Service.

   Integrity.


Union Bankshares, Inc.

      2002 Annual Report


Trust.

   Community


<PAGE>


                       Chart showing History of Growth


<PAGE>


Contents

To our shareholders                           Page 2
Community service                             Page 4
BUILD loans                                   Page 6
Commercial services                           Page 8
New in 2002                                   Page 9
Selected financial information                Page 10
Management's responsibility                   Page 11
Independent auditor's report                  Page 12
Financial statements
     Consolidated balance sheets              Page 13
     Consolidated statements of income        Page 14
     Consolidated statements of changes
      in stockholders' equity                 Page 15
     Consolidated statements of cash flows    Page 16
     Notes to consolidated financial
      statements                              Page 17
Management's discussion and analysis
 of the results of operations                 Page 41
Market for Union Bankshares' common
 stock and related stockholder matters        Page 57
Shareholder assistance and investor
 Information                                  Page 58

Tagline:
.... where the personal touch is still our hallmark.

Photo Caption:
Bank employees and their families at the 2002 Stowe Rotary Oktoberfest.

*****


<PAGE>


To Our Shareholders


Dear Shareholder,                                            March 31, 2003

      We are pleased to provide this annual report which contains important
financial information as well as covering some highlights of the past year.
Up front, we want to acknowledge the hard work and dedication of our
employees.  2002's record earnings are the result of their efforts.  Thank
you!

      For the year, earnings increased 7.5% and earnings per share
increased 7.2%.  Return on equity was 13.74% and return on assets, 1.52%.
Although asset growth was less than originally budgeted, it was the result
of our decision to reduce interest rate risk exposure on fixed-rate
mortgage loans.

      In the second half of the year we began to "sell" into the secondary
market some of the loans we had generated to reduce our interest rate risk
on long-term, fixed-rate mortgages.  By year-end the loan portfolio had
increased $5 million, even though $28 million in loans were sold.  We
believe this strategy leaves us with a good liquidity position in the event
interest rates return to more normal levels.

      The past year, once again, had some interesting challenges.  Keeping
up with the volume of residential and commercial loan requests, candidly,
took a bit of staff juggling and flexibility, but we managed to generate
record loan volume in almost all categories.

      In April, Union Bank opened its newest branch office in Fairfax
providing full service banking to this community.  The office has been well
received and is ahead of growth projections.  Part of our growth strategy
has been, and will continue to be, to identify areas underserved by
financial institutions as potential areas of expansion for your company.
Another location, our Littleton, N.H. Loan Center is continuing to
penetrate that market by offering hands on, responsive service.  Even
though technology has become a major component of our product delivery
system, we also believe face-to-face customer contact is equally important.

      During the fourth quarter a study was completed that evaluated the
pros and cons of merging Citizens Savings Bank and Trust Company into Union
Bank.  This study resulted in the recent decision to merge the two banks
under the name and charter of Union Bank.  All customers of Citizens, our
shareholders and regulators were formally notified in mid-February of this
decision.  The merger will substantially reduce duplicative tasks,
reporting and other processes required of operating two separate banks.

      It is anticipated regulatory approvals will be received shortly and
the merger completed by May 1, 2003.

      Corporate governance was a hot topic nationwide with reported
corporate scandals and the subsequent passage of Federal legislation known
as the Sarbanes Oxley Act.  Simply stated, major new reporting, auditing,
and governance compliance requirements are being rolled out monthly.
Financial institutions are already a highly regulated industry and,
hopefully, the


<PAGE>  2


Captions (Under board member photos, in alphabetical order)
Board of Directors * Union Bankshares, Inc
    Cynthia D. Borck
    William T. Costa, Jr.
    Kenneth D. Gibbons
    Franklin G. Hovey II
    Richard C. Marron
    Robert P. Rollins
    Richard C. Sargent
    W. Arlen Smith
    John H. Steel

Pull Quote:
As we look forward, 2003 offers much opportunity to expand in the markets
we have selected. Flexible products and superior customer service provided
by a   dedicated staff continue to earn customer loyalty and their
business.


overall impact of new regulations will not be too onerous for your company.
Change and additional oversight was needed in many industries; we hope it
is rational change benefiting all shareholders.

      As we look forward, 2003 offers much opportunity to expand in the
markets we have selected.  Flexible products and superior customer service
provided by a dedicated staff continue to earn customer loyalty and their
business.

Sincerely,

/s/ W Arlen Smith         /s/ Kenneth D. Gibbons

W. Arlen Smith            Kenneth D. Gibbons
Chairman                  President & CEO


<PAGE>  3


Community Service

Photo Caption
Peggy Lackey holds daughter Ann as Stowe Police Officer Bruce Emerson
fingerprints her as part of the bank's participation in Project KidCare, a
child safety program.

Bank helps parents keep kids safe

      The bank helps keep local children safe through participation in
Project KidCare, a national child safety and photo identification program.

      KidCare ID not only connects children with local police officers, it
gives parents the tools they'd need in the unlikely event that their child
became lost. Parents receive a keepsake card with their child's
fingerprints, picture, and complete information such as age, height and
weight. Project KidCare claims that this valuable service finds one in
every seven missing children.

      Over the years the bank has held this popular event at different
branch locations, and one lucky child wins a $50 savings bond for
participating.


<PAGE>  4


Photo Caption:
Students from the LEARN program in Lyndon explore the Internet on computers
donated by the bank.

Bank donates computers to schools, non-profits

      The bank last year donated 32 Pentium computers to several area
schools and resource centers in the St. Johnsbury area.

      Students and non-profit organizations were the recipients of these
much-needed, high-end workstations, which became available last fall after
the bank partially upgraded its computer system. Dennis J. Lamothe, a bank
senior vice president, led the effort to find new homes for the computers.

      Nine computers found new homes at the Lyndon Educational Resources
Network (LEARN). "Our mission is to help kids develop the necessary skills
to become healthy adults," says Edward Ryan, Jr., Program Director at
LEARN. "The bank's donated computers will help us help kids stay in school,
lower the delinquency rate and discourage youth from substance abuse. This
donation will help make our mission a reality."

      Other recipients included The Concord School (8), Tri-County
Headstart (7), and the Franconia (NH) Community Church Teen Learning Center
(7).

Employee-directed blood drives aid Red Cross

      To help advertise the need for blood donations across Vermont, bank
staff last year wore American Red Cross Blood Drawing T-shirts on specified
days. In November, employees in the St. Johnsbury area served as "walking
billboards" to advertise the St. Johnsbury Rotary Club blood drive. The
effort helped the Red Cross collect 173 pints of blood and exceed its goal.

      Employees at branches in the Morrisville-Stowe area have teamed up
with the American Red Cross for a number of years, and usually host four
Blood Drawing T-shirt Days a year to help get community members to donate
blood.


<PAGE>  5


BUILD Loans

Photo Caption:
Kathy and Marc Daigle on the porch of their new home in Littleton, N.H.,
with their four sons, Branden, Logan, Gaige and Caden.


BUILD fuels economy, homeowner dreams

      Since it began a decade ago as a mechanism to stimulate growth and
create jobs in bad economic times, BUILD continues to build the local
community.

      The Borrowers Utilize Interim Loan Dollars program has not only
invested in the construction trades and other sectors - in both good and
bad economic times - it's become a dream-maker for hundreds of would-be
homeowners across the region.

      BUILD provides construction funds at a competitive interest rate for
up to eight months, with the opportunity to renew for four additional
months.

      The majority of BUILD loans go toward new single-family home
construction, although loans can be used for construction or renovation of
one- to four-family owner-occupied homes, and for expansion of existing
businesses.

      "What we look to do with BUILD is satisfy the average borrower," said
Cynthia Borck, the Bank Executive Vice President who oversees the program.

      The bank makes it easy - and affordable - for the average homeowner.
While an application fee is


<PAGE>  6


Photo Caption:
Randi Stevens in the kitchen of her home in West Woodbury.

Pull quote:
"I could not have done this house without Wanda Allaire, my loan officer.
If it wasn't for Wanda and the bank, I'd still be stuck in that old house.
Wanda was so committed to helping me reach my goal. She was amazing, she
wasn't going to give up until we could make this work for me."

Randi Stevens
West Woodbury


charged, the bank does not charge points, inspection fees or advance fees.
Loan officers build close relationships with borrowers, helping them through
the maze of home building, from buying land to putting together a final
mortgage.

      Kathy & Marc Daigle can't say enough about both their loan officer,
Millie Nelson of the loan origination office in Littleton, N.H., and their
satisfaction with the BUILD program. "We couldn't have gotten the loan
without Millie's help. She coordinated the whole process, and worked
closely with my wife," says Marc Daigle, a busy resident at Littleton
Hospital and father of four boys under age 10. "Thanks to Millie all of a
sudden we had a house!"

      "There is a lot more flexibility in this program in that the borrower
can also act as general contractor," adds Borck. The bank does not give
disbursements to the borrower, instead it writes checks directly to
suppliers. That both keeps potential liens at bay, and helps solidify the
relationship between bank and borrower. Fostering that close relationship
with customers ensures that most convert their BUILD construction loan to a
mortgage loan with the bank.

      Since its inception 11 years ago, the bank has originated 1009 loans,
totaling $115 million. Last year the bank originated over $20 million in
loans.

Chart showing BUILD Loan Originations, 1992-2002


<PAGE>  7


Commercial Services

Pull quote:
"Our business has deep connections to our community through our employees,
our vendors, our customers, and especially the other farms we count on for
steady supplies of high quality maple syrup. The Union Bank is part of that
connection. It's gratifying to me that our bankers know our business and
understand the environment in which we work. That's the way it is when
you're fortunate enough to do business with your neighbors."

David Marvin
Butternut Mountain Farms

Photo Caption:
Smoke rises from the Butternut Mountain Farms sugarhouse during sugaring
season. Inset: David Marvin checks the temperature of the boiling sap.

Commercial Services focuses on businesses, community

      Union Bankshares, Inc., devotes significant resources to serve needs
of the business community, and the commitment shows.

      "One of our fundamental principles is to create relationships with
our customers, not just view them as transactions," says David Silverman,
Senior Vice President at the bank. "We believe by identifying and assisting
entrepreneurs we can help the community grow and prosper. The small
business sector is where job creation occurs and good jobs are the
foundation upon which communities are built."

      A long-term approach helps the bank consistently meet the on-going
financial services needs of its customers. By forging long-term
relationships with its commercial customer base, neither the bank nor the
customer wastes time getting reacquainted each time the customer needs to
enlarge operations, rework finances or expand services.

      "Those relationships allow us to deal with the real issues our
customers face," says Silverman. "When we understand someone's business, we
can provide in-depth, long-range business services and advice."

      The bank devotes a substantial amount of effort and staff to its
commercial services sector, and maintains active participation with various
lending programs available statewide and nationally. In 1988, it earned the
Preferred Lender (PLP) designation with the U.S. Small Business
Administration, which means the SBA delegates loan approval to the bank.
This PLP designation allows the bank to provide superior turnaround time on
SBA loans for its customers. The bank also works closely with other
government-sponsored initiatives and an array of lending programs available
to small businesses.

      Bucking industry trends, the bank also still devotes significant
resources to its merchant services department to manage a customer's credit
card transactions, rather than selling those accounts to a third party.
"It's a loyalty builder," says Silverman. "The more services we provide the
more likely they will remain our customers."

      It's a winning strategy, one that provides a significant source of
income and revenue to the company.


<PAGE>  8


New in 2002

Photo Caption:
Fairfax Branch Manager Steve Kendall and staff members Susan Lambert, Kelly
Crawford and Stacey Madden.


Littleton loan office, Fairfax branch meet expectations

      The new kids in the Union Bankshares Inc., family are already
exceeding expectations.

      The Fairfax community welcomed a new hometown bank with a grand
opening last April, and in its first eight months the branch is well ahead
of projections.

      According to Branch Manager Steve Kendall, he and his staff have
worked diligently to gain loyal customer support in the region. The staff
has quickly become a part of the community. Last year, the bank hosted an
open house for the Fairfax Business and Professional Association, and
brought its well-known Save for Success program to Fairfax schools.

      "We are happy to be here in Fairfax, and feel confident that we have
gained loyal customers who will stay with the bank for years to come," says
Kendall.

      Activity at the bank's loan origination office in Littleton, N.H., is
also growing. Outstanding loans grew to $9.7 million in 2002, up from $1.3
million in 2001.

      "We've had very good growth," says David Weed, a bank vice president
who works out of the loan service center. "The community is growing, and
opening this office has given us an opportunity to help meet those needs."

      Littleton has grown markedly in the last 10 years. Its industrial
park now houses 15 medium-sized corporations, Littleton Hospital built a
$30 million campus, and new retail offerings loom on the horizon. In 2000,
New Hampshire recognized downtown Littleton as its "Main Street of the
Year."


<PAGE>  9


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
SELECTED FINANCIAL INFORMATION

<TABLE>
<CAPTION>

                                                         At or For The Years Ended December 31(3)
                                             -----------------------------------------------------------------
                                               2002          2001          2000          1999          1998
                                             -----------------------------------------------------------------
                                                       (Dollars in thousands, except per share data)


                                          <c>           <c>           <c>           <c>           <c>
Balance Sheet Data:

  Total Assets                               $ 343,492     $ 337,475     $ 303,394     $ 295,476     $ 290,129

  Investment Securities                         45,824        49,610        56,642        60,441        58,585

  Loans, net of unearned income                225,907       250,943       224,796       209,353       202,468

  Allowance for loan losses                     (2,908)       (2,801)       (2,863)       (2,870)       (2,845)

  Deposits                                     293,004       285,722       258,737       257,593       248,919

  Borrowed funds                                 7,536        10,344         6,382         2,872         6,084

  Stockholders' equity(1)                       39,169        37,215        35,157        32,220        31,762


Income Statement Data:

  Total interest income                      $  22,169     $  24,124     $  24,126     $  22,868     $  22,626
  Total interest expense                        (6,364)       (9,565)       (9,877)       (9,122)       (9,252)
                                             -----------------------------------------------------------------
      Net interest and dividend income          15,805        14,559        14,249        13,746        13,374
  Provision for loan losses                       (356)         (320)         (250)         (359)         (400)
  Noninterest income                             3,560         3,073         2,569         2,568         2,911
  Noninterest expenses                         (11,761)      (10,496)       (9,944)      (10,065)       (9,279)
                                             -----------------------------------------------------------------
      Income before income taxes                 7,248         6,816         6,624         5,890         6,606

  Income tax expense                            (2,068)       (1,984)       (1,825)       (1,815)       (2,055)
                                             -----------------------------------------------------------------

      Net income                             $   5,180     $   4,832     $   4,799     $   4,075     $   4,551
                                             =================================================================

Per Common Share Data:

  Net income (2)                             $    1.71     $    1.59     $    1.58     $    1.35     $    1.51
  Cash dividends paid                             1.14          1.06          0.98          0.90          0.82
  Book value (1)                                 12.93         12.29         11.60         10.64         10.50

Weighted average # of shares outstanding     3,027,882     3,030,973     3,029,627     3,028,457     3,022,223
Number of shares outstanding                 3,030,057     3,027,557     3,029,729     3,029,529     3,025,438

<FN>
--------------------
<F1>  Stockholders' equity includes unrealized gains or losses, net of
      applicable income taxes, on investment securities classified as
      "available-for-sale".
<F2>  Computed using the weighted average number of shares outstanding for
      the period.
<F3>  Restated for 1999 and 1998 to reflect the December 1, 1999 merger
      with Citizens accomplished through a merger transaction accounted for
      as a pooling of interests.
</FN>
</TABLE>


<PAGE>  10


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY

Union Bankshares, Inc.'s management is responsible for preparation,
integrity and fair presentation of the annual consolidated financial
statements, Management's Discussion and Analysis ("MD&A") and all other
information in the Annual Report. The consolidated financial statements
have been prepared in accordance with U.S. generally accepted accounting
principles and the requirements of the Securities and Exchange Commission
("SEC"), as applicable. The MD&A has been prepared in accordance with the
requirements of securities regulators including Item 303 of Regulation S-K
of the Securities Exchange Act, and their related published requirements.

The consolidated financial statements and information in the MD&A
necessarily include amounts based on informed judgments and estimates of
the expected effects of current events and transactions with appropriate
consideration to materiality. In addition, in preparing the financial
information we must interpret the requirements described above, make
determinations as to the relevancy of information to be included, and make
estimates and assumptions that affect reported information. The MD&A also
includes information regarding the estimated impact of current transactions
and events, sources of liquidity and capital resources, operating trends,
risks and uncertainties. Actual results in the future may differ materially
from our present assessment of this information because future events and
circumstances may not occur as expected.

The financial information presented elsewhere in the Annual Report is
consistent with that in the consolidated financial statements.

In meeting our responsibility for the reliability of financial information,
we maintain and rely on a comprehensive system of internal control and
internal audit, including organizational and procedural controls and
internal accounting controls. Our system of internal controls includes
communication of our policies and procedures governing corporate conduct
and risk management; comprehensive business planning, effective segregation
of duties; delegation of authority and personal accountability; careful
selection and training of personnel; and sound and conservative accounting
policies which we regularly update. This structure ensures appropriate
internal control over transactions, assets and records. We also regularly
audit internal controls. These controls and audits are designed to provide
us with reasonable assurance that the financial records are reliable for
preparing financial statements and other financial information, assets are
safeguarded against unauthorized use or disposition, liabilities are
recognized, and we are in compliance with all regulatory requirements.

We, as Union Bankshares, Inc.'s Chief Executive Officer and Chief Financial
Officer, will be certifying Union Bankshares, Inc.'s annual disclosure
document filed with the SEC as required by the United States Sarbanes-Oxley
Act.

In order to provide their report on our consolidated financial statements,
the Company's Independent Auditors review our system of internal control
and conduct their work to the extent that they consider appropriate.

The Board of Directors is responsible for reviewing and approving the
financial information contained in the Annual Report, including the MD&A,
and overseeing management's responsibilities for the presentation and
preparation of financial information, maintenance of appropriate internal
controls, management and control of major risk areas and assessment of
significant and related party transactions. The Board delegates these
responsibilities to its Audit Committee, comprised solely of non-
management, independent directors.

The Company's Independent Auditors and the Company's Internal Auditors have
full and free access to the Board of Directors and its committees to
discuss audit, financial reporting and related matters.



/s/ Marsha A. Mongeon                  /s/ Kenneth D. Gibbons
------------------------------         -------------------------------
Marsha A. Mongeon                      Kenneth D. Gibbons
Chief Financial Officer                Chief Executive Officer


<PAGE>  11


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 2002

To the Board of Directors and Stockholders
of Union Bankshares, Inc.

We have audited the accompanying consolidated balance sheets of Union
Bankshares, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of
Union Bankshares, Inc. and Subsidiaries for December 31, 2000, were audited
by other auditors whose report dated January 12, 2001, expressed an
unqualified opinion on those statements.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the 2002 and 2001 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Union Bankshares, Inc. and Subsidiaries as of December 31, 2002
and 2001, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally
accepted in the United States of America.



