VERMONT Danville Fairfax 421 Route 2 East Jct. Routes 104 & 128 802-684-2211 802-849-2600 Hardwick 103 VT Route 15 West 802-472-8100 Jeffersonville 44 Main Street 802-644-6600 Johnson 198 Lower Main Street 802-635-6600 Lyndonville 183 Depot Street 802-626-3100 Newport Loan Center 325 East Main Street 802-334-0750 Morrisville 20 Lower Main Street 65 Northgate Plaza 802-888-6600 802-888-6860 St. Albans 15 Mapleville Depot 802-524-9000 St. Johnsbury 364 Railroad Street 802-748-3131 325 Portland Street 802-748-3121 S. Burlington Loan Center 30 Kimball Avenue 802-865-1000 Stowe 47 Park Street 802-253-6600 NEW HAMPSHIRE Groveton Lincoln Littleton 3 State Street 135 Main Street 263 Dells Road 76 Main Street N. Woodstock 155 Main Street 603-636-1611 603-745-4000 603-444-7136 603-444-5321 603-745-2488 UBLOCAL.com 1-800-753-4343 (toll free) ‘14 YEAR IN REVIEW Market for Union Bankshares Common Stock On March 2, 2015, there were 4,458,403 shares of common stock outstanding held by 575 stockholders of record. The number of stockholders does not reflect the number of beneficial owners, including persons or entities who may hold the stock in nominee or “street name.” Union Bankshares’ common stock is listed on the NASDAQ Global Market trading under the symbol UNB. For shareholder assistance please contact Kristy Adams Alfieri at 802-888-0982 or our Transfer Agent, Broadridge Corporate Issuer Solutions, Inc., at 866-321-8022. UNION BANKSHARES COMMON STOCK 2014 2013 HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS First Quarter First Quarter $24.75 $22.12 $0.26 $22.15 $19.25 $0.25 Second Quarter Second Quarter $24.97 $22.93 $0.26 $22.00 $20.21 $0.25 Third Quarter Third Quarter $25.88 $23.97 $0.26 $22.08 $20.73 $0.25 Fourth Quarter Fourth Quarter $24.77 $23.00 $0.26 $23.00 $21.03 $0.26 to our SHAREHOLDERS AP RIL 7, 2015 We are pleased to report the financial results for your company for the year ended December 31, 2014. Net income for the year ended December 31, 2014 was $7.7 million, a 7.8% improvement over 2013 earnings. Total assets grew 6.6% to $623.8 million as of December 31, 2014. Total loans increased 5.6% to $491.1 million and total deposits increased 6.6% to $552.1 million. Management and the Board are pleased with our 2014 results. Our strategy to improve core operating income and control noninterest expense generated good improvement in 2014. In addition to meeting our financial objectives, we have embarked on several projects we expect will bear fruit in the future. In June we opened our newest branch in Lincoln, New Hampshire. We have high expectations for this location. In August we opened a Loan Production office in Newport, Vermont, an area that we believe will continue to grow at an above average rate. We also embarked on a major renovation of our Main Street, Littleton offices, removing an escalator, installing an elevator, and entirely remodeling the bank branch and common areas of the building. During 2014 we have been working on obtaining permits to build a new branch office to replace our aging Jeffersonville, Vermont facility. We hope to begin con- struction in the early part of summer 2015. During 2014 we enhanced our mobile banking product by providing mobile remote deposit which allows users to deposit checks into their bank accounts using the camera on their smart phones. We also worked throughout 2014 to allow residential mortgage applications to be submitted to us using our website, a service that was enabled on February 2, 2015. In addition, we strengthened our ATM network by decommissioning unprofitable locations while enhancing or replacing ATM units where these costs were justified. We continue to work on several additional technology based projects designed to either enhance our customer’s experience or improve our already sound electronic security programs. In addition, we selected a new advertising agency which has been helpful in providing creative guidance to reach our goals of updating our outward image and communications with a more contemporary look and feel. Through this process, we are transitioning from old logo to new by changing our letterhead and business cards, and installing new signage at our banking locations. We are a few weeks away from introducing an entirely revamped website and advertising campaign using the new brand identity. We are very excited about this process. Overall, we are feeling positive about the future for your company and the improving economy. We will continue to strive to provide sound returns to our shareholders while continuing to be good corporate citizens and an employer of choice in our region. Sincerely, Kenneth D. Gibbons Chairman David S. Silverman