A[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: ~~June 30, 2021~~March 31, 2022

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.


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 ~~August 2, 2021.~~April 29, 2022.

Common Stock, $2 par value

~~4,484,875~~4,495,672

UNION BANKSHARES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Unaudited)					(Unaudited)
Assets	Assets	(Dollars in thousands)				Assets	(Dollars in thousands)
Cash and due from banks	Cash and due from banks	$	4,952	$	5,413	Cash and due from banks	$	5,047	$	4,659
Federal funds sold and overnight deposits	Federal funds sold and overnight deposits	56,279		117,358		Federal funds sold and overnight deposits	45,755		61,263
Cash and cash equivalents	Cash and cash equivalents	61,231		122,771		Cash and cash equivalents	50,802		65,922
Interest bearing deposits in banks	Interest bearing deposits in banks	12,948		12,699		Interest bearing deposits in banks	14,192		13,196
Investment securities available-for-sale	Investment securities available-for-sale	158,101		105,763		Investment securities available-for-sale	272,151		267,819

Other investments	Other investments	1,174		1,047		Other investments	1,273		1,132
Total investments	Total investments	159,275		106,810		Total investments	273,424		268,951
Loans held for sale	Loans held for sale	42,149		32,188		Loans held for sale	2,349		13,829
Loans	Loans	741,474		771,169		Loans	827,607		787,050
Allowance for loan losses	Allowance for loan losses	(8,505)		(8,271)		Allowance for loan losses	(8,336)		(8,336)
Net deferred loan fees		(578)		(146)
Net deferred loan costs						Net deferred loan costs	1,007		705
Net loans	Net loans	732,391		762,752		Net loans	820,278		779,419

Premises and equipment, net	Premises and equipment, net	21,637		20,039		Premises and equipment, net	21,320		21,615

Company-owned life insurance	Company-owned life insurance	12,778		12,640		Company-owned life insurance	18,192		18,764
Other assets	Other assets	23,728		23,655		Other assets	32,986		23,677
Total assets	Total assets	$	1,066,137	$	1,093,554	Total assets	$	1,233,543	$	1,205,373
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities	Liabilities					Liabilities
Deposits	Deposits					Deposits
Noninterest bearing	Noninterest bearing	$	243,573	$	215,245	Noninterest bearing	$	303,077	$	264,888
Interest bearing	Interest bearing	610,540		637,369		Interest bearing	726,864		723,479
Time	Time	113,567		141,688		Time	104,303		106,715
Total deposits	Total deposits	967,680		994,302		Total deposits	1,134,244		1,095,082
Borrowed funds		7,164		7,164

Subordinated notes						Subordinated notes	16,179		16,171
Accrued interest and other liabilities	Accrued interest and other liabilities	8,926		11,221		Accrued interest and other liabilities	13,703		9,779
Total liabilities	Total liabilities	983,770		1,012,687		Total liabilities	1,164,126		1,121,032
Commitments and Contingencies	Commitments and Contingencies	0				Commitments and Contingencies	0
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,957,884 shares issued at June 30, 2021 and 4,954,732 shares issued at December 31, 2020		9,916		9,910
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,968,692 shares issued at March 31, 2022 and 4,967,093 shares issued at December 31, 2021						Common stock, $2.00 par value; 7,500,000 shares authorized; 4,968,692 shares issued at March 31, 2022 and 4,967,093 shares issued at December 31, 2021	9,937		9,934
Additional paid-in capital	Additional paid-in capital	1,609		1,393		Additional paid-in capital	1,878		1,769
Retained earnings	Retained earnings	74,006		71,097		Retained earnings	79,259		78,350
Treasury stock at cost; 474,011 shares at June 30, 2021 and 474,632 shares at December 31, 2020		(4,165)		(4,169)
Accumulated other comprehensive income		1,001		2,636
Treasury stock at cost; 475,522 shares at March 31, 2022 and 473,438 shares at December 31, 2021						Treasury stock at cost; 475,522 shares at March 31, 2022 and 473,438 shares at December 31, 2021	(4,231)		(4,160)
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(17,426)		(1,552)
Total stockholders' equity	Total stockholders' equity	82,367		80,867		Total stockholders' equity	69,417		84,341
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	1,066,137	$	1,093,554	Total liabilities and stockholders' equity	$	1,233,543	$	1,205,373

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
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands, except per share data)
Interest and dividend income
Interest and fees on loans $ 9,236 $ 8,565 $ 18,121 $ 16,856
Interest on debt securities:
Taxable 456 337 860 724
Tax exempt 154 160 305 317
Dividends 4 26 8 60
Interest on federal funds sold and overnight deposits 14 11 33 64
Interest on interest bearing deposits in banks 34 40 71 81
Total interest and dividend income 9,898 9,139 19,398 18,102
Interest expense
Interest on deposits 924 1,252 1,971 2,561
Interest on borrowed funds 55 109 109 257
Total interest expense 979 1,361 2,080 2,818
    Net interest income 8,919 7,778 17,318 15,284
Provision for loan losses 75 500 225 800
    Net interest income after provision for loan losses 8,844 7,278 17,093 14,484
Noninterest income
Trust income 198 178 383 351
Service fees 1,581 1,284 3,104 2,781
Net gains on sales of investment securities available-for-sale 0 0 0 11
Net gains on sales of loans held for sale 1,151 1,227 2,045 2,039
Net gain on other investments 15 162 59 38
Other income 194 137 169 286
Total noninterest income 3,139 2,988 5,760 5,506
Noninterest expenses
Salaries and wages 3,553 2,829 6,636 5,950
Employee benefits 1,203 1,231 2,372 2,213
Occupancy expense, net 527 477 1,004 991
Equipment expense 872 756 1,670 1,496
Other expenses 2,234 1,818 4,160 3,633
Total noninterest expenses 8,389 7,111 15,842 14,283
        Income before provision for income taxes 3,594 3,155 7,011 5,707
Provision for income taxes 603 487 1,144 843
        Net income $ 2,991 $ 2,668 $ 5,867 $ 4,864
Basic earnings per common share $ 0.67 $ 0.60 $ 1.31 $ 1.09
Diluted earnings per common share $ 0.66 $ 0.59 $ 1.30 $ 1.08
Weighted average number of common shares outstanding 4,482,597 4,474,139 4,481,475 4,473,512
Weighted-average common and potential common shares for diluted EPS 4,511,169 4,491,836 4,506,150 4,490,938
Dividends per common share $ 0.33 $ 0.32 $ 0.66 $ 0.64


	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands, except per share data)
Interest and dividend income
Interest and fees on loans	$	8,474	$	8,885
Interest on debt securities:
Taxable	972		404
Tax exempt	222		151
Dividends	6		4
Interest on federal funds sold and overnight deposits	19		19
Interest on interest bearing deposits in banks	33		37
Total interest and dividend income	9,726		9,500
Interest expense
Interest on deposits	621		1,047
Interest on borrowed funds	—		54
Interest on subordinated notes	142		—
Total interest expense	763		1,101
Net interest income	8,963		8,399
Provision for loan losses	—		150
Net interest income after provision for loan losses	8,963		8,249
Noninterest income
Trust income	209		185
Service fees	1,635		1,523
Net gains on sales of investment securities available-for-sale	26		—
Net gains on sales of loans held for sale	14		894
Net gains on other investments	82		44
Other income (loss)	89		(25)
Total noninterest income	2,055		2,621
Noninterest expenses
Salaries and wages	3,410		3,083
Employee benefits	1,305		1,169
Occupancy expense, net	527		477
Equipment expense	916		798
Other expenses	1,956		1,926
Total noninterest expenses	8,114		7,453
Income before provision for income taxes	2,904		3,417
Provision for income taxes	422		541
Net income	$	2,482	$	2,876
Basic earnings per common share	$	0.55	$	0.64

Weighted average number of common shares outstanding	4,494,871		4,480,339

Dividends per common share	$	0.35	$	0.33

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
June 30, Six Months Ended
June 30,
2021 2020 2021 2020
(Dollars in thousands)
Net income $ 2,991 $ 2,668 $ 5,867 $ 4,864
Other comprehensive income (loss), net of tax:
Investment securities available-for-sale:
Net unrealized holding gains (losses) arising during the period on investment securities available-for-sale 920 656 (1,635) 1,740
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income 0 0 0 (9)
Total other comprehensive income (loss) 920 656 (1,635) 1,731
Total comprehensive income $ 3,911 $ 3,324 $ 4,232 $ 6,595


	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Net income	$	2,482	$	2,876
Other comprehensive loss, net of tax:
Investment securities available-for-sale:
Net unrealized holding losses arising during the period on investment securities available-for-sale	(15,853)		(2,555)
Reclassification adjustment for net gains on sales of investment securities available-for-sale realized in net income	(21)		—





Total other comprehensive loss	(15,874)		(2,555)
Total comprehensive (loss) income	$	(13,392)	$	321

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 June 30, 2021 and 2020
Common Stock Accumulated
other
comprehensive income
Shares,
net of
treasury Amount Additional
paid-in
capital Retained
earnings Treasury
stock Total
stockholders’
equity
(Dollars in thousands, except per share data)
Balances March 31, 2021 4,480,954 $ 9,911 $ 1,504 $ 72,494 $ (4,167) $ 81 $ 79,823
   Net income — — — 2,991 — — 2,991
   Other comprehensive income — — — — — 920 920
   Dividend reinvestment plan 267 — 7 — 2 — 9
   Cash dividends declared
       ($0.33 per share)
— — — (1,479) — — (1,479)
   Stock based compensation expense 2,152 4 87 — — — 91
   Exercise of stock options 500 1 11 — — — 12
Balances, June 30, 2021 4,483,873 $ 9,916 $ 1,609 $ 74,006 $ (4,165) $ 1,001 $ 82,367
Balances March 31, 2020 4,473,200 $ 9,899 $ 1,226 $ 64,783 $ (4,181) $ 2,061 $ 73,788
   Net income — — — 2,668 — — 2,668
   Other comprehensive income — — — — — 656 656
   Dividend reinvestment plan 514 — 7 — 4 — 11
   Cash dividends declared
($0.32 per share)
— — — (1,431) — — (1,431)
   Stock based compensation expense 1,185 2 73 — — — 75
Balances, June 30, 2020 4,474,899 $ 9,901 $ 1,306 $ 66,020 $ (4,177) $ 2,717 $ 75,767


		Six Month Period Ended June 30, 2021 and 2020														Three Month Periods Ended March 31, 2022 and 2021
		Common Stock									Accumulated other comprehensive income					Common Stock									Accumulated other comprehensive (loss) 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, 2021															Balances, December 31, 2021	4,493,655	$	9,934	$	1,769	$	78,350	$	(4,160)	$	(1,552)	$	84,341
Net income															Net income	—	—		—		2,482		—		—		2,482
Other comprehensive loss															Other comprehensive loss	—	—		—		—		—		(15,874)		(15,874)
Dividend reinvestment plan															Dividend reinvestment plan	416	—		9		—		4		—		13
Cash dividends declared ($0.35 per share)															Cash dividends declared ($0.35 per share)	—	—		—		(1,573)		—		—		(1,573)
Stock based compensation expense															Stock based compensation expense	1,599	3		100		—		—		—		103

Purchase of treasury stock															Purchase of treasury stock	(2,500)	—		—		—		(75)		—		(75)
Balances, March 31, 2022															Balances, March 31, 2022	4,493,170	$	9,937	$	1,878	$	79,259	$	(4,231)	$	(17,426)	$	69,417

Balances, December 31, 2020	Balances, December 31, 2020	4,480,100	$	9,910	$	1,393	$	71,097	$	(4,169)	$	2,636	$	80,867	Balances, December 31, 2020	4,480,100	$	9,910	$	1,393	$	71,097	$	(4,169)	$	2,636	$	80,867
Net income	Net income	—	—		—		5,867		—		—		5,867		Net income	—	—		—		2,876		—		—		2,876
Other comprehensive loss	Other comprehensive loss	—	—		—		—		—		(1,635)		(1,635)		Other comprehensive loss	—	—		—		—		—		(2,555)		(2,555)
Dividend reinvestment plan	Dividend reinvestment plan	718	—		15		—		6		—		21		Dividend reinvestment plan	451	—		8		—		4		—		12
Cash dividends declared ($0.66 per share)		—	—		—		(2,958)		—		—		(2,958)
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	2,152	4		179		—		—		—		183		Stock based compensation expense	—	—		92		—		—		—		92
Exercise of stock options	Exercise of stock options	1,000	2		22		—		—		—		24		Exercise of stock options	500	1		11		—		—		—		12
Purchase of treasury stock	Purchase of treasury stock	(97)	—		—		—		(2)		—		(2)		Purchase of treasury stock	(97)	—		—		—		(2)		—		(2)
Balances, June 30, 2021		4,483,873	$	9,916	$	1,609	$	74,006	$	(4,165)	$	1,001	$	82,367

Balances, December 31, 2019		4,471,977	$	9,897	$	1,124	$	64,019	$	(4,183)	$	986	$	71,843
Net income		—	—		—		4,864		—		—		4,864
Other comprehensive income		—	—		—		—		—		1,731		1,731
Dividend reinvestment plan		737	—		13		—		6		—		19
Cash dividends declared ($0.64 per share)		—	—		—		(2,863)		—		—		(2,863)
Stock based compensation expense		1,185	2		149		—		—		—		151
Exercise of stock options		1,000	2		20		—		—		—		22

Balances, June 30, 2020		4,474,899	$	9,901	$	1,306	$	66,020	$	(4,177)	$	2,717	$	75,767
Balances, March 31, 2021															Balances, March 31, 2021	4,480,954	$	9,911	$	1,504	$	72,494	$	(4,167)	$	81	$	79,823

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)


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021
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	$	5,867	$	4,864	Net income	$	2,482	$	2,876
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:						Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation	Depreciation	925		943		Depreciation	459		459
Provision for loan losses	Provision for loan losses	225		800		Provision for loan losses	—		150
Deferred income tax provision	Deferred income tax provision	13		6		Deferred income tax provision	11		14
Net amortization of premiums on investment securities	Net amortization of premiums on investment securities	323		245		Net amortization of premiums on investment securities	160		168
Equity in losses of limited partnerships	Equity in losses of limited partnerships	501		376		Equity in losses of limited partnerships	256		262
Stock based compensation expense	Stock based compensation expense	183		151		Stock based compensation expense	103		92
Net decrease in unamortized loan costs		432		1,864
Net (increase) decrease in unamortized loan costs						Net (increase) decrease in unamortized loan costs	(302)		619
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	87,203		99,950		Proceeds from sales of loans held for sale	16,430		30,574
Origination of loans held for sale	Origination of loans held for sale	(95,119)		(134,019)		Origination of loans held for sale	(4,936)		(37,704)
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	(2,045)		(2,039)		Net gains on sales of loans held for sale	(14)		(894)
Net loss on disposals of premises and equipment		108		0

Net gains on sales of investment securities available-for-sale	Net gains on sales of investment securities available-for-sale	0		(11)		Net gains on sales of investment securities available-for-sale	(26)		—

Net gain on sales of other real estate owned		(11)		0
Net gain on other investments		(59)		(38)
Decrease (increase) in accrued interest receivable		799		(713)
Net gains on sales of other real estate owned						Net gains on sales of other real estate owned	—		(11)
Net gains on other investments						Net gains on other investments	(82)		(44)
Increase in accrued interest receivable						Increase in accrued interest receivable	(49)		(95)
Amortization of core deposit intangible	Amortization of core deposit intangible	71		86		Amortization of core deposit intangible	—		43
Amortization of debt issuance costs						Amortization of debt issuance costs	8		—
Increase in other assets	Increase in other assets	(1,041)		(45)		Increase in other assets	(436)		(412)

(Decrease) increase in other liabilities		(993)		526
Net cash used in operating activities		(2,618)		(27,054)
Increase (decrease) in other liabilities						Increase (decrease) in other liabilities	704		(873)
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	14,768		(4,776)
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	2,490		498		Proceeds from maturities and redemptions	1,992		498
Purchases	Purchases	(2,739)		(3,735)		Purchases	(2,988)		(2,490)

Investment securities available-for-sale	Investment securities available-for-sale					Investment securities available-for-sale
Proceeds from sales	Proceeds from sales	0		3,076		Proceeds from sales	6,827		—
Proceeds from maturities, calls and paydowns	Proceeds from maturities, calls and paydowns	15,656		8,695		Proceeds from maturities, calls and paydowns	7,304		7,310
Purchases	Purchases	(70,387)		(7,851)		Purchases	(38,691)		(46,880)
Net purchases of other investments	Net purchases of other investments	(68)		(63)		Net purchases of other investments	(59)		(41)
Net (increase) decrease in nonmarketable stock		(13)		1,457
Net decrease in nonmarketable stock						Net decrease in nonmarketable stock	276		—

Net decrease (increase) in loans		29,695		(22,471)
Net increase in loans						Net increase in loans	(40,558)		(31,085)
Recoveries of loans charged off	Recoveries of loans charged off	9		23		Recoveries of loans charged off	1		8
Purchases of premises and equipment		(2,631)		(399)
Net purchases of premises and equipment						Net purchases of premises and equipment	(164)		(302)

Investments in limited partnerships	Investments in limited partnerships	(1,458)		(1,658)		Investments in limited partnerships	(1,355)		(700)

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

Net cash used in investing activities	Net cash used in investing activities	(29,385)		(22,428)		Net cash used in investing activities	(67,415)		(73,621)

Union Bankshares, Inc. Page 5


		Six Months Ended June 30,					Three Months Ended March 31,
		2021		2020			2022		2021

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

Net decrease in short-term borrowings outstanding		0		(37,667)

Net increase in noninterest bearing deposits	Net increase in noninterest bearing deposits	28,328		52,307		Net increase in noninterest bearing deposits	38,189		16,747
Net (decrease) increase in interest bearing deposits		(26,829)		25,556
Net increase in interest bearing deposits						Net increase in interest bearing deposits	3,385		11,591
Net decrease in time deposits	Net decrease in time deposits	(28,121)		(2,398)		Net decrease in time deposits	(2,412)		(14,749)
Issuance of common stock		24		22

