UNION BANKSHARES, INC. AND SUBSIDIARIES
                         MANAGEMENT'S RESPONSIBILITY


The management of Union Bankshares, Inc. is responsible for the integrity
and objectivity of the information and representations in this annual
report, including the consolidated financial statements. These statements
have been prepared in conformity with generally accepted accounting
principles, using informed estimates where appropriate, to reflect the
Company's financial condition and results of operations. The information in
other sections of the annual report is consistent with these statements.

The Company's Board of Directors has oversight responsibilities for
determining that management has fulfilled its obligation in the preparation
of the financial statements and in the ongoing examination of the Company's
established internal control structure over financial reporting. The Audit
Committee, which consists solely of outside directors and which reports
directly to the Board of Directors, meets regularly with management, A.M.
Peisch & Company Certified Public Accountants and the Company's internal
auditor to discuss accounting, auditing and reporting matters. To ensure
auditor independence, both A.M. Peisch & Company and the internal auditor
have unrestricted access to the Audit Committee.

The financial statements have been audited by A.M. Peisch & Company, whose
report appears on the next page. The auditors provide an objective,
independent review as to management's discharge of its responsibilities
insofar as they relate to the fairness of the Company's reported financial
condition and results of operations. Their audit includes procedures
believed by them to provide reasonable assurance that the financial
statements are free of material misstatement and includes a review of the
Company's internal control structure over financial reporting.


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


                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                        INDEPENDENT AUDITOR'S REPORT
                              DECEMBER 31, 1999


Board of Directors
Union Bankshares, Inc. and Subsidiaries
Morrisville, Vermont


We have audited the accompanying consolidated balance sheets of Union
Bankshares, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, changes in stockholders' equity,
and cash flows for the years ended December 31, 1999, 1998, and 1997. 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.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Union Bankshares, Inc. and Subsidiaries as of December 31, 1999
and 1998, and the results of their operations and their cash flows for the
years ended December 31, 1999, 1998, and 1997 in conformity with generally
accepted accounting principles.



                                       /s/ A. M. Peisch & Company


January 14, 2000
St. Johnsbury, Vermont
VT Reg. No. 92-0000102


                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                   ---------------------------------------
                         CONSOLIDATED BALANCE SHEETS
                         DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                      1999           1998
                                                  ---------------------------

<S>                                               <C>            <C>
ASSETS
Cash and due from banks                           $ 11,627,481   $  9,870,258
Federal funds sold and overnight deposits            3,474,064      9,325,994
                                                  ---------------------------
      Cash and cash equivalents                     15,101,545     19,196,252
Interest bearing deposits                            1,956,999      1,873,000
Securities available-for-sale                       60,440,524     58,585,499
Federal Home Loan Bank stock                           938,800        904,000
Loans held for sale                                  8,101,815      7,399,856
Loans                                              201,524,889    195,333,970
Allowance for loan losses                           (2,869,983)    (2,844,929)
Unearned net loan fees                                (273,305)      (265,468)
                                                  ---------------------------
      Net loans                                    198,381,601    192,223,573
Accrued interest receivable                          2,199,426      2,105,702
Premises and equipment, net                          4,039,886      4,574,071
Other real estate owned                                 26,667        524,756
Other assets                                         4,288,383      2,745,280
                                                  ---------------------------
      Total assets                                $295,475,646   $290,131,989
                                                  ===========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Deposits:
    Noninterest bearing                           $ 32,988,892   $ 32,948,621
    Interest bearing                               224,603,911    215,969,595
                                                  ---------------------------
                                                   257,592,803    248,918,216
    Borrowed funds                                   2,871,929      6,084,368
    Accrued expenses and other liabilities           2,790,900      3,367,182
                                                  ---------------------------
                                                   263,255,632    258,369,766
                                                  ---------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
  Common stock, $2 par value; 5,000,000 shares
   authorized; 3,263,489 shares issued in 1999;
    3,259,398 shares in 1998                         6,526,978      6,518,796
  Paid-in capital                                      238,353        211,394
  Retained earnings                                 28,180,180     26,029,355
  Treasury stock at cost (233,960 shares at
   December 31, 1999 and 1998)                      (1,592,451)    (1,592,451)
  Accumulated other comprehensive income (loss)     (1,133,046)       595,129
                                                  ---------------------------
                                                    32,220,014     31,762,223
                                                  ---------------------------
      Total liabilities and
       stockholders' equity                       $295,475,646   $290,131,989
                                                  ===========================
</TABLE>

See notes to consolidated financial statements.


                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                   ---------------------------------------
                      CONSOLIDATED STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 1999, 1998, 1997

<TABLE>
<CAPTION>
                                                    1999          1998          1997
                                                 ---------------------------------------

<S>                                              <C>           <C>           <C>
Interest income
  Interest and fees on loans                     $18,631,113   $18,836,133   $18,483,056
  Interest on debt securities
    Taxable                                        3,363,022     3,041,725     2,673,297
    Tax exempt                                       207,222        73,856        57,312
  Dividends                                          115,282       130,283       134,029
  Interest on federal funds sold                     425,389       461,541       313,991
  Interest on interest bearing deposits              122,300        82,641         4,736
                                                 ---------------------------------------
      Total interest income                       22,864,328    22,626,179    21,666,421
                                                 ---------------------------------------

Interest expense
  Interest on deposits                             8,833,767     8,958,729     8,652,448
  Interest on federal funds purchased                 88,763         1,647         1,033
  Interest on other borrowed money                   199,041       292,088       128,581
                                                 ---------------------------------------
      Total interest expense                       9,121,571     9,252,464     8,782,062
      Net interest income                         13,742,757    13,373,715    12,884,359
Provision for loan losses                            359,496       400,000       425,000
                                                 ---------------------------------------
      Net interest income after provision
       for loan losses                            13,383,261    12,973,715    12,459,359
                                                 ---------------------------------------
Other income
  Trust department income                            165,770       120,410        94,305
  Service fees                                     2,228,873     2,145,998     2,060,717
  Gain (loss) on sale of securities                    2,976       150,038       (18,038)
  Gain on sale of loans                               39,991       301,919       158,444
  Other                                              107,246       192,588       116,766
                                                 ---------------------------------------
                                                   2,544,856     2,910,953     2,412,194
                                                 ---------------------------------------
Other expenses
  Salaries and wages                               4,233,731     4,111,063     3,914,329
  Pension and employee benefits                    1,094,754     1,057,568     1,063,099
  Occupancy expense, net                             534,813       502,549       505,580
  Equipment expense                                1,124,755     1,005,109       773,249
  Other operating expense                          3,049,334     2,602,076     2,311,106
                                                 ---------------------------------------
                                                  10,037,387     9,278,365     8,567,363
                                                 ---------------------------------------
      Income before income taxes                   5,890,730     6,606,303     6,304,190
Income tax expense                                 1,815,259     2,054,907     1,948,686
                                                 ---------------------------------------
      Net income                                 $ 4,075,471   $ 4,551,396   $ 4,355,504
                                                 =======================================
Earnings per common share                        $      1.35   $      1.51   $      1.44
                                                 =======================================
</TABLE>

See notes to consolidated financial statements.


                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                   ---------------------------------------
         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 1999, 1998, 1997

<TABLE>
<CAPTION>
                                                                                                  Accumulated
                                                                                                     other
                                              Common Stock   Paid-in   Retained      Treasury     comprehensive
                                              ------------
                                                 Shares      Amount     capital      earnings         stock
                                              ----------------------------------------------------------------

<S>                                            <C>         <C>          <C>         <C>            <C>
Balances, December 31, 1996                    2,009,728   $4,242,396   $158,069    $23,219,699    $(1,429,688)

  Comprehensive income
    Net income                                         0            0          0      4,355,504              0
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects                                              0              0              0
    Total comprehensive income
  Stock split effected in the form of
   a dividend                                  1,018,430    2,259,800          0     (2,259,800)             0
  Cash dividends declared                              0            0          0     (1,829,925)             0
  Treasury stock purchased                        (8,800)           0          0              0       (118,803)
  Exercise of stock option                         4,200        8,400     24,550              0              0
                                               ---------------------------------------------------------------

Balances, December 31, 1997                    3,023,558    6,510,596    182,619     23,485,478     (1,548,491)

  Comprehensive income
    Net income                                         0            0          0      4,551,396              0
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects                                              0              0              0
    Total comprehensive income
Cash dividends declared                                0            0          0     (2,007,519)             0
Treasury stock purchased                          (2,220)           0          0              0        (43,960)
Exercise of stock option                           4,100        8,200     28,775              0              0
                                               ---------------------------------------------------------------

Balances, December 31, 1998                    3,025,438    6,518,796    211,394     26,029,355     (1,592,451)

  Comprehensive income
    Net income                                         0            0          0      4,075,471              0
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects                                              0              0              0
    Total comprehensive income
Cash dividends declared                                0            0          0     (1,924,646)             0
Exercise of stock option                           4,300        8,600     31,325              0              0
Retirement of common stock                          (209)        (418)    (4,366)             0              0
                                               ---------------------------------------------------------------
Balances, December 31, 1999                    3,029,529   $6,526,978   $238,353    $28,180,180    $(1,592,451)
                                               ===============================================================

<CAPTION>
                                               Accumulated
                                                  other            Total
                                              comprehensive    stockholders'
                                              income (loss)       equity
                                              ------------------------------

<S>                                            <C>              <C>
Balances, December 31, 1996                    $   201,742      $26,392,218

  Comprehensive income
    Net income                                           0        4,355,504
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects                  190,962          190,962
                                                                -----------
    Total comprehensive income                                    4,546,466
                                                                -----------
  Stock split effected in the form of
   a dividend                                            0                0
  Cash dividends declared                                0       (1,829,925)
  Treasury stock purchased                               0         (118,803)
  Exercise of stock option                               0           32,950
                                               ----------------------------

Balances, December 31, 1997                        392,704       29,022,906

  Comprehensive income
    Net income                                           0        4,551,396
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects                  202,425          202,425
                                                                -----------
    Total comprehensive income                                    4,753,821
                                                                -----------
Cash dividends declared                                  0       (2,007,519)
Treasury stock purchased                                 0          (43,960)
Exercise of stock option                                 0           36,975
                                               ----------------------------

Balances, December 31, 1998                        595,129       31,762,223

  Comprehensive income
    Net income                                           0        4,075,471
    Change in net unrealized gain
     (loss) on securities available-
      for-sale, net of reclassification
       adjustment and tax effects               (1,728,175)      (1,728,175)
                                                                -----------
    Total comprehensive income                                    2,347,296
                                                                -----------

Cash dividends declared                                  0       (1,924,646)
Exercise of stock option                                 0           39,925
Retirement of common stock                               0           (4,784)
                                               ----------------------------

Balances, December 31, 1999                    $(1,133,046)     $32,220,014
                                               ============================
</TABLE>

See notes to consolidated financial statements.

                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                   ---------------------------------------
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                YEAR ENDED DECEMBER 31, 1999, 1998, AND 1997

<TABLE>
<CAPTION>
                                                                1999            1998            1997
                                                           --------------------------------------------