                                       /s/  URBACH KAHN & WERLIN LLP


Albany, New York
March 7, 2003
VT Reg. No. 092-0000-026


<PAGE>  12


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>

                                                                                 2002             2001
                                                                             -----------------------------


                                                                          <c>              <c>
ASSETS
Cash and due from banks                                                      $ 16,034,609     $ 13,926,457
Federal funds sold and overnight deposits                                       9,712,858        7,630,393
                                                                             -----------------------------

      Cash and cash equivalents                                                25,747,467       21,556,850

Interest bearing deposits in banks                                              5,326,633        4,700,230
Securities available-for-sale                                                  45,824,389       49,610,131
Federal Home Loan Bank stock                                                    1,235,200        1,063,500
Loans held for sale                                                            17,138,937       16,332,646

Loans                                                                         238,973,828      234,873,634
Allowance for loan losses                                                      (2,908,222)      (2,800,963)
Unearned net loan fees                                                           (206,100)        (263,080)
                                                                             -----------------------------
      Net loans                                                               235,859,506      231,809,591

Accrued interest receivable                                                     1,890,478        2,036,566
Premises and equipment, net                                                     4,612,244        4,156,095
Other real estate owned                                                           783,761        1,296,192
Other assets                                                                    5,073,215        4,913,555
                                                                             -----------------------------

      Total assets                                                           $343,491,830     $337,475,356
                                                                             =============================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits:
    Noninterest bearing                                                      $ 40,976,579     $ 39,546,401
    Interest bearing                                                          252,027,914      246,175,254
                                                                             -----------------------------
      Total deposits                                                          293,004,493      285,721,655
  Borrowed funds                                                                7,536,032       10,344,441
  Accrued expenses and other liabilities                                        3,782,766        4,194,224
                                                                             -----------------------------
      Total liabilities                                                       304,323,291      300,260,320
                                                                             -----------------------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
  Common stock, $2.00 par value; 5,000,000 shares authorized; 3,270,689
   shares issued in 2002; 3,268,189 shares issued in 2001                       6,541,378        6,536,378
  Paid-in capital                                                                 317,553          277,254
  Retained earnings                                                            33,357,259       31,628,920
  Treasury stock at cost; 240,632 shares in 2002 and 2001                      (1,721,931)      (1,721,931)
  Accumulated other comprehensive income                                          674,280          494,415
                                                                             -----------------------------
      Total stockholders' equity                                               39,168,539       37,215,036
                                                                             -----------------------------

      Total liabilities and stockholders' equity                             $343,491,830     $337,475,356
                                                                             =============================
</TABLE>


See notes to consolidated financial statements.


<PAGE>  13


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>

                                                                 2002            2001            2000
                                                              -------------------------------------------


                                                           <c>             <c>             <c>
Interest income
  Interest and fees on loans                                  $19,251,810     $20,541,133     $20,058,057
  Interest on debt securities
    Taxable                                                     2,264,916       2,788,067       3,284,256
    Tax exempt                                                    256,703         226,684         216,101
  Dividends                                                        80,150         109,230         114,908
  Interest on federal funds sold                                   78,700         306,598         333,105
  Interest on interest bearing deposits in banks                  236,779         152,116         119,898
                                                              -------------------------------------------

      Total interest income                                    22,169,058      24,123,828      24,126,325
                                                              -------------------------------------------

Interest expense
  Interest on deposits                                          5,844,759       8,798,903       9,455,437
  Interest on federal funds purchased                               2,892           3,933           4,955
  Interest on other borrowed money                                516,290         761,610         416,965
                                                              -------------------------------------------

      Total interest expense                                    6,363,941       9,564,446       9,877,357
                                                              -------------------------------------------

      Net interest income                                      15,805,117      14,559,382      14,248,968

Provision for loan losses                                         356,000         320,000         250,000
                                                              -------------------------------------------

      Net interest income after provision for loan losses      15,449,117      14,239,382      13,998,968
                                                              -------------------------------------------

Other income
  Trust income                                                    169,208         246,609         181,611
  Service fees                                                  2,558,515       2,375,460       2,209,651
  Gain (loss) on sale of securities                                (2,970)        156,642          24,648
  Gain on sale of loans                                           661,121         156,248          33,747
  Other income                                                    173,720         137,719         119,603
                                                              -------------------------------------------

                                                                3,559,594       3,072,678       2,569,260
                                                              -------------------------------------------

Other expenses
  Salaries and wages                                            5,092,567       4,753,569       4,493,992
  Pension and employee benefits                                 1,680,658       1,450,794       1,122,965
  Occupancy expense, net                                          600,244         633,531         560,477
  Equipment expense                                               894,892         835,263         993,943
  Other expenses                                                3,492,938       2,822,879       2,772,299
                                                              -------------------------------------------

                                                               11,761,299      10,496,036       9,943,676
                                                              -------------------------------------------

      Income before income tax expense                          7,247,412       6,816,024       6,624,552
Income tax expense                                              2,067,598       1,984,006       1,825,010
                                                              -------------------------------------------

      Net income                                              $ 5,179,814     $ 4,832,018     $ 4,799,542
                                                              ===========================================

Earnings per common share                                     $      1.71     $      1.59     $      1.58
                                                              ===========================================
</TABLE>


See notes to consolidated financial statements.


<PAGE>  14


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>

                                                                                                      Accumulated
                                             Common Stock                                                other          Total
                                         ---------------------  Paid-in    Retained     Treasury     comprehensive  stockholders'
                                          Shares      Amount    capital    earnings       stock      income (loss)     equity
                                         ----------------------------------------------------------------------------------------


                                      <c>        <c>         <c>       <c>          <c>           <c>             <c>
Balances, December 31, 1999              3,029,529  $6,526,978  $238,353  $28,180,180  $(1,592,451)  $(1,133,046)    $32,220,014

  Comprehensive income
  Net income                                     -           -         -    4,799,542            -             -       4,799,542
    Change in net unrealized gain
     (loss) on securities available-
     for-sale, net of reclassification
     adjustment and tax effects                  -           -         -            -            -     1,104,588       1,104,588
                                                                                                                     -----------
    Total comprehensive income                                                                                         5,904,130
                                                                                                                     -----------
  Cash dividends declared
   ($.98 per share)                              -           -         -   (2,969,039)           -             -      (2,969,039)
  Exercise of stock option                     200         400     1,550            -            -             -           1,950
                                         ----------------------------------------------------------------------------------------

Balances, December 31, 2000              3,029,729   6,527,378   239,903   30,010,683   (1,592,451)      (28,458)     35,157,055

  Comprehensive income
    Net income                                   -           -         -    4,832,018            -             -       4,832,018
    Change in net unrealized gain
     (loss) on securities available-
     for-sale, net of reclassification
     adjustment and tax effects                  -           -         -            -            -       522,873         522,873
                                                                                                                     -----------
    Total comprehensive income                                                                                         5,354,891
                                                                                                                     -----------
  Cash dividends declared
   ($1.06 per share)                             -           -         -   (3,213,781)           -             -      (3,213,781)
  Purchase of treasury stock                (6,672)          -         -            -     (129,480)            -        (129,480)
  Exercise of stock option                   4,500       9,000    37,351            -            -             -          46,351
                                         ----------------------------------------------------------------------------------------

Balances, December 31, 2001              3,027,557   6,536,378   277,254   31,628,920   (1,721,931)      494,415      37,215,036

  Comprehensive income
    Net income                                   -           -         -    5,179,814            -             -       5,179,814
    Change in net unrealized gain
     (loss) on securities available-
     for-sale, net of reclassification
     adjustment and tax effects                  -           -         -            -            -       179,865         179,865
                                                                                                                     -----------
    Total comprehensive income                                                                                         5,359,679
                                                                                                                     -----------
  Cash dividends declared
   ($1.14 per share)                             -           -         -   (3,451,475)           -             -      (3,451,475)
  Exercise of stock option                   2,500       5,000    40,299            -            -             -          45,299
                                         ----------------------------------------------------------------------------------------

Balances, December 31, 2002              3,030,057  $6,541,378  $317,553  $33,357,259  $(1,721,931)  $   674,280     $39,168,539
                                         ========================================================================================
</TABLE>


See notes to consolidated financial statements.


<PAGE>  15


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>

                                                                                       2002             2001             2000
                                                                                   ----------------------------------------------


                                                                                <c>              <c>              <c>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                                       $  5,179,814     $  4,832,018     $  4,799,542
    Adjustments to reconcile net income to net cash provided by
     operating activities:
      Depreciation                                                                      658,004          608,145          789,027
      Provision for loan losses                                                         356,000          320,000          250,000
      (Credit) provision for deferred income taxes                                       34,604          (49,714)         (18,339)
      Net amortization on securities                                                    198,030           89,117           51,389
      Equity in losses of limited partnerships                                          124,039           70,423           45,103
      Write-downs of other real estate owned                                            309,688                -           12,008
      Increase (decrease) in unamortized loan fees                                      (56,980)          12,706          (22,931)
      Increase in loans held for sale                                                  (145,170)      (7,023,093)      (1,017,743)
      Decrease (increase) in accrued interest receivable                                146,088          560,325         (397,465)
      Decrease (increase) in other assets                                              (376,999)        (219,583)         102,923
      (Increase) decrease in income taxes                                                48,739          223,687         (196,601)
      (Decrease) increase in accrued interest payable                                  (308,346)          (9,360)         288,879
      Increase in other liabilities                                                     271,968            8,748           39,217
      Loss (gain) on sale of securities                                                   2,970         (156,642)         (24,648)
      Gain on sale of loans                                                            (661,121)        (156,248)         (33,747)
      Loss (gain) on sale of other real estate owned                                    (35,516)          18,321           (6,785)
      (Gain) loss on disposal of fixed assets                                            (1,842)           8,630            3,750
                                                                                   ----------------------------------------------
        Net cash provided (used in) by operating activities                           5,743,970         (862,520)       4,663,579
                                                                                   ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES
  Interest bearing deposits in banks
    Maturities and redemptions                                                        2,262,597          981,975          935,342
    Purchases                                                                        (2,889,000)      (4,035,401)        (656,330)
  Securities available-for-sale
    Sales and maturities                                                             19,016,480       30,112,548       11,353,211
    Purchases                                                                       (15,157,949)     (22,223,736)      (5,907,600)
  Purchase of Federal Home Loan Bank stock                                             (171,700)         (46,700)         (78,000)
  Increase in loans, net                                                             (4,787,395)     (20,785,053)     (14,936,084)
  Recoveries of loans charged off                                                       110,465           93,771          123,590
  Purchase of premises and equipment, net                                            (1,117,113)      (1,020,873)        (737,316)
  Investments in limited partnerships                                                  (423,819)        (154,125)        (190,575)
  Proceeds from sales of premises and equipment                                           4,802          212,317           23,261
  Proceeds from sales of other real estate owned                                        512,870          104,702           42,241
  Proceeds from sales of repossessed property                                            18,156           30,943           43,487
                                                                                   ----------------------------------------------
        Net cash used in investing activities                                        (2,621,606)     (16,729,632)      (9,984,773)
                                                                                   ----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Increase (decrease) in borrowings outstanding, net                                 (2,808,409)       3,962,663        3,509,849
  Proceeds from exercise of stock options                                                45,299           46,351            1,950
  Net increase in noninterest bearing deposits                                        1,430,178        5,999,416          558,093
  Net increase in interest bearing deposits                                           5,852,660       20,985,659          585,684
  Purchase of treasury stock                                                                  -         (129,480)               -
  Dividends paid                                                                     (3,451,475)      (3,213,781)      (2,969,039)
                                                                                   ----------------------------------------------
        Net cash provided by financing activities                                     1,068,253       27,650,828        1,686,537
                                                                                   ----------------------------------------------
        Increase (decrease) in cash and cash equivalents                              4,190,617       10,058,676       (3,634,657)

Cash and cash equivalents:
  Beginning                                                                          21,556,850       11,498,174       15,132,831
                                                                                   ----------------------------------------------
  Ending                                                                           $ 25,747,467     $ 21,556,850     $ 11,498,174
                                                                                   ==============================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Interest paid                                                                    $  6,672,287     $  9,573,806     $  9,588,478
                                                                                   ==============================================
  Income taxes paid                                                                $  1,984,250     $  1,819,250     $  2,039,950
                                                                                   ==============================================

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
 FINANCING ACTIVITIES
  Other real estate acquired in settlement of loans                                $  1,231,315     $  1,302,922     $    137,090
                                                                                   ==============================================
  Repossessed property acquired in settlement of loans                             $     53,384     $     25,651     $    143,325
                                                                                   ==============================================
  Investment in limited partnerships acquired by capital contributions payable     $          -     $  1,099,800     $          -
                                                                                   ==============================================
  Total change in unrealized gain on securities available-for-sale                 $    273,789     $    792,232     $  1,673,618
                                                                                   ==============================================
  Loans originated to finance the sale of other real estate owned                  $    956,705     $          -     $          -
                                                                                   ==============================================
</TABLE>


See notes to consolidated financial statements.


<PAGE>  16


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.  Significant Accounting Policies

The accounting and reporting policies of Union Bankshares, Inc. and
Subsidiaries (the "Company") are in conformity with U. S. generally
accepted accounting principles and general practices within the banking
industry. The following is a description of the more significant policies.

Basis of presentation and consolidation

The consolidated financial statements include the accounts of Union
Bankshares, Inc., and its wholly-owned subsidiaries, Union Bank ("Union"),
and Citizens Savings Bank and Trust Company ("Citizens"). All significant
intercompany transactions and balances have been eliminated. The Company
utilizes the accrual method of accounting for financial reporting purposes.

Nature of operations

The Company provides a variety of financial services to individuals,
municipalities, and corporate customers through its branches, ATM's,
telebanking, and internet banking systems in northern Vermont and New
Hampshire which encompasses primarily retail consumers, small businesses,
municipal, agriculture, and the tourism industry. The Company's primary
deposit products are checking, savings, money market accounts, and
certificates of deposit. Its primary lending products are commercial, real
estate, municipal, and consumer loans.

On February 18, 2003, the Company announced the proposed merger of Union
Bank and Citizens. The merger is expected to be completed on or about May
1, 2003 (subject to regulatory approval).

Concentration of risk

The Company's operations are affected by various risk factors, including
interest-rate risk, credit risk, and risk from geographic concentration of
lending activities. Management attempts to manage interest rate risk
through various asset/liability management techniques designed to match
maturities of assets and liabilities. Loan policies and administration are
designed to provide assurance that loans will only be granted to credit-
worthy borrowers, although credit losses are expected to occur because of
subjective factors and factors beyond the control of the Company. Although
the Company has a diversified loan portfolio and economic conditions are
relatively stable, most of its lending activities are conducted within the
geographic area where it is located. As a result, the Company and its
borrowers may be especially vulnerable to the consequences of changes in
the local economy. Note 4 discusses the types of securities that the
Company invests in. Note 6 discusses the types of lending which the Company
engages in. In addition, a substantial portion of the Company's loans are
secured by real estate and/or are SBA guaranteed.

Use of estimates

The preparation of consolidated financial statements in conformity with U.
S. generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to significant change relate to the determination of the
allowance for losses on loans and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans, and deferred tax
assets. The amount of the change that is reasonably possible cannot be
estimated.

Management believes that the allowance for loan losses is adequate and that
other real estate owned is recorded at its fair value less an estimate of
the costs to sell the properties. While management uses available
information to recognize losses on loans and other real estate owned,
future additions to the allowance for loan losses or writedowns of other
real estate owned may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses and other real estate owned. Such agencies may require the Company
to recognize additions to the allowance for loan losses or writedowns of
other real estate owned based on their judgments about information
available to them at the time of their examination, which may not be
currently available to management.


<PAGE>  17


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)

A substantial portion of the Company's loans are secured by real estate
located throughout Northern Vermont. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio is
dependent upon general economic and real estate market conditions in
Northern Vermont.

Presentation of cash flows

For purposes of presentation in the consolidated statements of cash flows,
cash and cash equivalents includes cash on hand, amounts due from banks
(including cash items in process of clearing), federal funds sold
(generally purchased and sold for one day periods), and overnight deposits.

Trust assets

Assets held by the Trust Department of Citizens in a fiduciary or agency
capacity, other than trust cash on deposit, are not included in these
consolidated financial statements because they are not assets of Citizens
or the Company.

Investment securities

Investment securities purchased and held primarily for resale in the near
future are classified as trading securities and are carried at fair value
with unrealized gains and losses included in earnings. Debt securities the
Company has the positive intent and ability to hold to maturity are
classified as held to maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using methods
approximating the interest method. Debt and equity securities not
classified as either held-to-maturity or trading are classified as
available-for-sale. Investments classified as available-for-sale are
carried at fair value. Unrealized gains and losses on available-for-sale
securities are reported as a net amount in other comprehensive income, net
of tax and reclassification adjustment. Declines in the fair value of held-
to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized
losses. The specific identification method is used to determine realized
gains and losses on sales of securities available-for-sale.

Federal Home Loan Bank stock

As members of the Federal Home Loan Bank, Union and Citizens are required
to invest in $100 par value stock of the Federal Home Loan Bank. The stock
is nonmarketable, and when redeemed, they would receive from the Federal
Home Loan Bank an amount equal to the par value of the stock.

Loans held for sale

Loans originated and intended for sale in the secondary market are carried
at the lower of cost or estimated fair value in the aggregate. All sales
are made without recourse. Gains and losses on the disposition of loans
held for sale are determined on the specific identification basis. Net
unrealized losses are recognized through a valuation allowance by charges
to income.

Loans

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

Loan interest income is accrued daily on outstanding balances. The accrual
of interest is discontinued when a loan is specifically determined to be
impaired or management believes, after considering collection efforts and
other factors, that the borrowers financial condition is such that
collection of interest is doubtful. Any unpaid interest previously accrued
on those loans is reversed from income. A loan may be restored to accrual
status when its financial status has been significantly improved and there
is no principal or interest past due. It can also be restored to accrual
status if the borrower makes six consecutive monthly payments or the lump
sum equivalent. Interest income generally is not recognized on specific
impaired loans unless the likelihood of further loss is remote. Interest
payments received on such loans are generally applied as a reduction of the
loan principal balance. Interest income on other nonaccrual loans is
recognized only to the extent of interest payments received.


<PAGE>  18


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)

Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield using methods that approximate the interest
method. The Company is generally amortizing these amounts over the
contractual life.

Allowance for loan losses

The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio. The amount of the allowance is based on management's
periodic evaluation of the collectibility of the loan portfolio, including
the nature of the portfolio, credit concentrations, trends in historical
loss experience, specific impaired loans, and economic conditions.
Allowances for impaired loans are generally determined based on collateral
values or the present value of estimated cash flows. The allowance is
increased by a provision for loan losses, which is charged to expense, and
reduced by charge-offs, net of recoveries.

Premises and equipment

Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method over their
estimated useful lives. The cost of assets sold or otherwise disposed of
and the related allowance for depreciation is eliminated from the accounts
and the resulting gains or losses are reflected in the income statement.
Maintenance and repairs are charged to current expense as incurred and the
cost of major renewals and betterments are capitalized.

Other real estate owned

Real estate properties acquired through or in lieu of loan foreclosure are
to be sold and are initially recorded at fair value at the date of
foreclosure establishing a new carrying basis. After foreclosure,
valuations are periodically performed by management, and the real estate is
carried at the lower of carrying amount or fair value less cost to sell.
Revenue and expenses from operations and changes in the valuation are
included in other income and expenses.

Mortgage servicing

Servicing assets are recognized as separate assets when rights are acquired
through purchase or through sale of financial assets. Capitalized servicing
rights are reported in other assets and are amortized against noninterest
income in proportion to, and over the period of, the estimated future net
servicing income of the underlying financial assets. Servicing assets are
evaluated for impairment based upon the fair value of the rights as
compared to amortized cost. Impairment is determined by stratifying rights
by predominant characteristics, such as interest rates and terms. Fair
value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Impairment is recognized through a valuation
allowance for an individual stratum, to the extent that fair value is less
than the capitalized amount for the stratum.

Investments Carried at Equity

The Company has purchased various partnership interests in low income
housing limited partnerships. These partnerships were established to
acquire, own and rent residential housing for low and moderate income
Vermonters located in Northern Vermont. The investments are accounted for
under the equity method of accounting. These equity investments, which are
included in other assets, are recorded at cost and adjusted for the
Company's proportionate share of the partnerships' undistributed earnings
or losses.

Pension plans

Union maintains a non-contributory defined benefit pension plan covering
all eligible employees who meet certain service requirements. The costs of
this plan, based on actuarial computations of current and future benefits
for employees, are charged to current operating expenses. Union also has a
contributory 401(k) pension plan covering all employees who meet certain
service requirements. The plan is voluntary, and in 2002, 2001, and 2000,
Union, through the discretionary matching component of the plan,
contributed fifty cents for every dollar contributed by participants, up to
six percent of each participant's salary.


<PAGE>  19


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)

Citizens has a contributory 401(k) pension plan covering all employees who
meet certain age and service requirements. The plan is voluntary, and
Citizens, through the discretionary matching component of the plan,
contributed fifty cents for every dollar contributed by participants, up to
six percent of each participant's salary in 2002, 2001 and 2000.
Contributions to the profit sharing component of the plan are at the
discretion of the Citizens Board of Directors and were made in 2002, 2001
and 2000.