Exercise of stock options						Exercise of stock options	—		12
Purchase of treasury stock	Purchase of treasury stock	(2)		0		Purchase of treasury stock	(75)		(2)
Dividends paid	Dividends paid	(2,937)		(2,844)		Dividends paid	(1,560)		(1,467)
Net cash (used in) provided by financing activities		(29,537)		34,976
Net cash provided by financing activities						Net cash provided by financing activities	37,527		12,132
Net decrease in cash and cash equivalents	Net decrease in cash and cash equivalents	(61,540)		(14,506)		Net decrease in cash and cash equivalents	(15,120)		(66,265)
Cash and cash equivalents	Cash and cash equivalents					Cash and cash equivalents
Beginning of period	Beginning of period	122,771		51,134		Beginning of period	65,922		122,771
End of period	End of period	$	61,231	$	36,628	End of period	$	50,802	$	56,506
Supplemental Disclosures of Cash Flow Information	Supplemental Disclosures of Cash Flow Information					Supplemental Disclosures of Cash Flow Information
Interest paid	Interest paid	$	2,122	$	3,326	Interest paid	$	911	$	1,122
Income taxes paid		$	1,300	$	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	$	0	$	2,722	Investment in limited partnerships acquired by capital contributions payable	$	3,494	$	—

Dividends paid on Common Stock:	Dividends paid on Common Stock:					Dividends paid on Common Stock:
Dividends declared	Dividends declared	$	2,958	$	2,863	Dividends declared	$	1,573	$	1,479
Dividends reinvested	Dividends reinvested	(21)		(19)		Dividends reinvested	(13)		(12)
		$	2,937	$	2,844		$	1,560	$	1,467

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 ~~June 30, 2021,~~March 31, 2022, and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ 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, ~~2020 (2020~~2021, as amended by Amendment No. 1 on Form 10-K/A (2021 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 ~~2020~~2021 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, ~~2021,~~2022, 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 2020 consolidated financial statements have been reclassified to conform to the 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	ICS:	Insured Cash Sweeps of the Promontory Interfinancial Network
ALCO:	Asset Liability Committee	IRS:	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
Board:	Board of Directors	OCI:	Other comprehensive income (loss)
bp or bps:	Basis point(s)	OFAC:	U.S. Office of Foreign Assets Control
CARES Act:	Coronavirus Aid, Relief and Economic Security Act	OREO:	Other real estate owned
CDARS:	Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network	OTTI:	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
DRIP:	Dividend Reinvestment Plan	RD:	USDA Rural Development
FASB:	Financial Accounting Standards Board	RSU:	Restricted Stock Unit
FDIC:	Federal Deposit Insurance Corporation	SBA:	U.S. Small Business Administration
FHA:	U.S. Federal Housing Administration	SEC:	U.S. Securities and Exchange Commission
FHLB:	Federal Home Loan Bank of Boston	TDR:	Troubled-debt restructuring
FRB:	Federal Reserve Board	Union:	Union Bank, the sole subsidiary of Union Bankshares, Inc
FHLMC/Freddie Mac:	Federal Home Loan Mortgage Corporation	USDA:	U.S. Department of Agriculture
GAAP:	Generally Accepted Accounting Principles in the United States	VA:	U.S. Veterans Administration
HTM:	Held-to-maturity	2014 Equity Plan:	2014 Equity Incentive Plan
HUD:	U.S. Department of Housing and Urban Development	~~2020~~2021 Annual Report	Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021, as amended by Amendment No. 1 on Form 10-K/A

~~Note 2. Risks and Uncertainties~~

Significant progress has been made to combat the outbreak of COVID-19; however, the global pandemic has adversely impacted a broad range of industries in which the Company's customers operate and could still impair their ability to fulfill their financial obligations to the Company. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While it appears that health and economic conditions are trending in a positive direction as of June 30, 2021, a resurgence in the virus or its variants could have an adverse effect on the Company's business, financial condition, results of operations and cash flows. While it is not possible to know the full impact COVID-19, and any potential measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic 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 curb the economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the PPP. During December 2020, many provisions of the CARES Act 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 in March 2021. This package builds upon many of the measures in the CARES Act and is intended to speed up the recovery from the economic and health effects of COVID-19.

Union Bankshares, Inc. Page 87

~~Financial position and results of operations~~

The Company has not yet experienced any charge-offs related to COVID-19. See Note 8. Should economic conditions worsen as a result of a resurgence of the virus or its variants and resulting measures to 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 June 30, 2021. It is possible that asset quality measures could worsen at future measurement periods if a resurgence of COVID-19 progresses.

Through June 30, 2021, the Company had executed modifications on outstanding loan balances of $159.1 million that carried accrued interest of $946 thousand. Of the total modifications executed, at June 30, 2021 outstanding loan balances of $2.0 million remained subject to modified terms and carried accrued interest of $78 thousand.

~~Capital and liquidity~~

As of June 30, 2021, all of the Company's and Union's capital ratios were in excess of all regulatory requirements. While the Company believes it has sufficient capital to withstand a double-dip economic recession brought about by a resurgence in COVID-19, the reported and regulatory capital ratios could be adversely impacted by further credit 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 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.

~~Asset valuation~~

COVID-19 has not affected the Company's ability to account timely for the assets on the balance sheet; however, a resurgence of COVID-19 could cause this to change in future periods. 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 June 30, 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’s preparedness efforts, coupled with quick and decisive plan implementation, has resulted in minimal impacts to operations as a result of COVID-19. At June 30, 2021, several employees have returned to banking facilities while some continue to work remotely. The Company has not experienced any disruption to its operations. The Company has not incurred additional material cost related to the remote working strategy to date, nor are material costs anticipated in future periods.

As of June 30, 2021, management does not anticipate significant challenges to its ability to maintain the systems and controls and does not currently face any material resource constraint through the implementation of our business continuity plans.

~~Lending operations and accommodations to borrowers~~

Union continued to work with borrowers during the unprecedented situation caused by COVID-19 and as allowed under the CARES Act, executed a payment deferral program for its customers that were adversely affected by COVID-19. Depending on the demonstrated need of the customer, the Company either deferred the full loan payment or the principal component of the loan payment for up to 180 days for the majority of the deferral requests. The Company had executed 334 of these deferrals on outstanding loan balances of $159.1 million as of June 30, 2021. Of the total deferrals executed, 17 remained in effect on outstanding loan balances of $2.0 million as of June 30, 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 TDRs. In August 2020, the federal banking regulators issued supplemental guidance for working with borrowers as their loans near the end of their accommodation period. It is possible that in spite of our best efforts to assist our borrowers and achieve full collection of our

~~Union Bankshares, Inc. Page 9~~

~~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.

Note 3.2. Legal Contingencies

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

Note 4.3. 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 ~~following table presents the reconciliation between the calculation~~dilutive effect of ~~basic EPS and diluted EPS~~outstanding stock-based awards, consisting of RSUs with respect to 11,893 shares for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022, and ~~2020:~~

For the Three Months
Ended June 30, For the Six Months
Ended June 30,
2021 2020 2021 2020
(Dollars in thousands, except per share data)
Net income $ 2,991 $ 2,668 $ 5,867 $ 4,864
Weighted average common shares outstanding for basic EPS 4,482,597 4,474,139 4,481,475 4,473,512
Dilutive effect of stock-based awards 28,572 17,697 24,675 17,426
Weighted-average common and potential common shares for diluted EPS 4,511,169 4,491,836 4,506,150 4,490,938
Earnings per common share:
Basic EPS $ 0.67 $ 0.60 $ 1.31 $ 1.09
Diluted EPS $ 0.66 $ 0.59 $ 1.30 $ 1.08

~~____________________~~

~~(1)Dilutive effect of stock based awards represents the effect of the assumed exercise of~~both RSUs and stock options with respect to 17,697 shares for the same period last year, did not result in material dilution and ~~vesting of restricted stock units. Unvested awards do~~is not ~~have dividend or dividend equivalent rights.~~included in the calculation.

Note 5.4. 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 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. The Company did not choose to early adopt the ASU. As the Company is a smaller reporting company, the ~~delay is applicable to~~ASU will become effective for the Company ~~and~~beginning with the ~~Company does not intend to early adopt the ASU at this time.~~2023 fiscal year. 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~~In addition, the Company is conducting parallel calculations under the existing incurred loss model and the CECL model throughout 2022. The measures will facilitate the eventual implementation process and management's evaluation of the potential impact of the ASU on the Company's consolidated financial statements.

~~Union Bankshares, Inc. Page 10~~

In March 2020, the FASB issued ASU No. 2020-04,

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The transition away from LIBOR is not expected to have a material impact on the Company's consolidated financial statements.

In March ~~2020, various financial institution regulatory agencies, including~~2022, the ~~FRB and the FDIC (“the agencies”),~~FASB 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 ASCASU No. ~~310-40,~~2022-02, ~~Receivables –~~Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures which eliminates the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan refinancings and restructurings by ~~Creditors~~,creditors when a ~~restructuring~~borrower is experiencing financial difficulty. The ASU also requires disclosure of ~~debt constitutes a TDR if the creditor,~~current period charge offs by year of origination 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 areloans and leases. ASU No. 2022-02 is effective for fiscal years, and interim periods within 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 and consumer protection principles for financial institutions to consider while working with borrowers near the end of their initial loan accommodation period. The interagency guidancefiscal years, beginning after December 15, 2022. ASU No. 2022-02 is not expected to have a material impact on the Company’s consolidated financial statements.

Union Bankshares, Inc. Page 8

Note 6.5. Investment Securities

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


June 30, 2021		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
March 31, 2022										March 31, 2022	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	17,887	$	122	$	(184)	$	17,825	U.S. Government-sponsored enterprises	$	45,993	$	—	$	(2,683)	$	43,310
Agency mortgage-backed	Agency mortgage-backed	103,236		913		(1,500)		102,649		Agency mortgage-backed	197,776		38		(16,214)		181,600
State and political subdivisions	State and political subdivisions	27,887		1,394		0		29,281		State and political subdivisions	43,611		148		(3,427)		40,332
Corporate	Corporate	7,824		541		(19)		8,346		Corporate	6,829		114		(34)		6,909
Total	Total	$	156,834	$	2,970	$	(1,703)	$	158,101	Total	$	294,209	$	300	$	(22,358)	$	272,151


December 31, 2020		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2021										December 31, 2021	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
		(Dollars in thousands)									(Dollars in thousands)

U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,462	$	137	$	(51)	$	6,548	U.S. Government-sponsored enterprises	$	37,176	$	55	$	(593)	$	36,638
Agency mortgage-backed	Agency mortgage-backed	61,123		1,307		(78)		62,352		Agency mortgage-backed	181,216		574		(3,540)		178,250
State and political subdivisions	State and political subdivisions	27,025		1,439		(3)		28,461		State and political subdivisions	44,068		1,293		(107)		45,254
Corporate	Corporate	7,817		660		(75)		8,402		Corporate	7,323		381		(27)		7,677
Total	Total	$	102,427	$	3,543	$	(207)	$	105,763	Total	$	269,783	$	2,303	$	(4,267)	$	267,819

There were 0no investment securities HTM at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020. There~~2021. Investment securities AFS with a carrying amount of $551 thousand and $589 thousand were ~~0 investment securities~~ pledged as collateral for public unit deposits or for other purposes as required or permitted by law at ~~June 30, 2021 or~~March 31, 2022 and December 31, ~~2020.~~2021, respectively.

~~Union Bankshares, Inc. Page 11~~

The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of ~~June 30, 2021~~March 31, 2022 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 from one to five years	Due from one to five years	$	6,457	$	6,814	Due from one to five years	$	10,246	$	10,008
Due from five to ten years	Due from five to ten years	26,179		26,749		Due from five to ten years	39,883		37,834
Due after ten years	Due after ten years	20,962		21,889		Due after ten years	46,304		42,709
		53,598		55,452			96,433		90,551
Agency mortgage-backed	Agency mortgage-backed	103,236		102,649		Agency mortgage-backed	197,776		181,600
Total debt securities available-for-sale	Total debt securities available-for-sale	$	156,834	$	158,101	Total debt securities available-for-sale	$	294,209	$	272,151

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 9

Information pertaining to all 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:


June 30, 2021		Less Than 12 Months					12 Months and over					Total
March 31, 2022																	March 31, 2022	Less Than 12 Months					12 Months and over					Total
		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses		Number of Securities	Fair Value		Gross Unrealized Losses			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)																(Dollars in thousands)

U.S. Government- sponsored enterprises	U.S. Government- sponsored enterprises	16	$	13,362	$	(159)	6	$	795	$	(25)	22	$	14,157	$	(184)	U.S. Government- sponsored enterprises	26	$	38,477	$	(2,146)	10	$	4,833	$	(537)	36	$	43,310	$	(2,683)
Agency mortgage-backed	Agency mortgage-backed	35	77,624		(1,498)		2	130		(2)		37	77,754		(1,500)		Agency mortgage-backed	61	132,852		(10,717)		25	44,787		(5,497)		86	177,639		(16,214)

State and political subdivisions																	State and political subdivisions	56	34,049		(3,427)		—	—		—		56	34,049		(3,427)
Corporate	Corporate	0	0		0		2	981		(19)		2	981		(19)		Corporate	4	1,980		(20)		1	486		(14)		5	2,466		(34)

Total	Total	51	$	90,986	$	(1,657)	10	$	1,906	$	(46)	61	$	92,892	$	(1,703)	Total	147	$	207,358	$	(16,310)	36	$	50,106	$	(6,048)	183	$	257,464	$	(22,358)


December 31, 2020		Less Than 12 Months					12 Months and over					Total
December 31, 2021																	December 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			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)																(Dollars in thousands)

U.S. Government- sponsored enterprises	U.S. Government- sponsored enterprises	15	$	2,005	$	(16)	8	$	1,661	$	(35)	23	$	3,666	$	(51)	U.S. Government- sponsored enterprises	18	$	29,754	$	(464)	14	$	3,885	$	(129)	32	$	33,639	$	(593)
Agency mortgage-backed	Agency mortgage-backed	19	21,698		(78)		0	0		0		19	21,698		(78)		Agency mortgage-backed	41	130,742		(2,252)		17	32,955		(1,288)		58	163,697		(3,540)
State and political subdivisions	State and political subdivisions	1	575		(3)		0	0		0		1	575		(3)		State and political subdivisions	17	17,483		(107)		—	—		—		17	17,483		(107)
Corporate	Corporate	0	0		0		3	1,424		(75)		3	1,424		(75)		Corporate	2	985		(15)		1	488		(12)		3	1,473		(27)

Total	Total	35	$	24,278	$	(97)	11	$	3,085	$	(110)	46	$	27,363	$	(207)	Total	78	$	178,964	$	(2,838)	32	$	37,328	$	(1,429)	110	$	216,292	$	(4,267)

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.

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.

~~Union Bankshares, Inc. Page 12~~

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 for the foreseeable future. The decline in value is the result of market conditions and not attributable to credit quality in the investment securities and 0no declines were deemed by management to be OTT.

~~There were 0 sales of AFS securities during the three and six months ended June 30, 2021 or the three months ended June 30, 2020.~~

Union Bankshares, Inc. Page 10

The following table presents the proceeds, gross realized gains and gross realized losses from the sales of AFS securities for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2022:



	For The ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2022

				(Dollars in thousands)
Proceeds		$	~~3,076~~6,827

Gross gains	76		32
Gross losses	(50)		~~(21)~~
Net gains on sales of investment securities AFS		$	1126

There were no sales of AFS securities during the three months ended March 31, 2021.

Note 7.6. Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL, 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.

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.

~~Union Bankshares, Inc. Page 13~~

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Residential real estate	Residential real estate	$	216,025	$	183,166	Residential real estate	$	282,662	$	246,827
Construction real estate	Construction real estate	75,110		57,417		Construction real estate	68,730		65,149
Commercial real estate	Commercial real estate	316,943		320,627		Commercial real estate	348,378		344,816
Commercial	Commercial	98,220		108,861		Commercial	44,808		49,788
Consumer	Consumer	2,638		2,601		Consumer	2,241		2,376
Municipal	Municipal	32,538		98,497		Municipal	80,788		78,094
Gross loans	Gross loans	741,474		771,169		Gross loans	827,607		787,050
Allowance for loan losses	Allowance for loan losses	(8,505)		(8,271)		Allowance for loan losses	(8,336)		(8,336)
Net deferred loan fees		(578)		(146)
Net deferred loan costs						Net deferred loan costs	1,007		705
Net loans	Net loans	$	732,391	$	762,752	Net loans	$	820,278	$	779,419

There were ~~637~~80 and ~~679~~154 PPP loans totaling ~~$57.3~~$6.8 million and ~~$66.2~~$13.6 million classified as commercial loans as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. ~~Origination fees received from the SBA on these PPP loans totaled $2.5 million and $2.4 million at June 30, 2021~~As of March 31, 2022 and December 31, ~~2020,~~2021, remaining PPP deferred origination fees of $271 thousand and $558 thousand, respectively, ~~and~~ will be amortized into interest income over the ~~respective~~ lives of the respective loans.

Union Bankshares, Inc. Page 11

PPP loan origination fees of ~~$715~~$287 thousand and ~~$1.4 million~~$668 thousand were recognized in earnings during the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, and $234 thousand was recognized during the three and six months ended June 30, 2020.~~respectively.

Qualifying residential first mortgage loans and certain commercial real estate loans with an aggregate carrying value of ~~$215.7~~$172.5 million and ~~$210.0~~$224.4 million were pledged as collateral for borrowings from the FHLB under a blanket lien at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

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


June 30, 2021		Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
March 31, 2022														March 31, 2022	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	$	214,341	$	513	$	0	$	176	$	995	$	216,025	Residential real estate	$	281,011	$	1,361	$	88	$	80	$	122	$	282,662
Construction real estate	Construction real estate	74,914		0		50		0		146		75,110		Construction real estate	68,550		45		—		—		135		68,730
Commercial real estate	Commercial real estate	312,283		49		0		0		4,611		316,943		Commercial real estate	344,137		93		—		—		4,148		348,378
Commercial	Commercial	98,220		0		0		0		0		98,220		Commercial	44,644		13		2		149		—		44,808
Consumer	Consumer	2,638		0		0		0		0		2,638		Consumer	2,223		18		—		—		—		2,241
Municipal	Municipal	32,538		0		0		0		0		32,538		Municipal	80,788		—		—		—		—		80,788
Total	Total	$	734,934	$	562	$	50	$	176	$	5,752	$	741,474	Total	$	821,353	$	1,530	$	90	$	229	$	4,405	$	827,607


December 31, 2020		Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
December 31, 2021														December 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	$	179,794	$	2,166	$	211	$	368	$	627	$	183,166	Residential real estate	$	245,169	$	1,328	$	130	$	53	$	147	$	246,827
Construction real estate	Construction real estate	57,116		70		67		143		21		57,417		Construction real estate	64,939		72		—		—		138		65,149
Commercial real estate	Commercial real estate	317,748		1,130		0		0		1,749		320,627		Commercial real estate	340,209		242		—		—		4,365		344,816
Commercial	Commercial	108,749		99		0		0		13		108,861		Commercial	49,699		36		8		45		—		49,788
Consumer	Consumer	2,595		6		0		0		0		2,601		Consumer	2,376		—		—		—		—		2,376
Municipal	Municipal	98,497		0		0		0		0		98,497		Municipal	78,094		—		—		—		—		78,094
Total	Total	$	764,499	$	3,471	$	278	$	511	$	2,410	$	771,169	Total	$	780,486	$	1,678	$	138	$	98	$	4,650	$	787,050

There was 1 residential real estate loan totaling ~~$47~~$118 thousand in process of foreclosure at ~~June 30, 2021~~March 31, 2022 and 0no loans in process of foreclosure at December 31, ~~2020. A moratorium on residential mortgage foreclosures instituted by the State of~~

~~Union Bankshares, Inc. Page 14~~

~~Vermont in April 2020 related to the COVID-19 pandemic was lifted effective July 15,~~ 2021. Aggregate interest on nonaccrual loans not recognized was ~~$414~~$527 thousand as of ~~June 30, 2021~~March 31, 2022 and ~~$420~~$504 thousand as of December 31, ~~2020.~~2021.

