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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q


ý		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2013
or
o		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to .

333-188193-1
Commission File Number

UNION BANCORP, INC.
(Exact name of registrant as specified in its charter)


Pennsylvania (State or other jurisdiction of incorporation or organization)		23-2430490 (IRS Employer Identification Number)

25 S. Centre Street, Pottsville, PA 17901
(Address of principal executive offices)

Registrant's telephone number: 570-622-3011

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 o NO ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company ý

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 506,513 shares of Common Stock, par value $1.00 per share, outstanding as of September 18, 2013.

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UNION BANCORP, INC.

INDEX TO FORM 10-Q

		PAGE

PART I. Financial Information
Item 1.	Financial Statements:	3
	Consolidated Balance Sheets at June 30, 2013 (unaudited) and December 31, 2012 (audited)	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2013 and 2012 (unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2013 and March 31, 2013 (unaudited)	5
	Consolidated Statements of Shareholders' Equity for the Six Months Ended June 30, 2013 and 2012 (unaudited)	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2013 and 2012 (unaudited)	7
	Notes to Consolidated Financial Statements (unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 4.	Controls and Procedures	42
PART II. Other Information
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3.	Defaults Upon Senior Securities	43
Item 4.	Mine Safety Disclosures	43
Item 5.	Other Information	43
Item 6.	Exhibits	43
SIGNATURES		44
Exhibit Index		45
Certifications

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PART I. FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UNION BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)	June 30, 2013			December 31, 2012

Assets
Cash and due from banks	$	10,502		$	10,085
Federal funds sold		3,000			3,000

Cash and cash equivalents		13,502			13,085
Interest bearing time deposits with banks		988			988
Investment securities available for sale, at fair value		29,994			31,086
Loans, net of unearned income		74,274			73,935
Less allowance for loan losses		1,315			1,182

Net Loans		72,959			72,753
Federal Home Loan Bank stock, at cost		195			176
Bank owned life insurance		1,383			1,691
Premises and equipment, net		1,169			1,212
Real estate owned		63			68
Deferred tax asset		1,060			666
Prepaid FDIC insurance assessment		—			295
Other assets		1,408			1,759

Total Assets	$	122,721		$	123,779

Liabilities and Shareholders' Equity
Liabilities
Deposits:
Noninterest-bearing demand	$	27,093		$	29,672
Savings and interest-bearing demand		49,001			46,997
Time		35,582			35,234

Total deposits		111,676			111,903
Other liabilities		1,209			1,161

Total Liabilities		112,885			113,064

Shareholders' Equity
Common stock, par value $1.00 per share; 2,000,000 shares authorized; issued 595,238 shares in 2013 and 2012; outstanding 506,513 shares in 2013 and 2012		595			595
Surplus		1,694			1,694
Retained earnings		11,123			11,337
Accumulated other comprehensive loss, net of tax		(1,079	)		(414	)
Treasury stock, at cost 88,725 shares		(2,497	)		(2,497	)

Total Shareholders' Equity		9,836			10,715

Total Liabilities and Shareholders' Equity	$	122,721		$	123,779

The accompanying notes are an integral part of these consolidated financial statements.

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UNION BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,

(In thousands, except share data)	2013		2012			2013			2012
Interest Income
Loans, including fees	$	809	$	895		$	1,622		$	1,794
Investment securities—taxable		212		259			400			491
Investment securities—tax exempt		5		5			11			11
FHLB deposits		4		4			7			5
Other		5		—			9			—

Total Interest Income		1,035		1,163			2,049			2,301

Interest Expense
Deposits		117		110			232			208

Total Interest Expense		117		110			232			208

Net Interest Income before Provision for Loan Losses		918		1,053			1,817			2,093
Provision for Loan Losses		109		387			226			470

Net Interest Income after Provision for Loan Losses		809		666			1,591			1,623

Other Income
Service charges and other fees		123		122			231			235
Net investment security gains (losses)		0		0			(79	)		35
Commissions from trust department		49		51			98			106
Other		278		25			296			119

Total Other Income		450		198			546			495

Other Expenses
Salaries and employee benefits		594		596			1,181			1,246
Net occupancy expense		122		60			209			127
Equipment expense		41		42			80			77
ATM network expense		26		47			51			86
Professional fees expense		252		151			456			186
Core deposit intangible amortization expense		0		0			0			9
Other expenses		177		255			374			578

Total Other Expense		1,212		1,151			2,351			2,309

Income (Loss) before Income Tax Expense (Benefit)		47		(287	)		(214	)		(191	)
Income Tax Expense (Benefit)		0		(7	)		0			0

Net Income (Loss)	$	47	$	(280	)	$	(214	)	$	(191	)

Earnings (loss) per share	$	0.09	$	(0.55	)	$	(0.42	)	$	(0.38	)
Basic and diluted earnings (loss) per share	$	0.09	$	(0.55	)	$	(0.42	)	$	(0.38	)

Weighted average number of shares outstanding		506,513		506,513			506,513			506,513

The accompanying notes are an integral part of these consolidated financial statements.

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UNION BANCORP, INC.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

Three and Six Months Ended June 30, 2013 and 2012

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,

	2013			2012			2013			2012
	(In thousands)
Net income (loss)	$	47		$	(280	)	$	(214	)	$	(191	)
Other comprehensive income (loss), net of tax:
Net unrealized holding gains (losses) on securities:
Net unrealized gains (losses) arising during the period, net of tax expense 2013, $369 and $369 and 2012, $296 and $130		(717	)		250			(717	)		573
Reclassification adjustment for losses included in net income, net of tax net of tax expense 2013, $27 and ($25) and 2012, $12 and $0		104			0			52			(23	)

Total other comprehensive income (loss), net of tax		(613	)		250			(665	)		550

Total comprehensive income (loss)	$	(566	)	$	(30	)	$	(879	)	$	359

The accompanying notes are an integral part of these consolidated financial statements.

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UNION BANCORP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Six Months Ended June 30, 2013 and 2012

(Unaudited)

(In thousands, except share data)	Common Stock		Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity

Balance—December 31, 2011	$	595	$	1,694	$	11,365		$	(356	)	$	(2,497	)	$	10,801
Net loss		—		—		(191	)		—			—			(191	)
Other comprehensive loss, net of tax		—		—		—			550			—			550

Balance—June 30, 2012	$	595	$	1,694	$	11,174			194		$	(2,497	)	$	11,160

Balance—December 31, 2012	$	595	$	1,694	$	11,337		$	(414	)	$	(2,497	)	$	10,715
Net loss		—		—		(214	)		—			—			(214	)
Other comprehensive loss, net of tax		—		—		—			(665	)		—			(665	)

Balance—June 30, 2013	$	595	$	1,694	$	11,123		$	(1,079	)	$	(2,497	)	$	9,836

The accompanying notes are an integral part of these consolidated financial statements.

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UNION BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,

(In thousands)	2013			2012
Cash Flows from Operating Activities
Net income	$	(214	)	$	(191	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		43			35
Provision for loan losses		226			470
Net amortization of premiums on securities available for sale		291			163
Net realized (gain) loss on sale of securities available for sale		79			(35	)
Earnings on cash value of life insurance, net		(27	)		(32	)
Deferred Income Taxes		292			587
(Increase) decrease in accrued interest receivable and other assets		302			(934	)
Increase in accrued interest payable and other liabilities		48			866

Net Cash Provided by Operating Activities		1,040			929

Cash Flows from Investing Activities
Securities available for sale:
Purchases		(8,128	)		(13,140	)
Proceeds from maturities, calls and principal repayments		5,150			3,280
Proceeds from sales		2,693			2,374
Proceeds from the sale of foreclosed real estate		5			138
Net increase (decrease) in restricted investments in bank stock		(19	)		21
Net increase (decrease) in loans		(432	)		2,563
Purchases of premises and equipment		—			(83	)
Purchase of life insurance		335			210

Net Cash Used in Investing Activities		(396	)		(9,763	)

Cash Flows from Financing Activities
Net increase (decrease) in deposits		(227	)		7,915

Net Cash Provided by (Used in) Financing Activities		(227	)		7,915

Net Increase (Decrease) in Cash and Cash Equivalents		417			(919	)
Cash and Cash Equivalents—Beginning		13,085			9,438

Cash and Cash Equivalents—Ending	$	13,502		$	8,519

Supplemental Disclosures of Cash Flows Information
Interest paid	$	238		$	207

Income taxes paid	$	—		$	—

Supplemental Schedule of Noncash Investing and Financing Activities
Other real estate acquired in settlement of loans	$	—		$	—

The accompanying notes are an integral part of these consolidated financial statements.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2013

(Unaudited)

Note 1—Summary of Significant Accounting Policies

The significant accounting policies of Union Bancorp, Inc. ("Union" or the "Company") and its subsidiary are summarized as follows.

Nature of Business

Union Bank & Trust Company ("Bank") is a wholly-owned subsidiary of the Company. It operates six offices and a loan and trust administration office in Central Pennsylvania. The Company's primary source of revenue is derived from loans to customers.