<S>                                                        <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                               $  4,075,471    $  4,551,396    $  4,355,504
  Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation                                                867,114         789,826         572,307
    Provision for loan losses                                   359,496         400,000         425,000
    Provision (credit) for deferred income taxes                 52,958          28,650         (16,524)
    Amortization, net                                           123,705         108,818         131,005
    Write-downs of other real estate owned                        7,421          77,578         117,748
    Increase (decrease) in unamortized loan fees                  7,837          11,361         (52,053)
    (Increase) decrease in loans held for resale               (661,968)       (902,839)        213,877
    Increase in accrued interest receivable                     (93,724)        (82,907)        (44,667)
    Increase in other assets                                   (339,262)        (65,736)       (100,309)
    Decrease (increase) in income taxes receivable               24,281          75,689         (47,098)
    (Decrease) increase in accrued interest payable            (107,210)        (79,649)         71,009
    (Decrease) increase in other liabilities                   (127,072)        (33,947)         58,698
    (Gain) loss on sale of securities                            (2,976)       (150,038)         18,038
    Gain on sale of loans                                       (39,991)       (301,919)       (158,444)
    Gain on sale of other real estate owned                      (4,779)        (50,005)        (94,787)
    Loss on disposal of fixed assets                             15,530           2,358               0
                                                           --------------------------------------------
      Net cash provided by operating activities               4,156,831       4,378,636       5,449,304
                                                           --------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Interest bearing deposits
    Maturities and redemptions                                  982,000       1,586,000               0
    Purchases                                                (1,065,999)     (3,459,000)              0
  Securities available-for-sale
    Sales and maturities                                     18,581,808      16,616,681      18,558,772
    Purchases                                               (23,176,008)    (28,953,788)    (19,977,757)
  Purchase of Federal Home Loan Bank stock                      (34,800)        (46,600)        (94,200)
  Increase in loans, net                                     (6,696,985)       (474,700)    (14,414,400)
  Recoveries of loans charged off                                94,194         120,826          91,136
  Purchase of premises and equipment, net                      (350,659)       (928,708)       (683,047)
  Investments in limited partnerships, net                     (451,360)        (24,889)              0
  Proceeds from sales of premises and equipment                   2,200           4,660           1,244
  Proceeds from sales of other real estate owned                559,498         629,855         648,114
  Proceeds from sales of repossessed property                    73,930          87,243         106,995
                                                           --------------------------------------------
      Net cash used in investing activities                 (11,482,181)    (14,842,420)    (15,763,143)
                                                           --------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Borrowings, net of repayments                              (3,212,439)      4,448,484         (57,523)
  Proceeds from exercise of stock options                        39,925          36,975          32,950
  Net increase in noninterest bearing deposits                   40,271       3,884,066       3,010,276
  Net increase in interest bearing deposits                   8,634,316       5,804,527      11,800,245
  Purchase of stock                                              (4,784)        (43,960)       (118,803)
  Dividends paid                                             (2,266,646)     (1,969,519)     (1,776,725)
                                                           --------------------------------------------
      Net cash provided by financing activities               3,230,643      12,160,573      12,890,420
                                                           --------------------------------------------
      (Decrease) increase in cash and
       cash equivalents                                      (4,094,707)      1,696,789       2,576,581
Cash and cash equivalents:
  Beginning                                                  19,196,252      17,499,463      14,922,882
                                                           --------------------------------------------
  Ending                                                   $ 15,101,545    $ 19,196,252    $ 17,499,463
                                                           ============================================
SUPPLEMENTAL DISCLOSURES OF
 CASH FLOW INFORMATION
  Interest paid                                            $  9,228,781    $  9,332,113    $  8,711,053
                                                           ============================================
  Income taxes paid                                        $  1,738,020    $  1,996,000    $  1,979,000
                                                           ============================================
SUPPLEMENTAL SCHEDULE OF NONCASH
 INVESTING AND FINANCING ACTIVITIES
  Other real estate acquired in settlement of loans        $    102,658    $    636,934    $    943,674
                                                           ============================================
  Repossessed property acquired in settlement
   of loans                                                $    151,356    $    295,405    $    253,729
                                                           ============================================
  Total change in unrealized (loss) gain on
   securities available-for-sale                           $ (2,618,447)   $    306,704    $    289,336
                                                           ============================================
  Stock dividends                                          $          0    $          0    $  2,259,800
                                                           ============================================
</TABLE>

See notes to consolidated financial statements.


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

Note 1.  Significant Accounting Policies

The accounting policies of Union Bankshares, Inc. and Subsidiaries (the
Company) are in conformity with 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 financial information
has been restated historically for the acquisition of Citizens accounted for
as pooling of interests as described in Note 19. All significant intercompany
transactions and balances have been eliminated.

Nature of operations

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

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
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 Bank invests in. Note 5
discusses the types of lending which the Bank 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
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the 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.

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 of the Trust Department, other than trust cash on deposit, are not
included in these consolidated financial statements because they are not
assets of 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 a member of the Federal Home Loan Bank, the Company is required to invest
in $100 par value stock of the Federal Home Loan Bank. The stock is
nonmarketable, and when redeemed, the Company 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. 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. 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.

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 into 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.

Pension plans

Union maintains a non-contributory defined benefit pension plan covering all
eligible employees who meet certain service requirements. Union also has a
contributory 401(k) pension plan covering all employees who meet certain
service requirements. The plan is voluntary, and in 1999, 1998, and 1997,
Union contributed fifty cents for every dollar contributed by participants,
up to three percent of each participant's salary.

Citizens has a contributory 401(k) pension plan covering all employees who
meet certain age and service requirements. The plan is voluntary, and
Citizens contributes fifty cents for every dollar contributed by
participants, up to six percent of each participant's salary.

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.

Stock split effected in the form of a dividend

On May 7, 1997, the Company's shareholders authorized a two-for-one stock
split of the Company's $2.00 par value common stock. The stock split was
effected in the form of a dividend. All references in the accompanying
financial statements to the number of common shares and per-share amounts
have been restated to reflect the stock split.

Earnings per common share

The FASB issued Statement No. 128, Earnings per Share, which became
effective for the Company during December, 1997. The adoption of this
statement did not have a material effect on the Company's financial
statements.

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 relating to the
acquisition of Citizens in a merger accounted for as a pooling of interests
as described in Note 19 and reduced for shares held in treasury. The
weighted average shares outstanding were 3,028,457, 3,022,223, and 3,025,978
for the years ended December 31, 1999, 1998, and 1997, 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, 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 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.

      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 certificates of
      deposit approximate their fair values at the reporting date. The fair
      values for fixed rate certificates of deposit and borrowed funds are
      estimated using a discounted cash flow calculation that applies
      interest rates currently being offered on certificates 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 Bank'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

The Company adopted SFAS No. 130, Reporting Comprehensive Income, as of
January 1, 1998. 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 adoption of SFAS No.
130 had no effect on the Company's net income or stockholders' equity.

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

<TABLE>
<CAPTION>
                                                                    1999         1998         1997
                                                                ------------------------------------

<S>                                                             <C>            <C>          <C>
Unrealized holding (losses) gains on available-for-sale
 securities                                                     $(2,615,471)   $ 456,742    $271,298
Reclassification adjustment for (gains) losses realized
 in income                                                           (2,976)    (150,038)     18,038
                                                                ------------------------------------
Net unrealized (losses) gains                                    (2,618,447)     306,704     289,336
Tax effect                                                          890,272     (104,279)    (98,374)
                                                                ------------------------------------
Net of tax amount                                               $(1,728,175)   $ 202,425    $190,962
                                                                ====================================
</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. FASB
Statement 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, Statement 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
awards made in 1995 and future years as if the fair value based method
defined in Statement No. 123 had been applied. The Company has elected to
apply the provisions of APB Opinion No. 25 and provide the proforma
disclosures of Statement No. 123. See Note 18.

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

The FASB issued SFAS No. 131, Disclosures About Segments of an Enterprise
and Related Information, which 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 the Statement. These
segments are disclosed in Note 20 of the financial statements.

Recent accounting pronouncements

In June 1998, FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which becomes effective for quarters
beginning after June 30, 2000. This Statement establishes new accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those derivatives at fair
value. The accounting for the gains or losses resulting in the changes of
value of those derivatives will depend on the intended use of the
derivatives and whether it qualifies for hedge accounting. Management is
currently evaluating the impact of this Statement on the Company's financial
statements but does not anticipate it will have a material impact.

Reclassifications

Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform to the current year presentation.

The Company is required to maintain reserve balances in cash with Federal
Reserve Banks. The totals of those reserve balances were approximately
$2,513,000 and $1,914,000 at December 31, 1999 and 1998, respectively.

The nature of the Bank'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>
                                     1999         1998
                                  -----------------------

<S>                               <C>          <C>
Noninterest-bearing accounts      $  869,325   $1,551,193
Federal Reserve Bank               4,873,648    5,522,256
Federal funds sold                 3,474,064    9,325,994
</TABLE>

No losses have been experienced in these accounts. In addition, the Company
was required to maintain contracted clearing balances of $1,000,000 and
$1,250,000 at December 31, 1999 and 1998, 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 5.15% to 6.70% and mature at various dates
through 2004 with approximately $1,089,999 scheduled to mature in 2000.

Note 4.  Investment Securities

Securities available-for-sale consist of the following:

<TABLE>
<CAPTION>
                                                           Gross        Gross
                                           Amortized    Unrealized    Unrealized      Fair
                                              Cost         Gains        Losses        Value
                                          ----------------------------------------------------

<S>                                       <C>            <C>         <C>           <C>
December 31, 1999:
  U.S. Government and agency and
   corporation securities                 $35,506,095    $  5,881    $  781,225    $34,730,751
  State and political subdivisions          5,047,300           0       257,705      4,789,595
   Corporate debt securities               21,043,240         432       802,391     20,241,281
  Marketable equity securities                560,625     133,325        15,053        678,897
                                          ----------------------------------------------------
                                          $62,157,260    $139,638    $1,856,374    $60,440,524
                                          ====================================================

December 31, 1998:
  U.S. Government and agency and
   corporation securities                 $34,984,515    $332,603    $   18,109    $35,299,009
  State and political subdivisions          3,654,676      10,449        10,364      3,654,761
  Corporate debt securities                18,483,973     233,054        25,389     18,691,638
  Marketable equity securities                560,625     379,466             0        940,091
                                          ----------------------------------------------------
                                          $57,683,789    $955,572    $   53,862    $58,585,499
                                          ====================================================
</TABLE>

Included in the caption "U.S. Government and agency and corporation
securities" are mortgage-backed securities with a carrying amount of
$6,171,658 and $5,616,992 at December 31, 1999 and 1998, respectively.

Investment securities with a carrying amount of $9,919,532 and $4,580,156 at
December 31, 1999 and 1998, respectively, were pledged as collateral on
public deposits and for other purposes as required or permitted by law.

All realized gains and losses in 1999, 1998, and 1997 were from the sale of
securities available-for-sale. Proceeds from the sale of securities
available-for-sale were $9,651,088, $2,350,035, and $10,556,690 in 1999,
1998, and 1997, respectively. Realized gains from sales of investments
available-for-sale were $7,751, $194,563, and $11,304 with realized losses
of $4,775, $44,525, and $29,342 for the years 1999, 1998, and 1997,
respectively.

The scheduled maturities of securities available-for-sale as of December 31,
1999 were as follows:

<TABLE>
<CAPTION>
                                        Amortized       Fair
                                           Cost         Value
                                       -------------------------

<S>                                    <C>           <C>
Due in one year or less                $ 8,274,893   $ 8,244,374
Due from one to five years              27,144,691    26,529,724
Due from five to ten years              16,003,082    15,233,279
Due after ten years                      3,850,295     3,582,592
Mortgage-backed securities               6,323,674     6,171,658
Marketable equity securities               560,625       678,897
                                       -------------------------
                                       $62,157,260   $60,440,524
                                       =========================
</TABLE>

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

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

<TABLE>
<CAPTION>
                                                     1999           1998
                                                 ---------------------------

<S>                                              <C>            <C>
Real estate                                      $ 87,153,823   $ 76,832,449
Commercial real estate                             69,806,893     67,706,827
Commercial                                         16,246,118     17,446,055
Consumer                                           18,661,352     23,518,771
Term Federal funds sold                                     0      1,000,000
Municipal loans                                     9,656,703      8,829,868
                                                 ---------------------------
                                                  201,524,889    195,333,970
                                                 ---------------------------
Deduct:
Allowance for loan losses                           2,869,983      2,844,929
Net deferred loan fees, premiums, and discounts       273,305        265,468
                                                 ---------------------------
                                                    3,143,288      3,110,397
                                                 ---------------------------
                                                 $198,381,601   $192,223,573
                                                 ===========================
</TABLE>

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 $59,590,014 and $61,144,487 at
December 31, 1999 and 1998, respectively. Mortgage servicing rights of
$48,015 and $94,607 were capitalized in 1999 and 1998, respectively.

Impairment of loans having recorded investments of $814,018 at December 31,
1999 and $458,259 at December 31, 1998 has been recognized in conformity
with FASB Statement No. 114, as amended by FASB Statement No. 118. The
average recorded investment in impaired loans during 1999, 1998, and 1997
was $693,000, $796,566, and $1,218,476, respectively. The total allowance
for loan losses related to these loans was $67,217 and $47,938 on December
31, 1999 and 1998, respectively. Interest income on impaired loans of
$2,835, $11,993, and $35,814 was recognized for cash payments received in
1999, 1998, and 1997, respectively.

The Company is not committed to lend additional funds to borrowers with
impaired loans.

Residential real estate loans aggregating $4,907,921 and $4,442,202 at
December 31, 1999 and 1998, respectively, were pledged as collateral on
deposits of municipalities.

Note 6.  Allowance for Loan Losses

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

<TABLE>
<CAPTION>
                                         1999         1998         1997
                                      ------------------------------------

<S>                                   <C>          <C>          <C>
Balance, beginning                    $2,844,929   $2,811,412   $2,843,859
Provision for loan losses                359,496      400,000      425,000
Recoveries of amounts charged off         94,194      120,826       91,136
                                      ------------------------------------
                                       3,298,619    3,332,238    3,359,995
Amounts charged off                      428,636      487,309      548,583
                                      ------------------------------------
Balance, ending                       $2,869,983   $2,844,929   $2,811,412
                                      ====================================
</TABLE>

Note 7.  Premises and Equipment

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

<TABLE>
<CAPTION>
                                          1999          1998
                                      -------------------------
<S>                                   <C>           <C>
Land and land improvements            $   573,249   $   565,349
Buildings and improvements              3,726,227     3,665,101
Furniture and equipment                 6,220,135     6,042,727
                                      -------------------------
                                       10,519,611    10,273,177
Less accumulated depreciation          (6,479,725)   (5,699,106)
                                      -------------------------
                                      $ 4,039,886   $ 4,574,071
                                      =========================
</TABLE>

Depreciation included in occupancy and equipment expenses amounted to
$867,114, $789,826, and $572,307 for the years ended December 31, 1999,
1998, and 1997, respectively.

