Financial Performance - Consolidated net income decreased by $680 thousand, or 25.2%, to $2.0 million for Q2 2024 compared to $2.7 million for Q2 2023[67] - The efficiency ratio increased to 78.55% for Q2 2024, compared to 73.78% for Q2 2023[69] - Net interest income for the six months ended June 30, 2024, was $18,492 thousand, down from $19,593 thousand in 2023, representing a decrease of 5.6%[75] - Total noninterest income rose to $2,765 thousand for the three months ended June 30, 2024, reflecting an 11.4% increase from $2,483 thousand in 2023[78] - Total noninterest expenses reached $9,781 thousand for the three months ended June 30, 2024, a 7.9% increase from $9,063 thousand in 2023[79] Asset and Liability Management - Total consolidated assets were $1.40 billion as of June 30, 2024, with total loans of $1.01 billion and deposits of $1.05 billion[68] - The Company reported total consolidated assets of $1.40 billion as of June 30, 2024, a decrease of 4.8% from $1.47 billion at December 31, 2023[82] - Total liabilities rose to $1,366,187 thousand in 2024 from $1,296,365 thousand in 2023, marking an increase of 5.4%[74] - Total deposits decreased by $252.3 million, or 19.3%, to $1.05 billion at June 30, 2024[83] - Federal funds sold and overnight deposits decreased by $47.2 million, or 64.5%, to $26.0 million as of June 30, 2024[82] Capital and Equity - The Company's total capital decreased to $64.0 million at June 30, 2024, from $65.8 million at December 31, 2023[68] - Stockholders' equity decreased from $65.8 million at December 31, 2023, to $64.0 million at June 30, 2024, reflecting a net income of $4.4 million for the first six months of 2024[83] - The Company declared quarterly cash dividends of $0.36 per share during the second quarter of 2024, payable on August 1, 2024[106] Credit Quality - Nonperforming assets to total assets ratio remained stable at 0.14% as of June 30, 2024, compared to 0.15% in the previous year[69] - Credit loss expense for loans was $238 thousand for the three months ended June 30, 2024, compared to a benefit of $(151) thousand in 2023, indicating a shift in credit quality[77] - Total credit loss expense, net for the six months ended June 30, 2024, was $158 thousand, compared to a benefit of $(22) thousand in 2023, indicating a deterioration in credit conditions[77] - Nonaccrual loans totaled $1.77 million as of June 30, 2024, down from $1.86 million at December 31, 2023[87] Interest Income and Expense - Net interest margin was 2.74% for the six months ended June 30, 2024, down from 3.05% for the same period in 2023[67] - Interest expense increased by $6.4 million to $13.7 million for the six months ended June 30, 2024, compared to $7.3 million for the same period in 2023[71] - The net interest spread decreased by 43 basis points to 2.29% for the six months ended June 30, 2024, from 2.72% for the same period last year[71] - Interest income on loans increased by $2.7 million due to an increase in the average volume of loans outstanding of $67.9 million and an increase of 74 basis points in the average yield[71] Investment and Securities - The net unrealized losses in the Company's Available-for-Sale (AFS) investment securities portfolio increased to $45.1 million as of June 30, 2024, compared to $41.0 million as of December 31, 2023, primarily due to rising long-term interest rates[94] - Investment securities classified as AFS decreased by $11.9 million to $252.5 million, comprising 18.1% of total assets as of June 30, 2024[93] - The Company has no securities classified as Held-to-Maturity (HTM) as of June 30, 2024, indicating a focus on liquidity and flexibility in its investment strategy[94] Loan Portfolio - Average loans increased by $64.4 million, or 6.6%, to $1.0 billion for the six months ended June 30, 2024, contributing to a $4.8 million increase in interest income on loans[71] - The total loan portfolio increased by $73.5 million compared to June 30, 2023, reaching $1.01 billion[83] - The Company originated commercial real estate and commercial loans with $2.3 million guaranteed under various government programs as of June 30, 2024[85] Deposits and Funding - Average total deposits decreased by $24.4 million, or 2.0%, to $1.180 billion for the six months ended June 30, 2024, compared to the same period in 2023[96] - The average balance of noninterest-bearing deposits fell by $33.3 million, while average time deposits increased by $48.5 million, indicating a shift in customer preferences towards higher-yielding products[96] - The Company had outstanding Federal Home Loan Bank (FHLB) advances of $212.1 million at a weighted average rate of 4.41% as of June 30, 2024, compared to $55.7 million at 3.68% on December 31, 2023[98]

E xh ib it99.1 | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ...

MORRISVILLE, Vt., July 17, 2024 (GLOBE NEWSWIRE) -- Union Bankshares, Inc. (NASDAQ - UNB) today announced results for the three and six months ended June 30, 2024 and declared a regular quarterly cash dividend. Consolidated net income for the three months ended June 30, 2024 was $2.0 million, or $0.45 per share, compared to $2.7 million, or $0.60 per share, for the same period in 2023, and $4.4 million, or $0.98 per share, for the six months ended June 30, 2024, compared to $5.7 million, or $1.26 per share ...

Total assets were $1.40 billion as of June 30, 2024 compared to $1.33 billion as of June 30, 2023, an increase of $63.7 million, or 4.8%. Loan growth was the primary driver of the increase in total assets with total loans reaching $1.01 billion as of June 30, 2024 including $6.2 million in loans held for sale, compared to $940.2 million as of June 30, 2023, with $3.1 million in loans held for sale. Asset quality remains strong with minimal past due loans and net recoveries of $10 thousand for the three and ...

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 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2024 Commission file number: 001-15985 UNION BANKSHARES, INC. VT 03-0283552 20 LOWER MAIN STREET, P.O. BOX 667 MORRISVILLE, VT 05661 Registrant's telephone number: 802-888-6600 Former name, former address ...

E x h i b i t 9 9.1 TRANSFER AGENT: Broadridge Corporate Issu e r S o l u t i o n s, I n c. P.O. Box 1342 Brentwood, NY 11717 866.321.8022 or 720.378.5956 E-mail: shareholder@broadridge.com NASDAQ STOCK MARKET Ticker Symbol: UNB Corporate Name: Union Bankshares, I n c. Corporate Address: 20 Lower Main Street P.O. Box 667 Morrisville, VT 05661-0667 Investor Relations: UBLocal.com We a r e p l e a s e d t o r e p o r t a s u m m a ry o f fi n a n c i a l r e s u l t s fo U n i o n B a n k s h a r e s, I n c. ...

