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, 2022~~March 31, 2023

☐ 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~~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 Telephone Number: (802) 334-7915

~~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	☒	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 ☐ NO ☒

At ~~November 3, 2022,~~May 02, 2023, there were ~~5,421,386~~5,455,805 shares outstanding of the Corporation's common stock.

FORM 10-Q

~~FORM 10-Q~~Index
~~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	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	50	46
Item 4	Controls and Procedures	50	46

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	51	47
Item 1A	Risk Factors	51	47
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	51	47
Item 6	Exhibits	52	48
	Signatures	53	49
	Exhibit Index	54	50

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,			March 31			December 31,
Consolidated Balance Sheets	2022			2021			2023			2022
	(Unaudited)						(Unaudited)

Assets
Cash and due from banks	$	13,796,288		$	17,839,374		$	7,521,058		$	12,302,771
Federal funds sold and overnight deposits		60,105,975			92,519,552			30,123,942			58,837,557
Total cash and cash equivalents		73,902,263			110,358,926			37,645,000			71,140,328
Securities available-for-sale		187,227,320			182,342,459			192,679,330			192,918,109
Restricted equity securities, at cost		1,390,950			1,434,450			1,436,550			1,411,750
Loans held-for-sale		130,000			339,000
Loans		724,194,001			689,988,533			758,586,712			748,548,608
Allowance for loan losses		(8,432,086	)		(7,710,256	)
Deferred net loan costs (fees)		466,602			(37,972	)
Allowance for credit losses								(9,256,170	)		(8,709,225	)
Deferred net loan costs								509,611			493,275
Net loans		716,228,517			682,240,305			749,840,153			740,332,658
Bank premises and equipment, net		13,163,010			13,767,328			12,874,462			13,042,468
Accrued interest receivable		2,709,745			2,400,560			3,111,173			3,214,332
Bank owned life insurance		5,133,661			5,073,228			5,173,002			5,153,387
Goodwill		11,574,269			11,574,269			11,574,269			11,574,269
Other assets		15,425,215			9,575,274			16,205,454			17,244,846
Total assets	$	1,026,884,950		$	1,019,105,799		$	1,030,539,393		$	1,056,032,147

Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	210,463,414		$	209,465,151		$	200,311,094		$	216,093,534
Interest-bearing transaction accounts		269,907,036			265,513,937			279,977,413			294,050,079
Money market funds		137,639,793			129,728,954			132,554,229			140,117,086
Savings		179,853,917			168,390,905			170,452,633			171,072,921
Time deposits, $250,000 and over		15,433,461			17,463,871			16,737,914			15,632,058
Other time deposits		89,743,528			88,837,135			88,511,815			86,006,601
Total deposits		903,041,149			879,399,953			888,545,098			922,972,279
Borrowed funds		1,300,000			1,300,000			1,300,000			1,300,000
Repurchase agreements		32,254,924			32,609,875			38,058,036			33,077,829
Junior subordinated debentures		12,887,000			12,887,000			12,887,000			12,887,000
Accrued interest and other liabilities		7,862,052			8,148,703			10,069,472			10,618,676
Total liabilities		957,345,125			934,345,531			950,859,606			980,855,784

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
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding
at 03/31/23 and 12/31/22 ($100,000 liquidation value, per share)								1,500,000			1,500,000
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,665,187
shares issued at 03/31/23 and 5,647,710 shares issued at 12/31/22								14,162,968			14,119,275
Additional paid-in capital		36,117,612			35,322,063			36,659,419			36,383,235
Retained earnings		43,032,064			37,758,105			47,975,176			46,464,447
Accumulated other comprehensive loss		(22,559,347	)		(1,166,971	)		(17,994,999	)		(20,667,817	)
Less: treasury stock, at cost; 210,101 shares at 09/30/22 and 12/31/21		(2,622,777	)		(2,622,777	)
Less: treasury stock, at cost; 210,101 shares at 03/31/23 and 12/31/22								(2,622,777	)		(2,622,777	)
Total shareholders' equity		69,539,825			84,760,268			79,679,787			75,176,363
Total liabilities and shareholders' equity	$	1,026,884,950		$	1,019,105,799		$	1,030,539,393		$	1,056,032,147

Book value per common share outstanding	$	12.56		$	15.48		$	14.33		$	13.55

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 March 31
Consolidated Statements of Income	2022		2021		2023		2022
(Unaudited)

Interest income
Interest and fees on loans	$	8,182,209	$	8,778,173	$	9,376,025	$	7,487,200
Interest on taxable debt securities		799,856		325,002		943,478		656,277
Interest on tax-exempt debt securities		68,155		0		90,658		10,949
Dividends		23,029		14,666		30,653		16,460
Interest on federal funds sold and overnight deposits		358,907		92,923		329,411		80,660
Total interest income		9,432,156		9,210,764		10,770,225		8,251,546

Interest expense
Interest on deposits		837,983		594,327		1,844,747		551,959
Interest on borrowed funds		21,363		19,721		24,520		21,965
Interest on repurchase agreements		45,153		16,871		132,128		21,040
Interest on junior subordinated debentures		154,091		97,776		245,465		98,352
Total interest expense		1,058,590		728,695		2,246,860		693,316

Net interest income		8,373,566		8,482,069		8,523,365		7,558,230
Provision for loan losses		125,000		89,167
Net interest income after provision for loan losses		8,248,566		8,392,902
Provision for credit losses						286,526		862,500
Net interest income after provision for credit losses						8,236,839		6,695,730

Non-interest income
Service fees		939,807		882,688		880,288		862,887
Income from sold loans		109,411		242,560		107,535		203,842
Other income from loans		301,710		223,388		428,572		271,260
Other income		180,675		351,950		342,382		348,440
Total non-interest income		1,531,603		1,700,586		1,758,777		1,686,429

Non-interest expense
Salaries and wages		1,984,000		2,002,999		2,288,760		2,040,000
Employee benefits		629,681		811,817		754,270		772,052
Occupancy expenses, net		677,805		743,219		770,986		753,364
Other expenses		2,049,423		1,973,822		2,065,686		1,888,172
Total non-interest expense		5,340,909		5,531,857		5,879,702		5,453,588

Income before income taxes		4,439,260		4,561,631		4,115,914		2,928,571
Income tax expense		828,754		862,429		777,153		523,029
Net income	$	3,610,506	$	3,699,202	$	3,338,761	$	2,405,542

Earnings per common share	$	0.66	$	0.69	$	0.61	$	0.44
Weighted average number of common shares used in computing earnings per share		5,409,612		5,354,187
Weighted average number of common shares
used in computing earnings per share						5,444,040		5,382,678
Dividends declared per common share	$	0.23	$	0.22	$	0.23	$	0.23

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,

Consolidated Statements of Income

2022

2021

(Unaudited)

Interest income

Interest and fees on loans

$ 23,300,119

$ 24,919,892

Interest on taxable debt securities

2,192,540

883,846

Interest on tax-exempt debt securities

112,890

0

Dividends

56,121

40,265

Interest on federal funds sold and overnight deposits

609,532

260,811

Total interest income

26,271,202

26,104,814

Interest expense

Interest on deposits

1,975,401

1,930,664

Interest on borrowed funds

64,993

49,111

Interest on repurchase agreements

88,322

72,822

Interest on junior subordinated debentures

373,506

296,486

Total interest expense

2,502,222

2,349,083

Net interest income

23,768,980

23,755,731

Provision for loan losses

1,325,000

624,165

Net interest income after provision for loan losses

22,443,980

23,131,566

Non-interest income

Service fees

2,739,076

2,527,943

Income from sold loans

508,795

704,627

Other income from loans

895,884

653,377

Other income

708,574

1,155,405

Total non-interest income

4,852,329

5,041,352

Non-interest expense

Salaries and wages

6,058,000

5,923,001

Employee benefits

2,106,356

2,467,237

Occupancy expenses, net

2,104,346

2,140,141

Other expenses

5,960,259

5,635,925

Total non-interest expense

16,228,961

16,166,304

Income before income taxes

11,067,348

12,006,614

Income tax expense

2,030,148

2,235,305

Net income

$ 9,037,200

$ 9,771,309

Earnings per common share

$ 1.67

$ 1.82

Weighted average number of common shares used in computing earnings per share

5,396,215

5,338,481

Dividends declared per common share

$ 0.69

$ 0.66

Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)	Three Months Ended March 31
	2023			2022

Net income	$	3,338,761		$	2,405,542

Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities AFS arising during the period		3,383,314			(11,069,161	)
Tax effect		(710,496	)		2,324,524
Other comprehensive income (loss), net of tax		2,672,818			(8,744,637	)
Total comprehensive income (loss)	$	6,011,579		$	(6,339,095)

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 (Loss) Income

(Unaudited)

Three Months Ended September 30,

2022

2021

Net income

$ 3,610,506

$ 3,699,202

Other comprehensive loss, net of tax:

Unrealized holding loss on securities AFS arising during the period

(8,978,128 )

(475,176 )
Tax effect

1,885,407

99,786

Other comprehensive loss, net of tax

(7,092,721 )

(375,390 )
Total comprehensive (loss) income

$
(3,482,215
)

$ 3,323,812

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.~~

Table of Contents

Community Bancorp. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

	Nine Months Ended September 30, 2022																		Three Months Ended March 31 2023
					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, 2022	$	13,969,848	$	1,500,000	$	35,322,063	$	37,758,105		$	(1,166,971	)	$	(2,622,777	)	$	84,760,268

January 1, 2023																			$	14,119,275	$	1,500,000	$	36,383,235	$	46,464,447		$	(20,667,817	)	$	(2,622,777	)	$	75,176,363
Cumulative change in accounting principle (Note 2)																										(549,113	)								(549,113	)
Balance at January 1, 2023 (as adjusted for																										45,915,334									74,627,250
Change in accounting principle)
Issuance of common stock		35,597				237,086											272,683			43,693				276,184											319,877
Cash dividends declared
Common stock								(1,236,880	)								(1,236,880	)								(1,250,794	)								(1,250,794	)
Preferred stock								(12,188	)								(12,188	)								(28,125	)								(28,125	)
Comprehensive income
Net income								2,405,542									2,405,542									3,338,761									3,338,761
Other comprehensive loss											(8,744,637	)					(8,744,637	)
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		33,048				287,882											320,930
Cash dividends declared
Common stock								(1,240,049	)								(1,240,049	)
Preferred stock								(13,124	)								(13,124	)
Comprehensive income
Net income								3,021,152									3,021,152
Other comprehensive loss											(5,555,018	)					(5,555,018	)
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
Other comprehensive income																													2,672,818						2,672,818
March 31, 2023																			$	14,162,968	$	1,500,000	$	36,659,419	$	47,975,176		$	(17,994,999	)	$	(2,622,777	)	$	79,679,787

*Accumulated other comprehensive loss

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

~~Table of Contents~~

~~Community Bancorp. and Subsidiary~~

~~Consolidated Statements of Changes in Shareholders' Equity~~

~~(Unaudited)~~

	Nine Months Ended September 30, 2021																			Three Months Ended March 31 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	)
Redemption of preferred stock																		0
Comprehensive income
Comprehensive loss
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

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
March 31, 2022																				$	14,005,445	$	1,500,000	$	35,559,149	$	38,914,579		$	(9,911,608	)	$	(2,622,777	)	$	77,444,788

*Accumulated other comprehensive income (loss)

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

Table of Contents

Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Nine Months Ended September 30,						Three Months Ended March 31
	2022			2021			2023			2022

Cash Flows from Operating Activities:
Net income	$	9,037,200		$	9,771,309		$	3,338,761		$	2,405,542
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, bank premises and equipment		853,685			815,454			276,656			285,202
Provision for loan losses		1,325,000			624,165
Provision for credit losses								286,526			862,500
Deferred income tax		(38,020	)		(75,779	)		(68,835	)		47,344
Gain on sale of loans		(218,501	)		(404,428	)		(29,331	)		(102,945	)
Gain on sale of bank premises and equipment		0			(7,559	)
Capital loss on leases		0			63,125
Income from CFS Partners		(386,217	)		(834,781	)		(252,051	)		(225,870	)
Amortization of bond premium, net		518,833			355,461			66,815			186,967
Proceeds from sales of loans held for sale		10,456,242			6,487,773			1,637,381			4,725,711
Originations of loans held for sale		(10,028,741	)		(6,002,945	)		(1,608,050	)		(4,529,766	)
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
Increase in taxes payable								778,860			408,593
Decrease (increase) in interest receivable								103,159			(318,578	)
Decrease (increase) in mortgage servicing rights								23,370			(2,374	)
Decrease in right-of-use assets		149,011			147,125			50,321			49,669
Decrease in operating lease liabilities		(153,871	)		(147,616	)		(53,751	)		(51,283	)
Increase in other assets		(209,618	)		(141,037	)		(72,609	)		(173,852	)
Increase in cash surrender value of BOLI		(60,433	)		(63,961	)		(19,615	)		(20,060	)
Amortization of limited partnerships		201,537			272,286			67,128			67,092
Change in net deferred loan fees and costs		(504,574	)		(46,463	)		(16,336	)		(312,318	)
Decrease in interest payable		(25,558	)		(29,252	)		(2,485	)		(1,332	)
Decrease in accrued expenses		(4,198	)		(126,996	)		(1,040,367	)		(567,062	)
Increase (decrease) in other liabilities		12,439			(40,317	)		73,186			(24,896	)
Net cash provided by operating activities		10,883,987			10,520,722			3,538,733			2,708,284

Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		14,994,113			14,130,683			3,555,278			4,434,388
Purchases		(47,476,763	)		(65,972,109	)		0			(19,103,623	)
Proceeds from redemption of restricted equity securities		43,500			0			67,800			43,500
Purchases of restricted equity securities		0			(600	)		(92,600	)		0
Decrease in limited partnership contributions payable		0			(150,000	)
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	)
Investments in limited liability entities								(1,000	)		0
Increase in loans, net								(10,074,935	)		(6,998,537	)
Capital expenditures net of proceeds from sales of bank
premises and equipment								(158,971	)		(70,686	)
Recoveries of loans charged off		147,510			73,515			132,860			11,780
Net cash used in investing activities		(67,646,166	)		(34,070,936	)		(6,571,568	)		(21,683,178	)

Table of Contents

	2022			2021			2023			2022

Cash Flows from Financing Activities:
Net increase in demand and interest-bearing transaction accounts		5,391,362			24,030,973
Net increase in money market and savings accounts		19,373,851			39,467,248
Net decrease in time deposits		(1,124,017	)		(5,694,301	)
Net decrease in repurchase agreements		(354,951	)		(16,375,099	)
Repayments on long-term borrowings		0			(500,000	)
Net decrease in demand and interest-bearing transaction accounts								(29,855,106	)		(12,916,068	)
Net (decrease) increase in money market and savings accounts								(8,183,145	)		10,606,091
Net increase in time deposits								3,611,070			210,469
Net increase (decrease) in repurchase agreements								4,980,207			(3,865,864	)
Decrease in finance lease obligations		(159,333	)		(144,774	)		(54,493	)		(52,807	)
Dividends paid on preferred stock		(43,125	)		(36,563	)		(28,125	)		(12,188	)
Dividends paid on common stock		(2,778,271	)		(2,495,153	)		(932,901	)		(900,893	)
Net cash provided by financing activities		20,242,277			38,252,331
Net cash used in financing activities								(30,462,493	)		(6,931,260	)

Net (decrease) increase in cash and cash equivalents		(36,456,663	)		14,702,116
Net decrease in cash and cash equivalents								(33,495,328	)		(25,906,154	)
Cash and cash equivalents:
Beginning		110,358,926			115,049,920			71,140,328			110,358,926
Ending	$	73,902,263		$	129,752,036		$	37,645,000		$	84,452,772

Supplemental Schedule of Cash Paid During the Period:					��
Interest	$	2,527,780		$	2,378,335		$	2,249,345		$	694,648

Income taxes, net of refunds	$	1,614,759		$	2,415,000

Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized loss on securities AFS	$	(27,078,956	)	$	(1,515,004	)

Additions to finance lease obligations	$	0		$	3,955,252
Change in unrealized gain (loss) on securities AFS							$	3,383,314		$	(11,069,161	)

Common Shares Dividends Paid:
Dividends declared	$	3,720,116		$	3,519,579		$	1,250,794		$	1,236,880
Increase in dividends payable attributable to dividends declared		(43,871	)		(116,751	)
Decrease (increase) in dividends payable attributable to dividends declared								1,984			(63,304	)
Dividends reinvested		(897,974	)		(907,675	)		(319,877	)		(272,683	)
Total dividends paid	$	2,778,271		$	2,495,153		$	932,901		$	900,893

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

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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, ~~2021~~2022 contained in the Company's Annual Report on Form 10-K. Certain amounts in the 2022 consolidated financial statements were reclassified to conform to the current period presentation. The reclassification had no effect on net income or shareholders’ equity as previously reported. 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, ~~2022.~~

~~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 current year presentation.~~2023.

