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Item 2. Management’s Discussion and Analysis

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 
 
 MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 Period Ended September 30, 2025 
 
 The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly owned subsidiary, Community National Bank, as of September 30, 2025 and December 31, 2024, and its consolidated results of operations for the three-month and nine-month interim periods presented. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two-year, rather than a three-year, period and provide certain other smaller reporting company scaled disclosures where management deems it appropriate.
 
 The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its 2024 Annual Report on Form 10-K filed with the SEC. Please refer to Note 1 in the accompanying consolidated financial statements for a listing of acronyms and defined terms used throughout the following discussion.
 
 FORWARD-LOOKING STATEMENTS 
 
 This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the results of operations, financial condition and business of the Company and its subsidiary. Words used in the discussion below such as "believes," "expects," "anticipates," "intends," "estimates," “projects”, "plans," “assumes”, "predicts," “may”, “might”, “will”, “could”, “should” and similar expressions, indicate that management of the Company is making forward-looking statements.
 
 Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties and assumptions. Examples of forward looking statements included in this discussion include, but are not limited to, statements regarding the estimated contingent liability related to assumptions made within the asset/liability management process; management's expectations as to the future interest rate environment and the Company's related liquidity level; credit risk expectations relating to the Company's loan portfolio and off-balance sheet commitments; and management's general outlook for the future performance of the Company and the local or national economy. Although forward-looking statements are based on management's expectations and estimates as of the date they are made, many of the factors that could influence or determine actual results are unpredictable and not within the Company's control.
 
 Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities: 
 
 · 
 interest rates change in such a way as to negatively affect loan demand, the local economy or the Company's net income, asset valuations or margins;
 
 · 
 general economic or business conditions, either internationally (including due to changing tariff policies), nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the Company's products and services;
 
 · 
 the impact of inflation and the rate of economic growth on the Company’s customers and on its financial results and performance;
 
 · 
 the effect of United States monetary and fiscal policies, including deficit spending and the interest rate policies of the FRB and its regulation of the money supply;
 
 · 
 the impact on our customers of government shutdowns and federal, state and local budgetary cutbacks;
 
 · 
 changes in applicable accounting policies, practices and standards;
 
 · 
 the geographic concentration of the Company’s loan portfolio and deposit base;
 
 · 
 reductions in deposit levels, which necessitate increased borrowings to fund loans and sale of investment securities;
 
 · 
 increases in the level of nonperforming assets and charge-offs;
 
 · 
 changes in federal or state tax laws or policy;
 
 · 
 changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, may increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the Company's business;
 
 · 
 regulatory responses to high profile bank failures increase our costs of operation, including through regulatory compliance changes and higher FDIC deposit insurance assessments to replenish the Bank Insurance Fund (BIF);
 
 · 
 competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from non-bank lenders, payment systems and other financial service providers, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems;
 
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 · 
 cybersecurity risks, including risks to our vendors, could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;
 
 · 
 higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;
 
 · 
 management’s risk management measures may not be completely effective;
 
 · 
 changes in consumer and business spending, borrowing and savings habits;
 
 · 
 operational and internal system failures due to changes in normal business practices, including remote working for Company staff;
 
 · 
 increased cybercrime and payment system risk due to increased usage by customers of online, mobile and other remote banking channels;
 
 · 
 the ongoing challenges to find qualified workers to maintain a stable workforce;
 
 · 
 losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees; and
 
 · 
 adverse changes in the credit rating of U.S. government debt.
 
 Readers are cautioned not to place undue reliance on such statements as they speak only as of the date they are made. The Company does not undertake, and disclaims any obligation, to revise or update any forward-looking statements to reflect the occurrence or anticipated occurrence of events or circumstances after the date of this Report, except as required by applicable law. The Company claims the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995.
 
 NON-GAAP FINANCIAL MEASURES 
 
 Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, three non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Interest Income Versus Interest Expense (NII)) and core earnings (as defined and discussed in the Results of Operations section), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G.
 
 Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.
 
 OVERVIEW 
 
 The Company’s consolidated assets as of September 30, 2025, were $1.23 billion compared to $1.25 billion as of December 31, 2024, a decrease of 1.8%. Changes in the asset base included an increase in loans of $33.9 million, however, there was a decrease in overnight deposits of $52 million, or 51.5%. The increase in the loan portfolio was primarily attributable to increases of $18.7 million in residential first and Jr. lien loans, $9.2 million in CRE loans, $3.0 million in municipal loans and $3.0 million in purchased loans. While cash funded the increase in the loan portfolio, the decrease in overnight deposits reflects decreases in deposit balances, payoff of borrowings that matured during the first quarter of 2025, as well as the purchase of approximately $30.0 million in brokered time deposits.
 
 Total deposits as of September 30, 2025, were $1.01 billion compared to $1.0 billion as of December 31, 2024, an increase of approximately $6.7 million, or 0.7%. Year to date, time deposits increased $32.4 million, or 17.3% and savings accounts increased $812 thousand, or 0.6%, while demand and interest-bearing transaction accounts collectively decreased $12.5 million, or 2.5%, and money market funds decreased $14.0 million, or 8.3%. Borrowed funds decreased $26.3 million, or 36.3%, from December 31, 2024, due primarily to maturities in the BTFP funds, partially offset by new FHLBB advances.
 
 Total interest income increased approximately $1.4 million, or 10.4%, for the third quarter of 2025, and $4.8 million, or 11.9%, for the first nine months of 2025, compared to the respective periods in 2024. The growth in the volume of the loan portfolio and origination of loans at higher interest rates, as well as adjustable-rate loans repricing to current market rates, helped to support the increase in interest income in both comparison periods.
 
 Total interest expense decreased $400 thousand, or 7.5%, for the third quarter of 2025, and increased $45 thousand, or 0.3%, for the first nine months of 2025, compared to the respective periods in 2024. While the rate environment continues to put pressure on the Company’s funding costs, including competitive deposit pricing, the year-over-year increase of $1.8 million, or 17.9%, in interest expense on the Company’s interest bearing deposit accounts was more than offset by a decrease of $1.9 million, or 56.2% in interest expense on borrowed funds due to the decrease in the average volume of borrowed funds. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section of this Management’s Discussion and Analysis for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on our net interest income.
 
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 The credit loss expense for the third quarter of 2025 was $258,753 compared to $460,745 for the same quarter of 2024 and $990,853 for the first nine months of 2025 compared to $1,105,906 for the same period in 2024, resulting in decreases between periods of $201,992, or 43.8% and $115,053, or 10.4%, respectively. In determining the current period credit loss expense management considers a number of factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rates and various qualitative factors, which management reviews and adjusts, as appropriate, in its ACL calculation to better reflect expected credit losses in the loan portfolio. Please refer to Note 5 of the unaudited consolidated financial statements as well as the ACL and credit loss expense discussion in the Credit Risk section of this MD&A.
 
 Consolidated net income for the third quarter of 2025 increased $1.6 million, or 52.4%, to $4.7 million compared to $3.1 million for the same quarter of 2024, and increased $3.7 million, or 42.3%, to $12.3 million for the first nine months of 2025 compared to $8.7 million for the same period in 2024. The increases in net interest income after credit loss expense of $2.1 million for the third quarter of 2025 and $4.8 million for the first nine months of 2025, compared to the respective periods in 2024, were significant contributing factors to the increases in net income. This change, along with significant changes in non-interest income and non-interest expense, are discussed in the appropriate sections of this Management’s Discussion and Analysis. 
 
 Equity capital increased to $111.9 million, with a book value per share of $19.64 as of September 30, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024. Please refer to the section of this Management’s Discussion and Analysis titled “LIQUIDITY AND CAPITAL RESOURCES” for a discussion in of the changes in the Company’s equity capital for the nine months ended September 30, 2025. 
 
 On September 18, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on November 1, 2025, to shareholders of record on October 15, 2025, an increase of 4% from the previous quarterly cash dividend and the fourth annual increase since 2020.
 
 As described in more detail below under “LIQUIDITY AND CAPITAL RESOURCES” as of September 30, 2025, the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements. 
 
 Effective July 31, 2025, the Company’s affiliate, CFS Partners, redeemed the one third limited liability company membership and distributional interests of Guaranty Bancorp, Inc. (“Guaranty”), immediately prior to consummation of Guaranty’s merger with and into Bar Harbor Bankshares. Under the terms of the redemption agreement, beginning March 1, 2025, Guaranty Bancorp agreed to forego its distributional interest in CFS Partners through the closing date of the redemption. Accordingly, beginning March 1, 2025, the Company’s share of the profit and loss from the operations of CFS Partners’ sole subsidiary, CFSG, increased from one-third to 50%, and effective on July 31, 2025, the Company’s non-economic membership (governance) interest in CFS Partners likewise increased to 50%. The Company does not have a controlling interest in CFS Partners and will continue to account for its investment using the equity method.
 
 Given the Company’s northern Vermont market area, management is assessing the potential risk to the local economy from recent trade policy developments between the United States and Canada. Canada is Vermont’s largest international trading partner; many businesses that rely on trade with Canada are now at risk of experiencing increased costs, reduced sales, and a sense of uncertainty about the future. Although management continues to evaluate the potential impact on the Company’s customers, trade negotiations are on-going, and the ultimate effect on these businesses remains uncertain. In light of these challenges, the Company’s own strategic focus will be to safeguard its balance sheet while supporting its customers and communities. 
 
