Union Bankshares Inc: Form 10-K for the period ended Dec 31, 2025

Certain Definitions: Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 55 of this Annual Report.

General: Union Bankshares, Inc. (“Company”) is a one-bank holding company whose sole subsidiary is Union Bank (“Union”). It was incorporated in the State of Vermont in 1982 to serve as a holding company for Union Bank. The Company's common stock is traded on the Nasdaq Global Market under the symbol "UNB". Union Bank was organized and chartered as a state bank in 1891 and became a wholly owned subsidiary of the Company upon completion of the holding company reorganization in 1982. Both Union Bankshares, Inc. and Union Bank are headquartered in Morrisville, Vermont.

The Company's business is that of a community bank in the financial services industry. The Company has one definable business segment, Union Bank, which provides full retail, commercial, municipal banking, and wealth management and trust services throughout its 18 branch banking locations, three loan centers, and several ATMs covering northern Vermont and northern New Hampshire. Also, many of Union's services are provided via the telephone, mobile devices, and through its website, www.ublocal.com (http://www.ublocal.com). Union seeks to make a profit for the Company while providing quality retail banking services to individuals and commercial banking services to small and medium sized business corporations, limited liability companies, partnerships, and sole proprietorships, as well as nonprofit organizations, local municipalities and school districts within its market area.

The Company's income is derived principally from interest and fees on loans and earnings on other investments. Its primary expenses arise from interest paid on deposits and borrowings, salaries and wages, health insurance and other employee benefits and other general overhead expenses, including occupancy and equipment expenses. Our profitability depends primarily on net interest income, which is the difference between interest and dividend income on interest-earning assets and interest expense on interest-bearing liabilities. Interest-earning assets include loans, investment securities, and interest-earning deposits in banks. Interest-bearing liabilities primarily include customer deposit accounts, brokered deposits, subordinated notes and other borrowings. Net interest income is dependent upon the level of interest rates and the extent to which such rates change, as well as changes in the volume of various categories of assets and liabilities. Our profitability is also dependent on the level of noninterest income (primarily gains on sale of real estate loans, loan servicing income, and service fees), allowance for credit losses, noninterest expenses and income taxes. Our operations and profitability are subject to changes in interest rates, applicable statutes and regulations, changes in corporate tax rates, general economic conditions, the competitive environment, as well as other factors beyond our control.

Human Capital. Our employees play a vital role in our company-wide vision of delivering the best banking experience to all of our customers, employees, communities, and shareholders. As of December 31, 2025, Union employed 195 full time employees. Guided by our core values, we are committed to creating a company culture where everyone is included and respected, and where we support each other in reaching our full potential. To attract, engage, and retain top talent, we strive to create a supportive workplace, with opportunities for our employees to grow and develop in their careers. We provide numerous training and development opportunities, and maintain a tuition reimbursement program. We are also deeply committed to the health and well-being of our employees. This includes market-competitive compensation, medical and dental insurance, paid time off, life insurance, short-term and long-term disability, and a 401(k) plan. We maintain a number of human resources and other policies, including a harassment and retaliation policy, to promote a workplace that is safe for all and supports a culture where people feel they can report incidents that threaten that safety. In addition, we have a confidential whistleblower program that forwards complaints to the Audit Committee and the Board of Directors, and we will work to take necessary action as quickly as possible after a complaint is received. We also prohibit discrimination on the grounds of race, color, religion, sex, sexual orientation (including gender identity and gender expression), national origin, citizenship status, age, disability, genetic information, or veteran status. We employ based on talent and potential for professional growth, and we value a diversity of backgrounds and ideas.

Description of Services: Services or products offered to our customers include, but are not limited to, the following:

• Commercial loans for business purposes to business owners and investors for plant and equipment, working capital, real estate renovation and other business purposes;
• Commercial real estate loans on income producing properties, including commercial construction loans;
• SBA guaranteed loans;
• Residential construction and mortgage loans;
• Municipal financing, including loans and excess deposits secured by FHLB letters of credit;
• Online cash management services, including account reconciliation, credit card depository, Automated Clearing House (ACH) origination, wire transfers, positive pay and night depository;
• Merchant credit card services for the deposit and immediate credit of sales drafts;
• Remote deposit capture for merchants;
• Online mortgage applications;
• Online consumer deposit account opening;
• Business checking accounts;
• Standby letters of credit, bank checks or money orders, and safe deposit boxes;
• ATM services;
• Debit MasterCard and ATM cards;
• Telephone, internet, and mobile banking services, including bill pay;
• Home improvement loans and overdraft checking privileges against preauthorized lines of credit;
• Retail depository services including personal checking accounts, checking accounts with interest, savings accounts, money market accounts, certificates of deposit, IRA/SEP/KEOGH accounts and Health Savings accounts; and
• Wealth management and trust services to individuals and organizations.

Consistent with the Company's objective of serving the financial needs of individuals, businesses and others within our market areas, we seek to concentrate our assets in loans. For the year ended December 31, 2025, the Company's rate of average loans to average deposits was 98.4%. To be consistent with the requirements of prudent banking practices, adequate levels of assets are invested in high-grade securities, FDIC insured certificates of deposits, or other prudent investment alternatives such as company-owned life insurance and investments in real estate limited partnerships for affordable housing. Deposits are the primary source of funds for use in lending, investing and for other general operating purposes. In addition we obtain funds from principal repayments, sales and prepayments of loans, securities and FDIC insured certificates of deposit. Other funding sources may include brokered deposits purchased through CDARS, ICS or through other deposit brokers, and borrowings from the FHLB, correspondent banks or FRB loan facilities, including the discount window.

Competition: The Company and Union face substantial competition for loans and deposits in northern Vermont and New Hampshire from local and regional commercial banks, savings banks, tax exempt credit unions, mortgage brokers, financial services affiliates of bank holding companies, brokerage houses, insurance companies, consumer finance companies, internet banks and national and regional financial service providers such as mutual funds. Within the Company's market area are branches of several commercial and savings banks that are substantially larger than Union. Union focuses on its community banking niche and on providing convenient locations, hours and modes of delivery to provide superior customer service. We have seen over the last few years, a trend by customers to turn to local community banks to fulfill their financial needs with organizations and people they know and trust. Customers continue to look to perform traditional banking transactions electronically either via the internet or Union's mobile app. The Company seeks to capitalize upon the extensive business and personal contacts and relationships of our directors, advisory board members and officers within our communities to continue to develop our customer base, as well as relying on director and advisory board referrals, officer-originated calling programs and customer and shareholder referrals.

In order to compete with the larger financial institutions in its service area, Union capitalizes on the flexibility and local autonomy which is accorded by our independent status. This includes an emphasis on personal service, timely decision making, local promotional activity, and personal contacts and community service by our officers, directors and employees. We strive to inform the public about the strength of the franchise, the variety and flexibility of the services we offer and the strength of the local economy relative to the national economy. In addition, we provide information on financial topics of interest and strive to educate future generations by helping them to cultivate sound personal financial habits through our "Save for Success" program for children.

We compete for deposit accounts by offering customers competitive products and rates, personal service, local area expertise, convenient locations and access, and an array of financial services and products. Competition for customer deposits remains strong as customers continue to seek maximum earnings on their savings dollars. Union utilizes a combination of rates on non-maturity deposits to retain customer deposits and attract new customers, including in our new market areas.

The competition in originating real estate and other loans comes principally from commercial banks, savings banks, mortgage banking companies and tax exempt credit unions. We compete for loan originations primarily through the interest rates and loan fees we charge, the types of loans we offer, and the efficiency and quality of services we provide. The Company emphasizes residential mortgage lending, commercial real estate and construction lending, as well as municipal loans and both conventional and SBA guaranteed commercial lending. Factors that affect our ability to compete for loans include general and local economic conditions, prevailing interest rates including FHLB rates, the prime rate, and pricing volatility of the secondary loan markets. We promote an increased level of personal service and expertise within the community to position Union as a lender to small to middle market business and residential customers, which tend to be under-served by larger institutions.

Through Union's Wealth Management Group, we compete for personal and institutional wealth management and trust business with trust companies, commercial banks having trust departments, investment advisory firms, brokerage firms, mutual funds and insurance companies.

Regulation and Supervision

General

The following discussion addresses elements of the regulatory framework applicable to bank holding companies and their subsidiaries. This regulatory framework is intended primarily for the protection of depositors, the DIF, and the banking system as a whole, rather than the protection of shareholders or non-depository creditors of a bank holding company such as the Company.

As a bank holding company, the Company is subject to regulation, supervision and examination by the FRB under the BHCA. As a state chartered commercial bank, Union Bank is subject to the regulation and supervision by the FDIC and the DFR.

The following is a summary of certain aspects of various statutes and regulations applicable to the Company and its subsidiary. This summary is not a comprehensive analysis of all applicable laws, and you should refer to the applicable statutes and regulations for more information. Changes in applicable laws or regulations, and in their interpretation and application by regulatory agencies and other governmental authorities, cannot be predicted, but may have a material effect on our business, financial condition or results of operations.

This regulatory and supervisory framework establishes the permissible range of activities in which a bank holding company or a bank can engage. The prior approval of the FDIC and DFR is required, among other things, for Union to establish or relocate a branch office, assume deposits or engage in any merger, consolidation, purchase or sale of all or substantially all of the assets of any bank. This regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to classification of assets and establishment of adequate credit loss reserves for regulatory purposes. To the extent that this information describes statutory and regulatory provisions, it is qualified in its entirety by reference to those provisions.

The Company is also under the jurisdiction of the SEC for matters relating to the offer and sale of its securities as well as public disclosure requirements. The Company is subject to restrictions, reporting requirements, and review procedures under federal securities laws and regulations. The Company's common stock is listed on the Nasdaq Global Market under the trading symbol “UNB” and accordingly, the Company is subject to the rules of Nasdaq for listed companies.

Financial Regulatory Reform Legislation

The Dodd-Frank Act. The Dodd-Frank Act, enacted in 2010, comprehensively reformed the regulation of financial institutions and the products and services they offer. Among other things, the Dodd-Frank Act:

• granted the FRB increased supervisory authority and codified the source of strength doctrine;
• provided new capital standards applicable to the Company;
• modified the scope and costs associated with deposit insurance coverage;
• permitted well capitalized and well managed banks to acquire other banks in any state subject to certain deposit concentration limits and other conditions;
• permitted the payment of interest on business demand deposit accounts;
• established the CFPB and transferred rulemaking authority to it under various consumer protection laws relating to financial products and services;
• established new minimum mortgage underwriting standards for residential mortgages;
• barred banking organizations, such as the Company, from engaging in proprietary trading and from sponsoring and investing in hedge funds and private equity funds, except as permitted under certain circumstances; and
• established the Financial Stability Oversight Council to designate certain activities as posing a risk to the United States financial systems and recommended new or heightened standards and safeguards for financial institutions engaging in such activities.

While the Dodd-Frank Act is focused principally on changes to the financial regulatory system, it includes several corporate governance, disclosure and compensation provisions applicable to public companies, such as the Company. Those provisions include:

• A requirement that public companies solicit an advisory vote on executive compensation ("say-on-pay"), an advisory vote on the frequency of say-on-pay votes and, in the event of a merger or other extraordinary transaction, an advisory vote on certain "golden parachute" payments. The Company's last say-on-pay vote was held at the 2025 annual meeting with shareholders approving the Company's executive compensation program by a wide margin. Our next say-on-pay and say-on-frequency advisory votes are scheduled to occur at the 2028 annual meeting;
• Requirements that the SEC adopt rules directing the securities exchanges to adopt listing standards with respect to compensation committee independence and the use of consultants;
• Provisions calling for the SEC to adopt expanded disclosure requirements for annual proxy statements and other filings, particularly in the area of executive compensation, such as disclosure of pay versus performance, policies with regard to hedging transactions conducted by employees and directors, and, for public companies other than smaller reporting companies, the ratio of CEO pay to the pay of a median employee. The Company included the required pay versus performance disclosures beginning with its 2023 proxy statement;
• Provisions requiring the adoption or revision of certain other corporate policies, such as compensation "clawback" policies providing for the recovery of executive compensation in the event of a financial restatement. The Company adopted a clawback policy in November 2023; and
• A provision clarifying the SEC's authority to adopt rules requiring issuers to include in their proxy statements solicitations for shareholder nominations for directors.

Although disclosure requirements for public companies increased under the Dodd-Frank Act, the Company is a “smaller reporting company” and as permitted under the rules and regulations of the SEC, has elected to provide certain scaled disclosures in this Annual Report and in its annual meeting proxy statement, including scaled disclosures regarding executive compensation.

Bank Holding Company Regulation

As a bank holding company, the Company is subject to regulation, supervision and examination by the FRB, which has the authority, among other things, to order bank holding companies to cease and desist from unsafe or unsound banking practices; to assess civil money penalties; and to order termination of non-banking activities or termination of ownership and control of a non-banking subsidiary by a bank holding company.

Source of Strength. Under long-standing FRB policy and codified in the Dodd-Frank Act, bank holding companies, such as Union Bankshares, are required to act as a source of financial and management strength to their subsidiary banks, such as Union, and to commit resources to support them. This support may be called for at times when a bank holding company may not have the required resources to do so.

Acquisitions and Activities. Under the BHCA, the activities of bank holding companies, such as Union Bankshares Inc., and those of companies that they control, such as Union, or in which they hold more than 5% of the voting stock, are limited to banking, managing or controlling banks, furnishing services to or performing services for their subsidiaries, or certain activities that the FRB has determined to be so closely related to banking, managing or controlling banks as to be a proper incident thereto. Satisfactory capital ratios, CRA ratings and anti-money laundering policies are generally prerequisites to obtaining Federal regulatory approval to make acquisitions. Financial holding companies may engage in certain nonbanking activities not permitted for bank holding companies. Union Bankshares Inc. has not elected to become a financial holding company.

Enforcement Powers. The FRB has the authority to issue cease and desist orders against bank holding companies to prevent or terminate unsafe or unsound banking practices, violations of law and regulations, or conditions imposed by, or violations of agreements with, or commitments to, the FRB. The FRB is also empowered to assess civil money penalties against companies or individuals who violate the BHCA or orders or regulations thereunder, to order termination of nonbanking activities of nonbanking subsidiaries of bank holding companies, and to order termination of ownership and control of a nonbanking subsidiary by a bank holding company. There are no FRB enforcement actions currently in place against the Company.

The FRB has the power to prohibit the payment of dividends by bank holding companies if their actions constitute unsafe or unsound practices. The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB's view that a bank holding company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and rate of earnings retention that is consistent with the company's capital needs, asset quality and overall financial condition.

Regulation of Union Bank

Union is subject to regulation, supervision, and examination by the FDIC and the DFR. Pursuant to the Dodd-Frank Act, the FRB may directly examine the subsidiary of the Company. The enforcement powers available to the federal banking regulators include, among other things, the ability to issue cease and desist or removal orders; to terminate insurance of deposits; to assess civil money penalties; to issue directives to increase capital; to place the Bank into receivership; and to initiate injunctive actions against banking organizations and institution-affiliated parties. The DFR possesses similar enforcement powers under Vermont law. There are no such enforcement actions currently in place against Union.

Deposit Insurance. As a member of the FDIC, the deposits of Union are insured under the DIF maintained by the FDIC up to $250,000 per ownership category. Under applicable federal laws and regulations, deposit insurance premium assessments to the DIF are currently based on a supervisory risk rating system, with the most favorably rated institutions paying the lowest premiums. Under this assessment system, risk is defined and measured using an institution's supervisory ratings, combined with certain other risk measures, including certain financial ratios and long-term debt issuer ratings. For the year ended December 31, 2025, the Bank's total FDIC insurance assessment expense was $1.5 million.

Brokered Deposits. The FDICIA restricts the ability of an FDIC insured bank to accept brokered deposits unless it is a well capitalized institution under FDICIA's prompt corrective action guidelines. Union has established an account with two of its approved investment brokers to accept brokered deposits as an approved liquidity source. Additionally, Union accepts reciprocal time and money market deposits primarily through its membership with the IntraFi Network in CDARS and ICS, respectively. The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 allows the Company to hold reciprocal deposits up to 20 percent of total liabilities without those deposits being treated as brokered for regulatory purposes.

