What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-11 compared with 2023-05-12 · 228 added, 115 removed, 776 unchanged (31% of the section changed)

9 unchanged sentences

Restricted equity securities, at cost

Loans held-for-sale

Allowance for credit losses

44 unchanged sentences

and Subsidiary

Three Months Ended March 31

Three Months Ended June 30,

Consolidated Statements of Income

33 unchanged sentences

and Subsidiary

Six Months Ended June 30,

Consolidated Statements of Income

Interest income

Interest and fees on loans

Interest on taxable debt securities

Interest on tax-exempt debt securities

Interest on federal funds sold and overnight deposits

Total interest income

Interest expense

Interest on deposits

Interest on borrowed funds

Interest on repurchase agreements

Interest on junior subordinated debentures

Total interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Non-interest income

Income from sold loans

Other income from loans

Total non-interest income

Non-interest expense

Salaries and wages

Employee benefits

Occupancy expenses, net

Other expenses

Total non-interest expense

Income before income taxes

Income tax expense

Earnings per common share

Weighted average number of common shares

used in computing earnings per share

Dividends declared per common share

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

Community Bancorp.

and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended March 31

Three Months Ended June 30,

Other comprehensive loss, net of tax:

Unrealized holding loss on securities AFS arising during the period

( 1,843,589 )

( 7,031,667 )

Other comprehensive loss, net of tax

( 1,456,436 )

( 5,555,018 )

Total comprehensive income (loss)

$ ( 2,533,866

Six Months Ended June 30,

Other comprehensive income (loss), net of tax:

1 unchanged sentence

( 18,100,828 )

Other comprehensive income (loss), net of tax

Other comprehensive gain (loss), net of tax

( 14,299,655 )

5 unchanged sentences

Consolidated Statements of Changes in Shareholders' Equity

Three Months Ended March 31 2023

Six Months Ended June 30, 2023

shareholders'

3 unchanged sentences

Cumulative change in accounting principle (Note 2)

Balance at January 1, 2023 (as adjusted for

Change in accounting principle)

Balance at January 1, 2023 (as adjusted for change in

accounting principle)

Issuance of common stock

8 unchanged sentences

( 2,622,777 )

Three Months Ended March 31 2022

Issuance of common stock

Cash dividends declared

( 1,254,836 )

Preferred stock

Comprehensive income

Other comprehensive loss

( 1,456,436 )

June 30, 2023

$ ( 19,451,435

( 2,622,777 )

*Accumulated other comprehensive loss

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

Community Bancorp.

and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

Six Months Ended June 30, 2022

shareholders'

1 unchanged sentence

$ ( 1,166,971

$ ( 2,622,777 )

Issuance of common stock

9 unchanged sentences

$ ( 9,911,608

Issuance of common stock

Cash dividends declared

( 1,240,049 )

*Accumulated other comprehensive income (loss)

( 1,240,049 )

Preferred stock

Comprehensive loss

Other comprehensive loss

( 5,555,018 )

June 30, 2022

$ ( 15,466,626

*Accumulated other comprehensive loss

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

2 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended March 31

Six Months Ended June 30,

Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash provided by

operating activities:

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

Depreciation and amortization, bank premises and equipment

2 unchanged sentences

Gain on sale of loans

Loss on sale of bank premises and equipment

Income from CFS Partners

4 unchanged sentences

( 8,110,641 )

Increase in taxes payable

(Decrease) increase in taxes payable

Decrease (increase) in interest receivable

Decrease (increase) in mortgage servicing rights

Decrease in mortgage servicing rights

Decrease in right-of-use assets

4 unchanged sentences

Change in net deferred loan fees and costs

Decrease in interest payable

Decrease in accrued expenses

( 1,040,367 )

Increase (decrease) in other liabilities

Increase (decrease) in interest payable

(Decrease) increase in accrued expenses

Increase in other liabilities

Net cash provided by operating activities

5 unchanged sentences

Purchases of restricted equity securities

( 1,547,300 )

Investments in limited liability entities

14 unchanged sentences

( 36,097,148 )

Net increase in time deposits

Net increase (decrease) in time deposits

Net increase (decrease) in repurchase agreements

( 1,375,064 )

Net increase in short-term borrowings

Proceeds from long-term borrowings

Decrease in finance lease obligations

1 unchanged sentence

Dividends paid on common stock

( 1,835,286 )

( 1,897,885 )

Net cash used in financing activities

6 unchanged sentences

Supplemental Schedule of Cash Paid During the Period:

Income taxes, net of refunds

Supplemental Schedule of Noncash Investing and Financing Activities:

3 unchanged sentences

Dividends declared

Decrease (increase) in dividends payable attributable to dividends declared

Decrease in dividends payable attributable to dividends declared

Dividends reinvested

13 unchanged sentences

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.