 CRITICAL ACCOUNTING POLICIES 
 
 The Company’s consolidated financial statements are prepared according to U.S. GAAP. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often because of the need to make estimates of matters that are inherently uncertain. Because of the significance of these estimates and assumptions, there is a high likelihood that materially different amounts would be reported for the Company under different conditions or using different assumptions or estimates. Management evaluates on an ongoing basis its judgment as to which policies are considered to be critical and communicates all evaluations with the Company’s Audit Committee.
 
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 The Company’s critical accounting policies govern:
 
 · 
 the ACL; 
 
 · 
 OREO; 
 
 · 
 valuation of residential MSRs; and 
 
 · 
 the carrying value of goodwill. 
 
 These policies are described in the Company’s 2024 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. Aside from adjustments in qualitative factors and other economic indicators in the calculation of the ACL, there were no material changes during the first nine months of 2025 in the Company’s critical accounting policies.
 
 ACL - Management believes that the calculation of the ACL is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. In estimating the ACL, management has adopted a methodology consistent with ASU No. 2016-13 that requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans at the measurement date. Further consideration is given to qualitative factors, including changes in current economic indicators and their probable impact on borrowers and collateral, trends in delinquent and non-performing loans, trends in criticized and classified assets, levels of exceptions, the impact of competition in the market, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments and the geographic distribution of CRE loans. Management’s estimates used in calculating the ACL may increase or decrease based on changes in these factors, which in turn will affect the amount of the Company’s provision for credit losses charged against current period income. This evaluation is inherently subjective and actual results could differ significantly from these estimates under different assumptions, judgments or conditions. 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 recorded as a liability on the balance sheet within Accrued interest and other liabilities, with adjustments made through credit loss expense.
 
 A modified version of these requirements applies to debt securities classified as available-for-sale, which eliminates OTTI impairment analysis and requires that if a decline in the fair value of debt securities AFS is deemed by management to be the result of credit losses rather than other factors, the credit losses on those securities is recorded through an allowance for credit losses rather than a write-down of the security. The Company’s securities portfolio is evaluated for impairment on a quarterly basis.
 
 RESULTS OF OPERATIONS 
 
 The Company’s net income for the third quarter of 2025 was $4.7 million, or $0.84 per common share, compared to $3.1 million, or $0.55 per common share for the same quarter of 2024, and for the first nine months of 2025 was $12.3 million, or $2.18 per common share, compared to $8.7 million, or $1.55 per common share, for the same period in 2024. Core earnings (NII) were $10.5 million for the third quarter of 2025, compared to $8.7 million for the same period of 2024 and $29.8 million for the first nine months of 2025, compared to $25.1 million for the same period in 2024. Interest and fees on loans, the major component of interest income, increased $1.5 million, or 11.5% for the third quarter of 2025 compared to the same period of 2024 and increased $4.6 million, or 12.7% for the first nine months of 2025 compared to the same period in 2024. Interest paid on deposits, which is the major component of total interest expense, increased $89 thousand, or 2.4% for the third quarter of 2025 and increased $1.8 million, or 17.9% for the first nine months of 2025, compared to the respective periods in 2024, driven primarily by increased deposit balances. Interest on borrowed funds decreased $496 thousand, or 42.8%, for the third quarter of 2025 compared to the same quarter of 2024 and decreased $1.9 million, or 56.2%, for the first nine months of 2025 compared to the same period in 2024, primarily due to a decrease in the average volume of borrowed funds in both comparison periods. Market pressure on deposit rates has stabilized and a decrease in wholesale funding has resulted in an improved net interest margin and net interest spread. 
 
 Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings. Return on average equity, which is net income divided by average shareholders' equity, measures how effectively a corporation uses its equity capital to produce earnings. 
 
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 The following table shows these ratios annualized, as well as other equity ratios monitored by management, for the comparison periods presented.
 
 Three Months Ended September 30, 
 
 2025 
 
 2024 
 
 Return on average assets
 
 1.58 % 
 
 1.09 % 
 Return on average equity
 
 17.40 % 
 
 13.09 % 
 Dividend payout ratio (1)
 
 29.76 % 
 
 43.64 % 
 Average equity to average assets 
 
 9.10 % 
 
 8.35 % 
 
 Nine Months Ended September 30, 
 
 2025 
 
 2024 
 
 Return on average assets
 
 1.39 % 
 
 1.04 % 
 Return on average equity
 
 15.92 % 
 
 12.71 % 
 Dividend payout ratio (1)
 
 33.49 % 
 
 45.16 % 
 Average equity to average assets 
 
 8.72 % 
 
 8.16 % 
 
 (1) Dividends declared per common share divided by earnings per common share.
 
 INTEREST INCOME VERSUS INTEREST EXPENSE (NII) 
 
 The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings). The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets and sources of funds (volume), and changes in the yield earned and costs of funds (rate). A portion of the Company’s income from loans to local municipalities and from tax-exempt municipal investment securities is not subject to income taxes. Because the proportion of tax-exempt items in the Company's balance sheet varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. The Company’s corporate tax rate is 21%; therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.
 
 The Company’s tax-exempt interest income of $746,706 and $762,126 for the three months ended September 30, 2025 and 2024, respectively, and $2.4 million and $2.0 million for the nine months ended September 30, 2025 and 2024, respectively, was derived from loans to local municipalities of $70.1 million and $65.5 million, and tax-exempt municipal investment securities of $10.1 million and $10.5 million, as of September 30, 2025 and 2024, respectively.
 
 The following table shows the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.
 
 Three Months Ended September 30, 
 
 2025 
 
 2024 
 
 Net interest income as presented
 
 $ 10,510,990 
 
 $ 8,661,923 
 
 Effect of tax-exempt income
 
 198,491 
 
 202,590 
 
 Net interest income, tax equivalent
 
 $ 10,709,481 
 
 $ 8,864,513 
 
 Nine Months Ended September 30, 
 
 2025 
 
 2024 
 
 Net interest income as presented
 
 $ 29,843,855 
 
 $ 25,120,862 
 
 Effect of tax-exempt income
 
 636,065 
 
 519,800 
 
 Net interest income, tax equivalent
 
 $ 30,479,920 
 
 $ 25,640,662 
 
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 The following tables present the daily average assets and the daily average liabilities, including the average yields on interest-earning assets and average expense on interest-bearing liabilities for the comparison periods presented. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a yield/rate for the comparison periods presented. Net interest income, net interest spread, and net interest margin are also expressed on a tax equivalent basis.
 
 Three Months Ended September 30, 
 
 2025 
 
 2024 
 
 Average 
 
 Average 
 
 Average 
 
 Income/ 
 
 Yield/ 
 
 Average 
 
 Income/ 
 
 Yield/ 
 
 Balance 
 
 Expense 
 
 Rate 
 
 Balance 
 
 Expense 
 
 Rate 
 
 Average Assets 
 
 Loans, net (1)
 
 $ 949,650,983 
 
 $ 14,379,047 
 
 6.01 % 
 $ 881,349,804 
 
 $ 12,920,439 
 
 5.83 % 
 Taxable investment securities
 
 145,328,511 
 
 912,616 
 
 2.49 % 
 
 161,647,230 
 
 881,822 
 
 2.17 % 
 Tax-exempt investment securities
 
 9,775,094 
 
 101,786 
 
 4.13 % 
 
 10,341,406 
 
 101,786 
 
 3.92 % 
 Federal funds sold and overnight deposits
 
 13,566,936 
 
 153,496 
 
 4.49 % 
 
 15,181,231 
 
 201,959 
 
 5.29 % 
 Other investments (2)
 
 3,880,176 
 
 68,400 
 
 6.99 % 
 
 3,282,445 
 
 64,051 
 
 7.76 % 
 Total interest-earning assets
 
 $ 1,122,201,700 
 
 $ 15,615,345 
 
 5.52 % 
 $ 1,071,802,116 
 
 $ 14,170,057 
 
 5.26 % 
 Cash and due from banks
 
 10,885,822 
 
 11,407,655 
 
 Premises and equipment
 
 12,389,246 
 
 12,429,713 
 
 BOLI
 
 5,365,620 
 
 5,282,687 
 
 Goodwill
 
 11,574,269 
 
 11,574,269 
 
 Other assets
 
 27,060,707 
 
 21,240,156 
 
 Total assets
 
 $ 1,189,477,364 
 
 $ 1,133,736,596 
 
 Average Liabilities and Shareholders' Equity 
 
 Interest-bearing transaction accounts
 
 $ 262,530,487 
 
 $ 1,163,613 
 
 1.76 % 
 $ 277,433,721 
 
 $ 1,395,412 
 
 2.00 % 
 Money market funds
 
 140,792,276 
 
 755,474 
 
 2.13 % 
 
 107,723,330 
 
 606,141 
 
 2.24 % 
 Savings deposits
 
 143,828,560 
 
 32,322 
 
 0.09 % 
 
 145,326,193 
 
 32,699 
 
 0.09 % 
 Time deposits
 
 211,428,778 
 
 1,814,506 
 
 3.40 % 
 
 166,484,878 
 
 1,642,637 
 
 3.93 % 
 Repurchase agreements
 
 35,841,490 
 
 234,756 
 
 2.60 % 
 
 31,344,813 
 
 194,151 
 
 2.46 % 
 Borrowed funds
 
 59,575,295 
 
 645,653 
 
 4.30 % 
 
 96,225,022 
 
 1,140,386 
 
 4.71 % 
 Finance lease obligations
 
 3,043,064 
 
 17,502 
 
 2.30 % 
 
 3,274,915 
 
 18,828 
 
 2.30 % 
 Junior subordinated debentures
 
 12,887,000 
 
 242,038 
 
 7.45 % 
 
 12,887,000 
 
 275,290 
 
 8.50 % 
 Total interest-bearing liabilities
 
 $ 869,926,950 
 
 $ 4,905,864 
 
 2.24 % 
 $ 840,699,872 
 
 $ 5,305,544 
 
 2.51 % 
 Non-interest bearing deposits
 
 202,144,314 
 
 192,053,702 
 
 Other liabilities
 
 9,197,867 
 
 6,360,779 
 
 Total liabilities
 
 1,081,269,131 
 
 1,039,114,353 
 
 Shareholders' equity
 
 108,208,233 
 
 94,622,243 
 
 Total liabilities and shareholders' equity
 
 $ 1,189,477,364 
 
 $ 1,133,736,596 
 
 Net interest income
 
 $ 10,709,481 
 
 $ 8,864,513 
 
 Net interest spread (3)
 