The Company is obligated under noncancelable operating leases for premises
expiring in various years through the year 2002. 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,
1999 were as follows:

<TABLE>
<S>                          <C>
2000                         $ 61,265
2001                           41,741
2002                           11,443
                             --------
                             $114,449
                             ========
</TABLE>

Rent expense for 1999, 1998, and 1997 amounted to $69,555, $68,977, and
$67,935, respectively.

Occupancy expense is shown in the consolidated statements net of rental
income of $55,585 in 1999, $68,840 in 1998, and $69,915 in 1997.

Note 8.  Other Real Estate Owned

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

<TABLE>
<CAPTION>
                                            1999       1998
                                          ------------------

<S>                                       <C>       <C>
Other real estate owned                   $26,667   $567,344
Less allowance for losses on OREO               0     42,588
                                          ------------------
Other real estate owned, net              $26,667   $524,756
                                          ==================
</TABLE>

Changes in the allowance for losses on OREO for the years ended December 31
were as follows:

<TABLE>
<CAPTION>
                              1999        1998         1997
                            ---------------------------------

<S>                         <C>         <C>          <C>
Balance, beginning          $ 42,588    $  71,952    $  7,108
Provision for losses           7,421       77,578     117,748
Charge-offs, net             (50,009)    (106,942)    (52,904)
                            ---------------------------------
Balance, ending             $      0    $  42,588    $ 71,952
                            =================================
</TABLE>

Note 9.  Investments Carried at Equity

During 1998, the Company purchased an interest in a low income housing
limited partnership. This was established to acquire, own and rent
residential housing for low and moderate income Vermonters located in
northeastern Vermont. The investment is accounted for under the equity
method of accounting. This equity investment, which is included in other
assets, is recorded at cost and adjusted for the Company's proportionate
share of the partnership's undistributed earnings or losses. The carrying
values of this investment were $476,249 and $24,889 at December 31, 1999 and
1998, respectively. The provision for undistributed net losses of the
partnership charged to earnings was $21,523 and $0 for 1999 and 1998,
respectively.

Note 10.  Deposits

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

<TABLE>
<CAPTION>
                                 1999           1998
                             ---------------------------

<S>                          <C>            <C>
NOW accounts                 $ 37,536,937   $ 35,342,901
Savings and money market       91,284,331     81,827,632
Time, $100,000 and over        21,414,788     19,442,204
Other time                     74,367,855     79,356,858
                             ---------------------------
                             $224,603,911   $215,969,595
                             ===========================
</TABLE>

The following is a summary of time certificates of deposit by maturity at
December 31, 1999:

<TABLE>
<S>                          <C>
2000                         $71,286,690
2001                          21,153,920
2002                           2,167,448
2003                             888,825
2004 and thereafter              285,760
                             -----------
                             $95,782,643
                             ===========
</TABLE>

A maturity distribution of time certificates of deposit in denominations of
$100,000 or more at December 31, 1999 is as follows:

<TABLE>
<S>                                        <C>
Three months or less                       $ 2,300,460
Over three months through six months        11,872,320
Over six months through twelve months        3,751,057
Over twelve months                           3,490,951
                                           -----------
                                           $21,414,788
                                           ===========
</TABLE>

Note 11.  Borrowed Funds

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

<TABLE>
<CAPTION>
                                                                         1999         1998
                                                                      -----------------------

<S>                                                                   <C>          <C>
Community Investment Program

  6.10% note payable to FHLB, payable in monthly installments of
   $8,727, including interest, through January 24, 2014               $        0   $1,028,569

  6.10% note payable to FHLB, payable in monthly installments of
   $4,636, including interest, through January 24, 2014                        0      546,427

Community Investment Program "Plus"

  5.01% term borrowing from FHLB maturing June 25, 2008                        0    1,000,000

  5.66% term borrowing from FHLB maturing February 4, 2003                     0    1,000,000

Option Advances

  6.06% note payable to FHLB, payable in monthly installments of
   $11,178, including interest, through May 6, 2008                      886,176      963,273

  6.06% note payable to FHLB, payable in monthly installments of
   $5,589, including interest, through March 24, 2008                    436,443      475,386

  5.95% note payable to FHLB, payable in monthly installments of
   $13,354, including interest, through March 24, 2003                   482,662      609,595

  6.06% note payable to FHLB, payable in monthly installments of
   $7,341, including interest, through March 23, 2005                    399,648      461,118

IDEAL Way advances payable monthly, various rates as
 determined by FHLB                                                      667,000            0
                                                                      -----------------------
                                                                      $2,871,929   $6,084,368
                                                                      =======================
</TABLE>

Principal maturities of borrowed funds as of December 31, 1999 are as
follows:


<TABLE>
<S>                          <C>
2000                         $  990,150
2001                            343,274
2002                            365,677
2003                            279,723
2004                            240,986
Thereafter                      652,119
                             ----------
                             $2,871,929
                             ==========
</TABLE>

Under the terms of the Community Investment Program agreement, these funds
have been loaned to provide housing for individuals and families whose
income is at or below 115% of the median income for the area as defined by
the U. S. Department of Housing and Urban Development.

Under the terms of the Community Investment Program "Plus", the Company has
unadvanced funds available of $10,159,098. This funding commitment expires
March 31, 2000.

Additionally, Union and Citizens each maintain an IDEAL Way Line of Credit
with the Federal Home Loan Bank of Boston. As of December 31, 1999, the
total amounts of these lines approximated $3,356,000 and $3,040,000 for
Union and Citizens, respectively.  Total borrowings against this line of
credit were $667,000 and $0 at December 31, 1999 and 1998, respectively.
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 in 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.

Note 12.  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.

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

<TABLE>
<CAPTION>
                                  1999         1998         1997
                               ------------------------------------

<S>                            <C>          <C>          <C>
Currently paid or payable      $1,762,301   $2,026,257   $1,965,210
Deferred                           52,958       28,650      (16,524)
                               ------------------------------------
                               $1,815,259   $2,054,907   $1,948,686
                               ====================================
</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>
                                                       1999          1998          1997
                                                    --------------------------------------

<S>                                                 <C>           <C>           <C>
Computed "expected" tax expense                     $2,002,848    $2,246,143    $2,143,424
Tax exempt interest                                   (223,150)     (223,262)     (212,649)
Disallowed interest expense                             29,902        31,557        30,576
Dividend exclusion                                     (11,737)      (11,576)      (19,456)
Increase in CSV life                                   (27,990)      (27,494)      (25,139)
Nondeductible acquisition costs                        169,708        23,632             0
Tax credits on limited partnership investments        (141,484)            0             0
Other                                                   17,162        15,907        31,930
                                                    --------------------------------------
                                                    $1,815,259    $2,054,907    $1,948,686
                                                    ======================================
</TABLE>

The deferred income tax provision consisted of the following for the years
ended December 31:

<TABLE>
<CAPTION>
                                         1999        1998        1997
                                      --------------------------------

<S>                                   <C>         <C>         <C>
Bad debts                             $(50,219)   $(15,121)   $(10,197)
Mark-to-market, loans                   16,223        (130)    (48,632)
Deferred loan fees                      17,389      26,928      21,671
Nonaccrual loan interest               (24,371)     15,808     (16,289)
OREO                                    14,480       9,984     (22,047)
Deferred compensation                   57,208       4,626         764
Pension                                  6,001     (31,762)     22,774
Depreciation                           (41,922)    (14,692)     14,019
Limited partnership tax credits         60,316           0           0
Mortgage servicing rights               (1,468)     10,199       3,454
Other                                     (679)     22,810      17,959
                                      --------------------------------
                                      $ 52,958    $ 28,650    $(16,524)
                                      ================================
</TABLE>

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

<TABLE>
<CAPTION>
                                                            1999         1998
                                                         -----------------------

<S>                                                      <C>          <C>
Components of the deferred tax asset:
Bad debts                                                $  775,488   $  725,269
Mark-to-market loans                                         17,824       34,047
Deferred loan fees                                           33,690       51,079
Nonaccrual loan interest                                     62,087       37,716
OREO writedowns                                                   0       14,480
Deferred compensation                                       561,657      618,865
Pension                                                      22,651       28,652
Unrealized loss on securities available-for-sale            583,690            0
                                                         -----------------------
Total deferred tax asset                                  2,057,087    1,510,108
Valuation allowance                                               0            0
                                                         -----------------------
Total deferred tax asset, net of valuation allowance      2,057,087    1,510,108
                                                         =======================
Components of the deferred tax liability:
Depreciation                                               (114,866)    (156,788)
Mortgage servicing rights                                   (28,894)     (30,362)
Limited partnership tax credits                             (60,316)           0
Other                                                       (64,117)     (64,796)
Unrealized gain on securities available-for-sale                  0     (306,581)
                                                         -----------------------
Total deferred tax liability                               (268,193)    (558,527)
                                                         -----------------------
Net deferred tax asset                                   $1,788,894   $  951,581
                                                         =======================
</TABLE>

FASB Statement 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, 1999 and 1998, respectively.

Note 13.  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>
                                                   1999         1998
                                                 ----------------------

<S>                                              <C>          <C>
Service cost                                     $ 185,950    $ 162,697
Interest cost on projected benefit obligation      270,765      229,930
Actual return on plan assets                      (269,861)    (263,989)
Net amortization and deferral                       (7,656)      (7,656)
                                                 ----------------------
                                                 $ 179,198    $ 120,982
                                                 ======================
</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>
                                                              1999          1998
                                                          -------------------------

<S>                                                       <C>            <C>
Actuarial present value of benefit obligations:
Vested benefits                                           $ 2,954,924    $2,923,795
Nonvested benefits                                             46,980        46,562
                                                          -------------------------
Accumulated benefits                                        3,001,904     2,970,357
                                                          =========================
Projected benefits                                         (4,269,543)   (3,875,397)
Plan assets at fair value                                   3,645,807     3,747,456
                                                          -------------------------
Projected benefit obligation in excess of plan assets        (623,736)     (127,941)
Unrecognized transition amount                                (30,617)      (38,273)
Unrecognized net loss                                         587,733       105,225
                                                          -------------------------
Accrued pension                                           $   (66,620)   $  (60,989)
                                                          =========================
</TABLE>

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

<TABLE>
<CAPTION>
                                                      1999       1998
                                                      ---------------

<S>                                                   <C>        <C>
Discount rate                                         7.00%      6.50%
Rate of increase in compensation levels               4.25%      3.25%
Expected long-term rate of return of plan assets      7.25%      7.25%
</TABLE>

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

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 $65,785, $63,375, and $59,439 for
1999, 1998, and 1997, respectively.

Additionally, the Company and Union have a non-qualified Deferred
Compensation Plan for Directors and certain key officers. Under the plan,
compensation may be deferred that would otherwise be currently payable.
Deferrals are made to an uninsured interest bearing account and are payable
upon attainment of a certain age or death over a 15 year period. The Company
and Union have purchased life insurance contracts for each participant in
order to fund these benefits. The benefits accrued under this plan
aggregated $1,651,932 and $1,820,194 at December 31, 1999 and 1998,
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 $1,124,222 and
$1,041,898 at December 31, 1999 and 1998, respectively. These amounts are
included in the financial statement caption "Other assets". The annual net
cost of the plan is immaterial to the financial statements of the Company.

Citizens maintains separately a 401(k) plan and a discretionary profit
sharing plan. The 401(k) plan covers all employees meeting certain
eligibility requirements. Employees are permitted to contribute any amount,
up to 10% of their compensation, to the 401(k) plan. Citizens makes matching
contributions up to 6% of an employee's compensation. Matching contributions
to this plan were $37,178, $30,852, and $27,772 for 1999, 1998, and 1997,
respectively.

Contributions to the profit sharing plan are at the discretion of Citizens'
Board of Directors. Contributions to this plan were $42,003, $74,934, and
$67,935 for 1999, 1998, and 1997, respectively.

Note 14.  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, and commitments to sell loans. 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
                                                                         1999
                                                                      -----------

<S>                                                                   <C>
Financial instruments whose contract amount represent credit risk:

  Commitments to extend credit                                        $19,104,660
                                                                      ===========
  Standby letters of credit and commercial letters of credit          $   675,369
                                                                      ===========
  Credit card arrangements                                            $ 1,194,558
                                                                      ===========
  Home equity lines                                                   $ 3,978,431
                                                                      ===========
</TABLE>

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.

