UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, ~~2021~~

2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ~~_______~~ to ~~__________~~

Commission File Number 000-16435

COMMUNITY BANCORP /VT

(Exact name of Registrant as Specified in its Charter)

Vermont			03-0284070
(State of Incorporation)			(IRS Employer Identification Number)

4811 US Route 5, Derby, Vermont			05829
(Address of Principal Executive Offices)			(zip code)

~~Registrant’s~~

Registrant's Telephone Number: (802) 334-7915

Securities registered pursuant to Section 12(b) of the Act: NONE

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
	(Not Applicable)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 ☒ NO ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated ~~filer~~Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~Yes~~YES ☐ NoNO ☒

At November ~~8, 2021,~~3, 2022, there were ~~5,363,403~~5,421,386 shares outstanding of the ~~Corporation’s~~Corporation's common stock.

~~FORM 10-Q~~

~~Index~~FORM 10-Q
	Index
		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3	Quantitative and Qualitative Disclosures About Market Risk	53	50
Item 4	Controls and Procedures	53	50

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	54	51
Item 1A	Risk Factors	54	51
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	54	51
Item 6	Exhibits	55	52
	Signatures	56	53
	Exhibit Index	57	54

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

The following are the unaudited consolidated financial statements for the Company.

Community Bancorp. and Subsidiary	September 30,			December 31,			September 30,			December 31,
Consolidated Balance Sheets	2021			2020			2022			2021
	(Unaudited)						(Unaudited)

Assets
Cash and due from banks	$	32,717,906		$	10,850,787		$	13,796,288		$	17,839,374
Federal funds sold and overnight deposits		97,034,130			104,199,133			60,105,975			92,519,552
Total cash and cash equivalents		129,752,036			115,049,920			73,902,263			110,358,926
Securities available-for-sale		110,676,139			60,705,178			187,227,320			182,342,459
Restricted equity securities, at cost		1,447,150			1,446,550			1,390,950			1,434,450
Loans held-for-sale		50,000			130,400			130,000			339,000
Loans		692,638,375			709,355,330			724,194,001			689,988,533
Allowance for loan losses		(7,819,307	)		(7,208,485	)		(8,432,086	)		(7,710,256	)
Deferred net loan fees		(1,149,278	)		(1,195,741	)
Deferred net loan costs (fees)								466,602			(37,972	)
Net loans		683,669,790			700,951,104			716,228,517			682,240,305
Bank premises and equipment, net		13,992,622			10,209,869			13,163,010			13,767,328
Accrued interest receivable		2,730,415			2,987,977			2,709,745			2,400,560
Bank owned life insurance		5,052,197			4,988,236			5,133,661			5,073,228
Goodwill		11,574,269			11,574,269			11,574,269			11,574,269
Other Assets		9,639,649			10,189,781
Other assets								15,425,215			9,575,274
Total assets	$	968,584,267		$	918,233,284		$	1,026,884,950		$	1,019,105,799

Liabilities and Shareholders’ Equity
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	201,415,866		$	185,954,976		$	210,463,414		$	209,465,151
Interest-bearing transaction accounts		237,282,454			228,712,371			269,907,036			265,513,937
Money market funds		124,792,185			115,546,064			137,639,793			129,728,954
Savings		168,966,595			138,745,468			179,853,917			168,390,905
Time deposits, $250,000 and over		16,511,010			16,488,963			15,433,461			17,463,871
Other time deposits		91,126,650			96,842,998			89,743,528			88,837,135
Total deposits		840,094,760			782,290,840			903,041,149			879,399,953
Borrowed funds		2,300,000			2,800,000			1,300,000			1,300,000
Repurchase agreements		22,352,213			38,727,312			32,254,924			32,609,875
Junior subordinated debentures		12,887,000			12,887,000			12,887,000			12,887,000
Accrued interest and other liabilities		7,735,592			4,239,419			7,862,052			8,148,703
Total liabilities		885,369,565			840,944,571			957,345,125			934,345,531

Shareholders’ Equity
Preferred stock, 1,000,000shares authorized, 15 shares issued and outstanding
at 09/30/21 and 12/31/20 ($100,000 liquidation value, per share)		1,500,000			1,500,000
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,575,074
shares issued at 09/30/21 and 5,527,380 shares issued at 12/31/20		13,937,685			13,818,450
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 09/30/22 and 12/31/21 (100,000 liquidation value, per share)								1,500,000			1,500,000
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,628,909 shares issued at 09/30/22 and 5,587,939 shares issued at 12/31/21								14,072,273			13,969,848
Additional paid-in capital		35,098,086			34,309,646			36,117,612			35,322,063
Retained earnings		35,583,213			29,368,046			43,032,064			37,758,105
Accumulated other comprehensive (loss) income		(281,505	)		915,348
Less: treasury stock, at cost; 210,101 shares at 09/30/21 and 12/31/20		(2,622,777	)		(2,622,777	)
Total shareholders’ equity		83,214,702			77,288,713
Total liabilities and shareholders’ equity	$	968,584,267		$	918,233,284
Accumulated other comprehensive loss								(22,559,347	)		(1,166,971	)
Less: treasury stock, at cost; 210,101 shares at 09/30/22 and 12/31/21								(2,622,777	)		(2,622,777	)
Total shareholders' equity								69,539,825			84,760,268
Total liabilities and shareholders' equity							$	1,026,884,950		$	1,019,105,799

Book value per common share outstanding	$	15.23		$	14.25		$	12.56		$	15.48

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

Table of Contents

Community Bancorp. and Subsidiary	Three Months Ended September 30,				Three Months Ended September 30,
Consolidated Statements of Income	2021		2020		2022		2021
(Unaudited)

Interest income
Interest and fees on loans	$	8,778,173	$	7,742,914	$	8,182,209	$	8,778,173
Interest on taxable debt securities		325,002		249,341		799,856		325,002
Interest on tax-exempt debt securities						68,155		0
Dividends		14,666		17,715		23,029		14,666
Interest on federal funds sold and overnight deposits		92,923		76,896		358,907		92,923
Total interest income		9,210,764		8,086,866		9,432,156		9,210,764

Interest expense
Interest on deposits		594,327		877,466		837,983		594,327
Interest on borrowed funds		19,721		1,806		21,363		19,721
Interest on repurchase agreements		16,871		67,327		45,153		16,871
Interest on junior subordinated debentures		97,776		104,181		154,091		97,776
Total interest expense		728,695		1,050,780		1,058,590		728,695

Net interest income		8,482,069		7,036,086		8,373,566		8,482,069
Provision for loan losses		89,167		362,499		125,000		89,167
Net interest income after provision for loan losses		8,392,902		6,673,587		8,248,566		8,392,902

Non-interest income
Service fees		882,688		794,381		939,807		882,688
Income from sold loans		242,560		601,825		109,411		242,560
Other income from loans		223,388		281,959		301,710		223,388
Other income		351,950		263,130		180,675		351,950
Total non-interest income		1,700,586		1,941,295		1,531,603		1,700,586

Non-interest expense
Salaries and wages		2,002,999		1,958,754		1,984,000		2,002,999
Employee benefits		811,817		791,172		629,681		811,817
Occupancy expenses, net		743,219		601,093		677,805		743,219
Other expenses		1,973,822		1,753,698		2,049,423		1,973,822
Total non-interest expense		5,531,857		5,104,717		5,340,909		5,531,857

Income before income taxes		4,561,632		3,510,165		4,439,260		4,561,631
Income tax expense		862,429		629,722		828,754		862,429
Net income	$	3,699,202	$	2,880,443	$	3,610,506	$	3,699,202

Earnings per common share	$	0.69	$	0.54	$	0.66	$	0.69
Weighted average number of common shares used in computing earnings per share		5,354,187		5,285,771		5,409,612		5,354,187
Dividends declared per common share	$	0.22	$	0.19	$	0.23	$	0.22

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

Table of Contents

Community Bancorp. and Subsidiary	Nine Months Ended September 30,				Nine Months Ended September 30,
Consolidated Statements of Income	2021		2020		2022		2021
(Unaudited)

Interest income
Interest and fees on loans	$	24,919,892	$	22,951,272	$	23,300,119	$	24,919,892
Interest on taxable debt securities		883,846		787,275		2,192,540		883,846
Interest on tax-exempt debt securities						112,890		0
Dividends		40,265		63,540		56,121		40,265
Interest on federal funds sold and overnight deposits		260,811		248,373		609,532		260,811
Total interest income		26,104,814		24,050,460		26,271,202		26,104,814

Interest expense
Interest on deposits		1,930,664		3,154,211		1,975,401		1,930,664
Interest on borrowed funds		49,111		18,335		64,993		49,111
Interest on repurchase agreements		72,822		185,868		88,322		72,822
Interest on junior subordinated debentures		296,486		375,669		373,506		296,486
Total interest expense		2,349,083		3,734,083		2,502,222		2,349,083

Net interest income		23,755,731		20,316,377		23,768,980		23,755,731
Provision for loan losses		624,165		1,046,501		1,325,000		624,165
Net interest income after provision for loan losses		23,131,566		19,269,876		22,443,980		23,131,566

Non-interest income
Service fees		2,527,943		2,322,112		2,739,076		2,527,943
Income from sold loans		704,627		1,138,579		508,795		704,627
Other income from loans		653,377		803,555		895,884		653,377
Net realized gain on sale of securities AFS		0		39,086
Other income		1,155,405		753,772		708,574		1,155,405
Total non-interest income		5,041,352		5,057,104		4,852,329		5,041,352

Non-interest expense
Salaries and wages		5,923,001		5,773,491		6,058,000		5,923,001
Employee benefits		2,467,237		2,324,055		2,106,356		2,467,237
Occupancy expenses, net		2,140,141		1,921,597		2,104,346		2,140,141
Other expenses		5,635,925		5,166,247		5,960,259		5,635,925
Total non-interest expense		16,166,304		15,185,390		16,228,961		16,166,304

Income before income taxes		12,006,614		9,141,590		11,067,348		12,006,614
Income tax expense		2,235,305		1,557,598		2,030,148		2,235,305
Net income	$	9,771,309	$	7,583,992	$	9,037,200	$	9,771,309

Earnings per common share	$	1.82	$	1.43	$	1.67	$	1.82
Weighted average number of common shares used in computing earnings per share		5,338,481		5,264,802		5,396,215		5,338,481
Dividends declared per common share	$	0.66	$	0.57	$	0.69	$	0.66

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

Table of Contents

Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)	Three Months Ended September 30,						Three Months Ended September 30,
	2021			2020			2022			2021

Net income	$	3,699,202		$	2,880,443		$	3,610,506		$	3,699,202

Other comprehensive loss, net of tax:
Unrealized holding loss on securities AFS arising during the period		(475,176	)		(49,737	)		(8,978,128	)		(475,176	)
Tax effect		99,786			10,444			1,885,407			99,786
Other comprehensive loss, net of tax		(375,390	)		(39,293	)		(7,092,721	)		(375,390	)
Total comprehensive income	$	3,323,812		$	2,841,150
Total comprehensive (loss) income							$	(3,482,215	)	$	3,323,812

Nine Months Ended
September 30,

2021

2020

Net income

$ 9,771,309

$ 7,583,992

Other comprehensive (loss) income, net of tax:

Unrealized holding (loss) gain on securities AFS arising during the period

(1,515,004 )

939,486

Reclassification adjustment for gain realized in income

0

(39,086 )
Unrealized (loss) gain during the period

(1,515,004 )

900,400

Tax effect

318,151

(189,085 )
Other comprehensive (loss) income, net of tax

(1,196,853 )

711,315

Total comprehensive income

$ 8,574,456

$ 8,295,307

Nine Months Ended September 30,

2022

2021

Net income

$ 9,037,200

$ 9,771,309

Other comprehensive loss, net of tax:

Unrealized holding loss on securities AFS arising during the period

(27,078,956 )

(1,515,004 )
Tax effect

5,686,580

318,151

Other comprehensive loss, net of tax

(21,392,376 )

(1,196,853 )
Total comprehensive (loss) income

$
(12,355,176
)

$ 8,574,456

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

6
Table of Contents

Community Bancorp. and Subsidiary
Consolidated Statements of Changes in ~~Shareholders’~~Shareholders' Equity
(Unaudited)

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2022

Additional

Total

Additional

Total

Common

Preferred

paid-in

Retained

Treasury

shareholders’

Common

Preferred

paid-in

Retained

Treasury

shareholders'

Stock

Stock

capital

earnings

AOCI*

stock

equity

Stock

Stock

capital

earnings

AOCI*

stock

equity

January 1, 2021

$ 13,818,450

$ 1,500,000

$ 34,309,646

$ 29,368,046

$ 915,348

$
(2,622,777
)
$ 77,288,713

January 1, 2022

$ 13,969,848

$ 1,500,000

$ 35,322,063

$ 37,758,105

$ (1,166,971 )

$ (2,622,777 )

$ 84,760,268

Issuance of common stock

42,523

222,256

264,779

35,597

237,086

272,683

Cash dividends declared

Common stock

(1,169,555 )

(1,169,555 )

(1,236,880 )

(1,236,880 )
Preferred stock

(12,188 )

(12,188 )

(12,188 )

(12,188 )
Comprehensive income

Net income

3,025,701

3,025,701

2,405,542

2,405,542

Other comprehensive loss

(1,311,905 )

(1,311,905 )

(8,744,637 )

(8,744,637 )
March 31, 2021

$ 13,860,973

$ 1,500,000

$ 34,531,902

$ 31,212,004

$
(396,557
)
$
(2,622,777
)
$ 78,085,545

Issuance of common stock

38,695

251,441

290,136

Cash dividends declared

Common stock

(1,173,253 )

(1,173,253 )
Preferred stock

(12,187 )

(12,187 )
Comprehensive income

Net income

3,046,406

3,046,406

Other comprehensive income

490,442

490,442

June 30, 2021

$ 13,899,668

$ 1,500,000

$ 34,783,343

$ 33,072,970

$ 93,885

$
(2,622,777
)
$ 80,727,089

March 31, 2022

$ 14,005,445

$ 1,500,000

$ 35,559,149

$ 38,914,579

$ (9,911,608 )

$ (2,622,777 )

$ 77,444,788

Issuance of common stock

38,017

314,743

352,760

33,048

287,882

320,930

Cash dividends declared

Common stock

(1,176,771 )

(1,176,771 )

(1,240,049 )

(1,240,049 )
Preferred stock

(12,188 )

(12,188 )

(13,124 )

(13,124 )
Comprehensive income

Net income

3,699,202

3,699,202

3,021,152

3,021,152

Other comprehensive loss

(375,390 )

(375,390 )

(5,555,018 )

(5,555,018 )
September 30, 2021

$ 13,937,685

$ 1,500,000

$ 35,098,086

$ 35,583,213

$
(281,505
)
$
(2,622,777
)
$ 83,214,702

June 30, 2022

$ 14,038,493

$ 1,500,000

$ 35,847,031

$ 40,682,558

$ (15,466,626 )

$ (2,622,777 )

$ 73,978,679

Issuance of common stock

33,780

270,581

304,361

Cash dividends declared

Common stock

(1,243,187 )

(1,243,187 )
Preferred stock

(17,813 )

(17,813 )
Comprehensive income

Net income

3,610,506

3,610,506

Other comprehensive loss

(7,092,721 )

(7,092,721 )
September 30, 2022

$ 14,072,273

$ 1,500,000

$ 36,117,612

$ 43,032,064

$ (22,559,347 )

$ (2,622,777 )

$ 69,539,825

*Accumulated other comprehensive ~~(loss) income~~loss

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

7
Table of Contents

Nine Months Ended September 30, 2020

Additional

Total

Common

Preferred

paid-in

Retained

Treasury

shareholders’

Stock

Stock

capital

earnings

AOCI*

stock

equity

January 1, 2020

$ 13,624,643

$ 1,500,000

$ 33,464,381

$ 22,667,949

$ 260,483

$
(2,622,777)

$ 68,894,679

Issuance of common stock

40,465

213,812

254,277

Cash dividends declared

Common stock

(995,536 )

(995,536 )
Preferred stock

(17,813 )

(17,813 )
Comprehensive income

Net income

1,861,239

1,861,239

Other comprehensive income

586,646

586,646

March 31, 2020

$ 13,665,108

$ 1,500,000

$ 33,678,193

$ 23,515,839

$ 847,129

$
(2,622,777)

$ 70,583,492

Issuance of common stock

47,752

214,135

261,887

Cash dividends declared

Common stock

(998,899 )

(998,899 )
Preferred stock

(12,187 )

(12,187 )
Comprehensive income

Net income

2,842,311

2,842,311

Other comprehensive income

163,962

163,962

June 30, 2020

$ 13,712,860

$ 1,500,000

$ 33,892,328

$ 25,347,064

$ 1,011,091

$
(2,622,777)

$ 72,840,566

Issuance of common stock

62,920

200,826

263,746

Cash dividends declared

Common stock

(1,002,969 )

(1,002,969 )
Preferred stock

(12,188 )

(12,188 )
Comprehensive income

Net income

2,880,443

2,880,443

Other comprehensive loss

(39,293 )

(39,293 )
September 30, 2020

$ 13,775,780

$ 1,500,000

$ 34,093,154

$ 27,212,350

$ 971,798

$
(2,622,777)

$ 74,930,305

Community Bancorp. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)

Nine Months Ended September 30, 2021

Additional

Total

Common

Preferred

paid-in

Retained

Treasury

shareholders'

Stock

Stock

capital

earnings

AOCI*

stock

equity

January 1, 2021

$ 13,818,450

$ 1,500,000

$ 34,309,646

$ 29,368,046

$ 915,348

$
(2,622,777)

$ 77,288,713

Issuance of common stock

42,523

222,256

264,779

Cash dividends declared

Common stock

(1,169,555 )

(1,169,555 )
Preferred stock

(12,188 )

(12,188 )
Redemption of preferred stock

0

Comprehensive income

Net income

3,025,701

3,025,701

Other comprehensive loss

(1,311,905 )

(1,311,905 )
March 31, 2021

$ 13,860,973

$ 1,500,000

$ 34,531,902

$ 31,212,004

$ (396,557 )

$ (2,622,777 )

$ 78,085,545

Issuance of common stock

38,695

251,441

290,136

Cash dividends declared

Common stock

(1,173,253 )

(1,173,253 )
Preferred stock

(12,187 )

(12,187 )
Comprehensive income

Net income

3,046,406

3,046,406

Other comprehensive income

490,442

490,442

June 30, 2021

$ 13,899,668

$ 1,500,000

$ 34,783,343

$ 33,072,970

$ 93,885

$ (2,622,777 )

$ 80,727,089

Issuance of common stock

38,017

314,743

352,760

Cash dividends declared

Common stock

(1,176,771 )

(1,176,771 )
Preferred stock

(12,188 )

(12,188 )
Comprehensive income

Net income

3,699,202

3,699,202

Other comprehensive loss

(375,390 )

(375,390 )
September 30, 2021

$ 13,937,685

$ 1,500,000

$ 35,098,086

$ 35,583,213

$ (281,505 )

$ (2,622,777 )

$ 83,214,702

*Accumulated other comprehensive income (loss)

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

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Table of Contents

Community Bancorp. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2022

2021

Cash Flows from Operating Activities:

Net income

$ 9,771,309

$ 7,583,992

$ 9,037,200

$ 9,771,309

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization, bank premises and equipment

815,454

677,086

853,685

815,454

Provision for loan losses

624,165

1,046,501

1,325,000

624,165

Deferred income tax

(75,779 )

(128,103 )

(38,020 )

(75,779 )
Net realized gain on sale of securities AFS

0

(39,086 )
Gain on sale of loans

(404,428 )

(766,440 )

(218,501 )

(404,428 )
Gain on sale of bank premises and equipment

(7,559 )

0

0

(7,559 )
Gain on sale of OREO

0

(55,602 )
Capital loss on leases

63,125

0

0

63,125

Income from CFS Partners

(834,781 )

(462,964 )

(386,217 )

(834,781 )
Amortization of bond premium, net

355,461

55,568

518,833

355,461

Proceeds from sales of loans held for sale

6,487,773

31,538,375

10,456,242

6,487,773

Originations of loans held for sale

(6,002,945 )

(32,015,674 )

(10,028,741 )

(6,002,945 )
Decrease in taxes payable

(376,202 )

(145,105 )
Decrease (increase) in interest receivable

257,562

(873,638 )
Decrease (increase) in mortgage servicing rights

23,797

(31,463 )
Increase (decrease) in taxes payable

251,872

(376,202 )
(Increase) decrease in interest receivable

(309,185 )

257,562

Decrease in mortgage servicing rights

17,084

23,797

Decrease in right-of-use assets

147,125

182,475

149,011

147,125

Decrease in operating lease liabilities

(147,616 )

(180,657 )

(153,871 )

(147,616 )
Increase in other assets

(141,037 )

(54,430 )

(209,618 )

(141,037 )
Increase in cash surrender value of BOLI

(63,961 )

(62,508 )

(60,433 )

(63,961 )
Amortization of limited partnerships

272,286

252,513

201,537

272,286

Change in net deferred loan fees and costs

(46,463 )

2,615,453

(504,574 )

(46,463 )
Decrease in interest payable

(29,252 )

(34,364 )

(25,558 )

(29,252 )
Decrease in accrued expenses

(126,996 )

(53,918 )

(4,198 )

(126,996 )
Decrease in other liabilities

(40,317 )

(103,646 )
Increase (decrease) in other liabilities

12,439

(40,317 )
Net cash provided by operating activities

10,520,722

8,944,365

10,883,987

10,520,722

Cash Flows from Investing Activities:

Investments - AFS

Maturities, calls, pay downs and sales

14,130,683

14,407,740

14,994,113

14,130,683

Purchases

(65,972,109 )

(12,745,042 )

(47,476,763 )

(65,972,109 )
Proceeds from redemption of restricted equity securities

0

522,400

43,500

0

Purchases of restricted equity securities

(600 )

(503,400 )

0

(600 )
Decrease in limited partnership contributions payable

(150,000 )

(288,000 )

0

(150,000 )
Proceeds of distribution from CFS Partners

2,000,000

0

Decrease (increase) in loans, net

16,630,097

(131,508,927 )
Capital expenditures net of proceeds from sales of bank

premises and equipment

(782,522 )

(240,919 )
Proceeds from sales of OREO

0

1,022,340

Proceeds from distribution from CFS Partners

0

2,000,000

(Increase) decrease in loans, net

(34,956,148 )

16,630,097

Capital expenditures net of proceeds from sales of bank premises and equipment

(398,378 )

(782,522 )
Recoveries of loans charged off

73,515

65,208

147,510

73,515

Net cash used in investing activities

(34,070,936 )

(129,268,600 )

(67,646,166 )

(34,070,936 )

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Table of Contents

2021

2020

2022

2021

Cash Flows from Financing Activities:

Net increase in demand and interest-bearing transaction accounts

24,030,973

91,052,024

5,391,362

24,030,973

Net increase in money market and savings accounts

39,467,248

37,393,558

19,373,851

39,467,248

Net decrease in time deposits

(5,694,301 )

(447,896 )

(1,124,017 )

(5,694,301 )
Net decrease in repurchase agreements

(16,375,099 )

(2,592,200 )

(354,951 )

(16,375,099 )
Proceeds from long-term borrowings

0

150,000

Repayments on long-term borrowings

(500,000 )

0

0

(500,000 )
Decrease in finance lease obligations

(144,774 )

(45,814 )

(159,333 )

(144,774 )
Dividends paid on preferred stock

(36,563 )

(42,188 )

(43,125 )

(36,563 )
Dividends paid on common stock

(2,495,153 )

(2,204,435 )

(2,778,271 )

(2,495,153 )
Net cash provided by financing activities

38,252,331

123,263,049

20,242,277

38,252,331

Net increase in cash and cash equivalents

14,702,116

2,938,814

Net (decrease) increase in cash and cash equivalents

(36,456,663 )

14,702,116

Cash and cash equivalents:

Beginning

115,049,920

48,562,212

110,358,926

115,049,920

Ending

$ 129,752,036

$ 51,501,026

$ 73,902,263

$ 129,752,036

Supplemental Schedule of Cash Paid During the Period:

��

Interest

$ 2,378,335

$ 3,768,447

$ 2,527,780

$ 2,378,335

Income taxes, net of refunds

$ 2,415,000

$ 1,578,293

$ 1,614,759

$ 2,415,000

Supplemental Schedule of Noncash Investing and Financing Activities:

Change in unrealized (loss) gain on securities AFS

($1,515,004)

$ 900,400

Change in unrealized loss on securities AFS

$
(27,078,956
)

$
(1,515,004
)

Additions to finance lease obligations

$ 3,955,252

$ 0

$ 0

$ 3,955,252

Common Shares Dividends Paid:

Dividends declared

$ 3,519,579

$ 2,997,403

$ 3,720,116

$ 3,519,579

Increase in dividends payable attributable to dividends declared

(116,751 )

(13,058 )

(43,871 )

(116,751 )
Dividends reinvested

(907,675 )

(779,910 )

(897,974 )

(907,675 )
Total dividends paid

$ 2,495,153

$ 2,204,435

$ 2,778,271

$ 2,495,153

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

10
Table of Contents

Notes to Consolidated Financial Statements

Note 1. Basis of Presentation and Consolidation and Certain Definitions

Basis of Presentation and Consolidation. The interim consolidated financial statements of Community Bancorp. and Subsidiary are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial condition and results of operations of the Company and its subsidiary, Community National Bank (the Bank), contained herein have been made. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2020~~2021 contained in the ~~Company’s~~Company's Annual Report on Form 10-K. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, ~~2021.~~2022.

~~There were reclassifications~~Certain amounts disclosed in the Notes below for the 2021 annual and three- and nine-month periods of 2021 have been reclassified to conform to the ~~consolidated financial statements for the periods presented.~~current year presentation.

The Company is considered a “smaller reporting company” under the disclosure rules of the SEC, as amended in 2018. Accordingly, the Company has elected to provide its audited consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period, and provides smaller reporting company scaled disclosures where management deems it appropriate.

11
~~Table of Contents~~
In addition to the definitions provided elsewhere in this quarterly report, the definitions, acronyms and abbreviations identified below are used throughout this report, including in Part I. “Financial Information” and Part II. “Other Information”, and are intended to aid the reader and provide a reference page when reviewing this report.