Financial Performance - The Company's consolidated net income for 2023 was $11.3 million, with basic earnings per share of $2.50, down from $12.6 million and $2.81 in 2022, reflecting a decrease in net interest income of $1.6 million or 4.0%[181]. - Net income for the year ended December 31, 2023, was $11.3 million, down from $12.6 million in 2022, indicating a decrease of 10.3%[189]. - The provision for income taxes decreased by $1.0 million or 38.4%, contributing to the overall financial performance for the year[181]. - Noninterest income totaled $9.9 million for the year ended December 31, 2023, a $451 thousand increase, or 4.8%, compared to 2022[202]. - Total noninterest expenses increased by $1.7 million, or 5.2%, to $35.4 million for the year ended December 31, 2023[204]. - The provision for income taxes was $1.6 million for 2023, with an effective federal corporate income tax rate of 12.5%[206]. - The Company's total capital increased from $55.2 million at December 31, 2022, to $65.8 million at December 31, 2023, reflecting a net income of $11.3 million for 2023 and a decrease of $5.5 million in accumulated other comprehensive loss[185]. Asset and Loan Management - Total consolidated assets increased by 9.9% to $1.5 billion as of December 31, 2023, compared to $1.3 billion at the end of 2022[183]. - Net loans and loans held for sale rose by 7.8% to $1.0 billion, representing 69.9% of total assets, while total investments increased by 5.7% to $265.9 million[183]. - The Company's gross loan portfolio increased by $72.0 million, or 7.5%, to $1.0 billion as of December 31, 2023, compared to $959.3 million at the end of 2022[211]. - Real estate secured loans represented $911.5 million, or 88.4% of total loans, at December 31, 2023, up from $828.2 million, or 86.3% of total loans, at December 31, 2022[211]. - The Company serviced a residential real estate mortgage portfolio of $1.1 billion at December 31, 2023, an increase from $987.4 million at the end of 2022[212]. - The Company originated and sold $75.6 million of qualified residential real estate loans in 2023, compared to $78.0 million in 2022[213]. - The net loans and loans held for sale amounted to $1,026.5 million as of December 31, 2023, compared to $952.3 million at the end of 2022[212]. - The Company reported a decrease in the percentage of municipal loans from 9.2% in 2022 to 7.4% in 2023[212]. Capital and Regulatory Compliance - As of December 31, 2023, Union's Tier I and Total Risk Based Capital Ratios were 12.5% and 13.4% respectively, with a Leverage Capital Ratio of 7.6%, indicating it is considered well capitalized under applicable regulatory guidelines[54]. - The Company is subject to regulation and supervision by the FRB, FDIC, and Vermont Department of Financial Regulation, impacting its operational framework[30]. - The Dodd-Frank Act has introduced new capital standards and increased supervisory authority for the FRB, affecting the Company's regulatory environment[34]. - The FRB has the authority to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices[41]. - The Company is subject to extensive regulatory compliance requirements, including those related to cybersecurity, which could impact its operations and reputation[138]. - The Company has established a robust cybersecurity risk management program to safeguard sensitive customer data and financial transactions[142]. Market and Competitive Environment - Competitive pressures for deposits increased during 2023 as customers sought higher yields, prompting the Company to offer higher rates on non-maturity deposits and time deposit specials[26]. - The Company focuses on community banking, providing services through 20 banking offices and several ATMs in northern Vermont and New Hampshire[19]. - The Company has seen a trend of customers turning to local community banks for their financial needs, enhancing its customer base through personal relationships[24]. - The Company faces significant competition from both financial and non-financial services firms, which could impact market share and financial results[134]. - Competition in the local banking industry may impair the company's ability to attract and retain customers, affecting loan growth and financial results[123]. Risk Management - The company faces risks related to liquidity, as reliance on more expensive funding sources could adversely affect operating margins and profitability[87]. - Rising interest rates have significantly decreased the value of the company's securities portfolio, leading to potential losses if securities need to be sold to meet liquidity needs[88]. - The company may incur fines and penalties for inadvertent regulatory violations, which could damage its reputation and restrict investment opportunities[101]. - The company is exposed to environmental liabilities associated with its lending activities, particularly in commercial real estate, which could result in significant costs[92]. - Changes in monetary policies by the Federal Reserve could affect interest rates and the valuation of the company's investment securities, impacting overall operating results[94]. - The company may face significant legal risks from regulatory investigations and private actions, potentially leading to reputational damage and increased operational costs[102]. - Cybersecurity threats and attacks pose significant risks to the company's operations and customer data security, potentially leading to financial losses and reputational damage[116]. Employee and Operational Insights - As of December 31, 2023, Union employed 197 full-time employees, emphasizing a commitment to employee development and well-being[21]. - The Company has invested significant resources in information technology enhancements to meet customer expectations and improve operational efficiency[127]. - The Company cannot assure that the opening of new branches will be accretive to earnings, as various factors influence branch performance[126]. - The Company adopted a clawback policy in November 2023 to recover executive compensation in the event of a financial restatement[44].

[PART I FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section provides an overview of the Company's unaudited interim consolidated financial statements and related notes for the specified periods [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements.) This section presents the unaudited interim consolidated financial statements of Union Bankshares, Inc. and its subsidiary for the periods ended September 30, 2023, and December 31, 2022, along with detailed notes. Key financial statements include Balance Sheets, Statements of Income, Comprehensive Loss, Changes in Stockholders' Equity, and Cash Flows, prepared in conformity with GAAP and general banking industry practices [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This statement presents the Company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Total assets | $ 1,395,628 | $ 1,336,489 | | Total liabilities | $ 1,346,382 | $ 1,281,269 | | Total stockholders' equity | $ 49,246 | $ 55,220 | | Loans (net) | $ 1,016,388 | $ 951,154 | | Total deposits | $ 1,222,288 | $ 1,201,912 | | Borrowed funds | $ 90,696 | $ 50,000 | - **Total assets** increased by **$59.1 million** (**4.4%**) from December 31, 2022, to September 30, 2023, driven by growth in **net loans**[9](index=9&type=chunk)[163](index=163&type=chunk) - **Stockholders' equity** decreased by **$5.97 million** (**10.8%**) primarily due to an increase in **accumulated other comprehensive loss** from **unrealized losses** on **AFS