Edgar Filing: UNION BANKSHARES INC

SEC Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, 2016

Commission file number: 001-15985

UNION BANKSHARES, INC.



	VERMONT		03-0283552

P.O. BOX 667

20 LOWER MAIN STREET

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		Nasdaq Stock Market
	(Title of class)		(Exchanges registered on)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X] No [ ]

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



Large accelerated filer [ ]	Accelerated filer [ X ]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 1, 2016:



Common Stock, $2 par value	4,458,372	shares

UNION BANKSHARES, INC.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION



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

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	Page 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	Page 40
Item 4. Controls and Procedures.	Page 41

PART II OTHER INFORMATION

Item 1. Legal Proceedings.	Page 41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	Page 41
Item 6. Exhibits.	Page 41

Signatures	Page 43

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS



	March 31, 2016			December 31, 2015
	(Unaudited)
Assets	(Dollars in thousands)
Cash and due from banks	$	4,130		$	4,217
Federal funds sold and overnight deposits	9,887			13,744
Cash and cash equivalents	14,017			17,961
Interest bearing deposits in banks	12,354			12,753
Investment securities available-for-sale	57,516			54,110
Investment securities held-to-maturity (fair value $5.2 million and $5.1 million at March 31, 2016 and December 31, 2015, respectively)	5,217			5,217
Loans held for sale	6,725			5,635
Loans	512,577			500,506
Allowance for loan losses	(5,125		)	(5,201		)
Net deferred loan costs	546			515
Net loans	507,998			495,820
Accrued interest receivable	2,078			1,832
Premises and equipment, net	13,037			13,055
Core deposit intangible	882			925
Goodwill	2,223			2,223
Investment in real estate limited partnerships	2,255			2,373
Company-owned life insurance	8,873			8,800
Other assets	7,644			8,175
Total assets	$	640,819		$	628,879
Liabilities and Stockholders’ Equity
Liabilities
Deposits
Noninterest bearing	$	101,943		$	99,826
Interest bearing	311,656			310,203
Time	145,405			150,379
Total deposits	559,004			560,408
Borrowed funds	21,883			9,564
Accrued interest and other liabilities	5,257			5,339
Total liabilities	586,144			575,311
Commitments and Contingencies
Stockholders’ Equity
Common stock, $2.00 par value; 7,500,000 shares authorized; 4,933,136 shares issued at March 31, 2016 and 4,931,796 shares issued at December 31, 2015	9,866			9,864
Additional paid-in capital	542			501
Retained earnings	50,080			49,524
Treasury stock at cost; 474,764 shares at March 31, 2016 and 474,619 shares at December 31, 2015	(4,023		)	(4,019		)
Accumulated other comprehensive loss	(1,790		)	(2,302		)
Total stockholders' equity	54,675			53,568
Total liabilities and stockholders' equity	$	640,819		$	628,879

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 March 31,
	2016		2015
	(Dollars in thousands, except per share data)
Interest and dividend income
Interest and fees on loans	$	5,995	$	5,732
Interest on debt securities:
Taxable	249		215
Tax exempt	137		107
Dividends	17		15
Interest on federal funds sold and overnight deposits	5		8
Interest on interest bearing deposits in banks	45		40
Total interest and dividend income	6,448		6,117
Interest expense
Interest on deposits	425		476
Interest on borrowed funds	88		89
Total interest expense	513		565
Net interest income	5,935		5,552
Provision for loan losses	75		100
Net interest income after provision for loan losses	5,860		5,452
Noninterest income
Trust income	172		177
Service fees	1,412		1,346
Net gains on sales of loans held for sale	500		729
Other income	102		83
Total noninterest income	2,186		2,335
Noninterest expenses
Salaries and wages	2,458		2,323
Pension and employee benefits	943		734
Occupancy expense, net	317		381
Equipment expense	509		407
Other expenses	1,594		1,545
Total noninterest expenses	5,821		5,390
Income before provision for income taxes	2,225		2,397
Provision for income taxes	466		513
Net income	$	1,759	$	1,884
Earnings per common share	$	0.39	$	0.42
Weighted average number of common shares outstanding	4,458,165		4,457,871
Dividends per common share	$	0.27	$	0.27

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 March 31,
	2016		2015
	(Dollars in thousands)
Net income	$	1,759	$	1,884
Other comprehensive income, net of tax:
Investment securities available-for-sale:
Net unrealized holding gains arising during the period on investment securities available-for-sale	512		274
Total other comprehensive income	512		274
Total comprehensive income	$	2,271	$	2,158

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Three Months Ended March 31, 2016 and 2015 (Unaudited)



	Common Stock
	Shares, net of treasury		Amount		Additional paid-in capital		Retained earnings			Treasury stock			Accumulated other comprehensive loss			Total stockholders’ equity
	(Dollars in thousands, except per share data)
Balances, December 31, 2015	4,457,177		$	9,864	$	501	$	49,524		$	(4,019	)	$	(2,302	)	$	53,568
Net income	—		—		—		1,759			—			—			1,759
Other comprehensive income	—		—		—		—			—			512			512
Cash dividends declared ($0.27 per share)	—		—		—		(1,203		)	—			—			(1,203		)
Stock based compensation expense	—		—		16		—			—			—			16
Exercise of stock options	1,340		2		25		—			—			—			27
Purchase of treasury stock	(145	)	—		—		—			(4		)	—			(4		)
Balances, March 31, 2016	4,458,372		$	9,866	$	542	$	50,080		$	(4,023	)	$	(1,790	)	$	54,675

Balances, December 31, 2014	4,458,430		$	9,859	$	418	$	46,462		$	(3,925	)	$	(1,380	)	$	51,434
Net income	—		—		—		1,884			—			—			1,884
Other comprehensive income	—		—		—		—			—			274			274
Cash dividends declared ($0.27 per share)	—		—		—		(1,204		)	—			—			(1,204		)
Stock based compensation expense	—		—		12		—			—			—			12
Purchase of treasury stock	(1,077	)	—		—		—			(26		)	—			(26		)
Balances, March 31, 2015	4,457,353		$	9,859	$	430	$	47,142		$	(3,951	)	$	(1,106	)	$	52,374

See accompanying notes to unaudited interim consolidated financial statements.

Union Bankshares, Inc. Page 4

UNION BANKSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



	Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Cash Flows From Operating Activities
Net income	$	1,759		$	1,884
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	320			227
Provision for loan losses	75			100
Deferred income tax provision (credit)	307			(4		)
Net amortization of investment securities	84			46
Equity in losses of limited partnerships	118			122
Stock based compensation expense	16			12
Net increase in unamortized loan costs	(31		)	(33		)
Proceeds from sales of loans held for sale	23,383			32,049
Origination of loans held for sale	(23,973		)	(28,834		)
Net gains on sales of loans held for sale	(500		)	(729		)
Increase in accrued interest receivable	(246		)	(228		)
Amortization of core deposit intangible	43			43
Decrease (increase) in other assets	52			(50		)
Contribution to defined benefit pension plan	(750		)	—
Increase (decrease) in other liabilities	668			(729		)
Net cash provided by operating activities	1,325			3,876
Cash Flows From Investing Activities
Interest bearing deposits in banks
Proceeds from maturities and redemptions	896			543
Purchases	(497		)	(1,393		)
Investment securities held-to-maturity
Proceeds from maturities, calls and paydowns	—			2,000
Investment securities available-for-sale
Proceeds from maturities, calls and paydowns	3,950			2,732
Purchases	(6,664		)	(14,413		)
Purchase of nonmarketable stock, net	(165		)	—
Net increase in loans	(12,227		)	(13,060		)
Recoveries of loans charged off	5			4
Purchases of premises and equipment	(302		)	(865		)
Purchase of company-owned life insurance	—			(5,000		)
Net cash used in investing activities	(15,004		)	(29,452		)

Union Bankshares, Inc. Page 5



Cash Flows From Financing Activities
Advances on long-term borrowings	5,000			—
Repayment of long-term debt	(76		)	(72		)
Net increase in short-term borrowings outstanding	7,395			3,541
Net increase in noninterest bearing deposits	2,117			6,813
Net increase in interest bearing deposits	1,453			510
Net decrease in time deposits	(4,974		)	(12,579		)
Issuance of common stock	27			—
Purchase of treasury stock	(4		)	(26		)
Dividends paid	(1,203		)	(1,204		)
Net cash provided by (used in) financing activities	9,735			(3,017		)
Net decrease in cash and cash equivalents	(3,944		)	(28,593		)
Cash and cash equivalents
Beginning of period	17,961			41,744
End of period	$	14,017		$	13,151
Supplemental Disclosures of Cash Flow Information
Interest paid	$	368		$	394
Income taxes paid	$	225		$	200

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 March 31, 2016, and for the three months ended March 31, 2016 and 2015, 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, 2015. 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 2015 Annual Report on Form 10-K. 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, 2016, or any interim period.

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation.

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	IRS:	Internal Revenue Service
ALCO:	Asset Liability Committee	MBS:	Mortgage-backed security
ALL:	Allowance for loan losses	MSRs:	Mortgage servicing rights
ASC:	Accounting Standards Codification	OAO:	Other assets owned
ASU:	Accounting Standards Update	OCI:	Other comprehensive income (loss)
Board:	Board of Directors	OFAC:	U.S. Office of Foreign Assets Control
bp or bps:	Basis point(s)	OREO:	Other real estate owned
Branch Acquisition:	The acquisition of three New Hampshire branches in May 2011	OTTI:	Other-than-temporary impairment
CDARS:	Certificate of Deposit Accounts Registry Service of the Promontory Interfinancial Network	OTT:	Other-than-temporary
Company:	Union Bankshares, Inc. and Subsidiary	Plan:	The Union Bank Pension Plan
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	2008 ISO Plan:	2008 Incentive Stock Option Plan of the Company
HUD:	U.S. Department of Housing and Urban Development	2014 Equity Plan:	2014 Equity Incentive Plan
ICS:	Insured Cash Sweeps of the Promontory Interfinancial Network

Union Bankshares, Inc. Page 7

Note 2. Legal Contingencies

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

Note 3. Per Share Information

Earnings per common share are computed based on the weighted average number of shares of common stock outstanding during the period and reduced for shares held in treasury. The assumed conversion of outstanding exercisable stock options does not result in material dilution and is not included in the calculation.

