UNION BANKSHARES INC

Previous wording

The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of the Company as of June 30, 2024 and December 31, 2023, and its results of operations for the three and six months ended June 30, 2024 and 2023. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's 2023 Annual Report. In the opinion of the Company's management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after June 30, 2024 which would materially affect the information presented.

Current wording

The following discussion and analysis focuses on those factors that, in management's view, had a material effect on the financial position of the Company as of September 30, 2024 and December 31, 2023, and its results of operations for the three and nine months ended September 30, 2024 and 2023. This discussion is being presented to provide a narrative explanation of the consolidated financial statements and should be read in conjunction with the consolidated financial statements and related notes and with other financial data appearing elsewhere in this filing and with the Company's 2023 Annual Report. In the opinion of the Company's management, the interim unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments and disclosures necessary to fairly present the Company's consolidated financial position and results of operations for the interim periods presented. Management is not aware of the occurrence of any events after September 30, 2024 which would materially affect the information presented.

Previous wording

The Company's earnings have been impacted by the inverted yield curve, as deposit and funding costs have risen at a faster pace than assets have repriced, which has resulted in compression of the net interest margin and spread. The net interest margin was 2.74% for the six months ended June 30, 2024 compared to 3.05% for the six months ended June 30, 2023, while the net interest spreads for the same periods were 2.29% and 2.72%, 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.

Current wording

The Company's earnings have been impacted by the inverted yield curve, as deposit and funding costs have risen at a faster pace than assets have repriced, which has resulted in compression of the net interest margin and spread. In September 2024, the Federal Reserve reduced short-term interest rates by 50 bps; however, there was minimal impact on third quarter financial results from this rate reduction. The net interest margin was 2.73% for the nine months ended September 30, 2024 compared to 2.95% for the nine months ended September 30, 2023, while the net interest spreads for the same periods were 2.27% and 2.59%, 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.

Previous wording

Consolidated net income decreased $680 thousand, or 25.2%, to $2.0 million for the second quarter of 2024 compared to $2.7 million for the second quarter of 2023 due to the combined effects of a decrease of $134 thousand in net interest income and increases of $718 thousand in noninterest expenses and $484 thousand in credit loss expense, partially offset by an increase of $282 thousand in noninterest income and a decrease of $374 thousand in income tax expense.

Current wording

Consolidated net income decreased $1.2 million, or 47.7%, to $1.3 million for the third quarter of 2024 compared to $2.5 million for the third quarter of 2023. The decrease in net income was due to the combined effects of the $1.3 million loss on the sale of AFS debt securities discussed above, increases of $483 thousand in noninterest expenses and $564 thousand in credit loss expense, partially offset by increases of $282 thousand in net interest income and $431 thousand in noninterest income, excluding the loss on the sale of AFS debt securities, and a decrease of $419 thousand in income tax expense.

Previous wording

Consolidated net income decreased $1.2 million, or 21.8%, to $4.4 million for the six months ended June 30, 2024 compared to $5.7 million for the six months ended June 30, 2023 due to the combined effects of a decrease in net interest income of $1.1 million and increases in noninterest expenses of $1.2 million and credit loss expense of $180 thousand, partially offset by an increase in noninterest income of $564 thousand and a reduction in income tax expense of $668 thousand.

Current wording

Consolidated net income decreased $2.4 million, or 29.8%, to $5.8 million for the nine months ended September 30, 2024 compared to $8.2 million for the nine months ended September 30, 2023. This decrease was due to the combined effects of the $1.3 million loss on the sale of AFS debt securities discussed above, a decrease in net interest income of $819 thousand and increases in noninterest expenses of $1.7 million and credit loss expense of $744 thousand, partially offset by an increase in

Previous wording

At June 30, 2024, the Company had total consolidated assets of $1.40 billion, including gross loans and loans held for sale (total loans) of $1.01 billion, deposits of $1.05 billion, borrowed funds of $247.1 million, subordinated notes of $16.3 million and stockholders' equity of $64.0 million.