Community Reinvestment Act ("CRA"). Union is subject to the federal CRA, which requires banks to demonstrate their commitment to serving the credit needs of communities and residents with low- and moderate-incomes. Union participates in a variety of direct and indirect lending programs and other investments for the benefit of such residents in its local communities. The FDIC conducts examinations of insured banks' compliance with CRA requirements and rates institutions as "Outstanding," "Satisfactory," "Needs to Improve," and "Substantial NonCompliance." Failure of an institution to receive at least a "Satisfactory" CRA rating could adversely affect its ability to undertake certain activities, such as branching and acquisitions of other financial institutions, which require regulatory approval. In addition, failure of a bank subsidiary to receive at least a "Satisfactory" rating would disqualify a bank holding company from eligibility to become or remain a financial holding company under the GLBA. Union has received an "Outstanding" rating from its most recent CRA compliance examination by the FDIC.

In October 2023, the FDIC and other federal bank regulatory agencies jointly issued a final rule substantially revising the CRA compliance framework in effect since 1995. Under the 2023 final rule, banks with $2 billion or more in assets would be evaluated under a Retail Lending Test, a Retail Services and Products Test, a Community Development Financing Test, and a Community Development Services Test. Banks, such as Union, with total assets of $600 million or more and less than $2 billion would be evaluated under the Retail Lending Test and, at the bank's option, either the current Intermediate Bank Community Development Test or the new Community Development Financing Test. Although the final rule took effect on April 1, 2024, it was effectively rescinded on July 17, 2025, when the Federal Reserve, FDIC and OCC issued a joint proposal to rescind the 2023 final rule and to continue to apply the 1995 regulations to banks. Thus, Union remains subject to the 1995 CRA regulations.

Federal Reserve Board Policies. The monetary policies and regulations of the FRB have had a significant effect on the operating results of banks in the past and are expected to continue to do so in the future. FRB policies affect the levels of bank earnings on loans and investments and the levels of interest paid on bank deposits and borrowings through the Federal Reserve System's open-market operations in United States government securities, regulation of the discount rate and terms on bank borrowings from Federal Reserve Banks.

Capital Adequacy and Safety and Soundness

Capital Adequacy Guidelines. The FDIC and other federal bank regulatory agencies adopted a final rule for leverage and risk-based capital requirements and the method for calculating risk-weighted assets which is consistent with agreements that were reached by the Basel Committee on Banking Supervision under the so-called Basel III framework and certain provisions of the Dodd-Frank Act that became effective on January 1, 2015. Among other things, the rule established a common equity Tier 1 capital ratio with a minimum requirement of 4.5%, increased the minimum Tier 1 risk based ratio from 4.0% to 6.0%, and assigned a higher risk weight of 150% to exposures that are more than 90 days past due or in nonaccrual status as well as certain commercial real estate loans that finance the acquisition, development or construction of real property. The final rule also requires accumulated OCI be included for purposes of calculating regulatory capital unless a one time opt-out election was made. The Company and Union both made the election. 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" of 2.5% above the minimum capital ratio requirements.

A financial institution's failure to meet minimum regulatory capital standards can lead to other penalties, including termination of deposit insurance or appointment of a conservator or receiver for the financial institution. Risk based capital ratios are the primary measure of regulatory capital presently applicable to bank holding companies. Risk based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure and to minimize disincentives for holding liquid assets.

Federal bank regulatory agencies require banking organizations that engage in significant trading activity to calculate a capital charge for market risk. Significant trading activity means trading activity of at least 10% of total assets or $1 billion, whichever is smaller, calculated on a consolidated basis for bank holding companies. Federal bank regulators may apply the market risk measure to other bank holding companies, as the agency deems necessary or appropriate for safe and sound banking practices.

Each agency may exclude organizations that it supervises that otherwise meet the criteria under certain circumstances. The market risk charge will be included in the calculation of an organization's risk based capital ratio. Neither the Company nor Union is currently subject to this special capital charge.

Prompt Corrective Action. FDICIA, among other things, identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective federal banking agencies to implement systems for “prompt corrective action” for insured depository institutions that do not meet minimum capital requirements. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject an insured depository institution to capital raising requirements. An “undercapitalized” bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lesser of 5% of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various federal banking agencies to prescribe certain noncapital standards for safety and soundness related generally to operations and management, asset quality and executive compensation, and permits regulatory action against a financial institution that does not meet such standards.

The various federal banking agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the Tier 1 Capital, Common Equity Tier 1 Capital, Total Capital and Leverage Ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an insured depository institution is considered undercapitalized. Under the regulations as in effect during 2025, a “well capitalized” institution must have a Tier 1 capital ratio of at least 8.0%, a Common Equity Tier 1 ratio of 6.5%, a total capital ratio of at least 10% and a leverage ratio of at least 5% and not be subject to a capital directive order.

At December 31, 2025, Union's Tier I and Total Risk Based Capital Ratios were 11.87% and 12.81% respectively, and its Leverage Capital Ratio was 7.36%, and it is considered well capitalized under applicable regulatory guidelines in effect as of such date.

Safety and Soundness Standards. FDICIA, as amended, directs each Federal banking agency to prescribe safety and soundness standards for insured depository institutions relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, asset quality, earnings and stock valuation. The Community Development and Regulatory Improvement Act of 1994 amended FDICIA by allowing Federal banking regulators to publish guidelines rather than regulations concerning safety and soundness.

FDICIA also contains a variety of other provisions that may affect Union's operations, including reporting requirements, regulatory guidelines for real estate lending, “truth in savings” disclosure provisions, and a requirement to provide 90 days prior notice to customers and regulatory authorities before closing any branch. Union is subject to §112 of FDICIA, which requires an additional annual reporting to the FDIC, FRB, and DFR regarding preparation of the annual financial statements, the maintenance of an internal control structure for financial and regulatory reporting and compliance with certain designated banking laws, as well as imposition of increased responsibilities on the Company's external auditor and Audit Committee.

Dividend Restrictions

As a bank holding company, the Company's ability to pay dividends to its stockholders is largely dependent on the ability of its subsidiary to pay dividends to it. Payment of dividends by Vermont-chartered banks, such as Union, is subject to applicable state and federal laws. Under Vermont banking laws, a Vermont-chartered bank may not authorize dividends or other distributions that would reduce the bank's capital below the amount of capital required in the bank's Certificate of General Good or under any capital or surplus standards established by the Commissioner of the DFR. Union does not have any capital restrictions in its Certificate of General Good and, to date, the Commissioner of the DFR has not adopted capital or surplus standards. Nevertheless, the capital standards established by the FDIC, described above under "Prompt Corrective Action" apply to Union, and the capital standards of the FRB apply to the Company on a consolidated basis. In addition, the FRB, the FDIC and the Commissioner of the DFR are authorized under applicable federal and state laws to prohibit payment of dividends that are determined to be an unsafe or unsound practice. Payment of dividends that significantly deplete the capital of a bank or a bank holding company, or render it illiquid, could be found to be an unsafe or unsound practice. Further, the Basel III capital standards limit a financial institution's ability to pay dividends if it does not maintain a required capital conservation buffer.

Consumer Protection Regulation

The Company and Union are subject to a number of federal and state laws designed to protect consumers and prohibit unfair or deceptive business practices, including, but not limited to, the Equal Credit Opportunity Act, the Fair Housing Act, the Home

Ownership Protection Act, the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”), GLBA, the Truth in Lending Act, the CRA, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and various state law counterparts. Union is also subject to laws and regulations to protect consumers in connection with their deposit or electronic transactions. These laws include the Truth in Savings Act, the Electronic Funds Transfer Act and the Expedited Funds Availability Act. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with customers when taking deposits, making loans, collecting loans and providing other services. Further, the Dodd-Frank Act established the CFPB, which has the responsibility for making rules and regulations under the federal consumer protection laws relating to financial products and services. The CFPB also has a broad mandate to prohibit unfair or deceptive acts and practices and is specifically empowered to require certain disclosures to consumers and draft model disclosure forms under the various federal consumer protection laws. The CFPB is charged with enforcing consumer protection laws against banks with assets in excess of $10 billion, while community banks continue to be subject to the enforcement authority of their primary regulator. This supervisory structure may lead to conflicting regulatory guidance for community banks versus larger banks and increase regulatory costs and burdens. Failure to comply with consumer protection laws and regulations can subject financial institutions to enforcement actions, fines and other penalties.

The Dodd-Frank Act, in addition to requiring a mortgage lender to ascertain a borrower's ability to repay, allows borrowers to assert violations of certain provisions of the Truth-in-Lending Act as a defense to foreclosure proceedings, significantly limits or prohibits prepayment penalties for certain mortgage transactions, and prohibits creditors from financing credit life/disability insurance policies in connection with a residential mortgage loan or home equity line of credit. In addition, the Dodd-Frank Act prohibits mortgage originators from receiving compensation based on the terms of residential mortgage loans and generally limits the ability of a mortgage originator to be compensated by others if compensation is received from a consumer. The Dodd-Frank Act requires mortgage lenders to make additional disclosures prior to the extension of credit, in each billing statement, and for negative amortization loans and hybrid adjustable rate mortgages. Additionally, the CFPB adopted rules and forms that combine certain disclosures that consumers receive in connection with applying for and closing on a residential mortgage loan under the Truth in Lending Act (Regulation Z) and the Real Estate Settlement Procedures Act (Regulation X), also known as the TILA and RESPA Integrated Disclosures, or TRID. TRID established new disclosure timing requirements and applies to most closed-end consumer credit transactions secured by real property.

Privacy and Customer Information Security. The GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to nonaffiliated third parties. In general, we must provide our consumer customers with a disclosure that explains our policies and procedures regarding the disclosure of such nonpublic personal information. We must also provide an updated notice if we change our information-sharing practices. Except as otherwise required or permitted by law, we are prohibited from disclosing nonpublic personal information except as provided in such policies and procedures. The GLBA also requires that we develop, implement and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information (as defined under the GLBA), to protect against anticipated threats or hazards to the security or integrity of such information; and to protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. We are also required to send a notice to customers whose “sensitive information” has been compromised if unauthorized use of this information is “reasonably possible.” Most of the states, including the states where we operate, have enacted legislation concerning breaches of data security and our duties in response to a data breach. Congress continues to consider federal legislation that would require consumer notice of data security breaches. Pursuant to the FACT Act, we have developed and implemented a written identity theft prevention program to detect, prevent, and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts.

The Bank is also subject to the Vermont Financial Privacy Act, which prohibits financial institutions from disclosing customer information, except in accordance with specified exceptions, and to the Vermont Consumer Protection Act which, among other things, generally requires a consumer's consent to obtain a credit report.

Home Mortgage Disclosure Act (“HMDA”). HMDA makes information available to the public that helps to show whether financial institutions are serving the housing credit needs of their neighborhoods and communities. The Act requires institutions to gather and compile data about loan applications secured by a lien on a residential dwelling for home purchase, home improvement, refinances and certain other borrowing purposes. The information must be compiled each calendar year on a Loan/Application Register, and submitted to the FFIEC by March 1st of the following year and made available to the public no later than March 31st. The Federal Financial Institutions Examinations Council prepares a series of tables that comprise the disclosure statement for each reporting institution. HMDA applies to financial institutions that have their main office or any branch in a Metropolitan Statistical Area ("MSA"). Union is subject to HMDA as it has branch offices within the Burlington, Vermont MSA.

Regulation of Other Activities

Transactions with Related Parties. The Company's and Union's authority to extend credit, purchase or sell an asset from or to their directors, executive officers and 10% or more stockholders, as well as to entities controlled by such persons, is governed by the requirements of the Federal Reserve Act and Regulation O of the FRB thereunder. Among other things, these provisions require that extensions of credit to insiders (i) be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and (ii) not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based in part, on the amount of the bank's capital. Under applicable guidelines, any related party transaction, including a loan, must be reviewed by the Company's Audit Committee. In addition, under the federal SOX Act (discussed below), the Company, itself, may not extend or arrange for any personal loans to its directors and executive officers. The Company has a Related Persons Transactions Approval Policy administered by the Company's Audit Committee which incorporates applicable regulatory guidelines and requirements.

Interstate Banking. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 authorized an adequately capitalized and managed bank holding company to acquire banks based outside its home state, generally without regard to whether the state's law would permit the acquisition, and also authorized banks to merge across state lines thereby creating interstate branches. In addition, this Act authorized banks to acquire existing interstate branches (short of merger) or to establish new interstate branches. States were given the right, exercisable before June 1, 1997, to prohibit altogether or impose certain limitations on interstate mergers and the acquisition or establishment of interstate branches. The Dodd-Frank Act removed remaining state law impediments to de novo interstate branching. Although interstate banking and branching may have resulted in increased competitive pressures in the markets in which the Company operates, interstate branching may also present competitive opportunities for locally-owned and managed banks, such as Union, that are familiar with the local markets and that emphasize personal service and prompt, local decision-making. The ability to branch interstate has also benefited Union, as it permitted the expansion of its banking operations into New Hampshire, including the conversion of its loan production office in Littleton to a full service branch in March of 2006, the May 2011 acquisition of three New Hampshire branches and the opening of full service branches in Lincoln in 2014 and North Conway in 2023.

Affiliate Restrictions. Bank holding companies and their affiliates are subject to certain restrictions under the Federal Reserve Act in their dealings with each other, such as in connection with extensions of credit, transfers of assets, and purchase of services among affiliated parties. The Dodd-Frank Act further tightened these restrictions. Generally, loans or extensions of credit, issuances of guarantees or letters of credit, investments or purchases of assets by a subsidiary bank from a bank holding company or its affiliates are limited to 10% of the bank's capital and surplus (as defined by federal regulations) with respect to each affiliate and to 20% in the aggregate for all affiliates, and borrowings are also subject to certain collateral requirements. These transactions, as well as other transactions between a subsidiary bank and its holding company or other affiliates must generally be on arms-length terms, that is, on terms comparable to those involving nonaffiliated companies. Further, under the Federal Reserve Act and FRB regulations, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in-arrangements in connection with extensions of credit or lease or sale of property, furnishing of property or services to third parties. The Company and Union are subject to these restrictions in their intercompany transactions.

Bank Secrecy Act. Union is subject to federal laws establishing record keeping, customer identification and reporting requirements pertaining to large or suspicious cash transactions, purchases of other monetary instruments and the international transfer of cash or monetary instruments that may signify money laundering. Provisions designed to help combat international terrorism, were added to the Bank Secrecy Act by the 2001 USA Patriot Act. These provisions require banks to avoid establishing or maintaining correspondent accounts of foreign off-shore banks and banks in jurisdictions that have been found to fall significantly below international anti-money laundering standards. U.S. banks are also prohibited from opening correspondent accounts for off-shore shell banks, defined as banks that have no physical presence and that are not part of a regulated and recognized banking company. The USA Patriot Act requires all financial institutions to adopt an anti-money laundering program and to establish due diligence policies, procedures and controls that are reasonably designed to detect and report instances of money laundering in United States private banking accounts and correspondent accounts maintained for non-U.S. persons or their representatives. Since 2018, banks have been required to comply with enhanced customer due diligence regulations requiring collection of information on beneficial owners and control persons of legal entity customers.

The due diligence requirements issued by the Department of Treasury require minimum standards to verify customer identity and maintain accurate records, encourage information sharing cooperation among financial institutions, federal banking agencies and law enforcement authorities regarding possible money laundering or terrorist activities, prohibit the anonymous use of “concentration accounts” and require all covered financial institutions to have in place an anti-money laundering compliance program. In addition, the USA Patriot Act amended certain provisions of the federal Right to Financial Privacy Act to facilitate the access of law enforcement to bank customer records in connection with investigating international terrorism. The Bank Secrecy Act/Anti-Money Laundering statutory regime was significantly amended by the Anti-Money Laundering Act of 2020 (“AMLA”), which became effective on January 1, 2021. Among other provisions, AMLA establishes a new beneficial ownership database, codifies various information-sharing practices among financial institutions, law enforcement and FinCEN that have developed since enactment of the USA Patriot Act, enhances law enforcement subpoena powers with regard to foreign financial institutions that maintain correspondent accounts in the United States, and emphasizes the use of technology and automation in identifying financial crimes.