Pension costs are charged to pension and other employee benefits expense
and are funded as accrued.

Advertising costs

The Company expenses advertising costs as incurred.

Earnings per common share

Earnings per common share are computed based on the weighted average number
of shares of common stock outstanding during the period, retroactively
adjusted for stock splits, stock dividends, and stock issues and reduced
for shares held in treasury. The weighted average shares outstanding were
3,027,882, 3,030,973, and 3,029,627 for the years ended December 31, 2002,
2001, and 2000, respectively.

Income taxes

The Company recognizes income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are established for
the temporary differences between the accounting basis and the tax basis of
the Company's assets and liabilities at enacted tax rates expected to be in
effect when the amounts related to such temporary differences are realized
or settled. Adjustments to the Company's deferred tax assets are recognized
as deferred income tax expense or benefit based on management's judgment
relating to the realizability of such assets.

Off-balance-sheet financial instruments

In the ordinary course of business, the Company has entered into off
balance sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commitments to purchase
investment securities, commercial letters of credit and standby letters of
credit. Such financial instruments are recorded in the financial statements
when they become payable.

Fair values of financial instruments

The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation.
Fair value is best determined based upon quoted market prices. However, in
many instances, there are no quoted market prices for the Company's various
financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Accordingly, the fair value estimates may not be realized in an
immediate settlement of the instrument. SFAS No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amount presented may
not necessarily represent the underlying fair value of the Company.

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

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

      Investment securities and interest bearing deposits: Fair values for
      investment securities and interest bearing deposits are based on
      quoted market prices, where available. If quoted market prices are
      not available, fair values are based on quoted market prices of
      comparable instruments or discounted present values of cash flows.


<PAGE>  20


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)

      Federal Home Loan Bank stock: The carrying amount of this stock
      approximates its fair value.

      Loans and loans held for sale: For variable-rate loans that reprice
      frequently and with no significant change in credit risk, fair values
      are based on carrying amounts. The fair values for other loans (for
      example, fixed-rate residential, commercial real estate, and rental
      property mortgage loans, and commercial and industrial loans) are
      estimated using discounted cash flow analysis, based on interest
      rates currently being offered for loans with similar terms to
      borrowers of similar credit quality. Loan fair value estimates
      include judgments regarding future expected loss experience and risk
      characteristics. The carrying amounts reported in the balance sheet
      for loans that are held for sale approximate their fair market
      values. Fair values for impaired loans are estimated using discounted
      cash flow analyses or underlying collateral values, where applicable.

      Deposits: The fair values disclosed for demand deposits (for example,
      checking and savings accounts) are, by definition, equal to the
      amount payable on demand at the reporting date (that is, their
      carrying amounts). The carrying amounts of variable rate time
      deposits approximate their fair values at the reporting date. The
      fair values for fixed rate time deposits and borrowed funds are
      estimated using a discounted cash flow calculation that applies
      interest rates currently being offered on time deposits and debt to a
      schedule of aggregated contractual maturities on such time deposits
      and debt.

      Accrued interest: The carrying amounts of accrued interest
      approximates their fair values.

      Borrowed funds: The fair values of the Company's long term debt are
      estimated using discounted cash flow analysis based on interest rates
      currently being offered on similar debt instruments.

      Other liabilities: Commitments to extend credit were evaluated and
      fair value was estimated using the fees currently charged to enter
      into similar agreements, taking into account the remaining terms of
      the agreements and the present creditworthiness of the
      counterparties. For fixed-rate loan commitments, fair value also
      considers the difference between current levels of interest rates and
      the committed rates.

Comprehensive income

Accounting principles generally require that recognized revenue, expenses,
gains, and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available-
for-sale securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income, are
components of comprehensive income.

The components of other comprehensive income and related tax effects at
December 31 are as follows:

<TABLE>
<CAPTION>

                                                                         2002         2001           2000
                                                                       -------------------------------------


                                                                    <c>          <c>           <c>
Unrealized holding gains (losses) on available-for-sale securities     $270,819     $ 948,874     $1,698,266
Reclassification adjustment for losses (gains) realized in income         2,970      (156,642)       (24,648)
                                                                       -------------------------------------
Net unrealized gains                                                    273,789       792,232      1,673,618
Tax effect                                                              (93,924)     (269,359)      (569,030)
                                                                       -------------------------------------

Net of tax amount                                                      $179,865     $ 522,873     $1,104,588
                                                                       =====================================
</TABLE>

Stock option plan

The Company accounts for its stock option plan in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation", permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide proforma net
income disclosures for employee stock-based


<PAGE>  21


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)

awards made in 1995 and future years as if the fair value based method
defined in SFAS No. 123 had been applied. The Company has elected to apply
the provisions of APB Opinion No. 25 and provide the proforma disclosures
of SFAS No. 123. The pro forma effects on net income and earnings per share
were not material in 2002, 2001 and 2000. See Note 19.

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over
the assets has been surrendered. Control over transferred assets is deemed
to be surrendered when (1) the assets have been isolated from the Company,
(2) the transferee obtains the right (free of conditions that constrain it
from taking advantage of that right) to pledge or exchange the transferred
assets, and (3) the Company does not maintain effective control over the
transferred assets through an agreement to repurchase them before their
maturity.

Segment reporting

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", establishes standards relative to public companies for the
reporting of certain information about operating segments within their
financial statements. Management has determined that the Company has two
reportable segments as defined within SFAS No. 131. These segments are
disclosed in Note 20 of the financial statements.

Recent accounting pronouncements

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure, which became effective for the
Company for the year ended December 31, 2002. SFAS No. 148 amends SFAS No.
123, Accounting for Stock Based Compensation, to provide alternative
methods of transition to SFAS No. 123's fair value method of accounting for
stock based employee compensation. SFAS No. 148 also amends the disclosure
provisions of SFAS No. 123 and APB Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of significant accounting
policies of the effects of an entity's accounting policy with respect to
stock based compensation on reported net income and earnings per share in
annual and interim financial statements. While SFAS No. 148 does not amend
SFAS No. 123 to require companies to account for employee stock options
using the fair value method, the disclosure provisions of SFAS No. 148 are
applicable to all companies with stock based employee compensation,
regardless of whether they account for that compensation using the fair
value method of SFAS No. 123 or the intrinsic value method of APB Opinion
No. 25. The Company currently uses the intrinsic method of accounting for
stock options and has not yet determined if it will change from the
intrinsic value method to the fair value method of accounting for employee
stock options.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions. SFAS No. 147 amends previously issued guidance
regarding the accounting and reporting for the acquisition of all or part
of a financial institution. SFAS No. 147 also provides guidance on the
accounting for the impairment or disposal of core deposits and is effective
for acquisitions after October 1, 2002. Management has determined there is
no current impact from this statement on the Company's financial
statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses the accounting and
reporting for costs associated with exit or disposal activities. SFAS No.
146 amends previously issued guidance and establishes an accounting model
for costs associated with exit or disposal activities based on the FASB's
conceptual framework for recognition and measurement of liabilities. The
provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002. Management is currently evaluating the
impact of SFAS No. 146 on the Company's financial statements but does not
anticipate it will have any material impact.

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS No. 4, 44
and 64, Amendment of SFAS No. 13, and Technical Corrections. This statement
eliminates SFAS No. 4, Reporting Gains and Losses from Extinguishment of
Debt as amended by SFAS No. 64, Extinguishment of Debt Made to Satisfy
Sinking-Fund Requirements. As a result, gains and losses from
extinguishment of debt can only be classified as extraordinary items if
they meet the definition of unusual and infrequent, as prescribed in APB
Opinion No. 30. Additionally, SFAS No. 145 amends SFAS No. 13 Accounting
for Leases to require that lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner
as sale-leaseback transactions. The


<PAGE>  22


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 1.  Significant Accounting Policies (Continued)


provisions of this statement are effective at various dates in 2002 and
2003 and are not expected to have a material impact on the Company's
consolidated financial statements.

Reclassifications

Certain amounts in the 2001 and 2000 financial statements have been
reclassified to conform to the current year presentation.

Note 2.  Restrictions on Cash and Due From Banks

The Company is required to maintain reserve balances in cash with Federal
Reserve Banks. The totals of those reserve balances were approximately
$3,267,000 and $3,144,000 at December 31, 2002 and 2001, respectively.

The nature of the Company's business requires that it maintain amounts due
from banks which, at times, may exceed federally insured limits. The
balance in these accounts at December 31, is as follows:

<TABLE>
<CAPTION>

                                    2002           2001
                                 -------------------------


                              <c>            <c>
Noninterest-bearing accounts     $5,292,827     $2,256,258
Federal Reserve Bank              7,654,585      8,175,818
Federal funds sold                6,000,000      4,512,886
Federal Home Loan Bank            3,712,858      3,010,000
</TABLE>

No losses have been experienced in these accounts. In addition, the Company
was required to maintain contracted clearing balances of $2,750,000 and
$1,950,000 at December 31, 2002 and 2001, respectively.

Note 3.  Interest Bearing Deposits

Interest bearing deposits consist of certificates of deposit purchased from
various financial institutions. Deposits at each institution are maintained
at or below the FDIC insurable limits of $100,000. These certificates were
issued with rates ranging from 1.74% to 7.15% and mature at various dates
through 2007 with approximately $2,970,000 scheduled to mature in 2003.

Note 4.  Investment Securities

Securities available-for-sale consists of the following:

<TABLE>
<CAPTION>

                                                                            Gross          Gross
                                                           Amortized      Unrealized     Unrealized        Fair
                                                             Cost           Gains          Losses          Value
                                                          ---------------------------------------------------------


                                                       <c>             <c>             <c>           <c>
December 31, 2002:
U.S. Government and agency and corporation securities     $ 6,872,815     $  110,365      $  4,142      $ 6,979,038
Mortgage-backed securities                                 12,335,710        334,503        10,694       12,659,519
State and political subdivisions                            6,044,452        189,271             -        6,233,723
Corporate debt securities                                  18,939,989        553,710       101,203       19,392,496
Marketable equity securities                                  608,520         86,349       135,256          559,613
                                                          ---------------------------------------------------------

                                                          $44,801,486     $1,274,198      $251,295      $45,824,389
                                                          =========================================================
</TABLE>


<PAGE>  23


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 4.  Investment Securities (Continued)

<TABLE>
<CAPTION>


                                                                            Gross          Gross
                                                           Amortized      Unrealized     Unrealized        Fair
                                                             Cost           Gains          Losses          Value
                                                          ---------------------------------------------------------


                                                       <c>              <c>            <c>           <c>
December 31, 2001:
U.S. Government and agency and corporation securities     $ 4,470,503      $ 80,443       $ 16,851      $ 4,534,095
Mortgage-backed securities                                 15,667,878       230,905         20,438       15,878,345
State and political subdivisions                            5,916,570        31,100         47,240        5,900,430
Corporate debt securities                                  22,197,546       403,063        140,893       22,459,716
Marketable equity securities                                  608,520       231,480          2,455          837,545
                                                          ---------------------------------------------------------

                                                          $48,861,017      $976,991       $227,877      $49,610,131
                                                          =========================================================
</TABLE>

Investment securities with a carrying amount of $5,528,408 and $3,996,329
at December 31, 2002 and 2001, respectively, were pledged as collateral on
public deposits and for other purposes as required or permitted by law.

All realized gains and losses in 2002, 2001, and 2000 were from the sale of
securities available-for-sale. Proceeds from the sale of securities
available-for-sale were $505,500, $7,497,628 and $7,409,118 in 2002, 2001,
and 2000, respectively. Realized gains from sales of investments available-
for-sale were $5,054, $182,087 and $69,765 with realized losses of $8,024,
$25,445 and $45,117 for the years 2002, 2001, and 2000 respectively.

The scheduled maturities of securities available-for-sale as of December
31, 2002 were as follows:

<TABLE>
<CAPTION>

                                  Amortized         Fair
                                    Cost            Value
                                 ---------------------------


                              <c>             <c>
Due in one year or less          $ 9,012,015     $ 9,081,906
Due from one to five years        14,661,520      15,124,597
Due from five to ten years         7,445,907       7,643,811
Due after ten years                  737,814         754,943
                                 ---------------------------
                                  31,857,256      32,605,257
Mortgage-backed securities        12,335,710      12,659,519
Marketable equity securities         608,520         559,613
                                 ---------------------------
                                 $44,801,486     $45,824,389
                                 ===========================
</TABLE>

Actual maturities may differ from contractual maturities in mortgage-backed
securities because the mortgages underlying the securities may be called or
repaid without any penalties. Therefore, these securities are not included
in the maturity categories in the above maturity summary.

Note 5.  Loans Held for Sale and Mortgage Servicing Rights

At December 31, 2002 and 2001, loans held for sale consisted of
conventional residential mortgages, commercial real estate mortgages and
commercial loans originated for subsequent sale. At December 31, 2002 and
2001, there was no valuation reserve necessary for loans held for sale.
Commercial and mortgage loans serviced for others are not included in the
accompanying balance sheets. The unpaid principal balances of commercial
and mortgage loans serviced for others were $63,047,697 and $53,994,767 at
December 31, 2002 and 2001, respectively.

The company retains the servicing rights on loans sold. At December 31,
2002 and 2001, the unamortized balance of servicing rights on loans sold
with servicing retained was not material. The estimated fair value of these
servicing rights was in excess of their carrying value at both December 31,
2002 and 2001, and therefore no impairment reserve was necessary.
Mortgage/commercial servicing rights of $208,829, $58,654 and $44,283 were
capitalized in 2002, 2001, and 2000, respectively. Amortization of
servicing rights was $87,541, $64,092 and $34,990 for 2002, 2001, and 2000,
respectively.


<PAGE>  24


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 6.  Loans

The composition of net loans at December 31 is as follows:

<TABLE>
<CAPTION>

                                                        2002             2001
                                                    -----------------------------


                                                 <c>              <c>
Real estate                                         $109,347,125     $112,563,554
Commercial real estate                                86,080,371       78,898,511
Commercial                                            19,919,238       20,658,734
Consumer                                              10,758,308       12,201,046
Municipal loans                                       12,868,786       10,551,789
                                                    -----------------------------
Gross Loans                                          238,973,828      234,873,634
                                                    -----------------------------

Deduct:
Allowance for loan losses                              2,908,222        2,800,963
Net deferred loan fees, premiums, and discounts          206,100          263,080
                                                    -----------------------------
                                                       3,114,322        3,064,043
                                                    -----------------------------

Net Loans                                           $235,859,506     $231,809,591
                                                    =============================
</TABLE>

Impairment of loans having recorded investments of $1,140,051 and
$1,193,779 at December 31, 2002 and 2001, respectively, has been recognized
in conformity with SFAS No. 114, as amended by SFAS No. 118. The average
recorded investment in impaired loans during 2002, 2001, and 2000 was
$1,180,540, $1,204,199 and $1,358,358, respectively. The total allowance
for loan losses related to these loans was $112,482 and $185,963 on
December 31, 2002 and 2001, respectively. Interest income on impaired loans
of $64,816, $61,861 and $10,500 was recognized for cash payments received
in 2002, 2001, and 2000, respectively. The Company is not committed to lend
additional funds to borrowers with impaired loans.

Union had loans on non-accrual status totaling $1,493,596 at December 31,
2002 and $1,826,664 at December 31, 2001. The aggregate interest on non-
accrual loans not recognized through December 31, 2002 was $316,019,
through 2001 was $450,118 and through 2000 was $288,512. Union had $778,903
and $3,037,543 in loans past due 90 days or more and still accruing at
December 31, 2002 and 2001, respectively.

Residential real estate loans aggregating $14,954,697 and $14,031,920 at
December 31, 2002 and 2001, respectively, were pledged as collateral on
deposits of municipalities.

Note 7.  Allowance for Loan Losses

Changes in the allowance for loan losses for the years ended December 31
are as follows:

<TABLE>
<CAPTION>

                                         2002           2001           2000
                                      ----------------------------------------


                                   <c>            <c>            <c>
Balance, beginning                    $2,800,963     $2,862,707     $2,869,983
Provision for loan losses                356,000        320,000        250,000
Recoveries of amounts charged off        110,465         93,771        123,590
                                      ----------------------------------------
                                       3,267,428      3,276,478      3,243,573
Amounts charged off                     (359,206)      (475,515)      (380,866)
                                      ----------------------------------------

Balance, ending                       $2,908,222     $2,800,963     $2,862,707
                                      ========================================
</TABLE>


<PAGE>  25


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 8.  Premises and Equipment

The major classes of premises and equipment and accumulated depreciation at
December 31 are as follows:

<TABLE>
<CAPTION>

                                     2002            2001
                                  ---------------------------


                               <c>             <c>
Land and land improvements        $   688,606     $   665,474
Buildings and improvements          4,599,022       4,108,901
Furniture and equipment             6,393,060       6,475,640
                                  ---------------------------
                                   11,680,688      11,250,015
Less accumulated depreciation      (7,068,444)     (7,093,920)
                                  ---------------------------
                                  $ 4,612,244     $ 4,156,095
                                  ===========================
</TABLE>

Depreciation included in occupancy and equipment expenses amounted to
$658,004, $608,145 and $789,027 for the years ended December 31, 2002,
2001, and 2000, respectively.

The Company is obligated under noncancelable operating leases for premises
expiring in various years through the year 2007. Options to renew for
additional periods are available with these leases. Future minimum rental
commitments for these leases with terms of one year or more at December 31,
2002 were as follows:

<TABLE>

      
              <c>
      2003             $ 92,973
      2004               85,120
      2005               71,120
      2006               57,120
      2007                9,350
                       --------

                       $315,683
                       ========
</TABLE>

Rent expense for 2002, 2001, and 2000 amounted to $106,170, $84,307 and
$72,086, respectively.

Occupancy expense is shown in the consolidated statements net of rental
income of $78,806 in 2002, $64,241 in 2001, $55,025 in 2000.

Note 9.  Other Real Estate Owned

A summary of foreclosed real estate at December 31 is as follows:

<TABLE>
<CAPTION>

                                                           2002          2001
                                                         -----------------------


                                                      <c>          <c>
Other real estate owned                                  $783,761     $1,296,192
Less allowance for losses on other real estate owned            -              -
                                                         -----------------------

Other real estate owned, net                             $783,761     $1,296,192
                                                         =======================
</TABLE>

Changes in the allowance for losses on other real estate owned for the
years ended December 31 were as follows:

<TABLE>
<CAPTION>

                           2002         2001        2000
                         ---------------------------------


                      <c>           <c>         <c>
Balance, beginning       $       -     $ 3,957     $     -
Provision for losses       309,688           -      12,008
Charge-offs, net          (309,688)     (3,957)     (8,051)
                         ---------------------------------

Balance, ending          $       -     $     -     $ 3,957
                         =================================
</TABLE>


<PAGE>  26


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 10.  Investments Carried at Equity

The carrying values of Investments Carried at Equity were $1,681,183 and
$1,805,222 at December 31, 2002 and 2001, respectively. The capital
contributions payable related to these investments were $675,981 and
$1,099,800 at December 31, 2002 and 2001, respectively. The provision for
undistributed net losses of the partnerships charged to earnings was
$124,039, $70,423 and $45,103 for 2002, 2001 and 2000, respectively.

Note 11.  Deposits

The following is a summary of interest bearing deposits at December 31:

<TABLE>
<CAPTION>

                                 2002             2001
                             -----------------------------


                          <c>              <c>
NOW accounts                 $ 44,691,103     $ 41,020,135
Savings and money market      106,043,027      100,991,335
Time, $100,000 and over        30,049,015       29,869,386
Other time                     71,244,769       74,294,398
                             -----------------------------

                             $252,027,914     $246,175,254
                             =============================
</TABLE>

The following is a summary of time deposits by maturity at December 31,
2002:

<TABLE>

      
                         <c>
      2003                        $ 79,041,660
      2004                          10,208,912
      2005                           9,311,511
      2006                           1,523,081
      2007 and thereafter            1,208,620
                                  ------------

                                  $101,293,784
                                  ============
</TABLE>

A maturity distribution of time deposits in denominations of $100,000 or
more at December 31, 2002 is as follows:

<TABLE>


                                         <c>
Three months or less                        $ 9,628,615
Over three months through six months         13,090,378
Over six months through twelve months         3,112,965
Over twelve months                            4,217,057
                                            -----------

                                            $30,049,015
                                            ===========
</TABLE>

Note 12.  Borrowed Funds

Borrowings from the Federal Home Loan Bank of Boston (the "FHLB") for the
years ended December 31, were as follows:

<TABLE>
<CAPTION>

                                                                                      2002           2001
                                                                                   --------------------------


                                                                                <c>            <c>
Option Advances

  6.06% note payable to FHLB, payable in monthly installments of $11,178,
   including interest, through May 6, 2008                                         $  624,685     $   717,468

  6.06% note payable to FHLB, payable in monthly installments of $5,589,
   including interest, through March 24, 2008                                         304,350         351,215

  5.62% note payable to FHLB, payable in monthly installments of $19,717
   including interest, with a balloon payment of $1,046,818 on May 31, 2006         1,591,036       1,732,875
</TABLE>


<PAGE>  27


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 12.  Borrowed Funds (Continued)

<TABLE>
<CAPTION>

                                                                                      2002           2001
                                                                                   --------------------------


                                                                                <c>            <c>
  5.34% note payable to FHLB, payable in monthly installments of $13,347
   including interest through February 27, 2006                                             -         606,950

  5.62% note payable to FHLB, payable in monthly installments of $4,896
   including interest with a balloon payment of $596,221 on February 27, 2006         665,619         685,933

  4.22% note payable to FHLB, payable in monthly installments of $22,692
   including interest with a balloon payment of $2,221,300 on November 6, 2006      2,852,807       3,000,000

  5.23% note payable to FHLB, payable in monthly installments of $6,798
   including interest with a balloon payment of $765,579 on December 5, 2008                -       1,000,000

  2.97% note payable to FHLB, payable in monthly installments of $7,289
   including interest through December 6, 2004                                        175,775         250,000

  5.20% term borrowing from FHLB, maturing January 22, 2002                                 -       2,000,000

  2.76% note payable to FHLB, payable in monthly installments of $42,890
   including interest through February 2, 2004                                        590,096               -

  3.13% note payable to FHLB, payable in monthly installments of $29,157
   including interest through February 1, 2005                                        731,664               -
                                                                                   --------------------------

                                                                                   $7,536,032     $10,344,441
                                                                                   ==========================
</TABLE>

Principal maturities of borrowed funds as of December 31, 2002 are as
follows:

<TABLE>

      
                         <c>
      2003                        $1,392,977
      2004                         1,011,406
      2005                           590,941
      2006                         4,263,336
      2007 and thereafter            277,372
                                  ----------
                                  $7,536,032
                                  ==========
</TABLE>

Additionally, Union and Citizens each maintain an IDEAL Way Line of Credit
with the Federal Home Loan Bank of Boston. As of December 31, 2002, the
total amounts of these lines approximated $3,551,000 and $3,040,000 for
Union and Citizens, respectively. There were no borrowings outstanding on
these lines at December 31, 2002. Interest on these borrowings is
chargeable at a rate determined by the Federal Home Loan Bank and payable
monthly.

Collateral on these borrowings consists of Federal Home Loan Bank stock
purchased by each Bank, all funds placed on deposit with the Federal Home
Loan Bank, and qualified first mortgages held by each Bank, and any
additional holdings which may be pledged as security.

Union Bank also maintains a line of credit with Fleet Bank for the purchase
of overnight Federal Funds. As of December 31, 2002, the total amount of
this line approximated $4,000,000 with no outstanding borrowings. Interest
on this borrowing is chargeable at the Federal Funds rate at the time of
the borrowing and payable daily.

Note 13.  Income Taxes

The Company prepares its Federal income tax return on a consolidated basis.
Federal income taxes are allocated to members of the consolidated group
based on taxable income.


<PAGE>  28


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 13.  Income Taxes (Continued)

Income taxes for the years ended December 31 were as follows:

<TABLE>
<CAPTION>

                                 2002           2001           2000
                              ----------------------------------------


                           <c>            <c>            <c>
Currently paid or payable     $2,032,994     $2,033,720     $1,843,349
Deferred                          34,604        (49,714)       (18,339)
                              ----------------------------------------

                              $2,067,598     $1,984,006     $1,825,010
                              ========================================
</TABLE>

Total income tax expense differs from the amounts computed at the statutory
federal income tax rate of 34% primarily due to the following at December
31:

<TABLE>
<CAPTION>

                                                       2002            2001            2000
                                                    -------------------------------------------


                                                 <c>             <c>             <c>
Computed "expected" tax expense                     $ 2,464,120     $ 2,317,448     $ 2,252,348
Tax exempt interest                                    (235,933)       (253,456)       (267,148)
Disallowed interest expense                              21,505          33,562          36,851
Dividend exclusion                                       (8,320)         (9,283)        (10,224)
Increase in cash surrender value life insurance         (41,050)        (35,012)        (36,063)
Tax credits on limited partnership investments         (142,007)        (78,280)       (167,618)
Other                                                     9,283           9,027          16,864
                                                    -------------------------------------------

                                                    $ 2,067,598     $ 1,984,006     $ 1,825,010
                                                    ===========================================
</TABLE>

Listed below are the significant components of the net deferred tax asset
at December 31:

<TABLE>
<CAPTION>

                                                            2002           2001
                                                         -------------------------


                                                      <c>            <c>
Components of the deferred tax asset:
  Bad debts                                              $  790,699     $  747,472
  Mark-to-market loans                                      162,945         49,260
  Deferred loan fees                                         12,026         18,757
  Nonaccrual loan interest                                  118,059        153,040
  Deferred compensation                                     489,973        498,896
  Pension                                                    43,932         26,262
                                                         -------------------------

Total deferred tax asset                                  1,617,634      1,493,687

Valuation allowance                                               -              -
                                                         -------------------------

Total deferred tax asset, net of valuation allowance      1,617,634      1,493,687
                                                         -------------------------

Components of the deferred tax liability:
  Depreciation                                             (113,066)       (65,224)
  Mortgage servicing rights                                 (71,441)       (30,204)
  Limited partnership tax credits                          (172,338)      (138,254)
  Unrealized gain on securities available-for-sale         (348,624)      (254,699)
  Other                                                     (47,715)       (12,327)
                                                         -------------------------

Total deferred tax liability                               (753,184)      (500,708)
                                                         -------------------------

Net deferred tax asset                                   $  864,450     $  992,979
                                                         =========================
</TABLE>


<PAGE>  29


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 13.  Income Taxes (Continued)

SFAS No. 109 allows for recognition and measurement of deductible temporary
differences (including general valuation allowances) to the extent that it
is more likely than not that the deferred asset will be realized.

Net deferred income tax assets are included in the caption "Other assets"
on the balance sheets at December 31, 2002 and 2001, respectively.

Note 14.  Employee Benefits

Union sponsors a non-contributory defined benefit pension plan covering all
eligible employees. Union's policy is to accrue annually an amount equal to
the actuarially calculated expense.

Net pension cost for Union's defined benefit pension plan consisted of the
following components at December 31:

<TABLE>
<CAPTION>

                                                    2002          2001

                                                  -----------------------


                                               <c>           <c>
Service cost                                      $ 229,995     $ 222,076
Interest cost on projected benefit obligation       365,281       351,028
Actual return on plan assets                        106,614      (300,826)
Net amortization and deferral                      (368,657)       (7,444)
                                                  -----------------------

                                                  $ 333,233     $ 264,834
                                                  =======================
</TABLE>

The following table sets forth the Plan's funded status and amounts
recognized in the accompanying consolidated balance sheets at December 31:

<TABLE>
<CAPTION>

                                                             2002            2001
                                                          ---------------------------


                                                       <c>             <c>
Actuarial present value of benefit obligations:
  Vested benefits                                         $ 4,163,593     $ 3,661,909
  Nonvested benefits                                           41,554          19,661
                                                          ---------------------------

Accumulated benefits                                        4,205,147       3,681,570
                                                          ---------------------------

Projected benefits                                         (5,947,390)     (5,528,348)
Plan assets at fair value                                   4,362,968       4,307,478
                                                          ---------------------------
Projected benefit obligation in excess of plan assets      (1,584,422)     (1,220,870)
Unrecognized transition amount                                 (7,649)        (15,305)
Unrecognized Prior Service Cost                                65,399               -
Unrecognized net loss                                       1,397,199       1,158,935
                                                          ---------------------------

Accrued pension                                           $  (129,473)    $   (77,240)
                                                          ===========================
</TABLE>

Assumptions used by Union in the determination of pension plan information
consisted of the following:

<TABLE>
<CAPTION>

                                                     2002      2001
                                                     ---------------


                                                  <c>       <c>
Discount rate                                        6.75%     7.00%
Rate of increase in compensation levels              4.75%     5.25%
Expected long-term rate of return of plan assets     7.25%     7.25%
</TABLE>

Contributions to the plan are invested in diversified portfolios, mainly US
Government Agency bonds, corporate stocks and bonds.


<PAGE>  30


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 14.  Employee Benefits (Continued)

Contributions to Union's defined contribution 401(k) plan, including
employer matching amounts, are at the discretion of the Board of Directors.
Employer contributions to the plan were $72,845, $71,260 and $67,440 for
2002, 2001, and 2000, respectively.

Additionally, Union Bankshares, Inc. and Union have a non-qualified
Deferred Compensation Plan for Directors and certain key officers. Under
the plan, current participants may defer compensation that would otherwise
be currently payable. Amounts deferred accrue interest at the prime rate
less 100 basis points and benefits are payable over a 15 year period upon
attainment of a certain age or death. The benefit obligations under the
plan represent general unsecured obligations of the Company and no assets
have to be segregated for such payments. Union Bankshares, Inc. and Union
have purchased life insurance contracts on the lives of each participant in
order to fund these benefits. The benefits accrued under this plan
aggregated $1,384,839 and $1,423,930 at December 31, 2002 and 2001,
respectively, and is included in the financial statement caption "Accrued
expenses and other liabilities". The cash surrender value of the life
insurance policies purchased to fund these plans aggregated $1,454,005 and
$1,333,269 at December 31, 2002 and 2001, respectively. These amounts are
included in the financial statement caption "Other assets". Eligibility for
the plan is limited to current participants.

Citizens maintain separately a 401(k) plan which includes a discretionary
profit sharing component. The 401(k) plan covers all employees meeting
certain eligibility requirements. Employees are permitted to contribute any
amount of their compensation to the 401(k) plan in accordance with Internal
Revenue Service limits. Citizens, at the discretion of their Board of
Directors, makes matching contributions up to 6% of an employee's
compensation. Matching contributions to this plan were $29,369, $25,381 and
$30,800 for 2002, 2001, and 2000, respectively. Profit sharing
contributions are at the discretion of Citizens' Board of Directors.
Contributions were $74,965, $89,540 and $66,384 for 2002, 2001, and 2000,
respectively.

Note 15.  Financial Instruments With Off-Balance-Sheet Risk

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 and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit, standby
letters of credit, interest rate caps and floors written on adjustable rate
loans, commitments to sell loans and commitments to buy or sell securities.
Such instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the balance sheet.
The contract or notional amounts of those instruments reflect the extent of
involvement the Company has in particular classes of financial instruments.

The Company's 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 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 contract or notional amounts do not represent 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.

<TABLE>
<CAPTION>

                                                                           Contract or
                                                                             Notional
                                                                              Amount
                                                                               2002
                                                                           -----------


                                                                         <c>
Financial instruments whose contract amount represent credit risk:

  Commitments to extend credit                                              $27,585,417
                                                                            ===========

  Standby letters of credit and commercial letters of credit                $ 1,205,925
                                                                            ===========

  Credit card arrangements                                                  $ 2,108,953
                                                                            ===========

  Home equity lines                                                         $ 3,659,189
                                                                            ===========

  Commitment to buy securities                                              $ 1,108,798
                                                                            ===========
</TABLE>


<PAGE>  31


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 15.  Financial Instruments With Off-Balance-Sheet Risk (Continued)

Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee.

Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Company, upon extension of credit is based on management's credit
evaluation of the customer. Collateral held varies but may include real
estate, accounts receivables, inventory, property, plant and equipment, and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers.

Note 16.  Commitments and Contingencies

In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, after consulting with the
Company's legal counsel, any liability resulting from such proceedings
would not have a material adverse effect on the Company's financial
statements.

Note 17.  Fair Values of Financial Instruments

The estimated fair values and related carrying amounts of the Company's
financial instruments at December 31, 2002 are as follows:

<TABLE>
<CAPTION>

                                                 Carrying         Estimated
                                                  Amount          Fair Value
                                                 ---------------------------


                                            <c>               <c>
Financial assets:
  Cash and cash equivalents                    $ 25,747,467      $ 25,747,467
  Interest bearing deposits                       5,326,633         5,462,394
  Securities available-for-sale                  45,824,389        45,824,389
  Federal Home Loan Bank stock                    1,235,200         1,235,200
  Loans and loans held for sale, net            252,998,443       255,322,843
  Accrued interest receivable                     1,890,478         1,890,478

Financial liabilities:
  Deposits                                      293,004,493       293,905,108
  Borrowed funds                                  7,536,032         7,860,732
  Accrued interest payable                          520,886           520,886
</TABLE>

The estimated fair values and related carrying amounts of the Company's
financial instruments at December 31, 2001 are as follows:

<TABLE>
<CAPTION>

                                                 Carrying         Estimated
                                                  Amount          Fair Value
                                                 ---------------------------


                                            <c>               <c>
Financial assets:
  Cash and cash equivalents                    $ 21,556,850      $ 21,556,850
  Interest bearing deposits                       4,700,230         4,827,613
  Securities available-for-sale                  49,610,131        49,610,131
  Federal Home Loan Bank stock                    1,063,500         1,063,500
  Loans and loans held for sale, net            248,142,237       251,542,872
  Accrued interest receivable                     2,036,566         2,036,566
</TABLE>


<PAGE>  32


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 17.  Fair Values of Financial Instruments (Continued)

<TABLE>
<CAPTION>

                                                 Carrying         Estimated
                                                  Amount          Fair Value
                                                 ---------------------------


                                            <c>               <c>
Financial liabilities:
  Deposits                                     $285,721,655      $286,696,649
  Borrowed funds                                 10,344,441         9,073,258
  Accrued interest payable                          829,232           829,232
</TABLE>

The carrying amounts in the preceding table are included in the balance
sheet under the applicable captions.

Note 18.  Transactions With Related Parties

The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with principal
stockholders, directors, principal officers, their immediate families and
affiliated companies in which they are principal stockholders (commonly
referred to as related parties), all of which have been, in the opinion of
management, on the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with others.

Aggregate loan transactions with related parties for the year ended
December 31 were as follows:

<TABLE>
<CAPTION>

                                                  2002             2001
                                              ----------------------------


                                           <c>              <c>
Balance, beginning                            $ 1,206,830      $ 1,041,381
New loans                                       1,805,407        1,563,920
Repayments                                     (1,255,594)      (1,121,255)
Other, net                                       (803,716)        (277,216)
                                              ----------------------------
Balance, ending                               $   952,927      $ 1,206,830
                                              ============================

Balance available on lines of credit          $   190,135      $   355,663
                                              ============================
</TABLE>

Deposit accounts with related parties were $1,691,605 and $1,686,562 at
December 31, 2002 and 2001, respectively.

Note 19.  Incentive Stock Option Plan

Under the terms of a Stock Option Plan, options to purchase shares of the
Company's common stock are granted to certain key employees selected by the
Board of Directors at a price equal to the market price of the stock at the
date of grant. These stock options are exercisable within five years from
the date of grant. Following is a summary of transactions:

<TABLE>
<CAPTION>

                                                                  Shares Under Option
                                                             ------------------------------
                                                              2002        2001        2000
                                                             ------------------------------


                                                          <c>         <c>         <c>
Outstanding, January 1                                       10,200      11,700      11,900
Granted during the year                                       3,200       3,000           -
Exercised during the year (2,200 shares at $18.00
 per share and 300 shares at $19.00  per share in
 2002; 4,200 shares at $9.75 per share and 300 shares
 at $18.00 in  2001; 200 shares at $9.75 per share
 in 2000)                                                    (2,500)     (4,500)       (200)
                                                             ------------------------------

Outstanding, December 31                                     10,900      10,200      11,700
                                                             ==============================

Eligible, December 31, for exercise currently at:
  $ 9.75 per share                                                -           -       4,200
  $18.00 per share                                                -       2,200       2,500
  $19.00 per share                                            2,700       3,000           -
  $20.25 per share                                            2,500       2,500       2,500
  $22.00 per share                                            2,500       2,500       2,500
  $23.50 per share                                            3,200           -           -
                                                             ------------------------------

                                                             10,900      10,200      11,700
                                                             ==============================
</TABLE>


<PAGE>  33


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 19.  Incentive Stock Option Plan (Continued)

Had compensation cost been determined on the basis of fair value pursuant
to SFAS No. 123, net income would have been reduced as follows at December
31:

<TABLE>
<CAPTION>

                              2002            2001            2000
                           ------------------------------------------


                        <c>             <c>             <c>
Net income

  As reported              $5,179,814      $4,832,018      $4,799,542
                           ==========================================

  Pro forma                $5,175,188      $4,827,989      $4,795,130
                           ==========================================
</TABLE>

Note 20.  Reportable Segments

The Company has two reportable operating segments, Union and Citizens. The
accounting policies, including the operation of each, are the same as those
described in the summary of significant accounting policies in Note 1.
Management regularly evaluates separate financial information for each
segment in deciding how to allocate resources and in assessing performance.
The Company accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, that is, at current market prices.

Information about reportable segments, and reconciliation of such
information to the consolidated financial statements as of and for the
years ended December 31, follows:

<TABLE>
<CAPTION>

                                                                       Intersegment                   Consolidated
2002                                    Union           Citizens       Elimination      Other            Totals
------------------------------------------------------------------------------------------------------------------


                                 <c>               <c>               <c>            <c>           <c>
Interest income                     $ 15,220,078      $  6,948,980      $       -      $      -      $ 22,169,058
Interest expense                       4,067,487         2,295,776              -           678         6,363,941
Provision for loan loss                  156,000           200,000              -             -           356,000
Service fee income                     2,018,851           539,664              -             -         2,558,515
Income tax expense (benefit)           1,616,883           545,758              -       (95,043)        2,067,598
Net income (loss)                      4,221,288         1,114,455              -      (155,929)        5,179,814
Assets                               239,488,692       103,673,807       (126,751)      456,082       343,491,830

<CAPTION>

                                                                       Intersegment                   Consolidated
2001                                    Union           Citizens       Elimination      Other            Totals
------------------------------------------------------------------------------------------------------------------


                                 <c>               <c>               <c>            <c>           <c>
Interest income                     $ 16,525,283      $  7,598,545      $       -      $      -      $ 24,123,828
Interest expense                       6,381,878         3,181,578              -           990         9,564,446
Provision for loan loss                   95,000           225,000              -             -           320,000
Service fee income                     1,839,739           535,721              -             -         2,375,460
Income tax expense (benefit)           1,537,848           505,864              -       (59,706)        1,984,006
Net income (loss)                      3,893,103         1,036,251              -       (97,336)        4,832,018
Assets                               231,538,869       105,565,465        (33,691)      404,713       337,475,356

<CAPTION>

                                                                       Intersegment                   Consolidated
2000                                    Union           Citizens       Elimination      Other            Totals
------------------------------------------------------------------------------------------------------------------


                                 <c>               <c>               <c>            <c>           <c>
Interest income                     $ 16,331,233      $  7,795,092      $       -      $      -      $ 24,126,325
Interest expense                       6,369,555         3,506,590              -         1,212         9,877,357
Provision for loan loss                        -           250,000              -             -           250,000
Service fee income                     1,696,478           513,173              -             -         2,209,651
Income tax expense (benefit)           1,420,800           479,000              -       (74,790)        1,825,010
Net income (loss)                      3,957,914           976,252              -      (134,624)        4,799,542
Assets                               204,051,287        98,844,191              -       498,931       303,394,409
</TABLE>


<PAGE>  34


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 20.  Reportable Segments (Continued)

Amounts in the "Other" column encompass activity in Union Bankshares, Inc.,
the "parent company". Holding company assets are stated after intercompany
eliminations.

