COMMUNITY BANCORP /VT 10-Q

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. 3 Table of Contents 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. 4 Table of Contents 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. 5 Table of Contents 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. 6 Table of Contents 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 ) 7 Table of Contents 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. 8 Table of Contents Notes to Consolidated Financial Statements Note 1. Basis of Presentation and Consolidation and Certain Definitions Basis of Presentation and Consolidation. The interim consolidated financial statements of Community Bancorp. and Subsidiary are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial condition and results of operations of the Company and its subsidiary, Community National Bank (the Bank), contained herein have been made. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 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 9 Table of Contents 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. 10 Table of Contents 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 11 Table of Contents Investments pledged as collateral for repurchase agreements consisted of U.S. GSE debt securities, Agency MBS, ABS and OAS, and CMO. These repurchase agreements mature daily. These pledged investments as of the balance sheet dates were as follows: Amortized Fair Cost Value 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 12 Table of Contents Less than 12 months 12 months or more Totals Fair Unrealized Fair Unrealized Number of Fair Unrealized Value Loss Value Loss Securities Value Loss December 31, 2021 U.S. GSE debt securities $ 5,869,117 $ 130,883 $ 1,921,379 $ 78,621 7 $ 7,790,496 $ 209,504 U.S. Government securities 32,041,041 333,894 0 0 46 32,041,041 333,894 Taxable Municipal securities 298,733 1,267 0 0 1 298,733 1,267 Tax-Exempt Municipal securities 330,212 67 0 0 1 330,212 67 Agency MBS 107,061,452 1,128,587 8,809,493 214,381 84 115,870,945 1,342,968 CMO 1,420,458 30,891 0 0 3 1,420,458 30,891 Other investments 491,606 4,394 0 0 2 491,606 4,394 Total $ 147,512,619 $ 1,629,983 $ 10,730,872 $ 293,002 144 $ 158,243,491 $ 1,922,985 The unrealized losses for all periods presented were principally attributable to changes in prevailing interest rates for similar types of securities and not deterioration in the creditworthiness of the issuer. Management evaluates its debt securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer’s 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 13 Table of Contents The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment: 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. 14 Table of Contents As described below, the allowance consists of general, specific and unallocated components. However, the entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocated components considered in determining the amount of the allowance. General component The general component of the ALL is based on historical loss experience and various qualitative factors and is stratified by the following loan segments: commercial and industrial, 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. 15 Table of Contents Residential Real Estate – Jr Lien – Loans in this segment are collateralized by junior lien mortgages on 1 – 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment. Consumer – Loans in this segment are made to individuals for consumer and household purposes. This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured. This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains policies restricting the size and term of these extensions of credit. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment. Specific component The specific component of the ALL relates to loans that are impaired. Impaired loans are loans to a borrower that in the aggregate are greater than $100,000 and that are in non-accrual status or are TDRs regardless of amount. A specific allowance is established for an impaired loan when its estimated fair value or net present value of future cash flows is less than the carrying value of the loan. For all loan segments, except consumer loans, a loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two. As described above in Note 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. 16 Table of Contents 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 17 Table of Contents 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. 18 Table of Contents 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. 19 Table of Contents Credit Quality Grouping In developing the ALL, management uses credit quality groupings to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool. Group A loans - Acceptable Risk – are loans that are expected to perform as agreed under their respective terms. Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial purpose loans that are individually risk rated 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. 20 Table of Contents 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. 21 Table of Contents New TDRs, by portfolio segment, during the periods presented were as follows: Three months ended March 31, 2022 Pre- Post- Modification Modification Outstanding Outstanding Number of Recorded Recorded Contracts Investment Investment Residential real estate - 1st lien 1 $ 292,592 $ 292,592 Year ended December 31, 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 Modification Outstanding Outstanding Number of Recorded Recorded Contracts Investment Investment Commercial & industrial 1 $ 41,751 $ 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 22 Table of Contents 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. 23 Table of Contents 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 24 Table of Contents Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a partial write-down or with a related specific ALL and are presented net of the specific allowances as disclosed in Note 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. 25 Table of Contents The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the tables below. The estimated fair values of the Company’s financial instruments as of the balance sheet dates were as follows: 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. 26 Table of Contents December 31, 2021 Fair Fair Fair Fair Carrying Value Value Value Value Amount Level 1 Level 2 Level 3 Total (Dollars in Thousands) Financial assets: Cash and cash equivalents $ 110,359 $ 110,359 $ 0 $ 0 $ 110,359 Debt securities AFS 182,342 32,041 150,301 0 182,342 Restricted equity securities 1,434 0 1,434 0 1,434 Loans and loans held-for-sale, net of ALL Commercial & industrial 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. 27 Table of Contents