Note 4. Recent Accounting Pronouncements

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities. The ASU was issued to enhance the reporting model for financial instruments to provide users of financial statements with more useful information for decisions. The ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for only one of the six amendments, otherwise it is not permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and liabilities (including operating leases) on the balance sheet and disclosing key information about leasing arrangements. Previous lease accounting did not require the inclusion of operating leases in the balance sheet. The ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, early application is permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU simplifies several aspects of the accounting for share-based payment award transactions, including: (1) income tax consequences; (2) classification of awards as either equity or liabilities, and (3) classification on the statement of cash flows. The ASU is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods, early adoption is permitted. The Company is evaluating the potential impact of the ASU on its consolidated financial statements.

Note 5. Goodwill and Other Intangible Assets

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

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

Union Bankshares, Inc. Page 8

Amortization expense for the core deposit intangible was $43 thousand for the three months ended March 31, 2016 and 2015. The amortization expense is included in other noninterest expense on the consolidated statement of income and is deductible for tax purposes. As of March 31, 2016, the remaining amortization expense related to the core deposit intangible, absent any future impairment, is expected to be as follows:



	(Dollars in thousands)
2016	$	128
2017	171
2018	171
2019	171
2020	171
Thereafter	70
Total	$	882

Note 6. Investment Securities

Investment securities as of the balance sheet dates consisted of the following:



March 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale
Debt securities:
U.S. Government-sponsored enterprises	$	7,647	$	58	$	(14	)	$	7,691
Agency mortgage-backed	11,543		182		(2		)	11,723
State and political subdivisions	24,997		553		(50		)	25,500
Corporate	12,262		259		(252		)	12,269
Total debt securities	56,449		1,052		(318		)	57,183
Mutual funds	333		—		—			333
Total	$	56,782	$	1,052	$	(318	)	$	57,516
Held-to-maturity
U.S. Government-sponsored enterprises	$	5,217	$	10	$	—		$	5,227



December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(Dollars in thousands)
Available-for-sale
Debt securities:
U.S. Government-sponsored enterprises	$	10,805	$	30	$	(143	)	$	10,692
Agency mortgage-backed	11,083		39		(64		)	11,058
State and political subdivisions	19,653		404		(25		)	20,032
Corporate	12,266		76		(359		)	11,983
Total debt securities	53,807		549		(591		)	53,765
Mutual funds	345		—		—			345
Total	$	54,152	$	549	$	(591	)	$	54,110
Held-to-maturity
U.S. Government-sponsored enterprises	$	5,217	$	—	$	(101	)	$	5,116

Union Bankshares, Inc. Page 9

There were no sales of AFS securities for the three months ended March 31, 2016 and March 31, 2015. The specific identification method is used to determine realized gains and losses on sales of securities AFS.

The amortized cost and estimated fair value of debt securities by contractual scheduled maturity as of March 31, 2016 were as follows:



	Amortized Cost		Fair Value
	(Dollars in thousands)
Available-for-sale
Due from one to five years	$	4,778	$	4,874
Due from five to ten years	25,239		25,563
Due after ten years	14,888		15,023
	44,905		45,460
Agency mortgage-backed	11,544		11,723
Total debt securities available-for-sale	$	56,449	$	57,183
Held-to-maturity
Due from one to five years	$	998	$	1,001
Due from five to ten years	1,000		1,001
Due after ten years	3,219		3,225
Total debt securities held-to-maturity	$	5,217	$	5,227

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

Information pertaining to all investment securities 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:



March 31, 2016	Less Than 12 Months						12 Months and over						Total
	Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)
Debt securities:
U.S. Government-sponsored enterprises	2	$	1,005	$	(3	)	1	$	443	$	(11	)	3	$	1,448	$	(14	)
Agency mortgage-backed	1	186		—			1	460		(2		)	2	646		(2		)
State and political subdivisions	9	4,255		(45		)	3	1,147		(5		)	12	5,402		(50		)
Corporate	8	3,859		(183		)	2	630		(69		)	10	4,489		(252		)
Total	20	$	9,305	$	(231	)	7	$	2,680	$	(87	)	27	$	11,985	$	(318	)

Union Bankshares, Inc. Page 10



December 31, 2015	Less Than 12 Months						12 Months and over						Total
	Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses			Number of Securities	Fair Value		Gross Unrealized Losses
		(Dollars in thousands)
Debt securities:
U.S. Government-sponsored enterprises	12	$	9,081	$	(157	)	5	$	3,607	$	(87	)	17	$	12,688	$	(244	)
Agency mortgage-backed	12	7,459		(58		)	1	259		(6		)	13	7,718		(64		)
State and political subdivisions	4	1,512		(14		)	2	785		(11		)	6	2,297		(25		)
Corporate	12	5,750		(277		)	4	1,632		(82		)	16	7,382		(359		)
Total	40	$	23,802	$	(506	)	12	$	6,283	$	(186	)	52	$	30,085	$	(692	)

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 statement 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. Declines in the fair values of individual equity securities that are deemed by management to be OTT are reflected in noninterest income when identified.

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 March 31, 2016 for the foreseeable future and no declines were deemed by management to be OTT.

Investment securities with a carrying amount of $30.0 million and $25.7 million at March 31, 2016 and December 31, 2015, respectively, were pledged as collateral for public deposits and for other purposes as required or permitted by law.

Note 7. Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their unpaid principal balances, adjusted for any charge-offs, the ALL, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Loan interest income is accrued daily on outstanding balances. The following accounting policies, related to accrual and nonaccrual loans, apply to all portfolio segments and loan classes, which the Company considers to be the same. The accrual of interest is normally discontinued when a loan is specifically determined to be impaired and/or management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is doubtful. Generally, any unpaid interest previously accrued on those loans is reversed against current period interest income. A loan may be restored to accrual status when its financial status has significantly improved and there is no principal or interest past due. A loan may also be restored to accrual status if the borrower makes six consecutive monthly payments or the lump sum equivalent. Income on

Union Bankshares, Inc. Page 11

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.

The loans purchased in the 2011 Branch Acquisition were initially recorded at $32.9 million, the estimated fair value at the time of purchase. The estimated fair value contains both accretable and nonaccretable components. The accretable component is amortized as an adjustment to the related loan yield over the average life of the loan. The nonaccretable component represents probable loss due to credit risk and is reviewed by management periodically and adjusted as deemed necessary. At the acquisition date, the fair value of the loans acquired resulted in an accretable loan premium component of $545 thousand, less a nonaccretable credit risk component of $318 thousand. As of March 31, 2016 and December 31, 2015, there was no remaining accretable loan premium component balance and no remaining nonaccretable credit risk component balance due to the transfer of the remaining acquired portfolios to the Company's existing loan portfolios during the fourth quarter of 2015. There were no acquired loans at March 31, 2016 and December 31, 2015.

The following table summarizes activity in the accretable loan premium component for the acquired loan portfolio during the three month comparison periods:



	For The Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Balance at beginning of period	$	—	$	292
Loan premium amortization	—		(18		)
Balance at end of period	$	—	$	274

Changes in the accretable and nonaccretable components have been charged to Interest and fees on loans on the Company's consolidated statements of income for the periods reported.

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



	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Residential real estate	$	165,640		$	165,396
Construction real estate	39,392			42,889
Commercial real estate	237,032			230,442
Commercial	27,619			21,397
Consumer	3,695			3,963
Municipal	39,199			36,419
Gross loans	512,577			500,506
Allowance for loan losses	(5,125		)	(5,201		)
Net deferred loan costs	546			515
Net loans	$	507,998		$	495,820

Residential real estate loans aggregating $17.2 million at December 31, 2015 were pledged as collateral on deposits of municipalities. There were no loans pledged as collateral on deposits of municipalities at March 31, 2016. Qualifying residential first mortgage loans held by Union may be pledged as collateral for borrowings from the FHLB under a blanket lien.

Union Bankshares, Inc. Page 12

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



March 31, 2016	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
	(Dollars in thousands)
Residential real estate	$	160,436	$	3,282	$	6	$	259	$	1,657	$	165,640
Construction real estate	38,965		400		—		—		27		39,392
Commercial real estate	235,096		824		—		398		714		237,032
Commercial	27,524		42		24		—		29		27,619
Consumer	3,689		6		—		—		—		3,695
Municipal	39,199		—		—		—		—		39,199
Total	$	504,909	$	4,554	$	30	$	657	$	2,427	$	512,577



December 31, 2015	Current		30-59 Days		60-89 Days		90 Days and Over and Accruing		Nonaccrual		Total
	(Dollars in thousands)
Residential real estate	$	159,895	$	2,034	$	1,195	$	368	$	1,904	$	165,396
Construction real estate	42,616		7		204		34		28		42,889
Commercial real estate	228,513		667		641		111		510		230,442
Commercial	20,977		—		20		321		79		21,397
Consumer	3,950		10		1		2		—		3,963
Municipal	36,419		—		—		—		—		36,419
Total	$	492,370	$	2,718	$	2,061	$	836	$	2,521	$	500,506

There were two residential real estate loans totaling $79 thousand in process of foreclosure at March 31, 2016. Aggregate interest on nonaccrual loans not recognized was $1.2 million and $1.1 million as of March 31, 2016 and 2015, respectively, and $1.2 million as of December 31, 2015.

Note 8. Allowance for Loan Losses and Credit Quality

The ALL is established for estimated losses in the loan portfolio through a provision for loan losses charged to earnings. 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 has been no change to the methodology used to estimate the ALL during the first quarter of 2016. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.

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

The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan 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

Union Bankshares, Inc. Page 13

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

The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the 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.

•

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


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


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


•	Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment.