investment securities**[9](index=9&type=chunk)[132](index=132&type=chunk)[207](index=207&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This statement outlines the Company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Income Highlights (Dollars in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total interest and dividend income | $ 14,847 | $ 11,463 | $ 41,694 | $ 31,593 | | Total interest expense | $ 5,699 | $ 1,023 | $ 12,953 | $ 2,519 | | Net interest income | $ 9,148 | $ 10,440 | $ 28,741 | $ 29,074 | | Net income | $ 2,532 | $ 3,758 | $ 8,208 | $ 9,171 | | Basic earnings per common share | $ 0.56 | $ 0.84 | $ 1.82 | $ 2.04 | | Diluted earnings per common share | $ 0.55 | $ 0.83 | $ 1.81 | $ 2.03 | | Dividends per common share | $ 0.36 | $ 0.35 | $ 1.08 | $ 1.05 | - **Net income** decreased by **$1.2 million** (**32.6%**) for the three months ended September 30, 2023, compared to the same period in 2022, primarily due to lower **net interest income** and higher noninterest expenses[11](index=11&type=chunk)[129](index=129&type=chunk) - **Net interest income** decreased by **$1.292 million** for the three months ended September 30, 2023, compared to the same period in 2022, driven by a larger increase in interest expense than interest income[11](index=11&type=chunk)[152](index=152&type=chunk) [Consolidated Statements of Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) This statement reports net income and other comprehensive income (loss) components, reflecting changes in equity not from owners Consolidated Statements of Comprehensive Loss Highlights (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------------------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $ 2,532 | $ 3,758 | $ 8,208 | $ 9,171 | | Net unrealized holding losses arising during the period on investment securities available-for-sale | $ (10,812) | $ (12,539) | $ (9,644) | $ (39,361) | | Total comprehensive loss | $ (8,280) | $ (8,781) | $ (1,436) | $ (30,215) | - **Total comprehensive loss** for the nine months ended September 30, 2023, was **$(1,436) thousand**, a significant improvement from **$(30,215) thousand** in the prior year, primarily due to lower **net unrealized holding losses** on **AFS securities**[13](index=13&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement details the changes in the Company's equity accounts, including net income, dividends, and other comprehensive loss Changes in Stockholders' Equity (Dollars in thousands) | Metric | Balances Dec 31, 2022 | Net Income | Other Comprehensive Loss | Cash Dividends Declared | Purchase of Treasury Stock | Balances Sep 30, 2023 | | :-------------------------------- | :-------------------- | :--------- | :----------------------- | :---------------------- | :------------------------- | :-------------------- | | Total stockholders' equity | $ 55,220 | $ 8,208 | $ (9,644) | $ (4,869) | $ (115) | $ 49,246 | - **Stockholders' equity** decreased from **$55.2 million** at December 31, 2022, to **$49.2 million** at September 30, 2023, primarily due to increased **accumulated other comprehensive loss** and **cash dividends**, partially offset by **net income**[17](index=17&type=chunk)[132](index=132&type=chunk)[207](index=207&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, Dollars in thousands) | Cash Flow Activity | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Net cash provided by operating activities | $ 6,156 | $ 22,721 | | Net cash used in investing activities | $ (78,860) | $ (178,075) | | Net cash provided by financing activities | $ 56,149 | $ 121,573 | | Net decrease in cash and cash equivalents | $ (16,555) | $ (33,781) | | Cash and cash equivalents, End of period | $ 21,330 | $ 32,141 | - **Net cash provided by operating activities** significantly decreased to **$6.156 million** for the nine months ended September 30, 2023, from **$22.721 million** in the prior year[19](index=19&type=chunk) - **Net cash used in investing activities** decreased to **$78.860 million** in 2023 from **$178.075 million** in 2022, mainly due to lower net increase in **loans** and reduced purchases of **investment securities**[19](index=19&type=chunk) - **Net cash provided by financing activities** decreased to **$56.149 million** in 2023 from **$121.573 million** in 2022, primarily due to a net decrease in noninterest bearing and interest bearing **deposits**, partially offset by advances on long-term **borrowings** and an increase in **time deposits**[20](index=20&type=chunk) [Notes to Unaudited Interim Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Interim%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the interim consolidated financial statements [Note 1. Basis of Presentation](index=10&type=section&id=Note%201.%20Basis%20of%20Presentation) This note describes the accounting principles and policies used in preparing the financial statements, including recent accounting standard adoptions - The Company adopted **ASU No. 2016-13 (CECL)** effective January 1, 2023, replacing the incurred loss model with a lifetime expected credit loss model for financial assets at amortized cost and **off-balance sheet credit exposures**[26](index=26&type=chunk)[27](index=27&type=chunk)[31](index=31&type=chunk) Impact of CECL Adoption on ACL and Retained Earnings (January 1, 2023, Dollars in thousands) | Metric | Pre-CECL Adoption | Post-CECL Adoption | Impact of CECL Adoption | | :------------------------------------ | :------------------ | :----------------- | :---------------------- | | Total ACL on loans | $ 8,339 | $ 6,844 | $ (1,495) | | ACL on off-balance sheet credit exposures | $ — | $ 1,458 | $ 1,458 | | Increase to retained earnings | | | $ 37 | - Upon **CECL** adoption, there was no **Allowance for Credit Losses (ACL)** required for **Available-for-Sale (AFS) debt securities**[29](index=29&type=chunk)[43](index=43&type=chunk) [Note 2. Legal Contingencies](index=14&type=section&id=Note%202.%20Legal%20Contingencies) This note discusses potential liabilities arising from legal actions and their expected financial impact on the Company - Management believes that any liability from ongoing legal proceedings is not expected to have a material adverse effect on the Company's consolidated financial condition or results of operations[46](index=46&type=chunk) [Note 3. Per Share Information](index=14&type=section&id=Note%203.%20Per%20Share%20Information) This note provides details on basic and diluted earnings per common share, along with weighted average share counts Earnings Per Share (EPS) (Dollars in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $ 2,532 | $ 3,758 | $ 8,208 | $ 9,171 | | Basic EPS | $ 0.56 | $ 0.84 | $ 1.82 | $ 2.04 | | Diluted EPS | $ 0.55 | $ 0.83 | $ 1.81 | $ 2.03 | | Weighted average common shares outstanding for basic EPS | 4,508,028 | 4,495,348 | 4,508,569 | 4,494,751 | | Weighted average common and potential common shares for diluted EPS | 4,540,026 | 4,521,973 | 4,536,851 | 4,512,793 | - **Basic EPS** decreased to **$0.56** for the three months ended September 30, 2023, from **$0.84** in the prior year, and to **$1.82** for the nine months ended September 30, 2023, from **$2.04** in the prior year[47](index=47&type=chunk) [Note 4. Recent Accounting Pronouncements](index=14&type=section&id=Note%204.