Principles of Consolidation and Basis of Accounting

The consolidated financial statements of the Company include the accounts of Union Bancorp, Inc., the Bank and the Bank's subsidiary, UBT Realty. All significant intercompany balances and transactions have been eliminated in consolidation. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Union Bancorp's 2012 Annual Report. Operating results for the three and six month periods ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The unaudited consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of operations for the interim period and are of a normal and recurring nature.

Subsequent Events

Generally accepted accounting principles establish general standards for accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued. The subsequent events principle sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition in the financial statements, identifies the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and specifies the disclosures that should be made about the events or transactions that occur after the balance sheet date. In preparing these consolidated financial statements, Union has evaluated the events and transactions that occurred after June 30, 2013 through the date these consolidated financial statements were issued, and has not identified any events that require recognition or disclosure in the consolidated financial statements.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 1—Summary of Significant Accounting Policies (Continued)

allowance for loan losses, the valuation of deferred tax assets and the evaluation of other than temporary impairment losses.

Transfer of Financial Assets

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

Note 2—Consolidation with Riverview Financial Corporation

On March 7, 2013 Riverview Financial Corporation ("Riverview") and Union jointly announced the signing of a definitive agreement to consolidate the respective holding companies, thereby forming a new corporation, known as "Newco", which will assume the name of "Riverview Financial Corporation," and merge their respective bank subsidiaries,. The proposed combination will create a full-service community bank serving the Perry, Dauphin, Cumberland, Schuylkill, Northumberland and Berks county markets. The transaction is expected to close in the fourth quarter of 2013, subject to the approval of the shareholders of each institution and the satisfaction of certain other conditions to closing.

Under the terms of the definitive agreement, shareholders of Union will receive 1.95 shares of Newco common stock in exchange for each share of Union common stock they own immediately prior to the completion of the consolidation and Riverview shareholders will receive one share of Newco's common stock in exchange for each share of Riverview common stock they own immediately prior to the completion of the consolidation.

As a result of the transaction, Riverview's shareholders are expected to own approximately 63.5% of the outstanding Newco common stock and Union's shareholders are expected to own 36.5% of the outstanding Newco common stock.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 3—Earnings Per Common Share

Basic earnings per share and diluted earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period.

The following table presents the amounts used in computing earnings per share for the periods presented:

	Three Months Ended June 30,					Six Months Ended June 30,

(In thousands, except share data)	2013		2012			2013			2012
Net income (loss) applicable to common stock	$	47	$	(280	)	$	(214	)	$	(191	)

Weighted-average common shares outstanding		506,513		506,513			506,513			506,513
Effect of dilutive securities, stock options		506,513		506,513			506,513			506,513

Weighted-average common shares outstanding used to calculate diluted earnings per share
Basic earnings per share	$	0.09	$	(0.55	)	$	(0.42	)	$	(0.38	)
Diluted earnings per share	$	0.09	$	(0.55	)	$	(0.42	)	$	(0.38	)

Note 4—Investment Securities Available-for-Sale

The amortized cost and estimated fair values of investment securities available-for-sale are reflected in the following schedules at June 30, 2013 and December 31, 2012:

June 30, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

	(In thousands)
U.S. Treasury securities and obligations of other U.S. government agencies and organizations	$	3,143	$	2	$	(78	)	$	3,067
Obligations of state and political subdivisions		15,820		310		(592	)		15,538
Corporate debt securities		1,935		52		(112	)		1,875
Agency mortgage-backed securities		4,611		24		(53	)		4,582
Non-agency collateralized mortgage obligations		4,344		17		(47	)		4,314
Asset-backed securities		133		—		(2	)		131
Equity securities, financial services		346		172		(31	)		487

	$	30,332	$	577	$	(915	)	$	29,994

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 4—Investment Securities Available-for-Sale (Continued)

December 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

	(In thousands)
U.S. Treasury securities and obligations of other U.S. government agencies and organizations	$	1,749	$	2	$	—		$	1,751
Obligations of state and political subdivisions		12,520		581		(94	)		13,007
Corporate debt securities		1,689		62		(9	)		1,742
Agency mortgage-backed securities		7,231		107		(56	)		7,282
Non-agency collateralized mortgage obligations		5,194		25		(28	)		5,191
Asset-backed securities		207		4		—			211
Equity securities, financial services		1,827		147		(72	)		1,902

	$	30,417	$	928	$	(259	)	$	31,086

The amortized cost and fair value of securities available-for-sale at June 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have the right to prepay obligations with or without call or prepayment penalties:

	Amortized Cost		Fair Value

	(In thousands)
Due in one year or less	$	1,249	$	1,251
Due after one year through five years		2,983		3,024
Due after five years through ten years		11,973		11,760
Due after ten years		4,826		4,576

		21,031		20,611
Mortgage-backed securities		8,955		8,896
Equity securities		346		487

	$	30,332	$	29,994

Securities with an amortized cost of $8,830,000 and a fair value of $8,740,000 at June 30, 2013 were pledged as collateral for public deposits and for other purposes as required or permitted by law.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 4—Investment Securities Available-for-Sale (Continued)

Information pertaining to securities with gross unrealized losses at June 30, 2013 and December 31, 2012 aggregated by investment category and length of time that individual securities have been in a continuous loss position are as follows:

	Less Than 12 Months					More Than 12 Months					Total

	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(In thousands)
June 30, 2013:
U.S. Treasury securities and obligations of other U.S. government agencies and organizations		1,448		(78	)		—		—			1,448		(78	)
Obligations of state and political subdivisions		9,795		(558	)		537		(34	)		10,332		(592	)
Corporate debt securities		1,046		(112	)							1,046		(112	)
Mortgage-backed securities and collateralized mortgage obligations		3,168		(72	)		2,233		(30	)		5,401		(102	)
Equity securities		—		—			81		(31	)		81		(31	)

	$	15,457	$	(820	)	$	2,851	$	(95	)	$	18,308	$	(915	)

December 31, 2012:
Obligations of state and political subdivisions	$	4,429	$	(94	)	$	—	$	—		$	4,429	$	(94	)
Corporate debt securities		647		(9	)		—		—			647		(9	)
Agency mortgage-backed securities		3,046		(28	)		699		(28	)		3,745		(56	)
Non-agency collateralized mortgage obligations		2,655		(17	)		572		(11	)		3,227		(28	)
Equity securities, financial services		—		—			1,522		(72	)		1,522		(72	)

	$	10,777	$	(148	)	$	2,793	$	(111	)	$	13,570	$	(259	)

Management believes that the unrealized losses are temporary and the Company (a) does not have the intent to sell any of the debt securities prior to recovery and (b) is more likely than not that it will not have to sell any of the debt securities prior to recovery. At June 30, 2013, three agency notes, five mortgage-backed securities, twenty-two state and municipal securities, two corporate notes and eight collateralized mortgage-obligations (CMO's) had unrealized losses. These unrealized losses are predominantly attributable to changes in interest rates.

Corporate debt securities owned by the Company consist of obligations of large publically traded U.S. companies in the financial services, insurance and automotive industries. The fair value of two corporate debt securities were in an unrealized loss position at June 30, 2013 as compared with one corporate debt security at December 31, 2012. The Company does not invest in corporate debt securities with the intent to sell them for a profit in the near-term. The Company invests in corporate debt securities that it believes has a potential to appreciate in value over the long-term, while providing for a reasonable interest yield and a steady stream of cash flows.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 4—Investment Securities Available-for-Sale (Continued)

The unrealized losses noted are considered to be temporary impairments. The decline in the value of these debt securities is due only to interest rate fluctuations, rather than erosion of quality. As a result, the payment of contractual cash flows, including principal repayment, is not at risk. As management has the intent and ability to hold these investments until market recovery or maturity, none of the debt securities are deemed to be other-than-temporarily impaired.

Equity securities owned by the Company consist of common and preferred stock of various financial service providers. Considerations used to determine other-than-temporary impairment status to individual holdings include the length of time the stock has remained in an unrealized loss position, the percentage of unrealized losses compared to the carrying cost of the stock, dividend reduction or suspension, market analyst reviews and expectations and other pertinent news that would affect expectations for recovery or further decline. Management believes that there is no other-than-temporary impairment of equity securities as of June 30, 2013.

Note 5—Loans

A summary of the balances of loans is presented for the periods ended June 30, 2013 and December 31, 2012.