Accordingly, the Company has elected to provide its 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 certain other 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.

4 unchanged sentences

Available-for-sale

Improvement Act of 1991

Federal Deposit Insurance Corporation

MBS issued by a US government agency

Improvement Act of 1991

Federal Home Loan Bank of Boston

Federal Home Loan Mortgage Corporation

Allowance for Credit Losses

Federal Open Market Committee

Federal Home Loan Mortgage Corporation

Asset Liability Committee

Federal Reserve Board

Federal Open Market Committee

Allowance for Loan Losses

Federal Reserve Bank of Boston

Federal Reserve Board

Accumulated other comprehensive income

Generally Accepted Accounting Principles

Federal Reserve Bank of Boston

Accounting Standards Codification

in the United States

Generally Accepted Accounting Principles

Accounting Standards Update

Government sponsored enterprise

in the United States

Community Bancorp.

Held-to-maturity

Government sponsored enterprise

Community National Bank

Insured Cash Sweeps of the InterFi Network

Held-to-maturity

Borrower-in-Custody

Internal Revenue Service

Insured Cash Sweeps of the IntraFi Network

Board of Directors

Jobs for New England

Internal Revenue Service

Bank owned life insurance

Jobs for New England

Basis point(s)

Bank Term Funding Program

London Interbank Offered Rate

1 unchanged sentence

Mortgage-backed security

Service of the InterFi Network

Service of the IntraFi Network

Mortgage servicing rights

16 unchanged sentences

Paycheck Protection Program

Coronavirus Disease 2019

USDA Rural Development

Commercial Real Estate

USDA Rural Development

Discounted cash flow

Small Business Administration

10 unchanged sentences

Veterans Administration

Federal Deposit Insurance Corporation

Recent Accounting Developments

11 unchanged sentences

That transition will become effective for the Debentures as of the first London banking day after June 30, 2023 (see the Interest Rate Risk and Asset and Liability Management section of the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations following these Notes).

In March 2023, the FASB issued ASU No.

2023-02, Investments-Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method .

2014-01, Investments-Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Qualified Affordable Housing Projects , previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met;

however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures.

The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit).

Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items.

The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

The amendments in this update are effective for the Company for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

Early adoption is permitted in any interim period.

If early adoption is elected, adoption must be as of the beginning of the fiscal year that includes the interim period of adoption.

The amendments in this update must be applied on either a modified retrospective or a retrospective basis.

The Company is analyzing the impact of early adoption of this ASU and is currently evaluating the impact of this standard for its tax equity investments as well as the impact within the consolidated financial statements.

Accounting Standards Adopted in 2023

The Company has adopted the following accounting standards and has applied them to the Company’s interim consolidated financial statements for the three months ended March 31, 2023.

The Company adopted the following accounting standards effective January 1, 2023, and applied them to the Company’s interim consolidated financial statements beginning with the quarter ended March 31, 2023.

Prior periods have not been restated as a result of adoption of these accounting standards.

2 unchanged sentences

Measurement of Credit Losses on Financial Instruments .

Under the new guidance, which replaces the existing incurred loss model for recognizing credit losses, banks and other lending institutions are required to recognize the full amount of expected credit losses over the life of a loan.

The new guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans.

Under that guidance, which replaced the existing incurred loss model for recognizing credit losses, banks and other lending institutions are required to recognize the full amount of expected credit losses over the life of a loan.

The 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 requires that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down.

The ASU became effective for the Company beginning with the 2023 fiscal year including interim periods.

Upon adoption of this ASU on January 1, 2023, a cumulative-effect adjustment of $ 549,113 was recorded as a reduction to retained earnings, with a corresponding adjustment of $ 243,376 increasing the ACL on loans, an adjustment of $ 451,704 , increasing other liabilities for the ACL on off-balance sheet credit exposures, and an adjustment of $ 145,967 increasing deferred tax assets.

Upon adoption of this ASU on January 1, 2023, the Company recorded a cumulative-effect adjustment of $ 549,113 as a reduction to retained earnings, with a corresponding adjustment of $ 243,376 increasing the ACL on loans, an adjustment of $ 451,704 , increasing other liabilities for the ACL on off-balance sheet credit exposures, and an adjustment of $ 145,967 increasing deferred tax assets.