Current wording

At September 30, 2024, the Company had total consolidated assets of $1.52 billion, including gross loans and loans held for sale (total loans) of $1.13 billion, deposits of $1.17 billion, borrowed funds of $240.7 million, subordinated notes of $16.3 million and stockholders' equity of $72.3 million.

Previous wording

The Company's total capital decreased to $64.0 million at June 30, 2024 from $65.8 million at December 31, 2023. This decrease primarily reflects an increase of $3.3 million in accumulated other comprehensive loss due to a decrease in the fair market value of the Company's AFS investment securities and regular cash dividends declared of $3.3 million, partially offset by net income of $4.4 million for the first six months of 2024. (See Capital Resources on page 43.) These changes also resulted in a decrease in the Company's book value per share to $14.16 at June 30, 2024 from $14.56 at December 31, 2023.

Current wording

The Company's total capital increased to $72.3 million at September 30, 2024 from $65.8 million at December 31, 2023. This increase primarily reflects an improvement of $5.1 million in accumulated other comprehensive loss due to an increase in the fair market value of the Company's AFS investment securities, net income of $5.8 million for the first nine months of 2024, partially offset by regular cash dividends declared of $4.9 million. (See Capital Resources on page 44.) These changes also resulted in an increase in the Company's book value per share to $15.98 at September 30, 2024 from $14.56 at December 31, 2023.

Previous wording

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three and six months ended June 30, 2024 and 2023:

Current wording

The following unaudited per share information and key ratios depict several measurements of performance or financial condition at or for the three and nine months ended September 30, 2024 and 2023:

Previous wording

(2)The ratio of tax equivalent net interest income to average earning assets. See pages 30 and 31 for more information.

Current wording

(2)The ratio of tax equivalent net interest income to average earning assets. See pages 31 and 32 for more information.

Previous wording

(4)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See pages 30 and 31 for more information.

Current wording

(4)The difference between the average yield on earning assets and the average rate paid on interest bearing liabilities. See pages 31 and 32 for more information.

Previous wording

Interest earned on average earning assets for the three months ended June 30, 2024 was $16.6 million compared to $13.8 million for the three months ended June 30, 2023, an increase of $2.7 million, or 19.9%. The average earning asset base increased $60.6 million between periods and the average yield on average earning assets increased 63 bps to 4.84% for the three months ended June 30, 2024 compared to 4.21% for the three months ended June 30, 2023.

Current wording

Interest earned on average earning assets for the three months ended September 30, 2024 was $17.2 million compared to $14.8 million for the three months ended September 30, 2023, an increase of $2.3 million, or 15.8%. The average earning asset base increased $78.1 million between periods and the average yield on average earning assets increased 42 bps to 4.85% for the three months ended September 30, 2024 compared to 4.43% for the three months ended September 30, 2023.

Previous wording

The average yield on federal funds sold and overnight deposits increased 34 bps, and interest income increased $84 thousand between the three month comparison periods due to increases in the interest rate paid and the average balance maintained in Union's master account at the FRB. Interest income on investment securities decreased $84 thousand between comparison periods due to a $15.9 million decrease in the average balance of the portfolio and a decrease in the average yield of 5 bps.

Current wording

The average yield on federal funds sold and overnight deposits decreased 81 bps while interest income increased $9 thousand between the three month comparison period due to an increase in the average balance maintained in Union's master account at the FRB, partially offset by a decrease in the average interest rate paid on these balances. Interest income on investment securities decreased $72 thousand between comparison periods due to a $23.2 million decrease in the average balance of the portfolio, partially offset by an increase in the average yield of 2 bps. Interest income on loans increased $2.3 million between the three month comparison periods due to an increase in the average volume of loans outstanding of $90.0 million and an increase of 46 bps in the average yield.