The Company enters into a variety of interest rate contracts, including
interest rate caps and floors written on adjustable rate loans in managing
its interest rate exposure. Interest rate caps and floors on loans, written
by the Company enables customers to transfer, modify, or reduce their
interest rate risk.

Note 15.  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 16.  Fair Values of Financial Instruments

The estimated fair values of the Company's financial instruments at December
31, 1999 are as follows:

<TABLE>
<CAPTION>
                                              Carrying      Estimated
                                               Amount       Fair Value
                                            --------------------------

<S>                                         <C>            <C>
Financial assets:
  Cash and cash equivalents                 $ 15,101,545   $ 15,101,545
  Interest bearing deposits                    1,956,999      1,942,088
  Securities available-for-sale               60,440,524     60,440,524
  Federal Home Loan Bank stock                   938,800        938,800
  Loans and loans held for sale, net         206,483,416    204,026,180
  Accrued interest receivable                  2,199,426      2,199,426

Financial liabilities:
  Deposits                                   257,592,803    257,993,340
  Borrowed funds                               2,871,929      2,181,136
  Accrued interest payable                       549,712        549,712
</TABLE>

The estimated fair values of the Company's financial instruments at December
31, 1998 are as follows:

<TABLE>
<CAPTION>
                                              Carrying      Estimated
                                               Amount       Fair Value
                                            --------------------------

<S>                                         <C>            <C>
Financial assets:
  Cash and cash equivalents                 $ 19,196,252   $ 19,196,252
  Interest bearing deposits                    1,873,000      1,887,766
  Securities available-for-sale               58,585,499     58,585,499
  Federal Home Loan Bank stock                   904,000        904,000
  Loans and loans held for sale, net         199,623,429    201,288,319
  Accrued interest receivable                  2,105,702      2,105,702

Financial liabilities:
  Deposits                                   248,918,216    250,108,783
  Borrowed funds                               6,084,368      6,268,726
  Accrued interest payable                       656,922        656,922
</TABLE>

The estimated fair values of deferred fees on commitments to extend credit
and letters of credit were immaterial at December 31, 1999 and 1998.

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

Note 17.  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 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>
                                               1999         1998
                                            -----------------------

<S>                                         <C>            <C>

Balance, beginning                          $ 866,865    $1,055,187
New loans                                     248,822     1,225,546
Repayments                                   (246,524)     (839,696)
Other, net                                     (5,500)     (574,172)
                                            -----------------------
Balance, ending                             $ 863,663    $  866,865
                                            =======================
Balance available on lines of credit        $ 217,908    $  204,415
                                            =======================
</TABLE>

Other activity consists of transactions with related parties who have been
newly elected and the sale of mortgage loans on the secondary market.

Deposit accounts with related parties approximated $2,015,213 and $2,043,615
at December 31, 1999 and 1998, respectively.

Note 18.  Incentive Stock Option Plan

Under the terms of a Stock Option Plan with certain key employees, options
to purchase shares of the Company's common stock are granted 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, depending
on when granted. Following is a summary of transactions:

<TABLE>
<CAPTION>
                                                                   Shares Under Option
                                                               --------------------------
                                                                1999      1998      1997
                                                               --------------------------

<S>                                                            <C>       <C>       <C>
Outstanding, January 1                                         13,700    15,300    17,000
Granted during the year                                         2,500     2,500     2,500
Exercised during the year (4,000 shares at $9.25 per
 share and 300 shares at $9.75 in 1999, 4,000 shares
 at $9.00 per share and 100 shares at $9.75 in 1998, and
 4,000 shares at $7.75 pershare and 200 shares at
 $9.75 per share during 1997)                                  (4,300)   (4,100)   (4,200)
                                                               --------------------------
      Outstanding, December 31                                 11,900    13,700    15,300
                                                               ==========================
</TABLE>

<TABLE>
<CAPTION>
                                                      Shares Under Option
                                                    ------------------------
                                                     1999     1998     1997
                                                    ------------------------

<S>                                                 <C>      <C>      <C>
Eligible, December 31, for exercise currently at:
  $ 9.00 per share                                       0        0    4,000
  $ 9.25 per share                                       0    4,000    4,000
  $ 9.75 per share                                   4,400    4,700    4,800
  $18.00 per share                                   2,500    2,500    2,500
  $20.25 per share                                   2,500        0        0
  $22.00 per share                                   2,500    2,500        0
                                                    ------------------------
                                                    11,900   13,700   15,300
                                                    ========================
</TABLE>

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

<TABLE>
<CAPTION>
                      1999         1998         1997
                   ------------------------------------

<S>                <C>          <C>          <C>
Net income

  As reported      $4,075,471   $4,551,396   $4,355,504
                   ====================================

  Proforma         $4,071,059   $4,547,953   $4,353,479
                   ====================================
</TABLE>

Note 19.  Acquisitions

Effective November 30, 1999, the Company acquired Citizens Savings Bank and
Trust Company in a merger accounted for in a tax-free transaction as a pooling
of interests with the exchange of 991,089 shares (net of 196 fractional shares
redeemed for approximately $4,516) of newly-issued Company common stock in
exchange for all of the outstanding shares of Citizens' common stock. Interest
income, net income, and earnings per share (as restated) for the Company and
Citizens Savings Bank and Trust Company prior to the acquisition are as
follows:

<TABLE>
<CAPTION>
                                                                                    Eleven Months
                                                                                       Ended
                                                          Year Ended December 31,   November 30,
                                                        ---------------------------------------
                                                            1997         1998           1999
                                                        ---------------------------------------

<S>                                                     <C>           <C>           <C>
Interest income
  Union Bankshares, Inc.                                $14,116,364   $14,733,104   $13,694,631
  Citizens Savings Bank and Trust Company                 7,550,057     7,893,075     7,178,879
                                                        ---------------------------------------
  Combined                                              $21,666,421   $22,626,179   $20,873,510
                                                        =======================================

Net income, giving effect to proforma income taxes
  Union Bankshares, Inc.                                $ 3,346,118   $ 3,449,912   $ 2,937,645
  Citizens Savings Bank and Trust Company                 1,009,386     1,101,484       987,109
                                                        ---------------------------------------
      Combined                                          $ 4,355,504   $ 4,551,396   $ 3,924,754
                                                        =======================================

Basic earnings per share
  Union Bankshares, Inc.                                $      1.64   $      1.70   $      1.44
  Citizens Savings Bank and Trust Company                      1.02          1.11          1.00
                                                        ---------------------------------------
      Combined                                          $      1.44   $      1.51   $      1.30
                                                        =======================================

</TABLE>

Note 20.  Reportable Segments

The Company has two reportable operating segments, Union Bank (Union) and
Citizens Savings Bank and Trust Company (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
1999                                 Union          Citizens   Elimination     Other         Totals
------------------------------------------------------------------------------------------------------

<S>                               <C>             <C>            <C>         <C>          <C>
Interest income                   $ 15,035,945    $ 7,828,383    $      0    $       0    $ 22,864,328
Interest expense                     5,757,892      3,362,522           0        1,157       9,121,571
Provision for loan loss                 62,500        296,996           0            0         359,496
Service fee income                   1,666,244        562,629           0            0       2,228,873
Income tax expense (benefit)         1,277,950        560,195           0      (22,886)      1,815,259
Net income (loss)                    3,496,397        937,342           0     (358,268)      4,075,471
Assets                             197,648,845     97,512,372     (79,755)     394,184     295,475,646

<CAPTION>
                                                               Intersegment               Consolidated
1998                                 Union          Citizens   Elimination     Other         Totals
------------------------------------------------------------------------------------------------------

<S>                               <C>             <C>            <C>         <C>          <C>
Interest income                   $ 14,733,104    $ 7,893,075   $       0    $       0    $ 22,626,179
Interest expense                     5,778,179      3,472,861           0        1,424       9,252,464
Provision for loan loss                100,000        300,000           0            0         400,000
Service fee income                   1,559,924        586,074           0            0       2,145,998
Income tax expense (benefit)         1,541,504        547,650           0      (34,247)      2,054,907
Net income (loss)                    3,540,023      1,101,484           0      (90,111)      4,551,396
Assets                             190,783,600     98,966,698           0      381,691     290,131,989

<CAPTION>
                                                               Intersegment               Consolidated
1997                                 Union          Citizens   Elimination     Other         Totals
------------------------------------------------------------------------------------------------------

<S>                               <C>             <C>            <C>         <C>          <C>
Interest income                   $ 14,116,364    $ 7,550,057    $      0    $       0    $ 21,666,421
Interest expense                     5,429,873      3,350,773           0        1,416       8,782,062
Provision for loan loss                125,000        300,000           0            0         425,000
Service fee income                   1,504,173        556,544           0            0       2,060,717
Income tax expense (benefit)         1,478,895        498,186           0      (28,395)      1,948,686
Net income (loss)                    3,401,237      1,009,386           0      (55,119)      4,355,504
Assets                             180,384,242     92,567,035           0      328,607     273,279,884
</TABLE>

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, 1999,
that the Banks meet all capital adequacy requirements to which they are
subject.

As of December 31, 1999, 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 that notification that management believes have changed the Banks'
category.

The Banks' 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
                                                 --------------------------------------------------------

<S>                                              <C>        <C>      <C>        <C>    <C>         <C>
As of December 31, 1999:
Total capital to risk weighted  assets
  Union                                          $23,506    18.80%   $10,002    8.0%   $12,502     10.0%
  Citizens                                        12,057    17.35%     5,559    8.0%     6,949     10.0%
Tier I capital to risk weighted assets
  Union                                           21,889    17.51%     5,001    4.0%     7,501      6.0%
  Citizens                                        11,188    16.10%     2,780    4.0%     4,169      6.0%
Tier I capital to average assets
  Union                                           21,889    10.93%     8,010    4.0%    10,013      5.0%
  Citizens                                        11,188    11.43%     3,914    4.0%     4,893      5.0%
As of December 31, 1998:
Total capital to risk weighted assets
  Union                                           22,353    18.70%     9,563    8.0%    11,954     10.0%
  Citizens                                        11,219    16.02%     5,602    8.0%     7,003     10.0%
Tier I capital to risk weighted assets
  Union                                           20,688    17.31%     4,781    4.0%     7,172     6.0%
  Citizens                                        10,342    14.77%     2,801    4.0%     4,202     6.0%
Tier I capital to average assets
  Union                                           20,688    11.49%     7,200    4.0%     9,000     5.0%
      Citizens                                    10,342    10.37%     3,990    4.0%     4,988     5.0%
</TABLE>

Note 22.  Restrictions on Retained Earnings

The Company is subject to restrictions on the amount of dividends that it
may declare without prior regulatory approval. Also, Vermont state banking
regulations require each Bank to transfer, at a minimum, 10% of annual net
profits to restricted retained earnings until such amounts of capital equal
10% of each Bank's deposits and other liabilities.

Note 23.  Subsequent Events

On January 5, 2000, Union Bankshares, Inc. declared a $0.24 per share
dividend payable January 14, 2000 to stockholders of record on January 5,
2000.

Note 24.  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, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                       1999            1998
                                                                    --------------------------
<S>                                                                 <C>            <C>
ASSETS
Cash                                                                $   344,714    $   191,538
Investment in Subsidiary-Union                                       21,176,978     21,143,746
Investment in Subsidiary-Citizens                                    10,768,302              0
Other assets                                                            394,184        381,691
                                                                    --------------------------
      Total assets                                                  $32,684,178    $21,716,975
                                                                    ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
  Other liabilities                                                 $   464,164    $   442,189
                                                                    --------------------------
      Total liabilities                                                 464,164        442,189
                                                                    --------------------------
Stockholders' equity
  Common stock, $2 par value; 5,000,000 shares authorized,
   3,263,489 shares issued at 12/31/99 and 2,268,100 shares
    issued at 12/31/98                                                6,526,978      4,536,200
  Paid-in capital                                                       238,353        849,190
  Retained earnings (Note 21)                                        28,180,180     17,031,320
  Less treasury stock, at cost 233,960 shares; 1999 and 1998         (1,592,451)    (1,592,451)
  Accumulated other comprehensive (loss) income                      (1,133,046)       450,527
                                                                    --------------------------
      Total stockholders' equity                                     32,220,014     21,274,786
                                                                    --------------------------
      Total liabilities and stockholders' equity                    $32,684,178    $21,716,975
                                                                    ==========================
</TABLE>

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

                UNION BANKSHARES, INC. (PARENT COMPANY ONLY)
                       CONDENSED STATEMENTS OF INCOME
                Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                          1999          1998            1997
                                                       ----------------------------------------

<S>                                                    <C>           <C>             <C>
Revenues
  Dividends
  Bank subsidiaries                                    $2,300,000    $1,850,000      $1,750,000
  Loss on sale of securities                                 (109)            0               0
                                                       ----------------------------------------
      Total revenues                                    2,299,891     1,850,000       1,750,000
                                                       ----------------------------------------
Expenses
  Interest                                                  1,157         1,424           1,416
  Merger and acquisition costs                            332,940        23,632               0
  Administrative and other                                 46,948        99,302          82,099
                                                       ----------------------------------------
      Total expenses                                      381,045       124,358          83,515
                                                       ----------------------------------------
Income before applicable income tax and equity
 in undistributed net income of subsidiaries            1,918,846      1,725,642      1,666,485
Applicable income tax (benefit)                           (22,886)       (34,247)       (28,395)
                                                       ----------------------------------------
Income before equity (deficit) in undistributed
 net income of subsidiaries                             1,941,732      1,759,889      1,694,880
Equity in undistributed net income-Union                1,196,398      1,690,023      1,651,238
Deficit in undistributed net income-Citizens              (49,768)             0              0
                                                       ----------------------------------------

      Net income                                       $3,088,362     $3,449,912     $3,346,118
                                                       ========================================
</TABLE>

Equity in undistributed net income of Citizens represents earnings of
Citizens subsequent to the merger occurring November 30, 1999.