 3.28 % 
 
 2.75 % 
 Net interest margin (4)
 
 3.79 % 
 
 3.29 % 
 
 (1)
 Included in net loans are non-accrual loans with average balances of $8,393,522 and $5,324,960 for the three months ended September 30, 2025 and 2024, respectively. Loans are stated net of unearned discount and ACL, and include loans held-for-sale and include tax-exempt loans to local municipalities with average balances of $64,779,406 and $62,393,304 for the three months ended September 30, 2025 and 2024, respectively.
 
 (2)
 Included in other investments is the Company’s FHLBB Stock with average balances of $2,815,026 and $2,217,295 for the three months ended September 30, 2025 and 2024, respectively, with a dividend rate of approximately 7.38% and 8.41%, respectively, per quarter.
 
 (3)
 Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.
 
 (4)
 Net interest margin is net interest income divided by average earning assets.
 
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 Nine Months Ended September 30, 
 
 2025 
 
 2024 
 
 Average 
 
 Average 
 
 Average 
 
 Income/ 
 
 Yield/ 
 
 Average 
 
 Income/ 
 
 Yield/ 
 
 Balance 
 
 Expense 
 
 Rate 
 
 Balance 
 
 Expense 
 
 Rate 
 
 Average Assets 
 
 Loans, net (1)
 
 $ 940,370,172 
 
 $ 41,680,607 
 
 5.93 % 
 $ 864,456,129 
 
 $ 36,940,227 
 
 5.71 % 
 Taxable investment securities
 
 149,372,359 
 
 2,719,893 
 
 2.43 % 
 
 167,804,100 
 
 2,786,379 
 
 2.22 % 
 Tax-exempt investment securities
 
 9,965,714 
 
 305,359 
 
 4.10 % 
 
 10,323,589 
 
 305,359 
 
 3.95 % 
 Federal funds sold and overnight deposits
 
 16,610,612 
 
 547,302 
 
 4.41 % 
 
 8,684,825 
 
 342,343 
 
 5.27 % 
 Other investments (2)
 
 3,400,803 
 
 174,886 
 
 6.88 % 
 
 2,905,351 
 
 169,706 
 
 7.80 % 
 Total interest-earning assets
 
 1,119,719,660 
 
 $ 45,428,047 
 
 5.42 % 
 $ 1,054,173,994 
 
 $ 40,544,014 
 
 5.14 % 
 Cash and due from banks
 
 10,444,453 
 
 10,676,192 
 
 Premises and equipment
 
 12,159,559 
 
 12,463,916 
 
 BOLI
 
 5,345,657 
 
 5,261,241 
 
 Goodwill
 
 11,574,269 
 
 11,574,269 
 
 Other assets
 
 27,741,952 
 
 21,663,721 
 
 Total assets
 
 $ 1,186,985,550 
 
 $ 1,115,813,333 
 
 Average Liabilities and Shareholders' Equity 
 
 Interest-bearing transaction accounts
 
 $ 279,454,204 
 
 $ 3,844,172 
 
 1.84 % 
 $ 278,254,672 
 
 $ 4,030,827 
 
 1.94 % 
 Money market funds
 
 153,988,996 
 
 2,777,996 
 
 2.41 % 
 
 117,715,164 
 
 1,972,978 
 
 2.24 % 
 Savings deposits
 
 143,015,016 
 
 91,800 
 
 0.09 % 
 
 147,738,676 
 
 96,754 
 
 0.09 % 
 Time deposits
 
 198,522,941 
 
 5,209,862 
 
 3.51 % 
 
 147,656,997 
 
 4,016,337 
 
 3.63 % 
 Repurchase agreements
 
 42,753,970 
 
 818,772 
 
 2.56 % 
 
 31,298,729 
 
 570,913 
 
 2.44 % 
 Borrowed funds
 
 44,530,334 
 
 1,425,218 
 
 4.28 % 
 
 92,516,088 
 
 3,321,998 
 
 4.80 % 
 Finance lease obligations
 
 3,101,243 
 
 53,511 
 
 2.30 % 
 
 3,331,163 
 
 57,456 
 
 2.30 % 
 Junior subordinated debentures
 
 12,887,000 
 
 726,796 
 
 7.54 % 
 
 12,887,000 
 
 836,089 
 
 8.67 % 
 Total interest-bearing liabilities
 
 878,253,704 
 
 $ 14,948,127 
 
 2.28 % 
 
 831,398,489 
 
 $ 14,903,352 
 
 2.39 % 
 Non-interest bearing deposits
 
 195,415,601 
 
 187,634,795 
 
 Other liabilities
 
 9,768,533 
 
 5,706,198 
 
 Total liabilities
 
 1,083,437,838 
 
 1,024,739,482 
 
 Shareholders' equity
 
 103,547,712 
 
 91,073,851 
 
 Total liabilities and shareholders' equity
 
 $ 1,186,985,550 
 
 $ 1,115,813,333 
 
 Net interest income
 
 $ 30,479,920 
 
 $ 25,640,662 
 
 Net interest spread (3)
 
 3.14 % 
 
 2.75 % 
 Net interest margin (4)
 
 3.64 % 
 
 3.25 % 
 
 (1)
 Included in net loans are non-accrual loans with average balances of $8,622,384 and $6,075,373 for the nine months ended September 30, 2025 and 2024, respectively. Loans are stated net of unearned discount and ACL, and include loans held-for-sale and tax-exempt loans to local municipalities with average balances of $67,278,699 and $59,218,512 for the nine months ended September 30, 2025 and 2024, respectively.
 
 (2)
 Included in other investments is the Company’s FHLBB Stock with average balances of $2,335,653 and $1,840,201, respectively, with a dividend rate of approximately 7.18% and 8.52%, respectively, for the nine months ended September 30, 2025 and 2024, respectively.
 
 (3)
 Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.
 
 (4)
 Net interest margin is net interest income divided by average earning assets.
 
 36 
 
 Table of Contents 
 
 The average volume of interest-earning assets for the three- and nine-month periods ended September 30, 2025 increased 4.7% and 6.2%, respectively, compared to the same periods last year, and the average yield on interest-earning assets increased 26 bps and 28 bps in the respective periods.
 
 The average volume of loans increased over the three- and nine-month comparison periods of 2025 versus 2024 by 7.8% and 8.8%, respectively, and the average yield on loans increased 18 bps and 22 bps, respectively. Loans accounted for 84.6% and 84.0% of the average interest-earning asset portfolio for the three- and nine-month periods ended September 30, 2025, compared to 82.2% and 82.0%, respectively, for the same periods last year. Interest earned on the loan portfolio as a percentage of total interest income was 92.1% and 91.8%, respectively, for the three- and nine-month periods in 2025 compared to 91.2% and 91.1%, respectively, for the same periods in 2024.
 
 The average volume of the taxable investment portfolio (classified as AFS) decreased 10.1% and 11.0%, respectively, during the three- and nine-month periods ended September 30, 2025, compared to the same periods last year, while the average yield increased 32 bps and 21 bps, respectively, between periods. There were purchases of taxable AFS investment securities during the first nine months of 2025, however maturities and paydowns on this portfolio in 2024 and into 2025 exceeded purchases during the same time period, accounting for the decrease in average volume year over year. 
 
 The average volume of the tax-exempt investment portfolio (classified as AFS) for the three- and nine-month periods ended September 30, 2025 decreased 0.4% and 0.2% respectively, while the average tax equivalent yield increased 21 bps and 15 bps, respectively. There were no tax-exempt bond purchases during the first nine months of 2025, accounting for the decrease in average volume in this portfolio.
 
 The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 10.6% and increased 91.3%, respectively, for the three- and nine-months ended September 30, 2025, compared to the same periods in 2024. The average volume grew steadily during the last half of 2024 with the influx of customer deposit accounts, primarily municipal deposit accounts. The average yield on these funds decreased 80 bps and 86 bps, respectively, for the three- and nine-month periods ended September 30, 2025, versus the same periods in 2024. 
 
 The average volume of interest-bearing liabilities for the three- and nine-month periods ended September 30, 2025 increased 3.5% and 5.6%, respectively, compared to the same periods in 2024, while the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively.
 
 The average volume of interest-bearing transaction accounts decreased 5.4% and increased 0.4%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods of 2024, reflecting moderate growth year over year. The average rate paid on these accounts decreased 24 bps and 10 bps, respectively, between comparison periods. Interest-bearing transaction accounts comprised 30.2% and 31.8% of the average interest-bearing liabilities portfolio for the three- and nine-month periods ended September 30, 2025, compared to 33.0% and 33.5%, respectively, for the same periods last year. Interest paid on these funds accounted for 23.7% and 25.7%, respectively, of total interest expense for the three- and nine-month periods of 2025 compared to 26.3% and 27.1%, respectively, for the same periods in 2024.
 