(in thousands)	June 30, 2013		December 31, 2012

Commercial	$	9,703	$	11,994
Commercial real estate:		20,045		19,593

Total commercial loans		29,748		31,587
Mortgage		38,856		36,779
Home equity		5,028		4,985
Consumer		517		481

Total loans		74,149		73,832
Less allowance for loan losses		1,315		1,182
Net deferred loan fees		125		103

Total loans, net	$	72,959	$	72,753

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables

The following table summarized the activity in the allowance for loan losses by loan class for the periods presented:

(In thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions			Ending Balance

June 30, 2013
Commercial	$	173	$	6		—	$	(60	)	$	107
Commercial real estate		557		—		3		53			613
Mortgage		293		67		27		174			427
Home equity		19		—		12		3			34
Consumer		110		63		1		61			109
Unallocated		30		—		—		(5	)		25

	$	1,182	$	136	$	43	$	226		$	1,315

December 31, 2012
Commercial	$	222	$	—	$	94	$	(143	)	$	173
Commercial real estate		548		742		156		595			557
Mortgage		202		32		—		123			293
Home equity		20		—		—		(1	)		19
Consumer		77		11		2		42			110
Unallocated		26		—		—		4			30

Total	$	1,095	$	785	$	252	$	620		$	1,182

The following table presents the balance in the allowance for loan losses for the periods presented disaggregated on the basis of the Company's impairment method by class of loans receivable along with the balance of loans receivable by class disaggregated on the basis of the Company's impairment methodology:

	June 30, 2013

	Allowance for Loan Losses						Loans Receivable
(In thousands)	Balance		Balance Related to Loans Individually Evaluated for Impairment		Balance Related to Loans Collectively Evaluated for Impairment		Balance		Balance Individually Evaluated for Impairment		Balance Collectively Evaluated for Impairment
Commercial	$	107	$	—	$	107	$	9,703	$	—	$	9,703
Commercial real estate		613		391		222		20,045		5,328		14,717
Mortgage		427		217		210		38,856		684		38,172
Home equity		34		—		34		5,028		—		5,028
Consumer		109		5		104		517		21		496
Unallocated		25		—		25		—		—		—

Total	$	1,315	$	613	$	702	$	74,149	$	6,033	$	68,116

Table of Contents

UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

	December 31, 2012

	Allowance for Loan Losses						Loans Receivable
(In thousands)	Balance		Balance Related to Loans Individually Evaluated for Impairment		Balance Related to Loans Collectively Evaluated for Impairment		Balance		Balance Individually Evaluated for Impairment		Balance Collectively Evaluated for Impairment
Commercial	$	173	$	—	$	173	$	11,994	$	—	$	11,994
Commercial real estate		556		274		282		19,593		5,345		14,248
Mortgage		293		146		147		36,779		1,517		35,262
Home equity		20		—		20		4,985		—		4,985
Consumer		110		36		74		481		145		336
Unallocated		30		—		30		—		—		—

Total	$	1,182	$	456	$	726	$	73,832	$	7,007	$	66,825

The following table presents the classes of the loan portfolio summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system for the period presented:

	June 30, 2013

(In thousands)	Commercial		Commercial Real Estate		Mortgage		Home Equity		Consumer		Total
Pass	$	9,703	$	14,383	$	37,551	$	5,028	$	517	$	67,182
Special mention		—		334		—		—		—		334
Substandard		—		5,328		1,305		—		—		6,633
Doubtful		—		—				—		—		—

Total	$	9,703	$	20,045	$	38,856	$	5,028	$	517	$	74,149

	December 31, 2012

(In thousands)	Commercial		Commercial Real Estate		Mortgage		Home Equity		Consumer		Total
Pass	$	11,994		13,907	$	35,347	$	4,985	$	481	$	66,714
Special mention		—		340		—		—		—		340
Substandard		—		5,346		1,432		—		—		6,778
Doubtful		—		—		—		—		—		—

Total	$	11,994		19,593	$	36,779	$	4,985	$	481	$	73,832

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

The following presents impaired loans by loan portfolio segments for the periods presented:

(In thousands)	Recorded Investment in Impaired Loans		Unpaid Principal Balance of Impaired Loans		Related Allowance		Average Recorded Investment in Impaired Loans		Interest Income Recognized

June 30, 2013:
Loans with no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		22		22		—		22		1
Mortgage		357		357		—		387		10
Home equity		—		—		—		—		—
Consumer		68		16		—		55		1

		447		395		0		464		12
Loans with an allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		5,306		5,306		391		5,314		25
Mortgage		682		682		216		687		19
Home Equity		—		—		—		—		—
Consumer		20		20		5		21		—

		6,008		6,008		612		6,022		44
Total
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		5,328		5,328		391		5,336		26
Mortgage		1,039		1,039		216		1,074		29
Home equity		—		—		—		—		—
Consumer		88		36		5		76		1

		6,455		6,403		612		6,486		56
December 31, 2012
Loans with no related allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		23		23		—		25		2
Mortgage		757		757		—		772		41
Home equity		—		—		—		—		—
Consumer		110		57		—		62		2

		890		837		0		859		45
Loans with an allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		5,322		5,322		274		5,371		253
Mortgage		760		760		146		772		39
Home		—		—		—		—		—
Consumer		35		35		35		39		1

		6,117		6,117		455		6,182		293
Total
Commercial	$	—	$	—	$	—	$	—	$	—
Commercial real estate		5,345		5,345		274		5,396		255
Mortgage		1,517		1,517		146		1,544		80
Home equity		—		—		—		—		—
Consumer		145		92		35		101		3

		7,007		6,954		455		7,041		338

Table of Contents

UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

The performance and credit quality of the loan portfolio is also monitored by analyzing the age of the loans receivable as determined by the length of time a recorded payment is past due. One loan totaling $4,453,000 was greater than 90 days past due and on nonaccrual as of June 30, 2012. The loan agreement includes an 80% guarantee by the United States Department of Agriculture (USDA). The following table presents the classes of the loan portfolio summarized by the past due status for the periods presented:

(In thousands)	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days and Greater		Total Past Due		Current		Total		Recorded Investment Greater Than 90 Days & Accruing

June 30, 2013:
Commercial	$	—	$	—	$	—	$	—	$	9,703	$	9,703	$	—
Commercial real estate		—		—		4,453		4,453		15,592		20,045		—
Mortgage		53		—		—		53		38,803		38,856		—
Home equity		57		—		9		66		4,962		5,028		—
Consumer		—		—		—		—		517		517		—

Total	$	110	$	—	$	4,462	$	4,572	$	69,577	$	74,149	$	—

														—
December 31, 2012:
Commercial	$	—	$	—	$	—	$	—	$	11,994	$	11,994	$	—
Commercial real estate		—		2		4,460		4,462		15,131		19,593		—
Mortgage		102		212		67		381		36,398		36,779		—
Home equity		6		—		25		31		4,954		4,985		—
Consumer		—		—		—		—		481		481		—

Total	$	108	$	214	$	4,552	$	4,874	$	68,958	$	73,832	$	—

The following table presents nonaccrual loans by classes of the loan portfolio for the periods presented:

(In thousands)	June 30, 2013		December 31, 2012

Commercial	$	—	$	—
Commercial real estate		4,453		4,460
Mortgage		13		82
Home equity		—		58
Consumer		36		—

Total	$	4,502	$	4,600

No additional funds are committed to be advanced in connection with impaired loans.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

The Company may grant a concession or modification for economic or legal reasons related to a borrower's financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (TDR). The Company may modify loans through rate reductions, extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers' operations.

Loan modifications are intended to minimize economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Bank's allowance for loan losses.

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower's financial statements, revenue projections, tax returns and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions and negative trends may result in a payment default in the near future.

The following table reflects information regarding the Company's troubled debt restructurings for the six months and 12 months ended June 30, 2013 and December 31, 2012 and troubled debt restructuring loans which have subsequently defaulted. There were no loans that subsequently defaulted.

(In thousands, except contracts data)		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

June 30, 2013:
Troubled Debt Restructurings:
Commercial	—		—		—
Commercial real estate	—		—		—
Mortgage	—		—		—
Home equity	—		—		—
Consumer	—		—		—
December 31, 2012:
Troubled Debt Restructurings:
Commercial	3	$	325	$	348
Commercial real estate	—		—		—
Mortgage	—		—		—
Home equity	—		—		—
Consumer	—		—		—

Table of Contents

UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

The Bank's risk rating system provides three satisfactory ratings (001, 002, 003), two grades for other loans especially mentioned (004, 005), and singles grade for substandard (006), doubtful (007) and loss (008). The grading system is described as follows:

Exceptional Loans (001): This rating is reserved for the Bank's top quality borrowers. Loans rated as exceptional are made to borrowers that are well known to the Bank, have a track record of excess cash flow in relation to debt service, cash flow has remained strong even in economic downturns or loans that are fully secured with liquid collateral. Examples include loans fully secured by a Bank certificate of deposit or properly managed marketable securities held as collateral.

Quality Loans (002): These loans exhibit superior financial performance and provide full assets protection. Quality loans are loans where cash flow is stable and sufficient to service all debt obligations. Management is highly experienced and clear succession is evident. Borrowers have a well-diversified customer and supplier base with no concentrations. Quality loans are for borrowers who compare favorably to their Risk Management Association ("RMA") industry peers. Documentation exceptions are minimal and are not of a nature that could subsequently introduce the Bank to loan loss risk. For consumer loans, credit scores are typically very high, debt to income ratios are low, disposable income is strong and loan to value ratios are low.

Acceptable Loans (003): Acceptable loan ratings are for borrowers whose financial condition and repayment ability are satisfactory. Secondary sources of repayment are evident but may need to be monitored closely. Typically, borrowers' financial measurements are within (or close to) the RMA industry median. Weaknesses may exist, such as companies with rapid growth whose balance sheets are leveraged or where reliance to accounts receivable is high. Borrowers tend to be in a highly cyclical business and in industries that are more likely than others to be affected by an economic downturn. But the impact to the borrower would not be significant.

