COMMUNITY BANCORP /VT - Quarter Report: 2022 March (Form 10-Q)

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 March 31, 2022

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 000-16435

COMMUNITY BANCORP /VT

(Exact name of Registrant as Specified in its Charter)

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

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

Registrant’s 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 May 4, 2022, there were 5,391,518 shares outstanding of the Corporation’s common stock.

FORM 10-Q

Index

		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4	Controls and Procedures	46

PART II	OTHER INFORMATION

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

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

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

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

Assets
Cash and due from banks	$	17,330,851		$	17,839,374
Federal funds sold and overnight deposits		67,121,921			92,519,552
Total cash and cash equivalents		84,452,772			110,358,926
Securities available-for-sale		185,755,566			182,342,459
Restricted equity securities, at cost		1,390,950			1,434,450
Loans held-for-sale		246,000			339,000
Loans		696,293,182			689,988,533
Allowance for loan losses		(7,890,648	)		(7,710,256	)
Deferred net loan cost (fees)		274,346			(37,972	)
Net loans		688,676,880			682,240,305
Bank premises and equipment, net		13,503,142			13,767,328
Accrued interest receivable		2,719,138			2,400,560
Bank owned life insurance		5,093,288			5,073,228
Goodwill		11,574,269			11,574,269
Other assets		11,778,865			9,575,274
Total assets	$	1,005,190,870		$	1,019,105,799

Liabilities and Shareholders’ Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	203,661,459		$	209,465,151
Interest-bearing transaction accounts		258,401,561			265,513,937
Money market funds		130,731,075			129,728,954
Savings		177,994,875			168,390,905
Time deposits, $250,000 and over		17,106,871			17,463,871
Other time deposits		89,404,604			88,837,135
Total deposits		877,300,445			879,399,953
Borrowed funds		1,300,000			1,300,000
Repurchase agreements		28,744,011			32,609,875
Junior subordinated debentures		12,887,000			12,887,000
Accrued interest and other liabilities		7,514,626			8,148,703
Total liabilities		927,746,082			934,345,531

Shareholders’ Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 03/31/22 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, 5,602,178 shares issued at 03/31/22 and 5,587,939 shares issued at 12/31/21		14,005,445			13,969,848
Additional paid-in capital		35,559,149			35,322,063
Retained earnings		38,914,579			37,758,105
Accumulated other comprehensive loss		(9,911,608	)		(1,166,971	)
Less: treasury stock, at cost; 210,101 shares at 03/31/22 and 12/31/21		(2,622,777	)		(2,622,777	)
Total shareholders’ equity		77,444,788			84,760,268
Total liabilities and shareholders’ equity	$	1,005,190,870		$	1,019,105,799

Book value per common share outstanding	$	14.08		$	15.48

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

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Community Bancorp. and Subsidiary	Three Months Ended March 31,
Consolidated Statements of Income	2022		2021
(Unaudited)

Interest income
Interest and fees on loans	$	7,487,200	$	8,253,296
Interest on debt securities		667,226		265,112
Dividends		16,460		10,619
Interest on federal funds sold and overnight deposits		80,660		87,883
Total interest income		8,251,546		8,616,910

Interest expense
Interest on deposits		551,959		705,244
Interest on borrowed funds		21,965		14,941
Interest on repurchase agreements		21,040		35,442
Interest on junior subordinated debentures		98,352		98,795
Total interest expense		693,316		854,422

Net interest income		7,558,230		7,762,488
Provision for loan losses		862,500		267,497
Net interest income after provision for loan losses		6,695,730		7,494,991

Non-interest income
Service fees		862,887		788,623
Income from sold loans		203,842		185,006
Other income from loans		271,260		183,274
Other income		348,440		415,328
Total non-interest income		1,686,429		1,572,231

Non-interest expense
Salaries and wages		2,040,000		1,975,003
Employee benefits		772,052		831,210
Occupancy expenses, net		753,364		744,720
Other expenses		1,888,172		1,814,118
Total non-interest expense		5,453,588		5,365,051

Income before income taxes		2,928,571		3,702,171
Income tax expense		523,029		676,470
Net income	$	2,405,542	$	3,025,701

Earnings per common share	$	0.44	$	0.57
Weighted average number of common shares used in computing earnings per share		5,382,678		5,322,404
Dividends declared per common share	$	0.23	$	0.22

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

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Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)	Three Months Ended March 31,
	2022			2021

Net income	$	2,405,542		$	3,025,701

Other comprehensive loss, net of tax:
Unrealized holding loss on securities AFS arising during the period		(11,069,161	)		(1,660,640	)
Tax effect		2,324,524			348,735
Other comprehensive loss, net of tax		(8,744,637	)		(1,311,905	)
Total comprehensive (loss) income	$	(6,339,095	)	$	1,713,796

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

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Community Bancorp. and Subsidiary

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

	Three Months Ended March 31, 2022
					Additional											Total
	Common		Preferred		paid-in		Retained						Treasury			shareholders’
	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

Issuance of common stock		35,597				237,086											272,683
Cash dividends declared
Common stock								(1,236,880	)								(1,236,880	)
Preferred stock								(12,188	)								(12,188	)
Comprehensive income
Net income								2,405,542									2,405,542
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

	Three Months Ended March 31, 2021
					Additional											Total
	Common		Preferred		paid-in		Retained						Treasury			shareholders’
	Stock		Stock		capital		earnings			AOCI*			stock			equity

January 1, 2021	$	13,818,450	$	1,500,000	$	34,309,646	$	29,368,046		$	915,348		$	(2,622,777	)	$	77,288,713

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

*Accumulated other comprehensive (loss) income

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

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

Cash Flows from Operating Activities:
Net income	$	2,405,542		$	3,025,701
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, bank premises and equipment		285,202			259,449
Provision for loan losses		862,500			267,497
Deferred income tax		47,344			16,608
Gain on sale of loans		(102,945	)		(114,211	)
(Income) loss from CFS Partners		(225,870	)		1,693,014
Amortization of bond premium, net		186,967			95,456
Proceeds from sales of loans held for sale		4,425,711			2,145,611
Originations of loans held for sale		(4,229,766	)		(2,435,200	)
Increase in taxes payable		408,593			569,100
Increase in interest receivable		(318,578	)		(250,630	)
(Increase) decrease in mortgage servicing rights		(2,374	)		38,280
Decrease in right-of-use assets		49,669			49,031
Decrease in operating lease liabilities		(51,283	)		(49,198	)
Increase in other assets		(173,852	)		(148,665	)
Increase in cash surrender value of BOLI		(20,060	)		(21,673	)
Amortization of limited partnerships		67,092			90,762
Change in net deferred loan fees and costs		(312,318	)		1,076,424
Decrease in interest payable		(1,332	)		(12,953	)
Decrease in accrued expenses		(567,062	)		(420,431	)
(Decrease) increase in other liabilities		(24,896	)		3,175
Net cash provided by operating activities		2,708,284			5,877,147

Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		4,434,388			4,383,743
Purchases		(19,103,623	)		(27,371,666	)
Proceeds from redemption of restricted equity securities		43,500			0
Decrease in limited partnership contributions payable		0			(150,000	)
Increase in loans, net		(6,998,537	)		(20,167,317	)
Capital expenditures net of proceeds from sales of bank premises and equipment		(70,686	)		(2,657,300	)
Recoveries of loans charged off		11,780			25,314
Net cash used in investing activities		(21,683,178	)		(45,937,226	)