ABS:
Asset backed security
~~FASB:~~
~~Financial Accounting Standards Board~~
~~ACBB:~~
~~Atlantic Community Bankers Bank~~
FDIC:
Federal Deposit Insurance Corporation
AFS:
Available-for-sale
FHLBB:
Federal Home Loan Bank of Boston
Agency MBS:
MBS issued by a US government agency
FHLMC:
Federal Home Loan Mortgage Corporation
or GSE
FOMC:
Federal Open Market Committee
ALCO:
Asset Liability Committee
FRB:
Federal Reserve Board
ALL:
Allowance for loan losses
FRBB:
Federal Reserve Bank of Boston
AOCI:
Accumulated other comprehensive income
GAAP:
Generally Accepted Accounting Principles
ASC:
Accounting Standards Codification
in the United States
ASU:
Accounting Standards Update
GSE:
Government sponsored enterprise
~~ATS:~~Bancorp:
~~Automatic transfer service~~Community Bancorp.
HTM:
Held-to-maturity
~~Bancorp:~~Bank:
Community ~~Bancorp.~~National Bank
ICS:
Insured Cash Sweeps of the ~~Promontory~~
~~Bank:~~
~~Community National Bank~~
~~Interfinancial~~InterFi Network
~~BHG~~BIC:
~~Bankers Healthcare Group~~Borrower-in-Custody
IRS:
Internal Revenue Service
~~BIC:~~Board:
~~Borrower-in-Custody~~Board of Directors
JNE:
Jobs for New England
~~Board:~~
~~Board of Directors~~
~~Jr:~~
~~Junior~~
BOLI:
Bank owned life insurance
~~MBS:~~Jr:
~~Mortgage-backed security~~Junior
bp or bps:
Basis point(s)
~~MPF:~~LIBOR
~~Mortgage Partnership Finance~~
~~BSA~~
~~Bank Secrecy Act~~
~~MSRs:~~
~~Mortgage servicing rights~~
~~CARES ACT:~~
~~Coronavirus Aid Relief and Economic~~
~~NII:~~
~~Net interest income~~
~~Security Act~~
~~OAS:~~
~~Other amortizing security~~
~~CBLR:~~
~~Community Bank Leverage Ratio~~
~~OCI:~~
~~Other comprehensive income (loss)~~London Interbank Offered Rate
CDARS:
Certificate of Deposit Accounts Registry
~~OREO:~~MBS:
~~Other real estate owned~~Mortgage-backed security
Service of the ~~Promontory Interfinancial~~
~~OTTI:~~
~~Other-than-temporary impairment~~
InterFi Network
~~PMI:~~MSRs:
~~Private mortgage insurance~~Mortgage servicing rights
CDs:
Certificates of deposit
~~PPP:~~NII:
~~Paycheck Protection Program~~Net interest income
CDI:
Core deposit intangible
~~PPPLF:~~OAS:
~~PPP Liquidity Facility of the FRBB~~Other amortizing security
CECL:
Current Expected Credit Loss
~~RD:~~OCI:
~~USDA Rural Development~~Other comprehensive income (loss)
CFSG:
Community Financial Services Group, LLC
~~SBA:~~OREO:
~~U.S. Small Business Administration~~Other real estate owned
CFS Partners:
Community Financial Services Partners,
~~SEC:~~OTTI:
~~U.S. Securities and Exchange Commission~~Other-than-temporary impairment
LLC
~~SERP:~~PMI:
~~Supplemental Employee Retirement Plan~~Private mortgage insurance
CMO
~~Collateralize~~Collateralized Mortgage ~~Obligation~~Obligations
~~TDR:~~PPP:
~~Troubled-debt restructuring~~Paycheck Protection Program
Company:
Community Bancorp. and Subsidiary
~~USDA:~~RD:
~~U.S. Department of Agriculture~~USDA Rural Development
COVID-19:
Coronavirus Disease 2019
~~VA:~~SBA:
U.S. ~~Veterans~~Small Business Administration
CRE:
Commercial Real Estate
~~2017 Tax Act:~~SEC:
~~Tax Cut~~U.S. Securities and ~~Jobs Act of 2017~~Exchange Commission
DDA or DDAs:
Demand Deposit Account(s)
~~2018~~SOFR:
~~Economic Growth, Regulatory Relief and~~Secured Overnight Financing Rate
DTC:
Depository Trust Company
~~Regulatory~~TDR:
~~Consumer Protection Act of 2018~~Troubled-debt restructuring
DRIP:
Dividend Reinvestment Plan
~~Relief Act:~~USDA:
U.S. Department of Agriculture
Exchange Act:
Securities Exchange Act of 1934
VA:
U.S. Veterans Administration
FASB:
Financial Accounting Standards Board

1211
Table of Contents

Note 2. ~~Risks and Uncertainties~~
The COVID-19 pandemic has adversely affected, and may continue to adversely affect, economic activity globally, nationally and locally. Government actions taken to help mitigate the spread of COVID-19 and its economic effects included restrictions on travel, quarantines in certain areas, forced closures for certain types of public places and businesses, extensions of unemployment benefits and direct stimulus payments to individuals. Although most COVID-19 related restrictions on businesses have been lifted, the effects of the pandemic and the measures taken in response to it are expected to continue to impact financial markets, consumer confidence, unemployment rates and the economy, including the local economy in the Company’s Vermont and New Hampshire markets, in ways that cannot be predicted. Moreover, the emergence of new strains of the COVID-19 virus could result in additional responsive government measures and economic disruption.
In addition, due to the COVID-19 pandemic, market interest rates have declined significantly, with the 10-year Treasury bond falling below 1.00 percent on March 3, 2020 for the first time. On March 3, 2020, the FOMC reduced the targeted federal funds interest rate range by 50 bps to a range of 1.00% to 1.25%. This range was further reduced to a range of 0 percent to 0.25% on March 16, 2020. On April 29, 2020, the FOMC indicated that the federal funds target rate range will remain unchanged until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Since that time, the FOMC has repeatedly reiterated that position, most recently in November, 2021.
The duration of these reductions in interest rates and other lingering after-effects of the COVID-19 pandemic could adversely affect the Company’s business, financial condition and results of operations in future periods. It is reasonably possible that estimates made in the Company’s consolidated financial statements could be materially and adversely impacted as a result of the effects of the pandemic, including potential credit losses on loan receivables.
~~Note 3.~~ Recent Accounting Developments

In June 2016, the FASB issued ASU No. 2016-13, Financial ~~Instruments-Credit~~Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses over the life of a loan. The new guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans. A modified version of these requirements also applies to debt securities classified as available for sale, which will require that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down. The ASU ~~may have a material impact on the Company’s consolidated financial statements upon adoption as it~~ will require a change in the ~~Company’s~~Company's methodology for calculating its ALL and allowance on unused commitments. The Company will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company’s and the ~~Bank’s~~Bank's retained earnings and regulatory capital ratios. The Company has formed a committee to assess the implications of this new pronouncement and transitioned to a software solution for preparing the ALL calculation and related reports that management believes provides the Company with stronger data integrity, ease and efficiency in ALL preparation. The new software solution also provides numerous training opportunities for the appropriate personnel within the Company. The Company has gathered and is continuing to analyze the historical data to serve as a basis for estimating the ALL under CECL and continues to evaluate the anticipated impact of the adoption of the ASU on its consolidated financial statements. ~~As initially proposed,~~The ASU will become effective for the ~~ASU was to be effective for~~Company beginning with the 2023 fiscal ~~years beginning after December 15, 2019,~~year including interim ~~periods~~periods. Parallel calculations under the existing ALL methodology and the CECL model are being run throughout 2022 in preparation for the transition to CECL. Based on the September 30, 2022 parallel calculation, the required adjustment would not have a material impact to retained earnings and regulatory capital.
In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance amends Topic 326 (CECL) to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, under the CECL model creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to Topic 326 require that an entity disclose current-period gross write-offs by year of origination within ~~those~~the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance will become effective for the Company beginning with the fiscal ~~years, with early adoption permitted for fiscal years beginning after December 15, 2018,~~year 2023, including interim periods within such years. However, on October 16, 2019, the FASB approved an extended effective date for compliance with the ASU by smaller reporting companies, which are now required to comply with the ASU for fiscal years beginning after December 15, 2022, with early adoption permitted.periods. The Company ~~qualifies for this extension and~~is assessing the impact of ASU No. 2022-02 but does not ~~intend to early adopt~~expect that its adoption will have a material impact on the ~~ASU at this time. Management will continue to evaluate the Company’s CECL compliance and implementation timetable in light of the extension.~~consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU No. 2020-04 and its impact on the transition away from LIBOR for its Junior Subordinated Debentures due December 15, 2037, the Company’s only financial instruments that utilize LIBOR as a reference rate.

13
~~Table of Contents~~
In March and April, 2020, federal banking regulators issued interagency guidance on accounting for loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term (that is, six months or less) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant, provided that the loan is less than 30 days past due at the time a modification program is implemented. The banking agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC No. 310-40, ~~Receivables - Troubled Debt Restructurings by Creditors~~. Additionally, a provision of the CARES Act enacted in March 2020 provides that COVID-19 related loan modifications (including modifications that are not short-term) made to a loan between March 1, 2020 and the earlier of December 31, 2020 or the sixtieth day after the end of the COVID-19 emergency declared by the President will not require the loan to be treated as a TDR under GAAP, so long as the modified loan was not past due as of December 31, 2019. On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA) extended the date for COVID-19 related loan modifications from December 31, 2020 to January 1, 2022.
Note 4.3.  Earnings per Common Share

Earnings per common share amounts are computed based on the weighted average number of shares of common stock issued during the period (retroactively adjusted for stock splits and stock dividends, if any), including Dividend Reinvestment Plan shares issuable upon reinvestment of dividends declared, and reduced for shares held in treasury.

12
Table of Contents
The following tables illustrate the calculation of earnings per common share for the periods presented, as adjusted for the cash dividends declared on the preferred stock:

Three Months Ended September 30,

2021

2020

2022
2021

Net income, as reported

$ 3,699,202

$ 2,880,443

$ 3,610,506 $ 3,699,202
Less: dividends to preferred shareholders

12,188

12,188

17,813 12,188
Net income available to common shareholders

$ 3,687,015

$ 2,868,255

$ 3,592,693 $ 3,687,014
Weighted average number of common shares

used in calculating earnings per share

5,354,187

5,285,771

5,409,612 5,354,187
Earnings per common share

$ 0.69

$ 0.54

$ 0.66 $ 0.69

Nine Months Ended September 30,

2021

2020

Net income, as reported

$ 9,771,309

$ 7,583,992

Less: dividends to preferred shareholders

36,563

42,188

Net income available to common shareholders

$ 9,734,746

$ 7,541,804

Weighted average number of common shares

used in calculating earnings per share

5,338,481

5,264,802

Earnings per common share

$ 1.82

$ 1.43

14
~~Table of Contents~~
Nine Months Ended September 30,

2022

2021

Net income, as reported

$ 9,037,200

$ 9,771,309

Less: dividends to preferred shareholders

43,125

36,563

Net income available to common shareholders

$ 8,994,075

$ 9,734,746

Weighted average number of common shares

used in calculating earnings per share

5,396,215

5,338,481

Earnings per common share

$ 1.67

$ 1.82

Note 5.4.  Investment Securities

Debt securities AFS as of the balance sheet dates consisted of the following:

Gross

Gross

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

Cost

Gains

Losses

Value

September 30, 2021

September 30, 2022

U.S. GSE debt securities

$ 10,003,253

$ 69,462

$ 105,637

$ 9,967,078

$ 12,000,000

$ 0

$ 1,642,690

$ 10,357,310

U.S. Government securities

10,128,255

6,498

33,931

10,100,822

41,409,349

0

3,405,554

38,003,795

Taxable Municipal securities

300,000

0

62,749

237,251

Tax-Exempt Municipal securities

11,695,449

0

1,358,635

10,336,814

Agency MBS

80,876,989

261,920

821,647

80,317,262

135,295,287

13,719

21,423,964

113,885,042

ABS and OAS

2,131,767

90,684

0

2,222,451

2,929,176

0

245,888

2,683,288

CMO

958,211

0

18,570

939,641

8,690,193

0

359,280

8,330,913

Other investments

6,934,000

195,068

183

7,128,885

3,464,000

0

71,093

3,392,907

Total

$ 111,032,475

$ 623,632

$ 979,968

$ 110,676,139

$ 215,783,454

$ 13,719

$ 28,569,853

$ 187,227,320

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

December 31, 2021

U.S. GSE debt securities

$ 8,007,142

$ 165,934

$ 3,245

$ 8,169,831

$ 12,001,978

$ 36,024

$ 209,504

$ 11,828,498

U.S. Government securities

32,374,935

0

333,894

32,041,041

Taxable Municipal securities

300,000

0

1,267

298,733

Tax-Exempt Municipal securities

830,279

1,167

67

831,379

Agency MBS

40,861,370

547,930

30,951

41,378,349

128,291,487

184,002

1,342,968

127,132,521

ABS and OAS

2,508,997

160,999

0

2,669,996

2,131,610

82,414

0

2,214,024

CMO

1,451,349

0

30,891

1,420,458

Other investments

8,169,000

318,002

0

8,487,002

6,438,000

142,199

4,394

6,575,805

Total

$ 59,546,509

$ 1,192,865

$ 34,196

$ 60,705,178

$ 183,819,638

$ 445,806

$ 1,922,985

$ 182,342,459

13
Table of Contents

Investments pledged as collateral for repurchase agreements consisted of U.S. GSE debt securities, Agency MBS, ABS and OAS, and CMO. These repurchase agreements mature daily. These pledged investments as of the balance sheet dates were as follows:

Amortized

Fair

Cost

Value

September 30, 2021

$ 66,394,672

$ 66,017,746

December 31, 2020

59,546,509

60,705,178

Amortized

Fair

Cost

Value

September 30, 2022

$ 57,108,669

$ 47,466,870

December 31, 2021

63,045,599

62,256,702

~~Proceeds from~~There were no sales of debt securities ~~were $884,137 for~~during the first nine months of ~~2020, with gains of $39,086. There were no sales for the first nine months of~~2022 or 2021.

The scheduled maturities of debt securities as of the balance sheet dates were as follows:

Amortized

Fair

Cost

Value

September 30, 2021

Due in one year or less

$ 3,470,000

$ 3,519,638

Due from one to five years

11,990,364

12,117,682

Due from five to ten years

13,692,473

13,701,738

Due after ten years

1,002,649

1,019,819

Agency MBS

80,876,989

80,317,262

Total

$ 111,032,475

$ 110,676,139

December 31, 2020

Due in one year or less

$ 2,227,000

$ 2,247,603

Due from one to five years

5,942,000

6,239,399

Due from five to ten years

9,511,476

9,801,921

Due after ten years

1,004,663

1,037,906

Agency MBS

40,861,370

41,378,349

Total

$ 59,546,509

$ 60,705,178

15
~~Table of Contents~~

Amortized

Fair

Cost

Value

September 30, 2022

Due in one year or less

$ 1,730,000

$ 1,725,887

Due from one to five years

53,992,787

49,890,108

Due from five to ten years

10,409,071

9,091,245

Due after ten years

14,356,309

12,635,038

Agency MBS

135,295,287

113,885,042

Total

$ 215,783,454

$ 187,227,320

December 31, 2021

Due in one year or less

$ 3,470,000

$ 3,508,582

Due from one to five years

36,860,731

36,619,130

Due from five to ten years

13,065,163

12,942,726

Due after ten years

2,132,257

2,139,500

Agency MBS

128,291,487

127,132,521

Total

$ 183,819,638

$ 182,342,459

Agency MBS are not due at a single maturity date and have not been allocated to maturity groupings for purposes of the maturity table.

Debt securities with unrealized losses as of the balance sheet dates are presented in the table below.

Less than 12 months

12 months or more

Total

Less than 12 months

12 months or more

Totals

Fair

Unrealized

Fair

Unrealized

Number of

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Number of

Fair

Unrealized

Value

Loss

Value

Loss

Securities

Value

Loss

Value

Loss

Value

Loss

Securities

Value

Loss

September 30, 2021

September 30, 2022

U.S. GSE debt securities

$ 5,894,967

$ 105,637

$ 0

$ 0

6

$ 5,894,967

$ 105,637

$ 5,304,930

$ 695,070

$ 5,052,380

$ 947,620

11

$ 10,357,310

$ 1,642,690

U.S. Government securities

6,565,249

33,931

0

0

13

6,565,249

33,931

25,893,729

1,886,208

12,110,066

1,519,346

54

38,003,795

3,405,554

Taxable Municipal securities

237,251

62,749

0

0

1

237,251

62,749

Tax-Exempt Municipal securities

10,336,814

1,358,635

0

0

22

10,336,814

1,358,635

Agency MBS

64,902,217

817,068

252,509

4,579

50

65,154,726

821,647

53,405,680

8,835,995

58,983,039

12,587,969

119

112,388,719

21,423,964

ABS and OAS

2,683,288

245,888

0

0

4

2,683,288

245,888

CMO

939,641

18,570

0

0

2

939,641

18,570

7,572,585

276,853

758,328

82,427

8

8,330,913

359,280

Other investments

247,816

183

0

0

1

247,816

183

3,173,963

42,037

218,944

29,056

14

3,392,907

71,093

Total

$ 78,549,890

$ 975,389

$ 252,509

$ 4,579

72

$ 78,802,399

$ 979,968

$ 108,608,240

$ 13,403,435

$ 77,122,757

$ 15,166,418

233

$ 185,730,997

$ 28,569,853

December 31, 2020

U.S. GSE debt securities

$ 1,999,234

$ 3,245

$ 0

$ 0

2

$ 1,999,234

$ 3,245

Agency MBS

2,076,167

19,845

520,546

11,106

6

2,596,713

30,951

Total

$ 4,075,401

$ 23,090

$ 520,546

$ 11,106

8

$ 4,595,947

$ 34,196

14
Table of Contents

Less than 12 months

12 months or more

Totals

Fair

Unrealized

Fair

Unrealized

Number of

Fair

Unrealized

Value

Loss

Value

Loss

Securities

Value

Loss

December 31, 2021

U.S. GSE debt securities

$ 5,869,117

$ 130,883

$ 1,921,379

$ 78,621

7

$ 7,790,496

$ 209,504

U.S. Government securities

32,041,041

333,894

0

0

46

32,041,041

333,894

Taxable Municipal securities

298,733

1,267

0

0

1

298,733

1,267

Tax-Exempt Municipal securities

330,212

67

0

0

1

330,212

67

Agency MBS

107,061,452

1,128,587

8,809,493

214,381

84

115,870,945

1,342,968

CMO

1,420,458

30,891

0

0

3

1,420,458

30,891

Other investments

491,606

4,394

0

0

2

491,606

4,394

Total

$ 147,512,619

$ 1,629,983

$ 10,730,872

$ 293,002

144

$ 158,243,491

$ 1,922,985

The unrealized losses for all periods presented were principally attributable to changes in prevailing interest rates for similar types of securities and not deterioration in the creditworthiness of the issuer.

Management evaluates its debt securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an ~~issuer’s~~issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies or other adverse developments in the status of the securities have occurred, and the results of reviews of the ~~issuer’s~~issuer's financial condition. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were no declines in the fair value of any of the securities reflected in the table above that were deemed by management to be OTTI.

Note 6.5. Loans, Allowance for Loan Losses and Credit Quality

The composition of net loans as of the balance sheet dates was as follows:

September 30,

December 31,

September 30,

December 31,

2021

2020

2022

2021

Commercial & industrial

$ 139,061,736

$ 161,067,501

$ 121,224,062

$ 111,125,622

Purchased loans

8,078,281

9,807,848

Commercial real estate

285,912,606

280,544,550

324,327,160

300,958,931

Municipal

53,774,882

54,807,367

40,164,698

47,955,231

Residential real estate - 1st lien

174,895,121

170,507,263

192,566,579

181,316,345

Residential real estate - Jr lien

34,917,009

38,147,659

33,773,471

34,359,864

Consumer

4,077,021

4,280,990

4,059,750

4,464,692

Total loans

692,638,375

709,355,330

724,194,001

689,988,533

ALL

(7,819,307 )

(7,208,485 )

(8,432,086 )

(7,710,256 )
Deferred net loan fees

(1,149,278 )

(1,195,741 )
Deferred net loan costs (fees)

466,602

(37,972 )
Net loans

$ 683,669,790

$ 700,951,104

$ 716,228,517

$ 682,240,305

1615
Table of Contents

The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment:

September 30, 2021

30-89 Days

90 Days
or More

Total
Past Due

Current

Total Loans

Non-Accrual
Loans

90 Days or
More and
Accruing

Non-

90 Days or

90 Days

Total

Accrual

More and

September 30, 2022

30-89 Days

or More

Past Due

Current

Total Loans

Loans

Accruing

Commercial & industrial

$ 2,286,922

$ 0

$ 2,286,922

$ 136,774,814

$ 139,061,736

$ 148,674

$ 0

$ 1,335,118

$ 29,375

$ 1,364,493

$ 119,859,569

$ 121,224,062

$ 3,422,395

$ 0

Purchased loans

0

0

0

8,078,281

8,078,281

0

0

Commercial real estate

776,299

233,042

1,009,341

284,903,265

285,912,606

3,671,880

0

653,091

1,834,037

2,487,128

321,840,032

324,327,160

3,814,958

222,998

Municipal

0

0

0

53,774,882

53,774,882

0

0

0

0

0

40,164,698

40,164,698

0

0

Residential real estate

- 1st lien

805,094

1,251,352

2,056,446

172,838,675

174,895,121

1,183,306

657,604

452,927

655,316

1,108,243

191,458,336

192,566,579

1,231,602

369,172

- Jr lien

158,845

78,311

237,156

34,679,853

34,917,009

178,845

78,311

291,722

152,160

443,882

33,329,589

33,773,471

133,776

152,160

Consumer

15,177

0

15,177

4,061,844

4,077,021

0

0

10,364

0

10,364

4,049,386

4,059,750

0

0

Totals

$ 4,042,337

$ 1,562,705

$ 5,605,042

$ 687,033,333

$ 692,638,375

$ 5,182,705

$ 735,915

$ 2,743,222

$ 2,670,888

$ 5,414,110

$ 718,779,891

$ 724,194,001

$ 8,602,731

$ 744,330

December 31, 2020

30-89 Days

90 Days
or More

Total
Past Due

Current

Total Loans

Non-Accrual
Loans

90 Days or
More and
Accruing

Non-

90 Days or

90 Days

Total

Accrual

More and

December 31, 2021

30-89 Days

or More

Past Due

Current

Total Loans

Loans

Accruing

Commercial & industrial

$ 119,413

$ 0

$ 119,413

$ 160,948,088

$ 161,067,501

$ 434,196

$ 0

$ 833,875

$ 0

$ 833,875

$ 110,291,747

$ 111,125,622

$ 98,661

$ 0

Purchased loans

0

0

0

9,807,848

9,807,848

0

0

Commercial real estate

127,343

567,957

695,300

279,849,250

280,544,550

1,875,942

0

49,450

2,400,514

2,449,964

298,508,967

300,958,931

4,517,839

0

Municipal

0

0

0

54,807,367

54,807,367

0

0

0

0

0

47,955,231

47,955,231

0

0

Residential real estate

- 1st lien

1,872,439

828,344

2,700,783

167,806,480

170,507,263

2,173,315

390,288

1,190,300

608,775

1,799,075

179,517,270

181,316,345

1,180,563

506,827

- Jr lien

18,322

180,711

199,033

37,948,626

38,147,659

191,311

98,889

51,837

86,476

138,313

34,221,551

34,359,864

143,566

86,476

Consumer

14,388

0

14,388

4,266,602

4,280,990

0

0

9,741

0

9,741

4,454,951

4,464,692

0

0

Totals

$ 2,151,905

$ 1,577,012

$ 3,728,917

$ 705,626,413

$ 709,355,330

$ 4,674,764

$ 489,177

$ 2,135,203

$ 3,095,765

$ 5,230,968

$ 684,757,565

$ 689,988,533

$ 5,940,629

$ 593,303

For all loan segments, loans over 30 days past due are considered delinquent.

As of the balance sheet dates presented, loans in process of foreclosure consisted of the following residential mortgage loans:

Number of loans

Balance

September 30, 2021

5

$ 192,940

December 31, 2020

6

312,807

~~A Vermont state-imposed moratorium on residential foreclosure proceedings adopted in April 2020 in response to the COVID-19 pandemic, ended on July 15, 2021.~~

Number of loans

Balance

September 30, 2022

2

$ 151,645

December 31, 2021

5

195,082

Allowance for loan losses

The ALL is established through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes that future payments of a loan balance are unlikely. Subsequent recoveries, if any, are credited to the allowance.

Unsecured loans are charged off when they become uncollectible and no later than 120 days past due. Unsecured loans to customers who subsequently file bankruptcy are charged off within 30 days of receipt of the notification of filing or by the end of the month in which the loans become 120 days past due, whichever occurs first. For secured loans, both residential and commercial, the potential loss on impaired loans is carried as a loan loss reserve specific allocation; the loss portion is charged off when collection of the full loan appears unlikely. The unsecured portion of a real estate loan is that portion of the loan exceeding the ~~“fair value”~~"fair value" of the collateral less the estimated cost to sell. Value of the collateral is determined in accordance with the Company’s appraisal policy. The unsecured portion of an impaired real estate secured loan is charged off by the end of the month in which the loan becomes 180 days past due.

1716
Table of Contents

As described below, the allowance consists of general, specific and unallocated components. However, the entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocated components considered in determining the amount of the allowance.

General component

The general component of the ALL is based on historical loss experience and various qualitative factors and is stratified by the following loan segments: commercial and industrial, purchased loans, CRE, municipal, residential real estate 1st lien, residential real estate Jr lien and consumer loans. The Company does not disaggregate its portfolio segments further into classes.

Loss ratios are calculated by loan segment using appropriate look back periods. Management uses an average of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment in the current economic climate. During periods of economic stability, a relatively longer period (e.g., five years) may be appropriate. During periods of significant expansion or contraction, the Company may appropriately shorten the historical time period. Due primarily to the effects of COVID-19, during 2020 the Company shortened its look back period to one year, ~~which remained in effect~~however, as of ~~September 30, 2021.~~March 31, 2022, the look back period was changed to two years.

Qualitative factors include the levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of CRE loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

The qualitative factors are determined based on the various risk characteristics of each loan segment. The Company has policies, procedures and internal controls that management believes are commensurate with the risk profile of each of these segments. Major risk characteristics relevant to each portfolio segment are as follows:

Commercial & Industrial -– Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.

Purchased Loans – Loans in this segment are loans purchased through a loan purchasing program with Bankers Healthcare Group (BHG). BHG originates commercial loans to medical professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process. The Bank has established conservative credit parameters and expects a low risk of default in this portfolio.
Commercial Real Estate -– Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied CRE. A relatively small portion of this segment includes farm loans secured by farm land and buildings. As with commercial and industrial loans, repayment of owner-occupied CRE loans is expected from the cash flows of the business and the segment would be impacted by the same risk factors as commercial and industrial loans. The non-owner occupied CRE portion includes both residential and commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending entail additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. CRE loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. CRE lending also carries a higher degree of environmental risk than other real estate lending.

Municipal -– Loans in this segment are made to local municipalities, attributable to municipal financing transactions and backed by the full faith and credit of town governments or dedicated governmental revenue sources, with no historical losses recognized by the Company.

Residential Real Estate - 1^st Lien -– Loans in this segment are collateralized by first mortgages on 1 -– 4 family owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

1817
Table of Contents

Residential Real Estate -– Jr Lien -– Loans in this segment are collateralized by junior lien mortgages on 1 -– 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer -– Loans in this segment are made to individuals for consumer and household purposes. This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured. This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains policies restricting the size and term of these extensions of credit. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Specific component

The specific component of the ALL relates to loans that are impaired. Impaired loans are loans to a borrower that in the aggregate are greater than $100,000 and that are in non-accrual status or are TDRs regardless of amount. A specific allowance is established for an impaired loan when its estimated fair value or net present value of future cash flows is less than the carrying value of the loan. For all loan segments, except consumer loans, a loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two. ~~As described above in Note 3, under~~Under March 2020 guidance from the federal banking agencies and concurrence by the FASB, certain short-term loan accommodations made in good faith prior to January 1, 2022 for borrowers experiencing financial difficulties due to the COVID-19 health emergency ~~will~~are not be considered TDRs.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment evaluation, unless such loans are subject to a restructuring agreement.