Examples of satisfactory loans may be loans secured by government guarantees but a portion of the loan is unsecured; or loans with borrowing bases. Acceptably rated consumer loans typically meet all of the Bank's credit guidelines but debt to income is at or near the Bank's maximum policy limit; borrowers do not have a lot of liquidity; and loan to value ratios are near or at the Bank's credit policy threshold.

Watch List Loans (004): The Bank should assign a watch rating to loans where emerging weaknesses are evident, such as the management of the business may lack experience or succession; secondary sources of repayment may be weakened; repayment of debt is slow or slowing; the business is undercapitalized; or the borrower operates in a highly competitive industry and the short-term or long-term outlook may be uncertain. A watch rating can also be applied to borrowers who have not provided updated financial statements or where the financial reporting is questionable or weak. Watch list loans require special attention and close monitoring. Watch list rating for consumer loans is assigned to those loans where a slow repayment history is present; overdrafts are occurring; and credit history has worsened.

Other Loans Especially Mentioned (005): Loans with this rating have clearly identifiable weaknesses that if uncorrected may result in a deterioration of the borrower's repayment ability. It can

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

be used for loans with documentation weaknesses; where the Bank does not have control of the collateral; or the loan agreement is invalid. Generally the Bank is adequately protected with collateral but negative financial trends are evident. Examples include eroding margins; deterioration of collateral value; increasing leverage; or the lack of a clearly defined repayment schedule.

Other Loans Especially Mentioned is a transition and temporary classification. After the Bank has better determined its risk or takes some corrective action such as clearing up a documentation exception that restricts the Bank's ability to perfect its collateral position, the loan will be properly reclassified and upgraded or downgraded as necessary.

Substandard Loans (006): Substandard ratings are given where the borrower lacks repayment ability and the Bank is inadequately protected by the current sound net worth of the borrower. Further a borrower's weaknesses become well-defined and there is the distinct possibility that the Bank could experience some loss if the impairments are not corrected. Examples of substandard ratings include instances where the borrower lacks repayment ability; is frequently overdrawn; there is a heavy reliance on secondary or tertiary sources of repayment; or there are clear collateral deficiencies.

Doubtful Loans (007): A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard, with the added characteristics that the weaknesses make full collection or liquidation of the loan, based upon current existing facts, conditions and values, highly questionable and improbable. Doubtful loans will not necessarily be charged-down or charged off if there is the clear likelihood that an outside factor could prevent the Bank from experiencing a loss. Examples of such factors may include an imminent acquisition or merger; proof of approved refinancing commitment with another lender; or a capital injection from a guarantor or third party.

Loss (008): This rating is assigned when a loan is considered to be uncollectible and of such little value that its continuance as an active Bank asset is not likely. These loans will be immediately charged off even though partial or full recovery may be possible in the future.

Unrated (U): Unrated loans are loans that for various reasons could not be assigned a risk rating. A rating of "U" is a temporary rating that should not last longer than 30 days. At the end of 30 days, the Bank's credit analyst and Asset Review committee of the Board of Directors will review the loan again and ensure that a routine rating is assigned.

Loan officers can make recommendations for changes to a loan's risk rating. A detailed memo must be completed describing the reasons for the recommended change—whether it be to increase or lower the rating. Any risk rating change must be approved by the Chief Lending Officer and President or the Board of Directors.

All changes to loan risk ratings shall be reported to the Board of Directors on at least a quarterly basis by the Chief Lending Officer or a designee.

Table of Contents

UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 6—Allowance for Loan Losses and Recorded Investment in Financing Receivables (Continued)

The following presents the credit quality indicators and total credit exposure for each segment in the loan portfolio by internally assigned grades as of June 30, 2013 and December 31, 2012:

(In thousands)	Commercial		Commercial Real Estate		Mortgage		Home Equity		Consumer		Total

June 30, 2013
1—Exceptional	$	—	$	—	$	—	$	—	$	—	$	—
2—Quality		—		—		—		—		—		—
3—Acceptable		9,703		14,383		37,551		5,028		517		67,182
4—Watch		—		—		—		—		—		—
5—Special Mention		—		334		—		—		—		334
6—Substandard		—		5,328		1,305		—		—		6,633
7—Doubtful		—		—		—		—		—		—
8—Loss		—		—		—		—		—		—

Total	$	9,703	$	20,045	$	38,856	$	5,028	$	517	$	74,149

December 31, 2012:
1—Exceptional	$	—	$	—	$	—	$	—	$	—	$	—
2—Quality		—		—		—		—		—		—
3—Acceptable		11,994		13,907		35,347		4,985		481		66,714
4—Watch		—		—		—		—		—		—
5—Special Mention		—		340		—		—		—		340
6—Substandard		—		5,346		1,432		—		—		6,778
7—Doubtful		—		—		—		—		—		—
8—Loss		—		—		—		—		—		—

Total	$	11,994	$	19,593	$	36,779	$	4,985	$	481	$	73,832

The pass grades, as defined as grades 1 through 4, are not segregated by category on our system and are shown in total as satisfactory on the above table.

The adequacy of the allowance is analyzed quarterly, with any adjustment to the level deemed appropriate by credit administration management, based upon its risk assessment of the entire portfolio. Based upon credit administration's review of the classified loans and the overall allowance levels as they relate to the entire loan portfolio at June 30, 2013, management believes the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in the loan portfolio.

Note 7—Financial Instruments with Off Balance Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 7—Financial Instruments with Off Balance Sheet Risk (Continued)

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.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Total commitments to extend credit at June 30, 2013 include $12,858,000 in floating rate and fixed rate loan commitments as compared with $13,004,000 at December 31, 2012. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company, upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held varies but may include accounts receivable; inventory; property, plant, and equipment; residential real estate; and income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Commitments under outstanding standby letters of credit amounted to $817,000 at June, 2013 and $1,246,000 at December 31, 2012. Such commitments expire on various future dates. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds real estate as collateral to support those commitments for which collateral is deemed necessary.

Note 8—Capital Adequacy

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as defined).

Management believes, as of June 30, 2013, that the Bank met all capital adequacy requirements to which it is subject.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 8—Capital Adequacy (Continued)

As of June 30, 2013, the Bank was well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum total risk-based, Tier 1 risk -based and Tier 1 leverage ratios as set forth in the following table. No conditions or material events, to the best of management's knowledge, have transpired subsequent to June 30, 2013 that would result in a change to the Bank's well capitalized categorization.

The Bank's actual capital ratios at June 30, 2013 and December 31, 2012 are summarized below along with the minimum ratios required for capital adequacy purposes and the ratios required to be considered as well capitalized under the prompt corrective action provisions.

	Actual					For Capital Adequacy Purposes					To be Well Capitalized under Prompt Corrective Action Provisions

	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
As of June 30, 2013:
Total risk-based capital (to risk-weighted assets)	$	10,046		11.3	%	³$	7,106		³8.0	%	³$	8,882		³10.0	%
Tier 1 capital (to risk-weighted assets)		8,903		10.0			³3,551		³4.0			³5,326		³ 6.0
Tier 1 capital (to average total assets)		8,903		7.2			>4,926		>4.0			³6,157		³ 5.0
As of December 31, 2012:
Total risk-based capital (to risk-weighted assets)	$	10,742		12.0	%	³$	7,179		³8.0	%	³$	8,974		³10.0	%
Tier 1 capital (to risk-weighted assets)		9,600		10.7			³3,589		³4.0			³5,383		³ 6.0
Tier 1 capital (to average total assets)		9,600		7.9			>4,849		>4.0			³6,061		³ 5.0

Note 9—Fair Value Measurements and Fair Values of Financial Instruments

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective year-ends and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different from the amounts reported at each year end.

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with FASB ASC Topic 820—Fair Value Measurements and Disclosures, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in some instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates

Table of Contents

UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC Topic 820 are as follows:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3—Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

June 30, 2013	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(In thousands)
U.S. Treasury securities and obligations of other U.S. government agencies and organizations	$	3,067	$	1,751	$	1,316	$	—
Obligations of states and political subdivisions		15,538		—		15,538		—
Corporate debt securities		1,875		—		1,875		—
Agency mortgage-backed securities		4,582		—		4,582		—
Non-agency mortgage-backed securities		4,314		—		4,314		—
Asset-backed securities		131		—		131		—
Equity securities, financial services		487		487		—		—

Total	$	29,994	$	2,238	$	27,756	$	—

December 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	(In thousands)
U.S. Treasury securities and obligations of other U.S. government agencies and organizations	$	1,751	$	1,751	$	—	$	—
Obligations of states and political subdivisions		13,007		—		13,007		—
Corporate debt securities		1,742		—		1,742		—
Agency mortgage-backed securities		7,282		—		7,282		—
Non-agency mortgage-backed securities		5,191		—		5,191		—
Asset-backed securities		211		—		211		—
Equity securities, financial services		1,902		1,902		—		—

Total	$	31,086	$	3,653	$	27,433	$	—

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

For financial assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2013 and December 31, 2012 are as follows:

	June 30, 2013

(In thousands)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans, net of related allowance	$	5,396	$	—	$	—	$	5,396
Other real estate owned		63		—		—		63

Total	$	5,459	$	—	$	—	$	5,459

	December 31, 2012

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	5,662	$	—	$	—	$	5,662
Other real estate owned		68		—		—		68

Total	$	5,730	$	—	$	—	$	5,730

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs have been used to determine fair value (in thousands):

(In thousands)	Fair Value at June 30, 2013		Valuation Technique	Unobservable Input

Impaired loans	$	5,396	Appraisal of collateral(1)(2)	Collateral discounts(2)	0 - 30	%
Other real estate owned		63	Appraisal of collateral(1)(2)	Collateral discounts(2)	0 - 20	%

Total	$	6,969

	Fair Value at December 31, 2012		Valuation Technique	Unobservable Input

Impaired loans	$	5,662	Appraisal of collateral(1)(2)	Collateral discounts(2)	0 - 30	%
Other real estate owned		68	Appraisal of collateral(1)(2)	Collateral discounts(2)	0 - 20	%

Total	$	5,730

(1): Fair value is generally determined through independent appraisals of the underlying collateral.