Note 8.7. 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 ~~second~~first quarter of ~~2021.~~2022. 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.

Union Bankshares, Inc. Page 12

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 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 15~~

•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.

Management increased certain economic qualitative factors utilized to estimate the ALL during 2020 at the onset of the COVID-19 pandemic. During 2021, the economic qualitative reserve factor assigned to each loan portfolio in the ALL estimate was decreased due to continued indications of economic improvement. COVID-19 restrictions were lifted in June 2021 and the majority of borrowers that had executed loan modifications due to COVID-19 were no longer subject to modified terms. Based on these continued improving economic trends, the economic qualitative reserve factor assigned to all loan portfolios, except the municipal loan portfolio, was decreased 5 bps during the first quarter of 2022.

Union Bankshares, Inc. Page 13

An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

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

Changes in the ALL, by class of loans, for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ were as follows:


For The Three Months Ended June 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
For The Three Months Ended March 31, 2022																		For The Three Months Ended March 31, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Balance, March 31, 2021		$	1,996	$	881	$	4,133	$	443	$	13	$	199	$	764	$	8,429
Balance, December 31, 2021																		Balance, December 31, 2021	$	2,068	$	837	$	4,122	$	275	$	11	$	86	$	937	$	8,336
Provision (credit) for loan losses	Provision (credit) for loan losses	86		143		(22)		(18)		(2)		(118)		6		75		Provision (credit) for loan losses	156		6		(125)		14		(1)		2		(52)		—
Recoveries of amounts charged off	Recoveries of amounts charged off	0		0		0		0		1		0		0		1		Recoveries of amounts charged off	—		—		—		—		1		—		—		1
		2,082		1,024		4,111		425		12		81		770		8,505			2,224		843		3,997		289		11		88		885		8,337
Amounts charged off	Amounts charged off	0		0		0		0		0		0		0		0		Amounts charged off	—		—		—		—		(1)		—		—		(1)
Balance, June 30, 2021		$	2,082	$	1,024	$	4,111	$	425	$	12	$	81	$	770	$	8,505
Balance, March 31, 2022																		Balance, March 31, 2022	$	2,224	$	843	$	3,997	$	289	$	10	$	88	$	885	$	8,336


For The Three Months Ended June 30, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
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)																	(Dollars in thousands)
Balance, March 31, 2020		$	1,513	$	622	$	3,459	$	407	$	23	$	85	$	282	$	6,391
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	77		(28)		373		84		3		(6)		(3)		500		Provision (credit) for loan losses	212		118		(66)		(15)		(2)		(15)		(82)		150
Recoveries of amounts charged off	Recoveries of amounts charged off	0		0		0		0		0		0		0		0		Recoveries of amounts charged off	8		—		—		—		—		—		—		8
		1,590		594		3,832		491		26		79		279		6,891			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	—		—		—		—		—		—		—		—
Balance, June 30, 2020		$	1,590	$	594	$	3,832	$	491	$	23	$	79	$	279	$	6,888
Balance, March 31, 2021																		Balance, March 31, 2021	$	1,996	$	881	$	4,133	$	443	$	13	$	199	$	764	$	8,429

~~Union Bankshares, Inc. Page 16~~

For The Six Months Ended June 30, 2021 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Unallocated Total
(Dollars in thousands)
Balance, December 31, 2020 $ 1,776 $ 763 $ 4,199 $ 458 $ 15 $ 214 $ 846 $ 8,271
Provision (credit) for loan
losses 298 261 (88) (33) (4) (133) (76) 225
Recoveries of amounts
charged off 8 0 0 0 1 0 0 9
2,082 1,024 4,111 425 12 81 770 8,505
Amounts charged off 0 0 0 0 0 0 0 0
Balance, June 30, 2021 $ 2,082 $ 1,024 $ 4,111 $ 425 $ 12 $ 81 $ 770 $ 8,505

For The Six Months Ended June 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 175 (180) 708 97 3 3 (6) 800
Recoveries of amounts
charged off 23 0 0 0 0 0 0 23
1,590 594 3,886 491 26 79 279 6,945
Amounts charged off 0 0 (54) 0 (3) 0 0 (57)
Balance, June 30, 2020 $ 1,590 $ 594 $ 3,832 $ 491 $ 23 $ 79 $ 279 $ 6,888

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:


June 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
March 31, 2022																		March 31, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	28	$	0	$	30	$	0	$	0	$	0	$	0	$	58	Individually evaluated for impairment	$	24	$	—	$	20	$	—	$	—	$	—	$	—	$	44
Collectively evaluated for impairment	Collectively evaluated for impairment	2,054		1,024		4,081		425		12		81		770		8,447		Collectively evaluated for impairment	2,200		843		3,977		289		10		88		885		8,292
Total allocated	Total allocated	$	2,082	$	1,024	$	4,111	$	425	$	12	$	81	$	770	$	8,505	Total allocated	$	2,224	$	843	$	3,997	$	289	$	10	$	88	$	885	$	8,336


December 31, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
December 31, 2021																		December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
		(Dollars in thousands)																	(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	30	$	0	$	21	$	7	$	0	$	0	$	0	$	58	Individually evaluated for impairment	$	26	$	—	$	20	$	—	$	—	$	—	$	—	$	46
Collectively evaluated for impairment	Collectively evaluated for impairment	1,746		763		4,178		451		15		214		846		8,213		Collectively evaluated for impairment	2,042		837		4,102		275		11		86		937		8,290
Total allocated	Total allocated	$	1,776	$	763	$	4,199	$	458	$	15	$	214	$	846	$	8,271	Total allocated	$	2,068	$	837	$	4,122	$	275	$	11	$	86	$	937	$	8,336

Union Bankshares, Inc. Page 14

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:


June 30, 2021		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
March 31, 2022																March 31, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
		(Dollars in thousands)															(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	1,691	$	208	$	5,266	$	12	$	0	$	0	$	7,177	Individually evaluated for impairment	$	1,728	$	193	$	4,601	$	8	$	—	$	—	$	6,530
Collectively evaluated for impairment	Collectively evaluated for impairment	214,334		74,902		311,677		98,208		2,638		32,538		734,297		Collectively evaluated for impairment	280,934		68,537		343,777		44,800		2,241		80,788		821,077

Total	Total	$	216,025	$	75,110	$	316,943	$	98,220	$	2,638	$	32,538	$	741,474	Total	$	282,662	$	68,730	$	348,378	$	44,808	$	2,241	$	80,788	$	827,607

~~Union Bankshares, Inc. Page 17~~


December 31, 2020		Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
December 31, 2021																December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
		(Dollars in thousands)															(Dollars in thousands)
Individually evaluated for impairment	Individually evaluated for impairment	$	1,782	$	210	$	2,422	$	207	$	0	$	0	$	4,621	Individually evaluated for impairment	$	1,750	$	198	$	4,819	$	9	$	—	$	—	$	6,776
Collectively evaluated for impairment	Collectively evaluated for impairment	181,384		57,207		318,205		108,654		2,601		98,497		766,548		Collectively evaluated for impairment	245,077		64,951		339,997		49,779		2,376		78,094		780,274

Total	Total	$	183,166	$	57,417	$	320,627	$	108,861	$	2,601	$	98,497	$	771,169	Total	$	246,827	$	65,149	$	344,816	$	49,788	$	2,376	$	78,094	$	787,050

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.

4-4.5 Rating - Satisfactory/Monitor

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

5-7 Rating - Substandard

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

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

June 30, 2021 Residential Real Estate Construction Real Estate Commercial Real Estate Commercial Consumer Municipal Total
(Dollars in thousands)
Pass $ 195,730 $ 49,882 $ 167,889 $ 88,819 $ 2,631 $ 32,538 $ 537,489
Satisfactory/Monitor 17,064 25,020 142,936 9,301 7 0 194,328
Substandard 3,231 208 6,118 100 0 0 9,657
Total $ 216,025 $ 75,110 $ 316,943 $ 98,220 $ 2,638 $ 32,538 $ 741,474

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 — 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


March 31, 2022	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	263,222	$	39,536	$	214,846	$	40,217	$	2,236	$	80,788	$	640,845
Satisfactory/Monitor	17,115		29,001		128,492		4,524		5		—		179,137
Substandard	2,325		193		5,040		67		—		—		7,625


Total	$	282,662	$	68,730	$	348,378	$	44,808	$	2,241	$	80,788	$	827,607

Union Bankshares, Inc. Page 1815


December 31, 2021	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	227,684	$	39,135	$	191,902	$	45,407	$	2,371	$	78,094	$	584,593
Satisfactory/Monitor	16,820		25,816		147,645		4,301		5		—		194,587
Substandard	2,323		198		5,269		80		—		—		7,870


Total	$	246,827	$	65,149	$	344,816	$	49,788	$	2,376	$	78,094	$	787,050

The following tables provide information with respect to impaired loans by class of loan as of and for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020:~~March 31, 2021:


		As of June 30, 2021						For The Three Months Ended June 30, 2021				For the Six Months Ended June 30, 2021					As of March 31, 2022						For The Three Months Ended March 31, 2022
		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	$	203	$	213	$	28									Residential real estate	$	197	$	207	$	24

Commercial real estate	Commercial real estate	1,612		1,769		30										Commercial real estate	1,587		1,762		20

With an allowance recorded	With an allowance recorded	1,815		1,982		58										With an allowance recorded	1,784		1,969		44

Residential real estate	Residential real estate	1,488		2,080		—										Residential real estate	1,531		2,028		—
Construction real estate	Construction real estate	208		229		—										Construction real estate	193		216		—
Commercial real estate	Commercial real estate	3,654		3,759		—										Commercial real estate	3,014		3,120		—
Commercial	Commercial	12		14		—										Commercial	8		8		—
With no allowance recorded	With no allowance recorded	5,362		6,082		—										With no allowance recorded	4,746		5,372		—

Residential real estate	Residential real estate	1,691		2,293		28		$	1,715	$	22	$	1,738	$	77	Residential real estate	1,728		2,235		24		$	1,739	$	30
Construction real estate	Construction real estate	208		229		0		209		1		209		2		Construction real estate	193		216		—		195		1
Commercial real estate	Commercial real estate	5,266		5,528		30		5,271		25		4,321		38		Commercial real estate	4,601		4,882		20		4,710		7
Commercial	Commercial	12		14		0		91		1		130		6		Commercial	8		8		—		9		—
Total	Total	$	7,177	$	8,064	$	58	$	7,286	$	49	$	6,398	$	123	Total	$	6,530	$	7,341	$	44	$	6,653	$	38

____________________

(1)Does not reflect government guaranties on impaired loans as of ~~June 30, 2021~~March 31, 2022 totaling ~~$354~~$420 thousand.

As of June 30, 2020 For The Three Months Ended June 30, 2020 For the Six Months Ended June 30, 2020
Recorded Investment
(1) Principal Balance
(1) Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized
(Dollars in thousands)
Residential real estate $ 1,959 $ 2,524 $ 35 $ 1,724 $ 9 $ 1,654 $ 28
Construction real estate 218 237 2 218 1 219 2
Commercial real estate 3,085 3,264 86 3,121 16 3,149 38
Commercial 250 254 7 265 5 276 12
Total $ 5,512 $ 6,279 $ 130 $ 5,328 $ 31 $ 5,298 $ 80


	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
	(Dollars in thousands)
Residential real estate	$	1,740	$	2,333	$	27	$	1,761	$	55
Construction real estate	210		230		—		210		1
Commercial real estate	5,275		5,532		31		3,849		13
Commercial	170		173		—		184		5
Total	$	7,395	$	8,268	$	58	$	6,004	$	74

____________________

(1)Does not reflect government guaranties on impaired loans as of ~~June 30, 2020~~March 31, 2021 totaling ~~$553~~$489 thousand.

Union Bankshares, Inc. Page 1916

The following table provides information with respect to impaired loans by class of loan as of December 31, ~~2020:~~2021:


		December 31, 2020							December 31, 2021
		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	$	208	$	218	$	30	Residential real estate	$	199	$	209	$	26

Commercial real estate	Commercial real estate	1,634		1,774		21		Commercial real estate	1,591		1,764		20
Commercial		9		11		7

With an allowance recorded	With an allowance recorded	1,851		2,003		58		With an allowance recorded	1,790		1,973		46

Residential real estate	Residential real estate	1,574		2,182		—		Residential real estate	1,551		2,043		—
Construction real estate	Construction real estate	210		231		—		Construction real estate	198		218		—
Commercial real estate	Commercial real estate	788		890		—		Commercial real estate	3,228		3,274		—
Commercial	Commercial	198		200		—		Commercial	9		9		—
With no allowance recorded	With no allowance recorded	2,770		3,503		—		With no allowance recorded	4,986		5,544		—

Residential real estate	Residential real estate	1,782		2,400		30		Residential real estate	1,750		2,252		26
Construction real estate	Construction real estate	210		231		0		Construction real estate	198		218		—
Commercial real estate	Commercial real estate	2,422		2,664		21		Commercial real estate	4,819		5,038		20
Commercial	Commercial	207		211		7		Commercial	9		9		—
Total	Total	$	4,621	$	5,506	$	58	Total	$	6,776	$	7,517	$	46

____________________

(1)Does not reflect government guaranties on impaired loans as of December 31, ~~2020~~2021 totaling ~~$514~~$423 thousand.

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


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
		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	30	$	1,691	32	$	1,782	Residential real estate	29	$	1,728	29	$	1,750
Construction real estate	Construction real estate	2	83		2	87		Construction real estate	2	75		2	81
Commercial real estate	Commercial real estate	6	756		6	788		Commercial real estate	3	370		3	375
Commercial	Commercial	2	12		5	207		Commercial	1	8		1	9
Total	Total	40	$	2,542	45	$	2,864	Total	35	$	2,181	35	$	2,215

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.

There was no new TDR activity for the three months ended March 31, 2022 or 2021.

~~Union Bankshares, Inc. Page 20~~

~~There was no new TDR activity for the three and six months ended June 30, 2021. The following table provides new TDR activity for the three and six months ended June 30, 2020:~~

New TDRs During the New TDRs During the
Three Months Ended June 30, 2020 Six Months Ended June 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 6 $ 493 $ 493 6 $ 493 $ 493

There were 0no TDR loans modified within the previous twelve months that subsequently defaulted during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 or ~~2020.~~2021. 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). Through June 30, 2021, the Company had executed modifications under this guidance on~~circumstances. As of March 31, 2022, 4 loans with outstanding loan balances of ~~$159.1 million that carried accrued interest of $946 thousand. Of the total modifications executed, outstanding loan balances of $2.0 million~~$545 thousand remained subject to modified terms and carried accrued interest of ~~$78 thousand as of June 30, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.~~

$10 thousand.

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.

Union Bankshares, Inc. Page 17

Note 9.8. 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 ~~June 30, 2021,~~March 31, 2022, there were outstanding grants of RSUs ~~and incentive stock options~~ under the 2014 Equity Plan ~~with respect to an aggregate of 28,044 shares of common stock.~~as noted in the table below.

RSUs. Each outstanding RSU represents the right to receive 1 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 ~~2020~~2021 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 ~~2019,~~ 2020, 2021 and ~~2021,~~2022, and the number of such RSUs remaining unvested as of ~~June 30, 2021:~~March 31, 2022:


		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
2019 Award		3,734	$	47.75	500
2020 Award	2020 Award	8,918	36.26		5,139	2020 Award	8,918	$	36.26	1,355
2021 Award	2021 Award	17,685	26.73		17,685	2021 Award	17,685	26.73		10,051
2022 Award						2022 Award	1,407	31.99		1,407
Total	Total	30,337			23,324	Total	28,010			12,813

Unrecognized compensation expense related to the unvested RSUs as of ~~June 30, 2021 and 2020~~March 31, 2022 was ~~$396~~$288 thousand and ~~$329 thousand, respectively, and $209~~was $317 thousand as of December 31, ~~2020.~~2021.

On May 19, 2021, the Company's board of directors, as a component of total director compensation, granted an aggregate of 1,220 RSUs to the Company's non-employee directors. Each RSU represents the right to receive 1 share of the Company's common stock upon satisfaction of applicable vesting conditions. The RSUs will vest in May 2022, subject to continued board 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 ~~June 30, 2021~~March 31, 2022 was ~~$37~~$7 thousand.

~~Stock options.~~ As of June 30, 2021, 3,500 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 $43 thousand

Note 9. Subordinated Notes

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Company may, at its option, beginning with the interest payment date of September 1, 2026 but not generally prior thereto, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part. The Notes qualify as Tier 2 capital instruments for the Company under bank regulatory guidelines.

The Company used the proceeds to provide additional capital support to the Company's wholly-owned subsidiary, Union ~~Bankshares, Inc. Page 21~~

Bank, to support growth and for other general corporate purposes.

asThe unamortized issuance costs of ~~June 30, 2021. During~~ the ~~six~~Notes were $321 thousand and $329 thousand at March 31, 2022 and December 31, 2021, respectively. For the three months ended ~~June 30, 2021, 1,000 incentive stock options under~~March 31, 2022, $8 thousand in issuance costs were recorded in interest expense. The Notes are presented net of unamortized issuance costs in the ~~2014 Equity Plan were exercised. There was 0 unrecognized compensation expense related to the remaining options as of June 30, 2021.~~consolidated balance sheets.

Note 10. Other Comprehensive ~~Income~~Loss

Accounting principles generally require recognized revenue, expenses, gains and losses be included in net income or loss. Certain changes in assets and liabilities, such as the after tax effect of unrealized gains and losses on investment securities AFS that are 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.