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

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

Union Bankshares, Inc. Page 14

Changes in the ALL, by class of loans, for the three months ended March 31, 2016 and 2015 were as follows:



For The Three Months Ended March 31, 2016	Residential Real Estate			Construction Real Estate			Commercial Real Estate			Commercial			Consumer			Municipal		Unallocated		Total
	(Dollars in thousands)
Balance, December 31, 2015	$	1,419		$	514		$	2,792		$	209		$	28		$	38	$	201	$	5,201
Provision (credit) for loan losses	87			(51		)	(63		)	41			(1		)	9		53		75
Recoveries of amounts charged off	—			3			—			1			1			—		—		5
	1,506			466			2,729			251			28			47		254		5,281
Amounts charged off	(120		)	—			—			(33		)	(3		)	—		—		(156		)
Balance, March 31, 2016	$	1,386		$	466		$	2,729		$	218		$	25		$	47	$	254	$	5,125



For The Three Months Ended March 31, 2015	Residential Real Estate		Construction Real Estate			Commercial Real Estate		Commercial			Consumer			Municipal		Unallocated			Total
	(Dollars in thousands)
Balance, December 31, 2014	$	1,330	$	439		$	2,417	$	176		$	27		$	42	$	263		$	4,694
Provision (credit) for loan losses	9		(63		)	251		20			10			12		(139		)	100
Recoveries of amounts charged off	—		3			—		—			1			—		—			4
	1,339		379			2,668		196			38			54		124			4,798
Amounts charged off	—		—			—		(13		)	(12		)	—		—			(25		)
Balance, March 31, 2015	$	1,339	$	379		$	2,668	$	183		$	26		$	54	$	124		$	4,773

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 were as follows:



March 31, 2016	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	76	$	—	$	86	$	20	$	—	$	—	$	—	$	182
Collectively evaluated for impairment	1,310		466		2,643		198		25		47		254		4,943
Total allocated	$	1,386	$	466	$	2,729	$	218	$	25	$	47	$	254	$	5,125



December 31, 2015	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Unallocated		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	109	$	—	$	227	$	21	$	—	$	—	$	—	$	357
Collectively evaluated for impairment	1,310		514		2,565		188		28		38		201		4,844
Total allocated	$	1,419	$	514	$	2,792	$	209	$	28	$	38	$	201	$	5,201

Union Bankshares, Inc. Page 15

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 were as follows:



March 31, 2016	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	1,176	$	91	$	3,107	$	475	$	—	$	—	$	4,849
Collectively evaluated for impairment	164,464		39,301		233,925		27,144		3,695		39,199		507,728
Total	$	165,640	$	39,392	$	237,032	$	27,619	$	3,695	$	39,199	$	512,577



December 31, 2015	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Individually evaluated for impairment	$	1,197	$	92	$	3,094	$	493	$	—	$	—	$	4,876
Collectively evaluated for impairment	164,199		42,797		227,348		20,904		3,963		36,419		495,630
Total	$	165,396	$	42,889	$	230,442	$	21,397	$	3,963	$	36,419	$	500,506

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

1-3 Rating - Pass

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

4/M Rating - Satisfactory/Monitor

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

5-7 Rating - Substandard

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

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



March 31, 2016	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	152,296	$	34,070	$	180,005	$	24,820	$	3,664	$	39,199	$	434,054
Satisfactory/Monitor	9,851		5,204		51,620		1,652		31		—		68,358
Substandard	3,493		118		5,407		1,147		—		—		10,165
Total	$	165,640	$	39,392	$	237,032	$	27,619	$	3,695	$	39,199	$	512,577

Union Bankshares, Inc. Page 16



December 31, 2015	Residential Real Estate		Construction Real Estate		Commercial Real Estate		Commercial		Consumer		Municipal		Total
	(Dollars in thousands)
Pass	$	150,535	$	37,750	$	175,438	$	18,347	$	3,902	$	36,419	$	422,391
Satisfactory/Monitor	11,329		4,968		49,745		2,384		61		—		68,487
Substandard	3,532		171		5,259		666		—		—		9,628
Total	$	165,396	$	42,889	$	230,442	$	21,397	$	3,963	$	36,419	$	500,506

The following table provides information with respect to impaired loans by class of loan as of and for the three months ended March 31, 2016:



	As of March 31, 2016						For The Three Months Ended March 31, 2016
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	402	$	411	$	76
Commercial real estate	511		534		86
Commercial	475		475		20
With an allowance recorded	1,388		1,420		182

Residential real estate	774		1,011		—
Construction real estate	91		91		—
Commercial real estate	2,596		2,661		—
With no allowance recorded	3,461		3,763		—

Residential real estate	1,176		1,422		76		$	1,186	$	11
Construction real estate	91		91		—		92		1
Commercial real estate	3,107		3,195		86		3,100		14
Commercial	475		475		20		484		—
Total	$	4,849	$	5,183	$	182	$	4,862	$	26

____________________


(1)	Does not reflect government guaranties on impaired loans as of March 31, 2016 totaling $590 thousand.

The following table provides information with respect to impaired loans by class of loan as of and for the three months ended March 31, 2015:



	As of March 31, 2015						For The Three Months Ended March 31, 2015
	Recorded Investment (1)		Principal Balance (1)		Related Allowance		Average Recorded Investment		Interest Income Recognized
	(Dollars in thousands)
Residential real estate	$	692	$	809	$	69	$	821	$	11
Construction real estate	252		275		—		264		3
Commercial real estate	3,295		3,361		228		3,313		34
Commercial	—		—		—		61		—
Total	$	4,239	$	4,445	$	297	$	4,459	$	48

____________________


(1)	Does not reflect government guaranties on impaired loans as of March 31, 2015 totaling $240 thousand.

Union Bankshares, Inc. Page 17

The following table provides information with respect to impaired loans as of December 31, 2015:



	December 31, 2015
	Recorded Investment (1)		Principal Balance (1)		Related Allowance
	(Dollars in thousands)
Residential real estate	$	659	$	668	$	109
Commercial real estate	2,142		2,161		227
Commercial	493		493		21
With an allowance recorded	3,294		3,322		357

Residential real estate	538		697		—
Construction real estate	92		92		—
Commercial real estate	952		1,015		—
With no allowance recorded	1,582		1,804		—

Residential real estate	1,197		1,365		109
Construction real estate	92		92		—
Commercial real estate	3,094		3,176		227
Commercial	493		493		21
Total	$	4,876	$	5,126	$	357

____________________


(1)	Does not reflect government guaranties on impaired loans as of December 31, 2015 totaling $606 thousand.

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



	March 31, 2016			December 31, 2015
	Number of Loans	Principal Balance		Number of Loans	Principal Balance
	(Dollars in thousands)
Residential real estate	12	$	1,176	11	$	1,197
Construction real estate	1	91		1	92
Commercial real estate	5	962		5	950
Commercial	2	475		2	493
Total	20	$	2,704	19	$	2,732

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 during the three months ended March 31, 2015. The following table provides new TDR activity for the three months ended March 31, 2016:



	New TDRs During the
	Three Months Ended March 31, 2016
	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Residential real estate	1	$	57	$	57

Union Bankshares, Inc. Page 18

There were no TDR loans modified within the previous twelve months that had subsequently defaulted during the three month periods ended March 31, 2016 or March 31, 2015. TDR loans are considered defaulted at 90 days past due.

At March 31, 2016 and December 31, 2015, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.

Note 9. Defined Benefit Pension Plan

Union sponsors a noncontributory defined benefit pension plan covering all eligible employees employed prior to October 5, 2012. On October 5, 2012, the Company closed the Plan to new participants and froze the accrual of retirement benefits for current participants. It is Union's current intent to continue to maintain the frozen Plan and related Trust account and to distribute benefits to participants at such time and in such manner as provided under the terms of the Plan. The Company will continue to recognize the pension benefit and cash funding obligations for the remaining life of the associated liability for the frozen benefits under the Plan. The Plan provides defined benefits based on years of service and final average salary prior to October 5, 2012.

Net periodic pension benefit for the three months ended March 31 consisted of the following components:



	Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Service cost	$	—		$	—
Interest cost on projected benefit obligation	175			170
Expected return on plan assets	(259		)	(286		)
Amortization of prior service cost	—			—
Amortization of net loss	41			14
Net periodic benefit	$	(43	)	$	(102	)

Note 10. Stock Based Compensation

The Company's current stock-based compensation plan is the Union Bankshares, Inc. 2014 Equity Incentive Plan. Under the 2014 Equity Plan, 50,000 shares of the Company’s common stock are available 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.

During the three months ended March 31, 2016 the following awards and contingent awards were made to eligible officers under the 2014 Equity Plan:

•

A total of 5,444 RSUs were granted at a fair value of $27.91 per share, based on the closing market price of the Company's common stock on the December 31, 2015 earned date of the award. 50% of the RSUs awarded in the form of Time-Based RSUs, which will vest over three years, approximately one-third per year on the anniversary of the earned date; and 50% of the RSUs awarded were in the form of Performance-Based RSUs, which are subject to both performance and time based vesting conditions. The Performance-Based conditions were satisfied during 2015 and vesting of the Performance-Based RSUs will occur over two years, with approximately one-half vesting on the anniversary of the earned date. Prior to vesting, the RSUs do not earn dividends or dividend equivalents, nor do they bear any voting rights. The terms of the awards were described in a 2015 Award Plan Summary approved by the Board of Directors. Unrecognized compensation expense related to the unvested RSUs as of March 31, 2016 was $138 thousand.

•

A total of 4,456 contingent RSUs were provisionally granted at a fair value of $29.10 per share, based on the closing market price of the Company's stock on the March 16, 2016 grant date. The estimated number of contingent RSUs provisionally granted was based on target payout amounts as detailed in the 2016 Award Plan Summary adopted by the Board of Directors. As with the 2015 grants, one half is in the form of Time-Based RSUs and one-half is in the form of Performance-Based RSUs. The actual number of RSUs granted (if any) will be determined as of the earned date of December 31, 2016. The contingent RSUs were granted on substantially the same terms and conditions as the RSUs granted under the 2015 Award Plan Summary. As of March 31, 2016 the estimated unrecognized compensation expense

Union Bankshares, Inc. Page 19

related to the contingent unvested RSUs, based on the closing market price of the Company's stock on the grant date of March 16, 2016 was $130 thousand.

As of March 31, 2016, 5,660 options granted in December 2014 under the 2014 Equity Plan remained outstanding and exercisable and will expire in December 2021. There was no unrecognized compensation cost related to these options as of March 31, 2016 and all exercisable options were "in the money".

As of March 31, 2016, 36,436 shares remained available for future equity awards under the 2014 Equity Plan.

As of March 31, 2016, 5,000 options granted under the 2008 ISO Plan remained outstanding and exercisable, with the last of such options expiring in December 2020. There was no unrecognized compensation cost related to these options as of March 31, 2016 and all exercisable options were "in the money".

Note 11. 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 and the unfunded liability for the defined benefit pension plan, 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 sheet (Accumulated OCI). OCI, along with net income, comprises the Company's total comprehensive income or loss.

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



	March 31, 2016			December 31, 2015
	(Dollars in thousands)
Net unrealized gain (loss) on investment securities available-for-sale	$	485		$	(27	)
Defined benefit pension plan net unrealized actuarial loss	(2,275		)	(2,275		)
Total	$	(1,790	)	$	(2,302	)

The following table discloses the tax effects allocated to each component of OCI for the three months ended March 31:



	Three Months Ended
	March 31, 2016							March 31, 2015
	Before-Tax Amount		Tax Expense			Net-of-Tax Amount		Before-Tax Amount		Tax Expense			Net-of-Tax Amount
	(Dollars in thousands)
Investment securities available-for-sale:
Net unrealized holding gains arising during the period on investment securities available-for-sale	$	776	$	(264	)	$	512	$	415	$	(141	)	$	274
Total other comprehensive income	$	776	$	(264	)	$	512	$	415	$	(141	)	$	274

There were no reclassification adjustments from OCI for the three months ended March 31, 2016 and 2015.