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

(2): Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The following information should not be interpreted as an estimate of the fair value of the Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.

The following methods and assumptions were used by the Company to estimate the fair values of its financial instruments at June 30, 2013 and December 31, 2012:

Cash and Due from Banks

The carrying values for cash and due from banks equal those assets' fair values.

Short-Term Investments

The carrying values for short-term investments approximate their fair values.

Interest-Bearing Deposits in Banks

The carrying values for interest-bearing deposits in banks approximate their fair values.

Investment Securities

The fair value of securities available-for-sale (carried at fair value) are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1), or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted prices.

Loans

For variable-rate loans that re-price frequently with no significant change in credit risk, fair value equals carrying value. The fair values for fixed-rate residential mortgage loans, consumer loans, commercial and commercial real estate loans are estimated by discounting the future cash flows using comparable current rates at which similar loans would be made to borrowers at similar credit risk.

Impaired Loans

Fair value of impaired loans is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. The fair value consists of the loan balances of $6,008,000 net of a valuation allowance

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

of $612,000 as of June 30, 2013 and loan balances of $6,117,000 net of a valuation allowance of $455,000 as of December 31, 2012.

Restricted Investment in Bank Stock

The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities

The fair values of demand and savings deposits equal their carrying values. Adjusting such fair value for any value from retaining those deposit relationships in the future is prohibited. That component, known as a deposit intangible, is not considered in the value disclosed nor is it recorded in the balance sheet. The carrying values for variable rate money market accounts approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using rates currently offered for similar deposits.

Off-Balance-Sheet Instruments

Fair values of the Company's unused commitments to originate loans and unused lines of credit are deemed to be the same as their carrying values.

The estimated fair values of the Company's financial instruments were as follows for the periods presented:

(In thousands) June 30, 2013	Carrying Amount		Fair Value		Level 1		Level 2		Level 3

Financial assets:
Cash and due from banks	$	10,502	$	10,502	$	10,502	$	—	$	—
Short-term investments		3,000		3,000		—		3,000		—
Interest-bearing deposits with banks		988		988		—		988		—
Investment securities		29,994		29,994		2,238		27,756		—
Loans, net		72,959		73,590		—		—		73,590
FHLB restricted stock		195		195		—		195		—
Accrued interest receivable		497		497		—		497		—
Financial liabilities:
Total deposits		111,676		111,652		—		111,652		—
Accrued interest payable		50		50		—		50		—
Off balance sheet financial instruments		—		—		—		—		—

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UNION BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

June 30, 2013

(Unaudited)

Note 9—Fair Value Measurements and Fair Values of Financial Instruments (Continued)

(In thousands) December 31, 2012	Carrying Amount		Fair Value		Level 1		Level 2		Level 3

Financial assets:
Cash and due from banks	$	10,085	$	10,085	$	10,085	$	—	$	—
Short-term investments		3,000		3,000		—		3,000		—
Interest-bearing deposits with banks		988		988		—		988		—
Investment securities		31,086		31,086		3,653		27,433		—
Loans, net		72,753		73,590		—		—		73,590
FHLB restricted stock		176		176		—		176		—
Accrued interest receivable		425		425		—		425		—
Financial liabilities:
Total deposits		111,903		111,894		—		111,894		—
Accrued interest payable		56		56		—		56		—
Off balance sheet financial instruments		—		—		—		—		—

Note 10—Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") in January 2012 issued Accounting Standards Update ("ASU") No. 2011-11, "Disclosures About Offsetting Assets and Liabilities", which clarifies the scope of the new offsetting disclosures requires under ASU No. 2011-11. It is limited to (1) derivatives, (2) repurchase and reverse repurchase agreements, and (3) securities borrowing and lending transactions, that are either: offset in the statement of financial position in accordance with ASC 10, "Balance Sheet Presentment", or ASC 815, "Derivatives and Hedging", or subject to an enforceable master netting arrangement or similar agreement regardless of whether they are presented net in the financial statements. This ASU is effective for annual and interim reporting periods beginning on or after January 1, 2013. This guidance did not have a significant impact on the Company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2012-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income", which requires disclosure of the effects of reclassifications out of accumulated other comprehensive income ("AOCI") or net income line items only for those items that are reported in their entirety in net income in the period of reclassification. For AOCI reclassification items that are not reclassified in their entirety into net income, entities would then cross reference to the related note to the financial statements for additional information. Since the Company's only AOCI item consists of unrealized gains or losses on securities available for sale, the adoption of this standard had no significant impact on the Company's consolidated financial statements.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF UNION BANCORP, INC.

The following discussion and analysis summarizes Union's results of operations and highlights material changes for the six months ended June 30, 2013 and 2012 and its financial condition as of June 30, 2013. This discussion is intended to provide additional information which may not be readily apparent from the consolidated selected financial data included in this report. Reference should be made to the selected financial data presented for a complete understanding of the following discussion and analysis.

Other than described herein, management does not believe there are any trends, events or uncertainties that are reasonably expected to have a material impact on future results of operations, liquidity or capital resources.

Forward-Looking Statements

Except for historical information, this report may be deemed to contain "forward-looking" statements regarding the Company. Examples of forward-looking statements include, but are not limited to, (a) projections or statements regarding future earnings, expenses, net interest income, other income, earnings or loss per share, asset mix and quality, growth prospects, capital structure and other financial terms, (b) statements of plans and objectives of management or the board of directors, and (c) statements of assumptions, such as economic conditions in the Company's market areas. Such forward-looking statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "intends," "will," "should," "anticipates," or the negative of any of the foregoing or other variations thereon or comparable terminology, or by discussion of strategy.

No assurance can be given that the future results covered by forward-looking statements will be achieved. Such statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

Critical Accounting Policies

The Company's consolidated financial statements are prepared based on the application of certain accounting policies. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or are subject to variations which may significantly affect Union's reported results and financial position for the period or in future periods. Changes in underlying factors, assumptions, or estimates in any of these areas can have a material impact on future financial condition and results of operations.

The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for loan losses, valuation of securities, goodwill and other intangible asset impairment and accounting for income taxes.

The Company performs periodic and systematic detailed reviews of its loan portfolio to assess overall collectability. The level of the allowance for loan losses reflects an estimate of the losses inherent in the loan portfolio at any point in time. While these estimates are based on substantiated methods for determining allowance requirements, actual outcomes may differ significantly from estimated results, especially when determining allowances for business, construction, and commercial real estate loans. These loans are normally larger and more complex, and their collection rates are harder to predict. Personal loans, including personal mortgage and other consumer loans, are

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individually smaller and perform in a more homogenous manner, making loss estimates more predictable.

The Company records its' available for sale securities at fair value. Fair value of these securities is determined based on methodologies in accordance with generally accepted accounting principles. Fair values are volatile and may be influenced by a number of factors, including market conditions, discount rates, credit ratings and yield curves. Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values used are based on the quoted prices of similar instruments or an estimate of fair value by using a range of fair value estimates in the marketplace as a result of the illiquid market specific to the type of security.

When the fair value of a security is below its amortized cost, and depending on the length of time the condition exists and the extent the fair value is below amortized cost, additional analysis is performed to determine whether an other than temporary impairment condition exists. Available for sale securities are analyzed quarterly for possible other than temporary impairment. The analysis considers (i) whether the Bank has the intent to sell the securities prior to recovery and/or maturity and (ii) whether it is more likely than not that the Bank will have to sell the securities prior to recovery and/or maturity. Often, the information available to conduct these assessments is limited and rapidly changing, making estimates of fair value subject to judgment. If actual information or conditions are different than estimated, the extent of the impairment of the security may be different than previously estimated, which could have a material effect on Union's results of operations and financial condition.

Deferred income tax assets and liabilities are determined using the liability method. Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established. The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

Overview

Union is a Pennsylvania corporation headquartered in Pottsville, Pennsylvania and is the holding company for Union Bank and Trust Company, which is a Pennsylvania chartered full-service community bank headquartered in Pottsville, Pennsylvania. Union Bank provides a full range of commercial and consumer banking and trust services to individuals, businesses and municipalities in Schuylkill and Northumberland counties.