                UNION BANKSHARES, INC. (PARENT COMPANY ONLY)
                     CONDENSED STATEMENTS OF CASH FLOWS
                Years Ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                        1999            1998            1997
                                                    -------------------------------------------

<S>                                                 <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                        $ 3,088,362     $ 3,449,912     $ 3,346,118
  Adjustments to reconcile net income
   to net cash provided by operating activities
    Equity in undistributed net income of Union      (1,196,398)     (1,690,023)     (1,651,238)
  Deficit in undistributed net loss of Citizens          49,768               0               0
  Increase in income taxes receivable                    (6,404)         (2,078)            (15)
  Increase in other assets                              (23,891)        (33,203)        (24,502)
  Loss on sale of securities                                109               0               0
  Increase in other liabilities                          21,974          42,116          28,717
                                                    -------------------------------------------
      Net cash provided by operating activities       1,933,520       1,766,724       1,699,080
                                                    -------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Proceeds from sale of securities                       17,693               0               0
  Purchases of securities                                     0         (17,802)              0
                                                    -------------------------------------------
      Net cash provided (used) by investing
       activities                                        17,693         (17,802)              0
                                                    -------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Purchase of treasury stock                                  0         (43,960)       (118,803)
  Dividends paid                                     (1,833,446)     (1,665,519)     (1,525,925)
  Proceeds from exercise of stock option                 39,925          36,975          32,950
  Purchase of fractional shares                          (4,516)              0               0
                                                    -------------------------------------------
      Net cash used by financing activities          (1,798,037)     (1,672,504)     (1,611,778)
                                                    -------------------------------------------
Net increase in cash                                    153,176          76,418          87,302
Cash
  Beginning                                             191,538         115,120          27,818
                                                    -------------------------------------------
  Ending                                            $   344,714     $   191,538     $   115,120
                                                    ===========================================
SUPPLEMENTAL SCHEDULE OF CASH PAID
 (RECEIVED) DURING THE YEAR
  Interest                                          $     1,157     $     1,424     $     1,416
                                                    ===========================================
  Income taxes                                      $   (34,247)    $   (28,395)    $   (20,624)
                                                    ===========================================
SUPPLEMENTAL SCHEDULE OF NONCASH
 INVESTING AND FINANCING ACTIVITIES
Stock dividends                                     $         0     $         0     $ 2,259,800
                                                    ===========================================
</TABLE>

Note 25.  Quarterly Financial Data (Unaudited)

A summary of financial data for the four quarters of 1999, 1998, and 1997 is
presented below:

                   UNION BANKSHARES, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                            Quarters in 1999 Ended
                                -----------------------------------------------
                                March 31,    June 30,     Sept. 30,    Dec. 31,

<S>                            <C>          <C>          <C>          <C>
Interest income                $5,524,141   $5,615,172   $5,823,586   $5,901,429
Interest expense                2,248,158    2,248,747    2,302,990    2,321,676
Provision for loan losses          99,999       87,499       62,499      109,499
Securities gains (loss)               512        2,636          (63)        (109)
Other operating expenses        2,427,371    2,425,095    2,477,214    2,707,707
Net income                        985,191    1,030,388    1,133,409      926,483
Earnings per common share            0.33         0.34         0.37         0.31

<CAPTION>
                                            Quarters in 1998 Ended
                                March 31,    June 30,    Sept. 30,    Dec. 31,

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

<S>                            <C>          <C>          <C>          <C>
Interest income                $5,505,812   $5,672,110   $5,663,914   $5,784,343
Interest expense                2,282,584     2,315,519   2,311,415    2,342,946
Provision for loan losses         112,500       112,500     100,000       75,000
Securities gains (loss)           (41,668)          310      65,366      126,030
Other operating expenses        2,357,182     2,274,553   2,314,371    2,332,259
Net income                        978,422     1,180,128   1,095,515    1,297,331
Earnings per common share            0.33          0.39        0.36         0.43

<CAPTION>
                                            Quarters in 1997 Ended
                                March 31,    June 30,    Sept. 30,    Dec. 31,
                                -----------------------------------------------

<S>                            <C>          <C>          <C>          <C>
Interest income                $5,223,619   $5,365,433   $5,507,672   $5,569,697
Interest expense                2,091,475    2,161,901    2,212,699    2,315,987
Provision for loan losses         150,000      125,000       75,000       75,000
Securities gains (loss)           (13,682)       5,091       (9,447)           0
Other operating expenses        2,167,740    2,076,390    2,253,351    2,069,882
Net income                        960,334    1,098,162    1,080,126    1,216,882
Earnings per common share            0.32         0.36         0.36         0.40
</TABLE>

Note 26.  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 disclosed are as
follows:

<TABLE>
<CAPTION>
                               1999         1998         1997
                            ------------------------------------

<S>                         <C>          <C>          <C>
Expenses
  State franchise tax       $  281,480   $  266,009   $  168,631
  Legal fees                   280,503       33,438       28,768
  Professional fees            308,431      136,871      143,197
  Fees to directors            261,609      246,717      218,212
  Postage and shipping         246,321      253,634      241,665
  Other                      1,670,990    1,665,407    1,510,633
                            ------------------------------------
                            $3,049,334   $2,602,076   $2,311,106
                            ====================================
</TABLE>

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

                                   GENERAL

The following discussion and analysis by Management focuses on those factors
that had a material effect on Union Bankshares, Inc.'s (Union's) financial
position as of December 31, 1999 and 1998, and its results of operations for
the years ended December 31, 1999, 1998, and 1997. 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, 1999, which would
materially affect the information presented below.

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.

By their very nature, forward-looking statements are subject to
uncertainties, both general and specific, and risk exists that 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" or similar expressions, we are making
forward-looking statements. Many possible events or factors 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 or the
     United States including changes in laws concerning 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
*    changes in the competitive environment for financial services
     organizations
*    the Company's ability to retain key personnel
*    changes in technology including demands for greater automation and
     systems integration of Citizens Savings Bank and Trust Co. (Citizens)
*    timely integration of Citizens, unanticipated lower revenues, loss of
     customers or business, or higher operating expenses
*    adverse changes in the securities market

When relying on forward-looking statements to make decisions with respect to
the Company, investors and others are cautioned to consider these and other
risks and uncertainties.

                                 ACQUISITION

Effective November 30, 1999, following the receipt of all required
stockholder, state and federal regulatory approvals, Union Bankshares, Inc.
acquired Citizens Savings Bank and Trust Co. This makes Union a two bank
holding company. The accompanying consolidated financial statements reflect
the accounting for the acquisition as a pooling of interests and are
presented as if the companies were combined as of the earliest period
presented. However, the financial information is not necessarily indicative
of the results of operations, financial position or cash flows that would
have occurred had the acquisition been consummated for the periods for which
it is given effect, nor is it necessarily indicative of future results of
operations, financial position, or cash flows. The financial statements
reflect the conversion of each outstanding share of Citizens common stock
into 6.5217 shares of Union common stock. Additional information with
respect to this acquisition can be found in Note 19 to the Financial
Statements.

                            RESULTS OF OPERATIONS

The Company's net income for the year ended December 31, 1999 was $4.075
million compared with net income of $4.551 million for the year 1998.
Without merger related nondeductible expenses and Y2K expenses, 1999's net
income would have been $4.614 million versus 1998 of $4.597 million. Net
income per share was $1.35 for 1999 compared to $1.51 for 1998 and would
have been $1.52 per share for both years without the merger related and Y2K
expenses.

Net Interest Income. The largest component of Union'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. Yield and rate
information for a period is average information for the period, and is
calculated by dividing the income or expense item for the period by the
average balances of the appropriate balance sheet item during the period.
Net interest margin is 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:

<TABLE>
<CAPTION>
                                                                   Years ended December 31
                               -------------------------------------------------------------------------------------------------
                                           1999                             1998                             1997
                               -------------------------------------------------------------------------------------------------
                                Average   Income/   Average      Average   Income/   Average     Average    Income/   Average
                                Balance   Expense   Yield/Rate   Balance   Expense   Yield/Rate   Balance   Expense   Yield/Rate
                               -------------------------------------------------------------------------------------------------
                                                                     (Dollars in thousands)

<S>                            <C>        <C>         <C>      <C>         <C>        <C>       <C>         <C>         <C>
Average Assets:
Federal funds sold             $  8,604   $   425     4.94%    $  8,799    $   461     5.24%    $  6,168    $   314     5.09%
Interest-bearing deposits         2,223       122     5.49%       1,494         83     5.56%         296          5     1.69%
Investments (1)(2)               61,097     3,685     6.21%      51,663      3,246     6.35%      45,573      2,864     6.34%
Loans, net (1)(3)               202,674    18,631     9.31%     194,716     18,836     9.83%     193,585     18,483     9.70%
                               ------------------              -------------------              -------------------
      Total interest-
       earning assets (1)       274,598    22,863     8.45%     256,672     22,626     8.95%     245,622     21,666     8.95%

Cash and due from banks           9,195                           8,507                            8,105
Premises and equipment            4,330                           4,596                            4,330
Other assets                      5,621                           6,227                            4,985
                               --------                        --------                         --------
      Total assets             $293,744                        $276,002                         $263,042

Average Liabilities and
 Stockholders' Equity:
NOW accounts                   $ 34,654   $   676     1.95%    $ 30,957    $   691     2.23%    $ 27,175    $   570     2.10%
Savings/money market
 accounts                        87,360     3,072     3.52%      75,579      2,712     3.59%      71,910      2,525     3.51%
Certificates of deposit          98,901     5,086     5.14%     101,578      5,556     5.47%     102,371      5,557     5.43%
Borrowed funds                    4,948       287     5.80%       5,027        294     5.85%       2,198        130     5.91%
                               ------------------              -------------------              -------------------
      Total interest-bearing
       liabilities              225,863     9,121     4.04%     213,141      9,253     4.34%     203,654      8,782     4.31%

Non-interest bearing
 deposits                        32,505                          28,838                           26,362
Other liabilities                 3,292                           3,581                            5,344
                               --------                        --------                         --------
         Total liabilities      261,660                         245,560                          235,360

Stockholders' equity             32,084                          30,442                           27,682
                               --------                        --------                         --------
      Total liabilities and
       stockholders equity     $293,744                        $276,002                         $263,042
                               ========                        ========                         ========

Net interest income (1)                   $13,742                          $13,373                          $12,884
                                          =======                          =======                          =======

Net interest spread                                   4.41%                            4.61%                            4.65%

Net interest margin                                   5.13%                            5.34%                            5.38%

--------------------
<FN>
<F1>   Average yield reported on a tax-equivalent basis
<F2>   Average balance of investments calculated on the amortized cost basis
<F3>   Net of unearned income and allowance for loan losses
</FN>
</TABLE>

Union's net interest income increased by $369 thousand, or 2.76%, to $13.7
million for the year ended December 31, 1999, from $13.4 million for the
year ended December 31, 1998. This increase was primarily due to the lower
cost of interest-bearing liabilities as a result of lower interest rates
paid on deposits and an increase in total interest-earning assets of 7%
versus an increase in interest-bearing liabilities of 6%. On average for the
year 93.5% of our assets were earning interest in 1999 versus 93% in 1998.
The net interest spread decreased by 20 basis points to 4.41% for the year
ended December 31, 1999, from 4.61% for the year ended December 31, 1998.
The net interest margin for the 1999 period decreased by 21 basis points to
5.13% from 5.34% for the 1998 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 Union'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. All
changes are expressed as Dollars in thousands.