Unallocated component

An unallocated component of the ALL is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component reflects management’s estimate of the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

The tables below summarize changes in the ALL and select loan information, by portfolio segment, for the periods indicated.
~~As of or for the three months ended September 30, 2021~~

Commercial
& Industrial

Commercial
Real Estate

Municipal

Residential
Real Estate
1st Lien

Residential
Real Estate
Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 899,163

$ 3,932,846

$ 57,292

$ 1,655,042

$ 201,269

$ 61,224

$ 912,420

$ 7,719,256

Charge-offs

0

0

0

0

0

(30,638 )

0

(30,638 )
Recoveries

0

20,162

0

2,275

8,641

10,444

0

41,522

Provision (credit)

3,201

(56,471 )

28,748

(10,532 )

(20,684 )

37,843

107,062

89,167

ALL ending balance

$ 902,364

$ 3,896,537

$ 86,040

$ 1,646,785

$ 189,226

$ 78,873

$ 1,019,482

$ 7,819,307

19
~~Table of Contents~~
~~As of or for the nine months ended September 30, 2021~~

Commercial
& Industrial

Commercial
Real Estate

Municipal

Residential
Real Estate
1st Lien

Residential
Real Estate
Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 842,547

$ 3,854,153

$ 82,211

$ 1,735,304

$ 234,896

$ 60,461

$ 398,913

$ 7,208,485

Charge-offs

(18,847 )

0

0

0

0

(68,011 )

0

(86,858 )
Recoveries

4,761

27,160

0

4,602

9,601

27,391

0

73,515

Provision (credit)

73,903

15,224

3,829

(93,121 )

(55,271 )

59,032

620,569

624,165

ALL ending balance

$ 902,364

$ 3,896,537

$ 86,040

$ 1,646,785

$ 189,226

$ 78,873

$ 1,019,482

$ 7,819,307

ALL evaluated for impairment

Individually

$ 0

$ 0

$ 0

$ 88,874

$ 159

$ 0

$ 0

$ 89,033

Collectively

902,364

3,896,537

86,040

1,557,911

189,067

78,873

1,019,482

7,730,274

Total

$ 902,364

$ 3,896,537

$ 86,040

$ 1,646,785

$ 189,226

$ 78,873

$ 1,019,482

$ 7,819,307

Loans evaluated for impairment

Individually

$ 140,098

$ 3,711,049

$ 0

$ 3,853,902

$ 134,383

$ 0

$ 7,839,432

Collectively

138,921,638

282,201,557

53,774,882

171,041,219

34,782,626

4,077,021

684,798,943

Total

$ 139,061,736

$ 285,912,606

$ 53,774,882

$ 174,895,121

$ 34,917,009

$ 4,077,021

$ 692,638,375

~~As of or for the year ended December 31, 2020~~

Commercial
& Industrial

Commercial
Real Estate

Municipal

Residential
Real Estate
1st Lien

Residential
Real Estate
Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 836,766

$ 3,181,646

$ 0

$ 1,388,564

$ 289,684

$ 51,793

$ 178,038

$ 5,926,491

Charge-offs

(39,148 )

(34,200 )

0

(203,623 )

(28,673 )

(74,327 )

0

(379,971 )
Recoveries

1,087

20,000

0

12,856

5,809

33,213

0

72,965

Provision (credit)

43,842

686,707

82,211

537,507

(31,924 )

49,782

220,875

1,589,000

ALL ending balance

$ 842,547

$ 3,854,153

$ 82,211

$ 1,735,304

$ 234,896

$ 60,461

$ 398,913

$ 7,208,485

ALL evaluated for impairment

Individually

$ 0

$ 0

$ 0

$ 108,474

$ 307

$ 0

$ 0

$ 108,781

Collectively

842,547

3,854,153

82,211

1,626,830

234,589

60,461

398,913

7,099,704

Total

$ 842,547

$ 3,854,153

$ 82,211

$ 1,735,304

$ 234,896

$ 60,461

$ 398,913

$ 7,208,485

Loans evaluated for impairment

Individually

$ 414,266

$ 1,943,723

$ 0

$ 4,657,050

$ 135,053

$ 0

$ 7,150,092

Collectively

160,653,235

278,600,827

54,807,367

165,850,213

38,012,606

4,280,990

702,205,238

Total

$ 161,067,501

$ 280,544,550

$ 54,807,367

$ 170,507,263

$ 38,147,659

$ 4,280,990

$ 709,355,330

~~As of or for the three months ended September 30, 2020~~

Commercial
& Industrial

Commercial
Real Estate

Municipal

Residential
Real Estate
1st Lien

Residential
Real Estate
Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 886,546

$ 3,406,502

$ 0

$ 1,511,897

$ 319,749

$ 48,653

$ 342,337

$ 6,515,684

Charge-offs

(34,565 )

(2,200 )

0

(56,500 )

0

(7,560 )

0

(100,825 )
Recoveries

0

0

0

4,742

533

5,475

0

10,750

Provision (credit)

90,770

222,268

41,866

36,383

6,434

8,709

(43,931 )

362,499

ALL ending balance

$ 942,751

$ 3,626,570

$ 41,866

$ 1,496,522

$ 326,716

$ 55,277

$ 298,406

$ 6,788,108

2018
Table of Contents

As of or for the three months ended September 30, 2022

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 1,107,248

$ 59,822

$ 4,808,324

$ 58,319

$ 1,845,508

$ 181,214

$ 41,556

$ 130,782

$ 8,232,773

Charge-offs

(26,922 )

0

0

0

0

0

(14,915 )

0

(41,837 )
Recoveries

10,407

0

0

0

98,600

1,298

5,845

0

116,150

Provision (credit)

794

(3,274 )

95,775

13,977

(130,711 )

232

20,434

127,773

125,000

ALL ending balance

$ 1,091,527

$ 56,548

$ 4,904,099

$ 72,296

$ 1,813,397

$ 182,744

$ 52,920

$ 258,555

$ 8,432,086

As of or for the nine months ended September 30, ~~2020~~2022

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

Commercial
& Industrial

Commercial
Real Estate

Municipal

Residential
Real Estate
1st Lien

Residential
Real Estate
Jr Lien

Consumer

Unallocated

Total

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 836,766

$ 3,181,646

$ 0

$ 1,388,564

$ 289,684

$ 51,793

$ 178,038

$ 5,926,491

$ 870,392

$ 68,655

$ 4,151,760

$ 76,728

$ 1,765,892

$ 182,014

$ 55,698

$ 539,117

$ 7,710,256

Charge-offs

(34,565 )

(2,200 )

0

(134,196 )

(28,673 )

(50,458 )

0

(250,092 )

(47,500 )

0

(667,474 )

0

0

0

(35,706 )

0

(750,680 )
Recoveries

1,087

20,000

0

10,552

5,280

28,289

0

65,208

12,862

0

0

0

111,163

3,728

19,757

0

147,510

Provision (credit)

139,463

427,124

41,866

231,602

60,425

25,653

120,368

1,046,501

255,773

(12,107 )

1,419,813

(4,432 )

(63,658 )

(2,998 )

13,171

(280,562 )

1,325,000

ALL ending balance

$ 942,751

$ 3,626,570

$ 41,866

$ 1,496,522

$ 326,716

$ 55,277

$ 298,406

$ 6,788,108

$ 1,091,527

$ 56,548

$ 4,904,099

$ 72,296

$ 1,813,397

$ 182,744

$ 52,920

$ 258,555

$ 8,432,086

ALL evaluated for impairment

Individually

$ 4,259

$ 0

$ 8,867

$ 0

$ 96,784

$ 4

$ 0

$ 0

$ 109,914

Collectively

1,087,268

56,548

4,895,232

72,296

1,716,613

182,740

52,920

258,555

8,322,172

Total

$ 1,091,527

$ 56,548

$ 4,904,099

$ 72,296

$ 1,813,397

$ 182,744

$ 52,920

$ 258,555

$ 8,432,086

Loans evaluated for impairment

Individually

$ 3,408,207

$ 0

$ 3,812,657

$ 0

$ 3,670,995

$ 79,742

$ 0

$ 10,971,601

Collectively

117,815,855

8,078,281

320,514,503

40,164,698

188,895,584

33,693,729

4,059,750

713,222,400

Total

$ 121,224,062

$ 8,078,281

$ 324,327,160

$ 40,164,698

$ 192,566,579

$ 33,773,471

$ 4,059,750

$ 724,194,001

As of or for the year ended December 31, 2021

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 778,287

$ 64,260

$ 3,854,153

$ 82,211

$ 1,735,304

$ 234,896

$ 60,461

$ 398,913

$ 7,208,485

Charge-offs

(18,847 )

0

(22,000 )

0

(98,704 )

0

(87,651 )

0

(227,202 )
Recoveries

4,761

0

27,160

0

7,636

10,821

54,430

0

104,808

Provision (credit)

106,191

4,395

292,447

(5,483 )

121,656

(63,703 )

28,458

140,204

624,165

ALL ending balance

$ 870,392

$ 68,655

$ 4,151,760

$ 76,728

$ 1,765,892

$ 182,014

$ 55,698

$ 539,117

$ 7,710,256

ALL evaluated for impairment

Individually

$ 0

$ 0

$ 0

$ 0

$ 79,978

$ 0

$ 0

$ 0

$ 79,978

Collectively

870,392

68,655

4,151,760

76,728

1,685,914

182,014

55,698

539,117

7,630,278

Total

$ 870,392

$ 68,655

$ 4,151,760

$ 76,728

$ 1,765,892

$ 182,014

$ 55,698

$ 539,117

$ 7,710,256

Loans evaluated for impairment

Individually

$ 93,362

$ 0

$ 4,553,734

$ 0

$ 3,720,503

$ 88,563

$ 0

$ 8,456,162

Collectively

111,032,260

9,807,848

296,405,197

47,955,231

177,595,842

34,271,301

4,464,692

681,532,371

Total

$ 111,125,622

$ 9,807,848

$ 300,958,931

$ 47,955,231

$ 181,316,345

$ 34,359,864

$ 4,464,692

$ 689,988,533

19
Table of Contents
As of or for the three months ended September 30, 2021

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 823,737

$ 75,426

$ 3,932,846

$ 57,292

$ 1,655,042

$ 201,269

$ 61,224

$ 912,420

$ 7,719,256

Charge-offs

0

0

0

0

0

0

(30,638 )

0

(30,638 )
Recoveries

0

0

20,162

0

2,275

8,641

10,444

0

41,522

Provision (credit)

6,485

(3,284 )

(56,471 )

28,748

(10,532 )

(20,684 )

37,843

107,062

89,167

ALL ending balance

$ 830,222

$ 72,142

$ 3,896,537

$ 86,040

$ 1,646,785

$ 189,226

$ 78,873

$ 1,019,482

$ 7,819,307

As of or for the nine months ended September 30, 2021

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 778,287

$ 64,260

$ 3,854,153

$ 82,211

$ 1,735,304

$ 234,896

$ 60,461

$ 398,913

$ 7,208,485

Charge-offs

(18,847 )

0

0

0

0

0

(68,011 )

0

(86,858 )
Recoveries

4,761

0

27,160

0

4,602

9,601

27,391

0

73,515

Provision (credit)

66,021

7,882

15,224

3,829

(93,121 )

(55,271 )

59,032

620,569

624,165

ALL ending balance

$ 830,222

$ 72,142

$ 3,896,537

$ 86,040

$ 1,646,785

$ 189,226

$ 78,873

$ 1,019,482

$ 7,819,307

Impaired loans, by portfolio segment, were as follows:

As of September 30, 2022

Unpaid

As of September 30, 2021

Recorded

Principal

Related

Recorded
Investment(1)

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment(1)(2)

Average
Recorded
Investment(1)(3)

Interest
Income
Recognized(3)

Investment(1)

Balance

Allowance

Related allowance recorded

Commercial & industrial

$ 954,098

$ 965,266

$ 4,259

Commercial real estate

249,709

252,806

8,867

Residential real estate

1st lien

$ 793,401

$ 804,655

$ 88,874

$ 785,752

$ 897,008

$ 48,200

1,172,194

1,192,445

96,784

Jr lien

3,836

3,833

159

4,008

4,315

332

2,532

2,529

4

Total with related allowance

797,237

808,488

89,033

789,760

901,323

48,532

2,378,533

2,413,046

109,914

No related allowance recorded

Commercial & industrial

140,098

161,331

261,153

339,386

204

2,454,109

2,525,175

Commercial real estate

3,711,470

4,210,006

2,795,979

2,295,473

78,462

3,563,089

4,751,499

Residential real estate

1st lien

3,094,255

3,991,516

3,253,698

3,402,302

155,005

2,511,284

3,515,246

Jr lien

130,551

176,460

133,148

133,861

0

77,213

124,795

Total with no related allowance

7,076,374

8,539,313

6,443,978

6,171,022

233,671

8,605,695

10,916,715

Total impaired loans

$ 7,873,611

$ 9,347,801

$ 89,033

$ 7,233,738

$ 7,072,345

$ 282,203

$ 10,984,228

$ 13,329,761

$ 109,914

(1)
Recorded investment in impaired loans as of September 30, 2022 includes accrued interest receivable of $12,627.
20
Table of Contents

As of September 30, 2022

Three Months Ended

Nine Months Ended

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

Related allowance recorded

Commercial & industrial

$ 477,049

$ 0

$ 238,525

$ 0

Commercial real estate

124,854

0

62,427

0

Residential real estate

1st lien

1,031,145

31,349

969,497

58,306

Jr lien

1,266

147

633

247

Total with related allowance

1,634,314

31,496

1,271,082

58,553

No related allowance recorded

Commercial & industrial

1,299,959

0

728,879

204

Commercial real estate

3,479,786

72,754

3,806,739

74,245

Residential real estate

1st lien

2,686,280

27,154

2,814,818

119,663

Jr lien

79,809

0

83,471

0

Total with no related allowance

7,545,834

99,908

7,433,907

194,112

Total impaired loans

$ 9,180,148

$ 131,404

$ 8,704,989

$ 252,665

As of December 31, 2021

Unpaid

Recorded

Principal

Related

Investment(1)

Balance

Allowance

Related allowance recorded

Residential real estate

1st lien

$ 702,586

$ 716,118

$ 79,978

Jr lien

0

0

0

Total with related allowance

702,586

716,118

79,978

No related allowance recorded

Commercial & industrial

93,362

115,414

Commercial real estate

4,554,074

5,108,557

Residential real estate

1st lien

3,050,647

4,076,352

Jr lien

88,570

132,802

Total with no related allowance

7,786,653

9,433,125

Total impaired loans

$ 8,489,239

$ 10,149,243

$ 79,978

(1)
Recorded investment in impaired loans as of December 31, 2021 includes accrued interest receivable and deferred net loan costs of $33,077.
21
Table of Contents

As of September 30, 2021

Unpaid

Recorded

Principal

Related

Investment(1)

Balance

Allowance

Related allowance recorded

Residential real estate

1st lien

$ 793,401

$ 804,655

$ 88,874

Jr lien

3,836

3,833

159

Total with related allowance

797,237

808,488

89,033

No related allowance recorded

Commercial & industrial

140,098

161,331

Commercial real estate

3,711,470

4,210,006

Residential real estate

1st lien

3,094,255

3,991,516

Jr lien

130,551

176,460

Total with no related allowance

7,076,374

8,539,313

    Total impaired loans

$ 7,873,611

$ 9,347,801

$ 89,033

(1)
Recorded investment in impaired loans as of September 30, 2021 includes accrued interest receivable and deferred net loan costs of $34,179.
~~(2)~~
~~For the three months ended September 30, 2021.~~
~~(3)~~
~~For the nine months ended September 30, 2021.~~

21
~~Table of Contents~~

As of December 31, 2020

Recorded
Investment(1)

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment(1)(2)

Interest
Income
Recognized(2)

Related allowance recorded

Residential real estate

1st lien

$ 900,581

$ 950,063

$ 108,474

$ 889,262

$ 72,713

Jr lien

4,777

4,775

307

5,416

541

Total with related allowance

905,358

954,838

108,781

894,678

73,254

No related allowance recorded

Commercial & industrial

414,266

471,405

397,136

6,396

Commercial real estate

1,944,013

2,394,284

1,746,430

14,139

Residential real estate

1st lien

3,788,965

4,607,848

3,878,829

230,838

Jr lien

130,279

169,720

163,750

4,524

Total with no related allowance

6,277,523

7,643,257

6,186,145

255,897

Total impaired loans

$ 7,182,881

$ 8,598,095

$ 108,781

$ 7,080,823

$ 329,151

~~(1)~~
~~Recorded investment in impaired loans as of December 31, 2020 includes accrued interest receivable and deferred net loan costs of $32,789.~~
~~(2)~~
~~For the year ended December 31, 2020.~~

As of September 30, 2020

Recorded
Investment(1)

Unpaid
Principal
Balance

Related
Allowance

Average
Recorded
Investment(1)(2)

Average
Recorded
Investment(1)(3)

Interest
Income
Recognized(3)

Related allowance recorded

Residential real estate

1st lien

$ 1,166,549

$ 1,207,778

$ 111,435

$ 1,015,521

$ 969,485

$ 81,313

Jr lien

5,083

5,079

361

5,249

5,576

415

Total with related allowance

1,171,632

1,212,857

111,796

1,020,770

975,061

81,728

No related allowance recorded

Commercial & industrial

374,558

410,356

379,147

392,854

4,077

Commercial real estate

1,823,015

2,213,788

1,718,560

1,697,035

10,989

Residential real estate

1st lien

3,592,591

4,378,079

3,911,876

3,818,241

148,099

Jr lien

142,829

180,016

114,830

172,117

0

Total with no related allowance

5,932,993

7,182,239

6,124,413

6,080,247

163,165

Total impaired loans

$ 7,104,625

$ 8,395,096

$ 111,796

$ 7,145,183

$ 7,055,308

$ 244,893

~~(1)~~
~~Recorded investment in impaired loans as of September 30, 2020 includes accrued interest receivable and deferred net loan costs of $34,909.~~
~~(2)~~
~~For the three months ended September 30, 2020.~~
~~(3)~~
~~For the nine months ended September 30, 2020.~~

As of September 30, 2021

Three Months Ended

Nine Months Ended

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized

Investment

Recognized

Related allowance recorded

Residential real estate

1st lien

$ 785,752

$ 15,682

$ 897,008

$ 48,200

Jr lien

4,008

104

4,315

332

Total with related allowance

789,760

15,786

901,323

48,532

No related allowance recorded

Commercial & industrial

261,153

0

339,386

204

Commercial real estate

2,795,979

74,162

2,295,473

78,462

Residential real estate

1st lien

3,253,698

43,926

3,402,302

155,005

Jr lien

133,148

0

133,861

0

Total with no related allowance

6,443,978

118,088

6,171,022

233,671

Total impaired loans

$ 7,233,738

$ 133,874

$ 7,072,345

$ 282,203

For all loan segments, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and management believes, after considering collection efforts and other factors, that the ~~borrower’s~~borrower's financial condition is such that collection of interest is considered by management to be doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is generally not recognized on specific impaired loans unless the likelihood of further loss is considered by management to be remote. Interest payments received on impaired loans are generally applied as a reduction of the loan principal balance. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and a satisfactory payment performance of six or more months has occurred.

22
Table of Contents

Credit Quality Grouping

In developing the ALL, management uses credit quality groupings to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Acceptable Risk -– are loans that are expected to perform as agreed under their respective terms. Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial purpose loans that are individually risk rated, including purchased loans, and retail loans that are rated by pool. Group A retail loans include performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable risk.

Group B loans -– Management Involved - are loans that require greater attention than the acceptable risk loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.

Group C loans -– Unacceptable Risk -– are loans that have distinct shortcomings that require a greater degree of management attention. Examples of these shortcomings include a ~~borrower’s~~borrower's inadequate capacity to service debt, poor operating performance, or insolvency. These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the Bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the ~~borrower’s~~borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history. Assessment of expected future payment performance requires consideration of numerous factors. While past performance is part of the overall evaluation, expected performance is based on an analysis of the ~~borrower’s~~borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management. Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions. There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received. Risk ratings are assessed on an ongoing basis and at various points, including at delinquency or at the time of other adverse events. For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review. Lenders are required to make immediate disclosure to the Senior Credit Officer of any known increase in loan risk, even if considered temporary in nature.

23
Table of Contents

The risk ratings within the loan portfolio, by segment, as of the balance sheet dates were as follows:

As of September 30, ~~2021~~2022

Residential

Residential

Residential

Residential

Commercial

Commercial

Real Estate

Real Estate

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Total

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Total

Group A

$ 135,579,309

$ 270,522,821

$ 53,774,882

$ 172,862,774

$ 34,652,449

$ 4,077,021

$ 671,469,256

$ 112,114,846

$ 8,078,281

$ 313,323,279

$ 40,164,698

$ 189,037,878

$ 33,534,308

$ 4,059,750

$ 700,313,040

Group B

707,522

8,337,352

0

0

0

0

9,044,874

6,156,202

0

2,896,559

0

0

0

0

9,052,761

Group C

2,774,905

7,052,433

0

2,032,347

264,560

0

12,124,245

2,953,014

0

8,107,322

0

3,528,701

239,163

0

14,828,200

Total

$ 139,061,736

$ 285,912,606

$ 53,774,882

$ 174,895,121

$ 34,917,009

$ 4,077,021

$ 692,638,375

$ 121,224,062

$ 8,078,281

$ 324,327,160

$ 40,164,698

$ 192,566,579

$ 33,773,471

$ 4,059,750

$ 724,194,001

As of December 31, ~~2020~~2021

Residential

Residential

Residential

Residential

Commercial

Commercial

Real Estate

Real Estate

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Total

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Total

Group A

$ 156,748,590

$ 261,932,833

$ 54,807,367

$ 167,478,918

$ 37,850,056

$ 4,280,990

$ 683,098,754

$ 107,799,925

$ 9,807,848

$ 285,732,365

$ 47,955,231

$ 177,456,149

$ 34,166,076

$ 4,464,692

$ 667,382,286

Group B

998,641

12,784,078

0

0

0

0

13,782,719

693,084

0

6,550,335

0

0

0

0

7,243,419

Group C

3,320,270

5,827,639

0

3,028,345

297,603

0

12,473,857

2,632,613

0

8,676,231

0

3,860,196

193,788

0

15,362,828

Total

$ 161,067,501

$ 280,544,550

$ 54,807,367

$ 170,507,263

$ 38,147,659

$ 4,280,990

$ 709,355,330

$ 111,125,622

$ 9,807,848

$ 300,958,931

$ 47,955,231

$ 181,316,345

$ 34,359,864

$ 4,464,692

$ 689,988,533

Modifications of Loans and TDRs

A loan is classified as a TDR if, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.

The Company is deemed to have granted such a concession if it has modified a troubled loan in any of the following ways:

·
Reduced accrued interest;

·
Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;

·
Converted a variable-rate loan to a fixed-rate loan;

·
Extended the term of the loan beyond an insignificant delay;

·
Deferred or forgiven principal in an amount greater than three months of payments;

·
Performed a refinancing and deferred or forgiven principal on the original loan;

·
Capitalized protective advance to pay delinquent real estate taxes; or

·
Capitalized delinquent accrued interest.

An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be accounted for as a TDR. However, pursuant to regulatory guidance, any payment delay longer than three months is generally not considered insignificant. Management’s assessment of whether a concession has been granted also takes into account payments expected to be received from third parties, including third-party guarantors, provided that the third party has the ability to perform on the guarantee.

The Company’s TDRs are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only, on a limited basis, reduced interest rates for borrowers below the current market rate for the borrower. The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings, nor has it converted variable rate terms to fixed rate terms. However, the Company evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.

The Company has adopted the TDR guidance issued by the federal banking agencies in March and April 2020 regarding the treatment of certain short-term loan modifications relating to the COVID-19 ~~pandemic (See Note 3).~~pandemic. Under this guidance, qualifying concessions and modifications are not considered TDRs. ~~As of September 30, 2021,~~In total, throughout the pandemic, the Company ~~had~~ granted short term loan concessions and/or modifications within the terms of this guidance to ~~593 borrowers,~~595 borrowers. Of those loans, 322 remained on the books with ~~respect to loans having~~ an aggregate principal balance of ~~$109.5~~$89.6 million as of September 30, ~~2021. These~~2022. None of these loans were in a deferral status as of September 30, 2022; however these loans may bear a higher risk of default in future periods.

24
Table of Contents

There were no new TDRs for the three months ended September 30, 2022. New TDRs, by portfolio segment, during the periods presented below were as follows:

Three months ended September 30, 2021

Nine months ended September 30, 2021

Pre-

Post-

Pre-

Post-

Modification

Modification

Modification

Modification

Number

Outstanding

Outstanding

Number

Outstanding

Outstanding

of

Recorded

Recorded

of

Recorded

Recorded

Contracts

Investment

Investment

Contracts

Investment

Investment

Commercial & industrial

0

$ 0

$ 0

1

$ 41,751

$ 41,751

Commercial real estate

1

2,250,000

2,250,000

1

2,250,000

2,250,000

1

$ 2,250,000

$ 2,250,000

2

$ 2,291,751

$ 2,291,751

Nine months ended September 30, 2022

Pre-

Post-

Modification

Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Contracts

Investment

Investment

Residential real estate - 1st lien

1

$ 292,592

$ 292,592

Year ended December 31, 2020

Pre-

Post-

Modification

Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Contracts

Investment

Investment

Residential real estate - 1st lien

6

$ 591,826

$ 687,751

Year ended December 31, 2021

Pre-

Post-

Modification

Modification

Outstanding

Outstanding

Number of

Recorded

Recorded

Contracts

Investment

Investment

Commercial & industrial

1

$ 41,751

$ 41,751

Commercial real estate

2

3,153,402

3,153,402

Residential real estate – 1st lien

1

67,007

67,007

4

$ 3,262,160

$ 3,262,160

Three months ended September 30, 2020

Nine months ended September 30, 2020

Pre-

Post-

Pre-

Post-

Modification

Modification

Modification

Modification

Number

Outstanding

Outstanding

Number

Outstanding

Outstanding

of

Recorded

Recorded

of

Recorded

Recorded

Contracts

Investment

Investment

Contracts

Investment

Investment

Residential real estate

- 1st lien

1

$ 54,318

$ 57,053

6

$ 591,826

$ 687,751

Three months ended September 30, 2021

Nine months ended September 30, 2021

Pre-

Post-

Pre-

Post-

Modification

Modification

Modification

Modification

Outstanding

Outstanding

Outstanding

Outstanding

Number of

Recorded

Recorded

Number of

Recorded

Recorded

Contracts

Investment

Investment

Contracts

Investment

Investment

Commercial & industrial

0

$ 0

$ 0

1

$ 41,751

$ 41,751

Commercial real estate

1

2,250,000

2,250,000

1

2,250,000

2,250,000

1

$ 2,250,000

$ 2,250,000

2

$ 2,291,751

$ 2,291,751

The TDRs for which there was a payment default during the twelve month periods presented below were as follows:

For the twelve months ended September 30, ~~2021~~2022

Number of

Recorded

Contracts

Investment

Commercial & industrial

1

$ 38,751

Number of

Recorded

Contracts

Investment

Commercial real estate

1

$ 818,570

For the twelve months ended December 31, ~~2020~~2021

Number of

Recorded

Contracts

Investment

Residential real estate - 1st lien

1

$ 165,168

~~For the twelve months ended September 30, 2020~~

Number of

Recorded

Contracts

Investment

Commercial & industrial

3

$ 25,720

Residential real estate - 1st lien

3

408,505

Residential real estate - Jr lien

1

50,095

7

$ 484,320

Number of

Recorded

Contracts

Investment

Commercial & industrial

1

$ 38,001

Commercial real estate

2

3,081,810

3

$ 3,119,811

25
Table of Contents
For the twelve months ended September 30, 2021

Number of

Recorded

Contracts

Investment

Commercial & industrial

1

$ 38,751

TDRs are treated as other impaired loans and carry individual specific reserves with respect to the calculation of the ALL. These loans are categorized as non-performing, may be past due, and are generally adversely risk rated. The TDRs that have defaulted under their restructured terms are generally in collection status and their reserve is typically calculated using the fair value of collateral method.

The specific allowances within the ALL related to TDRs as of the balance sheet dates are presented in the table below.

September 30,

December 31,

2021

2020

Specific Allocation

$ 89,033

$ 108,781

September 30,

December 31,

2022

2021

Specific Allocation

$ 96,788

$ 79,978

As of the balance sheet dates, the Company evaluates whether it is contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans. The Company is contractually committed to lend on one SBA guaranteed line of credit to a borrower whose lending relationship was previously restructured.

Note 7.6. Goodwill and Other Intangible Assets

As a result of a merger with LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269. The goodwill is not amortizable and is not deductible for tax purposes.

As of December 31, ~~2020,~~2021, the most recent evaluation, management concluded that no impairment existed. Management evaluates its goodwill intangible for impairment at least annually, or more frequently as circumstances warrant, including, as applicable, circumstances arising out of the COVID-19 pandemic, including the disruptions to the economy and increased volatility in the financial markets and related impacts on the Company’s business.warrant.

Note 8.7. Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings and comprehensive income. The fair values of some of these assets and liabilities are measured on a recurring basis while others are measured on a non-recurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available-for-sale are recorded at fair value on a recurring basis. Other assets, such as MSRs, loans held-for-sale, impaired loans, and OREO are recorded at fair value on a non-recurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.

Level 1
Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes MSRs, collateral-dependent impaired loans and OREO.
26
Table of Contents

Level 3
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The following methods and assumptions were used by the Company in estimating its fair value measurements:

Debt Securities AFS:Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds and default rates. Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include federal agency securities, municipal securities and other asset-backed securities.
26
~~Table of Contents~~

Impaired loans: Impaired loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent. If the fair value is less than an impaired loan’s recorded investment, an impairment loss is recognized as part of the ALL. Accordingly, certain impaired loans may be subject to measurement at fair value on a non-recurring basis. Management has estimated the fair values of collateral-dependent loans using Level 2 inputs, such as the fair value of collateral based on independent third-party appraisals.

Loans held-for-sale: The fair value of loans held-for-sale is based upon an actual purchase and sale agreement between the Company and an independent market participant. The sale is executed within a reasonable period following quarter end at the stated fair value.

MSRs:  MSRs represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method and compared to fair value for impairment. In evaluating the carrying values of MSRs, the Company obtains third party valuations based on loan level data including note rate, and the type and term of the underlying loans. The Company classifies MSRs as non-recurring Level 2.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy, are summarized below. There were no Level 3 assets or liabilities measured on a recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between Levels during either ~~2021~~2022 or ~~2020.~~2021.

September 30,

December 31,

September 30,

December 31,

Assets: (market approach)

2021

2020

2022

2021

Level 1

U.S. Government securities

$ 10,100,822

$ 0

$ 38,003,795

$ 32,041,041

Level 2

U.S. GSE debt securities

$ 9,967,078

$ 8,169,831

$ 10,357,310

$ 11,828,498

Taxable Municipal securities

237,251

298,733

Tax-Exempt Municipal securities

10,336,814

831,379

Agency MBS

80,317,262

41,378,349

113,885,042

127,132,521

ABS and OAS

2,222,451

2,669,996

2,683,288

2,214,024

CMO

939,641

0

8,330,913

1,420,458

Other investments

7,128,885

8,487,002

3,392,907

6,575,805

Total

$ 100,575,317

$ 60,705,178

Level 2 Total

$ 149,223,525

$ 150,301,418

$ 110,676,139

$ 60,705,178

Grand Total

$ 187,227,320

$ 182,342,459

27
Table of Contents

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a partial write-down or with a related specific ALL and are presented net of the specific allowances as disclosed in Note 6.5. Assets measured at fair value on a non-recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy level, are summarized below. There were no Level 1 or Level 3 assets or liabilities measured on a non-recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between levels during either ~~2021~~2022 or ~~2020.~~2021.