Union had total consolidated assets of $122,721,000, loans of $72,959,000, deposits of $111,676,000, and shareholders' equity of $9,836,000 at June 30, 2013. Net loss for the six months ended June 30, 2013 was $214,000 (or $0.42 per share) as compared to $191,000 (or $0.38 per share) for the six months ended June 30, 2012. The annualized return on average assets was (0.35%) for the six months ended June 30, 2013 as compared with (0.33%) for the comparable period in 2012. The annualized return on average equity was (3.78%) for the six months of 2013 as compared with (3.31%) for the same period in 2012. The decrease in the return on average asset and average equity ratios is attributable to an increase in the losses for 2013 compared to 2012 and a decrease in the average equity balance.

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Results of Operations

Net Interest Income and Net Interest Margin

The following table presents the Company's average balances, interest rates, interest income and expense, interest rate spread and net interest margin, adjusted to a fully-tax equivalent basis, for the three months ended June 30, 2013 and 2012.

	For the Three Months Ended June 30,

	2013							2012
Average Balances and Average Interest Rates (Dollars in thousands)	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
Assets
Interest earning assets:
Federal Funds Sold	$	2,773	$	9		1.30	%	$	3,894	$	3		0.31	%
Investment Securities		32,976		217		2.63	%		30,195		264		3.50	%
Loans		72,536		809		4.46	%		69,325		895		5.16	%

Total interest-earning assets		108,285		1,035		3.82	%		103,414		1,162		4.49	%
Other assets		14,891							12,947

Total assets	$	123,176						$	116,361

Liabilities and shareholders' equity
Interest-bearing liabilities:
Deposit accounts:
Interest-bearing non-maturity deposits	$	48,590	$	62		0.51	%	$	43,037	$	79		0.73	%
Time deposits		34,989		54		0.62	%		33,218		40		0.48	%

Total interest bearing liabilities		83,579		116		0.56	%		76,255		119		0.62	%

Demand deposits		27,463							27,631
Other liabilities		798							921
Shareholders' equity		11,336							11,554

Total liabilities and shareholders' equity	$	123,176						$	116,361

Net interest income			$	919						$	1,043

Net interest spread						3.26	%						3.87	%

Net interest margin						3.39	%						4.03	%

For yield computation purposes, non-accruing loans are included in average loan balances and any income recognized on these loans is included in interest income.

Securities held as available-for-sale are carried at amortized cost for purposes of calculating average yield.

For the three months ended June 30, 2013, total interest income decreased $127,000 or 10.9% to $1,035,000 from $1,162,000 for the three months ended June 30, 2012. The decrease was due to a drop in rates on both the loan and the investment portfolios which resulted in a decline in yield on the earning assets to 3.82% for the three months ended June 30, 2013 from 4.49% for the three months ended June 30, 2012. The impact from the decline in the yield on total earning assets was somewhat mitigated by a 4.70% increase in the volume of total average earning assets, which was attributable to the loan growth of 4.63% for the first quarter of 2013 as compared to the first quarter of 2012.

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Total interest expense decreased $3,000 or 2.6% to $116,000 for the three months ended June 30, 2013 from $119,000 for the three months ended June 30, 2012. This was attributable to a 6 basis point decline in the total cost of funds, which decreased to 0.56% for the second quarter of 2013 from 0.62% for the same period in 2012. The decline in the cost of funds was enhanced by a 9.60% increase in the volume of total average interest bearing liabilities due to deposit growth.

Net interest income decreased by $125,000, to $918,000 for the three months ended June 30, 2013 from $1,043,000 for the three months ended June 30, 2012. The net interest spread decreased to 3.26% for the three months ended June 30, 2103 from 3.87% for the three months ended June 30, 2012, while the net interest margin decreased to 3.39% for the three months ended June 30, 2013 from 4.03% for the three months ended June 30, 2012. The decrease in cost of funds was not enough to offset the decline in the yield on earning assets, which had the impact of compressing the net interest spread and net interest margin at June 30, 2013 as compared to June 30, 2012.

	For the Six Months Ended June 30,

	2013							2012
Average Balances and Average Interest Rates (Dollars in thousands)	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
Assets
Interest earning assets:
Federal Funds Sold	$	2,965	$	16		1.08	%	$	4,163	$	5		0.24	%
Investment Securities		32,777		411		2.51	%		31,470		502		3.19	%
Loans		72,822		1,622		4.45	%		69,727		1,794		5.15	%

Total interest-earning assets		108,564		2,049		3.77	%		105,360		2,301		4.37	%
Other assets		15,500							13,179

Total assets	$	124,064						$	118,539

Liabilities and shareholders' equity
Interest-bearing liabilities:
Deposit accounts:
Interest-bearing non-maturity deposits	$	49,360	$	125		0.51	%	$	44,606	$	123		0.55	%
Time deposits		34,947		107		0.61	%		33,406		85		0.51	%

Total interest-bearing liabilities		84,307		232		0.55	%		78,012		208		0.53	%

Demand deposits		27,669							27,800
Other liabilities		799							1,102
Shareholders' equity		11,289							11,624

Total liabilities and shareholders' equity	$	124,064						$	118,538

Net interest income			$	1,817						$	2,093

Net interest spread						3.22	%						3.83	%

Net interest margin						3.35	%						3.86	%

For yield computation purposes, non-accruing loans are included in average loan balances and any income recognized on these loans is included in interest income.

Securities held as available-for-sale are carried at amortized cost for purposes of calculating average yield.

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For the six months ended June 30, 2013, total interest income decreased $252,000 or 11.0% to $2,049,000 from $2,301,000 for the six months ended June 30, 2012. The decrease was due to a drop in rates on both the loan and the investment portfolios, which resulted in a decline in yield on the earning assets to 3.77% for the six months ended June 30, 2013 from 4.37% for the six months ended June 30, 2012. The impact from the decline in the yield on total earning assets was somewhat mitigated by a 3.04% increase in the volume of total average earning assets, which was attributable to the loan growth of 4.44% for the first six months of 2013 as compared to the first six months of 2012.

Total interest expense increased $24,000 or 11.53% to $232,000 for the six months ended June 30, 2013 from $208,000 for the six months ended June 30, 2012. This was attributable to a 2 basis point increase in the total cost of funds, which rose to 0.55% for the first six months of 2013 from 0.53% for the same period in 2012. The decline in the cost of funds was offset somewhat by a 8.07% increase in the volume of total average interest bearing liabilities due to deposit growth.

Net interest income decreased by $276,000, to $1,817,000 for the six months ended June 30, 2013 from $2,093,000 for the six months ended June 30, 2012. The net interest spread decreased to 3.22% for the six months ended June 30, 2103 from 3.83% for the six months ended June 30, 2012, while the net interest margin decreased to 3.35% for the six months ended June 30, 2013 from 3.86% for the six months ended June 30, 2012. The increase in cost of funds coupled with the decline in the yield on earning assets, had the impact of compressing the net interest spread and net interest margin at June 30, 2013 as compared to June 30, 2012.

Net interest income can also be analyzed in terms of the impact of changing interest rates and changing volumes, which is reflected in the following table for the periods indicated.

Rate Volume Analysis of Net Interest Income
For the Six Months Ended June 30,

	2013 vs. 2012

	Increase/(Decrease)
(In thousands)	Volume			Rate			Net Change
Interest-Earning Assets:
Interest-bearing due from banks and federal funds sold		(13	)		24			11
Securities, taxable(1)		33			(124	)		(91	)
Loans(1)		138			(310	)		(172	)

Net Change in Interest Income		158			(410	)		(252	)

Interest-Bearing Liabilities:
Interest-bearing non-maturity deposits		24			(22	)		2
Time deposits		10			12			22

Net Change in Interest Expense		34			(10	)		24

CHANGE IN NET INTEREST INCOME		124			(400	)		(276	)

(1): Yields on tax-exempt assets have been computed on a fully tax-equivalent basis assuming a tax rate of 34%.

Provision for Loan Losses

The provision for loan losses represents management's determination of the amount necessary to be charged to operations in order to maintain the allowance for loan losses at a level that represents management's best estimate of the known and inherent losses in the existing loan portfolio. Credit exposures deemed uncollectible are charged against the allowance for loan losses. Recoveries of

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previously charged-off loans are credited to the allowance for loan losses. Management performs periodic evaluations of the allowance for loan losses with consideration given to historical, internal and external factors. In evaluating the adequacy of the allowance for loan losses, management considers historical loss experience, delinquency trends and charge-off activity, status of past due and non-performing loans, growth within the portfolio, the amount and types of loans comprising the loan portfolio, adverse situations that may affect a borrower's ability to pay, the estimated value of underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are caused to undergo interpretation and possible revision as events occur or as more information becomes available. Loans are also reviewed for impairment based on discounted cash flows using the loans' initial effective interest rates or the fair value of the collateral for certain collateral dependent loans as provided under the accounting standard relating to Accounting by Creditors for Impairment of a Loan. After an evaluation of these factors, the Company recorded a provision of $226,000 for the six months ended June 30, 2013 as compared with $470,000 recorded for the six months ended June 30, 2012. The allowance for loan losses was $1,315,000 or 1.77% of total loans outstanding at June 30, 2013 as compared to $1,062,000, or 1.49% of total loans at June 30, 2012.