President & CEO 2014 Year In Review 1 2 2014 Year In Review AT OR FOR THE YEARS ENDED DECEMBER 31 2014 2013 2012 2011 FINANCIAL HIGHLIGHTS Balance Sheet Data Total assets (Dollars in thousands, except per share data) $624,063 $585,443 $557,256 $552,751 Investment securities 52,964 45,492 26,126 46,954 Loans, net of unearned income Allowance for loan losses Deposits Borrowed funds Stockholders’ equity1 491,076 465,123 455,298 429,384 (4,694) 552,064 15,118 51,434 (4,647) 518,354 13,216 49,820 (4,657) 509,993 15,747 45,046 (4,226) 473,439 29,015 40,339 Income Statement Data Total interest and dividend income Total interest expense Net interest and dividend income Provision for loan losses Noninterest income $24,852 $24,481 $25,028 $23,669 (2,155) 22,697 (345) 8,909 (2,459) 22,022 (305) 8,509 (3,351) 21,677 (660) 10,525 (3,908) 19,761 (775) 7,125 Noninterest expenses (21,594) (21,229) (23,035) (19,773) Income before provision for income taxes Provision for income taxes Net income 9,667 8,997 8,507 6,338 (1,973) $7,694 (1,862) $7,135 (1,663) $6,844 (1,119) $5,219 Per Common Share Data Net income2 Cash dividends paid Book value1 Weighted average number of shares outstanding Number of shares outstanding $1.73 1.04 11.54 $1.60 1.01 11.17 $1.54 1.00 10.11 $1.17 1.00 9.05 4,458,393 4,457,261 4,457,029 4,456,842 4,458,430 4,458,359 4,456,081 4,457,204 1 Stockholders’ equity reflects period-end adjustments, net of taxes, for the cumulative effect of changes in unrealized gains or losses on investment securities classified as “available-for-sale” and in the unfunded liability for pension benefits under the frozen defined benefit pension plan. 2 Computed using the weighted average number of shares outstanding for the period. RETURN ON AVERAGE EQUITY SOURCE: SNL FINANCIAL LC PEER BANKS $500-$1B (SNL) 20% 15% 10% 5% 0% -5% 2009 2010 2011 2012 2013 2014 Year Ending December 31, RETURN ON AVERAGE ASSETS SOURCE: SNL FINANCIAL LC 1.5% PEER BANKS $500-$1B (SNL) 1.0% .5% 0% -.5% -1% 2009 2010 2011 2012 2013 2014 Year Ending December 31, 2014 Year In Review 3 4 2014 Year In Review Commercial Services Over many decades, Union Bank has earned a reputation as a reliable, experienced and responsive commercial lender. With seasoned staff and in-market lending decisions, we are able to provide borrowers with a more rapid and personalized loan process than is customary from large banks. Union Bank provides prospective borrowers with an excellent blend of attractive services, knowledgeable lenders and lending capacity with a singular focus on serving clients in our local market areas. As a Preferred Lender with the US Small Business Administration, Union Bank offers a variety of loan options to prospective applicants. These positive attributes and referrals from existing commercial customers helped Union Bank achieve record levels in our commercial loan portfolio during 2014. Municipal Services Much the same can be said of our service to towns, villages, school districts and other municipal entities. Union Bank is extremely well positioned to serve local municipal and non-profit clients who value both the financial services which the bank offers and the readily- accessible personal service. Our staff regularly advises customers in determining the optimal deposit, lending and electronic banking products to meet their particular needs. For example, our newly- introduced remote check deposit service allows municipal, non-profit and commercial organizations the convenience of electronically transmitting check images for deposit. The Bank is proud to serve the towns, school districts, hospitals, nursing homes, medical practices, social service agencies and other non-profits that are such an important part of the fabric of our communities. Mortgage Lending 2014 marked another excellent year for Union Bank’s vibrant residential lending business despite an industry-wide decline in refinance transactions. While we did see a decline in transactions, we had less than half the drop experienced by the industry nationwide due to our particularly strong performance originating loans for home purchases. Repeat customers, client referrals, strong rela- tionships with builders and realtors, attractive products and outstanding service characterize our residential lending business line. Our lenders are knowledgeable and versatile enough to serve a range of customers from those needing customized jumbo mortgages or BUILD construction loans to those seeking to buy a first home with the assistance of an affordable housing program. The positive impact that Union Bank has made in the lives of such first time home buyers has been recognized by the FDIC with a rating of