September 30,

December 31,

Level 2

2021

2020

Assets: (market approach)

Impaired loans, net of related allowance

$ 150,873

$ 323,645

Loans held-for-sale

50,000

130,400

MSRs (1)

898,349

922,146

~~(1) Represents MSRs at lower of cost or fair value.~~

September 30,

December 31,

Level 2

2022

2021

Assets: (market approach)

Impaired loans, net of related allowance

$ 1,706,713

$ 177,523

Loans held-for-sale

130,000

339,000

MSRs (1)

880,636

897,720

(1)
27
Represents MSRs at lower of cost or fair value.
~~Table of Contents~~
FASB ASC Topic 825, “Financial Instruments”, requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many 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 using present value or other valuation techniques using observable inputs when available. 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. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the tables below. The estimated fair values of the ~~Company’s~~Company's financial instruments as of the balance sheet dates were as follows:

September 30, 2021

Fair

Fair

Fair

Fair

Carrying

Value

Value

Value

Value

Amount

Level 1

Level 2

Level 3

Total

(Dollars in Thousands)

Financial assets:

Cash and cash equivalents

$ 129,752

$ 129,752

$ 0

$ 0

$ 129,752

Debt securities AFS

110,676

10,101

100,575

0

110,676

Restricted equity securities

1,447

0

1,447

0

1,447

Loans and loans held-for-sale, net of ALL

Commercial & industrial

136,380

0

0

138,509

138,509

Commercial real estate

281,551

0

42

282,928

282,970

Municipal

53,610

0

0

55,437

55,437

Residential real estate - 1st lien

173,511

0

109

174,521

174,630

Residential real estate - Jr lien

34,676

0

0

34,573

34,573

Consumer

3,992

0

0

4,031

4,031

MSRs (1)

898

0

927

0

927

Accrued interest receivable

2,730

0

2,730

0

2,730

Financial liabilities:

Deposits

Other deposits

839,646

0

840,638

0

840,638

Brokered deposits

449

0

450

0

450

Long-term borrowings

2,300

0

2,191

0

2,191

Repurchase agreements

22,352

0

22,352

0

22,352

Operating lease obligations

913

0

913

0

913

Finance lease obligations

3,912

0

3,912

0

3,912

Subordinated debentures

12,887

0

12,876

0

12,876

Accrued interest payable

57

0

57

0

57

~~(1) Reported fair value represents all MSRs for loans serviced by the Company, regardless of carrying amount.~~
September 30, 2022

Fair

Fair

Fair

Fair

Carrying

Value

Value

Value

Value

Amount

Level 1

Level 2

Level 3

Total

(Dollars in Thousands)

Financial assets:

Cash and cash equivalents

$ 73,902

$ 73,902

$ 0

$ 0

$ 73,902

Debt securities AFS

187,227

38,004

149,224

0

187,228

Restricted equity securities

1,391

0

1,391

0

1,391

Loans and loans held-for-sale, net of ALL

Commercial & industrial

120,042

0

30

118,839

118,869

Purchased loans

8,019

0

0

7,793

7,793

Commercial real estate

319,267

0

1,611

309,336

310,947

Municipal

40,078

0

0

40,847

40,847

Residential real estate - 1st lien

191,369

0

66

177,558

177,624

Residential real estate - Jr lien

33,578

0

0

33,348

33,348

Consumer

4,006

0

0

4,005

4,005

MSRs (1)

881

0

1,295

0

1,295

Accrued interest receivable

2,710

0

2,710

0

2,710

Financial liabilities:

Deposits

Other deposits

902,792

0

898,813

0

898,813

Brokered deposits

249

0

224

0

224

Long-term borrowings

1,300

0

1,031

0

1,031

Repurchase agreements

32,255

0

32,255

0

32,255

Operating lease obligations

710

0

710

0

710

Finance lease obligations

3,699

0

3,699

0

3,699

Subordinated debentures

12,887

0

12,757

0

12,757

Accrued interest payable

33

0

33

0

33

(1)
Reported fair value represents all MSRs for loans serviced by the Company, regardless of carrying amount.
28
Table of Contents

December 31, 2020

Fair

Fair

Fair

Fair

December 31, 2021

Fair

Fair

Fair

Fair

Carrying

Value

Value

Value

Value

Carrying

Value

Value

Value

Value

Amount

Level 1

Level 2

Level 3

Total

Amount

Level 1

Level 2

Level 3

Total

(Dollars in Thousands)

(Dollars in Thousands)

Financial assets:

Cash and cash equivalents

$ 115,050

$ 115,050

$ 0

$ 0

$ 115,050

$ 110,359

$ 110,359

$ 0

$ 0

$ 110,359

Debt securities AFS

60,705

0

60,705

0

60,705

182,342

32,041

150,301

0

182,342

Restricted equity securities

1,447

0

1,447

0

1,447

1,434

0

1,434

0

1,434

Loans and loans held-for-sale, net of ALL

Commercial & industrial

158,601

0

0

160,371

160,371

109,574

0

0

110,284

110,284

Purchased loans

9,808

0

0

9,862

9,862

Commercial real estate

276,476

0

208

279,281

279,489

296,528

0

29

297,339

297,368

Municipal

54,694

0

0

55,601

55,601

47,841

0

0

49,419

49,419

Residential real estate - 1st lien

169,201

0

116

170,385

170,501

180,271

0

149

180,302

180,451

Residential real estate - Jr lien

37,892

0

0

37,991

37,991

34,151

0

0

34,189

34,189

Consumer

4,218

0

0

4,238

4,238

4,406

0

0

4,436

4,436

MSRs (1)

922

0

922

0

922

898

0

995

0

995

Accrued interest receivable

2,988

0

2,988

0

2,988

2,401

0

2,401

0

2,401

Financial liabilities:

Deposits

Other deposits

778,085

0

779,824

0

779,824

879,151

0

879,545

0

879,545

Brokered deposits

4,206

0

4,208

0

4,208

249

0

246

0

246

Long-term borrowings

2,800

0

2,724

0

2,724

1,300

0

1,179

0

1,179

Repurchase agreements

38,727

0

38,727

0

38,727

32,610

0

32,610

0

32,610

Operating lease obligations

1,060

0

1,060

0

1,060

864

0

864

0

864

Finance lease obligations

38

0

38

0

38

3,858

0

3,858

0

3,858

Subordinated debentures

12,887

0

12,876

0

12,876

12,887

0

12,868

0

12,868

Accrued interest payable

86

0

86

0

86

59

0

59

0

59

(1)
~~(1)~~ Reported fair value represents all MSRs for loans serviced by the Company, regardless of carrying amount.

Note 9.8. Loan Servicing

The following table shows the changes in the carrying amount of the MSRs, included in other assets in the consolidated balance sheets, for the periods indicated:

Nine Months Ended

Year Ended

Nine Months Ended

Year Ended

September 30, 2021

December 31, 2020

September 30, 2022

December 31, 2021

Balance at beginning of year

$ 922,146

$ 939,577

$ 897,720

$ 922,146

MSRs capitalized

97,083

292,654

99,014

147,328

MSRs amortized

(174,530 )

(256,435 )

(116,098 )

(225,404 )
Change in valuation allowance

53,650

(53,650 )

0

53,650

Balance at end of period

$ 898,349

$ 922,146

$ 880,636

$ 897,720

Note ~~10.~~9. Legal Proceedings

In the normal course of business, the Company is involved in litigation that is considered incidental to its business. Management does not expect that any such litigation will be material to the ~~Company’s~~Company's consolidated financial condition or results of operations.

Note ~~11.~~10. Subsequent Events

The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP. On September ~~23, 2021,~~7, 2022, the Company’s Board declared a cash dividend of ~~$0.22~~$0.23 per common share, payable November 1, ~~2021~~2022 to shareholders of record as of October 15, ~~2021.~~2022. This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.

29
Table of Contents

ITEM 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations

~~MANAGEMENT’S~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Period Ended September 30, ~~2021~~2022

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly-owned subsidiary, Community National Bank, as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, and its consolidated results of operations for the three- and nine-month interim periods and one year period presented. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its audited statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period and intends to provide smaller reporting company scaled disclosures where management deems it appropriate. ~~Additionally, beginning with the 2020 Annual Report on Form 10-K, the Company is considered a non-accelerated filer under the amended disclosure rules of the SEC.~~

The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its ~~2020~~2021 Annual Report on Form 10-K filed with the SEC. Please refer to Note 1 in the accompanying audited consolidated financial statements for a listing of acronyms and defined terms used throughout the following discussion.

Certain amounts presented below pertaining to the 2021 comparison periods have been reclassified to conform to current year presentation.
FORWARD-LOOKING STATEMENTS

This ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the results of operations, financial condition and business of the Company and its subsidiary. Words used in the discussion below such as ~~“believes,” “expects,” “anticipates,” “intends,” “estimates,”~~"believes," "expects," "anticipates," "intends," "estimates," “projects”, ~~“plans,”~~"plans," “assumes”, ~~“predicts,”~~"predicts," “may”, “might”, “will”, “could”, “should” and similar expressions, indicate that management of the Company is making forward-looking statements.

Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties and assumptions. Examples of forward looking statements included in this discussion include, but are not limited to, statements regarding the potential ~~continued~~ effects of the COVID-19 pandemic on our business, financial condition, results of operations and prospects; the estimated contingent liability related to assumptions made within the asset/liability management process; ~~management’s~~management's expectations as to the future interest rate environment and the ~~Company’s~~Company's related liquidity level; credit risk expectations relating to the ~~Company’s~~Company's loan ~~portfolio~~portfolio; and ~~its participation in the FHLBB MPF program; and management’s~~management's general outlook for the future performance of the Company or the local or national economy. Although forward-looking statements are based on ~~management’s~~management's expectations and estimates as of the date they are made, many of the factors that could influence or determine actual results are unpredictable and not within the ~~Company’s~~Company's control.

Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities:

·
interest rates change in such a way as to negatively affect loan demand, the local economy or the Company's net income, asset valuations or margins;
·
general economic or business conditions, either nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the ~~Company’s~~Company's products and services;

·
~~competitive pressures increase among financial service providers in~~the impact of inflation on the Company’s ~~northern New England market area or in the~~customers and on its financial ~~services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation~~results and ~~integration of financial service providers, and from changes in technology and delivery systems;~~performance;

·
changes in the United States monetary and fiscal policies, including the interest ~~rates change~~rate policies of the FRB and its regulation of the money supply;
·
changes in ~~such a way as~~applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to ~~negatively~~the measurement of credit losses in financial statements under U.S. GAAP pursuant to the CECL model;
·
the geographic concentration of the Company’s loan portfolio and deposit base;
·
the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s ~~net income, asset valuations~~interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
·
reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;
·
changes in the level of nonperforming assets and charge-offs;
·
changes in federal or ~~margins;~~state tax laws or policy;
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·
changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the ~~Company’s~~Company's business;

·
competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in ~~federal or state tax laws or policy;~~technology and delivery systems;
·
~~changes in the level of nonperforming assets and charge-offs;~~
·
changes in applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to the measurement of credit losses in financial statements under US GAAP pursuant to the CECL model;
·
~~changes in consumer and business spending, borrowing and savings habits;~~
·
~~reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;~~
·
~~the geographic concentration of the Company’s loan portfolio and deposit base;~~
·
~~losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees;~~
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·
cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;

·
higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;

·
management’s risk management measures may not be completely effective;

·
changes in ~~the United States monetary~~consumer and ~~fiscal policies, including the interest rate policies of the FRB~~business spending, borrowing and ~~its regulation of the money supply;~~
·
~~adverse changes in the credit rating of U.S. government debt;~~savings habits;

·
the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
·
~~the effect~~continuing effects of COVID-19 and emerging variants of the virus on our Company, the communities where we have branches and loan production offices, the State of Vermont and the national and global economies and overall stability of the financial markets;

·
the continuing effects of government and regulatory responses to the COVID-19 ~~pandemic and emerging threats from variants of the virus;~~pandemic;

·
operational and internal system failures due to changes in normal business practices, including remote working for Company staff;

·
increased cybercrime and payment system risk due to increase usage by customers of online and other remote banking channels;

·
~~rising unemployment rates in our markets~~the ongoing challenges to find qualified workers to maintain a stable workforce;
·
losses due to the ~~COVID-19 related business shutdowns, delays~~fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and ~~setbacks in scheduled re-openings and other economic disruptions, which reduce our borrowers’ ability to repay their loans and reduce customer demand for our products and services;~~employees; and

·
~~the short-term and long-term effects of government interventions~~adverse changes in the credit rating of U.S. economy and financial system in response to the COVID-19 pandemic and emerging variants of the virus, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, such as passage of the CARES Act, the actions of the Federal Reserve affecting monetary policy, and the temporary moratorium on foreclosures imposed by the State of Vermont in response to the COVID-19 emergency.government debt.

Readers are cautioned not to place undue reliance on such statements as they speak only as of the date they are made. The Company does not undertake, and disclaims any obligation, to revise or update any forward-looking statements to reflect the occurrence or anticipated occurrence of events or circumstances after the date of this Report, except as required by applicable law. The Company claims the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995.

NON-GAAP FINANCIAL MEASURES

Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, three non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Interest Income Versus Interest Expense (NII)) and core earnings (as defined and discussed in the Results of Operations section), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G.

Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

OVERVIEW

The Company’s consolidated assets on September 30, ~~2021~~2022 were ~~$968,584,267~~$1,026,884,950 compared to ~~$918,233,284~~$1,019,105,799 at December 31, ~~2020,~~2021, an increase of ~~5.5%~~0.8%. ~~Changes~~Significant changes in the asset base ~~included~~were due to an increase in net loans of ~~$49,970,961,~~$34.0 million, or ~~82.3%~~5.0%, ~~in securities AFS,~~ and an increase in ~~cash and cash equivalents~~the available-for-sale investment portfolio of ~~$14,702,116,~~$4.9 million, or ~~12.8%~~2.7%, which was partially offset by a decrease of $36.5 million, or 33.0%, in ~~net loans of $17,281,314, or 2.5%.~~cash and cash equivalents. This demonstrates the Company’s efforts to deploy cash into higher earning assets. The ~~growth~~increase in the ~~securities AFS~~loan portfolio ~~was due to purchases totaling $66.0 million during the first nine months of 2021. The decrease in loans~~ was primarily attributable to ~~forgiveness payments~~an increase of $20.0 million in ~~the PPP portfolio,~~commercial & industrial loans and $23.3 million in CRE loans, which ~~had~~was partially offset by an ~~aggregate principal balance of $35.7~~$11.1 million ~~as of September 30, 2021, compared to $64.4 million at December 31, 2020. Net of the~~ decrease in PPP loans ~~loans increased by $12MM, or 1.9% year to date. More discussion on the activity of this portfolio can be found~~and $7.8 million in ~~the Credit Risk section.~~municipal loan balances.

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Total deposits on September 30, ~~2021~~2022 were ~~$840,094,760~~$903,041,149 compared to ~~$782,290,840~~$879,399,953 on December 31, ~~2020,~~2021, an increase of ~~$57.8~~$23.6 million, or ~~7.4%, reflecting the combined effect of increases in core deposits (demand deposit~~2.7%. Savings accounts ~~non-interest bearing) of $15.5~~increased $11.5 million, or ~~8.30%~~6.8%, ~~an increase in interest-bearing transaction accounts of $8.6 million, or 3.8%, an increase in~~followed by money market funds ~~totaling $9.2~~with an increase of $7.9 million, or ~~8.0%, and an increase in savings accounts of $30.2 million, or 21.8%~~6.1%. These increases were partially offset by a decrease of $5.7 million, or 5.0%, in time deposits. The increase in core deposits was driven in part by PPP loan funds that were deposited in business checking accounts as well as increases in customer checking accounts likely from stimulus payments, unemployment benefits and deferral or forbearance agreements on residential mortgage and student loans.

Consolidated net income ~~during~~for the third quarter of ~~2021 increased $818,760,~~2022 decreased $88,696, or ~~28.4%, and year~~2.4% to ~~date consolidated net income increased $2.2~~$3.6 million ~~or 28.8%, from $7.6~~compared to $3.7 million in the third quarter of 2021. Income for the first nine months of ~~2020~~2022 decreased $734,109 to ~~$9.8~~$9.0 million ~~for~~compared to $9.7 million in the same period of 2021. Year over year, a $3.2 million decrease in ~~2021.~~ PPP loan processing fees from the SBA and an increase of $700,835 in provision for loan losses was partially offset by an increase of $1.4 million in interest income from the Company’s debt securities portfolio and an increase in interest income from loans totaling $1.58 million, which includes interest adjustments of approximately $286 thousand for loans coming out of non-accrual status. Also contributing to the offset was a ~~significant~~ decrease of $74,979 in interest expense ~~were~~on savings and money market deposits, and a decrease of $226,062 in interest expense on time deposits. These changes and other significant changes are discussed in the ~~main drivers~~appropriate income sections of this MD&A.
Total interest income increased $221,392 or 2.4%, for the third quarter of 2022, compared to the same quarter in 2021, and increased $166,388, or 0.6%, year over year, due to the changes discussed in the previous paragraph related to PPP loan processing fees and investment and loan income. The investment portfolio has increased considerably year over year, accounting for the increase in ~~net~~investment income. Negatively impacting interest income for the three- and nine-month comparison ~~periods. Please refer to~~periods was the ~~Non-interest Income and Non-interest Expense sections for more information on these and other changes~~amortization of the SBA PPP fees in the amount of $36,182 for the ~~three-~~third quarter of 2022, compared to $1.6 million for the same quarter in 2021, and ~~nine-month periods ended September 30,~~$469,929 for the first nine months of 2022, compared to $3.7 million for the same period in 2021.

Total interest ~~income~~expense increased ~~$1.1 million,~~$329,895, or ~~13.9%~~45.3%, for the third quarter of ~~2021,~~2022, compared to the same quarter in ~~2020,~~2021, and increased ~~$2.1 million,~~$153,139, or ~~8.5%~~6.5%, ~~year to date through September 30, 2021,~~for the first nine months of 2022 compared to the same period in ~~2020.~~2021. The ~~increase~~recent increases in ~~interest earned~~the fed funds rate have put more pressure on ~~the investment portfolio was due to~~deposit pricing, resulting in an increase in ~~volume,~~the Company’s money market and the recognition of PPP loan processing fees from the SBA of $1.6 million for the third quarter and $3.7 million for the first nine months of 2021 contributed to the increase in both periods. Those processing fees represented 95.5% and 94.3%, respectively, of the total of fees on loans of $1.7 million for the third quarter of 2021, and $3.9 million for the nine months ended September 30, 2021, compared to 86.3% and 84.8%, respectively, of total fees on loans of $525,601 and $1.2 million, for the same periods in 2020. The opportunity for an increase in interest income from the loan growth was curbed by the mandated 1% interest rate on SBA PPP loans.
Despite a 14.2% increase in total interest-bearing deposits year over year, a decrease in total interest expense of $322,086, or 30.7%, is noted for the third quarter of 2021 compared to 2020, and a decrease of $1.4 million, or 37.1%, is noted for the first nine months of 2021, compared to the same period in 2020. The 150 basis point decrease in short-term rates initiated by the FRB in March 2020 in response to the COVID-19 pandemic and sustained since then has resulted in a decrease in most components of interest expense, as rates paid ontime deposit ~~accounts were reduced to reflect the changes in market~~ rates. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that ~~FRB action~~the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on net interest income.

The provision for loan losses for the third quarter of ~~2021~~2022 was ~~$89,167~~$125,000 compared to ~~$362,499~~$89,167 for the same quarter of ~~2020, and $624,165~~2021, resulting in an increase of $35,833, or 40.2%, between periods. The provision for loan losses for the first nine months of ~~2021,~~2022 was $1.3 million compared to ~~just over $1.0 million~~$624,165 for the same period in ~~2020,~~2021, resulting in ~~decreases~~an increase of ~~75.4% and 40.4%~~$700,835, or 112.3%, ~~respectively,~~ between periods. ~~These decreases~~This increase to the provision ~~in both periods were~~was driven primarily ~~due to~~by a ~~negligible level of charge off activity,~~write-down on a ~~decline in historical loss rates and a decrease in the amount of the~~non-performing CRE loan ~~portfolio~~totaling $667,474 during ~~the first nine months of 2021, compared to higher than anticipated loan charge off activity~~March 2022, as well as increases to the reserve due to the increase in the commercial loan growth during the same period last year. Additionally, most of the loan growth during the first nine months of 2021 was attributable to PPP loans, which bear a 100% SBA guarantee, subject to borrower eligibility requirements.portfolios, both secured and unsecured. Please refer to the ALL and provisions discussion in the Credit Risk section for more ~~information on these decreases.~~information.

Equity capital ~~grew~~decreased to ~~$83.2~~$69.5 million, with a book value per share of ~~$15.23~~$12.56 as of September 30, ~~2021,~~2022, compared to ~~equity capital of $77.3~~$84.8 million and a book value of ~~$14.25~~$15.48 as of December 31, ~~2020.~~ 2021. This decrease in equity capital is directly related to the increase of unrealized losses in the investment portfolio, reflecting rising bond rates, which resulted in an increase of $21.4 million, net of tax, in the accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet. This position is considered temporary and does not impact the Company’s regulatory capital ratios.
On September ~~23, 2021,~~7, 2022, the ~~Company’s~~Company's Board of Directors declared a quarterly cash dividend of ~~$0.22~~$0.23 per common share, payable on November 1, ~~2021~~2022 to shareholders of record on October 15, ~~2021.~~2022.

As of September 30, ~~2021,~~2022, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of ~~all~~applicable regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn from ~~a resurgence of COVID-19,~~any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, byincluding as a result of credit losses and other adverse ~~economic and operational~~ impacts of the ~~pandemic.~~
~~CRITICAL ACCOUNTING POLICIES~~
The Company’s significant accounting policies are fundamental to understanding the Company’s results of operations and financial condition because they require management to use estimates and assumptions that may affect the value of the Company’s assets or liabilities and financial results, sometimes in material respects. These policies are considered by management to be critical because they require subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under differentpandemic, deteriorating economic conditions, or using different assumptions. These policies, and others deemed less critical, are described in the Company’s Accounting Policy, which is updated yearly for review and approval by the Company’s Audit Committee, and then presented to the Company’s Board for final review and approval.government monetary policy.

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CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared according to U.S. GAAP.  The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes.  The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Because of the significance of these estimates and assumptions, there is a high likelihood that materially different amounts would be reported for the Company under different conditions or using different assumptions or estimates.  Management evaluates on an ongoing basis its judgment as to which policies are considered to be critical, and communicates all evaluations with the Company’s Audit Committee.

The Company’s critical accounting policies govern:

·
the ALL;
·
OREO;
·
OTTI of debt securities;
·
valuation of residential MSRs; and
·
the carrying value of goodwill.

These policies are described in the Company’s ~~2020~~2021 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations -– Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. There were no material changes during the first nine months of ~~2021~~2022 in the Company’s critical accounting policies.

RESULTS OF OPERATIONS

Net income for the third quarter of ~~2021~~2022 was ~~$3,699,202~~$3,610,506 or ~~$0.69~~$0.66 per common share compared to ~~$2,880,443~~$3,699,202 or ~~$0.54~~$0.69 per common share for the same quarter of ~~2020.~~2021. Net income for the first nine months of ~~2021~~2022 was ~~$9,771,309~~$9,037,200 or ~~$1.82~~$1.67 per common share, compared to ~~$7,583,992~~$9,771,309 or ~~$1.43~~$1.82 per common share for the same period ~~in 2020.~~of 2021. Core earnings (NII) for the third quarter of ~~2021 was $8.5~~2022 were $8.37 million compared to ~~$7.0~~$8.48 million for the same quarter in ~~2020~~2021 and ~~$23.8~~$23.77 million for the first nine months of ~~2021,~~2022 compared to ~~$20.3~~$23.76 million for the same period in ~~2020.~~2021. As noted ~~and discussed~~ in the Overview, ~~interest income during~~ the ~~third quarter and year to date period was supported by~~moderate changes in NII in both periods primarily reflect the decrease in the amortization of fees ~~generated~~ from administering PPP ~~loans. These~~loans, which enhanced NII in 2021. Over the past year, the portfolio of PPP loans has decreased, as these loans are forgiven and paid in full by the SBA. The PPP loan portfolio balance decreased from $92.6 million at the end of February 2021 to $12.2 million at December 31, 2021 and then to $1.1 million as of September 30, 2022. As these loans are paid in full, the unamortized fees ~~have offset~~are taken into income, resulting in a decrease in ~~interest~~ income due to the repricing of loans, new loans (other than PPP loans) booked at lower market rates and PPP loans booked at a mandated 1% annual interest rate. Despite the increase in deposits between periods, interestyear over year. Interest paid on deposits, which is the major component of total interest expense, ~~decreased $283,139,~~increased $243,656, or ~~32.3% for~~41.0% between the third quarter ~~of 2021 compared to the same quarter of 2020,~~comparison periods and ~~$1.2 million,~~$44,737, or ~~38.8%~~2.3%, ~~for the first nine months of 2021 compared to the same period last~~ year ~~as rates paid on deposits continue to adjust downward, reflecting the decreases in short-term rates initiated~~over year, driven primarily by the ~~FRB beginning~~increases in ~~March 2020 in response to~~ the ~~pandemic.~~fed funds rate during 2022.
Non-interest income for the third quarter of 2021 was $1.7 million compared to $1.9 million for the same quarter of 2020, and non-interest income for the first nine months of 2021 was $5.0 million compared to $5.1 million for the first nine months of 2020. Proceeds from sales of sold loans decreased from $31.5 million for the first nine months of 2020 to $6.5 million for the same period in 2021. This resulted in decreases in gain on sale from these proceeds totaling $359,265, or 59.7% for the third quarter of 2021 compared to the same quarter of 2020, and $433,952, or 38.1% for the first nine months of 2021 compared to the same period in 2020. Non-interest expense for the third quarter of 2021 was $5.5 million compared to $5.1 million for the same quarter of 2020, and non-interest expense for the first nine months of 2021 was $16.2 million compared to $15.2 million for the same period of 2020.
~~The following tables summarize certain balance sheet data and the earnings performance of the Company as of the balance sheet dates and for the nine month comparison periods.~~

September 30,

December 31,

2021

2020

Balance Sheet Data

Net loans

$ 683,669,790

$ 700,951,104

Total assets

968,584,267

918,233,284

Total deposits

840,094,760

782,290,840

Borrowed funds

2,300,000

2,800,000

Junior subordinated debentures

12,887,000

12,887,000

Total liabilities

885,369,565

840,944,571

Total shareholders’ equity

83,214,702

77,288,713

Book value per common share outstanding

$ 15.23

$ 14.25

33
~~Table of Contents~~

Nine Months Ended September 30,

2021

2020

Operating Data

Total interest income

$ 26,104,814

$ 24,050,460

Total interest expense

2,349,083

3,734,083

Net interest income

23,755,731

20,316,377

Provision for loan losses

624,165

1,046,501

Net interest income after provision for loan losses

23,131,566

19,269,876

Non-interest income

5,041,352

5,057,104

Non-interest expense

16,166,304

15,185,390

Income before income taxes

12,006,614

9,141,590

Applicable income tax expense(1)

2,235,305

1,557,598

Net Income

$ 9,771,309

$ 7,583,992

Per Common Share Data

Earnings per common share (2)

$ 1.82

$ 1.43

Dividends declared per common share

$ 0.66

$ 0.57

Weighted average number of common shares outstanding

5,338,481

5,264,802

Number of common shares outstanding, period end

5,364,973

5,300,211

~~(1)~~
~~Applicable income tax expense assumes a 21% tax rate for both periods.~~
~~(2)~~
~~Computed based on the weighted average number of common shares outstanding during the periods presented.~~

Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings. Return on average equity, which is net income divided by average ~~shareholders’~~shareholders' equity, measures how effectively a corporation uses its equity capital to produce earnings.

The following tables show these ratios annualized, as well as other equity ratios monitored by management, for the comparison periods presented.

Three Months Ended September 30,

Three Months Ended September 30,

2021

2020

2022

2021

Return on average assets

1.54 %

1.36 %

1.41 %

1.54 %
Return on average equity

17.87 %

15.54 %

19.06 %

17.87 %
Dividend payout ratio (1)

31.88 %

35.19 %

34.85 %

31.88 %
Average equity to average assets

8.64 %

8.76 %

7.38 %

8.64 %

Nine Months Ended September 30,

2021

2020

Return on average assets

1.40 %

1.27 %
Return on average equity

16.39 %

14.16 %
Dividend payout ratio (1)

36.26 %

39.86 %
Average equity to average assets

8.52 %

8.98 %
~~(1) Dividends declared per common share divided by earnings per common share.~~

Nine Months Ended September 30,

2022

2021

Return on average assets

1.19 %

1.40 %
Return on average equity

15.55 %

16.39 %
Dividend payout ratio (1)

41.32 %

36.26 %
Average equity to average assets

7.68 %

8.52 %

(1)
34
Dividends declared per common share divided by earnings per common share.
~~Table of Contents~~

INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)

The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings). The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets and sources of funds (volume), and changes in the yield earned and costs of funds (rate). A portion of the Company’s income from loans to local municipalities is not subject to income taxes. Because the proportion of tax-exempt items in the ~~Company’s~~Company's balance sheet varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. The Company’s corporate tax rate is 21%; therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.

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Table of Contents
The Company’s tax-exempt interest income of ~~$246,627~~$284,618 and ~~$319,697~~$246,627 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$759,855~~$777,314 and ~~$1.1 million~~$759,855 for the nine months ended September ~~31,~~30, 2022 and 2021, ~~and 2020,~~ respectively, was derived from loans to local municipalities of $40.2 million and $53.8 million, and ~~$52.3~~tax-exempt municipal investments of $10.3 million and $0, at September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

The following tables show the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.