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	2022			2021

Cash Flows from Financing Activities:
Net (decrease) increase in demand and interest-bearing transaction accounts		(12,916,068	)		7,863,790
Net increase in money market and savings accounts		10,606,091			19,474,878
Net increase (decrease) in time deposits		210,469			(3,639,187	)
Net decrease in repurchase agreements		(3,865,864	)		(6,627,854	)
Repayments on long-term borrowings		0			(500,000	)
(Decrease) increase in finance lease obligations		(52,807	)		2,388,819
Dividends paid on preferred stock		(12,188	)		(12,188	)
Dividends paid on common stock		(900,893	)		(743,679	)
Net cash (used in) provided by financing activities		(6,931,260	)		18,204,579

Net decrease in cash and cash equivalents		(25,906,154	)		(21,855,500	)
Cash and cash equivalents:
Beginning		110,358,926			115,049,920
Ending	$	84,452,772		$	93,194,420

Supplemental Schedule of Cash Paid During the Period:
Interest	$	694,648		$	867,375

Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized loss on securities AFS	$	(11,069,161	)	$	(1,660,640	)

Common Shares Dividends Paid:
Dividends declared	$	1,236,880		$	1,169,555
Increase in dividends payable attributable to dividends declared		(63,304	)		(161,097	)
Dividends reinvested		(272,683	)		(264,779	)
Total dividends paid	$	900,893		$	743,679

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 contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, 2022.

There were no reclassifications to the consolidated financial statements for the periods presented.

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

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Note 2. Recent Accounting Developments

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 the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses over the life of a loan. The new guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans. A modified version of these requirements also applies to debt securities classified as available for sale, which will require that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down. The ASU may have a material impact on the Company’s consolidated financial statements upon adoption as it will require a change in the Company’s 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 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 effective for the Company beginning with the 2023 fiscal year including interim periods. Parallel calculations under the existing ALL methodology and the CECL model will be run throughout 2022 in preparation for the transition to CECL.

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 become effective for the Company beginning with the fiscal year 2023, including interim periods. The Company is currently assessing the impact of ASU No. 2022-02 but does 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.

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

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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.

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 March 31,	2022		2021

Net income, as reported	$	2,405,542	$	3,025,701
Less: dividends to preferred shareholders		12,188		12,188
Net income available to common shareholders	$	2,393,354	$	3,013,513
Weighted average number of common shares
used in calculating earnings per share		5,382,678		5,322,404
Earnings per common share	$	0.44	$	0.57

Note 4. Investment Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

March 31, 2022
U.S. GSE debt securities	$	12,001,306	$	0	$	764,922	$	11,236,384
U.S. Government securities		39,497,938		0		1,868,539		37,629,399
Taxable Municipal securities		300,000		0		26,323		273,677
Tax-Exempt Municipal securities		4,644,229		0		336,281		4,307,948
Agency MBS		132,398,698		23,491		9,482,071		122,940,118
ABS and OAS		1,847,185		4,332		22,855		1,828,662
CMO		1,422,549		0		115,921		1,306,628
Other investments		6,190,000		68,665		25,915		6,232,750
Total	$	198,301,905	$	96,488	$	12,642,827	$	185,755,566

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

December 31, 2021
U.S. GSE debt securities	$	12,001,978	$	36,024	$	209,504	$	11,828,498
U.S. Government securities		32,374,935		0		333,894		32,041,041
Taxable Municipal securities		300,000		0		1,267		298,733
Tax-Exempt Municipal securities		830,279		1,167		67		831,379
Agency MBS		128,291,487		184,002		1,342,968		127,132,521
ABS and OAS		2,131,610		82,414		0		2,214,024
CMO		1,451,349		0		30,891		1,420,458
Other investments		6,438,000		142,199		4,394		6,575,805
Total	$	183,819,638	$	445,806	$	1,922,985	$	182,342,459

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

	Amortized		Fair
	Cost		Value

March 31, 2022	$	60,664,506	$	56,148,099
December 31, 2021		63,045,599		62,256,702

There were no sales of debt securities for the first three months of 2022 or 2021.

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

	Amortized		Fair
	Cost		Value
March 31, 2022
Due in one year or less	$	3,718,000	$	3,739,035
Due from one to five years		45,449,014		43,386,569
Due from five to ten years		10,790,658		10,173,219
Due after ten years		5,945,535		5,516,625
Agency MBS		132,398,698		122,940,118
Total	$	198,301,905	$	185,755,566

December 31, 2021
Due in one year or less	$	3,470,000	$	3,508,582
Due from one to five years		36,860,731		36,619,130
Due from five to ten years		13,065,163		12,942,726
Due after ten years		2,132,257		2,139,500
Agency MBS		128,291,487		127,132,521
Total	$	183,819,638	$	182,342,459

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

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

	Less than 12 months				12 months or more				Totals
	Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized
	Value		Loss		Value		Loss		Securities		Value		Loss
March 31, 2022
U.S. GSE debt securities	$	6,718,245	$	283,061	$	4,518,139	$	481,861		11	$	11,236,384	$	764,922
U.S. Government securities		37,629,399		1,868,539		0		0		52		37,629,399		1,868,539
Taxable Municipal securities		273,677		26,323		0		0		1		273,677		26,323
Tax-Exempt Municipal securities		4,307,948		336,281		0		0		9		4,307,948		336,281
Agency MBS		91,645,963		6,483,880		29,071,931		2,998,191		106		120,717,894		9,482,071
ABS and OAS		1,277,498		22,855		0		0		2		1,277,498		22,855
CMO		449,231		29,845		857,397		86,076		3		1,306,628		115,921
Other investments		470,085		25,915		0		0		2		470,085		25,915
Total	$	142,772,046	$	9,076,699	$	34,447,467	$	3,566,128		186	$	177,219,513	$	12,642,827

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	Less than 12 months				12 months or more				Totals
	Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized
	Value		Loss		Value		Loss		Securities		Value		Loss
December 31, 2021
U.S. GSE debt securities	$	5,869,117	$	130,883	$	1,921,379	$	78,621		7	$	7,790,496	$	209,504
U.S. Government securities		32,041,041		333,894		0		0		46		32,041,041		333,894
Taxable Municipal securities		298,733		1,267		0		0		1		298,733		1,267
Tax-Exempt Municipal securities		330,212		67		0		0		1		330,212		67
Agency MBS		107,061,452		1,128,587		8,809,493		214,381		84		115,870,945		1,342,968
CMO		1,420,458		30,891		0		0		3		1,420,458		30,891
Other investments		491,606		4,394		0		0		2		491,606		4,394
Total	$	147,512,619	$	1,629,983	$	10,730,872	$	293,002		144	$	158,243,491	$	1,922,985

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

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

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

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

	March 31,			December 31,
	2022			2021

Commercial & industrial	$	121,473,157		$	120,933,470
Commercial real estate		308,311,734			300,958,931
Municipal		48,660,440			47,955,231
Residential real estate - 1st lien		181,610,294			181,316,345
Residential real estate - Jr lien		33,066,989			34,359,864
Consumer		3,170,568			4,464,692
Total loans		696,293,182			689,988,533

ALL		(7,890,648	)		(7,710,256	)
Deferred net loan cost (fees)		274,346			(37,972	)
Net loans	$	688,676,880		$	682,240,305

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

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

Commercial & industrial	$	233,764	$	141,700	$	375,464	$	121,097,693	$	121,473,157	$	222,236	$	0
Commercial real estate		1,546,310		1,640,382		3,186,692		305,125,042		308,311,734		3,708,593		0
Municipal		0		0		0		48,660,440		48,660,440		0		0
Residential real estate
- 1st lien		1,221,885		611,883		1,833,768		179,776,526		181,610,294		1,343,723		561,440
- Jr lien		82,115		93,374		175,489		32,891,500		33,066,989		140,411		93,374
Consumer		4,028		0		4,028		3,166,540		3,170,568		0		0
Totals	$	3,088,102	$	2,487,339	$	5,575,441	$	690,717,741	$	696,293,182	$	5,414,963	$	654,814