%20Recent%20Accounting%20Pronouncements) This note outlines recently adopted and issued accounting standards and their anticipated or actual impact on the Company's financial statements - The Company adopted **ASU No. 2016-13 (CECL)** and **ASU No. 2022-02 (TDRs and Vintage Disclosures)** effective January 1, 2023, with **ASU No. 2022-02** having no material impact[48](index=48&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) - **ASU No. 2020-04 (Reference Rate Reform)** is not expected to have a material impact on the Company's financial statements[49](index=49&type=chunk) - The Company is evaluating the impact of **ASU No. 2023-02 (Investments-Equity Method and Joint Ventures)** for fiscal years beginning after December 31, 2023, which permits the proportional amortization method for tax credit structures[52](index=52&type=chunk) [Note 5. Investment Securities](index=15&type=section&id=Note%205.%20Investment%20Securities) This note details the composition, fair value, and unrealized gains or losses of the Company's investment securities portfolio Debt Securities AFS (Dollars in thousands) | Category | Sep 30, 2023 Fair Value | Dec 31, 2022 Fair Value | | :-------------------------------- | :---------------------- | :---------------------- | | U.S. Government-sponsored enterprises | $ 37,938 | $ 39,245 | | Agency mortgage-backed | $ 146,133 | $ 164,432 | | State and political subdivisions | $ 58,819 | $ 40,466 | | Corporate | $ 6,107 | $ 6,124 | | Total | $ 248,997 | $ 250,267 | Gross Unrealized Losses on AFS Debt Securities (Dollars in thousands) | Category | Sep 30, 2023 Gross Unrealized Losses | Dec 31, 2022 Gross Unrealized Losses | | :-------------------------------- | :----------------------------------- | :----------------------------------- | | U.S. Government-sponsored enterprises | $ (6,383) | $ (5,845) | | Agency mortgage-backed | $ (40,149) | $ (34,150) | | State and political subdivisions | $ (13,558) | $ (7,537) | | Corporate | $ (247) | $ (219) | | Total | $ (60,337) | $ (47,751) | - **Total AFS debt securities** decreased slightly to **$248.997 million** at September 30, 2023, from **$250.267 million** at December 31, 2022, with a significant increase in **gross unrealized losses** from **$47.751 million** to **$60.337 million**[53](index=53&type=chunk)[183](index=183&type=chunk) - No **ACL** for **AFS debt securities** was recorded at **CECL** adoption or at September 30, 2023, as no declines in value were deemed credit-loss related[29](index=29&type=chunk)[57](index=57&type=chunk)[184](index=184&type=chunk) [Note 6. Loans](index=17&type=section&id=Note%206.%20Loans) This note provides a breakdown of the Company's loan portfolio by class and discusses changes in loan risk characteristics Composition of Net Loans (Dollars in thousands) | Loan Class | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Residential real estate | $ 399,984 | $ 352,433 | | Construction real estate | $ 102,249 | $ 96,620 | | Commercial real estate | $ 395,192 | $ 377,947 | | Commercial | $ 41,258 | $ 40,973 | | Consumer | $ 2,289 | $ 2,204 | | Municipal | $ 80,611 | $ 87,980 | | Gross loans | $ 1,021,583 | $ 958,157 | | ACL on loans | $ (6,895) | $ (8,339) | | Net loans | $ 1,016,388 | $ 951,154 | - **Net loans** increased by **$65.234 million** (**6.86%**) to **$1.016 billion** at September 30, 2023, from **$951.154 million** at December 31, 2022, primarily driven by increases in **residential** and **commercial real estate loans**[63](index=63&type=chunk)[164](index=164&type=chunk)[165](index=165&type=chunk) - The Company changed its **loan** risk characteristics evaluation from underlying collateral to regulatory call report code with segmentation based on collateral/purpose upon **CECL** adoption[62](index=62&type=chunk) [Note 7. Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures](index=18&type=section&id=Note%207.%20Allowance%20for%20Credit%20Losses%20on%20Loans%20and%20Off-Balance%20Sheet%20Credit%20Exposures) This note details the methodology and changes in the allowance for credit losses for both loans and off-balance sheet exposures Changes in ACL on Loans (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance at beginning of period | $ 6,780 | $ 8,339 | $ 8,336 | | Impact of adoption of ASU No. 2016-13 | $ — | $ (1,495) | $ — | | Net (charge-offs) recoveries | $ (1) | $ (4) | $ 4 | | Credit loss expense (benefit) | $ 116 | $ 55 | $ — | | Balance at end of period | $ 6,895 | $ 6,895 | $ 8,340 | - The **ACL on loans** decreased to **$6.895 million** at September 30, 2023, from **$8.339 million** at December 31, 2022, primarily due to the impact of **CECL** adoption[72](index=72&type=chunk)[178](index=178&type=chunk)[180](index=180&type=chunk) ACL on Off-Balance Sheet Credit Exposures (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Balance, Beginning of Period | $ 1,497 | $ — | | Impact of adoption of ASU No. 2016-13 | $ — | $ 1,458 | | Credit loss benefit | $ (255) | $ (216) | | Balance, September 30, 2023 | $ 1,242 | $ 1,242 | - The **ACL on off-balance sheet credit exposures** was **$1.242 million** at September 30, 2023, with a **credit loss benefit** of **$255 thousand** for the three months and **$216 thousand** for the nine months ended September 30, 2023[73](index=73&type=chunk)[197](index=197&type=chunk) Nonaccrual Loans (Dollars in thousands) | Loan Class | Sep 30, 2023 Nonaccrual | Dec 31, 2022 Nonaccrual | | :-------------------------------- | :---------------------- | :---------------------- | | Non-revolving residential real estate | $ — | $ 103 | | Revolving residential real estate | $ — | $ — | | Commercial real estate | $ 1,882 | $ 2,102 | | Total | $ 1,882 | $ 2,211 | - **Nonaccrual loans** decreased to **$1.882 million** at September 30, 2023, from **$2.211 million** at December 31, 2022[81](index=81&type=chunk)[174](index=174&type=chunk) [Note 8. Stock Based Compensation](index=26&type=section&id=Note%208.%20Stock%20Based%20Compensation) This note describes the Company's stock-based compensation plans, including restricted stock units and related expenses Restricted Stock Units (RSUs) Summary | Award Year | Number of RSUs Granted | Number of Unvested RSUs (Sep 30, 2023) | | :----------- | :--------------------- | :------------------------------------- | | 2021 Award | 17,685 | 1,745 | | 2022 Award | 15,705 | 7,593 | | 2023 Award | 19,282 | 18,788 | | Total | 52,672 | 28,126 | - **Unrecognized compensation expense** related to unvested RSUs was **$461 thousand** at September 30, 2023, up from **$297 thousand** at December 31, 2022[89](index=89&type=chunk) - An additional **3,872** RSUs were granted to non-employee directors in May 2023, vesting in May 2024, with **$53 thousand** in **unrecognized compensation expense** as of September 30, 2023[90](index=90&type=chunk) [Note 9. Subordinated Notes](index=26&type=section&id=Note%209.%20Subordinated%20Notes) This note provides information on the Company's subordinated debt, including terms, interest rates, and capital qualification - The Company has **$16.5 million** in fixed-to-floating rate **subordinated notes** due **2031**, bearing **3.25%** interest until September 1, 2026, then resetting quarterly to SOFR plus **263 basis points**[91](index=91&type=chunk) - These notes qualify as **Tier 2 capital** and were used to provide additional **Tier 1 capital** to Union Bank and for general corporate purposes[91](index=91&type=chunk)[92](index=92&type=chunk)[206](index=206&type=chunk) - Unamortized issuance costs were **$270 thousand** at September 30, 2023, down from **$295 thousand** at December 31, 2022[93](index=93&type=chunk) [Note 10. Other Comprehensive Income (Loss)](index=27&type=section&id=Note%2010.