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.

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	~~FDIC:~~FDICIA:	Federal Deposit Insurance Corporation
AFS:	Available-for-sale	~~FHLBB:~~	~~Federal Home Loan Bank~~Improvement Act of ~~Boston~~1991
Agency MBS:	MBS issued by a US government agency	FHLBB:	Federal Home Loan Bank of Boston
	or GSE	FHLMC:	Federal Home Loan Mortgage Corporation
ACL:	~~or GSE~~Allowance for Credit Losses	FOMC:	Federal Open Market Committee
ALCO:	Asset Liability Committee	FRB:	Federal Reserve Board
ALL:	Allowance for ~~loan losses~~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
Bancorp:	Community Bancorp.	HTM:	Held-to-maturity
Bank:	Community National Bank	ICS:	Insured Cash Sweeps of the InterFi Network
BIC:	Borrower-in-Custody	IRS:	Internal Revenue Service
Board:	Board of Directors	JNE:	Jobs for New England
BOLI:	Bank owned life insurance	Jr:	Junior
bp or bps:	Basis point(s)	LIBOR	London Interbank Offered Rate
CDARS:	Certificate of Deposit Accounts Registry	MBS:	Mortgage-backed security
	Service of the InterFi Network	MSRs:	Mortgage servicing rights
CDs:	Certificates of deposit	NII:	Net interest income
CDI:	Core deposit intangible	OAS:	Other amortizing security
CECL:	Current Expected Credit Loss	~~OCI:~~OBS:	~~Other comprehensive income (loss)~~Off-balance sheet
CFSG:	Community Financial Services Group, LLC	~~OREO:~~OCI:	Other ~~real estate owned~~comprehensive income (loss)
CFS Partners:	Community Financial Services Partners,	~~OTTI:~~OREO:	~~Other-than-temporary impairment~~Other real estate owned
	LLC	~~PMI:~~OTTI:	~~Private mortgage insurance~~Other-than-temporary impairment
CMO	Collateralized Mortgage Obligations	~~PPP:~~PMI:	~~Paycheck Protection Program~~Private mortgage insurance
Company:	Community Bancorp. and Subsidiary	PPP:	Paycheck Protection Program
COVID-19:	Coronavirus Disease 2019	RD:	USDA Rural Development
~~COVID-19:~~CRE:	~~Coronavirus Disease 2019~~Commercial Real Estate	SBA:	U.S. Small Business Administration
~~CRE:~~DDA or DDAs:	~~Commercial Real Estate~~Demand Deposit Account(s)	SEC:	U.S. Securities and Exchange Commission
~~DDA or DDAs:~~DTC:	~~Demand Deposit Account(s)~~Depository Trust Company	SOFR:	Secured Overnight Financing Rate
~~DTC:~~	~~Depository Trust Company~~	~~TDR:~~	~~Troubled-debt restructuring~~
DRIP:	Dividend Reinvestment Plan	~~USDA:~~TDR:	~~U.S. Department of Agriculture~~Troubled-debt restructuring
Exchange Act:	Securities Exchange Act of 1934	~~VA:~~USDA:	U.S. ~~Veterans Administration~~Department of Agriculture
FASB:	Financial Accounting Standards Board	VA:	U.S. Veterans Administration
FDIC:	Federal Deposit Insurance Corporation

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Note 2. Recent Accounting Developments

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. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the sunset date of December 31, 2022 to December 31, 2024. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. 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. That transition will become effective for the Debentures as of the first London banking day after June 30, 2023 (see the Interest Rate Risk and Asset and Liability Management section of the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations following these Notes).

Accounting Standards Adopted in 2023

The Company has adopted the following accounting standards and has applied them to the Company’s interim consolidated financial statements for the three months ended March 31, 2023. Prior periods have not been restated as a result of adoption of these accounting standards.

ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326)In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which ~~will replace~~replaces the existing incurred loss model for recognizing credit losses, banks and other lending institutions ~~will be~~are 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~~requires that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down. The ASU will require a change in the 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 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. The ASU will become~~became effective for the Company beginning with the 2023 fiscal year including interim 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~~Upon adoption of this ASU on ~~the September 30, 2022 parallel calculation, the required~~January 1, 2023, a cumulative-effect adjustment ~~would not have~~of $549,113 was recorded as a ~~material impact~~reduction to retained earnings, with a corresponding adjustment of $243,376 increasing the ACL on loans, an adjustment of $451,704, increasing other liabilities for the ACL on off-balance sheet credit exposures, and ~~regulatory capital.~~an adjustment of $145,967 increasing deferred tax assets. There was no allowance recorded for credit losses on AFS debt securities resulting from adoption of this ASU.

ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.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 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~~has become effective for the Company beginning with the fiscal year 2023, including interim periods. ~~The Company is assessing the impact~~Adoption of this ASU ~~No. 2022-02 but does~~did not ~~expect that its adoption will~~ have a material impact on the 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.

Note 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.

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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,
2022
2021
Net income, as reported
$ 3,610,506 $ 3,699,202
Less: dividends to preferred shareholders
17,813 12,188
Net income available to common shareholders
$ 3,592,693 $ 3,687,014
Weighted average number of common shares
used in calculating earnings per share
5,409,612 5,354,187
Earnings per common share
$ 0.66 $ 0.69

Nine Months Ended September 30,	2022		2021
Three Months Ended March 31					2023		2022

Net income, as reported	$	9,037,200	$	9,771,309	$	3,338,761	$	2,405,542
Less: dividends to preferred shareholders		43,125		36,563		28,125		12,188
Net income available to common shareholders	$	8,994,075	$	9,734,746	$	3,310,636	$	2,393,354
Weighted average number of common shares
used in calculating earnings per share		5,396,215		5,338,481		5,444,040		5,382,678
Earnings per common share	$	1.67	$	1.82	$	0.61	$	0.44

Note 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, 2022
March 31, 2023
U.S. GSE debt securities	$	12,000,000	$	0	$	1,642,690	$	10,357,310	$	12,000,000	$	0	$	1,300,086	$	10,699,914
U.S. Government securities		41,409,349		0		3,405,554		38,003,795		41,328,783		0		2,559,714		38,769,069
Taxable Municipal securities		300,000		0		62,749		237,251		300,000		0		57,048		242,952
Tax-Exempt Municipal securities		11,695,449		0		1,358,635		10,336,814
Tax-exempt Municipal securities										12,026,492		154,266		559,646		11,621,112
Agency MBS		135,295,287		13,719		21,423,964		113,885,042		132,421,042		54,714		17,999,320		114,476,436
ABS and OAS		2,929,176		0		245,888		2,683,288		2,686,444		0		164,536		2,521,908
CMO		8,690,193		0		359,280		8,330,913		12,223,050		193		272,673		11,950,570
Other investments		3,464,000		0		71,093		3,392,907		2,472,000		0		74,631		2,397,369
Total	$	215,783,454	$	13,719	$	28,569,853	$	187,227,320	$	215,457,811	$	209,173	$	22,987,654	$	192,679,330

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

December 31, 2021
December 31, 2022
U.S. GSE debt securities	$	12,001,978	$	36,024	$	209,504	$	11,828,498	$	12,000,000	$	0	$	1,624,709	$	10,375,291
U.S. Government securities		32,374,935		0		333,894		32,041,041		41,368,624		0		3,137,035		38,231,589
Taxable Municipal securities		300,000		0		1,267		298,733		300,000		0		65,142		234,858
Tax-Exempt Municipal securities		830,279		1,167		67		831,379
Tax-exempt Municipal securities										12,042,410		40,513		759,356		11,323,567
Agency MBS		128,291,487		184,002		1,342,968		127,132,521		135,193,097		69,447		20,030,945		115,231,599
ABS and OAS		2,131,610		82,414		0		2,214,024		2,929,740		0		236,134		2,693,606
CMO		1,451,349		0		30,891		1,420,458		12,278,033		581		342,689		11,935,925
Other investments		6,438,000		142,199		4,394		6,575,805		2,968,000		0		76,326		2,891,674
Total	$	183,819,638	$	445,806	$	1,922,985	$	182,342,459	$	219,079,904	$	110,541	$	26,272,336	$	192,918,109

The Company had investments in Agency MBS exceeding 10% of stockholders’ equity with a book value of $132.4 million and $135.2 million, respectively, and a fair value of $114.5 million and $115.2 million, respectively, at March 31, 2023 and December 31, 2022.

~~Table of Contents~~

Investments securities pledged as collateral for repurchase agreements consisted of certain U.S. GSE debt securities, Agency MBS, ABS and OAS, and CMO. These repurchase agreements mature daily. ~~These~~The aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates were as follows:

Amortized

Fair

Cost

Value

September 30, 2022

$ 57,108,669

$ 47,466,870

December 31, 2021

63,045,599

62,256,702

	Amortized		Fair
	Cost		Value

March 31, 2023	$	54,714,154	$	46,610,309
December 31, 2022		55,899,113		46,789,284

There were no sales of debt securities during the first ~~nine~~three months of ~~2022~~2023 or ~~2021.~~2022.

Table of Contents

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

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
September 30, 2022
March 31, 2023
Due in one year or less	$	1,730,000	$	1,725,887	$	7,205,661	$	7,094,786
Due from one to five years		53,992,787		49,890,108		56,308,526		52,625,845
Due from five to ten years		10,409,071		9,091,245		5,241,640		4,828,976
Due after ten years		14,356,309		12,635,038		14,280,942		13,653,287
Agency MBS		135,295,287		113,885,042		132,421,042		114,476,436
Total	$	215,783,454	$	187,227,320	$	215,457,811	$	192,679,330

December 31, 2021
December 31, 2022
Due in one year or less	$	3,470,000	$	3,508,582	$	1,976,000	$	1,966,767
Due from one to five years		36,860,731		36,619,130		58,875,224		54,736,949
Due from five to ten years		13,065,163		12,942,726		8,631,626		7,591,761
Due after ten years		2,132,257		2,139,500		14,403,957		13,391,033
Agency MBS		128,291,487		127,132,521		135,193,097		115,231,599
Total	$	183,819,638	$	182,342,459	$	219,079,904	$	192,918,109

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				Totals						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, 2022
March 31, 2023
U.S. GSE debt securities	$	5,304,930	$	695,070	$	5,052,380	$	947,620		11	$	10,357,310	$	1,642,690	$	0	$	0	$	10,699,914	$	1,300,086		11	$	10,699,914	$	1,300,086
U.S. Government securities		25,893,729		1,886,208		12,110,066		1,519,346		54		38,003,795		3,405,554		0		0		38,769,069		2,559,714		54		38,769,069		2,559,714
Taxable Municipal securities		237,251		62,749		0		0		1		237,251		62,749		0		0		242,952		57,048		1		242,952		57,048
Tax-Exempt Municipal securities		10,336,814		1,358,635		0		0		22		10,336,814		1,358,635
Tax-exempt Municipal securities																1,536,169		13,862		4,587,518		545,784		13		6,123,687		559,646
Agency MBS		53,405,680		8,835,995		58,983,039		12,587,969		119		112,388,719		21,423,964		6,599,945		162,379		103,573,217		17,836,941		119		110,173,162		17,999,320
ABS and OAS		2,683,288		245,888		0		0		4		2,683,288		245,888		1,192,731		61,720		1,329,177		102,816		4		2,521,908		164,536
CMO		7,572,585		276,853		758,328		82,427		8		8,330,913		359,280		9,000,364		179,637		996,979		93,036		9		9,997,343		272,673
Other investments		3,173,963		42,037		218,944		29,056		14		3,392,907		71,093		1,954,018		21,982		443,351		52,649		10		2,397,369		74,631
Total	$	108,608,240	$	13,403,435	$	77,122,757	$	15,166,418		233	$	185,730,997	$	28,569,853	$	20,283,227	$	439,580	$	160,642,177	$	22,548,074		221	$	180,925,404	$	22,987,654

	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, 2022
U.S. GSE debt securities	$	2,723,388	$	276,611	$	7,651,903	$	1,348,098		11	$	10,375,291	$	1,624,709
U.S. Government securities		4,837,891		169,501		33,393,698		2,967,534		54		38,231,589		3,137,035
Taxable Municipal securities		0		0		234,858		65,142		1		234,858		65,142
Tax-exempt Municipal securities		8,608,507		522,128		592,388		237,228		19		9,200,895		759,356
Agency MBS		14,541,901		810,356		97,718,436		19,220,589		120		112,260,337		20,030,945
ABS and OAS		2,693,606		236,134		0		0		4		2,693,606		236,134
CMO		8,954,323		232,398		1,014,910		110,291		9		9,969,233		342,689
Other investments		2,451,892		20,108		439,782		56,218		12		2,891,674		76,326
Total	$	44,811,508	$	2,267,236	$	141,045,975	$	24,005,100		230	$	185,857,483	$	26,272,336

1412

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 Company adopted ASU No. 2016-13 effective January 1, 2023 which requires credit losses on debt securities AFS to be recorded in an allowance for credit losses and eliminates the concept of OTTI for debt securities AFS. Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security. As of March 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery. As of March 31, 2023, the Company also determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased under other market conditions.

~~The~~As of December 31, 2022, the Company believed the unrealized losses ~~for all periods presented~~on securities AFS were ~~principally attributable~~due to ~~changes in prevailing interest rates for similar types of securities and not~~market conditions rather than reduced estimated cash flows or 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 At December 31, 2022, the Company did not intend to ~~retain its investment for a period of time sufficient~~sell these securities, did not anticipate that these securities will be required to ~~allow for any~~be sold before anticipated recovery, and expected full principal and interest to be collected. Therefore, under the accounting principles pertaining to OTTI analysis then in ~~fair value. In analyzing an issuer's financial condition, management considers whether~~effect, the ~~securities are issued by~~Company did not consider 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 financial condition. As of September 30, 2022 and December 31, 2021, there were no declines in the fair value of ~~any of the~~these securities ~~reflected in the table above that were deemed by management~~ to be ~~OTTI.~~OTTI as of December 31, 2022.