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

Commercial & industrial	$	833,875	$	0	$	833,875	$	120,099,595	$	120,933,470	$	98,661	$	0
Commercial real estate		49,450		2,400,514		2,449,964		298,508,967		300,958,931		4,517,839		0
Municipal		0		0		0		47,955,231		47,955,231		0		0
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
Consumer		9,741		0		9,741		4,454,951		4,464,692		0		0
Totals	$	2,135,203	$	3,095,765	$	5,230,968	$	684,757,565	$	689,988,533	$	5,940,629	$	593,303

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

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

	Number of loans		Balance

March 31, 2022		4	$	153,054
December 31, 2021		5		195,082

Allowance for loan losses

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

Unsecured loans are charged off when they become uncollectible and no later than 120 days past due. Unsecured loans to customers who subsequently file bankruptcy are charged off within 30 days of receipt of the notification of filing or by the end of the month in which the loans become 120 days past due, whichever occurs first. For secured loans, both residential and commercial, the potential loss on impaired loans is carried as a loan loss reserve specific allocation; the loss portion is charged off when collection of the full loan appears unlikely. The unsecured portion of a real estate loan is that portion of the loan exceeding the “fair value” 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.

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

General component

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

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

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

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

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

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

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

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

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

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

Specific component

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

Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two. As described above in Note 2, 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.

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

Unallocated component

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

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The tables below summarize changes in the ALL and select loan information, by portfolio segment, for the periods indicated.

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

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

ALL beginning balance	$	939,047		$	4,151,760		$	76,728	$	1,765,892	$	182,014		$	55,698		$	539,117		$	7,710,256
Charge-offs		(17,650	)		(667,474	)		0		0		0			(8,764	)		0			(693,888	)
Recoveries		0			0			0		2,276		1,210			8,294			0			11,780
Provision (credit)		117,903			1,159,995			10,861		46,289		(4,671	)		(19,036	)		(448,841	)		862,500
ALL ending balance	$	1,039,300		$	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	$	115,614	$	0		$	0		$	0		$	115,614
Collectively		1,039,300			4,644,281			87,589		1,698,843		178,553			36,192			90,276			7,775,034
Total	$	1,039,300		$	4,644,281		$	87,589	$	1,814,457	$	178,553		$	36,192		$	90,276		$	7,890,648

Loans evaluated for impairment
Individually	$	222,236		$	3,713,169		$	0	$	3,910,848	$	85,691		$	0					$	7,931,944
Collectively		121,250,921			304,598,565			48,660,440		177,699,446		32,981,298			3,170,568						688,361,238
Total	$	121,473,157		$	308,311,734		$	48,660,440	$	181,610,294	$	33,066,989		$	3,170,568					$	696,293,182

As of or for the year ended December 31, 2021

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

ALL beginning balance	$	842,547		$	3,854,153		$	82,211		$	1,735,304		$	234,896		$	60,461		$	398,913	$	7,208,485
Charge-offs		(18,847	)		(22,000	)		0			(98,704	)		0			(87,651	)		0		(227,202	)
Recoveries		4,761			27,160			0			7,636			10,821			54,430			0		104,808
Provision (credit)		110,586			292,447			(5,483	)		121,656			(63,703	)		28,458			140,204		624,165
ALL ending balance	$	939,047		$	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		$	79,978		$	0		$	0		$	0	$	79,978
Collectively		939,047			4,151,760			76,728			1,685,914			182,014			55,698			539,117		7,630,278
Total	$	939,047		$	4,151,760		$	76,728		$	1,765,892		$	182,014		$	55,698		$	539,117	$	7,710,256

Loans evaluated for impairment
Individually	$	93,362		$	4,553,734		$	0		$	3,720,503		$	88,563		$	0				$	8,456,162
Collectively		120,840,108			296,405,197			47,955,231			177,595,842			34,271,301			4,464,692					681,532,371
Total	$	120,933,470		$	300,958,931		$	47,955,231		$	181,316,345		$	34,359,864		$	4,464,692				$	689,988,533

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As of or for the three months ended March 31, 2021

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

ALL beginning balance	$	842,547		$	3,854,153		$	82,211	$	1,735,304		$	234,896		$	60,461		$	398,913	$	7,208,485
Charge-offs		(18,847	)		0			0		0			0			(14,161	)		0		(33,008	)
Recoveries		4,761			7,000			0		1,567			528			11,458			0		25,314
Provision (credit)		60,170			(37,468	)		1,320		(69,277	)		(32,112	)		(18,136	)		363,000		267,497
ALL ending balance	$	888,631		$	3,823,685		$	83,531	$	1,667,594		$	203,312		$	39,622		$	761,913	$	7,468,288

ALL evaluated for impairment
Individually	$	0		$	0		$	0	$	119,306		$	255		$	0		$	0	$	119,561
Collectively		888,631			3,823,685			83,531		1,548,288			203,058			39,621			761,913		7,348,727
Total	$	888,631		$	3,823,685		$	83,531	$	1,667,594		$	203,313		$	39,621		$	761,913	$	7,468,288

Loans evaluated for impairment
Individually	$	420,974		$	1,645,678		$	0	$	4,394,274		$	143,333		$	0				$	6,604,259
Collectively		188,022,649			276,837,413			52,207,213		165,415,944			36,735,240			3,666,921					722,885,380
Total	$	188,443,623		$	278,483,091		$	52,207,213	$	169,810,218		$	36,878,573		$	3,666,921				$	729,489,639

Impaired loans, by portfolio segment, were as follows:

	As of March 31, 2022
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment(1)		Balance		Allowance		Investment(1)(2)		Recognized(2)

Related allowance recorded
Residential real estate
1st lien	$	1,113,112	$	1,129,082	$	115,614	$	907,849	$	14,387
Jr lien		0		0		0		0		51
Total with related allowance		1,113,112		1,129,082		115,614		907,849		14,438

No related allowance recorded
Commercial & industrial		222,236		261,011				157,799		204
Commercial real estate		3,713,309		4,861,145				4,133,691		1,670
Residential real estate
1st lien		2,836,069		3,845,577				2,943,358		42,714
Jr lien		85,697		131,069				87,133		37
Total with no related allowance		6,857,311		9,098,802				7,321,981		44,625

Total impaired loans	$	7,970,423	$	10,227,884	$	115,614	$	8,229,830	$	59,063

(1)	Recorded investment in impaired loans as of March 31, 2022 includes accrued interest receivable of $38,479.
(2)	For the three months ended March 31, 2022.

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	As of December 31, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment(1)		Balance		Allowance		Investment(1)(2)		Recognized(2)

Related allowance recorded
Residential real estate
1st lien	$	702,586	$	716,118	$	79,978	$	858,124	$	60,769
Jr lien		0		0		0		3,452		243
Total with related allowance		702,586		716,118		79,978		861,576		61,012

No related allowance recorded
Commercial & industrial		93,362		115,414				290,181		204
Commercial real estate		4,554,074		5,108,557				2,747,193		120,996
Residential real estate
1st lien		3,050,647		4,076,352				3,331,971		205,514
Jr lien		88,570		132,802				124,803		186
Total with no related allowance		7,786,653		9,433,125				6,494,148		326,900

Total impaired loans	$	8,489,239	$	10,149,243	$	79,978	$	7,355,724	$	387,912

(1)	Recorded investment in impaired loans as of December 31, 2021 includes accrued interest receivable and deferred net loan costs of $33,077.
(2)	For the year ended December 31, 2021.