%20Other%20Comprehensive%20Income%20(Loss)) This note details components of other comprehensive income (loss), primarily unrealized gains and losses on available-for-sale securities Accumulated Other Comprehensive Loss (Dollars in thousands) | Component | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | | Net unrealized losses on investment securities AFS | $ (47,063) | $ (37,419) | - **Accumulated other comprehensive loss**, net of tax, increased to **$(47.063) million** at September 30, 2023, from **$(37.419) million** at December 31, 2022, primarily due to increased **net unrealized holding losses** on **AFS investment securities**[95](index=95&type=chunk)[132](index=132&type=chunk)[207](index=207&type=chunk) [Note 11. Fair Value Measurement](index=28&type=section&id=Note%2011.%20Fair%20Value%20Measurement) This note describes the fair value hierarchy and valuation techniques used for financial instruments, particularly investment securities Fair Value Measurements of Debt Securities AFS (September 30, 2023, Dollars in thousands) | Category | Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :--------- | :------ | :------ | :------ | | U.S. Government-sponsored enterprises | $ 37,938 | $ 2,543 | $ 35,395 | $ — | | Agency mortgage-backed | $ 146,133 | $ — | $ 146,133 | $ — | | State and political subdivisions | $ 58,819 | $ — | $ 58,819 | $ — | | Corporate | $ 6,107 | $ — | $ 6,107 | $ — | | Total debt securities | $ 248,997 | $ 2,543 | $ 246,454 | $ — | - The majority of the Company's **AFS securities** are valued using **Level 2 inputs**, reflecting observable data from market maker bids, quotes, and pricing models[99](index=99&type=chunk)[102](index=102&type=chunk) - There were no **Level 3 assets** or liabilities at any time during the periods presented, and no transfers between **Level 1** and **Level 2**[102](index=102&type=chunk) [Note 12. Subsequent Events](index=31&type=section&id=Note%2012.%20Subsequent%20Events) This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On October 18, 2023, the Company declared a regular quarterly cash dividend of **$0.36** per share, payable November 2, 2023[108](index=108&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) This section provides management's perspective on the Company's financial performance and condition, highlighting the impact of the inverted yield curve on earnings, the adoption of CECL, and strategic initiatives like branch expansion. It also details changes in net interest income, noninterest income and expenses, asset quality, and capital resources [General](index=32&type=section&id=GENERAL) This section outlines the scope and material factors discussed in the management's analysis of financial condition and results of operations - The discussion focuses on material factors affecting financial position as of September 30, 2023, and December 31, 2022, and results of operations for the three and nine months ended September 30, 2023 and 2022[111](index=111&type=chunk) [Cautionary Advice About Forward Looking Statements](index=32&type=section&id=CAUTIONARY%20ADVICE%20ABOUT%20FORWARD%20LOOKING%20STATEMENTS) This section highlights the inherent risks and uncertainties associated with forward-looking statements in the financial report - Forward-looking statements are subject to risks including changes in interest rates, competitive pressures, economic conditions, regulatory changes, and cybersecurity incidents[115](index=115&type=chunk) - The banking industry experienced significant volatility in 2023, with concerns related to liquidity, deposit outflows, unrealized securities losses, and interest rates[116](index=116&type=chunk) [Non-GAAP Financial Measures](index=32&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and explains the use of non-GAAP financial measures to supplement GAAP reporting for performance evaluation - Tax-equivalent **net interest income** and tax-equivalent **net interest margin** are used as non-GAAP financial measures to evaluate performance and facilitate comparisons, considered supplemental to GAAP[119](index=119&type=chunk)[120](index=120&type=chunk) [Critical Accounting Policies](index=33&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES) This section identifies key accounting policies that require significant management judgment and assumptions, such as the Allowance for Credit Losses - **Critical accounting policies** include establishing the **Allowance for Credit Losses (ACL)** and valuing intangible assets, which involve significant management judgments and assumptions[122](index=122&type=chunk) - The adoption of **CECL** effective January 1, 2023, is a significant update to the Company's accounting policies[123](index=123&type=chunk) [Overview](index=33&type=section&id=OVERVIEW) This section provides a high-level summary of the Company's financial position, performance, and strategic context - The Company's financial position remains strong, supported by a diverse deposit base, strong liquidity, excellent asset quality, and **regulatory capital** exceeding all required levels[125](index=125&type=chunk) Key Performance Ratios | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Return on average assets (annualized) | 0.73 % | 1.18 % | 0.80 % | 0.98 % | | Return on average equity (annualized) | 17.65 % | 24.19 % | 18.82 % | 17.78 % | | Net interest margin (annualized, tax equivalent) | 2.76 % | 3.40 % | 2.95 % | 3.29 % | | Efficiency ratio | 75.37 % | 64.14 % | 73.17 % | 68.65 % | | Net interest spread (annualized) | 2.34 % | 3.26 % | 2.59 % | 3.18 % | | Loan to deposit ratio | 84.11 % | 78.67 % | 84.11 % | 78.67 % | | ACL on loans to loans not held for sale | 0.67 % | 0.89 % | 0.67 % | 0.89 % | | Nonperforming assets to total assets | 0.15 % | 0.13 % | 0.15 % | 0.13 % | | Equity to assets | 3.53 % | 3.82 % | 3.53 % | 3.82 % | | Total capital to risk weighted assets | 13.19 % | 13.69 % | 13.19 % | 13.69 % | | Book value per share | $ 10.92 | $ 11.06 | $ 10.92 | $ 11.06 | | Basic earnings per share | $ 0.56 | $ 0.84 | $ 1.82 | $ 2.04 | | Diluted earnings per share | $ 0.55 | $ 0.83 | $ 1.81 | $ 2.03 | | Dividends paid per share | $ 0.36 | $ 0.35 | $ 1.08 | $ 1.05 | | Dividend payout ratio | 64.29 % | 41.67 % | 59.34 % | 51.47 % | - **Net interest margin** decreased to **2.95%** for the nine months ended September 30, 2023, from **3.29%** in the prior year, and the **net interest spread** decreased to **2.59%** from **3.18%**[128](index=128&type=chunk)[133](index=133&type=chunk) [Results of Operations](index=34&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the Company's financial performance, focusing on net interest income, credit loss expense, noninterest income, and expenses [Net Interest Income](index=34&type=section&id=Net%20Interest%20Income) This section analyzes the components of net interest income, including interest income, interest expense, and net interest margin Net Interest Income and Margin (Tax Equivalent, Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $ 9,148 | $ 10,440 | $ 28,741 | $ 29,074 | | Net interest spread | 2.34 % | 3.26 % | 2.59 % | 3.18 % | | Net interest margin | 2.76 % | 3.40 % | 2.95 % | 3.29 % | | Average yield on earning assets | 4.43 % | 3.73 % | 4.25 % | 3.57 % | | Average rate paid on interest bearing liabilities | 2.09 % | 0.47 % | 1.66 % | 0.39 % | - **Net interest income** decreased by **$1.292 million** for the three months ended September 30, 2023, and by **$333 thousand** for the nine months ended September 30, 2023, compared to the same periods in 2022[142](index=142&type=chunk)[152](index=152&type=chunk) - The **net interest spread** decreased by **92 bps** for the three months and **59 bps** for the nine months ended September 30, 2023, primarily due to a