Previous wording

Average interest bearing liabilities increased $84.1 million between the three month comparison periods due to growth in customer time deposit balances, utilization of brokered deposits included in time deposits, and an increase in borrowed funds. The average rate paid on interest bearing liabilities increased 90 bps to 2.49% for the second quarter of 2024 compared to 1.59% for the second quarter of 2023. Interest expense increased $2.9 million, to $7.1 million for the three months ended June 30, 2024 compared to $4.2 million for the three months ended June 30, 2023. Higher rates paid on customer deposit accounts and utilization of higher cost funding of brokered deposits and advances from the FHLB and the FRB were drivers of the increase in interest expense.

Current wording

Average interest bearing liabilities increased $83.6 million between the three month comparison periods due to growth in customer time deposit balances, utilization of brokered deposits included in time deposits, and an increase in borrowed funds. The average rate paid on interest bearing liabilities increased 54 bps to 2.63% for the third quarter of 2024 compared to 2.09% for the third quarter of 2023. Interest expense increased $2.1 million, to $7.8 million for the three months ended September 30, 2024 compared to $5.7 million for the three months ended September 30, 2023. Higher rates paid on customer deposit accounts and utilization of higher cost funding of brokered deposits and advances from the FHLB and the FRB were drivers of the increase in interest expense.

Previous wording

The net interest spread decreased 27 bps to 2.35% for the second quarter of 2024, from 2.62% for the same period last year, reflecting the net effect of the 90 bps increase in the average rate paid on interest bearing liabilities, which was only partially offset by the 63 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 15 bps during the second quarter of 2024 compared to the same period last year as a result of the changes discussed above.

Current wording

The net interest spread decreased 12 bps to 2.22% for the third quarter of 2024, from 2.34% for the same period last year, reflecting the net effect of the 54 bps increase in the average rate paid on interest bearing liabilities, which was only partially offset by the 42 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 5 bps during the third quarter of 2024 compared to the same period last year as a result of the changes discussed above. Even with the decreases in the net interest spread and net interest margin, net interest income increased $282 thousand to $9.4 million for the three months ended September 30, 2024 compared to $9.1 million for the three months ended September 30, 2023.

Previous wording

Net interest income was $18.5 million, on a fully tax equivalent basis for the six months ended June 30, 2024 compared to $19.6 million for the six months ended June 30, 2023, a decrease of $1.1 million, or 5.6%. The average volume of earning assets increased $67.3 million and the average yield on earning assets increased 57 bps to 4.72% compared to 4.15% for the comparison period. Average loans increased $64.4 million, or 6.6%, to $1.0 billion for the six months ended June 30, 2024. The increase in average loan volume and the increase of 65 bps in the average loan yield resulted in a $4.8 million increase in interest income on loans between periods. The $445 thousand recovery of interest income on loans from a loan payoff that had previously been in nonaccrual, discussed above, accounted for 9 bps of the increase in the average loan yield between the six month comparison periods.

Current wording

Net interest income was $27.9 million, on a fully tax equivalent basis for the nine months ended September 30, 2024 compared to $28.7 million for the nine months ended September 30, 2023, a decrease of $819 thousand, or 2.8%. The average volume of earning assets increased $70.9 million and the average yield on earning assets increased 52 bps to 4.77% compared to 4.25% for the comparison period. Average loans increased $72.9 million, or 7.4%, to $1.1 billion for the nine months ended September 30, 2024. The increase in average loan volume and the increase of 58 bps in the average loan yield resulted in a $7.1 million increase in interest income on loans between periods. There was a $445 thousand recovery of interest income on loans during the nine months ended September 30, 2024 related to the payoff of a loan that had previously been in nonaccrual. This accounted for 6 bps of the increase in the average loan yield between the nine month comparison periods.

Previous wording

The average balance of the investment portfolio decreased $11.2 million while the average yield on the portfolio remained unchanged, resulting in a decrease in interest income on investment securities of $60 thousand between the six month comparison periods.

Current wording

The average balance of the investment portfolio decreased $15.2 million while the average yield on the portfolio increased by 1 bp, resulting in a decrease in interest income on investment securities of $132 thousand between the nine month comparison periods.

