2017

AnnualReport

43

UniBank continued to make investments for the future during 2017. We were pleased to enter the Shrewsbury market,

opening our newest branch in September. This branch highlights both our signature personalized service and our

commitment to the latest technology, offering a multi-function interactive teller machine (ITM). Likewise, we continued to

deliver enhancements to our online and mobile banking applications, added convenient functionality to the UniPay online

payment platform, and premiered “e by UniBank,” our digital-forward money management package that offers premium

deposit rates.

In 2017, we saw the retirement of our Interim President and CEO, Bill Mahoney, and the hiring of Sam Pepper, Jr. as the

new President and CEO. We look forward to prosperous times ahead under Sam’s leadership.

Finally, we would like to offer our sincere thanks to our customers and communities, and everyone associated with

UniBank. As we move confidently forward, we reflect on the many successes of the past year and renew our

commitment to making life better for those we are privileged to serve.

Sincerely,

The Board and Management of UniBank for Savings are pleased to report solid operating results for 2017, and prospects

for an even better 2018. Enhancements in technology, new products and services for customers, and a continued

commitment to serving our communities all lie ahead for our forward-thinking, 147 year-old mutual bank.

This year was another year of strong loan growth for UniBank. Our loan portfolio ended the year at $1.2 billion, an

increase of 8% year over year. This growth was well diversified, consisting of residential real-estate, consumer,

commercial and small business loans. In support of this lending, our deposit base also grew, ending the year at $1.5

billion, up 4% for the year. We have continued to benefit from our market leading position in municipal banking across the

state, and we experienced organic consumer and commercial growth in our core Central Massachusetts markets as well.

Late in December of 2017, the U.S. Federal Government enacted the “Tax Cuts and Jobs Act of 2017,” reducing the

corporate tax rate from 35% to 21% beginning in 2018. This reduced tax rate will benefit our earnings going forward, but

it created a one-time tax expense for 2017 that reduced our net income for the year. Like most banks and many other

companies around the country, the bank holds deferred tax assets that had to be revalued as a result of the decrease in

future tax rates. This led to a one-time charge of $3.6 million. While the Bank recorded solid pre-tax earnings of $12.1

million, this charge reduced after-tax net income to $4.8 million. We estimate that this charge will be recovered through

reduced future taxes within the next 18 months.

WelcomeSam S. Pepper, Jr. and Timothy P. Wickstrom

Sam S. Pepper, Jr. President and CEO

Timothy P. WickstromChairman of the Board

65

A YEAR OF CHANGE

In 2017, we saw many changes and a reinvestment

in our franchise.

We welcomed several new members to our team,

including Sam Pepper, Jr., as President and CEO; Gary

Baxter as SVP and CIO and Maureen Huffam as SVP

of Human Resources. These additions have

already made a positive impact on our company,

and we’re excited to see what contributions they’ll

make next.

We launched an entirely new UniBank brand. It was

the first update to UniBank’s look and feel since 2000.

Our new brand position communicates everything

we value and provides us with a strong position in the

market. This new identity will confidently carry us

into the future.

We entered a new market as we opened our newest

branch in Shrewsbury. The Shrewsbury branch

highlights the future of banking, offering the latest

technology and driving home our commitment to

personalized service.

With what we’ve accomplished in 2017 — detailed

above and in the three stories to follow — we’re well

positioned for a profitable 2018.

AN IMPRESSIVE OPENING IN SHREWSBURY

Located at the former location of the iconic Spag’s, our

Shrewsbury branch is the first location to fully feature our

new brand. This branch showcases UniBank’s new look

and feel, as well as our new message of “Bank Different.

Bank Unique.” The interior is sleek and modern, featuring

UniBank’s signature brand colors and patterns.

This state-of-the-art branch features updated technology

in the form of a new interactive teller machine (ITM).

More than an ATM, the ITM is interactive and can

dispense money in exact change, accept deposits, cash

checks and more. It can do almost all of the functions of

a bank teller, including an option for a “live chat” with a

Customer Contact representative, if needed.

Since opening, the new branch has generated almost

$3 million in mortgage, home equity, and personal loans,

as well as nearly $8.5 million in deposits.

BIG GROWTH IN UNIPAY

UniPay, a leader in payment solutions in Massachusetts,

had another great year in 2017.

• We grew more than 12.1% in transactions processed

for a total of 1,566,040 transactions*

• The number of residents that registered in our system

to save their payment data increased 15.5% over 2016,

with 532,247 people now registered in the system

• UniPay was a great source of revenue in 2017

reflecting growth of 13.1% from 2016

The biggest enhancements in 2017 were the addition of

recurring payments and auto payments. Now, customers

can register to have their bills paid automatically, allowing

them to “set it and forget it” or set up recurring payments.