The USA Patriot Act also amended the BHC Act and the Bank Merger Act to require the federal banking agencies to consider the effectiveness of a financial institution's anti-money laundering program when reviewing applications under these acts for mergers, acquisitions, and certain other expansion activities.

SOX Act. This far reaching federal legislation, enacted in 2002, was generally intended to protect investors by strengthening corporate governance and improving the accuracy and reliability of corporate disclosures made pursuant to federal securities laws. The SOX Act includes provisions addressing, among other matters, the duties, functions and qualifications of Audit Committees for all public companies; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers, except (in the case of banking companies) loans in the normal course of business; expedited filing requirements for reports of beneficial ownership of company stock by insiders; disclosure of a code of ethics for senior officers, and of any change or waiver of such code; the formation of a public accounting oversight board; auditor independence; disclosure of fees paid to the company's auditors for non-audit services and limitations on the provision of such services; attestation requirements for company management and external auditors, relating to internal controls and procedures; and various increased criminal penalties for violations of federal securities laws.

Nasdaq. In response to the SOX Act, the Nasdaq Exchange on which the Company's common stock is listed, implemented comprehensive corporate governance listing standards, including rules strengthening director independence requirements for boards and committees of the board, the director nomination process and shareholder communication avenues. These rules require the Company to annually certify to the Nasdaq, after each annual meeting, that the Company is in compliance and will continue to comply with the Nasdaq corporate governance requirements.

Taxing Authorities. The Company and Union are subject to income taxes at the Federal level and are individually subject to state taxation based on the laws of each state in which they operate. The Company and Union file a consolidated federal tax return with a calendar year end. The Company and Union have filed separate tax returns for each state jurisdiction affected for 2024 and will do the same for 2025. No tax return is currently being examined or audited by any taxing authority that the Company is aware of. The taxing authorities also regulate the information reporting requirements that Union is subject to, and which continue to increase and require resources to comply with.

Available Information

The Company files annual, quarterly, current reports, proxy statements, and other documents with the SEC under the Securities Exchange Act of 1934 (the “Exchange Act”). These reports, proxy statements, and other documents are available to the public on the internet website maintained by the SEC at www.sec.gov (http://www.sec.gov).

Our Internet website address is www.ublocal.com (http://www.ublocal.com). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), proxy statements filed pursuant to Section 14(a) and reports filed pursuant to Section 16, 13(d) and 13(g) of the Exchange Act are available free of charge through the Investor Relations page of our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. The information on our website is not incorporated by reference into this report.

The Company will also provide copies of this 2025 Annual Report on Form 10-K, free of charge, upon written request to its Treasurer at the Company's main address, PO Box 667, Morrisville, VT 05661-0667. Shareholder meeting materials for our 2026 Annual Meeting, including this Annual Report on Form 10-K, are available at www.materials.proxyvote.com/905400 (http://www.materials.proxyvote.com/905400) no later than the date on which they are mailed to shareholders.

An investment in the Company involves risk, some of which, including market, liquidity, credit, operational, legal, compliance, reputational and strategic risks, could be substantial and is inherent in our business. The material risks and uncertainties that management believes affect the Company are described below. Any of the following risks could affect the Company’s financial condition and results of operations and could be material and/or adverse in nature. You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.

Credit and Interest Rate Risks

Our loans are concentrated in certain areas of Vermont and New Hampshire and adverse conditions in those markets could adversely affect our operations.

We are exposed to real estate and economic factors throughout Vermont and New Hampshire. Further, because a substantial portion of our loan portfolio is secured by real estate in Vermont and New Hampshire, the value of the associated collateral is subject to real estate market conditions in those states and in the northern New England region more generally. Adverse economic, political and business developments or natural hazards may affect these areas and the ability of property owners in these areas to make payments of principal and interest on the underlying loans. If these areas experience adverse economic, political or business conditions, or significant natural hazards, we would likely experience higher rates of loss and delinquency on our loan portfolio than if the portfolio were more geographically diverse.

If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings could decrease.

As a lender, we are exposed to the risk that our loan customers may not repay their loans according to their terms and that the collateral or guarantees securing these loans may be insufficient to assure repayment. The underwriting and credit monitoring policies and procedures that we have adopted to address this risk may not prevent unexpected losses that could have a material adverse effect on our business, financial condition, results of operations and cash flows. We maintain an allowance for credit losses to provide for loan defaults and non-performance, which also includes increases for new loan growth. While we believe that our allowance for credit losses is appropriate to cover expected losses, we cannot provide assurance that we will not increase the allowance for credit losses further or that regulators will not require us to increase the allowance for credit losses, which could have a material adverse effect on our net income and financial condition.

Management makes various assumptions and judgments about the collectability of our loan portfolio, which are regularly reevaluated and are based in part on:

• current and forecasted economic conditions and their estimated effects on specific borrowers;
• an evaluation of the existing relationships among loans, potential credit losses and the present level of the allowance for credit losses;
• results of examinations of our loan portfolios by regulatory agencies; and
• management's internal review of the loan portfolio.

In determining the size of the allowance for credit losses, we rely on an analysis of our loan portfolio, our experience and a third-party economic forecast. If our assumptions prove to be incorrect, our current allowance for credit losses may not be sufficient to cover the losses.

In addition, third parties, including our federal and state regulators, periodically evaluate the adequacy of our allowance for credit losses and may communicate with us concerning the methodology or judgments that we have raised in determining the allowance for credit losses. As a result of this input, we may be required to assign different risk ratings to specific credits, increase our provision for credit losses, and/or recognize further loan charge offs which could have a material adverse effect on our net income and financial condition.

Our commercial, commercial real estate and construction loan portfolio may expose us to increased credit risks.

At December 31, 2025, approximately 41% of our loan portfolio was comprised of commercial and commercial real estate loans. In general, commercial and commercial real estate loans have historically posed greater credit risks than owner occupied residential mortgage loans. The repayment of commercial real estate loans depends on the business and financial condition of borrowers. Economic events and changes in government regulations, which we and our borrowers cannot control or reliably predict, could have an adverse impact on the cash flows generated by the businesses and properties securing our commercial and commercial real estate loans and on the values of the collateral securing those loans. Repayment of commercial loans depends substantially on the borrowers’ underlying business, financial condition and cash flows. Commercial loans are generally collateralized by equipment, inventory, accounts receivable and other fixed assets. Compared to real estate, that type of collateral is more difficult to monitor, its value is harder to ascertain, it may depreciate more rapidly and it may not be as readily saleable if repossessed.

Changes in interest rates and interest rate volatility may reduce our profitability.

Our consolidated earnings and financial condition are primarily dependent upon net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. Net interest income can be affected significantly by changes in market interest rates. In particular, changes in relative interest rates may reduce our net interest income as the difference between interest income and interest expense decreases. As a result, we have adopted asset and liability management policies to minimize the potential adverse effects of changes in interest rates on net interest income, primarily by altering the mix and maturity of loans, investments and funding sources. However, despite these measures there can be no assurance that a change in interest rates will not negatively impact our results of operations or financial condition.

Because market interest rates may change by differing magnitudes and at different times, significant changes in interest rates over an extended period of time could reduce overall net interest income.

The fair value of our investment securities can fluctuate due to factors outside of our control, and impairment of investment securities could require charges to earnings, which could result in a negative impact on our results of operations.

As of December 31, 2025, the carrying value of our investment securities portfolio was approximately $326.3 million. Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in respect to the securities, defaults by the issuer or with respect to the underlying securities and changes in market interest rates and instability in the capital markets. Any of these factors, among others, could cause impairments and realized and/or unrealized losses in future periods and declines in other comprehensive income, which could have an adverse effect on our business, financial condition and results of operations.

AFS debt securities in an unrealized loss position, are evaluated by management for impairment, to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security and the issuer, among other factors. If this assessment indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount by which the amortized cost basis of the security exceeds its fair value. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income (loss), net of applicable taxes.

A lack of liquidity could adversely affect the Company’s financial condition and results of operations and result in regulatory restrictions.

The Company must maintain sufficient funds to respond to the needs of depositors and borrowers and for other liquidity needs. Deposits have traditionally been the Company’s primary source of funds for use in lending and investment activities and are emphasized due to the relatively lower cost of these funds. The Company also receives funds from loan repayments, investment maturities and income on other interest-earning assets, as well as borrowings. If the Company is required to rely more heavily on more expensive funding sources to support liquidity and future growth, its revenues may not increase proportionately to cover its increased costs, which would adversely affect its operating margins, profitability and growth prospects. Alternatively, the Company may need to sell a portion of its investment securities portfolio to raise funds, which, as discussed below, could result in a loss. Any decline in funding could adversely impact the Company’s ability to originate loans, invest in securities, pay expenses, or fulfill obligations such as repaying its borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on its liquidity, business, financial condition and results of operations. A lack of liquidity could also attract increased regulatory scrutiny and potentially result in restraints imposed by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, regulatory restrictions and prohibitions may include restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.

Elevated and volatile interest rates have reduced the value of the Company’s securities portfolio, and the Company could realize losses if it is required to sell such securities to meet liquidity needs.

The Company’s securities portfolio consists primarily of fixed income securities whose market values are sensitive to changes in interest rates. Although interest rates have declined somewhat over the past year and a half, rates remain elevated compared to historical levels; and are subject to volatility. As a result, the trading values of previously issued government and other fixed income securities continue to be lower than their historical levels, resulting in unrealized losses embedded in the Company’s securities portfolio.

While unrealized losses do not directly affect earnings unless realized, they reduce the market value of securities that may otherwise serve as a source of liquidity. The Company generally intends to hold its investment securities to maturity or recovery of amortized cost and does not currently anticipate selling such securities. However, under certain circumstances—including unanticipated deposit outflows, reduced access to wholesale funding markets, or other liquidity stress events—the Company may be required to sell securities prior to maturity.

If the Company were to sell securities in a period of elevated interest rates or adverse market conditions, it could be required to realize losses that were previously unrealized. Such realized losses could adversely affect the Company’s earnings, regulatory capital ratios, financial condition, and results of operations, and could limit financial flexibility or require the Company to raise additional capital or funding on less favorable terms.

Although the Company has taken, and continues to take, actions to manage interest rate risk and diversify its funding sources, including maintaining contingent liquidity resources and rebalancing its investment portfolio, there can be no assurance that these measures would be sufficient to prevent the need to sell securities at unfavorable prices in the event of significant or sustained liquidity stress.

Potential deterioration in the performance or financial position of the Federal Home Loan Bank ("FHLB") of Boston might restrict our funding needs and may adversely impact our financial condition and results of operations.

Significant components of our liquidity needs are met through our access to funding pursuant to our membership in the FHLB. The FHLB is a cooperative that provides services to its member banking institutions. The primary reason for joining the FHLB is to obtain funding. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. Any deterioration in the FHLB’s performance or financial condition may affect our ability to access funding and/or require us to deem the required investment in FHLB stock to be impaired. If we are not able to access funding through the FHLB, we may not be able to meet our liquidity needs, which could have an adverse effect on our results of operations or financial condition. Similarly, if we deem all or part of our investment in FHLB stock impaired, such action could have an adverse effect on our financial condition or results of operations.

Prepayments of loans may negatively impact our business.

Generally, our customers may prepay the principal amount of their outstanding loans at any time. The speed at which such prepayments occur, as well as the size of such prepayments, are within our customers’ discretion and are influenced by the interest rate environment, over which we have no control. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, our interest income will be reduced. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.

Environmental liability associated with our lending activities could result in losses.

In the course of business, we may acquire, through foreclosure, properties securing loans we have originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that material environmental violations could be discovered at these properties. In this event, we might be required to remedy these violations at the affected properties at our sole cost and expense. The cost of remedial action could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owners or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on our financial condition and results of operations.

Risks Relating to Regulation of the Industry

We operate in a highly regulated environment and may be adversely affected by changes in laws, regulations and monetary policy.

We are subject to regulation and supervision by the FRB and Union Bank is subject to regulation and supervision by the FDIC and the DFR. Federal and state laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies, maintenance of adequate capital and sound financial condition, branching activities, permissible types, amounts and terms of loans and investments, permissible nonbanking activities, the level of reserves against deposits and restrictions on dividend payments. The FDIC and the DFR possess the power to issue cease and desist orders against banks subject to their jurisdiction to prevent or remedy unsafe or unsound banking practices or violations of law, and the FRB possesses similar powers with respect to bank holding companies. These and other restrictions limit the manner in which we may conduct business and obtain financing.

We are also affected by the monetary policies of the FRB. Changes in monetary or legislative policies may affect the interest rates we offer to attract deposits and the interest rates we charge on our loans in order to remain competitive, as well as the manner in which we offer deposits and make loans. These monetary policies also affect the valuation of our investment securities and have had, and are expected to continue to have, significant effects on the operating results of depository institutions generally, including Union Bank.

The laws, rules, regulations, and supervisory guidance and policies applicable to us are subject to regular modification and change. It is impossible to predict the competitive impact that any such future changes would have on the banking and financial services industry in general or on our business in particular. Such changes may, among other things, increase the cost of doing business, limit permissible activities, or affect the competitive balance between banks and other financial institutions. The Dodd-Frank Act instituted major changes to the regulatory regimes governing banks and other financial institutions, resulting in increased government intervention in the financial services sector. Other changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputational damage, which could have a material adverse effect on our business, financial condition, or results of operations.

Additional requirements imposed by the Dodd-Frank Act could adversely affect us.

The Dodd-Frank Act comprehensively reformed the regulation of financial institutions, products and services. Among other things, the Dodd-Frank Act established the CFPB as an independent government bureau which derives its funding from the FRB. The CFPB has the authority to prescribe rules for all depository institutions governing the provision of consumer financial products and services, which may result in rules and regulations that reduce the profitability of such products and services or impose greater costs and restrictions on us and our subsidiaries. The Dodd-Frank Act also established new minimum mortgage underwriting standards for residential mortgages, and the regulatory agencies have focused on the examination and supervision of mortgage lending and servicing activities.

The CFPB’s qualified mortgage rule, or “QM Rule,” became effective on January 10, 2014. The QM Rule requires mortgage lenders, prior to originating most residential mortgage loans, to make a determination of a borrower’s ability to repay the loan and establishes protections from liability under this requirement for so-called “qualified mortgages” that meet certain heightened criteria. If a mortgage lender does not appropriately establish a borrower’s ability to repay the loan, the borrower may be able to assert against the originator of the loan or any subsequent transferee, as a defense to foreclosure by way of recoupment or setoff, a violation of the ability-to-repay requirement. Loans that meet the definition of “qualified mortgage” will be presumed to have complied with the ability-to-repay standard. Although amendments to the QM Rule adopted by the CFPB in March 2021 will make it less challenging for a loan to meet the definition, the QM Rule and related ability-to-repay requirements and similar rules could nevertheless still limit Union's ability to make certain types of loans or loans to certain borrowers, or could make it more expensive and time-consuming to make these loans, which could limit the Bank’s growth or profitability.

Current and future legal and regulatory requirements, restrictions, and regulations may adversely impact our profitability and may have a material and adverse effect on our business, financial condition, or results of operations; may require us to invest significant management attention and resources to evaluate and make any changes required by the legislation and related regulations; and may make it more difficult for us to attract and retain qualified executive officers and employees.

We are subject to stringent capital requirements which may adversely impact our return on equity, require additional capital raises, or limit our ability to pay dividends or repurchase shares.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios, and define “capital” for calculating these ratios. The minimum capital requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. The regulations also establish a “capital conservation buffer” of 2.5%, which if complied will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%; (ii) a Tier 1 to risk-based assets capital ratio of 8.5%; and (iii) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below the capital conservation buffer amount. The application of these capital requirements could, among other things, require us to maintain higher capital resulting in lower returns on equity, and we may be required to obtain additional capital to comply or be subject to regulatory actions if we are unable to comply with such requirements.

We may incur fines, penalties and other negative consequences from regulatory violations, possibly even inadvertent or unintentional violations.

As a financial institution, we are subject to a complex system of laws, regulations and regulatory guidance. We maintain systems and procedures designed to ensure that we comply with applicable laws, regulations and regulatory guidance. However, some legal/regulatory frameworks provide for the imposition of fines or penalties for noncompliance even though the noncompliance was inadvertent or unintentional and even though there was in place at the time systems and procedures designed to ensure compliance. For example, we are subject to regulations issued by the Office of Foreign Assets Control, or “OFAC,” that prohibit financial institutions from participating in the transfer of property belonging to the governments of certain foreign countries and designated nationals of those countries and certain other persons or entities whose interest in property is blocked by OFAC-administered sanctions. OFAC may impose penalties for inadvertent or unintentional violations even if reasonable processes are in place to prevent the violations. There may be other negative consequences resulting from a finding of noncompliance, including restrictions on certain activities. Such a finding may also damage our reputation and could restrict the ability of institutional investment managers to invest in our securities.

We face significant legal risks, both from regulatory investigations and proceedings and from private actions brought against us.

Our businesses and operations are subject to increasing regulatory oversight and scrutiny, which could lead to regulatory investigations or enforcement actions. These and other initiatives from federal and state officials could result in judgments, settlements, fines or penalties, or require us to restructure our operations and activities, all of which could lead to reputational damage, or higher operational costs, or both, thereby reducing our revenue.

From time to time we are named as a defendant or are otherwise involved in various legal proceedings. There is no assurance that litigation with private parties will not increase in the future. Future actions against us may result in judgments, settlements, fines, penalties or other results adverse to us, which could materially adversely affect our business, financial condition or results of operations, or cause serious reputational harm to us. As a participant in the financial services industry, we are exposed to a high level of litigation related to our business and operations. Although we maintain insurance, the scope of this coverage may not provide us with full, or even partial, coverage in any particular case. As a result, a judgment against us in any such litigation could have a material adverse effect on our financial condition and results of operation.

Accounting and Tax Risks

Changes in accounting standards can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.

Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. From time to time, the FASB changes the financial accounting and reporting standards that govern the preparation of our financial statements. These changes can be hard to anticipate and implement and can materially impact how we record and report our financial condition and results of operations.

Changes in tax laws and regulations and differences in interpretation of tax laws and regulations may adversely impact our financial statements.

State or federal tax authorities may interpret tax laws and regulations differently than we do and challenge tax positions that we have taken on tax returns. This may result in differences in the treatment of revenues, deductions, credits and/or differences in the timing of these items. The differences in treatment may result in payment of additional taxes, interest or penalties that could have a material adverse effect on our results. In addition, there may be future changes to tax laws, administrative rulings or court decisions that could adversely affect our financial condition, including an increased provision for income taxes and/or reduced net income. We are not able to predict the timing or impact of any changes in state or federal tax laws. The taxing authorities also regulate the information reporting requirements that Union is subject to, and which continue to increase and require resources to comply with.

We may be required to write down goodwill and other identifiable intangible assets.

When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. At December 31, 2025, there was no remaining unamortized identifiable intangible asset and our goodwill from the 2011 Branch Acquisition was approximately $2.2 million. Under current accounting standards, if we determine that goodwill or intangible assets are impaired, we would be required to write down the value of these assets to fair value. We conduct an annual review, or more frequently if events or circumstances warrant, to determine whether goodwill is impaired. We recently completed our goodwill impairment analysis as of December 31, 2025 and concluded goodwill was not impaired. We conduct a review of our other intangible assets for impairment should events or circumstances warrant. We cannot provide assurance that we will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on our shareholders’ equity and financial results and may cause a decline in our stock price.

The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate.

The preparation of financial statements and related disclosure in conformity with GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. Our critical accounting policies, which are described in Item 7 of this report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies”, constitute those significant accounting policies and methods used in the preparation of our consolidated financial statements that we consider “critical” because they require judgments, assumptions and estimates that materially affect our consolidated financial statements and related disclosures. As a result, if future events differ significantly from management's judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures.

Risks Relating to the Company's Stock

If we do not maintain net income growth, the market price of our common stock could be adversely affected.

Our return on stockholders’ equity and other measures of profitability, which affect the market price of our common stock, depend in part on our continued growth and expansion. Our growth strategy has two principal components: internal growth and external growth. Our ability to generate internal growth is affected by the competitive factors described below as well as by the primarily rural characteristics and related demographic features of the markets we serve.

We are a holding company and depend on Union Bank for dividends, distributions and other payments.

We are a legal entity that is separate and distinct from Union Bank. Our revenue (on a parent company only basis) is derived primarily from interest and dividends paid to us by Union Bank. Our right, and consequently the right of our shareholders, to participate in any distribution of the assets or earnings of any subsidiary through the payment of such dividends or otherwise is necessarily subject to the prior claims of creditors including holders of our subordinated notes, and also including depositors, in the case of Union Bank, except to the extent that certain claims of Union in a creditor capacity may be recognized.

Our stockholders may not receive dividends on our common stock.

Holders of our common stock are entitled to receive dividends only when, as and if declared by our board of directors. Although we have historically declared regular quarterly cash dividends on our common stock, we are not required to do so and our board of directors may reduce or eliminate our common stock dividend, or change the frequency at which dividends are paid, in the future. The FRB has the authority to prohibit a bank holding company, such as us, from paying dividends if it deems such payment to be an unsafe or unsound practice. The FDIC has the authority to use its enforcement powers to prohibit Union from paying dividends to us if, in its opinion, the payment of dividends would constitute an unsafe or unsound practice. Federal law also prohibits the payment of dividends by a bank that will result in the bank failing to meet its applicable capital requirements on a pro forma basis. Further, our ability to pay dividends would be restricted if we do not maintain a required capital conservation buffer under applicable regulatory capital rules. A reduction or elimination of dividends could adversely affect the market price of our common stock.

We may need to raise additional capital in the future and such capital may not be available when needed or on acceptable terms.

As a bank holding company, we are required by the FRB to maintain adequate levels of capital to support our operations. We may need to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments and business needs. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at that time, which are outside of our control, and our financial performance. We cannot assure you that such capital will be available to us on acceptable terms or at all. Our inability to raise sufficient additional capital on acceptable terms when needed could subject us to certain activity restrictions or to a variety of enforcement remedies available to the FRB, including limitations on our ability to pay dividends or pursue acquisitions, the issuance by the FRB of a capital directive to increase capital and to the extent the capital of Union Bank is adversely affected, the termination of deposit insurance by the FDIC.

Market volatility may impact our business and the value of our common stock.

Our business performance and the trading price of our common stock may be affected by many factors affecting financial institutions, including the interest rate environment, volatility in the credit, mortgage and housing markets, the markets for securities relating to mortgages or housing, and the value of debt and mortgage-backed securities and other securities that we hold in our investment portfolio. Market volatility in financial institution stocks may also result from high profile bank failures. In addition, government action and legislation may impact us and the value of our common stock. We cannot predict what impact, if any, market volatility will have on our business or share price and for these and other reasons our shares of common stock may trade at a price lower than that at which they were purchased.

Certain provisions of our articles of incorporation may have an anti-takeover effect.

Provisions of our articles of incorporation and bylaws and regulations and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders. The combination of these provisions may inhibit a non-negotiated merger or other business combination, which, in turn, could adversely affect the market price of our common stock.

If we identify any material weakness in our internal controls over financial reporting and fail to correct it, or otherwise fail to maintain effective internal controls over financial reporting, we may not be able to report our financial results accurately and timely, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports, and the price of our common stock may decline.

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting and for evaluating and reporting on our system of internal controls. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

We are subject to FDICIA and other rules that govern financial institutions. Recent amendments to FDICIA and its implementing regulations increased the asset-size thresholds and modified certain requirements related to internal control reporting and auditor attestation. Under the revised framework, institutions that meet applicable asset thresholds are required to provide management’s assessment of the effectiveness of internal control over financial reporting, and institutions that exceed higher asset thresholds are also required to obtain an attestation report from their independent registered public accounting firm on the effectiveness of those controls. While these changes may affect the scope, timing, and cost of compliance, they do not reduce management’s responsibility to maintain effective internal controls over financial reporting or the risk that control deficiencies could arise. As we grow or as regulatory requirements evolve, we may become subject to additional or more stringent FDICIA requirements, including expanded documentation, testing, and governance expectations.

If we identify material weaknesses in our internal controls over financial reporting in the future, if we cannot comply with the requirements of FDICIA in a timely manner or attest that our internal controls over financial reporting are effective, or if our independent registered public accounting firm cannot express an opinion as to the effectiveness of our internal controls over financial reporting when required, we may not be able to report our financial results accurately and timely. As a result, investors, counterparties and customers may lose confidence in the accuracy and completeness of our financial reports; our liquidity, access to capital markets and perceptions of our creditworthiness could be adversely affected; and the market price of our common stock could decline. In addition, we could become subject to investigations by the Nasdaq stock exchange, on which our common stock is listed, the SEC, the FRB, the FDIC, or other regulatory authorities, which could require additional financial and management resources. These events could have an adverse effect on our business, financial condition and results of operations.

Environmental, social and governance oversight may influence the Company's stock price and increase compliance costs.

Some investors have begun to consider how corporations, such as the Company, are addressing environmental, social, and governance matters, commonly referred to as "ESG" matters, when making investment decisions. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions, and human rights. Specific examples of matters being evaluated as part of the investment decision or recommendation by certain investors include the business risks of climate change and the adequacy of companies' responses to climate change, diversity of a company's management and/or board of directors, community involvement and charitable giving, and the inclusion of ESG factors in the determination of the executive compensation. These shifts in investing priorities may result in adverse effects on the trading price of the Company's common stock if investors determine, whether real or perceived, that the Company's ESG actions are not satisfactory.

Operational Risks

We are exposed to losses from fraud, theft, and other financial crimes, which could adversely affect our results of operations and financial condition.

We face the risk of losses arising from fraudulent or criminal activity, including unauthorized transactions, account takeovers, forged, altered, or counterfeit instruments, and other schemes targeting our customers, employees, or systems. These risks include, among others, check fraud, wire and ACH fraud, debit card fraud, mobile and remote deposit fraud, and other payment‑related misconduct. Fraudulent activity may be difficult to detect or prevent, particularly where transactions are initiated through customer channels or where applicable funds availability requirements require us to make funds available before fraudulent activity is identified. Despite the implementation of fraud detection systems, internal controls, customer authentication procedures, and employee training, such measures may not be effective in preventing all losses. Losses resulting from fraud may result in direct financial exposure, customer reimbursement obligations, litigation, regulatory scrutiny, reputational harm, or increased operational and compliance costs. In addition, evolving fraud techniques, including those that exploit remote deposit capture and other electronic delivery channels, may increase the frequency or severity of losses. Any of these factors could adversely affect our business, results of operations, and financial condition.

A failure in or breach of our operational systems, information systems, or infrastructure, or those of our third party vendors and other service providers, may result in financial losses, loss of customers, or damage to our reputation.

We rely heavily on communications and information systems to conduct our business. In addition, we rely on third parties to provide key components of our infrastructure, including internet connections, network access and processing services. These types of information and related systems are critical to the operation of our business and essential to our ability to perform day-to-day operations, and, in some cases, are critical to the operations of certain of our customers. These third parties with which we do business or that facilitate our business activities, including exchanges, clearing firms, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational and information security risk to us, including breakdowns or failures of their own systems or capacity constraints. Although we have safeguards and business continuity plans in place, our business operations may be adversely affected by significant and widespread disruption to our physical infrastructure or operating systems that support our business and our customers, resulting in financial losses, loss of customers, or damage to our reputation.

An interruption or breach in security of our information systems or those related to merchants and third party vendors, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of confidential customer or proprietary information, damage our reputation, or result in financial losses.

Our technologies, systems, networks and software, and those of other financial institutions have been, and are likely to continue to be, the target of cybersecurity threats and attacks, which may range from uncoordinated individual attempts to sophisticated and targeted measures directed at us. These cybersecurity threats and attacks may include, but are not limited to, attempts to access information, including customer and Company information, malicious code, computer viruses and denial of service attacks that could result in unauthorized access, misuse, loss or destruction of data (including confidential customer information), account takeovers, unavailability of service, ransomware attacks or other events. These types of threats may result from human error, fraud or malice on the part of external or internal parties, or from accidental technological failure. Further, to access our products and services our customers may use computers and mobile devices that are beyond our security control systems. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, has increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

Our business requires the collection and retention of large volumes of customer data, including payment card numbers and other personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal Company data such as personally identifiable information about our employees and information relating to our operations. The integrity and protection of that customer and Company data is important to us. As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operations systems and infrastructure must be continually safeguarded and monitored for potential failures, disruptions and breakdowns.

Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, payment card numbers, bank account information or other personal information or to introduce viruses to our customers’ computers. These communications may appear to be legitimate messages sent by Union Bank or other businesses, but direct recipients to fake websites operated by the sender of the e-mail or request that the recipient send a password or other confidential information via e-mail or download a program. Despite our efforts to mitigate these threats through product improvements, use of encryption and authentication technology to secure online transmission of confidential consumer information, and customer and employee education, such attempted frauds against us or our merchants and our third party service providers remain a serious issue. The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and will continue to evolve.

Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. Even the most well-protected information, networks, systems and facilities remain potentially vulnerable because attempted security breaches, particularly cyber-attacks and intrusions, or disruptions will occur in the future, and because the techniques used in such attempts are constantly evolving and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is virtually impossible for us to entirely mitigate this risk. A security breach or other significant disruption could: (i) disrupt the proper functioning of our networks and systems and therefore our operations and/or those of certain of our customers; (ii) result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of confidential, sensitive or otherwise valuable information of ours or our customers, including account numbers and other financial information; (iii) result in a violation of applicable privacy, data breach and other laws, subjecting the Bank to additional regulatory scrutiny and exposing the Company to civil litigation, governmental fines and possible financial liability; (iv) require significant management attention and resources to remedy the damages that result; or (v) harm our reputation or cause a decrease in the number of customers that choose to do business with us or reduce the level of business that our customers do with us. The occurrence of any such failures, disruptions or security breaches could have a negative impact on our results of operations, financial condition, and cash flows as well as damage our brand and reputation.

Although we maintain an insurance policy covering certain cybersecurity risks which we believe provides appropriate coverage for a financial institution of our size and business and technology profile, we cannot provide any assurance that such policy would be sufficient to cover all financial losses or damages we might suffer in the event that we or one of our third party vendors experiences a system failure or suffers a system intrusion or other cyberattack.

We rely on other companies to provide key components of our business infrastructure.

Third party vendors provide key components of our business infrastructure such as internet connections, network access and core application processing. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including as a result of their not providing us their services for any reason or their performing their services poorly, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently and effectively. Replacing these third party vendors could also entail significant business disruption, delay and expense.

We are piloting and selectively using artificial intelligence and machine learning technologies in limited, primarily internal functions, which exposes us to operational, regulatory, and reputational risks that could adversely affect our business.

We have begun piloting artificial intelligence (“AI”) and machine learning tools in certain internal and support functions, such as data analysis, fraud monitoring support, compliance processes, and operational efficiency initiatives. These technologies are complex and evolving, and our experience with them remains limited. AI systems may produce inaccurate, incomplete, or misleading outputs, or behave in ways that are difficult to predict or explain. Errors or failures in these tools—whether due to data limitations, model design, third‑party technology, or employee misuse—could impair decision‑making, reduce the effectiveness of internal controls, or require us to suspend or modify pilot programs.