Note 12. Fair Value Measurements and Disclosures

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

Union Bankshares, Inc. Page 20

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:

AFS securities: Marketable equity securities and mutual funds have been valued using unadjusted quoted prices from active markets and therefore have been classified as Level 1. However, the majority of the Company’s AFS securities have been valued utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include market maker bids, quotes and pricing models. Inputs to the pricing models include recent trades, benchmark interest rates, spreads and actual and projected cash flows.

Assets measured at fair value on a recurring basis at March 31, 2016 and December 31, 2015, segregated by fair value hierarchy level, are summarized below:



	Fair Value Measurements
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
March 31, 2016:
Investment securities available-for-sale (market approach)
Debt securities:
U.S. Government-sponsored enterprises	$	7,691	$	—	$	7,691	$	—
Agency mortgage-backed	11,723		—		11,723		—
State and political subdivisions	25,500		—		25,500		—
Corporate	12,269		—		12,269		—
Total debt securities	57,183		—		57,183		—
Mutual funds	333		333		—		—
Total	$	57,516	$	333	$	57,183	$	—

December 31, 2015:
Investment securities available-for-sale (market approach)
Debt securities:
U.S. Government-sponsored enterprises	$	10,692	$	—	$	10,692	$	—
Agency mortgage-backed	11,058		—		11,058		—
State and political subdivisions	20,032		—		20,032		—
Corporate	11,983		—		11,983		—
Total debt securities	53,765		—		53,765		—
Mutual funds	345		345		—		—
Total	$	54,110	$	345	$	53,765	$	—

There were no significant transfers in or out of Levels 1 and 2 for the three months ended March 31, 2016. 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

Union Bankshares, Inc. Page 21

ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis in periods after initial recognition, such as impaired loans, HTM securities, MSRs and OREO, were not considered material at March 31, 2016 or December 31, 2015. The Company has not elected to apply the fair value method to any financial assets or liabilities other than those situations where other accounting pronouncements require fair value measurements.

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

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

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

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

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

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

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

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

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

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

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

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

Union Bankshares, Inc. Page 22

values of the Company’s short-term debt approximate the carrying amounts reported in the balance sheet, resulting in a Level 1 classification.

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

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



	March 31, 2016
	Fair Value Measurements
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	14,017	$	14,017	$	14,017	$	—	$	—
Interest bearing deposits in banks	12,354		12,503		—		12,503		—
Investment securities	62,733		62,743		333		62,410		—
Loans held for sale	6,725		6,882		—		6,882		—
Loans, net
Residential real estate	164,430		168,304		—		—		168,304
Construction real estate	38,968		39,336		—		—		39,336
Commercial real estate	234,302		235,822		—		—		235,822
Commercial	27,430		27,463		—		—		27,463
Consumer	3,674		3,770		—		—		3,770
Municipal	39,194		39,939		—		—		39,939
Accrued interest receivable	2,078		2,078		—		463		1,615
Nonmarketable equity securities	2,053		N/A		N/A		N/A		N/A
Financial liabilities
Deposits
Noninterest bearing	$	101,943	$	101,943	$	101,943	$	—	$	—
Interest bearing	311,656		311,656		311,656		—		—
Time	145,405		145,462		—		145,462		—
Borrowed funds
Short-term	11,016		11,016		11,016		—		—
Long-term	10,867		10,683		—		10,683		—
Accrued interest payable	415		415		—		415		—

Union Bankshares, Inc. Page 23



	December 31, 2015
	Fair Value Measurements
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Dollars in thousands)
Financial assets
Cash and cash equivalents	$	17,961	$	17,961	$	17,961	$	—	$	—
Interest bearing deposits in banks	12,753		12,610		—		12,610		—
Investment securities	59,327		59,226		345		58,881		—
Loans held for sale	5,635		5,745		—		5,745		—
Loans, net
Residential real estate	164,147		164,462		—		—		164,462
Construction real estate	42,419		41,956		—		—		41,956
Commercial real estate	227,686		230,282		—		—		230,282
Commercial	21,210		20,849		—		—		20,849
Consumer	3,939		4,032		—		—		4,032
Municipal	36,419		38,131		—		—		38,131
Accrued interest receivable	1,832		1,832		—		389		1,443
Nonmarketable equity securities	1,932		N/A		N/A		N/A		N/A
Financial liabilities
Deposits
Noninterest bearing	$	99,826	$	99,826	$	99,826	$	—	$	—
Interest bearing	310,203		310,200		—		310,200		—
Time	150,379		150,665		—		150,665		—
Borrowed funds
Short-term	3,622		3,621		3,621		—		—
Long-term	5,942		6,296		—		6,296		—
Accrued interest payable	269		269		—		269		—

The carrying amounts in the preceding tables are included in the consolidated balance sheets under the applicable captions.

Note 13. 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 March 31, 2016 have been evaluated as to their potential impact to the consolidated financial statements.

On April 20, 2016, the Company declared a regular quarterly cash dividend of $0.28 per share, payable May 10, 2016, to stockholders of record on April 30, 2016, representing an increase of $0.01, or 3.7%, over the quarterly cash dividend paid in each of the five previous fiscal quarters.

Union Bankshares, Inc. Page 24

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 March 31, 2016 and December 31, 2015, and its results of operations for the three months ended March 31, 2016 and 2015. 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 Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of the Company's management, the interim unaudited data reflects 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 March 31, 2016 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 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,” “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: (1) continuing general economic conditions and financial instability, either nationally, internationally, regionally or locally resulting from elevated unemployment rates, changes in monetary and fiscal policies, and adverse changes in the credit rating of U.S. government debt; (2) increased competitive pressures including those from tax-advantaged credit unions and other financial service providers in the Company's northern Vermont and New Hampshire market 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; (3) interest rates change in such a way that continues to put pressure on the Company's margins, or result in lower fee income and lower gain on sale of real estate loans; (4) 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 the Company's business; (5) changes in federal or state tax policy; (6) the effect of federal and state health care reform efforts; (7) changes in the level of nonperforming assets and charge-offs; (8) changes in estimates of future reserve requirements based upon relevant regulatory and accounting requirements; (9) changes in information technology that require increased capital spending; (10) changes in consumer and business spending, borrowing and savings habits; (11) further changes to the regulations governing the calculation of the Company’s regulatory capital ratios; (12) 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; (13) increased cyber security threats; and (14) the effects of national and state election results.

When evaluating forward-looking statements to make decisions with respect to the Company, 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.

Union Bankshares, Inc. Page 25

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. 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 Annual Report on Form 10-K for the year ended December 31, 2015 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 Company's net income was $1.8 million for the quarter ended March 31, 2016 compared to $1.9 million for the quarter ended March 31, 2015, a decrease of $125 thousand, or 6.6%. These results reflected an increase in the Company's core earnings (net interest income) of $383 thousand, or 6.9%, and a decrease in the provision for income taxes of $47 thousand, or 9.2%, which were more than offset by the combined effect of a decrease in noninterest income of $149 thousand, or 6.4%, and an increase in noninterest expenses of $431 thousand, or 8.0%. The decrease in noninterest income primarily reflects a decrease of $229 thousand in net gains on sales of loans held for sale compared to the same period last year.

Net loans and loans held for sale increased $13.3 million, or 2.6%, to $514.7 million, or 80.3% of total assets, at March 31, 2016, compared to $501.5 million, or 79.7% of total assets, at December 31, 2015. The increase is primarily attributable to growth in commercial real estate, commercial and municipal loans.

Deposits decreased $1.4 million, or 0.3%, from $560.4 million at December 31, 2015 to $559.0 million at March 31, 2016 primarily related to decreases in time deposits, partially offset by increases in non maturing deposits.

The Company's total capital increased from $53.6 million at December 31, 2015 to $54.7 million at March 31, 2016. This increase primarily reflects net income of $1.8 million for the first three months of 2016 and an increase of $512 thousand in accumulated OCI, less regular cash dividends paid of $1.2 million. (See Capital Resources on page 38.)

Union Bankshares, Inc. Page 26

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three months ended March 31, 2016 and 2015, respectively:



	Three Months Ended or At March 31,
	2016			2015
Return on average assets (ROA) (1)	1.11		%	1.22		%
Return on average equity (1)	12.90		%	14.44		%
Net interest margin (1)(2)	4.14		%	4.00		%
Efficiency ratio (3)	70.01		%	66.59		%
Net interest spread (4)	4.05		%	3.90		%
Loan to deposit ratio	92.90		%	91.67		%
Net loan charge-offs to average loans not held for sale (1)	0.12		%	0.02		%
Allowance for loan losses to loans not held for sale (5)	1.00		%	0.97		%
Nonperforming assets to total assets (6)	0.48		%	0.77		%
Equity to assets	8.53		%	8.41		%
Total capital to risk weighted assets	13.15		%	13.47		%
Book value per share	$	12.26		$	11.75
Earnings per share	$	0.39		$	0.42
Dividends paid per share	$	0.27		$	0.27
Dividend payout ratio (7)	69.23		%	64.29		%

____________________


(1)	Annualized.


(2)	The ratio of tax equivalent net interest income to average earning assets. See 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 rate earned on earning assets and the average rate paid on interest bearing liabilities. See page 28 for more information.


(5)	Calculation includes the net carrying amount of loans recorded at fair value from the 2011 Branch Acquisition as of March 31, 2015 ($9.1 million). Excluding such loans, the allowance for loan losses to loans not purchased and not held for sale was 0.99% at March 31, 2015. The acquired loan portfolios were transferred to the Company's existing loan portfolios during the fourth quarter of 2015.


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


(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 interest earning assets and interest expense paid on interest bearing liabilities. Net interest income is affected by various factors including, but not limited to changes in interest rates, loan and deposit pricing strategies, the volume and mix of interest earning assets and interest bearing liabilities, and the level of nonperforming assets. Net interest margin is calculated as the net interest income on a fully tax equivalent basis as a percentage of average earning assets. The net interest margin for the first quarter of 2016 increased 14 bps to 4.14% from 4.00% for the first quarter of 2015.