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses, if necessary, in order to maintain the adequacy of the allowance. Management believes the allowance for loan losses at June 30, 2013 is maintained at a level that is adequate to absorb probable and potential losses inherent in the loan portfolio. At the same time, management continues to allocate dedicated resources to continue to manage at-risk credits.

Other Income

The following table sets forth changes in other income for the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,

			Increase/ (Decrease)
Other Operating Income (Dollars in thousands)	2013		Amount			%			2012
Service charges on deposit accounts	$	45	$	(9	)		(16.7	)%	$	54
Other service charges and fees		77		9			13.2	%		68
Earnings on life insurance		27		(5	)		(15.6	)%		32
Gains (Losses) from sale of available for sale securities		—		—			—			—
Other Income		301		257			584.1	%		44

	$	450	$	252			127.3		$	198

Other income represents 32.87% of total revenues (comprised of net interest income and non-interest income) for the second quarter of 2013 as compared with 15.83% for the second quarter of 2012. Total other operating income increased 127.27% in the second quarter of 2013 as compared with the second quarter of 2012 due to the receipt of insurance proceeds for a director.

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The following table sets forth changes in other income for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,

				Increase/ (Decrease)
Other Income (Dollars in thousands)	2013			Amount			%			2012
Service charges on deposit accounts	$	92		$	(18	)		(16.3	)%	$	110
Other service charges and fees		139			14			11.2	%		125
Earnings on life insurance		279			206			282.2	%		73
Gains (Losses) from sale of available for sale securities		(79	)		(114	)		(325.7	)		35
Other income		115			(37	)		(24.3	)%		152

	$	546		$	51			10.3	%	$	495

Other income represents 23.11% of total revenues (comprised of net interest income and non-interest income) for the second quarter of 2013 as compared with 19.13% for the second quarter of 2012. Total other operating income increased 10.30% in the second quarter of 2013 as compared with the second quarter of 2012 due to an increase from the proceeds of insurance on director's life insurance policies which was offset somewhat by a loss on the sale of investment securities in 2013 compared to a gain on sale for the same period in 2012. Losses were recognized in the securities portfolio in 2012 due to the redemption of trust preferred securities. Other income declined due to a decrease of $37,000 in service charges on deposit accounts because of a decrease in overdrafts and other activity that would generate income. Also, a $7,000 decline in income from the trust department due to a decrease in the number of accounts.

Other Operating Expense

The following table presents the components of other operating expense for the three months ended June 30, 2013 and 2012.

	Three Months Ended June 30,

			Increase/ (Decrease)
Other Operating Expense (Dollars in thousands)	2013		Amount			%			2012
Salaries and employee benefits	$	594	$	(2	)		(0.3	)%	$	596
Occupancy expense		122		62			103.3	%		60
Equipment expense		41		—			—			41
Telecommunications and processing charges		18		1			5.9	%		17
Postage and office supplies		34		8			30.8	%		26
FDIC premium		40		1			2.6	%		39
Bank shares tax expense		41		(1	)		(2.4	)%		42
Directors' compensation		28		—			—			28
Professional services		142		75			111.9	%		67
Other expenses		152		(83	)		(35.3	)%		235

	$	1,212	$	61			5.3	%	$	1,151

Other operating expenses increased 5.30% year over year. The change is due to an increase in the occupancy expense related to real estate taxes. Also, professional services expenses increased due to the pending consolidation with Riverview.

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The following table presents the components of other operating expense for the six months ended June 30, 2013 and 2012.

	Six Months Ended June 30,

				Increase/ (Decrease)
Other Operating Expense (Dollars in thousands)	2013			Amount			%			2012
Salaries and employee benefits	$	1,181		$	(65	)		(5.2	)%	$	1,246
Occupancy expense		209			82			64.6	%		127
Equipment expense		80			3			3.9	%		77
Telecommunications and processing charges		36			(3	)		(7.7	)%		39
Postage and office supplies		60			4			7.1	%		56
FDIC premium		(3	)		(81	)		(103.8	)%		78
Bank shares tax expense		50			—			—			50
Directors' compensation		58			4			7.4	%		54
Professional services		407			277			213.1	%		130
Other expenses		273			(179	)		(39.6	)%		452

	$	2,351		$	42			1.8	%	$	2,309

Other operating expenses increased 1.82% year over year. The change is due to an increase in the occupancy expense related to real estate taxes and professional services, which increased due to the pending consolidation with Riverview. It was offset by decreases in salaries and employee benefits resulting from attrition and reductions in staffing made by management, a refund in the first quarter of the FDIC premium expense and a decrease in other expenses primarily attributable to a decrease in ATM expenses.

Provision for Federal Income Taxes

Federal income tax expense was $0 for both periods ending June 30, 2013 and June 30, 2012.

Financial Condition as of June 30, 2013 and December 31, 2012

Securities

The following table sets forth the composition of the investment securities portfolio for the periods presented:

Investment Securities (In thousands)	June 30, 2013		December 31, 2012

Available for Sale Securities (at fair value):
U.S. Government agencies	$	1,317	$	—
State and municipal		15,538		13,007
U.S. Treasury Notes		1,750		1,751
Asset Backed Securities		131		210
Equity Securities		487		1,902
Corporate Securities		1,875		1,742
U.S. Government agencies and sponsored enterprises (GSEs)—residential:
Mortgage-backed securities		4,582		7,283
Collateralized mortgage obligations (CMOs)		4,314		5,191

Total	$	29,994	$	31,086

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Since the year end, total investment securities have decreased as a result of security calls, maturities, normal repayments and accelerated prepayments on mortgage-backed securities, and sales. None of the mortgage-backed securities in the portfolio are private label but are comprised of residential mortgage pass-through securities either guaranteed or issued by the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"). Securities issued by these agencies contain additional guarantees that make them among the most creditworthy investments available.

No securities are considered other-than-temporarily impaired based on management's evaluation of the individual securities, including the extent and length of any unrealized losses, and the Company's ability to hold the security until maturity or until the fair value recovers, and management's opinion that it will not have to sell the securities prior to recovery of value. The Company invests in securities for the cash flow and yields they produce and not to profit from trading. The Company holds no trading securities in its portfolio, and the portfolio does not contain high risk securities or derivatives as of June 30, 2013.

Restricted Investments in Bank Stocks

Restricted stock, which represents required investments in the common stock of correspondent banks is carried at cost and as of June 30, 2013 and December 31, 2012, consists of the common stock of the Federal Home Loan Bank of Pittsburgh ("FHLB").

Management believes no impairment charge is necessary with regard to such restricted stock as of June 30, 2013 and December 31, 2012.

Loans

The loan portfolio comprises the major component of the Company's earning assets and is the highest yielding asset category. Total loans, net of unearned income increased $339,000, or 0.46%, to $74,274,000 at June 30, 2013 from $73,935,000 at December 31, 2012. The major factor in the increase was increases in the mortgage loan portfolio related to refinancing. As new loans were recorded during the first six months of 2013, scheduled loan payments and increased prepayments and payoffs impacted loan growth.

All of the Company's loans are to domestic borrowers.

Credit Risk and Loan Quality

The following table presents non-performing loans and assets as of June 30, 2013 and December 31, 2012:

Non-Performing Assets (Dollars in thousands)	June 30, 2013			December 31, 2012

Accruing loans past due 90 days	$	—		$	—
Non-accrual loans		4,502			4,600

Total non-performing loans		4,502			4,600
Foreclosed real estate		63			68

Total non-performing assets	$	4,565		$	4,668

Non-performing loans to total loans		6.06	%		6.22	%
Non-performing assets to total assets		3.72	%		3.77	%
Allowance to non-performing loans		29.21	%		25.70	%

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The non-performing asset ratios presented in the table reflect a modest improvement in the credit quality of the loan portfolio since the 2012 year end. Through the first six months of 2013, the Bank experienced a decrease of $98,000 in total non-performing loans due to paydowns.

The Bank had $63,000 in real estate acquired through foreclosure as of June 30, 2013 as compared with $68,000 as of December 31, 2012. The foreclosed real estate as of June 30, 2013 consists of one property. The decrease at June 30, 2013 from December 31, 2012 is due to the sale of one property.

A loan concentration is considered to exist when the total amount of loans to any one or multiple number of borrowers engaged in similar activities or have similar economic characteristics exceed 10% of loans outstanding. There were no loan concentrations as of June 30, 2013 and December 31, 2012.

The Bank's lending policy is executed through the assignment of tiered loan limit authorities to individual officers of the Bank and the Board of Directors. Although the Bank maintains sound credit policies, certain loans may deteriorate for a variety of reasons. The Bank's policy is to place all loans in a non-accrual status upon becoming 90 days delinquent in their payments, unless the loan is well secured and there is documented, reasonable expectation of the collection of the delinquent amount. Loans are reviewed daily as to their status. Management is not aware of any potential loan problems that have not been disclosed in this report.

Allowance for Loan Losses

As a result of management's ongoing assessment as to the adequacy of the allowance for loan losses in consideration of the risks and trends associated with the loan portfolio, a provision of $226,000 was made to the allowance for loan losses for the six months ended June 30, 2013 as compared with $470,000 for the six months ended June 30, 2012. Management determined that the total of the allocated and unallocated allowance for loan losses was adequate to absorb any losses inherent in the portfolio. Although management believes that it uses the best information available to make such determinations, future adjustments to the allowance for loan losses may be necessary, and the results of operations could be significantly and adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing

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allowance for loan losses is adequate or that material increases will not be necessary should the quality of the loans deteriorate as a result of factors previously discussed.

