2019 UFS BANCORP ANNUAL REPORT

15 2019 UFS BANCORP ANNUAL REPORT 15 15 15

STRENGTH STABILITY 15 INTEGRITY

49 Church Street, Whitinsville, MA 01588 • 800.578.4270 • www.unibank.com Member FDIC/ Member DIF • Equal Housing Lender • UniBank NMLS15 #583135 A Message From the CEO

I am both honored and humbled to present the their dreams come true. That is part of what it 2019 UniBank for Savings Annual Report to you. means for us to Bank Different – Bank Unique. I began my tenure at UniBank on July 15th of this In joining UniBank, I join a strong community year. Growing up as a Worcester kid, and with asset with employees (Team UniBank) that are great-grandparents who staffed the mills in loyal and manifest the essence of who we are as Slatersville in the late 1800’s, it is great to be back a community bank. The Board of Directors is home living and working in a community which among the finest governing Boards I have seen in helped form me as a person. Throughout my life, my career. I am privileged to be joined by Christo- I have aligned myself with institutions that are pher Foley, President and Justine DeNorscia, Ex- mission focused, with long and storied histories ecutive Vice President and Director of Government of serving their communities. UniBank ranks Banking. The combined dimensions of UniBank, high among them. made for a successful and growth-filled 2019, At UniBank we pride ourselves on serving the and positions us well for our future. communities we live in. While we do provide serv- ices – that is the transactional part of our busi- Sincerely, ness which we do extremely well, serving the community is different. Serving – at its core is transformational. We assist individuals, small and Michael W. Welch large businesses, and municipalities in making Chief Executive Officer

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Strength

and and

remain independent and focused on our mission to serve you as friend, neighbor friend, as you serve to mission our on focused and independent remain

That has been our mission throughout the years, and will continue to guide us. We us. guide to continue will and years, the throughout mission our been has That

who and where we are today: we where and who

“1.7 billion strong, 100% local” is no mere catch phrase. catch mere no is local” 100% strong, billion “1.7

banking all the while providing the security that is needed. needed. is that security the providing while the all banking

grade will provide even greater flexibility to our customers in how they approach they how in customers our to flexibility provideeven greater will grade

a signi a

both value and appreciate this balanced approach. In 2019 UniBank embarked on embarked UniBank 2019 In approach. balanced this appreciate and value both

apart from banks that are either much smaller or much larger than us. Customers us. than larger much or smaller much are either that banks from apart

in the market place, and allows us to serve our customers in a manner that sets us sets that manner a in customers our serve to us allows and place, market the in

with a cutting edge and robust technology platform positions us ahead of others of ahead us positions platform technology robust and edge cutting a with

UniBank recognizes that our personal relationship approach to banking combined banking to approach relationship personal our that recognizes UniBank

million at year end a $9.7 million or 6.5% increase over 2018. increase 6.5% or million $9.7 a end year at million

billion, a $23 million, or 1.5% increase over 2018. Retained earnings totaled $160.1 totaled earnings Retained over 2018. increase 1.5% or million, $23 a billion,

of $100 million, or an 8% increase year over year year. $1.6 increase at year 8% the an or ended million, Deposits $100 of

loans and deposits. Our loan portfolio ended the year at $1.38 billion, an increase an billion, $1.38 at year the ended portfolio loan Our deposits. and loans

To that end, UniBank experienced another successful year of performance for both for performance of year successful another Toexperienced UniBank end, that

importantly, so will our comunities. importantly,our will so

and values focused on helping others, that UniBank will be successful and more and successful be will UniBank that others, helping on focused values and

tomers and our employees will reach their dreams. We believe acting with integrity, with We acting believe dreams. their reach will employees our and tomers

– that is central to our identity. With that as a guiding principal, we believe our cus our believe we principal, identity. guiding our a to as that central is With that –

achieve but how we achieve success. It is that notion of putting the customer customer the putting of notion that is It success. achieve we how but achieve

We like to think of ourselves as a a as ourselves of Wethink like to

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nancial partner. nancial

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cant system upgrade which will conclude at the end of Q1 2020. This up This 2020. Q1 of end the at conclude will which upgrade system cant

fi nancially strong and locally owned and committed. and owned locally and strong nancially Banking andMichaelWelch, ChiefExecutive Of Ex Christopher Foley, President, JustineDeNorscia,

ecutive VicePresident, Director ofGovernment

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nancial institution focused not only on what we what on only not focused institution nancial

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It succinctly sums up sums succinctly It

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cer.