Three Months Ended
September 30,

Three Months Ended September 30,

2021

2020

2022

2021

Net interest income as presented

$ 8,482,070

$ 7,036,086

$ 8,373,566

$ 8,482,069

Effect of tax-exempt income

65,559

84,982

75,658

65,559

Net interest income, tax equivalent

$ 8,547,629

$ 7,121,068

$ 8,449,224

$ 8,547,628

Nine Months Ended
September 30,

Nine Months Ended September 30,

2021

2020

2022

2021

Net interest income as presented

$ 23,755,731

$ 20,316,377

$ 23,768,980

$ 23,755,731

Effect of tax-exempt income

201,987

295,535

206,628

201,987

Net interest income, tax equivalent

$ 23,957,718

$ 20,611,912

$ 23,975,608

$ 23,957,718

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Table of Contents

As a result of the adverse economic impacts and uncertainties from the COVID-19 pandemic, and from the FRB’s responsive monetary policies resulting in a prolonged low interest rate environment, the Company’s NII is likely to be adversely affected in future periods, although the duration and extent of such impacts cannot be predicted at this time.
The following tables present the daily average interest-earning assets and the daily average interest-bearing liabilities supporting earning assets for the respective comparison periods. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a ~~rate/yield~~yield/rate for the comparison periods presented.

Three Months Ended September 30,

Three Months Ended September 30,

2021

2020

2022

2021

Average

Average

Average

Average

Average

Income/

Rate/

Average

Income/

Rate/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Yield

Balance

Expense

Yield

Balance

Expense

Rate

Balance

Expense

Rate

Interest-Earning Assets

Loans (1)

$ 705,990,188

$ 8,843,732

4.97 %

$ 735,066,284

$ 7,827,896

4.24 %

$ 717,692,703

$ 8,239,751

4.55 %

$ 705,990,188

$ 8,843,732

4.97 %
Taxable investment securities

91,309,182

325,002

1.41 %

43,672,567

249,341

2.27 %

182,586,203

799,856

1.74 %

91,309,182

325,002

1.41 %
Tax-exempt investment securities

9,135,697

86,271

3.75 %

0

0

0.00 %
Sweep and interest-earning accounts

80,330,844

92,923

0.46 %

20,438,654

76,896

1.50 %

58,264,306

358,907

2.44 %

80,330,844

92,923

0.46 %
Other investments (2)

1,834,150

14,666

3.17 %

1,799,850

17,715

3.92 %

1,777,950

23,029

5.14 %

1,834,150

14,666

3.17 %
Total

$ 879,464,364

$ 9,276,323

4.18 %

$ 800,977,355

$ 8,171,848

4.06 %

$ 969,456,859

$ 9,507,814

3.89 %

$ 879,464,364

$ 9,276,323

4.18 %

Interest-Bearing Liabilities

Interest-bearing transaction accounts

$ 222,858,078

$ 126,042

0.22 %

$ 187,233,075

$ 198,932

0.42 %

$ 252,413,763

$ 382,833

0.60 %

$ 217,633,391

$ 134,246

0.24 %
Money market accounts

126,691,975

148,962

0.47 %

106,073,212

215,488

0.81 %
Money market funds

138,497,037

197,849

0.57 %

126,691,975

148,962

0.47 %
Savings deposits

162,353,105

51,909

0.13 %

130,272,439

39,142

0.12 %

181,818,265

27,930

0.06 %

167,577,792

43,705

0.10 %
Time deposits

107,239,980

267,414

0.99 %

113,353,872

423,904

1.49 %

105,915,323

229,371

0.86 %

107,239,980

267,414

0.99 %
Borrowed funds

2,301,326

12

0.00 %

3,663,261

598

0.06 %

1,301,120

8

0.00 %

2,301,326

12

0.00 %
Repurchase agreements

23,644,148

16,871

0.28 %

30,519,702

67,327

0.88 %

33,402,748

45,153

0.54 %

23,644,148

16,871

0.28 %
Finance lease obligations

2,385,977

19,709

3.30 %

59,386

1,208

8.14 %

3,716,571

21,355

2.30 %

2,385,977

19,709

3.30 %
Junior subordinated debentures

12,887,000

97,776

3.01 %

12,887,000

104,181

3.22 %

12,887,000

154,091

4.74 %

12,887,000

97,776

3.01 %
Total

$ 660,361,589

$ 728,695

0.44 %

$ 584,061,947

$ 1,050,780

0.72 %

$ 729,951,827

$ 1,058,590

0.58 %

$ 660,361,589

$ 728,695

0.44 %

Net interest income

$ 8,547,628

$ 7,121,068

$ 8,449,224

$ 8,547,628

Net interest spread (3)

3.74 %

3.34 %

3.31 %

3.74 %
Net interest margin (4)

3.86 %

3.54 %

3.46 %

3.86 %

~~(1)~~1.
Included in gross loans are non-accrual loans with average balances of ~~$5,274,531~~$7,337,588 and ~~$4,677,752~~$3,803,807 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Loans are stated before deduction of unearned discount and ALL, less loans held-for-sale and include tax-exempt loans to local municipalities with average balances of ~~$52,546,634~~$39,007,717 and ~~$56,337,312~~$52,546,634 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~(2)~~2.
Included in other investments is the Company’s FHLBB Stock with average balances of ~~$769,000~~$712,800 and ~~$734,700~~$769,000 for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively, with a dividend rate of approximately ~~1.52%~~3.72% and ~~4.12%~~1.52%, respectively, per quarter.

~~(3)~~3.
Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.

~~(4)~~4.
Net interest margin is net interest income divided by average earning assets.

3635
Table of Contents

Nine Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2022

2021

Average

Average

Average

Average

Average

Income/

Rate/

Average

Income/

Rate/

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Yield

Balance

Expense

Yield

Balance

Expense

Rate

Balance

Expense

Rate

Interest-Earning Assets

Loans (1)

$ 718,366,424

$ 25,121,879

4.68 %

$ 685,896,774

$ 23,246,807

4.53 %

$ 704,673,950

$ 23,476,738

4.45 %

$ 718,366,424

$ 25,121,879

4.68 %
Taxable investment securities

86,274,774

883,846

1.37 %

43,424,844

787,275

2.42 %

183,417,294

2,192,540

1.60 %

86,274,774

883,846

1.37 %
Tax-exempt investment securities

5,628,689

142,899

3.39 %

0

0

0.00 %
Sweep and interest-earning accounts

74,020,149

260,811

0.47 %

19,402,112

248,373

1.71 %

68,303,360

609,532

1.19 %

74,020,149

260,811

0.47 %
Other investments (2)

1,833,884

40,265

2.94 %

1,847,509

63,540

4.59 %

1,778,428

56,121

4.22 %

1,833,884

40,265

2.94 %
Total

$ 880,495,231

$ 26,306,801

3.99 %

$ 750,571,239

$ 24,345,995

4.33 %

$ 963,801,721

$ 26,477,830

3.67 %

$ 880,495,231

$ 26,306,801

3.99 %

Interest-Bearing Liabilities

Interest-bearing transaction accounts

$ 228,892,277

$ 408,410

0.24 %

$ 183,023,743

$ 832,020

0.61 %

$ 256,909,959

$ 754,189

0.39 %

$ 216,136,557

$ 408,410

0.25 %
Money market accounts

123,955,268

477,355

0.51 %

103,218,864

873,627

1.13 %
Money market funds

132,391,636

446,751

0.45 %

123,955,268

477,355

0.51 %
Savings deposits

144,060,590

121,748

0.11 %

119,367,893

120,681

0.14 %

178,709,726

77,373

0.06 %

156,816,309

121,748

0.10 %
Time deposits

109,049,139

923,151

1.13 %

111,607,801

1,327,883

1.59 %

106,235,079

697,088

0.88 %

109,049,139

923,151

1.13 %
Borrowed funds

2,376,974

36

0.00 %

5,645,077

13,853

0.33 %

1,301,132

14

0.00 %

2,376,974

36

0.00 %
Repurchase agreements

29,997,106

72,822

0.32 %

28,582,148

185,868

0.87 %

30,752,887

88,322

0.38 %

29,997,106

72,822

0.32 %
Finance lease obligations

2,156,173

49,075

3.03 %

74,656

4,482

8.00 %

3,769,459

64,979

2.30 %

2,156,173

49,075

3.03 %
Junior subordinated debentures

12,887,000

296,486

3.08 %

12,887,000

375,669

3.89 %

12,887,000

373,506

3.88 %

12,887,000

296,486

3.08 %
Total

$ 653,374,527

$ 2,349,083

0.48 %

$ 564,407,182

$ 3,734,083

0.88 %

$ 722,956,878

$ 2,502,222

0.46 %

$ 653,374,526

$ 2,349,083

0.48 %

Net interest income

$ 23,957,718

$ 20,611,912

$ 23,975,608

$ 23,957,718

Net interest spread (3)

3.51 %

3.45 %

3.21 %

3.51 %
Net interest margin (4)

3.64 %

3.67 %

3.33 %

3.64 %

~~(1)~~1.
Included in gross loans are non-accrual loans with average balances of ~~$4,388,561~~$5,375,840 and ~~$4,706,338~~$3,945,577 for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Loans are stated before deduction of unearned discount and ALL, less loans held-for-sale and include tax-exempt loans to local municipalities with average balances of ~~$52,105,647~~$45,161,639 and ~~$58,086,317~~$52,105,647 for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~(2)~~2.
Included in other investments is the Company’s FHLBB Stock with average balances of ~~$768,734~~$713,278 and ~~$782,359,~~$768,734, respectively, with a dividend rate of approximately ~~1.52%~~3.38% and ~~4.37%~~1.52%, respectively, for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

~~(3)~~3.
Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.

~~(4)~~4.
Net interest margin is net interest income divided by average earning assets.
36
Table of Contents

The average volume of interest-earning assets for the three- and nine-month periods ended September 30, ~~2021~~2022 increased ~~9.8%~~10.2% and ~~17.3%~~9.5%, respectively, compared to the same periods last year, while the average yield on interest-earning assets ~~increased 12~~decreased 29 bps and ~~decreased 34~~32 bps, respectively. The increase in average yield in the three-month comparison periods is primarily due to activity within the PPP loan portfolio. When these loans are paid off, as part of the SBA forgiveness program, the remainder of the deferred loan fee associated with each loan is taken into income. These fees for the third quarter of 2021 amounted to $1.6 million, compared to $453,505 for the third quarter of 2020. The decrease in the average yield in all other categories reflects the persistent low federal funds rate.

The average volume of loans ~~decreased 4.0%~~increased 1.7% over the three-month comparison ~~periods of 2021 versus 2020~~period and ~~increased 4.7%~~decreased 1.9% over the nine-month comparison ~~periods~~period of ~~2021~~2022 versus ~~2020,~~2021, while the average yield on loans ~~increased 73~~decreased 42 bp and 23 bps, ~~and 15~~respectively. The $286 thousand in income for loans coming out of non-accrual status, discussed in the Overview, translates to an increase of five bps ~~respectively.~~in the nine-month comparison period for 2022. Loans accounted for ~~80.3%~~74.0% and ~~81.6%~~73.1%, respectively, of the average interest-earning asset portfolio for the three- and ~~nine- month~~nine-month periods ended September 30, ~~2021 down from 91.8%~~2022 compared to 80.3% and ~~91.4%~~81.6%, respectively, for the same periods last year. This percentage decline occurred despite the increase in the average volume of the loan portfolio and reflects the overall growth in the balance sheet, including in the significant increase in average volume of the taxable investment portfolio as a percentage of total assets between periods, as described below. Interest earned on the loan portfolio as a percentage of total interest income was ~~95.3%~~86.7% and ~~95.5%~~88.7%, respectively for the three- and nine-month periods in ~~2021~~2022 compared to ~~95.8%~~95.3% and 95.5%, respectively for the same periods in ~~2020.~~2021.
37
~~Table of Contents~~

The average volume of the taxable investment portfolio (classified as AFS) increased ~~109.1%~~100.0% and ~~98.7%~~112.6% during the three- and nine-month periods ended September 30, ~~2021,~~2022, compared to the same periods last year, ~~while~~and the average yield ~~decreased 86~~increased 33 bps and ~~105~~23 bps, respectively, between periods. The increase in average volume is due primarily to management’s effort to continue to grow the investment portfolio incrementally as the balance sheet grows in order to provide additional liquidity and pledge quality assets.
The average volume of the tax-exempt investment portfolio (classified as AFS) for ~~both~~the three- and nine-month periods ~~reflects the excess liquidity resulting from the PPP loan program~~ended September 30, 2022 was $9.1 million and ~~other government mitigation measures adopted~~$5.6 million, respectively, with a tax equivalent yield of 3.75% and 3.39%, respectively. The Company began investing in ~~response to the pandemic.~~these tax-exempt bonds during December 2021.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing ~~accounts~~account at the FRBB, decreased 27.5% and ~~two correspondent banks, increased $59.9 million, or 293.0% during~~7.7%, respectively, for the ~~three-month period~~three- and nine-month comparison periods ended September 30, ~~2021,~~2022 compared to the same period ~~last year,~~in 2021. The decrease in average volume is attributable to the funding of investment and ~~$54.6 million, or 281.5%, for the nine-month period ended September 30, 2021, while the~~loan growth. The average yield on these funds ~~decreased 104~~increased 198 bps and ~~124~~72 bps ~~respectively. This increase~~for the three- and nine-month periods ended September 30, 2022 versus the same periods in cash volume is attributable to significant increases in core deposits which were driven in part by PPP loan funds that were deposited in business checking accounts as well as increases in customer checking accounts likely from stimulus payments, unemployment benefits and deferral or forbearance agreements on residential mortgage and student loans.2021.

The average volume of interest-bearing liabilities for the three- and ~~nine month~~nine-month periods ended September 30, ~~2021~~2022 increased ~~13.5% and 15.8%, respectively,~~10.7% in both periods, compared to the same periods ~~last year,~~in 2021, while the average rate paid on interest-bearing liabilities ~~decreased 28~~increased 14 bps and 40decreased two bps, respectively, reflecting the decrease in the federal funds rate beginning in March 2020. Customer deposits of PPP loan proceeds and stimulus payments were contributing factors to the increase in average volume.respectively.

The average volume of interest-bearing transaction accounts increased ~~19.0%~~16.0% and ~~25.1%~~18.9%, respectively during the three- and nine-month periods ended September 30, 2021 compared to the same periods last year, while the average rate paid on these accounts decreased 20 bps and 37 bps, respectively. Contributing factors to the increase in average volume were increases of $8.0 million, or 19.7%, and $9.8 million, or 23.6%, respectively, in the average volume of ICS DDAs, and $21.9 million or 24.0%, and $25.1 million, or 31.1%, respectively, in the average volume of other interest-bearing DDAs. Interest-bearing transaction accounts comprised 33.8% and 35.0%, respectively, of the average interest-bearing liabilities for the three- and nine-month periods ended September 30, ~~2021~~2022 compared to ~~32.1% and 32.4%, respectively, for~~ the same periods ~~last year.~~of 2021. The average rate paid on these accounts increased 36 bps and 14 bps, respectively, between comparison periods.

The average volume of money market accounts increased ~~19.4%~~9.3% and ~~20.1%~~6.8%, respectively ~~during~~for the three- and nine-month periods ended September 30, ~~2021~~2022 compared to the same periods ~~in 2020,~~of 2021, while the average rate paid ~~decreased 34~~on these deposits increased 10 bps and 62decreased six bps, respectively.

The average volume of savings accounts increased ~~24.6%~~8.5% and ~~20.7%~~14.0%, respectively, for the three- and nine-month periods ended September 30, ~~2021 versus~~2022 compared to the same periods in ~~2020,~~2021, while the average rate paid ~~increased one~~on these accounts decreased four bps in both comparison periods.
The average volume of time deposits decreased 1.2% and ~~decreased three bps, respectively. Savings accounts comprised 24.6% and 22.1%~~2.6%, respectively, ~~of the average interest-bearing liabilities~~ for the three- and nine-month periods ended September 30, ~~2021~~2022 compared to ~~22.3%~~the same periods in 2021, and ~~21.2%~~the average rate paid decreased 13 bps and 25 bps, respectively. Interest paid on time deposits as a percentage of total interest expense was 21.7% and 27.9%, respectively, for the ~~same periods last year.~~
~~The average volume of time deposits decreased 5.4% and 2.3%, respectively, during the three-~~three and nine-month periods ended September 30, ~~2021,~~2022, compared to 36.7% and 39.3%, respectively, for the same comparison periods ~~last year, and the average rate paid on these accounts decreased 50 bps and 46 bps, respectively, between periods.~~in 2021. The decrease in the average volume of time deposits between periods reflects the maturity of brokered deposits ~~throughout the first three months~~in January and April of 2021 that had not been replaced as of September 30, ~~2021. Time deposits represented 16.2% and 16.7%, respectively,~~2022. Management still considers the brokered deposit market to be a beneficial source of ~~average interest-bearing liabilities for~~funding to help smooth out the ~~three- and nine-month periods ended September 30, 2021, compared~~fluctuations in core deposit balances without the need to ~~19.4% and 19.8%, respectively, for~~disrupt deposit pricing in the ~~same periods last year. Interest paid~~Company’s local markets. These funds can be obtained relatively quickly on ~~time deposits represented 36.7% and 39.3%, respectively, of total interest expense for~~an as-needed basis, making them a valuable alternative to traditional term borrowings from the three- and nine-month period in 2021, compared to 40.3% and 35.6%, respectively, for the same periods in 2020. The average volume of retail time deposits decreased 1.1% for the three-month period from $103.0 million at September 30, 2020 to $101.9 million at September 30, 2021, and increased 0.9% for the nine-month period from $101.9 million at September 30, 2020 to $102.8 million at September 30, 2021. The average volume of wholesale time deposits decreased 48.7% from an average volume of $10.3 million to $5.3 million for the three-month periods ended September 30, 2021 and 2020, respectively, and 35.3% for the nine-month periods from an average volume of $9.7 million at September 30, 2020 to $6.3 million at September 30, 2021.FHLBB. Refer to the “Liquidity and Capital Resources” section for more discussion on ~~these changes.~~this topic.

The average volume of borrowed funds decreased ~~$1.4 million~~43.5% and ~~$3.3 million, respectively, between~~45.3% for the three- and nine-month ~~comparison~~ periods ofended September 30, 2022 compared to the same periods in 2021 and, 2020, and the average rate paid on these borrowings decreased 6 bps and 33 bps, respectively, between periods. The average balances are reflective of the influx of cash throughout 2020 and into 2021 resulting from PPP lending activity, COVID stimulus payments and other government mitigation measures. The balance of borrowed funds at September 30, 2021 consistsfor all periods, consisted of only JNE funds at zero percent interest.

The average volume of repurchase agreements ~~decreased 22.5%~~increased 41.3% and 2.5%, respectively, for the ~~three-month comparison~~three- and nine-month periods ~~and increased 5.0%, for~~ended September 30, 2022 compared to the ~~nine-month comparison~~same periods ofin 2021 ~~versus 2020, while~~and the average rate paid ~~decreased 60~~increased 26 bps and 55six bps, ~~respectively.~~respectively, between comparison periods.

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Table of Contents

In summary, between the three- and ~~nine month~~nine-month periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, the average yield on interest-earning assets ~~increased 12~~decreased 29 bps and ~~decreased 34~~32 bps, respectively, and the average rate paid on interest-bearing liabilities ~~decreased 28~~increased 14 bps and 40decreased two bps, respectively. Net interest spread ~~increased 40~~decreased 43 bps and 30 bps for the ~~third quarter~~three- and nine-month periods of ~~2021~~2022 versus ~~2020, and net interest margin increased 32 bps for the same comparison periods. Net interest spread increased six bps for the nine-month period of~~ 2021 ~~versus 2020,~~ and net interest margin decreased ~~three~~40 and 31 bps, ~~for the same comparison~~respectively, between periods.
While the Company’s net interest margin and net interest spread for the three month period ended September 30, 2021 increased compared to the same period last year, the prevailing low rate environment has continued to place pressure on both the net interest margin and spread and may continue to adversely affect them in future periods, although the extent and duration of such impacts cannot be predicted at this time.

The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for ~~2021~~2022 and ~~2020~~2021 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.

Three Months Ended September 30,

Nine Months Ended September 30,

Variance

Variance

Variance

Variance

Due to

Due to

Total

Due to

Due to

Total

Three Months Ended September 30,

Nine Months Ended September 30,

Rate (1)

Volume (1)

Variance

Rate (1)

Volume (1)

Variance

Variance
Due to
Rate (1)

Variance
Due to
Volume (1)

Total
Variance

Variance
Due to
Rate (1)

Variance
Due to
Volume (1)

Total
Variance

Average Interest-Earning Assets

Loans

$ 1,380,076

$
(364,240
)

$ 1,015,836

$ 773,925

$ 1,101,147

$ 1,875,072

$ (750,580 )

$ 146,599

$ (603,981 )

$ (1,189,407 )

$ (455,734 )

$ (1,645,141 )
Taxable investment securities

(196,154 )

271,815

75,661

(679,739 )

776,310

96,571

150,458

324,396

474,854

313,289

995,405

1,308,694

Tax-exempt investment securities

86,271

0

86,271

142,899

0

142,899

Sweep and interest-earning accounts

(209,796 )

225,823

16,027

(686,762 )

699,200

12,438

401,696

(135,712 )

265,984

399,604

(50,883 )

348,721

Other investments

(3,387 )

338

(3,049 )

(22,975 )

(300 )

(23,275 )

9,091

(728 )

8,363

17,606

(1,750 )

15,856

Total

$ 970,739

$ 133,736

$ 1,104,475

$
(615,551
)

$ 2,576,357

$ 1,960,806

$ (103,064 )

$ 334,555

$ 231,491

$ (316,009 )

$ 487,038

$ 171,029

Average Interest-Bearing Liabilities

Interest-bearing transaction accounts

$
(110,501
)

$ 37,611

$
(72,890
)

$
(633,076
)

$ 209,466

$
(423,610
)

$ 227,547

$ 21,040

$ 248,587

$ 269,538

$ 76,241

$ 345,779

Money market accounts

(108,507 )

41,981

(66,526 )

(571,693 )

175,421

(396,272 )
Money market funds

34,902

13,985

48,887

(62,785 )

32,181

(30,604 )
Savings deposits

3,090

9,677

12,767

(24,813 )

25,880

1,067

(19,364 )

3,589

(15,775 )

(60,750 )

16,375

(44,375 )
Time deposits

(141,234 )

(15,256 )

(156,490 )

(383,107 )

(21,625 )

(404,732 )

(35,172 )

(2,871 )

(38,043 )

(207,541 )

(18,522 )

(226,063 )
Borrowed funds

(586 )

0

(586 )

(13,817 )

0

(13,817 )

(4 )

0

(4 )

(22 )

0

(22 )
Repurchase agreements

(45,604 )

(4,852 )

(50,456 )

(122,262 )

9,216

(113,046 )

21,395

6,887

28,282

13,691

1,809

15,500

Finance lease obligations

(29,104 )

47,605

18,501

(80,071 )

124,664

44,593

(9,422 )

11,068

1,646

(20,657 )

36,561

15,904

Junior subordinated debentures

(6,406 )

0

(6,406 )

(79,183 )

0

(79,183 )

56,315

0

56,315

77,020

0

77,020

Total

$
(438,852
)

$ 116,766

$
(322,086
)

$
(1,908,022
)

$ 523,022

$
(1,385,000
)

$ 276,197

$ 53,698

$ 329,895

$ 8,494

$ 144,645

$ 153,139

Changes in net interest income

$ 1,409,591

$ 16,970

$ 1,426,561

$ 1,292,471

$ 2,053,335

$ 3,345,806

$ (379,261 )

$ 280,857

$ (98,404 )

$ (324,503 )

$ 342,393

$ 17,890

(1) Items which have shown a year-to-year increase in volume have variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variances due to volume = Change in volume x new rate

3938
Table of Contents

NON-INTEREST INCOME AND NON-INTEREST EXPENSE

Non-interest Income

The components of non-interest income for the periods presented were as follows:

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change

September 30,

Change

September 30,

Change

2021

2020

Income

Percent

2021

2020

Income

Percent

2022

2021

Income

Percent

2022

2021

Income

Percent

Service fees

$ 882,688

$ 794,381

$ 88,307

11.12 %

$ 2,527,943

$ 2,322,112

$ 205,831

8.86 %

$ 939,807

$ 882,688

$ 57,119

6.47 %

$ 2,739,076

$ 2,527,943

$ 211,133

8.35 %
Income from sold loans

242,560

601,825

(359,265 )

-59.70 %

704,627

1,138,579

(433,952 )

-38.11 %

109,411

242,560

(133,149 )

-54.89 %

508,795

704,627

(195,832 )

-27.79 %
Other income from loans

223,388

281,959

(58,571 )

-20.77 %

653,377

803,555

(150,178 )

-18.69 %

301,710

223,388

78,322

35.06 %

895,884

653,377

242,507

37.12 %
Net realized gain on sale of securities AFS

0

0

0

0.00 %

0

39,086

(39,086 )

-100.00 %
Other income

Income from CFS Partners

240,723

151,796

88,927

58.58 %

834,781

462,963

371,818

80.31 %

87,386

240,723

(153,337 )

-63.70 %

386,217

834,781

(448,564 )

-53.73 %
Exchange income

4,000

13,500

(9,500 )

-70.37 %

36,100

13,500

22,600

167.41 %
VISA card commission

25,404

18,662

6,742

36.13 %

76,212

55,986

20,226

36.13 %
Other miscellaneous income

81,823

79,172

2,651

3.35 %

208,312

221,323

(13,011 )

-5.88 %

93,289

111,227

(17,938 )

-16.13 %

322,357

320,624

1,733

0.54 %
Total non-interest income

$ 1,700,586

$ 1,941,295

$
(240,709)

-12.40 %

$ 5,041,352

$ 5,057,104

$
(15,752)

-0.31 %

$ 1,531,603

$ 1,700,586

$ (168,983 )

-9.94 %

$ 4,852,329

$ 5,041,352

$ (189,023 )

-3.75 %

Total non-interest income decreased ~~$240,709,~~$168,983, or ~~12.4%,~~9.9% for the third quarter of ~~2021~~2022 and ~~$15,752,~~$189,023, or ~~0.3%~~3.8%, for the first nine months of ~~2021~~2022 compared to the same periods in ~~2020,~~2021, with significant changes noted in the following:

·
The increase in service fees during ~~both~~the comparison ~~periods~~period is mostly due to an increase in ~~VISA check interchange income~~overdraft charges of ~~$52,860,~~$31,752, or ~~15.2% for~~39.9%, between the third quarter ~~of 2021 compared to the same quarter of 2020,~~comparison periods and ~~$201,362,~~$162,459, or ~~20.8%~~27.8%, year over year.

·
The decrease in income from sold loans is due in part to a lower volume of loans sold into the secondary market during the first nine months of 2022 versus 2021, ~~versus 2020. The decrease is partly due to~~as well as lower ~~volume of applications for residential mortgages~~points and ~~the strategic decision to hold some 15 and 30 year mortgages~~premiums on these loans in ~~portfolio.~~2022.

·
~~A decrease~~An increase in CRE ~~and residential mortgage~~ loan volume in 2022 resulted in ~~decreases~~a significant increase in documentation fees collected at origination as well as commercial rate lock fees collected accounting for the ~~decrease~~increase in other income from loans inwhen comparing both comparison periods.
·
~~There were no sales from the Company’s securities AFS portfolio during the first nine months of 2021, resulting in no~~ ~~net realized gains on sale of securities AFS~~ ~~during 2021 compared to a gain of $39,086 for the same period in 2020.~~

·
Income from CFS Partners ~~increased significantly~~decreased between periods due in part to the impact of ~~more favorable~~mark-to-market adjustments to CFS Partners equity portfolio during 2022, reflecting general stock market valuations on the fee income of its trust and asset management subsidiary earlier in the year, as well as an increase in managed assets. Also, CFS Partners has a small portion of its equity capital invested in the stock market. It was necessary to mark-to-market the portfolio to reflect the stock market decline during the first quarter of 2020 at the outset of the COVID-19 pandemic, resulting in a $106,000 mark down.conditions.

·
~~The shutdown~~Included in Other miscellaneous income for 2022 is income totaling $23,400 associated with a renegotiated contract with the Company’s check printing vendor, helping to offset decreases in other components of ~~the US/Canadian border to all non-essential travel created less demand for an exchange of Canadian currency in the first half of 2020, accounting for the lack of~~ ~~exchange income~~~~. Although the border has re-opened to commerce related travel, subject to certain restrictions, the exchange of Canadian currency has not yet returned to normal levels.~~
·
~~The increase in~~ ~~VISA card commission~~ ~~is attributable to an increase in transaction volume in the VISA card program.~~this category.