	As of March 31, 2021
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment(1)		Balance		Allowance		Investment(1)(2)		Recognized(2)

Related allowance recorded
Residential real estate
1st lien	$	1,159,129	$	1,196,306	$	119,306	$	1,029,855	$	18,650
Jr lien		4,466		4,463		255		4,622		117
Total with related allowance		1,163,595		1,200,769		119,561		1,034,477		18,767

No related allowance recorded
Commercial & industrial		420,975		485,396				417,620		204
Commercial real estate		1,645,921		2,103,732				1,794,967		2,044
Residential real estate
1st lien		3,269,662		4,132,986				3,529,314		46,958
Jr lien		138,870		180,547				134,574		0
Total with no related allowance		5,475,428		6,902,661				5,876,475		49,206

Total impaired loans	$	6,639,023	$	8,103,430	$	119,561	$	6,910,952	$	67,973

(1)	Recorded investment in impaired loans as of March 31, 2021 includes accrued interest receivable and deferred net loan costs of $34,764.
(2)	For the three months ended March 31, 2021.

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.

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Credit Quality Grouping

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

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

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

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

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower’s 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 Officer of any known increase in loan risk, even if considered temporary in nature.

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

As of March 31, 2022

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

Group A	$	118,322,106	$	299,401,050	$	48,660,440	$	177,592,027	$	32,631,970	$	3,170,568	$	679,778,161
Group B		579,664		2,422,197		0		0		0		0		3,001,861
Group C		2,571,387		6,488,487		0		4,018,267		435,019		0		13,513,160
Total	$	121,473,157	$	308,311,734	$	48,660,440	$	181,610,294	$	33,066,989	$	3,170,568	$	696,293,182

As of December 31, 2021

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

Group A	$	117,607,773	$	285,732,365	$	47,955,231	$	177,456,149	$	34,166,076	$	4,464,692	$	667,382,286
Group B		693,084		6,550,335		0		0		0		0		7,243,419
Group C		2,632,613		8,676,231		0		3,860,196		193,788		0		15,362,828
Total	$	120,933,470	$	300,958,931	$	47,955,231	$	181,316,345	$	34,359,864	$	4,464,692	$	689,988,533

Modifications of Loans and TDRs

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

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

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

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

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

The Company has adopted the TDR guidance issued by the federal banking agencies in March and April 2020 regarding the treatment of certain short-term loan modifications relating to the COVID-19 pandemic (See Note 2). 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, 351 remained on the books with an aggregate principal balance of $103.2 million as of March 31, 2022.

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New TDRs, by portfolio segment, during the periods presented were as follows:

Three months ended March 31, 2022

Pre-

Post-

Modification

Outstanding

Number of

Recorded

Contracts

Investment

Residential real estate - 1st lien

292,592

	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

Three months ended March 31, 2021

Pre-

Post-

Modification

Outstanding

Number of

Recorded

Contracts

Investment

Commercial & industrial

41,751

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

For the twelve months ended March 31, 2022

	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

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For the twelve months ended March 31, 2021

	Number of		Recorded
	Contracts		Investment

Commercial & industrial		1	$	41,001
Residential real estate - 1st lien		1		162,821
		2	$	203,822

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

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

	March 31,		December 31,
	2022		2021

Specific Allocation	$	115,614	$	79,978

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

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

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.

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.

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

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

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

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

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

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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

	March 31,		December 31,
Assets: (market approach)	2022		2021

Level 1
U.S. Government securities	$	37,629,399	$	32,041,041

Level 2
U.S. GSE debt securities	$	11,236,384	$	11,828,498
Taxable Municipal securities		273,677		298,733
Tax-Exempt Municipal securities		4,307,948		831,379
Agency MBS		122,940,118		127,132,521
ABS and OAS		1,828,662		2,214,024
CMO		1,306,628		1,420,458
Other investments		6,232,750		6,575,805
Level 2 Total	$	148,126,167	$	150,301,418

Grand Total	$	185,755,566	$	182,342,459

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

The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a partial write-down or with a related specific ALL and are presented net of the specific allowances as disclosed in Note 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 or 2021.

	March 31,		December 31,
Level 2	2022		2021
Assets: (market approach)
Impaired loans, net of related allowance	$	1,792,892	$	177,523
Loans held-for-sale		246,000		339,000
MSRs (1)		900,094		897,720

(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.

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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:

March 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	$	84,453	$	84,453	$	0	$	0	$	84,453
Debt securities AFS		185,756		37,630		148,126		0		185,756
Restricted equity securities		1,391		0		1,391		0		1,391
Loans and loans held-for-sale, net of ALL
Commercial & industrial		120,196		0		96		120,247		120,343
Commercial real estate		303,589		0		1,571		303,512		305,083
Municipal		48,566		0		0		48,136		48,136
Residential real estate - 1st lien		180,554		0		126		176,286		176,412
Residential real estate - Jr lien		32,884		0		0		32,865		32,865
Consumer		3,134		0		0		3,175		3,175
MSRs (1)		900		0		995		0		995
Accrued interest receivable		2,719		0		2,719		0		2,719

Financial liabilities:
Deposits
Other deposits		877,051		0		875,756		0		875,756
Brokered deposits		249		0		235		0		235
Long-term borrowings		1,300		0		1,112		0		1,112
Repurchase agreements		28,744		0		28,744		0		28,744
Operating lease obligations		812		0		812		0		812
Finance lease obligations		3,805		0		3,805		0		3,805
Subordinated debentures		12,887		0		12,826		0		12,826
Accrued interest payable		58		0		58		0		58

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

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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		119,382		0		0		120,146		120,146
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:

	Three Months Ended			Year Ended
	March 31, 2022			December 31, 2021

Balance at beginning of year	$	897,720		$	922,146
MSRs capitalized		45,304			147,328
MSRs amortized		(42,930	)		(225,404	)
Change in valuation allowance		0			53,650
Balance at end of period	$	900,094		$	897,720

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 March 16, 2022, the Company’s Board declared a cash dividend of $0.23 per common share, payable May 1, 2022 to shareholders of record as of April 15, 2022. 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 March 31, 2022

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

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; and management’s general outlook for the future performance of the Company or the local or national economy. Although forward-looking statements are based on management’s 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:

	·	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;
	·	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;
	·	interest rates change in such a way as to negatively affect the Company’s net income, asset valuations or margins;
	·	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;
	·	changes in federal or state tax laws or policy;
	·	changes in the level of nonperforming assets and charge-offs;
	·	changes in applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to the measurement of credit losses in financial statements under U.S. GAAP pursuant to the CECL model;
	·	changes in consumer and business spending, borrowing and savings habits;
	·	reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;
	·	the geographic concentration of the Company’s loan portfolio and deposit base;
	·	losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees;

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	·	cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;
	·	higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;
	·	management’s risk management measures may not be completely effective;
	·	changes in the United States monetary and fiscal policies, including the interest rate policies of the FRB and its regulation of the money supply;
	·	adverse changes in the credit rating of U.S. government debt;
	·	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%;
	·	continuing the 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 usage by customers of online and other remote banking channels;
	·	the impact of inflation on the Company’s customers and on its financial results and performance; and
	·	the ongoing challenges to find qualified workers to maintain a stable workforce.

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 March 31, 2022 were $1,005,190,870 compared to $1,019,105,799 at December 31, 2021, a decrease of 1.4%. Significant changes in the asset base were a decrease of $25.9 million, or 23.5%, in cash and cash equivalents, which was partially offset by an increase in net loans of $6.4 million, or 0.9%, and an increase in the available for sale investment portfolio of $3.4 million. The decrease in cash also reflects deposit runoff, primarily in business and municipal accounts, in the first quarter. The increase in the loan portfolio was primarily attributable to an increase of $7.8 million in commercial & industrial loans and $6.1 million in CRE loans, which was partially offset by a $7.0 million decrease in PPP loan balances.

Total deposits on March 31, 2022 were $877,300,445 compared to $879,399,953 on December 31, 2021, a decrease of $2.1 million, or 0.2%, reflecting the combined effect of decreases in core deposits (demand deposit accounts, non-interest bearing) of $5.8 million, or 2.8%, and a decrease in interest-bearing transaction accounts of $7.1 million, or 2.7%, partially offset by an increase in money market funds totaling $1.0 million, or 0.8%, and an increase in savings accounts of $9.6 million, or 5.7%.

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Consolidated net income for the first three months of 2022 decreased $620,159, or 20.5% compared to the same period in 2021. A $927,248 decrease in the amortization of PPP loan processing fees from the SBA was partially offset by an increase of $407,954 in investment income from the Company’s debt securities portfolio and adjustments to interest income totaling $177,000, which is primarily from loans coming out of non-accrual status. Also contributing to the offset was a decrease of $54,257 in interest expense on savings and money market deposits, and a decrease of $103,849 in interest expense from time deposits. These changes and other significant changes are discussed in the appropriate income sections of this MD&A.

Total interest income decreased $365,364, or 4.2%, 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 income. The amortization of the SBA PPP fees was $295,769 for the first three months of 2022, compared to $1.2 million for the same period in 2021. Those processing fees represented 73.2% and 92.9%, respectively, of the total of fees on loans of $404,326 for the first three months of 2022, and $1.3 million for the first three months of 2021.

Total interest expense decreased $161,106, or 18.9%, for the first three months of 2022 compared to the same period in 2021. A decrease in time deposits year over year is a contributing factor to the decrease in interest expense, as well as the prolonged low interest rate environment that prevailed throughout 2021 and most of the first quarter of 2022. 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 losses for the first quarter of 2022 was $862,500 compared to $267,497 for the same quarter of 2021, resulting in an increase of $595,003, or 222.4%, between periods. This increase to the provision was driven primarily by a write-down on a non-performing CRE loan totaling $667,474 during March 2022. Please refer to the ALL and provisions discussion in the Credit Risk section for more information.

Equity capital decreased to $77.4 million, with a book value per share of $14.08 as of March 31, 2022, compared to equity capital of $84.8 million and a book value of $15.48 as of December 31, 2021. This decrease in equity is directly related to the increase of unrealized losses in the investment portfolio, reflecting rising bond rates, which resulted in an increase of $8,744,637, net of tax, in the accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet. This position is considered temporary and does not impact the Company’s regulatory capital ratios.

On March 16, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on May 1, 2022 to shareholders of record on April 15, 2022.

As of March 31, 2022, 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 or government monetary policy.

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.

The Company’s critical accounting policies govern:

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

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

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RESULTS OF OPERATIONS

Net income for the first three months of 2022 was $2,405,542 or $0.44 per common share, compared to $3,025,701 or $0.57 per common share for the same period of 2021. Core earnings (NII) for the first three months of 2022 were $7.6 million compared to $7.8 million for the same period in 2021. As noted in the Overview, the decrease year over year is attributable to a decrease in the amortization of fees from administering PPP loans. 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 $5.1 million as of March 31, 2022. As these loans are paid in full, the unamortized fees are taken to income, resulting in a decrease in income year over year. Interest paid on deposits, which is the major component of total interest expense, decreased $153,284, or 21.7% in 2022, driven in part by a decrease in time deposits.

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, for the comparison periods presented.

	Three Months Ended March 31,
	2022			2021
Return on average assets		0.97	%		1.33	%
Return on average equity		11.76	%		15.75	%
Dividend payout ratio (1)		52.27	%		38.60	%
Average equity to average assets		8.24	%		8.48	%

(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.

The Company’s tax-exempt interest income of $236,043 and $258,761 for the three months ended March 31, 2022 and 2021, respectively, was derived from loans to local municipalities of $48.7 million and $52.2 million, and tax-exempt municipal investments of $2.2 million and $0, at March 31, 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 March 31,
	2022		2021

Net interest income as presented	$	7,558,230	$	7,762,488
Effect of tax-exempt income		62,745		68,785
Net interest income, tax equivalent	$	7,620,975	$	7,831,273

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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 rate/yield for the comparison periods presented.

	Three Months Ended March 31,
			2022							2021
					Average							Average
	Average		Income/		Rate/			Average		Income/		Rate/
	Balance		Expense		Yield			Balance		Expense		Yield
Interest-Earning Assets
Loans (1)	$	693,001,033	$	7,547,035		4.42	%	$	720,584,311	$	8,322,081		4.68	%
Taxable investment securities		185,794,633		656,277		1.43	%		71,633,125		265,112		1.50	%
Tax-exempt investment securities		2,232,280		13,859		2.52	%		0		0		0.00	%
Sweep and interest-earning accounts		69,778,429		80,660		0.47	%		79,995,338		87,883		0.45	%
Other investments (2)		1,779,400		16,460		3.75	%		1,833,550		10,619		2.35	%
Total	$	952,585,775	$	8,314,291		3.54	%	$	874,046,324	$	8,685,695		4.03	%

Interest-Bearing Liabilities
Interest-bearing transaction accounts	$	258,739,985	$	160,078		0.25	%	$	214,680,380	$	146,518		0.28	%
Money market funds		130,743,524		127,680		0.40	%		120,918,163		168,105		0.56	%
Savings deposits		173,158,450		23,440		0.05	%		144,612,956		37,273		0.10	%
Time deposits		106,635,720		240,761		0.92	%		111,327,106		353,348		1.29	%
Borrowed funds		1,301,144		2		0.00	%		2,530,789		12		0.00	%
Repurchase agreements		28,847,413		21,040		0.30	%		37,312,342		35,442		0.39	%
Finance lease obligations		3,823,091		21,963		2.30	%		1,679,688		14,929		3.56	%
Junior subordinated debentures		12,887,000		98,352		3.10	%		12,887,000		98,795		3.11	%
Total	$	716,136,327	$	693,316		0.39	%	$	645,948,424	$	854,422		0.54	%

Net interest income			$	7,620,975						$	7,831,273
Net interest spread (3)						3.15	%						3.49	%
Net interest margin (4)						3.24	%						3.63	%

	(1)	Included in gross loans are non-accrual loans with average balances of $5,736,827 and $4,087,346 for the three months ended March 31, 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 $49,022,025 and $52,232,117 for the three months ended March 31, 2022 and 2021, respectively.

	(2)	Included in other investments is the Company’s FHLBB Stock with average balances of $714,250 and $768,400, respectively, with a dividend rate of approximately 2.66% and 1.54%, respectively, for the three months ended March 31, 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.

The average volume of interest-earning assets for the three-month period ended March 31, 2022 increased 9.0% compared to the three-month period ended March 31, 2021. The average yield on interest-earning assets decreased 49 basis points for 2022 versus 2021.

The average volume of loans decreased 3.8% for the first three months of 2022 versus the same period in 2021, and the average yield on loans decreased 26 basis points to 4.42% for 2022 compared to 4.68% for 2021. The decrease in the yield in 2022 was due primarily to the decrease in PPP fees year over year as discussed in the Overview. The decrease in the average volume of loans is attributable to the forgiveness and payoff of PPP loans by the SBA between periods. Interest earned on the loan portfolio as a percentage of total interest income decreased to 90.8% for the first three months of 2022, compared to 95.8% for the same period in 2021.

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The average volume of the taxable investment portfolio (classified as AFS) increased 159.4% for the three-month period ended March 31, 2022 compared the same period last year, while the average yield decreased seven basis points. The increase in average volume is due primarily to management’s effort to continue to grow the investment portfolio incrementally as the balance sheet grows in order to provide additional liquidity and pledge quality assets.

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three-month period ended March 31, 2022 was $2.2 million, with a tax equivalent yield of 2.52%. The Company began investing in these tax-exempt bonds during December 2021.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 12.8% for the three-month ended March 31, 2022 compared to the same period in 2021. This decrease in volume is attributable to a need to fund investment and loan growth and also to a decrease in customer deposit accounts. The average yield on these funds increased two basis points during the first three months of 2022 versus the same period in 2021.

The average volume of interest-bearing liabilities for the three-month period ended March 31, 2022 increased 10.9% compared to the same period in 2021. The average rate paid on interest-bearing liabilities decreased 15 basis points during 2022 compared to 2021. Although year to date volume shows an overall decrease in deposit accounts, most of the funds deposited through PPP loan proceeds and stimulus funds remained on deposit throughout 2021.

The average volume of interest-bearing transaction accounts increased 20.5% during the three-month period ended March 31, 2022 compared to the same period of 2021, reflecting strong deposit growth throughout 2021. The average rate paid on these accounts decreased three basis points between comparison periods.

The average volume of money market accounts increased 8.1% during the three-month period ended March 31, 2022 compared to the same period of 2021, while the average rate paid on these deposits decreased 16 basis points.

The average volume of savings accounts increased 19.7% for the three-month period ended March 31, 2022 compared to the same period in 2021, while the average rate paid on these accounts decreased five basis points.

The average volume of time deposits decreased 4.2% during the three-month period ended March 31, 2022 compared to the same period in 2021, and the average rate paid decreased 37 basis points. Interest paid on time deposits as a percentage of total interest expense was 34.7% and 41.4%, respectively for the three-month periods ended March 31, 2022 and 2021. The decrease in the average volume of time deposits between periods reflects the maturity of brokered deposits in January and April of 2021 that had not been replaced as of March 31, 2022. Management still considers the brokered deposit market to be a beneficial source of funding 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 $1.2 million, or 48.6% for the three-month period ended March 31, 2022 compared to the same period in 2021 and, for both periods, consisted of only JNE funds at zero percent interest.

The average volume of repurchase agreements decreased 22.7% for the three-month period ended March 31, 2022 compared to the same period in 2021 and the average rate paid decreased nine basis points.

In summary, between the three-month periods ended March 31, 2022 and 2021, the average yield on interest-earning assets decreased 49 basis points and the average rate paid on interest-bearing liabilities decreased 15 basis points. Net interest spread decreased 34 basis points for the three-month period of 2022 versus 2021 and net interest margin decreased 39 basis points between periods.

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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 and 2021 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.

	Three Months Ended March 31,
	Variance			Variance
	Due to			Due to			Total
	Rate (1)			Volume (1)			Variance

Average Interest-Earning Assets

Loans	$	(474,426	)	$	(300,620	)	$	(775,046	)
Taxable investment securities		(31,076	)		422,241			391,165
Tax-exempt investment securities		13,859			0			13,859
Sweep and interest-earning accounts		4,617			(11,840	)		(7,223	)
Other investments		6,342			(501	)		5,841
Total	$	(480,684	)	$	109,280		$	(371,404	)

Average Interest-Bearing Liabilities

Interest-bearing transaction accounts	$	(16,859	)	$	30,419		$	13,560
Money market funds		(53,992	)		13,567			(40,425	)
Savings deposits		(20,872	)		7,039			(13,833	)
Time deposits		(101,945	)		(10,642	)		(112,587	)
Borrowed funds		(10	)		0			(10	)
Repurchase agreements		(8,140	)		(6,262	)		(14,402	)
Finance lease obligations		(11,781	)		18,815			7,034
Junior subordinated debentures		(443	)		0			(443	)
Total	$	(214,042	)	$	52,936		$	(161,106	)

Changes in net interest income	$	(266,642	)	$	56,344		$	(210,298	)

(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
	March 31,				Change
	2022		2021		Income			Percent

Service fees	$	862,887	$	788,623	$	74,264			9.42	%
Income from sold loans		203,842		185,006		18,836			10.18	%
Other income from loans		271,260		183,274		87,986			48.01	%
Other income
Income from CFS Partners		225,870		306,986		(81,116	)		-26.42	%
Other miscellaneous income		122,570		108,342		14,228			13.13	%
Total non-interest income	$	1,686,429	$	1,572,231	$	114,198			7.26	%

Total non-interest income increased $114,198, or 7.3%, for the first three months of 2022 compared to the same period in 2021, with significant changes noted in the following:

	·	The increase in service fees during the comparison period is mostly due to an increase in interchange income of $21,686, or 5% and overdraft charges of $53,280, or 29.3%, year over year.

	·	The increase in income from sold loans is due to a higher volume of loans sold into the secondary market during the first three months of 2022 versus 2021.

	·	An increase in CRE loan volume in 2022 resulted in a significant increase in documentation fees collected at origination, accounting for the increase in other income from loans when comparing the two periods.

	·	Income from CFS Partners decreased between periods due in part to the impact of mark-to-market adjustments to CFS Partners equity portfolio during the first two months of 2022. The capital markets rebounded during March, but not enough to offset the decrease during the first two months.

	·	Included in Other miscellaneous income for the first three months of 2022 is income totaling $23,400 associated with a renegotiated contract with the Company’s check printing vendor.

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Non-interest Expense

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

	Three Months Ended
	March 31,				Change
	2022		2021		Expense			Percent

Salaries and wages	$	2,040,000	$	1,975,003	$	64,997			3.29	%
Employee benefits		772,052		831,210		(59,158	)		-7.12	%
Occupancy expenses, net		753,364		744,720		8,644			1.16	%
Other expenses
Directors Fees		143,857		129,104		14,753			11.43	%
Telephone expense		34,571		32,125		2,446			7.61	%
Audit fees		100,728		89,232		11,496			12.88	%
Consultant services		64,887		78,789		(13,902	)		-17.64	%
FDIC insurance		89,984		82,857		7,127			8.60	%
Collection & non-accruing loan expense		36,000		11,600		24,400			210.34	%
ATM fees		140,890		128,946		11,944			9.26	%
Electronic banking expense		67,578		52,382		15,196			29.01	%
State deposit tax		240,478		206,933		33,545			16.21	%
Other miscellaneous expenses		969,199		1,002,150		(32,951	)		-3.29	%
Total non-interest expense	$	5,453,588	$	5,365,051	$	88,537			1.65	%

Total non-interest expense increased $88,537, or 1.7%, for the first three months of 2022 compared to the same period in 2021, with significant changes noted in the following:

	·	The increase in salaries and wages is due to normal salary increases.

	·	The decrease in employee benefits in was attributable to a decrease in health insurance claims year over year.

	·	The increase in directors’ fees is attributable to a change to the Director’s fee schedule as well as an additional Director for 2022 whose quarterly compensation totaled $10,056.

	·	Telephone expense increased due to a one-time fee charged in February 2022.

	·	An increase was budgeted for audit fees in anticipation of increased audit services due to the Company surpassing the $1.0 billion asset size.

	·	The decrease in consultant services year over year is attributable in part to recruitment of a senior management position in 2021.

	·	FDIC insurance increased due primarily to an increase in assets as well as an increase in the assessment multiplier year over year.

	·	Collection & non-accruing loan expense is higher year over year due to expenses associated with a commercial property in the Company’s non-accruing loan portfolio.

	·	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.

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

	·	The components of other miscellaneous expense are made up of several categories including outsourcing expense and service contracts – administration, but none with changes year over year greater than 5%.

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APPLICABLE INCOME TAXES

The provision for income taxes decreased $153,441, or 22.7%, for the first three months of 2022 compared to the same period in 2021 and is proportional to the decrease in income before income taxes totaling $773,600 year over year. Tax credits related to limited partnership investments amounted to $96,237 and $117,015, respectively, for the first three months of 2022 and 2021.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $67,092 and $90,762, respectively, for the first three months of 2022 and 2021. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 7% and 10%.

CHANGES IN FINANCIAL CONDITION

The following table reflects the composition of the Company’s 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:

	March 31, 2022				December 31, 2021
Assets
Loans	$	696,293,182	69.27	%	$	689,988,533	67.71	%
AFS securities		185,755,566	18.48	%		182,342,459	17.89	%

Liabilities
Demand deposits		203,661,459	20.26	%		209,465,151	20.55	%
Interest-bearing transaction accounts		258,401,561	25.71	%		265,513,937	26.05	%
Money market funds		130,731,075	13.01	%		129,728,954	12.73	%
Savings deposits		177,994,875	17.71	%		168,390,905	16.52	%
Time deposits		106,511,475	10.60	%		106,301,006	10.43	%
Long-term advances		1,300,000	0.13	%		1,300,000	0.13	%

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
Assets
Loans	$	6,304,649			0.91	%
AFS securities		3,413,107			1.87	%

Liabilities
Demand deposits		(5,803,692	)		-2.77	%
Interest-bearing transaction accounts		(7,112,376	)		-2.68	%
Money market funds		1,002,121			0.77	%
Savings deposits		9,603,970			5.70	%
Time deposits		210,469			0.20	%

The increase in the loan portfolio during the first three months of 2022 was attributable to increases totaling $13.9 million in commercial & industrial and CRE loans, which was partially offset by payoffs of certain PPP loans through SBA’s forgiveness program totaling $7.0 million. The SBA PPP program ended during the second quarter 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.

The increase in the securities AFS portfolio is attributable to the purchase of $19.1 million in securities AFS during the first three months of 2022, consisting of $7.2 million in US Treasuries, $3.8 million in Tax-exempt municipal bonds, and $8.1 million in MBS. These purchases were reduced in part by maturities and calls exercised amounting to $291,500, as well as principal payments on MBS totaling $4.2 million, and by an increase of $11.1 million in unrealized losses arising during the first quarter of 2022 and 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.

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Most of the fluctuation in demand deposits is due to a decrease during the first quarter of 2022 in business checking accounts of $7.1 million, or 4.4%, which the Company believes primarily reflects the outflow of funds as customers are starting to spend some of the funds generated through the PPP loans. The decrease in interest-bearing transaction accounts consists of a decrease of $10.8 million, or 25.7%, in municipal deposit accounts, as well as a decrease of $6.1 million, or 8.6%, in ICS deposit accounts, which was partially offset by an increase of $8.1 million, or 7.0%, in consumer interest-bearing transaction accounts. The increase in savings deposits of $9.6 million, or 5.7%, is likely attributable in part to parked funds as customers await more favorable rates for time deposits, as well as deposits of stimulus payments and tax credits from the U.S. Government.

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 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 rising rate environment will have a positive impact to the Company’s NII in 2022.

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 March 31, 2022:

Rate Change	Percent Change in NII

Down 100 bps		-1.2	%
Up 200 bps		0.9	%

The estimated amounts shown in the table 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 rates.

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As of March 31, 2022, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear a quarterly floating rate of interest equal to the 3-month London Interbank Offered Rate (LIBOR), plus 2.85%. During 2017, the Financial Conduct Authority (FCA) in the United Kingdom that administers LIBOR announced that LIBOR will be phased out, with an expected target date of December 31, 2021 for the phase out. On March 5, 2021, the FCA announced firm target dates for the phase out of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S. dollar deposits. Under the terms of the Indenture, if 3-month LIBOR is not available, the Trustee may obtain substitute quotations from four leading banks in the London interbank market for their offered rate to prime banks in the London market for U.S. dollar deposits having a three month maturity; if at least two such quotations are provided, the quarterly rate on the Debentures will be the arithmetic mean of such quotations. If fewer than two such quotations are received, the Trustee will request substitute quotations from four major New York City banks for their offered rate to leading European banks for loans in U.S. dollars; if at least two such quotations are provided, the quarterly rate on the Debentures will be the arithmetic mean of such quotations. The Debenture Trustee has not yet informed the Company as to how it intends to proceed. 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 the magnitude of the impact on the Company’s interest expense at this time.

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

Residential mortgages represented 30.8% of the Company’s loan balances as of March 31, 2022, compared to 31.3% at December 31, 2021, a level that has historically been on a gradual annual decline in recent years, consistent with the Company’s strategic shift to commercial lending. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not engage in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-values 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 March 31, 2022, junior lien home equity products made up 17.6% 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.

Consistent with the strategic focus on commercial lending, the commercial & industrial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial and CRE loans together comprised 68.7% of the Company’s loan portfolio at March 31, 2022, compared to 68.1% at December 31, 2021. Those percentages included the Company’s portfolio of PPP loans, which have been steadily decreasing, and totaled $5.1 million at March 31, 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 that 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. The largest components of the $308.3 million CRE portfolio at March 31, 2022 were $105.6 million in owner-occupied CRE and $110.0 million in non-owner occupied CRE.

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 March 31, 2022, the Company had $36.8 million in guaranteed loans with guaranteed balances of $28.8 million, compared to $42.9 million in guaranteed loans with guaranteed balances of $35.4 million at December 31, 2021. PPP loans are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

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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 Company’s TDRs that were past due 90 days or more or in non-accrual status as of the dates presented:

	March 31, 2022				December 31, 2021
	Number of		Principal		Number of		Principal
	Loans		Balance		Loans		Balance

Commercial & industrial		5	$	58,448		6	$	71,128
Commercial real estate		5		2,968,472		5		3,642,073
Residential real estate - 1st lien		13		1,239,113		12		977,961
Residential real estate - Jr lien		1		40,263		1		41,901
Total		24	$	4,306,296		24	$	4,733,063

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

	March 31, 2022				December 31, 2021
	Number of		Principal		Number of		Principal
	Loans		Balance		Loans		Balance

Commercial real estate		1	$	9,496		2	$	41,228
Residential real estate - 1st lien		31		2,460,459		31		2,473,767
Residential real estate - Jr lien		1		3,213		1		3,537
Total		33	$	2,473,168		34	$	2,518,532

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 loan segments, including residential first and junior lien mortgages, CRE, commercial & industrial, and consumer loan portfolios, other than the municipal loans as there has never been a loss recorded in that loan segment. 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.

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Specific allocations to the ALL are made for certain impaired loans. Impaired loans include all troubled debt restructurings regardless of amount, and all loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement. The Company reviews all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements. See Note 5 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.

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

	March 31,			December 31,
	2022			2021

ALL to total loans outstanding		1.13	%		1.12	%
ALL	$	7,890,648		$	7,710,256
Loans outstanding	$	696,293,182		$	689,988,533

Non-accruing loans to loans outstanding		0.78	%		0.86	%
Non-accruing loans	$	5,414,963		$	5,940,629
Loans outstanding	$	696,293,182		$	689,988,533

ALL to non-accruing loans		145.72	%		129.79	%
ALL	$	7,890,648		$	7,710,256
Non-accruing loans	$	5,414,963		$	5,940,629

The provision for loan losses for the first quarter ended March 31, 2022 was $862,500, compared to $267,497 for the same period in 2021. The $595,003 year over year increase was driven primarily by a write-down on a single non-performing loan, which is in foreclosure, totaling $667,474.