Net interest income was $5.9 million on a fully tax equivalent basis for the three months ended March 31, 2016, compared to $5.6 million for the three months ended March 31, 2015, an increase of $383 thousand, or 6.90%. The increase in net interest income for the quarter reflects a 10 bp increase in the average yield on earning assets. The 25 bp increase in rates initiated by the FRB contributed to the increase in yield on loans as a significant portion of our commercial real estate loans are variable rate. Additionally, the average yield on investment securities has improved as funds were invested in higher yielding municipal securities as lower yielding U.S. government sponsored agency securities were called.

The average cost of funds decreased 5 bps for the three month period ended March 31, 2016 compared to the same period last year and combined with the 10 bp increase in average yield on earning assets, resulted in an increase of 14 bps in the Company's net interest margin to 4.14% from 4.00% for the same period last year and an increase of 15 bps in the net interest spread between periods from 3.90% to 4.05% . The average cost of deposits, which continues to be our primary funding source, was 0.31% for

Union Bankshares, Inc. Page 27

the three months ended March 31, 2016 compared to 0.35% for the three months ended March 31, 2015. Rates paid on nontime deposits have remained flat period over period and rates paid on time deposits decreased 12 bps period over period.

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



	Three Months Ended March 31,
	2016						2015
	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	$	9,166	$	5	0.20	%	$	17,635	$	8	0.19	%
Interest bearing deposits in banks	12,674		45		1.42	%	12,460		40		1.30	%
Investment securities (1), (2)	62,861		387		2.86	%	56,140		328		2.68	%
Loans, net (1), (3)	506,613		5,995		4.85	%	495,511		5,732		4.82	%
Nonmarketable equity securities	1,867		16		3.41	%	2,053		9		1.73	%
Total interest earning assets (1)	593,181		6,448		4.49	%	583,799		6,117		4.39	%
Cash and due from banks	4,604						4,665
Premises and equipment	13,057						12,036
Other assets	22,279						18,620
Total assets	$	633,121					$	619,120
Average Liabilities and Stockholders' Equity:
Interest bearing checking accounts	$	118,641	$	23	0.08	%	$	112,663	$	21	0.08	%
Savings/money market accounts	184,727		79		0.17	%	186,653		80		0.17	%
Time deposits	149,883		323		0.86	%	154,865		375		0.98	%
Borrowed funds	18,265		88		1.91	%	16,326		89		2.19	%
Total interest bearing liabilities	471,516		513		0.44	%	470,507		565		0.49	%
Noninterest bearing deposits	102,254						92,579
Other liabilities	4,800						3,826
Total liabilities	578,570						566,912
Stockholders' equity	54,551						52,208
Total liabilities and stockholders’ equity	$	633,121					$	619,120
Net interest income			$	5,935					$	5,552
Net interest spread (1)					4.05	%					3.90	%
Net interest margin (1)					4.14	%					4.00	%

__________________


(1)	Average yields reported on a tax equivalent basis using a marginal tax rate of 34%.


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


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

Union Bankshares, Inc. Page 28

Tax exempt interest income amounted to $428 thousand and $460 thousand for the three months ended March 31, 2016 and 2015, respectively. The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal tax rate of 34% for the 2016 and 2015 three month comparison periods:



	For The Three Months Ended March 31,
	2016		2015
	(Dollars in thousands)
Net interest income as presented	$	5,935	$	5,552
Effect of tax-exempt interest
Investment securities	62		48
Loans	131		159
Net interest income, tax equivalent	$	6,128	$	5,759

Rate/Volume Analysis. The following table describes the extent to which changes in average interest rates (on a fully tax-equivalent basis) and changes in volume of average interest earning assets and interest bearing liabilities have affected the Company's interest income and interest expense during the periods indicated. For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to:


•	changes in volume (change in volume multiplied by prior rate);


•	changes in rate (change in rate multiplied by prior volume); and


•	total change in rate and volume.

Changes attributable to both rate and volume have been allocated proportionately to the change due to volume and the change due to rate.



	Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015 Increase/(Decrease) Due to Change In
	Volume			Rate			Net
	(Dollars in thousands)
Interest earning assets:
Federal funds sold and overnight deposits	$	(4	)	$	1		$	(3	)
Interest bearing deposits in banks	1			4			5
Investment securities	41			18			59
Loans, net	181			82			263
Nonmarketable equity securities	(1		)	8			7
Total interest earning assets	$	218		$	113		$	331
Interest bearing liabilities:
Interest bearing checking accounts	$	1		$	1		$	2
Savings/money market accounts	(1		)	—			(1		)
Time deposits	(10		)	(42		)	(52		)
Borrowed funds	11			(12		)	(1		)
Total interest bearing liabilities	$	1		$	(53	)	$	(52	)
Net change in net interest income	$	217		$	166		$	383

Provision for Loan Losses. There was a $75 thousand and $100 thousand loan loss provision for the three months ended March 31, 2016, and 2015, respectively. The provision for the first three months of 2016 was deemed appropriate by management based on the size and mix of the loan portfolio, the level of nonperforming loans, the results of the qualitative factor review and the outlook for future economic conditions. For further details, see FINANCIAL CONDITION- Allowance for Loan Losses and Asset Quality below.

Union Bankshares, Inc. Page 29

Noninterest Income. Noninterest income was $2.2 million, or 25.3% of total income for the three months ended March 31, 2016, compared to $2.3 million, or 27.6% of total income for the three months ended March 31, 2015 The following table sets forth the components of noninterest income and changes from 2015 to 2016:



	For The Three Months Ended March 31,
	2016		2015		$ Variance			% Variance
	(Dollars in thousands)
Trust income	$	172	$	177	$	(5	)	(2.8	)
Service fees	1,412		1,346		66			4.9
Net gains on sales of loans held for sale	500		729		(229		)	(31.4	)
Income from Company-owned life insurance	73		37		36			97.3
Other income	29		46		(17		)	(37.0	)
Total noninterest income	$	2,186	$	2,335	$	(149	)	(6.4	)

The significant changes in noninterest income for the three months ended March 31, 2016 compared to the same period of 2015 are described below:


•	Net gains on sales of loans held for sale. Residential loans totaling $22.9 million were sold to the secondary market during the first quarter of 2016, versus residential loan sales of $31.3 million during the first quarter of 2015. The decrease in volume of loans sold has resulted in a decrease in the net gains on sales of loans as illustrated in the table above.


•	Income from Company-owned life insurance. The Company purchased $5.0 million of company-owned life insurance covering certain officers of Union during March of 2015. Three months of income was recognized on these policies for the first quarter of 2016 versus one month in 2015.


•	Other income. The decrease in other income for the three months ended March 31, 2016 compared to the same period in 2015 resulted from a decrease of $30 thousand in mortgage servicing right fees, partially offset by an increase in gas and oil royalty income of $14 thousand.

Noninterest Expense. The following table sets forth the components of noninterest expense and changes between the three month comparison periods of 2016 and 2015:



	For The Three Months Ended March 31,
	2016		2015		$ Variance			% Variance
	(Dollars in thousands)
Salaries and wages	$	2,458	$	2,323	$	135		5.8
Pension and employee benefits	943		734		209			28.5
Occupancy expense, net	317		381		(64		)	(16.8	)
Equipment expense	509		407		102			25.1
Vermont franchise tax	137		132		5			3.8
FDIC insurance assessment	83		96		(13		)	(13.5	)
Equity in losses of affordable housing investments	118		122		(4		)	(3.3	)
Other expenses	1,256		1,195		61			5.1
Total noninterest expense	$	5,821	$	5,390	$	431		8.0

The significant changes in noninterest expense for the first quarter and three months ended March 31, 2016 compared to the same periods of 2015 are described below:


•	Salaries and wages. The increase reflects a $39 thousand increase in accruals for short and long term incentive plan benefits, as well as normal annual salary increases.


•	Pension and employee benefits. The increase of $209 thousand between the three month comparison periods is attributable to increases in health and dental insurance, 401k contributions, and a reduction in the pension benefit. The cost of the Company's medical and dental plans increased $63 thousand as premium rates and dental claims increased between years.

Union Bankshares, Inc. Page 30

The Company's 401k expense increased $92 thousand as a result of accruing for a profit share component at the beginning of the year whereas in 2015 the accrual for this component began in the second quarter. Lastly, the benefit received from the pension plan was reduced by $59 thousand as of the most recent actuarial calculation.


•	Equipment expense. During the second quarter of 2015, Union completed a rollout of new computers for all employees as well as teller capture technology at branch locations. As a result, equipment depreciation increased $83 thousand for the three months ended March 31, 2016 compared to the same period in 2015 .

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three months ended March 31, 2016 and 2015. The Company's net provision for income taxes was $466 thousand and $513 thousand for the three months ended March 31, 2016 and March 31, 2015, respectively. The Company's effective tax rate was 20.9% for the three months ended March 31, 2016, compared to an effective tax rate of 21.4% for the same period in 2015.

FINANCIAL CONDITION

At March 31, 2016, the Company had total consolidated assets of $640.8 million, including gross loans and loans held for sale (total loans) of $519.3 million, deposits of $559.0 million and stockholders' equity of $54.7 million. The Company’s total assets at March 31, 2016 increased $11.9 million, or 1.9%, from $628.9 million at December 31, 2015, and increased $18.3 million, or 2.9%, compared to March 31, 2015.

Net loans and loans held for sale increased a total of $13.3 million, or 2.6%, to $514.7 million, or 80.3% of total assets at March 31, 2016, compared to $501.5 million, or 79.7% of total assets at December 31, 2015. (See Loans Held for Sale and Loan Portfolio below.)

Total deposits decreased $1.4 million, or 0.3%, to $559.0 million at March 31, 2016, from $560.4 million at December 31, 2015. Noninterest bearing deposits increased $2.1 million, or 2.1%, from $99.8 million at December 31, 2015 to $101.9 million at March 31, 2016 and interest bearing deposits increased $1.5 million, or 0.5%, from $310.2 million at December 31, 2015 to $311.7 million at March 31, 2016. These increases were more than offset by a decrease of $5.0 million, or 3.3%, in time deposits from $150.4 million at December 31, 2015 to $145.4 million at March 31, 2016. (See average balances and rates in the Yields Earned and Rates Paid table on page 28.)

Total borrowed funds increased $12.3 million, or 128.8%, at March 31, 2016, from $9.6 million at December 31, 2015 to $21.9 million at March 31, 2016. There was $2.6 million in fed funds purchased at March 31, 2016 and FHLB advances increased $9.9 million, while customer overnight collateralized repurchase sweeps decreased $166 thousand between December 31, 2015 and March 31, 2016. (See Borrowings on page 36.)