Previous wording

The average cost of funds increased 100 bps to 2.43% for the six months ended June 30, 2024 compared to 1.43% for the six months ended June 30, 2023. Interest expense increased $6.4 million, to $13.7 million for the six months ended June 30, 2024 compared to $7.3 million for the six months ended June 30, 2023. The increases in the average cost of funds and in interest expense were due to an increase of $102.3 million in the average balance of interest bearing liabilities and increases in average rates paid in all liability categories between periods, with the exception of the Company's subordinated notes.

Current wording

The average cost of funds increased 84 bps to 2.50% for the nine months ended September 30, 2024 compared to 1.66% for the nine months ended September 30, 2023. Interest expense increased $8.5 million, to $21.4 million for the nine months ended September 30, 2024 compared to $13.0 million for the nine months ended September 30, 2023. The increases in the average cost of funds and in interest expense were due to an increase of $96.0 million in the average balance of interest bearing liabilities and increases in the average rates paid in all liability categories between periods, with the exception of the Company's subordinated notes.

Previous wording

During the first six months of 2024, Union, like many other financial institutions, continued to offer higher rate paying time deposit specials to attract new deposit dollars and retain existing customer deposits. Although some new money was obtained, a shift of funds in the Company's deposit base from non-maturity deposits to time deposit specials occurred. Interest expense on time deposits increased $2.1 million to $5.5 million for the six months ended June 30, 2024 compared to $3.4 million for the six months ended June 30, 2023 due to increases of $48.5 million in the average volume and 103 bps in the average rate paid. Despite a decrease of $23.9 million in the average balance of savings/money market accounts, interest expense increased $1.5 million between the six month comparison periods due to an increase of 85 bps in the average rate paid. Interest expense on interest bearing checking accounts increased $706 thousand between the six month comparison periods resulting from an increase of 51 bps in the average yield, which more than offset the decrease of $15.7 million in the average balance. The average volume of borrowed funds increased $93.4 million and the average rate paid on borrowed funds increased 15 bps between the six month comparison periods, resulting in a $2.0 million increase in interest expense.

Current wording

During the first half of 2024, Union, like many other financial institutions, continued to offer higher rate paying time deposit specials to attract new deposit dollars and retain existing customer deposits. Although some new money was obtained, a shift of funds in the Company's deposit base from non-maturity deposits to time deposit specials occurred. Interest expense on time deposits increased $2.8 million to $8.7 million for the nine months ended September 30, 2024 compared to $5.9 million for the nine months ended September 30, 2023 due to increases of $37.5 million in the average balance and 90 bps in the average rate paid. Despite a decrease of $31.9 million in the average balance of savings/money market accounts, interest expense increased $1.4 million between the nine month comparison periods due to an increase of 58 bps in the average rate paid. Interest expense on interest bearing checking accounts increased $411 thousand between the nine month comparison periods resulting from an increase of 26 bps in the average rate paid, which more than offset the decrease of $24.0 million in the average balance. The average volume of borrowed funds increased $114.4 million and the average rate paid on borrowed funds increased 40 bps between the nine month comparison periods, resulting in a $3.9 million increase in interest expense.

Previous wording

The net interest spread decreased 43 bps to 2.29% for the six months ended June 30, 2024, from 2.72% for the same period last year, reflecting the net effect of the 100 bps increase in the average rate paid on interest bearing liabilities, which was only partially offset by the 57 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 31 bps for the six months ended June 30, 2024 compared to the same period last year as a result of the changes discussed above.

Current wording

Union Bankshares, Inc. Page 30 only partially offset by the 52 bps increase in the average yield earned on interest earning assets between periods. The net interest margin decreased 22 bps for the nine months ended September 30, 2024 compared to the same period last year as a result of the changes discussed above.