<TABLE>
<CAPTION>
                                                       Year Ended                      Year Ended
                                                    December 31, 1999               December 31, 1998
                                                 Compared to Year Ended          Compared to Year Ended
                                               December 31, 1998 Increase/     December 31, 1997 Increase/
                                              (Decrease) Due to Change In     (Decrease) Due to Change In
                                               -----------------------------------------------------------
                                               Volume      Rate       Net      Volume      Rate       Net
                                               -----------------------------------------------------------

<S>                                            <C>       <C>         <C>        <C>        <C>       <C>
Interest-earning assets:
Federal funds sold                             $  (10)   $   (26)    $ (36)     $134       $ 13      $147
Interest-bearing deposits                          41         (2)       39        20         58        78
Investments (1) (2)                               599       (160)      439       376          6       382
Loans, net (1) (3)                                782       (987)     (205)      109        244       353
                                               ----------------------------------------------------------
      Total interest-earning assets            $1,412    $(1,175)    $ 237      $639       $321      $960

Interest-bearing liabilities:
NOW accounts                                   $   83    $   (98)    $ (15)     $ 79       $ 42      $121
Savings/money market accounts                     423        (63)      360       129         58       187
Certificates of deposit                          (146)      (324)     (470)      (43)        42        (1)
Borrowed funds                                     (5)        (2)       (7)      167         (3)      164
                                               ----------------------------------------------------------

      Total interest-bearing liabilities       $  355    $  (487)    $(132)     $332       $139      $471
                                               ----------------------------------------------------------

Change in net interest income                  $1,057    $  (688)    $ 369      $307       $182      $489
                                               ==========================================================
</TABLE>

Interest and Dividend Income. Union's interest and dividend income increased
by $237,000, or 1.05%, to $22.9 million for the year ended December 31,
1999, from $22.6 million for the year ended December 31, 1998. Average
earning assets increased by $17.9 million, or 7.0%, to $274.6 million for
the year ended December 31, 1999, from $256.7 million for the year ended
December 31, 1998. Average loans were $202.8 million for the year ended
December 31, 1999 up from $194.7 million for the year ended December 31,
1998. Increases in commercial, construction and real estate secured loans
were partially offset by a decrease in average municipal loans. Decreases in
loan interest rates led by the average prime rate for 1999 being 7.99%, down
from 8.35% in 1998, increasing competition, and ever increasing competition,
and the lower volume of municipal loans mainly accounted for the decrease in
loan interest income of $205,000 or 1.1%.

The average balance of investment securities (including mortgage-backed
securities) increased by $9.4 million, or 18.3%, to $61.1 million for the
year ended December 31, 1999, from $51.7 million for the year ended December
31, 1998. Lower interest rates during 1999 partially offset the volume
increase in the investment portfolio as total interest and dividend income
was only up 13.5%. Union deliberately kept the investment maturity window
shorter during 1999 in order to be able to more quickly take advantage of an
increase in interest rates in the future. The average level of federal funds
sold decreased slightly by $195,000, or 2.2%, to $8.6 million for the year
ended December 31, 1999, from $8.8 million for the year ended December 31,
1998. The average balances invested in interest-bearing deposits increased
to $2.2 million at December 31, 1999 from $1.5 million, or 48.8%, at
December 31, 1998. These deposits are FDIC insured and were an under-
utilized investment vehicle until 1998. There was and continues to be value
in this segment.

Interest Expense. Union's interest expense decreased by $132,000, or 1.4%,
to $9.1 million for the year ended December 31, 1999, from $9.2 million for
the year ended December 31, 1998. Average interest-bearing liabilities
increased by $12.7 million, or 6.0% to $225.9 million for the year ended
December 31, 1999, from $213.1 million for the year ended December 31, 1998.
Average time deposits decreased $2.7 million, or 2.6%, to $98.9 million for
the year ended December 31, 1999, from $101.6 million for the year ended
December 31, 1998. The average balances for NOW accounts increased by $3.7
million to $34.7 million for the year ended December 31, 1999, from $31
million for the year ended December 31, 1998. The average balances in
savings and money market accounts grew to $87.4 million in 1999 from $75.6
million in 1998 or a 15.6% increase. Lower interest rates prevailed for all
interest-bearing liabilities for the current year.

Noninterest Income. Union's noninterest income decreased $366,000, or 12.6%,
to $2.5 million for the year ended December 31, 1999, from $2.9 million for
the year ended December 31, 1998. The results for the period reflected a net
gain of $40 thousand from the sale of loans compared to a net gain of $302
thousand from these sales during 1998. The net gain on Sales of Securities
was $3 thousand for 1999 compared to $150 thousand for 1998. These changes
can be explained by management's decision to retain in portfolio a higher
percentage of loans and securities that could be sold due to the dropping
interest rate environment and the reinvestment rates available. Other
noninterest income and service fees (sources of which include deposit fees,
loan servicing fees, ATM fees, and safe deposit fees) increased by $83,000,
or 3.9%, to $2.2 million for the year ended December 31, 1999, from $2.1
million for the year ended December 31, 1998. Trust income increased to
$166,000 in 1999 from $120,000 in 1998 or a 37.7% increase.

Noninterest Expense. Union's noninterest expense increased $759,000, or
8.2%, to $10 million for the year ended December 31, 1999, from $9.3 million
for the year ended December 31, 1998. Salaries increased $123,000, or 3%, to
$4.2 million for the year ended December 31, 1999, from $4.1 million for the
year ended December 31, 1998, reflecting normal salary activity. Pension and
employee benefits increased $37 thousand or 3.5% to $1.1 million for the
year ended December 31, 1999, from $1.06 million for the year ended December
31, 1998 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. Office
occupancy expense increased $32 thousand, or 6.4%, to $535,000 for the year
ended December 31, 1999, from $503,000 for the year ended December 31, 1998.
Equipment expense increased $120 thousand to $1.1 million for the year ended
December 31, 1999, from $1 million for 1998 primarily resulting from
increased depreciation cost on computer equipment and software purchases
which are depreciated as an expense over a time period of three to five
years.

Other operating expense includes $500,000 for the year ended December 31,
1999, for expenses related to the merger, including legal and advisory fees
compared to $34 thousand during 1998. The other one time only expense in
both 1999 and 1998 was for Year 2000 preparations. Union had $59 thousand of
non-payroll related expenses in 1999 and $18 thousand in 1998. Netting out
these one-time only expenses would leave $2.49 million of other operating
expenses for the year ended December 31, 1999 compared to $2.55 million for
1998 or a 2.4% decrease.

Income Tax Expense. Union's income tax expense decreased by $240,000, or
11.7%, to $1.8 million for the year ended December 31, 1999, from $2.05
million for 1998 mainly due to the low income housing and historic
rehabilitation credits that are available to us for the 1999 tax year
related to our partnership investment in a low income housing project
sponsored by Housing Vermont in our market area. Our effective tax rate for
1999 was 30.8% compared to 31.1% for 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Interest and Dividend Income. Union's interest and dividend income increased
by $960,000, or 4.4%, to $22.6 million for the year ended December 31, 1998,
from $21.7 million for the year ended December 31, 1997. Average earning
assets increased by $11.1 million, or 4.5%, to $256.7 million for the year
ended December 31, 1998, from $245.6 million for the year ended December 31,
1997. Average loans increased by $1.1 million, or .6%, to $194.7 million for
the year ended December 31, 1998, from $193.6 million for the year ended
December 31, 1997. The average balance of investment securities (including
mortgage-backed securities) increased by $6.1 million, or 13.4%, to $51.7
million for the year ended December 31, 1998, from $45.6 million for the
year ended December 31, 1997. The growth in the Investment portfolio is a
result of growth in our deposit base offset by moderate loan demand. Of the
loans booked, the decision was made to sell what had been originated for
possible sale in the secondary market while retaining servicing rights due
to the relatively low interest rate environment during 1998. The average
level of federal funds sold for the year ended December 31, 1998, increased
by $2.6 million, or 42.7%, to $8.8 million, from $6.2 million for the year
ended December 31, 1997. During 1997, investing in FDIC insured certificates
of deposit in other financial institutions became economically beneficial in
comparison to other investment options. The average invested in 1997 was
$296 thousand and grew to $1.5 million in 1998. The increase between years
continues to reflect the strong economic conditions of the area, our
continuing deposit growth, and the relatively low interest rate environment.

Interest Expense. Union's interest expense increased by $471,000, or 5.4%,
to $9.3 million for the year ended December 31, 1998, from $8.8 million for
the year ended December 31, 1997. Average interest-bearing liabilities
increased by $9.5 million or 4.7% to $213.1 million for the year ended
December 31, 1998, from $203.7 million for the year ended December 31, 1997.
Average time deposits decreased $793 thousand, or .8%, to $101.6 million for
the year ended December 31, 1998, from $102.4 million for the year ended
December 31, 1997, while the average balances for NOW, money markets, and
savings accounts increased by $7.5 million, or 7.5%, to $106.5 million for
the year ended December 31, 1998, from $99 million for the year ended
December 31, 1997.

Noninterest Income. Noninterest income increased $499,000, or 20.7%, to $2.9
million for the year ended December 31, 1998, from $2.4 million for the year
ended December 31, 1997. The results for 1998 reflected net gains of
$150,000 from the sale of securities versus a loss of $18 thousand for 1997.
Additionally, gains on sales of loans for 1998 increased approximately
$143,000 to $302,000 during 1998 as compared to $158,000 during 1997 due to
Management's decision to sell a greater portion of Loans Available for Sale
from our portfolio due to the continuing low interest rate environment.
Service fees rose $85,000 or 4.1% for the year ending December 31, 1998 to
$2.15 million from $2.06 million for 1997. The net gain on sale or writedown
of OREO properties was $7,000 for 1998 compared to a net loss of $23,000 in
1997. Trust income for the year ended December 31, 1998 was $120,000, up
$26,000 or 27.7% from $94,000 in 1997.

Noninterest Expense. Noninterest expense increased $711,000, or 8.3%, to
$9.3 million for the year ended December 31, 1998, from $8.6 million for the
year ended December 31, 1997. Salaries and employee benefits increased
$191,000, or 3.8%, to $5.2 million for the year ended December 31, 1998,
from $5 million for 1997, reflecting a slight increase in normal salary
costs. Equipment expense increased $232,000, or 30%, to $1 million for the
year ended December 31, 1998, from $773,000 for the year ended December 31,
1997. Depreciation and maintenance contract expense on computers and
software increased as a result of purchases made during late 1997 and 1998.
Other operating expenses increased by $291,000, or 12.6%, to $2.6 million
for the year ended December 31, 1998, from $2.3 million for the year ended
December 31, 1997. The company had one-time costs in 1998 attributable to
the merger of $34 thousand and $18 thousand in preparation for Year 2000.
Increases in supply costs, ATM expenses, Vermont franchise taxes, telephone,
advertising, directors' fees, and courier expense account for the majority
of the remainder of the increase.

Income Tax Expense. Income tax expense increased by $106,000, or 5.4%, to $2
million for the year ended December 31, 1998, from $1.9 million for 1997.
This increase reflects the increase in Income before income taxes.

                             FINANCIAL CONDITION

At December 31, 1999, Union had total consolidated assets of $295 million,
including net loans and loans held for sale of $207 million, deposits of
$258 million and shareholders' equity of $32 million. Based on the most
recent information published by the Vermont Banking Commissioner, in terms
of total assets at December 31, 1998, Union Bank ranked as the 10th largest
institution of the 26 commercial banks and savings institutions
headquartered in Vermont and Citizens ranked 19th.

Union's total assets increased by $5.4 million or 1.8% to $295.5 million at
December 31, 1999 from $290.1 million at December 31, 1998. Total net loans
and loans held for sale increased by $6.8 million or 3.4% to $206.8 million
or 70% of total assets at December 31, 1999 as compared to $200 million or
69% of total assets at December 31, 1998, due to increases of $2.1 million
in commercial real estate loans, $10.3 million increase in real estate
loans, $1.0 million decrease in term federal funds sold, $4.8 million
decrease in loans to consumers. Cash and Due from banks increased from $9.9
million to $11.6 million between year ends due to Y2K liquidity buildup.
Federal funds sold decreased approximately $5.8 million or 62.7% to $3.5
million at December 31, 1999 from $9.3 million at December 31, 1998, which
was primarily attributable to an increase in loans and cash. Total deposits
increased $8.7 million or 3.5% to $257.6 million at December 31, 1999 from
$248.9 million at December 31, 1998. A $9.5 million or 11.6% increase in
money markets and savings accounts to $91.3 million from $81.8 million
accounted for the majority of the increase which was partially offset by a
reduction in time deposits. Total borrowings decreased approximately $3.2
million to $2.9 million at December 31, 1999 from $6.1 million at December
31, 1998.