Note 5. Loans, Allowance for ~~Loan~~Credit Losses and Credit Quality

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

	September 30,			December 31,
	2022			2021			March 31, 2023					December 31, 2022

Commercial & industrial	$	121,224,062		$	111,125,622		$	118,898,281		15.67	%	$	112,951,873		15.09	%
Purchased loans		8,078,281			9,807,848
Purchased								6,697,965		0.88	%		7,530,458		1.00	%
Commercial real estate		324,327,160			300,958,931			362,136,416		47.74	%		356,892,986		47.68	%
Municipal		40,164,698			47,955,231			36,473,847		4.81	%		34,633,055		4.63	%
Residential real estate - 1st lien		192,566,579			181,316,345			199,033,728		26.24	%		198,743,375		26.55	%
Residential real estate - Jr lien		33,773,471			34,359,864			31,901,495		4.21	%		33,756,872		4.51	%
Consumer		4,059,750			4,464,692			3,444,980		0.45	%		4,039,989		0.54	%
Total loans		724,194,001			689,988,533			758,586,712		100.00	%		748,548,608		100.00	%

ALL		(8,432,086	)		(7,710,256	)
ACL								(9,256,170	)				(8,709,225	)
Deferred net loan costs (fees)		466,602			(37,972	)		509,611					493,275
Net loans	$	716,228,517		$	682,240,305		$	749,840,153				$	740,332,658

Provision for Credit Losses

The provision for credit losses was made up of the following components for the periods indicated:

	Three Months Ended
	March 31,
	2023		2022
Provision for credit losses on loans		207,540		862,500
Provision for credit losses on OBS credit exposure		78,986		0
Provision for credit losses		286,526		862,500

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Table of Contents

The following tables present the activity in the ACL on loans at adoption of ASU 2016-13 (CECL) on January 1, 2023 and for the first three months of 2023 and select information on impairment evaluation by portfolio segment

As of or for the first three months ended March 31, 2023

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

ACL beginning balance	$	1,116,322		$	53,090		$	5,061,813		$	62,339	$	2,001,836	$	241,950		$	69,686		$	102,189		$	8,709,225
Impact of adopting CECL		(164,116	)		(29,196	)		(22,467	)		24,244		273,168		297,745			(33,813	)		(102,189	)		243,376
Charge-offs		(11,577	)		0			0			0		0		0			(25,254	)		0			(36,831	)
Recoveries		1,374			0			22,000			0		72,326		25,548			11,612			0			132,860
Provision (credit)		73,635			(3,693	)		124,810			4,602		48,779		(48,595	)		8,002			0			207,540
ACL ending balance	$	1,015,638		$	20,201		$	5,186,156		$	91,185	$	2,396,109	$	516,648		$	30,233		$	0		$	9,256,170

									Residential		Residential
	Commercial				Commercial				Real Estate		Real Estate
	& Industrial		Purchased		Real Estate		Municipal		1st Lien		Jr Lien		Consumer		Total
ACL evaluated for impairment
Individually	$	0	$	0	$	2,734	$	0	$	2,669	$	0	$	0	$	5,403
Collectively		1,015,638		20,201		5,183,422		91,185		2,393,440		516,648		30,233		9,250,767
Total	$	1,015,638	$	20,201	$	5,186,156	$	91,185	$	2,396,109	$	516,648	$	30,233	$	9,256,170

Loans evaluated for impairment
Individually	$	3,870,954	$	0	$	2,913,355	$	0	$	1,140,222	$	39,876	$	0	$	7,964,407
Collectively		115,027,327		6,697,965		359,223,061		36,473,847		197,893,506		31,861,619		3,444,980		750,622,305
Total	$	118,898,281	$	6,697,965	$	362,136,416	$	36,473,847	$	199,033,728	$	31,901,495	$	3,444,980	$	758,586,712

The following tables present activity in the ALL and select loan information on impairment evaluation, by portfolio segment, under the incurred loss methodology, for the periods indicated:

As of or for the year ended December 31, 2022

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

ALL beginning balance	$	870,392		$	68,655		$	4,151,760		$	76,728		$	1,765,892	$	182,014	$	55,698		$	539,117		$	7,710,256
Charge-offs		(76,875	)		0			(667,474	)		0			0		0		(63,625	)		0			(807,974	)
Recoveries		14,112			0			667,474			0			111,763		5,089		30,505			0			828,943
Provision (credit)		308,693			(15,565	)		910,053			(14,389	)		124,181		54,847		47,108			(436,928	)		978,000
ALL ending balance	$	1,116,322		$	53,090		$	5,061,813		$	62,339		$	2,001,836	$	241,950	$	69,686		$	102,189		$	8,709,225

ALL evaluated for impairment
Individually	$	2,322		$	0		$	0		$	0		$	106,280	$	0	$	0		$	0		$	108,602
Collectively		1,114,000			53,090			5,061,813			62,339			1,895,556		241,950		69,686			102,189			8,600,623
Total	$	1,116,322		$	53,090		$	5,061,813		$	62,339		$	2,001,836	$	241,950	$	69,686		$	102,189		$	8,709,225

Loans evaluated for impairment
Individually	$	3,442,124		$	0		$	3,176,835		$	0		$	3,816,012	$	77,416	$	0					$	10,512,387
Collectively		109,509,749			7,530,458			353,716,151			34,633,055			194,927,363		33,679,456		4,039,989						738,036,221
Total	$	112,951,873		$	7,530,458		$	356,892,986		$	34,633,055		$	198,743,375	$	33,756,872	$	4,039,989					$	748,548,608

Table of Contents

As of or for the three months ended March 31, 2022

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

ALL beginning balance	$	870,392		$	68,655		$	4,151,760		$	76,728	$	1,765,892	$	182,014		$	55,698		$	539,117		$	7,710,256
Charge-offs		(17,650	)		0			(667,474	)		0		0		0			(8,764	)		0			(693,888	)
Recoveries		0			0			0			0		2,276		1,210			8,294			0			11,780
Provision (credit)		122,927			(5,024	)		1,159,995			10,861		46,289		(4,671	)		(19,036	)		(448,841	)		862,500
ALL ending balance	$	975,669		$	63,631		$	4,644,281		$	87,589	$	1,814,457	$	178,553		$	36,192		$	90,276		$	7,890,648

ALL evaluated for impairment
Individually	$	0		$	0		$	0		$	0	$	115,614	$	0		$	0		$	0		$	115,614
Collectively		975,669			63,631			4,644,281			87,589		1,698,843		178,553			36,192			90,276			7,775,034
Total	$	975,669		$	63,631		$	4,644,281		$	87,589	$	1,814,457	$	178,553		$	36,192		$	90,276		$	7,890,648

Loans evaluated for impairment
Individually	$	222,236		$	0		$	3,713,169		$	0	$	3,910,848	$	85,691		$	0					$	7,931,944
Collectively		112,160,751			9,090,170			304,598,565			48,660,440		177,699,446		32,981,298			3,170,568						688,361,238
Total	$	112,382,987		$	9,090,170		$	308,311,734		$	48,660,440	$	181,610,294	$	33,066,989		$	3,170,568					$	696,293,182

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

											Non-		90 Days or				90 Days		Total
			90 Days		Total						Accrual		More and
September 30, 2022	30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing
March 31, 2023															30-89 Days		or More		Past Due		Current		Total Loans

Commercial & industrial	$	1,335,118	$	29,375	$	1,364,493	$	119,859,569	$	121,224,062	$	3,422,395	$	0	$	0	$	3,229,266	$	3,229,266	$	115,669,015	$	118,898,281
Purchased loans		0		0		0		8,078,281		8,078,281		0		0
Purchased																0		0		0		6,697,965		6,697,965
Commercial real estate		653,091		1,834,037		2,487,128		321,840,032		324,327,160		3,814,958		222,998		1,326,520		565,347		1,891,867		360,244,549		362,136,416
Municipal		0		0		0		40,164,698		40,164,698		0		0		0		0		0		36,473,847		36,473,847
Residential real estate
- 1st lien		452,927		655,316		1,108,243		191,458,336		192,566,579		1,231,602		369,172
- Jr lien		291,722		152,160		443,882		33,329,589		33,773,471		133,776		152,160
Residential real estate - 1st lien																1,291,368		409,273		1,700,641		197,333,087		199,033,728
Residential real estate - Jr lien																160,470		64,883		225,353		31,676,142		31,901,495
Consumer		10,364		0		10,364		4,049,386		4,059,750		0		0		17,689		0		17,689		3,427,291		3,444,980
Totals	$	2,743,222	$	2,670,888	$	5,414,110	$	718,779,891	$	724,194,001	$	8,602,731	$	744,330	$	2,796,047	$	4,268,769	$	7,064,816	$	751,521,896	$	758,586,712

											Non-		90 Days or				90 Days		Total
			90 Days		Total						Accrual		More and
December 31, 2021	30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing
December 31, 2022															30-89 Days		or More		Past Due		Current		Total Loans

Commercial & industrial	$	833,875	$	0	$	833,875	$	110,291,747	$	111,125,622	$	98,661	$	0	$	2,377,668	$	879,802	$	3,257,470	$	109,694,403	$	112,951,873
Purchased loans		0		0		0		9,807,848		9,807,848		0		0
Purchased																0		0		0		7,530,458		7,530,458
Commercial real estate		49,450		2,400,514		2,449,964		298,508,967		300,958,931		4,517,839		0		1,395,444		353,842		1,749,286		355,143,700		356,892,986
Municipal		0		0		0		47,955,231		47,955,231		0		0		0		0		0		34,633,055		34,633,055
Residential real estate
- 1st lien		1,190,300		608,775		1,799,075		179,517,270		181,316,345		1,180,563		506,827
- Jr lien		51,837		86,476		138,313		34,221,551		34,359,864		143,566		86,476
Residential real estate - 1st lien																1,517,653		641,141		2,158,794		196,584,581		198,743,375
Residential real estate - Jr lien																321,579		25,007		346,586		33,410,286		33,756,872
Consumer		9,741		0		9,741		4,454,951		4,464,692		0		0		18,745		0		18,745		4,021,244		4,039,989
Totals	$	2,135,203	$	3,095,765	$	5,230,968	$	684,757,565	$	689,988,533	$	5,940,629	$	593,303	$	5,631,089	$	1,899,792	$	7,530,881	$	741,017,727	$	748,548,608

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

Table of Contents

The following tables present the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented:

							90 Days or
	Nonaccrual		Nonaccrual		Total		More and
March 31, 2023	with an ACL		with No ACL		Nonaccrual		Accruing

Commercial & industrial	$	0	$	3,875,801	$	3,875,801	$	0
Purchased		0		0		0		0
Commercial real estate		692,600		2,369,614		3,062,214		0
Municipal		0		0		0		0
Residential real estate - 1st lien		167,159		1,246,617		1,413,776		175,981
Residential real estate - Jr lien		0		128,563		128,563		0
Consumer		0		0		0		0
Totals	$	859,759	$	7,620,595	$	8,480,354	$	175,981

							90 Days or
	Nonaccrual		Nonaccrual		Total		More and
December 31, 2022	with an ALL		with No ALL		Nonaccrual		Accruing

Commercial & industrial	$	452,963	$	2,989,161	$	3,442,124	$	0
Purchased		0		0		0		0
Commercial real estate		0		3,180,478		3,180,478		324,927
Municipal		0		0		0		0
Residential real estate - 1st lien		278,026		858,304		1,136,330		248,157
Residential real estate - Jr lien		0		131,088		131,088		0
Consumer		0		0		0		0
Totals	$	730,989	$	7,159,031	$	7,890,020	$	573,084

As of ~~the balance sheet dates presented,~~March 31, 2023, there were no loans in process of foreclosure, ~~consisted~~compared to 5 loans with an aggregate balance of ~~the following residential mortgage loans:~~$195,082 at December 31, 2022.

Number of loans

Balance

September 30, 2022

2

$ 151,645

December 31, 2021

5

195,082

Allowance for ~~loan~~credit losses

The ~~ALL~~ACL is established through a provision for ~~loan~~credit losses charged to earnings. ~~Loan~~Credit 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" 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.

~~Table of Contents~~

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

General component

The general component of the ~~ALL~~ACL is based on ~~historical loss experience~~methodologies, inputs, and ~~various qualitative factors and is stratified by~~assumptions utilized to estimate lifetime credit losses when applied to 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.

Table of Contents

~~Loss ratios~~

The Company utilizes a discounted cash flow (DCF) approach to calculate the expected loss for each portfolio segment. Within the DCF model, a probability of default (PD) and loss given default (LGD) assumption is applied to calculate the expected loss for each segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of assets not expected to be collected due to default. The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are ~~calculated by~~not statistically meaningful loss events for a loan segment ~~using appropriate look back periods. Management uses an average of historical losses based on a time frame appropriate to capture relevant~~or it does not have default and loss data ~~for each loan segment~~that covers a full economic cycle.

As of March 31, 2023, the primary macroeconomic drivers used within the DCF model included forecasts of Civilian unemployment and changes in National gross domestic product (GDP). Management monitors and assesses its macroeconomic drivers at least annually (generally in the ~~current economic climate. During periods~~fourth quarter) to determine if or that they continue to be the most predictive indicator of ~~economic stability, a relatively longer period (e.g., five years)~~losses within the Company's loan portfolio, and these macroeconomic drivers may ~~be appropriate. During periods of significant expansion or contraction, the Company~~change from time to time.

To determine its reasonable and supportable forecast, management may ~~appropriately shorten the historical time period. Due primarily~~leverage macroeconomic forecasts obtained from various reputable sources, which may include, but is not limited to, the ~~effects~~FOMC forecast and other publicly available forecasts from well recognized, leading economists or firms. The Company's reasonable and supportable forecast period generally ranges from one to three years, depending on the facts and circumstances of ~~COVID-19, during 2020~~ the current state of the economy, portfolio segment, and management's judgment of what can be reasonably supported. The model reversion period generally ranges from one to six years, and it also depends on the current state of the economy and management's judgments of such. Management monitors and assesses the forecast and reversion period at least annually. The Company ~~shortened its look back~~used a one-year forecast and reversion period to ~~one year, however,~~calculate the ACL on loans as of March 31, ~~2022,~~2023.

When the ~~look back period~~DCF method is used to determine the ACL, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

Expected credit losses are estimated over the contractual term of the loans. For term loans, the contractual life is calculated based on the maturity date. For commercial revolving loans with no stated maturity date, the contractual life is calculated based on the internal review date. For all other revolving loans, the contractual life is based on either the estimated maturity date or a default date. The contractual term excludes expected extensions, renewals, and modifications.

In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments to arrive at expected cash flows. The Company models term loans using an annualized prepayment. When the Company has a specific expectation of differing payment behavior for a given loan, the loan may be evaluated individually. For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the cash flow.

Management has elected loss rate methodologies appropriate for each loan segment. The DCF method was ~~changed~~chosen for the commercial and industrial, CRE, residential real estate 1^st lien, residential real estate Jr Lien and consumer loans. The DCF model, being periodic in nature, allows for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner. For the purchased loans segment, a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool. Due to ~~two years.~~the lack of any historical loss data, a manual entry methodology was chosen for the municipal loans given the immaterial nature of the pool when considering prior loss history as well as the inability to reasonably forecast defaults or loss given default for the pool.

Qualitative factors are also applied to 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.

Table of Contents

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. Qualitative factors are not utilized in the manual entry method for municipal loans.

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.

~~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~~Loans that do not share risk characteristics are ~~impaired. Impaired loans~~evaluated on an individual basis. Loans evaluated individually are ~~loans to a borrower that~~not also included in the ~~aggregate are~~collective evaluation. In general, loans individually evaluated for estimated credit losses include those (i) greater than $100,000 and that are ~~in non-accrual status~~on nonaccrual or (ii) have other unique characteristics differing from the portfolio segment. Specific reserves are ~~TDRs regardless of amount. A specific allowance is~~ established when appropriate 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~~such 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~~of the loan. However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the ~~loan’s effective interest rate,~~reporting date and repayment is expected to be provided substantially through the ~~loan’s obtainable market price,~~operation or sale of the collateral expected credit losses are based on the fair value of the collateral ifat the ~~loan is collateral dependent.~~

~~Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company,~~reporting date, adjusted 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. 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 are not considered TDRs.selling costs as appropriate.

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.~~evaluation.

~~Unallocated component~~Allowance for loan losses (prior to adoption of CECL)

~~An unallocated component~~Please refer to Note 4 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on 10-K for the description on disclosure of the ALL ~~is maintained~~in periods prior to ~~cover uncertainties that could affect management’s estimate~~adoption 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.~~ CECL.

Table of Contents

The following table presents the amortized cost basis of ~~or for the three months ended September 30, 2022~~collateral-dependent loans as of March 31, 2023 by collateral type:

	Business		Commercial		Residential
	Assets (1)		Real Estate		Real Estate		Total
Commercial	$	1,777,018					$	1,777,018
Commercial real estate				776,329				776,329
Residential real estate - 1st lien						326,922		326,922
Total collateral-dependent loans	$	1,777,018	$	776,329	$	326,922	$	2,880,268

~~As of or for the nine months ended September 30, 2022~~(1) Including, but not limited to, inventory, equipment and accounts receivable.

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Unallocated

Total

ALL beginning balance

$ 870,392

$ 68,655

$ 4,151,760

$ 76,728

$ 1,765,892

$ 182,014

$ 55,698

$ 539,117

$ 7,710,256

Charge-offs

(47,500 )

0

(667,474 )

0

0

0

(35,706 )

0

(750,680 )
Recoveries

12,862

0

0

0

111,163

3,728

19,757

0

147,510

Provision (credit)

255,773

(12,107 )

1,419,813

(4,432 )

(63,658 )

(2,998 )

13,171

(280,562 )

1,325,000

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

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

Impaired loans, by portfolio segment, prior to adoption of ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures), were as follows:

	As of December 31, 2022
			Unpaid
	Recorded		Principal		Related
	Investment(1)		Balance		Allowance

Related allowance recorded
Commercial & industrial	$	452,963	$	462,745	$	2,322
Residential real estate – 1st lien		1,041,730		1,073,350		106,280
Total with related allowance		1,494,693		1,536,095		108,602

No related allowance recorded
Commercial & industrial		2,989,161		3,078,769
Commercial real estate		3,176,962		3,671,196
Residential real estate - 1st lien		2,785,669		3,805,682
Residential real estate - Jr lien		77,419		126,250
Total with no related allowance		9,029,211		10,681,897

Total impaired loans	$	10,523,904	$	12,217,992	$	108,602

As(1) Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of ~~or for the year ended December 31, 2021~~$11,517.