faster increase in the average rate paid on interest bearing liabilities (**162 bps** and **127 bps**, respectively) than the average yield earned on interest earning assets (**70 bps** and **68 bps**, respectively)[141](index=141&type=chunk)[145](index=145&type=chunk) Rate/Volume Analysis of Net Interest Income Change (Dollars in thousands) | Component | 3 Months Ended Sep 30, 2023 vs 2022 (Net Change) | 9 Months Ended Sep 30, 2023 vs 2022 (Net Change) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Interest earning assets | $ 3,384 | $ 10,101 | | Interest bearing liabilities | $ 4,676 | $ 10,434 | | Net change in net interest income | $ (1,292) | $ (333) | [Credit Loss Expense (Benefit)](index=38&type=section&id=Credit%20Loss%20Expense%20(Benefit)) This section details the credit loss expense or benefit recognized under the CECL model for loans and off-balance sheet exposures Credit Loss Expense (Benefit) (Dollars in thousands) | Component | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Credit loss expense for loans | $ 116 | $ 55 | | Credit loss benefit for off-balance sheet credit exposures | $ (255) | $ (216) | | Credit loss benefit, net | $ (139) | $ (161) | - The Company recorded a **net credit loss benefit** of **$139 thousand** for the three months and **$161 thousand** for the nine months ended September 30, 2023, under **CECL**[153](index=153&type=chunk) [Noninterest Income](index=39&type=section&id=Noninterest%20Income) This section provides an overview of the Company's noninterest income sources, such as wealth management fees and service charges Noninterest Income (Dollars in thousands) | Component | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Wealth management income | $ 244 | $ 203 | $ 695 | $ 629 | | Service fees | $ 1,785 | $ 1,803 | $ 5,219 | $ 5,176 | | Net gains on sales of loans held for sale | $ 336 | $ 448 | $ 836 | $ 748 | | Total noninterest income | $ 2,467 | $ 2,540 | $ 7,235 | $ 7,049 | - **Total noninterest income** decreased by **$73 thousand** (**2.9%**) for the three months ended September 30, 2023, but increased by **$186 thousand** (**2.6%**) for the nine months ended September 30, 2023, compared to the same periods in 2022[154](index=154&type=chunk) - **Wealth management income** increased due to growth in managed fiduciary accounts and asset values[154](index=154&type=chunk) - **Net gains on sales of loans held for sale** decreased by **$112 thousand** for the three months due to lower sales volume and premiums, but increased by **$88 thousand** for the nine months due to higher premiums in H1 2023[154](index=154&type=chunk) [Noninterest Expenses](index=40&type=section&id=Noninterest%20Expenses) This section details the Company's noninterest expenses, including salaries, benefits, and other operating costs Noninterest Expenses (Dollars in thousands) | Component | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Salaries and wages | $ 3,720 | $ 3,575 | $ 10,895 | $ 10,505 | | Employee benefits | $ 1,217 | $ 1,154 | $ 4,065 | $ 3,754 | | FDIC insurance assessment | $ 267 | $ 179 | $ 734 | $ 452 | | Total noninterest expenses | $ 8,926 | $ 8,439 | $ 26,739 | $ 25,137 | - **Total noninterest expenses** increased by **$487 thousand** (**5.8%**) for the three months and **$1.602 million** (**6.4%**) for the nine months ended September 30, 2023, compared to the same periods in 2022[155](index=155&type=chunk) - Key drivers of expense increases include annual salary adjustments, higher **employee benefits** (deferred compensation and medical/dental plans), increased **FDIC insurance assessments**, and resumed in-person training[158](index=158&type=chunk) [Provision for Income Taxes](index=41&type=section&id=Provision%20for%20Income%20Taxes) This section explains the Company's income tax provision and effective tax rate, including tax benefits from investments Provision for Income Taxes (Dollars in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Provision for income taxes | $ 296 | $ 783 | $ 1,190 | $ 1,815 | | Effective federal corporate income tax rate | 10.8 % | 16.6 % | 12.9 % | 16.1 % | - The **provision for income taxes** decreased for both the three and nine months ended September 30, 2023, compared to 2022, reflecting lower income before taxes and a reduced **effective tax rate**[160](index=160&type=chunk) - Amortization expense and tax credits from limited partnership investments are included in **income tax expense**, providing tax benefits[161](index=161&type=chunk) [Financial Condition](index=41&type=section&id=FINANCIAL%20CONDITION) This section discusses the Company's financial position, including loan portfolio, asset quality, investments, deposits, borrowings, and capital [Loans Held for Sale and Loan Portfolio](index=42&type=section&id=Loans%20Held%20for%20Sale%20and%20Loan%20Portfolio) This section details the composition and changes in the Company's loan portfolio, including loans held for sale and real estate secured loans Loan Portfolio Composition (Dollars in thousands) | Loan Class | Sep 30, 2023 Amount | Sep 30, 2023 Percent | Dec 31, 2022 Amount | Dec 31, 2022 Percent | | :-------------------------------- | :------------------ | :------------------- | :------------------ | :------------------- | | Residential real estate | $ 399,984 | 38.9 % | $ 352,433 | 36.7 % | | Construction real estate | $ 102,249 | 9.9 % | $ 96,620 | 10.1 % | | Commercial real estate | $ 395,192 | 38.4 % | $ 377,947 | 39.4 % | | Commercial | $ 41,258 | 4.0 % | $ 40,973 | 4.3 % | | Consumer | $ 2,289 | 0.2 % | $ 2,204 | 0.2 % | | Municipal | $ 80,611 | 7.8 % | $ 87,980 | 9.2 % | | Loans held for sale | $ 6,452 | 0.6 % | $ 1,178 | 0.1 % | | Total loans | $ 1,028,035 | 100.0 % | $ 959,335 | 100.0 % | - **Total loans** (including **loans held for sale**) increased by **$68.7 million** (**7.2%**) to **$1.028 billion** at September 30, 2023, from **$959.3 million** at December 31, 2022[165](index=165&type=chunk)[166](index=166&type=chunk) - **Real estate secured loans** constituted **87.9%** of **total loans** at September 30, 2023[165](index=165&type=chunk) - The Company serviced a **$1.05 billion residential real estate mortgage portfolio**, with **$642.9 million** serviced for unaffiliated third parties, and capitalized MSRs of **$1.8 million**[166](index=166&type=chunk)[171](index=171&type=chunk) [Asset Quality](index=43&type=section&id=Asset%20Quality) This section assesses the quality of the Company's assets, including nonperforming loans, nonaccrual loans, and related ratios Nonperforming Assets (Dollars in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :---------------------------------------------------------------- | :----------- | :----------- | :----------- | | Nonaccrual loans | $ 1,882 | $ 2,211 | $ 1,381 | | Loans past due 90 days or more and still accruing interest | $ 245 | $ 186 | $ 308 | | Total nonperforming assets | $ 2,127 | $ 2,397 | $ 1,689 | Asset Quality Ratios | Ratio | Sep 30, 2023 | Dec 31, 2022 | Sep 30, 2022 | | :--------------------------------------- | :----------- | :----------- | :----------- | | ACL on loans to total loans outstanding | 0.67 % | 0.87 % | 0.89 % | | ACL on loans to nonperforming loans | 324.17 % | 347.89 % | 493.78 % | | Nonperforming loans to total loans | 0.21 % | 0.25 % | 0.18 % | | Nonperforming assets to total assets | 0.15 % | 0.18 % | 0.13 % | | Nonaccrual loans to total loans | 0.18 % | 0.23 % | 0.15 % | | Delinquent loans (30 days to nonaccruing) to total loans | 0.22 % | 0.57 % | 0.54 % | - **Total nonperforming assets** decreased to **$2.127 million** at September 