The first quarter ALL analysis indicates that the reserve balance of $7.9 million at March 31, 2022 is sufficient to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $90,276. 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. Due to the charge off activity during the first quarter of 2022, the unallocated reserves are lower than historical levels. It is expected that the provision would be increased in future periods, if loan growth or additional charge-offs warrants an increase. 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.

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

For the Three Months Ended March 31,	2022			2021

Commercial & industrial		-0.01	%		-0.01	%
Net charge-off during the period	$	(17,650	)	$	(14,086	)
Average amount outstanding	$	120,804,935		$	177,158,060

Commercial real estate		-0.22	%		0.00	%
Net (charge-off) recovery during the period	$	(667,474	)	$	7,000
Average amount outstanding	$	304,057,825		$	280,029,141

Municipal		0.00	%		0.00	%
Net charge-off during the period	$	0		$	0
Average amount outstanding	$	49,022,024		$	52,232,117

Residential real estate - 1st lien		0.00	%		0.00	%
Net recovery during the period	$	1,210		$	1,567
Average amount outstanding	$	182,305,338		$	170,036,028

Residential real estate - Jr lien		0.01	%		0.00	%
Net recovery during the period	$	2,276		$	528
Average amount outstanding	$	33,230,645		$	37,317,509

Consumer		-0.01	%		-0.07	%
Net charge-off during the period	$	(470	)	$	(2,703	)
Average amount outstanding	$	3,580,266		$	3,811,456

Total loans		-0.10	%		0.00	%
Net charge-off during the period	$	(682,108	)	$	(7,694	)
Average amount outstanding	$	693,001,033		$	720,584,311

In addition to credit risk in the Company’s loan portfolio and liquidity risk in its loan and deposit-taking operations, the Company’s business activities also generate market risk. Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Declining capital markets can result in fair value adjustments necessary to record decreases in the value of the investment portfolio for other-than-temporary-impairment. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. During recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to loan prepayment risks, early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product. 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.

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

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LIQUIDITY AND CAPITAL RESOURCES

Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations. Maintaining a relatively stable funding base, which is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Company’s exposure to rollover risk on deposits and limits reliance on volatile short-term borrowed funds. Short-term funding needs arise from declines in deposits or other funding sources and from funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and low-cost 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 March 31, 2022 and December 31, 2021, 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, allow the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits by exchanging deposits with other participating FDIC-insured financial institutions. At March 31, 2022 and December 31, 2021, the Company reported $3.6 million in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was $17.2 million at March 31, 2022, compared to $15.3 million at December 31, 2021, and the balance in ICS reciprocal demand deposits as of those dates was $64.6 million and $70.8 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 December 31, 2021 or March 31, 2022. 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 has reduced the Company’s need for supplementary funding sources in the near term.

At March 31, 2022 and December 31, 2021, borrowing capacity of $95.3 million and $100.2 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 $65.1 million and $52.3 million, respectively, at March 31, 2022 and December 31, 2021. Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 40 bps. The Company had no outstanding advances through this facility at March 31, 2022 or December 31, 2021.

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

	March 31,		December 31,
	2022		2021
Long-Term Advances(1)
FHLBB term advance, 0.00%, due September 22, 2023	$	200,000	$	200,000
FHLBB term advance, 0.00%, due November 12, 2025		300,000		300,000
FHLBB term advance, 0.00%, due November 13, 2028		800,000		800,000
	$	1,300,000	$	1,300,000

(1)

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

The Company has unsecured lines of credit with 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.

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The following table illustrates the changes in shareholders’ equity from December 31, 2021 to March 31, 2022:

Balance at December 31, 2021 (book value $15.48 per common share)	$	84,760,268
Net income		2,405,542
Issuance of common stock through the DRIP		272,683
Dividends declared on common stock		(1,236,880	)
Dividends declared on preferred stock		(12,188	)
Change in AOCI on AFS securities, net of tax		(8,744,637	)
Balance at March 31, 2022 (book value $14.08 per common share)	$	77,444,788

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 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 March 31, 2022, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy. While we believe that the Company has sufficient capital to withstand an extended economic downturn in the wake of the COVID-19 pandemic, our regulatory capital ratios could be adversely impacted by future credit losses and other operational impacts related to COVID-19 or emerging variants of the virus.

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

											Minimum					Minimum
						Minimum					For Capital					To Be Well
						For Capital					Adequacy Purposes					Capitalized Under
						Adequacy					with Conservation					Prompt Corrective
	Actual					Purposes:					Buffer(1):					Action Provisions(2):
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
March 31, 2022
Common equity tier 1 capital
(to risk-weighted assets)
Company	$	88,669		14.06	%	$	28,388		4.50	%	$	44,159		7.00	%		N/A		N/A
Bank	$	88,070		13.97	%	$	28,369		4.50	%	$	44,129		7.00	%	$	40,977		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	88,669		14.06	%	$	37,851		6.00	%	$	53,622		8.50	%		N/A		N/A
Bank	$	88,070		13.97	%	$	37,825		6.00	%	$	53,585		8.50	%	$	50,433		8.00	%
Total capital (to risk-weighted assets)
Company	$	96,556		15.31	%	$	50,468		8.00	%	$	66,239		10.50	%		N/A		N/A
Bank	$	95,952		15.22	%	$	50,433		8.00	%	$	66,194		10.50	%	$	63,042		10.00	%
Tier 1 capital (to average assets)
Company	$	88,669		8.88	%	$	39,952		4.00	%		N/A		N/A			N/A		N/A
Bank	$	88,070		8.82	%	$	39,935		4.00	%		N/A		N/A		$	49,919		5.00	%

December 31, 2021:
Common equity tier 1 capital
(to risk-weighted assets)
Company	$	87,240		14.25	%	$	27,548		4.50	%	$	42,853		7.00	%		N/A		N/A
Bank	$	86,654		14.17	%	$	27,522		4.50	%	$	42,812		7.00	%	$	39,754		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
Bank	$	86,654		14.17	%	$	36,696		6.00	%	$	51,986		8.50	%	$	48,928		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
Bank	$	94,301		15.42	%	$	48,928		8.00	%	$	64,218		10.50	%	$	61,160		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
Bank	$	86,654		8.73	%	$	39,698		4.00	%		N/A		N/A		$	49,622		5.00	%

(1)	Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets.
(2)	Applicable to banks, but not bank holding companies.

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.

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.

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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 March 31, 2022, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, management concluded that its disclosure controls and procedures as of March 31, 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 March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

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

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

The following table provides information as to the purchases of the Company’s common stock during the three months ended March 31, 2022, by the Company or by any affiliated purchaser (as defined in SEC Rule 10b-18). During the monthly periods presented, the Company did not have any publicly announced repurchase plans or programs.

	Total Number		Average
	of Shares		Price Paid
For the period:	Purchased(1)		Per Share

January 1 - January 31		0	$	0.00
February 1 - February 28		0		0.00
March 1 - March 31		4,244	$	21.75
Total		4,244	$	21.75

(1)

All 4,244 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 quarter ended March 31, 2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three-month periods ended March 31, 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: May 13, 2022		/s/Kathryn M. Austin
		Kathryn M. Austin, President
		& Chief Executive Officer
		(Principal Executive Officer)

DATED: May 13, 2022		/s/Louise M. Bonvechio
		Louise M. Bonvechio, Corporate
		Secretary & Treasurer
		(Principal Financial Officer)

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2022

COMMUNITY BANCORP.

EXHIBITS

EXHIBIT INDEX

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

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

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

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

Exhibit 101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three-month interim periods ended March 31, 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.