 The average volume of money market accounts increased 30.7% and 30.8%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid on these deposits decreased 11 bps and increased 17 bps, respectively.
 
 The average volume of savings accounts decreased 1.0% and 3.2%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024. There was no change in the average rate paid on these accounts in the three- and nine- month periods ended September 30, 2025 compared to 2024. 
 
 The average volume of time deposits increased 27.0% and 34.5%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid decreased 53 bps and 12 bps, respectively.
 
 The average volume of repurchase agreements increased 14.4% and 36.6%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, and the average rate paid increased 14 bps and 12 bps, respectively, between comparison periods.
 
 The Company utilized borrowed funds to fund loan growth and cover deposit outflows during 2023 and into the first and second quarters of 2024, but as deposit accounts began to increase, the need for these funds decreased, accounting for the 38.1% and 51.9% decrease in average volume of borrowed funds during the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024. The average rate paid on borrowed funds decreased as well by 41 bps and 52 bps for the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024.
 
 37 
 
 Table of Contents 
 
 In summary, between the three- and nine-month periods ended September 30, 2025 and 2024, the average yield on interest-earning assets increased 26 bps and 28 bps for the three- and nine-month periods and the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively. Net interest spread increased 53 bps and 39 bps, respectively, for the three- and nine-month periods ended September 30, 2025 versus the same periods in 2024, and the net interest margin increased 50 bps and 39 bps, respectively.
 
 The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 2025 and 2024 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.
 
 Three Months Ended 
 September 30, 2025 
 
 Nine Months Ended 
 September 30, 2025 
 
 Compared to 
 
 Compared to 
 
 Three Months Ended 
 September 30, 2024 
 
 Nine Months Ended 
 September 30, 2024 
 
 Variance 
 
 Variance 
 
 Variance 
 
 Variance 
 
 Due to 
 
 Due to 
 
 Total 
 
 Due to 
 
 Due to 
 
 Total 
 
 Rate (1) 
 
 Volume (1) 
 
 Variance 
 
 Rate (1) 
 
 Volume (1) 
 
 Variance 
 
 Average Interest-Earning Assets 
 
 Loans, net
 
 $ 457,678 
 
 $ 1,000,930 
 
 $ 1,458,608 
 
 $ 1,495,283 
 
 $ 3,245,097 
 
 $ 4,740,380 
 
 Taxable investment securities
 
 133,213 
 
 (102,419 ) 
 
 30,794 
 
 268,512 
 
 (334,998 ) 
 
 (66,486 ) 
 Tax-exempt investment securities
 
 5,895 
 
 (5,895 ) 
 
 0 
 
 10,975 
 
 (10,975 ) 
 
 0 
 
 Federal funds sold and overnight deposits
 
 (30,194 ) 
 
 (18,269 ) 
 
 (48,463 ) 
 
 (107,737 ) 
 
 312,696 
 
 204,959 
 
 Other investments
 
 (7,310 ) 
 
 11,659 
 
 4,349 
 
 (23,751 ) 
 
 28,931 
 
 5,180 
 
 Total
 
 $ 559,282 
 
 $ 886,006 
 
 $ 1,445,288 
 
 $ 1,643,282 
 
 $ 3,240,751 
 
 $ 4,884,033 
 
 Average Interest-Bearing Liabilities 
 
 Interest-bearing transaction accounts
 
 $ (165,686 ) 
 $ (66,113 ) 
 $ (231,799 ) 
 $ (204,075 ) 
 $ 17,421 
 
 $ (186,654 ) 
 Money market funds
 
 (36,865 ) 
 
 186,198 
 
 149,333 
 
 196,728 
 
 608,290 
 
 805,018 
 
 Savings deposits
 
 (37 ) 
 
 (340 ) 
 
 (377 ) 
 
 (1,774 ) 
 
 (3,180 ) 
 
 (4,954 ) 
 Time deposits
 
 (272,118 ) 
 
 443,987 
 
 171,869 
 
 (188,778 ) 
 
 1,382,303 
 
 1,193,525 
 
 Repurchase agreements
 
 12,799 
 
 27,806 
 
 40,605 
 
 38,610 
 
 209,249 
 
 247,859 
 
 Borrowed funds
 
 (97,510 ) 
 
 (397,223 ) 
 
 (494,733 ) 
 
 (360,658 ) 
 
 (1,536,123 ) 
 
 (1,896,781 ) 
 Finance lease obligations
 
 18 
 
 (1,344 ) 
 
 (1,326 ) 
 
 10 
 
 (3,955 ) 
 
 (3,945 ) 
 Junior subordinated debentures
 
 (33,252 ) 
 
 0 
 
 (33,252 ) 
 
 (109,293 ) 
 
 0 
 
 (109,293 ) 
 Total
 
 $ (592,651 ) 
 $ 192,971 
 
 $ (399,680 ) 
 $ (629,230 ) 
 $ 674,005 
 
 $ 44,775 
 
 Changes in net interest income
 
 $ 1,151,933 
 
 $ 693,035 
 
 $ 1,844,968 
 
 $ 2,272,512 
 
 $ 2,566,746 
 
 $ 4,839,258 
 
 (1) Items which have shown a year-to-year increase in volume have variances allocated as follows:
 
 Variance due to rate = Change in rate x new volume
 
 Variance due to volume = Change in volume x old rate
 
 Items which have shown a year-to-year decrease in volume have variances allocated as follows:
 
 Variance due to rate = Change in rate x old volume
 
 Variances due to volume = Change in volume x new rate
 
 38 
 
 Table of Contents 
 
 NON-INTEREST INCOME AND NON-INTEREST EXPENSE 
 
 Non-interest Income 
 
 The components of non-interest income for the periods presented were as follows:
 
 Three Months Ended 
 
 Nine Months Ended 
 
 September 30, 
 
 Change 
 
 September 30, 
 
 Change 
 
 2025 
 
 2024 
 
 Income 
 
 Percent 
 
 2025 
 
 2024 
 
 Income 
 
 Percent 
 
 Service fees
 
 $ 1,002,753 
 
 $ 972,338 
 
 $ 30,415 
 
 3.13 % 
 $ 2,859,310 
 
 $ 2,834,439 
 
 $ 24,871 
 
 0.88 % 
 Income from sold loans
 
 102,389 
 
 96,294 
 
 6,095 
 
 6.33 % 
 
 268,470 
 
 273,867 
 
 (5,397 ) 
 
 -1.97 % 
 Other income from loans
 
 260,459 
 
 381,170 
 
 (120,711 ) 
 
 -31.67 % 
 
 862,385 
 
 913,994 
 
 (51,609 ) 
 
 -5.65 % 
 Other income
 
 Income from CFS Partners
 
 591,020 
 
 356,822 
 
 234,198 
 
 65.63 % 
 
 1,388,678 
 
 979,747 
 
 408,931 
 
 41.74 % 
 Other miscellaneous income
 
 138,433 
 
 200,050 
 
 (61,617 ) 
 
 -30.80 % 
 
 353,531 
 
 410,951 
 
 (57,420 ) 
 
 -13.97 % 
 Total non-interest income
 
 $ 2,095,054 
 
 $ 2,006,674 
 
 $ 88,380 
 
 4.40 % 
 $ 5,732,374 
 
 $ 5,412,998 
 
 $ 319,376 
 
 5.90 % 
 
 Total non-interest income increased $88,380, or 4.4%, and $319,376 or 5.9%, respectively, for the three and nine months ended September 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:
 
 · 
 The volume of loans sold into the secondary market during the first nine months of 2025 decreased by $248 thousand compared to the same period last year, accounting for the decrease in income from sold loans between periods. 
 
 · 
 Decreases in commercial loan documentation fees amounting to $148 thousand primarily accounts for the decrease in other income from loans year over year.
 
 · 
 Income from CFS Partners increased between periods due in part to a strong equity market and successful retention of managed accounts, as well as an increase, commencing March 1, 2025, in the Company’s share of CFSG’s net income from 33.3% to 50%. CFSG’s income is derived primarily from asset-based fees on managed accounts and in addition, CFS Partners has a small portion of its equity capital invested in the stock market, with performance generally reflecting stock market conditions.
 