30, 2023, from **$2.397 million** at December 31, 2022[174](index=174&type=chunk) - The **ACL on loans** to **total loans** outstanding decreased to **0.67%** at September 30, 2023, from **0.87%** at December 31, 2022[175](index=175&type=chunk) [Allowance for Credit Losses on Loans](index=44&type=section&id=Allowance%20for%20Credit%20Losses%20on%20Loans) This section discusses the adequacy and changes in the allowance for credit losses specifically for the loan portfolio - The **ACL on loans** was **$6.9 million** at September 30, 2023, compared to **$8.3 million** at December 31, 2022, reflecting the impact of **CECL** adoption[178](index=178&type=chunk) - Management believes the **ACL on loans** is appropriate to cover expected credit losses, but future losses could exceed the current **ACL**[181](index=181&type=chunk) [Investment Activities](index=45&type=section&id=Investment%20Activities) This section reviews the Company's investment securities portfolio, including fair values and unrealized gains or losses - **Investment securities AFS** decreased by **$1.3 million** to **$249.0 million** at September 30, 2023, from **$250.3 million** at December 31, 2022[182](index=182&type=chunk) - **Net unrealized losses** in the **AFS portfolio** increased to **$60.3 million** at September 30, 2023, from **$47.4 million** at December 31, 2022, primarily due to increases in long-term interest rates[183](index=183&type=chunk) - No declines in value were deemed impairment related to credit losses at September 30, 2023[184](index=184&type=chunk) [Deposits](index=46&type=section&id=Deposits) This section analyzes the Company's deposit base, including average balances, rates, and the composition of interest-bearing and noninterest-bearing accounts Average Deposits by Account Type (Nine Months Ended September 30, Dollars in thousands) | Account Type | 2023 Average Amount | 2023 Percent of Total | 2023 Average Rate | 2022 Average Amount | 2022 Percent of Total | 2022 Average Rate | | :-------------------------------- | :------------------ | :-------------------- | :---------------- | :------------------ | :-------------------- | :---------------- | | Noninterest bearing deposits | $ 248,222 | 20.6 % | — | $ 312,331 | 27.2 % | — | | Interest bearing checking accounts | $ 316,193 | 26.2 % | 0.89 % | $ 287,296 | 25.0 % | 0.26 % | | Money market accounts | $ 228,262 | 18.9 % | 1.43 % | $ 249,018 | 21.7 % | 0.53 % | | Savings accounts | $ 168,551 | 14.0 % | 0.03 % | $ 188,568 | 16.4 % | 0.04 % | | Total nontime deposits | $ 961,228 | 79.7 % | 0.64 % | $ 1,037,213 | 90.3 % | 0.20 % | | Total time deposits | $ 243,730 | 20.3 % | 3.23 % | $ 111,202 | 9.7 % | 0.60 % | | Total deposits | $ 1,204,958 | 100.0 % | 1.16 % | $ 1,148,415 | 100.0 % | 0.24 % | - **Average total deposits** grew by **$56.5 million** (**4.9%**) for the nine months ended September 30, 2023, compared to the prior year[185](index=185&type=chunk) - There was a shift from non-time **deposits** to **time deposits**, with **average time deposits** increasing by **$132.5 million** and their average rate rising to **3.23%** from **0.60%**[144](index=144&type=chunk)[185](index=185&type=chunk) - **Uninsured deposits** totaled **$362.7 million** (**29.7%** of **total deposits**) at September 30, 2023[189](index=189&type=chunk) [Borrowings](index=47&type=section&id=Borrowings) This section details the Company's borrowed funds, primarily from the FHLB, including amounts, rates, and collateral arrangements - **Borrowed funds** from **FHLB** increased to **$90.7 million** at September 30, 2023, from **$50.0 million** at December 31, 2022, with a weighted average rate of **3.57%**[190](index=190&type=chunk) - **FHLB** letters of credit totaling **$42.4 million** were used as collateral for public unit **deposits** at September 30, 2023[191](index=191&type=chunk) [Commitments, Contingent Liabilities, and Of -Balance-Sheet Arrangements](index=47&type=section&id=Commitments,%20Contingent%20Liabilities,%20and%20Of%20-Balance-Sheet%20Arrangements) This section outlines the Company's off-balance sheet exposures, such as loan commitments and letters of credit Contractual/Notional Amount of Financial Instruments Representing Credit Risk (Dollars in thousands) | Instrument | Sep 30, 2023 | Dec 31, 2022 | | :------------------------------------------------ | :----------- | :----------- | | Commitments to originate loans | $ 29,484 | $ 39,217 | | Unused lines of credit | $ 194,234 | $ 185,539 | | Standby and commercial letters of credit | $ 1,532 | $ 1,762 | | Total | $ 226,161 | $ 230,155 | - **Total off-balance sheet credit exposures** decreased slightly to **$226.161 million** at September 30, 2023, from **$230.155 million** at December 31, 2022[195](index=195&type=chunk) - An **ACL on off-balance sheet credit exposures** of **$1.2 million** was recorded at September 30, 2023, following **CECL** adoption[197](index=197&type=chunk) [Liquidity](index=48&type=section&id=Liquidity) This section describes the Company's liquidity position, including available credit lines and other funding sources - Union Bank had access to **$102.8 million** in **unused FHLB lines of credit** at September 30, 2023, in addition to **$134.7 million** in combined outstanding **FHLB borrowings** and other credit[199](index=199&type=chunk) - Other **liquidity** sources include a **$15.0 million federal funds line of credit**, master brokered deposit agreements, and one-way buy options with CDARS and ICS[201](index=201&type=chunk) - The Company has not yet utilized the Federal Reserve's Bank Term Funding Program, which allows pledging investment portfolios at par[202](index=202&type=chunk)[203](index=203&type=chunk) [Capital Resources](index=49&type=section&id=Capital%20Resources) This section details the Company's capital structure, regulatory capital ratios, and changes in stockholders' equity - **Stockholders' equity** decreased from **$55.2 million** at December 31, 2022, to **$49.2 million** at September 30, 2023, primarily due to increased **accumulated other comprehensive loss** and **cash dividends**[207](index=207&type=chunk) - The Company repurchased **5,000** shares under its limited stock repurchase plan during the first nine months of 2023 at a cost of **$114 thousand**[209](index=209&type=chunk) Regulatory Capital Ratios (September 30, 2023, Dollars in thousands) | Capital Ratio | Company Actual Amount | Company Actual Ratio | Union Actual Amount | Union Actual Ratio | | :-------------------------------- | :-------------------- | :------------------- | :------------------ | :----------------- | | Total capital to risk weighted assets | $ 118,453 | 13.19 % | $ 118,274 | 13.18 % | | Tier I capital to risk weighted assets | $ 94,085 | 10.48 % | $ 110,136 | 12.27 % | | Common Equity Tier 1 to risk weighted assets | $ 94,085 | 10.48 % | $ 110,136 | 12.27 % | | Tier I capital to average assets | $ 94,085 | 6.56 % | $ 110,136 | 7.68 % | - Both the Company and Union met all **capital adequacy requirements** at September 30, 2023, with Union exceeding '**well capitalized**' bank requirements[213](index=213&type=chunk)[214](index=214&type=chunk) - The Company's earnings have been pressured by the inverted yield curve, leading to increased funding costs and compression of the **net interest margin** and **spread**[125](index=125&type=chunk)[128](index=128&type=chunk) - Consolidated **net income** decreased by **$1.2 million** (**32.6%**) for Q3 2023 YoY and **$963 thousand** (**10.5%**) for the nine months ended September 30, 2023 YoY[129](index=129&type=chunk)[130](index=130&type=chunk) - The