Union Bankshares, Inc. Page 18

As of the balance sheet dates, the components of Accumulated OCI, net of tax, were:

June 30, 2021 December 31, 2020
(Dollars in thousands)
Net unrealized gain on investment securities available-for-sale $ 1,001 $ 2,636


	March 31, 2022		December 31, 2021
	(Dollars in thousands)
Net unrealized losses on investment securities AFS	$	(17,426)	$	(1,552)

The following tables disclose the tax effects allocated to each component of OCI for the three ~~and six~~ months ended ~~June 30:~~March 31:

Three Months Ended
June 30, 2021 June 30, 2020
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 $ 1,165 $ (245) $ 920 $ 830 $ (174) $ 656
Total other comprehensive income $ 1,165 $ (245) $ 920 $ 830 $ (174) $ 656


	Three Months Ended
	March 31, 2022						March 31, 2021
	Before-Tax Amount		Tax Benefit		Net-of-Tax Amount		Before-Tax Amount		Tax Benefit		Net-of-Tax Amount
Investment securities AFS:	(Dollars in thousands)
Net unrealized holding losses arising during the period on investment securities AFS	$	(20,067)	$	4,214	$	(15,853)	$	(3,234)	$	679	$	(2,555)
Reclassification adjustment for net gains on investment securities AFS realized in net income	(26)		5		(21)		—		—		—






Total other comprehensive loss	$	(20,093)	$	4,219	$	(15,874)	$	(3,234)	$	679	$	(2,555)

Six Months Ended
June 30, 2021 June 30, 2020
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 (losses) gains arising during the period on investment securities available-for-sale $ (2,069) $ 434 $ (1,635) $ 2,202 $ (462) $ 1,740
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 $ (2,069) $ 434 $ (1,635) $ 2,191 $ (460) $ 1,731

~~Union Bankshares, Inc. Page 22~~

~~There were 0 reclassification adjustments from OCI for the three months ended June 30, 2021 and 2020 or the six months ended June 30, 2021.~~ The following table discloses information concerning reclassification adjustments from OCI for the ~~six~~three months ended ~~June 30, 2020:~~March 31, 2022 and 2021:

~~Six~~Three Months Ended

Reclassification Adjustment Description

March 31, 2022

March 31, 2021

~~June 30, 2020~~

Affected Line Item in
Consolidated Statement of Income

(Dollars in thousands)

Investment securities ~~available-for-sale:~~AFS:

Net gains on investment securities ~~available-for-sale~~AFS

(26)

—

~~(11)~~

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

Tax ~~expense~~benefit

—

Provision for income taxes

Total reclassifications

(21)

~~(9)~~—

Net income

Note 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~~Certain U.S. Treasury notes have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1. However, the majority of the Company’s AFS securities have

Union Bankshares, Inc. Page 19

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 23~~

Assets measured at fair value on a recurring basis at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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)
June 30, 2021:		(Dollars in thousands)
March 31, 2022:										March 31, 2022:	(Dollars in thousands)
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	17,825	$	0	$	17,825	$	0	U.S. Government-sponsored enterprises	$	43,310	$	2,711	$	40,599	$	—
Agency mortgage-backed	Agency mortgage-backed	102,649		0		102,649		0		Agency mortgage-backed	181,600		—		181,600		—
State and political subdivisions	State and political subdivisions	29,281		0		29,281		0		State and political subdivisions	40,332		—		40,332		—
Corporate	Corporate	8,346		0		8,346		0		Corporate	6,909		—		6,909		—
Total debt securities	Total debt securities	$	158,101	$	0	$	158,101	$	0	Total debt securities	$	272,151	$	2,711	$	269,440	$	—

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	1,174	$	1,174	$	0	$	0	Mutual funds	$	1,273	$	1,273	$	—	$	—

December 31, 2020:
December 31, 2021:										December 31, 2021:
Debt securities AFS:	Debt securities AFS:									Debt securities AFS:
U.S. Government-sponsored enterprises	U.S. Government-sponsored enterprises	$	6,548	$	0	$	6,548	$	0	U.S. Government-sponsored enterprises	$	36,638	$	2,875	$	33,763	$	—
Agency mortgage-backed	Agency mortgage-backed	62,352		0		62,352		0		Agency mortgage-backed	178,250		—		178,250		—
State and political subdivisions	State and political subdivisions	28,461		0		28,461		0		State and political subdivisions	45,254		—		45,254		—
Corporate	Corporate	8,402		0		8,402		0		Corporate	7,677		—		7,677		—
Total debt securities	Total debt securities	$	105,763	$	0	$	105,763	$	0	Total debt securities	$	267,819	$	2,875	$	264,944	$	—

Other investments:	Other investments:									Other investments:
Mutual funds	Mutual funds	$	1,047	$	1,047	$	0	$	0	Mutual funds	$	1,132	$	1,132	$	—	$	—

There were no transfers in or out of Levels 1 and 2 during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 or the year ended December 31, ~~2020,~~2021, 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 ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. 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.

Union Bankshares, Inc. Page 20

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 24~~

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


		June 30, 2021											March 31, 2022
		Fair Value Measurements											Fair Value Measurements
		Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(Dollars in thousands)											(Dollars in thousands)
Financial assets	Financial assets											Financial assets
Cash and cash equivalents	Cash and cash equivalents	$	61,231	$	61,231	$	61,231	$	0	$	0	Cash and cash equivalents	$	50,802	$	50,802	$	50,802	$	—	$	—
Interest bearing deposits in banks	Interest bearing deposits in banks	12,948		12,950		0		12,950		0		Interest bearing deposits in banks	14,192		14,192		—		14,192		—
Investment securities	Investment securities	159,275		159,275		1,174		158,101		0		Investment securities	273,424		273,424		3,984		269,440		—
Loans held for sale	Loans held for sale	42,149		43,207		0		43,207		0		Loans held for sale	2,349		2,398		—		2,398		—
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	213,775		216,779		0		0		216,779		Residential real estate	280,781		271,384		—		—		271,384
Construction real estate	Construction real estate	74,027		74,193		0		0		74,193		Construction real estate	67,971		68,104		—		—		68,104
Commercial real estate	Commercial real estate	311,815		314,481		0		0		314,481		Commercial real estate	343,920		345,769		—		—		345,769
Commercial	Commercial	97,718		96,600		0		0		96,600		Commercial	44,574		43,754		—		—		43,754
Consumer	Consumer	2,624		2,603		0		0		2,603		Consumer	2,234		2,222		—		—		2,222
Municipal	Municipal	32,432		33,109		0		0		33,109		Municipal	80,798		81,782		—		—		81,782
Accrued interest receivable	Accrued interest receivable	3,330		3,330		0		520		2,810		Accrued interest receivable	3,248		3,248		—		837		2,411
Nonmarketable equity securities	Nonmarketable equity securities	1,162		N/A								Nonmarketable equity securities	1,164		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	243,573	$	243,573	$	243,573	$	0	$	0	Noninterest bearing	$	303,077	$	303,077	$	303,077	$	—	$	—
Interest bearing	Interest bearing	610,540		610,540		610,540		0		0		Interest bearing	726,864		726,864		726,864		—		—
Time	Time	113,567		113,949		0		113,949		0		Time	104,303		103,028		—		103,028		—
Borrowed funds

Long-term		7,164		7,483		0		7,483		0

Subordinated notes												Subordinated notes	16,179		15,448		—		15,448		—
Accrued interest payable	Accrued interest payable	66		66		0		66		0		Accrued interest payable	76		76		—		76		—

Union Bankshares, Inc. Page 2521


		December 31, 2020											December 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	$	122,771	$	122,771	$	122,771	$	0	$	0	Cash and cash equivalents	$	65,922	$	65,922	$	65,922	$	—	$	—
Interest bearing deposits in banks	Interest bearing deposits in banks	12,699		12,699		0		12,699		0		Interest bearing deposits in banks	13,196		13,196		—		13,196		—
Investment securities	Investment securities	106,810		106,810		1,047		105,763		0		Investment securities	268,951		268,951		4,007		264,944		—
Loans held for sale	Loans held for sale	32,188		33,437		0		33,437		0		Loans held for sale	13,829		14,088		—		14,088		—
Loans, net	Loans, net											Loans, net
Residential real estate	Residential real estate	181,355		185,890		0		0		185,890		Residential real estate	244,980		246,573		—		—		246,573
Construction real estate	Construction real estate	56,643		56,882		0		0		56,882		Construction real estate	64,370		64,539		—		—		64,539
Commercial real estate	Commercial real estate	315,522		324,085		0		0		324,085		Commercial real estate	340,066		341,451		—		—		341,451
Commercial	Commercial	108,382		106,358		0		0		106,358		Commercial	49,558		48,682		—		—		48,682
Consumer	Consumer	2,586		2,557		0		0		2,557		Consumer	2,367		2,350		—		—		2,350
Municipal	Municipal	98,264		98,973		0		0		98,973		Municipal	78,078		78,748		—		—		78,748
Accrued interest receivable	Accrued interest receivable	4,129		4,129		0		446		3,683		Accrued interest receivable	3,248		3,248		—		734		2,514
Nonmarketable equity securities	Nonmarketable equity securities	1,150		N/A								Nonmarketable equity securities	1,164		N/A
Financial liabilities	Financial liabilities											Financial liabilities
Deposits	Deposits											Deposits
Noninterest bearing	Noninterest bearing	$	215,245	$	215,245	$	215,245	$	—	$	0	Noninterest bearing	$	264,888	$	264,888	$	264,888	$	—	$	—
Interest bearing	Interest bearing	637,369		637,369		637,369		0		0		Interest bearing	723,479		723,479		723,479		—		—
Time	Time	141,688		142,605		0		142,605		0		Time	106,715		106,588		—		106,588		—
Borrowed funds

Long-term		7,164		7,585		0		7,585		0

Subordinated notes												Subordinated notes	16,171		16,179		—		16,179		—
Accrued interest payable	Accrued interest payable	108		108		0		108		0		Accrued interest payable	225		225		—		225		—

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 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 ~~June 30, 2021~~March 31, 2022 have been evaluated as to their potential impact to the consolidated financial statements.

On ~~July 21, 2021,~~April 20, 2022, the Company declared a regular quarterly cash dividend of ~~$0.33~~$0.35 per share, payable ~~August~~May 5, ~~2021,~~2022, to stockholders of record on ~~July 31, 2021.~~April 30, 2022.

Union Bankshares, Inc. Page 2622

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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and its results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. 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 ~~2020~~2021 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 ~~June 30, 2021~~March 31, 2022 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 inflationary pressures on our customers;

•Increased cybersecurity threats; and

Union Bankshares, Inc. Page 23

•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 27~~

In addition, statements about the continuing and potential future effects of the COVID-19 pandemic, including emergence of virus variants, 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 ~~2020~~2021 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.

OVERVIEW

The Federal Reserve initiated its planned short term interest rate increases by increasing the federal funds target rate 25 bps to 50 bps in March and by another 50 bps to one percent in May. This also resulted in an increase in the Prime Rate to 4.0%. In addition to these increases in interest rates, the 10-year treasury rate began 2022 at 1.512%, increased to 2.327% at the end of March, to 2.885% at the end of April and continued to rise in May. Mortgage rates and investment yields for mortgage-backed securities are primarily driven by the 10-year treasury index. The rapid increase in the 10-year treasury rate has impacted the fair market value of the investment portfolio, pricing on loans held for sale, and mortgage rates offered to customers which have

Union Bankshares, Inc. Page 24

increased approximately 200 bps since the beginning of the year. However, asset yields have not yet increased as a result of these increases nor have interest rates on interest bearing liabilities.

Consolidated net income ~~increased $323~~decreased $394 thousand, or ~~12.1%~~13.7%, to ~~$3.0~~$2.5 million for the ~~second~~first quarter of ~~2021~~2022 compared to ~~$2.7~~$2.9 million for the ~~second~~first quarter of ~~2020~~2021 due to the combined effect of ~~increases~~a decrease in noninterest income of $566 thousand and an increase of $661 thousand in noninterest expenses, partially offset by an increase in net interest income of ~~$1.1 million and noninterest income of $151~~$564 thousand and ~~a decrease~~decreases of $150 thousand in the provision for loan losses ~~of $425 thousand, partially offset by increases of $1.3 million in noninterest expenses~~ and ~~$116~~$119 thousand in income tax expense.

Net interest income increased ~~$2.0 million,~~$564 thousand, or ~~13.3%~~6.7%, to ~~$17.3~~$9.0 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$15.3~~$8.4 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Interest income increased ~~$1.3 million~~$226 thousand primarily due to higher volumes of earning assets despite lower ~~yields,~~yields; and despite recognition of $411 thousand less in fee income between periods, primarily due to lower fee income recognized from PPP ~~loans for the first six months of 2021 compared to the same period in 2020.~~loans. Interest expense was ~~$2.1~~$763 thousand for the three months ended March 31, 2022 compared to $1.1 million for the ~~six~~three months ended ~~June 30,~~March 31, 2021, ~~compared to $2.8~~

~~Union Bankshares, Inc. Page 28~~

~~million for the six months ended June 30, 2020,~~ reflecting lower rates paid on deposits despite an increase in ~~interest-bearing~~average interest bearing liabilities between periods of ~~$128.1~~$59.0 million.

The was no provision for loan losses ~~was $225 thousand~~ for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$800~~a provision of $150 thousand for the same period in 2020. The provision for loan losses was higher for the three and six months ended June 30, 2020 due to management's adjustment to the economic qualitative factors utilized to estimate the allowance for loan losses due to the economic uncertainty at the onset of the COVID-19 pandemic.2021. There were no changes to the methodology for calculating the allowance for loan losses during either of the ~~six~~three month comparison periods.

Total noninterest income amounted to ~~$5.8~~$2.1 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$5.5~~$2.6 million for the ~~six~~three months ended ~~June 30, 2020, an increase~~March 31, 2021, a decrease of ~~$254~~$566 thousand, or ~~4.6%~~21.6%. The ~~increase~~decrease is primarily due to ~~an increase~~a decrease in ~~service fee income. Sales~~sales of qualifying residential ~~loans amounted to $85.2~~loans. There were $16.4 million in residential loan sales with net gains of ~~$2.0 million~~$14 thousand for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to residential loan sales of ~~$97.8~~$29.7 million with net gains of ~~$2.0 million~~$894 thousand for the same period in ~~2020.~~2021. The decrease in the volume of loan sales reflects management's decision to slow sales in the first quarter of ~~2021~~2022 to utilize some excess liquidity and increase interest income on loans.

Total noninterest expenses were ~~$15.8~~$8.1 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$14.3~~$7.5 million for the same period in ~~2020.~~2021. Increases of ~~$686~~$327 thousand in salaries and wages, ~~$159~~$136 thousand in employee benefits, ~~$174~~$118 thousand in equipment expenses, ~~$527~~$50 thousand in occupancy expenses and $30 thousand in other expenses, ~~and $13 thousand in occupancy expenses,~~ occurred between the ~~six~~three month comparison ~~periods~~period of ~~2021~~2022 and ~~2020.~~2021.

As of June 30, 2021, Union had originated a combined total of $102.1 million in PPP loans since inception of the program in 2020. As of June 30, 2021, $44.8 million in PPP loans had been forgiven by the SBA. Union's borrowers have received 100% forgiveness on all applications submitted to date. Interest income and origination fees from PPP loans were $888 thousand and $1.7 million for the three and six months ended June 30, 2021, respectively. As of June 30, 2021, there was $1.7 million remaining in PPP origination fee income to be recognized in future periods.

The Company's total capital ~~increased~~decreased from ~~$80.9~~$84.3 million at December 31, ~~2020~~2021 to ~~$82.4~~$69.4 million at ~~June 30, 2021.~~March 31, 2022. This ~~increase~~decrease primarily reflects ~~net income~~an increase of ~~$5.9 million for the first six months of 2021, offset by decreases of $1.6~~$15.9 million in accumulated other comprehensive ~~income~~loss and regular cash dividends declared of ~~$3.0 million.~~$1.6 million offset by net income of $2.5 million for the first three months of 2022. (See Capital Resources on page ~~44.~~40.)

Union Bankshares, Inc. Page 2925

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively:


		Three Months Ended or At June 30,						Six Months Ended or At June 30,							Three Months Ended or At March 31,
		2021			2020			2021			2020				2022			2021
Return on average assets (1)	Return on average assets (1)	1.06		%	1.11		%	1.05		%	1.08		%	Return on average assets (1)	0.81		%	1.05		%
Return on average equity (1)	Return on average equity (1)	14.76		%	14.38		%	14.51		%	13.25		%	Return on average equity (1)	12.38		%	14.27		%
Net interest margin (1)(2)	Net interest margin (1)(2)	3.40		%	3.55		%	3.36		%	3.71		%	Net interest margin (1)(2)	3.17		%	3.32		%
Efficiency ratio (3)	Efficiency ratio (3)	68.89		%	65.28		%	67.94		%	67.92		%	Efficiency ratio (3)	73.08		%	66.90		%
Net interest spread (4)	Net interest spread (4)	3.28		%	3.38		%	3.24		%	3.53		%	Net interest spread (4)	3.08		%	3.19		%
Loan to deposit ratio	Loan to deposit ratio	80.98		%	89.84		%	80.98		%	89.84		%	Loan to deposit ratio	73.17		%	83.59		%
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		%	Net loan charge-offs to average loans not held for sale (1)	—		%	—		%
Allowance for loan losses to loans not held for sale	Allowance for loan losses to loans not held for sale	1.15		%	0.99		%	1.15		%	0.99		%	Allowance for loan losses to loans not held for sale	1.01		%	1.05		%
Nonperforming assets to total assets (5)	Nonperforming assets to total assets (5)	0.56		%	0.35		%	0.56		%	0.35		%	Nonperforming assets to total assets (5)	0.38		%	0.56		%
Equity to assets	Equity to assets	7.73		%	8.26		%	7.73		%	8.26		%	Equity to assets	5.63		%	7.23		%
Total capital to risk weighted assets	Total capital to risk weighted assets	13.47		%	13.44		%	13.47		%	13.44		%	Total capital to risk weighted assets	14.84		%	13.48		%
Book value per share	Book value per share	$	18.37		$	16.93		$	18.37		$	16.93		Book value per share	$	15.45		$	17.81
Earnings per share		$	0.67		$	0.60		$	1.31		$	1.09
Basic earnings per share (6)														Basic earnings per share (6)	$	0.55		$	0.64

Dividends paid per share	Dividends paid per share	$	0.33		$	0.32		$	0.66		$	0.64		Dividends paid per share	$	0.35		$	0.33
Dividend payout ratio (6)		49.25		%	53.33		%	50.38		%	58.72		%
Dividend payout ratio (7)														Dividend payout ratio (7)	63.64		%	51.56		%

__________________

(1)Annualized.