Analysis of the Allowance for Loan Losses (Dollars in thousands)	June 30, 2013			June 30, 2012

Beginning balance	$	1,182		$	1,095
Provision for loan losses		226			470
Charge-offs:
Commercial real estate		6			595
Real estate mortgage		67			—
Installments		63			—

Total charge-offs		136			595

Recoveries:
Commercial		—			91
Real estate commercial		3			—
Real estate mortgage		28			—
Installments		12			1

Total recoveries		43			92

Net (charge-offs)/recoveries		(93	)		(503	)

Ending balance		1,315			1,062

Net (charge-offs)/recoveries to average loans (annualized)
Allowance for loan losses to total loans

The increase in the allowance for loan losses as a percentage of total loans as of June 30, 2013 as compared with June 30, 2012 primarily reflects additional amounts allocated through the provision for the calculation of impaired balances on the quarterly allowance for loan loss spreadsheet. Although management is proactive in identifying and dealing with credit issues that it can control, it anticipates that going forward, additional provisions to its allowance for loan losses may be warranted as a result of economic factors it cannot control.

Deposits

Deposits are the major source of the Bank's funds for lending and investing purposes. Total deposits at June 30, 2013 were $111,676,000, a decrease of $227,000, or 0.20%, from total deposits of $111,903,000 at December 31, 2012. Most of the deposit decline was attributable to normal fluctuations in the deposit balances over the course of the year.

Borrowings

The Bank had no outstanding balances at June 30, 2013 and December 31, 2012. The Bank has an unsecured line of credit for $3,000,000 with Atlantic Central Bankers Bank, Camp Hill, Pennsylvania. The Bank did not borrow under this line at June 30, 2013 and December 31, 2012.

Shareholders' Equity and Capital Adequacy

At June 30, 2013, shareholders' equity for the Company totaled $9,836,000, a decrease of $879,000 from shareholder equity of $10,715,000 at December 31, 2012. The decrease was due to the net loss coupled with an increase in the unrealized losses in the security portfolio due to fluctuations from market conditions.

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The Company meets the eligibility criteria of a small bank holding company in accordance with the Federal Reserve Board's Small Bank Holding Company Policy Statement. Accordingly, the Company is exempt from regulatory requirements administered by the federal banking agencies. However, the Bank is subject to various regulatory capital adequacy requirements administered by the Federal Reserve Board. The table that follows presents the Bank's capital ratios as determined and reported to its regulator. Tier 1 capital includes common stock, surplus, and retained earnings less disallowed goodwill and other intangible assets. Total capital consists of tier 1 capital and the allowance for loan losses. The Bank exceeds both the regulatory minimums and the requirements necessary for designation as a "well-capitalized" institution.

Capital Ratios (of Bank)

Tier 1 capital (to average assets)	7.2	%	7.9	%	4.0	%	5.0	%
Tier 1 capital (to risk-weighted assets)	10.0	%	10.7	%	4.0	%	6.0	%
Total risk-based capital (to risk-weighted assets)	11.3	%	12.0	%	8.0	%	10.0	%

Off-Balance Sheet Arrangements

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and to a lesser extent, letters of credit. At June 30, 2013, the Company had unfunded outstanding commitments to extend credit of $12,041,000 and outstanding letters of credit of $817,000. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements.

Liquidity

Liquidity refers to the Company's ability to generate adequate amounts of cash to meet financial obligations to its customers in order to fund loans, to respond to deposit outflows and to cover operating expenses. Maintaining a level of liquid funds through asset/liability management seeks to ensure that these needs are met at a reasonable cost. Liquidity is essential to compensate for fluctuations in the balance sheet and provide funds for growth and normal operating expenditures. Sources of liquidity are provided on a continuous basis through scheduled and unscheduled principal reductions and interest payments on outstanding loans and investment securities. Liquidity needs may also be met by converting assets into cash or obtaining sources of additional funding, whether through deposit growth, securities sold under agreements to repurchase or borrowings under lines of credit with correspondent banks.

Liquidity from the asset category is provided through cash, amounts due from banks, interest-bearing deposits with banks and federal funds sold, which totaled $14,490,000 at June 30, 2013, which was $417,000 higher than the $14,073,000 that was outstanding at December 31, 2012. While liquidity sources generated from assets include scheduled and prepayments of principle and interest from securities and loans in Union's portfolios, longer-term liquidity needs may be met by selling securities available-for-sale, selling loans or raising additional capital. At June 30, 2013, unpledged available-for-sale securities with a carrying value of $21,017,000 were readily available for sale for liquidity purposes as compared with $22,451,000 at December 31, 2012. This decrease was attributable to the decrease in the total loan portfolio due to calls and paydowns.

On the liability side, the primary source of funds available to meet liquidity needs is to attract deposits at competitive rates. The Bank's core deposits, which exclude certificates of deposit over $100,000, were $101,422,000 at June 30, 2013 as compared to $102,257,000 at December 31, 2012. Core deposits have historically provided a source of relatively stable and low cost liquidity. Short-term and

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long-term borrowings utilizing the federal funds line and credit facility established with a correspondent financial institution and the FHLB are also considered to be reliable sources for funding. As of June 30, 2013, the Bank had access to one formal borrowing line with its correspondent banks totaling $3,000,000, net of the aggregate amount outstanding on these lines totaling zero.

There are a number of factors that may impact the Company's liquidity position. Changes in interest rates, local economic conditions and the competitive marketplace can influence prepayments on investment securities, loan fundings and payments, and deposit flows. Management is of the opinion that its liquidity position at June 30, 2013 is adequate to respond to fluctuations "on" and "off" the balance sheet since it manages liquidity on a daily basis and expects to have sufficient funds to meet all of its funding requirements.

Except as discussed above, there are no known demands, trends, commitments, events or uncertainties that may result in, or that are reasonably likely to result in the Company's inability to meet anticipated or unexpected needs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information relating to this item.

ITEM 4. CONTROLS AND PROCEDURES

Union's Chief Executive Officer and Chief Financial Officer (Principal Accounting Officer) carried out an evaluation of the effectiveness of the design and the operation of Union's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2013, pursuant to Exchange Act Rule 15d-15. Based upon that evaluation, the Chief Executive Officer along with the Chief Financial Officer (Principal Accounting Officer) concluded that Union's disclosure controls and procedures as of June 30, 2013, are effective in timely alerting them to material information relating to Union that is required to be in Union's periodic filings under the Exchange Act.

There have been no changes in Union's internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect Union's internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

In the opinion of Union, after review with legal counsel, there are no proceedings pending to which Union is a party or to which its property is subject, which, if determined adversely to Union, would be material in relation to Union's consolidated financial condition. There are no proceedings pending other than ordinary, routine litigation incident to the business of Union. In addition, no material proceedings are pending or are known to be threatened or contemplated against Union by governmental authorities.

Item 1A. Risk Factors

Not required for smaller reporting companies.

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

Not applicable.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits.


2.1		Amended and Restated Agreement and Plan of Consolidation, dated April 24, 2013, between Riverview Financial Corporation and Union Bancorp, Inc. (Incorporated by reference to Annex A to Union Bancorp, Inc.'s Registration Statement No. 333-188193-1 on Amendment No. 2 to Form S-4 filed with the Securities and Exchange Commission on August 5, 2013).

3(i	)	Articles of Incorporation of Union Bancorp, Inc.

3(ii	)	By-laws of Union Bancorp, Inc.

11.1		Statements re computation of per share earnings (see Note 3 to Union Bancorp, Inc.'s unaudited consolidated financial statements filed herein).

31.1		Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

31.2		Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

32.1		Chief Executive Officer's §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

32.2		Chief Financial Officer's §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


		By:		/s/ MARK F. KETCH Mark F. Ketch President and Chief Executive Officer (Principal Executive Officer)
		Date: September 23, 2013
		By:		/s/ BRUCE HART Bruce Hart Chief Financial Officer (Principal Financial Officer)
		Date: September 23, 2013

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EXHIBIT INDEX


2.1		Amended and Restated Agreement and Plan of Consolidation, dated April 24, 2013, between Riverview Financial Corporation and Union Bancorp, Inc. (Incorporated by reference to Annex A to Union Bancorp, Inc.'s Registration Statement No. 333-188193-1 on Amendment No. 2 to Form S-4 filed with the Securities and Exchange Commission on August 5, 2013).

3(i	)	Articles of Incorporation of Union Bancorp, Inc.

3(ii	)	By-laws of Union Bancorp, Inc.

31.1		Section 302 Certification of the Chief Executive Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

31.2		Section 302 Certification of the Chief Financial Officer (Pursuant to Rule 13a-14(a)/15d-14(a)).

32.1		Chief Executive Officer's §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

32.2		Chief Financial Officer's §1350 Certification (Pursuant to Rule 13a-14(b)/15d-14(b)).

UNION BANCORP INC /PA/ 10-Q