4039
Table of Contents

Non-interest Expense

The components of non-interest expense for the periods presented were as follows:

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change

September 30,

Change

September 30,

Change

2021

2020

Expense

Percent

2021

2020

Expense

Percent

2022

2021

Expense

Percent

2022

2021

Expense

Percent

Salaries and wages

$ 2,002,999

$ 1,958,754

$ 44,245

2.26 %

$ 5,923,001

$ 5,773,491

$ 149,510

2.59 %

$ 1,984,000

$ 2,002,999

$ (18,999 )

-0.95 %

$ 6,058,000

$ 5,923,001

$ 134,999

2.28 %
Employee benefits

811,817

791,172

20,645

2.61 %

2,467,237

2,324,055

143,182

6.16 %

629,681

811,817

(182,136 )

-22.44 %

2,106,356

2,467,237

(360,881 )

-14.63 %
Occupancy expenses, net

743,219

601,093

142,126

23.64 %

2,140,141

1,921,597

218,544

11.37 %

677,805

743,219

(65,414 )

-8.80 %

2,104,346

2,140,141

(35,795 )

-1.67 %
Other expenses

Directors Fees

128,604

111,989

16,615

14.84 %

386,312

296,789

89,523

30.16 %
Investor relations and shareholder services

37,851

33,216

4,635

13.95 %

103,300

55,013

48,287

87.77 %
Outsourcing expense

135,876

120,337

15,539

12.91 %

387,776

355,699

32,077

9.02 %
Telephone expense

34,798

22,857

11,941

52.24 %

100,727

154,322

(53,595 )

-34.73 %
Service contracts - administrative

142,081

124,252

17,829

14.35 %

428,254

385,792

42,462

11.01 %
Directors fees

144,357

128,604

15,753

12.25 %

432,571

386,312

46,259

11.97 %
Audit fees

105,200

109,506

(4,306 )

-3.93 %

294,614

306,667

(12,053 )

-3.93 %

122,034

105,200

16,834

16.00 %

337,790

294,614

43,176

14.66 %
Consultant services

78,789

57,552

21,237

36.90 %

222,097

171,892

50,205

29.21 %
FDIC insurance

111,087

94,409

16,678

17.67 %

272,652

214,541

58,111

27.09 %

90,637

111,087

(20,450 )

-18.41 %

277,047

272,652

4,395

1.61 %
Collection & non-accruing loan expense

19,069

18,342

727

3.96 %

42,269

55,990

(13,721 )

-24.51 %

(14,000 )

19,069

(33,069 )

-173.42 %

33,000

42,269

(9,269 )

-21.93 %
Expense on OREO

0

(38,610 )

38,610

-100.00 %

(1,683 )

(37,382 )

35,699

-95.50 %
ATM fees

143,993

128,306

15,687

12.23 %

414,288

361,806

52,482

14.51 %

162,032

143,993

18,039

12.53 %

456,223

414,288

41,935

10.12 %
Electronic banking expense

69,623

64,423

5,200

8.07 %

202,682

169,788

32,894

19.37 %
State deposit tax

225,912

180,820

45,092

24.94 %

651,173

512,957

138,216

26.94 %

250,994

225,912

25,082

11.10 %

737,570

651,173

86,397

13.27 %
Other miscellaneous expenses

952,643

914,974

37,669

4.12 %

2,762,400

2,717,953

44,447

1.64 %

1,081,665

1,051,282

30,383

2.89 %

3,055,122

3,019,037

36,085

1.20 %
Total non-interest expense

$ 5,531,857

$ 5,104,717

$ 427,140

8.37 %

$ 16,166,304

$ 15,185,390

$ 980,914

6.46 %

$ 5,340,909

$ 5,531,857

$ (190,948 )

-3.45 %

$ 16,228,961

$ 16,166,304

$ 62,657

0.39 %

Total non-interest expense ~~increased $427,140,~~decreased $190,948, or ~~8.4%~~3.5% for the third quarter of ~~2021~~2022 and ~~$980,914,~~increased $62,657, or ~~6.5%~~0.4%, for the first nine months of ~~2021~~2022 compared to the same periods in ~~2020,~~2021, with significant changes noted in the following:

·
The increase in ~~employee benefits~~salaries and wages in ~~both periods was attributable~~the nine month comparison period is due to ~~the increased cost of health insurance premiums.~~normal salary increases.

·
The ~~increase~~decrease in employee benefits was attributable to a decrease in health insurance claims year over year under the Company’s self-funded health insurance plan.
·
The decrease in occupancy ~~expense~~expenses is primarily attributable to ~~an increase in capital lease expense, which includes~~ a write down of $63,125 at maturity of a capital lease during the third quarter of 2021.

·
The increase in ~~Directors fees~~service contracts - administrative is ~~attributable~~due to a ~~change to the Director’s fee schedule as well as~~combination of an ~~additional Director~~increase in pricing for ~~2021 whose compensations totaled $9,624 for the third quarter of 2021~~contracts that are based on asset size and ~~$28,872 for the first nine months of 2021.~~inflationary adjustment factors that are higher than historical increase adjustments.

·
The increase in ~~Investor relations and shareholder services~~directors’ fees is ~~due~~attributable to a ~~combination of engaging a new investor relations firm during~~change to the second half of 2020, a new service contract with the vendor that processes the Company’s SEC filings and the timing of the Company’s Annual Shareholder Meeting which was held in October, 2020 versus May, 2021.
·
~~A moderate increase is noted in~~ ~~outsourcing expense~~ ~~due to a combination of annual increases in contract pricing and~~Director’s fee schedule as well as an ~~increase in transactions.~~
·
~~Telephone expense~~ ~~increased in the third quarter of 2021, but decreased~~additional Director for ~~the first nine months of 2021 as a result of a renegotiated contract with the Company’s main connectivity vendor that was effective mid-year 2020.~~2022.

·
The increase in c~~onsultant services~~audit fees ~~year over year is attributable in part~~reflects increased audit services due to ~~recruitment of a senior management position.~~the Company surpassing the $1.0 billion asset size.

·
FDIC insurance ~~increased~~decreased for the third quarter due to a decrease in the assessment multiplier, while the modest increase year over year is due primarily to an increase in ~~assets as well as an increase in the assessment multiplier year over year.~~assets.

·
Collection & non-accruing loan expense ~~are~~is lower in ~~all~~both periods ~~compared to historical activity,~~ due ~~primarily~~ to the ~~impact~~recoupment of ~~a legislative moratorium on eviction and foreclosure actions during~~expenses associated with properties in the COVID-19 emergency combined with borrowers seeking assistance through the Vermont COVID Emergency Mortgage Assistance Program funded through the CARES Act in order to bring their mortgages up to date and avoid foreclosure.
41Company’s non-accruing loan portfolio.
~~Table of Contents~~

·
ATM fees increased due to the ongoing cost to support the upgraded and enhanced technology ~~being~~ utilized for deposit automation. The use of deposit automation replaces a manual process for ~~BSA~~ required monitoring of cash deposits as well as providing fraud detection measures at ATMs.

·
The increase in ~~State deposit tax~~ electronic banking expense~~increased year over year due primarily~~ is attributable to a ~~significant increase in deposits.~~new mobile banking platform which includes security enhancements and other technical upgrades.

·
~~The~~State deposit tax increased year over year due primarily to the increase in o~~ther miscellaneous expense~~ ~~in both periods~~deposits throughout 2021. The calculation is ~~attributable to fraudulent checks totaling $66,004 that were charged off during the third quarter~~based on an average of ~~2021.~~month-end deposit totals over a 12 month period.
40
Table of Contents

APPLICABLE INCOME TAXES

The provision for income taxes ~~increased in both comparison periods, with an increase of $232,707,~~decreased $33,675, or ~~37.0%~~3.9%, for the third quarter of 2022 compared to the same quarter in 2021, and ~~$677,707,~~decreased $205,157, or ~~43.5%~~9.2%, for the first nine months of ~~2021~~2022 compared to the ~~respective periods~~same period in ~~2020. These increases are~~2021 and is proportional to the ~~increases~~decrease in income before income taxes totaling ~~$1.1 million~~$122,371 for the third quarter of 2022 versus 2021 ~~versus 2020,~~ and ~~$2.9 million for the first nine months of 2021 versus 2020.~~$939,266 year over year. Tax credits related to limited partnership investments amounted to ~~$117,015~~$99,958 and ~~$108,492,~~$117,015, respectively, for the third ~~quarters~~quarter of 2022 and 2021, and ~~2020,~~$292,437 and $351,045, ~~and $325,476,~~ respectively, for the first nine months of ~~2021~~2022 and ~~2020.~~2021.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to ~~$90,762~~$67,353 and ~~$84,171,~~$90,762, respectively, for the third quarters of 2022 and 2021, and ~~2020,~~$201,537 and $272,286, ~~and $252,513,~~ respectively, for the first nine months of ~~2021~~2022 and ~~2020.~~2021. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 7% and 10%.

CHANGES IN FINANCIAL CONDITION

The following table reflects the composition of the ~~Company’s~~Company's major categories of assets and liabilities as a percentage of total assets or liabilities and shareholders’ equity, as the case may be, as of the balance sheet dates:

September 30, 2021

December 31, 2020

September 30, 2022

December 31, 2021

Assets

Loans

$ 692,638,375

71.51 %

$ 709,355,330

77.25 %

$ 724,194,001

70.52 %

$ 689,988,533

67.71 %
AFS securities

110,676,139

11.43 %

60,705,178

6.61 %

187,227,320

18.23 %

182,342,459

17.89 %

Liabilities

Demand deposits

201,415,866

20.79 %

185,954,976

20.25 %

210,463,414

20.50 %

209,465,151

20.55 %
Interest-bearing transaction accounts

237,282,454

24.50 %

228,712,371

24.91 %

269,907,036

26.28 %

265,513,937

26.05 %
Money market accounts

124,792,185

12.88 %

115,546,064

12.58 %
Money market funds

137,639,793

13.40 %

129,728,954

12.73 %
Savings deposits

168,966,595

17.44 %

138,745,468

15.11 %

179,853,917

17.51 %

168,390,905

16.52 %
Time deposits

107,637,660

11.11 %

113,331,961

12.34 %

105,176,989

10.24 %

106,301,006

10.43 %
Long-term advances

2,300,000

0.24 %

2,800,000

0.30 %

1,300,000

0.13 %

1,300,000

0.13 %

The following table reflects the changes in the composition of the ~~Company’s~~Company's major categories of assets and liabilities between the balance sheet dates, as disclosed in the table above:

Change in Volume

Percentage Change

Assets

Loans

$
(16,716,955)

-2.36 %
AFS securities

49,970,961

82.32 %

Liabilities

Demand deposits

15,460,890

8.31 %
Interest-bearing transaction accounts

8,570,083

3.75 %
Money market accounts

9,246,121

8.00 %
Savings deposits

30,221,127

21.78 %
Time deposits

(5,694,301 )

-5.02 %
Long-term advances

(500,000 )

-17.86 %
42
~~Table of Contents~~

Change in Volume

Percentage Change

Assets

Loans

$ 34,205,468

4.96 %
AFS securities

4,884,861

2.68 %

Liabilities

Demand deposits

998,263

0.48 %
Interest-bearing transaction accounts

4,393,099

1.65 %
Money market funds

7,910,839

6.10 %
Savings deposits

11,463,012

6.81 %
Time deposits

(1,124,017 )

-1.06 %

The ~~decrease~~increase in the loan portfolio during the first nine months of ~~2021~~2022 was attributable to ~~the paydowns or~~increases totaling $43.3 million in commercial & industrial and CRE loans, which was partially offset by payoffs of certain PPP loans through ~~the~~ SBA’s forgiveness program totaling ~~$125.3~~$11.1 million ~~which was offset in part by originations~~and maturities of ~~new~~certain municipal loans totaling $7.8 million. The SBA PPP ~~loans and an increase in CRE loans. The Company booked a total of $58.6 million of PPP loans during the first six months of 2021. This~~ program ended during the second quarter of 2021, so this portfolio will continue to decrease throughout the remainder of ~~2021.~~2022 either through pay downs or payoffs initiated on behalf of SBA’s forgiveness program, or by regular amortization as borrowers begin to make scheduled monthly payments. The maturities within the municipal loan portfolio are cyclical, generally occurring on June 30. As a result of competition from area financial institutions, the Company lost the bids on renewal of a portion of the matured municipal loans.

The increase in the securities AFS portfolio is attributable to the purchase of ~~$66.0~~$47.5 million in securities AFS during the first nine months of ~~2021,~~2022, consisting of ~~$10.1~~$9.1 million in US ~~Treasuries, $4.0~~treasury securities, $10.9 million in ~~US Government Bonds, $50.4~~tax-exempt municipal bonds, $1.6 million in ~~MBS, $1.0~~ABS, $7.4 million in ~~CMOs,~~CMO, and ~~$0.5~~$18.5 million in ~~Investment CDs.~~MBS. These purchases were reduced in part by maturities and calls exercised amounting to ~~$3.7~~$3.0 million, as well as principal payments on ~~MBS~~various portfolios totaling ~~$10.4~~$12.0 million, ~~accounting for~~and by an increase of $27.1 million in unrealized losses arising during the ~~year to date increase~~first nine months of 2022, which is reflected in ~~the AFS portfolio noted in the tables above.~~OCI. In management’s view, the size of the securities AFS portfolio is appropriate and proportional to the overall asset base, as this portfolio serves an important role in the Company’s liquidity position.

41
Table of Contents
Most of the fluctuation in demand deposits is due to a year to date increase in business checking accounts of $14.9 million, or 10.7%, which the Company believes is a result of the distribution of funds generated through the PPP loans.
The increase in interest-bearing transaction accounts ~~reflects~~consists of an increase of ~~$17.2~~$11.7 million, or ~~17.2%~~9.9%, in consumer interest-bearing transaction accounts, ~~offset by a decrease of $3.7 million, or 11.2% in~~which includes Health Savings Accounts and the deposit account of the Company’s trust and asset management affiliate, ~~CFSG, as well as~~CFSG. This was partially offset by a decrease of ~~$3.3~~$3.2 million, or ~~6.2% in ICS deposit accounts, and $1.8 million, or 4.3%~~7.6%, in municipal deposit ~~accounts. The increase~~accounts and a decrease of ~~$20.8~~$4.1 million, or ~~26.9%,~~5.8% in ~~consumer and business money market accounts year to date was offset, in part by decreases in~~the ICS ~~money market accounts of $7.9 million, or 34.0% and non-arbitrage borrowing accounts of $3.6 million, or 23.9%.~~deposit accounts. The increase in savings deposits of ~~$30.2~~$11.5 million, or ~~21.8%~~6.8%, is likely attributable in part to parked funds as customers await more favorable rates for time deposits, as well as deposits of stimulus payments and tax credits from the U.S. Government. During the third quarter of 2021, the Company chose to reclassify its ATS deposits from interest-bearing transactions accounts into savings deposits, resulting in a change between deposit categories of approximately $18.5 million at September 30, 2021 and approximately $14.2 million at December 31, 2020. All appropriate sections of this quarterly report have been adjusted, including the Consolidated Balance Sheet found in the accompanying unaudited interim consolidated financial statements. The decrease in time deposits was split between a decrease in wholesale time deposits of $4.0 million, or 43.9%, and a decrease in retail time deposits of $1.7 million, or 1.6%. The decrease in long-term advances was due to maturities in the JNE advances. See “Liquidity and Capital Resources” section for additional information on these advances.

Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s interest rate risk exposure and attempts to structure the balance sheet to maximize net interest income while controlling its exposure to interest rate risk. The ~~Company’s~~Company's ALCO is made up of the Executive Officers and certain Vice Presidents of the Bank representing major business lines. The ALCO formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity and various business strategies. The ALCO meets at least quarterly to review financial statements, liquidity levels, yields and spreads to better understand, measure, monitor and control the Company’s interest rate risk. In the ALCO process, the committee members apply policy limits set forth in the Asset Liability, Liquidity and Investment policies approved and periodically reviewed by the Company’s Board of Directors. The ~~ALCO’s~~ALCO's methods for evaluating interest rate risk include an analysis of the effects of interest rate changes on net interest income and an analysis of the ~~Company’s~~Company's interest rate sensitivity ~~“gap”~~"gap", which provides a static analysis of the maturity and repricing characteristics of the entire balance sheet. The ALCO Policy also includes a contingency funding plan to help management prepare for unforeseen liquidity restrictions, including hypothetical severe liquidity crises.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the ~~Company’s~~Company's net interest income, as well as a variety of other analyses. It is the ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 ~~bps~~bp shift upward and a 100 ~~bps~~bp shift downward in interest rates.

Under the Company’s interest rate sensitivity modeling, with the continued asset sensitive balance sheet, in a rising rate environment ~~interest income~~NII is expected to trend upward as the short-term asset base (cash and adjustable rate loans) quickly cycle ~~upward. However, as rates continue to rise, the cost of wholesale funds increases and pressure to increase rates paid on~~upward while the retail funding base ~~likewise increases, putting pressure~~(deposits) lags the market. If rates paid on ~~NII and reducing~~deposits have to be increased more and/or more quickly than projected due to competitive pressures, the expected benefit to rising ~~rates.~~rates would be reduced. In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs. Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment. ~~The slope of~~Management expects that the ~~yield curve~~current rising rate environment will ~~be very important~~have a positive impact to the Company’s ~~margins going forward.~~NII for the remainder of 2022.
43
~~Table of Contents~~

The following table summarizes the estimated impact on the ~~Company’s~~Company's NII over a twelve month period, assuming a gradual parallel shift of the yield curve beginning September 30, ~~2021:~~2022:

Rate Change

Percent Change
in NII

Down 100 bps

~~-0.9~~-1.2 %
Up 200 bps

~~4.3~~0.1 %

The estimated amounts shown in the table above are ~~well~~ within the ALCO Policy limits. However, those amounts do not represent a forecast and should not be relied upon as indicative of future results. The ALCO model also provides alternate scenarios including a sustained flat, or inverted yield curve. While assumptions used in the ALCO process, including the interest rate simulation analyses, are developed based upon current economic and local market conditions, and expected future conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might ~~change, or~~change. As the ~~measures that~~market rates continue to increase, the ~~FRB may take in managing monetary policy in response to external events such as~~impact of a falling rate environment is more pronounced, and the ~~COVID-19 pandemic or emerging threats from variants~~possibility more plausible than during the last several years of ~~the virus.~~near zero short-term rates.
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Table of Contents

As of September 30, ~~2021,~~2022, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear a quarterly floating rate of interest equal to the 3-month London Interbank Offered Rate (LIBOR), plus 2.85%. ~~During 2017,~~As previously announced by the Financial Conduct Authority ~~(FCA)~~ in the United Kingdom, the entity that administers LIBOR, announced that LIBOR reference rates will be phased out, beginning at the end of 2021. On March 5, 2021, the FCA announced firm target dates for the phase out of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S. dollar ~~deposits. Under~~denominated deposits will be phased out as of June 30, 2023. The Indenture governing the terms of the Company’s ~~Indenture, if~~Debentures contains detailed fallback provisions in the event 3-month LIBOR is not available, empowering the ~~Debenture~~ Trustee ~~may~~to obtain substitute quotations from ~~four~~other leading ~~banks~~banks. However, under the federal Adjustable Interest Rate (LIBOR) Act enacted in March 2022 (the “LIBOR Act”), fallback provisions like those in the ~~London~~Company’s Indenture that are based on a “determining person” (such as an indenture trustee) obtaining quotations of interbank ~~market for their offered~~lending or deposit rates are deemed “ineffective” and will be replaced as a matter of law, without need to amend contract documents, with a benchmark interest rate that will be identified in final regulations to ~~prime banks~~be promulgated by the Federal Reserve. The Federal Reserve has issued proposed regulations and has indicated that it will issue final regulations prior to the June 30, 2023 LIBOR phase out date. As required under the LIBOR Act, any Federal Reserve-identified benchmark rate specified in the ~~London market for U.S. dollar deposits having a three month maturity; if at least two such quotations are provided, the quarterly rate~~final regulations will be based on the ~~Debentures will be~~Secured Overnight Financing Rate (SOFR) published by the ~~arithmetic mean~~Federal Reserve Bank of ~~such quotations. If fewer than two such quotations are received, the Trustee will request substitute quotations from four major~~ New York ~~City banks~~and will include an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The replacement rate for ~~their offered rate to leading European banks for loans in U.S. dollars; if at least two such quotations are provided, the quarterly rate~~ineffective fallback provisions will take effect on the ~~Debentures will be the arithmetic mean of such quotations.~~first London banking day after June 30, 2023. The ~~Debenture~~Indenture Trustee has ~~not yet informed~~indicated informally that it views the ~~Company~~fallback provisions in the Indenture as ~~to how~~ineffective under the LIBOR Act, and that it intends to ~~proceed.~~ provide written guidance on the transition from LIBOR prior to June 30, 2023, following the Federal Reserve’s adoption of final regulations.
Aside from the Debentures, the Company does not have any other exposures to the phase out of LIBOR. The Company has not generally utilized LIBOR as an interest rate benchmark for its variable rate commercial, residential or other loans and does not utilize derivatives or other financial instruments tied to LIBOR for hedging or investment purposes. Accordingly, management expects that the Company’s exposure to the phase out of LIBOR will be limited to the effect on the interest rate paid on its Debentures, but cannot predict with certainty the magnitude of the impact on the Company’s interest expense at this time.

Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations. The Company’s Board of Directors prescribes policies for managing credit risk, including Loan, Appraisal and Environmental policies. These policies are supplemented by comprehensive underwriting standards and procedures. The Company maintains a Credit Administration department whose function includes credit analysis and monitoring of and reporting on the status of the loan portfolio, including delinquent and non-performing loan trends. The Company also monitors concentration of credit risk in a variety of areas, including portfolio mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the ~~Company’s~~Company's internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.

Residential mortgages represented ~~30.3%~~31.3% of the Company’s loan balances as of September 30, ~~2021, a level that has historically been on a gradual annual decline in recent years, consistent with the Company’s strategic shift to commercial lending.~~2022 and December 31, 2021. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not engage in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with ~~loan-to-values~~loan-to-value ratios exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. ~~Junior~~As of September 30, 2022, junior lien home equity products ~~make~~made up ~~17.6%~~14.9% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans greater than 80% under an insured loan program with stringent underwriting criteria.
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~~Table of Contents~~

Consistent with the strategic focus on commercial lending, the commercial & industrial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial and CRE loans together comprised ~~69.1%~~67.1% of the Company’s loan portfolio at September 30, ~~2021,~~2022, compared to ~~70.0%~~68.1% at December 31, ~~2020.~~2021. Those percentages included the Company’s portfolio of PPP loans, which ~~was $35.7~~has been steadily decreasing, and totaled $1.1 million at September 30, ~~2021,~~2022, compared to ~~$64.4~~$12.2 million at December 31, ~~2020.~~
As of September 30, 2021, the Company had originated 1,843 PPP loans totaling $163.6 million, and expects to earn approximately $7.0 million in loan fees over the life of the related loans, of which $5.8 million had been recognized. These loans are eligible to be forgiven to the extent that the funds are used for payroll costs and other permissible expenses. Borrowers can apply for forgiveness after a specified covered period. PPP loan forgiveness applications are processed by the lender, with forgiveness requests for loans in excess of $2.0 million reviewed by the SBA. Neither the government nor lenders are permitted to charge the borrowers any fees on PPP loans. These loans carry a fixed rate of 1.00% and are 100% guaranteed by the SBA, subject to borrower eligibility requirements. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. As of September 30, 2021, the Company had reviewed and submitted 1,438 PPP loans with total balances of $125.6 million to the SBA for forgiveness consideration, with 33 loans with total balances of $1.5 million pending forgiveness. One loan in the amount of $965 thousand was delinquent as of September 30, 2021. A claim was processed with the SBA and full payment was received on October 5, 2021.

Growth in the CRE portfolio in recent years has ~~enhanced the geographic diversification of the loan portfolio as it has~~ been principally driven by new loan volume ~~outside the Company’s primary market area, principally~~ in Chittenden County and in northern Windsor County around the White River Junction, ~~Vermont~~ I91-I93 interchange area. Credits in the Chittenden County market are being managed by two commercial lenders out of the Company’s Burlington loan production office who know the area well, while Windsor County is being served ~~through a loan production office in Lebanon, New Hampshire~~ by a commercial lender from the St. Johnsbury office with previous lending experience serving the greater White River ~~Junction-Lebanon~~Junction area. The Company has a loan production office in Lebanon, New Hampshire to provide a presence in the greater White River Junction area including Grafton County, New Hampshire. Larger transactions continue to be centrally underwritten and monitored through the Company’s commercial credit department. The types of CRE transactions driving the growth ~~in the CRE portfolio~~ have been a mix of construction, land and development, multifamily, and other non-owner occupied CRE properties including hotels, retail, office, and industrial properties. The largest components of the ~~$285.9~~$324.3 million CRE portfolio at September 30, ~~2021~~2022 were ~~approximately $101.0~~$102.4 million in owner-occupied CRE and ~~$100.7~~$124.9 million in non-owner occupied CRE.

~~The following table reflects the composition of the Company’s loan portfolio, by portfolio segment, as a percentage of total loans as of the dates indicated:~~

September 30, 2021

December 31, 2020

Commercial & industrial

$ 139,061,736

20.08 %

$ 161,067,501

22.70 %
Commercial real estate

285,912,606

41.28 %

280,544,550

39.55 %
Municipal

53,774,882

7.76 %

54,807,367

7.73 %
Residential real estate - 1st lien

174,895,121

25.25 %

170,507,263

24.04 %
Residential real estate - Jr lien

34,917,009

5.04 %

38,147,659

5.38 %
Consumer

4,077,021

0.59 %

4,280,990

0.60 %
Total loans

692,638,375

100.00 %

709,355,330

100.00 %

ALL

(7,819,307 )

(7,208,485 )

Deferred net loan fees

(1,149,278 )

(1,195,741 )

Net loans

$ 683,669,790

$ 700,951,104

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Table of Contents

Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. At September 30, ~~2021,~~2022, the Company had ~~$64.7~~$31.9 million in guaranteed loans with guaranteed balances of ~~$57.2~~$23.8 million, compared to ~~$93.4~~$42.9 million in guaranteed loans with guaranteed balances of ~~$86.1~~$35.4 million at December 31, ~~2020.~~2021. PPP loans are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.
At September 30, 2021, loan balances in the retail, restaurant and bars, hotels and lodging, and breweries totaled $30.4 million, $6.0 million, $28.3 million, and $16.4 million, respectively. Breweries have weathered well, but the other three segments of the economy have been particularly impacted by the COVID-19 business shutdowns and re-opening restrictions. While the Company has performed additional stress testing and oversight of these loan portfolios, the credit quality may deteriorate in future periods should COVID-19 business restrictions persist or be reimposed in response to the emergence of variants of the virus.
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~~Table of Contents~~

The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months. Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.

The Company’s non-performing assets increased $754,679 or 14.6%, during the first nine months of 2021. An increase in residential mortgage loan delinquencies in the 90 days or more past due, together with a substantial increase in CRE non-accrual loans was partially offset by decreases in the commercial & industrial and residential mortgage loan portfolios within the non-accrual loan portfolio. There were no claims receivable on related government guaranteed loans at September 30, 2021 compared to claims of $1,939 at December 31, 2020. Non-performing loans as of September 30, 2021 carried RD and SBA guarantees totaling $274,162, compared to $316,752 at December 31, 2020.
~~The following table reflects the composition of the Company’s non-performing assets, by portfolio segment, as a percentage of total non-performing assets as of the dates indicated:~~

September 30, 2021

December 31, 2020

Loans past due 90 days or more

and still accruing (1)

Residential real estate - 1st lien

$ 657,604

11.11 %

$ 390,288

7.56 %
Residential real estate - Jr lien

78,311

1.32 %

98,889

1.91 %
Total

735,915

12.43 %

489,177

9.47 %

Non-accrual loans (1)

Commercial & industrial

148,674

2.51 %

434,196

8.41 %
Commercial real estate

3,671,880

62.04 %

1,875,942

36.33 %
Residential real estate - 1st lien

1,183,306

20.00 %

2,173,315

42.09 %
Residential real estate - Jr lien

178,845

3.02 %

191,311

3.70 %
Total

5,182,705

87.56 %

4,674,764

90.53 %

Total Non-Performing Assets

$ 5,918,620

100.00 %

$ 5,163,941

100.00 %
~~(1)~~
No commercial and industrial loans, CRE loans, municipal loans or consumer loans were past due 90 days or more and accruing, and no municipal loans or consumer loans were in non-accrual status as of the consolidated balance sheet dates presented. In accordance with Company policy, delinquent consumer loans are charged off at 120 days past due. There were no OREO properties as of the balance sheet dates presented.
~~The Company’s~~ TDRs are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only infrequently reduced interest rates below the current market rate. The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings. Management evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.