(2)The ratio of tax equivalent net interest income to average earning assets. See ~~pages 32 and 33~~page 28 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 32 and 33~~page 28 for more information.

(5)Nonperforming assets are loans or investment securities that are in nonaccrual or 90 or more days past due as well as OREO or OAO.

(6)The assumed vesting of RSUs, and for 2021 also the assumed exercise of stock options, does not result in a material dilution for the three months ended March 31, 2022 or 2021.

(7)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.

~~The fed~~As discussed above, the Federal Reserve initiated its planned short term interest rate increases by increasing the federal funds target ~~range remains~~rate 25 bps to 50 bps in March and by another 50 bps to one percent in May. This also resulted in an increase in the Prime Rate to 4.0%. In addition, the 10-year treasury rate increased from 1.512% at 0%the beginning of the year to ~~0.25% since~~2.327% at the ~~reductions made~~end of March, to 2.885% at the end of April and continued to rise in May. These increases in interest rates have not yet increased asset yields or rates paid on interest bearing liabilities. However, further increases in short term rates by the Federal ~~Open Market Committee (FOMC)~~Reserve may result in ~~March 2020. The most recent meeting~~increases in interest rates paid on customer deposit accounts which may impact future earnings of the FOMC, held on July 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 likely will be beyond 2021.Company.

The average yield on average earning assets was ~~3.77%~~3.44% for the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~4.16%~~3.76% for the three months ended ~~June 30, 2020,~~March 31, 2021, a decrease of 3932 bps despite an increase in average earning assets of ~~$171.0~~$119.7 million. The prolonged low interest rate environment ~~continues~~which prevailed throughout the first quarter continued to put downward pressure on asset ~~yields.~~yields for the three months ended March 31, 2022. Interest income on investment securities increased ~~$113~~$639 thousand between the three month comparison periods due to an increase in the average balances of ~~$61.6~~$159.8 million, despite a decrease of 7311 bps in the average yield. The average balance of PPP loans was ~~$68.2~~$9.4 million for the three months ended ~~June 30, 2021~~ March 31, 2022

Union Bankshares, Inc. Page 26

with an average yield of ~~5.22%~~13.43%, which takes into account the 1.0% interest charged on PPP loans and related fee income recognized during the three months ended ~~June 30, 2021.~~March 31, 2022. Interest income on loans, excluding PPP loans, increased ~~$151~~$133 thousand between the three month comparison periods due to an increase in the average volume of loans outstanding of ~~$79.4~~$56.7 million, partially offset by a decrease of 4327 bps in the average yield.

~~Union Bankshares, Inc. Page 30~~

Interest expense for the ~~second~~first quarter of ~~2021~~2022 decreased ~~$382~~$338 thousand compared to the ~~second~~first quarter of ~~2020~~2021 due to lower rates paid on customer deposit accounts, despite increases in average deposit balances of $50.0 million, partially offset by ~~increases in~~the addition of $142 thousand of interest expense on subordinated notes with an average ~~balances~~balance of ~~$100.5~~$16.2 million. The increase in average customer deposit balances is due to an increase in the money supply from proceeds of PPP loans, government stimulus payments, and other economic recovery payments. The average rate paid on interest bearing liabilities decreased 2921 bps to ~~0.49%~~0.36% for the ~~second~~first quarter of ~~2021~~2022 compared to ~~0.78%~~0.57% for the ~~second~~first quarter of ~~2020.~~2021. The average rates paid on interest bearing checking accounts and savings and money market accounts decreased 183 bps and 2322 bps, respectively, between the ~~second~~first quarter comparison periods. The Company decreased interest rates paid on deposit accounts early in 2021 and again in June of 2021 and implemented a tiered rate structure in these accounts which ~~has~~ remained in place as of ~~June 30, 2021.~~March 31, 2022. The decreases in these interest rates resulted in ~~decreases~~a decrease in interest expense of ~~$47~~$195 thousand on savings and ~~$51 thousand, respectively,~~money market accounts between the three month comparison periods. Interest expense on time deposits decreased ~~$230~~$233 thousand due to decreases in the average volume of ~~$26.3~~$27.2 million and 4761 bps in the average rate paid during the ~~second~~first quarter of ~~2021~~2022 compared to the same period in ~~2020. The~~2021. Management believes that the decrease in the average volume is primarily due to customers transferring proceeds from matured CDs into non-maturity deposits in hopes of obtaining higher yields in future ~~periods. The~~periods as well as some funds leaving Union to seek a higher ~~rate paying CD specials offered in prior years will mature early in the third quarter of 2021. This will support further reduction in the rates paid on time deposits for the remainder of 2021.~~return. Higher customer deposit balances reduced reliance on wholesale funding, as evidenced by decreases between the three month comparison periods of ~~$37.4~~$7.2 million in the average outstanding balance of borrowed funds and $54 thousand in related interest expense. The issuance of subordinated debt during the third quarter of 2021 resulted in an average balance of $16.2 million for the first quarter of 2022 and an average rate of 3.55% and interest expense of $142 thousand.

The net interest spread decreased 1011 bps to ~~3.28%~~3.08% for the ~~second~~first quarter of ~~2021,~~2022, from ~~3.38%~~3.19% for the same period last year, reflecting the net effect of the 2921 bps decrease in the average rate paid on interest bearing liabilities and the 3932 bps decrease in the average yield earned on interest earning assets between periods. The net interest margin decreased 15 bps during the ~~second~~first quarter of ~~2021 compared to the same period last year as a result of the changes discussed above.~~

Net interest income was $17.3 million, on a fully tax equivalent basis for the six months ended June 30, 2021 compared to $15.3 million for the six months ended June 30, 2020, an increase of $2.0 million, or 13.3%. The average volume of earning assets increased $209.0 million and the average yield on earning assets decreased 61 bps to 3.77% compared to 4.38% for the comparison period. Average loans, excluding PPP loans, increased $70.5 million, or 10.25%, to $757.6 million for the six months ended June 30, 2021. Despite an increase in the average loan volume, interest income on loans decreased $110 thousand between periods, due to the decrease in the average yield. As discussed above, the current interest rate environment and competition for quality loans continues to put downward pressure on loan yields. The average balance of PPP loans for the six months ended June 30, 2021 was $70.9 million with an average yield of 4.96% compared to $26.1 million with an average yield of 2.84% for the six months ended June 30, 2020. As mentioned above, the average yield on PPP loans includes the interest earned at 1.0% on the loan as well as origination fee income recognized during the respective periods.

The average cost of funds, which is tied primarily to customer deposit accounts, decreased 32 bps to 0.53% for the six months ended June 30, 2021 compared to 0.85% for the six months ended June 30, 2020. Interest expense decreased $738 thousand, to $2.1 million for the six months ended June 30, 2021 compared to $2.8 million for the six months ended June 30, 2020. The decrease in interest expense was primarily due to lower rates paid on interest bearing liabilities despite an increase in average balances of $128.1 million between periods. Should the low interest rate environment persist, 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.

The net interest spread decreased 29 bps to 3.24% for the six months ended June 30, 2021, from 3.53% for the same period last year reflecting the net effect of the 32 bps decrease in the average rate paid on interest bearing liabilities and the 61 bps decrease in the average yield earned on interest earning assets between periods. The net interest margin decreased 35 bps for the six months ended June 30, 20212022 compared to the same period last year as a result of the changes discussed above.

Union Bankshares, Inc. Page 3127

The following ~~tables show~~table shows for the periods indicated the total amount of tax equivalent interest income recorded from average interest earning assets, the related average tax equivalent yields, the tax equivalent interest expense associated with average interest bearing liabilities, the related tax equivalent average rates paid, and the resulting tax equivalent net interest spread and margin.


		Three Months Ended June 30,													Three Months Ended March 31,
		2021						2020							2022						2021
		Average Balance		Interest Earned/ Paid		Average Yield/ Rate		Average Balance		Interest Earned/ Paid		Average Yield/ Rate			Average Balance (1)		Interest Earned/ Paid		Average Yield/ Rate		Average Balance (1)		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	$	59,892	$	14	0.09	%	$	50,073	$	11	0.09	%	Federal funds sold and overnight deposits	$	51,148	$	19	0.15	%	$	82,856	$	19	0.09	%
Interest bearing deposits in banks	Interest bearing deposits in banks	13,594		34		1.01	%	7,939		40		2.01	%	Interest bearing deposits in banks	13,356		33		1.01	%	13,966		37		1.07	%
Investment securities (1), (2)		146,463		610		1.75	%	84,880		497		2.48	%
Investment securities (2), (3)														Investment securities (2), (3)	287,014		1,194		1.73	%	127,233		555		1.84	%
PPP loans, net ~~(3)~~(4)	PPP loans, net ~~(3)~~(4)	68,223		888		5.22	%	52,125		368		2.84	%	PPP loans, net ~~(3)~~(4)	9,380		311		13.43	%	73,619		855		4.71	%
Loans, net (1), (4)		776,010		8,348		4.36	%	696,610		8,197		4.79	%
Loans, net (2), (5)														Loans, net (2), (5)	795,694		8,163		4.19	%	739,009		8,030		4.46	%
Nonmarketable equity securities	Nonmarketable equity securities	1,156		4		1.48	%	2,742		26		3.77	%	Nonmarketable equity securities	894		6		2.48	%	1,150		4		1.47	%
Total interest earning assets ~~(1)~~(2)	Total interest earning assets ~~(1)~~(2)	1,065,338		9,898		3.77	%	894,369		9,139		4.16	%	Total interest earning assets ~~(1)~~(2)	1,157,486		9,726		3.44	%	1,037,833		9,500		3.76	%
Cash and due from banks	Cash and due from banks	4,676						5,530						Cash and due from banks	4,693						5,094
Premises and equipment	Premises and equipment	21,825						20,477						Premises and equipment	21,517						19,996
Other assets	Other assets	36,915						37,676						Other assets	35,978						37,420
Total assets	Total assets	$	1,128,754					$	958,052					Total assets	$	1,219,674					$	1,100,343
Average Liabilities and Stockholders' Equity:	Average Liabilities and Stockholders' Equity:													Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	Interest bearing checking accounts	$	248,878	156		0.25	%	$	192,436	203		0.43	%	Interest bearing checking accounts	$	279,817	149		0.22	%	$	234,339	147		0.25	%
Savings/money market accounts	Savings/money market accounts	422,592		509		0.48	%	314,819		560		0.71	%	Savings/money market accounts	445,038		354		0.32	%	413,269		549		0.54	%
Time deposits	Time deposits	119,941		259		0.87	%	146,272		489		1.34	%	Time deposits	106,369		118		0.45	%	133,616		351		1.06	%
Borrowed funds and other liabilities	Borrowed funds and other liabilities	7,166		55		3.02	%	44,561		109		0.96	%	Borrowed funds and other liabilities	—		—		—	%	7,164		54		3.02	%
Subordinated notes														Subordinated notes	16,175		142		3.55	%	—		—		—	%
Total interest bearing liabilities	Total interest bearing liabilities	798,577		979		0.49	%	698,088		1,361		0.78	%	Total interest bearing liabilities	847,399		763		0.36	%	788,388		1,101		0.57	%
Noninterest bearing deposits	Noninterest bearing deposits	239,971						174,785						Noninterest bearing deposits	281,367						221,344
Other liabilities	Other liabilities	9,124						10,990						Other liabilities	10,688						9,975
Total liabilities	Total liabilities	1,047,672						883,863						Total liabilities	1,139,454						1,019,707
Stockholders' equity	Stockholders' equity	81,082						74,189						Stockholders' equity	80,220						80,636
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,128,754					$	958,052					Total liabilities and stockholders’ equity	$	1,219,674					$	1,100,343
Net interest income	Net interest income			$	8,919					$	7,778			Net interest income			$	8,963					$	8,399
Net interest spread (1)						3.28	%					3.38	%
Net interest margin (1)						3.40	%					3.55	%

Net interest spread (2)														Net interest spread (2)					3.08	%					3.19	%
Net interest margin (2)														Net interest margin (2)					3.17	%					3.32	%

~~Union Bankshares, Inc. Page 32~~

Six Months Ended June 30,
2021 2020
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 $ 71,310 $ 33 0.09 % $ 34,148 $ 64 0.37 %
Interest bearing deposits in banks 13,779 71 1.04 % 7,240 81 2.24 %
Investment securities (1), (2) 136,901 1,165 1.79 % 85,596 1,041 2.57 %
PPP loans, net (3) 70,906 1,743 4.96 % 26,063 368 2.84 %
Loans (excluding PPP loans), net (1), (4) 757,612 16,378 4.41 % 687,155 16,488 4.88 %
Nonmarketable equity securities 1,153 8 1.47 % 2,447 60 4.94 %
Total interest earning assets (1) 1,051,661 19,398 3.77 % 842,649 18,102 4.38 %
Cash and due from banks 4,884 5,359
Premises and equipment 20,916 20,651
Other assets 37,163 35,130
Total assets $ 1,114,624 $ 903,789
Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts $ 241,649 303 0.25 % $ 180,975 373 0.42 %
Savings/money market accounts 417,956 1,058 0.51 % 299,195 1,176 0.79 %
Time deposits 126,741 610 0.97 % 146,334 1,012 1.39 %
Borrowed funds and other liabilities 7,165 109 3.02 % 38,910 257 1.30 %
Total interest bearing liabilities 793,511 2,080 0.53 % 665,414 2,818 0.85 %
Noninterest bearing deposits 230,651 155,113
Other liabilities 9,599 9,847
Total liabilities 1,033,761 830,374
Stockholders' equity 80,863 73,415
Total liabilities and stockholders’ equity $ 1,114,624 $ 903,789
Net interest income $ 17,318 $ 15,284
Net interest spread (1) 3.24 % 3.53 %
Net interest margin (1) 3.36 % 3.71 %

__________________

(1)Average balances are calculated based on a daily averaging method.

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

~~(2)~~(3)Average balances of investment securities are calculated on the amortized cost basis and include nonaccrual securities, if applicable.

~~(3)~~(4)Includes unamortized costs and unamortized premiums.

~~(4)~~(5)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 3328

Tax exempt interest income amounted to ~~$597~~$502 thousand and ~~$669~~$606 thousand for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and $1.2 million and $1.3 million for the 2021 and 2020 six 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 2022 and 2021 ~~and 2020~~ three ~~and six~~ month comparison periods:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Net interest income, as presented	Net interest income, as presented	$	8,919	$	7,778	$	17,318	$	15,284	Net interest income, as presented	$	8,963	$	8,399
Effect of tax-exempt interest	Effect of tax-exempt interest									Effect of tax-exempt interest
Investment securities	Investment securities	31		30		61		60		Investment securities	49		30
Loans	Loans	89		97		180		191		Loans	62		91
Net interest income, tax equivalent	Net interest income, tax equivalent	$	9,039	$	7,905	$	17,559	$	15,535	Net interest income, tax equivalent	$	9,074	$	8,520

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 June 30, 2021 Compared to Three Months Ended June 30, 2020 Increase/(Decrease) Due to Change In						Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Increase/(Decrease) Due to Change In							Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021 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	$	3	$	—	$	3	$	39	$	(70)	$	(31)	Federal funds sold and overnight deposits	$	(8)	$	8	$	—
Interest bearing deposits in banks	Interest bearing deposits in banks	20		(26)		(6)		47		(57)		(10)		Interest bearing deposits in banks	(2)		(2)		(4)
Investment securities	Investment securities	306		(193)		113		530		(406)		124		Investment securities	684		(45)		639
PPP loans, net	PPP loans, net	140		380		520		960		415		1,375		PPP loans, net	(1,185)		641		(544)
Loans (excluding PPP loans), net	Loans (excluding PPP loans), net	916		(765)		151		1,603		(1,713)		(110)		Loans (excluding PPP loans), net	618		(485)		133
Nonmarketable equity securities	Nonmarketable equity securities	(11)		(11)		(22)		(22)		(30)		(52)		Nonmarketable equity securities	(1)		3		2
Total interest earning assets	Total interest earning assets	$	1,374	$	(615)	$	759	$	3,157	$	(1,861)	$	1,296	Total interest earning assets	$	106	$	120	$	226
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Interest bearing checking accounts	Interest bearing checking accounts	$	51	$	(98)	$	(47)	$	102	$	(172)	$	(70)	Interest bearing checking accounts	$	27	$	(25)	$	2
Savings/money market accounts	Savings/money market accounts	161		(212)		(51)		377		(495)		(118)		Savings/money market accounts	39		(234)		(195)
Time deposits	Time deposits	(78)		(152)		(230)		(124)		(278)		(402)		Time deposits	(61)		(172)		(233)
Borrowed funds	Borrowed funds	(144)		90		(54)		(310)		162		(148)		Borrowed funds	(27)		(27)		(54)
Subordinated notes														Subordinated notes	142		—		142
Total interest bearing liabilities	Total interest bearing liabilities	$	(10)	$	(372)	$	(382)	$	45	$	(783)	$	(738)	Total interest bearing liabilities	$	120	$	(458)	$	(338)
Net change in net interest income	Net change in net interest income	$	1,384	$	(243)	$	1,141	$	3,112	$	(1,078)	$	2,034	Net change in net interest income	$	(14)	$	578	$	564

Provision for Loan Losses. AThere was no provision for loan losses ~~of $75~~recorded for the three months ended March 31, 2022. A $150 thousand ~~and $225 thousand~~provision was recorded for the three ~~and six~~ months ended ~~June 30, 2021, respectively, compared to $500 thousand and $800 thousand~~March 31, 2021. No provision for the three ~~and six~~ months ended June 30, 2020, respectively. The higher provision in 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 six months of 2021March 31, 2022 was deemed appropriate by management based on the size and mix of the loan portfolio, the level of nonperforming loans, the results of the qualitative

~~Union Bankshares, Inc. Page 34~~

factor review and prevailing economic ~~conditions.~~conditions For further details, see FINANCIAL CONDITION- Allowance for Loan Losses and Asset Quality below.