We began development for other feature functionality,

including “pay by text” and the ability to utilize PayPal as

a payment option. We expect both to be available in 2018.

2018 will continue to bring efficiencies to our clients with

system enhancements. One efficiency to be added to

the current suite of services will be enhanced reporting

capabilities which is sure to save our clients time

and money.

We continued to add to our client base in 2017, bringing

on new departments within each city and town where

UniPay is active. We have added transactions for

departments, including Town Collector, Town Clerk,

Airports, Golf Courses, Council on Aging, Recreation,

Town Police, Town Library, Public and Regional Schools,

Harbor Master, Human Resources, Health Department

and Cemeteries.

This has been an extremely successful year in terms

of expanding our department base and penetrating our

payment system into new areas of our clients’ business.

*The total dollars processed was $647,353,594, an amazing increase of 22.5% over 2016

A Look Back

For the opening week of the Shrewsbury location, we performed random acts of kindness and also made a $50,000 charitable donation commitment to the Shrewsbury community.

UniPay offers: • 24/7 convenience for your customers• Customizable payment options • Real-time reporting• Fast remittance to your bank account• Fast updates• Easy account reconciliation• Flexible lock box download capabilities• And more!

UniBank’s Community Giving Program encouraged customers and the general public to vote from a selection of eight community organizations that were identified by UniBank. In total, $13,000 was given to Shrewsbury organizations as part of the program.

(left-right): Karen Chapman, President, Corridor Nine Area Chamber of Commerce; Christopher Foley, SVP, Director of Retail Banking, UniBank; Wendy Brown, VP, Regional Manager, UniBank; Mary Simone, Chair, Corridor Nine Area Chamber of Commerce; Matthew Armenti, Shrewsbury Branch Manager, UniBank; Sam J. Pepper, Jr., President & CEO, UniBank; Moira Miller, Shrewsbury Selectman; Tim Kane, Shrewsbury Selectman; Moe DePalo, Shrewsbury Selectman.

7

YEAR ONE OF INVEST WORCESTER

We’re pleased to report that UniBank’s innovative

Invest Worcester program has completed its first year,

with impressive results. Invest Worcester currently has

deposits of $3.7 million and $9.4 million in loans to

Worcester-based businesses, non-profits and home

buyers. The Invest Worcester program guarantees

depositors that their money will “stay home” and be

used to help make Worcester a better place to live.

In developing the Invest Worcester program, UniBank

addressed a feeling many people have: “I’m just one

person, what can I do to address Worcester’s challenges?”

Invest Worcester creates a “partnership” between

UniBank, individuals and businesses, allowing depositors

to pool resources and invest in Worcester. Deposits range

from under $100 to well into the thousands.

These deposits are leveraged and made available for loans

within Worcester to promote home ownership, help small

businesses grow, and assist in community development

projects. Among those receiving Invest Worcester loans

during 2017 were the Worcester Business Development

Corporation (WBDC), Domitek, Ready 2 Run Graphics, the

Worcester Historical Museum, and more.

Invest Worcester is not a charity. Depositors currently

earn a premium rate of interest on their deposits, while

also enjoying the security of insurance backed by the

FDIC and DIF. All loans offered through the Invest

Worcester program must meet UniBank’s underwriting

requirements and be repaid so new loans can be made

to other qualifying businesses and foundations.

Media Coverage and Accolades for Invest Worcester

Launched on November 28, 2016, UniBank’s Invest Worcester Program was given Honorable Recognition within the category of Community and Economic Development in the 2017 American Banker’s Association Community Commitment Awards.

Invest Worcester is a socially responsible savings account that leverages the money deposited to provide loans in Worcester at favorable terms for homeownership, community development, and to help small businesses prosper.

119

SUBSIDIARIES

UNIBANK FISCAL ADVISORY SERVICES, INC.

UFASI maintained its track record of assisting our municipal clients with financing critical projects such as new schools,

libraries, roads, and infrastructure. We are also constantly on the look-out for refinancing opportunities, which save our

clients, and their taxpayers, significant amounts in debt service costs. Through the use of competitive debt sales, UFASI

is able to ensure the lowest possible cost to borrow in any given market conditions. In 2017, we assisted in 306 individual

transactions, totaling over $861 million. UFASI’s efforts contributed $1.6 million in gross revenue to UniBank’s fee income

line item.