Note 21.  Regulatory Capital Requirements

Union and Citizens (the "Banks") are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Banks' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Banks' capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2002
and 2001, that the Banks meet all capital adequacy requirements to which
they were subject.

As of December 31, 2002, the most recent notification from the FDIC
categorized the Banks as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized the
Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or
events since the date of the most recent notification that management
believes might result in an adverse change to either Banks' or the
Company's regulatory capital category.

The Banks' and the Company's actual capital amounts (000's omitted) and
ratios are also presented in the table.

<TABLE>
<CAPTION>

                                                                                              Minimums
                                                                                             To be Well
                                                                        Minimums          Capitalized Under
                                                                       For Capital        Prompt Corrective
                                                    Actual             Requirements       Action Provisions
                                              -------------------------------------------------------------
                                              Amount      Ratio      Amount      Ratio    Amount      Ratio
                                              -------------------------------------------------------------


                                           <c>         <c>        <c>         <c>      <c>         <c>
As of December 31, 2002:
  Total capital to risk weighted assets
    Union                                     $28,714     18.18%     $12,635     8.0%     $15,794     10.0%
    Citizens                                   11,733     16.59%       5,658     8.0%       7,072     10.0%
    Company                                    41,302     17.99%      18,367     8.0%      22,958     10.0%
  Tier I capital to risk weighted assets
    Union                                      26,910     17.04%       6,317     4.0%       9,475      6.0%
    Citizens                                   10,846     15.33%       2,830     4.0%       4,245      6.0%
    Company                                    38,432     16.74%       9,183     4.0%      13,775      6.0%
  Tier I capital to average assets
    Union                                      26,910     11.15%       9,654     4.0%      12,067      5.0%
    Citizens                                   10,846     10.17%       4,266     4.0%       5,332      5.0%
    Company                                    38,432     11.03%      13,937     4.0%      17,422      5.0%
</TABLE>


<PAGE>  35


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 21.  Regulatory Capital Requirements (Continued)

<TABLE>
<CAPTION>

                                                                                              Minimums
                                                                                             To be Well
                                                                        Minimums          Capitalized Under
                                                                       For Capital        Prompt Corrective
                                                    Actual             Requirements       Action Provisions
                                              -------------------------------------------------------------
                                              Amount      Ratio      Amount      Ratio    Amount      Ratio
                                              -------------------------------------------------------------


                                           <c>         <c>        <c>         <c>      <c>         <c>
As of December 31, 2001:
  Total capital to risk weighted assets
    Union                                     $27,149     17.40%     $12,482     8.0%     $15,603     10.0%
    Citizens                                   11,883     16.78%       5,665     8.0%       7,082     10.0%
    Company                                    39,624     16.83%      18,835     8.0%      23,544     10.0%
  Tier I capital to risk weighted assets
    Union                                      25,280     16.21%       6,238     4.0%       9,357      6.0%
    Citizens                                   10,996     15.53%       2,832     4.0%       4,248      6.0%
    Company                                    36,720     15.59%       9,421     4.0%      14,132      6.0%
  Tier I capital to average assets
    Union                                      25,280     11.13%       9,085     4.0%      11,357      5.0%
    Citizens                                   10,996     10.52%       4,183     4.0%        5,226     5.0%
    Company                                    36,720     11.06%      13,280     4.0%       16,600     5.0%
</TABLE>

Note 22.  Subsequent Events

On January 15, 2003, Union Bankshares, Inc. declared a $0.30 per share
dividend payable January 28, 2003 to stockholders of record on January 25,
2003.


<PAGE>  36


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 23.  Condensed Financial Information (Parent Company Only)

The following financial statements are for Union Bankshares, Inc. (Parent
Company Only), and should be read in conjunction with the consolidated
financial statements of Union Bankshares, Inc. and Subsidiaries.

                UNION BANKSHARES, INC. (PARENT COMPANY ONLY)
                          CONDENSED BALANCE SHEETS
                         DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>

                                                        2002             2001
                                                    ----------------------------


                                                 <c>              <c>
ASSETS
Cash                                                $   744,744      $   488,560
Investment in Subsidiary-Union                       27,260,457       25,580,441
Investment in Subsidiary-Citizens                    11,231,412       11,190,820
Other assets                                            456,082          404,501
                                                    ----------------------------

      Total assets                                  $39,692,695      $37,664,322
                                                    ============================

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Other liabilities                                 $   524,156      $   449,286
                                                    ----------------------------
      Total liabilities                                 524,156          449,286
                                                    ----------------------------
Stockholders' equity
  Common stock, $2 par value; 5,000,000
   shares authorized; 3,270,689 shares
   issued in 2002 and 3,268,189 shares
   issued in 2001                                     6,541,378        6,536,378
  Paid-in capital                                       317,553          277,254
  Retained earnings                                  33,357,259       31,628,920
  Treasury stock, at cost; 240,632 shares
   in 2002 and 2001                                  (1,721,931)      (1,721,931)
  Accumulated other comprehensive income                674,280          494,415
                                                    ----------------------------
      Total stockholders' equity                     39,168,539       37,215,036
                                                    ----------------------------

      Total liabilities and stockholders' equity    $39,692,695      $37,664,322
                                                    ============================
</TABLE>

The investment in the subsidiary banks is carried under the equity method
of accounting. The investment and cash, which is on deposit with Union, has
been eliminated in consolidation.


<PAGE>  37


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 23.  Condensed Financial Information (Parent Company Only) (Continued)

                UNION BANKSHARES, INC. (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF INCOME
                Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                                    2002            2001            2000
                                                 ------------------------------------------


                                              <c>             <c>             <c>
Revenues
  Dividends
    Bank subsidiaries                            $3,795,000      $3,605,000      $3,060,000
                                                 ------------------------------------------

      Total revenues                              3,795,000       3,605,000       3,060,000
                                                 ------------------------------------------

Expenses
  Interest                                              678             990           1,212
  Administrative and other                          250,294         156,052         208,202
                                                 ------------------------------------------

      Total expenses                                250,972         157,042         209,414
                                                 ------------------------------------------

Income before applicable income
 tax and equity in undistributed
 net  income of subsidiaries                      3,544,028       3,447,958       2,850,586
Applicable income tax (benefit)                     (95,043)        (59,706)        (74,790)
                                                 ------------------------------------------

Income before equity (deficit) in
 undistributed net income of subsidiaries         3,639,071       3,507,664       2,925,376
Equity in undistributed net income-Union          1,691,288       1,473,102       1,917,914
Deficit in undistributed net income-Citizens       (150,545)       (148,748)        (43,748)
                                                 ------------------------------------------

Net income                                       $5,179,814      $4,832,018      $4,799,542
                                                 ==========================================
</TABLE>


<PAGE>  38


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 23.  Condensed Financial Information (Parent Company Only) (Continued)

                UNION BANKSHARES, INC. (PARENT COMPANY ONLY)
                     CONDENSED STATEMENTS OF CASH FLOWS
                Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>

                                                          2002            2001            2000
                                                       -------------------------------------------


                                                    <c>             <c>             <c>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                           $ 5,179,814     $ 4,832,018     $ 4,799,542
  Adjustments to reconcile net income to
   net cash provided by operating activities
  Equity in undistributed net income of Union           (1,691,288)     (1,473,102)     (1,917,914)
  Deficit in undistributed net income of Citizens          150,545         148,748          43,748
  Increase in other assets                                 (51,581)        (22,218)        (28,395)
  Increase (decrease) in other liabilities                  74,870         147,355        (121,937)
                                                       -------------------------------------------

      Net cash provided by operating activities          3,662,360       3,632,801       2,775,044
                                                       -------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Purchase of treasury stock                                     0        (129,480)              0
  Dividends paid                                        (3,451,475)     (3,213,781)     (2,969,039)
  Proceeds from exercise of stock options                   45,299          46,351           1,950
                                                       -------------------------------------------

      Net cash used in financing activities             (3,406,176)     (3,296,910)     (2,967,089)
                                                       -------------------------------------------

Net increase (decrease) in cash                            256,184         335,891        (192,045)

  Beginning cash                                           488,560         152,669         344,714
                                                       -------------------------------------------

  Ending cash                                         $    744,744     $   488,560     $   152,669
                                                      ============================================

SUPPLEMENTAL SCHEDULE OF CASH PAID DURING
 THE YEAR

  Interest                                            $        678     $       990     $     1,212
                                                      ============================================

  Income taxes                                        $        250     $       250     $     5,250
                                                      ============================================
</TABLE>


<PAGE>  39


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Note 24.  Quarterly Financial Data (Unaudited)

A summary of financial data for the four quarters of 2002, 2001, and 2000
is presented below (dollars in thousands):

                   UNION BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

                                              Quarters in 2002 Ended
                                   --------------------------------------------
                                   March 31,   June 30,    Sept. 30,   Dec. 31,
                                   --------------------------------------------


                                 <c>         <c>         <c>         <c>
Interest income                     $5,536      $5,529      $5,583      $5,521
Interest expense                     1,755       1,593       1,546       1,470
Net interest income                  3,781       3,936       4,037       4,051
Provision for loan losses               90         105          95          66
Securities loss                         (3)          -           -           -
Other operating expenses             2,787       3,046       2,951       2,977
Net income                           1,169       1,083       1,396       1,532
Earnings per common share           $ 0.39      $ 0.35      $ 0.46      $ 0.51

<CAPTION>

                                              Quarters in 2001 Ended
                                   --------------------------------------------
                                   March 31,   June 30,    Sept. 30,   Dec. 31,
                                   --------------------------------------------


                                 <c>         <c>         <c>         <c>
Interest income                     $6,023      $6,098      $6,085      $5,918
Interest expense                     2,527       2,461       2,331       2,245
Net interest income                  3,496       3,637       3,754       3,673
Provision for loan losses               56          57          86         121
Securities gains (loss)                 (2)         76           5          78
Other operating expenses             2,524       2,620       2,577       2,775
Net income                           1,168       1,245       1,222       1,197
Earnings per common share           $ 0.39      $ 0.41      $ 0.40      $ 0.39

<CAPTION>

                                              Quarters in 2000 Ended
                                   --------------------------------------------
                                   March 31,   June 30,    Sept. 30,   Dec. 31,
                                   --------------------------------------------


                                 <c>         <c>         <c>         <c>
Interest income                     $5,739      $5,912      $6,174      $6,301
Interest expense                     2,266       2,379       2,593       2,639
Net interest income                  3,473       3,533       3,581       3,662
Provision for loan losses               62          63          63          62
Securities gains (loss)                 37          (3)          -          (9)
Other operating expenses             2,517       2,609       2,394       2,424
Net income                           1,078       1,168       1,247       1,307
Earnings per common share           $ 0.36      $ 0.38      $ 0.41      $ 0.43
</TABLE>

Note 25.  Other Income and Other Expenses

The components of other income and other expenses which are in excess of
one percent of total revenues in any of the three years presented are as
follows:

<TABLE>
<CAPTION>

                                                 2002            2001            2000
                                              ------------------------------------------


                                           <c>             <c>             <c>
Expenses
  State franchise tax                         $  241,169      $  298,329      $  296,321
  Postage and shipping                           255,115         264,019         242,987
  Write-downs of other real estate owned         309,688               -          12,008
  Expenses of other real estate owned            267,036          69,770          22,863
  Other                                        2,419,930       2,190,761       2,198,120
                                              ------------------------------------------

                                              $3,492,938      $2,822,879      $2,772,299
                                              ==========================================
</TABLE>


<PAGE>  40


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                   GENERAL

The following discussion and analysis by Management focuses on those
factors that had a material effect on Union Bankshares, Inc.'s (Company's)
financial position as of December 31, 2002 and 2001, and its results of
operations for the years ended December 31, 2002, 2001, and 2000. This
discussion should be read in conjunction with the consolidated Financial
Statements and related notes and with other financial data appearing
elsewhere.  Management is not aware of the occurrence of any events after
December 31, 2002, which would materially affect the information presented
below.

                         FORWARD-LOOKING STATEMENTS

The Company may from time to time make written or oral statements that are
considered "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements may
include financial projections, statements of plans and objectives for
future operations, estimates of future economic performance and assumptions
relating thereto.  The Company may include forward-looking statements in
its filings with the Securities and Exchange Commission, in its reports to
stockholders, including this Annual Report, in other written materials, and
in statements made by senior management to analysts, rating agencies,
institutional investors, representatives of the media and others.

Forward-looking statements reflect management's current expectations and
are subject to uncertainties, both general and specific, and risk exists
those predictions, forecasts, projections and other estimates contained in
forward-looking statements will not be achieved. Also when we use any of
the words "believes," "expects," "anticipates," "intends," "plans,"
"seeks," "estimates" or similar expressions, we are making forward-looking
statements.  Many possible events or factors including those beyond the
control of management, could affect the future financial results and
performance of our Company.  This could cause results or performance to
differ materially from those expressed in our forward-looking statements.
The possible events or factors that might affect our forward-looking
statements include, but are not limited to, the following:

*     uses of monetary, fiscal and tax policy by various governments
*     political, legislative or regulatory  developments in Vermont, New
      Hampshire or the United States including changes in laws concerning
      accounting, taxes, banking and other aspects of the financial
      services industry
*     developments in general economic or business conditions, including
      interest rate fluctuations, market fluctuations and perceptions, and
      inflation and their effect on the Company or its customers
*     changes in the competitive environment for financial services
      organizations
*     acts of terrorism or war
*     the Company's ability to retain key personnel
*     changes in technology including demands for greater automation
*     unanticipated lower revenues,  loss of customers or business, or
      higher operating expenses
*     adverse changes in the securities market
*     the failure of assumptions underlying the establishment of reserves
      for loan losses and estimations of values of collateral and various
      financial assets and liabilities
*     the amount that we invest in new business opportunities and the
      timing of these investments

When evaluating forward-looking statements to make decisions with respect
to the Company, investors and others are cautioned to consider these and
other risks and uncertainties and are reminded not to place undue reliance
on such statements. Forward-looking statements speak only as of the date
they are made and the Company undertakes no obligation to update them to
reflect new or changed information or events, except as may be required by
federal securities laws.

                        CRITICAL ACCOUNTING POLICIES

The Company has established various accounting policies which govern the
application of accounting principles generally accepted in the United
States of America 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, revenues and expenses and related disclosures of
contingent assets and liabilities in the consolidated financial statements
and related notes. The Securities and Exchange Commission ("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 the company to make its most difficult and
subjective judgments, often as a result of the need to make estimates of
matters that are inherently uncertain. Based on this definition, we have
identified the critical accounting policies and judgments. The judgments


<PAGE>  41


and assumptions used by management are based on historical experience and
other factors, which are believed to be reasonable under the circumstances.
Because of the nature of the judgments and assumptions made by management,
actual results could differ from these judgments and estimates that could
have a material impact on the carrying values of assets and liabilities and
the results of operations of the Company. The Company believes the
allowance for loan losses is a critical accounting policy that requires the
most significant judgments and estimates used in the preparation of its
consolidated financial statements. In estimating the allowance for loan
losses, management utilizes historical experience as well as other factors
including the effect of changes in the local real estate market on
collateral values, the effect on the loan portfolio of current economic
indicators and their probable impact on borrowers and changes in
delinquent, nonperforming or impaired loans. Changes in these factors may
cause management's estimate of the allowance to increase or decrease and
result in adjustments to the Company's provision for loan losses. We also
have other key accounting policies, which involve the use of estimates,
judgments and assumptions that are significant to understanding our
results. For additional information see Note 1 to these financial
statements and FINANCIAL CONDITION-Allowance for Loan Losses below.
Although we believe that our estimates, assumptions and judgments are
reasonable, they are based upon information presently available. Actual
results may differ significantly from these estimates under different
assumptions, judgments or conditions.

                            RESULTS OF OPERATIONS

The Company's net income for the year ended December 31, 2002 was $5.2
million compared with net income of $4.8 million for the year 2001. Net
income per share was $1.71 for 2002 compared to $1.59 for 2001. Return on
Assets was 1.52% for 2002 compared to 1.51% for 2001. Return on Equity was
13.74% for 2002 compared to 13.34% for 2001.

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
expense paid on its interest-bearing liabilities.

Yields Earned and Rates Paid. The following table shows for the periods
indicated, the total amount of income recorded from interest-earning
assets, and the related average yields, the interest expense associated
with interest-bearing liabilities, expressed in dollars and average rates,
and the relative net interest spread and net interest margin. All yield and
rate information is calculated on an annualized basis.  Yield and rate
information for a period is average information for the period, and is
calculated by dividing the annualized income or expense item for the period
by the average balances of the appropriate balance sheet item during the
period. Net interest margin is annualized net interest income divided by
average interest-earning assets. Nonaccrual loans are included in asset
balances for the appropriate periods, but recognition of interest on such
loans is discontinued and any remaining accrued interest receivable is
reversed, in conformity with federal regulations. The yields and net
interest margins appearing in the following table have been calculated on a
pre-tax basis:


<PAGE>  42


<TABLE>
<CAPTION>

                                                                       Years ended December 31
                                      --------------------------------------------------------------------------------------------
                                                  2002                           2001                           2000
                                      -----------------------------  -----------------------------  ------------------------------
                                      Average   Income/   Average    Average   Income/   Average    Average   Income/   Average
                                      Balance   Expense  Yield/Rate  Balance   Expense  Yield/Rate  Balance   Expense  Yield/Rate
                                      --------------------------------------------------------------------------------------------
                                                                       (Dollars in thousands)


                                  <c>        <c>        <c>      <c>        <c>        <c>      <c>        <c>       <c>
Average Assets:
Federal funds sold and
 overnight deposits                  $  8,602   $   123    1.43%    $  8,088   $   308    3.81%    $  5,431   $   335    6.17%
Interest-bearing deposits in
 banks                                  4,022       192    4.79%       2,809       151    5.35%       1,910       118    6.18%
Investments (1) (2)                    47,518     2,602    5.70%      51,634     3,124    6.25%      58,680     3,615    6.34%
Loans, net (1), (3)                   253,100    19,252    7.68%     235,433    20,541    8.82%     215,450    20,058    9.42%
                                     -----------------------------------------------------------------------------------------
      Total interest-earning
       assets (1)                     313,242    22,169    7.17%     297,964    24,124    8.21%     281,471    24,126    8.69%

Cash and due from banks                13,168                         10,518                          9,042
Premises and equipment                  4,656                          3,952                          3,989
Other assets                            8,554                          6,535                          5,204
                                     -----------------------------------------------------------------------------------------

      Total assets                   $339,620                       $318,969                       $299,706
                                     =========================================================================================

Average Liabilities and
 Stockholders' Equity:
NOW accounts                         $ 39,143   $   418    1.07%    $ 36,320   $   592    1.63%    $ 34,383   $   702    2.04%
Savings/money market
 accounts                             105,858     1,732    1.64%      92,517     2,745    2.97%      90,923     3,375    3.71%
Time deposits                         102,757     3,695    3.60%     105,595     5,462    5.17%      98,571     5,378    5.46%
Borrowed funds                         12,003       519    4.32%       9,571       766    8.00%       6,340       422    6.66%
      Total interest-bearing
       Liabilities                    259,761     6,364    2.45%     244,003     9,565    3.92%     230,217     9,877    4.29%
                                     -----------------------------------------------------------------------------------------

Non-interest bearing deposits          37,932                         35,251                         32,906
Other liabilities                       4,223                          3,507                          3,575
                                     -----------------------------------------------------------------------------------------
      Total liabilities               301,915                        282,761                        266,698

Stockholders' equity                   37,704                         36,208                         33,008
                                     -----------------------------------------------------------------------------------------
      Total liabilities and
       stockholders equity           $339,620                       $318,969                       $299,706
                                     =========================================================================================

Net interest income (1)                         $15,805                        $14,559                        $14,249
                                                ==============================================================================

Net interest spread (1)                                    4.75%                          4.29%                          4.40%

Net interest margin (1)                                    5.14%                          4.99%                          5.19%

<FN>
--------------------
<F1>  Average yield reported on a tax-equivalent basis.
<F2>  Average balance of investments calculated on the amortized cost
      basis.
<F3>  Includes loans held for sale and is net of unearned income and
      allowance for loan losses.
</FN>
</TABLE>


<PAGE>  43


The Company's net interest income increased by $1.2 million, or 8.5%, to
$15.8 million for the year ended December 31, 2002, from $14.6 million for
the year ended December 31, 2001. This increase was primarily due to the
growth in our loan portfolio that had an average tax equivalent yield of
7.68% in 2002 while the combined lower yielding investment, interest-
bearing deposits and federal funds sold average balances decreased. On
average for the year 92.3% of our assets were earning interest in 2002
versus 93.4% in 2001. The net interest spread increased by 46 basis points
to 4.75% for the year ended December 31, 2002, from 4.29% for the year
ended December 31, 2001. The net interest margin for the 2002 period
increased by 15 basis points to 5.14% from 4.99% for the 2001 period.