The legal and regulatory framework governing AI use in banking is developing and uncertain. Banking regulators have increased focus on governance, risk management, and controls related to emerging technologies, including AI. Although our current AI use is limited, our existing policies, procedures, and internal control frameworks may not fully address the risks associated with AI technologies. If regulators determine that our oversight, documentation, or controls are inadequate, we could be required to enhance governance, incur additional compliance costs, or limit future use of AI tools.

In addition, even limited AI use may create reputational risk. Internal system failures, data issues, cybersecurity incidents, or negative perceptions regarding the appropriateness of AI use in banking could adversely affect our relationships with customers, regulators, and other stakeholders. As we evaluate whether to expand AI use over time, these risks may increase and could have a material adverse effect on our business, results of operations, or financial condition.

Strategic Risks

Competition in the local banking industry may impair our ability to attract and retain customers at current levels.

Competition in the markets in which we operate may limit our ability to attract and retain customers. In particular, we compete for loans, deposits and other financial products and services with local independent banks, thrift institutions, savings institutions, mortgage brokerage firms, credit unions, finance companies, trust companies, mutual funds, insurance companies and brokerage and investment banking firms operating locally as well as nationally. Additionally, we compete with banks and other financial institutions with larger capitalization, as well as financial intermediaries not subject to bank regulatory restrictions, which have larger lending limits and are able to serve the credit and investment needs of larger customers. There is also increased competition by out-of-market competitors through the Internet. If we are unable to attract and retain customers, we may be unable to continue our loan growth and our results of operations and financial condition may otherwise be negatively impacted.

We may incur significant losses as a result of ineffective risk management processes and strategies.

We seek to monitor and control our risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While we employ a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application may not be effective and may not anticipate every economic and financial outcome in all market environments or the specifics and timing of such outcomes.

Expansion or contraction of our branch network may adversely affect our financial results.

The Company cannot assure that the opening of new branches will be accretive to earnings within a reasonable period of time or at all. Numerous factors contribute to the performance of a new branch, such as suitable location, qualified personnel, and an effective marketing strategy. Additionally, it takes time for a new branch to gather sufficient loans and deposits to generate income sufficient to cover its operating expenses. Difficulties we experience in opening new branches may have a material adverse effect on the our financial condition and results of operations. Additionally, we cannot assure that the closing of branches would not adversely affect earnings.

We must adapt to information technology changes in the financial services industry, which could present operational issues, require significant capital spending, or impact our reputation.

The financial services industry is constantly undergoing technological changes, with frequent introductions of new technology-driven products and services. We invest significant resources in information technology system enhancements in order to meet customer expectations and provide functionality and security at an appropriate level. The effective use of technology increases efficiency and enables financial institutions to better serve customers and reduce costs. Our future success will depend, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience, as well as to create additional efficiencies in our operations. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully implement and integrate future system enhancements could adversely impact our ability to provide timely and accurate financial information in compliance with legal and regulatory requirements, which could result in sanctions from regulatory authorities. Such sanctions could include fines and suspension of trading in our stock, among others. In addition, future system enhancements could have higher than expected costs and/or result in operating inefficiencies, which could increase the costs associated with the implementation as well as ongoing operations.

Failure to properly utilize system enhancements that are implemented in the future could result in impairment charges that adversely impact our financial condition and results of operations and could result in significant costs to remediate or replace the defective components. In addition, we may incur significant training, licensing, maintenance, consulting and amortization expenses during and after systems implementations, and any such costs may continue for an extended period of time.

Economic Risks

External economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial condition and results of operations.

Our financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve. Actions by monetary and fiscal authorities, including the Federal Reserve, could lead to inflation, deflation or other economic phenomena that could adversely affect our financial performance. The primary impact of inflation on our operations most likely will be reflected in increased operating costs. Conversely, deflation generally will tend to erode collateral values and diminish loan quality. Virtually all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than general levels of inflation or deflation. Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists.

Our financial condition and results of operations have been adversely affected, and may continue to be adversely affected, by general market and economic conditions.

We have been, and continue to be, impacted by general business and economic conditions in the United States and, to a lesser extent, abroad. These conditions include short-term and long-term interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, unemployment and the condition of the U.S. economy and the local economies in which we operate, all of which are beyond our control. Deterioration or continued weakness in any of these factors could result in increases in loan delinquencies and nonperforming assets, and in decreases in loan collateral values, the value of our investment portfolio and the demand for our products and services.

Our business and financial results could be adversely affected by the political environment and governmental policies.

Our business and financial results may also be affected by changes in government policies following the 2024 U.S. election and the new administration. There remains significant market uncertainty as to how the current U.S. administration's corresponding policy changes could impact us or our customers. For example, the current U.S. administration has adopted and may consider trade policies and tariffs, other controls on imports or exports, and other foreign policy initiatives that could affect our business and supply chains. The U.S. federal government, U.S. states and certain other countries and regions have adopted or are considering legislation, regulation or policies that reflect diverse, diverging and, in some cases, potentially conflicting policy goals. Compliance with such laws, regulations or policies, including any that may be adopted in the future, could, among other things, increase the costs of operating our business, reduce the demand for our products and services, impact our ability to meet or maintain current or future goals or targets or continue initiatives and increase our legal, operational and reputational risks, any or all of which could materially adversely affect our results of operations. Failure, or perceived failure, to comply with any legislation, regulation or policy, including as a result of making good faith interpretations that may differ from those taken by enforcement authorities in relevant jurisdictions, could potentially result in substantial fines, criminal sanctions, reputational harm or operational changes.

General Risks

We may be unable to attract and retain key personnel.

Our success depends, in large part, on our ability to attract and retain key personnel. Competition for qualified personnel in the financial services industry can be intense and we may not be able to hire or retain the key personnel that we depend upon for success. The unexpected loss of services of one or more of our key personnel could have a material adverse impact on our business because of the loss of their skills, knowledge of the markets in which we operate and years of industry experience, and because of the difficulty of promptly finding qualified replacement personnel.

We are subject to reputational risk.

We are dependent on our reputation within our market area, as a trusted and responsible financial service provider, for all aspects of our relationships with customers, employees, vendors, third-party service providers, and others, with whom we conduct business or potential future business. Our actual or perceived failure to (i) identify and address potential conflicts of interest, ethical issues, money-laundering, or privacy issues; (ii) meet legal and regulatory requirements applicable to Union and to the Company; (iii) maintain the privacy of customer and accompanying personal information; (iv) maintain adequate record keeping; or (v) identify the legal, reputational, credit, liquidity and market risks inherent in our products, could give rise to reputational risk that could harm our business prospects and adversely affect our financial condition and results of operations. If we fail to address any of these issues in an appropriate manner, we could be subject to additional legal risks, which, in turn, could increase the size and number of litigation claims and damages asserted or subject us to enforcement actions, fines and penalties and cause us to incur related costs and expenses. Our ability to attract and retain customers and employees could be adversely affected to the extent our reputation is damaged.

We face significant and increasing competition in the financial services industry.

We operate in a highly competitive environment that includes financial and non-financial services firms, including traditional banks, online banks, financial technology companies, wealth management companies and others. These companies compete on the basis of, among other factors, size, quality and type of products and services offered, price, technology and reputation. Emerging technologies have the potential to intensify competition and accelerate disruption in the financial services industry. In recent years, non-financial services firms, such as financial technology companies, have begun to offer services traditionally provided by financial institutions. These firms attempt to use technology and mobile platforms to enhance the ability of companies and individuals to make payments, borrow money, save and invest. Our ability to compete successfully depends on a number of factors, including our ability to develop and execute strategic plans and initiatives; to develop competitive products and utilize evolving technologies; and to attract, retain and develop a highly skilled employee workforce. If we are not able to compete successfully, we could be placed at a competitive disadvantage, which could result in the loss of customers and market share, and our business, results of operations and financial condition could suffer.

Our Company faces a number of cybersecurity risks in connection with the operation of our business which could have a material adverse effect on our business financial condition, results of operations, cash flows, or reputation. As part of the operation of our business, the Company, and our service providers, use, store, and process data for our customers, employees, partners, and suppliers. A cybersecurity incident impacting any of these entities could materially and adversely affect our operations, performance, or results of operations. In addition, as a financial services company we are subject to extensive regulatory compliance requirements, including those established by the FRB, FDIC and the DFR. To address these risks and regulatory requirements, the Company established a robust cybersecurity risk management program. This program safeguards sensitive customer data, financial transactions, and our information systems, serving as a vital component of our broader enterprise risk management strategy.

Risk Management Oversight and Governance

The Company's Board of Directors is charged with overseeing and approving Union's risk management framework and monitoring adherence to related policies required by applicable statutes, regulations and principles of safety and soundness. Union's Information Security Officer (ISO) provides periodic updates regarding cybersecurity risks and the cybersecurity program to the Board of Directors. Additionally, awareness and training on cybersecurity topics is provided to the Company's Board of Directors on a regular basis. Consistent with this responsibility the Board has delegated primary oversight responsibility over the risk management framework and oversight of the cybersecurity program, including oversight of cybersecurity risk and cybersecurity risk management, to Union's IT Steering Committee.

Union's IT Steering Committee includes Bank information technology personnel, information security personnel, other department leaders and stakeholders, and Union's senior management team. This Committee receives regular updates on the state of Union's cybersecurity program, including any incidents, and reviews and approves information technology or information security related projects and proposals. These team members are also responsible for the resolution of any findings and implementation of recommendations from internal and external audits and examinations.

Union's ISO is responsible for implementing and maintaining the cybersecurity program with support from Union's Information Security team. The Information Security team consists of Union's ISO, members of the risk and compliance department, security staff, and information technology members, all of whom collaboratively work together to manage cybersecurity risks. The ISO reports directly to Union's Senior Risk Officer.

Cybersecurity Risk Management Program

The program is designed to identify, assess, manage, mitigate, and respond to cyber threats with the goal of preventing cybersecurity incidents to the extent feasible, while also increasing our system resilience and ability to minimize business disruption in the event we experience a cyber incident. Our program is structured to be nimble and adaptable to changes in cybersecurity threats over time and to respond to emerging threats in a timely and efficient manner.

Our Information Security team, led by our ISO, is responsible for monitoring our information systems for vulnerabilities and mitigating any issues. The Information Security team works collaboratively across the Company to understand the potential impacts of a cybersecurity incident and prioritize mitigation and other measures based on, among other things, the materiality to our business. The Information Security team has established processes designed to monitor threats in the cybersecurity landscape which include interacting with intelligence networks, working with researchers, discussions with peers at other companies, monitoring social media, reviewing government alerts and other news items and attending industry specific security conferences and trainings. The team regularly monitors our internal network and customer-facing network to identify any security issues. In addition, the Company augments the team’s monitoring via the engagement of external vendors who provide continuous threat monitoring services of the Company’s environment.

As part of our assessment of the risks to our Company, the Information Security team conducts annual cybersecurity risk assessments to evaluate the inherent risk of our applications and the strength of our controls, and identify the residual risk for each application. In addition, we conduct regular reviews and testing of critical network and application systems to assess their security. We have adopted internal Company-wide Information Technology and Information Security policies which are reviewed and updated annually and approved by our Board of Directors. Our employees and the Board of Directors attend annual trainings that are designed to raise awareness about cybersecurity threats, reduce our vulnerability, and encourage consideration of cybersecurity threats across the Company.

We regularly review and update our investments in information technology security to identify and protect critical assets, provide monitoring and alerts, and, as needed, engage third-party experts. To assess the effectiveness of our program, we have engaged consultants to conduct penetration testing and other vulnerability assessments. Additionally, our Internal Audit department and external auditors conduct assessments of different systems to provide the Audit Committee with information on our risk management processes, including cybersecurity risk management. We also test our defenses internally and conduct regular cybersecurity simulations and tabletop exercises with members of senior management present. These tests and assessments provide useful insights into the strengths and weaknesses of our cybersecurity framework.

Our cybersecurity framework is designed to protect our customers, employees, investors, and our intellectual property. Before purchasing third-party technology or other solutions that could expose the Company’s assets and electronic information, our Information Security team completes security reviews on the vendors. Contracts are also negotiated to ensure language is included to address cybersecurity risk limitation and remediation. We also conduct ongoing reviews of cybersecurity risks associated with our third-party service providers. As part of the Company’s Vendor Management Program, periodic reviews are conducted for certain third-party vendors. Members of our Information Security team work with department managers and application owners to review System and Organization Controls (“SOC”) 1 or SOC 2 reports. In the event a third-party vendor is required but unable to provide either a SOC 1 or SOC 2 report, this group conducts additional reviews to assess the cybersecurity preparedness of the specific vendor. This assessment of the risks associated with the use of third-party service providers is part of our overall vendor management and cybersecurity risk management framework.

To date, cybersecurity risks have not materially affected us. We do experience attacks on our data and systems that have been halted by the technical policies and cybersecurity systems in place. For more information about the cybersecurity risks we face, see "Risk Factors - Operational Risks" in Part I, Item 1A of this Annual Report.

As of December 31, 2025, Union operated 13 community banking locations in Lamoille, Caledonia, Chittenden, Franklin and Washington counties of Vermont and five in Grafton and Coos counties of New Hampshire. Union also operates three loan centers in St. Johnsbury and Williston, Vermont and Plymouth, New Hampshire. In addition, Union owns a property located in Johnson, VT that was previously a branch location. This property was damaged due to flooding in 2024 and was not re-opened. Union owns, free of encumbrances, 16 of its branch locations and its headquarters and operates several ATMs in northern Vermont and New Hampshire. Union leases three branch locations, one loan production office, land upon which the Williston branch was built, and certain ATM premises from third parties under terms and conditions considered by management to be favorable to Union. Union also owns or leases certain properties contiguous to its branch locations for staff and customer parking convenience.

Additional information relating to the Company's properties as of December 31, 2025, is set forth in Notes 8 and 9 to the Company's audited consolidated financial statements contained in Part II, Item 8 of this Annual Report.

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 would not have a material effect on the consolidated financial position or results of operations of the Company and its subsidiary.

GENERAL

The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the consolidated financial position of Union Bankshares, Inc. ("the Company," "our," "we," "us") and its subsidiary, Union Bank ("Union"), as of December 31, 2025 and 2024, and its consolidated results of operations for the years then ended. The Company is considered a "smaller reporting company" under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its audited statements of income, comprehensive income, cash flows, and changes in stockholders' equity for a two year, rather than a three year, period and intends to provide smaller reporting company scaled disclosures where management deems appropriate.

This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the audited consolidated financial statements and related notes and with other financial data contained in Item 8, Part II of this Annual Report. The purpose of this presentation is to enhance overall financial disclosures and to provide information about historical financial performance and developing trends as a means to assess to what extent past performance can be used to evaluate the prospects for future performance. Management is not aware of the occurrence of any events after December 31, 2025 which would materially affect the information presented.

CERTAIN DEFINITIONS

Capitalized terms used in the following discussion and not otherwise defined below have the meanings assigned to them in Note 1 to the Company's audited consolidated financial statements contained in Part II, item 8, page 55 of this Annual Report.

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 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. Nevertheless, because the nature of the judgments and assumptions made by management is inherently subject to a degree of uncertainty, actual results could differ from estimates and have a material impact on the carrying value of assets, liabilities, capital, or the results of operations of the Company.

Allowance for credit losses on loans and on off-balance sheet credit exposures

ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which is more commonly referred to as Current Expected Credit Losses (CECL), requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the expected life of the asset. CECL also applies to certain off-balance sheet credit exposures, such as loan commitments, standby letters of credit, financial guarantees and other similar investments. The Company believes the allowance for credit losses (ACL) on loans and off-balance sheet credit exposures is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. CECL may create volatility in the level of the ACL from quarter to quarter as the ACL is dependent upon macroeconomic forecasts and conditions, loan portfolio volumes and credit quality, among other things.

Allowance for credit losses on AFS debt securities

CECL also impacts the accounting for AFS debt securities. AFS debt securities in unrealized loss positions are evaluated for impairment related to credit losses at least quarterly. The Company believes the ACL on AFS debt securities is a critical accounting policy due to the level of judgment involved to determine if credit-related impairment exists. If the impairment analysis indicates that a credit loss exists, management compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an ACL is recorded, limited to the amount by which the amortized cost basis of the security exceeds its fair value.