Total equity increased by $458,000 or 1.4% to $32.2 million at December 31,
1999 from $31.8 million at December 31, 1998 as a result of an increase of
$1.7 million in the net unrealized holding loss on securities available-for-
sale and dividend payments of $2.3 million which were offset with net income
of $4.1 million and the exercise of employee stock options for $40,000.

Loan Portfolio. Union'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. As of December 31, 1999, Union's
gross loan portfolio net of loans held for sale totaled $201.5 million of
which $79.4 million, or 39.4% of gross loans, consisted of residential
mortgages, and $69.8 million, or 34.6%, of total loans consisted of
commercial real estate loans. As of such date, Union's loan portfolio also
included $7.7 million of real estate construction loans, $16.2 million of
commercial loans, $9.7 million of municipal loans, and $18.7 million of
consumer loans representing, in order, 3.8%, 8.1%, 4.8%, and 9.3% of total
loans outstanding on December 31, 1999. (See Footnote 5 to the Financial
Statements for a more complete breakdown of the loan portfolio)

Union originates and sells residential mortgages into the secondary market,
with most such sales made to the Federal Home Loan Mortgage Corporation
(FHLMC). Union services a $126.1 million residential mortgage portfolio,
approximately $46.6 million of which is serviced for unaffiliated third
parties at December 31, 1999. Additionally, Union originates commercial
loans under various SBA programs that provide an agency guarantee for a
portion of the loan amount. Union will typically sell the guaranteed portion
of the loan to other financial concerns and will retain servicing rights,
which generates fee income. Union capitalizes mortgage servicing rights on
these fees and recognizes gains and losses on the sale of the principal
portion of these notes as they occur. Union services approximately $13
million of commercial and commercial real estate loans that have been
previously sold.

Total loans have increased $6.2 million or 3.2% since December 31, 1998. The
majority of this increase is due to management's decision to, for the time
being, hold in portfolio loans that could be sold on the secondary market.
This strategy will increase our interest margin and combined with our
increased deposit base has not affected our liquidity adversely.

The following table breaks down by loan type the maturities of the loans
held in portfolio and held for sale as of December 31, 1999:

<TABLE>
<CAPTION>
                                   Within 1   3-5   Over 5
                                  Year     Years      Years
                                   (Dollars in thousands)
                                ----------------------------

<S>                             <C>       <C>       <C>
Real Estate
  Fixed Rate                    $ 9,505   $ 9,499   $ 51,526
  Variable Rate                     274     1,857     19,038
Commercial
  Fixed Rate                     18,644    15,338     15,506
  Variable Rate                   6,265     4,941     38,414
Installment
  Fixed Rate                      6,574    10,315        592
  Variable Rate                     461         0          0
Other                               878         0          0
                                ----------------------------
      Total                     $42,601   $41,950   $125,076
                                ============================
</TABLE>

Asset Quality. Union, like all financial institutions, is exposed to certain
credit risks related to the value of the collateral that secures its loans
and the ability of borrowers to repay their loans. Management closely
monitors Union's loan and investment portfolios and other real estate owned
for potential problems on a periodic basis and reports to Union's Board of
Directors at regularly scheduled meetings.

Union had loans on non-accrual status totaling $951,000 at December 31, 1999
and $540,000 at December 31, 1998. The aggregate interest on non-accrual
loans not recognized through December 31, 1999 was $182,610, through 1998
was $110,930, and through 1997 was $157,424.

Union had $3.2 million and $1.9 million in loans past due 90 days or more
and still accruing at December 31, 1999 and 1998, respectively. At December
31, 1999, Union had internally classified certain loans totaling $1.6
million and $1 million at December 31, 1998. 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
Union'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, 1999, Union had acquired by foreclosure or through
repossession real estate worth $26,667, consisting of commercial property
and undeveloped land. The balance at December 31, 1998 was $524,756.

Allowance for Loan Losses. Some of Union's loan customers ultimately do not
make all of their contractually scheduled payments, requiring Union to
charge off the remaining principal balance due. Union maintains an allowance
for loan losses to absorb such losses. While Union 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.

The following table reflects activity in the allowance for loan losses for
the years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                         ------------------------------------------
                                          1999     1998     1997     1996     1995
                                         ------------------------------------------
                                                   (Dollars in thousands)

<S>                                      <C>      <C>      <C>      <C>      <C>
Balance at the beginning of period       $2,845   $2,811   $2,844   $2,710   $2,330
Charge-offs:
  Real Estate                                41       49       31       45       33
  Commercial                                 49       67      150      148      164
  Consumer and other                        338      371      368      377      154
                                         ------------------------------------------
      Total charge-offs                     428      487      549      570      351
                                         ------------------------------------------
Recoveries:
  Real Estate                                 3        0        4       22        0
  Commercial                                 14       33       15       20       27
  Consumer and other                         77       88       72       68       74
                                         ------------------------------------------
      Total recoveries                       94      121       91      110      101
                                         ------------------------------------------

Net charge-offs                            (334)    (366)    (458)    (460)    (250)
Provision for loan losses                   359      400      425      580      630
Transfer from Other Reserve                   0        0        0       14        0
                                         ------------------------------------------
Balance at end of period                 $2,870   $2,845   $2,811   $2,844   $2,710
                                         ==========================================
</TABLE>

The following table shows the breakdown of Union'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,
                                 1999               1998               1997               1996               1995
                            --------------------------------------------------------------------------------------------
                            Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent
                            --------------------------------------------------------------------------------------------
                                                  (Dollars in thousands)

<S>                         <S>       <C>      <C>       <C>      <C>       <C>      <C>       <C>      <C>       <C>
Real Estate
  Residential               $  557     42.3%   $  255     39.5%   $  278     36.8%   $  230     36.7%   $  246     34.3%
  Commercial                 1,014     30.6%      754     29.5%      774     27.9%      949     30.7%      914     28.8%
  Construction                  77      3.7%       12      3.8%      10       2.1%        9      2.5%        9      3.3%
Other Loans
  Commercial                   416      8.1%      498      9.0%      601      9.3%      583      7.4%      528     10.9%
  Consumer installment         448      8.6%      545     11.3%      659     12.9%      662     13.8%      513     13.7%
  Home equity loans             28      1.8%       21      2.3%       25      2.8%       27      3.1%       27      3.6%
  Municipal, Other and
  Unallocated                  330      4.9%      760      4.6%      464      8.2%      384      5.8%      473      5.4%
                            --------------------------------------------------------------------------------------------
      Total                 $2,870    100.0%   $2,845    100.0%   $2,811    100.0%   $2,844    100.0%   $2,710    100.0%
                            ============================================================================================
Ratio of Net Charge Offs
 to Average Loans                       .16%               .19%               .24%               .25%               .14%
Ratio of Allowance for
 Loan Losses to Loans                  1.42%              1.46%              1.39%              1.50%              1.48%
</TABLE>

Investment Activities. At December 31, 1999, the reported value of
investment securities available-for-sale was $60 million or 20.5% of assets.
Union had no securities classified as held-to-maturity or trading. The
adoption of FASB No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," has had an impact on our investment portfolio. This
accounting standard, effective for 1994 statements, 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, 1999 reflects a negative valuation adjustment of
$1.7 million. The offset of this adjustment, net of income tax effect, was a
$1.1 million decrease in Union's other comprehensive income component of
shareholders' equity and an increase in net deferred tax assets of $584,000.

The following tables show as of December 31, 1999 and 1998 the amortized
cost of Union's debt obligations maturing within the stated period.

<TABLE>
<CAPTION>
                                                            At December 31, 1999
                                                                 Maturities
                                       -------------------------------------------------------------
                                       Within      One to    Five to     Over               Weighted
                                        One        Five        Ten        Ten      Total    Average
                                        Year       Years      Years      Years     Cost      Yield
                                       -------------------------------------------------------------
                                                           (Dollars in thousands)

<S>                                    <C>        <C>        <C>        <C>       <C>       <C>
Securities available-for-sale:
  U.S. Government, Agency
   and Corporation securities          $ 7,499    $13,235    $ 7,948    $  500    $29,182    5.96%
  Mortgage-backed securities                 0      2,298      1,827     2,199      6,324    6.48%
  State and political subdivisions          25         73      3,743     1,206      5,047    6.24%
  Corporate debt securities                751     13,837      4,312     2,143     21,043    6.33%
  Marketable equity securities               0          0          0       558        558   10.94%
                                       ----------------------------------------------------------
      Total Investment Securities      $ 8,275    $29,443    $17,830    $6,606    $62,154    6.20%
                                       ==========================================================
      Fair Value                       $ 8,245    $28,810    $17,009    $6,374    $60,438
                                       ==================================================

Weighted Average Yield                    5.52%      6.15%      6.32%     7.02%      6.20%

<CAPTION>
                                                            At December 31, 1998
                                                                 Maturities
                                       -------------------------------------------------------------
                                       Within      One to    Five to     Over               Weighted
                                        One        Five        Ten        Ten      Total    Average
                                        Year       Years      Years      Years     Cost      Yield
                                       -------------------------------------------------------------
                                                           (Dollars in thousands)

<S>                                    <C>        <C>        <C>        <C>       <C>       <C>
Securities available-for-sale:
  U.S. Government, Agency
   and Corporation securities          $ 9,839    $13,263    $ 5,818    $  500    $29,420    6.05%
  Mortgage-backed securities                 0      3,141        331     2,093      5,565    6.55%
  State and political subdivisions          79        251      1,659     1,665      3,654    6.68%
  Corporate debt securities                751     13,261      2,781     1,691     18,484    6.31%
  Marketable equity securities               0          0          0       558        558   10.29%
                                       ----------------------------------------------------------
      Total investment securities      $10,669   $29,916     $10,589    $6,507    $57,681    6.26%
                                       ==========================================================
      Fair Value                       $10,753   $30,315     $10,702    $6,812    $58,582
                                       ==================================================
Weighted Average Yield                    6.16%     6.14%       6.38%     6.67%      6.26%
</TABLE>

Deposits. The following table shows information concerning Union's deposits
by account type, and the weighted average nominal rates at which interest
was paid on such deposits as of December 31, 1999 and December 31, 1998:

<TABLE>
<CAPTION>
                                                            Year Ended, December 31,
                                           ------------------------------------------------------------
                                                       1999                           1998
                                           ------------------------------------------------------------
                                                      Percent                        Percent
                                           Average    of Total   Average   Average   of Total   Average
                                            Amount    Deposits    Rate     Amount    Deposits    Rate
                                                              (Dollars in thousands)
                                           ------------------------------------------------------------

<S>                                        <C>        <C>         <C>     <C>        <C>         <C>
Non-certificate deposits:
  Demand deposits                          $ 32,775    12.92%             $ 28,851    12.17%
  NOW accounts                               34,654    13.66%     1.95%     30,943    13.06%     2.23%
  Money Markets                              49,296    19.43%     4.10%     37,652    15.89%     4.26%
  Savings and other                          38,876    15.32%     2.87%     37,915    16.00%     2.84%
                                           -----------------              -----------------
      Total non-certificate of deposits     155,601    61.33%              135,361    57.12%
                                           -----------------              -----------------
Certificates of deposit:
  Less than $100,000                         77,218    30.44%     5.29%     79,321    33.47%     5.40%
  $100,000 and over                          20,870     8.23%     5.48%     22,292     9.41%     5.78%
                                           -----------------               ----------------
      Total certificates of deposit          98,088    38.67%              101,613    42.88%
                                           -----------------               ----------------
      Total deposits                       $253,689   100.00%     3.56%   $236,974   100.00%     3.77%
                                           =================               ----------------
</TABLE>

The following table sets forth information regarding the amounts of Union's
certificates of deposit in amounts of $100,000 or more at December 31, 1999
and December 31, 1998 that mature during the periods indicated:

<TABLE>
<CAPTION>
                          December 31, 1999   December 31, 1998
                                  (Dollars in thousands)
                          -------------------------------------

      <S>                      <C>                 <C>
      Within 3 months          $ 2,301             $ 1,796
      3 to 6 months             11,872               6,851
      6 to 12 months             3,751               4,701
      Over 12 months             3,491               6,094
                               ---------------------------
                               $21,415             $19,442
                               ===========================
</TABLE>

Borrowings. Borrowings from the Federal Home Loan Bank of Boston were $6.1
million at December 31, 1998 at a weighted average rate of 5.82%. During the
second and third quarter of 1999, some of the borrowings with a weighted
average rate of 5.93% were repaid due to the prevailing interest rate
environment and low pre-payment penalties. The remaining long-term notes
totaling $2.9 million at December 31, 1999 have a weighted average rate of
5.77%. (See Footnote 11 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. Union's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end,
management actively monitors and manages its interest rate risk exposure.
Union does not have any market risk sensitive instruments acquired for
trading purposes. Union attempts to structure its balance sheet to maximize
net interest income while controlling its exposure to interest rate risk.
Union'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. Union's Asset/Liability Committee's methods for evaluating
interest rate risk include an analysis of Union's interest-rate sensitivity
"gap", which provides a static analysis of the maturity and repricing
characteristics of Union'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.