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

	As of March 31, 2022
			Unpaid
	Recorded		Principal		Related
	Investment(1)		Balance		Allowance

Related allowance recorded
Residential real estate - 1st lien	$	1,113,112	$	1,129,082	$	115,614
Total with related allowance		1,113,112		1,129,082		115,614

No related allowance recorded
Commercial & industrial		222,236		261,011
Commercial real estate		3,713,309		4,861,145
Residential real estate - 1st lien		2,836,069		3,845,577
Residential real estate - Jr lien		85,697		131,069
Total with no related allowance		6,857,311		9,098,802

Total impaired loans	$	7,970,423	$	10,227,884	$	115,614

(1 ) Recorded investment in impaired loans in the table above includes accrued interest receivable of $38,479.

Table of Contents

~~As of or for the three months ended September 30, 2021~~

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

~~Impaired loans, by portfolio segment, were as follows:~~

As of September 30, 2022

Unpaid

Recorded

Principal

Related

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

1,172,194

1,192,445

96,784

Jr lien

2,532

2,529

4

Total with related allowance

2,378,533

2,413,046

109,914

No related allowance recorded

Commercial & industrial

2,454,109

2,525,175

Commercial real estate

3,563,089

4,751,499

Residential real estate

1st lien

2,511,284

3,515,246

Jr lien

77,213

124,795

Total with no related allowance

8,605,695

10,916,715

Total impaired loans

$ 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.~~

~~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.~~

~~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.~~

	As of September 30, 2021								As of March 31, 2022
	Three Months Ended				Nine Months Ended				Three Months Ended
	Average		Interest		Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income		Recorded		Income
	Investment		Recognized		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
Residential real estate - 1st lien									$	907,849	$	14,387
Residential real estate - Jr lien										0		51
Total with related allowance		789,760		15,786		901,323		48,532		907,849		14,438

No related allowance recorded
Commercial & industrial		261,153		0		339,386		204		157,799		204
Commercial real estate		2,795,979		74,162		2,295,473		78,462		4,133,691		1,670
Residential real estate
1st lien		3,253,698		43,926		3,402,302		155,005
Jr lien		133,148		0		133,861		0
Residential real estate - 1st lien										2,943,358		42,714
Residential real estate - Jr lien										87,133		37
Total with no related allowance		6,443,978		118,088		6,171,022		233,671		7,321,981		44,625

Total impaired loans	$	7,233,738	$	133,874	$	7,072,345	$	282,203	$	8,229,830	$	59,063

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 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.

~~Table of Contents~~

Credit Quality Grouping

In developing the ~~ALL,~~ACL, 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~~Pass – 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~~Special Mention - 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~~Substandard/Doubtful – are loans that have distinct shortcomings that require a greater degree of management attention. Examples of these shortcomings include a 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.

Table of Contents

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 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 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~~Chief Lending Officer of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio and current period gross charge-offs, by loan segment and origination year, as of March 31, 2023 were as follows:

As of March 31, 2023													Revolving		Revolving
(In thousands)													Loans		Loans
													Amortized		Converted
	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total

Commercial:
Pass	$	5,305	$	23,235	$	16,023	$	3,648	$	5,225	$	6,797	$	46,878	$	0	$	107,111
Special mention		0		134		959		248		0		68		5,627		0		7,036
Substandard/Doubtful		0		398		0		277		307		1,549		2,220		0		4,751
Total commercial	$	5,305	$	23,767	$	16,982	$	4,173	$	5,532	$	8,414	$	54,725	$	0	$	118,898

Current period gross charge-offs	$	0	$	12	$	0	$	0	$	0	$	0	$	0	$	0	$	12

Purchased:
Pass	$	169	$	103	$	1,990	$	1,707	$	2,729	$	0	$	0	$	0	$	6,698
Total purchased	$	169	$	103	$	1,990	$	1,707	$	2,729	$	0	$	0	$	0	$	6,698

Commercial Real Estate:
Pass	$	10,897	$	94,652	$	40,651	$	51,252	$	36,336	$	96,120	$	22,309	$	0	$	352,217
Special mention		0		383		1,512		0		0		1,616		0		0		3,511
Substandard/Doubtful		0		0		0		1,675		1,422		2,524		788		0		6,409
Total commercial real estate	$	10,897	$	95,035	$	42,163	$	52,927	$	37,758	$	100,260	$	23,097	$	0	$	362,137

Municipal:
Pass	$	3,514	$	10,020	$	3,598	$	5,332	$	682	$	11,766	$	1,562	$	0	$	36,474
Total municipal	$	3,514	$	10,020	$	3,598	$	5,332	$	682	$	11,766	$	1,562	$	0	$	36,474

Residential real estate - 1st lien:
Pass	$	6,828	$	40,869	$	44,113	$	34,995	$	11,024	$	57,324	$	1,445	$	0	$	196,598
Substandard/Doubtful		0		0		0		1,867		42		527		0		0		2,436
Total residential real estate - 1st lien	$	6,828	$	40,869	$	44,113	$	36,862	$	11,066	$	57,851	$	1,445	$	0	$	199,034

Residential real estate - Jr lien:
Pass	$	77	$	2,024	$	420	$	638	$	689	$	1,356	$	24,869	$	1,794	$	31,867
Substandard/Doubtful		0		0		0		0		0		34		0		0		34
Total residential real estate - Jr lien	$	77	$	2,024	$	420	$	638	$	689	$	1,390	$	24,869	$	1,794	$	31,901

Consumer
Pass	$	697	$	1,362	$	656	$	395	$	208	$	127	$	0	$	0	$	3,445
Total consumer	$	697	$	1,362	$	656	$	395	$	208	$	127	$	0	$	0	$	3,445

Current period gross charge-offs	$	0	$	8	$	0	$	0	$	0	$	17	$	0	$	0	$	25

Total Loans	$	27,487	$	173,180	$	109,922	$	102,034	$	58,664	$	179,808	$	105,698	$	1,794	$	758,587

There were no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments. There were no Special mention loans within the Residential real estate 1st lien or Jr lien loan segments. There were no Special mention or Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

2321

Table of Contents

~~The~~

Before the adoption of ASC 326 (CECL), the risk ratings within the loan portfolio, by segment, as of ~~the balance sheet dates~~December 31, 2022 were as follows:

~~As of September 30, 2022~~

Residential

Residential

Commercial

Purchased

Commercial

Real Estate

Real Estate

& Industrial

Loans

Real Estate

Municipal

1st Lien

Jr Lien

Consumer

Total

Group A

$ 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

6,156,202

0

2,896,559

0

0

0

0

9,052,761

Group C

2,953,014

0

8,107,322

0

3,528,701

239,163

0

14,828,200

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 December 31, 2021~~

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

Group A	$	107,799,925	$	9,807,848	$	285,732,365	$	47,955,231	$	177,456,149	$	34,166,076	$	4,464,692	$	667,382,286	$	104,697,047	$	7,530,458	$	347,732,935	$	34,633,055	$	195,269,893	$	33,538,767	$	4,039,989	$	727,442,144
Group B		693,084		0		6,550,335		0		0		0		0		7,243,419		6,296,411		0		2,754,649		0		0		0		0		9,051,060
Group C		2,632,613		0		8,676,231		0		3,860,196		193,788		0		15,362,828		1,958,415		0		6,405,402		0		3,473,482		218,105		0		12,055,404
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	$	112,951,873	$	7,530,458	$	356,892,986	$	34,633,055	$	198,743,375	$	33,756,872	$	4,039,989	$	748,548,608

Modifications of Loans ~~and TDRs~~

A loan is ~~classified as a TDR~~considered modified 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.~~modified. 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~~modified loans 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~~potential loan modification 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. Under this guidance, qualifying concessions and modifications are not considered TDRs. In total, throughout the pandemic, the Company granted short term loan concessions and/or modifications within the terms of this guidance to 595 borrowers. Of those loans, 322 remained on the books with an aggregate principal balance of $89.6 million as of September 30, 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.

~~Table of Contents~~

There were no new ~~TDRs~~loan modifications for the first three months ~~ended September 30, 2022. New~~of 2023.

Prior to adoption of ASU 2022-02, new TDRs, by portfolio segment, during the periods presented below were as follows:

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, 2022

Pre-

Post-

Modification

Outstanding

Number of

Recorded

Contracts

Investment

Residential real estate – 1st lien

562,592

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

Table of Contents

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

Three months ended March 31, 2022

Pre-

Post-

Modification

Outstanding

Number of

Recorded

Contracts

Investment

Residential real estate – 1st lien

292,592

There were no TDRs for which there was a payment default during the twelve month period ended December 31, 2022. 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,~~March 31, 2022

Number of

Recorded

Contracts

Investment

Commercial real estate

1

$ 818,570

	Number of		Recorded
	Contracts		Investment

Commercial real estate		2	$	2,422,965

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

Number of

Recorded

Contracts

Investment

Commercial & industrial

1

$ 38,001

Commercial real estate

2

3,081,810

3

$ 3,119,811

~~Table of Contents~~

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

Number of

Recorded

Contracts

Investment

Commercial & industrial

1

$ 38,751

Prior to adoption of ASU 2022-02, TDRs ~~are~~were treated as other impaired loans and ~~carry~~carried individual specific reserves with respect to the calculation of the ALL. These loans ~~are~~were categorized as non-performing, may behave been past due, and ~~are~~were generally adversely risk rated. The TDRs that ~~have~~had defaulted under their restructured terms ~~are~~were generally in collection status and their ALL reserve iswas typically calculated using the fair value of collateral method.

~~The~~Prior to adoption of ASU 2022-02, the specific allowances within the ALL related to TDRs as of ~~the balance sheet dates are presented in the table below.~~December 31, 2022 totaled $106,280.

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.~~modified.

OBS Credit Exposures: In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded.

Allowance for Credit Losses on OBS Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on OBS credit exposures is adjusted through credit loss expense. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company's own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on OBS credit exposures as of the reporting date. The ACL on OBS credit exposures is presented within accrued interest and other liabilities on the consolidated balance sheets.

Note 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, ~~2021,~~2022, 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.

Table of Contents

Note 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.

~~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.~~rates, net of any related credit allowance. 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.

~~Impaired~~Individually analyzed loans: ~~Impaired~~Individually analyzed 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.~~ACL. Accordingly, certain ~~impaired~~individually analyzed 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.

Table of Contents

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 ~~2022~~of the periods presented for 2023 or ~~2021.~~2022.

September 30,

December 31,

Assets: (market approach)

2022

2021

Level 1

U.S. Government securities

$ 38,003,795

$ 32,041,041

Level 2

U.S. GSE debt securities

$ 10,357,310

$ 11,828,498

Taxable Municipal securities

237,251

298,733

Tax-Exempt Municipal securities

10,336,814

831,379

Agency MBS

113,885,042

127,132,521

ABS and OAS

2,683,288

2,214,024

CMO

8,330,913

1,420,458

Other investments

3,392,907

6,575,805

Level 2 Total

$ 149,223,525

$ 150,301,418

Grand Total

$ 187,227,320

$ 182,342,459

~~Table of Contents~~

	March 31,		December 31,
Assets: (market approach)	2023		2022

Level 1
U.S. Government securities	$	38,769,069	$	38,231,589

Level 2
U.S. GSE debt securities	$	10,699,914	$	10,375,291
Taxable Municipal securities		242,952		234,858
Tax-exempt Municipal securities		11,621,112		11,323,567
Agency MBS		114,476,436		115,231,599
ABS and OAS		2,521,908		2,693,606
CMO		11,950,570		11,935,925
Other investments		2,397,369		2,891,674
Level 2 Total	$	153,910,261	$	154,686,520

Grand Total	$	192,679,330	$	192,918,109

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~~Individually analyzed loans measured at fair value only include ~~impaired~~those loans with a partial write-down or with a related specific ~~ALL~~ACL and are presented net of the specific allowances as disclosed in Note 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 ~~2022~~of the periods presented for 2023 or ~~2021.~~2022.

	September 30,		December 31,		March 31,		December 31,
Level 2	2022		2021		2023		2022
Assets: (market approach)
Impaired loans, net of related allowance	$	1,706,713	$	177,523
Loans held-for-sale		130,000		339,000
Individually analyzed loans, net of related allowance					$	0	$	94,458
MSRs (1)		880,636		897,720		839,223		862,593

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

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.

Table of Contents

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 financial instruments as of the balance sheet dates were as follows:

September 30, 2022			Fair		Fair		Fair		Fair
March 31, 2023													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	$	73,902	$	73,902	$	0	$	0	$	73,902	$	37,645	$	37,645	$	0	$	0	$	37,645
Debt securities AFS		187,227		38,004		149,224		0		187,228		192,679		38,769		153,910		0		192,679
Restricted equity securities		1,391		0		1,391		0		1,391		1,437		0		1,437		0		1,437
Loans and loans held-for-sale, net of ALL
Loans and loans held-for-sale, net of ACL
Commercial & industrial		120,042		0		30		118,839		118,869		117,856		0		0		115,447		115,447
Purchased loans		8,019		0		0		7,793		7,793
Purchased												6,678		0		0		6,279		6,279
Commercial real estate		319,267		0		1,611		309,336		310,947		356,913		0		0		338,459		338,459
Municipal		40,078		0		0		40,847		40,847		36,383		0		0		34,231		34,231
Residential real estate - 1st lien		191,369		0		66		177,558		177,624		197,211		0		0		180,754		180,754
Residential real estate - Jr lien		33,578		0		0		33,348		33,348		31,384		0		0		31,050		31,050
Consumer		4,006		0		0		4,005		4,005		3,415		0		0		3,408		3,408
MSRs (1)		881		0		1,295		0		1,295		839		0		1,307		0		1,307
Accrued interest receivable		2,710		0		2,710		0		2,710		3,111		0		3,111		0		3,111

Financial liabilities:
Deposits
Other deposits		902,792		0		898,813		0		898,813		888,296		0		885,157		0		885,157
Brokered deposits		249		0		224		0		224		249		0		228		0		228
Long-term borrowings		1,300		0		1,031		0		1,031		1,300		0		1,044		0		1,044
Repurchase agreements		32,255		0		32,255		0		32,255		38,058		0		38,058		0		38,058
Operating lease obligations		710		0		710		0		710		605		0		605		0		605
Finance lease obligations		3,699		0		3,699		0		3,699		3,590		0		3,590		0		3,590
Subordinated debentures		12,887		0		12,757		0		12,757		12,887		0		12,711		0		12,711
Accrued interest payable		33		0		33		0		33		72		0		72		0		72

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

~~(1)~~

Table of Contents

December 31, 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	$	71,140	$	71,140	$	0	$	0	$	71,140
Debt securities AFS		192,918		38,232		154,686		0		192,918
Restricted equity securities		1,412		0		1,412		0		1,412
Loans and loans held-for-sale, net of ACL
Commercial & industrial		111,792		0		0		109,534		109,534
Purchased		7,476		0		0		7,119		7,119
Commercial real estate		351,738		0		29		340,254		340,283
Municipal		34,566		0		0		34,558		34,558
Residential real estate - 1st lien		197,281		0		65		180,879		180,944
Residential real estate - Jr lien		33,510		0		0		33,218		33,218
Consumer		3,970		0		0		3,949		3,949
MSRs (1)		863		0		1,287		0		1,287
Accrued interest receivable		3,214		0		3,214		0		3,214

Financial liabilities:
Deposits
Other deposits		922,723		0		918,882		0		918,882
Brokered deposits		249		0		225		0		225
Long-term borrowings		1,300		0		1,025		0		1,025
Repurchase agreements		33,078		0		33,078		0		33,078
Operating lease obligations		658		0		658		0		658
Finance lease obligations		3,645		0		3,645		0		3,645
Subordinated debentures		12,887		0		12,740		0		12,740
Accrued interest payable		74		0		74		0		74

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

~~Table of Contents~~

December 31, 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

$ 110,359

$ 110,359

$ 0

$ 0

$ 110,359

Debt securities AFS

182,342

32,041

150,301

0

182,342

Restricted equity securities

1,434

0

1,434

0

1,434

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

Commercial & industrial

109,574

0

0

110,284

110,284

Purchased loans

9,808

0

0

9,862

9,862

Commercial real estate

296,528

0

29

297,339

297,368

Municipal

47,841

0

0

49,419

49,419

Residential real estate - 1st lien

180,271

0

149

180,302

180,451

Residential real estate - Jr lien

34,151

0

0

34,189

34,189

Consumer

4,406

0

0

4,436

4,436

MSRs (1)

898

0

995

0

995

Accrued interest receivable

2,401

0

2,401

0

2,401

Financial liabilities:

Deposits

Other deposits

879,151

0

879,545

0

879,545

Brokered deposits

249

0

246

0

246

Long-term borrowings

1,300

0

1,179

0

1,179

Repurchase agreements

32,610

0

32,610

0

32,610

Operating lease obligations

864

0

864

0

864

Finance lease obligations

3,858

0

3,858

0

3,858

Subordinated debentures

12,887

0

12,868

0

12,868

Accrued interest payable

59

0

59

0

59

~~(1)~~

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

Note 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			Three Months Ended			Year Ended
	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022

Balance at beginning of year	$	897,720		$	922,146		$	862,593		$	897,720
MSRs capitalized		99,014			147,328			15,814			120,629
MSRs amortized		(116,098	)		(225,404	)		(39,184	)		(155,756	)
Change in valuation allowance		0			53,650			0			0
Balance at end of period	$	880,636		$	897,720		$	839,223		$	862,593

Note 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 consolidated financial condition or results of operations.