There was no allowance recorded for credit losses on AFS debt securities resulting from adoption of this ASU.

8 unchanged sentences

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 has become effective for the Company beginning with the fiscal year 2023, including interim periods.

The guidance became effective for the Company beginning with the fiscal year 2023, including interim periods.

Adoption of this ASU did not have a material impact on the consolidated financial statements.

2 unchanged sentences

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

Three Months Ended June 30,

Net income, as reported

4 unchanged sentences

Earnings per common share

Six Months Ended June 30,

Net income, as reported

dividends to preferred shareholders

Net income available to common shareholders

Weighted average number of common shares

used in calculating earnings per share

Earnings per common share

Investment Securities

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

March 31, 2023

June 30, 2023

GSE debt securities

13 unchanged sentences

$ 192,918,109

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

Investments securities pledged as collateral for repurchase agreements consisted of certain U.S.

The Company had investments in Agency MBS exceeding 10 % of shareholders’ equity with a book value of $ 129.3 million and $ 135.2 million, respectively, and a fair value of $ 110.4 million and $ 115.2 million, respectively, at June 30, 2023 and December 31, 2022.

Investment securities pledged as collateral for repurchase agreements consisted of certain U.S.

GSE debt securities, Agency MBS, ABS and OAS, and CMO.

1 unchanged sentence

The aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates were as follows:

March 31, 2023

June 30, 2023

December 31, 2022

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

There were no sales of debt securities during the first six months of 2023 or 2022.

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

March 31, 2023

June 30, 2023

Due in one year or less

15 unchanged sentences

12 months or more

March 31, 2023

June 30, 2023

GSE debt securities

18 unchanged sentences

Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security.

As of March 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery.

As of March 31, 2023, the Company also determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

As of June 30, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery.

As of June 30, 2023, the Company also determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased under other market conditions.

As of December 31, 2022, the Company believed the unrealized losses on securities AFS were due to market conditions rather than reduced estimated cash flows or deterioration in the creditworthiness of the issuer.

At December 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities will be required to be sold before anticipated recovery, and expected full principal and interest to be collected.

As of December 31, 2022, in management’s view the unrealized losses on securities AFS were due to market conditions rather than reduced estimated cash flows or deterioration in the creditworthiness of the issuer.

At December 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities would be required to be sold before anticipated recovery, and expected full principal and interest to be collected.

Therefore, under the accounting principles pertaining to OTTI analysis then in effect, the Company did not consider the declines in the fair value of these securities to be OTTI as of December 31, 2022.

Loans, Allowance for Credit Losses and Credit Quality

Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

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

March 31, 2023

June 30, 2023

December 31, 2022

7 unchanged sentences

( 8,709,225 )

Deferred net loan costs (fees)

Deferred net loan costs

$ 772,251,075

2 unchanged sentences

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

Three Months Ended

Provision for credit losses on loans

Three Months Ended June 30,

Provision for loan losses

Provision for credit losses on OBS credit exposure

Provision for credit losses

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

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

Six Months Ended June 30,

Provision for loan losses

Provision for credit losses on OBS credit exposure

Provision for credit losses

The following tables present the activity in the ACL on loans for the three and six month periods following adoption of ASU 2016-13 (CECL) on January 1, 2023 and select information on impairment evaluation by portfolio segment for those interim periods.

As of or for the three months ended June 30, 2023

ACL beginning balance

Provision (credit)

ACL ending balance

As of or for the six months ended June 30, 2023

ACL beginning balance

Impact of adopting CECL

18 unchanged sentences

$ 748,548,608

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

As of or for the six months ended June 30, 2022

ALL beginning balance

8 unchanged sentences

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

March 31, 2023

June 30, 2023

Commercial & industrial

17 unchanged sentences

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

March 31, 2023

June 30, 2023

Commercial & industrial

7 unchanged sentences

Residential real estate - Jr lien

As of March 31, 2023, there were no loans in process of foreclosure, compared to 5 loans with an aggregate balance of $ 195,082 at December 31, 2022.

As of June 30, 2023, there were no residential real estate loans in process of foreclosure, compared to 5 residential real estate loans with an aggregate balance of $195,082 in process of foreclosure at December 31, 2022.

Allowance for loan losses (prior to adoption of CECL)

Please refer to Note 4 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on Form 10-K for a description of the ALL, under previously applicable GAAP, prior to adoption of CECL.

Allowance for credit losses

The ACL is established through a provision for credit losses charged to earnings.

Effective January 1, 2023, with the adoption of CECL, the Company established the ACL through a provision for credit losses charged to earnings.