Union'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. Union historically has maintained a substantial portion
of its loan portfolio on a variable rate basis and plans to continue this
ALM strategy in the future. The investment portfolio is all classified as
available for sale and the modified duration is relatively short. Union does
not utilize any derivative products or invest in any "high risk"
instruments.

Our interest rate sensitivity analysis (simulation) as of December 1998 for
a flat rate environment projected a Net Interest Income of $13.6 million for
1999 compared to actual results of $13.7 million or a .7% difference. Net
income was projected to be $4.8 million compared to actual results of $4.1
million. Of the $771 thousand difference, $499 thousand is merger-related
expense, which was not included in our analysis as they are unusual, one
time expenses. A portion of the remaining difference was due to a strategic
decision to, at this time, hold loans packaged for possible for sale within
our portfolio, thus decreasing loan servicing fees and gains on sale of
loans during the year, resulting in a 3% or $93 thousand decrease in Other
Income than anticipated. Our salary expense was .7% or $31 thousand less
than budget while our employee benefit costs are up 13.2% or $133 thousand.
We also incurred higher than anticipated administrative costs for supply and
printing expenses. Return on Assets was 1.39%. Return on Equity was 12.70%.
These two ratios were lower based on lower net income as explained above and
higher average balances than anticipated.

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 14 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.

Union 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 reflect estimated prepayments,
     which were estimated based on analyses of broker estimates, the results
     of a prepayment model utilized by Union, and empirical data;

*    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 Union 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 Union'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.

The following tables show Union's rate sensitivity analysis as of December
31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                      December 31, 1999
                                           ----------------------------------------------------------------------
                                                                 Cumulative repriced within
                                           3 Months     4 to 12     1 to 3       3 to 5     Over 5
                                            or Less      Months      Years        Years      Total      Total
                                           ----------------------------------------------------------------------
                                                         (Dollars in thousands, by repricing date)

<S>                                         <C>         <C>         <C>         <C>         <C>          <C>
Interest sensitive assets:
  Federal funds sold                        $ 3,474     $     0     $     0     $     0     $      0     $  3,474
  Interest-bearing deposits                     297         793         673         194            0        1,957
  Investments available for sale (1)          2,001       6,244      13,406      15,404       22,707       59,762
  FHLB / VBSC Stock                               0           0           0           0          941          941
  Loans (2)                                  53,401      34,614      16,778      26,891       77,669      209,353
                                            ---------------------------------------------------------------------
      Total interest sensitive assets       $59,173     $41,651     $30,857     $42,489     $101,317     $275,487
                                            =====================================================================

Interest sensitive liabilities:
  Time deposits                             $21,242     $50,499     $22,867     $ 1,174     $      0     $ 95,782
  Money markets                              43,825           0           0           0       10,952       54,777
  Regular saving                              2,084       3,485           0           0       30,939       36,508
  NOW accounts                               15,533           0           0           0       22,004       37,537
  Borrowed funds (3)                            745         235         685         755          452        2,872
      Total interest sensitive
       liabilities                          $83,429     $54,219     $23,552     $ 1,929     $ 64,347     $227,476

Net interest rate sensitivity gap           (24,256)    (12,568)      7,305      40,560       36,970       48,011
Cumulative net interest rate
 sensitivity gap                            (24,256)    (36,824)    (29,519)     11,041       48,011
Cumulative net interest rate
 sensitivity gap as a
 percentage of total assets                   (8.21)%    (12.46)%     (9.99)%      3.74%       16.25%
Cumulative interest sensitivity gap
 as a percentage of total
 interest-earning assets                      (8.80)%    (13.37)%    (10.72)%      4.01%       17.43%
Cumulative net interest-earning
 assets as a percentage of
 cumulative interest-bearing
 liabilities                                 (10.66)%    (16.19)%    (12.98)%      4.85%       21.10%

--------------------
<FN>
<F1>   Investments available for sale exclude marketable equity securities
       with a fair value of $676,000 which may be sold by Union at any time.
<F2>   Balances shown net of unearned income of $273,305.
<F3>   Estimated repayment assumptions considered in Asset/Liability model.
</FN>
</TABLE>

<TABLE>
<CAPTION>
                                                                      December 31, 1998
                                           ----------------------------------------------------------------------
                                                                 Cumulative repriced within
                                           3 Months     4 to 12     1 to 3       3 to 5     Over 5
                                            or Less      Months      Years        Years      Total      Total
                                           ----------------------------------------------------------------------
                                                         (Dollars in thousands, by repricing date)

<S>                                         <C>         <C>         <C>         <C>         <C>          <C>

Interest sensitive assets:
  Federal funds sold                        $ 9,326     $     0     $     0     $     0     $     0      $  9,326
  Interest-bearing deposits                     495         887         392          99           0         1,873
  Investments available for sale (1)          2,255       8,435      12,941      17,190      16,823        57,644
  FHLB / VBSC Stock                               0           0           0           0         906           906
  Loans (2)                                  61,743      37,601      18,694      24,773      59,657       202,468
                                            ---------------------------------------------------------------------
      Total interest sensitive assets       $73,819     $46,923     $32,027     $42,062     $77,386      $272,217
                                           ======================================================================

Interest sensitive liabilities:
  Time deposits                             $20,083     $48,742     $28,768     $ 1,047     $    59      $ 98,799
  Money markets                              28,343           0           0           0      15,780        44,123
  Regular savings                             2,457       3,520           0           0      31,727        37,704
  NOW accounts                               12,610           0           0           0      22,733        35,343
  Borrowed funds (3)                             35         106         310       1,963       3,670         6,084
                                            ---------------------------------------------------------------------
      Total interest sensitive
       liabilities                          $63,528     $52,368     $29,078     $ 3,010     $74,069      $222,053
                                            =====================================================================

Net interest rate sensitivity gap            10,291      (5,445)      2,949      39,052       3,317        50,164
Cumulative net interest rate
 sensitivity gap                             10,291       4,846       7,795      46,847      50,164
Cumulative net interest rate
 sensitivity gap as a
  percentage of total assets                   3.55%       1.67%       1.55%      16.15%      17.29%
Cumulative interest sensitivity gap
 as a percentage of total
  interest-earning assets                      3.78%       1.78%       2.86%      17.21%      18.43%
Cumulative net interest-earning
 assets as a percentage of
  cumulative interest-bearing
   liabilities                                 4.63%       2.18%       3.51%      21.10%      22.59%

--------------------
<FN>
<F1>   Investments available for sale exclude marketable equity securities
       with a fair value of $938,000 which may be sold by Union at any time.
<F2>   Balances shown net of unearned income of $265,468.
<F3>   Estimated repayment assumptions considered in Asset/Liability model.
</FN>
</TABLE>

Simulation Analysis. In its simulation analysis, Union uses computer
software to simulate the estimated impact on net interest income and capital
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, Union is able to quantify its interest rate
risk and develop and implement appropriate strategies.

The following chart reflects the results of our latest simulation analysis
for each of the next three year ends on Net Interest Income, Net Income,
Return on Assets, Return on Equity and Capital Value. The projection
utilizes a rate shock of 150 basis points from the current prime rate of
8.5%, 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, 1999
                               (In thousands)

<TABLE>
<CAPTION>
                                                      Return   Return
                           Net                          on       on
Year             Prime   Interest   Change     Net    Assets   Equity   Capital   Change
Ending           Rate     Income      %      Income     %         %      Value       %
----------------------------------------------------------------------------------------

<S>              <C>     <C>       <C>      <C>        <C>      <C>     <C>       <C>
December-00      10.00   $13,800     .80    $4,459     1.49     13.41   $25,377   (20.16)
                  8.50    13,690    0.00     4,349     1.46     13.08    31,787     0.00
                  7.00    13,504   (1.36)    4,163     1.39     12.52    38,369    20.71

December-01      10.00    14,477    1.75     4,751     1.52     13.55    25,218   (25.00)
                  8.50    14,228    0.00     4,587     1.47     13.09    33,624     0.00
                  7.00    13,910   (2.23)    4,377     1.40     12.49    42,316    25.85

December-02      10.00    15,150    3.03     5,034     1.54     14.05    26,733   (24.28)
                  8.50    14,704    0.00     4,740     1.45     13.23    35,305     0.00
                  7.00    14,196   (3.45)    4,405     1.34     12.29    44,188    25.16
</TABLE>

Liquidity. Liquidity is a measurement of Union'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. Union'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
available-for-sale, and earnings and funds provided from operations. In
addition, as both subsidiary banks are members of the FHLB, Union has access
to preapproved lines of credit up to 5.6% of total assets. Under the terms
of the Community Investment Program "Plus", Union Bank has unadvanced funds
available of $10,159,098. This funding commitment expires March 31, 2000;
however, Union intends to apply for renewal of the commitment for another
one year period.

The Banks maintain IDEAL Way Lines of Credit with the Federal Home Loan Bank
of Boston. The total line available to Union Bank was $3,356,000 as of
December 31, 1999 and December 31, 1998, respectively. The total line
available to Citizens Savings Bank and Trust Company was $3,040,000 as of
both December 31, 1999 and 1998. Total borrowings against these lines of
credit was $667,000 and $ -0- at December 31, 1999 and December 31, 1998.
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. Union's liquidity is
actively managed on a daily basis, monitored by the Asset/Liability
Committee, and reviewed periodically with the Board of Directors. Union's
Asset/Liability Committee sets liquidity targets based on Union's financial
condition and existing and projected economic and market conditions. The
committee measures Union's marketable assets and credit available to fund
liquidity requirements and compares the adequacy of that aggregate amount
against the aggregate amount of Union'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 Union'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.

Union's management monitors current and projected cash flows and adjusts
positions as necessary to maintain adequate levels of liquidity. Although
approximately 74.9% of Union's time deposits will mature within twelve
months, management believes, based upon past experience, that Union 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
Union's cost of funds and adversely impact the net interest margin.

Regulatory Capital Requirements. As of December 31, 1999, the most recent
notification from the FDIC categorized Union Bank and Citizens Savings Bank
& Trust Co. as well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the banks must
maintain a minimum total risk-based capital ratio of 10%, Tier I risk-based
capital ratio of 6% and Tier I leverage ratio of 5%. (See Footnote 21 to the
Financial Statements for details on the individual bank's capital ratios.)
Union's consolidated total risk-based capital ratio is 18.55%, Tier I risk-
based capital ratio is 17.27% , and Tier I leverage ratio if 11.35% as of
December 31, 1999. 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 bank's or Union's regulatory capital category.

Impact of Inflation and Changing Prices. Union's consolidated financial
statements, included in this document, have been prepared in accordance with
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 Union's total expenses. Interest rates have a more significant
impact on Union's financial performance than the effect of general
inflation. 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.

                   UNION BANKSHARES, INC. AND SUBSIDIARIES
                MARKET FOR UNION'S COMMON SHARES AND RELATED
                             SHAREHOLDER MATTERS

On March 10, 2000 there were 3,029,529 shares of common stock outstanding
held by 769 shareholders of record. The number or shareholders does not
reflect the number of persons or entities who may hold the stock in nominee
or 'street name.'

Union common stock is not listed on any exchange or quoted on NASDAQ. The
Company's stock trades under the symbol UUBS. No broker makes a market in
Union common stock and trading has been sporadic. The trades that have
occurred cannot be characterized as an established public trading market.
The stock is traded from time to time by holders in private transactions or
through brokers, and information on bid and ask prices is not publicly
reported. Therefore, the stock prices shown below reflect only the
transactions known to management. Due to the limited information available,
the stock prices shown may not accurately reflect the actual market value of
Union's common stock. The high and low prices for shares of the Company's
common stock for 1999 and 1998, as well as cash dividends paid thereon is
presented below:

<TABLE>
<CAPTION>
                           1999                         1998
                  ------------------------------------------------------
                  High      Low   Dividends    High      Low   Dividends
                  ------------------------------------------------------

<S>              <C>      <C>       <C>       <C>      <C>       <C>
First Quarter    $23.00   $18.50    $ .22     $18.50   $18.00    $ .20

Second Quarter   $22.25   $21.50    $ .22     $21.50   $20.00    $ .20

Third Quarter    $21.25   $20.00    $ .22     $24.00   $22.00    $ .20

Fourth Quarter   $22.00   $21.00    $ .24     $24.00   $22.75    $ .22
</TABLE>

On January 5, 2000 the Company declared a dividend of $ .24 per share to
stockholders of record as of that date, payable January 14, 2000.