UNIPAYDIRECT

UniPayDirect, our secure payment collection solution designed for community banks, municipalities and partner

organizations to collect online payments, had a solid year in 2017. Our partner banks continue to see growth in UniPay

transactions resulting in fee income for the franchise. We continue to meet with banks and have a healthy pipeline we

expect to convert to customers in fiscal year 2018.

STERLING ASSOCIATES

Sterling Associates took advantage of the rebounding economy in 2017 to increase revenue to a new high of $3.5 million.

This represented year-over-year growth of 11%. The company contribution to UniBank’s loan portfolio was $110 million,

which helped push Sterling past the $300 million mark in 2017. These numbers reflect Sterling’s growing contribution to

the Bancorp, adding pretax earnings in excess of $1 million for the year.

CONSUMER BANKING

This was a big year for us. We launched a new brand and

expanded into new markets. In addition to expanding into

Shrewsbury, we began a year-long project converting our

legacy branches to reflect the look of our new brand.

We expect interior transformation to be completed by

June 2019.

We held a series of mortgage seminars that generated

an additional $2 million in new mortgage loans. And

our Customer Contact Center assisted nearly 80,000

customers via phone inquiries. We also held several

small business seminars on a variety of topics to help

local small businesses prosper.

GOVERNMENT

UniBank’s Government Banking department continues

to be a leader in Massachusetts, providing municipal

services to well over 85% of the municipalities in the state.

UniBank continues to be the only community bank with a

department fully dedicated to the municipal marketplace.

Through our UniPay product, growing numbers of

municipal departments collect payments electronically,

providing both convenience and efficiencies for residents

and municipalities. UniBank’s electronic bill presentment

offers municipalities a “green” solution, saving thousands

of dollars on both printing and postage.

LENDING

It was another great year for lending at UniBank, with

several areas of growth as compared to 2016.

RESIDENTIAL LENDING

• Increased our in-house portfolio by 10.15%

or $33.5 million

• Our year-end in-house mortgage portfolio

stands at $363.9 million

FREDDIE MAC

• Increased our Freddie Mac portfolio by 1% or

$3.3 million

• Year-end Freddie Mac portfolio stands at

$335.6 million

• Generated $521.6 thousand in Loan Sale Income

• Generated $839.0 thousand in gross servicing income

CONSUMER

• Increased our consumer portfolio by 10.5% or

$39.9 million

• Year-end portfolio stands at $420.0 million

SMALL BUSINESS LENDING

• Loan originations: $5 million — nearly doubled from 2016

• Ranked #7 for SBA lending with 64 new SBA loans

COMMERCIAL LENDING

Once again, UniBank was voted Best Bank for Business

by Worcester Business Journal readers. UniBank had a

strong year in terms of commercial loan originations with

$86.1 million in new loans and $15 million in net growth.

Here’s a snapshot of our 2017 Commercial Lending

portfolio:

• Outstanding commercial loans: $411.4 million

(3.87% growth)

• Commercial deposits: $54.6 million

• Commercial cash management fee income: $299,581

2017 in review $699,565,977

$1,119,592,772

Total Residential In-House and Freddie Mac Loan Portfolios

Total Residential In-House, Freddie and Consumer Portfolio

12

A COMMITMENT TO OUR LOCAL COMMUNITIES

GIVING BACK TO THE AREAS WE SERVE

Though 2017 was a year of change, it was also

a year of giving back. We had several employees

volunteer their time as Committee and Board

Members for over 30 community organizations.

Employees spent four nights over the course of the

year preparing and serving dinner at the Peace of

Bread Community Kitchen in Whitinsville. Seventeen

employees volunteered at the Community Harvest

Project, where they grew fresh fruits and vegetables

to provide to those experiencing hunger. In May,

UniBank held an apparel drive to benefit the

Worcester Area Dress for Success. This organization

provides many resources to empower a diverse

population of women from our community to

re-enter the workforce.

EMPLOYEE OUTREACH

In addition to community service, UniBank

employees gave back through financial outreach

in 2017. Throughout the year, we presented 13 First-

Time Homebuyer Seminars and Small Business

seminars in Milford, Grafton, and Whitinsville.

UniBank employees conducted FDIC SmartMoney

Financial Literacy Training at the Worcester Summer

Youth Training Symposium. Employees volunteered

for the Worcester Free Tax Service Coalition, as

well as participated in the Nipmuc Regional School

District Financial Reality Fair, where they spoke with

250 sophomores and juniors about their checking

and savings choices.