Note 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 7, 2022,~~March 15, 2023, the Company’s Board declared a cash dividend of $0.23 per common share, payable ~~November~~May 1, ~~2022~~2023 to shareholders of record as of ~~October~~April 15, ~~2022.~~2023. This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Period Ended ~~September 30, 2022~~March 31, 2023

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly-owned subsidiary, Community National Bank, as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and its consolidated results of operations for the ~~three- and nine-month~~three--month interim ~~periods~~period 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.

The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its ~~2021~~2022 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 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," “projects”, "plans," “assumes”, "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 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 expectations as to the future interest rate environment and the Company's related liquidity level; credit risk expectations relating to the Company's loan ~~portfolio;~~portfolio and off-balance sheet commitments; and management's general outlook for the future performance of the Company orand the local or national economy. Although forward-looking statements are based on 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 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 products and services;
	·	the impact of inflation and slowing economic growth on the Company’s customers and on its financial results and performance;
	·	changes in the United States monetary and fiscal policies, including the interest rate policies of the FRB and its regulation of the money supply;
	·	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 U.S. GAAP pursuant to the CECL model;~~standards;
	·	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 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;~~sale of investment securities;
	·	~~changes~~increases in the level of nonperforming assets and charge-offs;
	·	changes in federal or 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 business;

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	·	regulatory responses to recent high profile bank failures increase our costs of operation, including through regulatory compliance changes and higher FDIC deposit insurance assessments to replenish the Bank Insurance Fund (BIF);
	·	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 technology and delivery systems;
	·	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 consumer and business spending, borrowing and savings habits;
	·	the 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;~~
	·	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~~increased usage by customers of online, mobile and other remote banking channels;
	·	the ongoing challenges to find qualified workers to maintain a stable workforce;
	·	losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees; and
	·	adverse changes in the credit rating of U.S. 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, 2022~~March 31, 2023 were ~~$1,026,884,950~~$1.03 billion compared to ~~$1,019,105,799~~$1.06 billion at December 31, ~~2021, an increase~~2022, a decrease of ~~0.8%~~2.4%. Significant changes in the asset base were due to a decrease of $33.5 million, or 47.1%, in cash and cash equivalents, which was partially offset by an increase in net loans of ~~$34.0~~$9.5 million, or ~~5.0%, and an increase in the available-for-sale investment portfolio of $4.9 million, or 2.7%, which was partially offset by a decrease of $36.5 million, or 33.0%, in cash and cash equivalents.~~1.3%. This demonstrates the Company’s efforts to deploy cash into higher earning assets. The increase in the loan portfolio was primarily attributable to an increase of ~~$20.0~~$5.9 million in commercial & industrial loans, ~~and $23.3~~$5.23 million in CRE loans and $1.8 million in municipal loans, which was partially offset by ~~an $11.1~~a decrease of $1.9 million ~~decrease~~ in ~~PPP~~residential junior lien loans and ~~$7.8~~$0.8 million in ~~municipal loan balances.~~ purchased BHG loans.

Total deposits on March 31, 2023 were $888.5 million compared to $923.0 million on December 31, 2022, a decrease of $34.4 million, or 3.7% and an increase of $11.2 million, or 1.28%, compared to March 31, 2022. Year to date, demand and interest-bearing transaction accounts decreased in total by $29.9 million or 5.9%, followed by a decrease of $7.6 million, or 5.4% in money market funds. This was offset minimally by an increase of $3.6 million, or 3.6% in time deposits. An increase of $5.0 million, or 15.1%, in repurchase agreements is also noted since year end and $9.3 million, or 32.4%, since March 31, 2022. A decline in deposits in the first quarter is a normal occurrence for the Company primarily due to normal seasonal outflows. Pricing pressures as depositors look for alternative products with higher interest rates in the current rate environment has resulted in deposit outflows as well.

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Total ~~deposits on September 30, 2022 were $903,041,149 compared to $879,399,953 on December 31, 2021, an increase of $23.6~~interest income increased $2.5 million, or ~~2.7%. Savings accounts increased $11.5 million, or 6.8%~~30.5%, ~~followed by money market funds with an increase of $7.9 million, or 6.1%.~~

~~Consolidated net income for the third quarter of 2022 decreased $88,696, or 2.4% to $3.6 million compared to $3.7 million in the third quarter of 2021. Income~~ for the first ~~nine~~three months of 2022 decreased $734,109 to $9.0 million compared to $9.7 million in the same period of 2021. Year over year, a $3.2 million decrease in 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 decrease of $74,979 in interest expense 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 appropriate income sections of this MD&A.

~~Total interest income increased $221,392 or 2.4%, for the third quarter of 2022,~~2023 compared to the same period in 2022. The increase in the loan portfolio, coupled with the increases in the fed funds rate throughout 2022 and in the first quarter ~~in 2021, and increased $166,388, or 0.6%,~~of 2023 help to support the 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 ~~investment~~interest income. Negatively impacting interest income for the three- and nine-month comparison periods was the amortization of the SBA PPP fees in the amount of $36,182 for the third quarter of 2022, compared to $1.6 million for the same quarter in 2021, and $469,929 for the first nine months of 2022, compared to $3.7 million for the same period in 2021.

Total interest expense increased ~~$329,895,~~$1.6 million, or ~~45.3%, for the third quarter of 2022, compared to the same quarter in 2021, and increased $153,139, or 6.5%~~224.1%, for the first ~~nine~~three months of ~~2022~~2023 compared to the same period in ~~2021.~~2022. The recent increases in the fed funds rate have put more pressure on competitive deposit pricing, resulting in an increase in the Company’s money market and time deposit 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 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~~credit losses for the ~~third~~ quarter ended March 31, 2023 was determined under ASU No. 2016-13, Measurement of ~~2022 was $125,000 compared to $89,167 for~~Credit Losses on Financial Instruments, commonly referenced as the ~~same quarter of 2021, resulting in an increase of $35,833,~~Current Expected Credit Losses, or ~~40.2%, between periods.~~ CECL, which the Company adopted effective January 1, 2023.

The provision for ~~loan~~credit losses for the first ~~nine~~three months of ~~2022~~2023 was ~~$1.3 million~~$286,526 compared to ~~$624,165~~$862,500 for the same period in ~~2021, resulting in an increase~~2022, a decrease of ~~$700,835,~~$575,974, or ~~112.3%, between periods.~~66.8%. This ~~increase~~decrease to the provision was driven primarily by a write-down on a non-performing CRE loan totaling $667,474 during March ~~2022,~~2022. Please refer to Note 5 of the unaudited consolidated financial statements as well as ~~increases to~~ the ~~reserve due to the increase in the commercial loan portfolios, both secured and unsecured. Please refer to the ALL~~ACL and provisions discussion in the Credit Risk section of this MD&A.

Consolidated net income for ~~more information.~~the first three months of 2023 increased $933,219 to $3.3 million compared to $2.4 million in the same period of 2022. Year over year, a $2.5 million increase in interest income was offset in part by an increase of $1.6 million in interest expense, but a decrease of $575,974 in the provision for credit losses between periods resulted in an increase of $1.6 million in net interest income after provision for credit losses. These changes, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.

Equity capital ~~decreased~~increased to ~~$69.5~~$79.7 million, with a book value per share of ~~$12.56~~$14.33 as of ~~September 30, 2022,~~March 31, 2023, compared to ~~$84.8~~$75.2 million and a book value of ~~$15.48~~$13.55 as of December 31, ~~2021.~~2022. This ~~decrease~~increase in equity capital is ~~directly~~partially related to the ~~increase~~decrease of unrealized losses in the investment portfolio ~~reflecting rising bond rates, which resulted in an increase~~ of ~~$21.4~~$2.7 million, net of tax, in ~~the~~ accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet. This position is considered by management as temporary and does not impact the Company’s regulatory capital ratios.

On ~~September 7, 2022,~~March 15, 2023, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on ~~November~~May 1, ~~2022~~2023 to shareholders of record on ~~October~~April 15, ~~2022.~~2023.

As of ~~September 30, 2022,~~March 31, 2023, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of the pandemic, deteriorating economic conditions, or 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;~~ACL;
·	OREO;
·	~~OTTI of~~credit losses on debt securities;
·	valuation of residential MSRs; and
·	the carrying value of goodwill.

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These policies are described in the Company’s ~~2021~~2022 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~~With the exception of the ACL policy, there were no material changes during the first ~~nine~~three months of ~~2022~~2023 in the Company’s critical accounting policies.

ACL - Management believes that the calculation of the ACL is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. In estimating the ACL, management has adopted a methodology consistent with ASU No. 2016-13 that 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 at the measurement date. Further consideration is given to qualitative factors, including changes in current economic indicators and their probable impact on borrowers and collateral, trends in delinquent and non-performing loans, trends in criticized and classified assets, levels of exceptions, the impact of competition in the market, 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. Management’s estimates used in calculating the ACL may increase or decrease based on changes in these factors, which in turn will affect the amount of the Company’s provision for credit losses charged against current period income. This evaluation is inherently subjective and actual results could differ significantly from these estimates under different assumptions, judgments or conditions.

A modified version of these requirements applies to debt securities classified as available for sale, which eliminates OTTI impairment analysis and requires that if a decline in the fair value of debt securities AFS are deemed by management to be the result of credit losses rather than other factors, the credit losses on those securities will be recorded through an allowance for credit losses rather than a write-down of the security. The Company’s securities portfolio is evaluated for impairment on a quarterly basis.

RESULTS OF OPERATIONS

~~Net~~The Company’s net income for the ~~third quarter~~first three months of ~~2022~~2023 was ~~$3,610,506~~$3.3 million or ~~$0.66~~$0.61 per common share, compared to ~~$3,699,202~~$2.4 million or ~~$0.69 per common share for the same quarter of 2021. Net income for the first nine months of 2022 was $9,037,200 or $1.67 per common share, compared to $9,771,309 or $1.82~~$0.44 per common share for the same period of ~~2021.~~2022. Core earnings (NII) ~~for the third quarter of 2022~~ were ~~$8.37 million compared to $8.48 million for the same quarter in 2021 and $23.77~~$8.5 million for the first ~~nine~~three months of ~~2022~~2023 compared to ~~$23.76~~$7.6 million for the same period in ~~2021. As noted~~2022. Interest and fees on loans, the major component of interest income, increased $1.9 million, or 25.2% for the first three months of 2023 compared to the same period in the Overview, the moderate changes in NII in both periods primarily reflect the decrease in the amortization of fees from administering PPP 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 are taken into income, resulting in a decrease in income year over year.~~ Interest paid on deposits, which is the major component of total interest expense, increased ~~$243,656,~~$1.3 million, or ~~41.0% between the third quarter comparison periods and $44,737, or 2.3%~~234.2%, year over year, driven primarily by the increases in the fed funds rate during ~~2022.~~2022 and the first quarter of 2023.

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' 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 March 31
	Three Months Ended September 30,						2023			2022
	2022			2021
Return on average assets		1.41	%		1.54	%		1.31	%		0.97	%
Return on average equity		19.06	%		17.87	%		17.57	%		11.76	%
Dividend payout ratio (1)		34.85	%		31.88	%		37.70	%		52.27	%
Average equity to average assets		7.38	%		8.64	%		7.47	%		8.24	%

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)~~

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

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 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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The Company’s tax-exempt interest income of ~~$284,618~~$291,954 and ~~$246,627~~$224,094 for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively, and $777,314 and $759,855 for the nine months ended September 30, 2022 and 2021,~~ respectively, was derived from loans to local municipalities of ~~$40.2~~$36.5 million and ~~$53.8~~$48.7 million, and tax-exempt municipal investments of ~~$10.3~~$11.6 million and ~~$0,~~$4.3 million, at ~~September 30,~~March 31, 2023 and 2022, ~~and 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,

2022

2021

Net interest income as presented

$ 8,373,566

$ 8,482,069

Effect of tax-exempt income

75,658

65,559

Net interest income, tax equivalent

$ 8,449,224

$ 8,547,628

	Nine Months Ended September 30,
	2022		2021
Three Months Ended March 31,					2023		2022

Net interest income as presented	$	23,768,980	$	23,755,731	$	8,523,365	$	7,558,230
Effect of tax-exempt income		206,628		201,987		77,608		62,745
Net interest income, tax equivalent	$	23,975,608	$	23,957,718	$	8,600,973	$	7,620,975

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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 yield/rate for the comparison periods presented. Net interest income, net interest spread and net interest margin are also expressed on a tax equivalent basis.

	Three Months Ended September 30,														Three Months Ended March 31,
	2022							2021							2023							2022
					Average							Average							Average							Average
	Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate			Balance		Expense		Rate
Interest-Earning Assets
Loans (1)	$	717,692,703	$	8,239,751		4.55	%	$	705,990,188	$	8,843,732		4.97	%
Average Assets
Loans, net (1)															$	746,342,447	$	9,429,534		5.12	%	$	685,633,810	$	7,547,035		4.46	%
Taxable investment securities		182,586,203		799,856		1.74	%		91,309,182		325,002		1.41	%		181,762,470		943,478		2.11	%		185,794,633		656,277		1.43	%
Tax-exempt investment securities		9,135,697		86,271		3.75	%		0		0		0.00	%		11,458,866		114,757		4.06	%		2,232,280		13,859		2.52	%
Sweep and interest-earning accounts		58,264,306		358,907		2.44	%		80,330,844		92,923		0.46	%		30,469,901		329,411		4.38	%		69,778,429		80,660		0.47	%
Other investments (2)		1,777,950		23,029		5.14	%		1,834,150		14,666		3.17	%		1,778,480		30,653		6.99	%		1,779,400		16,460		3.75	%
Total	$	969,456,859	$	9,507,814		3.89	%	$	879,464,364	$	9,276,323		4.18	%
Total interest-earning assets																971,812,164	$	10,847,833		4.53	%		945,218,552	$	8,314,291		3.57	%
Cash and due from banks																10,034,768							18,567,180
Premises and equipment																12,992,588							13,663,867
BOLI																5,160,130							5,080,119
Goodwill																11,574,269							11,574,269
Other assets																18,678,923							12,307,610
Total assets															$	1,030,252,842						$	1,006,411,597

Interest-Bearing Liabilities
Average Liabilities and Shareholders' Equity
Interest-bearing transaction accounts	$	252,413,763	$	382,833		0.60	%	$	217,633,391	$	134,246		0.24	%	$	279,908,863	$	964,867		1.40	%	$	258,739,985	$	160,078		0.25	%
Money market funds		138,497,037		197,849		0.57	%		126,691,975		148,962		0.47	%		135,616,740		513,675		1.54	%		130,743,524		127,680		0.40	%
Savings deposits		181,818,265		27,930		0.06	%		167,577,792		43,705		0.10	%		171,177,131		30,996		0.07	%		173,158,450		23,440		0.05	%
Time deposits		105,915,323		229,371		0.86	%		107,239,980		267,414		0.99	%		102,310,661		335,209		1.33	%		106,635,720		240,761		0.92	%
Borrowed funds		1,301,120		8		0.00	%		2,301,326		12		0.00	%		1,611,144		3,781		0.95	%		1,301,144		2		0.00	%
Repurchase agreements		33,402,748		45,153		0.54	%		23,644,148		16,871		0.28	%		36,136,359		132,128		1.48	%		28,847,413		21,040		0.30	%
Finance lease obligations		3,716,571		21,355		2.30	%		2,385,977		19,709		3.30	%		3,608,925		20,739		2.30	%		3,823,091		21,963		2.30	%
Junior subordinated debentures		12,887,000		154,091		4.74	%		12,887,000		97,776		3.01	%		12,887,000		245,465		7.72	%		12,887,000		98,352		3.10	%
Total	$	729,951,827	$	1,058,590		0.58	%	$	660,361,589	$	728,695		0.44	%
Total interest-bearing liabilities																743,256,823	$	2,246,860		1.23	%		716,136,327	$	693,316		0.39	%
Noninterest bearing deposits																203,297,212							203,509,006
Other liabilities																6,647,483							3,380,650
Total liabilities																953,201,518							923,025,983
Shareholders' equity																77,051,324							83,385,614
Total liabilities and shareholders' equity															$	1,030,252,842						$	1,006,411,597

Net interest income			$	8,449,224						$	8,547,628						$	8,600,973						$	7,620,975
Net interest spread (3)						3.31	%						3.74	%						3.30	%						3.18	%
Net interest margin (4)						3.46	%						3.86	%						3.59	%						3.27	%

1.	(1)	Included in ~~gross~~net loans are non-accrual loans with average balances of ~~$7,337,588~~$8,220,394 and ~~$3,803,807~~$5,736,827 for the three months ended ~~September 30,~~March 31 2023 and 2022, ~~and 2021,~~ respectively. Loans are stated ~~before deduction~~net of unearned discount and ~~ALL, less~~ACL, and include loans held-for-sale and ~~include~~ tax-exempt loans to local municipalities with average balances of ~~$39,007,717~~$35,177,595 and ~~$52,546,634~~$49,022,025 for the three months ended ~~September 30,~~March 31 2023 and 2022, ~~and 2021,~~ respectively.