Previous wording

Tax exempt interest income amounted to $1.3 million and $966 thousand for the three months ended June 30, 2024 and 2023, 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 2024 and 2023 three and six month comparison periods:

Current wording

Tax exempt interest income amounted to $1.6 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively, and $4.2 million and $3.0 million for the nine months ended September 30, 2024 and 2023, 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 2024 and 2023 three and nine month comparison periods:

Previous wording

Credit Loss Expense (Benefit). 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.

Current wording

Credit Loss Expense (Benefit). 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

Previous wording

Noninterest Income. The following table sets forth the components of noninterest income and changes between the three and six month comparison periods of 2024 and 2023:

Current wording

Noninterest Income. The following table sets forth the components of noninterest income and changes between the three and nine month comparison periods of 2024 and 2023:

Previous wording

The significant changes in noninterest income for the three and six months ended June 30, 2024 compared to the same periods of 2023 are described below:

Current wording

The significant changes in noninterest income for the three and nine months ended September 30, 2024 compared to the same periods of 2023 are described below:

Previous wording

•Service fees. Service fees decreased $37 thousand for the six months ended June 30, 2024, compared to the same period in 2023 primarily due to decreases in loan servicing fees, merchant program fees and ATM and debit card network fees, partially offset by increases in overdraft fee income and service charge income.

Current wording

•Service fees. Service fees increased $70 thousand for the three month comparison period due to increases in loan servicing fees, ATM and debit card network fees and service charge income. Service fees increased $33 thousand for the nine month comparison period due to increases in overdraft fee income and service charge income, partially offset by decreases in ATM and debit card network fees, and merchant program fees.

Previous wording

•Net gains on sales of loans held for sale. Residential mortgage loans totaling $19.3 million and $41.0 million were sold during the three and six months ended June 30, 2024, respectively, compared to sales of $17.8 million and $29.6 million during the same periods in 2023, respectively. The increases of $35 thousand and $128 thousand in net gains on sales of loans held for the three and six month comparison periods, respectively, reflect the higher sales volume and higher premiums obtained on sales in 2024.

Current wording

•Net gains on sales of loans held for sale. Residential mortgage loans totaling $35.2 million and $76.1 million were sold during the three and nine months ended September 30, 2024, respectively, compared to sales of $24.7 million and $54.2 million during the same periods in 2023, respectively. The increases of $204 thousand and $332 thousand in net gains on sales of loans held for the three and nine month comparison periods, respectively, reflect the higher sales volume and higher premiums obtained on sales in 2024.

Previous wording

•Income from Company-owned life insurance. Death benefit proceeds of $235 thousand were received in the second quarter of 2024 that were not received during the same period in 2023. Income also increased during the three and six month comparison periods due to a higher yield earned on the underlying life insurance policies.

Current wording

•Income from Company-owned life insurance. Death benefit proceeds of $235 thousand were received in the second quarter of 2024 that were not received during the same period in 2023. Income also increased during the three and nine month comparison periods due to a higher yield earned on the underlying life insurance policies.

Previous wording

•Net gains on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net gains of $33 thousand and $128 thousand for the three and six months ended June 30, 2024, respectively, and net gains of $56 thousand and $102 thousand for the three and six months ended June 30, 2023, respectively.

Current wording

•Net gains (losses) on other investments. Participants in the 2020 Amended and Restated Nonqualified Excess Plan elect to defer receipt of current compensation from the Company or its subsidiary and select designated reference investments consisting of investment funds. The performance of those funds, over which the Company has no control, resulted in net

Previous wording

Noninterest Expenses. The following table sets forth the components of noninterest expenses and changes between the three and six month comparison periods ended June 30, 2024 and 2023:

Current wording

Noninterest Expenses. The following table sets forth the components of noninterest expenses and changes between the three and nine month comparison periods ended September 30, 2024 and 2023:

Previous wording

The significant changes in noninterest expenses for the three and six months ended June 30, 2024 compared to the same periods in 2023 are described below:

Current wording

The significant changes in noninterest expenses for the three and nine months ended September 30, 2024 compared to the same periods in 2023 are described below:

Previous wording

•Salaries and wages. Salaries and wages increased $101 thousand and $152 thousand for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023 primarily due to annual salary adjustments for the 2024 fiscal year. The increases are also attributable to the inclusion of salaries and wages for employees at our North Conway location, which became a full service branch during the fourth quarter of 2023. The increase for the six month comparison period was partially offset by a $72 thousand accrual adjustment related to the annual incentive plan payments to select officers of Union recorded in the first quarter of 2024.