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~~Table of Contents~~
The ~~non-performing assets in~~following table shows the ~~table above include the following~~Company’s TDRs that were past due 90 days or more or in non-accrual status as of the ~~dates presented:~~balance sheet dates:

September 30, 2021

December 31, 2020

September 30, 2022

December 31, 2021

Number of

Principal

Number of

Principal

Number of

Principal

Number of

Principal

Loans

Balance

Loans

Balance

Loans

Balance

Loans

Balance

Commercial & industrial

6

$ 77,615

6

$ 270,695

5

$ 48,751

6

$ 71,128

Commercial real estate

4

2,746,371

4

711,816

5

2,911,544

5

3,642,073

Residential real estate - 1st lien

14

1,198,882

18

1,892,695

9

901,669

12

977,961

Residential real estate - Jr lien

1

43,540

1

48,456

1

36,985

1

41,901

Total

25

$ 4,066,408

29

$ 2,923,663

20

$ 3,898,949

24

$ 4,733,063

The remaining TDRs were performing in accordance with their modified terms as of the balance sheet dates ~~presented~~ and consisted of the following:

September 30, 2021

December 31, 2020

Number of

Principal

Number of

Principal

Loans

Balance

Loans

Balance

Commercial real estate

2

$ 44,913

2

$ 74,757

Residential real estate - 1st lien

29

2,329,663

31

2,417,563

Residential real estate - Jr lien

1

3,833

1

4,775

Total

32

$ 2,378,409

34

$ 2,497,095

During 2020 and the first nine months of 2021, the Company navigated through the new challenges presented by the COVID-19 pandemic, including the granting of loan payment deferrals to customers impacted by the pandemic. As of September 30, 2021, 593 business and retail customer portfolio loans, with unpaid principal balances of $109.5 million, were granted loan payment deferrals to provide temporary debt relief to those customers impacted by the COVID-19 pandemic. Of these total loan payment deferrals, only 6 loans totaling $3.4 million are still in deferral as of September 30, 2021. These short term concessions were made in accordance with guidance from the federal banking regulators, confirmed by them with the FASB, and are therefore not considered to be impaired under GAAP (see Note 6 to the accompanying unaudited interim consolidated financial statements for additional information).

September 30, 2022

December 31, 2021

Number of

Principal

Number of

Principal

Loans

Balance

Loans

Balance

Commercial real estate

1

$ 1,782

2

$ 41,228

Residential real estate - 1st lien

31

2,439,393

31

2,473,767

Residential real estate - Jr lien

1

2,529

1

3,537

Total

33

$ 2,443,704

34

$ 2,518,532

As of the balance sheet dates, the Company evaluates whether it is contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans. The Company is contractually committed to lend on one SBA guaranteed line of credit to a borrower whose lending relationship was previously restructured.

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Table of Contents
ALL and provisions - The Company maintains an ALL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the measurement date (See Note 65 to the accompanying unaudited interim consolidated financial statements). Although the Company, in establishing the ALL, considers the inherent losses in individual loans and pools of loans, the ALL is a general reserve available to absorb all credit losses in the loan portfolio. No part of the ALL is segregated to absorb losses from any particular loan or segment of loans.

When establishing the ALL each quarter, the Company applies a combination of historical loss factors to most loan segments, including residential first and junior lien mortgages, CRE, commercial & industrial, and consumer loan portfolios, ~~other than~~but excluding the municipal ~~loans~~loan and purchased loan portfolios as there has never been a loss recorded in ~~that~~either of those loan ~~segment.~~segments. The Company applies numerous qualitative factors to each segment of the loan portfolio. Those factors include the levels of and trends in delinquencies and non-accrual loans, criticized and classified assets, volumes and terms of loans, and the impact of any loan policy changes. Experience, ability and depth of lending personnel, levels of policy and documentation exceptions, national and local economic trends, the competitive environment, and concentrations of credit are also factors considered.

Specific allocations to the ALL are made for certain impaired loans. Impaired loans include all troubled debt restructurings regardless of amount, and all loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement. The Company reviews all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements. See Note 65 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.
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~~Table of Contents~~

The following table summarizes the Company’s ~~loan loss experience~~credit risk ratios for the ~~periods~~balance sheet dates presented:

As of or for the Nine Months Ended September 30,

2021

2020

Loans outstanding, end of period

$ 692,638,375

$ 738,247,772

Average loans outstanding during period

$ 718,366,424

$ 685,896,774

Non-accruing loans, end of period

$ 5,182,705

$ 4,808,846

Non-accruing loans, net of government guarantees

$ 4,918,919

$ 4,484,089

ALL, beginning of period

$ 7,208,485

$ 5,926,491

Loans charged off:

Commercial & industrial

(18,847 )

(34,565 )
Commercial real estate

0

(2,200 )
Residential real estate - 1st lien

0

(134,196 )
Residential real estate - Jr lien

0

(28,673 )
Consumer

(68,011 )

(50,458 )
Total loans charged off

(86,858 )

(250,092 )
Recoveries:

Commercial & industrial

4,761

1,087

Commercial real estate

27,160

20,000

Residential real estate - 1st lien

4,602

10,552

Residential real estate - Jr lien

9,601

5,280

Consumer

27,391

28,289

Total recoveries

73,515

65,208

Net loans charged off

(13,343 )

(184,884 )
Provision charged to income

624,165

1,046,501

ALL, end of period

$ 7,819,307

$ 6,788,108

Net charge offs to average loans outstanding

0.002 %

0.027 %
Provision charged to income as a percent of average loans

0.087 %

0.153 %
ALL to average loans outstanding

1.088 %

0.990 %
ALL to non-accruing loans

150.873 %

141.159 %
ALL to non-accruing loans net of government guarantees

158.964 %

151.382 %

September 30,

December 31,

2022

2021

ALL to total loans outstanding

1.16 %

1.12 %
ALL

$ 8,432,086

$ 7,710,256

Loans outstanding

$ 724,194,001

$ 689,988,533

Non-accruing loans to loans outstanding

1.19 %

0.86 %
Non-accruing loans

$ 8,602,731

$ 5,940,629

Loans outstanding

$ 724,194,001

$ 689,988,533

ALL to non-accruing loans

98.02 %

129.79 %
ALL

$ 8,432,086

$ 7,710,256

Non-accruing loans

$ 8,602,731

$ 5,940,629

The ~~ALL increased $1.0 million, or 15.2%, as of September 30, 2021 compared to September 30, 2020, while the~~ provision for loan losses ~~decreased $422,336, or 40.4%,~~ for the nine months ended September 30, ~~2021,~~2022 was $1.3 million, compared to $624,165 for the same period ~~last year.~~in 2021. The ~~decrease~~$700,835 year over year increase was driven in part by an increase in the ~~provision between periods reflects the growth during the first nine months~~commercial loan volume as well as a write-down totaling $667,474, on a single non-performing loan, currently in foreclosure. The increase of ~~2020 in the loan portfolio and higher than anticipated charge off activity, compared to a decrease of $17.3~~$2.7 million in non-accruing loans is attributable to one business relationship, which the loan portfolio and negligible charge off activity during the first nine months of 2021. Increases in the provision in future periods may be necessary if economic conditions and credit quality continue to deteriorate due to the continuing impacts of the COVID-19 pandemic.Company is monitoring closely.

The Company has an experienced collections department that continues to work actively with borrowers to resolve problem loans and manage the OREO portfolio, and management continues to monitor the loan portfolio closely.
~~Based on the nine month~~third quarter ALL analysis ~~in management’s view~~indicates that the reserve balance of ~~$7.8~~$8.4 million at September 30, ~~2021~~2022 is ~~appropriate~~sufficient to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of ~~$1.0 million compared to $398,913 at December 31, 2020. The~~$258,555. Management believes the reserve balance ~~and unallocated amount continue~~continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. The portion of the ALL termed ~~“unallocated”~~"unallocated" is established to absorb inherent ~~credit~~ losses that exist as of the measurement date although not specifically identified through ~~management’s~~management's process for estimating credit losses. While the ALL is described as consisting of separate allocated portions, the entire ALL is available to support loan losses, regardless of category. Unallocated reserves are considered by management to be appropriate in light of the uncertainties as to the full impact to borrowers due to COVID-19, the Company’s continued growth strategy and shift in the portfolio from residential loans to commercial and industrial and CRE loans and the risk associated with the relatively new, unseasoned loans in those portfolios. The adequacy of the ALL is reviewed quarterly by the risk management committee of the Board and then presented to the full Board for approval.
As stated in Note 2 of the accompanying notes to the Company’s unaudited interim consolidated financial statements, effective January 1, 2023, the Company will be required to recognize credit losses under the guidance of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, The new guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans. Any adjustments from the adoption of CECL will be recorded as an adjustment to retained earnings and will affect calculation of regulatory capital ratios. Based on a parallel calculation as of September 30, 2022 the required adjustment would have an immaterial impact to retained earnings and regulatory capital. Changes in forecasts used in the model could produce different results, quarter to quarter, including as of the January 1, 2023 effective date for the transition to CECL.

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Table of Contents
Net charge-offs during the periods presented to average loan outstanding were as follows:
For the Nine Months Ended September 30,

2022

2021

Net charge-offs during the period to average loan outstanding:

Commercial & industrial

-0.03 %

-0.01 %
Net charge-offs during the period

$ (34,638 )

$ (14,086 )
Average amount outstanding

$ 115,489,717

$ 160,565,446

Purchased loans

0.00 %

0.00 %
Net charge-offs during the period

$ 0

$ 0

Average amount outstanding

$ 8,782,234

$ 10,788,989

Commercial real estate

-0.21 %

0.01 %
Net (charge-offs) recoveries during the period

$ (667,474 )

$ 27,160

Average amount outstanding

$ 313,919,164

$ 283,812,722

Municipal

0.00 %

0.00 %
Net charge-offs during the period

$ 0

$ 0

Average amount outstanding

$ 45,161,639

$ 52,105,647

Residential real estate - 1st lien

0.06 %

0.00 %
Net recoveries during the period

$ 111,163

$ 4,602

Average amount outstanding

$ 184,548,015

$ 170,620,859

Residential real estate - Jr lien

0.01 %

0.03 %
Net recoveries during the period

$ 3,728

$ 9,601

Average amount outstanding

$ 33,260,177

$ 36,625,381

Consumer

-0.45 %

-1.06 %
Net charge-offs during the period

$ (15,949 )

$ (40,620 )
Average amount outstanding

$ 3,513,004

$ 3,847,380

Total loans

-0.09 %

0.00 %
Net charge-offs during the period

$ (603,170 )

$ (13,343 )
Average amount outstanding

$ 704,673,950

$ 718,366,424

In addition to credit risk in the Company’s loan portfolio and liquidity risk in its loan and deposit-taking operations, the Company’s business activities also generate market risk. Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Declining capital markets can result in fair value adjustments necessary to record decreases in the value of the investment portfolio for other-than-temporary-impairment. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. During recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to loan prepayment risks, early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product. Rapid changes in prevailing interest rates, particularly after a long period of relative stability, create a challenging interest rate environment. As discussed above under ~~“Interest~~"Interest Rate Risk and Asset and Liability ~~Management”~~Management", the Company actively monitors and manages its interest rate risk through the ALCO process. However, sudden and dramatic changes in prevailing interest rates, such as those adopted by the FRB in response to the COVID-19 pandemic, create challenges for the Company’s interest rate risk management, as does the current prolonged low interest rate environment.
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COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and risk-sharing commitments on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. During the first nine months of ~~2021,~~2022, the Company did not engage in any activity that created any additional types of off-balance sheet risk.

LIQUIDITY AND CAPITAL RESOURCES

Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations. Maintaining a relatively stable funding base, which is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Company’s exposure to rollover risk on deposits and limits reliance on volatile short-term borrowed funds. Short-term funding needs arise from declines in deposits or other funding sources and from funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and ~~low-cost~~lower-cost funds.

The Company recognizes that, at times, when loan demand exceeds deposit growth or the Company has other liquidity demands, it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and borrowings. One-way deposits acquired through the CDARS program provide an alternative funding source when needed. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had no one-way CDARS outstanding. In addition, two-way ~~(that is, reciprocal)~~(reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, ~~allow~~enhance the Company’s ability to retain larger deposit balances by allowing the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits ~~by exchanging~~through the exchange of deposits with other participating FDIC-insured financial institutions. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company reported ~~$4.6~~$3.1 million and ~~$4.9~~$3.6 million, respectively, in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was ~~$15.2~~$15.6 million at September 30, ~~2021,~~2022, compared to ~~$23.1~~$15.3 million at December 31, ~~2020,~~2021, and the balance in ICS reciprocal demand deposits as of those dates was ~~$49.8~~$66.7 million and ~~$53.1~~$70.8 million, respectively.

~~During July, 2020, the~~The Company ~~issued $5.0 million~~had two blocks of DTC Brokered CDs ~~in three blocks of $1.3 million,~~totaling $2.3 million and $1.4 million with maturities in ~~October, 2020,~~ January, 2021 and April, 2021, respectively. ~~The block that matured in October, 2020 was not replaced, leaving a total outstanding at December 31, 2020 of $3.7 million. The~~These blocks ~~that matured in January and April of 2021~~ were ~~also~~ not replaced, leaving no DTC Brokered CDs outstanding at ~~September 30, 2021.~~the balance sheet dates presented in this quarterly report. Although wholesale deposit funding through DTC is an important supplemental source of liquidity that has proven efficient, flexible and cost-effective when compared with other borrowing methods, the growth in deposits during ~~2020~~2021 and ~~the first nine months of 2021~~2022 has reduced the Company’s need for supplementary funding sources in the near term.

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, borrowing capacity of ~~$96.6~~$112.8 million and ~~$93.1~~$100.2 million, respectively, was available through the FHLBB, secured by the ~~Company’s~~Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances and by collateral pledges securing FHLBB letters of credit collateralizing public unit deposits. The Company also has an unsecured Federal Funds credit line with the FHLBB with an available balance of $500,000 and no outstanding advances during any of the respective comparison periods. Interest is chargeable at a rate determined daily, approximately 25 bps higher than the rate paid on federal funds sold.

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The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of ~~$51.7~~$62.6 million and ~~$50.4~~$52.3 million, respectively, at September 30, ~~2021~~2022 and December 31, ~~2020.~~2021. Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 25400 bps. The Company had no outstanding advances through this facility at September 30, ~~2021~~2022 or December 31, ~~2020.~~2021.
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The following table reflects the Company’s outstanding FHLBB and FRBB advances against the respective lines as of the dates indicated:

September 30,

December 31,

September 30,

December 31,

2021

2020

2022

2021

Long-Term Advances(1)

FHLBB term advance, 0.00%, due January 07, 2021

$ 0

$ 150,000

FHLBB term advance, 0.00%, due February 26, 2021

0

350,000

FHLBB term advance, 0.00%, due November 22, 2021

1,000,000

1,000,000

FHLBB term advance, 0.00%, due September 22, 2023

200,000

200,000

$ 200,000

$ 200,000

FHLBB term advance, 0.00%, due November 12, 2025

300,000

300,000

300,000

300,000

FHLBB term advance, 0.00%, due November 13, 2028

800,000

800,000

800,000

800,000

$ 2,300,000

$ 2,800,000

$ 1,300,000

$ 1,300,000

(1)
All long-term advances are pursuant to the JNE program, through which the FHLBB provides a subsidy, funded by the FHLBB’s earnings, to write down interest rates to zero percent on advances that finance qualifying loans to small businesses. JNE advances must support small business in New England that create and/or retain jobs, or otherwise contribute to overall economic development activities.

The Company has unsecured lines of credit with ~~three~~two correspondent banks with aggregate available borrowing capacity totaling ~~$25.5~~$20.5 million as of the balance sheet dates presented in this quarterly report. The Company had no outstanding ~~advance~~advances against these credit lines as of the balance sheet dates presented.

Securities sold under agreements to repurchase provide another funding source for the Company. At September 30, 2021 and December 31, 2020, the Company had outstanding repurchase agreement balances of $22.4 million and $38.7 million, respectively. These repurchase agreements mature and are repriced daily.
The following table illustrates the changes in ~~shareholders’~~shareholders' equity from December 31, ~~2020~~2021 to September 30, ~~2021:~~2022:

Balance at December 31, 2020 (book value $14.25 per common share)

$ 77,288,713

Balance at December 31, 2021 (book value $15.48 per common share)

$ 84,760,268

Net income

9,771,309

9,037,200

Issuance of common stock through the DRIP

907,675

897,974

Dividends declared on common stock

(3,519,579 )

(3,720,116 )
Dividends declared on preferred stock

(36,563 )

(43,125 )
Change in AOCI on AFS securities, net of tax

(1,196,853 )

(21,392,376 )
Balance at September 30, 2021 (book value $15.23 per common share)

$ 83,214,702

Balance at September 30, 2022 (book value $12.56 per common share)

$ 69,539,825

The primary objective of the Company’s capital planning process is to balance appropriately the retention of capital to support operations and future growth, with the goal of providing shareholders an attractive return on their investment. To that end, management monitors capital retention and dividend policies on an ongoing basis.

As described in more detail in Note 23 to the audited consolidated financial statements contained in the Company’s ~~2020~~2021 Annual Report on Form 10-K and under the caption “LIQUIDITY AND CAPITAL RESOURCES” in the MD&A section of that report, the Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies pursuant to which they must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

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Under the 2018 Regulatory Relief Act, these capital requirements have been simplified for qualifying community banks and bank holding companies. In September 2019, the OCC and the other federal bank regulators approved a final joint rule that permits a qualifying community banking organization to opt in to a simplified regulatory capital framework. A qualifying institution that elects to utilize the simplified framework must maintain a Tier 1 leverage ratio, or CBLR in excess of 9%, and will thereby be deemed to have satisfied the generally applicable risk-based and other leverage capital requirements and (if applicable) the FDIC’s prompt corrective action framework. In order to utilize the CBLR framework, in addition to maintaining a CBLR of over 9%, a community banking organization must have less than $10 billion in total consolidated assets and must meet certain other criteria such as limitations on the amount of off-balance sheet exposures and on trading assets and liabilities. The CBLR is calculated by dividing tangible equity capital by average total consolidated assets. The final rule became effective on January 1, 2020 for capital calculations as of March 31, 2020 and thereafter.
Pursuant to the CARES Act, the federal banking agencies adopted an interim rule temporarily lowering the CBLR benchmark to, in excess of 8%, rather than 9%, with a phased increase of the CBLR back to the 9% level by the end of 2021. The Company and Bank continued to qualify to utilize the CBLR framework as of September 30, 2021, but have not elected to do so.
Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased-in on January 1, 2019 at 2.5% of risk-weighted assets. A banking organization with a conservation buffer of less than 2.5% is subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. The Company and the Bank were fully compliant as of the periods presented in the table below.
As of September 30, ~~2021,~~2022, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy. While we believe that the Company has sufficient capital to withstand an extended economic downturn, ~~in the wake of the COVID-19 pandemic,~~ our regulatory capital ratios could be adversely impacted by future credit losses and other operational impacts ~~related to COVID-19 or emerging variants~~ of ~~the virus.~~deteriorating economic conditions and inflation.

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The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the dates indicated.

Minimum

Minimum

Minimum

Minimum

Minimum

For Capital

To Be Well

Minimum

For Capital

To Be Well

For Capital

Adequacy Purposes

Capitalized Under

For Capital

Adequacy Purposes

Capitalized Under

Adequacy

with Conservation

Prompt Corrective

Adequacy

with Conservation

Prompt Corrective

Actual

Purposes:

Buffer(1):

Action Provisions(2):

Actual

Purposes

Buffer(1)

Action Provisions(2)

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

Amount

Ratio

(Dollars in Thousands)

(Dollars in Thousands)

September 30, 2021

September 30, 2022

Common equity tier 1 capital

(to risk-weighted assets)

Company

$ 84,745

14.62 %

$ 26,087

4.50 %

$ 40,579

7.00 %

N/A

N/A

$ 79,025

11.75 %

$ 30,254

4.50 %

$ 47,062

7.00 %

N/A

N/A

Bank

$ 83,916

14.49 %

$ 26,063

4.50 %

$ 40,542

7.00 %

$ 37,646

6.50 %

$ 92,724

13.80 %

$ 30,230

4.50 %

$ 47,024

7.00 %

$ 43,665

6.50 %
Tier 1 capital (to risk-weighted assets)

Company

$ 84,745

14.62 %

$ 34,782

6.00 %

$ 49,275

8.50 %

N/A

N/A

$ 93,412

13.89 %

$ 40,339

6.00 %

$ 57,147

8.50 %

N/A

N/A

Bank

$ 83,916

14.49 %

$ 34,751

6.00 %

$ 49,230

8.50 %

$ 46,334

8.00 %

$ 92,724

13.80 %

$ 40,306

6.00 %

$ 57,100

8.50 %

$ 53,742

8.00 %
Total capital (to risk-weighted assets)

Company

$ 91,999

15.87 %

$ 46,376

8.00 %

$ 60,869

10.50 %

N/A

N/A

$ 101,817

15.14 %

$ 53,785

8.00 %

$ 70,593

10.50 %

N/A

N/A

Bank

$ 91,164

15.74 %

$ 46,334

8.00 %

$ 60,814

10.50 %

$ 57,918

10.00 %

$ 101,123

15.05 %

$ 53,742

8.00 %

$ 70,536

10.50 %

$ 67,177

10.00 %
Tier 1 capital (to average assets)

Company

$ 84,745

9.02 %

$ 37,575

4.00 %

N/A

N/A

N/A

N/A

$ 93,412

9.14 %

$ 40,884

4.00 %

N/A

N/A

N/A

N/A

Bank

$ 83,916

8.94 %

$ 37,555

4.00 %

N/A

N/A

$ 46,944

5.00 %

$ 92,724

9.08 %

$ 40,865

4.00 %

N/A

N/A

$ 51,081

5.00 %

December 31, 2020:

December 31, 2021:

Common equity tier 1 capital

(to risk-weighted assets)

Company(3)

$ 77,594

14.15 %

$ 24,680

4.50 %

$ 38,391

7.00 %

N/A

N/A

$ 72,853

11.90 %

$ 27,548

4.50 %

$ 42,853

7.00 %

N/A

N/A

Bank

$ 77,017

14.06 %

$ 24,654

4.50 %

$ 38,351

7.00 %

$ 35,611

6.50 %

$ 86,654

14.17 %

$ 27,522

4.50 %

$ 42,812

7.00 %

$ 39,754

6.50 %
Tier 1 capital (to risk-weighted assets)

Company

$ 77,594

14.15 %

$ 32,907

6.00 %

$ 46,618

8.50 %

N/A

N/A

$ 87,240

14.25 %

$ 36,731

6.00 %

$ 52,036

8.50 %

N/A

N/A

Bank

$ 77,017

14.06 %

$ 32,872

6.00 %

$ 46,569

8.50 %

$ 43,829

8.00 %

$ 86,654

14.17 %

$ 36,696

6.00 %

$ 51,986

8.50 %

$ 48,928

8.00 %
Total capital (to risk-weighted assets)

Company

$ 84,455

15.40 %

$ 43,876

8.00 %

$ 57,587

10.50 %

N/A

N/A

$ 94,894

15.50 %

$ 48,975

8.00 %

$ 64,279

10.50 %

N/A

N/A

Bank

$ 83,871

15.31 %

$ 43,829

8.00 %

$ 57,526

10.50 %

$ 54,787

10.00 %

$ 94,301

15.42 %

$ 48,928

8.00 %

$ 64,218

10.50 %

$ 61,160

10.00 %
Tier 1 capital (to average assets)

Company

$ 77,594

8.80 %

$ 35,273

4.00 %

N/A

N/A

N/A

N/A

$ 87,240

8.79 %

$ 39,719

4.00 %

N/A

N/A

N/A

N/A

Bank

$ 77,017

8.74 %

$ 35,252

4.00 %

N/A

N/A

$ 44,065

5.00 %

$ 86,654

8.73 %

$ 39,698

4.00 %

N/A

N/A

$ 49,622

5.00 %

(1)
Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets.

(2)
Applicable to banks, but not bank holding companies.
(3)
Reflects recalculation of the Company’s previously reported common equity tier I capital ratio. The previously reported calculation for December 31, 2021 and prior annual and interim periods incorrectly included the Company’s outstanding preferred stock and trust preferred securities in the equity component of the calculation.

The ~~Company’s~~Company's ability to pay dividends to its shareholders is largely dependent on the ~~Bank’s~~Bank's ability to pay dividends to the Company. In general, a national bank may not pay dividends that exceed net income for the current and preceding two ~~years regardless~~years. Regardless of statutory restrictions, as a matter of regulatory policy, banks and bank holding companies should pay dividends only out of current earnings and only if, after paying such dividends, they remain adequately capitalized.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). As of September 30, ~~2021,~~2022, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, management concluded that its disclosure controls and procedures as of September 30, ~~2021~~2022 were effective in ensuring that material information required to be disclosed in the reports it files with the Commission under the Exchange Act was recorded, processed, summarized, and reported on a timely basis.

For this purpose, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

In the normal course of business, the Company is involved in litigation that is considered incidental to ~~their~~its business. Management does not expect that any such litigation will be material to the ~~Company’s~~Company's consolidated financial condition or results of operations.

ITEM 1A. Risk Factors

In management’s view, the Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021 represent the most significant risks to the ~~Company’s~~Company's future results of operations and financial condition as of September 30, ~~2021.~~2022.

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

The following table provides information as to the purchases of the Company’s common stock during the three months ended September 30, ~~2021,~~2022, by the Company or by any affiliated purchaser (as defined in SEC Rule 10b-18). During the monthly periods presented, the Company did not have any publicly announced repurchase plans or programs.

Total Number

Average

Total Number

Average

of Shares

Price Paid

of Shares

Price Paid

For the period:

Purchased(1)

Per Share

Purchased(1)

Per Share

July 1 - July 31

1,550

$ 19.28

July 1 – July 31

1,800

$ 20.25

August 1 - August 31

0

0.00

0

0.00

September 1 - September 30

0

0.00

0

0.00

Total

1,550

$ 19.28

1,800

$ 20.25

(1)
All ~~1,550~~1,800 shares were purchased for the account of participants invested in the Company Stock Fund under the Company’s Retirement Savings Plan by or on behalf of the Plan Trustee, the Human Resources Committee of the Bank. Such share purchases were facilitated through CFSG, which provides certain investment advisory services to the Plan. Both the Plan Trustee and CFSG may be considered affiliates of the Company under Rule 10b-18.

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ITEM 6. Exhibits

The following exhibits are filed with, or incorporated by reference in, this report:

Exhibit 31.1 -
Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 -
Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1 -
Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 32.2 -
Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

Exhibit ~~101-~~101
The following materials from the Company’s Quarterly Report on Form 10-Q for the ~~quarter~~nine-months ended September 30, ~~2021~~2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the ~~three-month~~three- and nine-month ~~interim~~ periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iii) the unaudited consolidated statements of comprehensive income, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
Exhibit 104 -
Cover page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

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SIGNATURES

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

COMMUNITY BANCORP.

~~COMMUNITY BANCORP.~~
DATED: November ~~15, 2021~~14, 2022
/s/Kathryn M. Austin

Kathryn M. Austin, President

& Chief Executive Officer

(Principal Executive Officer)

DATED: November ~~15, 2021~~14, 2022
/s/Louise M. Bonvechio

Louise M. Bonvechio, Corporate

Secretary & Treasurer

(Principal Financial Officer)

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the Quarterly Period Ended September 30, ~~2021~~2022

COMMUNITY BANCORP.