2.	(2)	Included in other investments is the Company’s FHLBB Stock with average balances of ~~$712,800~~$713,330 and ~~$769,000 for the three months ended September 30, 2022 and 2021,~~$714,250, respectively, with a dividend rate of approximately ~~3.72%~~6.67% and ~~1.52%~~2.66%, respectively, ~~per quarter.~~for the three months ended March 31 2023 and 2022, 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.

~~Table of Contents~~

Nine Months Ended September 30,

2022

2021

Average

Average

Average

Income/

Yield/

Average

Income/

Yield/

Balance

Expense

Rate

Balance

Expense

Rate

Interest-Earning Assets

Loans (1)

$ 704,673,950

$ 23,476,738

4.45 %

$ 718,366,424

$ 25,121,879

4.68 %
Taxable investment securities

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

68,303,360

609,532

1.19 %

74,020,149

260,811

0.47 %
Other investments (2)

1,778,428

56,121

4.22 %

1,833,884

40,265

2.94 %
Total

$ 963,801,721

$ 26,477,830

3.67 %

$ 880,495,231

$ 26,306,801

3.99 %

Interest-Bearing Liabilities

Interest-bearing transaction accounts

$ 256,909,959

$ 754,189

0.39 %

$ 216,136,557

$ 408,410

0.25 %
Money market funds

132,391,636

446,751

0.45 %

123,955,268

477,355

0.51 %
Savings deposits

178,709,726

77,373

0.06 %

156,816,309

121,748

0.10 %
Time deposits

106,235,079

697,088

0.88 %

109,049,139

923,151

1.13 %
Borrowed funds

1,301,132

14

0.00 %

2,376,974

36

0.00 %
Repurchase agreements

30,752,887

88,322

0.38 %

29,997,106

72,822

0.32 %
Finance lease obligations

3,769,459

64,979

2.30 %

2,156,173

49,075

3.03 %
Junior subordinated debentures

12,887,000

373,506

3.88 %

12,887,000

296,486

3.08 %
Total

$ 722,956,878

$ 2,502,222

0.46 %

$ 653,374,526

$ 2,349,083

0.48 %

Net interest income

$ 23,975,608

$ 23,957,718

Net interest spread (3)

3.21 %

3.51 %
Net interest margin (4)

3.33 %

3.64 %

1.	Included in gross loans are non-accrual loans with average balances of $5,375,840 and $3,945,577 for the nine months ended September 30, 2022 and 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 $45,161,639 and $52,105,647 for the nine months ended September 30, 2022 and 2021, respectively.

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

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

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The average volume of interest-earning assets for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 increased ~~10.2% and 9.5%, respectively,~~2.8% compared to the same ~~periods~~period last year, while the average yield on interest-earning assets ~~decreased 29 bps and 32 bps, respectively.~~increased 96 bps.

The average volume of loans increased ~~1.7%~~8.9% over the three-month comparison period ~~and decreased 1.9% over the nine-month comparison period~~ of 2023 versus 2022, ~~versus 2021, while~~and the average yield on loans decreased 42 bp and 23 bps, 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 in the nine-month comparison period for 2022.increased 66 bps. Loans accounted for ~~74.0% and 73.1%, respectively,~~76.8% of the average interest-earning asset portfolio for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to ~~80.3% and 81.6%, respectively,~~72.5% for the same ~~periods~~period last year. Interest earned on the loan portfolio as a percentage of total interest income was ~~86.7% and 88.7%, respectively~~86.9% for the ~~three- and nine-month periods in 2022~~first three months of 2023 compared to ~~95.3% and 95.5%, respectively~~90.8% for the same ~~periods~~period in ~~2021.~~2022.

The average volume of the taxable investment portfolio (classified as AFS) ~~increased 100.0% and 112.6%~~decreased 2.2% during the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022,~~March 31, 2023, compared to the same ~~periods~~period last year, and the average yield increased 3368 bps ~~and 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) increased $9.2 million, or 5.0% for the ~~three-~~three-month period ended March 31, 2023 and ~~nine-month periods ended September 30, 2022 was $9.1 million and $5.6 million, respectively, with a~~the tax equivalent yield ~~of 3.75% and 3.39%, respectively.~~increased 154 bps between periods. The Company began investing in these tax-exempt bonds during December ~~2021.~~2021, and currently carries an average volume of $11.5 million as of March 31, 2023.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased ~~27.5% and 7.7%, respectively,~~56.3% for the ~~three- and nine-month~~three-month comparison ~~periods~~period ended ~~September 30, 2022~~March 31, 2023 compared to the same period in ~~2021.~~2022. The decrease in average volume is attributable to the funding of ~~investment~~investments in 2022 and loan ~~growth.~~growth throughout 2022 and into 2023. The average yield on these funds increased ~~198 bps and 72~~391 bps for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 versus the same ~~periods~~period in ~~2021.~~2022.

The average volume of interest-bearing liabilities for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 increased ~~10.7% in both periods,~~3.8%, compared to the same ~~periods~~period in ~~2021, while~~2022, and the average rate paid on interest-bearing liabilities increased ~~14 bps and decreased two bps, respectively.~~ 84 bps.

The average volume of interest-bearing transaction accounts increased ~~16.0% and 18.9%, respectively~~8.2% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period of ~~2021. The~~2022 and the average rate paid on these accounts increased 36115 bps ~~and 14 bps, respectively,~~ between comparison periods. Interest paid on interest-bearing transaction accounts as a percentage of total interest expense was 42.9% for the three-month period ended March 31, 2023, compared to 23.1% for the same comparison period in 2022.

The average volume of money market accounts increased ~~9.3% and 6.8%, respectively~~3.7% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period of ~~2021, while~~2022, and the average rate paid on these deposits increased ~~10 bps and decreased six bps, respectively.~~114 bps.

The average volume of savings accounts ~~increased 8.5% and 14.0%, respectively,~~decreased 1.1% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period in ~~2021,~~2022, while the average rate paid on these accounts ~~decreased four~~increased two bps ~~in both comparison periods.~~year over year.

The average volume of time deposits decreased ~~1.2% and 2.6%, respectively,~~4.1% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period in ~~2021, and~~2022, while 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 three and nine-month periods ended September 30, 2022, compared to 36.7% and 39.3%, respectively, for the same comparison periods in 2021. The decrease inincreased 41 bps. Historically, the average volume of time deposits ~~between periods reflects the maturity of~~included brokered deposits, ~~in January and April~~which provided an alternate source of ~~2021 that had not been replaced~~funding, but as ~~of September 30, 2022.~~the Company’s retail deposits increased over the last two years, the need for these funds diminished. Management still considers the brokered deposit market to be a beneficial source of funding in appropriate circumstances to help smooth out the fluctuations in core deposit balances without the need to disrupt deposit pricing in the Company’s local markets. These funds can be obtained relatively quickly on an as-needed basis, making them a valuable alternative to traditional term borrowings from the FHLBB. Refer to the “Liquidity and Capital Resources” section for more discussion on this topic.

The average volume of borrowed funds ~~decreased 43.5% and 45.3%~~increased 23.8% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period in ~~2021 and, for all periods,~~2022. In 2022, borrowed funds consisted of only JNE funds at zero percent ~~interest.~~interest, however, during the first three months of 2023, as the Company’s balance at FRBB decreased, the need for overnight borrowings increased for a short period of time in February.

The average volume of repurchase agreements increased ~~41.3% and 2.5%, respectively,~~25.3% for the ~~three- and nine-month periods~~three-month period ended ~~September 30, 2022~~March 31, 2023 compared to the same ~~periods~~period in ~~2021~~2022 and the average rate paid increased 26118 bps between comparison periods.

In summary, between the three-month periods ended March 31, 2023 and 2022, the average yield on interest-earning assets increased 96 bps and ~~six~~the average rate paid on interest-bearing liabilities increased 84 bps. Net interest spread increased 12 bps ~~respectively,~~for the first three months of 2023 versus 2022 and net interest margin increased 32 bps between ~~comparison periods.~~periods, reflecting the rising interest rate environment.

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In summary, between the three- and nine-month periods ended September 30, 2022 and 2021, the average yield on interest-earning assets decreased 29 bps and 32 bps, respectively, and the average rate paid on interest-bearing liabilities increased 14 bps and decreased two bps, respectively. Net interest spread decreased 43 bps and 30 bps for the three- and nine-month periods of 2022 versus 2021 and net interest margin decreased 40 and 31 bps, respectively, between periods.

The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for ~~2022~~2023 and ~~2021~~2022 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,									Three Months Ended March 31
	Variance			Variance						Variance			Variance						Variance			Variance
	Due to			Due to			Total			Due to			Due to			Total			Due to			Due to			Total
	Rate (1)			Volume (1)			Variance			Rate (1)			Volume (1)			Variance			Rate (1)			Volume (1)			Variance

Average Interest-Earning Assets

Loans	$	(750,580	)	$	146,599		$	(603,981	)	$	(1,189,407	)	$	(455,734	)	$	(1,645,141	)	$	1,214,870		$	667,629		$	1,882,499
Taxable investment securities		150,458			324,396			474,854			313,289			995,405			1,308,694			308,179			(20,978	)		287,201
Tax-exempt investment securities		86,271			0			86,271			142,899			0			142,899			43,567			57,331			100,898
Sweep and interest-earning accounts		401,696			(135,712	)		265,984			399,604			(50,883	)		348,721			673,283			(424,532	)		248,751
Other investments		9,091			(728	)		8,363			17,606			(1,750	)		15,856			14,209			(16	)		14,193
Total	$	(103,064	)	$	334,555		$	231,491		$	(316,009	)	$	487,038		$	171,029		$	2,254,108		$	279,434		$	2,533,542

Average Interest-Bearing Liabilities

Interest-bearing transaction accounts	$	227,547		$	21,040		$	248,587		$	269,538		$	76,241		$	345,779		$	791,740		$	13,049		$	804,789
Money market funds		34,902			13,985			48,887			(62,785	)		32,181			(30,604	)		381,189			4,806			385,995
Savings deposits		(19,364	)		3,589			(15,775	)		(60,750	)		16,375			(44,375	)		7,898			(342	)		7,556
Time deposits		(35,172	)		(2,871	)		(38,043	)		(207,541	)		(18,522	)		(226,063	)		108,632			(14,184	)		94,448
Borrowed funds		(4	)		0			(4	)		(22	)		0			(22	)		3,779			0			3,779
Repurchase agreements		21,395			6,887			28,282			13,691			1,809			15,500			105,696			5,392			111,088
Finance lease obligations		(9,422	)		11,068			1,646			(20,657	)		36,561			15,904			(9	)		(1,215	)		(1,224	)
Junior subordinated debentures		56,315			0			56,315			77,020			0			77,020			147,113			0			147,113
Total	$	276,197		$	53,698		$	329,895		$	8,494		$	144,645		$	153,139		$	1,546,038		$	7,506		$	1,553,544

Changes in net interest income	$	(379,261	)	$	280,857		$	(98,404	)	$	(324,503	)	$	342,393		$	17,890		$	708,070		$	271,928		$	979,998

(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

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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
	September 30,				Change						September 30,				Change						March 31				Change
	2022		2021		Income			Percent			2022		2021		Income			Percent			2023		2022		Income			Percent

Service fees	$	939,807	$	882,688	$	57,119			6.47	%	$	2,739,076	$	2,527,943	$	211,133			8.35	%	$	880,288	$	862,887	$	17,401			2.02	%
Income from sold loans		109,411		242,560		(133,149	)		-54.89	%		508,795		704,627		(195,832	)		-27.79	%		107,535		203,842		(96,307	)		(47.25	%)
Other income from loans		301,710		223,388		78,322			35.06	%		895,884		653,377		242,507			37.12	%		428,572		271,260		157,312			57.99	%
Other income
Income from CFS Partners		87,386		240,723		(153,337	)		-63.70	%		386,217		834,781		(448,564	)		-53.73	%		252,051		225,870		26,181			11.59	%
Other miscellaneous income		93,289		111,227		(17,938	)		-16.13	%		322,357		320,624		1,733			0.54	%		90,331		122,570		(32,239	)		(26.30	%)
Total non-interest income	$	1,531,603	$	1,700,586	$	(168,983	)		-9.94	%	$	4,852,329	$	5,041,352	$	(189,023	)		-3.75	%	$	1,758,777	$	1,686,429	$	72,348			4.29	%

Total non-interest income ~~decreased $168,983,~~increased $72,348, or ~~9.9% for the third quarter of 2022 and $189,023, or 3.8%~~4.3%, for the first ~~nine~~three months of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021,~~2022, with significant changes noted in the following:

	·	The ~~increase~~decrease in ~~service fees~~income from sold loans is due primarily to a lower volume of loans sold into the secondary market during the ~~comparison period is mostly due to an increase in overdraft charges~~first three months of ~~$31,752, or 39.9%, between~~2023 versus 2022, as the ~~third quarter comparison periods and $162,459, or 27.8%, year over year.~~rising interest rate environment has adversely affected residential mortgage lending activity.

	·	~~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, as well as lower points and premiums on these loans in 2022.~~

	·	An increase in CRE loan volume in ~~2022~~2023 resulted in a significant increase in documentation fees collected at origination as well as commercial rate lock fees collected, accounting for the increase in other income from loans ~~when comparing both comparison periods.~~for the first three months of 2023 versus 2022.

	·	Income from CFS Partners ~~decreased~~increased between periods due in part to the ~~impact~~late rebound of ~~mark-to-market adjustments to~~market prices during the latter part of the first quarter of 2023. CFS Partners has a small portion of its equity ~~portfolio during 2022, reflecting~~capital invested in the stock market, and as a result is sensitive to general stock market conditions.

	·	Included in ~~Other~~other miscellaneous income for 2022 is ~~income~~a one-time payment totaling $23,400 associated with a renegotiated contract with the Company’s check printing vendor, ~~helping to offset decreases in other components~~accounting for a portion of ~~this category.~~the decrease for the first three months of 2023 versus 2022.

