<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-Q

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the quarterly period ended: March 31, 2007

                       Commission file number: 001-15985

                             UNION BANKSHARES, INC.

                        VERMONT               03-0283552

                                  P.O. BOX 667
                                  MAIN STREET
                             MORRISVILLE, VT 05661

                  Registrant's telephone number: 802-888-6600

Former name, former address and former fiscal year, if changed since last
report: Not applicable

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__  No _____

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. (See definition of "accelerated
filer and large accelerated filer", in Rule 12b-2 of the Exchange Act). (Check
One):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

Indicate by a check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).  Yes _____  No __X__

Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of

April 30, 2007:
         Common Stock, $2 par value                  4,530,414 shares
<PAGE>

                             UNION BANKSHARES, INC.
                               TABLE OF CONTENTS

PART I   FINANCIAL INFORMATION

Item 1.  Financial Statements.
Unaudited Consolidated Financial Statements Union Bankshares,
 Inc. and Subsidiary
  Consolidated Balance Sheets                                                 3
  Consolidated Statements of Income                                           4
  Consolidated Statement of Changes in Stockholders' Equity                   5
  Consolidated Statements of Cash Flows                                       6
Notes to Unaudited Consolidated Financial Statements                          8

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations.                                          10
Item 3.  Quantitative and Qualitative Disclosures About Market Risk.         31
Item 4.  Controls and Procedures.                                            31

PART II    OTHER INFORMATION

Item 1.  Legal Proceedings.                                                  32
Item 1A. Risk Factors.                                                       32
Item 2.  Unregistered Sales of Securities and Use of Proceeds.               32
Item 6.  Exhibits.                                                           33

Signatures                                                                   33

                                       2
<PAGE>

Part l Financial Information
Item 1.   Financial Statements

UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)

<TABLE>
<CAPTION>
                                                                    March 31,     December 31,
                                                                      2007            2006
                                                                      ----            ----
<S>                                                                 <C>             <C>
Assets                                                                (Dollars in thousands)
  Cash and due from banks                                           $  9,507        $ 11,694
  Federal funds sold and overnight deposits                            9,258           9,263
                                                                    --------        --------
  Cash and cash equivalents                                           18,765          20,957

  Interest bearing deposits in banks                                  10,044           5,417
  Investment securities available-for-sale                            26,526          23,682
  Loans held for sale                                                  4,560           3,750

  Loans                                                              303,584         313,822
    Allowance for loan losses                                         (3,342)         (3,338)
    Unearned net loan fees                                              (119)           (120)
                                                                    --------        --------
      Net loans                                                      300,123         310,364

  Accrued interest receivable                                          2,033           2,001
  Premises and equipment, net                                          6,032           6,080
  Other assets                                                         8,572           8,898
                                                                    --------        --------

      Total assets                                                  $376,655        $381,149
                                                                    ========        ========

Liabilities and Stockholders' Equity

Liabilities
  Deposits
    Noninterest bearing                                             $ 46,347        $ 54,875
    Interest bearing                                                 267,163         264,947
                                                                    --------        --------
      Total deposits                                                 313,510         319,822
  Borrowed funds                                                      15,353          14,596
  Liability for pension benefits                                       1,458           1,317
  Accrued interest and other liabilities                               4,379           3,491
                                                                    --------        --------
      Total liabilities                                              334,700         339,226
                                                                    --------        --------

Commitments and Contingencies

Stockholders' Equity
  Common stock, $2.00 par value; 5,000,000 shares authorized;
   4,918,611 shares issued at 3/31/07 and 12/31/06                     9,837           9,837
  Paid-in capital                                                        152             150
  Retained earnings                                                   35,169          35,203
  Treasury stock at cost; 388,197 shares at 3/31/07 and 386,634
   at 12/31/06                                                        (2,298)         (2,264)
  Accumulated other comprehensive loss                                  (905)         (1,003)
                                                                    --------        --------
      Total stockholders' equity                                      41,955          41,923
                                                                    --------        --------

      Total liabilities and stockholders' equity                    $376,655        $381,149
                                                                    ========        ========

          See accompanying notes to the unaudited consolidated financial statements.
</TABLE>

                                              3
<PAGE>

UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

                                                            Three Months Ended
                                                                 March 31,
                                                            2007          2006
                                                            ----          ----
                                                           (Dollars in thousands
                                                          except Per Share Data)
Interest income
  Interest and fees on loans                              $   5,900    $   5,451
  Interest on debt securities
    Taxable                                                     234          298
    Tax exempt                                                   46           49
  Dividends                                                      30           23
  Interest on federal funds sold and overnight
   deposits                                                     104           26
  Interest on interest bearing deposits in banks                 74           79
                                                          ---------    ---------
    Total interest income                                     6,388        5,926
                                                          ---------    ---------
Interest expense
  Interest on deposits                                        1,785        1,240
  Interest on borrowed funds                                    190          207
                                                          ---------    ---------
    Total interest expense                                    1,975        1,447
                                                          ---------    ---------

      Net interest income                                     4,413        4,479

Provision for loan losses                                        45           45
                                                          ---------    ---------
    Net interest income after provision for loan losses       4,368        4,434
                                                          ---------    ---------

Noninterest income
  Trust income                                                   84           71
  Service fees                                                  796          706
  Net (losses) gains on sales of investment securities          (10)           3
  Net gains on sales of loans held for sale                      27           92
  Other income                                                   46           74
                                                          ---------    ---------
    Total noninterest income                                    943          946
                                                          ---------    ---------

Noninterest expenses
  Salaries and wages                                          1,578        1,494
  Pension and employee benefits                                 660          577
  Occupancy expense, net                                        220          203
  Equipment expense                                             262          256
  Other expenses                                                948          867
                                                          ---------    ---------
    Total noninterest expense                                 3,668        3,397
                                                          ---------    ---------

      Income before provision for income taxes                1,643        1,983

Provision for income taxes                                      408          510
                                                          ---------    ---------

    Net income                                            $   1,235    $   1,473
                                                          =========    =========

Earnings per common share                                 $    0.27    $    0.32
                                                          =========    =========

Weighted average number of common
 shares outstanding                                       4,531,515    4,541,507
                                                          =========    =========

Dividends per common share                                $    0.28    $    0.26
                                                          =========    =========

See accompanying notes to the unaudited consolidated financial statements.

                                              4
<PAGE>

UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)

<TABLE>
<CAPTION>
                                        Common Stock
                                     -------------------                                        Accumulated
                                      Shares,                                                      other            Total
                                      net of                Paid-in    Retained    Treasury    comprehensive    stockholders'
                                     Treasury     Amount    capital    earnings     stock          loss            equity
                                     --------     ------    -------    --------    --------    -------------    -------------
                                                                      (Dollars in thousands)
<S>                                  <C>          <C>        <C>       <C>         <C>            <C>              <C>
Balances, December 31,  2006         4,531,977    $9,837     $150      $35,203     $(2,264)       $(1,003)         $41,923

Comprehensive income:
Net income                                   -         -        -        1,235           -              -            1,235
Change in net unrealized loss on
 investment securities
 available-for-sale, net of
 reclassification adjustment and
 tax effects                                 -         -        -            -           -             98               98
                                                                                                                   -------

Total comprehensive
 income                                      -         -        -            -           -              -            1,333
                                                                                                                   -------

Cash dividends declared
 ($0.28 per share)                           -         -        -       (1,269)          -              -           (1,269)

Issuance of stock options                    -         -        2            -           -              -                2

Purchase of treasury stock              (1,563)        -        -            -         (34)             -              (34)
                                     ---------    ------     ----      -------     -------        -------          -------

Balances, March 31, 2007             4,530,414    $9,837     $152      $35,169     $(2,298)       $  (905)         $41,955
                                     =========    ======     ====      =======     =======        =======          =======

See accompanying notes to the unaudited consolidated financial statements.
</TABLE>

                                              5
<PAGE>

UNION BANKSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

<TABLE>
<CAPTION>
                                                                        Three Months Ended
                                                                      -----------------------
                                                                      March 31,     March 31,
                                                                        2007          2006
                                                                        ----          ----
                                                                      (Dollars in thousands)
<S>                                                                    <C>           <C>
Cash Flows From Operating Activities
  Net Income                                                           $ 1,235       $ 1,473
  Adjustments to reconcile net income to net cash
   provided by operating activities
    Depreciation                                                           192           184
    Provision for loan losses                                               45            45
    (Credit) provision for deferred income taxes                          (111)           53
    Net amortization of investment securities                                4            22
    Equity in losses of limited partnerships                                66           110
    Issuance of stock options                                                2             2
    Write-downs of other real estate owned                                  10             -
    Decrease in unamortized loan fees                                       (1)          (14)
    Proceeds from sales of loans held for sale                           3,437         6,802
    Origination of loans held for sale                                  (4,219)       (1,954)
    Net loss (gain) on sales of investment securities                       10            (3)
    Net gain on sales of loans held for sale                               (27)          (92)
    Net gain on disposals of premises and equipment                          -            (7)
    Net gain on sales of other real estate owned                           (20)            -
    (Increase) decrease in accrued interest receivable                     (32)          158
    Decrease in other assets                                               131             9
    Increase  in income taxes                                              494           382
    Increase  in accrued interest payable                                  178           148
    Increase in other liabilities                                          357            89
                                                                       -------       -------
      Net cash provided by operating activities                          1,751         7,407
                                                                       -------       -------

Cash Flows From Investing Activities
  Interest bearing deposits in banks
    Maturities and redemptions                                             197         1,299
    Purchases                                                           (4,987)            -
  Investment securities available-for-sale
    Sales                                                                  414           455
    Maturities, calls and paydowns                                         695         1,441
    Purchases                                                           (3,820)            -
  Net redemption (purchase) of Federal Home Loan Bank stock                 82          (199)
  Net decrease (increase) in loans                                      10,294        (8,550)
  Recoveries of loans charged off                                           17            40
  Purchases of premises and equipment                                     (144)         (394)

                                       6
<PAGE>

<CAPTION>
                                                                        Three Months Ended
                                                                      -----------------------
                                                                      March 31,     March 31,
                                                                        2007          2006
                                                                        ----          ----
                                                                      (Dollars in thousands)
<S>                                                                    <C>           <C>
  Proceeds from sales of other real estate owned                             3             -
  Proceeds from sales of premises and equipment                              -             8
                                                                       -------       -------
      Net cash provided by (used in) investing activities                2,751        (5,900)
                                                                       -------       -------

Cash Flows From Financing Activities
  Net increase (decrease) in borrowings outstanding                        757          (379)
  Net decrease in noninterest bearing deposits                          (8,528)       (4,800)
  Net increase  in interest bearing deposits                             2,217         1,595
  Purchase of treasury stock                                               (34)          (40)
  Dividends paid                                                        (1,269)       (1,181)
                                                                       -------       -------

      Net cash used in financing activities                             (6,857)       (4,805)
                                                                       -------       -------

    Decrease  in cash and cash equivalents                              (2,355)       (3,298)
Cash and cash equivalents
  Beginning                                                             20,957        14,208
                                                                       -------       -------

  Ending                                                               $18,602       $10,910
                                                                       =======       =======

Supplemental Disclosures of Cash Flow Information
  Interest paid                                                        $ 1,797       $ 1,299
                                                                       =======       =======

  Income taxes paid                                                    $    25       $    75
                                                                       =======       =======

Supplemental Schedule of Noncash Investing and
 Financing Activities

  Change in unrealized losses on investment securities
   available-for-sale                                                  $   148       $  (107)
                                                                       =======       =======

  Loans originated to finance the sale of other real estate owned      $   115       $     -
                                                                       =======       =======

See accompanying notes to the unaudited consolidated financial statements.
</TABLE>

                                       7
<PAGE>

UNION BANKSHARES, INC. AND SUBSIDIARY


Note 1.  Basis of Presentation
The accompanying interim unaudited  consolidated  financial statements of Union
Bankshares, Inc. (the Company) for the interim periods ended March 31, 2007 and
2006,  and for the quarters then ended have been  prepared in  conformity  with
U.S. generally accepted accounting principles (GAAP),  general practices within
the banking industry,  and the accounting  policies  described in the Company's
Annual Report to Shareholders and Annual Report on Form 10-K for the year ended
December 31, 2006. In the opinion of the Company's management, all adjustments,
consisting only of normal recurring adjustments and disclosures necessary for a
fair  presentation  of the  information  contained  herein have been made. This
information should be read in conjunction with the Company's 2006 Annual Report
to  Shareholders,  2006 Annual Report on Form 10-K, and current reports on Form
8-K.  The results of  operations  for the interim  periods are not  necessarily
indicative of the results of operations to be expected for the full fiscal year
ending December 31, 2007, or any other interim period.

Certain  amounts  in the  2006  consolidated  financial  statements  have  been
reclassified to conform to the 2007 presentation.

Note 2.  Commitments and Contingencies
In the normal  course of  business,  the Company is  involved in various  legal
proceedings.  In the opinion of management,  any liability  resulting from such
proceedings would not have a material adverse effect on the Company's financial
condition or results of operations.

Note 3.  Per Share Information
Earnings per common share  amounts are computed  based on the weighted  average
number of shares of common stock outstanding  during the period and reduced for
shares held in treasury. The assumed conversion of available stock options does
not result in material dilution.

Note 4.  New Accounting Pronouncements
In February 2007, the Financial  Accounting  Board's (FASB) issued Statement of
Financial  Accounting  Standard  (SFAS)  No.  159,  The Fair  Value  Option for
Financial Assets and Financial Liabilities.  This Statement permits entities to
choose to measure many  financial  instruments  and certain other items at fair
value  that are not  currently  required  to be  measured  at fair  value.  The
objective is to improve  financial  reporting by  providing  entities  with the
opportunity  to mitigate  volatility in reported  earnings  caused by measuring
related  assets and  liabilities  differently  without  having to apply complex
hedge accounting provisions.  This Statement also establishes  presentation and
disclosure  requirements  designed to facilitate  comparisons  between entities
that choose  different  measurement  attributes for similar types of assets and
liabilities.  This Statement does not affect any existing accounting literature
that requires certain assets and liabilities to be carried at fair value.  This
Statement  does  not  establish  requirements  for  recognizing  and  measuring
dividend income,  interest income, or interest expense. This Statement does not
eliminate  disclosure  requirements  included  in other  accounting  standards,
including  requirements for disclosures about fair value measurements  included
in SFAS No. 157, Fair Value Measurements,  and No. 107,  Disclosures about Fair
Value of Financial Instruments.  This Statement is effective  prospectively for
financial statements issued for fiscal years beginning after November 15, 2007.
The  Company is  currently  evaluating  the impact of this new  standard on the
Company's  consolidated  financial  statements  but does not  expect  that such
impact will be material.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  This
statement defines fair value,  establishes a framework for measuring fair value
in GAAP, and expands disclosures about fair value measurements.  This Statement
applies under other accounting pronouncements that require or permit fair value
measurements.  Accordingly,  this Statement does not require any new fair value
measurements.  However,  for some entities,  the  application of this Statement
will change  current  practice.  This  Statement  is  effective  for  financial
statements  issued for fiscal years  beginning  after  November  15, 2007,  and
interim periods within those fiscal years. The Company is currently  evaluating
the impact of this new  standard  to  determine  its  effects on the  Company's
consolidated  financial statements but does not expect that such impact will be
material.

In March  2006,  the FASB  issued SFAS No. 156,  Accounting  for  Servicing  of
Financial  Assets,  an amendment of SFAS No. 140,  Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,  with respect
to the accounting for separately recognized servicing assets

                                       8
<PAGE>

and  servicing  liabilities.  The  Statement  requires an entity to recognize a
servicing asset or servicing liability each time it undertakes an obligation to
service a  financial  asset by entering  into a  servicing  contract in certain
situations.   It  requires  all  separately  recognized  servicing  assets  and
liabilities to be initially measured at fair value, if practicable.  It permits
an  entity  to  choose  either  the  amortization  method  or  the  fair  value
measurement method for each class of separately recognized servicing assets and
liabilities  and requires  additional  disclosures in the financial  statements
under the fair value  measurement  method.  The  Company  adopted  SFAS  No.156
effective  January 1, 2007 and will  continue with the  amortization  method of
servicing  rights which has no  additional  impact on the  Company's  financial
position or results of operations.

Note 5. Defined Benefit Pension Plan
Union Bank (Union),  the Company's bank subsidiary,  sponsors a noncontributory
defined benefit pension plan covering all eligible employees. The plan provides
defined benefits based on years of service and final average salary.

Net periodic pension benefit cost for the three months ended March 31, 2007 and
2006 consisted of the following components:

                                                     Three Months Ended
                                                     ------------------
                                                      2007        2006
                                                      ----        ----
                                                   (Dollars in thousands)

Service cost                                         $ 132       $ 110
Interest cost on projected benefit obligation          148         131
Expected return on plan assets                        (150)       (124)
Amortization of prior service cost                       2           1
Amortization of net loss                                 5          21
                                                     -----       -----
Net periodic benefit cost                            $ 137       $ 139
                                                     =====       =====

Note 6.  Other Comprehensive Loss
The components of other  comprehensive  gain (loss) and related tax effects for
the three months ended March 31, 2007 and 2006 are as follows:

                                                     Three Months Ended
                                                     ------------------
                                                      2007        2006
                                                      ----        ----
                                                   (Dollars in thousands)

Unrealized holding gains (losses) on investment
 securities available-for-sale                       $ 158       $(103)
Reclassification adjustment for losses  (gains)
 realized in income                                     10          (3)
                                                     -----       -----
Net unrealized gains (losses)                          148        (106)
Tax effect                                             (50)         36
                                                     -----       -----
Net of tax amount                                    $  98       $ (70)
                                                     =====       =====

Note 7.  Income Taxes
The Company adopted the provisions of FASB  Interpretation  No. 48,  Accounting
for Uncertainty in Income Taxes - an  interpretation  of SFAS No. 109 (FIN 48),
on January 1, 2007. FIN 48 clarifies the  accounting for  uncertainty in income
taxes  recognized in an  enterprise's  financial  statements in accordance with
SFAS No.  109,  Accounting  for Income  Taxes,  and  prescribes  a  recognition
threshold and  measurement  process for  financial  statement  recognition  and
measurement  of a tax  position  taken or expected to be taken in a tax return.
FIN 48 also provides  guidance on derecognition,  classification,  interest and
penalties, accounting in interim periods, disclosure and transition.

Based on  management's  evaluation,  management has concluded that there are no
significant  uncertain tax  positions  requiring  recognition  in the Company's
financial  statements.  Although the Company is not  currently the subject of a
tax audit by the Internal Revenue Service (IRS), the Company's tax years ending
December  31,  2003  through  2006  are  open to  audit  by the IRS  under  the
applicable statute of limitations.

The Company may from time to time be assessed  interest or  penalties  by major
tax jurisdictions, although any such assessments historically have been minimal
and immaterial to our financial results. In the event that the Company receives
an  assessment  for interest  and/or  penalties,  it will be  classified in the
financial statements as other expenses.

                                       9
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

                                    GENERAL

The following  discussion  and analysis by management  focuses on those factors
that had a material effect on Union Bankshares,  Inc.'s  (Company's)  financial
position as of March 31, 2007,  and as of December 31, 2006, and its results of
operations for the three months ended March 31, 2007 and 2006.  This discussion
is  being  presented  to  provide  a  narrative  explanation  of the  financial
statements and should be read in conjunction  with the  consolidated  financial
statements and related notes and with other financial data appearing  elsewhere
in this filing and with the  Company's  Annual Report on Form 10-K for the year
ended  December 31, 2006. In the opinion of Company's  management,  the interim
unaudited data reflects all  adjustments,  consisting only of normal  recurring
adjustments,   and  disclosures  necessary  to  fairly  present  the  Company's
consolidated  financial  position  and  results of  operations  for the interim
period. Management is not aware of the occurrence of any events after March 31,
2007, which would materially affect the information presented.

               CAUTIONARY ADVICE ABOUT FORWARD LOOKING STATEMENTS

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

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

o     uses of monetary, fiscal, and tax policy by various governments;
o     political,  legislative,  or  regulatory  developments  in  Vermont,  New
      Hampshire,  or the United  States  including  changes in laws  concerning
      accounting, taxes, financial reporting, banking, and other aspects of the
      financial services industry;
o     developments in general economic or business  conditions  nationally,  in
      Vermont,   or  in  northern  New  Hampshire,   including   interest  rate
      fluctuations,  market  fluctuations  and  perceptions,  job  creation and
      unemployment  rates,  ability to attract new business,  and inflation and
      their effects on the Company or its customers;
o     changes  in  the   competitive   environment   for   financial   services
      organizations, including increased competition from tax-advantaged credit
      unions and out-of-market competitors offering financial services over the
      internet;
o     the Company's ability to attract and retain key personnel;
o     changes in technology,  including  demands for greater  automation  which
      could present operational issues or significant capital outlays;
o     acts or threats of  terrorism  or war,  and  actions  taken by the United
      States or other  governments  that might  adversely  affect  business  or
      economic conditions for the Company or its customers;
o     adverse changes in the securities market which could adversely affect the
      value of the Company's stock;
o     any actual or alleged conduct which could harm the Company's reputation;
o     natural or other  disasters which could affect the ability of the Company
      to operate under normal conditions;

                                      10
<PAGE>

o     the Company's ability to retain and attract deposits;
o     illegal  acts of  theft  or  fraud  perpetuated  against  the bank or its
      customers;
o     unanticipated  lower  revenues  or  increased  cost  of  funds,  loss  of
      customers or business, or higher operating expenses;
o     the failure of assumptions  underlying the establishment of the allowance
      for loan  losses and  estimations  of values of  collateral  and  various
      financial assets and liabilities;
o     the amount invested in new business opportunities and the timing of these
      investments;
o     the  failure of  actuarial,  investment,  work force,  salary,  and other
      assumptions  underlying the  establishment of reserves for future pension
      costs or changes in legislative or regulatory requirements;
o     future cash  requirements  might be higher than  anticipated  due to loan
      commitments  or unused  lines of credit  being  drawn upon or  depositors
      withdrawing their funds;
o     assumptions made regarding  interest rate movement and sensitivity  could
      vary   substantially  if  actual   experience   differs  from  historical
      experience  which  could  adversely  affect  the  Company's   results  of
      operations; and
o     the   creditworthiness  of  current  loan  customers  is  different  from
      management's  understanding  or changes  dramatically  and  therefore the
      allowance for loan losses becomes inadequate.

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

                          CRITICAL ACCOUNTING POLICIES

The  Company has  established  various  accounting  policies  which  govern the
application of accounting principles generally accepted in the United States of
America in the  preparation  of the  Company's  financial  statements.  Certain
accounting policies involve significant judgments and assumptions by management
which have a material  impact on the  reported  amount of assets,  liabilities,
revenues  and  expenses  and  related  disclosures  of  contingent  assets  and
liabilities in the consolidated  financial  statements and accompanying  notes.
The SEC has defined a company's critical  accounting  policies as the ones that
are most  important to the portrayal of the company's  financial  condition and
results of operations, and which require the company to make its most difficult
and  subjective  judgments,  often as a result of the need to make estimates of
matters that are inherently  uncertain.  Based on this definition,  the Company
has  identified  the  accounting  policies and  judgments  most critical to the
Company.  The  judgments  and  assumptions  used by  management  are  based  on
historical  experience and other  factors,  which are believed to be reasonable
under the circumstances. Because of the nature of the judgments and assumptions
made by  management,  actual  results  could differ from  estimates  and have a
material impact on the carrying value of assets, liabilities, or the results of
operations of the Company.

The Company  believes the  allowance  for loan losses is a critical  accounting
policy that requires the most  significant  judgments and estimates used in the
preparation  of  its  consolidated  financial  statements.  In  estimating  the
allowance for loan losses, management utilizes historical experience as well as
other  factors  including the effect of changes in the local real estate market
on  collateral  values,  the effect on the loan  portfolio of current  economic
indicators  and their  probable  impact on borrowers and changes in delinquent,
nonperforming   or  impaired   loans.   Changes  in  these  factors  may  cause
management's  estimate of the allowance for loan losses to increase or decrease
and result in adjustments to the Company's  provision for loan losses in future
periods.  For additional  information see, FINANCIAL  CONDITION - Allowance for
Loan Losses below.

The Company's  pension benefit  obligations  and net periodic  benefit cost are
actuarially  determined  based on the  following  assumptions:  discount  rate,
estimated future return on plan assets, wage base rate,  anticipated  mortality
rates,  Consumer  Price Index rate,  rate of increase in  compensation  levels,
anticipated  service periods and retirement  dates.  The  determination  of the
pension  benefit  obligations  and net  periodic  benefit  cost  is a  critical
accounting estimate as it requires the use of estimates and judgment related to
the amount and timing of expected  future  cash out flows for benefit  payments
and cash in flows  for  maturities  and  returns  on plan  assets.  Changes  in
estimates  and  assumptions  could  have a  material  impact  to the  Company's
financial condition or results of operations.

                                      11
<PAGE>

The Company also has other key  accounting  policies,  which involve the use of
estimates,  judgments and assumptions that are significant to understanding the
Company's results of operation and financial condition, including the valuation
of  deferred  tax  assets  and  analysis  of  investment  securities.  Although
management   believes  that  its  estimates,   assumptions  and  judgments  are
reasonable, they are based upon information presently available. Actual results
may differ  significantly  from these estimates  under  different  assumptions,
judgments or conditions.

                                    OVERVIEW

The  Company's  net income was $1.235  million for the quarter  ended March 31,
2007,  compared with net income of $1.473  million for the same period in 2006,
or a 16.2%  decrease  between years.  The Company faced a challenging  interest
rate  environment,  and  although  total  interest  income  increased  by  $462
thousand,  or 7.8% in 2007 versus the first quarter of 2006,  this increase was
more than offset by an increase in interest expense of $528 thousand,  or 36.5%
between periods. The prime rate has remained flat at 8.25% since June 29, 2006.
The yield curve  remained  inverted  throughout  the first quarter of 2007 with
short term interest rates being higher than long term rates.  The Company had a
decrease in its net interest margin from 5.29% for the first quarter of 2006 to
5.22% for the first quarter of 2007.

The Company's total assets  decreased from $381.1 million at December 31, 2006,
to $376.7 million at March 31, 2007 or a decrease of 1.2%.  Deposits  decreased
from $319.8  million at December 31, 2006 to $313.5  million at March 31, 2007,
or a decrease of 2.0%. The  contraction in both total assets and total deposits
is a seasonal trend during the first calendar quarter of each year. Total loans
including  loans held for sale  decreased  3.0% from $317.6 million at December
31, 2006 to $308.1  million at March 31, 2007.  Almost $4 million of the change
is due to the  completion  of  residential  construction  loans which is normal
during  the  first  calendar  quarter  while  commercial   construction   loans
outstanding increased $1.6 million and $2 million is due to decreased municipal
borrowing.

Noninterest expenses are up $271 thousand or 8.0% for the first quarter of 2007
to $3.7 million from $3.4 million for the first quarter of 2006. More than half
that increase is due to personnel costs,  including  approximately $84 thousand
or 5.6% for direct salary and wages due to year end 2006 raises and the opening
of the  Littleton,  New  Hampshire  branch  in March  2006.  Approximately  $83
thousand  relates  to benefit  costs,  most of which is an  increase  in health
insurance  expense.  The costs to bring or  maintain  properties  in Other Real
Estate Owned account for approximately $40 thousand of the increase.

                                      12
<PAGE>

The following  unaudited per share  information  and key ratios depict  several
measurements  of performance or financial  condition for or at the three months
ended March 31, 2007 and 2006, respectively:

                                                       Quarter Ended March 31,
                                                       -----------------------
                                                          2007        2006
                                                          ----        ----
Return on average assets (ROA) (1)                         1.31%       1.58%
Return on average equity (ROE) (1)                        11.85%      14.19%
Net interest margin (1)(2)                                 5.22%       5.29%
Efficiency ratio (3)                                      67.07%      61.74%
Net interest spread (4)                                    4.64%       4.87%
Loan to deposit ratio                                     98.29%     100.29%
Net loan charge-offs (recoveries) to average loans
 not held for sale (1)                                     0.05%      (0.04%)
Allowance for loan losses to loans not
 held for sale                                             1.10%       1.02%
Non-performing assets to total assets                      1.63%       1.24%
Equity to assets                                          11.14%      11.23%
Total capital to risk weighted assets                     17.60%      17.24%
Book value per share                                       $9.26       $9.20
Earnings per share                                         $0.27       $0.32
Dividends paid per share                                   $0.28       $0.26
Dividend payout ratio (5)                                103.70%      81.25%

--------------------
(1)   Annualized
(2)   The ratio of tax equivalent net interest income to average earning
      assets.
(3)   The ratio of noninterest expense to net interest income plus noninterest
      income excluding securities gains and losses.
(4)   The difference between the average rate earned on assets minus the
      average rate paid on liabilities.
(5)   Cash dividends declared and paid per share divided by consolidated net
      income per share.

The prime  interest  rate has remained  flat at 8.25% since June 29, 2006.  The
prime rate was 7.25% as of December  31,  2005 and rose twice  during the first
quarter in 2006,  by 25 basis points each time to reach 7.75% at March 31 2006.
The  current  prime rate of 8.25% is the  highest the prime rate has been since
March 20, 2001. The Company's net interest margin  decreased 7 basis points and
net interest  spread  declined 23 basis points during the first three months of
2007  compared  to the first  three  months of 2006.  This  decline  in the net
interest  spread was  primarily  the result of average  interest  rates paid on
deposits rising as traditional and  nontraditional  financial  institutions and
tax-exempt credit unions in the Company's market compete  aggressively for core
deposit dollars, resulting in pricing pressures.

                             RESULTS OF OPERATIONS

Net Interest Income. The largest component of the Company's operating income is
net interest  income,  which is the  difference  between  interest and dividend
income received from  interest-earning  assets and the interest expense paid on
interest-bearing  liabilities.  The Company's net interest income decreased $66
thousand,  or 1.5%,  to $4.4 million for the three months ended March 31, 2007,
from $4.5 million for the three  months ended March 31, 2006.  The net interest
spread  decreased 23 basis points to 4.64% for the three months ended March 31,
2007,  from 4.87% for the three months  ended March 31,  2006.  As time deposit
"specials" abounded throughout the market place, interest rates paid to attract
and retain time  deposits  moved up more quickly than rates earned on loans and
other  earning  assets.  The net interest  margin for the first quarter of 2007
decreased 7 basis points to 5.22% from the 2006 period at 5.29%.  A decrease in
prime rate would not necessarily be beneficial to the Company in the near term,
see  "OTHER  FINANCIAL  CONSIDERATIONS  - Market  Risk and Asset and  Liability
Management."

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, the related average rates paid, and the relative
net interest  spread and net interest  margin.  Yield and rate  information  is
calculated on an annualized tax equivalent  basis.  Yield and rate  information
for a period is average information for the period, and is calculated by

                                      13
<PAGE>

dividing  the  annualized  income or expense item for the period by the average
balance of the appropriate  balance sheet item during the period.  Net interest
margin is annualized  tax  equivalent  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.

<TABLE>
<CAPTION>
                                                                       Three months ended March 31,
                                                                2007                                  2006
                                                               Interest     Average                  Interest     Average
                                                  Average      Earned/      Yield/      Average      Earned/      Yield/
                                                  Balance        Paid        Rate       Balance        Paid        Rate
                                                  -------      --------     -------     -------      --------     -------
                                                                          (Dollars in thousands)
<S>                                               <C>           <C>          <C>        <C>           <C>          <C>
Average Assets:
  Federal funds sold and
   overnight deposits                             $  8,078      $  104       5.16%      $  2,317      $   26       4.44%
  Interest bearing deposits in banks                 6,789          74       4.40%         8,171          79       3.92%
  Investment securities (1), (2)                    24,851         284       4.90%        31,539         355       4.78%
  Loans, net (1), (3)                              309,444       5,900       7.84%       305,883       5,451       7.30%
  FHLB of Boston stock                               1,405          26       7.53%         1,396          15       4.34%
                                                  --------      ------       -----      --------      ------       -----
Total interest-earning assets (1)                  350,567       6,388       7.50%       349,306       5,926       6.97%

Cash and due from banks                             10,402                                10,353
Premises and equipment                               6,072                                 6,058
Other assets                                         8,857                                 8,094
                                                  --------                              --------
    Total assets                                  $375,898                              $373,811
                                                  ========                              ========

Average Liabilities and Stockholders' Equity:
  NOW accounts                                    $ 50,355      $   94       0.76%      $ 52,265      $   82       0.63%
  Savings/money market accounts                     94,902         409       1.75%       107,378         391       1.48%
  Time deposits                                    118,741       1,282       4.38%       101,401         767       3.07%
  Borrowed funds                                    15,368         190       4.93%        18,226         207       4.54%
                                                  --------      ------       -----      --------      ------       -----
    Total interest-bearing liabilities             279,366       1,975       2.86%       279,270       1,447       2.10%

Non-interest bearing deposits                       49,481                                49,044
Other liabilities                                    5,351                                 3,967
                                                  --------                              --------
    Total liabilities                              334,198                               332,281

Stockholders' equity                                41,700                                41,530
                                                  --------                              --------
    Total liabilities and
     stockholders' equity                         $375,898                              $373,811
                                                  ========                              ========

Net interest income                                             $4,413                                $4,479
                                                                ======                                ======

Net interest spread (1)                                                      4.64%                                 4.87%
                                                                             =====                                 =====

Net interest margin (1)                                                      5.22%                                 5.29%
                                                                             =====                                 =====

--------------------
(1)   Average yields reported on a tax-equivalent basis.
(2)   Average balances of investment securities are calculated on the amortized cost basis.
(3)   Includes loans held for sale and is net of unearned income and allowance for loan losses.
</TABLE>

                                      14
<PAGE>

Rate/Volume Analysis. The following tables describe the extent to which changes
in  interest  rates  and  changes  in  volume of  interest-earning  assets  and
interest-bearing  liabilities  have affected the Company's  interest income and
interest   expense  during  the  periods   indicated.   For  each  category  of
interest-earning   assets  and  interest-bearing   liabilities  information  is
provided on changes attributable to:

o     changes in volume (change in volume multiplied by prior rate);
o     changes in rate (change in rate multiplied by prior volume); and
o     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.

                                             Three Months Ended March 31, 2007
                                                        Compared to
                                             Three Months Ended March 31, 2006
                                            Increase/(Decrease) Due to Change In
                                            ------------------------------------
                                                 Volume      Rate      Net
                                                 ------      ----      ---
                                                   (Dollars in thousands)
Interest-earning assets:
  Federal funds sold and overnight deposits       $ 73       $  5      $ 78
  Interest bearing deposits in banks               (14)         9        (5)
  Investment securities                            (80)         9       (71)
  Loans, net                                        61        388       449
  FHLB of Boston stock                               -         11        11
                                                  ----       ----      ----
    Total interest-earning assets                   40        422       462

Interest-bearing liabilities:
  NOW accounts                                      (3)        15        12
  Savings/money market accounts                    (49)        67        18
  Time deposits                                    147        368       515
  Borrowed funds                                   (34)        17       (17)
                                                  ----       ----      ----
    Total interest-bearing liabilities              61        467       528
                                                  ----       ----      ----
Net change in net interest income                 $(21)      $(45)     $(66)
                                                  ====       ====      ====

Quarter Ended March 31, 2007, compared to Quarter Ended March 31, 2006.

Interest and  Dividend  Income.  The  Company's  interest  and dividend  income
increased  $462  thousand,  or 7.8%, to $6.4 million for the three months ended
March 31,  2007,  from $5.9  million for the three months ended March 31, 2006,
with average earning assets increasing $1.3 million, or 0.4%, to $350.6 million
for the three months ended March 31,  2007,  from $349.3  million for the three
months ended March 31, 2006. The increase in interest income resulting from the
rise in average  earning assets was augmented by the higher rates earned on all
categories of earning  assets in 2007 versus 2006.  Average loans  approximated
$309.4  million at an average  yield of 7.84% for the three  months ended March
31, 2007, up $3.5 million from $305.9  million at an average yield of 7.30% for
the three months ended March 31,  2006,  or a 1.2%  increase in volume and a 54
basis point increase in yield.

The  average  balance of  investments  (including  mortgage-backed  securities)
decreased  $6.7 million or 21.2%,  to $24.9  million for the three months ended
March 31, 2007,  from $31.5  million for the three months ended March 31, 2006.
The  decrease  in the  investment  portfolio  from the  first  quarter  of 2006
reflects the continuing growth in the loan portfolio,  as investment maturities
were used to fund  loan  growth,  which  continued  to  outpace  the  growth in
deposits.  The  average  level of  federal  funds sold and  overnight  deposits
increased $5.8 million,  or 248.6%,  to $8.1 million for the three months ended
March 31,  2007,  from $2.3  million for the three months ended March 31, 2006.
The inverted yield curve  throughout the quarter is evident by the yield earned
on Federal  Funds sold and  overnight  deposits of 5.16%.  The average level of
interest  bearing  deposits in banks for the quarter was $6.8 million down $1.4
million or 16.9% from the 2006 average level of $8.2 million.  Interest  income
from non-loan  instruments  increased only slightly between periods,  with $488
thousand for the first quarter of 2007 and $475 thousand for the same period of
2006, reflecting the overall increase in yields, offset by the overall decrease
in volume.

                                      15
<PAGE>

Interest Expense.  The Company's  interest expense increased $528 thousand,  or
36.5%,  to $2.0 million for the three  months  ended March 31, 2007,  from $1.4
million for the three months ended March 31, 2006,  of which $61 thousand was a
result of the increase in volume while the remaining $467 thousand increase was
due to rate increases fueled by stiff competition for deposit dollars.

Interest  expense on deposits  increased $545 thousand or 44.0% to $1.8 million
for the quarter ended,  March 31, 2007 from $1.2 million for the quarter ended,
March 31, 2006.  Competition for deposits has remained  stiff.  Management also
believes that  consumers have become more rate sensitive over the last eighteen
months  due  to  advertised  "specials"  and  the  proliferation  of  non-local
financial  institutions  trying to gather deposits  throughout the market area.
Average time deposits  rose to $118.7  million for the three months ended March
31, 2007,  from $101.4 million for the three months ended March 31, 2006, or an
increase of 17.1%.  The average rate paid on time deposits  increased 131 basis
points, to 4.38% from 3.07% for the three months ended March 31, 2007 and 2006,
respectively.  The  average  balances  for money  market and  savings  accounts
decreased $12.5 million,  or 11.6%, to $94.9 million for the three months ended
March 31, 2007,  from $107.4  million for the three months ended March 31, 2006
as the spread widened for interest  rates on time  deposits,  which appeared to
motivate customers to move funds into those higher paying  instruments.  A $1.9
million,  or 3.7% decrease in NOW accounts  brought the average balance down to
$50.4 million from $52.3 million between the two years.

Interest  expense on borrowed  funds dropped from $207 thousand for the quarter
ended, March 31, 2006 to $190 thousand for the quarter ended, March 31, 2007 as
the average funds  borrowed from the FHLB of Boston  dropped from $17.8 million
to $15.3 million between years.

Provision for Loan Losses. The loan loss provision for the quarters ended March
31, 2007 and 2006 was $45 thousand.  Recoveries on loans previously charged off
resulted in an addition to the Allowance for Loan Losses of $17 thousand during
the first  quarter of 2007 versus $40 thousand  during the same period in 2006.
For further  details  see,  FINANCIAL  CONDITION  -"Allowance  for Loan Losses"
below.

Noninterest income. The following table sets forth changes from the first three
months of 2006 to the first three months of 2007 for  components of noninterest
income:

<TABLE>
<CAPTION>
                                                               For The Quarter Ended March 31,
(Dollars in thousands)                                   2007     2006     $ Variance     % Variance
                                                         ----     ----     ----------     ----------
<S>                                                      <C>      <C>         <C>           <C>
Trust income                                             $ 84     $ 71        $ 13            18.3
Service fees                                              796      706          90            12.7
Net (losses) gains on sales of investment securities      (10)       3         (13)         (433.3)
Net gains on sales of loans held for sale                  27       92         (65)          (70.7)
Other                                                      46       74         (28)          (37.8)
                                                         ----     ----        ----
    Total noninterest income                             $943     $946        $ (3)           (0.3)
                                                         ====     ====        ====
</TABLE>

Trust income.  The increase  resulted  primarily  from increases in regular fee
income which is based on the market value of assets managed and the addition of
new customers.

Service fees. The increase resulted  primarily from increases in overdraft fees
of $53 thousand,  or 22.6% due to the mid-March 2006 increase from $22 per item
to $25 per item, and ATM usage fees of $14 thousand,  or 8.7%, partially offset
by a decline in deposit service charges of $8 thousand, or 13.6%.

Net gains on sales of loans held for sale.  Residential  real  estate  loans of
$3.4 million were sold for a net gain of $27 thousand  during the first quarter
of 2007 versus sales of $6.8 million for a net gain of $92 thousand  during the
first quarter of 2006.

Other.  The decrease  between  periods is primarily due to the reduction in net
mortgage  servicing  rights of $33 thousand from 2006 to 2007. There was also a
decrease  of $7  thousand  in  royalties  from oil and gas  leases.  These  two
reductions  were  partially  offset by a $19 thousand gain on the sale of Other
Real Estate Owned.

                                      16
<PAGE>

Noninterest  expense.  The  following  table sets forth  changes from the first
three  months  of 2006 to the first  three  months  of 2007 for  components  of
noninterest expense:

                                          For The Quarter Ended March 31,
(Dollars in thousands)               2007      2006     $ Variance    % Variance
                                     ----      ----     ----------    ----------
Salaries and wages                  $1,578    $1,494       $ 84           5.6
Pension and employee benefits          660       577         83          14.4
Occupancy expense, net                 220       203         17           8.4
Equipment expense                      262       256          6           2.3
Equity in losses of affordable
 housing investments                    66       109        (43)        (39.4)
Other                                  882       758        124          16.4
                                    ------    ------       ----
    Total noninterest expense       $3,668    $3,397       $271           8.0
                                    ======    ======       ====

Salaries and wages and related expenses. The increase in 2007 over 2006 was due
primarily to regular salary  activity and the expansion of the  Littleton,  New
Hampshire  loan  production  office to a full service  branch  during the first
quarter of 2006. Increases in related payroll taxes, an increase in the accrual
for pension plan expense and a $68 thousand or 30.9%  increase in the Company's
medical and dental  insurance costs account for the majority of the increase in
pension and employee benefits.

Occupancy Expense. The increase for 2007 over 2006 was due primarily to the new
Littleton, New Hampshire branch opened in March of 2006 and the increased costs
of fuel and utilities throughout the offices.

Equity  in losses of  affordable  housing  investments.  The  expense  for 2006
included a catch up adjustment for $43 thousand related to two 2005 investments
once the 2005 audited financial statements were received.

Other.  Increase  between  years due to an increase in  contributions  expense,
legal fees,  trust  department  expenses,  Vermont  franchise  taxes due to the
expiration of state tax credits,  and the costs to bring or maintain properties
in Other Real Estate Owned.

Income Tax Expense.  The Company has provided for current and deferred  federal
income taxes for the current and all prior  periods  presented.  The  Company's
provision  for income taxes was $408  thousand for the three months ended March
31,  2007 and $510  thousand  for 2006,  mostly as a result of the  decrease in
taxable  net income  compared  to the 2006  comparison  period.  The  Company's
effective  tax rate  decreased  to 24.8% for the three  months  ended March 31,
2007,  from  25.7%  for the same  period in 2006,  reflecting  an  increase  in
non-taxable municipal loan income.

                              FINANCIAL CONDITION

At March 31, 2007 the Company had total consolidated  assets of $376.7 million,
including  gross  loans  and  loans  held for sale  ("total  loans")  of $308.1
million,  deposits of $313.5 million and stockholders' equity of $42.0 million.
The Company's total assets  decreased $4.5 million or 1.2% to $376.7 million at
March 31, 2007,  from $381.1  million at December 31, 2006. Net loans and loans
held for sale were $304.7 million,  or 80.9% of total assets at March 31, 2007,
as compared to $314.1  million,  or 82.4% of total assets at December 31, 2006.
Cash and cash equivalents, including federal funds sold and overnight deposits,
decreased  $2.4 million,  or 11.2%,  to $18.6  million at March 31, 2007,  from
$21.0  million  at  December  31,  2006.  Interest  bearing  deposits  in banks
increased $4.8 million or 88.4% from $5.4 million at December 31, 2006 to $10.2
million at March 31, 2007 as these FDIC insured  deposits  were one of the most
attractive investment alternatives during the first quarter of 2007.

Investment  securities  available-for-sale  increased  from  $23.7  million  at
December 31, 2006,  to $26.5  million at March 31,  2007,  a $2.8  million,  or
12.0%,  increase.  As loan demand was not as strong during the first quarter of
2007, the opportunity  was taken to rebuild the investment  portfolio to a more
normal level. The securities  available-for-sale  and interest bearing deposits
in banks  increased  from 7.6% of total  assets at December 31, 2006 to 9.8% at
March 31, 2007.

                                      17
<PAGE>

Deposits decreased $6.3 million,  or 2.0%, to $313.5 million at March 31, 2007,
from $319.8 million at December 31, 2006,  reflecting a pattern of the seasonal
variation in dollars on deposit.  Noninterest  bearing deposits  decreased $8.5
million, or 15.5%, from $54.9 million at December 31, 2006, to $46.3 million at
March 31, 2007 while interest bearing deposits increased $2.2 million, or 0.8%,
from $264.9  million at December 31, 2006 to $267.2  million at March 31, 2007.
(See average  balances  and rates in the Yields  Earned and Rates Paid table on
Page 14). Total borrowings  increased $757 thousand or 5.2% to $15.4 million at
March 31, 2007,  from $14.6 million at December 31, 2006 in order to match fund
some specific loans as lower cost deposits seasonally declined during the first
three months of 2007.

Total capital increased $32 thousand from December 31, 2006 to $42.0 million at
March 31,  2007,  reflecting  net income of $1.2  million  for the first  three
months of 2007,  less the  regular  cash  dividend  paid of $1.3  million,  the
purchase of Treasury stock totaling $34 thousand and a decrease of $98 thousand
in accumulated other comprehensive loss. (See Capital Resources section on Page
30)

Loans Held for Sale and Loan  Portfolios.  The Company's  total loans primarily
consist of adjustable-rate and fixed-rate mortgage loans secured by one-to-four
family,  multi-family  residential or commercial  real estate.  As of March 31,
2007,  the  Company's  total loan  portfolio  was $308.1  million,  or 81.8% of
assets,  down from $317.6 million,  or 83.3% of assets as of December 31, 2006,
and from $311.0  million or 83.6% of assets as of March 31,  2006.  Total loans
(including  loans held for sale) have decreased $9.5 million since December 31,
2006 while average loans  (including  loans held for sale) were $305.9  million
for the 2006 comparison period and have grown to $309.4 million or 1.1% for the
first three  months of 2007.  The Company  sold $3.4  million of loans held for
sale during the first three months of 2007 resulting in a gain on sale of loans
of $27  thousand,  compared with loan sales of $6.8 million and related gain on
sale of loans of $92 thousand for the first three months of 2006.

The following table shows information on the composition of the Company's total
loan portfolio as of March 31, 2007 and December 31, 2006:

Loan Type                                  March 31, 2007     December 31, 2006
---------                                  --------------     -----------------
                                                 (Dollars in thousands)
                                           Amount   Percent     Amount   Percent
Residential real estate                  $111,134      36.1   $114,139      35.9
Construction real estate                   20,208       6.6     22,568       7.1
Commercial real estate                    129,121      41.9    130,848      41.2
Commercial                                 18,544       6.0     19,253       6.1
Consumer                                    7,207       2.3      7,717       2.4
Municipal loans                            17,370       5.6     19,297       6.1
Loans Held for Sale                         4,560       1.5      3,750       1.2
                                         --------     -----   --------     -----
    Total loans                           308,144     100.0    317,572     100.0

Deduct:
Allowance for loan losses                   3,342                3,338
Unearned net loan fees                        119                  120
                                         --------             --------
    Net loans and loans held for sale    $304,683             $314,114
                                         ========             ========

The Company originates and sells some residential  mortgages into the secondary
market, with most such sales made to the Federal Home Loan Mortgage Corporation
(FHLMC/"Freddie  Mac") and the  Vermont  Housing  Finance  Agency  (VHFA).  The
Company services a $197.5 million  residential real estate mortgage  portfolio,
approximately  $86.4  million  of which was  serviced  for  unaffiliated  third
parties at March 31, 2007. Additionally, the Company originates commercial real
estate and  commercial  loans under various SBA programs that provide an agency
guarantee for a portion of the loan amount. The Company  occasionally sells the
guaranteed  portion of the loan to other  financial  concerns  and will  retain
servicing rights, which generates fee income. The Company serviced $6.4 million
of commercial and commercial real estate loans for  unaffiliated  third parties
as of March 31, 2007. The Company  capitalizes  servicing  rights on these fees
and recognizes  gains and losses on the sale of the principal  portion of these
loans as they occur. The unamortized  balance of servicing rights on loans sold
with servicing

                                      18
<PAGE>

retained was $305 thousand at March 31, 2007, with an estimated market value in
excess of their carrying value.

In the ordinary course of business, the Company occasionally  participates out,
on a non-recourse  basis, a portion of commercial or real estate loans to other
financial  institutions  for  liquidity  or  credit  concentration   management
purposes.  The total of loans  participated  out as of March 31, 2007 was $12.3
million.

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

The Company's loan review procedures include a credit quality assurance process
that begins with approval of lending  policies and  underwriting  guidelines by
the Board of Directors and includes a loan review  department  supervised by an
experienced, former regulatory examiner, conservative individual lending limits
for  officers,  Board  approval  for large credit  relationships  and a quality
control process for loan documentation that includes  post-closing reviews. The
Company also maintains a monitoring process for credit extensions.  The Company
performs  periodic  concentration  analyses  based on various  factors  such as
industries,  collateral types, large credit sizes, and officer portfolio loads.
The  Company  has  established  underwriting  guidelines  to be followed by its
officers,  and  exceptions are required to be approved by a senior loan officer
or the Board of Directors.  The Company monitors its delinquency levels for any
negative  or  adverse  trends.  There can be no  assurance,  however,  that the
Company's loan  portfolio will not become subject to increasing  pressures from
deteriorating borrower credit due to general or local economic conditions.

Restructured  loans include the Company's  troubled  debt  restructurings  that
involved forgiving a portion of interest or principal on any loans, refinancing
loans  at a rate  materially  less  than the  market  rate,  rescheduling  loan
payments,  or granting  other  concessions  to a borrower  due to  financial or
economic reasons related to the debtor's financial  difficulties.  Restructured
loans do not include qualifying  restructured loans that have complied with the
terms  of  their  restructure  agreement  for a  satisfactory  period  of time.
Restructured  loans in compliance  with modified  terms totaled $1.3 million at
March 31, 2007 and  December  31, 2006 all of which is  guaranteed  by the U.S.
Department of Agriculture-Rural Development. At, March 31, 2007 the Company was
not committed to lend any additional  funds to borrowers  whose terms have been
restructured.

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

The Company had loans on nonaccrual  status totaling $3.0 million,  or 0.99% of
gross loans at March 31, 2007,  $2.5 million,  or 0.80%,  at December 31, 2006,
and $1.3 million, or 0.43%, at March 31, 2006. The increase over the last three
months  is  primarily  due  to  one  residential   construction  loan  and  two
residential mortgages, all with loan to value ratios less than 75% being placed
in  nonaccrual  status.  Certain  loans in  non-accrual  status are  covered by
guarantees of U.S. Government or state agencies. Approximately $511 thousand of
the  balances in this  category  were covered by such  guarantees  at March 31,
2007. The aggregate  interest  income not recognized on such  nonaccrual  loans
amounted to approximately  $389 thousand and $270 thousand as of March 31, 2007
and 2006, respectively and $371 thousand as of December 31, 2006.

The  Company  had  $2.9  million  in loans  past due 90 days or more and  still
accruing at March 31, 2007 and $2.2 million at December 31, 2006.  The increase
between periods was mainly due to one commercial

                                      19
<PAGE>

real estate loan that has subsequently been brought current. Certain loans past
due 90 days or more and still  accruing  interest are covered by  guarantees of
U.S. Government or state agencies.  Approximately $185 thousand of the balances
in this category were covered by such guarantees at March 31, 2007.

At March 31,  2007,  and  December  31,  2006,  respectively,  the  Company had
internally  classified  certain loans  totaling $23 thousand and $319 thousand,
respectively.  In  management's  view,  such loans represent a higher degree of
risk and could  become  nonperforming  loans in the  future.  While  still on a
performing  status,  in accordance with the Company's credit policy,  loans are
internally  classified when a review indicates any of the following  conditions
makes the likelihood of collection uncertain:

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

On occasion  real estate  properties  are  acquired  through or in lieu of loan
foreclosure.  These properties are to be sold and are initially recorded at the
lesser of the recorded loan or fair value via an appraisal for more significant
properties  and  management's  estimate  for  minor  properties  at the date of
acquisition  establishing a new carrying basis.  The Company had $3 thousand of
land and $288 thousand of commercial real estate property classified as OREO at
March 31, 2007  compared to $3 thousand of land,  $98  thousand of  residential
real estate and $298  thousand of commercial  real estate  property at December
31,  2006.  The other real estate  owned was  included  in Other  Assets on the
Consolidated Balance Sheet at both time periods.

Allowance for Loan Losses.  Some of the Company's loan customers  ultimately do
not make all of their contractually  scheduled payments,  requiring the Company
to charge off a portion or all of the  remaining  principal  balance  due.  The
Company  maintains  an  allowance  for loan losses to absorb such  losses.  The
allowance is maintained at a level which, in management's judgment, is adequate
to absorb credit losses  inherent in the loan portfolio;  however,  actual loan
losses may vary from current estimates.

Adequacy of the  allowance  for loan losses is  determined  using a consistent,
systematic methodology, which analyzes the risk inherent in the loan portfolio.
In addition to evaluating the collectibility of specific loans when determining
the adequacy of the allowance,  management also takes into consideration  other
factors  such as  changes in the mix and size of the loan  portfolio,  historic
loss experience,  the amount of delinquencies  and loans adversely  classified,
industry  trends,  and the  impact  of the local and  regional  economy  on the
Company's borrowers.  The adequacy of the allowance for loan losses is assessed
by an allocation  process  whereby  specific loss  allocations are made against
certain  adversely  classified  loans and  general  loss  allocations  are made
against segments of the loan portfolio which have similar attributes. While for
internal  analytical  purposes the Company  allocates  the  allowance  for loan
losses  based on the  percentage  category to total  loans,  the portion of the
allowance  for loan losses  allocated to each  category  does not represent the
total  available  for future  losses which may occur  within the loan  category
since the total  allowance  for  possible  loan losses is a  valuation  reserve
available to cover losses in the entire portfolio.

The  allowance  for loan losses is  increased  by a provision  for loan losses,
which is charged to earnings,  and reduced by  charge-offs,  net of recoveries.
The  provision  for loan  losses  represents  the  current  period  credit cost
associated with maintaining an appropriate  allowance for loan losses. Based on
an evaluation of the loan portfolio,  management  presents a quarterly analysis
of the  allowance  for loan losses to the Board of  Directors,  indicating  any
changes  since  the last  review  and any  recommendations  as to  adjustments.
Additionally,  various regulatory  agencies  periodically  review the Company's
allowance for loan losses as an integral part of their examination process.

                                      20
<PAGE>

For the three months ended March 31, 2007,  the  methodology  used to determine
the provision for loan losses was unchanged  from the prior year. The Company's
loan portfolio  balance decreased $10.2 million or 3.3% from December 31, 2006.
There was a reduction  in the balance of all loan types  between  December  31,
2006 and March 31, 2007. The overall reduction in the loan portfolio  decreased
the  estimated  allowance  for loan  losses,  however a rise of $1.2 million in
nonperforming  loans (mainly due to one  commercial  real estate loan which has
subsequently been brought current)  increased the estimated  allowance for loan
losses.  As a result  of the  increase  in  nonperforming  loans,  the  Company
designated a loan loss  provision  for the three months ended March 31, 2007 of
$45 thousand  which,  together with net charge-offs  after  recoveries left the
allowance  for loan  losses at $3.3  million  at March 31,  2007.  There was no
material change in the lending programs or terms during the quarter.

The following table reflects  activity in the allowance for loan losses for the
three months ended March 31, 2007 and 2006:

                                     Three Months Ended, March 31,
                                     -----------------------------
                                           2007         2006
                                           ----         ----
                                        (Dollars in thousands)
Balance at beginning of period            $3,338       $3,071
Charge-offs
  Real Estate                                 30            -
  Commercial                                   -            -
  Consumer and other                          28            9
                                          ------       ------
    Total charge-offs                         58            9
                                          ------       ------
Recoveries
  Real Estate                                  7           22
  Commercial                                   1           12
  Consumer and other                           9            6
                                          ------       ------
    Total recoveries                          17           40
                                          ------       ------
Net (charge-offs) recoveries                 (41)          31
                                          ------       ------
Provision for loan losses                     45           45
                                          ------       ------
Balance at end of period                  $3,342       $3,147
                                          ======       ======

                                      21
<PAGE>

The following table shows the internal breakdown of the Company's allowance for
loan losses by category of loan (net of loans held for sale) and the percentage
of loans in each  category to total loans in the  respective  portfolios at the
dates indicated:

                                     March 31, 2007       December 31, 2006
                                   ------------------     -----------------
                                            (Dollars in thousands)
                                   Amount     Percent     Amount     Percent
                                   ------     -------     ------     -------
Real Estate
  Residential                      $  677       36.6      $  640       34.8
  Commercial                        1,908       42.5       1,901       41.7
  Construction                        263        6.7         296        7.2
Other Loans
  Commercial                          297        6.1         312        6.1
  Consumer installment                110        2.4         125        2.5
  Municipal, Other and
   Unallocated                         87        5.7          64        7.7
                                   ------      -----      ------      -----
    Total                          $3,342      100.0      $3,338      100.0
                                   ======      =====      ======      =====
Ratio of Net Charge Offs
 (Recoveries) to Average Loans
 not held for sale (1)                          0.05                  (0.03)
                                               =====                  =====
Ratio of Allowance for Loan
 Losses to Loans not held
 for sale                                       1.10                   1.06
                                               =====                  =====
Ratio of Allowance for Loan
 Losses to non-performing
 loans (2)                                     55.93                  70.26
                                               =====                  =====

--------------------
(1)   Annualized
(2)   Non-performing  loans include loans in non-accrual  status and loans past
      due 90 days or more and still accruing.

Not  withstanding  the  categories  shown in the table above,  all funds in the
allowance for loan losses are available to absorb loan losses in the portfolio,
regardless of loan category.

Management of the Company  believes that the allowance for loan losses at March
31, 2007, was adequate to cover losses inherent in the Company's loan portfolio
as of such date.  There can be no  assurance  that the Company will not sustain
losses in future periods, which could be greater than the size of the allowance
for loan losses at March 31, 2007. See CRITICAL ACCOUNTING POLICIES.  While the
Company   recognizes  that  an  economic  slowdown  may  adversely  impact  its
borrowers'  financial  performance and ultimately  their ability to repay their
loans,  management  continues to be cautiously  optimistic about the key credit
indicators from the Company's loan portfolio.

Investment  Activities.  At March 31, 2007,  the reported  value of  investment
securities  available-for-sale  was $26.5 million or 7.0% of assets. The amount
in investment  securities  available-for-sale  increased from $23.7 million, or
6.2% of assets at December  31,  2006,  as the Company  rebuilt the  investment
portfolio some in light of decreased loan demand.

The Company had no securities  classified as held-to-maturity  or trading.  The
reported value of investment  securities  available-for-sale  at March 31, 2007
reflects a negative  valuation  adjustment of $85 thousand.  The offset of this
adjustment,  net of income tax effect, was a $56 thousand loss reflected in the
Company's other  comprehensive loss component of stockholders'  equity at March
31, 2007.

At December 31, 2006, the Company had thirty-eight  debt securities with a fair
value of $15.0 million with an unrealized  loss of $400  thousand,  or 63.3% of
the value of the amortized cost of the entire  investment  portfolio,  that had
existed for more than 12 months.

                                      22
<PAGE>

At March 31, 2007,  thirty-seven  securities with a fair value of $14.3 million
or 53.9% of the  portfolio  have been in a loss  position  for more than twelve
months with unrealized  losses totaling $288 thousand.  These unrealized losses
are attributed to the interest rate environment. As increases in interest rates
have slowed down and the negative yield curve has eased some, the fair value of
the investment portfolio has improved over the end of the previous quarter. The
Company  has the  ability  to  hold  all of  these  securities,  classified  as
available-for-sale, for the foreseeable future. Management deems the unrealized
losses on the Company's securities not to be other than temporary.

Deposits.  The  following  table shows  information  concerning  the  Company's
average  deposits by account type and weighted  average  nominal rates at which
interest was paid on such  deposits for the periods  ended March 31, 2007,  and
December 31, 2006:

<TABLE>
<CAPTION>
                              Three Months Ended March 30,             Year Ended December 31,
                                          2007                                  2006
                            ---------------------------------     ---------------------------------
                                                    (Dollars in thousands)
                                         Percent                               Percent
                            Average      of Total     Average     Average      of Total     Average
                             Amount      Deposits      Rate        Amount      Deposits      Rate
                            -------      --------     -------     -------      --------     -------
<S>                         <C>           <C>          <C>        <C>           <C>          <C>
Non-time deposits:
  Demand deposits           $ 49,481       15.8           -       $ 49,328       15.9           -
  NOW accounts                50,355       16.0        0.76%        52,937       17.1        0.74%
  Money Market accounts       51,709       16.5        2.67%        56,286       18.1        2.48%
  Savings accounts            43,193       13.8        0.65%        46,061       14.8        0.60%
                            --------      -----                   --------      -----
Total non-time deposits      194,738       62.1        1.05%       204,612       65.9        1.01%
                            --------      -----                   --------      -----
Time deposits:
  Less than $100,000          74,181       23.7        4.06%        66,982       21.6        3.34%
  $100,000 and over           44,560       14.2        4.91%        38,706       12.5        4.14%
                            --------      -----                   --------      -----
Total time deposits          118,741       37.9        4.38%       105,688       34.1        3.64%
                            --------      -----                   --------      -----
Total deposits              $313,479      100.0        2.31%      $310,300      100.0        1.90%
                            ========      =====                   ========      =====
</TABLE>

The  Company's  customers  have been  opening  certificates  of deposit to take
advantage of increasing  time deposit rates as evidenced by the $5.9 million or
15.1%  increase in average  time  deposits  of  $100,000  and over and the $7.2
million or 10.7%  increase in time  deposits less than $100,000 in 2007 year to
date versus 2006.

As a participant in the Certificate of Deposit Account Registry Service (CDARS)
of Promontory  Interfinancial Network, LLC, there were $2.8 million of deposits
on the balance  sheet at March 31, 2007 which are  considered  to be "brokered"
deposits,  but those  deposits  are  matched  dollar  for dollar  with  Union's
customer  deposits which have been placed in other  financial  institutions  in
order to provide those customers with full FDIC insurance coverage.

                                      23
<PAGE>

The  following  table sets  forth  information  regarding  the  Company's  time
deposits in amounts of $100,000  and over at March 31,  2007,  and December 31,
2006, that mature during the periods indicated:

                            March 31, 2007     December 31, 2006
                            --------------     -----------------
                                   (Dollars in thousands)

Within 3 months                $23,841              $13,466
3 to 6 months                    8,870               17,254
6 to 12 months                  10,314               11,299
Over 12 months                   2,694                2,219
                               -------              -------
                               $45,719              $44,238
                               =======              =======

The shortening of the maturity time periods from December 31, 2006 to March 31,
2007 is a normal seasonal occurrence as the majority of municipal  certificates
of deposit are written for one year and mature June 30th.

Borrowings.  Borrowings  from the Federal Home Loan Bank of Boston  (FHLB) were
$15.4 million at March 31 2007, at a weighted  average rate of 4.93%, and $14.6
million at December 31, 2006, at a weighted  average rate of 4.82%.  The change
between  year end 2006 and the end of the first  quarter 2007 is a net increase
of $0.8  million  or 5.5% due  partially  to the  match  funding  of two  large
commercial real estate loans offset by monthly principal payments on amortizing
notes.

                         OTHER FINANCIAL CONSIDERATIONS

Market Risk and Asset and Liability Management. Market risk is the potential of
loss in a financial  instrument  arising from adverse changes in market prices,
interest rates,  foreign currency exchange rates,  commodity prices, and equity
prices.  The  Company's  market risk arises  primarily  from interest rate risk
inherent in its lending, investing,  deposit taking and borrowing activities as
yields on assets  change in a different  time  period or in a different  amount
from that of interest costs on liabilities.  Many other factors also affect the
Company's  exposure  to changes in  interest  rates,  such as general and local
economic and financial conditions, competitive pressures, customer preferences,
and historical pricing relationships.

The earnings of the Company and its subsidiary are affected not only by general
economic conditions, but also by the monetary and fiscal policies of the United
States and its agencies,  particularly the Federal Reserve System. The monetary
policies of the Federal  Reserve System  influence to a significant  extent the
overall growth of loans,  investments,  deposits and  borrowings;  the level of
interest  rates earned on assets and paid for  liabilities  including  interest
rates  charged on loans and paid on  deposits.  The nature and impact of future
changes in monetary policies are often not predictable.

A  key  element  in  the  process  of  managing  market  risk  involves  direct
involvement by senior  management and oversight by the Board of Directors as to
the level of risk  assumed by the  Company in its balance  sheet.  The Board of
Directors reviews and approves risk management policies,  including risk limits
and guidelines and reviews  quarterly the current  position in  relationship to
those limits and  guidelines.  Daily  oversight  functions are delegated to the
Asset Liability Management Committee ("ALCO").  The ALCO,  consisting of senior
business  and finance  officers,  actively  measures,  monitors,  controls  and
manages the  interest  rate risk  exposure  that can  significantly  impact the
Company's  financial  position and operating  results.  The ALCO sets liquidity
targets  based on the Company's  financial  position and existing and projected
economic  and market  conditions.  The  Company  does not have any market  risk
sensitive  instruments  acquired for trading purposes.  The Company attempts to
structure  its balance  sheet to maximize net interest  income and  shareholder
value while controlling its exposure to interest rate risk and strategies might
include  selling  or  participating  out  loans  held for  sale or  investments
available-for-sale. The ALCO formulates strategies to manage interest rate risk
by  evaluating  the impact on earnings  and capital of such  factors as current
interest rate  forecasts  and economic  indicators,  potential  changes in such
forecasts and  indicators,  liquidity,  and various  business  strategies.  The
ALCO's  methods for  evaluating  interest  rate risk include an analysis of the
Company's  interest rate sensitivity "gap", which provides a static analysis of
the maturity and  repricing  characteristics  of the Company's  entire  balance
sheet,  and a simulation  analysis,  which  calculates  projected  net interest
income based on alternative

                                      24
<PAGE>

balance sheet and interest rate  scenarios,  including  "rate shock"  scenarios
involving  immediate  substantial  increases  or  decreases  in market rates of
interest.

Members of ALCO meet  informally at least weekly to set loan and deposit rates,
make  investment  decisions,  monitor  liquidity  and  evaluate the loan demand
pipeline.  Deposit  runoff is monitored  daily and loan  prepayments  evaluated
monthly.  The Company  historically has maintained a substantial portion of its
loan   portfolio  on  a   variable-rate   basis  and  plans  to  continue  this
Asset/Liability  Management  (ALM)  strategy  in the  future.  Portions  of the
variable-rate loan portfolio have interest rate floors and caps which are taken
into account by the  Company's ALM modeling  software to predict  interest rate
sensitivity,  including  prepayment  risk. As of March 31, 2007, the investment
portfolio was all classified as  available-for-sale  and the modified  duration
was relatively  short. The Company does not utilize any derivative  products or
invest in any "high risk" instruments.

The Company's  interest rate sensitivity  analysis  (simulation) as of December
2006 for a flat rate  environment  (Prime at  December  31,  2006 and March 31,
2007,  was 8.25%)  projected the following for the three months ended March 31,
2007, compared to the actual results:

                                            March 31, 2007
                                 -------------------------------------
                                                            Percentage
                                 Projected     Actual       Difference
                                 ---------     ------       ----------
                                        (Dollars in thousands)
       Net Interest Income          $4,346     $4,413             1.5%
       Net Income                   $1,237     $1,235            (0.2%)
       Return on Assets              1.38%      1.31%            (5.1%)
       Return on Equity             12.37%     11.85%            (4.2%)

Actual  net  interest  income  is higher  than  projected  mainly  due to a $49
thousand interest income recovery on a troubled mortgage loan which paid off.

Commitments,  Contingent Liabilities,  and Off-Balance Sheet Arrangements.  The
Company is a party to financial instruments with  off-balance-sheet risk in the
normal course of business to meet the  financing  needs of its customers and to
reduce its own exposure to  fluctuations  in interest  rates.  These  financial
instruments  include  commitments to extend credit,  standby letters of credit,
interest rate caps and floors written on adjustable-rate loans,  commitments to
participate  in or sell loans,  and  commitments  to buy or sell  securities or
certificates of deposit. 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 these  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  management's estimate
of the  actual  exposure  to credit  loss.  The  Company  controls  the risk of
interest rate cap agreements  through credit approvals,  limits, and monitoring
procedures.

                                      25
<PAGE>

The  Company  generally  requires  collateral  or  other  security  to  support
financial  instruments  with credit risk. As of March 31, 2007 and December 31,
2006, the contract or notional amount of financial  instruments  whose contract
or notional amount represents credit risk was as follows:

                                            March 31, 2007     December 31, 2006
                                            --------------     -----------------
                                                   (Dollars in thousands)
Commitments to originate loans                 $10,082              $12,176
Unused lines of credit                          34,013               36,574
Standby letters of credit                        1,966                1,046
Credit Card arrangements                         1,554                1,457
Equity investment commitment to housing
 limited partnership                               917                  917
Commitments to purchase investment
 securities                                        349                    -
                                               -------              -------
    Total                                      $48,881              $52,170
                                               =======              =======

Commitments to originate  loans are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally  have fixed  expiration  dates or other  termination  clauses and may
require  payment of a fee. Since many of the loan  commitments  are expected to
expire without being drawn upon and not all credit lines will be utilized,  the
total commitment amounts do not necessarily represent future cash requirements.

The Company's  significant  fixed and determinable  contractual  obligations to
third parties at March 31, 2007, and December 31, 2006, were as follows:

                                            March 31, 2007     December 31, 2006
                                            --------------     -----------------
                                                   (Dollars in thousands)
Operating lease commitments                    $    292            $    316
Maturities on borrowed funds                     15,353              14,596
Deposits without stated maturity (1)            191,759             202,997
Certificates of deposit (1)                     121,751             116,825
Pension plan contributions (2)                      680                 700
Deferred compensation payouts (3)                   476                 551
Equity in housing limited partnerships                -                 356
Construction contract (4)                            20                  28
                                               --------            --------
    Total                                      $330,331            $336,369
                                               ========            ========
--------------------
(1)   While Union has a contractual  obligation to depositors  should they wish
      to  withdraw  all or some of the funds on deposit,  management  believes,
      based on historical  analysis,  that the majority of these  deposits will
      remain  on  deposit  for the  foreseeable  future.  The  amounts  exclude
      interest accrued.
(2)   Funding  requirements for pension benefits after 2007 are excluded due to
      the significant  variability in the  assumptions  required to project the
      amount and timing of future cash contributions.
(3)   The Company owns life insurance on the lives of the payees,  in an amount
      estimated by management to be sufficient to reimburse the Company for the
      deferred  compensation  payments should the Company desire to utilize the
      death benefit proceeds for that purpose. The policies have a current cash
      surrender value of $1.9 million.
(4)   Contract to install central air conditioning in one location.

The Company's  subsidiary bank is required (as are all banks) to maintain vault
cash or a noninterest bearing reserve balance as established by Federal Reserve
regulations.  The Bank's daily total reserve for the 14 day maintenance  period
including  March 31, 2007 was $332  thousand and for December 31, 2006 was $2.3
million,  both of which were  satisfied  by vault cash.  The Bank  reclassifies
transaction deposit accounts that meet certain criteria to savings accounts, in
accordance  with  Federal  Reserve  banking  regulations,  for the  purpose  of
reporting  deposits  subject to reserves to the Federal Reserve Bank of Boston.
Fluctuations  in the  number  and  balances  of  transaction  deposit  accounts
reclassified  for  reporting  deposits  subject  to  reserves  impact the total
reserve  requirement for each 14 day maintenance  period.  The Company has also
committed to maintain a noninterest bearing contracted clearing balance of $1.0
million at March 31, 2007 with the Federal Reserve Bank of Boston.

                                      26
<PAGE>

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

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

o     adjustable-rate   loans,   investment   securities,   variable-rate  time
      deposits,  and FHLB  advances  are  included  in the period when they are
      first scheduled to adjust and not in the period in which they mature;
o     fixed-rate   mortgage-related  securities  and  loans  reflect  estimated
      prepayments,  which were estimated based on analyses of broker estimates,
      the results of a prepayment model utilized by the Company,  and empirical
      data;
o     other nonmortgage related fixed-rate loans reflect scheduled  contractual
      amortization, with no estimated prepayments; and
o     NOW, money markets,  and savings deposits,  which do not have contractual
      maturities,  reflect  estimated  levels of attrition,  which are based on
      detailed  studies by the Company of the sensitivity of each such category
      of deposit to changes in interest rates.

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

                                      27
<PAGE>

The following table shows the Company's rate  sensitivity  analysis as of March
31, 2007:

<TABLE>
<CAPTION>
                                                                             Cumulative repriced within
                                                      -------------------------------------------------------------------------
                                                      3 Months     4 to 12      1 to 3       3 to 5       Over 5
                                                       or Less      Months       Years        Years        Years        Total
                                                      --------     -------      ------       ------       ------        -----
                                                                      (Dollars in thousands, by repricing date)
<S>                                                   <C>          <C>         <C>          <C>          <C>           <C>
Interest sensitive assets:
  Federal funds sold and
   overnight deposits                                 $  9,258     $     -     $      -     $      -     $       -     $  9,258
  Interest bearing deposits in banks                       198       3,157        5,328        1,273            88       10,044
  Investment securities available-for-sale (1)(3)        1,135       5,139       10,836        3,631         5,428       26,169
  FHLB Stock                                                 -           -            -            -         1,385        1,385
  Loans and loans held for sale (2)(3)                 107,745      58,118       83,020       44,839        14,303      308,025
                                                      --------     -------     --------     --------     ---------     --------
    Total interest sensitive assets                   $118,336     $66,414     $ 99,184     $ 49,743     $  21,204     $354,881

Interest sensitive liabilities:
  Time deposits                                        $48,381     $56,070     $ 16,187     $  1,113     $       -     $121,751
  Money markets                                          9,700           -            -            -     $  42,027       51,727
  Regular savings                                        3,549           -            -            -        39,312       42,861
  NOW accounts                                          12,908           -            -            -        37,916       50,824
  Borrowed funds                                         1,422         572        1,525        3,175         8,659       15,353
                                                      --------     -------     --------     --------     ---------     --------
    Total interest sensitive liabilities              $ 75,960     $56,642     $ 17,712     $  4,288     $ 127,914     $282,516

Net interest rate sensitivity gap                      $42,376      $9,772     $ 81,472     $ 45,455     $(106,710)    $ 72,365
Cumulative net interest rate
 sensitivity gap                                      $ 42,376     $52,148     $133,620     $179,075     $  72,365
Cumulative net interest rate
 sensitivity gap as a
 percentage of total assets                              11.3%       13.9%        35.5%        47.6%         19.3%
Cumulative net interest rate sensitivity
 gap as a percentage of total
 Interest sensitive assets                               11.9%       14.7%        37.7%        50.5%         20.4%
Cumulative net interest rate sensitivity
 gap as a percentage of total
 Interest sensitive liabilities                          15.1%       18.5%        47.4%        63.4%         25.7%

(1)   Investment securities available-for-sale exclude marketable equity securities with a fair value of $357 thousand that may
      be sold by the Company at any time.
(2)   Balances shown net of unearned income of $119 thousand.
(3)   Estimated repayment assumptions considered in Asset/Liability model.
</TABLE>

Simulation  Analysis.  In its  simulation  analysis,  the Company uses computer
software to simulate the  estimated  impact on net interest  income and capital
(Net Fair Value) under various  interest rate scenarios,  balance sheet trends,
and  strategies  over  a  relatively  short  time  horizon.  These  simulations
incorporate  assumptions  about balance sheet dynamics such as loan and deposit
growth,  product  pricing,   prepayment  speeds  on  mortgage  related  assets,
principal  maturities on other  financial  instruments,  and changes in funding
mix. While such  assumptions  are  inherently  uncertain as actual rate changes
rarely follow any given  forecast and  asset-liability  pricing and other model
inputs  usually  do not  remain  constant  in their  historical  relationships,
management believes that these assumptions are reasonable. Based on the results
of these simulations,  the Company is able to quantify its estimate of interest
rate risk and develop and implement appropriate strategies.

The following  chart  reflects the cumulative  results of the Company's  latest
simulation  analysis  for the next twelve  months on net interest  income,  net
income, return on assets, return on equity and net fair value ratio. Shocks are
intended to capture interest rate risk under extreme  conditions by immediately
shifting

                                      28
<PAGE>

to  the  new   level.   The   projection   utilizes  a  rate   shock,   applied
proportionately,  of up and down 300 basis points from the March 31, 2007 prime
rate of 8.25%, this is the highest and lowest internal slopes  monitored.  This
slope range was determined to be the most relevant during this economic cycle.

<TABLE>
<CAPTION>
                              INTEREST RATE SENSITIVITY ANALYSIS MATRIX
                                       (Dollars in thousands)
                                                                Return on     Return on     Net Fair
12 Months     Prime      Net Interest     Change      Net        Assets        Equity        Value
 Ending        Rate         Income          %        Income         %             %          Ratio
<S>           <C>          <C>            <C>        <C>          <C>           <C>          <C>
March-08      11.25%       $20,178         12.0      $7,052       1.88          16.4          9.0%
               8.25%       $18,024         0.00      $5,560       1.41          12.6         11.1%
               5.25%       $15,717        (12.8)     $3,963        .89           8.2         12.5%
</TABLE>

The resulting  projected  cumulative  effect of these estimates on net interest
income and the net fair value ratio for the twelve  month  period  ending March
31, 2008, are within approved ALCO guidelines for interest rate risk for a flat
up 300  basis  point  rate  environment  but in a down  300  basis  point  rate
environment  both  Return on Assets  and  Return  on  Equity  are below  policy
guidelines.  The  simulations  of earnings do not  incorporate  any  management
actions,  which might  moderate  the  negative  consequences  of interest  rate
deviations.  Therefore, they do not reflect likely actual results, but serve as
conservative estimates of interest rate risk under different rate scenarios.

Liquidity.  Managing  liquidity risk is essential to maintaining both depositor
confidence  and  stability  in  earnings.  Liquidity  is a  measurement  of the
Company's  ability  to meet  potential  cash  requirements,  including  ongoing
commitments to fund deposit withdrawals,  repay borrowings, fund investment and
lending  activities,  and for other general  business  purposes.  The Company's
principal  sources of funds are deposits,  amortization and prepayment of loans
and  securities,  maturities  of  investment  securities  and other  short-term
investments,  sales of securities  and loans  available-for-sale,  earnings and
funds provided from operations.  Maintaining a relatively  stable funding base,
which is  achieved  by  diversifying  funding  sources,  competitively  pricing
deposit  products,  and  extending  the  contractual  maturity of  liabilities,
reduces the Company's exposure to rollover risk on deposits and limits reliance
on volatile  short-term  purchased funds.  Short-term  funding needs arise from
declines in deposits or other  funding  sources,  funding of loan  commitments,
draws on unused  lines of credit  and  requests  for new loans.  The  Company's
strategy is to fund assets, to the maximum extent possible,  with core deposits
that provide a sizable source of relatively  stable and low-cost funds. For the
quarter ended,  March 31, 2007, the Company's ratio of average loans to average
deposits was 98.7% compared to the prior year of 100.6%.

In addition,  as Union Bank is a member of the FHLB of Boston, it has access to
an unused  line of credit up to $4.6  million at March 31,  2007 over and above
the term  advances  already drawn on the line based on FHLB estimate as of that
date and with the purchase of required  capital stock that amount would rise to
$37.8 million.  This line of credit could be used for either short or long term
liquidity or other needs.  In addition to its borrowing  arrangements  with the
FHLB of Boston,  Union Bank maintains a $7.5 million pre-approved Federal Funds
line of credit with an upstream  correspondent bank and a repurchase  agreement
line with a selected  brokerage  house.  There were no balances  outstanding on
either line at March 31, 2007.  Union is a member of the Certificate of Deposit
Account Registry Service ("CDARS") of Promontory  Interfinancial  Network which
allows  Union  to  provide  higher  FDIC  deposit  insurance  to  customers  by
exchanging  deposits with other  members and allows Union to purchase  deposits
from other  members  as  another  source of  funding.  There were no  purchased
deposits  at either  March 31, 2007 or December  31,  2006  although  Union had
exchanged $2.8 million and $2.5 million, respectively, with other CDARS members
as of those dates.

While  scheduled loan and securities  payments and FHLB advances are relatively
predictable  sources  of  funds,  deposit  flows and  prepayments  on loans and
mortgage-backed  securities are greatly  influenced by general  interest rates,
economic  conditions,  and  competition.  The  Company's  liquidity is actively
managed on a daily basis, monitored by the ALCO, and reviewed periodically with
the subsidiary's Board of Directors.  The Company's ALCO sets liquidity targets
based on the Company's  financial condition and existing and projected economic
and market  conditions.  The ALCO measures the Company's  marketable assets and
credit  available to fund liquidity  requirements  and compares the adequacy of
that aggregate

                                      29
<PAGE>

amount  against the  aggregate  amount of the Company's  interest  sensitive or
volatile  liabilities,  such as core  deposits  and time  deposits in excess of
$100,000,  borrowings  and term  deposits  with  short  maturities,  and credit
commitments  outstanding.  The  primary  objective  is to manage the  Company's
liquidity  position  and  funding  sources  in order to ensure  that it has the
ability  to meet  its  ongoing  commitment  to its  depositors,  to  fund  loan
commitments  and  unused  lines of  credit,  and to  maintain  a  portfolio  of
investment securities.

The Company's  management monitors current and projected cash flows and adjusts
positions as  necessary  to maintain  adequate  levels of  liquidity.  Although
approximately  85% of the  Company's  time  deposits  will mature within twelve
months,  management believes,  based upon past experience,  (percentage of time
deposits  to mature  within  twelve  months has ranged from 72% to 84% over the
preceding seven years) the relationships  developed with local  municipalities,
and the  introduction  of new deposit  products  in 2005,  that Union Bank 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.  The  inverted  yield  curve for the last nine  months  and the
proliferation  of  certificate  of deposit  specials  have  contributed  to the
shortening of the  maturities in time  deposits.  A reduction in total deposits
could  be  offset  by  purchases  of  federal  funds,  purchases  of  deposits,
short-or-long-term  FHLB  borrowings,  utilization of the repurchase  agreement
line, or liquidation of investment securities, purchased brokerage certificates
of deposit or loans held for sale.  Such steps  could  result in an increase in
the Company's  cost of funds and adversely  impact the net interest  spread and
margin.  Management  believes the Company has sufficient  liquidity to meet all
reasonable  borrower,  depositor,  and creditor  needs in the present  economic
environment.  However,  any  projections  of  future  cash  needs and flows are
subject  to   substantial   uncertainty.   Management   continually   evaluates
opportunities  to  buy/sell  securities  and loans  available-for-sale,  obtain
credit facilities from lenders, or restructure debt for strategic reasons or to
further strengthen the Company's financial position.

Capital Resources.  Capital management is designed to maintain an optimum level
of capital in a cost-effective  structure that meets target regulatory  ratios;
supports  management's  internal  assessment  of  economic  capital;  funds the
Company's  business  strategies;   and  builds  long-term   stockholder  value.
Dividends are generally increased in line with long-term trends in earnings per
share growth and conservative  earnings  projections,  while sufficient profits
are retained to support anticipated business growth, fund strategic investments
and provide continued support for deposits.

The total dollar value of the Company's  stockholders' equity was $42.0 million
at March 31,  2007,  reflecting  net income of $1.2 million for the first three
months of 2007, less cash dividends paid of $1.3 million, the purchase of 1,563
shares of Treasury stock totaling $34 thousand,  and a decrease of $98 thousand
in accumulated other comprehensive  loss,  compared to stockholders'  equity of
$41.9 million at year end 2006.

Union  Bankshares,  Inc.  has 5 million  shares of $2.00 par value common stock
authorized.  As of March 31, 2007, the Company had 4,918,611 shares issued,  of
which 4,530,414 were outstanding and 388,197 were held in Treasury.

The Board of Directors has authorized the repurchase of up to 100,000 shares of
common stock, or approximately 2.2% of the Company's outstanding shares, for an
aggregate  repurchase  cost  not  to  exceed  $2.15  million.   Shares  can  be
repurchased  in the open market or in negotiated  transactions.  The repurchase
program is open for an  unspecified  period of time.  As of March 31,  2007 the
Company had  repurchased  1,563 shares under this program,  for a total cost of
$34  thousand,  year to date and 27,249 shares at a total cost of $576 thousand
since the inception of the program.

As of March 31, 2007, there were outstanding  employee  incentive stock options
with respect to shares of the Company's common stock, granted pursuant to Union
Bankshares'  1998 Incentive Stock Option Plan. As of such date,  12,825 options
were currently exercisable but only 3,325 of those options were "in the money".
Of the 75,000 shares authorized for issuance under the 1998 Plan, 45,450 shares
remain available for future option grants. During the first quarter of 2007, no
incentive stock options were granted or exercised pursuant to the 1998 plan.

                                      30
<PAGE>

Union Bankshares, Inc. and Union Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Management believes,
as  of  March  31,  2007,  that  both  companies  meet  all  capital   adequacy
requirements  to which they are subject.  As of March 31, 2007, the most recent
calculation  categorizes  Union Bank as well  capitalized  under the regulatory
framework for prompt  corrective  action.  The prompt corrective action capital
category  framework  applies to FDIC insured  depository  institutions  such as
Union  but  does not  apply  directly  to bank  holding  companies  such as the
Company.  To be  categorized  as well  capitalized,  Union  Bank must  maintain
minimum total risk-based,  Tier I risk-based, and Tier I leverage ratios as set
forth in the table  below.  There are no  conditions  or events since March 31,
2007, that management believes have changed either company's category.

Union Bank's and the Company's  actual  capital  amounts and ratios as of March
31, 2007, are 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
                                                                    (Dollars in thousands)
<S>                                        <C>         <C>        <C>         <C>       <C>         <C>
Total capital to risk weighted assets
  Union Bank                               $45,819     17.49%     $20,958     8.0%      $26,197     10.0%
  Company                                  $46,214     17.60%     $21,006     8.0%          N/A       N/A
Tier I capital to risk weighted assets
  Union Bank                               $42,473     16.22%     $10,474     4.0%      $15,711      6.0%
  Company                                  $42,860     16.32%     $10,505     4.0%          N/A       N/A
Tier I capital to average assets
  Union Bank                               $42,473     11.33%     $14,995     4.0%      $18,744      5.0%
  Company                                  $42,860     11.42%     $15,012     4.0%          N/A       N/A
</TABLE>

Regulatory Matters. The Company and Union are subject to periodic  examinations
by the various regulatory  agencies.  These examinations  include,  but are not
limited to, procedures  designed to review lending practices,  risk management,
credit quality,  liquidity,  compliance and capital  adequacy.  During 2006 the
Securities and Exchange  Commission,  the Vermont State  Department of Banking,
the Federal  Deposit  Insurance  Corporation,  and the Federal  Reserve Bank of
Boston  performed  various  examinations  of the Company and Union  pursuant to
their  regular,  periodic  regulatory  reviews.  No comments were received from
these various bodies that would have a material adverse effect on the Company's
liquidity, financial position, capital resources, or results of operations.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Information   called  for  by  this  item  is   incorporated  by  reference  in
Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  under the  caption  "OTHER  FINANCIAL  CONSIDERATIONS"  on pages 24
through 31 in this Form 10-Q.

Item 4.  Controls and Procedures.

The Company's chief executive  officer and chief  financial  officer,  with the
assistance of the Disclosure Control Committee,  evaluated the effectiveness of
the design and operation of the Company's  disclosure  controls and  procedures
(as  defined in Rule  13a-15(e)  under the  Exchange  Act) as of the end of the
period covered by this report and concluded that those disclosure  controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports  that it files or submits  under the Exchange Act is
recorded, processed,  summarized and reported within the time periods specified
in the  Securities  and  Exchange  Commission's  rules  and  forms.  Disclosure
controls and procedures include,  without  limitation,  controls and procedures
designed to ensure that information  required to be disclosed by the Company in
the reports that it files with the Commission is accumulated

                                      31
<PAGE>

and communicated to the Company's management, including its principal executive
and principal financial officers,  or persons performing similar functions,  as
appropriate to allow timely decisions regarding required disclosure.

PART II  OTHER INFORMATION

Item 1.  Legal Proceedings.

There  are no known  pending  legal  proceedings  to which the  Company  or its
subsidiary is a party,  or to which any of their  properties is subject,  other
than ordinary  litigation arising in the normal course of business  activities.
Although the amount of any ultimate  liability with respect to such proceedings
cannot be determined, in the opinion of management, any such liability will not
have a material effect on the  consolidated  financial  position of the Company
and its subsidiary.

Item 1A.  Risk Factors.

There have been no material  changes in the  Company's  risk factors from those
previously  disclosed in the Company's  Annual Report on Form 10-K for the year
ended December 31, 2006.

Item 2.  Unregistered Sales of Securities and Use of Proceeds.

<TABLE>
<CAPTION>
                                          ISSUER PURCHASES OF EQUITY SECURITIES
------------------------------------------------------------------------------------------------------------------------
                                                                                                    Maximum Number of
                                                                                                  Shares that May Yet Be
                                                           Total Numbers of Shares Purchased         Purchased Under
                  Total Number of      Average Price      as Part of Publicly Announced Plans          the Plans or
   Period         Shares Purchased     Paid per Share               or Programs (1)                      Programs
------------------------------------------------------------------------------------------------------------------------
<S>                    <C>                 <C>                           <C>                              <C>
January 2007              81               $21.25                           81                            74,233
February 2007             15               $21.84                           15                            74,218
March 2007             1,467               $21.50                        1,467                            72,751

(1)   Since November 18, 2005, the Company has maintained an informal  stock  repurchase  program  pursuant to which the
      Company may  repurchase  up to $2.15  million or 100,000  shares of common  stock,  or  approximately  2.2% of the
      Company's  outstanding  shares.  Shares can be repurchased in the open market or in negotiated  transactions.  The
      repurchase  program is open for an  unspecified  period of time. As of March 31, 2007 the Company had  repurchased
      1,563 shares under this program for a total cost of $34 thousand during 2007. Since inception of the program,  the
      Company has repurchased 27,249 shares at a total cost of $576 thousand.
</TABLE>

                                                           32
<PAGE>

Item 6.  Exhibits.


      31.1    Certification of the Chief Executive  Officer pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002.
      31.2    Certification of the Chief Financial  Officer pursuant to Section
              302 of the Sarbanes-Oxley Act of 2002.
      32.1    Certification of the Chief Executive  Officer pursuant to Section
              906 of the Sarbanes-Oxley Act of 2002.
      32.2    Certification of the Chief Financial  Officer pursuant to Section
              906 of the Sarbanes-Oxley Act of 2002.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  the
Registrant  has duly  caused  this  Report to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

May 11, 2007                     Union Bankshares, Inc.

                                 /s/ Kenneth D. Gibbons
                                 -------------------------------------
                                 Kenneth D. Gibbons
                                 Director, President and
                                 Chief Executive Officer

                                 /s/ Marsha A. Mongeon
                                 -------------------------------------
                                 Marsha A. Mongeon
                                 Chief Financial Officer and Treasurer
                                 (Principal Financial Officer)

                                      33
<PAGE>

                                 EXHIBIT INDEX


31.1    Certification of the Chief Executive Officer pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002.
31.2    Certification of the Chief Financial Officer pursuant to Section 302 of
        the Sarbanes-Oxley Act of 2002.
32.1    Certification of the Chief Executive Officer pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002.
32.2    Certification of the Chief Financial Officer pursuant to Section 906 of
        the Sarbanes-Oxley Act of 2002.

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