EXHIBITS

EXHIBIT INDEX

Exhibit 31.1 -
Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.2 -
Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 32.1 -
Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

Exhibit 32.2 -
Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*

Exhibit 101 -
The following materials from the Company’s Quarterly Report on Form 10-Q for the ~~quarter~~nine-months ended September 30, ~~2021~~2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three- and nine-month interim periods ended September 30, ~~2021~~2022 and ~~2020,~~2021, (iii) the unaudited consolidated statements of comprehensive income, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
Exhibit 104 -
Cover page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

5754

	Nine Months Ended September 30, 2021																		Nine Months Ended September 30, 2022
					Additional											Total							Additional											Total
	Common		Preferred		paid-in		Retained							Treasury		shareholders’			Common		Preferred		paid-in		Retained						Treasury			shareholders'
	Stock		Stock		capital		earnings			AOCI*				stock		equity			Stock		Stock		capital		earnings			AOCI*			stock			equity

January 1, 2021	$	13,818,450	$	1,500,000	$	34,309,646	$	29,368,046		$	915,348		$	(2,622,777	)	$	77,288,713
January 1, 2022																			$	13,969,848	$	1,500,000	$	35,322,063	$	37,758,105		$	(1,166,971	)	$	(2,622,777	)	$	84,760,268

Issuance of common stock		42,523				222,256											264,779			35,597				237,086											272,683
Cash dividends declared
Common stock								(1,169,555	)								(1,169,555	)								(1,236,880	)								(1,236,880	)
Preferred stock								(12,188	)								(12,188	)								(12,188	)								(12,188	)
Comprehensive income
Net income								3,025,701									3,025,701									2,405,542									2,405,542
Other comprehensive loss											(1,311,905	)					(1,311,905	)											(8,744,637	)					(8,744,637	)
March 31, 2021	$	13,860,973	$	1,500,000	$	34,531,902	$	31,212,004		$	(396,557	)	$	(2,622,777	)	$	78,085,545

Issuance of common stock		38,695				251,441											290,136
Cash dividends declared
Common stock								(1,173,253	)								(1,173,253	)
Preferred stock								(12,187	)								(12,187	)
Comprehensive income
Net income								3,046,406									3,046,406
Other comprehensive income											490,442						490,442
June 30, 2021	$	13,899,668	$	1,500,000	$	34,783,343	$	33,072,970		$	93,885		$	(2,622,777	)	$	80,727,089
March 31, 2022																			$	14,005,445	$	1,500,000	$	35,559,149	$	38,914,579		$	(9,911,608	)	$	(2,622,777	)	$	77,444,788

Issuance of common stock		38,017				314,743											352,760			33,048				287,882											320,930
Cash dividends declared
Common stock								(1,176,771	)								(1,176,771	)								(1,240,049	)								(1,240,049	)
Preferred stock								(12,188	)								(12,188	)								(13,124	)								(13,124	)
Comprehensive income
Net income								3,699,202									3,699,202									3,021,152									3,021,152
Other comprehensive loss											(375,390	)					(375,390	)											(5,555,018	)					(5,555,018	)
September 30, 2021	$	13,937,685	$	1,500,000	$	35,098,086	$	35,583,213		$	(281,505	)	$	(2,622,777	)	$	83,214,702
June 30, 2022																			$	14,038,493	$	1,500,000	$	35,847,031	$	40,682,558		$	(15,466,626	)	$	(2,622,777	)	$	73,978,679

Issuance of common stock																				33,780				270,581											304,361
Cash dividends declared
Common stock																										(1,243,187	)								(1,243,187	)
Preferred stock																										(17,813	)								(17,813	)
Comprehensive income
Net income																										3,610,506									3,610,506
Other comprehensive loss																													(7,092,721	)					(7,092,721	)
September 30, 2022																			$	14,072,273	$	1,500,000	$	36,117,612	$	43,032,064		$	(22,559,347	)	$	(2,622,777	)	$	69,539,825

	Nine Months Ended September 30, 2020
					Additional										Total
	Common		Preferred		paid-in		Retained							Treasury	shareholders’
	Stock		Stock		capital		earnings			AOCI*				stock	equity

January 1, 2020	$	13,624,643	$	1,500,000	$	33,464,381	$	22,667,949		$	260,483		$	(2,622,777)	$	68,894,679

Issuance of common stock		40,465				213,812										254,277
Cash dividends declared
Common stock								(995,536	)							(995,536	)
Preferred stock								(17,813	)							(17,813	)
Comprehensive income
Net income								1,861,239								1,861,239
Other comprehensive income											586,646					586,646
March 31, 2020	$	13,665,108	$	1,500,000	$	33,678,193	$	23,515,839		$	847,129		$	(2,622,777)	$	70,583,492

Issuance of common stock		47,752				214,135										261,887
Cash dividends declared
Common stock								(998,899	)							(998,899	)
Preferred stock								(12,187	)							(12,187	)
Comprehensive income
Net income								2,842,311								2,842,311
Other comprehensive income											163,962					163,962
June 30, 2020	$	13,712,860	$	1,500,000	$	33,892,328	$	25,347,064		$	1,011,091		$	(2,622,777)	$	72,840,566

Issuance of common stock		62,920				200,826										263,746
Cash dividends declared
Common stock								(1,002,969	)							(1,002,969	)
Preferred stock								(12,188	)							(12,188	)
Comprehensive income
Net income								2,880,443								2,880,443
Other comprehensive loss											(39,293	)				(39,293	)
September 30, 2020	$	13,775,780	$	1,500,000	$	34,093,154	$	27,212,350		$	971,798		$	(2,622,777)	$	74,930,305

Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Nine Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2022			2021

Cash Flows from Operating Activities:
Net income	$	9,771,309		$	7,583,992		$	9,037,200		$	9,771,309
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, bank premises and equipment		815,454			677,086			853,685			815,454
Provision for loan losses		624,165			1,046,501			1,325,000			624,165
Deferred income tax		(75,779	)		(128,103	)		(38,020	)		(75,779	)
Net realized gain on sale of securities AFS		0			(39,086	)
Gain on sale of loans		(404,428	)		(766,440	)		(218,501	)		(404,428	)
Gain on sale of bank premises and equipment		(7,559	)		0			0			(7,559	)
Gain on sale of OREO		0			(55,602	)
Capital loss on leases		63,125			0			0			63,125
Income from CFS Partners		(834,781	)		(462,964	)		(386,217	)		(834,781	)
Amortization of bond premium, net		355,461			55,568			518,833			355,461
Proceeds from sales of loans held for sale		6,487,773			31,538,375			10,456,242			6,487,773
Originations of loans held for sale		(6,002,945	)		(32,015,674	)		(10,028,741	)		(6,002,945	)
Decrease in taxes payable		(376,202	)		(145,105	)
Decrease (increase) in interest receivable		257,562			(873,638	)
Decrease (increase) in mortgage servicing rights		23,797			(31,463	)
Increase (decrease) in taxes payable								251,872			(376,202	)
(Increase) decrease in interest receivable								(309,185	)		257,562
Decrease in mortgage servicing rights								17,084			23,797
Decrease in right-of-use assets		147,125			182,475			149,011			147,125
Decrease in operating lease liabilities		(147,616	)		(180,657	)		(153,871	)		(147,616	)
Increase in other assets		(141,037	)		(54,430	)		(209,618	)		(141,037	)
Increase in cash surrender value of BOLI		(63,961	)		(62,508	)		(60,433	)		(63,961	)
Amortization of limited partnerships		272,286			252,513			201,537			272,286
Change in net deferred loan fees and costs		(46,463	)		2,615,453			(504,574	)		(46,463	)
Decrease in interest payable		(29,252	)		(34,364	)		(25,558	)		(29,252	)
Decrease in accrued expenses		(126,996	)		(53,918	)		(4,198	)		(126,996	)
Decrease in other liabilities		(40,317	)		(103,646	)
Increase (decrease) in other liabilities								12,439			(40,317	)
Net cash provided by operating activities		10,520,722			8,944,365			10,883,987			10,520,722

Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		14,130,683			14,407,740			14,994,113			14,130,683
Purchases		(65,972,109	)		(12,745,042	)		(47,476,763	)		(65,972,109	)
Proceeds from redemption of restricted equity securities		0			522,400			43,500			0
Purchases of restricted equity securities		(600	)		(503,400	)		0			(600	)
Decrease in limited partnership contributions payable		(150,000	)		(288,000	)		0			(150,000	)
Proceeds of distribution from CFS Partners		2,000,000			0
Decrease (increase) in loans, net		16,630,097			(131,508,927	)
Capital expenditures net of proceeds from sales of bank
premises and equipment		(782,522	)		(240,919	)
Proceeds from sales of OREO		0			1,022,340
Proceeds from distribution from CFS Partners								0			2,000,000
(Increase) decrease in loans, net								(34,956,148	)		16,630,097
Capital expenditures net of proceeds from sales of bank premises and equipment								(398,378	)		(782,522	)
Recoveries of loans charged off		73,515			65,208			147,510			73,515
Net cash used in investing activities		(34,070,936	)		(129,268,600	)		(67,646,166	)		(34,070,936	)

ABS:	Asset backed security	~~FASB:~~	~~Financial Accounting Standards Board~~
~~ACBB:~~	~~Atlantic Community Bankers Bank~~	FDIC:	Federal Deposit Insurance Corporation
AFS:	Available-for-sale	FHLBB:	Federal Home Loan Bank of Boston
Agency MBS:	MBS issued by a US government agency	FHLMC:	Federal Home Loan Mortgage Corporation
	or GSE	FOMC:	Federal Open Market Committee
ALCO:	Asset Liability Committee	FRB:	Federal Reserve Board
ALL:	Allowance for loan losses	FRBB:	Federal Reserve Bank of Boston
AOCI:	Accumulated other comprehensive income	GAAP:	Generally Accepted Accounting Principles
ASC:	Accounting Standards Codification		in the United States
ASU:	Accounting Standards Update	GSE:	Government sponsored enterprise
~~ATS:~~Bancorp:	~~Automatic transfer service~~Community Bancorp.	HTM:	Held-to-maturity
~~Bancorp:~~Bank:	Community ~~Bancorp.~~National Bank	ICS:	Insured Cash Sweeps of the ~~Promontory~~
~~Bank:~~	~~Community National Bank~~		~~Interfinancial~~InterFi Network
~~BHG~~BIC:	~~Bankers Healthcare Group~~Borrower-in-Custody	IRS:	Internal Revenue Service
~~BIC:~~Board:	~~Borrower-in-Custody~~Board of Directors	JNE:	Jobs for New England
~~Board:~~	~~Board of Directors~~	~~Jr:~~	~~Junior~~
BOLI:	Bank owned life insurance	~~MBS:~~Jr:	~~Mortgage-backed security~~Junior
bp or bps:	Basis point(s)	~~MPF:~~LIBOR	~~Mortgage Partnership Finance~~
~~BSA~~	~~Bank Secrecy Act~~	~~MSRs:~~	~~Mortgage servicing rights~~
~~CARES ACT:~~	~~Coronavirus Aid Relief and Economic~~	~~NII:~~	~~Net interest income~~
	~~Security Act~~	~~OAS:~~	~~Other amortizing security~~
~~CBLR:~~	~~Community Bank Leverage Ratio~~	~~OCI:~~	~~Other comprehensive income (loss)~~London Interbank Offered Rate
CDARS:	Certificate of Deposit Accounts Registry	~~OREO:~~MBS:	~~Other real estate owned~~Mortgage-backed security
	Service of the ~~Promontory Interfinancial~~	~~OTTI:~~	~~Other-than-temporary impairment~~
	InterFi Network	~~PMI:~~MSRs:	~~Private mortgage insurance~~Mortgage servicing rights
CDs:	Certificates of deposit	~~PPP:~~NII:	~~Paycheck Protection Program~~Net interest income
CDI:	Core deposit intangible	~~PPPLF:~~OAS:	~~PPP Liquidity Facility of the FRBB~~Other amortizing security
CECL:	Current Expected Credit Loss	~~RD:~~OCI:	~~USDA Rural Development~~Other comprehensive income (loss)
CFSG:	Community Financial Services Group, LLC	~~SBA:~~OREO:	~~U.S. Small Business Administration~~Other real estate owned
CFS Partners:	Community Financial Services Partners,	~~SEC:~~OTTI:	~~U.S. Securities and Exchange Commission~~Other-than-temporary impairment
	LLC	~~SERP:~~PMI:	~~Supplemental Employee Retirement Plan~~Private mortgage insurance
CMO	~~Collateralize~~Collateralized Mortgage ~~Obligation~~Obligations	~~TDR:~~PPP:	~~Troubled-debt restructuring~~Paycheck Protection Program
Company:	Community Bancorp. and Subsidiary	~~USDA:~~RD:	~~U.S. Department of Agriculture~~USDA Rural Development
COVID-19:	Coronavirus Disease 2019	~~VA:~~SBA:	U.S. ~~Veterans~~Small Business Administration
CRE:	Commercial Real Estate	~~2017 Tax Act:~~SEC:	~~Tax Cut~~U.S. Securities and ~~Jobs Act of 2017~~Exchange Commission
DDA or DDAs:	Demand Deposit Account(s)	~~2018~~SOFR:	~~Economic Growth, Regulatory Relief and~~Secured Overnight Financing Rate
DTC:	Depository Trust Company	~~Regulatory~~TDR:	~~Consumer Protection Act of 2018~~Troubled-debt restructuring
DRIP:	Dividend Reinvestment Plan	~~Relief Act:~~USDA:	U.S. Department of Agriculture
Exchange Act:	Securities Exchange Act of 1934	VA:	U.S. Veterans Administration
FASB:	Financial Accounting Standards Board

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

September 30, 2021
September 30, 2022
U.S. GSE debt securities	$	10,003,253	$	69,462	$	105,637	$	9,967,078	$	12,000,000	$	0	$	1,642,690	$	10,357,310
U.S. Government securities		10,128,255		6,498		33,931		10,100,822		41,409,349		0		3,405,554		38,003,795
Taxable Municipal securities										300,000		0		62,749		237,251
Tax-Exempt Municipal securities										11,695,449		0		1,358,635		10,336,814
Agency MBS		80,876,989		261,920		821,647		80,317,262		135,295,287		13,719		21,423,964		113,885,042
ABS and OAS		2,131,767		90,684		0		2,222,451		2,929,176		0		245,888		2,683,288
CMO		958,211		0		18,570		939,641		8,690,193		0		359,280		8,330,913
Other investments		6,934,000		195,068		183		7,128,885		3,464,000		0		71,093		3,392,907
Total	$	111,032,475	$	623,632	$	979,968	$	110,676,139	$	215,783,454	$	13,719	$	28,569,853	$	187,227,320

December 31, 2020
											Gross		Gross
									Amortized		Unrealized		Unrealized		Fair
									Cost		Gains		Losses		Value

December 31, 2021
U.S. GSE debt securities	$	8,007,142	$	165,934	$	3,245	$	8,169,831	$	12,001,978	$	36,024	$	209,504	$	11,828,498
U.S. Government securities										32,374,935		0		333,894		32,041,041
Taxable Municipal securities										300,000		0		1,267		298,733
Tax-Exempt Municipal securities										830,279		1,167		67		831,379
Agency MBS		40,861,370		547,930		30,951		41,378,349		128,291,487		184,002		1,342,968		127,132,521
ABS and OAS		2,508,997		160,999		0		2,669,996		2,131,610		82,414		0		2,214,024
CMO										1,451,349		0		30,891		1,420,458
Other investments		8,169,000		318,002		0		8,487,002		6,438,000		142,199		4,394		6,575,805
Total	$	59,546,509	$	1,192,865	$	34,196	$	60,705,178	$	183,819,638	$	445,806	$	1,922,985	$	182,342,459

	Less than 12 months				12 months or more				Total						Less than 12 months				12 months or more				Totals
	Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized
	Value		Loss		Value		Loss		Securities		Value		Loss		Value		Loss		Value		Loss		Securities		Value		Loss
September 30, 2021
September 30, 2022
U.S. GSE debt securities	$	5,894,967	$	105,637	$	0	$	0		6	$	5,894,967	$	105,637	$	5,304,930	$	695,070	$	5,052,380	$	947,620		11	$	10,357,310	$	1,642,690
U.S. Government securities		6,565,249		33,931		0		0		13		6,565,249		33,931		25,893,729		1,886,208		12,110,066		1,519,346		54		38,003,795		3,405,554
Taxable Municipal securities																237,251		62,749		0		0		1		237,251		62,749
Tax-Exempt Municipal securities																10,336,814		1,358,635		0		0		22		10,336,814		1,358,635
Agency MBS		64,902,217		817,068		252,509		4,579		50		65,154,726		821,647		53,405,680		8,835,995		58,983,039		12,587,969		119		112,388,719		21,423,964
ABS and OAS																2,683,288		245,888		0		0		4		2,683,288		245,888
CMO		939,641		18,570		0		0		2		939,641		18,570		7,572,585		276,853		758,328		82,427		8		8,330,913		359,280
Other investments		247,816		183		0		0		1		247,816		183		3,173,963		42,037		218,944		29,056		14		3,392,907		71,093
Total	$	78,549,890	$	975,389	$	252,509	$	4,579		72	$	78,802,399	$	979,968	$	108,608,240	$	13,403,435	$	77,122,757	$	15,166,418		233	$	185,730,997	$	28,569,853

December 31, 2020
U.S. GSE debt securities	$	1,999,234	$	3,245	$	0	$	0		2	$	1,999,234	$	3,245
Agency MBS		2,076,167		19,845		520,546		11,106		6		2,596,713		30,951
Total	$	4,075,401	$	23,090	$	520,546	$	11,106		8	$	4,595,947	$	34,196

September 30, 2021	30-89 Days		90 Days or More		Total Past Due		Current		Total Loans		Non-Accrual Loans		90 Days or More and Accruing
																									Non-		90 Days or
																	90 Days		Total						Accrual		More and
September 30, 2022															30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing

Commercial & industrial	$	2,286,922	$	0	$	2,286,922	$	136,774,814	$	139,061,736	$	148,674	$	0	$	1,335,118	$	29,375	$	1,364,493	$	119,859,569	$	121,224,062	$	3,422,395	$	0
Purchased loans																0		0		0		8,078,281		8,078,281		0		0
Commercial real estate		776,299		233,042		1,009,341		284,903,265		285,912,606		3,671,880		0		653,091		1,834,037		2,487,128		321,840,032		324,327,160		3,814,958		222,998
Municipal		0		0		0		53,774,882		53,774,882		0		0		0		0		0		40,164,698		40,164,698		0		0
Residential real estate
- 1st lien		805,094		1,251,352		2,056,446		172,838,675		174,895,121		1,183,306		657,604		452,927		655,316		1,108,243		191,458,336		192,566,579		1,231,602		369,172
- Jr lien		158,845		78,311		237,156		34,679,853		34,917,009		178,845		78,311		291,722		152,160		443,882		33,329,589		33,773,471		133,776		152,160
Consumer		15,177		0		15,177		4,061,844		4,077,021		0		0		10,364		0		10,364		4,049,386		4,059,750		0		0
Totals	$	4,042,337	$	1,562,705	$	5,605,042	$	687,033,333	$	692,638,375	$	5,182,705	$	735,915	$	2,743,222	$	2,670,888	$	5,414,110	$	718,779,891	$	724,194,001	$	8,602,731	$	744,330

	Number of loans		Balance

September 30, 2021		5	$	192,940
December 31, 2020		6		312,807

	Commercial & Industrial		Commercial Real Estate			Municipal		Residential Real Estate 1st Lien			Residential Real Estate Jr Lien			Consumer			Unallocated		Total

ALL beginning balance	$	899,163	$	3,932,846		$	57,292	$	1,655,042		$	201,269		$	61,224		$	912,420	$	7,719,256
Charge-offs		0		0			0		0			0			(30,638	)		0		(30,638	)
Recoveries		0		20,162			0		2,275			8,641			10,444			0		41,522
Provision (credit)		3,201		(56,471	)		28,748		(10,532	)		(20,684	)		37,843			107,062		89,167
ALL ending balance	$	902,364	$	3,896,537		$	86,040	$	1,646,785		$	189,226		$	78,873		$	1,019,482	$	7,819,307

											Residential			Residential
	Commercial			Purchased			Commercial				Real Estate			Real Estate
	& Industrial			Loans			Real Estate		Municipal		1st Lien			Jr Lien		Consumer			Unallocated		Total

ALL beginning balance	$	1,107,248		$	59,822		$	4,808,324	$	58,319	$	1,845,508		$	181,214	$	41,556		$	130,782	$	8,232,773
Charge-offs		(26,922	)		0			0		0		0			0		(14,915	)		0		(41,837	)
Recoveries		10,407			0			0		0		98,600			1,298		5,845			0		116,150
Provision (credit)		794			(3,274	)		95,775		13,977		(130,711	)		232		20,434			127,773		125,000
ALL ending balance	$	1,091,527		$	56,548		$	4,904,099	$	72,296	$	1,813,397		$	182,744	$	52,920		$	258,555	$	8,432,086

													As of September 30, 2022
															Unpaid
	As of September 30, 2021												Recorded		Principal		Related
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment(1)(2)		Average Recorded Investment(1)(3)		Interest Income Recognized(3)		Investment(1)		Balance		Allowance

Related allowance recorded
Commercial & industrial													$	954,098	$	965,266	$	4,259
Commercial real estate														249,709		252,806		8,867
Residential real estate
1st lien	$	793,401	$	804,655	$	88,874	$	785,752	$	897,008	$	48,200		1,172,194		1,192,445		96,784
Jr lien		3,836		3,833		159		4,008		4,315		332		2,532		2,529		4
Total with related allowance		797,237		808,488		89,033		789,760		901,323		48,532		2,378,533		2,413,046		109,914

No related allowance recorded
Commercial & industrial		140,098		161,331				261,153		339,386		204		2,454,109		2,525,175
Commercial real estate		3,711,470		4,210,006				2,795,979		2,295,473		78,462		3,563,089		4,751,499
Residential real estate
1st lien		3,094,255		3,991,516				3,253,698		3,402,302		155,005		2,511,284		3,515,246
Jr lien		130,551		176,460				133,148		133,861		0		77,213		124,795
Total with no related allowance		7,076,374		8,539,313				6,443,978		6,171,022		233,671		8,605,695		10,916,715

Total impaired loans	$	7,873,611	$	9,347,801	$	89,033	$	7,233,738	$	7,072,345	$	282,203	$	10,984,228	$	13,329,761	$	109,914

	As of September 30, 2022
	Three Months Ended				Nine Months Ended
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized

Related allowance recorded
Commercial & industrial	$	477,049	$	0	$	238,525	$	0
Commercial real estate		124,854		0		62,427		0
Residential real estate
1st lien		1,031,145		31,349		969,497		58,306
Jr lien		1,266		147		633		247
Total with related allowance		1,634,314		31,496		1,271,082		58,553

No related allowance recorded
Commercial & industrial		1,299,959		0		728,879		204
Commercial real estate		3,479,786		72,754		3,806,739		74,245
Residential real estate
1st lien		2,686,280		27,154		2,814,818		119,663
Jr lien		79,809		0		83,471		0
Total with no related allowance		7,545,834		99,908		7,433,907		194,112

Total impaired loans	$	9,180,148	$	131,404	$	8,704,989	$	252,665

	As of December 31, 2021
			Unpaid
	Recorded		Principal		Related
	Investment(1)		Balance		Allowance

Related allowance recorded
Residential real estate
1st lien	$	702,586	$	716,118	$	79,978
Jr lien		0		0		0
Total with related allowance		702,586		716,118		79,978

No related allowance recorded
Commercial & industrial		93,362		115,414
Commercial real estate		4,554,074		5,108,557
Residential real estate
1st lien		3,050,647		4,076,352
Jr lien		88,570		132,802
Total with no related allowance		7,786,653		9,433,125

Total impaired loans	$	8,489,239	$	10,149,243	$	79,978

(1)	Recorded investment in impaired loans as of September 30, 2021 includes accrued interest receivable and deferred net loan costs of $34,179.
~~(2)~~	~~For the three months ended September 30, 2021.~~
~~(3)~~	~~For the nine months ended September 30, 2021.~~

	As of December 31, 2020
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment(1)(2)		Interest Income Recognized(2)

Related allowance recorded
Residential real estate
1st lien	$	900,581	$	950,063	$	108,474	$	889,262	$	72,713
Jr lien		4,777		4,775		307		5,416		541
Total with related allowance		905,358		954,838		108,781		894,678		73,254

No related allowance recorded
Commercial & industrial		414,266		471,405				397,136		6,396
Commercial real estate		1,944,013		2,394,284				1,746,430		14,139
Residential real estate
1st lien		3,788,965		4,607,848				3,878,829		230,838
Jr lien		130,279		169,720				163,750		4,524
Total with no related allowance		6,277,523		7,643,257				6,186,145		255,897

Total impaired loans	$	7,182,881	$	8,598,095	$	108,781	$	7,080,823	$	329,151

~~(1)~~	~~Recorded investment in impaired loans as of December 31, 2020 includes accrued interest receivable and deferred net loan costs of $32,789.~~
~~(2)~~	~~For the year ended December 31, 2020.~~

	As of September 30, 2020
	Recorded Investment(1)		Unpaid Principal Balance		Related Allowance		Average Recorded Investment(1)(2)		Average Recorded Investment(1)(3)		Interest Income Recognized(3)

Related allowance recorded
Residential real estate
1st lien	$	1,166,549	$	1,207,778	$	111,435	$	1,015,521	$	969,485	$	81,313
Jr lien		5,083		5,079		361		5,249		5,576		415
Total with related allowance		1,171,632		1,212,857		111,796		1,020,770		975,061		81,728

No related allowance recorded
Commercial & industrial		374,558		410,356				379,147		392,854		4,077
Commercial real estate		1,823,015		2,213,788				1,718,560		1,697,035		10,989
Residential real estate
1st lien		3,592,591		4,378,079				3,911,876		3,818,241		148,099
Jr lien		142,829		180,016				114,830		172,117		0
Total with no related allowance		5,932,993		7,182,239				6,124,413		6,080,247		163,165

Total impaired loans	$	7,104,625	$	8,395,096	$	111,796	$	7,145,183	$	7,055,308	$	244,893

	·	Reduced accrued interest;
	·	Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;
	·	Converted a variable-rate loan to a fixed-rate loan;
	·	Extended the term of the loan beyond an insignificant delay;
	·	Deferred or forgiven principal in an amount greater than three months of payments;
	·	Performed a refinancing and deferred or forgiven principal on the original loan;
	·	Capitalized protective advance to pay delinquent real estate taxes; or
	·	Capitalized delinquent accrued interest.

	Three months ended September 30, 2021					Nine months ended September 30, 2021
		Pre-		Post-				Pre-		Post-
		Modification		Modification				Modification		Modification
	Number	Outstanding		Outstanding		Number		Outstanding		Outstanding
	of	Recorded		Recorded		of		Recorded		Recorded
	Contracts	Investment		Investment		Contracts		Investment		Investment

Commercial & industrial	0	$	0	$	0		1	$	41,751	$	41,751
Commercial real estate	1		2,250,000		2,250,000		1		2,250,000		2,250,000
	1	$	2,250,000	$	2,250,000		2	$	2,291,751	$	2,291,751

	Year ended December 31, 2020
		Pre-		Post-
		Modification		Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Contracts	Investment		Investment

Residential real estate - 1st lien	6	$	591,826	$	687,751

	Year ended December 31, 2021
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment

Commercial & industrial		1	$	41,751	$	41,751
Commercial real estate		2		3,153,402		3,153,402
Residential real estate – 1st lien		1		67,007		67,007
		4	$	3,262,160	$	3,262,160

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes MSRs, collateral-dependent impaired loans and OREO.

	September 30,		December 31,
Level 2	2021		2020
Assets: (market approach)
Impaired loans, net of related allowance	$	150,873	$	323,645
Loans held-for-sale		50,000		130,400
MSRs (1)		898,349		922,146

	Nine Months Ended			Year Ended			Nine Months Ended			Year Ended
	September 30, 2021			December 31, 2020			September 30, 2022			December 31, 2021

Balance at beginning of year	$	922,146		$	939,577		$	897,720		$	922,146
MSRs capitalized		97,083			292,654			99,014			147,328
MSRs amortized		(174,530	)		(256,435	)		(116,098	)		(225,404	)
Change in valuation allowance		53,650			(53,650	)		0			53,650
Balance at end of period	$	898,349		$	922,146		$	880,636		$	897,720

	·	interest rates change in such a way as to negatively affect loan demand, the local economy or the Company's net income, asset valuations or margins;
	·	general economic or business conditions, either nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the ~~Company’s~~Company's products and services;
	·	~~competitive pressures increase among financial service providers in~~the impact of inflation on the Company’s ~~northern New England market area or in the~~customers and on its financial ~~services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation~~results and ~~integration of financial service providers, and from changes in technology and delivery systems;~~performance;
	·	changes in the United States monetary and fiscal policies, including the interest ~~rates change~~rate policies of the FRB and its regulation of the money supply;
	·	changes in ~~such a way as~~applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to ~~negatively~~the measurement of credit losses in financial statements under U.S. GAAP pursuant to the CECL model;
	·	the geographic concentration of the Company’s loan portfolio and deposit base;
	·	the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s ~~net income, asset valuations~~interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
	·	reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;
	·	changes in the level of nonperforming assets and charge-offs;
	·	changes in federal or ~~margins;~~state tax laws or policy;

	·	changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the ~~Company’s~~Company's business;
	·	competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in ~~federal or state tax laws or policy;~~technology and delivery systems;
	·	~~changes in the level of nonperforming assets and charge-offs;~~
	·	changes in applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to the measurement of credit losses in financial statements under US GAAP pursuant to the CECL model;
	·	~~changes in consumer and business spending, borrowing and savings habits;~~
	·	~~reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;~~
	·	~~the geographic concentration of the Company’s loan portfolio and deposit base;~~
	·	~~losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees;~~

	·	cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;
	·	higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;
	·	management’s risk management measures may not be completely effective;
	·	changes in ~~the United States monetary~~consumer and ~~fiscal policies, including the interest rate policies of the FRB~~business spending, borrowing and ~~its regulation of the money supply;~~
	·	~~adverse changes in the credit rating of U.S. government debt;~~savings habits;
	·	the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
	·	~~the effect~~continuing effects of COVID-19 and emerging variants of the virus on our Company, the communities where we have branches and loan production offices, the State of Vermont and the national and global economies and overall stability of the financial markets;
	·	the continuing effects of government and regulatory responses to the COVID-19 ~~pandemic and emerging threats from variants of the virus;~~pandemic;
	·	operational and internal system failures due to changes in normal business practices, including remote working for Company staff;
	·	increased cybercrime and payment system risk due to increase usage by customers of online and other remote banking channels;
	·	~~rising unemployment rates in our markets~~the ongoing challenges to find qualified workers to maintain a stable workforce;
	·	losses due to the ~~COVID-19 related business shutdowns, delays~~fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and ~~setbacks in scheduled re-openings and other economic disruptions, which reduce our borrowers’ ability to repay their loans and reduce customer demand for our products and services;~~employees; and
	·	~~the short-term and long-term effects of government interventions~~adverse changes in the credit rating of U.S. economy and financial system in response to the COVID-19 pandemic and emerging variants of the virus, including the effects of recent legislative, tax, accounting and regulatory actions and reforms, such as passage of the CARES Act, the actions of the Federal Reserve affecting monetary policy, and the temporary moratorium on foreclosures imposed by the State of Vermont in response to the COVID-19 emergency.government debt.

·	the ALL;
·	OREO;
·	OTTI of debt securities;
·	valuation of residential MSRs; and
·	the carrying value of goodwill.

~~(1)~~	~~Applicable income tax expense assumes a 21% tax rate for both periods.~~
~~(2)~~	~~Computed based on the weighted average number of common shares outstanding during the periods presented.~~