 39 
 
 Table of Contents 
 
 Non-interest Expense 
 
 The components of non-interest expense for the periods presented were as follows:
 
 Three Months Ended 
 
 Nine Months Ended 
 
 September 30, 
 
 Change 
 
 September 30, 
 
 Change 
 
 2025 
 
 2024 
 
 Expense 
 
 Percent 
 
 2025 
 
 2024 
 
 Expense 
 
 Percent 
 
 Salaries and wages
 
 $ 2,432,661 
 
 $ 2,358,000 
 
 $ 74,661 
 
 3.17 % 
 $ 7,145,388 
 
 $ 7,104,000 
 
 $ 41,388 
 
 0.58 % 
 Employee benefits
 
 959,918 
 
 986,804 
 
 (26,886 ) 
 
 -2.72 % 
 
 3,034,163 
 
 2,840,194 
 
 193,969 
 
 6.83 % 
 Occupancy expenses, net
 
 748,354 
 
 683,980 
 
 64,374 
 
 9.41 % 
 
 2,324,661 
 
 2,100,714 
 
 223,947 
 
 10.66 % 
 Other expenses
 
 Directors fees
 
 147,867 
 
 119,905 
 
 27,962 
 
 23.32 % 
 
 457,153 
 
 413,201 
 
 43,952 
 
 10.64 % 
 Charged-off checks
 
 12,661 
 
 38,723 
 
 (26,062 ) 
 
 -67.30 % 
 
 (32,289 ) 
 
 41,576 
 
 (73,865 ) 
 
 -177.66 % 
 Outsourcing expense
 
 89,642 
 
 153,991 
 
 (64,349 ) 
 
 -41.79 % 
 
 277,514 
 
 431,341 
 
 (153,827 ) 
 
 -35.66 % 
 Service contracts - administrative
 
 244,133 
 
 285,559 
 
 (41,426 ) 
 
 -14.51 % 
 
 650,464 
 
 594,048 
 
 56,416 
 
 9.50 % 
 Audit fees
 
 147,489 
 
 123,941 
 
 23,548 
 
 19.00 % 
 
 431,117 
 
 369,550 
 
 61,567 
 
 16.66 % 
 Consultant services
 
 90,987 
 
 56,002 
 
 34,985 
 
 62.47 % 
 
 273,977 
 
 195,814 
 
 78,163 
 
 39.92 % 
 FDIC insurance
 
 146,042 
 
 208,736 
 
 (62,694 ) 
 
 -30.04 % 
 
 490,716 
 
 465,079 
 
 25,637 
 
 5.51 % 
 Collection & non-accruing loan expense
 
 23,293 
 
 206,275 
 
 (182,982 ) 
 
 -88.71 % 
 
 30,293 
 
 242,275 
 
 (211,982 ) 
 
 -87.50 % 
 ATM & debit card expense
 
 204,793 
 
 214,705 
 
 (9,912 ) 
 
 -4.62 % 
 
 579,559 
 
 526,175 
 
 53,384 
 
 10.15 % 
 State deposit tax
 
 276,745 
 
 252,199 
 
 24,546 
 
 9.73 % 
 
 811,086 
 
 766,027 
 
 45,059 
 
 5.88 % 
 Other miscellaneous expenses
 
 1,068,913 
 
 819,838 
 
 249,075 
 
 30.38 % 
 
 3,290,707 
 
 2,990,380 
 
 300,327 
 
 10.04 % 
 Total non-interest expense
 
 $ 6,593,498 
 
 $ 6,508,658 
 
 $ 84,840 
 
 1.30 % 
 $ 19,764,509 
 
 $ 19,080,374 
 
 $ 684,135 
 
 3.59 % 
 
 Total non-interest expense increased $84,840, or 1.3%, and $684,135 or 3.6%, for the three and nine months ended September 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:
 
 · 
 The increases in salaries and wages during the three- and nine- month periods of 2025 reflect normal salary increases and remain in line with budget.
 
 · 
 The decrease in employee benefits in the three-month period is attributable to a decrease in health insurance claims anticipated as well as run out of claims with the prior health insurance plan. An increase for the nine-month period is due to a change in the Company’s self-insured health insurance plan and the associated termination fees attributed to the change.
 
 · 
 The increase in occupancy expense year over year is primarily due to normal increases in contracted services, including increased expenses for plowing and sanding during the winter months as well as increases in maintenance on buildings.
 
 · 
 The increase in directors fees in both periods is attributable to a new director in 2025 as well as an increase in the amount paid to directors compared to 2024.
 
 · 
 The Company received a recovery for a $53 thousand fraudulent check during the first quarter of 2025 that was charged off in 2024, accounting for most of the decrease in charged-off checks year over year.
 
 · 
 The decrease in outsourcing expense is attributable to a renegotiated contract from the Company’s core processing provider.
 
 · 
 The year over year increase in service contracts - administrative is due to a combination of new contracts, an increase in transaction-based pricing for certain contracts, and contractual inflationary adjustment factors that are higher than historical increase adjustments. The quarter over quarter decrease is due to the timing of credits from a vendor to correct prior year invoices.
 
 · 
 The increase in audit fees is attributable to an increase in the scope of audits performed in 2025 which was anticipated and budgeted accordingly.
 
 · 
 The increase in FDIC insurance year over year is attributable to an increase in the assessment multiplier.
 
 40 
 
 Table of Contents 
 
 · 
 The increase in consultant services is attributable to an increased utilization of these services for branch network and technology projects during 2025.
 
 · 
 Collection & non-accruing loan expenses were lower year over year due to the recovery of expenses associated with properties in foreclosure that were resolved.
 
 · 
 ATM & debit card expenses are transaction-based and reflect increased customer activity year over year, as well as annual contractual price adjustments.
 
 · 
 The increase in state deposit tax is attributable to an increase in average deposits which is used in the calculation of taxes due.
 
 APPLICABLE INCOME TAXES 
 
 The provision for income taxes increased $422,063, or 72.2%, for the third quarter of 2025 and $806,607 or 48.0%, for the first nine months of 2025 compared to the same periods in 2024, which is consistent with the increase in income before income taxes. Tax credits, which consist of credits from affordable housing investments and NMTC, amounted to $249,612 and $174,612, for the third quarter of 2025 and 2024, and $748,836 and $523,836, respectively, for the first nine months of 2025 and 2024. The Company’s investment in a project during the last quarter of 2024 generated NMTC for that quarter and for the nine months of 2025, accounting for the increase in tax credits between comparison periods.
 
 Amortization expense related to the affordable housing investments and NMTC is included as a component of income tax expense and amounted to $148,890 and $149,202, for the third quarter of 2025 and 2024 and $446,670 and $447,606, respectively, for the first nine months of 2025 and 2024. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 5% and 7%.
 
 CHANGES IN FINANCIAL CONDITION 
 
 The following table reflects the composition of the Company's major categories of assets and liabilities as a percentage of total assets or liabilities and shareholders’ equity, as of the balance sheet dates:
 
 September 30, 2025 
 
 December 31, 2024 
 
 Assets 
 
 Loans
 
 $ 961,882,509 
 
 78.45 % 
 $ 927,940,805 
 
 74.30 % 
 AFS securities
 
 152,248,319 
 
 12.42 % 
 
 159,697,420 
 
 12.79 % 
 
 Liabilities 
 
 Demand deposits
 
 205,211,509 
 
 16.74 % 
 
 197,697,470 
 
 15.83 % 
 Interest-bearing transaction accounts
 
 284,204,977 
 
 23.18 % 
 
 304,212,085 
 
 24.36 % 
 Money market funds
 
 155,502,114 
 
 12.68 % 
 
 169,533,067 
 
 13.57 % 
 Savings deposits
 
 143,737,440 
 
 11.72 % 
 
 142,925,828 
 
 11.44 % 
 Time deposits
 
 219,644,123 
 
 17.91 % 
 
 187,276,308 
 
 14.99 % 
 Short-term advances
 
 10,000,000 
 
 0.82 % 
 
 0 
 
 0.00 % 
 Long-term advances
 
 36,275,022 
 
 2.96 % 
 
 72,600,000 
 
 5.81 % 
 
 The following table reflects the changes in the composition of the Company's major categories of assets and liabilities between the balance sheet dates, as disclosed in the table above:
 
 Volume Change 
 
 Percentage 
 
 Assets 
 
 Loans
 
 $ 33,941,704 
 
 3.66 % 
 AFS securities
 
 (7,449,101 ) 
 
 -4.66 % 
 
 Liabilities 
 
 Demand deposits
 
 7,514,039 
 
 3.80 % 
 Interest-bearing transaction accounts
 
 (20,007,108 ) 
 
 -6.58 % 
 Money market funds
 
 (14,030,953 ) 
 
 -8.28 % 
 Savings deposits
 
 811,612 
 
 0.57 % 
 Time deposits
 
 32,367,815 
 
 17.28 % 
 Short-term advances
 
 10,000,000 
 
 100.00 % 
 Long-term advances
 
 (36,324,978 ) 
 
 -50.03 % 
 
 41 
 
 Table of Contents 
 
 The increase in the loan portfolio during the first nine months of 2025 was primarily attributable to increases in CRE loans, residential real estate 1 st lien loans, residential junior lien loans as well as purchased loans. 
 
 The decrease in the securities AFS portfolio at September 30, 2025 is attributable to the combined effect during the first nine months of the year of purchases totaling $18.1 million and a decrease of $6.6 million in unrealized losses reflected in OCI, which was more than offset by maturities of $16.5 million and principal payments on MBS, ABS and CMO investments totaling $15.0 million. In management’s view, the size of the AFS securities portfolio is appropriate and proportional to the overall asset base, as this portfolio serves a significant role in the Company’s liquidity position.
 
 The decrease in interest-bearing transactions accounts at September 30, 2025 from year end 2024 is attributable to a decrease of $10.1 million, or 22.7% in a CFSG deposit account, and a decrease of $13.7 million or 12.5%, in ICS accounts. The decrease in money market accounts was primarily driven by a decrease of $26.3 million, or 59.2% in ICS accounts. The increase in time deposits is attributable to an increase in brokered time deposits. In addition to the brokered time deposits, the Company used overnight deposits to cover maturities in borrowed funds during the first nine months of 2025 and used those funds to cover fluctuations in aggregate deposits during the same period, enabling the Company to rely less on other sources of funding.
 