Mortgage servicing rights

MSRs associated with loans originated and sold, where servicing is retained, are required to be capitalized and initially recorded at fair value on the acquisition date and are subsequently accounted for using the “amortization method”. Mortgage servicing rights are amortized against non-interest income in proportion to, and over the period of, estimated future net servicing income of the underlying financial assets. The value of capitalized servicing rights represents the estimated present value of the future servicing fees arising from the right to service loans for third parties. The carrying value of the mortgage servicing rights is periodically reviewed for impairment based on a determination of estimated fair value compared to amortized cost, and impairment, if any, is recognized through a valuation allowance and is recorded as a reduction of non-interest income. Subsequent improvement (if any) in the estimated fair value of impaired mortgage servicing rights is reflected in a positive valuation adjustment and is recognized in non-interest income up to (but not in excess of) the amount of the prior impairment. Critical accounting policies for mortgage servicing rights relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of mortgage servicing rights requires the development and use of a number of estimates, including anticipated principal amortization and prepayments. Factors that may significantly affect the estimates used are changes in interest rates and the payment performance of the underlying loans. The Company analyzes and accounts for the value of its servicing rights with the assistance of a third party consultant.

Intangible assets

The Company's intangible assets include goodwill, which represents the excess of the purchase price over the fair value of net assets acquired in the 2011 Branch Acquisition. In accordance with current authoritative guidance, the Company 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 is less than its carrying amount, which could result in goodwill impairment.

Other

The Company also has other key accounting policies, which involve the use of estimates, judgments and assumptions, that are significant to understanding the Company's financial condition and results of operations, including investment securities. The most significant accounting policies followed by the Company are presented in Note 1 of the consolidated financial statements and in the section below under the caption “FINANCIAL CONDITION” and the subcaptions "Asset Quality", “Allowance for Credit Losses" and ”Investment Activities.” Although management believes that its estimates, assumptions and judgments are reasonable, they are based upon information available when such estimates, assumptions and judgments are made and can be impacted by future events and events outside the control of the Company. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

OVERVIEW

Despite a persistently challenging operating environment in 2025, characterized by elevated interest rates for much of the year, funding cost pressures, and ongoing economic and geopolitical uncertainty, the Company delivered solid financial performance and continued to strengthen its balance sheet. While the Federal Reserve implemented a series of interest rate reductions during the second half of the year, rates remained relatively high overall, requiring continued discipline in balance sheet management and pricing strategies. Through prudent execution and a sustained focus on core relationship banking, the Company achieved meaningful growth in net income, expanded net interest margin, and improved key profitability and capital metrics year over year. These results underscore the resilience of the Company’s business model and its ability to adapt effectively to evolving monetary policy and market conditions while maintaining strong capital and liquidity positions.

Net interest income, the largest component of net income, saw an increase due to higher interest earned on average earning assets and an increase in average loan volume. Interest expense increased, primarily driven by increased utilization of wholesale funding and an overall increase in rates on customer deposits. The net interest spread and net interest margin both improved, reflecting the overall positive impact of these changes, despite higher funding costs.

The net interest margin was 2.93% for the year ended December 31, 2025 compared to 2.77% for the year ended December 31, 2024, while the net interest spread for the same periods were 2.47% and 2.30%, respectively. We continue to manage the net interest margin and spread by remaining disciplined on loan and deposit pricing, utilizing FHLB advances and brokered CDs when appropriate to reduce our exposure to high short-term interest rates, and maximizing our balance sheet collateral (i.e. loans and investment securities) to obtain wholesale funding in a cost effective way to fund loan growth.

Consolidated net income was $11.1 million, with basic earnings per share of $2.43 for 2025 compared to consolidated net income of $8.8 million, and basic earnings per share of $1.94 for 2024, while diluted earnings per share for the same periods were $2.41 and $1.92, respectively. The increase in net income was due to the combined effects of the $1.3 million pre-tax realized loss on the sale of AFS debt securities during 2024 that did not recur in 2025, increases in net interest income of $4.7 million and noninterest income of $446 thousand, and a decrease of $156 thousand in credit loss expense, partially offset by increases in noninterest expenses of $3.7 million and the provision for income taxes of $559 thousand.

Sales of qualifying residential loans to the secondary market for the year ended December 31, 2025 were $143.5 million, resulting in gain on sales of $2.1 million, compared to sales of $113.5 million and gain on sales of $1.7 million for the year ended December 31, 2024.

As of December 31, 2025, the Company had total consolidated assets of $1.62 billion, an increase of 5.8% compared to total consolidated assets of $1.53 billion at December 31, 2024. Total investments increased $76.0 million, or 30.1%, to $328.3 million, or 20.3% of total assets at December 31, 2025 compared to $252.3 million, or 16.5% of total assets, as of December 31, 2024. Net loans and loans held for sale increased $17.1 million or 1.5%, to $1.17 billion, or 72.5% of total assets, at December 31, 2025, compared to $1.16 billion, or 75.6% of total assets, at December 31, 2024. The level of federal funds sold decreased $3.0 million, or 28.4%, to $7.6 million at December 31, 2025 compared to $10.7 million at December 31, 2024.

Total deposits were $1.21 billion at December 31, 2025 compared to $1.17 billion at December 31, 2024, an increase of $46.1 million, or 3.9%. There were $10.0 million of retail brokered deposits and $248 thousand of purchased CDARS deposits at December 31, 2025 and no retail brokered deposits or purchased CDARS deposits at December 31, 2024. Borrowed funds were $286.5 million at December 31, 2025 compared to $259.7 million at December 31, 2024.

The Company's total capital increased from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025. This increase primarily reflects net income of $11.1 million for 2025 and a decrease of $8.1 million in accumulated other comprehensive loss, partially offset by regular cash dividends paid of $6.6 million. (See Capital Resources on pages 46 to 47.) These changes also resulted in an increase in the Company's book value per share to $17.53 at December 31, 2025 from $14.65 as of December 31, 2024.

The current macroeconomic and geopolitical environment is subject to a number of uncertainties, including geopolitical conflicts, tariffs or changes in trade policies, the impact of federal government shutdowns, capital markets volatility, and inflation. These and other factors may contribute to slower or negative economic growth and a challenging business environment for our customers. While we remain confident in the resilience and strength of our business and financial model, the current macroeconomic and geopolitical environment could negatively impact our financial condition and results of operations. For more information about risks the Company faces, please see “Part I, Item 1A. Risk Factors".

The following per share information and key ratios presented in the table below depict several measurements of performance or financial condition at or for the years ended December 31, 2025 and 2024:

(1) The ratio of tax equivalent net interest income to average earning assets. See page 33 for more information.

(2) The ratio of noninterest expenses to tax equivalent net interest income and noninterest income, excluding securities gains (losses).

(3) The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See page 33 for more information.

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

(5) The ratio of total capital to risk weighted assets is a regulatory capital measurement. See Note 23 to the Company's consolidated financial statements for more information.

(6) Cash dividends declared and paid per share divided by consolidated net income per share.

RESULTS OF OPERATIONS

For the year ended December 31, 2025, net income was $11.1 million compared to $8.8 million for the year ended December 31, 2024. The primary components of these results, which include net interest income, credit loss expense, noninterest income, noninterest expenses, and provision for income taxes, are discussed below:

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 the interest 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. The net interest margin is calculated as net interest income on a fully tax equivalent basis as a percentage of average interest earning assets.

Interest earned, on a fully tax equivalent basis, on average earning assets for the year ended December 31, 2025 was $76.8 million compared to $68.9 million for the year ended December 31, 2024, an increase of $7.9 million, or 11.5%. The average earning asset base increased $87.3 million between periods and the average yield on average earning assets increased 24 bps to 5.09% for the year ended December 31, 2025 compared to 4.85% for the year ended December 31, 2024.

The average yield on federal funds sold and overnight deposits decreased 103 bps between the twelve month comparison periods due to a decrease in the average balance maintained in Union's master account at the FRB and the average rate paid on these balances.

Interest income, on a fully tax equivalent basis, on investment securities increased $985 thousand between the comparison periods due to an increase of $2.0 million in the average balance of the portfolio and an increase of 32 bps in the average yield. The improvement in the average yield and interest income was attributable in part to the balance sheet repositioning completed in the third quarter of 2024, in which the Company sold lower-yielding AFS debt securities at a loss and used the proceeds to purchase higher yielding AFS debt securities and fund loans, as well as the strategic decision to position the investment portfolio for improved future cash flows and earnings with the purchase of approximately $75.0 million of investment securities AFS during the fourth quarter of 2025.

Interest income, on a fully tax equivalent basis, on loans increased $7.2 million between the twelve month comparison periods due to an increase in the average volume of loans outstanding of $90.4 million and an increase of 19 bps in the average yield. Interest income on loans increased $563 thousand and $445 thousand during the year ended December 31, 2025 and 2024, respectively, due to recoveries of interest from the payoff of loans that had previously been in nonaccrual. This resulted in a 5 bps increase in the average loan yield for the years ended December 31, 2025 and 2024.

Average interest bearing liabilities increased $89.8 million between the twelve month comparison periods due to increases in average borrowed funds of $65.5 million and average interest bearing deposits of $24.2 million. The average rate paid on interest bearing liabilities increased 7 bps to 2.62% for the year ended December 31, 2025 compared to 2.55% for the year ended December 31, 2024 due to continued customer expectation of higher rates on deposit accounts along with utilization of wholesale funding at rates higher than deposit rates. Interest expense increased $3.2 million, to $32.8 million for the year ended December 31, 2025 compared to $29.6 million for the year ended December 31, 2024.

The net interest spread increased 17 bps to 2.47% for the year ended December 31, 2025, from 2.30% for the same period last year, reflecting the net effect of the 24 bps increase in the average yield earned on interest earning assets, partially offset by the 7 bps increase in the average rate paid on interest bearing liabilities between periods. The net interest margin increased 16 bps for the year ended December 31, 2025 compared to the year ended December 31, 2024 as a result of the changes discussed above.

Net interest income, on a fully tax equivalent basis, increased $4.8 million to $44.0 million for the year ended December 31, 2025 compared to $39.3 million for the year ended December 31, 2024.

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

(Dollars in thousands)

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

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

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

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

(5) Net interest spread is the tax equivalent average yield on average interest earning assets less the average rate paid on interest bearing liabilities.

(6) Net interest margin is the ratio of net interest income, on a tax equivalent basis, to average interest earning assets.

Tax exempt interest income amounted to $6.7 million and $5.8 million for the years ended December 31, 2025 and 2024, respectively. The following table presents the effect of tax exempt income on the calculation of net interest income, using a marginal federal corporate income tax rate of 21% for the years ended December 31, 2025 and 2024:

(Dollars in thousands)

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.

(Dollars in thousands)

Credit Loss Expense. Credit loss expense or benefit is made up of credit loss expense on loans and credit loss expense on off-balance sheet credit exposures. Credit loss expense on loans results from net charge-offs, changes to the projected loss drivers, prepayment speeds, curtailments and time to recovery that the Company forecasted over the reasonable and supportable forecast periods and changes in the volume and mix of the loan portfolio. Credit loss expense on off-balance sheet credit exposures results from changes in outstanding commitments and changes in funding rates and assumed loss rates period over period. For further details, see FINANCIAL CONDITION - Allowance for Credit Losses on Loans and Commitments, Contingent Liabilities, and Off-Balance-Sheet Arrangements below.

Credit loss expense was made up of the following components for the following periods:

(Dollars in thousands)

Noninterest Income. The following table sets forth the components of noninterest income for the years ended December 31, 2025 and 2024 :

(Dollars in thousands)

The significant changes in noninterest income for the year ended December 31, 2025 compared to the year ended December 31, 2024 are described below:

• Wealth management income. Wealth management income increased as managed fiduciary accounts grew between December 31, 2024 and 2025, as did the value of assets within those accounts.
• Service fees. Service fee income decreased $101 thousand for the year ended December 31, 2025 compared to the same period in 2024, primarily due to decreases in ATM and debit card network fees, merchant program fees, overdraft fees, and other loan related fees, partially offset by an increase in loan servicing fees.
• Net gains on sales of loans held for sale. Residential loans totaling $143.5 million were sold to the secondary market during 2025, compared to residential loan sales of $113.5 million during 2024. The increase of $451 thousand in net gains on sales of loans reflects the higher sales volume and higher premiums obtained on sales in 2025.
• Income from Company-owned life insurance. Death benefit proceeds of $197 thousand were received in 2025 compared to death benefit proceeds of $235 thousand received in 2024.
• Income of MSRs, net. Income from MSRs is derived from servicing rights acquired through the sale of loans on which servicing is retained. Capitalized servicing rights are initially recorded at fair value and amortized in proportion to, and over the period of, the estimated future servicing period of the underlying loans. The increase in the volume of residential loan sales discussed above resulted in new capitalized MSRs that exceeded the amortization of MSRs by $128 thousand for the year ended December 31, 2025. The amortization of MSRs exceeded the new capitalized MSRs for the 2024 comparison period and the amortization is included in Other expenses in the consolidated statements of income.
• Other income. The Company received $25 thousand of prepayment penalties from the early payoff of loans during 2025 compared to $117 thousand of prepayment penalties received during 2024.
• Net gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan (the "2020 Deferred Compensation Plan") elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net gains of $203 thousand and $216 thousand for the years ended December 31, 2025 and 2024, respectively.
• Net losses on sales of investment securities AFS. During the third quarter of 2024, the Company completed a balance sheet repositioning related to its investment securities portfolio in which the sale of lower-yielding AFS debt securities resulted in a pre-tax realized loss on the sale of $1.3 million.

Noninterest Expenses. The following table sets forth the components of noninterest expenses for the years ended December 31, 2025 and 2024:

(Dollars in thousands)

The significant changes in noninterest expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024 are described below:

• Salaries and wages. Salaries and wages increased $1.8 million primarily due to annual salary adjustments and new positions for the 2025 fiscal year, a $408 thousand increase in the accrual amount for the annual incentive plan payments to select officers of Union for 2025 compared to 2024, and a change in the paid time off (PTO) policy during 2025 resulting in an increase of $392 thousand from an accrual adjustment for the carryover of unused PTO outstanding as of December 31, 2025. Salaries and wages are reduced by deferred loan origination costs at the time of origination. Deferred loan origination costs reduced salaries and wages by $13 thousand and $257 thousand for the years ended December 31, 2025 and 2024, respectively. The lower deferred loan origination cost for 2025 compared to 2024 is primarily attributable to loan origination levels. These increases were partially offset by a $397 thousand decrease related to a cash bonus payment to employees in December 2024 in lieu of a 401k profit sharing contribution that was included in employee benefits expense in 2025.
• Employee benefits. Employee benefit expense increased $763 thousand due to increases of $598 thousand in 401k plan contribution expense, $119 thousand in payroll tax expense and $81 thousand in premium expense for the Company's medical and dental plans. The increase in the 401k plan contribution expense resulted primarily from there being no profit sharing contribution in 2024 as discussed above compared to a $466 thousand profit sharing accrual in 2025.
• Occupancy expense, net. The increase in occupancy expense of $141 thousand is primarily due to utilities, repairs and maintenance, and depreciation expenses related to projects completed during 2025 compared to 2024. In addition, real estate tax expense increased $24 thousand between years due to rate increases in the towns with branch locations
• Equipment expense. Equipment expense increased between years primarily due to an increase in software license and maintenance costs.
• FDIC insurance assessment. The FDIC insurance assessment increased by $310 thousand due to an increase in the assessment rate as well as overall growth in net average assets.
• Donations. Charitable donations are made as part of the Company's on-going commitment to enhancing the economic vitality and social welfare of our communities. Donations decreased between years primarily due to contributions made in 2024 related to a state tax credit program to assist a local affordable housing project and local non-profit rehabilitation projects that did not recur in 2025.
• Electronic banking expense. Electronic banking expense increased $136 thousand primarily due to software initiatives that were implemented to the online banking platform in the fourth quarter of 2024.
• Communications. The decrease in communications expense relates primarily to contract changes taking effect during 2025 related to network and ATM communication systems.
• Wealth management expenses. The $53 thousand increase was primarily attributable to the growth in managed fiduciary accounts and the associated data processing and professional services.
• Professional fees. Professional fees increased $85 thousand due to increases in engagement fees and additional consultants that were engaged to assist with employment searches and other consulting services in 2025.
• Advertising and public relations. Advertising and public relations costs increased $156 thousand primarily related to a focus on advertising campaigns and business development activities in 2025 and the increased costs of these campaigns and activities compared to 2024.