Rate/Volume Analysis. The following table describes the extent to which
changes in interest rates and changes in volume of 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 current 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.

<TABLE>
<CAPTION>

                                                    Year Ended December 31, 2002          Year Ended December 31, 2001
                                                       Compared to Year Ended                Compared to Year Ended
                                                    December 31, 2001 Increase/           December 31, 2000 Increase/
                                                    (Decrease) Due to Change In           (Decrease) Due to Change In
                                                  ----------------------------------------------------------------------
                                                  Volume        Rate         Net        Volume        Rate         Net
                                                  ----------------------------------------------------------------------
                                                                           (Dollars In Thousands)


                                               <c>         <c>          <c>          <c>         <c>          <c>
Interest-earning assets:
Federal funds sold and overnight deposits         $    19     $  (205)     $  (186)     $   161     $  (188)     $  (27)
Interest-bearing deposits in banks                     65         (23)          42           59         (26)         33
Investments                                          (259)       (263)        (522)        (446)        (45)       (491)
Loans, net                                          1,566      (2,855)      (1,289)       1,889      (1,406)        483
                                                  ---------------------------------------------------------------------
      Total interest-earning assets               $ 1,391     $(3,346)     $(1,955)     $ 1,663     $(1,665)     $   (2)

Interest-bearing liabilities:
NOW accounts                                      $    46     $  (220)     $  (174)     $    39     $  (149)     $ (110)
Savings/money market accounts                         396      (1,409)      (1,013)          59        (689)       (630)
Time deposits                                        (150)     (1,617)      (1,767)         384        (300)         84
Borrowed funds                                        195        (442)        (247)         215         129         344
                                                  ---------------------------------------------------------------------
      Total interest-bearing liabilities          $   487     $(3,688)     $(3,201)     $   697     $(1,009)     $ (312)
                                                  ---------------------------------------------------------------------

Change in net interest income                     $   904     $   342      $ 1,246      $   966     $  (656)     $  310
                                                  =====================================================================
</TABLE>

Interest and Dividend Income. The Company's interest and dividend income
decreased by $2.0 million, to $22.2 million for the year ended December 31,
2002, from $24.1 million for the year ended December 31, 2001. Average
earning assets increased by $15.3 million, or 5.1%, to $313.2 million for
the year ended December 31, 2002, from $298.0 million for the year ended
December 31, 2001. Average loans were $253.1 million for the year ended
December 31, 2002 up $17.7 million or 7.5% from $235.4 million for the year
ended December 31, 2001. Increases in commercial, construction, real estate
secured and municipal loans were partially offset by a decrease in average
consumer loans. Increases in loan volume partially offset the decreases in
interest rates led by the average prime rate for 2002 being 4.67%, down 224
basis points from 6.91% in 2001. This mainly accounted for the decrease in
loan interest income of $1.3 million or 6.3%.

The average balance of investment securities (including mortgage-backed
securities) decreased by $4.1 million, or 8.0%, to $47.5 million for the
year ended December 31, 2002, from $51.6 million for the year ended
December 31, 2001. The average level of federal funds sold and overnight
deposits increased by $514 thousand, or 6.4%, to $8.6 million for the year
ended December 31, 2002, from $8.1 million for the year ended December 31,
2001. The average balances invested in interest-bearing deposits increased
to $4.0 million at December 31, 2002 from $2.8 million, or 43.2%, at
December 31, 2001, these deposit investments are FDIC insured.


<PAGE>  44


Interest Expense. The Company's interest expense decreased by $3.2 million,
or 33.5%, to $6.4 million for the year ended December 31, 2002, from $9.6
million for the year ended December 31, 2001. Average interest-bearing
liabilities increased by $15.8 million, or 6.5% to $259.8 million for the
year ended December 31, 2002, from $244.0 million for the year ended
December 31, 2001. Average time deposits decreased $2.8 million, or 2.7%,
to $102.8 million for the year ended December 31, 2002, from $105.6 million
for the year ended December 31, 2001. The average balances for NOW accounts
increased by $2.8 million to $39.1 million for the year ended December 31,
2002, from $36.3 million for the year ended December 31, 2001. The average
balances in savings and money market accounts grew to $105.9 million in
2002 from $92.5 million in 2001 or a 14.4% increase. Average borrowed funds
grew $2.4 million or 25.4% from $9.6 million for the year ended December
31, 2001 to $12.0 million for the year ended December 31, 2002. Lower
interest rates offered prevailed for the interest-bearing liabilities for
the current year. The average rate paid for borrowed funds dropped from
8.00% in 2001 to 4.32% in 2002 in spite of pre-payment penalties assessed
and paid to the Federal Home Loan Bank to pay off high rate debt in order
to take advantage of one of the lowest rate cycles in memory.

Noninterest Income. The Company's noninterest income increased by $487
thousand for the year ended December 31, 2002. The results for the period
reflected a net gain of $661 thousand from the sale of loans compared to a
net gain of $156 thousand from these sales during 2001. The net loss on
sales of securities was $3 thousand for 2002 compared to a gain of $157
thousand for 2001. Service fees (sources of which include, among others,
deposit and loan servicing fees, ATM fees and safe deposit fees) increased
by $183 thousand, or 7.7%, to $2.6 million for the year ended December 31,
2002, from $2.4 million for the year ended December 31, 2001. Trust income
decreased to $169 thousand in 2002 from $247 thousand in 2001 or a 31.6%
decrease primarily due to the decline in interest rates and the stock
market as the majority of fee income is based on the trust asset's market
value. Other noninterest income increased by $36 thousand, or 26.1%, to
$174 thousand for 2002 from $138 thousand for 2001.

Noninterest Expense. The Company's noninterest expense increased $1.3
million, or 12.1%, to $11.8 million for the year ended December 31, 2002,
from $10.5 million for the year ended December 31, 2001. Salaries increased
$339 thousand, or 7.1%, to $5.1 million for the year ended December 31,
2002, from $4.8 million for the year ended December 31, 2001, reflecting
normal salary activity. Pension and employee benefits increased $230
thousand or 15.8 % to $1.7 million for the year ended December 31, 2002,
from $1.5 million for the year ended December 31, 2001 mainly due to the
increase in the accrual for the Defined Benefit Pension Plan caused by
anticipated increases in future salaries and the performance decline in the
underlying investment instruments; and the increase in the cost of medical
insurance coverage. Office occupancy expense decreased $33 thousand, or
5.3%, to $600 thousand for the year ended December 31, 2002, from $633
thousand for the year ended December 31, 2001. Equipment expense increased
$60 thousand to $895 thousand for the year ended December 31, 2002, from
$835 thousand for 2001 primarily resulting from increased depreciation cost
on computer equipment and software purchases that are depreciated as an
expense over a time period of three to five years. Other operating expense
increased $670 thousand to $3.5 million for the year ended December 31,
2002 compared to $2.8 million for 2001 or a 23.7% increase, mainly due to
an increase in the write downs and costs to operate other real estate owned
in 2002 of $577 thousand versus $70 thousand in 2001.

Income Tax Expense. We have provided for current and deferred federal
income taxes for the current and all prior periods presented. The Company's
income tax expense increased by $84 thousand, or 4.2%, to $2.1 million for
the year ended December 31, 2002, from $2.0 million for 2001 mainly due to
increased taxable income offset by the low-income housing credits that are
available to us in both the 2002 and 2001 tax years related to our limited
partnership investments in low-income housing projects sponsored by Housing
Vermont in our market area. Our effective tax rate for 2002 was 28.5%
compared to 29.1% for 2001.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.

Interest and Dividend Income. The Company's interest and dividend income
decreased by $2 thousand, to $24.1 million for the year ended December 31,
2001, from $24.1 million for the year ended December 31, 2000. Average
earning assets increased by $16.5 million, or 5.9%, to $298.0 million for
the year ended December 31, 2001, from $281.5 million for the year ended
December 31, 2000. Average loans were $235.4 million for the year ended
December 31, 2001 up $19.9 million or 9.2% from $215.5 million for the year
ended December 31, 2000. Increases in commercial, construction and real
estate secured loans were partially offset by a decrease in average
consumer loans. Increases in loan volume offset the decreases in interest
rates led by the average prime rate for 2001 being 6.91%, down 232 basis
points from 9.23% in 2000. This mainly accounted for the increase in loan
interest income of $483 thousand or 2.4%.

The average balance of investment securities (including mortgage-backed
securities) decreased by $7.0 million, or 12.0%, to $51.6 million for the
year ended December 31, 2001, from $58.7 million for the year ended
December 31, 2000. The average level of federal funds sold increased by
$2.7 million, or 49.3%, to $8.0 million for the year ended December 31,
2001, from $5.4 million for the year ended December 31, 2000. The average
balances invested in interest-bearing deposits increased to $2.8 million at
December 31, 2001 from $1.9 million, or 47.1%, at December 31, 2000. These
deposits are FDIC insured.

Interest Expense. The Company's interest expense decreased by $312
thousand, or 3.2%, to $9.6 million for the year ended December 31, 2001,
from $9.9 million for the year ended December 31, 2000. Average interest-
bearing liabilities increased by


<PAGE>  45


$13.8 million, or 6.0% to $244.0 million for the year ended December 31,
2001, from $230.2 million for the year ended December 31, 2000. Average
time deposits increased $7.0 million, or 7.1%, to $105.6 million for the
year ended December 31, 2001, from $98.6 million for the year ended
December 31, 2000. The average balances for NOW accounts increased by $1.9
million to $36.3 million for the year ended December 31, 2001, from $34.4
million for the year ended December 31, 2000. The average balances in
savings and money market accounts grew to $92.5 million in 2001 from $90.9
million in 2000 or a 1.8% increase. Average borrowed funds grew $3.2
million or 51.0% from $6.3 million for the year ended December 31, 2000 to
$9.6 million for the year ended December 31, 2001. Lower interest rates
offered prevailed for the majority of interest-bearing liabilities for 2001
but the average rate paid on time deposits edged up slightly from 5.14% in
2000 to 5.17% in 2001. The average rate paid for borrowed funds rose from
6.66% in 2000 to 8.00% in 2001 due to pre-payment penalties assessed and
paid to the Federal Home Loan Bank to pay off high rate debt in order to
take advantage of one of the lowest rate cycles in memory.

Noninterest Income. The Company's noninterest income increased by $503
thousand for the year ended December 31, 2001. The results for the period
reflected a net gain of $156 thousand from the sale of loans compared to a
net gain of $34 thousand from these sales during 2000. The net gain on
sales of securities was $157 thousand for 2001 compared to $25 thousand for
2000. Service fees (sources of which include deposit fees, loan servicing
fees, and ATM fees) increased by $166 thousand, or 7.5%, to $2.4 million
for the year ended December 31, 2001, from $2.2 million for the year ended
December 31, 2000. Trust income increased to $247 thousand in 2001 from
$182 thousand in 2000 or a 35.8% increase due to fee increase, a switch to
the accrual basis of accounting and a number of estate settlements. Other
noninterest income increased by $18 thousand, or 15.0%, to $138 thousand
for 2001 from $120 thousand for 2000.

Noninterest Expense. The Company's noninterest expense increased $552
thousand, or 5.6%, to $10.5 million for the year ended December 31, 2001,
from $9.9 million for the year ended December 31, 2000. Salaries increased
$260 thousand, or 5.8%, to $4.8 million for the year ended December 31,
2001, from $4.5 million for the year ended December 31, 2000, reflecting
normal salary activity. Pension and employee benefits increased $328
thousand or 29.2% to $1.5 million for the year ended December 31, 2001,
from $1.1 million for the year ended December 31, 2000 mainly due to the
increase in the accrual for the Defined Benefit Pension Plan caused by
anticipated increases in future salaries and the performance decline in the
underlying investment instruments and the increase in the cost of medical
insurance coverage. Office occupancy expense increased $73 thousand, or
13.0%, to $633 thousand for the year ended December 31, 2001, from $560
thousand for the year ended December 31, 2000, which was partially
attributable to the opening of a loan production office in Littleton, New
Hampshire and the acquisition of more corporate office space in
Morrisville, Vermont. Equipment expense decreased $159 thousand to $835
thousand for the year ended December 31, 2001, from $994 thousand for 2000
primarily resulting from decreased depreciation cost on computer equipment
and software purchases that are depreciated as an expense over a time
period of three to five years. Other operating expense increased $51
thousand to $2.8 million for the year ended December 31, 2001 compared to
$2.8 million for 2000 or a 1.8% increase.

Income Tax Expense. The Company's income tax expense increased by $159
thousand, or 8.7%, to $2.0 million for the year ended December 31, 2001,
from $1.8 million for 2000 mainly due to increased taxable income offset by
the low-income housing credits that are available to us in both the 2001
and 2000 tax years related to our limited partnership investments in low-
income housing projects sponsored by Housing Vermont in our market area.
Our effective tax rate for 2001 was 29.1% compared to 27.5% for 2000 when
we had historic rehabilitation tax credits available because of our
investments in low-income housing projects.

                             FINANCIAL CONDITION

At December 31, 2002, the Company had total consolidated assets of $343.5
million, including net loans and loans held for sale of $253.0 million,
deposits of $293.0 million and stockholders' equity of $39.2 million. Based
on the most recent information published by the Vermont Banking
Commissioner, in terms of total assets at December 31, 2001, Union Bank
ranked as the 10th largest institution of the 23 commercial banks and
savings institutions headquartered in Vermont and Citizens ranked 19th.

The Company's total assets increased by $6.0 million, or 1.8% to $343.5
million at December 31, 2002 from $337.5 million at December 31, 2001.
Total net loans and loans held for sale increased by $4.9 million or 2.0%
to $253.0 million or 73.7% of total assets at December 31, 2002 as compared
to $248.1 million or 73.5% of total assets at December 31, 2001. This was
due to increases of $5.3 million in commercial real estate loans and a $2.3
million increase in municipal loans that were partially offset by a $1.4
million decrease in loans to consumers, a $650 thousand decrease in
residential real estate loans and a $572 thousand decrease in commercial
loans. Loan Growth was modest during the year as growth was moderated by
accelerated prepayments during 2002 due to lower rates available and
management's decision to sell loans into the secondary market to mitigate
our future interest rate risk. Cash and Due from banks increased from $13.9
million at December 31, 2001 to $16.0 million at December 31, 2002. Federal
funds sold and overnight deposits increased approximately $2.1 million to
$9.7 million at December 31, 2002 from $7.6 million at December 31, 2001.
Total deposits increased $7.3 million or 2.6% to $293.0 million at December
31, 2002 from $285.7 million at December 31, 2001. A $3.7 million increase
in NOW accounts to $44.7 million at December 31, 2002 from $41.0 million
the previous year end, a $5.1 million or 5.0% increase in money market and
savings accounts to $106.0 million from $101.0 million, a $1.4 million or
3.6% increase in non-interest bearing deposits between years was partially
offset by a $2.9 million decrease in time


<PAGE>  46


deposits to $101.3 million at December 31, 2002 from $104.2 million at
December 31, 2001. Total borrowings decreased approximately $2.8 million to
$7.5 million at December 31, 2002 from $10.3 million at December 31, 2001
due to early payoff of high rate advances at the Federal Home Loan Bank in
order to better position the Company to take advantage of the low interest
rate environment.

Total equity increased by $2.0 million or 5.3% to $39.2 million at December
31, 2002 from $37.2 million at December 31, 2001 as a result of an increase
of $180 thousand in the net unrealized holding gain on securities
available-for-sale, net income of $5.2 million, and the exercise of
employee stock options for $45 thousand. These increases were partially
offset by dividend payments of $3.5 million.

Loan Portfolio. The Company's loan portfolio primarily consists of
adjustable- and fixed-rate mortgage loans secured by one-to-four family,
multi-family residential or commercial real estate. The composition of the
Company's gross loan portfolio net of loans held for sale at December 31
for each of the last five years was as follows:

<TABLE>
<CAPTION>

                                2002          2001          2000          1999          1998
                              ----------------------------------------------------------------
                                                   (Dollars in thousands)


                           <c>           <c>           <c>           <c>           <c>
Real Estate                   $109,347      $112,564      $104,417      $ 87,154      $ 76,832
Commercial Real Estate          86,081        78,898        66,186        69,807        67,707
Commercial                      19,919        20,659        18,215        16,246        17,446
Consumer                        10,758        12,201        14,626        18,661        23,519
Municipal & Other               12,869        10,552        12,449         9,657         9,830
                              ----------------------------------------------------------------
      Total Loans             $238,974      $234,874      $215,893      $201,525      $195,334
                              ================================================================
</TABLE>

The banks originate and sell residential mortgages into the secondary
market, with most such sales made to the Federal Home Loan Mortgage
Corporation (FHLMC) and the Vermont Housing Finance Agency (VHFA). The
Company services a $164.6 million residential mortgage portfolio,
approximately $55.3 million of which is serviced for unaffiliated third
parties at December 31, 2002. Additionally, the Company originates
commercial real estate and commercial loans under various SBA programs that
provide an agency guarantee for a portion of the loan amount. The Company
occasionally sells the guaranteed portion of the loan to other financial
concerns and will retain servicing rights, which generates fee income. The
Company services approximately $7.8 million of commercial and commercial
real estate loans that have been previously sold. The Company capitalizes
servicing rights on these fees and recognizes gains and losses on the sale
of the principal portion of these notes as they occur.

Total loans not held for sale have increased $4.1 million or 1.7% since
December 31, 2001. The increase was limited due to an acceleration of
prepayments during the year and management's decision to sell and deem as
held for sale a significant portion of loans originated in 2002. The
Company sold in part $28.3 million in loans on the secondary market in
2002. This strategy will protect our interest margin in the future from the
effect of making long term loans in a historically low interest rate
environment.

The following table breaks down by classification the maturities of the
loans held in portfolio and held for sale as of December 31, 2002:

<TABLE>
<CAPTION>

                                                   Within 1       2-5         Over 5
                                                     Year        Years        Years
                                                   ---------------------------------
                                                        (Dollars in thousands)

      
                                          <c>          <c>          <c>
      Real Estate, other than Commercial
        Fixed Rate                                 $17,842      $17,475      $ 38,907
        Variable Rate                                1,253        5,013        26,337
      Commercial Real Estate
        Fixed Rate                                   4,376       13,290         7,025
        Variable Rate                               10,757       20,400        49,370
      Commercial
        Fixed Rate                                   2,931        4,272           281
        Variable Rate                                6,350        4,566         1,562
      Municipal
        Fixed Rate                                  10,680          926         1,263
        Variable Rate                                    -            -             -
      Consumer
        Fixed Rate                                   5,799        5,163           155
        Variable Rate                                   79           12            29
                                                   ----------------------------------
            Total                                  $60,067      $71,117      $124,929
                                                   ==================================
</TABLE>


<PAGE>  47


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.
Management closely monitors the Company's loan and investment portfolios
and other real estate owned for potential problems on a periodic basis and
reports to the Company's and the subsidiaries' Boards of Directors at
regularly scheduled meetings.