Named Corporate

Citizen of The Year by

the Worcester Educational

Development Foundation

Won the March of

Dimes bank challenge

Laid the groundwork

to launch a comprehensive

Financial Literacy Program

Provided $46,000

in college scholarships

UniBank awarded a total of $46,000 in scholarships to twenty-three class of 2017 graduates from local high schools in the towns of Blackstone, Douglas, Grafton, Hopedale, Hopkinton, Milford, Shrewsbury, Sutton, Upton, Uxbridge, Whitinsville, and Worcester as part of the bank’s annual scholarship program supporting the educational endeavors of exceptional students in the towns served by UniBank.

(left-right): Joe Vettese, Relationship Banker Supervisor of UniBank’s Shrewsbury branch, purchased goods for Kristen Vigliotti at the Bean Counter Café as part of UniBank’s Random Acts of Kindness giving program.

Each one of you has made an impact on our

business. As we continue to move into our

company’s bright future, we are honored to

have all of you along for the journey.

THANK YOU FOR BEING A PART OF THE UNIBANK FAMILY.

150,000

120,000

90,000

60,000

30,000

02014 2015 2016 2017

RETAINED EARNINGS

$ IN

THO

USAN

DS

1,600

1,400

1,200

1,000

800

600

400

200

02014 2015 2016 2017

TOTAL DEPOSITS

$ IN

MIL

LION

S

1,400

1,200

1,000

800

600

400

200

02014 2015 2016 2017

LOANS

$ IN

MIL

LION

S

70,000

60,000

50,000

40,000

30,000

20,000

10,000

02014 2015 2016 2017

REVENUE

$ IN

THO

USAN

DS

1413

FINANCIAL STATEMENTS

UFS Bancorp and SubsidiaryConsolidated Statements of Condition

December 31(Dollars in Thousands)

2017 2016

ASSETS

Cash and due from banks $ 5,704 $ 6,191

Interest-bearing deposits 29,532 19,370

Short-term investments 2 3

Total cash and cash equivalents 35,238 25,564

Securities available for sale, at fair value 289,614 317,710

Securities held to maturity 42,347 39,226

Federal Home Loan Bank stock, at cost 4,083 3,498

Loans, net of allowance for loan losses of $11,861,000 in 2017 and $10,723,000 in 2016 1,183,914 1,097,822

Premises and equipment, net 20,020 21,002

Accrued interest receivable 3,617 3,193

Deferred income taxes 7,874 10,151

Bank-owned life insurance 8,628 8,411

Other assets 5,294 5,755

Total Assets $ 1,600,629 $ 1,532,332

LIABILITIES & RETAINED EARNINGS

Deposits $ 1,451,573 $ 1,392,079

Mortgagors' escrow accounts 1,200 1,064

Accrued expenses and other liabilities 12,392 8,317

Total liabilities 1,465,165 1,401,460

Retained earnings 140,125 134,507

Accumulated other comprehensive income (4,661) (3,635)

Total retained earnings 135,464 130,872

Total Liabilities & Retained Earnings $ 1,600,629 $ 1,532,332

UFS Bancorp and SubsidiaryConsolidated Statements of Income

December 31(Dollars in Thousands)

2017 2016

Interest and dividend income:

Loans, including fees $ 43,713 $ 40,956

Debt securities 5,939 5,489

Equity securities 159 162

Interest-bearing deposits and short term investments 733 531

Total interest and dividend income 50,544 47,138

Interest expense:

Deposits 4,734 4,194

Federal Home Loan Bank advances 176 16

Total interest expense 4,910 4,210

Net interest income 45,634 42,928

Provision for loan losses 1,200 990

Net interest income, after provision for loan losses 44,434 41,938

Non-interest income:

Customer service fees 4,794 4,779

Loan referral fees 3,129 2,940

Fiscal advisory service fees 1,614 1,741

Gain on sale of securities, net 10 43

Gain on sale of loans, net 419 1,028

Other 1,043 1,076

Total non-interest income 11,009 11,607

Non-interest expenses:

Salaries and employee benefits 25,387 23,272

Occupancy and equipment 6,556 6,479

Professional services 1,836 1,755

Data processing services 2,207 2,004

FDIC deposit insurance 1,099 1,077

Advertising and marketing 2,091 1,507

Other general and administrative 4,180 3,790

Total non-interest expenses 43,356 39,884

Income before income taxes 12,087 13,661

Provision for income taxes 7,278 4,421

Net income $ 4,809 $ 9,240

2017

AnnualReport