Total stockholders’ equity increased $1.1 million to $54.7 million at March 31, 2016 from $53.6 million at December 31, 2015. (See Capital Resources on page 38.)

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased $13.2 million, or 2.6%, to $519.3 million, representing 81.0% of assets at March 31, 2016, from $506.1 million, representing 80.5% of assets at December 31, 2015. The total loan portfolio at March 31, 2016 also increased compared to the March 31, 2015 level of $501.3 million, representing 80.5% of assets. The Company’s loans consist primarily of adjustable-rate and fixed-rate mortgage loans secured by one-to-four family, multi-family residential or commercial real estate. Real estate secured loans represented $448.8 million, or 86.4% of total loans at March 31, 2016 and $444.4 million, or 87.8% of total loans at December 31, 2015. Although competition for good loans is strong, especially in the commercial sector, the Company has been able to originate loans to both current and new customers while maintaining credit quality. The composition of the Company’s loan portfolio remained relatively unchanged from December 31, 2015, and there was no material change in the Company’s lending programs or terms during the three months ended March 31, 2016.

Union Bankshares, Inc. Page 31

The composition of the Company's loan portfolio as of March 31, 2016 and December 31, 2015 was as follows:



	March 31, 2016				December 31, 2015
Loan Class	Amount			Percent	Amount			Percent
	(Dollars in thousands)
Residential real estate	$	165,640		31.9	$	165,396		32.7
Construction real estate	39,392			7.6	42,889			8.5
Commercial real estate	237,032			45.6	230,442			45.5
Commercial	27,619			5.3	21,397			4.2
Consumer	3,695			0.7	3,963			0.8
Municipal	39,199			7.6	36,419			7.2
Loans held for sale	6,725			1.3	5,635			1.1
Total loans	519,302			100.0	506,141			100.0
Allowance for loan losses	(5,125		)		(5,201		)
Unamortized net loan costs	546				515
Net loans and loans held for sale	$	514,723			$	501,455

The Company originates and sells qualified residential mortgage loans in various secondary market avenues, with a majority of sales made to the FHLMC/Freddie Mac. At March 31, 2016, the Company serviced a $572.8 million residential real estate mortgage portfolio, of which $6.7 million was held for sale and approximately $400.4 million was serviced for unaffiliated third parties.

The Company sold $22.9 million of qualified residential real estate loans primarily originated during the first three months of 2016 to the secondary market to mitigate long-term interest rate risk and to generate fee income, compared to sales of $31.3 million during the first three months of 2015. The volume of saleable mortgage loan originations for the three months ended March 31, 2016 was $24.0 million, compared to originations of $28.7 million for the same period in 2015. A decrease of $4.7 million in originations along with a reduction of $5.1 million in loans held for sale at December 31, 2015 compared to December 31, 2014 are the primary contributing factors in the decline in volume of loans sold. The Company generally retains the servicing rights on sold residential mortgage loans. The Company originates and sells FHA, VA, and RD residential mortgage loans, and also has an Unconditional Direct Endorsement Approval from HUD which allows the Company to approve FHA loans originated in any of its Vermont or New Hampshire locations without needing prior HUD approval. The Company sells VA and FHA loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities we serve, including low and moderate income borrowers, while the government guaranty mitigates our 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 $5.5 million guaranteed under these various programs at March 31, 2016 on an aggregate balance of $6.9 million in subject loans. The Company occasionally sells the guaranteed portion of the loan to other financial concerns and retains servicing rights, which generates fee income. There were no commercial real estate loans sold in the first three months of 2016 or 2015. The Company recognizes gains and losses on the sale of the principal portion of these loans as they occur.

The Company serviced $16.5 million of commercial and commercial real estate loans for unaffiliated third parties as of March 31, 2016. This includes $13.1 million of commercial or commercial real estate loans the Company has participated out to other financial institutions, in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

The Company capitalizes servicing rights for all loans sold with servicing retained and recognizes gains and losses on the sale of the principal portion of these loans as they occur. The unamortized balance of servicing rights on loans sold with servicing retained was $1.5 million at March 31, 2016, 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.

There were no residential real estate loans pledged to secure municipal deposits above the FDIC insurance coverage level as of March 31, 2016. Qualified residential first mortgage loans held by Union are eligible to be pledged as collateral for borrowings from the FHLB under a blanket lien.

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 32

conservative loan policies has helped to mitigate this risk and has been prudent for both the Company and its customers. Renewed market volatility, high unemployment rates or weakness in the general economic condition of the country or our market area, may have a negative effect on our customers’ ability to make their loan payments on a timely basis and/or on underlying collateral values. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO for potential problems and reports to the Company’s and Union’s Board at regularly scheduled meetings. Repossessed assets and loans or investments that are 90 days or more past due are considered to be nonperforming assets. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates large credits out to other financial institutions to further mitigate that risk.

The following table shows the composition of nonperforming assets at the dates indicated and trends of certain ratios monitored by Company's management in reviewing asset quality:



	As of or for the three months ended			As of or for the year ended			As of or for the three months ended
	March 31, 2016			December 31, 2015			March 31, 2015
	(Dollars in thousands)
Nonaccrual loans	$	2,427		$	2,521		$	2,093
Accruing loans 90+ days delinquent	657			836			2,400
Total nonperforming loans (1)	3,084			3,357			4,493
OREO	—			—			297
Total nonperforming assets	$	3,084		$	3,357		$	4,790
Allowance for loan losses to loans not held for sale (2)	1.00		%	1.04		%	0.97		%
Allowance for loan losses to nonperforming loans	166.18		%	154.93		%	106.23		%
Nonperforming loans to total loans	0.59		%	0.66		%	0.90		%
Nonperforming assets to total assets	0.48		%	0.53		%	0.77		%
Delinquent loans (30 days to nonaccruing) to total loans	1.48		%	1.61		%	1.98		%
Net charge-offs (annualized) to average loans not held for sale	0.12		%	0.01		%	0.02		%
Loan loss provision to net charge-offs, year-to-date	49.66		%	1,280.17		%	474.86		%

____________________


(1)	The Company had guarantees of U.S. or state government agencies on the above nonperforming loans totaling $444 thousand at March 31, 2016, $291 thousand at December 31, 2015, and $254 thousand at March 31, 2015. The acquired loan portfolios were transferred to the Company's existing loan portfolios during the fourth quarter of 2015


(2)	Calculation includes the net carrying amount of loans recorded at fair value from the 2011 Branch Acquisition as of March 31, 2015 ($9.1 million). Excluding such loans, the ALL to loans not purchased and not held for sale was 0.99% at March 31, 2015.

The level of nonaccrual loans decreased $94 thousand, or 3.7%, since December 31, 2015, and accruing loans delinquent 90 days or more decreased $179 thousand, or 21.4%, during the same time period. The percentage of nonperforming loans to total loans decreased from 0.66% to 0.59%. There were two residential real estate loans totaling $79 thousand in process of foreclosure at March 31, 2016 included in nonperforming loans. The aggregate interest income not recognized on nonaccrual loans amounted to approximately $1.2 million and $1.1 million as of March 31, 2016 and 2015, respectively and $1.2 million as of December 31, 2015.

At March 31, 2016, the Company had loans rated substandard that were on a performing status totaling $2.8 million, compared to $2.4 million at December 31, 2015. In management's view, substandard loans represent a higher degree of risk of becoming nonperforming loans in the future. The Company’s management is focused on the impact that the economy may have on its borrowers and closely monitors industry and geographic concentrations for evidence of financial problems. This winter season saw a lack of snow which put some strain on the local tourism industry. The Company has managed through difficult tourism seasons in the past and management is closely monitoring the results and impact of this season on our borrowers. Outside of the poor winter weather and its effect on the tourism industry, improvement in local economic indicators has been identified over the past year. The unemployment rate has stabilized in Vermont and was at a 3.3% level for March 2016 compared to 3.8% for March 2015. The New Hampshire unemployment rate was 2.6% for March 2016 compared to 3.9% for March 2015. These rates compare favorably with the nationwide unemployment rate at 5.0% and 5.5% for the comparable periods. Management will continue to monitor the national, regional and local economic environment and its impact on unemployment, business failures and real estate values in the Company’s market area.

Union Bankshares, Inc. Page 33

On occasion, the Company acquires residential or commercial real estate properties through or in lieu of loan foreclosure. These properties are held for sale and are initially recorded as OREO at fair value less estimated selling costs at the date of the Company’s acquisition of the property, with fair value based on an appraisal for more significant properties and on a broker’s price opinion for less significant properties. Holding costs and declines in the fair value of properties acquired are expensed as incurred. Declines in the fair value after acquisition of the property result in charges against income before tax. There were no such declines for the three months ended March 31, 2016 and March 31, 2015. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at March 31, 2016 and December 31, 2015. Further softening in the local real estate market would make the potential to recover all principal and related costs for OREO properties uncertain.

Allowance for Loan Losses. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ALL to absorb such losses. The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the evaluation date; however, actual loan losses may vary from current estimates. The Company's policy and methodologies for establishing the ALL, described in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, did not change during the first three months of 2016.

Impaired loans, including $2.7 million of TDR loans, were $4.8 million at March 31, 2016, with government guaranties of $590 thousand and a specific reserve amount allocated of $182 thousand. Impaired loans, including $2.7 million of TDR loans, at December 31, 2015 were $4.9 million, with government guaranties of $606 thousand and a specific reserve amount allocated of $357 thousand. Based on management's evaluation of the Company's historical loss experience on substandard commercial loans, commercial loans with balances greater than $500 thousand was established as the threshold for individual impairment evaluation with a specific reserve allocated when warranted. Commercial loans with balances under this threshold are collectively evaluated for impairment as a homogeneous pool of loans, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. The specific reserve amount allocated to individually identified impaired loans decreased $175 thousand as a result of the March 31, 2016 impairment evaluation.

The following table reflects activity in the ALL for the three month periods ended March 31, 2016 and 2015:



	For The Three Months Ended March 31,
	2016			2015
	(Dollars in thousands)
Balance at beginning of period	$	5,201		$	4,694
Charge-offs	(156		)	(25		)
Recoveries	5			4
Net charge-offs	(151		)	(21		)
Provision for loan losses	75			100
Balance at end of period	$	5,125		$	4,773

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:



	March 31, 2016			December 31, 2015
	Amount		Percent	Amount		Percent
	(Dollars in thousands)
Residential real estate	$	1,386	32.3	$	1,419	33.0
Construction real estate	466		7.7	514		8.6
Commercial real estate	2,729		46.3	2,792		46.0
Commercial	218		5.4	209		4.3
Consumer	25		0.7	28		0.8
Municipal	47		7.6	38		7.3
Unallocated	254		—	201		—
Total	$	5,125	100.0	$	5,201	100.0

Union Bankshares, Inc. Page 34

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.