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the current and prior period presented. The Company's net provision for income taxes was $928 thousand and $369 thousand for 2025 and 2024, respectively, reflecting higher net income, the impact of tax-exempt income, as well as the impact of limited partnership investments and related tax credits, discussed below. The Company’s effective federal corporate income tax rate was 7.0% and 4.6% for 2025 and 2024, respectively.

Amortization expense related to limited partnership investments included as a component of income tax expense amounted to $1.8 million and $1.7 million for the years ended December 31, 2025 and 2024, respectively. These investments provide tax benefits, including tax credits. Low income housing tax credits with respect to limited partnership investments are also included as a component of income tax expense and amounted to $1.9 million and $1.8 million for the years ended December 31, 2025 and 2024, respectively. See Note 10 to the Company's consolidated financial statements.

FINANCIAL CONDITION

At December 31, 2025, the Company had total consolidated assets of $1.62 billion, including gross loans and loans held for sale (total loans) of $1.18 billion, investment securities AFS of $326.3 million, deposits of $1.21 billion, borrowed funds of $286.5 million, subordinated notes of $16.3 million and stockholders' equity of $80.9 million. The Company’s total assets increased $88.8 million, or 5.8%, from $1.53 billion at December 31, 2024.

Net loans and loans held for sale increased $17.1 million, or 1.5%, to $1.17 billion, or 72.5% of total assets, at December 31, 2025, compared to $1.16 billion, or 75.6% of total assets, at December 31, 2024. (See Loan Portfolio below.)

Total deposits increased $46.1 million, or 3.9% to $1.21 billion at December 31, 2025, from $1.17 billion at December 31, 2024. There were increases in noninterest bearing deposits of $891 thousand, or 0.4%, interest bearing deposits of $11.1 million, or 1.6%, and in time deposits of $34.1 million, or 14.9% .

Borrowed funds consisted of FHLB advances of $286.5 million and $259.7 million at December 31, 2025 and 2024, respectively. (See Borrowings on page 44.)

Total stockholders’ equity increased $14.4 million, or 21.6%, from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025. (See Capital Resources on pages 46 to 47.)

Loans Held for Sale and Loan Portfolio. Total loans (including loans held for sale) increased $18.0 million, or 1.5%, to $1.18 billion, representing 72.9% of assets at December 31, 2025, from $1.16 billion, representing 76.0% of assets at December 31, 2024. 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 $1.03 billion, or 87.2% of total loans, at December 31, 2025 compared to $1.01 billion, or 87.3% of total loans, at December 31, 2024. The net change in the Company's loan portfolio from December 31, 2024 (see table below) resulted primarily from an increase in the volume of revolving residential, commercial real estate and municipal loans. There was no material change in the Company's lending programs or terms during 2025.

The composition of the Company's loan portfolio, including loans held for sale, was as follows as of December 31:

(Dollars in thousands)

The Company originates and sells qualified residential mortgage loans in various secondary market avenues, with a majority of sales made to the FHLMC/Freddie Mac, generally with servicing rights retained. At December 31, 2025, the Company serviced a $1.21 billion residential real estate mortgage portfolio, of which $4.2 million was held for sale and approximately $734.8 million was serviced for unaffiliated third parties. This compares to a residential real estate mortgage servicing portfolio of $1.16 billion at December 31, 2024, of which $5.2 million was held for sale and approximately $684.8 million was serviced for unaffiliated third parties. Loans held for sale are accounted for at the lower of cost or fair value and are reviewed by management at least quarterly based on current market pricing.

The Company sold $143.5 million of qualified residential real estate loans originated during 2025 to the secondary market compared to sales of $113.5 million during 2024. Residential mortgage loan origination activity was strong throughout 2025. Despite low housing inventory and higher interest rates, purchase activity in the Company's markets is stable, with continued construction loan activity. The Company originates and sells FHA, VA, and RD residential mortgage loans, and also has an Unconditional Direct Endorsement Approval from HUD which allows the Company to approve FHA loans originated in any of its Vermont or New Hampshire locations without needing prior HUD underwriting approval. The Company sells FHA, VA and RD loans as originated with servicing released. Some of the government backed loans qualify for zero down payments without geographic or income restrictions. These loan products increase the Company's ability to serve the borrowing needs of residents in the communities served, including low and moderate income borrowers, while the loan sales and government guaranty mitigates the Company's exposure to credit risk.

The Company also originates commercial real estate and commercial loans under various SBA, USDA and State sponsored programs which provide a government agency guaranty for a portion of the loan amount. There was $1.7 million and $2.0 million guaranteed under these various programs at December 31, 2025 and 2024, respectively, on aggregate balances of $2.2 million and $2.6 million in subject loans as of such dates, respectively. The Company occasionally sells the guaranteed portion of a loan to other financial concerns and retains servicing rights, which generates fee income. There were no commercial real estate or commercial loans sold during 2025 or 2024. The Company recognizes gains and losses on the sale of the principal portion of these loans at the time of sale.

The Company serviced $38.1 million and $37.3 million of commercial and commercial real estate loans for unaffiliated third parties as of December 31, 2025 and 2024, respectively. This includes $33.6 million and $36.3 million of commercial or commercial real estate loans the Company had participated out to other financial institutions at December 31, 2025 and 2024, respectively. These loans were participated in the ordinary course of business on a nonrecourse basis, for liquidity or credit concentration management purposes.

As of December 31, 2025, total loans serviced had grown to $1.95 billion, which includes total loans on the balance sheet of $1.18 billion as well as total loans sold with servicing retained of $773.0 million, compared to total loans serviced of $1.88 billion as of December 31, 2024.

The Company capitalizes MSRs for all loans sold with servicing retained. The unamortized balance of MSRs on loans sold with servicing retained was $1.8 million and $1.7 million at December 31, 2025 and 2024, respectively, with an estimated market value in excess of the carrying value at both year ends. Management periodically evaluates and measures the servicing assets for impairment.

Qualifying residential first lien mortgage loans and certain commercial real estate loans with a carrying value of $492.9 million and $394.5 million were pledged as collateral for borrowings from the FHLB under a blanket lien at December 31, 2025 and 2024, respectively.

The following table breaks down by classification the contractual maturities of the gross loans held in portfolio and for sale as of December 31, 2025:

(Dollars in thousands)

Asset Quality. The Company, like all financial institutions, is exposed to certain credit risks, including those related to the value of the collateral that secures its loans and the ability of borrowers to repay their loans. Consistent application of the Company’s conservative loan policies has helped to mitigate this risk and has been prudent for both the Company and its customers. The Company's Board has set forth well-defined lending policies (which are periodically reviewed and revised as appropriate) that include conservative individual lending limits for officers, aggregate and Executive Loan Committee approval levels, Board approval for large credit relationships, a quality control program, a loan review program and other limits or standards deemed necessary and prudent. The Company's loan review program encompasses a review process for loan documentation and underwriting for select loans as well as a monitoring process for credit extensions to assess the credit quality and degree of risk in the loan portfolio. Management performs, and shares with the Board, periodic concentration analyses based on various factors such as industries, collateral types, location, large credit sizes and officer portfolio loads. Board approved policies set forth portfolio diversification levels to mitigate concentration risk and the Company participates a portion of significant loan balances to other financial institutions to further mitigate that risk. The Company has established underwriting guidelines to be followed by its officers; material exceptions are required to be approved by a senior loan officer, the President or the Board.

The Company does not make loans that are interest only, have teaser rates or that result in negative amortization of the principal, except for construction, lines of credit and other short-term loans for either commercial or consumer purposes where the credit risk is evaluated on a borrower-by-borrower basis. The Company evaluates the borrower's ability to pay on variable-rate loans over a variety of interest rate scenarios, not only the rate at origination.

The majority of the Company's loan portfolio is secured by real estate located throughout the Company's primary market area of northern Vermont and New Hampshire. For residential loans, the Company generally does not lend more than 80% of the appraised value of the home without a government guaranty or the borrower purchasing private mortgage insurance. The Company may lend up to 80% of the collateral value on commercial real estate loans to strong borrowers. Rarely, the loan to value may go up to 100% on loans with government guarantees or other mitigating circumstances. Although the Company's loan portfolio consists of different business segments, there is a portion of the loan portfolio centered in leisure travel tourism related loans. The Company has implemented risk management strategies to mitigate exposure to this industry through utilizing government guaranty programs as well as participations with other financial institutions as discussed above. Additionally, the loan portfolio contains many loans to seasoned and well established businesses and/or well secured loans which further reduce the Company's risk. Management closely follows the local and national economies and their impact on the local businesses, especially on the tourism industry, as part of the Company's risk management program.

The region's economic environment displays continued resilience. There has been consistent demand for leisure travel and dining out which is supporting the region's tourist and restaurant industries; however, the industries also continue to face some challenges due to staffing and inflation. The Company’s management is focused on the economy and the related impact on its borrowers and closely monitors industry and geographic concentrations, specifically the region's tourist and restaurant industries. The Vermont unemployment rate was reported at 2.6% for December 2025 compared to 2.4% for December 2024 and the New Hampshire unemployment rate was 3.1% for December 2025 compared to 2.6% for December 2024. These rates compare favorably with the nationwide unemployment rate of 4.4% and 4.1%, respectively, for the comparable periods.

The Company also monitors its delinquency levels for any adverse trends. Management closely monitors the Company’s loan and investment portfolios, OREO and OAO; if any, for potential problems and reports to the Boards of the Company and Union at regularly scheduled meetings.

Repossessed assets, nonaccrual loans, and loans that are 90 days or more past due are considered to be nonperforming assets. The following table details the composition of the Company's nonperforming assets and amounts utilized to calculate certain asset quality ratios monitored by Company's management as of or for the years ended December 31:

(Dollars in thousands)

The increase in nonaccrual loans at December 31, 2025 primarily relates to a commercial real estate loan relationship that was placed in nonaccrual during the first quarter of 2025.

The following table shows trends of certain asset quality ratios monitored by Company's management at or for the years ended December 31:

(Dollars in thousands)

All other loan categories did not have charge-offs or recoveries for the periods presented above.

There were no loans in process of foreclosure at December 31, 2025 and one residential real estate loan totaling $8 thousand in process of foreclosure at December 31, 2024. The aggregate interest on nonaccrual loans not recognized was $791 thousand and $235 thousand for the years ended December 31, 2025 and 2024, respectively.

The Company had loans rated substandard that were on a performing status totaling $531 thousand and $768 thousand at December 31, 2025 and 2024, respectively. In management's view, such loans represent a higher degree of risk of becoming nonperforming loans in the future. While still on a performing status, in accordance with the Company's credit policy, loans are internally classified when a review indicates the existence of any of the following conditions, making the likelihood of collection questionable:

• the financial condition of the borrower is unsatisfactory;
• repayment terms have not been met;
• the borrower has sustained losses that are sizable, either in absolute terms or relative to net worth;
• confidence in the borrower's ability to repay is diminished;
• loan covenants have been violated;
• collateral is inadequate; or
• other unfavorable factors are present.

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 fair value of properties acquired are expensed as incurred. Declines in the fair value after acquisition of the property result in charges against income before tax. The Company evaluates each OREO property at least quarterly for changes in the fair value. The Company had no properties classified as OREO at December 31, 2025 or 2024.

Allowance for Credit Losses on Loans. Some of the Company’s loan customers ultimately do not make all of their contractually scheduled payments, requiring the Company to charge off a portion or all of the remaining principal balance due. The Company maintains an ACL to absorb such losses. The level of the ACL on loans at December 31, 2025 represents management's estimate of expected credit losses over the expected life of the loans at the balance sheet date. The Company's policy and methodologies related to establishing the ACL on loans are described in Note 1, Significant Accounting Policies and Note 7, Allowance for Credit Losses on Loans and Off-Balance Sheet Credit Exposures, to the Company's consolidated financial statements. The Company's ACL on loans was $8.4 million and $7.7 million at December 31, 2025 and 2024, respectively.

The following table reflects activity in the ACL on loans for the years ended December 31:

(Dollars in thousands)

The following table (net of loans held for sale) shows the internal breakdown by risk component of the Company's ACL on loans and the percentage of loans in each category to total loans in the respective portfolios at December 31:

(Dollars in thousands)

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

Management believes, in its best estimate, that the ACL on loans at December 31, 2025 is appropriate to cover expected credit losses over the expected life of the Company’s loan portfolio as of such date. However, there can be no assurance that the Company will not sustain losses in future periods which could be greater than the size of the ACL on loans at December 31, 2025. In addition, our banking regulators, as an integral part of their examination process, periodically review our ACL. Such agencies may require us to recognize adjustments to the ACL based on their judgments about information available to them at the time of their examination. A large adjustment to the ACL on loans for losses in future periods could require increased credit loss expense to replenish the ACL on loans, which could negatively affect earnings.

Investment Activities. The investment portfolio is used to generate interest and dividend income, manage liquidity and mitigate interest rate sensitivity. During the fourth quarter of 2025, the Company made a strategic decision to position the investment portfolio for improved future cash flows and earnings with the purchase of approximately $75.0 million of investment securities AFS.

At December 31, 2025, investment securities classified as AFS, which are carried at fair value, increased $75.8 million to $326.3 million, or 20.2% of total assets, compared to $250.5 million, or 16.4% of total assets, at December 31, 2024. The increase between periods is primarily due to purchases of $97.0 million in AFS debt securities, and improvement in unrealized losses of $10.4 million, partially offset by returns of principal of $31.2 million.

Net unrealized losses in the Company's AFS investment securities portfolio were $33.1 million at December 31, 2025 compared to net unrealized losses of $43.6 million at December 31, 2024. The Company's accumulated OCI component of stockholders' equity at December 31, 2025 and 2024 reflected cumulative net unrealized losses on investment securities of $25.9 million and $34.0 million, respectively. There were no investment securities classified as HTM or as trading at December 31, 2025 or 2024.

Investment securities classified as AFS are marked-to-market, with any unrealized gain or loss after estimated taxes charged to the equity portion of the balance sheet through the accumulated OCI component of stockholders' equity. The unrealized losses are primarily attributable to changes in long-term interest rates which are tied to the pricing indexes for the securities. No declines in value were deemed by management to be impairment related to credit losses at December 31, 2025 and 2024. Deterioration in credit quality and/or imbalances in liquidity that may result from changes in financial market conditions might adversely affect the fair values of the Company’s investment portfolio and the amount of gains or losses ultimately realized on the sale of such securities and may also increase the potential that credit losses may be identified in future periods, resulting in credit loss expense recorded in earnings.

Investment securities AFS with a fair value of $87.8 million and $96.0 million were pledged as collateral for FHLB borrowings and other credit subject to collateralization, for public unit deposits or for other purposes as required or permitted by law at December 31, 2025 and 2024, respectively. Investment securities AFS pledged as collateral for the discount window at the FRB consisted of mortgage-backed securities with a fair value of $9.4 million and $9.7 million at December 31, 2025 and 2024, respectively.