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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
	September 30,					Change						September 30,				Change						March 31				Change
	2022			2021		Expense			Percent			2022		2021		Expense			Percent			2023		2022		Expense			Percent

Salaries and wages	$	1,984,000		$	2,002,999	$	(18,999	)		-0.95	%	$	6,058,000	$	5,923,001	$	134,999			2.28	%	$	2,288,760	$	2,040,000	$	248,760			12.19	%
Employee benefits		629,681			811,817		(182,136	)		-22.44	%		2,106,356		2,467,237		(360,881	)		-14.63	%		754,270		772,052		(17,782	)		(2.30	%)
Occupancy expenses, net		677,805			743,219		(65,414	)		-8.80	%		2,104,346		2,140,141		(35,795	)		-1.67	%		770,986		753,364		17,622			2.34	%
Other expenses
Service contracts - administrative		142,081			124,252		17,829			14.35	%		428,254		385,792		42,462			11.01	%		155,500		138,505		16,995			12.27	%
Directors fees		144,357			128,604		15,753			12.25	%		432,571		386,312		46,259			11.97	%
Audit fees		122,034			105,200		16,834			16.00	%		337,790		294,614		43,176			14.66	%		126,937		100,728		26,209			26.02	%
FDIC insurance		90,637			111,087		(20,450	)		-18.41	%		277,047		272,652		4,395			1.61	%		131,643		89,984		41,659			46.30	%
Collection & non-accruing loan expense		(14,000	)		19,069		(33,069	)		-173.42	%		33,000		42,269		(9,269	)		-21.93	%		25,500		36,000		(10,500	)		(29.17	%)
ATM fees		162,032			143,993		18,039			12.53	%		456,223		414,288		41,935			10.12	%		160,826		140,890		19,936			14.15	%
Electronic banking expense		69,623			64,423		5,200			8.07	%		202,682		169,788		32,894			19.37	%
State deposit tax		250,994			225,912		25,082			11.10	%		737,570		651,173		86,397			13.27	%		256,872		240,478		16,394			6.82	%
Other miscellaneous expenses		1,081,665			1,051,282		30,383			2.89	%		3,055,122		3,019,037		36,085			1.20	%		1,208,408		1,141,587		66,821			5.85	%
Total non-interest expense	$	5,340,909		$	5,531,857	$	(190,948	)		-3.45	%	$	16,228,961	$	16,166,304	$	62,657			0.39	%	$	5,879,702	$	5,453,588	$	426,114			7.81	%

Total non-interest expense ~~decreased $190,948,~~increased $426,114, or ~~3.5% for the third quarter of 2022 and increased $62,657, or 0.4%,~~7.8% for the first ~~nine~~three months of ~~2022~~2023 compared to the same ~~periods~~period in ~~2021,~~2022, with significant changes noted in the following:

	·	~~The~~ In addition to normal salary increases, the increase in salaries and wages year over year is attributable to new hires in the ~~nine month~~area of commercial lending as well as the hiring of a new Executive Officer during the last quarter of 2022. Also contributing to the increase was a one-time salary adjustment in November of 2022 of $2,000 to all employees below vice president status that impacted the year over year comparison ~~period is due to normal salary increases.~~by $57,500.

	·	~~The 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 expenses~~ ~~is primarily attributable to a write down of $63,125 at maturity of a capital lease during the third quarter of 2021.~~

	·	The increase in service contracts - administrative is due to a combination of an increase in pricing for contracts that ~~are~~transaction based ~~on asset size~~ and inflationary adjustment factors that are higher than historical increase adjustments.

	·	The increase in ~~directors’~~audit fees ~~is attributable~~reflects increased audit services due to ~~a change~~additional audit requirements required by FDICIA due to the ~~Director’s fee schedule as well as an additional Director for 2022.~~Company surpassing $1.0 billion asset size.

	·	The Company increased the 2023 monthly accrual for FDIC insurance in anticipation of an increase in ~~audit fees~~ ~~reflects increased audit services due to~~ the ~~Company surpassing~~assessment multiplier, as announced by the ~~$1.0 billion asset size.~~FDIC in late 2022.

	·	~~FDIC insurance~~Collection & non-accruing loan expense ~~decreased for the third quarter~~is lower year over year due to a decrease of expenses associated with properties in the ~~assessment multiplier, while the modest increase year over year is due primarily to an increase in assets.~~Company’s non-accruing loan portfolio.

	·	~~Collection & non-accruing loan expense~~ATM fees ~~is lower in both periods due to the recoupment of expenses associated with properties in the Company’s non-accruing loan portfolio.~~are based on increased customer activity as well as annual contractual price adjustments.

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

	·	~~The increase in~~ ~~electronic banking expense~~ ~~is attributable to a new mobile banking platform which includes security enhancements and other technical upgrades.~~

	·	State deposit tax increased year over year due primarily to the increase in ~~deposits throughout 2021.~~deposits. The calculation is based on an average of month-end deposit totals over a 12 month period.

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APPLICABLE INCOME TAXES

The provision for income taxes ~~decreased $33,675,~~increased $254,124, or ~~3.9%, for the third quarter of 2022 compared to the same quarter in 2021, and decreased $205,157, or 9.2%~~48.6%, for the first ~~nine~~three months of ~~2022~~2023 compared to the same period in ~~2021~~2022 and is proportional to the ~~decrease~~increase in income before income taxes totaling ~~$122,371 for the third quarter of 2022 versus 2021 and $939,266 year over year.~~$1.2 million. Tax credits related to limited partnership investments amounted to ~~$99,958~~$67,128 and ~~$117,015, respectively, for the third quarter of 2022 and 2021, and $292,437 and $351,045,~~$96,237, respectively, for the first ~~nine~~three months of ~~2022~~2023 and ~~2021.~~2022.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to ~~$67,353~~$67,128 and ~~$90,762, respectively, for the third quarters of 2022 and 2021, and $201,537 and $272,286,~~$67,092, respectively, for the first ~~nine~~three months of ~~2022~~2023 and ~~2021.~~2022. 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 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, 2022				December 31, 2021				March 31, 2023				December 31, 2022
Assets
Loans	$	724,194,001	70.52	%	$	689,988,533	67.71	%	$	758,586,712	73.61	%	$	748,548,608	70.88	%
AFS securities		187,227,320	18.23	%		182,342,459	17.89	%		192,679,330	18.70	%		192,918,109	18.27	%

Liabilities
Demand deposits		210,463,414	20.50	%		209,465,151	20.55	%		200,311,094	19.44	%		216,093,534	20.46	%
Interest-bearing transaction accounts		269,907,036	26.28	%		265,513,937	26.05	%		279,977,413	27.17	%		294,050,079	27.84	%
Money market funds		137,639,793	13.40	%		129,728,954	12.73	%		132,554,229	12.86	%		140,117,086	13.27	%
Savings deposits		179,853,917	17.51	%		168,390,905	16.52	%		170,452,633	16.54	%		171,072,921	16.20	%
Time deposits		105,176,989	10.24	%		106,301,006	10.43	%		105,249,729	10.21	%		101,638,659	9.62	%
Long-term advances		1,300,000	0.13	%		1,300,000	0.13	%		1,300,000	0.13	%		1,300,000	0.12	%

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

	Change in Volume			Percentage Change			Volume Change			Percentage
Assets
Loans	$	34,205,468			4.96	%	$	10,038,104			1.34	%
AFS securities		4,884,861			2.68	%		(238,779	)		(0.12	%)

Liabilities
Demand deposits		998,263			0.48	%		(15,782,440	)		(7.30	%)
Interest-bearing transaction accounts		4,393,099			1.65	%		(14,072,666	)		(4.79	%)
Money market funds		7,910,839			6.10	%		(7,562,857	)		(5.40	%)
Savings deposits		11,463,012			6.81	%		(620,288	)		(0.36	%)
Time deposits		(1,124,017	)		-1.06	%		3,611,070			3.55	%

The increase in the loan portfolio during the first ~~nine~~three months of ~~2022~~2023 was attributable to increases totaling ~~$43.3~~$13.0 million in commercial & industrial CRE and ~~CRE~~municipal loans, which was partially offset by ~~payoffs~~decreases of ~~certain PPP~~$0.8 million in purchased BHG loans, ~~through SBA’s forgiveness program totaling $11.1~~$1.9 million in residential junior lien loans and ~~maturities of certain municipal loans totaling $7.8 million.~~$0.6 million in consumer loans. The ~~SBA PPP program ended~~Company has experienced strong loan activity among its commercial customers, but only minimal consumer loan activity.

There were no securities AFS purchased during the ~~second quarter~~first three months of 2021, so this portfolio will continue to decrease throughout the remainder of 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.2023. 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~~change in the securities AFS portfolio is attributable to the purchase of $47.5 million in securities AFS during the first nine months of 2022, consisting of $9.1 million in US treasury securities, $10.9 million in tax-exempt municipal bonds, $1.6 million in ABS, $7.4 million in CMO, and $18.5 million in MBS. These purchases were reduced in part by maturities ~~and calls exercised~~ amounting to ~~$3.0~~$0.6 million, as well as principal payments on various ~~portfolios~~securities totaling ~~$12.0 million, and~~$3.1 million. These changes were almost totally offset by ~~an increase~~a decrease of ~~$27.1~~$3.4 million in unrealized losses arising during the first ~~nine~~three months of ~~2022,~~2023, which is reflected in 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.

The decrease in the demand deposit accounts was entirely made up of business DDAs. The decrease in interest-bearing transaction accounts consists of a decrease of $13.1 million, or 10.6%, in consumer interest-bearing transaction accounts, a decrease of $11.6 million, or 28.8%, in municipal deposit accounts and a decrease of $11.0 million, or 12.9% in ICS deposit accounts. These decreases were partially offset by a combined increase of $21.6 million, or 48.7% in health savings accounts and the deposit account of the Company’s trust and asset management affiliate, CFSG. The decrease in money market funds was driven by decreases of $6.5 million, or 21.9% in ICS accounts and $4.6 million, or 4.5% in retail money market funds. These decreases were partially offset by an increase in municipal accounts of $3.5 million or 39.6%. The increase in time deposits is attributable to customer response to periodic certificate of deposit specials that have been offered.

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~~The increase in interest-bearing transaction accounts consists~~CERTAIN TIME DEPOSITS

Increments of ~~an increase~~maturity of ~~$11.7 million,~~time CDs of $250,000 or 9.9%, in consumer interest-bearing transaction accounts, which includes Health Savings Accounts and the deposit account of the Company’s trust and asset management affiliate, CFSG. This was partially offset by a decrease of $3.2 million, or 7.6%, in municipal deposit accounts and a decrease of $4.1 million, or 5.8% in the ICS deposit accounts. The increase in savings deposits of $11.5 million, or 6.8%, is likely attributable in part to parked fundsmore outstanding on March 31, 2023 are summarized as ~~customers await more favorable rates for time deposits, as well as deposits of stimulus payments and tax credits from the U.S. Government.~~ follows:

3 months or less	$	4,166,139
Over 3 through 6 months		1,872,753
Over 6 through 12 months		4,274,743
Over 12 months		6,424,279
Total	$	16,737,914

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 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 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 interest rate sensitivity "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 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 bp shift upward and a 100 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 NII ~~is expected to trend~~initially trends upward as the short-term asset base (cash and adjustable rate loans) quickly cycle upward while the retail funding base (deposits) lags the market. If rates paid on deposits have to be increased more and/or more quickly than projected due to competitive pressures, the expected benefit to rising 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. ~~Management expects that the~~The current rising rate environment ~~will have~~has had a positive impact to the Company’s NII however market expectations for higher deposit rates are applying increasing pressure to the ~~remainder of 2022.~~spread between interest income and interest expense.

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The following table summarizes the estimated impact on the Company's NII over a twelve month period, assuming a gradual parallel shift of the yield curve beginning ~~September 30, 2022:~~March 31, 2023:

Rate Change	Percent Change in NII

Down 100 bps		~~-1.2~~(0.2	%)
Up 200 bps		~~0.1~~(2.0	%)

The estimated amounts shown in the table above are 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. As the market rates continue to increase, the impact of a falling rate environment is more pronounced, and the possibility more plausible than during the last several years of near zero short-term rates.

~~Table of Contents~~

As of ~~September 30, 2022,~~March 31, 2023, 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%. As previously announced by the Financial Conduct Authority in the United Kingdom, the entity that administers LIBOR, 3-month LIBOR for U.S. dollar denominated deposits will be phased out as of June 30, 2023. The Indenture governing the terms of the Company’s Debentures contains detailed fallback provisions in the event 3-month LIBOR is not available, empowering the Trustee to obtain substitute quotations from other leading banks. However, under the federal Adjustable Interest Rate (LIBOR) Act enacted in March 2022 (the “LIBOR Act”), fallback provisions like those in the Company’s Indenture that are based on a “determining person” (such as an indenture trustee) obtaining quotations of interbank 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 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~~the Federal Reserve-identified benchmark ~~rate~~rates specified in the final regulations ~~will be~~for various tenors of LIBOR are based on the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York and ~~will include~~each includes an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The replacement benchmark rate for ineffective fallback provisions will take effect on the first London banking day after June 30, ~~2023.~~2023, (the “LIBOR Replacement Date”). The Indenture Trustee has ~~indicated informally~~informed the Company that it views the fallback provisions in the Indenture as ineffective under the LIBOR Act, and that, ~~it intends~~absent either an amendment to ~~provide written guidance~~the Indenture and related Debenture documents to adopt a new interest rate or a change in applicable law, effective on and after the ~~transition from~~ LIBOR ~~prior~~Replacement Date, 3-month LIBOR will be replaced by 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161 percent, in accordance with the LIBOR Act and FRB regulations. The Company does not intend to ~~June 30, 2023, following~~seek an amendment of the ~~Federal Reserve’s adoption~~Indenture or other Debenture documents. Accordingly, as of ~~final regulations.~~the LIBOR Replacement Date, the Debentures will bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment of 0.26161 percent, plus 2.85%.

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.~~Debentures.

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 internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.

Residential ~~mortgages~~mortgage loans represented ~~31.3%~~30.4% of the Company’s loan balances ~~as of September 30, 2022 and~~at March 31, 2023, compared to 31.2% at December 31, ~~2021.~~2022. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not ~~engage in~~offer higher risk ~~loans~~loan products, 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-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. As of ~~September 30, 2022,~~March 31, 2023, junior lien home equity products made up ~~14.9%~~13.8% 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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Consistent with the strategic focus on commercial lending, the commercial & industrial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial, purchased, CRE and ~~CRE~~municipal loans ~~together~~collectively comprised ~~67.1%~~69.1% of the Company’s loan portfolio at ~~September 30, 2022,~~March 31, 2023, compared to ~~68.1%~~68.4% at December 31, 2021. Those percentages included the Company’s portfolio of PPP loans, which has been steadily decreasing, and totaled $1.1 million at September 30, 2022, compared to $12.2 million at December 31, 2021.

Growth in the CRE portfolio in recent years has been principally driven by new loan volume in Chittenden County and northern Windsor County around the White River Junction, 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 by a commercial lender from the St. Johnsbury office with previous lending experience serving the greater White River 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 have been a mix of construction, land and development, multifamily, and other non-owner occupied CRE properties including hotels, retail, office, and industrial properties.2022. The largest components of the ~~$324.3 million~~ CRE portfolio ~~at September 30, 2022~~ were ~~$102.4~~$99.4 million in owner-occupied CRE and ~~$124.9~~$139.0 million in non-owner occupied ~~CRE.~~CRE at March 31, 2023.

~~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, 2022,~~March 31, 2023, the Company had ~~$31.9~~$26.2 million in guaranteed loans with guaranteed balances of ~~$23.8~~$17.0 million, compared to ~~$42.9~~$27.0 million in guaranteed loans with guaranteed balances of ~~$35.4~~$18.3 million at December 31, ~~2021.~~2022. PPP loans with outstanding balances of $116,299 and $199,664 at March 31, 2023 and December 31, 2022, respectively, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

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 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.