 Uninsured Deposits 
 
 Estimated deposits in excess of the FDIC insurance level amounted to $262.7 million as of September 30, 2025 and $258.0 million as of December 31, 2024. The estimated balance of $43.1 million of uninsured time deposits as of September 30, 2025 was made up of time CDs of $39.6 million and retirement accounts of $3.5 million. Increments of maturity of these time deposits are summarized as follows:
 
 3 months or less
 
 $ 22,841,984 
 
 Over 3 through 6 months
 
 15,035,068 
 
 Over 6 through 12 months
 
 5,187,149 
 
 Total
 
 $ 43,064,201 
 
 Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s interest rate risk exposure and attempts to structure the balance sheet to maximize net interest income while controlling its exposure to interest rate risk. The Company's ALCO is made up of the Executive Officers and certain Vice Presidents of the Bank representing major business lines. The ALCO formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity and various business strategies. The ALCO meets at least quarterly to review financial statements, liquidity levels, yields and spreads to better understand, measure, monitor and control the Company’s interest rate risk. In the ALCO process, the committee members apply policy limits set forth in the Asset Liability, Liquidity and Investment policies approved and periodically reviewed by the Company’s Board of Directors (together the ”ALCO Policy”). The ALCO's methods for evaluating interest rate risk include an analysis of the effects of interest rate changes on net interest income and an analysis of the Company's interest rate sensitivity "gap", which provides a static analysis of the maturity and repricing characteristics of the entire balance sheet. The ALCO Policy also includes a contingency funding plan to help management prepare for unforeseen liquidity restrictions, including hypothetical severe liquidity crises.
 
 Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the Company's net interest income, as well as a variety of other analyses. It is ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustain interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated, assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve, including an inverted yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.
 
 Under the Company’s interest rate sensitivity modeling, in a rising rate environment NII initially trends upward as the short-term asset base (cash and adjustable-rate loans) quickly cycles upward while the retail funding base (deposits) lags the market. If rates paid on deposits must be increased more and/or more quickly than projected due to competitive pressures, the expected benefit of rising rates would be reduced. In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs. Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment. 
 
 42 
 
 Table of Contents 
 
 The following table summarizes the estimated impact on the Company's NII over a twelve-month period, assuming a gradual parallel shift of the yield curve beginning September 30, 2025:
 
 Rate Change 
 
 Percent Change in NII 
 
 Down 100 bps
 
 -0.5 % 
 Up 200 bps
 
 -1.6 % 
 
 The estimated amounts shown in the table above are within the ALCO Policy limits. However, those amounts do not represent a forecast and should not be relied upon as indicative of future results. The ALCO model also provides alternate scenarios including a sustained flat, or inverted yield curve. While assumptions used in the ALCO process, including the interest rate simulation analyses, are developed based upon current economic and local market conditions, and expected future conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. 
 
 As of September 30, 2025, the Company had $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%. The quarterly floating rate in effect on the debentures was 7.43% for the September 2025 payment, compared to a floating rate of 8.45% for the September 2024 payment.
 
 Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations. The Company’s Board of Directors prescribes policies for managing credit risk, including Loan, Appraisal and Environmental policies. These policies are supplemented by comprehensive underwriting standards and procedures. The Company maintains a Credit Administration department whose function includes credit analysis and monitoring of and reporting on the status of the loan portfolio, including delinquent and non-performing loan trends. The Company also monitors concentration of credit risk in a variety of areas, including portfolio mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the Company's internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.
 
 Residential mortgage loans represented 28.3% of the Company’s loan balances as of September 30, 2025, compared to 27.4% as of December 31, 2024. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not offer higher risk loan products, such as option adjustable-rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-value ratios exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. As of September 30, 2025, junior lien home equity products made up 15.7% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans with loan-to-value ratios greater than 80% under an insured loan program with stringent underwriting criteria.
 
 43 
 
 Table of Contents 
 
 The following tables show the estimated maturities within the Company’s loan portfolio as of September 30, 2025.
 
 Fixed Rate Loans 
 
 Within 
 
 2 - 5 
 
 6 - 15 
 
 Over 
 
 1 Year 
 
 Years 
 
 Years 
 
 15 Years 
 
 Total 
 
 Commercial & industrial
 
 $ 3,907,788 
 
 $ 28,348,684 
 
 $ 22,278,867 
 
 $ 0 
 
 $ 54,535,339 
 
 Purchased (1)
 
 66,257 
 
 2,982,296 
 
 7,721,354 
 
 0 
 
 10,769,907 
 
 Commercial real estate
 
 16,321,488 
 
 8,181,910 
 
 17,269,303 
 
 1,871,906 
 
 43,644,607 
 
 Municipal
 
 48,198,963 
 
 4,014,400 
 
 5,547,448 
 
 0 
 
 57,760,811 
 
 Residential real estate - 1st lien
 
 19,341 
 
 2,539,424 
 
 22,450,658 
 
 57,073,932 
 
 82,083,355 
 
 Residential real estate - Jr lien
 
 56,552 
 
 402,728 
 
 4,711,816 
 
 148,661 
 
 5,319,757 
 
 Consumer
 
 603,567 
 
 2,006,336 
 
 25,165 
 
 0 
 
 2,635,068 
 
 Total Loans
 
 $ 69,173,956 
 
 $ 48,475,778 
 
 $ 80,004,611 
 
 $ 59,094,499 
 
 $ 256,748,844 
 
 Variable Rate Loans 
 
 Within 
 
 2 - 5 
 
 6 - 15 
 
 Over 
 
 1 Year 
 
 Years 
 
 Years 
 
 15 Years 
 
 Total 
 
 Commercial & industrial
 
 $ 32,719,800 
 
 $ 22,948,470 
 
 $ 8,641,124 
 
 $ 5,330,161 
 
 $ 69,639,555 
 
 Commercial real estate
 
 2,242,321 
 
 4,764,737 
 
 112,310,662 
 
 318,369,856 
 
 437,687,576 
 
 Municipal
 
 0 
 
 0 
 
 9,199,699 
 
 3,129,596 
 
 12,329,295 
 
 Residential real estate - 1st lien
 
 104,985 
 
 3,655,279 
 
 16,695,315 
 
 127,192,062 
 
 147,647,641 
 
 Residential real estate - Jr lien
 
 1,020,900 
 
 1,449,696 
 
 13,385,951 
 
 21,593,006 
 
 37,449,553 
 
 Consumer
 
 44,667 
 
 168,757 
 
 166,621 
 
 0 
 
 380,045 
 
 Total Loans
 
 $ 36,132,673 
 
 $ 32,986,939 
 
 $ 160,399,372 
 
 $ 475,614,681 
 
 $ 705,133,665 
 
 (1) Consists of commercial loans totaling $66 thousand within 1 year, $2.6 million in 2 – 5 years and $504 thousand in 6 – 15 years; and consumer loans of $0, $362 thousand and $7.2 million in those maturity categories, respectively. 
 
 The Company experienced solid growth in the CRE loan portfolios, which is consistent with its strategic focus on commercial lending. Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.4% of the Company’s loan portfolio as of September 30, 2025, compared to 72.3% as of December 31, 2024. The largest components of the CRE portfolio were $131.5 million in owner-occupied CRE and $165.8 million in non-owner occupied CRE as of September 30, 2025, compared to $125.5 million and $154.6 million, respectively, as of December 31, 2024.
 
 Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. As of September 30, 2025, the Company had $29.0 million in guaranteed loans with guaranteed balances of $19.8 million, compared to $25.5 million in guaranteed loans with guaranteed balances of $17.2 million as of December 31, 2024. PPP loans with outstanding balances of $15 thousand as of September 30, 2025, and $43 thousand as of December 31, 2024, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.
 
 The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months. Interest payments received on non-accrual loans are generally applied as a reduction of the loan book balance.
 
 44 
 
 Table of Contents 
 
 Credit loss expense 
 
 The credit loss expense was made up of the following components for the periods indicated:
 
 Three Months Ended 
 
 September 30, 
 
 Change 
 
 2025 
 
 2024 
 
 $ 
 
 % 
 
 Credit loss expense - loans
 
 $ 198,264 
 
 $ 406,955 
 
 $ (208,691 ) 
 
 -51.28 % 
 Credit loss expense - OBS credit exposure
 
 60,489 
 
 53,790 
 
 6,699 
 
 12.45 % 
 Credit loss expense
 
 $ 258,753 
 
 $ 460,745 
 
 $ (201,992)
 
 -43.84 % 
 
 Nine Months Ended 
 
 September 30, 
 
 Change 
 
 2025 
 
 2024 
 
 $ 
 
 % 
 
 Credit loss expense - loans
 
 $ 1,011,761 
 
 $ 1,076,676 
 
 $ (64,915 ) 
 
 -6.03 % 
 Credit loss (reversal) expense - OBS credit exposure
 
 (20,908 ) 
 
 29,230 
 
 (50,138 ) 
 
 -171.53 % 
 Credit loss expense
 
 $ 990,853 
 
 $ 1,105,906 
 
 $ (115,053)
 
 -10.40 % 
 
 The decrease in the credit loss expense on loans in both periods of 2025 compared to the same periods of 2024, was due in part to changes in the economic forecast, prepayments speeds, loan curtailments and adjustments to certain qualitative factors used in the model, despite the increase in the volume of the loan portfolio. The increase in the OBS credit exposure for the three months ended September 30, 2025 is attributable to an increase in unfunded loan commitments under contract and the decrease in the nine months ended September 30, 2025 is attributable to a decrease in unfunded commitments. 
 
 ACL and provisions –The Company’s ACL policy provides guidance in maintaining an adequate methodology for establishing, estimating, and maintaining allowances for credit losses under ASC 326. The policy creates a measurement model to establish a proper ACL based on current expected credit losses rather than losses incurred.
 