Union Bankshares, Inc. Page 29

Noninterest Income. The following table sets forth the components of noninterest income and changes between the three ~~and six~~ month comparison periods of ~~2021~~2022 and ~~2020:~~2021:


		For The Three Months Ended June 30,							For the Six Months Ended June 30,								For The Three Months Ended March 31,
		2021		2020		$ Variance		% Variance	2021		2020		$ Variance		% Variance		2022		2021		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Trust income	Trust income	$	198	$	178	$	20	11.2	$	383	$	351	$	32	9.1	Trust income	$	209	$	185	$	24	13.0
Service fees	Service fees	1,581		1,284		297		23.1	3,104		2,781		323		11.6	Service fees	1,635		1,523		112		7.4
Net gains on sales of loans held for sale	Net gains on sales of loans held for sale	1,151		1,227		(76)		(6.2)	2,045		2,039		6		0.3	Net gains on sales of loans held for sale	14		894		(880)		(98.4)
Income from Company-owned life insurance	Income from Company-owned life insurance	70		78		(8)		(10.3)	138		159		(21)		(13.2)	Income from Company-owned life insurance	182		68		114		167.6
Income (loss) from MSRs, net		79		40		39		97.5	(46)		79		(125)		55.3
Expense from MSRs, net																Expense from MSRs, net	(175)		(125)		(50)		40.0
Other income	Other income	45		19		26		136.8	77		48		29		60.4	Other income	82		32		50		156.3

Net gain on other investments		15		162		(147)		(90.7)	59		38		21		55.3
Net gains on other investments																Net gains on other investments	82		44		38		86.4
Net gains on sales of investment securities AFS	Net gains on sales of investment securities AFS	—		—		—		—	—		11		(11)		(100.0)	Net gains on sales of investment securities AFS	26		—		26		—
Total noninterest income	Total noninterest income	$	3,139	$	2,988	$	151	5.1	$	5,760	$	5,506	$	254	4.6	Total noninterest income	$	2,055	$	2,621	$	(566)	(21.6)

The significant changes in noninterest income for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the same ~~periods~~period of ~~2020~~2021 are described below:

•Trust income. Trust income increased as dollars in managed fiduciary accounts grew between March 31, 2022 and 2021.

•Service fees. Service fees increased ~~$297~~$112 thousand for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the same period ~~of 2020 due to increases of $42 thousand~~ in ~~overdraft fee income, $151 thousand in ATM network fees, and $70 thousand in other fee income. Service fees increased $323 thousand for the six months ended June 30,~~ 2021 primarily due to increases of ~~$246~~$52 thousand in overdraft fee income, $23 thousand in ATM network fees, ~~$49~~$18 thousand in loan servicing fee income, and ~~$60~~$28 thousand in ~~other~~merchant program fee income, partially offset by ~~a reduction~~decreases of ~~$39~~$2 thousand in ~~overdraft fee income.~~safe deposit income and $7 thousand in other service charge fees.

•Net gains on sales of loans held for sale. The Company mitigates long-term interest rate risk by selling qualifying residential loans to the secondary market. ~~During~~In an effort to utilize some excess liquidity along with the ~~first quarter~~rapid increase in the 10-year treasury rate in 2022 and the related impact on the pricing of ~~2021,~~loans held for sale, management reduced the volume of ~~loans sold was less than the volume in the first quarter of 2020 as management reduced~~ loan sales in 2022 compared to ~~utilize some of Union's excess liquidity.~~2021. Residential loans totaling ~~$55.5 million and $85.2~~$16.4 million were sold during the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to sales of ~~$55.4 million and $97.9~~$29.7 million during the same ~~periods~~period in ~~2020, respectively.~~2021. The decrease of ~~$76~~$880 thousand in net gains on sales of loans held for sale ~~for the three months ended June 30, 2021~~between periods is reflective of the lower ~~premium~~sales volumes and lower premiums obtained ~~during the quarter.~~on those sales.

•Income from Company-owned life insurance. The ~~decrease~~Company purchased $5.8 million of Company owned life insurance covering select officers of Union during the fourth quarter of 2021. In addition, $77 thousand was received in proceeds from a death benefit, resulting in increased income for the three ~~and six~~ months ended ~~June 30, 2021 was due~~March 31, 2022, compared to ~~lower yields earned on~~ the ~~underlying life insurance policies.~~same period in 2021.

•~~Income (loss)~~Expense from MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans where servicing is retained. Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the future estimate of servicing the underlying mortgages. The slight increase in the volume of sales of residential loans for the three months ended June 30, 2021, resulted in an increase in income of $39 thousand compared to the same period in 2020. Additionally, the amortization of MSRs exceeded new capitalized MSRs ~~during~~for the ~~first quarter; this, coupled with a $12.6 million volume decrease in residential loan sales during the first quarter,~~three months ended March 31, 2022 and 2021 which resulted ~~in an increase~~ in expense of $175 thousand and $125 thousand, ~~for~~respectively.

•Other income. The increase in Other income during the ~~six~~comparison period is primarily reflective of $44 thousand in prepayment penalties received from the early payoff of loans during the three months ended ~~June 30, 2021,~~March 31, 2022, in addition to an increase of $3 thousand in gains on the utilization of tax credits compared to the same period in ~~2020.~~

•~~Other income.~~ ~~Other income increased during the comparison periods due to receipt of a $19 thousand prepayment penalty from the early payoff of a loan during the second quarter of~~ 2021.

•Net ~~gain~~gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan ~~(the "2020 Deferred Compensation Plan")~~ elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net gains of ~~$15 thousand and $59~~$82 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to net gains of ~~$162 thousand and $38~~$44 thousand for the same ~~periods~~period in ~~2020.~~2021.

Union Bankshares, Inc. Page 3530

Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three ~~and six~~ month comparison periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		For The Three Months Ended June 30,							For the Six Months Ended June 30,								For The Three Months Ended March 31,
		2021		2020		$ Variance		% Variance	2021		2020		$ Variance		% Variance		2022		2021		$ Variance		% Variance
		(Dollars in thousands)															(Dollars in thousands)
Salaries and wages	Salaries and wages	$	3,553	$	2,829	$	724	25.6	$	6,636	$	5,950	$	686	11.5	Salaries and wages	$	3,410	$	3,083	$	327	10.6
Employee benefits	Employee benefits	1,203		1,231		(28)		(2.3)	2,372		2,213		159		7.2	Employee benefits	1,305		1,169		136		11.6
Occupancy expense, net	Occupancy expense, net	527		477		50		10.5	1,004		991		13		1.3	Occupancy expense, net	527		477		50		10.5
Equipment expense	Equipment expense	872		756		116		15.3	1,670		1,496		174		11.6	Equipment expense	916		798		118		14.8
Professional fees	Professional fees	322		171		151		88.3	518		341		177		51.9	Professional fees	216		196		20		10.2
FDIC insurance assessment	FDIC insurance assessment	200		96		104		108.3	356		207		149		72.0	FDIC insurance assessment	127		156		(29)		(18.6)
Other loan related expenses	Other loan related expenses	124		81		43		53.1	208		146		62		42.5	Other loan related expenses	73		84		(11)		(13.1)
Vermont franchise tax	Vermont franchise tax	240		182		58		31.9	463		359		104		29.0	Vermont franchise tax	261		223		38		17.0
Electronic banking expense		97		84		13		71.0	189		162		27		16.7
Donations																Donations	39		24		15		62.5

Travel and entertainment																Travel and entertainment	33		17		16		94.1
Amortization of core deposit intangible																Amortization of core deposit intangible	—		43		(43)		(100.0)
Other expenses	Other expenses	1,251		1,204		47		3.9	2,426		2,418		8		0.3	Other expenses	1,207		1,183		24		2.0
Total noninterest expense	Total noninterest expense	$	8,389	$	7,111	$	1,278	18.0	$	15,842	$	14,283	$	1,559	10.9	Total noninterest expense	$	8,114	$	7,453	$	661	8.9

The significant changes in noninterest expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the same ~~periods~~period in ~~2020~~2021 are described below:

•Salaries and wages. The ~~increases~~increase in salaries and wages of ~~$724 thousand and $686~~$327 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to the same ~~periods~~period in ~~2020 were primarily~~2021 was due ~~to the deferral of loan origination costs in 2020 in addition~~ to annual increases in employee's salaries, increases in accruals for annual incentive plan payments, and ~~wages in 2021.~~the deferral of loan origination costs. Also, the number of full time equivalent employees has increased from 195 at March 31, 2021 to 203 as of March 31, 2022. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by ~~$22 thousand and $207~~$35 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to ~~$436 thousand and $466~~$185 thousand for the same ~~periods~~period in ~~2020.~~2021. The lower deferred loan origination costs for ~~2021~~2022 compared to ~~2020~~2021 is primarily attributable to the timing of origination and forgiveness of PPP ~~loan originations.~~loans during 2021 and 2022.

•Employee benefits. Employee benefit expense ~~decreased by $28 thousand and~~ increased ~~by $159~~$136 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to the same ~~periods~~period in ~~2020~~2021 due to ~~the quarterly adjustment~~increases of $21 thousand in the ~~value~~cost of ~~the underlying assets supporting the 2020 Deferred Compensation Plan. In addition, the costs associated with~~payroll taxes, $37 thousand in group health insurance, $13 thousand in 401(k) plan contributions, and $65 thousand in employee benefits related to the Company's medical and dental plans increased by $96 thousand and $125 thousand for the three and six months ended June 30, 2021, respectively, and 401k contributions increased $24 thousand and $52 thousand for the three and six months ended June 30, 2021, respectively, compared to the same periods in 2020.deferred compensation plans.

•Occupancy expense, net. The ~~increase~~Company opened a new full service branch location during the fourth quarter of 2021. Increase in occupancy expense, net, ~~primarily relates to a $108 thousand loss recognized~~was due to ~~the disposition~~increases of ~~a branch location. The closure~~$22 thousand in utilities, primarily fuel cost, $12 thousand in property taxes, and ~~disposition was not the result of the COVID-19 pandemic. The recognized loss from the disposition was partially offset by the reduction~~$14 thousand in ~~maintenance~~repairs and ~~related services needed due to the closure of branch lobbies during the COVID-19 pandemic.~~maintenance.

•Equipment expense. Equipment expenses increased between periods primarily due to increases of ~~$101 thousand and $170~~$99 thousand in software license and maintenance costs and $19 thousand in computer operation expense for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to the same ~~periods~~period in ~~2020.~~2021.

•Professional fees. During the ~~the~~ first ~~six~~three months of ~~2021,~~2022, additional consultants were engaged to assist with ~~employment searches and other~~ advisory services that were not utilized in ~~2020,~~2021, resulting in increases of ~~$151~~$20 thousand ~~for the three months ended June 30, 2021, and $177 thousand for the six months ended June 30, 2021,~~ compared to the same ~~periods~~period in ~~2020.~~2021.

•FDIC insurance assessment. The ~~deposit insurance assessment base and~~FDIC assessment rate ~~both increased~~decreased resulting in a decrease in expense for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 compared to the ~~2020 comparison periods, resulting~~same period in ~~an increase in expense for both periods.~~2021.

•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 decreased for the three ~~and six~~ months ended ~~June 30, 2021 increased~~March 31, 2022 compared to the same period in ~~2020~~2021 due to a decrease in real estate closing costs between the ~~increase in loan volumes throughout the Company's market areas.~~three month comparison periods.

Union Bankshares, Inc. Page 3631

•Vermont franchise tax. The increase in expense between the three ~~and six~~ month comparison periods of ~~2020~~2021 and ~~2021~~2022 is due to the increase in average deposit balances for customer accounts allocated to Vermont.

•~~Electronic banking expenses.~~Donations. ~~Electronic banking expenses~~Charitable donations are made as part of the Company's commitment to continually help enhance the economic vitality and social welfare of our communities. Donations increased ~~$13~~by $15 thousand between the three month comparison periods of 2021 and ~~$27~~2022.

•Travel and entertainment. The Company has resumed business travels, intercompany travel and events that were suspended due to the economic disruption caused by COVID-19, resulting in increased expense of $16 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022, compared to the same ~~periods~~period in ~~2020 due to changes~~2021.

•Amortization of core deposit intangible. The core deposit intangible was fully amortized in ~~services with ATM and debit card service providers and an increase~~2021 resulting in ~~volume of activity.~~no amortization expense in 2022.

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. The Company's net provision for income taxes was ~~$603~~$422 thousand ~~and $1.1 million~~ for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~$487 thousand and $843~~$541 thousand for the same ~~periods~~period in ~~2020, respectively.~~2021. The Company's effective federal corporate income tax rate was ~~16.0% and 15.6%~~14.7% for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 compared to ~~14.9% and 14.4%~~15.2% for the same ~~periods~~period in ~~2020, respectively.~~2021.

Amortization expense related to limited partnership investments is included as a component of tax expense and amounted to ~~$239 thousand and $501~~$256 thousand for the three ~~and six~~ months ended ~~June 30, 2021, respectively,~~March 31, 2022 and ~~$188 thousand and $376~~$262 thousand for the same ~~periods~~period in ~~2020, respectively.~~2021. 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 ~~$241~~$251 thousand and ~~$482~~$241 thousand for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~respectively, and $195 thousand and $390 thousand for the three and six months ended June 30, 2020,~~ respectively.

FINANCIAL CONDITION

At ~~June 30, 2021,~~March 31, 2022, the Company had total consolidated assets of ~~$1.07~~$1.23 billion, including gross loans and loans held for sale (total loans) of ~~$783.6~~$830.0 million, deposits of ~~$967.7 million, borrowed funds~~$1.13 billion, subordinated notes of ~~$7.2~~$16.2 million and stockholders' equity of ~~$82.4~~$69.4 million. The Company’s total assets at ~~June 30, 2021 decreased $27.4~~March 31, 2022 increased $28.2 million, or ~~2.5%~~2.3%, from ~~$1.09~~$1.21 billion at December 31, ~~2020 attributable to the seasonal reduction in municipal loans discussed below,~~2021, and increased ~~$149.1~~$129.2 million, or ~~16.3%~~11.7%, compared to ~~June 30, 2020.~~

June 30th marks the end of the fiscal year for the majority of municipal customers, including school districts, and several customers are required to reduce their outstanding short term debts to zero for one day during their fiscal year. The one day requirement traditionally occurs annually on June 30th and as a result the Company experiences a decrease in outstanding loan balances. In many cases monies are transferred from corresponding deposit accounts to pay off these debts so the Company experiences a corresponding decrease in deposit balances as well. These decreases are short term in nature as the loans and deposits for the next municipal fiscal year are recorded within the first few days of July. In July 2021, the Company recorded $50.7 million in new municipal loans.March 31, 2021.

Net loans and loans held for sale ~~decreased $20.4~~increased $29.4 million, or ~~2.6%~~3.7%, to ~~$774.5~~$822.6 million, representing ~~72.6%~~66.7% of total assets at ~~June 30, 2021,~~March 31, 2022, compared to ~~$794.9~~$793.2 million, or ~~72.7%~~65.8% of total assets at December 31, ~~2020.~~2021. (See Loans Held for Sale and Loan Portfolio below.)

Total deposits ~~decreased $26.6~~increased $39.2 million, or ~~2.7%~~3.6%, to ~~$967.7 million~~$1.13 billion at ~~June 30, 2021,~~March 31, 2022, from ~~$994.3 million~~$1.10 billion at December 31, ~~2020 attributable to the seasonality of municipal deposits as discussed above.~~2021. There ~~was an increase~~were increases in noninterest bearing deposits of ~~$28.3~~$38.2 million, or ~~13.2%~~14.4%, ~~which was more than offset by decreases in~~and interest bearing deposits of ~~$26.8~~$3.4 million, or ~~4.2%~~0.5%, ~~and~~which were partially offset by a decrease in time deposits of ~~$28.1~~$2.4 million, or ~~19.8%~~2.3%. (See average balances and rates in the Yields Earned and Rates Paid table on ~~pages 32 and 33.~~page 28.)

~~Total borrowed funds were $7.2~~In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes are presented net of unamortized issuance costs of $321 thousand and $329 thousand at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020. (See~~ ~~Borrowings~~ ~~on page 42.)~~2021, respectively, in the consolidated balance sheets.

~~Total stockholders’~~Stockholders’ equity ~~increased $1.5 million to $82.4 million at June 30, 2021~~decreased from ~~$80.9~~$84.3 million at December 31, ~~2020.~~2021 to $69.4 million at March 31, 2022, reflecting an increase of $15.9 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS securities, cash dividends declared of $1.6 million and stock repurchases of $75 thousand during the three months ended March 31, 2022. These decreases were partially offset by net income of $2.5 million for the first three months of 2022, an increase of $103 thousand from stock based compensation and a $13 thousand increase due to the issuance of common stock under the DRIP. (See Capital Resources on page ~~44.~~40.)

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) ~~decreased $19.7~~increased $29.1 million, or ~~2.5%~~3.6%, to ~~$783.6~~$830.0 million, representing ~~73.5%~~67.3% of assets at ~~June 30, 2021,~~March 31, 2022, from ~~$803.4~~$800.9 million, representing ~~73.5%~~66.4% of assets at December 31, ~~2020.~~2021. The total loan portfolio at ~~June 30, 2021 increased $47.4~~March 31, 2022 decreased $12.5 million compared to the ~~June 30, 2020~~March 31, 2021 level of ~~$736.2~~$842.5 million, which represented ~~80.3%~~76.3% of ~~assets.~~assets, when the amount of PPP loans was at a high. 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 ~~$650.2~~$702.1 million, or ~~83.0%~~84.6% of total loans at ~~June 30, 2021~~March 31, 2022 and ~~$593.4~~$670.6 million, or ~~73.9%~~83.7% of total loans at December 31, ~~2020.~~2021. The Company had ~~637~~80 and ~~679~~154 PPP loans totaling ~~$57.3~~$6.8 million and ~~$66.2~~$13.6 million classified as commercial loans as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. ~~Other than the decrease~~Changes in ~~the municipal portfolio reflecting the one day seasonal fluctuation from municipalities paying down their short term loans as of their June 30 fiscal year end,~~ the composition of the Company's loan portfolio ~~remained relatively unchanged~~ from December 31, ~~2020~~2021 (see table below). resulted primarily from an increase in the volume of residential, construction and commercial real estate loans originated, partially offset by a decrease in the

Union Bankshares, Inc. Page 32

commercial portfolio related to PPP loan forgiveness. There was no material change in the Company’s lending programs or terms during the ~~six~~three months ended ~~June 30, 2021.~~

~~Union Bankshares, Inc. Page 37~~

March 31, 2022.