Current wording

•Salaries and wages. Salaries and wages increased $295 thousand and $447 thousand for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023 primarily due to annual salary adjustments for the 2024 fiscal year. The increases are also attributable to the inclusion of salaries and wages for employees at our North Conway location, which became a full service branch during the fourth quarter of 2023. $110 thousand of the increase for the three and nine month comparison periods was attributable to a separation of service agreement with an employee. The increase for the nine month comparison period was partially offset by a $72 thousand accrual adjustment related to the annual incentive plan payments to select officers of Union recorded in the first quarter of 2024.

Previous wording

•Employee benefits. Employee benefit expense increased $160 thousand for the three months ended June 30, 2024 compared to the same period in 2023 primarily due to increases of $129 thousand in premium expense for the Company's medical and dental plans and a $49 thousand increase in 401k contribution expense related to forfeiture adjustments recorded in the second quarter of 2024, partially offset by a decrease of $24 thousand in employee benefits related to the Company's deferred compensation plans. The increase of $272 thousand for the six months ended June 30, 2024 compared to the same period in 2023 was primarily due to increases of $237 thousand in premium expense for the Company's medical and dental plans and $19 thousand in employee benefits related to the Company's deferred compensation plans.

Current wording

•Employee benefits. Employee benefit expense increased $305 thousand for the three months ended September 30, 2024 compared to the same period in 2023 primarily due to increases of $158 thousand in premium expense for the Company's medical and dental plans, $34 thousand in payroll taxes and $121 thousand in employee benefits related to the Company's deferred compensation plans. The increase of $577 thousand for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to increases of $394 thousand in premium expense for the Company's medical and dental plans, $140 thousand in employee benefits related to the Company's deferred compensation plans and $43 thousand in payroll taxes.

Previous wording

•Occupancy expense, net. The increase in occupancy expense between the three and six month comparison periods is primarily due to increases in depreciation expense related to leasehold improvements to the North Conway location that became a full service branch during the fourth quarter of 2023 as well as increases in repair and maintenance expenses at other locations.

Current wording

•Occupancy expense, net. The increase in occupancy expense between the three and nine month comparison periods is primarily due to increases in depreciation expense related to leasehold improvements to the North Conway location that became a full service branch during the fourth quarter of 2023 as well as increases in repair and maintenance expenses at other locations.

Previous wording

•Equipment expense. Equipment expense increased between the three and six month comparison periods primarily due to an increase in software license and maintenance costs associated with outsourcing Union's core application processing system that was finalized during the fourth quarter of 2023.

Current wording

•Equipment expense. Equipment expense increased between the three and nine month comparison periods primarily due to an increase in software license and maintenance costs associated with outsourcing Union's core application processing system that was finalized during the fourth quarter of 2023.

Previous wording

•Professional fees. Professional fees increased $55 thousand and $85 thousand for the three and six months ended June 30, 2024, respectively, compared to the same periods in 2023 resulted from annual increases in engagement fees and additional consultants that were engaged to assist with employment searches and other consulting services in 2024 that were not utilized in 2023.

Current wording

•Professional fees. Professional fees increased $69 thousand for the nine months ended September 30, 2024 compared to the same period in 2023 due to annual increases in engagement fees and additional consultants that were engaged to assist with employment searches and other consulting services in 2024. Professional fees decreased $16 thousand during the three month comparison period due to a reduction in consulting engagements during the three months ended September 30, 2024 compared to those utilized in the same period of 2023.

Previous wording

•FDIC insurance assessment. The FDIC insurance assessment increased by $6 thousand and $64 thousand during the three and six month comparison periods, respectively, due to an increase in the assessment rate as well as overall growth in net assets.