There were no changes to the reserve factors assigned to any of the loan portfolios based on the qualitative factor reviews performed during the first three months of 2016. Management of the Company believes, in its best estimate, that the ALL at March 31, 2016 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 March 31, 2016. 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 may require increased provisions to replenish the ALL, which could negatively affect earnings. While the Company recognizes that economic slowdowns or financial and credit market turmoil may adversely impact its borrowers' financial performance and ultimately their ability to repay their loans, management continues to be cautiously optimistic about the collectability of the Company's loan portfolio.

Investment Activities. At March 31, 2016, investment securities classified as AFS totaled $57.5 million and securities classified as HTM totaled $5.2 million, or $62.7 million combined, comprising 9.8% of assets. Total investment securities increased $3.4 million, or 5.7%, from $59.3 million, or 9.4% of total assets at December 31, 2015. There was $30.0 million of investment securities pledged to secure various public deposits or customer repurchase agreements as of March 31, 2016, compared to $25.7 million at December 31, 2015. Net unrealized gains for the Company’s AFS investment securities portfolio were $734 thousand as of March 31, 2016, compared to net unrealized losses of $42 thousand as of December 31, 2015. Net unrealized gains of $485 thousand, net of income tax effect, were reflected in the Company’s accumulated OCI component of stockholders’ equity at March 31, 2016. Net unrealized gains in the Company's HTM investment securities portfolio were $10 thousand at March 31, 2016 compared to net unrealized losses of $101 thousand at December 31, 2015. No declines in value were deemed by management to be OTT at March 31, 2016. Deterioration in credit quality and/or imbalances in liquidity that may exist in the financial marketplace might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities, and may also increase the potential that certain resulting unrealized losses will be designated as OTT in future periods, resulting in write-downs and charges to earnings.

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 three months ended March 31, 2016 and year ended December 31, 2015:



	Three Months Ended March 31, 2016					Year Ended December 31, 2015
	Average Amount		Percent of Total Deposits	Average Rate		Average Amount		Percent of Total Deposits	Average Rate
	(Dollars in thousands)
Nontime deposits:
Noninterest bearing deposits	$	102,254	18.4	—		$	96,994	17.8	—
Interest bearing checking accounts	118,641		21.4	0.08	%	118,344		21.7	0.08	%
Money market accounts	94,031		16.9	0.19	%	100,128		18.4	0.19	%
Savings accounts	90,696		16.3	0.15	%	87,551		16.1	0.15	%
Total nontime deposits	405,622		73.0	0.10	%	403,017		74.0	0.10	%
Time deposits:
Less than $100,000	62,721		11.3	0.65	%	64,254		11.8	0.67	%
$100,000 and over	87,162		15.7	1.02	%	77,327		14.2	1.08	%
Total time deposits	149,883		27.0	0.86	%	141,581		26.0	0.89	%
Total deposits	$	555,505	100.0	0.31	%	$	544,598	100.0	0.31	%

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. At March 31, 2016, $5.9 million of the Company’s CDARS deposits represented purchased deposits which are considered "brokered" deposits. There were no purchased deposits as of December 31, 2015. There were $17.0 million of time deposits of $250,000 or less on the balance sheet at March 31, 2016 and $11.2 million at December 31, 2015, which were exchanged with other CDARS participants and are therefore considered for certain regulatory purposes to be “brokered” deposits.

Union Bankshares, Inc. Page 35

The Company also participates in the ICS program, a service through which Union can offer its customers a savings product with access to unlimited FDIC insurance, while receiving reciprocal deposits from other banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of savings deposits through ICS provides full deposit insurance coverage for the customer, thereby helping Union 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 $1.1 million and $2.1 million in exchanged ICS money market deposits on the balance sheet at March 31, 2016 and December 31, 2015, respectively and no purchased ICS deposits at either date.

At March 31, 2016, there was $3.0 million in retail brokered deposits issued under master certificates of deposit to a deposit broker. There were no such deposits at December 31, 2015.

The following table provides a maturity distribution of the Company’s time deposits in amounts of $100,000 and over at March 31, 2016 and December 31, 2015:



	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Within 3 months	$	41,415	$	7,456
3 to 6 months	13,759		54,776
6 to 12 months	12,403		12,964
Over 12 months	13,142		13,444
	$	80,719	$	88,640

In total, the Company’s time deposits in amounts of $100 thousand and over decreased $7.9 million, or 8.9%, between December 31, 2015 and March 31, 2016, and the average total balance increased from $77.3 million to $87.2 million. There was a change in each of the maturity time frames, especially the within 3 months and 3 to 6 months categories. In Vermont, the fiscal year ends on June 30 for the majority of municipalities and school districts, with most of their time deposits maturing on that date, causing the majority of the swing between time periods.

During the first three months of 2016, average total deposits grew $10.9 million, or 2.0%, compared to the year ended December 31, 2015, with growth in all categories except time deposits less than $100 thousand and money market accounts. Time deposits have trended towards short duration or migrated to nontime deposits because of the low interest rate environment and the perceived customer desire to be in a position to redeploy funds should there be a rise in interest rates. Time deposits at March 31, 2016 decreased $5.0 million, or 3.3%, from December 31, 2015 primarily as a result of normal seasonal fluctuations in municipal time deposit accounts.

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 March 31, 2016, the Company had deposit accounts with less than $250 thousand totaling $404.1 million, or 72.3% of its deposits, with FDIC insurance protection. An additional $27.9 million of municipal deposits were over the FDIC insurance coverage limit at March 31, 2016 and were collateralized by Union under applicable state regulations by investment securities.

Borrowings. Total borrowed funds at March 31, 2016 were $21.9 million compared to $9.6 million at December 31, 2015, a net increase of $12.3 million, or 128.8%. The increase in borrowed funds was utilized to fund loan demand and purchase municipal securities. The FHLB option advance borrowings were $17.9 million at March 31, 2016, at a weighted average rate of 1.99%, and $7.9 million at December 31, 2015, at a weighted average rate of 3.46%. The increase in option advance borrowings reflects a $2.5 million three month bullet advance at 0.58%, a $2.5 million six month bullet advance at 0.78% and a $5.0 million seven year option advance (callable after two years) at 0.99% taken during the first quarter of 2016 for liquidity purposes. These advances were partially offset by scheduled monthly payments of $76 thousand on long-term FHLB amortizing advances. The Company also had $2.6 million in overnight federal funds purchased at a rate of 0.51% from FHLB at March 31, 2016, while there were no federal funds purchased at December 31, 2015. In addition, the Company had overnight secured customer repurchase agreement sweeps at March 31, 2016 of $1.5 million, at a weighted average rate of 0.24%, compared to $1.6 million, at a weighted average rate of 0.25% at December 31, 2015, a decrease of $166 thousand, or 10.2%. The volume of the overnight secured customer repurchase agreement sweeps is volatile and is a function of the customer's cash flow needs.

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

Union Bankshares, Inc. Page 36

extend credit, standby letters of credit, interest rate caps and floors written on adjustable-rate loans, commitments to participate in or sell loans, commitments to buy or sell securities, certificates of deposit or other investment instruments and risk-sharing commitments or guarantees on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized on the balance sheet. The contractual or notional amounts of these instruments reflect the extent of involvement the Company has in a particular class of financial instruments.

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

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



	March 31, 2016		December 31, 2015
	(Dollars in thousands)
Commitments to originate loans	$	18,454	$	24,176
Unused lines of credit	85,050		77,542
Standby and commercial letters of credit	1,624		1,614
Credit card arrangements	1,371		1,369
FHLB Mortgage Partnership Finance credit enhancement obligation, net	576		572
Commitment to purchase investment in a real estate limited partnership	2,018		980
Commitment to purchase investment securities	—		1,336
Total	$	109,093	$	107,589

Commitments to originate loans are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have a fixed expiration date or other termination clause and may require payment of a fee. Since many of the loan commitments are expected to expire without being drawn upon and not all credit lines will be utilized, the total commitment amounts do not necessarily represent future cash requirements. Lines of credit incur seasonal volume fluctuations due to the nature of some customers' businesses, such as tourism and maple syrup products production.

The Company did not hold derivative or hedging instruments at March 31, 2016 or December 31, 2015.

The Company’s subsidiary bank is required (as are all banks) to maintain vault cash or a noninterest bearing reserve balance as established by Federal Reserve regulations. The Bank’s average total required reserve for the 14 day maintenance period including March 31, 2016 was $672 thousand and for December 31, 2015 was $726 thousand, both of which were satisfied by vault cash.

Contractual Obligations. The Company and Union have various financial obligations, including contractual obligations that may require future cash payments. The following table presents, as of March 31, 2016, significant fixed and determinable contractual obligations to third parties:



	March 31, 2016
	(Dollars in thousands)
Operating lease commitments	$	280
Contractual payments on borrowed funds (1)	21,883
Deposits without stated maturity (1) (2)	413,599
Certificates of deposit (1) (2)	145,405
Deferred compensation payouts	903
Total	$	582,070

____________________


(1)	The amounts exclude interest payable.


(2)	While Union has a contractual obligation to depositors should they wish to withdraw all or some of the funds on deposit, management believes, based on historical analysis as well as current conditions in the financial markets, that the majority of these deposits will remain on deposit for the foreseeable future.

Union Bankshares, Inc. Page 37

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, 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; amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities and loans AFS; earnings; and funds provided from operations. Contractual principal repayments on loans are a relatively predictable source of funds, however, deposit flows and loan and investment prepayments 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 March 31, 2016, Union, as a member of FHLB, had access to unused lines of credit up to $6.8 million over and above the $20.4 million in outstanding term advances. With the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available, line availability could have risen to approximately $30.4 million at March 31, 2016. This line of credit can be used for either short-term or long-term liquidity or other needs.

Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand at March 31, 2016. 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 two pre-approved federal funds lines of credit totaling $12.0 million with two upstream correspondent banks, one-way buy options with CDARS and access to the FRB discount window, which would require pledging of qualified assets. At March 31, 2016 there were $5.9 million of purchased CDARS deposits and no outstanding advances on the federal funds lines or at the discount window.