The Company's loan review procedures include a credit quality assurance
process that begins with approval of lending policies and underwriting
guidelines by the Board of Directors, a loan review department staffed by
experienced former regulatory personnel, low individual lending limits for
officers, Board approval for large credit relationships and a quality
control process for loan documentation. The Company also maintains a
monitoring process for credit extensions. The Company performs periodic
concentration analyses based on various factors such as industries,
collateral types, large credit sizes and officer portfolio loads. The
Company has established underwriting guidelines to be followed by its
officers. The Company monitors its delinquency levels for any negative or
adverse trends. The Company continues to invest in its loan portfolio
monitoring system to enhance its risk management capabilities. There can be
no assurance, however, the Company's loan portfolio will not become subject
to increasing pressures from deteriorating borrower credit due to general
or local economic conditions.

Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Loans are designated as nonaccrual when reasonable
doubt exists as to the full collection of interest and principal. Normally,
when a loan is placed on nonaccrual status, all interest previously accrued
but not collected is reversed against current period interest income.
Income on such loans is then recognized only to the extent that cash is
received and where the future collection of interest and principal is
probable. Interest accruals are resumed on such loans only when they are
brought fully current with respect to interest and principal and when, in
the judgment of management, the loans are estimated to be fully collectible
as to both principal and interest.

The Company had loans on non-accrual status totaling $1.5 million at
December 31, 2002 and $1.8 million at December 31, 2001. The aggregate
interest on non-accrual loans not recognized for the years ended December
31, 2002, 2001 and 2000 was $316,019, $450,118, and $288,512, respectively.

The Company had $778 thousand and $3.0 million in loans past due 90 days or
more and still accruing at December 31, 2002 and 2001, respectively. At
December 31, 2002, the Company had internally classified certain loans
totaling $1.9 million and $793 thousand at December 31. 2001. In
management's view, such loans represent a higher degree of risk and could
become 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 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 is diminished;
*     loan covenants have been violated;
*     collateral is inadequate; or
*     other unfavorable factors are present.

At December 31, 2002, the Company had acquired by foreclosure or through
repossession real estate worth $784 thousand, consisting of two commercial
properties, a residential property and undeveloped land. The balance at
December 31, 2001 was $1.3 million.

Allowance for Loan Losses. Some of the Company's loan customers ultimately
do not make all of their contractually scheduled payments, requiring the
Company to charge off a portion or all of the remaining principal balance
due. The Company maintains an allowance for loan losses to absorb such
losses. The allowance for loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the
loan portfolio; however, actual loan losses may vary from current
estimates. The amount of the allowance is based on management's evaluation
of the collectibility of the loan portfolio, including the composition of
the portfolio, growth of the portfolio, credit concentrations, trends in
historical loss experience, delinquency and past due trends, specific
impaired loans, and economic conditions. Allowances for impaired loans are
generally determined based on collateral values or the present value of
estimated cash flows. The allowance is increased by a provision for loan
losses, which is charged to expense and reduced by charge-offs, net of
recoveries. The provision for loan losses represents the current period
credit cost associated with maintaining an appropriate allowance for loan
losses. While the Company allocates the allowance for loan losses based on
the percentage category to total loans, the portion of the allowance for
loan losses allocated to each category does not represent the total
available for future losses which may occur within the loan category since
the total allowance for possible loan losses is a valuation reserve
applicable to the entire portfolio. Based on an evaluation of the loan
portfolio, management presents a quarterly analysis of the allowance for
loan losses to the Board of Directors, indicating any changes in the
allowance since the last review and any recommendations as to adjustments
in the allowance.


<PAGE>  48


For the year ended December 31, 2002, the methodology used to determine the
provision for loan losses was unchanged from the prior year. The
composition of the Company's loan portfolio remained relatively unchanged
from December 31, 2001 and there was no material change in the lending
programs or terms during the year.

The following table reflects activity in the allowance for loan losses for
the years ended December 31, 2002, 2001, 2000, 1999 and 1998.

<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                            ------------------------------------------------------
                                             2002        2001        2000        1999        1998
                                            ------------------------------------------------------
                                                            (Dollars in thousands)


                                         <c>         <c>         <c>         <c>         <c>
Balance at the beginning of period          $2,801      $2,863      $2,870      $2,845      $2,811
Charge-offs:
  Real Estate                                  108          70           -          41          49
  Commercial                                   115         245         152          49          67
  Consumer and other                           136         161         229         338         371
                                            ------------------------------------------------------
      Total charge-offs                        359         476         381         428         487
                                            ------------------------------------------------------
Recoveries:
  Real Estate                                    8           1           1           3           -
  Commercial                                    24          23          34          14          33
  Consumer and other                            78          70          89          77          88
                                            ------------------------------------------------------
      Total recoveries                         110          94         124          94         121
                                            ------------------------------------------------------

Net charge-offs                               (249)       (382)       (257)       (334)       (366)
Provision for loan losses                      356         320         250         359         400
Transfer from Other Reserve                      -           -           -           -           -
                                            ------------------------------------------------------

Balance at end of period                    $2,908      $2,801      $2,863      $2,870      $2,845
                                            ======================================================
</TABLE>

The following table shows the breakdown of the Company's allowance for loan
loss by category of loan and the percentage of loans in each category to
total loans in the respective portfolios at the dates indicated:

<TABLE>
<CAPTION>

                               December 31,       December 31,       December 31,       December 31,       December 31,
                                   2002               2001               2000               1999               1998
                             --------------------------------------------------------------------------------------------
                             Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent
                             --------------------------------------------------------------------------------------------
                                                                (Dollars in thousands)


                          <c>       <c>      <c>       <c>      <c>       <c>      <c>       <c>      <c>       <c>
Real Estate
  Residential                $  580     39.2%   $  610     41.3%   $  595     40.5%   $  557     42.3%   $  255     39.5%
  Commercial                  1,428     35.6%    1,342     34.1%    1,193     32.3%    1,014     30.6%      754     29.5%
  Construction                  144      5.6%      116      4.6%      102      4.5%       77      3.7%       12      3.8%
Other Loans
  Commercial                    412      8.7%      421      9.1%      401      9.1%      416      8.1%      498      9.0%
  Consumer installment          208      4.3%      253      4.9%      319      6.5%      448      8.6%      545     11.3%
  Home equity loans              28      1.5%       29      1.6%       31      1.8%       28      1.8%       21      2.3%
  Municipal, Other and
  Unallocated                   108      5.1%       30      4.4%      222      5.3%      330      4.9%      760      4.6%
                             --------------------------------------------------------------------------------------------

      Total                  $2,908    100.0%   $2,801    100.0%   $2,863    100.0%   $2,870    100.0%   $2,845    100.0%
                             ============================================================================================


Ratio of Net Charge-Offs
 to Average Loans                        .10%               .16%               .12%               .16%               .19%
Ratio of Allowance for
 Loan Losses to Loans                   1.14%              1.12%              1.27%              1.37%              1.41%
</TABLE>

Management of the Company believes that the allowance for loan losses at
December 31, 2002 is adequate to cover losses inherent in the Company's
loan portfolio as of such date. However there can be no assurance that the
Company will not sustain losses in future periods, which could be greater
than the size of the allowance at December 31, 2002. See CRITICAL
ACCOUNTING POLICIES and Footnote 1 in the financial statements


<PAGE>  49


While the Company recognizes that the current economic slowdown may
adversely impact its borrowers' financial performance and ultimately their
ability to repay their loans, management continues to be cautiously
optimistic about the key credit indicators from the Company's loan
portfolio.

Investment Activities. At December 31, 2002, the reported value of
investment securities available-for-sale was $45.8 million or 13.3% of
assets. The Company had no securities classified as held-to-maturity or
trading. Current accounting guidance requires banks to recognize all
appreciation or depreciation of the investment portfolio either on the
balance sheet or through the income statement even though a gain or loss
has not been realized. These changes require securities classified as
"trading securities" to be marked to market with any gain or loss charged
to income. Securities classified as "available-for-sale" are marked to
market with any gain or loss after taxes charged to the equity portion of
the balance sheet. Securities classified as "held-to-maturity" are to be
held at book value. The reported value of securities available-for-sale at
December 31, 2002 reflects a positive valuation adjustment of $1.0 million.
The offset of this adjustment, net of income tax effect, was a $674
thousand increase in the Company's other comprehensive income component of
stockholders' equity and a decrease in net deferred tax assets of $349
thousand.

The following tables show as of December 31, 2002 and 2001 the amortized
cost of the Company's investment portfolio maturing within the stated
period.

<TABLE>
<CAPTION>

                                                                           At December 31, 2002
                                                ------------------------------------------------------------------------
                                                                                Maturities
                                                ------------------------------------------------------------------------
                                                 Within      One to     Five to       Over        Total      Weighted
                                                One Year   Five Years   Ten Years   Ten Years     Cost     Average Yield
                                                ------------------------------------------------------------------------
                                                                          (Dollars in thousands)


                                              <c>         <c>         <c>         <c>         <c>           <c>
Securities available-for-sale:
  U.S. Government, Agency and Corporation
   securities                                    $ 2,533     $ 3,432     $   908     $     -     $ 6,873       2.89%
  Mortgage-backed securities                         753       2,374       2,865       6,344      12,336       4.84%
  State and political subdivisions                     -       1,936       3,370         738       6,044       5.92%
  Corporate debt securities                        6,479       9,293       3,168           -      18,940       6.13%
  Marketable equity securities                         -           -           -         608         608       6.88%
                                                 ------------------------------------------------------------------

Total Investment Securities                      $ 9,765     $17,035     $10,311     $ 7,690     $44,801       5.26%
                                                 =======================================================

Fair Value                                       $ 9,850     $17,565     $10,581     $ 7,828     $45,824
                                                 =======================================================

Weighted Average Yield                             4.74%       5.42%       5.59%       5.12%       5.26%

<CAPTION>

                                                                           At December 31, 2001
                                                ------------------------------------------------------------------------
                                                                                Maturities
                                                ------------------------------------------------------------------------
                                                 Within      One to     Five to       Over        Total      Weighted
                                                One Year   Five Years   Ten Years   Ten Years     Cost     Average Yield
                                                ------------------------------------------------------------------------
                                                                          (Dollars in thousands)


                                              <c>         <c>         <c>         <c>         <c>           <c>
Securities available-for-sale:
  U.S. Government, Agency and Corporation
   securities                                    $ 1,500     $ 2,059     $   912     $     -     $ 4,471       6.03%
  Mortgage-backed securities                           -       2,900       1,802      10,965      15,667       5.47%
  State and political subdivisions                    11       1,295       3,872         739       5,917       5.90%
  Corporate debt securities                        3,255      15,037       3,906           -      22,198       6.20%
  Marketable equity securities                         -           -           -         608         608       7.90%
                                                 ------------------------------------------------------------------

Total Investment Securities                      $ 4,766     $21,291     $10,492     $12,312     $48,861       5.93%
                                                 ==================================================================

Fair Value                                       $ 4,804     $21,736     $10,439     $12,631     $49,610
                                                 =======================================================

Weighted Average Yield                             6.32%       6.07%       6.03%       5.47%       5.93%
</TABLE>


<PAGE>  50


Deposits. The following table shows information concerning the Company's
deposits by account type, and the weighted average nominal rates at which
interest was paid on such deposits as of December 31, 2002 and December 31,
2001:

<TABLE>
<CAPTION>

                                         Year Ended December 31,            Year Ended December 31,
                                                  2002                               2001
                                    -----------------------------------------------------------------
                                                Percent                            Percent
                                    Average     of Total   Average     Average     of Total   Average
                                    Amount      Deposits    Rate       Amount      Deposits    Rate
                                    -----------------------------------------------------------------
                                                          (Dollars in thousands)


                                <c>          <c>         <c>       <c>          <c>         <c>
Non-time deposits:
  Demand deposits                  $ 37,932      13.28%               $ 35,251      13.07%
  NOW accounts                       39,143      13.70%     1.07%       36,320      13.47%     1.63%
  Money Markets                      66,562      23.30%     1.85%       56,875      21.09%     3.50%
  Savings                            39,296      13.75%     1.27%       35,642      13.21%     2.13%
                                   ----------------------------------------------------------------
      Total non-time deposits       182,933      64.03%                164,088      60.84%
                                   ----------------------------------------------------------------

Time deposits:
  Less than $100,000                 75,021      26.26%     3.18%       76,641      28.42%     5.03%
  $100,000 and over                  27,736       9.71%     4.71%       28,954      10.74%     5.53%
                                   ----------------------------------------------------------------
      Total time deposits           102,757      35.97%                105,595      39.16%
                                   ----------------------------------------------------------------

Total deposits                     $285,690     100.00%     2.05%     $269,683     100.00%     3.26%
                                   ================================================================
</TABLE>

The following table sets forth information regarding the amounts of the
Company's time deposits in amounts of $100,000 or more at December 31, 2002
and December 31, 2001 that mature during the periods indicated:

<TABLE>
<CAPTION>

                            December 31, 2002    December 31, 2001
                            --------------------------------------
                                   (Dollars in thousands)

      
                       <c>                  <c>
      Within 3 months           $ 9,629              $ 6,288
      3 to 6 months              13,090               13,681
      6 to 12 months              3,113                3,189
      Over 12 months              4,217                6,711
                                ----------------------------

                                $30,049              $29,869
                                ============================
</TABLE>

Borrowings. Borrowings from the Federal Home Loan Bank of Boston were $7.5
million at December 31, 2002 at a weighted average rate of 4.62%.
Borrowings totaled $10.3 million at December 31, 2001 had a weighted
average rate of 5.06%. (See Footnote 12 to the Financial Statements for
details.)

                       OTHER FINANCIAL CONSIDERATIONS

Market Risk and Asset and Liability Management. Market risk is the risk of
loss in a financial instrument arising from adverse changes in market
prices and rates, foreign currency exchange rates, commodity prices and
equity prices. The Company's market risk arises primarily from interest
rate risk inherent in its lending, investing, and deposit taking
activities. To that end, management actively monitors and manages its
interest rate risk exposure. The Company does not have any market risk
sensitive instruments acquired for trading purposes. The Company attempts
to structure its balance sheet to maximize net interest income while
controlling its exposure to interest rate risk. The Company's
Asset/Liability Committee formulates strategies to manage interest rate
risk by evaluating the impact on earnings and capital of such factors as
current interest rate forecasts and economic indicators, potential changes
in such forecasts and indicators, liquidity, and various business
strategies. The Company's Asset/Liability Committee's methods for
evaluating interest rate risk include an analysis of the Company's
interest-rate sensitivity "gap", which provides a static analysis of the
maturity and repricing characteristics of the Company's entire balance
sheet, and a simulation analysis, which calculates projected net interest
income based on alternative balance sheet and interest rate scenarios,
including "rate shock" scenarios involving immediate substantial increases
or decreases in market rates of interest.

The Company's Asset/Liability Committee meets at least weekly to set loan
and deposit rates, make investment decisions, monitor liquidity and
evaluate the loan demand pipeline. Deposit runoff is monitored daily and
loan prepayments evaluated monthly. The Company historically has maintained
a substantial portion of its loan portfolio on a variable rate basis and
plans to continue this


<PAGE>  51


Asset/Liability/Management (ALM) strategy in the future. The investment
portfolio is all classified as available for sale and the modified duration
is relatively short. The Company does not utilize any derivative products
or invest in any "high risk" instruments.

Our interest rate sensitivity analysis (simulation) as of December 2001 for
a simulated flat rate environment based on an anticipated prime rate of
4.92%, projected Net Interest Income of $15.5 million for 2002 based on
average assets of $358.9 million compared to actual results of $15.8
million on average assets of $339.6 million or an 1.9% difference. The
actual Prime rate was flat for the majority of 2002 and dropped from 4.75%
to 4.25% on November 7, 2002. Interest rates were down in 2002 on interest
earning assets 104 basis points and 147 basis points on interest paying
liabilities. We continued to have high demand for loans ($253.1 million on
average for 2002 with $28.3 million sold during the year) which resulted in
our percentage of loans to interest earning assets growing from 79.0% in
2001 to 80.8% in 2002 as we shifted resources from lower yielding assets to
loans. Our net interest margin for 2002 was 5.14% and our net interest
spread was 4.75%. Net income was projected to be $4.9 million in a
simulated flat rate environment compared to actual results of $5.2 million.
Of the $300 thousand difference, approximately $200 thousand relates to the
increase in net interest income. Return on Assets was 1.52% compared to our
simulated flat rate projection of 1.37%. Return on Equity was 13.74%
compared to our simulated flat rate projection of 13.23%. These two ratios
were higher based on higher net income as explained above and lower average
balances than anticipated which were mainly due to the sale of loans in the
secondary market during 2002 in order to mitigate the Company's interest
rate risk in this low interest rate environment.

The Company generally requires collateral or other security to support
financial instruments with credit risk. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. (See Footnote 15 to the Financial Statements for details.)

Interest Rate Sensitivity "Gap" Analysis. An interest rate sensitivity
"gap" is defined as the difference between interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time
period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During a
period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in an
increase in net interest income. During a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income,
while a positive gap would tend to affect net interest income adversely.
Because different types of assets and liabilities with the same or similar
maturities may react differently to changes in overall market interest
rates or conditions, changes in interest rates may affect net interest
income positively or negatively even if an institution were perfectly
matched in each maturity category.

The Company prepares its interest rate sensitivity "gap" analysis by
scheduling interest-earning assets and interest-bearing liabilities into
periods based upon the next date on which such assets and liabilities could
mature or reprice. The amounts of assets and liabilities shown within a
particular period were determined in accordance with the contractual terms
of the assets and liabilities, except that:

*     adjustable-rate loans, securities, and FHLB advances are included in
      the period when they are first scheduled to adjust and not in the
      period in which they mature;

*     fixed-rate mortgage-related securities and loans reflect estimated
      prepayments, which were estimated based on analyses of broker
      estimates, the results of a prepayment model utilized by the Company,
      and empirical data;

*     other non-mortgage related fixed-rate loans reflect scheduled
      contractual amortization, with no estimated prepayments; and

*     NOW, money markets, and savings deposits, which do not have
      contractual maturities, reflect estimated levels of attrition, which
      are based on detailed studies by the Company of the sensitivity of
      each such category of deposit to changes in interest rates.

Management believes that these assumptions approximate actual experience
and considers them reasonable. However, the interest rate sensitivity of
the Company's assets and liabilities in the tables could vary substantially
if different assumptions were used or actual experience differs from the
historical experience on which the assumptions are based.


