a result of the outbreak and related governmental actions, particularly in the hospitality, retail, and restaurant industries, but across other industries as well;

•~~declines in collateral values;~~

•~~negative pressure on our net interest income due to FRB monetary policy in response to the pandemic;~~

•~~third party disruptions, including outages in network providers and other vendors;~~

•the absence of detailed SBA guidance regarding the required terms and documentation for PPP loans, compounded by the compressed timetable for processing of PPP loan applications and funding of such loans, could result in additional credit risk to us if the SBA later determines that our PPP loans do not meet program requirements and therefore do not qualify for the 100% SBA guaranty;

•~~uncertainty regarding the application process for forgiveness of PPP loans;~~

•~~increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online and remote activity; and~~

•~~operational failures due to changes in normal business practices necessitated by the outbreak and related governmental actions.~~

These factors may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition, which includes capital, liquidity, and asset valuations, even after the COVID-19 outbreak has subsided.

The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, and developing work from home and social distancing plans for our employees), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or will otherwise be satisfactory to government authorities.

The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of the virus’s global economic impact, including the availability of credit, adverse impacts on our liquidity and any recession that has occurred or may occur in the future.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material impact on our results of operations and heighten many of our known risks described in the “Risk Factors” section of our 2019 Annual Report on Form 10-K.

~~Union Bankshares, Inc. Page 48~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~During the quarter ended September 30, 2020, the~~The Company did not issue any unregistered ~~equity securities.~~shares during the quarter ended March 31, 2021.

~~There was no repurchase~~The following table summarizes repurchases of the Company's equity securities during the quarter ended ~~September 30, 2020.~~March 31, 2021:



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)
January 2021	—	—	—	2,500
February 2021	97	$25.14	97	2,403
March 2021	—	—	—	—

__________________

(1)All repurchases shown in the table 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. 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 2021. The program will expire on December 31, 2021, unless reauthorized..

Item 6. Exhibits.


3.2			Bylaws of Union Bankshares, Inc. as amended and restated effective March 17, 2021, previously filed with the Commission on March 18, 2021 as Exhibit 99.1 to Form 8-K and incorporated herein by reference.
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, 2020~~March 31, 2021 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ (iii) the unaudited consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ (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 42

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.

~~November 9, 2020~~May 10, 2021						/s/ David S. Silverman
						David S. Silverman
						Director, President and Chief Executive Officer


~~November 9, 2020~~May 10, 2021						/s/ Karyn J. Hale
						Karyn J. Hale
						Chief Financial Officer
						(Principal Financial Officer)

~~Union Bankshares, Inc. Page 49~~

EXHIBIT INDEX


3.2			Bylaws of Union Bankshares, Inc. as amended and restated effective March 17, 2021, previously filed with the Commission on March 18, 2021 as Exhibit 99.1 to Form 8-K and incorporated herein by reference.

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, 2020~~March 31, 2021 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ (iii) the unaudited consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ (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).

____________________

Union Bankshares, Inc. Page 5043


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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.			2825
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			4741
Item 4. Controls and Procedures.			4741

PART II OTHER INFORMATION

Item 1. Legal Proceedings.			4742
Item 1A. Risk Factors.			4742
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			4942
Item 6. Exhibits.			4942

Signatures			4943


	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2020					Nine Months Ended September 30, 2020
	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	2	$	54	$	56		8	$	547	$	549



	New TDRs During the					New TDRs During the
	Three Months Ended September 30, 2019					Nine Months Ended September 30, 2019
	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	0	$	0	$	0	1	$	77	$	79



	Nine Months Ended
	September 30, 2020						September 30, 2019
	Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax (Expense) Benefit		Net-of-Tax Amount
Investment securities available-for-sale:	(Dollars in thousands)
Net unrealized holding gains arising during the period on investment securities available-for-sale	$	2,045	$	(429)	$	1,616	$	2,775	$	(583)	$	2,192
Reclassification adjustment for net gains on investment securities available-for-sale realized in net income	(11)		2		(9)		(8)		2		(6)






Total other comprehensive income	$	2,034	$	(427)	$	1,607	$	2,767	$	(581)	$	2,186



	Three Months Ended September 30,
	2020						2019
	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	$	33,783	$	7	0.08	%	$	8,468	$	19	0.89	%
Interest bearing deposits in banks	9,459		41		1.71	%	7,309		46		2.48	%
Investment securities (1), (2)	85,122		465		2.33	%	82,592		540		2.75	%
Loans, net (1), (3)	797,181		8,803		4.44	%	660,570		8,502		5.17	%
Nonmarketable equity securities	1,150		27		9.34	%	2,739		33		4.75	%
Total interest earning assets (1)	926,695		9,343		4.07	%	761,678		9,140		4.83	%
Cash and due from banks	4,927						5,077
Premises and equipment	20,384						22,142
Other assets	36,597						30,191
Total assets	$	988,603					$	819,088
Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	$	202,751	161		0.31	%	$	163,278	136		0.33	%
Savings/money market accounts	351,455		486		0.55	%	240,176		398		0.66	%
Time deposits	144,071		454		1.26	%	157,868		664		1.67	%
Borrowed funds and other liabilities	9,497		57		2.36	%	49,035		295		2.23	%
Total interest bearing liabilities	707,774		1,158		0.65	%	610,357		1,493		0.96	%
Noninterest bearing deposits	193,145						130,854
Other liabilities	10,517						8,498
Total liabilities	911,436						749,709
Stockholders' equity	77,167						69,379
Total liabilities and stockholders’ equity	$	988,603					$	819,088
Net interest income			$	8,185					$	7,647
Net interest spread (1)					3.42	%					3.87	%
Net interest margin (1)					3.57	%					4.06	%