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t 3 Retail Banking

After providing financial solutions for a cen- rate mortgages, refinances, home equity tury and a half we’ve come to think of our- loans and lines of credit, consumers loans selves as THE bank for our customers’ and more. lifetime. Fo r many of our customers, their relationship began with a simple passbook UniBank customers come to us for more and evolved over time to include a checking than competive rates. The enjoy the expert- account, online banking, a mortgage loan ise, attention to detail and superior service or perhaps retirement planning. Regardless that UniBank consistantly provides. of where you are in your financial life cycle, UniBank has both the solution and expert- ise to help you meet your financial goals. Commercial Lending

Just as our customers’ needs are diverse, We are pleased to report that UniBank so are their ways of accessing information. was once again named the Best Bank for Some prefer the immediacy of electronic Business in Central Massachusetts by banking such as mobile or online banking. the Worcester Business Journal readers. Others want a voice at the end of a phone We believe earning this distinction for the and still others enjoy visiting a local branch. last several years is a testament that our At UniBank, we provide access any way our client-focused approach in providing customers want it. custom solutions is what area busi- nesses, not-for-profits and real estate This philosophy has served us well as ev- professionals want. idenced by continuous year-over-year growth. During 2019, retail deposits We continue to put our clients first, pro- ended the year at $697 million, with viding personal financial solutions focus- growth of 13.5% over the prior year. Net ing on what’s right for their success rather checking accounts grew by 3.5% than what’s in it for us. We believe build- ing strong, long-term relationships is the key to a successful community and is Mortgage and Consumer Lending what sets us apart from other area banks. By combining the best bankers in the re- Following the trend set in prior years, 2019 gion with cutting edge technology we are was another busy year for retail lending with able to work successfully with clients 430 new mortgage both small and large.

Stability loans totaling almost Retained Earnings $150 million and 712 This approach has $150,000 consumer loans total- helped our Com- ing $154 million. 120,000 mercial banking Those loans include team generate 90,000

THOUSANDS well over $160 mil- construction loans, IN

lion in new loan fixed and variable 60,000 30,000 DOLLARS 2016 2017 2018 2019

4 5 Integrity 178 Invest Worces tomers have opened inception, 152cus three years sinceits cessful year. Inthe another highlysuc program completed responsible banking UniBank’s socially Invest Worcester, Invest Worcester continuestoinvest an emphasisonservice. that are pricedaffordably – always with the latesttechnology-basedproducts we satisfyallofthoseneedsby offering ready toassistwhenneeded.At UniBank well asenhancedsecurity, andstaff have accurate,real-time information,as manage theircashflowitiscriticalto posits. To continuetohelpcustomers saw anincrease of13%indemandde come commercial depositgrowth. 2019 Along withnewlendingrelationships Treasury Management port folio over 2018. just under$7,000,000,a13%increase inthe total loanvolume forsmallbusiness was tions to71smallbusi nesses in2019.The Group loanof ferings helpedprovide solu local economy. OurSmallBusinessBanking tance oftherole smallbusinessplays inour At UniBankweare mindfuloftheimpor Small BusinessLending lion to$61millionor9%, Commercial depositsgrew from $56mil ing commitments in 60%increase over theprioryear while

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2019, astagger

DOLLARS IN THOUSANDS $70,000 60,000 10,000 20,000 30,000 40,000 50,000

2016

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2017 6 toWorcester.job opportunities in growing businesseswewillbringbetter our equipment, workingcapitalandmore. Itis vided forexpansion,relocations, new loans. Loansandlinesofcredit were pro grew by 60%toover $21.6inclosed growth withinInvest Worcester. Loans was anotherimpressive year forloan Following the trend setlastyear, 2019 munity development. ership, businessdevelopment andcom Worcester withintheareas ofhomeown community by providing 91loansin made apositive impactontheWorcester Since itslaunch,Invest Worcester has and communitydevelopment. ownership, smallbusinessdevelopment vorable termswithinWorcester forhome turn leveraged to provide loanswithfa their excess funds.Thesefundsare in nesses lookingforagoodinvestment for saving theirweeklyallowancetobusi place tolive. Depositorsrangefrom kids Bank tohelpmake Worcester abetter and non-pro all walksoflife. Individuals,businesses Depositors toInvest Worcester represent crease of20%. grown to$4,001,595,ayear-over-year in ter savings accountsanddepositshave