 The Company maintains an ACL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the measurement date (See Note 5 of the accompanying unaudited interim consolidated financial statements). Although the Company, in establishing the ACL, considers the expected inherent losses in individual loans and pools of loans, the ACL is a general reserve available to absorb all credit losses in the loan portfolio. No part of the ACL is segregated to absorb losses from any loan or segment of loans.
 
 When establishing the ACL each quarter, the Company applies a combination of significant key assumptions and methodologies, as discussed in the ACL section under Critical Accounting Policies in this MD&A and presented in Note 5 of the accompanying unaudited interim consolidated financial statements. 
 
 The following table summarizes the Company’s credit risk ratios for the balance sheet dates presented:
 
 September 30, 
 
 December 31, 
 
 2025 
 
 2024 
 
 ACL to total loans outstanding
 
 1.12 % 
 
 1.06 % 
 ACL
 
 $ 10,769,269 
 
 $ 9,810,212 
 
 Loans outstanding
 
 $ 961,882,509 
 
 $ 927,940,805 
 
 Non-accruing loans to loans outstanding
 
 0.84 % 
 
 0.90 % 
 Non-accruing loans
 
 $ 8,108,381 
 
 $ 8,338,166 
 
 Loans outstanding
 
 $ 961,882,509 
 
 $ 927,940,805 
 
 ACL to non-accruing loans
 
 132.82 % 
 
 117.65 % 
 ACL
 
 $ 10,769,269 
 
 $ 9,810,212 
 
 Non-accruing loans
 
 $ 8,108,381 
 
 $ 8,338,166 
 
 45 
 
 Table of Contents 
 
 The following table shows the breakdown of the ACL by loan segment and the percentage of loans in each category to total loans in the respective portfolios at the date indicated:
 
 September 30, 2025 
 
 December 31, 2024 
 
 Amount 
 
 Percent 
 
 Amount 
 
 Percent 
 
 Commercial & industrial
 
 $ 651,809 
 
 12.91 % 
 $ 727,488 
 
 13.37 % 
 Purchased
 
 32,996 
 
 1.12 % 
 
 22,415 
 
 0.84 % 
 Commercial real estate
 
 6,783,066 
 
 50.04 % 
 
 6,487,700 
 
 50.88 % 
 Municipal
 
 175,225 
 
 7.29 % 
 
 167,719 
 
 7.23 % 
 Residential real estate - 1st lien
 
 2,634,295 
 
 23.88 % 
 
 2,087,034 
 
 23.50 % 
 Residential real estate - Jr lien
 
 467,109 
 
 4.45 % 
 
 291,239 
 
 3.85 % 
 Consumer
 
 24,769 
 
 0.31 % 
 
 26,617 
 
 0.33 % 
 Total
 
 $ 10,769,269 
 
 100.00 % 
 $ 9,810,212 
 
 100.00 % 
 
 The third quarter ACL analysis indicated that the reserve balance of $10.8 million as of September 30, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date. As discussed in Note 5 of the accompanying unaudited interim consolidated financial statements, included in the ACL calculation for the third quarter of 2025 are adjustments to certain qualitative factors made by management, including an increase in the risk status of the qualitative factors for external factors in the purchased loan and residential Jr. lien segments to reflect uncertainty regarding the impact of the government shutdown as well as an increase in the risk status of volume and terms in the residential Jr. lien segment to reflect the increase in volume of these loans. 
 
 Management believes that the quantitative calculation adequately captures the risk in these areas, and that the reserve balance continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. While the ACL is described as consisting of separate allocated portions, the entire ACL is available to support loan losses, regardless of category. Management’s assessment of the adequacy of the ACL is presented to the full Board for approval quarterly. 
 
 46 
 
 Table of Contents 
 
 Net charge-offs during the periods presented to average loans outstanding were as follows:
 
 For the Nine Months Ended September 30, 
 
 2025 
 
 2024 
 
 Commercial & industrial
 
 0.00 % 
 
 -0.95 % 
 Net recoveries (charge-offs) during the period
 
 $ 5,394 
 
 $ (1,203,641 ) 
 Average amount outstanding
 
 $ 124,424,612 
 
 $ 126,240,870 
 
 Purchased
 
 0.00 % 
 
 0.00 % 
 Net charge-offs during the period
 
 $ 0 
 
 $ 0 
 
 Average amount outstanding
 
 $ 10,039,836 
 
 $ 9,521,419 
 
 Commercial real estate
 
 0.00 % 
 
 -0.03 % 
 Net charge-offs during the period
 
 $ 0 
 
 $ (126,393 ) 
 Average amount outstanding
 
 $ 482,707,363 
 
 $ 433,341,367 
 
 Municipal
 
 0.00 % 
 
 0.00 % 
 Net charge-offs during the period
 
 $ 0 
 
 $ 0 
 
 Average amount outstanding
 
 $ 67,278,699 
 
 $ 59,218,512 
 
 Residential real estate - 1st lien
 
 0.00 % 
 
 0.00 % 
 Net charge-offs during the period
 
 $ (10,306 ) 
 $ 0 
 
 Average amount outstanding
 
 $ 224,999,628 
 
 $ 210,534,364 
 
 Residential real estate - Jr lien
 
 0.00 % 
 
 0.05 % 
 Net recoveries during the period
 
 $ 0 
 
 $ 15,537 
 
 Average amount outstanding
 
 $ 37,667,988 
 
 $ 31,908,746 
 
 Consumer
 
 -1.78 % 
 
 -2.02 % 
 Net charge-offs during the period
 
 $ (47,792 ) 
 $ (64,452 ) 
 Average amount outstanding
 
 $ 2,677,769 
 
 $ 3,192,650 
 
 Total loans
 
 -0.01 % 
 
 -0.16 % 
 Net charge-offs during the period
 
 $ (52,704 ) 
 $ (1,378,949 ) 
 Average amount outstanding
 
 $ 949,795,895 
 
 $ 873,957,928 
 
 In addition to credit risk in the Company’s loan and investment portfolios and its off-balance sheet commitments, and liquidity risk in its loan and deposit-taking operations, the Company’s business activities also generate market risk. Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Declining capital markets and changes in interest rates can result in fair value adjustments to asset valuations or the need to create a related reserve or allowance. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending, deposit taking and investment activities. During recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures and credit-related losses. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to loan prepayment risks, early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product. Rapid changes in prevailing interest rates, particularly after a long period of relative stability, create a challenging interest rate environment. As discussed above under "Interest Rate Risk and Asset and Liability Management", the Company actively monitors and manages its interest rate risk through the ALCO process. 
 
 COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS 
 
 The Company is a party to financial instruments with OBS risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and risk-sharing commitments on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk more than the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. During the first nine months of 2025, the Company did not engage in any activity that created any additional types of OBS risk.
 
 47 
 
 Table of Contents 
 
 LIQUIDITY AND CAPITAL RESOURCES 
 
 Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations. These sources are supplemented by short-term and long-term borrowings as needed. Maintaining a relatively stable funding base, which is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Company’s exposure to rollover risk on deposits and limits reliance on volatile short-term borrowed funds. Short-term funding needs arise from declines in deposits or other funding sources and from funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and lower-cost funds.
 
 The Company recognizes that, at times, when loan demand exceeds deposit growth or the Company has other liquidity demands, or when the Company experiences deposit outflows; it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and borrowings. One-way deposits acquired through the CDARS and/or ICS programs provide an alternative funding source when needed. As of September 30, 2025, and December 31, 2024, the Company had $0 and $236 thousand in one-way CDARS deposits, and no one-way ICS deposits outstanding at either period end. In addition, two-way (reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, enhance the Company’s ability to retain larger deposit balances by allowing the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits through the exchange of deposits with other participating FDIC-insured financial institutions. As of September 30, 2025 and December 31, 2024, the Company reported $4.5 million and $2.5 million, respectively, in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was $18.1 million as of September 30, 2025, compared to $44.4 million as of December 31, 2024, and the balance in ICS reciprocal demand deposits as of those dates was $95.8 million and $109.5 million, respectively.
 
 Additionally, the Company had brokered deposits from other sources totaling approximately $36.6 million as of September 30, 2025 and $13.8 million as of December 31, 2024. These relationships have provided convenient and timely access to short-term funding that is easily accessible without any detrimental effect on the pricing of the core deposit base. 
 
 As of September 30, 2025 and December 31, 2024, borrowing capacity of $136.5 million and $108.7 million respectively, was available through the FHLBB, secured by the Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances of $46.3 million and $31.1 million, respectively. 
 
 The following table reflects the Company’s outstanding advances with FHLBB as of the dates indicated:
 
 September 30, 
 
 December 31, 
 
 2025 
 
 2024 
 
 FHLBB Short-Term Advances 
 
 FHLBB term advance, 4.49%, due November 21, 2025
 
 $ 10,000,000 
 
 $ 0 
 
 FHLBB Long-Term Advances 
 
 FHLBB term advance, 0.00%, due November 12, 2025 (1)
 
 300,000 
 
 300,000 
 
 FHLBB term advance, 0.00%, due November 13, 2028 (1)
 
 800,000 
 
 800,000 
 
 FHLBB option advance, 4.54%, due May 15, 2026
 
 10,000,000 
 
 10,000,000 
 
 FHLBB option advance, 4.74%, due May 26, 2026
 
 5,000,000 
 
 5,000,000 
 
 FHLBB option advance, 3.89%, due February 01, 2027
 
 0 
 
 5,000,000 
 
 FHLBB option advance, 4.27%, due June 07, 2027
 
 10,000,000 
 
 10,000,000 
 
 FHLBB option advance, 3.66%, due March 26, 2027
 
 5,000,000 
 
 0 
 
 FHLBB option advance, 3.51%, due March 27, 2028
 
 5,000,000 
 
 0 
 
 FHLB term advance, 0.00%, due September 24, 2030
 
 175,022 
 
 0 
 
 Total Long-Term Advances
 
 36,275,022 
 
 31,100,000 
 
 Total Advances
 
 $ 46,275,022 
 
 $ 31,100,000 
 
 (1)
 Under the JNE program, the FHLBB provides a subsidy, funded by the FHLBB’s earnings, to write down interest rates to zero percent on advances that finance qualifying loans to small businesses. JNE advances must support small business in New England that create and/or retain jobs or otherwise contribute to overall economic development activities.
 
 48 
 
 Table of Contents 
 
 The Company utilized borrowing capacity during 2023 and the first quarter of 2024 under the BTFP, a temporary loan facility established by the FRB in March 2023 to provide additional liquidity to financial institutions in the wake of several high-profile bank failures. The Company’s BTFP borrowings are collateralized by U.S. Agency and U.S. Government Securities, valued at par. The BTFP ceased extending new loans on March 11, 2024. The BTFP loans matured and were repaid during the first quarter of 2025.
 
 The Company’s advances under the BTFP as of the balance sheet dates were as follows:
 
 September 30, 
 
 December 31, 
 
 2025 
 
 2024 
 
 FRB BTFP term advance, 4.83%, due January 17, 2025
 
 $ 0 
 
 $ 41,500,000 
 
 The Company also has an unsecured Federal Funds credit line with the FHLBB with an available balance of $500,000 with no outstanding advances during either of the respective comparison periods. Interest is chargeable at a rate determined daily, approximately 25 bps higher than the rate paid on federal funds sold.
 
 The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of $63.2 million and $60.8 million, respectively, as of September 30, 2025, and December 31, 2024. Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 425 bps. The Company had no outstanding advances through this facility as of September 30, 2025, or December 31, 2024.
 
 As of September 30, 2025, and December 31, 2024, the Company had an unsecured line of credit of $12.5 million with a correspondent bank. The Company had no outstanding advances against this credit line as of the balance sheet dates.
 
 Management believes that the combination of high levels of potentially liquid assets, unencumbered securities, cash flows from operations, and additional borrowing capacity are sufficient to meet the Company’s liquidity and capital needs.
 
 The primary objective of the Company’s capital planning process is to balance appropriately the retention of capital to support operations and future growth, with the goal of providing shareholders with an attractive return on their investment, while at the same time satisfying all regulatory capital requirements. To that end, management strives to deploy capital efficiently and monitors capital retention and dividend policies on an ongoing basis.
 
 During the third quarter of 2024, the Company adopted a stock repurchase program authorizing the repurchase of up to 275,000 shares of the Company’s common stock, representing approximately 5% of the outstanding common shares. Purchases under the program may be on such terms, including price, as market conditions warrant, and may be made through open market purchases or in privately negotiated transactions, as Management deems appropriate. The repurchase authorization expires in July, 2029 unless extended, or earlier terminated, by the Board. Notwithstanding the program’s five-year term, the Board reviews and re-evaluates the program annually in light of the Company’s then current capital needs, the number and cost of shares repurchased, the number of shares remaining for repurchase under the authorization, and other relevant factors. In addition, management will confer with the FRBB regarding the program, as appropriate in the circumstances. As of September 30, 2025, 37,453 shares had been repurchased since the inception of the program, for an aggregate purchase price of $701,454.
 
 The following table illustrates the changes in shareholders' equity from December 31, 2024, to September 30, 2025:
 
 Balance as of December 31, 2024 (book value $17.24 per common share)
 
 $ 98,048,205 
 
 Net income
 
 12,332,018 
 
 Issuance of common stock through the DRIP
 
 1,068,890 
 
 Dividends declared on common stock
 
 (4,027,225 ) 
 Dividends declared on preferred stock
 
 (84,375 ) 
 Repurchase of shares through the stock buyback program
 
 (701,470 ) 
 Change in AOCI on AFS securities, net of tax
 
 5,244,299 
 
 Balance as of September 30, 2025 (book value $19.64 per common share)
 
 $ 111,880,342 
 
 Following consultation with the FRBB, the Board has approved for repurchase the remaining 15 shares of the Company's Series A Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock. The shares were redeemed at par ($100,000 per share), plus the accrued quarterly dividend through the redemption date. The redemption was completed during the fourth quarter of 2025.
 
 49 
 
 Table of Contents 
 
 As described in more detail in Note 22 to the audited consolidated financial statements contained in the Company’s 2024 Annual Report on Form 10-K and under the caption “LIQUIDITY AND CAPITAL RESOURCES” in the MD&A section of that report, the Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies pursuant to which they must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
 
 As of September 30, 2025, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy. 
 
 The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the balance sheet dates: 
 
 Minimum 
 
 Minimum 
 
 Minimum 
 
 For Capital 
 
 To Be Well 
 
 For Capital 
 
 Adequacy Purposes 
 
 Capitalized Under 
 
 Adequacy 
 
 with Conservation 
 
 Prompt Corrective 
 
 Actual 
 
 Purposes 
 
 Buffer (1) 
 
 Action Provisions (2) 
 
 Amount 
 
 Ratio 
 
 Amount 
 
 Ratio 
 
 Amount 
 
 Ratio 
 
 Amount 
 
 Ratio 
 
 (Dollars in Thousands) 
 
 September 30, 2025 
 
 Common equity tier 1 capital (to risk-weighted assets)
 
 Company
 
 $ 109,339 
 
 12.56 % 
 $ 39,160 
 
 4.50 % 
 $ 60,915 
 
 7.00 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 122,357 
 
 14.07 % 
 $ 39,132 
 
 4.50 % 
 $ 60,872 
 
 7.00 % 
 $ 56,524 
 
 6.50 % 
 Tier 1 capital (to risk-weighted assets)
 
 Company
 
 $ 123,726 
 
 14.22 % 
 $ 52,213 
 
 6.00 % 
 $ 73,968 
 
 8.50 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 122,357 
 
 14.07 % 
 $ 52,176 
 
 6.00 % 
 $ 73,915 
 
 8.50 % 
 $ 69,567 
 
 8.00 % 
 Total capital (to risk-weighted assets)
 
 Company
 
 $ 134,610 
 
 15.47 % 
 $ 69,617 
 
 8.00 % 
 $ 91,373 
 
 10.50 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 133,234 
 
 15.32 % 
 $ 69,567 
 
 8.00 % 
 $ 91,307 
 
 10.50 % 
 $ 86,959 
 
 10.00 % 
 Tier 1 capital (to average assets)
 
 Company
 
 $ 123,726 
 
 10.33 % 
 $ 47,891 
 
 4.00 % 
 
 N/A 
 
 N/A 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 122,357 
 
 10.22 % 
 $ 47,869 
 
 4.00 % 
 
 N/A 
 
 N/A 
 
 $ 59,836 
 
 5.00 % 
 
 December 31, 2024: 
 
 Common equity tier 1 capital (to risk-weighted assets)
 
 Company
 
 $ 100,751 
 
 11.90 % 
 $ 38,086 
 
 4.50 % 
 $ 59,244 
 
 7.00 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 114,323 
 
 13.52 % 
 $ 38,053 
 
 4.50 % 
 $ 59,194 
 
 7.00 % 
 $ 54,966 
 
 6.50 % 
 Tier 1 capital (to risk-weighted assets)
 
 Company
 
 $ 115,138 
 
 13.60 % 
 $ 50,781 
 
 6.00 % 
 $ 71,940 
 
 8.50 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 114,323 
 
 13.52 % 
 $ 50,738 
 
 6.00 % 
 $ 71,879 
 
 8.50 % 
 $ 67,650 
 
 8.00 % 
 Total capital (to risk-weighted assets)
 
 Company
 
 $ 125,652 
 
 14.85 % 
 $ 67,708 
 
 8.00 % 
 $ 88,867 
 
 10.50 % 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 124,837 
 
 14.76 % 
 $ 67,650 
 
 8.00 % 
 $ 88,791 
 
 10.50 % 
 $ 84,563 
 
 10.00 % 
 Tier 1 capital (to average assets)
 
 Company
 
 $ 115,138 
 
 9.46 % 
 $ 48,690 
 
 4.00 % 
 
 N/A 
 
 N/A 
 
 N/A 
 
 N/A 
 
 Bank
 
 $ 114,323 
 
 9.40 % 
 $ 48,665 
 
 4.00 % 
 
 N/A 
 
 N/A 
 
 $ 60,831 
 
 5.00 % 
 
 (1)
 Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets.
 
 (2)
 Applicable to banks, but not bank holding companies.
 
 The Company's ability to pay dividends to its shareholders is largely dependent on the Bank's ability to pay dividends to the Company. In general, a national bank may not pay dividends that exceed net income for the current and preceding two years. Regardless of statutory restrictions, as a matter of regulatory policy, banks and bank holding companies should pay dividends only out of current earnings and only if, after paying such dividends, they remain adequately capitalized.
 
 50 
 
 Table of Contents 
 
 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 
 
 Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
COMMUNITY BANCORP /VT 10-Q

Item 2. Management’s Discussion and Analysis