Outstanding for our Community Reinvestment activities. Additionally, in 2014 Union Bank was once again recognized by the US Department of Agriculture as its Rural Development (RD) Home Loan Lender of the Year for Vermont. Also, in 2014 Union Bank was recognized by the Vermont Housing Finance Agency (VHFA) as their highest volume lender. Union Bank is extremely proud of these distinc- tions and believes our varied business efforts have a direct benefit for our customers, our communities, our staff and our shareholders. Consumer Deposit Accounts Our deposit gathering efforts directly fund our extensive community lending activities. In 2014 we took steps to increase the value of our banking services and to price those services accordingly. We expanded our mobile banking product to enable account holders to remotely deposit checks from a smart phone. We also reestablished moderate deposit balance requirements and set pricing that encourages customers to select electronic statements. Most recently, we have enhanced our arrangement with the Allpoint ATM network so that customers now have totally fee-free access to over 55,000 ATM’s. For those customers who bring larger deposit balances to the Bank, we offer Advantage Banking, a package of services which reward and retain these important depositors who contribute substantially to our overall success. Participating customers earn special popular banking services such as complementary checks, ATM surcharge refunds, and higher CD rates. DIRECTORS Kenneth D. Gibbons - Chairman Cynthia D. Borck Steven J. Bourgeois John M. Goodrich Timothy W. Sargent David S. Silverman John H. Steel Schuyler W. Sweet Neil J. Van Dyke OFFICERS Kenneth D. Gibbons - Chairman David S. Silverman - President & CEO Karyn J. Hale - Vice President/Treasurer/CFO John H. Steel - Secretary Kristy Adams Alfieri - Assistant Secretary Jeffrey G. Coslett - Vice President DIRECTORS Kenneth D. Gibbons - Chairman Cynthia D. Borck Steven J. Bourgeois John M. Goodrich Timothy W. Sargent David S. Silverman John H. Steel Schuyler W. Sweet Neil J. Van Dyke REGIONAL ADVISORY BOARD MEMBERS Michael R. Barrett – St. Johnsbury Joel S. Bourassa - Northern New Hampshire Steven J. Bourgeois - St. Albans Stanley T. Fillion - Northern New Hampshire Rosemary H. Gingue - St. Johnsbury John M. Goodrich - St. Johnsbury Christopher M. Knapp - Northern New Hampshire Coleen K. Kohaut - St. Albans Justin P. Lavely - St. Johnsbury Daniel J. Luneau - St. Albans Mary K. Parent – St. Johnsbury Samuel H. Ruggiano - St. Albans David S. Silverman - All Schuyler W. Sweet - Northern New Hampshire OFFICERS Kristy Adams Alfieri - Assistant Secretary Tracy Pierce Ash - Assistant Treasurer Diana M. Ashley - Assistant Treasurer Rhonda L. Bennett - Vice President Karen L. Blanchard Smith - Assistant Treasurer Sherrie A. Bull - Vice President Stacey L. B. Chase - Assistant Vice President Barbara J. Churchill - Assistant Treasurer Everett C. Comstock - Assistant Treasurer Jeffrey G. Coslett - Senior Vice President Michael C. Curtis - Vice President Jennifer M. Degree - Assistant Treasurer Ronald C. Dion - Assistant Treasurer Jessica M. Eastman - Assistant Vice President Kenneth D. Gibbons - Chairman Charles W. Goldstein - Assistant Vice President Don D. Goodhue - Vice President Jonathan J. Gould - Senior Vice President Melissa A. Greene - Vice President Paul E. Grogan - Facilities Officer Karyn J. Hale - Senior Vice President Randy L. Hannett - Assistant Treasurer Claire A. Hindes - Vice President Robert D. Hofmann - Senior Vice President Patricia N. Hogan - Senior Vice President Joseph J. Ilacqua - Assistant Vice President Lura L. Jacques - Vice President Lynne P. Jewett - Vice President Stephen H. Kendall - Senior Vice President Susan F. Lassiter - Vice President Edward L. Levite - Senior Loan Originator Carrie R. Locklin - Vice President Bonnie J. Losty - Vice President Jessica L. Machia - Assistant Treasurer John L. Malm - Vice President Timothy P. Maney - Regional Vice President Grace E. Maniatty - Assistant Treasurer Jason McArthur - Assistant Treasurer Samantha A. Norrie - Assistant Treasurer Tina L. Norton - Assistant Vice President Karen Carlson Noyes - Vice President Bradley S. Prior - Assistant Vice President Craig S. Provost - Vice President Robert J. Richardson - Vice President Christine A. Sheley - Regional Vice President David S. Silverman - President & CEO Abbie L. Small - Assistant Treasurer Judy R. Smith - Vice President John H. Steel - Secretary Curtis C. Swan - Vice President Linda M. Watson - Assistant Treasurer Melyssa S. Whitcomb - Assistant Treasurer Lorraine G. Willett - Assistant Vice President 2014 Year In Review 5 6 2014 Year In Review