2018 fi rm beliefthatby continuingtoinvest

Revenue

2019 fi ts are withUni partnering

UniBank’s underwrit program mustmeet Invest Worcester through UniBank’s lion. Allloansmade taling over $5.2mil year inWorcester to loans were made last to report 24mortgage W

e are alsopleased

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7 ing requirements and be repaid so new our core system to determine whether it loans can be made to other qualifying indi- had the capacity to support both our fu- viduals, businesses, and non-profits. ture growth and the demands of an ever- changing technological world. Collectively we determined an overhaul was needed. Government Banking This kicked off an exhaustive search of potential partners. Again, virtually every UniBank has a state-wide presence department participated in the interview through our municipal banking division. We process. After careful consideration, we continue to provide banking services to chose COCC as the company best able to over 90% of the municipalities in Massa- fit our needs for both today and for years chusetts, ending the year with $918 million to come. With our partner selected, our in average deposits. system upgrade was underway with a “go live” date of March 9, 2020. UniPay, UniBank’s proprietary online payment solution, continues to be pop- Once completed, customers will enjoy a ular with municipalities while contribut- more robust and user-friendly online ing significant fee income to the UniBank banking and mobile banking experience franchise. During 2019, receipts grew by as well as real-time reporting. Mobile 19.7% from $671 million to $805 million. banking will offer fast balances with detail on your last five transactions as well as UniPay makes it easy for city and town res- quick and easy debit card management idents to pay real estate and excise taxes at your fingertips, including the ability to online, school fees and more online, 24/7. “hot card” your debit card, right from your UniPay also provides robust reporting, giv- phone. Online account opening is stream- ing municipalities the ability to slice and lined with a consistent look and feel dice data and provide custom, real-time re- across platforms. And there are more ex- porting. Now in its 16th year, UniPay had a citing features to come. profitable year with income growth of 17%. Registered users grew by 13% while trans- actions grew by 11%. Security: Keeping your relationship safe

Technology: Bringing it all In today’s environment of ever evolving together for our customers cyber threats it is critical to keep pace with the latest tech- In 2017, we gathered Loans nology. Our Technol- together staff from $1,400 ogy department every department in 1,200 works 24/7 to do the bank. Together just that. A critical 1,000 we asked ourselves part of UniBank’s

MILLIONS 800 some hard questions IN system upgrade in-

and spent consider- 600 volves enhanced able time analyzing 400 security.

DOLLARS 200

2016 2017 2018 2019

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t Klara Carter, Vice President, Business Banking Officer, UniBank and Lionell D. Thompson Jr., Principal, Icarus Construction Services, LLC .

UniVest bond market. Fee income was approxi- mately $2 million. Bond issues generated Our Subsidiaries 67% of that income with temporary fi- The well-planned conversion from Infinex nancing and serial state house notes ac- Financial Group to LPL Financial took counting for the remainder. place at the end of February 2019 and ap-

proximately 98% of clients and assets

successfully transferred to LPL. The LPL online account opening procedures and Sterling Financial electronic signatures provided by Docu- Sign offer ease in account opening and Sterling Financial had a highly successful convenience to our customers. year, reporting record revenue of just under Investing in Our Community Seven Hills Foundation, Open Sky, the $4 million revenue and generating over a Blackstone Valley Education Foundation, the By the end of 2019 through the combina- quarter billion in new loans. Sterling also Worcester Art Museum and many more. At UniBank we have a long-established his- tion of new business and improved stock contributed $90 million to the UniBank tory of giving back locally. Our philosophy of market conditions, the total assets topped Consumer Loan portfolio. community involvement permeates the en- We were also very excited to be among $100,000,000 for the first time. We ended tire UniBank franchise. the founding partners of the WooSox, the year at approximately $108MM. Last year’s operating system upgrade was scheduled to pitch its first ball at Polar expanded to include a critical compliance Our employees can be seen volunteering at Park in 2021. Sales revenue generated in 2019 reached component. Sterling opened a new territory local food drives, walks, on the ball field, in $347,000.. in Charleston to serve the Carolinas and the classroom and so much more. Each year Georgia and added a new lender in Florida. they dig deep in their pockets to support the Looking Ahead United Way campaign and walk to raise UniBank Fiscal Advisory Sterling also sponsored and attended 31 trade shows and fishing tournaments money for agencies like the March of Dimes, What will the future bring? We plan to Associates Incorporated all in their free time. They donate to “Friday continue providing the best in banking. across the US.