Current wording

•FDIC insurance assessment. The FDIC insurance assessment increased by $29 thousand and $93 thousand during the three and nine month comparison periods, respectively, due to an increase in the assessment rate as well as overall growth in net assets.

Previous wording

•Advertising and public relations. The increase in advertising and public relations costs is primarily related to advertising campaigns and business development activities during the three and six months ended June 30, 2024 that did not occur in 2023.

Current wording

•Advertising and public relations. The increase in advertising and public relations costs is primarily related to advertising campaigns and business development activities during the three and nine months ended September 30, 2024 that did not occur in 2023.

Previous wording

•Vermont franchise tax. The decrease in expense between the three and six month comparison periods was due to the decrease in average deposit balances for customer accounts allocated to Vermont.

Current wording

•Vermont franchise tax. The decrease in expense between the three and nine month comparison periods was due to the decrease in average deposit balances for customer accounts allocated to Vermont.

Previous wording

•Amortization 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 amortization of MSRs exceeded new capitalized MSRs during both comparison periods, which resulted in net expense of $62 thousand and $102 thousand for the three and six months ended June 30, 2024, respectively, and $77 thousand and $201 thousand for the three and six months ended June 30, 2023, respectively.

Current wording

•Amortization 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. New capitalized MSRs exceeded amortization of MSRs for the three months ended September 30, 2024 resulting in net income of $45 thousand, while amortization of MSRs exceeded new capitalized MSRs resulting in net expense of $57 thousand for the nine months ended September 30, 2024, and net expenses of $47 thousand and $248 thousand for the three and nine months ended September 30, 2023, respectively.

Previous wording

•ATM and debit card expense. The increase between the three and six month comparison periods is primarily related to the costs associated with outsourcing Union's core application processing system that was finalized during the fourth quarter of 2023. There was also additional costs incurred during the second quarter of 2024 associated with a change in the servicing arrangement in place for the ATM machines.

Current wording

•ATM and debit card expense. The increase between the nine month comparison period is primarily related to the costs associated with outsourcing Union's core application processing system that was finalized during the fourth quarter of 2023 as well as costs associated with a change in the servicing arrangement in place for the ATM machines. During the third quarter of 2024, debit card processing contract renewal incentive credits were received, resulting in a decrease in expense for the three months ended September 30, 2024 compared to 2023.

Previous wording

•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 increased between comparison periods due to contributions made during the first six months of 2024 related to a state tax credit program to assist a local affordable housing project and local non-profit rehabilitation projects.

Current wording

•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 increased between the nine month comparison period primarily due to contributions made during the first half of 2024 related to a state tax credit program to assist a local affordable housing project and local non-profit rehabilitation projects. The decrease between the three month comparison periods is primarily due to increased contributions made in 2023 to assist communities with recovery efforts related to the July 2023 historic flood that occurred in the State of Vermont.

Previous wording

Provision for Income Taxes. The Company has provided for current and deferred federal income taxes for the three and six months ended June 30, 2024 and 2023. The Company's net provision for income taxes was $61 thousand and $226 thousand for the three and six months ended June 30, 2024, respectively, compared to $435 thousand and $894 thousand for the same periods in 2023, respectively, reflecting lower net income and a higher proportion of tax-exempt income year over year, as well as the impact of limited partnership investments and related credits, discussed below. The Company's effective federal corporate income tax rate was 2.9% and 6.2% for the three and six months ended June 30, 2024, respectively, compared to 13.1% and 13.8% for the same periods in 2023, respectively.

Current wording

The Company's net provision for income taxes was $103 thousand for the nine months ended September 30, 2024, compared to $1.2 million for the same period in 2023, reflecting lower net income and a higher proportion of tax-exempt income year over year, as well as the impact of limited partnership investments and related credits, discussed below. The Company's effective federal corporate income tax rate was 2.9% for the nine months ended September 30, 2024, compared to 12.9% for the same period in 2023.