Credit losses are charged against the allowance when management believes that future payments of a loan balance are unlikely.

5 unchanged sentences

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 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.

6 unchanged sentences

The Company utilizes a discounted cash flow (DCF) approach to calculate the expected loss for each portfolio segment.

Within the DCF model, a probability of default (PD) and loss given default (LGD) assumption is applied to calculate the expected loss for each segment.

PD is the probability the asset will default within a given timeframe and LGD is the percentage of assets not expected to be collected due to default.

Within the DCF model, probability of default (PD) and loss given default (LGD) assumptions are applied to calculate the expected loss for each segment.

PD is management’s estimate of the probability the asset will default within a given timeframe and LGD is management’s estimate of the percentage of assets not expected to be collected due to default.

The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are not statistically meaningful loss events for a loan segment, or it does not have default and loss data that covers a full economic cycle.

As of March 31, 2023, the primary macroeconomic drivers used within the DCF model included forecasts of Civilian unemployment and changes in National gross domestic product (GDP).

Management monitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter) to determine if or that they continue to be the most predictive indicator of losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.

To determine its reasonable and supportable forecast, management may leverage macroeconomic forecasts obtained from various reputable sources, which may include, but is not limited to, the FOMC forecast and other publicly available forecasts from well recognized, leading economists or firms.

As of June 30, 2023, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP).

Management monitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter, or more frequently as circumstances warrant) to determine whether they continue to be the most predictive indicator of losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.

To determine its reasonable and supportable forecast, management may leverage macroeconomic forecasts obtained from various reputable sources, which may include, but are not limited to, the FOMC forecast and other publicly available forecasts from well recognized, leading economists or firms.

The Company's reasonable and supportable forecast period generally ranges from one to three years, depending on the facts and circumstances of the current state of the economy, portfolio segment, and management's judgment of what can be reasonably supported.

The model reversion period generally ranges from one to six years, and it also depends on the current state of the economy and management's judgments of such.

Management monitors and assesses the forecast and reversion period at least annually.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of March 31, 2023.

Management monitors and assesses the forecast and reversion period at least annually, or more frequently as circumstances warrant.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of June 30, 2023.

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

4 unchanged sentences

The contractual term excludes expected extensions, renewals, and modifications.

In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments to arrive at expected cash flows.

In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments in order to arrive at expected cash flows.

The Company models term loans using an annualized prepayment.

When the Company has a specific expectation of differing payment behavior for a given loan, the loan may be evaluated individually.

For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the cash flow.

Management has elected loss rate methodologies appropriate for each loan segment.

For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the expected cash flow.

Management has elected to use loss rate methodologies appropriate for each loan segment.

The DCF method was chosen for the commercial and industrial, CRE, residential real estate 1 st lien, residential real estate Jr Lien and consumer loans.

1 unchanged sentence

For the purchased loans segment, a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool.

Due to the lack of any historical loss data, a manual entry methodology was chosen for the municipal loans given the immaterial nature of the pool when considering prior loss history as well as the inability to reasonably forecast defaults or loss given default for the pool.

Qualitative factors are also applied to include the levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of CRE loans.

7 unchanged sentences

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.

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 credit quality in this segment.

Purchased – Loans in this segment are loans purchased through a loan purchasing program with Bankers Healthcare Group (BHG).

2 unchanged sentences

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.

A relatively small portion of this segment includes farm loans secured by farmland 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.

21 unchanged sentences

Loans that do not share risk characteristics are evaluated on an individual basis.

Loans evaluated individually are not also included in the collective evaluation.

In general, loans individually evaluated for estimated credit losses include those (i) greater than $ 100,000 and that are on nonaccrual or (ii) have other unique characteristics differing from the portfolio segment.

Loans evaluated individually are also not included in the collective evaluation.

In general, loans individually evaluated for estimated credit losses include those (i) greater than $ 100,000 with a nonaccrual status or (ii) have other unique characteristics differing from the portfolio segment.

Specific reserves are established when appropriate for such loans based on the present value of expected future cash flows of the loan.

However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.

Accordingly, the Company does not separately identify individual consumer loans for impairment evaluation.

Allowance for loan losses (prior to adoption of CECL)

Please refer to Note 4 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on 10-K for the description on disclosure of the ALL in periods prior to adoption of CECL.

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2023 by collateral type:

The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2023, by collateral type:

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Total collateral-dependent loans

Including, but not limited to, inventory, equipment and accounts receivable.

14 unchanged sentences

Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $ 11,517 .