Jeans Days” to provide funds to charities We will look for more ways to make your UniBank Fiscal Advisory Associates that touch their hearts. interactions with UniBank easy, conven- (UFASI) continues to serve as financial ad- ient and coupled with the outstanding visor to 314 government entities in Mas- UniPay UniBank contributed significantly as well by service you’ve come to expect. We will sachusetts, Connecticut, New Hampshire, UniPay hired its first dedicated business providing nearly $600,000 in donations and continue to seek out the latest technol- Maine and Rhode Island. Six new clients sales person. As such, UniPay had a busy sponsorships to organizations such as local ogy and security to keep your relation- were added in 2019, including Town of He- year and made many inroads to area busi- libraries, food banks, local sports and health ship with us safe and secure. bron which was our second client in Con- nesses and municiipalities, resulting in organizations as well as $46,000 in college necticut. Of this client base 210 actively several new clients. Almost $100 million scholarships to area students. As a viable organization we expect further financed 406 issues with an aggregate par of $1.322 billion. It was a busy, exciting payments were processed through the growth and expan- and productive year for UFASI which re- UniPay system generating $1.7 in fee in- UniBank also contin- Total Deposits sion while still re- $1,600 sulted in approximately $645,000 net in- come for UFS Bancorp. UniPay is a propri- ued to support the maining true to our etary online payment solution developed 1,400 come exceeding 2018 levels by 80%. Whitin Community core as a community by UniBank that provides area businesses 1,200 Center, Milford Re- bank, committed to a secure way to accept online payments.

MILLIONS Much of UFASI’s success was driven by a gional Hospital, 1,000 you: our friends, UniPay also offers customizable and real-

IN Hanover Theatre, 800 neighbors and loyal favorable interest rate environment cou- time reporting to aid businesses and not- Peace of Bread, the 600 customers. pled with other positive economic condi- for-profits in streamlining their cashflow. tions incenting an active capital projects Greenway Challenge, 400 DOLLARS 200

2016 2017 2018 2019

10 11 Financials

UFS Bancorp and Subsidiary UFS Bancorp and Subsidiary Consolidated Statements of Condition Consolidated Statements of Income December 31 Twelve months ended December 31 (Dollars in Thousands) (Dollars in Thousands) 2019 2018 2019 2018 ASSETS Interest and dividend income: Cash and due from banks $ 4,283 $ 4,589 Loans, including fees $ 55,447 $ 49,069 Debt securities 6,150 6,128 Interest-bearing deposits 80,193 132,897 Equity securities 109 150 Short-term investments 11 7 Interest- bearing deposits and short-term Total cash and cash equivalents 84,487 137,493 investments 3,659 2,332 Total interest and dividend income 65,365 57,679 Securities available for sale, at fair value 236,816 257,754 Interest expense: Securities held to maturity 8,055 33,017 Deposits 12,339 8,438 Federal Home Loan Bank stock, at cost 1,498 3,425 Federal Home Loan Bank advances 7 71 Loans held-for-sale 530 - Total interest expense 12,346 8,509 Loans, net of allowance for loan losses of $13,990 in 2019 and $13,663 in 3018 1,381,788 1,280,860 Net interest income 53,019 49,170 Premises and equipment, net 18,813 19,437 Accrued interest receivable 3,297 3,607 Provision for loan losses 5,543 3,250 Deferred income taxes 8,052 9,079 Net interest income, after provision Bank-owned life insurance 9,057 8,838 for loan losses 47,476 45,920

Repossessed assets 2,665 4,045 Non-interest income: Other assets 12,092 5,060 Customer service fees 5,423 5,100 Loan referral fees 2,664 3,667 Total Assets $1,767,150 $1,762,615 Fiscal advisory service fees 2,422 2,004 Gain on sale of securities, net - - LIABILITIES AND RETAINED EARNINGS Gain on sale of loans, net 408 180 Deposits $1,591,723 $1,568,589 Other 2,389 726 Federal Home Loan Bank advances - 38,000 Total non-interest income 13,306 11,677 Mortgagors' escrow accounts 1,667 1,471 Non-interest expenses: Accrued expenses and other liabilities 13,905 10,473 Salaries and employee benefits 25,726 25,726 Total liabilities 1,607,295 1,618,533 Occupancy and equipment 7,496 7,171 Professional services 1,996 1,561 Retained earnings 160,127 150,414 Data processing services 2,294 2,272 Accumulated other comprehensive income (272) (6,332) FDIC deposit insurance 934 1,329 Total retained earnings 159,855 144,082 Advertising and marketing 1,855 1,842 Other general and administrative 7,797 4,797 Total non-interest income 48,098 44,248 Total liabilities and retained earnings $1,767,150 $1,762,615 Income before income taxes 12,684 13,349

Provision for income taxes 2,971 3,060

Net income $ 9,713 $ 10,289

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