Federal Home Loan Bank of Boston Stock. Union is a member of the FHLB and is required to invest in $100 par value stock of the FHLB in an amount tied to the unpaid principal balances on qualifying loans, plus an amount to satisfy an activity based requirement. The stock is nonmarketable, and is redeemable by the FHLB at par value. With the increase in FHLB advances outstanding of $26.8 million, the investment in FHLB Class B common stock has increased to $12.2 million at December 31, 2025 compared to $11.2 million at December 31, 2024. Although the FHLB was in compliance with all regulatory capital ratios as of December 31, 2025 and 2024, there is the possibility of future capital calls by the FHLB on member banks to ensure compliance with its capital plan. Union's investment in FHLB stock is classified as restricted and carried at cost in Other assets on the consolidated balance sheets. Similar to evaluating investment securities for potential credit losses, the Company periodically evaluates its investment in the FHLB. Management's most recent evaluation of the Company's holdings of FHLB common stock concluded that the investment was not impaired at December 31, 2025.

Deposits. The following table shows information concerning the Company's average deposits by account type and the weighted average nominal rates at which interest was paid on such deposits for the years ended December 31:

(Dollars in thousands)

Total average deposits increased by $18.9 million, or 1.6%, between years, with average time deposits increasing $9.7 million, or 3.5%, and average nontime deposits increasing $9.2 million, or 1.0%. The deposit mix has remained consistent between periods. The increase in the average balance of total time deposits consisted of increases of $37.1 million in average customer time deposits as customers took advantage of higher rate paying CDs, and $13.5 million in average purchased CDARS deposits, partially offset by a $40.9 million decrease in average retail brokered deposits. The increase in the average balance of total nontime deposits reflected increases of $10.2 million in interest bearing checking accounts and $5.1 million in money market accounts, partially offset by decreases of $5.4 million in noninterest bearing deposits and $750 thousand in saving accounts.

The Company participates in CDARS, which permits the Company to offer full deposit insurance coverage to its customers by exchanging deposit balances with other CDARS participants. CDARS also provides the Company with an additional source of funding and liquidity through the purchase of deposits. There were $248 thousand in purchased CDARS deposits at December 31, 2025 and none at December 31, 2024. There were $11.3 million and $13.3 million of time deposits of $250,000 or less on the balance sheets at December 31, 2025 and 2024, respectively, which were exchanged with other CDARS participants.

The Company also participates in the ICS program, a service through which Union can offer its customers demand or savings products with access to unlimited FDIC insurance, while receiving reciprocal deposits from other FDIC-insured banks. Like the exchange of certificate of deposit accounts through CDARS, exchange of demand or savings deposits through ICS provides a depositor with full deposit insurance coverage of excess balances, thereby helping the Company retain the full amount of the deposit on its balance sheet. As with the CDARS program, in addition to reciprocal deposits, participating banks may also purchase one-way ICS deposits. There were $270.5 million and $256.5 million in exchanged ICS demand and money market deposits on the balance sheets at December 31, 2025 and 2024, respectively. There were no purchased ICS deposits at December 31, 2025 or December 31, 2024.

At December 31, 2025, there were $10.0 million of retail brokered deposits at a weighted average rate of 3.85% issued under a master certificate of deposit program with a deposit broker for a twelve month term, which provided a supplemental source of funding and liquidity. There were no retail brokered deposits at December 31, 2024.

Uninsured deposits have been estimated to include deposits with balances greater than the FDIC insurance coverage limit of $250 thousand. This estimate is based on the same methodologies and assumptions used for regulatory reporting requirements. At December 31, 2025, the Company had estimated uninsured deposit accounts totaling $437.6 million, or 36.0% of total deposits. Uninsured deposits include $22.0 million of municipal deposits that were collateralized under applicable state regulations by investment securities or letters of credit issued by the FHLB at December 31, 2025, as described below under Borrowings.

The following table provides a maturity distribution of the Company’s time deposits in amounts in excess of the $250 thousand FDIC insurance limit at December 31:

(Dollars in thousands)

Borrowings. Advances from the FHLB are another key source of funds to support earning assets. These funds are also used to manage the Bank's interest rate and liquidity risk exposures. Borrowed funds included FHLB advances of $286.5 million with a weighted average rate of 4.05% at December 31, 2025 and $259.7 million with a weighted average rate of 4.17% at December 31, 2024.

The Company has the authority, up to its available borrowing capacity with the FHLB, to collateralize public unit deposits with letters of credit issued by the FHLB. FHLB letters of credit in the amount of $42.9 million and $47.3 million were utilized as collateral for these deposits at December 31, 2025 and 2024, respectively. Total fees paid by the Company in connection with the issuance of these letters of credit were $50 thousand and $44 thousand for the years ended December 31, 2025 and 2024, respectively.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes initially bear interest, payable semi-annually, at the rate of 3.25% per annum, until September 1, 2026. From and including September 1, 2026, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month secured overnight financing rate (SOFR) plus 263 basis points. The Notes are presented in the consolidated balance sheets net of unamortized issuance costs of $193 thousand and $227 thousand at December 31, 2025 and 2024, respectively. See Note 13 to the Company's consolidated financial statements.

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

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 December 31, 2025:

(Dollars in thousands)

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. The unused lines of credit total includes $14.6 million of lines available under the overdraft privilege program and is included in the 2026 funding period. Approximately $43.6 million of the unused lines of credit relate to real estate construction loans that are expected to fund within the next twelve months. The remaining lines primarily relate to revolving lines of credit for other real estate or commercial loans. 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.

The Company may, from time-to-time, enter into commitments to purchase, participate or sell loans, securities, certificates of deposit, or other investment instruments which involve market and interest rate risk. At December 31, 2025, the Company had binding commitments to sell residential mortgage loans at fixed rates totaling $4.2 million.

The Company sells 1-4 family residential mortgage loans under the MPF loss-sharing program with FHLB, when management believes it is economically advantageous to do so. Under this program the Company shares in the credit risk of each mortgage, while receiving fee income in return. The Company is responsible for a Credit Enhancement Obligation based on the credit quality of these loans. FHLB funds a first loss account based on the Company's outstanding MPF mortgage balances. This creates a laddered approach to sharing in any losses. In the event of default, homeowner's equity and private mortgage insurance, if any, are the first sources of repayment; the FHLB first loss account funds are then utilized, followed by the member's Credit Enhancement Obligation, with the balance the responsibility of FHLB. These loans must meet specific underwriting standards of the FHLB. As of December 31, 2025, the Company had sold loans through the MPF program totaling $68.7 million with an outstanding balance of $35.5 million. The volume of loans sold to the MPF program and the corresponding Credit Enhancement Obligation are closely monitored by management. As of December 31, 2025, the notional amount of the maximum contingent contractual liability related to this program was $1.3 million, of which $19 thousand was recorded as a reserve through Accrued interest and other liabilities. Since inception of the Company's MPF participation in 2015, the Company has not experienced any losses under this program.

The Company records an ACL on off-balance sheet credit exposures through a charge or credit to Credit loss expense on the consolidated statements of income to account for the change in the ACL on off-balance sheet credit exposures between reporting periods. The ACL on off-balance sheet credit exposures totaled $1.1 million at December 31, 2025 and 2024 and was included in Accrued interest and other liabilities on the consolidated balance sheets. There was $19 thousand of credit loss expense and $162 thousand of credit loss benefit for off-balance sheet credit exposures recorded for the years ended December 31, 2025 and 2024, respectively.

Liquidity. Liquidity is a measurement of the Company’s ability to meet potential cash requirements, including ongoing commitments to fund deposit withdrawals, repay borrowings, fund investment and lending activities, purchase and lease commitments, and for other general business purposes. The primary objective of liquidity management is to maintain a balance between sources and uses of funds to meet cash flow needs in the most economical and expedient manner. The Company’s principal sources of funds are deposits; wholesale funding options including purchased deposits, amortization, prepayment and maturity of loans, investment securities, interest bearing deposits and other short-term investments; sales of securities AFS and loans; 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 are less predictable and can be significantly influenced by market interest rates, economic conditions, and rates offered by our competitors. Managing liquidity risk is essential to maintaining both depositor confidence and earnings stability.

At December 31, 2025, Union, as a member of FHLB, had access to unused lines of credit up to $48.3 million, over and above the $332.2 million in combined outstanding borrowings and other credit subject to collateralization and to the purchase of required FHLB Class B common stock and evaluation by the FHLB of the underlying collateral available. This line of credit can be used for either short-term or long-term liquidity or other funding needs.

Union also maintains an IDEAL Way Line of Credit with the FHLB. The total line available was $551 thousand as of December 31, 2025 and 2024. There were no borrowings against this line of credit as of such date. Interest on this line is chargeable at a rate determined by the FHLB and payable monthly. Should Union utilize this line of credit, qualified portions of the loan and investment portfolios would collateralize these borrowings.

In addition to its borrowing arrangements with the FHLB, Union maintains a pre-approved federal funds line of credit totaling $15.0 million with an upstream correspondent bank, a master brokered deposit agreement with a brokerage firm, and one-way buy options with CDARS and ICS. There were $10.0 million of retail brokered deposits issued under a master certificate of deposit program with a broker, $248 thousand in purchased CDARS deposits, and no purchased ICS deposits or outstanding advances on the Union correspondent line as of December 31, 2025.

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. Additional contingent liquidity sources are available with further 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.

On May 20, 2025, the Company and Union entered into an Equity Distribution Agreement with Piper Sandler & Co., as sales agent, pursuant to which the Company may sell from time to time shares of the Company's common stock, par value $2.00, having an aggregate gross sale price of up to $40,000,000. Sales of common stock under the Equity Distribution Agreement may be made in any transactions that are deemed to be "at-the-market offerings" as defined in Rule 415(a)(4) under the Securities Act, or subject to the Company's consent, in privately negotiated transactions. The shares offered and sold in the offering have been registered by the Company under the Securities Act. During the year ended December 31, 2025, the Company issued 56,260 shares for aggregate gross sale proceeds of $1.5 million, at an average gross sale price of $26.51 per share, which yielded net proceeds to the Company of $1.2 million, after issuance costs, including sales commissions equal to 3% of gross sale proceeds. As of December 31, 2025, approximately $38.5 million remains available for issuance under the offering.

In August 2021, the Company completed the private placement of $16.5 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2031 to certain qualified institutional buyers and accredited investors. The Notes are structured to qualify as Tier 2 capital for the Company under regulatory capital guidelines for bank holding companies during the first five years after issuance, with Tier 2 capital treatment thereafter declining by 20% per year. Proceeds from the sale of the Notes were utilized primarily to provide additional Tier 1 capital to Union to support its growth and for other general corporate purposes.

Stockholders’ equity increased from $66.5 million at December 31, 2024 to $80.9 million at December 31, 2025, reflecting net income of $11.1 million for 2025, a decrease of $8.1 million in accumulated other comprehensive loss due to an increase in the fair market value of the Company's AFS securities, an increase of $1.2 million due to net proceeds from the issuance of common stock under the Company's at-the-market offering, an increase of $494 thousand in common stock and additional paid in capital from the vesting of stock based compensation, and a $74 thousand increase due to the issuance of common stock under the DRIP. These increases were partially offset by cash dividends declared of $6.6 million during 2025.

The Company has 7,500,000 shares of $2.00 par value common stock authorized. As of December 31, 2025, the Company had 5,084,635 shares issued, of which 4,613,205 were outstanding and 471,430 were held in treasury. As of December 31, 2025, there were outstanding unvested RSUs under the Company's 2024 Equity Plan with respect to 12,090 shares under RSU grants in 2025, and outstanding unvested RSUs under the Company's 2014 Equity Plan with respect to 2,658 shares under RSU grants in 2024.

In December 2024, the Company's Board reauthorized for 2025 and 2026 the limited stock repurchase plan that was initially established in May of 2010. The limited stock repurchase plan allows the repurchase of up to a fixed number of shares of the Company's common stock each calendar quarter in open market purchases or privately negotiated transactions, as management may deem advisable and as market conditions may warrant. The repurchase authorization for a calendar quarter (currently 2,500 shares) expires at the end of that quarter to the extent it has not been exercised, and is not carried forward into future quarters. The Company had no repurchases under this program during 2025. Since inception, as of December 31, 2025, the Company had repurchased 26,140 shares under the program, for a total cost of $682 thousand. The quarterly repurchase authorization expires on December 31, 2026, unless reauthorized.

The Company maintains a DRIP whereby registered stockholders may elect to reinvest cash dividends and optional cash contributions to purchase additional shares of the Company's common stock. The Company has reserved 200,000 shares of its common stock for issuance and sale under the DRIP. As of December 31, 2025, 15,819 shares of stock had been issued from treasury stock since inception of the DRIP, including 2,645 shares in 2025.

The Company's total capital to risk weighted assets increased to 12.8% at December 31, 2025, from 12.5% at December 31, 2024. Tier I capital to risk weighted assets increased to 10.3% at December 31, 2025, from 10.0% at December 31, 2024, and Tier I capital to average assets increased to 6.4% at December 31, 2025 from 6.3% at December 31, 2024. At December 31, 2025 and 2024, Union was categorized as well capitalized under the Prompt Corrective Action regulatory framework and the Company exceeded applicable minimum capital adequacy requirements. There were no conditions or events between December 31, 2025 and the date of this report that management believes have changed either the Company’s or Union's regulatory capital category. See Note 23 to the Company's consolidated financial statements for additional discussion of the Company's and Union's regulatory capital ratios.

Impact of Inflation and Changing Prices. The Company's consolidated financial statements have been prepared in accordance with GAAP, which allows for the measurement of financial position and results of operations in terms of historical dollars, without considering changes in the relative purchasing power of money over time due to inflation. Banks have asset and liability structures that are essentially monetary in nature, and their general and administrative costs constitute relatively small percentages of total expenses. Thus, increases in the general price levels for goods and services have a relatively minor effect on the Company's total expenses but could have an impact on our loan customers' financial condition and on the savings rate and deposit balances of our deposit customers. Interest rates have a more significant impact on the Company's financial performance than the effect of general inflation.

Inevitably, not all of our interest rate-sensitive assets and liabilities will re-price simultaneously and in equal volume in response to changes in the federal funds rate, and therefore the potential for interest rate exposure exists. Management believes that several factors will affect the actual impact of interest rate changes on our balance sheet and operating results, including, but not limited to, actual changes in interest rates or expectations of future changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve. The Company is aware of and evaluates interest rate risk along with others in making business decisions. The levels of deficit spending by federal, state and local governments and control of the money supply by the FRB, including further changes to monetary or fiscal policies, may have unanticipated effects on interest rates or inflation in future periods that could have an unfavorable impact on the future operating results of the Company.

The federal funds rate, and greater industry-wide competition for deposits have had a significant impact on our cost of interest-bearing liabilities. To assist in meeting our loan-growth needs, we have placed additional reliance on wholesale funding in the form of borrowings and purchased brokered deposits. These funding sources generally have a higher cost than deposits originating within the markets we serve and are not our preferred sources of funding.

The cost of funds, which is primarily tied to rates paid on customer deposits, increased 7 bps during 2025. Management is projecting some relief in the cost of funds for 2026 as interest rates on customer deposits decline in 2026 due to the cumulative 75 bps decrease in the Federal Funds target range during 2025. Market rates are out of the Company's control but can have a significant impact on net interest income.

Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 (effective September 10, 2018).

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 December 31, 2025. 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 Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'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.

Management's Report on Internal Control Over Financial Reporting. The Company's management is responsible for establishing and maintaining adequate internal controls over financial reporting, as such term is defined in the Securities Exchange Act Rule 13a-15(f). The Company's management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's internal control over financial reporting based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on the evaluation, the Company's management concluded that the Company's internal control over financial reporting was effective as of December 31, 2025.

BDMP Assurance, LLP, an independent registered public accounting firm, which has audited and reported on the consolidated financial statements contained in this Annual Report on Form 10-K, has issued its written audit report on the Company's internal control over financial reporting. This report can be found on page 93.

There were no changes in the Company's internal controls over financial reporting during the fourth quarter of 2025 that have materially affected, or that are reasonably likely to materially affect, the Company's internal controls over financial reporting. While the Company believes that its existing disclosure controls and procedures have been effective to accomplish these objectives, the Company intends to continue to examine, refine and formalize its disclosure controls and procedures and to monitor ongoing developments in this area.