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

September 30, 2022

December 31, 2021

Number of

Principal

Number of

Principal

Loans

Balance

Loans

Balance

Commercial & industrial

5

$ 48,751

6

$ 71,128

Commercial real estate

5

2,911,544

5

3,642,073

Residential real estate - 1st lien

9

901,669

12

977,961

Residential real estate - Jr lien

1

36,985

1

41,901

Total

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 and consisted of the following:~~

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

~~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 5 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, but excluding the municipal loan and purchased loan portfolios as there has never been a loss recorded in either of those loan 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~~Provision 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 5 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations. Credit Losses

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

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 provision for ~~loan~~credit losses was made up of the following components for the nine months ended September 30, 2022 was $1.3 million, compared to $624,165 for the same period in 2021. The $700,835 year over year increase was driven in part by an increase in the commercial loan volume as well as a write-down totaling $667,474, on a single non-performing loan, currently in foreclosure. The increase of $2.7 million in non-accruing loans is attributable to one business relationship, which the Company is monitoring closely.periods indicated:

The third quarter ALL analysis indicates that the reserve balance of $8.4 million at September 30, 2022 is sufficient to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $258,555. Management believes the reserve balance 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" is established to absorb inherent losses that exist as of the measurement date although not specifically identified through 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. 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.

	Three Months Ended
	March 31,				Change
	2023		2022		$			%
Provision for credit losses on loans	$	207,540	$	862,500	$	(654,960	)		(75.94	%)
Provision for credit losses on OBS credit exposure		78,986		0		78,986			100.00	%
Provision for credit losses	$	286,526	$	862,500	$	(575,974	)		(66.78	%)

ACL and provisions – 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~~was 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~~The adjustment from the adoption of CECL ~~will be~~amounted to $549,113, net of tax and was 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~~quarter.

The Company’s board of directors has approved an ACL policy that provides guidance in maintaining an adequate methodology for establishing, estimating and maintaining allowances for credit losses under ASC 326. The policy creates a measurement model to establish a proper ACL based on current expected credit losses rather than incurred losses.

The Company maintains an ACL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the ~~January 1, 2023 effective~~measurement date ~~for~~(See Note 5 to the ~~transition~~accompanying unaudited interim consolidated financial statements). Although the Company, in establishing the ACL, considers the inherent losses in individual loans and pools of loans, the ACL is a general reserve available to ~~CECL.~~absorb all credit losses in the loan portfolio. No part of the ACL is segregated to absorb losses from any particular loan or segment of loans.

When establishing the ACL each quarter, the Company applies a combination of significant key assumptions and methodologies, as discussed in the ACL section under Critical Accounting Policies in this MD&A, and also presented in Note 5 of the accompanying unaudited interim consolidated financial statements.

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The following table summarizes the Company’s credit risk ratios for the balance sheet dates presented:

	March 31			December 31,
	2023			2022

ACL to total loans outstanding		1.22	%		1.16	%
ACL	$	9,256,170		$	8,709,225
Loans outstanding	$	758,586,712		$	748,548,608

Non-accruing loans to loans outstanding		1.12	%		1.05	%
Non-accruing loans	$	8,480,354		$	7,890,020
Loans outstanding	$	758,586,712		$	748,548,608

ACL to non-accruing loans		109.15	%		110.38	%
ACL	$	9,256,170		$	8,709,225
Non-accruing loans	$	8,480,354		$	7,890,020

The provision for credit losses for the three months ended March 31, 2023 was $286,526, compared to $862,500 for the same period in 2022. The $575,974 year over year decrease was driven in part by a write-down totaling $667,474, on a single non-performing loan, in March of 2022.

The first quarter ACL analysis indicates that the reserve balance of $9.3 million at March 31, 2023 is sufficient to cover expected credit losses that are probable and estimable as of the measurement date. Management believes the reserve balance continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. While the ACL is described as consisting of separate allocated portions, the entire ACL is available to support loan losses, regardless of category. The adequacy of the ACL is presented to the full Board for approval quarterly.

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Net ~~charge-offs~~recoveries (charge-offs) during the periods presented to average ~~loan~~loans outstanding were as follows:

For the Nine Months Ended September 30,	2022			2021
For the Three Months Ended March 31							2023			2022

Net charge-offs during the period to average loan outstanding:
Commercial & industrial		-0.03	%		-0.01	%	(0.01		%)	(0.02		%)
Net charge-offs during the period	$	(34,638	)	$	(14,086	)	$	(10,203	)	$	(17,650	)
Average amount outstanding	$	115,489,717		$	160,565,446		$	117,162,692		$	111,436,341

Purchased loans		0.00	%		0.00	%
Purchased								0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0		$	0		$	0
Average amount outstanding	$	8,782,234		$	10,788,989		$	7,086,337		$	9,368,594

Commercial real estate		-0.21	%		0.01	%		0.01	%	(0.22		%)
Net (charge-offs) recoveries during the period	$	(667,474	)	$	27,160
Net recoveries (charge-offs) during the period							$	22,000		$	(667,474	)
Average amount outstanding	$	313,919,164		$	283,812,722		$	360,454,697		$	304,057,825

Municipal		0.00	%		0.00	%		0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0		$	0		$	0
Average amount outstanding	$	45,161,639		$	52,105,647		$	35,177,595		$	49,022,024

Residential real estate - 1st lien		0.06	%		0.00	%		0.04	%		0.00	%
Net recoveries during the period	$	111,163		$	4,602		$	72,326		$	2,276
Average amount outstanding	$	184,548,015		$	170,620,859		$	198,536,712		$	182,305,338

Residential real estate - Jr lien		0.01	%		0.03	%		0.08	%		0.01	%
Net recoveries during the period	$	3,728		$	9,601		$	25,548		$	1,210
Average amount outstanding	$	33,260,177		$	36,625,381		$	32,704,333		$	33,230,645

Consumer		-0.45	%		-1.06	%	(0.36		%)		(0.01	%)
Net charge-offs during the period	$	(15,949	)	$	(40,620	)	$	(13,642	)	$	(470	)
Average amount outstanding	$	3,513,004		$	3,847,380		$	3,786,350		$	3,580,266

Total loans		-0.09	%		0.00	%		0.01	%		(0.10	%)
Net charge-offs during the period	$	(603,170	)	$	(13,343	)
Net recoveries (charge-offs) during the period							$	96,029		$	(682,108	)
Average amount outstanding	$	704,673,950		$	718,366,424		$	754,908,716		$	693,001,033

In addition to credit risk in the Company’s loan ~~portfolio~~and investment portfolios and its off-balance sheet commitments, 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 and changes in interest rates can result in fair value adjustments ~~necessary~~ to ~~record decreases in~~asset valuations or the ~~value of the investment portfolio for other-than-temporary-impairment.~~need to create a related reserve or allowance. 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 and investment 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 Rate Risk and Asset and Liability Management", the Company actively monitors and manages its interest rate risk through the ALCO process.

~~Table of Contents~~

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~~three months of ~~2022,~~2023, the Company did not engage in any activity that created any additional types of off-balance sheet risk.

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With the adoption of ASU 2016-13 (CECL), the Company is required to establish an allowance for expected credit losses on OBS credit exposures. Expected credit losses are estimated by management over the contractual period during which the Company is exposed to credit risk under a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Upon adoption of ASU 2016-13, the Company recorded an adjustment to retained earnings of $451,704 to reflect an allowance for credit losses for unfunded commitments. The allowance for credit losses for OBS credit exposures is presented in the "Accrued interest and other liabilities" line of the consolidated balance sheets. There were no changes to the allowance for credit losses for OBS credit exposures during the three months ended March 31, 2023.

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 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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had no one-way CDARS outstanding. In addition, two-way (reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, 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 through the exchange of deposits with other participating FDIC-insured financial institutions. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company reported ~~$3.1~~$2.8 million ~~and $3.6 million, respectively,~~ in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was ~~$15.6~~$23.0 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$15.3~~$29.5 million at December 31, ~~2021,~~2022, and the balance in ICS reciprocal demand deposits as of those dates was ~~$66.7~~$74.3 million and ~~$70.8~~$85.3 million, respectively.

The Company had two blocks of DTC Brokered CDs totaling $2.3 million and $1.4 million with maturities in January, 2021 and April, 2021, respectively. These blocks were not replaced, leaving no DTC Brokered CDs outstanding at 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 2021 and 2022 has reduced the Company’s need for supplementary funding sources in the near term.

At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, borrowing capacity of ~~$112.8~~$110.3 million and ~~$100.2~~$112.3 million, respectively, was available through the FHLBB, secured by the 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.

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 ~~$62.6~~$52.8 million and ~~$52.3~~$56.1 million, respectively, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. 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 ~~400~~500 bps. The Company had no outstanding advances through this facility at ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

As of March 31, 2023, the Company had additional potential borrowing capacity, subject to pledging of required collateral, under the FRB’s Term Funding Program, which was established in March 2023 to provide banks with an additional source of liquidity. The Company did not have any advances under the Term Funding Program at March 31, 2023.

~~Table of Contents~~

The following table reflects the Company’s outstanding ~~FHLBB and FRBB~~ advances ~~against~~under the ~~respective lines~~FHLBB’s JNE program as of the dates indicated:

	September 30,		December 31,		March 31,		December 31,
	2022		2021		2023		2022
Long-Term Advances(1)
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
	$	1,300,000	$	1,300,000	$	1,300,000	$	1,300,000

~~(1)~~

~~All long-term advances are pursuant to~~

(1) Under 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.

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

Management believes that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity are sufficient to meet the Company’s liquidity and capital needs.

The following table illustrates the changes in shareholders' equity from December 31, ~~2021~~2022 to ~~September 30, 2022:~~March 31, 2023:

Balance at December 31, 2021 (book value $15.48 per common share)	$	84,760,268
Balance at December 31, 2022 (book value $13.55 per common share)				$	75,176,363
Cumulative change in accounting principle (Note 2)					(549,113	)
Net income		9,037,200			3,338,761
Issuance of common stock through the DRIP		897,974			319,877
Dividends declared on common stock		(3,720,116	)		(1,250,794	)
Dividends declared on preferred stock		(43,125	)		(28,125	)
Change in AOCI on AFS securities, net of tax		(21,392,376	)		2,672,818
Balance at September 30, 2022 (book value $12.56 per common share)	$	69,539,825
Balance at March 31 2023 (book value $14.33 per common share)				$	79,679,787

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 ~~2021~~2022 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.

As of ~~September 30, 2022,~~March 31, 2023, 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, our regulatory capital ratios could be adversely impacted by future credit losses and other operational impacts of 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. The calculations as of March 31, 2023 reflect adoption of ASU 2016-13 (CECL), including the beginning period cumulative effect adjustment of $549,113, which reduced retained earnings.

											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, 2022
March 31, 2023
Common equity tier 1 capital
(to risk-weighted assets)
Company	$	79,025		11.75	%	$	30,254		4.50	%	$	47,062		7.00	%		N/A		N/A		$	84,601		11.88	%	$	32,054		4.50	%	$	49,861		7.00	%		N/A		N/A
Bank	$	92,724		13.80	%	$	30,230		4.50	%	$	47,024		7.00	%	$	43,665		6.50	%	$	98,355		13.82	%	$	32,033		4.50	%	$	49,829		7.00	%	$	46,270		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	93,412		13.89	%	$	40,339		6.00	%	$	57,147		8.50	%		N/A		N/A		$	98,988		13.90	%	$	42,738		6.00	%	$	60,546		8.50	%		N/A		N/A
Bank	$	92,724		13.80	%	$	40,306		6.00	%	$	57,100		8.50	%	$	53,742		8.00	%	$	98,355		13.82	%	$	42,710		6.00	%	$	60,506		8.50	%	$	56,947		8.00	%
Total capital (to risk-weighted assets)
Company	$	101,817		15.14	%	$	53,785		8.00	%	$	70,593		10.50	%		N/A		N/A		$	107,904		15.15	%	$	56,984		8.00	%	$	74,792		10.50	%		N/A		N/A
Bank	$	101,123		15.05	%	$	53,742		8.00	%	$	70,536		10.50	%	$	67,177		10.00	%	$	107,265		15.07	%	$	56,947		8.00	%	$	74,743		10.50	%	$	71,184		10.00	%
Tier 1 capital (to average assets)
Company	$	93,412		9.14	%	$	40,884		4.00	%		N/A		N/A			N/A		N/A		$	98,988		9.53	%	$	41,532		4.00	%		N/A		N/A			N/A		N/A
Bank	$	92,724		9.08	%	$	40,865		4.00	%		N/A		N/A		$	51,081		5.00	%	$	98,355		9.48	%	$	41,515		4.00	%		N/A		N/A		$	51,894		5.00	%

December 31, 2021:
December 31, 2022:
Common equity tier 1 capital
(to risk-weighted assets)
Company(3)	$	72,853		11.90	%	$	27,548		4.50	%	$	42,853		7.00	%		N/A		N/A
Company																					$	82,770		11.74	%	$	31,731		4.50	%	$	49,359		7.00	%		N/A		N/A
Bank	$	86,654		14.17	%	$	27,522		4.50	%	$	42,812		7.00	%	$	39,754		6.50	%	$	96,112		13.64	%	$	31,703		4.50	%	$	49,315		7.00	%	$	45,793		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	87,240		14.25	%	$	36,731		6.00	%	$	52,036		8.50	%		N/A		N/A		$	97,157		13.78	%	$	42,308		6.00	%	$	59,936		8.50	%		N/A		N/A
Bank	$	86,654		14.17	%	$	36,696		6.00	%	$	51,986		8.50	%	$	48,928		8.00	%	$	96,112		13.64	%	$	42,270		6.00	%	$	59,883		8.50	%	$	56,361		8.00	%
Total capital (to risk-weighted assets)
Company	$	94,894		15.50	%	$	48,975		8.00	%	$	64,279		10.50	%		N/A		N/A		$	105,971		15.03	%	$	56,410		8.00	%	$	74,038		10.50	%		N/A		N/A
Bank	$	94,301		15.42	%	$	48,928		8.00	%	$	64,218		10.50	%	$	61,160		10.00	%	$	104,918		14.89	%	$	56,361		8.00	%	$	73,973		10.50	%	$	70,451		10.00	%
Tier 1 capital (to average assets)
Company	$	87,240		8.79	%	$	39,719		4.00	%		N/A		N/A			N/A		N/A		$	97,157		9.24	%	$	42,047		4.00	%		N/A		N/A			N/A		N/A
Bank	$	86,654		8.73	%	$	39,698		4.00	%		N/A		N/A		$	49,622		5.00	%	$	96,112		9.15	%	$	42,025		4.00	%		N/A		N/A		$	52,531		5.00	%

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

~~(2)~~	(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 ability to pay dividends to its shareholders is largely dependent on the 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 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, 2022,~~March 31, 2023, 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, 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, 2022~~March 31, 2023 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

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, ~~2021~~2022 represent the most significant risks to the Company's future results of operations and financial condition as of ~~September 30, 2022.~~ the date of this quarterly report.

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, 2022,~~March 31, 2023, 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

of Shares

Price Paid

For the period:

Purchased(1)

Per Share

July 1 – July 31

1,800

$ 20.25

August 1 - August 31

0

0.00

September 1 - September 30

0

0.00

Total

1,800

$ 20.25

	Total Number		Average
	of Shares		Price Paid
For the period:	Purchased(1)		Per Share
January 1 - January 31		3,193	$	19.00
February 1 - February 28		0		0.00
March 1 - March 31		0		0.00
Total		3,193	$	19.00

~~(1)~~

~~All 1,800~~

(1) All 3,193 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	The following materials from the Company’s Quarterly Report on Form 10-Q for the ~~nine-months~~three-months ended ~~September 30, 2022~~March 31, 2023 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~~three-month interim periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 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.

DATED: ~~November 14, 2022~~May 12, 2023	/s/Kathryn M. Austin
	Kathryn M. Austin, President
	& Chief Executive Officer
	(Principal Executive Officer)

DATED: ~~November 14, 2022~~May 12, 2023	/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, 2022~~March 31, 2023

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 ~~nine-months~~three-months ended ~~September 30, 2022~~March 31, 2023 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~~three-month interim periods ended ~~September 30,~~March 31, 2023 and 2022, ~~and 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.

5450

											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

	Number of loans		Balance

September 30, 2022		2	$	151,645
December 31, 2021		5		195,082

	As of September 30, 2022
			Unpaid
	Recorded		Principal		Related
	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		1,172,194		1,192,445		96,784
Jr lien		2,532		2,529		4
Total with related allowance		2,378,533		2,413,046		109,914

No related allowance recorded
Commercial & industrial		2,454,109		2,525,175
Commercial real estate		3,563,089		4,751,499
Residential real estate
1st lien		2,511,284		3,515,246
Jr lien		77,213		124,795
Total with no related allowance		8,605,695		10,916,715

Total impaired loans	$	10,984,228	$	13,329,761	$	109,914

	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

	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