Union's investment and residential loan portfolios provide a significant amount of contingent liquidity that could be accessed in a reasonable time period through sales of those portfolios. We also have additional contingent liquidity sources with access to the brokered deposit market and the FRB discount window. These sources are considered as liquidity alternatives in our contingent liquidity plan. Management believes the Company has sufficient liquidity to meet all reasonable borrower, depositor, and creditor needs in the present economic environment. However, any projections of future cash needs and flows are subject to substantial uncertainty, including factors outside the Company's control.

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

Stockholders’ equity increased from $53.6 million at December 31, 2015 to $54.7 million at March 31, 2016, reflecting net income of $1.8 million for the first three months of 2016, an increase of $512 thousand in accumulated OCI and a $27 thousand increase due to the issuance of 1,340 shares of common stock resulting from the exercise of 1,340 incentive stock options. These increases were partially offset by cash dividends paid of $1.2 million and stock repurchases of $4 thousand during the three months ended March 31, 2016.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of March 31, 2016, the Company had 4,933,136 shares issued, of which 4,458,372 were outstanding and 474,764 were held in treasury.

In January 2016, the Company's Board reauthorized the limited stock repurchase plan that was initially established in May of 2010 and has been reauthorized annually since that time. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter (currently 3,000 shares) in open market purchases or privately negotiated transactions, as management deems advisable and as market conditions may warrant. The repurchase authorization for a calendar quarter 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, 2016, unless reauthorized. The Company repurchased 145 shares during the first three months of 2016 under this program at a total cost of $4 thousand.

During the first quarter of 2016 the Company adopted a Dividend Reinvestment and Stock Purchase Plan whereby registered shareholders may elect to reinvest cash dividends and optional cash contributions to purchase additional shares of the Company's

Union Bankshares, Inc. Page 38

common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of March 31, 2016 no shares of stock had yet been issued under the DRIP.

Under rules effective January 1, 2015, a bank holding company, such as the Company, is considered “well capitalized” if the bank holding company (i) has a total risk based capital ratio of at least 10%, (ii) has a Tier I risk-based capital ratio of at least 8%, and (iii) is not subject to any written agreement order, capital directive or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. In addition, the FDIC has amended its prompt corrective action rules to reflect the revisions made by the new capital rules implementing Basel III. Under the FDIC’s revised rules, which became effective January 1, 2015, an FDIC supervised institution is considered “well capitalized” if it (i) has a total risk-based capital ratio of 10.0% or greater; (ii) a Tier I risk-based capital ratio of 8.0% or greater; (iii) a common Tier I equity ratio of at least 6.5% or greater, (iv) a leverage capital ratio of 5.0% or greater; and (iv) is not subject to any written agreement, order, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure. The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The Bank elected to opt-out of this regulatory capital provision. By opting out of the provision, the bank retains what is known as the accumulated other comprehensive income filter. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

As of March 31, 2016, both the Company and Union met all capital adequacy requirements to which they are subject. There were no conditions or events between March 31, 2016 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
As of March 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Company:
Total capital to risk weighted assets	$	58,822	13.15	%	$	35,785	8.00	%	N/A		N/A
Tier I capital to risk weighted assets	53,697		12.01	%	26,826		6.00	%	N/A		N/A
Common Equity Tier 1 to risk weighted assets	53,697		12.01	%	20,120		4.50	%	N/A		N/A
Tier I capital to average assets	53,697		8.53	%	25,180		4.00	%	N/A		N/A

Union:
Total capital to risk weighted assets	$	58,377	13.09	%	$	35,677	8.00	%	$	44,597	10.00	%
Tier I capital to risk weighted assets	53,252		11.94	%	26,760		6.00	%	35,680		8.00	%
Common Equity Tier 1 to risk weighted assets	53,252		11.94	%	20,070		4.50	%	28,990		6.50	%
Tier I capital to average assets	53,252		8.48	%	25,119		4.00	%	31,399		5.00	%

The Company remains focused on achieving its goals of long-term growth and an above-average shareholder return, while maintaining a strong capital position. Management is aware of the particular importance in today’s uncertain economic environment of maintaining strong capital reserves and planning for future capital needs, including those required by the Basel III capital standards through the final phase in period ending on January 1, 2019.

A quarterly cash dividend of $0.28 per share was declared to stockholders of record on April 30, 2016, payable May 10, 2016. The dividend for each of the previous five quarters, including the dividend paid during the first quarter of 2016, was $0.27 per share.

Regulatory Matters. The Company and Union are subject to periodic examinations by the various regulatory agencies. These examinations include, but are not limited to, procedures designed to review lending practices, risk management, credit quality, liquidity, compliance and capital adequacy. In January of 2016 the FRB performed its regular, periodic examination of the Company. During 2015, the Vermont Department of Financial Regulation performed a regular safety and soundness examination of Union. During 2014, the FDIC performed its regular, periodic regulatory examination of Union. No comments were received that would have a material adverse effect on the Company’s or Union’s liquidity, financial position, capital resources, or results of operations.

Union Bankshares, Inc. Page 39

OTHER FINANCIAL CONSIDERATIONS

Market Risk and Interest Rate Risk. Market risk is the potential of loss in a financial instrument arising from adverse changes in market prices, interest rates, foreign currency exchange rates, commodity prices, and equity prices. As of March 31, 2016, the Company did not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending, investing, deposit taking and borrowing activities. Management of interest rate risk is an important component of our asset and liability management process, which is governed by established policies that are reviewed and approved annually. Our investment policy details the types of securities that may be purchased, and establishes portfolio limits and maturity limits for the various sectors. Our investment policy also establishes specific investment quality limits. The ALCO develops guidelines and strategies impacting our asset and liability management-related activities based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends. Members of the ALCO also manage the investment portfolio to maximize net interest income while mitigating market and interest rate risk.

Interest rate risk arises naturally from imbalances in repricing, maturity and cash flow characteristics of our assets and liabilities. The ALCO takes into consideration the cash flow and repricing attributes of balance sheet and off-balance sheet items and their relation to possible changes in interest rates. The ALCO manages interest rate exposure primarily by using on-balance sheet strategies, generally accomplished through the management of the duration, rate sensitivity and average lives of our various investments, and by extending or shortening maturities of borrowed funds, as well as carefully managing and monitoring the maturities and pricing of loans and deposits.

An outside consultant is utilized to perform rate shocks of our balance sheet to assess our risk to earnings in different interest rate environments, and to perform a variety of other analyses. The consultant’s most recent completed analysis was as of December 31, 2015. The base simulation assumed no changes in rates, as well as 200 and 300 basis point rising interest rate scenarios which assume a parallel shift of the yield curve over a one-year period, and no growth assumptions. Management is not aware of any significant changes in the Company's risk profile since the analysis was performed as of December 31, 2015. A summary of the results is as follows:


•	Current/Flat Rates: If rates remain at current levels net interest income is projected to trend downward for the entire simulation as asset yields will continue to erode while funding costs provide little to no relief.


•	Rising Rates: Higher rates indicate positive results under all scenarios. Under the rising rate scenarios if rates rise in a parallel fashion, net interest income is projected to increase throughout the simulation as asset yields will reset in the higher rate environment and funding cost increases will lag.

The net interest income simulation as of December 31, 2015 showed that the change in net interest income for the next 12 months from our expected or “most likely” forecast was as follows:



Rate Change	Percent Change in Net Interest Income Limit		Percent Change in Net Interest Income
Up 300 basis points	(21.00	)%	8.5	%
Up 200 basis points	(14.00	)%	5.6	%

The preceding sensitivity analysis does not represent our forecast and should not be relied upon as being indicative of expected operating results. These estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit run-off rates, pricing decisions on loans and deposits and reinvestment/replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change.

The model used to perform the base case balance sheet simulation assumes a parallel shift of the yield curve over twelve months and reprices every interest earning asset and interest bearing liability on our balance sheet, simultaneously. The use of pricing betas help simulate the expected pricing behavior regarding non-maturing deposits, limiting the rate increases that occur when market rates rise. A historic analysis of the bank's prepayment history was performed and the results were used as a basis for future prepayment expectations. Investment securities with call provisions are examined on an individual basis to estimate the likelihood of a call.

As market conditions vary from those assumed in the sensitivity analysis, actual results will likely differ due to: the varying impact of changes in the balances and mix of loans and deposits differing from those assumed, the impact of possible off balance sheet commitments, and other internal/external variables. Furthermore, the sensitivity analysis does not reflect all actions that the ALCO might take in responding to or anticipating changes in interest rates.

Union Bankshares, Inc. Page 40

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Information called for by this item is incorporated by reference in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the caption OTHER FINANCIAL CONSIDERATIONS on pages 39-40.

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 March 31, 2016. Based on this evaluation they concluded that those disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files with the Commission is accumulated and communicated to the Company’s management, including its principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required information.

Changes in Internal Controls over Financial Reporting. There was no change in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act, during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors

There have been no material changes in the risk factors discussed in Part I-Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, since the date of the filing of that report.

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

During the quarter ended March 31, 2016, the only unregistered issuance of the Company's equity securities was pursuant to the exercise of incentive stock options, resulting in the issuance of 1,340 shares of the Company's common stock. The shares were issued in reliance upon an exemption in section 4(a)(2) of the Securities Act of 1933 for distributions not involving a public offering.

The following table summarizes repurchases of the Company's equity securities during the quarter ended March 31, 2016:



Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Program
January 2016	145	$	26.67	145	2,855
February 2016	—	—		—	2,855
March 2016	—	—		—	—

__________________

(1)

All repurchases shown in the table were made pursuant to a discretionary stock repurchase program under which the Company may repurchase up to 3,000 shares of its common stock each calendar quarter, in open market or privately negotiated transactions. The repurchase authorization for a calendar quarter expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The program was initially authorized in 2010 and was reauthorized most recently in January 2016, with an increase in the purchase authorization level from 2,500 shares per quarter to 3,000 shares per quarter. The program will expire on December 31, 2016, unless reauthorized.

Union Bankshares, Inc. Page 41

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 March 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three months ended March 31, 2016 and 2015, (iii) the unaudited consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.

____________________


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

Union Bankshares, Inc. Page 42

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.



		Union Bankshares, Inc.

May 10, 2016		/s/ David S. Silverman
		David S. Silverman
		Director, President and Chief Executive Officer


May 10, 2016		/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 March 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three months ended March 31, 2016 and 2015, (iii) the unaudited consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, (iv) the unaudited consolidated statements of changes in stockholders' equity, (iv) the unaudited consolidated statements of cash flows and (v) related notes.

____________________


*	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 43