<PAGE>  52


The following tables show the Company's rate sensitivity analysis as of
December 31, 2002 and 2001:

<TABLE>
<CAPTION>

                                                                           December 31, 2002
                                                                      Cumulative repriced within
                                                 ----------------------------------------------------------------------
                                                 3 Months     4 to 12     1 to 3      3 to 5       Over 5
                                                 or Less      Months      Years       Years        Years         Total
                                                 ----------------------------------------------------------------------
                                                               (Dollars in thousands, by repricing date)


                                              <c>         <c>         <c>         <c>          <c>          <c>
Interest sensitive assets:
  Federal funds sold and
   overnight deposits                            $ 9,713     $     -     $     -     $      -     $      -     $  9,713
  Interest-bearing deposits in banks               1,089       1,881       1,857          495            5        5,327
  Investments available for sale (1)               5,909       9,020      12,407        6,757       11,171       45,264
  FHLB Stock                                           -           -           -            -        1,235        1,235
  Loans (2)                                       81,443      64,376      51,226       39,244       19,618      255,907
                                                 ----------------------------------------------------------------------

      Total interest sensitive assets            $98,154     $75,277     $65,490     $ 46,496     $ 32,029     $317,446
                                                 ======================================================================

Interest sensitive liabilities:
  Time deposits                                  $27,586     $51,651     $19,325     $  2,729     $      3     $101,294
  Money markets                                   26,218           -           -            -       38,489       64,707
  Regular savings                                  9,799           -           -            -       31,537       41,336
  NOW accounts                                    24,807           -           -            -       19,884       44,691
  Borrowed funds (3)                                 289         928       3,008        3,311            -        7,536
                                                 ----------------------------------------------------------------------

      Total interest sensitive liabilities       $88,699     $52,579     $22,333     $  6,040     $ 89,913     $259,564
                                                 ======================================================================

Net interest rate sensitivity gap                  9,455      22,698      43,157       40,456      (57,884)      57,882
Cumulative net interest rate sensitivity gap       9,455      32,153      75,310      115,766       57,882
Cumulative net interest rate sensitivity gap
 as a percentage of total assets                   2.75%       9.36%      21.93%       33.71%       16.85%
Cumulative interest sensitivity gap as a
 percentage of total interest-earning assets       2.98%      10.13%      23.72%       36.47%       18.23%
Cumulative net interest earning assets as a
 percentage of cumulative interest-bearing
 liabilities                                       3.64%      12.39%      29.01%       44.60%       22.30%

<FN>
--------------------
<F1>  Investments available for sale exclude marketable equity securities
      with a fair value of $559,613 that may be sold by the Company at any
      time.
<F2>  Balances shown net of unearned income of $206,100.
<F3>  Estimated repayment assumptions considered in Asset/Liability model.
</FN>
</TABLE>


<PAGE>  53


<TABLE>
<CAPTION>

                                                                           December 31, 2001
                                                                      Cumulative repriced within
                                                 ----------------------------------------------------------------------
                                                 3 Months     4 to 12     1 to 3      3 to 5       Over 5
                                                 or Less      Months      Years       Years        Years         Total
                                                 ----------------------------------------------------------------------
                                                               (Dollars in thousands, by repricing date)


                                              <c>         <c>         <c>         <c>          <c>          <c>
Interest sensitive assets:
  Federal funds sold and
   overnight deposits                            $ 7,630     $     -     $     -     $      -     $      -     $  7,630
  Interest-bearing deposits in banks                 871         991       2,149          689            -        4,700
  Investments available for sale (1)               4,855       5,255      16,273       10,864       11,525       48,772
  FHLB Stock                                           -           -           -            -        1,064        1,064
  Loans (2)                                       72,424      39,174      42,321       39,384       57,640      250,943
                                                 ----------------------------------------------------------------------

      Total interest sensitive assets            $85,780     $45,420     $60,743     $ 50,937     $ 70,229     $313,109
                                                 ======================================================================

Interest sensitive liabilities:
  Time deposits                                  $25,758     $51,582     $22,462     $  4,359     $      3     $104,164
  Money markets                                   23,852           -           -            -       40,844       64,696
  Regular savings                                  4,329           -           -            -       31,967       36,296
  NOW accounts                                    31,501           -           -            -        9,519       41,020
  Borrowed funds (3)                               2,174         585       1,750        4,756        1,079       10,344
                                                 ----------------------------------------------------------------------

      Total interest sensitive liabilities       $87,614     $52,167     $24,212     $  9,115     $ 83,412     $256,520
                                                 ======================================================================

Net interest rate sensitivity gap                 (1,834)     (6,747)     36,531       41,822      (13,183)    56,589
Cumulative net interest rate sensitivity gap      (1,834)     (8,581)     27,950       69,772       56,589
Cumulative net interest rate sensitivity gap
 as a percentage of total assets                   (.54%)     (2.54%)      8.28%       20.67%       16.77%
Cumulative interest sensitivity gap as a
 percentage of total interest-earning assets       (.59%)     (2.74%)      8.93%       22.28%       18.07%
Cumulative net interest earning assets as a
 percentage of cumulative interest-bearing
 liabilities                                       (.71%)     (3.34%)     10.90%       27.20%       22.06%

<FN>
--------------------
<F1>  Investments available for sale exclude marketable equity securities
      with a fair value of $837,545 that may be sold by the Company at any
      time.
<F2>  Balances shown net of unearned income of $263,080.
<F3>  Estimated repayment assumptions considered in Asset/Liability model.
</FN>
</TABLE>

Simulation Analysis. In its simulation analysis, the Company uses computer
software to simulate the estimated impact on net interest income and
capital (Net Fair Value) under various interest rate scenarios, balance
sheet trends, and strategies. These simulations incorporate assumptions
about balance sheet dynamics such as loans and deposit growth, product
pricing, changes in funding mix, and asset and liability repricing and
maturity characteristics. Based on the results of these simulations, the
Company is able to quantify its interest rate risk and develop and
implement appropriate strategies.


<PAGE>  54


The following chart reflects the results of our latest simulation analysis
for next year-end on Net Interest Income, Net Income, Return on Assets,
Return on Equity and Net Fair Value. The projection utilizes a rate shock
of 300 basis points from the year-end prime rate of 4.25%; this is the
highest internal slope monitored and shows the best and worse scenarios
analyzed. This slope range was determined to be the most relevant during
this economic cycle.

                           UNION BANKSHARES, INC.
                  INTEREST RATE SENSITIVITY ANALYSIS MATRIX
                              DECEMBER 31, 2002
                           (Dollars in thousands)

<TABLE>
<CAPTION>

  Year               Prime    Net Interest    Change     Net      Return on    Return on     Net Fair      Change
 Ending              Rate        Income         %       Income    Assets %     Equity %     Value Ratio      %
-----------------------------------------------------------------------------------------------------------------


                  <c>        <c>          <c>        <c>         <c>          <c>          <c>          <c>
December-03          7.25       $18,111       14.93%    $6,376      1.81         16.17         7.55%       (4.14)
                     4.25        15,759        0.00      4,819      1.37         12.44        11.69%        0.00
                     1.25        12,951      (17.82)     2,961       .85          7.78        14.11%        2.43
</TABLE>

Liquidity. Managing liquidity risk is essential to maintaining both
depositor confidence and stability in earnings. Liquidity is a measurement
of the Company's ability to meet potential cash requirements, including
ongoing commitments to fund deposit withdrawals, repay borrowings, fund
investment and lending activities, and for other general business purposes.
The Company's principal sources of funds are deposits, amortization and
prepayment of loans and securities, maturities of investment securities and
other short-term investments, sales of securities and loans available-for-
sale, and earnings and funds provided from operations. Maintaining a
relatively stable funding base, which is achieved by diversifying funding
sources, competitively pricing deposit products, and extending the
contractual maturity of liabilities, reduces the Company's exposure to roll
over risk on deposits and limits reliance on volatile short-term purchased
funds. Short-term funding needs arise from declines in deposits or other
funding sources, funding of loan commitments and request for new loans. The
Company's strategy is to fund assets to the maximum extent possible with
core deposits that provide a sizable source of relatively stable and low-
cost funds.

In addition, as both subsidiary banks are members of the FHLB, the Company
has access to preapproved lines of credit up to 5.1% of total assets. Union
Bank also has a $4.0 million short term preapproved line of credit with one
of their correspondent banks, and repurchase agreement lines with selected
brokerage houses.

The Banks maintain IDEAL Way Lines of Credit with the Federal Home Loan
Bank of Boston. The total line available to Union Bank was $3.6 million as
of both December 31, 2002 and 2001. The total line available to Citizens
was $3.0 million as of both December 31, 2002 and 2001. There were no
borrowings against these lines of credit at December 31, 2002 or 2001.
Interest on these borrowings is chargeable at a rate determined by the
Federal Home Loan Bank and payable monthly. Should the Company utilize
these lines of credit, qualified portions of the loan and investment
portfolios would collateralize these borrowings.

While scheduled loan and securities payments and FHLB advances are
relatively predictable sources of funds, deposit flows and prepayments on
loans and mortgage-backed securities are greatly influenced by general
interest rates, economic conditions, and competition. The Company's
liquidity is actively managed on a daily basis, monitored by the
Asset/Liability Committee, and reviewed periodically with the subsidiaries'
Boards of Directors. The Company's Asset/Liability Committee sets liquidity
targets based on the Company's financial condition and existing and
projected economic and market conditions. The committee measures the
Company's marketable assets and credit available to fund liquidity
requirements and compares the adequacy of that aggregate amount against the
aggregate amount of the Company's sensitive or volatile liabilities, such
as core deposits and time deposits in excess of $100,000, term deposits
with short maturities, and credit commitments outstanding. The committee's
primary objective is to manage the Company's liquidity position and funding
sources in order to ensure that it has the ability to meet its ongoing
commitment to its depositors, to fund loan commitments, and to maintain a
portfolio of investment securities. Since many of the loan commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.

The Company's management monitors current and projected cash flows and
adjusts positions as necessary to maintain adequate levels of liquidity.
Although approximately 78% of time deposits will mature within twelve
months, management believes, based upon past experience, that the Company
will retain a substantial portion of these deposits. Management will
continue to offer a competitive but prudent pricing strategy to facilitate
retention of such deposits. Any reduction in total deposits could be offset
by purchases of federal funds, short-term FHLB borrowings, or liquidation
of investment securities or loans held for sale. Such steps could result in
an increase in the Company's cost of funds and adversely impact the net
interest margin. 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 cash flows are subject to substantial uncertainty. We continually
evaluate opportunities to buy/sell securities and loans available for sale,
obtain credit facilities from lenders, or restructure our debt for
strategic reasons or to further strengthen our financial position.


<PAGE>  55


Capital Resources. Our capital management is designed to maintain an
optimum level of capital in a cost-effective structure that: meets our
target regulatory ratios; supports our internal assessment of economic
capital; funds our business strategies; and builds long-term stockholder
value.

The total dollar value of the Company's stockholders' equity was $39.2
million at December 31, 2002 reflecting net income of $5.2 million for
2002, less dividends paid of $3.5 million, compared to $37.2 million at
year end 2001. The Company has 5,000,000 shares of $2.00 par value common
stock authorized. As of December 31, 2002, the Company had 3,270,689 shares
issued, of which 3,030,057 were outstanding and 240,632 were held in
Treasury. Also as of December 31, 2002, there were outstanding employee
incentive stock options with respect to 10,900 shares of the Company's
common stock, granted pursuant to the Company's 1998 Incentive Stock Option
Plan. Of the 50,000 shares authorized for issuance under the 1998 Plan,
38,800 shares remain available for future option grants.

On October 17, 2001, the Company announced a stock repurchase program. The
Board of Directors has authorized the repurchase of up to 100,000 shares of
common stock, or approximately 3.3% of the Company's outstanding shares.
Shares are repurchased from time to time in the open market or in
negotiated transactions as, in the judgment of management, market
conditions warrant. The repurchase program is open for an unspecified
period of time. To date we have repurchased 6,672 shares under this
program, for a total cost of $129.5 thousand. No repurchases were made in
2002.

Dividends are generally increased in line with long-term trends in earnings
per share growth and conservative earnings projections, while sufficient
profits are retained to support anticipated business growth, fund strategic
investments and provide continued support for deposits.

Impact of Inflation and Changing Prices. The Company's consolidated
financial statements, included in this document, have been prepared in
accordance with U.S. generally accepted accounting principles, which
require the measurements 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.
Interest rates have a more significant impact on the Company's financial
performance than the effect of general inflation and because of the uneven
nature of the expansion of the U.S. economy, the Federal Reserve has kept
overnight rates at 40 year lows. Interest rates do not necessarily move in
the same direction or change in the same magnitude as the prices of goods
and services, although periods of increased inflation may accompany a
rising interest rate environment.


<PAGE>  56


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
MARKET FOR UNION BANKSHARES' COMMON STOCK AND RELATED
 STOCKHOLDER MATTERS

On March 14, 2003 there were 3,030,557 shares of common stock outstanding
held by 709 shareholders of record. The number of stockholders does not
reflect the number of persons or entities who may hold the stock in nominee
or "street name."

Union Bankshares' common stock was listed on the American Stock Exchange on
July 13, 2000. The Company's stock trades under the symbol UNB. LaBranche &
Co. of New York City are the market specialists for Union Bankshares, Inc.
stock. Prior to July 13, 2000 no broker made a market in the Company's
common stock and trading was sporadic. The trades that occurred cannot be
characterized as an established public trading market. The stock was traded
from time to time by holders in private transactions or through brokers,
and information on bid and ask prices was not publicly reported. The high
and low prices for shares of the Company's common stock for 2002 and 2001,
as well as cash dividends paid thereon is presented below:

<TABLE>
<CAPTION>

                                  2002                          2001
                      -----------------------------------------------------------
                       High      Low     Dividends    High      Low     Dividends
                      -----------------------------------------------------------


                   <c>       <c>        <c>       <c>       <c>        <c>
First Quarter         $23.00    $21.00     $.28      $18.20    $16.70     $.26

Second Quarter        $24.50    $22.20     $.28      $18.25    $17.10     $.26

Third Quarter         $23.50    $22.00     $.28      $20.20    $18.00     $.26

Fourth Quarter        $26.20    $21.40     $.30      $23.25    $18.85     $.28
</TABLE>

On January 15, 2003 the Company declared a dividend of $.30 per share to
stockholders of record as of January 25, 2003, payable January 28, 2003.


<PAGE>  57


UNION BANKSHARES, INC. AND SUBSIDIARIES
---------------------------------------------------------------------------
SHAREHOLDER ASSISTANCE AND INVESTOR INFORMATION


If you need assistance with a change in registration of certificates,
reporting lost certificates, non-receipt or loss of dividend checks,
information about the Company, or to receive copies of financial reports,
please contact:

      JoAnn A. Tallman, Assistant Secretary
      Union Bankshares, Inc.
      P.O. Box 667
      Morrisville, VT 05661-0667
      Phone: 802-888-6600
      Facsimile: 802-888-4921
      E-mail: ubexec@unionbankvt.com
              ----------------------

Form 10-K

A copy of the Form 10-K Report filed with the Securities and Exchange
Commission may be obtained without charge upon written request to:

            Marsha A. Mongeon, Treasurer and Chief Financial Officer
            Union Bankshares, Inc.
            P.O. Box 667
            Morrisville, VT 05661-0667

            Corporate Name: Union Bankshares, Inc.
            Corporate Transfer Agent: Union Bank, P.O. Box 667,
                                      Morrisville, VT 05661-0667


<PAGE>  58


Directors of Union Bankshares, Inc.
Cynthia D. Borck
  Vice President, Union Bankshares Inc., and Executive Vice President,
  Union Bank, Morrisville, Vt.

William T. Costa, Jr.
  President, Costa Realty, Inc., St. Johnsbury, Vt. (Commercial properties)

Kenneth D. Gibbons
  President, Chief Executive Officer and Director, Union Bankshares
  Inc., Union Bank, Morrisville, Vt.; and Interim President and CEO, Citizens
  Savings Bank and Trust, St. Johnsbury, Vt.

Franklin G. Hovey II
  President, Hovey Enterprises, Inc., St. Johnsbury, Vt. (Real estate)

Richard C. Marron
  Owner, Town & Country Motor Lodge, Stowe, Vt.

Robert P. Rollins
  Insurance Agent, Morrisville, Vt., Secretary of Union
  Bankshares, Inc. and Union Bank, Morrisville, Vt.

Richard C. Sargent
  Attorney at Law, Richard Sargent Law Office, Morrisville, Vt.

W. Arlen Smith
  Chairman of the Board, Union Bankshares Inc., and Union Bank,
  Morrisville, Vt.

John H. Steel
  Owner, President and Treasurer, Steel Construction, Morrisville, Vt.

Executive Officers of Union Bankshares, Inc.
Kenneth D. Gibbons
  President, Chief Executive Officer and Director, Union Bankshares
  Inc., and Union Bank, Morrisville, Vt.; and Interim President and CEO, and
  Director, Citizens Savings Bank and Trust, St. Johnsbury, Vt.

Cynthia D. Borck
  Vice President and Director, Union Bankshares Inc., and Executive Vice
  President and Director, Union Bank, Morrisville, Vt.; and Director,
  Citizens Savings Bank and Trust, St. Johnsbury, Vt.

Marsha A. Mongeon
  Treasurer and Chief Financial Officer, Union Bankshares Inc., and
  Senior Vice President and Treasurer, Union Bank, Morrisville, Vt.; and
  Assistant Treasurer, Citizens Savings Bank & Trust, St. Johnsbury, Vt.

Officers of Union Bank
Wanda L. Allaire            Assistant Vice President
Rhonda L. Bennett           Vice President
Cynthia D. Borck            Executive Vice President
Jeffrey G. Coslett          Human Resources Officer
Shawn M. Davis              Commercial Loan Officer
Fern C. Farmer              Assistant Vice President
Patsy S. French             Assistant Vice President
Kenneth D. Gibbons          President & CEO
Claire A. Hindes            Assistant Vice President
Patricia N. Hogan           Vice President
Peter R. Jones              Vice President
Stephen H. Kendall          Assistant Vice President
Margaret S. Lambert         Assistant Vice President
Susan F. Lassiter           Assistant Vice President
Philip L. Martin            Assistant Vice President
Marsha A. Mongeon           Senior Vice President/Treasurer
Freda T. Moody              Assistant Vice President
Richard N. Morrison         Assistant Vice President
Colleen D. Putvain          Assistant Treasurer
Ruth P. Schwartz            Vice President
David S. Silverman          Senior Vice President
JoAnn A. Tallman            Assistant Secretary
Francis E. Welch            Assistant Vice President
Craig S. Wiltshire          Vice President

Directors of Union Bank
W. Arlen Smith, Chairman
Cynthia D. Borck
Kenneth D. Gibbons
Richard C. Marron
Robert P. Rollins
Richard C. Sargent
John H. Steel

Officers of Citizens Savings Bank & Trust Company
Alice H. Claflin            Trust Officer
Karen C. Gammell            Assistant Treasurer
Kenneth D. Gibbons*         Interim President & CEO
Tracey D. Holbrook          Vice President
Susan O. Laferriere         Vice President
Dennis J. Lamothe           Senior Vice President/Treasurer
Marsha A. Mongeon           Assistant Treasurer
Mildred R. Nelson           Assistant Vice President
Barbara A. Olden            Assistant Vice President
Deborah J. Partlow          Trust Officer
Larry D. Sharer             Regional Vice President
Tracy R. Verge              Assistant Treasurer
David A. Weed               Vice President

*  Effective February 15 2003 Jerry S. Rowe resigned his position as
President & CEO of Citizens Savings Bank & Trust Company. Kenneth D.
Gibbons has been appointed Interim President & CEO pending merger approval.

Directors of Citizens Savings Bank & Trust Company
Cynthia D. Borck
J.R. Alexis Clouatre
William T. Costa, Jr.
Dwight A. Davis
Kenneth D. Gibbons
Franklin G. Hovey II
Joseph M. Sherman


<PAGE>


Union Bank Offices

Morrisville
Main Office *
20 Lower Main Street
802-888-6600

Northgate Plaza *
Route 100
802-888-6860

Stowe
Stowe Village *
47 Park Street
802-253-6600

Fairfax
Route 104 *
802-849-2600

Johnson
198 Lower Main Street *
802-635-6600

Hardwick
103 VT Route 15 *
802-472-8100

Jeffersonville
80 Main Street *
802-644-6600

Hyde Park
250 Main Street
802-888-6880

Remote ATM Locations
Smugglers' Notch Resort (2)
Dewey Center, Johnson State College
Copley Hospital
Cold Hollow Cider Mill
Trapp Family Lodge
Stowe Mountain Resort (3)
Big John's Riverside Store, Jericho
Cold Hollow Cider, Waterbury Center
Ben & Jerry's Factory, Waterbury
Taft Corners, Williston
Stowe Mountain Road

Express Telebanking(TM)
802-888-6448
800-583-2869


UNION BANKSHARES, INC.
www.unionbankvt.com


Citizens Savings Bank & Trust Company Offices

St. Johnsbury
364 Railroad St *
802-748-3131

325 Portland St. *
802-748-3121

Lyndonville
183 Depot Street *
802-626-3100

St. Johnsbury Center
Green Mountain Mall *
1998 Memorial Drive
802-748-2454

Littleton Loan Center
241 Main Street
Littleton, NH
603-444-7136

Remote ATM Locations
East Burke, Route 114
Danville, Route 2
Burke Mountain Ski Area (2)

Express Phone Banking(TM)
800-583-2869

www.csbtc.com

* ATM located at these branches


<PAGE>