Company opened a new full-service bank branch in North Conway, New Hampshire, at the end of October 2023, following success in commercial loan origination in the region[127](index=127&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) This section is omitted in accordance with regulatory relief available to smaller reporting companies - The Company, as a smaller reporting company, has omitted quantitative and qualitative disclosures about market risk[216](index=216&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures.) The Company's CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2023. There were no material changes in internal controls over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[217](index=217&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[218](index=218&type=chunk) [PART II OTHER INFORMATION](index=50&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity transactions [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings.) Management believes that any liability from legal proceedings in the normal course of business is not expected to have a material adverse effect on the Company's financial condition or results of operations - Legal proceedings are not expected to have a material adverse effect on the Company's financial condition or results of operations[219](index=219&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors.) There have been no material changes to the risk factors previously discussed in the Company's 2022 Annual Report - No material changes in risk factors have occurred since the filing of the 2022 Annual Report[220](index=220&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The Company did not issue any unregistered shares during the quarter ended September 30, 2023. The Company repurchased 2,500 shares of its common stock in July 2023 under its publicly announced plan - No unregistered shares were issued during the quarter ended September 30, 2023[221](index=221&type=chunk) Issuer Purchases of Equity Securities (Quarter Ended September 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | | July 2023 | 2,500 | $21.80 | 2,500 | | August 2023 | — | — | — | | September 2023 | — | — | — | - The repurchase authorization for a calendar quarter (currently **2,500** shares) expires at the end of that quarter and is not carried forward[222](index=222&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and financial statements in iXBRL format - Exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 from the CEO and CFO[222](index=222&type=chunk)[226](index=226&type=chunk) - Unaudited consolidated financial statements for the quarter ended September 30, 2023, are provided in Inline eXtensible Business Reporting Language (iXBRL) format[222](index=222&type=chunk)[226](index=226&type=chunk)

Financial Performance - Consolidated net income decreased by $232 thousand, or 7.9%, to $2.7 million for Q2 2023 compared to $2.9 million for Q2 2022, primarily due to a decrease in net interest income and an increase in noninterest expenses [129]. - For the six months ended June 30, 2023, consolidated net income increased by $263 thousand, or 4.9%, to $5.7 million compared to $5.4 million for the same period in 2022, driven by increases in net interest income and noninterest income [130]. - Return on average assets for Q2 2023 was 0.79%, down from 0.94% in Q2 2022, while return on average equity was 17.98%, slightly lower than 18.30% in the prior year [133]. Assets and Liabilities - Total consolidated assets as of June 30, 2023, were $1.33 billion, with gross loans totaling $938.7 million and deposits amounting to $1.12 billion [131]. - Total consolidated assets as of June 30, 2023, were $1.33 billion, a decrease of $1.7 million or 0.1% from $1.34 billion at December 31, 2022, but an increase of $142.8 million or 12.0% compared to June 30, 2022 [163]. - Net loans and loans held for sale decreased by $18.9 million or 2.0% to $933.5 million, representing 69.9% of total assets at June 30, 2023, compared to 71.3% at December 31, 2022 [165]. Interest Income and Expenses - The net interest margin for the six months ended June 30, 2023, was 3.05%, down from 3.23% for the same period in 2022, reflecting the impact of rising deposit and funding costs [126]. - Net interest income for the first six months of 2023 was $19.6 million, an increase of $959 thousand or 5.15% compared to the same period in 2022 [144]. - Interest income on loans increased by $2.9 million due to an increase in average loan volume of $146.2 million and an increase of 54 bps in average yield [141]. Noninterest Income and Expenses - Noninterest income for Q2 2023 was $2,483 thousand, a 9.0% increase from $2,279 thousand in Q2 2022, driven by a $200 thousand increase in net gains on sales of loans held for sale [156]. - Total noninterest expense for Q2 2023 was $9,063 thousand, a 7.8% increase from $8,409 thousand in Q2 2022, with significant increases in professional fees and FDIC insurance assessments [159]. - Salaries and wages increased by $153 thousand (4.3%) in Q2 2023 compared to Q2 2022, and for the first half of 2023, they rose by $245 thousand (3.5%) [158]. Capital and Equity - The Company's total capital increased to $59.1 million at June 30, 2023, from $55.2 million at December 31, 2022, resulting in a book value per share increase to $13.10 [132]. - Stockholders' equity increased from $55.2 million at December 31, 2022, to $59.1 million at June 30, 2023, driven by net income of $5.7 million for the first six months of 2023 [165]. - Total capital to risk weighted assets for the company is $117,580, representing a ratio of 13.48% as of June 30, 2023, exceeding the minimum requirement of 8.00% [215]. Loan Quality and Credit Losses - Nonperforming assets to total assets ratio was 0.15% as of June 30, 2023, compared to 0.13% in the same period of 2022, suggesting a slight increase in asset quality concerns [133]. - Credit loss benefit for loans was $151 thousand in Q2 2023, compared to no credit loss in Q2 2022, indicating improved credit quality [156]. - The Allowance for Credit Losses (ACL) on loans was $6.8 million as of June 30, 2023, down from $8.3 million at December 31, 2022, reflecting a decrease of 18.1% [177]. Deposits and Funding - Total deposits decreased by $78.2 million or 6.5% to $1.12 billion at June 30, 2023, with noninterest bearing deposits down by $47.5 million or 16.6% [165]. - Average total deposits increased by $74.3 million, or 6.6%, to $1.205 billion for the six months ended June 30, 2023, compared to the same period in 2022 [185]. - The Company had $88.0 million in retail brokered deposits at a weighted average rate of 4.66% as of June 30, 2023, compared to $33.0 million at 3.45% at December 31, 2022 [188]. Regulatory Compliance - As of June 30, 2023, the Company met all capital adequacy requirements and exceeded the "well capitalized" standards under the FDIC's framework [214]. - The Company is subject to federal banking laws and regulations that establish minimum levels of capital and restrict dividend distributions [215]. - The Company completed a private placement of $16.5 million in subordinated notes in August 2021, which qualify as Tier 2 capital under regulatory guidelines [205].

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 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: March 31, 2023 Commission file number: 001-15985 UNION BANKSHARES, INC. VT 03-0283552 20 LOWER MAIN STREET, P.O. BOX 667 MORRISVILLE, VT 05661 Registrant's telephone number: 802-888-6600 Former name, former address ...