The composition of the Company's loan portfolio, including loans held for sale, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was as follows:


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
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	$	216,025	27.6	$	183,166	22.8	Residential real estate	$	282,662	34.0	$	246,827	30.8
Construction real estate	Construction real estate	75,110		9.6	57,417		7.1	Construction real estate	68,730		8.3	65,149		8.1
Commercial real estate	Commercial real estate	316,943		40.4	320,627		39.9	Commercial real estate	348,378		42.0	344,816		43.1
Commercial	Commercial	98,220		12.5	108,861		13.6	Commercial	44,808		5.4	49,788		6.2
Consumer	Consumer	2,638		0.3	2,601		0.3	Consumer	2,241		0.3	2,376		0.3
Municipal	Municipal	32,538		4.2	98,497		12.3	Municipal	80,788		9.7	78,094		9.8
Loans held for sale	Loans held for sale	42,149		5.4	32,188		4.0	Loans held for sale	2,349		0.3	13,829		1.7
Total loans	Total loans	783,623		100.0	803,357		100.0	Total loans	829,956		100.0	800,879		100.0
Allowance for loan losses	Allowance for loan losses	(8,505)			(8,271)			Allowance for loan losses	(8,336)			(8,336)
Unamortized net loan fees		(578)			(146)
Unamortized net loan costs								Unamortized net loan costs	1,007			705
Net loans and loans held for sale	Net loans and loans held for sale	$	774,540		$	794,940		Net loans and loans held for sale	$	822,627		$	793,248

The Company originates and sells qualified residential mortgage loans in various secondary market avenues to mitigate long-term interest rate risk and generate fee income, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At ~~June 30, 2021,~~March 31, 2022, the Company serviced ~~an $849.1~~a $914.6 million residential real estate mortgage portfolio, of which ~~$42.1~~$2.3 million was held for sale and approximately ~~$591.0~~$629.6 million of which was serviced for unaffiliated third parties.

~~During~~In an effort to utilize some excess liquidity along with the rapid increase in the 10-year treasury rate in 2022 and the related impact on the pricing of loans held for sale, the Company elected to retain the majority of residential real estate loans originated in the first ~~six months~~quarter of ~~2021, the~~2022. The Company sold ~~$85.2~~$16.4 million of qualified residential real estate loans to the secondary market ~~to mitigate long-term interest rate risk and to generate fee income,~~during the first three months of 2022 compared to sales of ~~$97.8~~$29.7 million during the first ~~six~~three months of ~~2020.~~2021. Residential mortgage loan origination activity continued to be strong during the ~~second~~first quarter of ~~2021,~~2022, consisting of both refinancing and purchase activity. Customers continue to refinance existing mortgages ~~in order to obtain lower rates. Despite~~and despite low housing inventory, purchase activity continues to 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 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.

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 ~~$61.1~~$10.3 million guaranteed under these various programs at ~~June 30, 2021~~March 31, 2022 on an aggregate balance of ~~$62.4~~$11.5 million in subject loans. This includes ~~$57.3~~$6.8 million of PPP loans that are guaranteed 100% by 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 no commercial loans sold in the first ~~six~~three months of ~~2021~~2022 and ~~$131 thousand in commercial loans were sold in the first six months of 2020.~~2021. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.

The Company serviced ~~$21.0~~$22.1 million of commercial and commercial real estate loans for unaffiliated third parties as of ~~June 30, 2021.~~March 31, 2022. This included ~~$19.4~~$20.6 million of commercial or commercial real estate loans the Company originated and 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 ~~$2.2~~$2.3 million at ~~June 30, 2021,~~March 31, 2022, 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 ~~$215.7~~$172.5 million were pledged as collateral for borrowings from the FHLB under a blanket lien at ~~June 30, 2021.~~March 31, 2022.

Union Bankshares, Inc. Page 33

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

~~Union Bankshares, Inc. Page 38~~

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.

The region's economic environment ~~is seeing~~continues to see signs of improvement asand the states of Vermont and New Hampshire ~~are now~~have been fully opened since June 2021, after the COVID-19 pandemic closure of large segments of the economy. There is demand for leisure travel and dining out which is supporting the region's tourist and restaurant industries; however, the industry is also facing some staffing challenges as workforce participation is lagging. Demand for homes has surged with the general safety and desirability of the region ~~low interest rates~~ and the increased ability of working remotely. The Company’s management is focused on the lingering impact of COVID-19 ~~is having~~ on its borrowers and closely monitors industry and geographic concentrations, specifically the continuing impact on the region's tourist and restaurant industries. The Vermont unemployment rate was reported at ~~3.1%~~2.5% for ~~June 2021~~March 2022 compared to ~~9.4%~~2.9% for ~~June 2020~~March 2021 and the New Hampshire unemployment rate was ~~2.9%~~2.6% for ~~June 2021~~March 2022 compared to ~~11.8%~~3.0% for ~~June 2020.~~March 2021. These rates compare favorably with the nationwide unemployment rate of ~~5.9%~~3.9% and ~~11.1%~~6.0%, respectively, for the comparable periods. Management will continue to monitor the national, regional and local economic environment in relation to COVID-19 and its impact on unemployment, business outlook and real estate values in the Company’s market area.

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

June 30,
2021 December 31,
2020 June 30,
2020
(Dollars in thousands)
Nonaccrual loans $ 5,752 $ 2,410 $ 2,357
Accruing loans 90+ days delinquent 176 511 861
Total nonperforming loans (1) 5,928 2,921 3,218
OREO — 50 —
Total nonperforming assets $ 5,928 $ 2,971 $ 3,218
ALL to loans not held for sale 1.15 % 1.07 % 0.99 %
ALL to nonperforming loans 143.47 % 283.16 % 214.05 %
Nonperforming loans to total loans 0.76 % 0.36 % 0.44 %
Nonperforming assets to total assets 0.56 % 0.27 % 0.35 %
Delinquent loans (30 days to nonaccruing) to total loans 0.83 % 0.83 % 0.77 %
Net charge-offs (annualized) to average loans not held for sale — % 0.01 % 0.01 %

~~____________________~~

~~(1)The Company had guarantees of U.S. or state government agencies on certain~~as of the ~~above nonperforming loans totaling $165 thousand at June 30, 2021, $177 thousand at December~~balance sheet dates and March 31, ~~2020, and $181 thousand at June 30, 2020.~~2021:


	March 31, 2022		December 31, 2021		March 31, 2021
	(Dollars in thousands)
Nonaccrual loans	$	4,405	$	4,650	$	5,878
Loans past due 90 days or more and still accruing interest	229		98		263
Total nonperforming loans	4,634		4,748		6,141
OREO	—		—		—

Total nonperforming assets	$	4,634	$	4,748	$	6,141

Guarantees of U.S. or state government agencies on the above nonperforming loans	$	177	$	113	$	168
TDR loans	$	2,181	$	2,215	$	2,766
Allowance for loan losses	$	8,336	$	8,336	$	8,429
Net recoveries	$	—	$	(65)	$	(8)
Total loans outstanding	$	829,956	$	800,879	$	842,466
Total average loans outstanding	$	805,074	$	808,894	$	812,628

Union Bankshares, Inc. Page 34

The ~~level~~following table shows trends of ~~nonaccrual loans increased $3.3 million, or 138.7%, since December~~certain asset quality ratios monitored by the Company's management as of the balance sheet dates and March 31, 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 $335 thousand, or 65.6%, during the same time period. 2021:


	March 31, 2022			December 31, 2021			March 31, 2021
	(Dollars in thousands)
Allowance for loan losses to total loans outstanding	1.00		%	1.04		%	1.00		%

Allowance for loan losses to nonperforming loans	179.89		%	175.57		%	137.26		%
Allowance for loan losses to nonaccrual loans	189.24		%	179.27		%	143.40		%
Nonperforming loans to total loans	0.56		%	0.59		%	0.73		%
Nonperforming assets to total assets	0.38		%	0.39		%	0.56		%
Nonaccrual loans to total loans	0.53		%	0.58		%	0.70		%
Delinquent loans (30 days to nonaccruing) to total loans	0.75		%	0.82		%	1.01		%
Net (recoveries) charge-offs (annualized) to total average loans	—		%	(0.01)		%	—		%
Residential real estate	—		%	(0.03)		%	(0.01)		%
Net (recoveries) charge-offs	$	—		$	(66)		$	(8)
Total average loans	$	266,089		$	243,212		$	222,766
Construction real estate	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	54,370		$	62,678		$	60,861
Commercial real estate	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	356,548		$	324,101		$	314,642
Commercial	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	46,275		$	88,626		$	114,911
Consumer	—		%	0.04		%	—		%
Net (recoveries) charge-offs	$	—		$	1		$	—
Total average loans	$	2,333		$	2,608		$	2,556
Municipal	—		%	—		%	—		%
Net (recoveries) charge-offs	$	—		$	—		$	—
Total average loans	$	79,459		$	87,669		$	96,892

There was one residential real estate loan totaling ~~$47~~$118 thousand in process of foreclosure at ~~June 30, 2021. The state-mandated moratorium on foreclosures related to the COVID-19 emergency was lifted effective July 15, 2021.~~March 31, 2022. The aggregate interest income not recognized on nonaccrual loans approximated ~~$414~~$527 thousand as of ~~June 30, 2021~~March 31, 2022 and ~~$420~~$504 thousand as of December 31, ~~2020.~~2021.

The Company had loans rated substandard that were on performing status totaling ~~$1.2 million~~$756 thousand at ~~June 30, 2021~~March 31, 2022 compared to ~~$2.2 million~~$769 thousand at December 31, ~~2020.~~2021. 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 short-term modifications made to loans to ~~a borrower~~borrowers affected by the COVID-19 pandemic and government shutdown orders would not be considered TDRs under specified ~~circumstances (See Notes 2 and 5). Through June 30, 2021, the Company had executed modifications under this guidance on~~circumstances. As of March 31, 2022, four loans with outstanding loan balances of ~~$159.1 million that carried accrued interest of $946 thousand. Of the total modifications executed, outstanding loan balances of $2.0 million~~$545 thousand remained subject to modified terms and carried accrued interest of ~~$78 thousand as of June 30, 2021. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.~~

~~Union Bankshares, Inc. Page 39~~

$10 thousand.

Allowance for Loan Losses. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, whether due to the effects of the COVID-19 pandemic or otherwise, 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 ~~2020~~2021 Annual Report did not change during the first ~~six~~three months of ~~2021.~~2022. The Company's ALL was ~~$8.5~~$8.3 million at ~~June 30, 2021~~March 31, 2022 and ~~$8.3 million as of~~ December 31, ~~2020.~~2021.

Union Bankshares, Inc. Page 35

Management ~~adjusted~~increased certain economic qualitative factors utilized to estimate the ALL during ~~the first and second quarters of~~ 2020 at the onset of the COVID-19 pandemic. ~~Despite~~During 2021, the economic qualitative reserve factor assigned to each loan portfolio in the ALL estimate was decreased due to continued indications of ~~an improving economy~~economic improvement. COVID-19 restrictions were lifted in June 2021 and ~~having~~ the majority of borrowers that had executed loan modifications due to COVID-19 were no longer subject to modified ~~terms, there were no changes to~~terms. Based on these continued improving economic trends, the economic qualitative reserve ~~factors~~factor assigned to ~~any of the~~all loan portfolios, ~~based on~~except the ~~qualitative factor reviews performed~~municipal loan portfolio, was decreased 5 bps during the first ~~six months~~quarter of ~~2021. Management will consider adjustment in upcoming quarters to allow more time for economic recovery and to monitor payments on loans that had been subject to modified terms.~~2022.

Impaired loans, including ~~$2.5~~$2.2 million of TDR loans, were ~~$7.2~~$6.5 million at ~~June 30, 2021,~~March 31, 2022, with government guaranties of ~~$354~~$420 thousand and a specific reserve amount allocated of ~~$58~~$44 thousand. Impaired loans, including ~~$2.9~~$2.2 million of TDR loans, were ~~$4.6~~$6.8 million at December 31, ~~2020,~~2021, with government guaranties of ~~$514~~$423 thousand and a specific reserve amount allocated of ~~$58~~$46 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. ~~There was no change to the~~The specific reserve amount allocated to individually identified impaired loans decreased $2 thousand as a result of the ~~June 30, 2021~~March 31, 2022 impairment evaluation.

The following table reflects activity in the ALL for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		For the Three Months Ended June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
		(Dollars in thousands)									(Dollars in thousands)
Balance at beginning of period	Balance at beginning of period	$	8,429	$	6,391	$	8,271	$	6,122	Balance at beginning of period	$	8,336	$	8,271
Charge-offs	Charge-offs	—		(3)		—		(57)		Charge-offs	(1)		—
Recoveries	Recoveries	1		—		9		23		Recoveries	1		8
Net recoveries (charge-offs)		1		(3)		9		(34)
Net recoveries										Net recoveries	—		8
Provision for loan losses	Provision for loan losses	75		500		225		800		Provision for loan losses	—		150
Balance at end of period	Balance at end of period	$	8,505	6,888		$	8,505	$	6,888	Balance at end of period	$	8,336	8,429

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:


		June 30, 2021			December 31, 2020				March 31, 2022			December 31, 2021
		Amount		Percent	Amount		Percent		Amount		Percent	Amount		Percent
		(Dollars in thousands)							(Dollars in thousands)
Residential real estate	Residential real estate	$	2,082	29.1	$	1,776	23.8	Residential real estate	$	2,224	34.1	$	2,068	31.4
Construction real estate	Construction real estate	1,024		10.1	763		7.4	Construction real estate	843		8.3	837		8.3
Commercial real estate	Commercial real estate	4,111		42.7	4,199		41.6	Commercial real estate	3,997		42.1	4,122		43.8
Commercial	Commercial	425		13.3	458		14.1	Commercial	289		5.4	275		6.3
Consumer	Consumer	12		0.4	15		0.4	Consumer	10		0.3	11		0.3
Municipal	Municipal	81		4.4	214		12.8	Municipal	88		9.8	86		9.9
Unallocated	Unallocated	770		—	846		—	Unallocated	885		—	937		—
Total	Total	$	8,505	100.0	$	8,271	100.1	Total	$	8,336	100.0	$	8,336	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.

~~Union Bankshares, Inc. Page 40~~

Management believes, in its best estimate, that the ALL at ~~June 30, 2021~~March 31, 2022 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 ~~June 30, 2021.~~March 31, 2022. 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.

Union Bankshares, Inc. Page 36

Investment Activities. During the first ~~six~~three months of ~~2021,~~2022, investment securities classified as AFS increased ~~$52.3~~$4.3 million to ~~$158.1~~$272.2 million, comprising ~~14.8%~~22.1% of total assets, compared to ~~$105.8~~$267.8 million, or ~~9.7%~~22.2% of total assets at December 31, ~~2020.~~2021. The Company used excess liquidity to increase the investment portfolio during 2021 and the first quarter of 2022 to obtain higher yields than what would have been earned at the ~~current~~ Federal Funds rate.

Net unrealized ~~gains~~losses for the Company’s AFS investment securities portfolio were ~~$1.3~~$22.1 million as of ~~June 30, 2021,~~March 31, 2022, compared to net unrealized ~~gains~~losses of ~~$3.3~~$2.0 million as of December 31, ~~2020.~~2021. The Company’s accumulated OCI component of stockholders’ equity at ~~June 30, 2021~~March 31, 2022 reflected cumulative net unrealized ~~gains~~losses on investment securities of ~~$1.0~~$17.4 million. There were no securities classified as HTM at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. The rapid increase in the 10-year treasury rate in 2022 has negatively impacted the fair market value of the investment portfolio as this index is typically tied to mortgage-backed securities. No declines in value were deemed by management to be OTT at ~~June 30, 2021.~~March 31, 2022. 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~~

Investment securities AFS with a carrying amount of $551 thousand and $589 thousand were ~~no investment securities~~ pledged as ~~of June 30, 2021~~collateral for public unit deposits or for other purposes as required or permitted by law at March 31, 2022 and December 31, ~~2020.~~2021, respectively.

Deposits. The following table shows information concerning the Company's average deposits by account type and weighted average nominal rates at which interest was paid on such deposits for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020:~~2021:


		Six Months Ended June 30, 2021					Six Months Ended June 30, 2020						Three Months Ended March 31, 2022					Three Months Ended March 31, 2021
		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	$	230,651	22.7	—		$	155,113	19.8	—		Noninterest bearing deposits	$	281,367	25.3	—		$	221,344	22.1	—
Interest bearing checking accounts	Interest bearing checking accounts	241,649		23.8	0.25	%	180,975		23.2	0.42	%	Interest bearing checking accounts	279,817		25.2	0.22	%	234,339		23.4	0.25	%
Money market accounts	Money market accounts	261,514		25.7	0.77	%	185,970		23.8	1.19	%	Money market accounts	259,670		23.3	0.53	%	264,499		26.4	0.80	%
Savings accounts	Savings accounts	156,442		15.4	0.07	%	113,225		14.5	0.14	%	Savings accounts	185,368		16.7	0.04	%	148,770		14.8	0.07	%
Total nontime deposits	Total nontime deposits	890,256		87.6	0.31	%	635,283		81.3	0.49	%	Total nontime deposits	1,006,222		90.5	0.20	%	868,952		86.7	0.32	%
Time deposits:	Time deposits:											Time deposits:
Less than $100,000	Less than $100,000	62,855		6.2	0.83	%	75,080		9.6	1.23	%	Less than $100,000	49,733		4.4	0.42	%	67,423		6.7	0.89	%
$100,000 and over	$100,000 and over	63,886		6.2	1.11	%	71,254		9.1	1.56	%	$100,000 and over	56,636		5.1	0.47	%	66,193		6.6	1.25	%
Total time deposits	Total time deposits	126,741		12.4	0.97	%	146,334		18.7	1.39	%	Total time deposits	106,369		9.5	0.45	%	133,616		13.3	1.06	%
Total deposits	Total deposits	$	1,016,997	100.0	0.39	%	$	781,617	100.0	0.66	%	Total deposits	$	1,112,591	100.0	0.23	%	$	1,002,568	100.0	0.42	%

During the first ~~six~~three months of ~~2021,~~2022, average total deposits grew ~~$235.4~~$110.0 million, or ~~30.1%~~11.0%, compared to the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, with growth in all categories except time ~~deposits.~~deposits and money market accounts. The increase in average balances for nontime deposits was attributable to proceeds from PPP loans deposited into customer accounts at Union, customer's receipt of government stimulus payments, and the general reduction in spending by customers due to COVID-19. The average balances of time deposits decreased due to higher rate paying time deposit accounts that matured and customers primarily transferred those funds into other deposit accounts.

The Company participates in CDARS, which permits the Company to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were no purchased CDARS deposits as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021. There were ~~$12.2~~$13.6 million of time deposits of $250,000 or less on the balance sheet at ~~June 30, 2021~~March 31, 2022 and ~~$14.2 million at~~ December 31, ~~2020,~~2021, 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 ~~$70.9~~$134.2 million and ~~$146.2~~$155.3 million in exchanged ICS demand and money market

Union Bankshares, Inc. Page 4137

deposits on the balance sheet at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. There were no purchased ICS deposits at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

~~At December 31, 2020, there were $15.0 million of retail~~Retail brokered deposits are issued under a master certificate of deposit program with a deposit broker for the purpose of providing a supplemental source of funding and liquidity. There were no retail brokered deposits at ~~June 30,~~March 31, 2022 or at December 31, 2021.

The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of ~~$100,000 and over~~the $250 thousand FDIC insurance limit at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Within 3 months	Within 3 months	$	18,096	$	22,722	Within 3 months	$	5,585	$	4,249
3 to 6 months	3 to 6 months	11,020		15,828		3 to 6 months	3,347		5,576
6 to 12 months	6 to 12 months	22,835		22,629		6 to 12 months	4,193		4,536
Over 12 months	Over 12 months	7,804		9,194		Over 12 months	1,832		1,862
		$	59,755	$	70,373		$	14,957	$	16,223

The Company's time deposits in amounts of $100 thousand and over decreased $10.6 million, or 15.1%, between December 31, 2020 and June 30, 2021, resulting primarily from the maturity, without renewal, of customer time deposits originated 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 June 30, 2021, the Company had deposit accounts~~Uninsured deposits have been estimated to include deposits with ~~less~~balances greater than ~~the maximum FDIC insured deposit amount of $250 thousand totaling $644.2 million, or 66.6% of total deposits. An additional $25.2 million of municipal deposits were over~~ the FDIC insurance coverage limit ~~at June 30, 2021~~of $250 thousand. This estimate is based on the same methodologies and assumptions used for regulatory reporting requirement. At March 31, 2022, the Company had uninsured deposit accounts totaling $449.1 million, or 39.6% of total deposits. Uninsured deposits include $28.3 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the ~~FHLB.~~FHLB at March 31, 2022, as described below under Borrowings.

Borrowings. Advances from the FHLB are another key source of funds to support earning assets. These funds are also used to manage the Bank's interest rate and liquidity risk exposures. The ~~Company's~~Company had no borrowed funds at ~~June 30, 2021~~March 31, 2022, and December 31, ~~2020 were comprised of borrowings from the FHLB of $7.2 million at a weighted average rate of 3.07%.~~2021.

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 ~~$28.6~~$35.7 million and ~~$23.6~~$37.5 million were utilized as collateral for these deposits at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $7$8 thousand and ~~$16~~$9 thousand for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, respectively.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented net of unamortized issuance costs of $321 thousand and $329 thousand at March 31, 2022 and December 31, 2021, respectively, ~~and $8 thousand and $16 thousand for~~in the ~~three and six months ended June 30, 2020, respectively.~~consolidated balance sheets.

Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements. The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers, to reduce its own exposure to fluctuations in interest rates and to implement its strategic objectives. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors written on adjustable-rate loans, commitments to participate in or sell loans, commitments to buy or sell securities, certificates of deposit or other investment instruments and risk-sharing commitments or guarantees on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contractual or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

The Company's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. For interest rate caps and floors written on adjustable-rate loans, the contractual or notional amounts do not represent the Company’s exposure to credit loss. The Company controls the risk of interest rate cap agreements through credit approvals, limits, and monitoring procedures. The Company generally requires collateral or other security to support financial instruments with credit risk.

Union Bankshares, Inc. Page 4238

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


		June 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
		(Dollars in thousands)					(Dollars in thousands)
Commitments to originate loans	Commitments to originate loans	$	136,227	$	61,431	Commitments to originate loans	$	62,248	$	48,910
Unused lines of credit	Unused lines of credit	144,100		132,502		Unused lines of credit	163,083		168,442
Standby and commercial letters of credit	Standby and commercial letters of credit	2,425		3,115		Standby and commercial letters of credit	2,143		2,158
Credit card arrangements	Credit card arrangements	286		308		Credit card arrangements	170		170
FHLB Mortgage Partnership Finance credit enhancement obligation, net	FHLB Mortgage Partnership Finance credit enhancement obligation, net	782		728		FHLB Mortgage Partnership Finance credit enhancement obligation, net	826		818

Commitment to purchase investment in a real estate limited partnership	Commitment to purchase investment in a real estate limited partnership	1,422		2,000		Commitment to purchase investment in a real estate limited partnership	—		4,574

Total	Total	$	285,242	$	200,084	Total	$	228,470	$	225,072

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. Loan commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. Since many of the loan commitments are expected to expire without being drawn upon and not all credit lines will be utilized, the total commitment amounts do not necessarily represent future cash requirements. Lines of credit incur seasonal volume fluctuations due to the nature of some customers' businesses, such as ~~tourism and maple syrup products production.~~tourism. The ~~large~~ increase in commitments to originate loans at ~~June 30, 2021~~March 31, 2022 from December 31, ~~2020~~2021 is primarily the result of ~~the annual fiscal cycle of local municipalities and school districts, with $50.7~~a $9.0 million ~~committed to them on June 30, 2021 for their fiscal year beginning July 1, 2021. In addition,~~increase in commitments to originate residential construction and commercial construction ~~loans increased $20.7 million over December 31, 2020.~~loans.

The Company did not hold any derivative or hedging instruments at ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

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.

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.~~funds. Deposit flows and loan and investment prepayments are less predictable and can be significantly influenced by market interest rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.

As of ~~June 30, 2021,~~March 31, 2022, Union, as a member of FHLB, had access to unused lines of credit up to ~~$100.2~~$69.1 million over and above the ~~$36.8~~$36.7 million in combined FHLB borrowings and other credit subject to collateralization ~~subject~~and to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available. This line of credit can be used for either short-term or long-term liquidity or other funding needs.

Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at ~~June 30, 2021.~~March 31, 2022. 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 ~~June 30, 2021,~~March 31, 2022, there were no purchased ICS or CDARS deposits, no retail brokered deposits, and no outstanding advances on the Union or Company correspondent lines.

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

~~Union Bankshares, Inc. Page 43~~

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.

Union Bankshares, Inc. Page 39

Capital Resources. Capital management is designed to maintain an optimum level of capital in a cost-effective structure that meets target regulatory ratios, supports management’s internal assessment of economic capital, funds the Company’s business strategies and builds long-term stockholder value. Dividends are generally in line with long-term trends in earnings per share and conservative earnings projections, while sufficient profits are retained to support anticipated business growth, fund strategic investments, maintain required regulatory capital levels and provide continued support for deposits. The Company continues to evaluate growth opportunities both through internal growth or potential acquisitions.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes are structured to qualify as Tier 2 capital for the Company under bank regulatory guidelines. The proceeds from the sale of the Notes were utilized to provide additional capital to Union to support its growth and for other general corporate purposes.

Stockholders’ equity ~~increased~~decreased from ~~$80.9~~$84.3 million at December 31, ~~2020~~2021 to ~~$82.4~~$69.4 million at ~~June 30, 2021,~~March 31, 2022, reflecting ~~net income of $5.9 million for the first six months of 2021,~~ an increase of $183 thousand from stock based compensation, a $24 thousand increase due to the issuance of 1,000 shares of common stock from the exercise of incentive stock options and a $21 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by a decrease of $1.6$15.9 million in accumulated other comprehensive ~~income~~loss due to a decrease in the fair market value of the Company's AFS securities, cash dividends declared of ~~$3.0~~$1.6 million and stock repurchases of $2$75 thousand during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. These decreases were partially offset by net income of $2.5 million for the first three months of 2022, an increase of $103 thousand from stock based compensation and a $13 thousand increase due to the issuance of common stock under the DRIP. The components of other comprehensive ~~income~~loss are illustrated in Note 10 of the unaudited consolidated financial statements.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of ~~June 30, 2021,~~March 31, 2022, the Company had ~~4,957,884~~4,968,692 shares issued, of which ~~4,483,873~~4,493,170 were outstanding and ~~474,011~~475,522 were held in treasury.

In January ~~2021,~~2022, the Company's Board reauthorized for ~~2021~~2022 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, ~~2021,~~2022, unless reauthorized. The Company repurchased 972,500 shares under this program during the first ~~six~~three months of ~~2021~~2022 at a total cost of $2$75 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 ~~June 30, 2021, 4,857~~March 31, 2022, 5,846 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~~standard regulatory capital 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)~~("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~~standard 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 ~~June 30, 2021,~~March 31, 2022, the Tier I leverage ratios for the Company and Union were ~~7.03%~~6.91% and ~~6.98%~~8.19%, respectively.

Union Bankshares, Inc. Page 4440

As shown in the table below, as of ~~June 30, 2021,~~March 31, 2022, 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 ~~June 30, 2021~~March 31, 2022 and the date of this report that management believes have changed either Company’s regulatory capital category.


		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 June 30, 2021		Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2022														As of March 31, 2022	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	$	87,243	13.47	%	$	51,815	8.00	%	N/A				Total capital to risk weighted assets	$	109,133	14.84	%	$	58,832	8.00	%	N/A
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	79,140		12.22	%	38,858		6.00	%	N/A				Tier I capital to risk weighted assets	84,618		11.50	%	44,149		6.00	%	N/A
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	79,140		12.22	%	29,143		4.50	%	N/A				Common Equity Tier 1 to risk weighted assets	84,618		11.50	%	33,111		4.50	%	N/A
Tier I capital to average assets	Tier I capital to average assets	79,140		7.03	%	45,030		4.00	%	N/A				Tier I capital to average assets	84,618		6.91	%	48,983		4.00	%	N/A

Union:	Union:													Union:
Total capital to risk weighted assets	Total capital to risk weighted assets	$	86,550	13.39	%	$	51,710	8.00	%	$	64,638	10.00	%	Total capital to risk weighted assets	$	108,642	14.79	%	$	58,765	8.00	%	$	73,456	10.00	%
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	78,464		12.14	%	38,780		6.00	%	51,706		8.00	%	Tier I capital to risk weighted assets	100,306		13.65	%	44,091		6.00	%	58,787		8.00	%
Common Equity Tier 1 to risk weighted assets	Common Equity Tier 1 to risk weighted assets	78,464		12.14	%	29,085		4.50	%	42,011		6.50	%	Common Equity Tier 1 to risk weighted assets	100,306		13.65	%	33,068		4.50	%	47,765		6.50	%
Tier I capital to average assets	Tier I capital to average assets	78,464		6.98	%	44,965		4.00	%	56,206		5.00	%	Tier I capital to average assets	100,306		8.19	%	48,989		4.00	%	61,237		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 ~~$0.33~~$0.35 per share were paid during the first quarter of ~~2021~~2022 and ~~have been~~were declared for the second quarter, payable on ~~August~~May 5, ~~2021~~2022 to stockholders of record on ~~July 31, 2021.~~April 30, 2022.

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 ~~June 30, 2021.~~March 31, 2022. 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 45~~

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

Union Bankshares, Inc. Page 41

Item 1A. Risk Factors

There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in the Company’s ~~2020~~2021 Annual Report since the date of the filing of that report.

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

The Company did not issue any unregistered shares during the quarter ended ~~June 30, 2021.~~March 31, 2022.

~~There was no repurchase~~The following table summarizes repurchases of the Company's equity securities during the quarter ended ~~June 30, 2021.~~March 31, 2022.



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 2022	—	—	—	2,500
February 2022	—	—	—	2,500
March 2022	2,500	$30.03	2,500	—

__________________

(1)All repurchases shown in the table were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 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 2022. The program will expire on December 31, 2022, unless reauthorized.

Item 6. Exhibits.


31.1			Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
32.2			Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
101			The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021~~March 31, 2022 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 six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ (iii) the unaudited consolidated statements of comprehensive income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ (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 4642

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.

~~August 16, 2021~~May 13, 2022						/s/ David S. Silverman
						David S. Silverman
						Director, President and Chief Executive Officer


~~August 16, 2021~~May 13, 2022						/s/ Karyn J. Hale
						Karyn J. Hale
						Chief Financial Officer
						(Principal Financial Officer)

EXHIBIT INDEX


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

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

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

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

101			The following materials from the Company's Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021~~March 31, 2022 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 six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ (iii) the unaudited consolidated statements of comprehensive income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ (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 4743


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.			2723
Item 3. Quantitative and Qualitative Disclosures About Market Risk.			4541
Item 4. Controls and Procedures.			4541

PART II OTHER INFORMATION

Item 1. Legal Proceedings.			4641
Item 1A. Risk Factors.			4641
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.			4642
Item 6. Exhibits.			4642

Signatures			4743


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in thousands, except per share data)
Interest and dividend income
Interest and fees on loans	$	9,236	$	8,565	$	18,121	$	16,856
Interest on debt securities:
Taxable	456		337		860		724
Tax exempt	154		160		305		317
Dividends	4		26		8		60
Interest on federal funds sold and overnight deposits	14		11		33		64
Interest on interest bearing deposits in banks	34		40		71		81
Total interest and dividend income	9,898		9,139		19,398		18,102
Interest expense
Interest on deposits	924		1,252		1,971		2,561
Interest on borrowed funds	55		109		109		257
Total interest expense	979		1,361		2,080		2,818
Net interest income	8,919		7,778		17,318		15,284
Provision for loan losses	75		500		225		800
Net interest income after provision for loan losses	8,844		7,278		17,093		14,484
Noninterest income
Trust income	198		178		383		351
Service fees	1,581		1,284		3,104		2,781
Net gains on sales of investment securities available-for-sale	0		0		0		11
Net gains on sales of loans held for sale	1,151		1,227		2,045		2,039
Net gain on other investments	15		162		59		38
Other income	194		137		169		286
Total noninterest income	3,139		2,988		5,760		5,506
Noninterest expenses
Salaries and wages	3,553		2,829		6,636		5,950
Employee benefits	1,203		1,231		2,372		2,213
Occupancy expense, net	527		477		1,004		991
Equipment expense	872		756		1,670		1,496
Other expenses	2,234		1,818		4,160		3,633
Total noninterest expenses	8,389		7,111		15,842		14,283
Income before provision for income taxes	3,594		3,155		7,011		5,707
Provision for income taxes	603		487		1,144		843
Net income	$	2,991	$	2,668	$	5,867	$	4,864
Basic earnings per common share	$	0.67	$	0.60	$	1.31	$	1.09
Diluted earnings per common share	$	0.66	$	0.59	$	1.30	$	1.08
Weighted average number of common shares outstanding	4,482,597		4,474,139		4,481,475		4,473,512
Weighted-average common and potential common shares for diluted EPS	4,511,169		4,491,836		4,506,150		4,490,938
Dividends per common share	$	0.33	$	0.32	$	0.66	$	0.64



For The Six Months Ended June 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	175		(180)		708		97		3		3		(6)		800
Recoveries of amounts charged off	23		0		0		0		0		0		0		23
	1,590		594		3,886		491		26		79		279		6,945
Amounts charged off	0		0		(54)		0		(3)		0		0		(57)
Balance, June 30, 2020	$	1,590	$	594	$	3,832	$	491	$	23	$	79	$	279	$	6,888


	As of June 30, 2020						For The Three Months Ended June 30, 2020				For the Six Months Ended June 30, 2020
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	1,959	$	2,524	$	35	$	1,724	$	9	$	1,654	$	28
Construction real estate	218		237		2		218		1		219		2
Commercial real estate	3,085		3,264		86		3,121		16		3,149		38
Commercial	250		254		7		265		5		276		12
Total	$	5,512	$	6,279	$	130	$	5,328	$	31	$	5,298	$	80



	New TDRs During the					New TDRs During the
	Three Months Ended June 30, 2020					Six Months Ended June 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	6	$	493	$	493	6	$	493	$	493


	Three Months Ended
	June 30, 2021						June 30, 2020
	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	$	1,165	$	(245)	$	920	$	830	$	(174)	$	656







Total other comprehensive income	$	1,165	$	(245)	$	920	$	830	$	(174)	$	656



	Six Months Ended
	June 30, 2021						June 30, 2020
	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 (losses) gains arising during the period on investment securities available-for-sale	$	(2,069)	$	434	$	(1,635)	$	2,202	$	(462)	$	1,740
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	$	(2,069)	$	434	$	(1,635)	$	2,191	$	(460)	$	1,731


	Six Months Ended June 30,
	2021						2020
	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	$	71,310	$	33	0.09	%	$	34,148	$	64	0.37	%
Interest bearing deposits in banks	13,779		71		1.04	%	7,240		81		2.24	%
Investment securities (1), (2)	136,901		1,165		1.79	%	85,596		1,041		2.57	%
PPP loans, net (3)	70,906		1,743		4.96	%	26,063		368		2.84	%
Loans (excluding PPP loans), net (1), (4)	757,612		16,378		4.41	%	687,155		16,488		4.88	%
Nonmarketable equity securities	1,153		8		1.47	%	2,447		60		4.94	%
Total interest earning assets (1)	1,051,661		19,398		3.77	%	842,649		18,102		4.38	%
Cash and due from banks	4,884						5,359
Premises and equipment	20,916						20,651
Other assets	37,163						35,130
Total assets	$	1,114,624					$	903,789
Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	$	241,649	303		0.25	%	$	180,975	373		0.42	%
Savings/money market accounts	417,956		1,058		0.51	%	299,195		1,176		0.79	%
Time deposits	126,741		610		0.97	%	146,334		1,012		1.39	%
Borrowed funds and other liabilities	7,165		109		3.02	%	38,910		257		1.30	%
Total interest bearing liabilities	793,511		2,080		0.53	%	665,414		2,818		0.85	%
Noninterest bearing deposits	230,651						155,113
Other liabilities	9,599						9,847
Total liabilities	1,033,761						830,374
Stockholders' equity	80,863						73,415
Total liabilities and stockholders’ equity	$	1,114,624					$	903,789
Net interest income			$	17,318					$	15,284
Net interest spread (1)					3.24	%					3.53	%
Net interest margin (1)					3.36	%					3.71	%


	June 30, 2021			December 31, 2020			June 30, 2020
	(Dollars in thousands)
Nonaccrual loans	$	5,752		$	2,410		$	2,357
Accruing loans 90+ days delinquent	176			511			861
Total nonperforming loans (1)	5,928			2,921			3,218
OREO	—			50			—

Total nonperforming assets	$	5,928		$	2,971		$	3,218
ALL to loans not held for sale	1.15		%	1.07		%	0.99		%
ALL to nonperforming loans	143.47		%	283.16		%	214.05		%
Nonperforming loans to total loans	0.76		%	0.36		%	0.44		%
Nonperforming assets to total assets	0.56		%	0.27		%	0.35		%
Delinquent loans (30 days to nonaccruing) to total loans	0.83		%	0.83		%	0.77		%
Net charge-offs (annualized) to average loans not held for sale	—		%	0.01		%	0.01		%