As of March 31, 2022

As of June 30, 2022

Investment (1)

1 unchanged sentence

Residential real estate – 1st lien

Total with related allowance

No related allowance recorded

5 unchanged sentences

Total impaired loans

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

As of March 31, 2022

Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $ 33,126 .

As of June 30, 2022

Three Months Ended

Six Months Ended

Related allowance recorded

44 unchanged sentences

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.

Risk ratings are assessed on an ongoing basis and at various points, including 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 Chief Lending Officer of any known increase in loan risk, even if considered temporary in nature.

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

As of March 31, 2023

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

As of or for the six months ended,

June 30, 2023

(In thousands)

Term Loans Amortized Cost Basis by Origination Year

Commercial & industrial:

Special mention

9 unchanged sentences

Residential real estate - 1st lien:

Special mention

Substandard/Doubtful

1 unchanged sentence

Residential real estate - Jr lien:

Special mention

Substandard/Doubtful

2 unchanged sentences

Current period gross charge-offs

There were no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments.

There were no Special mention loans within the Residential real estate 1st lien or Jr lien loan segments.

There were no Special mention or Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

As of or for the six months ended, June 30, 2023, there were (i) no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments and (ii) no Special mention or Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

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

20 unchanged sentences

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.

Management’s assessment of whether a concession has been granted also takes into consideration payments expected to be received from third parties, including third-party guarantors, provided the third party has the ability to perform on the guarantee.

The Company’s modified loans are principally a result of extending loan repayment terms to relieve cash flow difficulties.

The Company has only, on a limited basis, reduced interest rates for borrowers below the current market rate for the borrower.

The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings, nor has it converted variable rate terms to fixed rate terms.

The Company has only, on a limited basis, reduced accrued interest or reduced interest rates for borrowers below the current market rate for the borrower.

The Company has not generally forgiven principal within the terms of original restructurings, nor converted variable rate terms to fixed rate terms.

However, the Company evaluates each potential loan modification on its own merits and does not foreclose the granting of any particular type of concession.

There were no new loan modifications for the first three months of 2023.

In connection with modifications, the Company takes into account applicable regulatory guidance, including a 2023 interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.

There were no loan modifications for the first six months of 2023.

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

1 unchanged sentence

Residential real estate – 1st lien

Three months ended March 31, 2022

Six months ended June 30, 2022

Residential real estate – 1st lien

There were no TDRs for the three months ended June 30, 2022.

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

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

For the twelve months ended March 31, 2022

The TDRs for which there was a payment default during the twelve-month period ended June 30, 2022 were as follows:

Commercial real estate

5 unchanged sentences

The Company is contractually committed to lend on one SBA guaranteed line of credit to a borrower whose lending relationship was previously modified.

OBS Credit Exposures:

Off-Balance Sheet Credit Exposures

In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit.

1 unchanged sentence

Allowance for Credit Losses on OBS Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

Effective January 1, 2023, with the adoption of ASU No.

2016-13 (CECL), the Company estimates expected credit losses on OBS credit exposures over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The ACL on OBS credit exposures is adjusted through credit loss expense.

5 unchanged sentences

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.

Goodwill is not amortizable and is not deductible for tax purposes.

As of December 31, 2022, the most recent evaluation, management concluded that no impairment existed.

32 unchanged sentences

Accordingly, certain individually analyzed loans may be subject to measurement at fair value on a non-recurring basis.

Management has estimated the fair values of collateral-dependent loans using Level 2 inputs, such as the fair value of collateral based on independent third-party appraisals.

Management has estimated the fair value 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:

26 unchanged sentences

Individually analyzed loans, net of related allowance

Loans held-for-sale

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.

FASB ASC Topic 825, “Financial Instruments”, requires disclosure 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.

7 unchanged sentences

The estimated fair values of the Company's financial instruments as of the balance sheet dates were as follows:

March 31, 2023

June 30, 2023

(Dollars in Thousands)

12 unchanged sentences

Brokered deposits

Short-term borrowings

Long-term borrowings

29 unchanged sentences

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

Six Months Ended

June 30, 2023

December 31, 2022

Balance at beginning of year

1 unchanged sentence

MSRs amortized

Change in valuation allowance

Balance at end of period

4 unchanged sentences

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 15, 2023, the Company’s Board declared a cash dividend of $ 0.23 per common share, payable May 1, 2023 to shareholders of record as of April 15, 2023.

On June 14, 2023, the Company’s Board declared a cash dividend of $ 0.23 per common share, payable August 1, 2023, to shareholders of record as of July 15, 2023.

This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements