UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

OR

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                 

Commission File Number 000-16435

Community Bancorp./VT

(Exact name of Registrant as Specified in its Charter)

Vermont	03-0284070
(State of Incorporation)	(IRS Employer Identification Number)
4811 US Route 5, Derby, Vermont	05829
(Address of Principal Executive Offices)	(zip code)
Registrant's Telephone Number:  (802) 334-7915

Securities registered pursuant to Section 12(b) of the Act: NONE

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
	(Not Applicable)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file for such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒   No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☒      

At May 10, 2024, there were 5,534,819 shares outstanding of the Corporation's common stock. 

FORM 10-Q
Index
		Page
PART I	FINANCIAL INFORMATION
Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4	Controls and Procedures	44
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	45
Item 1A	Risk Factors	45
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 6	Exhibits	46
	Signatures	47
	Exhibit Index	48

2

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

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

Community Bancorp. and Subsidiary	March 31,			December 31,
Consolidated Balance Sheets	2024			2023
	(Unaudited)
Assets
Cash and due from banks	$	11,236,615		$	15,001,122
Federal funds sold and overnight deposits		4,679,782			5,433,391
Total cash and cash equivalents		15,916,397			20,434,513
Securities available-for-sale		180,577,058			190,706,019
Restricted equity securities, at cost		1,977,350			1,642,350
Loans held-for-sale		441,000			0
Loans		866,352,361			845,429,854
Allowance for credit losses		(10,027,768	)		(9,842,725	)
Deferred net loan costs		589,095			573,169
Net loans		856,913,688			836,160,298
Bank premises and equipment, net		12,375,501			12,371,371
Accrued interest receivable		4,852,826			4,246,798
Bank owned life insurance		5,252,858			5,232,703
Goodwill		11,574,269			11,574,269
Other assets		17,238,023			16,976,613
Total assets	$	1,107,118,970		$	1,099,344,934
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	185,831,108		$	202,969,957
Interest-bearing transaction accounts		291,012,736			297,030,893
Money market funds		120,044,494			121,375,419
Savings		150,718,352			151,570,686
Time deposits, $250,000 and over		30,182,543			24,676,853
Other time deposits		105,965,451			99,343,974
Total deposits		883,754,684			896,967,782
Repurchase agreements		27,166,247			36,255,920
Borrowed funds		85,200,000			54,600,000
Junior subordinated debentures		12,887,000			12,887,000
Accrued interest and other liabilities		8,707,076			9,605,418
Total liabilities		1,017,715,007			1,010,316,120
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 03/31/24 and 12/31/23 ($100,000 liquidation value, per share)		1,500,000			1,500,000
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,745,307 shares issued at 03/31/24 and 5,724,151 shares issued at 12/31/23		14,363,268			14,310,378
Additional paid-in capital		37,882,139			37,574,578
Retained earnings		55,720,936			54,198,230
Accumulated other comprehensive loss		(17,439,603	)		(15,931,595	)
Less: treasury stock, at cost; 210,101 shares at 03/31/24 and 12/31/23		(2,622,777	)		(2,622,777	)
Total shareholders' equity		89,403,963			89,028,814
Total liabilities and shareholders' equity	$	1,107,118,970		$	1,099,344,934
Book value per common share outstanding	$	15.88		$	15.87

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

3

Community Bancorp. and Subsidiary	Three Months Ended March 31,
Consolidated Statements of Income	2024		2023
(Unaudited)
Interest income
Interest and fees on loans	$	11,678,217	$	9,376,025
Interest on taxable debt securities		972,349		943,478
Interest on tax-exempt debt securities		80,411		90,658
Dividends		42,384		30,653
Interest on federal funds sold and overnight deposits		85,933		329,411
Total interest income		12,859,294		10,770,225
Interest expense
Interest on deposits		3,080,172		1,844,747
Interest on borrowed funds		945,816		24,520
Interest on repurchase agreements		198,892		132,128
Interest on junior subordinated debentures		276,769		245,465
Total interest expense		4,501,649		2,246,860
Net interest income		8,357,645		8,523,365
Credit loss expense		313,579		286,526
Net interest income after credit loss expense		8,044,066		8,236,839
Non-interest income
Service fees		897,920		880,288
Income from sold loans		79,104		107,535
Other income from loans		254,601		428,572
Other income		402,282		342,382
Total non-interest income		1,633,907		1,758,777
Non-interest expense
Salaries and wages		2,458,000		2,288,760
Employee benefits		899,236		754,270
Occupancy expenses, net		722,503		770,986
Other expenses		2,220,405		2,065,686
Total non-interest expense		6,300,144		5,879,702
Income before income taxes		3,377,829		4,115,914
Income tax expense		554,928		777,153
Net income	$	2,822,901	$	3,338,761
Earnings per common share	$	0.51	$	0.61
Weighted average number of common shares used in computing earnings per share		5,521,509		5,444,040
Dividends declared per common share	$	0.23	$	0.23

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

4

Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)	Three Months Ended March 31,
	2024			2023
Net income	$	2,822,901		$	3,338,761
Other comprehensive (loss) income, net of tax:
Unrealized holding (loss) income on securities AFS arising during the period		(1,908,870	)		3,383,314
Tax effect		400,862			(710,496	)
Other comprehensive (loss) income, net of tax		(1,508,008	)		2,672,818
Total comprehensive income	$	1,314,893		$	6,011,579

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

5

Community Bancorp. and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited)

	Three Months Ended March 31, 2024
					Additional											Total
	Common		Preferred		paid-in		Retained							Treasury		shareholders'
	Stock		Stock		capital		earnings			AOCI*				stock		equity
Balance January 1, 2024	$	14,310,378	$	1,500,000	$	37,574,578	$	54,198,230		$	(15,931,595	)	$	(2,622,777	)	$	89,028,814
Issuance of common stock		52,890				307,561											360,451
Cash dividends declared
Common stock								(1,268,320	)								(1,268,320	)
Preferred stock								(31,875	)								(31,875	)
Comprehensive income
Net income								2,822,901									2,822,901
Other comprehensive loss											(1,508,008	)					(1,508,008	)
Balance March 31, 2024	$	14,363,268	$	1,500,000	$	37,882,139	$	55,720,936		$	(17,439,603	)	$	(2,622,777	)	$	89,403,963

	Three Months Ended March 31 2023
					Additional												Total
	Common		Preferred		paid-in		Retained								Treasury		shareholders'
	Stock		Stock		capital		earnings				AOCI*				stock		equity
Balance January 1, 2023	$	14,119,275	$	1,500,000	$	36,383,235	$	46,464,447		$	(20,667,817		)	$	(2,622,777	)	$	75,176,363
Cumulative change in accounting principle (Note 2)								(549,113	)									(549,113	)
Balance at January 1, 2023 (as adjusted for								45,915,334										74,627,250
Change in accounting principle)
Issuance of common stock		43,693				276,184												319,877
Cash dividends declared
Common stock								(1,250,794	)									(1,250,794	)
Preferred stock								(28,125	)									(28,125	)
Comprehensive income
Net income								3,338,761										3,338,761
Other comprehensive income												2,672,818						2,672,818
Balance March 31, 2023	$	14,162,968	$	1,500,000	$	36,659,419	$	47,975,176			$	(17,994,999	)	$	(2,622,777	)	$	79,679,787

*Accumulated other comprehensive loss

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

6

Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Three Months Ended March 31,
	2024			2023
Cash Flows from Operating Activities:
Net income	$	2,822,901		$	3,338,761
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, bank premises and equipment		258,219			276,656
Credit loss expense		313,579			286,526
Deferred income tax		165,056			(68,835	)
Gain on sale of loans		(12,092	)		(29,331	)
Gain on sale of bank premises and equipment		(13,981	)		0
Income from CFS Partners		(294,327	)		(252,051	)
Amortization of bond premium, net		53,550			66,815
Proceeds from sales of loans held for sale		690,092			1,637,381
Originations of loans held for sale		(1,119,000	)		(1,608,050	)
Increase in taxes payable		240,670			778,860
(Increase) decrease in interest receivable		(606,028	)		103,159
Decrease in mortgage servicing rights		22,276			23,370
Decrease in right-of-use assets		44,281			50,321
Decrease in operating lease liabilities		(48,495	)		(53,751	)
Increase in other assets		(143,424	)		(72,609	)
Increase in cash surrender value of BOLI		(20,155	)		(19,615	)
Amortization of limited partnerships		149,202			67,128
Change in net deferred loan fees and costs		(15,926	)		(16,336	)
Increase (decrease) in interest payable		200,624			(2,485	)
Decrease in accrued expenses		(1,069,838	)		(1,040,367	)
Increase in other liabilities		77,844			73,186
Net cash provided by operating activities		1,695,028			3,538,733
Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		8,166,541			3,555,278
Proceeds from redemption of restricted equity securities		1,424,800			67,800
Purchases of restricted equity securities		(1,759,800	)		(92,600	)
Investments in limited liability entities		0			(1,000	)
Increase in loans, net		(21,073,009	)		(10,074,935	)
Capital expenditures net of proceeds from sales of bank premises and equipment		(292,650	)		(158,971	)
Recoveries of loans charged off		17,746			132,860
Net cash used in investing activities		(13,516,372	)		(6,571,568	)

7

	2024			2023
Cash Flows from Financing Activities:
Net decrease in demand and interest-bearing transaction accounts		(23,157,006	)		(29,855,106	)
Net decrease in money market and savings accounts		(2,183,259	)		(8,183,145	)
Net increase in time deposits		12,127,167			3,611,070
Net (decrease) increase in repurchase agreements		(9,089,673	)		4,980,207
Net increase in short-term borrowings		25,600,000			0
Proceeds from long-term borrowings		5,000,000			0
Decrease in finance lease obligations		(56,229	)		(54,493	)
Dividends paid on preferred stock		(31,875	)		(28,125	)
Dividends paid on common stock		(905,897	)		(932,901	)
Net cash provided by (used in) financing activities		7,303,228			(30,462,493	)
Net decrease in cash and cash equivalents		(4,518,116	)		(33,495,328	)
Cash and cash equivalents:
Beginning		20,434,513			71,140,328
Ending	$	15,916,397		$	37,645,000
Supplemental Schedule of Cash Paid During the Period:
Interest	$	4,301,025		$	2,249,345
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized (loss) gain on securities AFS	$	(1,908,870	)	$	3,383,314
Common Shares Dividends Paid:
Dividends declared	$	1,268,320		$	1,250,794
(Increase) decrease in dividends payable attributable to dividends declared		(1,972	)		1,984
Dividends reinvested		(360,451	)		(319,877	)
Total dividends paid	$	905,897		$	932,901

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

8

Notes to Consolidated Financial Statements

Note 1. Basis of Presentation and Consolidation and Certain Definitions

Basis of Presentation and Consolidation. The interim consolidated financial statements of Community Bancorp. and Subsidiary are unaudited.  All significant intercompany balances and transactions have been eliminated in consolidation.  In the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial condition and results of operations of the Company and its subsidiary, Community National Bank (the Bank), contained herein have been made.  The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, contained in the Company's Annual Report on Form 10-K.  The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, 2024.

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 smaller reporting company scaled disclosures where management deems it appropriate, and 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.is considered a “smaller reporting company” under the disclosure rules of the SEC, as amended in 2018. 

In addition to the definitions provided elsewhere in this quarterly report, the definitions, acronyms and abbreviations identified below are used throughout this report, including in Part I. “Financial Information” and Part II. “Other Information” and are intended to aid the reader and provide a reference page when reviewing this report.

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

9

Note 2. Recent Accounting Developments

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. The ASU provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, such as requiring the disclosure of specific categories in the rate reconciliation and the disaggregation of income tax expense and income taxes paid by federal, state, and foreign taxes. The ASU is effective for annual periods beginning after December 15, 2024. The Company does not believe the ASU will have a material impact on the Company's consolidated financial statements.

Note 3. Earnings per Common Share

Earnings per common share amounts are computed based on the weighted average number of shares of common stock issued during the period (retroactively adjusted for stock splits and stock dividends, if any), including Dividend Reinvestment Plan shares issuable upon reinvestment of dividends declared, and reduced for shares held in treasury.

The following tables illustrate the calculation of earnings per common share for the periods presented, as adjusted for the cash dividends declared on the preferred stock:

Three Months Ended March 31,	2024		2023
Net income, as reported	$	2,822,901	$	3,338,761
Less: dividends to preferred shareholders		31,875		28,125
Net income available to common shareholders	$	2,791,026	$	3,310,636
Weighted average number of common shares used in calculating earnings per share		5,521,509		5,444,040
Earnings per common share	$	0.51	$	0.61

Note 4. Investment Securities

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

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
March 31, 2024
U.S. GSE debt securities	$	12,000,000	$	0	$	1,265,019	$	10,734,981
U.S. Government securities		37,667,290		0		1,819,960		35,847,330
Taxable Municipal securities		300,000		0		50,877		249,123
Tax-exempt Municipal securities		10,817,528		99,168		548,726		10,367,970
Agency MBS		129,230,659		215,636		18,265,414		111,180,881
ABS and OAS		2,352,806		0		175,253		2,177,553
CMO		9,541,222		0		221,002		9,320,220
Other investments		743,000		0		44,000		699,000
Total	$	202,652,505	$	314,804	$	22,390,251	$	180,577,058

December 31, 2023
U.S. GSE debt securities	$	12,000,000	$	0	$	1,172,426	$	10,827,574
U.S. Government securities		41,207,049		0		1,943,800		39,263,249
Taxable Municipal securities		300,000		0		53,035		246,965
Tax-exempt Municipal securities		10,832,494		158,982		517,691		10,473,785
Agency MBS		132,043,238		321,880		16,502,319		115,862,799
ABS and OAS		2,533,872		0		186,251		2,347,621
CMO		10,963,942		0		226,346		10,737,596
Other investments		992,000		0		45,570		946,430
Total	$	210,872,595	$	480,862	$	20,647,438	$	190,706,019

10

The Company had investments in Agency MBS exceeding 10% of shareholders’ equity with a book value of $129.2 million and $132.0 million, respectively, and a fair value of $111.2 million and $115.9 million, respectively, as of  March 31, 2024 and December 31, 2023.

There was no ACL on AFS debt securities as of March 31, 2024 or December 31, 2023.

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

	Amortized		Fair
	Cost		Value
March 31, 2024	$	58,090,195	$	50,043,997
December 31, 2023		59,300,089		52,107,148

Investment securities pledged as collateral for BTFP borrowings consisted of U.S. Government securities and U.S. GSE debt securities with an aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates as follows:

	Amortized		Fair
	Cost		Value
March 31, 2024	$	78,357,926	$	69,429,684
December 31, 2023		49,232,069		43,795,542

There were no sales of debt securities during the first three months of 2024 or 2023.

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

	Amortized		Fair
	Cost		Value
March 31, 2024
Due in one year or less	$	17,783,017	$	17,414,714
Due from one to five years		38,349,022		35,767,347
Due from five to ten years		4,392,490		4,028,539
Due after ten years		12,897,317		12,185,577
Agency MBS		129,230,659		111,180,881
Total	$	202,652,505	$	180,577,058
December 31, 2023
Due in one year or less	$	17,366,548	$	17,061,882
Due from one to five years		43,976,469		41,245,991
Due from five to ten years		4,485,724		4,141,301
Due after ten years		13,000,616		12,394,046
Agency MBS		132,043,238		115,862,799
Total	$	210,872,595	$	190,706,019

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

11

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

	Less than 12 months				12 months or more				Totals
	Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized
	Value		Loss		Value		Loss		Securities		Value		Loss
March 31, 2024
U.S. GSE debt securities	$	0	$	0	$	10,734,981	$	1,265,019		11	$	10,734,981	$	1,265,019
U.S. Government securities		0		0		35,847,330		1,819,960		51		35,847,330		1,819,960
Taxable Municipal securities		0		0		249,123		50,877		1		249,123		50,877
Tax-exempt Municipal securities		1,541,929		15,011		4,021,541		533,715		12		5,563,470		548,726
Agency MBS		4,581,444		14,398		99,966,083		18,251,016		121		104,547,527		18,265,414
ABS and OAS		0		0		2,177,553		175,253		4		2,177,553		175,253
CMO		0		0		9,320,220		221,002		9		9,320,220		221,002
Other investments		0		0		699,000		44,000		3		699,000		44,000
Total	$	6,123,373	$	29,409	$	163,015,831	$	22,360,842		212	$	169,139,204	$	22,390,251
December 31, 2023
U.S. GSE debt securities	$	0	$	0	$	10,827,574	$	1,172,426		11	$	10,827,574	$	1,172,426
U.S. Government securities		0		0		39,263,249		1,943,800		54		39,263,249		1,943,800
Taxable Municipal securities		0		0		246,965		53,035		1		246,965		53,035
Tax-exempt Municipal securities		529,571		9,468		4,058,155		508,223		10		4,587,726		517,691
Agency MBS		1,328,433		9,218		103,000,706		16,493,101		119		104,329,139		16,502,319
ABS and OAS		0		0		2,347,621		186,251		4		2,347,621		186,251
CMO		3,309,165		18,554		7,428,431		207,792		10		10,737,596		226,346
Other investments		0		0		946,430		45,570		4		946,430		45,570
Total	$	5,167,169	$	37,240	$	168,119,131	$	20,610,198		213	$	173,286,300	$	20,647,438

The Company adopted ASU No. 2016-13 effective January 1, 2023, which requires credit losses on debt securities AFS to be recorded in an allowance for credit losses and eliminates the concept of OTTI for debt securities AFS. Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security. As of March 31, 2024, 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 and 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.

Note 5.  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, 2024					December 31, 2023
Commercial & industrial	$	128,888,792		14.88	%	$	121,705,707		14.40	%
Purchased		10,207,364		1.18	%		10,568,922		1.25	%
Commercial real estate		425,875,535		49.16	%		414,880,621		49.07	%
Municipal		56,928,434		6.57	%		54,466,988		6.44	%
Residential real estate - 1st lien		209,938,344		24.23	%		208,824,888		24.70	%
Residential real estate - Jr lien		31,537,859		3.64	%		31,668,811		3.75	%
Consumer		2,976,033		0.34	%		3,313,917		0.39	%
Total loans		866,352,361		100.00	%		845,429,854		100.00	%
ACL		(10,027,768	)				(9,842,725	)
Deferred net loan costs		589,095					573,169
Net loans	$	856,913,688				$	836,160,298

(1) As of March 31, 2024, purchased loans consisted of $5,452,239 in commercial loans and $4,755,125 in consumer loans, compared to $4,863,263 and $5,705,659, respectively, as of December 31, 2023.

12

Credit Loss Expense

Credit loss expense was made up of the following components for the periods indicated:

Three Months Ended March 31,	2024			2023
Credit loss expense - loans	$	317,799		$	207,540
Credit loss (reversal) expense - OBS credit exposure		(4,220	)		78,986
Credit loss expense	$	313,579		$	286,526

The following tables present the activity in the ACL on loans for the periods presented.

As of or for the three months ended March 31, 2024

											Residential			Residential
	Commercial						Commercial				Real Estate			Real Estate
	& Industrial			Purchased			Real Estate		Municipal		1st Lien			Jr Lien		Consumer			Total
ACL beginning balance	$	1,100,688		$	37,065		$	5,522,082	$	136,167	$	2,590,926		$	431,007	$	24,790		$	9,842,725
Charge-offs		(137,684	)		0			0		0		0			0		(12,818	)		(150,502	)
Recoveries		12,315			0			0		0		0			1,209		4,222			17,746
Credit loss expense (reversal)		103,637			(1,442	)		208,450		6,154		(16,585	)		10,178		7,407			317,799
ACL ending balance	$	1,078,956		$	35,623		$	5,730,532	$	142,321	$	2,574,341		$	442,394	$	23,601		$	10,027,768

As of or for the year ended December 31, 2023

												Residential			Residential
	Commercial						Commercial					Real Estate			Real Estate
	& Industrial			Purchased			Real Estate			Municipal		1st Lien			Jr Lien			Consumer			Unallocated			Total
ACL beginning balance	$	1,116,322		$	53,090		$	5,061,813		$	62,339	$	2,001,836		$	241,950		$	69,686		$	102,189		$	8,709,225
Impact of adopting CECL		(164,115	)		(29,196	)		(22,467	)		24,243		273,167			297,746			(33,813	)		(102,189	)		243,376
Charge-offs		(386,578	)		0			0			0		(1,625	)		0			(131,332	)		0			(519,535	)
Recoveries		10,237			0			22,058			0		72,588			29,240			44,657			0			178,780
Credit loss expense (reversal)		524,822			13,171			460,678			49,585		244,960			(137,929	)		75,592			0			1,230,879
ACL ending balance	$	1,100,688		$	37,065		$	5,522,082		$	136,167	$	2,590,926		$	431,007		$	24,790		$	0		$	9,842,725

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

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

13

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

			90 Days		Total
March 31, 2024	30-89 Days		or More		Past Due		Current		Total Loans
Commercial & industrial	$	82,818	$	2,896,266	$	2,979,084	$	125,909,708	$	128,888,792
Purchased		0		0		0		10,207,364		10,207,364
Commercial real estate		174,486		701,757		876,243		424,999,292		425,875,535
Municipal		0		0		0		56,928,434		56,928,434
Residential real estate - 1st lien		1,879,100		749,700		2,628,800		207,309,544		209,938,344
Residential real estate - Jr lien		172,203		149,337		321,540		31,216,319		31,537,859
Consumer		14,399		0		14,399		2,961,634		2,976,033
Totals	$	2,323,006	$	4,497,060	$	6,820,066	$	859,532,295	$	866,352,361

			90 Days		Total
December 31, 2023	30-89 Days		or More		Past Due		Current		Total Loans
Commercial & industrial	$	253,974	$	3,068,578	$	3,322,552	$	118,383,155	$	121,705,707
Purchased		0		0		0		10,568,922		10,568,922
Commercial real estate		178,083		944,669		1,122,752		413,757,869		414,880,621
Municipal		0		0		0		54,466,988		54,466,988
Residential real estate - 1st lien		1,856,944		646,980		2,503,924		206,320,964		208,824,888
Residential real estate - Jr lien		245,856		25,007		270,863		31,397,948		31,668,811
Consumer		14,728		0		14,728		3,299,189		3,313,917
Totals	$	2,549,585	$	4,685,234	$	7,234,819	$	838,195,035	$	845,429,854

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

The following table presents 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.  There were no nonaccrual loans with an ACL as of March 31, 2024 or December 31, 2023.

					90 Days or
	Nonaccrual		Total		More and
	with No ACL		Nonaccrual		Accruing
March 31, 2024
Commercial & industrial	$	3,428,349	$	3,428,349	$	0
Commercial real estate		2,500,823		2,500,823		38,779
Residential real estate - 1st lien		402,856		402,856		623,890
Residential real estate - Jr lien		53,073		53,073		124,330
Totals	$	6,385,101	$	6,385,101	$	786,999

December 31, 2023
Commercial & industrial	$	3,632,659	$	3,632,659	$	0
Commercial real estate		2,818,283		2,818,283		38,779
Residential real estate - 1st lien		415,074		415,074		446,395
Residential real estate - Jr lien		89,030		89,030		0
Totals	$	6,955,046	$	6,955,046	$	485,174

There were no residential real estate loans in process of foreclosure as of March 31, 2024 or December 31, 2023.

14

Allowance for credit losses

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. Subsequent recoveries, if any, are credited to the allowance.

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

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

General component

The general component of the ACL is based on methodologies, inputs, and assumptions utilized to estimate lifetime credit losses when applied to the following loan segments: commercial and industrial, purchased loans, CRE, municipal, residential real estate 1st lien, residential real estate Jr lien and consumer loans. The Company does not disaggregate its portfolio segments further into classes. 

The Company utilizes a DCF approach to calculate the expected loss for each portfolio segment. 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, 2024, 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, or more frequently as circumstances warrant.  The Company used a one-year forecast and reversion period to calculate the ACL on loans as of March 31, 2024.

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.

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

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

15

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. The DCF model, being periodic in nature, allows for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner.  For the purchased loans segment, a long-term average loss rate is calculated and applied on a quarterly basis for the remaining life of the pool.  Due to 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 a PD or LGD for the pool.

Qualitative factors are also applied to include the levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of CRE loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.  During the first quarter of 2024, the qualitative factor for delinquencies in the C&I and CRE portfolios was adjusted to reflect improving trends in those portfolios. Also, the qualitative factors for collateral in the residential portfolios were adjusted to reflect stabilization of real estate values in that sector.

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

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

Purchased – Loans in this segment are loans purchased through a loan purchasing program with BHG. BHG originates commercial loans to medical professionals and consumer loans to other professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process. The Bank has established conservative credit parameters and expects a low risk of default in this portfolio.

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

Municipal – Loans in this segment are made to local municipalities, attributable to municipal financing transactions and backed by the full faith and credit of town governments or dedicated governmental revenue sources, with no historical losses recognized by the Company. Qualitative factors are not utilized in the manual entry method for municipal loans.

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

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

16

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

Specific component

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

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2024, by collateral type:

	Business
	Assets (1)		Real Estate
March 31, 2024
Commercial & industrial	$	1,180,782	$	0
Commercial real estate		0		662,978
Residential real estate - 1st lien		0		203,690
Totals	$	1,180,782	$	866,668
December 31, 2023
Commercial & industrial	$	1,298,717	$	0
Commercial real estate		0		1,263,495
Residential real estate - 1st lien		0		167,363
Totals	$	1,298,717	$	1,430,858

(1) Including, but not limited to, inventory, equipment, and accounts receivable, but excluding real estate.

For all loan segments, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is considered by management to be doubtful.  Any unpaid interest previously accrued on those loans is reversed from income.  Interest income is generally not recognized on specific impaired loans unless the likelihood of further loss is considered by management to be remote.  Interest payments received on impaired loans are generally applied as a reduction of the loan principal balance.  Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and a satisfactory payment performance of six or more months has occurred.

Credit Quality Grouping

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

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

17

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

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

Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history.  Assessment of expected future payment performance requires consideration of numerous factors.  While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management.  Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions.  There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received.  Risk ratings are assessed on an ongoing basis and at various points, including delinquency or at the time of other adverse events.  For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review.  Lenders are required to make immediate disclosure to the Senior Lender of any known increase in loan risk, even if considered temporary in nature.

18

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 three months ended,													Revolving		Revolving
March 31, 2024													Loans		Loans
	Term Loans Amortized Cost Basis by Origination Year												Amortized		Converted
(In thousands)	2024		2023		2022		2021		2020		Prior		Cost Basis		to Term		Total
Commercial & Industrial:
Pass	$	3,227	$	16,140	$	17,684	$	11,833	$	2,385	$	6,932	$	54,230	$	0	$	112,431
Special mention		0		299		888		227		0		568		8,431		0		10,413
Substandard/Doubtful		13		0		413		609		422		1,629		2,959		0		6,045
Total	$	3,240	$	16,439	$	18,985	$	12,669	$	2,807	$	9,129	$	65,620	$	0	$	128,889
Current period gross charge-offs	$	0	$	0	$	0	$	5	$	0	$	133	$	0	$	0	$	138
Purchased:
Pass	$	0	$	5,066	$	91	$	1,523	$	1,408	$	2,119	$	0	$	0	$	10,207
Total	$	0	$	5,066	$	91	$	1,523	$	1,408	$	2,119	$	0	$	0	$	10,207
Commercial real estate:
Pass	$	13,773	$	68,560	$	88,375	$	37,722	$	42,355	$	116,175	$	51,306	$	0	$	418,266
Special mention		0		0		369		1,457		0		0		0		0		1,826
Substandard/Doubtful		0		0		0		0		3,292		2,492		0		0		5,784
Total	$	13,773	$	68,560	$	88,744	$	39,179	$	45,647	$	118,667	$	51,306	$	0	$	425,876
Municipal:
Pass	$	2,349	$	29,032	$	691	$	3,248	$	4,501	$	10,509	$	6,598	$	0	$	56,928
Total	$	2,349	$	29,032	$	691	$	3,248	$	4,501	$	10,509	$	6,598	$	0	$	56,928
Residential real estate - 1st lien:
Pass	$	6,462	$	29,990	$	38,372	$	40,326	$	32,347	$	58,420	$	1,369	$	0	$	207,286
Special mention		0		163		299		128		0		0		0		0		590
Substandard/Doubtful		0		0		0		0		1,815		247		0		0		2,062
Total	$	6,462	$	30,153	$	38,671	$	40,454	$	34,162	$	58,667	$	1,369	$	0	$	209,938
Residential real estate - Jr lien:
Pass	$	485	$	2,210	$	1,896	$	331	$	583	$	1,490	$	23,351	$	1,164	$	31,510
Substandard/Doubtful		0		0		0		0		0		28		0		0		28
Total	$	485	$	2,210	$	1,896	$	331	$	583	$	1,518	$	23,351	$	1,164	$	31,538
Consumer
Pass	$	357	$	1,239	$	728	$	317	$	178	$	157	$	0	$	0	$	2,976
Total	$	357	$	1,239	$	728	$	317	$	178	$	157	$	0	$	0	$	2,976
Current period gross charge-offs	$	0	$	0	$	0	$	0	$	0	$	13	$	0	$	0	$	13
Total Loans	$	26,666	$	152,699	$	149,806	$	97,721	$	89,286	$	200,766	$	148,244	$	1,164	$	866,352
Total current period gross charge-offs	$	0	$	0	$	0	$	5	$	0	$	146	$	0	$	0	$	151

As of or for the three months ended March 31, 2024, 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, (ii) no Special mention loans within the Purchased, Municipal, Residential real estate Jr lien and Consumer loan segments, and (iii) no Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

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Modifications of Loans

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

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

· Reduced accrued interest;

· Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower;

· Converted a variable-rate loan to a fixed-rate loan;

· Extended the term of the loan beyond an insignificant delay;

· Deferred or forgiven principal in an amount greater than three months of payments;

· Performed a refinancing and deferred or forgiven principal on the original loan;

· Capitalized protective advance to pay delinquent real estate taxes; or

· Capitalized delinquent accrued interest.

An insignificant delay or insignificant shortfall in the number of payments typically would not require the loan to be accounted for as modified.  However, pursuant to regulatory guidance, any payment delays longer than three months is generally not considered insignificant.  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 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.  In connection with modifications, the Company considers applicable regulatory guidance, including a 2023 interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.

There were no loan modifications during the first three months of 2024.

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

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. Such financial instruments are recorded as loans when they are funded.

Allowance for Credit Losses on OBS Credit Exposures

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. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company's own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on OBS credit exposures as of the reporting date. The ACL on OBS credit exposures is presented within accrued interest and other liabilities on the consolidated balance sheets.

Note 6.  Goodwill and Other Intangible Assets

As a result of a merger with LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269.  Goodwill is not amortizable and is not deductible for tax purposes.

As of December 31, 2023, the most recent evaluation, management concluded that no impairment existed.  Management evaluates its goodwill intangible for impairment at least annually, or more frequently as circumstances warrant.

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Note 7.  Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings and comprehensive income. The fair values of some of these assets and liabilities are measured on a recurring basis while others are measured on a non-recurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available-for-sale are recorded at fair value on a recurring basis. Other assets, such as MSRs, loans held-for-sale, impaired loans, and OREO are recorded at fair value on a non-recurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.

Level 1	Quoted prices in active markets for identical assets or liabilities.  Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets.
Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.  Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  This category generally includes MSRs, individually analyzed loans, loans held-for-sale, and OREO.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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

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

Individually analyzed loans:  Individually analyzed loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent.  If the fair value is less than an impaired loan’s recorded investment, an impairment loss is recognized as part of the ACL.  Accordingly, certain individually analyzed loans may be subject to measurement at fair value on a non-recurring basis.  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:  The fair value of loans held-for-sale is based upon an actual purchase and sale agreement between the Company and an independent market participant.  The sale is executed within a reasonable period following quarter-end at the stated fair value.

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

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy, are summarized below.  There were no Level 3 assets or liabilities measured on a recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between Levels during either of the periods presented for 2024 or 2023.

	March 31,		December 31,
Assets: (market approach)	2024		2023
Level 1
U.S. Government securities	$	35,847,330	$	39,263,249
Level 2
U.S. GSE debt securities	$	10,734,981	$	10,827,574
Taxable Municipal securities		249,123		246,965
Tax-exempt Municipal securities		10,367,970		10,473,785
Agency MBS		111,180,881		115,862,799
ABS and OAS		2,177,553		2,347,621
CMO		9,320,220		10,737,596
Other investments		699,000		946,430
Level 2 Total	$	144,729,728	$	151,442,770
Grand Total	$	180,577,058	$	190,706,019

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

The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition.  Individually analyzed loans measured at fair value only include those loans with a partial write-down or with a related specific ACL and are presented net of the specific allowances as disclosed in Note 5.  Assets measured at fair value on a non-recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy level, are summarized below.  There were no Level 1 or Level 3 assets or liabilities measured on a non-recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between levels during either of the periods presented for 2024 or 2023.

	March 31,		December 31,
Level 2	2024		2023
Assets: (market approach)
Individually analyzed loans, net of related allowance	$	877,419	$	709,487
Loans held-for-sale		441,000		0
MSRs (1)		764,737		787,013

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

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.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

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The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the tables below.  The estimated fair values of the Company's financial instruments as of the balance sheet dates were as follows:

March 31, 2024			Fair		Fair		Fair		Fair
	Carrying		Value		Value		Value		Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and cash equivalents	$	15,916	$	15,916	$	0	$	0	$	15,916
Debt securities AFS		180,577		35,847		144,730		0		180,577
Restricted equity securities		1,977		0		1,977		0		1,977
Loans and loans held-for-sale, net of ACL
Commercial & industrial		127,796		0		877		123,575		124,452
Purchased		10,171		0		0		9,675		9,675
Commercial real estate		420,120		0		0		393,997		393,997
Municipal		56,787		0		0		54,491		54,491
Residential real estate - 1st lien		208,433		0		0		191,231		191,231
Residential real estate - Jr lien		31,096		0		0		30,618		30,618
Consumer		2,952		0		0		2,968		2,968
MSRs (1)		765		0		1,262		0		1,262
Accrued interest receivable		4,853		0		4,853		0		4,853
Financial liabilities:
Deposits
Other deposits		883,755		0		881,882		0		881,882
Overnight borrowings		6,600		0		6,600		0		6,600
Short-term advances		72,500		0		72,291		0		72,291
Long-term advances		6,100		0		5,896		0		5,896
Repurchase agreements		27,166		0		27,166		0		27,166
Operating lease obligations		395		0		395		0		395
Finance lease obligations		3,369		0		3,369		0		3,369
Subordinated debentures		12,887		0		12,715		0		12,715
Accrued interest payable		1,283		0		1,283		0		1,283

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

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December 31, 2023			Fair		Fair		Fair		Fair
	Carrying		Value		Value		Value		Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and cash equivalents	$	20,435	$	20,435	$	0	$	0	$	20,435
Debt securities AFS		190,706		39,263		151,443		0		190,706
Restricted equity securities		1,642		0		1,642		0		1,642
Loans and loans held-for-sale, net of ACL
Commercial & industrial		120,589		0		709		116,287		116,996
Purchased		10,532		0		0		10,055		10,055
Commercial real estate		409,332		0		0		382,045		382,045
Municipal		54,331		0		0		51,791		51,791
Residential real estate – 1st lien		206,849		0		0		188,650		188,650
Residential real estate – Jr lien		31,238		0		0		30,745		30,745
Consumer		3,289		0		0		3,295		3,295
MSRs (1)		787		0		1,262		0		1,262
Accrued interest receivable		4,247		0		4,247		0		4,247
Financial liabilities:
Deposits
Other deposits		896,968		0		894,823		0		894,823
Overnight borrowings		9,000		0		9,000		0		9,000
Short-term advances		44,500		0		44,484		0		44,484
Long-term advances		1,100		0		931		0		931
Repurchase agreements		36,256		0		36,256		0		36,256
Operating lease obligations		443		0		443		0		443
Finance lease obligations		3,425		0		3,425		0		3,425
Subordinated debentures		12,887		0		12,719		0		12,719
Accrued interest payable		1,082		0		1,082		0		1,082

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

Note 8.  Loan Servicing

The following table shows the changes in the carrying amount of the MSRs, included in other assets in the consolidated balance sheets, for the periods indicated:

	Three Months Ended			Year Ended
	March 31, 2024			December 31, 2023
Balance at beginning of year	$	787,013		$	862,593
MSRs capitalized		8,051			68,297
MSRs amortized		(30,327	)		(143,877	)
Balance at end of period	$	764,737		$	787,013

Note 9.  Legal Proceedings

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

Note 10.  Subsequent Events

The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP.  On March 20, 2024, the Company’s Board declared a cash dividend of $0.23 per common share, payable May 1, 2024, to shareholders of record as of April 15, 2024.  This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Period Ended March 31, 2024

The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly owned subsidiary, Community National Bank, as of March 31, 2024 and December 31, 2023, and its consolidated results of operations for the three-month interim period and one year period presented.  The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its 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 2023 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 nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the Company's products and services;

· the impact of inflation and slowing economic growth on the Company’s customers and on its financial results and performance;

· 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;

· 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, 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 recent high profile bank failures increase our costs of operation, including through regulatory compliance changes and higher FDIC deposit insurance assessments to replenish the Bank Insurance Fund (BIF);

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· competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems;

· cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;

· higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;

· management’s risk management measures may not be completely effective;

· changes in consumer and business spending, borrowing and savings habits;

· 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 March 31, 2024, were $1.11 billion compared to $1.10 billion as of December 31, 2023, an increase of 0.7%.  Changes in the asset base included an increase in loans of $20.9 million, or 2.5%, which was partially offset by a decrease of $4.5 million, or 22.1%, in cash and cash equivalents and a decrease of $10.1 million, or 5.3% in investment securities.  These changes in the asset base reflect the Company’s efforts to deploy cash into higher earning assets.  The increase in the loan portfolio was primarily attributable to an increase of $7.2 million in commercial & industrial loans, $11.0 million in CRE loans, $2.5 million in municipal loans and $1.1 million in residential first lien loans, which was minimally offset by a decrease of $362 thousand in purchased loans and $338 thousand in consumer loans. 

Total deposits as of March 31, 2024, were $883.8 million compared to $897.0 million as of December 31, 2023, a decrease of $13.2 million, or 1.5%.  Year to date, demand and interest-bearing transaction accounts decreased in total by $23.2 million or 4.6%, as well as a decrease of $1.3 million, or 1.1%, in money market funds and $852 thousand, or 0.6%, in savings accounts.  This was partially offset by an increase of $12.1 million, or 9.88%, in time deposits.  The Company has been offering competitive interest rates for retail time deposits, accounting for the increase in these funds.  A decrease in deposit balances is typical in the first and second quarters of the calendar year with balances increasing through year end due in part to the timing of customers income tax obligations and the spend down of deposited funds by Vermont municipal customers prior to their June 30 fiscal year end.  The decrease in deposit balances, combined with the loan growth has required the use of borrowed funds as a supplemental funding source.

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Total interest income increased $2.1 million, or 19.4%, for the first three months of 2024, compared to the same period in 2023.  The growth of the loan portfolio originated at higher interest rates, as well as adjustable-rate loans repricing to current market rates, helped to support the year-over-year increase in interest income.

Total interest expense increased $2.3 million, or 100.4%, for the first three months of 2024, compared to the same period in 2023.  The increases in the fed funds rate throughout 2022 and into 2023 increased borrowing costs and have put more pressure on competitive deposit pricing, resulting in an increase in the Company’s money market and time deposit rates. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on net interest income.

The credit loss expense for the three months ended March 31, 2024 and 2023, was determined under ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, commonly referenced as the Current Expected Credit Losses, or CECL, which the Company adopted effective January 1, 2023.  The credit loss expense for the first three months of 2024 was $313,579 compared to $286,526 for the same period in 2023, an increase of $27,053, or 9.4%.  The current period credit loss expense considers a number of factors, including loan growth and changes in balances of the current portfolio, changes in forecasts, historical loss rate and qualitative factors. 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 first three months of 2024 decreased $515,860 to $2.8 million compared to $3.3 million for the same period of 2023.  Year over year, the $2.3 million increase in interest expense, despite a $2.1 million increase in interest income, was the main factor contributing to the decrease in net income.  These changes, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.

Equity capital increased to $89.4 million, with a book value per share of $15.88 as of March 31, 2024, compared to $89.0 million and a book value per share of $15.87 as of December 31, 2023.  The moderate increase in equity capital between periods reflected the combined effect of first quarter net income of $2.8 million, offset in part by an increase in unrealized losses in the investment portfolio of $1.5 million, net of tax, reflected in accumulated other comprehensive loss, and dividends paid totaling $940 thousand.  The unrealized loss position in the investment portfolio is considered by management as temporary and does not impact the Company’s regulatory capital ratios.

On March 20, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on May 1, 2024, to shareholders of record on April 15, 2024.

As of March 31, 2024, all the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements.  While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of deteriorating economic conditions, or government monetary policy.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared according to U.S. GAAP.  The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes.  The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often 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.

The Company’s critical accounting policies govern:

· the ACL;

· OREO;

· credit losses on debt securities;

· valuation of residential MSRs; and

· the carrying value of goodwill.

27

These policies are described in the Company’s 2023 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements.  There were no material changes during the first three months of 2024 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 adjusted 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 first three months of 2024 was $2.8 million, or $0.51 per common share, compared to $3.3 million, or $0.61 per common share, for the same period in 2023.  Core earnings (NII) were $8.36 million for the first three months of 2024 compared to $8.52 million for the same period in 2023.  Interest and fees on loans, the major component of interest income, increased $2.3 million, or 24.6%, for the first three months of 2024 compared to the same period in 2023.  Interest paid on deposits, which is the major component of total interest expense, increased $1.2 million, or 67.0%, year over year, driven primarily by the increases in the fed funds rate during 2022 and into the third quarter of 2023. A shift from lower yielding interest-bearing accounts and savings accounts to higher yielding money market and certificate of deposit accounts has contributed to the higher interest expense year over year. Market pressures on deposit rates along with an increased use of wholesale funding are driving up the Company’s cost of funds and compressing the net interest margin.

Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings.  Return on average equity, which is net income divided by average shareholders' equity, measures how effectively a corporation uses its equity capital to produce earnings. 

The following table shows these ratios annualized, as well as other equity ratios monitored by management, for the comparison periods presented.

Three Months Ended March 31,	2024			2023
Return on average assets		1.03	%		1.31	%
Return on average equity		12.74	%		17.57	%
Dividend payout ratio (1)		45.10	%		37.70	%
Average equity to average assets		8.09	%		7.48	%

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

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INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)

The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings).  The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets and sources of funds (volume), and changes in the yield earned and costs of funds (rate).  A portion of the Company’s income from loans to local municipalities is not subject to income taxes.  Because the proportion of tax-exempt items in the Company's balance sheet varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. The Company’s corporate tax rate is 21%; therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.

The Company’s tax-exempt interest income of $575,470 and $291,954 for the three months ended March 31, 2024 and 2023, respectively, was derived from loans to local municipalities of $56.9 million and $36.5 million, and tax-exempt municipal investments of $10.4 million and $11.6 million as of March 31, 2024 and 2023, respectively.

The following table shows the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.

Three Months Ended March 31,	2024		2023
Net interest income as presented	$	8,357,645	$	8,523,365
Effect of tax-exempt income		152,973		77,608
Net interest income, tax equivalent	$	8,510,618	$	8,600,973

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The following table presents the daily average assets and the daily average liabilities, including the yields on interest-earning assets and interest-bearing liabilities for the comparison period.  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 March 31,
	2024							2023
					Average							Average
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Rate			Balance		Expense		Rate
Average Assets
Loans, net (1)	$	846,950,757	$	11,809,815		5.61	%	$	746,342,447	$	9,429,534		5.12	%
Taxable investment securities		175,344,669		972,349		2.23	%		181,762,470		943,478		2.11	%
Tax-exempt investment securities		10,362,046		101,786		3.95	%		11,458,866		114,757		4.06	%
Sweep and interest-earning accounts		6,458,150		85,933		5.35	%		30,469,901		329,411		4.38	%
Other investments (2)		2,250,212		42,384		7.58	%		1,778,480		30,653		6.99	%
Total interest-earning assets		1,041,365,834	$	13,012,267		5.03	%		971,812,164	$	10,847,833		4.53	%
Cash and due from banks		9,979,149							10,034,768
Premises and equipment		12,384,217							12,992,588
BOLI		5,239,847							5,160,130
Goodwill		11,574,269							11,574,269
Other assets		21,175,349							18,678,923
Total assets	$	1,101,718,665						$	1,030,252,842
Average Liabilities and Shareholders' Equity
Interest-bearing transaction accounts	$	288,005,914	$	1,368,880		1.91	%	$	279,908,863	$	964,867		1.40	%
Money market funds		121,278,322		628,966		2.09	%		135,616,740		513,675		1.54	%
Savings deposits		150,752,183		31,607		0.08	%		171,177,131		30,996		0.07	%
Time deposits		130,879,679		1,050,719		3.23	%		102,310,661		335,209		1.33	%
Repurchase agreements		33,422,054		198,892		2.39	%		36,136,359		132,128		1.48	%
Borrowed funds		77,648,374		926,340		4.80	%		1,611,144		3,781		0.95	%
Finance lease obligations		3,387,714		19,476		2.30	%		3,608,925		20,739		2.30	%
Junior subordinated debentures		12,887,000		276,769		8.64	%		12,887,000		245,465		7.72	%
Total interest-bearing liabilities		818,261,240	$	4,501,649		2.21	%		743,256,823	$	2,246,860		1.23	%
Noninterest bearing deposits		189,356,459							203,297,212
Other liabilities		4,957,458							6,647,483
Total liabilities		1,012,575,157							953,201,518
Shareholders' equity		89,143,508							77,051,324
Total liabilities and shareholders' equity	$	1,101,718,665						$	1,030,252,842
Net interest income			$	8,510,618						$	8,600,973
Net interest spread (3)						2.82	%						3.30	%
Net interest margin (4)						3.29	%						3.59	%

(1)	Included in net loans are non-accrual loans with average balances of $6,524,051 and $8,220,394 for the three months ended March 31, 2024 and 2023, 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 $56,602,242 and $35,177,595 for the three months ended March 31, 2024 and 2023, respectively.
(2)	Included in other investments is the Company’s FHLBB Stock with average balances of $1,185,062 and $713,330, respectively, with a dividend rate of approximately 8.56% and 6.67%, respectively, for the three months ended March 31, 2024 and 2023, respectively.
(3)	Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average earning assets.

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The average volume of interest-earning assets for the three-month period ended March 31, 2024 increased 7.2%, compared to the same period last year, and the average yield on interest-earning assets increased 50 bps.

The average volume of loans increased over the three-month comparison period of 2024 versus 2023 by 13.5%, and the average yield on loans increased 49 bps.  Loans accounted for 81.3% of the average interest-earning asset portfolio for the three-month period ended March 31, 2024, compared to 76.8% for the same period last year.  Interest earned on the loan portfolio as a percentage of total interest income was 90.8% for the three-month period in 2024 compared to 86.9% for the same period in 2023.

The average volume of the taxable investment portfolio (classified as AFS) decreased 3.5% during the three-month period ended March 31, 2024, compared to the same period last year, while the average yield increased 12 bps between periods.  There were no purchases of taxable AFS investment securities during the first three months of 2024, accounting for the decrease year over year.

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three-month period ended March 31, 2024 decreased $1.1 million and the tax equivalent yield decreased 11 bps.  There were no tax-exempt bond purchases during the first three months of 2024, accounting for the decrease in this portfolio.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 78.8% for the three-months ended March 31, 2024, compared to the same period in 2023.  The decrease in average volume year over year is attributable to the funding of loan growth, and to a decrease in customer deposit accounts.  The average yield on these funds increased 97 bps for the three-month period ended March 31, 2024, versus the same period in 2023, directly related to the increases in the fed funds rate throughout 2022 and into 2023.

The average volume of interest-bearing liabilities for the three-month period ended March 31, 2024 increased 10.1%, compared to the same period in 2023, and the average rate paid on interest-bearing liabilities increased 98 bps.  

The average volume of interest-bearing transaction accounts increased 2.9%, for the three-month period ended March 31, 2024, compared to the same period of 2023, reflecting deposit growth year over year. The average rate paid on these accounts increased 51 bps between comparison periods.  Interest paid on these funds accounted for 30.4% of total interest expense for the three-month period of 2024 compared to 42.9% for the same period in 2023.

The average volume of money market accounts decreased 10.6% for the three-month period ended March 31, 2024, compared to the same period of 2023, while the average rate paid on these deposits increased 55 bps.

The average volume of savings accounts decreased 11.9% for the three-month period ended March 31, 2024, compared to the same period in 2023, while the average rate paid on these accounts increased one bp.

The average volume of time deposits increased 27.9% for the three-month period ended March 31, 2024, compared to the same period in 2023, and the average rate paid increased 190 bps. 

The Company has utilized borrowed funds to fund loan growth and cover deposit outflows, particularly during the second and third quarters of 2023, and continuing into 2024, accounting for the $76.0 million increase for the three months ended March 31, 2024, compared to the same period in 2023.  The average rate paid on borrowed funds increased by 385 bps for the three-month period ended March 31, 2024.

The average volume of repurchase agreements decreased 7.5% for the three-month period ended March 31, 2024, compared to the same period in 2023 and the average rate paid increased 91 bps between comparison periods.

In summary, between the three-month periods ended March 31, 2024 and 2023, the average yield on interest-earning assets increased 50 bps, and the average rate paid on interest-bearing liabilities increased 98 bps.  Net interest spread decreased 48 bps for the three-month period ended March 31, 2024, versus the same period in 2023, while the net interest margin decreased 30 bps between periods.

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The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 2024 and 2023 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.

	Three Months Ended March 31, 2024									Three Months Ended March 31, 2023
	Compared to									Compared to
	Three Months Ended March 31, 2023									Three Months Ended March 31, 2022
	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	$	1,110,136		$	1,270,145		$	2,380,281		$	1,214,870		$	667,629		$	1,882,499
Taxable investment securities		64,455			(35,584	)		28,871			308,179			(20,978	)		287,201
Tax-exempt investment securities		(2,199	)		(10,772	)		(12,971	)		43,567			57,331			100,898
Sweep and interest-earning accounts		75,924			(319,402	)		(243,478	)		673,283			(424,532	)		248,751
Other investments		3,600			8,131			11,731			14,209			(16	)		14,193
Total	$	1,251,916		$	912,518		$	2,164,434		$	2,254,108		$	279,434		$	2,533,542
Average Interest-Bearing Liabilities
Interest-bearing transaction accounts	$	376,062		$	27,951		$	404,013		$	791,740		$	13,049		$	804,789
Money market funds		189,800			(74,509	)		115,291			381,189			4,806			385,995
Savings deposits		4,674			(4,063	)		611			7,898			(342	)		7,556
Time deposits		621,819			93,691			715,510			108,632			(14,184	)		94,448
Repurchase agreements		82,893			(16,129	)		66,764			105,696			5,392			111,088
Borrowed funds		744,444			178,115			922,559			3,779			0			3,779
Finance lease obligations		2			(1,265	)		(1,263	)		(9	)		(1,215	)		(1,224	)
Junior subordinated debentures		31,304			0			31,304			147,113			0			147,113
Total	$	2,050,998		$	203,791		$	2,254,789		$	1,546,038		$	7,506		$	1,553,544
Changes in net interest income	$	(799,082	)	$	708,727		$	(90,355	)	$	708,070		$	271,928		$	979,998

(1)	Items which have shown a year-to-year increase in volume have variances allocated as follows:
	Variance due to rate = Change in rate x new volume
	Variance due to volume = Change in volume x old rate
	Items which have shown a year-to-year decrease in volume have variances allocated as follows:
	Variance due to rate = Change in rate x old volume
	Variances due to volume = Change in volume x new rate

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NON-INTEREST INCOME AND NON-INTEREST EXPENSE

Non-interest Income

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

	Three Months Ended
	March 31,				Change
	2024		2023		Income			Percent
Service fees	$	897,920	$	880,288	$	17,632			2.00	%
Income from sold loans		79,104		107,535		(28,431	)		-26.44	%
Other income from loans		254,601		428,572		(173,971	)		-40.59	%
Other income
Income from CFS Partners		294,327		252,051		42,276			16.77	%
Other miscellaneous income		107,955		90,331		17,624			19.51	%
Total non-interest income	$	1,633,907	$	1,758,777	$	(124,870	)		-7.10	%

Total non-interest income decreased $124,870, or 7.1%, for the three months ended March 31, 2024, compared to the same period in 2023, with significant changes noted in the following:

· Service fees include interchange income and overdraft fees; the change in the comparison period is due to an increase in overdraft fees of $21,853.

· Proceeds from sale of loans into the secondary market amounted to $690 thousand and $1.6 million, respectively for the first three months of 2024 and 2023, accounting for the decrease in income from sold loans between periods.

· Although loan volume increased during the first three months of 2024, a complex CRE project closed during the first three months of 2023 generating approximately $126 thousand in documentation fees, accounting for the decrease in other income from loans for 2024 versus 2023.

· Income from CFS Partners increased between periods due in part to an equity market rally during the first quarter of 2024 and successful retention in managed accounts. CFS Partners has a small portion of its equity capital invested in the stock market, and as a result is sensitive to general stock market conditions.

· Other miscellaneous income is made up of many individual line items that in the aggregate represent less than 7% of total non-interest income.

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Non-interest Expense

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

	Three Months Ended
	March 31,				Change
	2024		2023		Expense			Percent
Salaries and wages	$	2,458,000	$	2,288,760	$	169,240			7.39	%
Employee benefits		899,236		754,270		144,966			19.22	%
Occupancy expenses, net		722,503		770,986		(48,483	)		-6.29	%
Other expenses
Charged-off checks		34,056		635		33,421			5263.15	%
Service contracts - administrative		182,764		155,500		27,264			17.53	%
Travel, entertainment and meals expense		27,163		18,898		8,265			43.73	%
FDIC insurance		156,106		131,643		24,463			18.58	%
Collection & non-accruing loan expense		48,000		25,500		22,500			88.24	%
Electronic banking expense		109,273		67,167		42,106			62.69	%
Other miscellaneous expenses		1,663,043		1,666,343		(3,300	)		-0.20	%
Total non-interest expense	$	6,300,144	$	5,879,702	$	420,442			7.15	%

Total non-interest expense increased $420,442, or 7.2% for the three months ended March 31, 2024, compared to the same period in 2023, with significant changes noted in the following:

· In addition to normal salary increases, the increase in salaries and wages year over year is attributable to new hires and promotions in the areas of operations and commercial lending during the latter part of 2023.

· The increase in employee benefits is attributable to an increase in health insurance claims year over year under the Company’s self-insured health insurance plan.

· The decrease in occupancy expense is partly due to the settlement of a flood insurance claim where the replacement value received exceeded the depreciated value of equipment resulting in a capital gain on equipment.

· An increase in check fraud activity resulted in an increase in charged-off checks.

· The 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 increase in travel, entertainment and meals expenses is attributable to an increase in travel expenses as more seminars and training sessions return to in-person attendance.

· The increase in FDIC insurance is attributable in part to an increase in the assessment multiplier.

· Collection & non-accruing loan expenses were higher year over year due to an increase in legal fees associated with a commercial property in the Company’s non-accruing loan portfolio.

· The increase in electronic banking expense is attributable to an upgrade of the Company’s electronic banking platform.

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APPLICABLE INCOME TAXES

The provision for income taxes decreased $222,225, or 25.6% for the first three months of 2024 compared to the same period in 2023, which is consistent with the decrease in income before income taxes but is also partially attributable to an increase in tax credits year over year.  Tax credits related to low-income housing limited partnership investments amounted to $174,612 and $80,529 for the first three months of 2024 and 2023, respectively.  The Company’s investment in two new limited partnerships were fully funded by year-end 2023 accounting for the increase in tax credits.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $149,202 and $67,092 for the first three months of 2024 and 2023, respectively.  These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 5% - 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:

	March 31, 2024				December 31, 2023
Assets
Loans	$	866,352,361	78.25	%	$	845,429,854	76.90	%
AFS securities		180,577,058	16.31	%		190,706,019	17.35	%
Liabilities
Demand deposits		185,831,108	16.79	%		202,969,957	18.46	%
Interest-bearing transaction accounts		291,012,736	26.29	%		297,030,893	27.02	%
Money market funds		120,044,494	10.84	%		121,375,419	11.04	%
Savings deposits		150,718,352	13.61	%		151,570,686	13.79	%
Time deposits		136,147,994	12.30	%		124,020,827	11.28	%
Overnight borrowings		6,600,000	0.60	%		9,000,000	0.82	%
Short-term advances		72,500,000	6.55	%		44,500,000	4.05	%
Long-term advances		6,100,000	0.55	%		1,100,000	0.10	%

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	$	20,922,507			2.47	%
AFS securities		(10,128,961	)		-5.31	%
Liabilities
Demand deposits		(17,138,849	)		-8.44	%
Interest-bearing transaction accounts		(6,018,157	)		-2.03	%
Money market funds		(1,330,925	)		-1.10	%
Savings deposits		(852,334	)		-0.56	%
Time deposits		12,127,167			9.78	%
Overnight borrowings		(2,400,000	)		-26.67	%
Short-term advances		28,000,000			62.92	%
Long-term advances		5,000,000			454.55	%

The increase in the loan portfolio during the first three months of 2024 was attributable to increases of $11.0 million in CRE loans, $7.2 million in commercial & industrial loans, $2.5 million in municipal loans and $1.1 million in residential 1^st lien loans, which were minimally offset by decreases in aggregate totaling $830 thousand in purchased loans, residential Jr. lien and consumer loans.  The Company has experienced strong loan activity among its commercial customers, but only minimal local-consumer loan activity during the first three months of 2024.

The decrease in the securities AFS portfolio during the first three months of 2024 is attributable to the combined effect of maturities amounting to $3.7 million and principal payments on MBS, ABS and CMO investments totaling $4.4 million and an increase of $1.9 million in unrealized losses arising during the first three months of 2024, which is reflected in OCI.  In management’s view, the size of the AFS securities portfolio is appropriate and proportional to the overall asset base, as this portfolio serves an important role in the Company’s liquidity position. 

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The decrease in demand deposit accounts is attributable to a $15.5 million, or 10.1%, decrease in business DDAs. The decrease in interest-bearing transaction accounts was due to a decrease of $13.8 million, or 34.3%, in municipal deposit accounts, and a decrease of $6.8 million, or 12.9% in the deposit account of the Company’s trust and asset management affiliate, CFSG.  These decreases were partially offset by an increase of $14.7 million, or 16.9%, in ICS reciprocal DDAs.  The moderate decrease in money market funds was driven by a decrease of $11.6 million, or 11.8%, in retail money market funds and offset by an increase in municipal deposits of $1.6 million, or 16.6%, and an increase in reciprocal ICS MMAs of $8.7 million, or 66.0%.  The increase in time deposits is attributable to customer response to periodic certificate of deposit specials that have been offered.  As a result of the year to date decrease in aggregate deposits, the Company utilized funding lines with the FHLBB and FRB, including long-term advances, as a supplemental funding source, accounting for the significant increase in these funds.

UNINSURED DEPOSITS

Estimated deposits in excess of the FDIC insurance level amounted to $152.1 million as of March 31, 2024 and $217.3 million at December 31, 2023.  The estimated balance of uninsured time deposits as of March 31, 2024 were made up of time CDs of $24.4 million and retirement accounts of $3.1 million.  Increments of maturity of these time deposits are summarized as follows:

3 months or less	$	14,484,845
Over 3 through 6 months		10,452,940
Over 6 through 12 months		1,139,735
Over 12 months		1,404,855
Total	$	27,482,375

Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s interest rate risk exposure and attempts to structure the balance sheet to maximize net interest income while controlling its exposure to interest rate risk.  The Company's ALCO is made up of the Executive Officers and certain Vice Presidents of the Bank representing major business lines.  The ALCO formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity and various business strategies.  The ALCO meets at least quarterly to review financial statements, liquidity levels, yields and spreads to better understand, measure, monitor and control the Company’s interest rate risk.  In the ALCO process, the committee members apply policy limits set forth in the Asset Liability, Liquidity and Investment policies approved and periodically reviewed by the Company’s Board of Directors.  The ALCO's methods for evaluating interest rate risk include an analysis of the effects of interest rate changes on net interest income and an analysis of the Company's interest rate sensitivity "gap", which provides a static analysis of the maturity and repricing characteristics of the entire balance sheet.  The ALCO Policy also includes a contingency funding plan to help management prepare for unforeseen liquidity restrictions, including hypothetical severe liquidity crises.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates.  As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings.  Fluctuations in interest rates can also have an impact on liquidity.  The ALCO uses an outside consultant to perform rate shock simulations to the Company's net interest income, as well as a variety of other analyses.  It is ALCO’s function to provide the assumptions used in the modeling process.  Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII.  The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes.  The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet.  The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve, 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.

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Under the Company’s interest rate sensitivity modeling, with the continued asset sensitive balance sheet, in a rising rate environment NII initially trends upward as the short-term asset base (cash and adjustable-rate loans) quickly cycle upward while the retail funding base (deposits) lags the market.  If rates paid on deposits 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.  The prolonged inverted yield curve and increasing pressure on funding rates has resulted in a more liability sensitive balance sheet in the short term assuming that in a rising rate environment, relief on the deposit pricing may be delayed initially.

The following table summarizes the estimated impact on the Company's NII over a twelve-month period, assuming a gradual parallel shift of the yield curve beginning March 31, 2024:

Rate Change	Percent Change in NII
Down 100 bps		0.4	%
Up 200 bps		-3.1	%

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 March 31, 2024, the Company had outstanding $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%.  

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 27.9% of the Company’s loan balances as of March 31, 2024, compared to 28.5% as of December 31, 2023.  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 March 31, 2024, junior lien home equity products made up 13.1% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans greater than 80% under an insured loan program with stringent underwriting criteria. 

The following tables show the estimated maturity of the Company’s loan portfolio as of March 31, 2024.

	Fixed Rate Loans
	Within		2 - 5		6 - 15		Over
	1 Year		Years		Years		15 Years		Total
Commercial & industrial	$	4,786,223	$	27,419,641	$	17,098,411	$	0	$	49,304,275
Purchased		72,303		1,609,890		8,525,171		0		10,207,364
Commercial real estate		8,247,589		13,430,481		18,397,286		120,000		40,195,356
Municipal		37,906,814		4,448,477		4,001,447		0		46,356,738
Residential real estate - 1st lien		11,598		4,174,442		23,812,822		62,149,417		90,148,279
Residential real estate - Jr lien		27,850		319,340		3,383,833		0		3,731,023
Consumer		341,117		1,998,318		82,405		0		2,421,840
Total Loans	$	51,393,494	$	53,400,589	$	75,301,375	$	62,269,417	$	242,364,875

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	Variable Rate Loans
	Within		2 - 5		6 - 15		Over
	1 Year		Years		Years		15 Years		Total
Commercial & industrial	$	28,200,032	$	36,158,222	$	9,747,695	$	5,478,568	$	79,584,517
Commercial real estate		3,423,030		4,439,051		108,395,083		269,423,015		385,680,179
Municipal		0		0		10,571,696		0		10,571,696
Residential real estate - 1st lien		1,009,685		1,017,513		17,733,910		100,028,957		119,790,065
Residential real estate - Jr lien		253,487		614,149		12,374,297		14,564,903		27,806,836
Consumer		16,225		233,559		256,852		47,557		554,193
Total Loans	$	32,902,459	$	42,462,494	$	159,079,533	$	389,543,000	$	623,987,486

The Company continues to experience solid growth in the commercial & industrial and CRE loan portfolios, which is consistent with its strategic focus on commercial lending.  The commercial lending portfolio consists of commercial & industrial, purchased, CRE and municipal loans, which collectively comprised 71.8% of the Company’s loan portfolio as of March 31, 2024, compared to 71.2% as of December 31, 2023.  The largest components of the CRE portfolio were $119.7 million in owner-occupied CRE and $156.3 million in non-owner occupied CRE as of March 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 March 31, 2024, the Company had $26.6 million in guaranteed loans with guaranteed balances of $17.6 million, compared to $26.5 million in guaranteed loans with guaranteed balances of $17.6 million as of December 31, 2023.  PPP loans with outstanding balances of $74 thousand as of March 31, 2024, and $84 thousand as of December 31, 2023, 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 of carrying and selling collateral in order to assess the level of specific allocations required.  Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due.  When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months.  Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.

Credit loss expense

The credit loss expense was made up of the following components for the periods indicated:

Three Months Ended	March 31,					Change
	2024			2023		$			%
Credit loss expense - loans	$	317,799		$	207,540	$	110,259			53.13	%
Credit loss (reversal) expense - OBS credit exposure		(4,220	)		78,986		(83,206	)		-105.34	%
Credit loss expense	$	313,579		$	286,526	$	27,053			9.44	%

The increase in the credit loss expense on loans for the three months ended March 31, 2024, was partly attributed to an increase in the volume of the loan portfolio. The decrease in the OBS credit exposure is attributable to a decrease in unfunded loan commitments under contract.

ACL and provisions – Effective January 1, 2023, the Company was required to recognize credit losses under the guidance of ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, rather than under the incurred loss model.  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. The adjustment from the adoption of CECL in 2023 amounted to $549,113, net of tax and was recorded as an adjustment to retained earnings, which affects calculation of regulatory capital ratios.  Changes in forecasts used in the CECL model could produce different results, quarter to quarter.

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

The Company maintains an ACL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the measurement date (See Note 5 of the accompanying unaudited interim consolidated financial statements).  Although the Company, in establishing the ACL, considers the inherent losses in individual loans and pools of loans, the ACL is a general reserve available to 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:

	March 31,			December 31,
	2024			2023
ACL to total loans outstanding		1.16	%		1.16	%
ACL	$	10,027,768		$	9,842,725
Loans outstanding	$	866,352,361		$	845,429,854
Non-accruing loans to loans outstanding		0.74	%		0.82	%
Non-accruing loans	$	6,385,101		$	6,955,046
Loans outstanding	$	866,352,361		$	845,429,854
ACL to non-accruing loans		157.05	%		141.52	%
ACL	$	10,027,768		$	9,842,725
Non-accruing loans	$	6,385,101		$	6,955,046

The first quarter ACL analysis indicated that the reserve balance of $10.0 million as of March 31, 2024, is sufficient to cover expected credit losses that are probable and estimable as of the measurement date. Included in the ACL calculation for March 31, 2024, is a decrease to the qualitative factor adjustment for delinquencies and non-performing loans due to improving delinquency trends in the CRE pool of loans as well as a decrease to the qualitative factor adjustment for collateral within the residential pool of loans, reflecting stable real estate values. Management believes that the economic forecasts adequately quantify 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. 

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

For the Three Months Ended March 31,	2024			2023
Commercial & industrial		-0.10	%		-0.01	%
Net charge-offs during the period	$	(125,369	)	$	(10,203	)
Average amount outstanding	$	125,426,823		$	117,162,692
Purchased		0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0
Average amount outstanding	$	10,338,317		$	7,086,337
Commercial real estate		0.00	%		0.01	%
Net recoveries during the period	$	0		$	22,000
Average amount outstanding	$	420,107,132		$	360,454,697
Municipal		0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0
Average amount outstanding	$	56,602,242		$	35,177,595
Residential real estate - 1st lien		0.00	%		0.04	%
Net recoveries during the period	$	0		$	72,326
Average amount outstanding	$	209,083,019		$	198,536,712
Residential real estate - Jr lien		0.00	%		0.08	%
Net recoveries during the period	$	1,209		$	25,548
Average amount outstanding	$	31,530,286		$	32,704,333
Consumer		-0.27	%		-0.36	%
Net charge-offs during the period	$	(8,596	)	$	(13,642	)
Average amount outstanding	$	3,159,725		$	3,786,350
Total loans		-0.02	%		0.01	%
Net (charge-offs) recoveries during the period	$	(132,756)		$	96,029
Average amount outstanding	$	856,247,544		$	754,908,716

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.  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. 

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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 in excess of the amount recognized in the balance sheet.  The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. During the first three months of 2024, the Company did not engage in any activity that created any additional types of OBS risk.

With the adoption of ASU 2016-13 (CECL), the Company is required to establish an allowance for expected credit losses on OBS credit exposures.  Expected credit losses are estimated by management over the contractual period during which the Company is exposed to credit risk under a contractual obligation to extend credit unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over the estimated lives of such commitments. Upon adoption of ASU 2016-13 in 2023, the Company recorded an adjustment to retained earnings of $451,704 to reflect an allowance for credit losses for unfunded commitments. The allowance for credit losses for OBS credit exposures is presented in the "Accrued interest and other liabilities" line of the consolidated balance sheets. There was a decrease of $4,220 and an increase of $78,986, respectively, to the allowance for credit losses for OBS credit exposures during the three months ended March 31, 2024 and 2023.

LIQUIDITY AND CAPITAL RESOURCES

Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings.  Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities.  Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process.  The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations.  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, 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 March 31, 2024, and December 31, 2023, the Company had no one-way CDARS or ICS deposits outstanding.  In addition, two-way (reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, enhance the Company’s ability to retain larger deposit balances by allowing the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits through the exchange of deposits with other participating FDIC-insured financial institutions.  As of March 31, 2024 and December 31, 2023, the Company reported $2.7 million and $2.4 million, respectively, in reciprocal CDARS deposits.  The balance in ICS reciprocal money market deposits was $21.9 million as of March 31, 2024, compared to $13.2 million as of December 31, 2023, and the balance in ICS reciprocal demand deposits as of those dates was $101.8 million and $87.1 million, respectively.

As of March 31, 2024 and December 31, 2023, borrowing capacity of $109.8 million and $107.9 million, respectively, was available through the FHLBB, secured by the Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances and by collateral pledges securing FHLBB letters of credit collateralizing public unit deposits of $32.5 million and $23.1 million, respectively. 

The following table reflects the Company’s outstanding advances with FHLBB as of the dates indicated:

	March 31,		December 31,
	2024		2023
FHLBB Short-Term Advances
FHLBB term advance, 5.06%, due October 29, 2024	$	5,000,000	$	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, 3.89%, due February 01, 2027		5,000,000		0
Total Long-Term Advances		6,100,000		1,100,000
Overnight Borrowings at 5.55%		6,600,000		9,000,000
Total Advances and Overnight Borrowings	$	17,700,000	$	10,100,000

(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.

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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 $48.5 million and $49.9 million, respectively, as of March 31, 2024 and December 31, 2023.  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 500 bps.  The Company had no outstanding advances through this facility as of March 31, 2024 or December 31, 2023.

The Company had additional potential borrowing capacity, subject to pledging of required collateral consisting of eligible U.S. Agency and U.S. Government Securities, under the FRB’s BTFP which was established in March 2023 to provide banks with an additional source of liquidity.  However, that facility ceased extending new loans on March 11, 2024.

The Company’s advances under the BTFP as of the balance sheet dates presented were as follows:

	March 31,		December 31,
	2024		2023
FRB BTFP Advances
FRB BTFP term advance, 4.92%, due April 26, 2024	$	0	$	10,000,000
FRB BTFP term advance, 4.71%, due May 13, 2024		10,000,000		10,000,000
FRB BTFP term advance, 4.91%, due May 17, 2024		0		6,500,000
FRB BTFP term advance, 4.93%, due December 16, 2024		0		18,000,000
FRB BTFP term advance, 4.76%, due January 16, 2025		16,000,000		0
FRB BTFP term advance, 4.83%, due January 17, 2025		41,500,000		0
Total BTFP Advances	$	67,500,000	$	44,500,000

As of March 31, 2024 and December 31, 2023 the Company had an unsecured line of credit with one correspondent bank of $12.5 million.  The Company had no outstanding advances against this credit line as of the balance sheet dates presented.

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

The following table illustrates the changes in shareholders' equity from December 31, 2023 to March 31, 2024:

Balance as of December 31, 2023 (book value $15.87 per common share)	$	89,028,814
Net income		2,822,901
Issuance of common stock through the DRIP		360,451
Dividends declared on common stock		(1,268,320	)
Dividends declared on preferred stock		(31,875	)
Change in AOCI on AFS securities, net of tax		(1,508,008	)
Balance as of March 31, 2024 (book value $15.88 per common share)	$	89,403,963

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.  To that end, management monitors capital retention and dividend policies on an ongoing basis.

As described in more detail in Note 22 to the audited consolidated financial statements contained in the Company’s 2023 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.

42

As of March 31, 2024, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy. While we believe that the Company has sufficient capital to withstand an extended economic downturn, our regulatory capital ratios could be adversely impacted by future credit losses and other operational impacts of deteriorating economic conditions and inflation.

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

											Minimum					Minimum
						Minimum					For Capital					To Be Well
						For Capital					Adequacy Purposes					Capitalized Under
						Adequacy					with Conservation					Prompt Corrective
	Actual					Purposes					Buffer (1)					Action Provisions (2)
	Amount		Ratio			Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
March 31, 2024
Common equity tier 1 capital (to risk-weighted assets)
Company	$	93,769		11.94	%	$	35,335		4.50	%	$	54,965		7.00	%		N/A		N/A
Bank	$	107,511		13.70	%	$	35,314		4.50	%	$	54,933		7.00	%	$	51,009		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	108,156		13.77	%	$	47,113		6.00	%	$	66,743		8.50	%		N/A		N/A
Bank	$	107,511		13.70	%	$	47,085		6.00	%	$	66,704		8.50	%	$	62,780		8.00	%
Total capital (to risk-weighted assets)
Company	$	117,984		15.03	%	$	62,817		8.00	%	$	82,448		10.50	%		N/A		N/A
Bank	$	117,333		14.95	%	$	62,780		8.00	%	$	82,399		10.50	%	$	78,475		10.00	%
Tier 1 capital (to average assets)
Company	$	108,156		9.77	%	$	44,299		4.00	%		N/A		N/A			N/A		N/A
Bank	$	107,511		9.71	%	$	44,281		4.00	%		N/A		N/A		$	55,351		5.00	%
December 31, 2023:
Common equity tier 1 capital (to risk-weighted assets)
Company	$	91,886		11.89	%	$	34,770		4.50	%	$	54,086		7.00	%		N/A		N/A
Bank	$	105,390		13.65	%	$	34,737		4.50	%	$	54,036		7.00	%	$	50,176		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	106,273		13.75	%	$	46,360		6.00	%	$	65,676		8.50	%		N/A		N/A
Bank	$	105,390		13.65	%	$	46,317		6.00	%	$	65,615		8.50	%	$	61,755		8.00	%
Total capital (to risk-weighted assets)
Company	$	115,944		15.01	%	$	61,813		8.00	%	$	81,130		10.50	%		N/A		N/A
Bank	$	115,051		14.90	%	$	61,755		8.00	%	$	81,054		10.50	%	$	77,194		10.00	%
Tier 1 capital (to average assets)
Company	$	106,273		9.57	%	$	44,401		4.00	%		N/A		N/A			N/A		N/A
Bank	$	105,390		9.50	%	$	44,376		4.00	%		N/A		N/A		$	55,470		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.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550.

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act).  As of March 31, 2024, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, management concluded that its disclosure controls and procedures were effective in ensuring that material information required to be disclosed in the reports it files with the Commission under the Exchange Act was recorded, processed, summarized, and reported on a timely basis.

For this purpose, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

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

ITEM 1A. Risk Factors

In management’s view, the Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31, 2023 represent the most significant risks to the Company's future results of operations and financial condition as of the date of this quarterly report.

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

There were no purchases of the Company’s common stock during the three months ended March 31, 2024, by the Company or by any affiliated purchaser (as defined in SEC Rule 10b-18).  During the same reporting period, the Company did not have any publicly announced repurchase plans or programs.

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ITEM 6. Exhibits

The following exhibits are filed with, or incorporated by reference in, this report:

Exhibit 31.1	Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 32.2	Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 101	The following materials from the Company’s Quarterly Report on Form 10-Q for the three-months ended March 31, 2024 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three-month interim periods ended March 31, 2024 and 2023, (iii) the unaudited consolidated statements of comprehensive income, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
Exhibit 104	Cover page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMUNITY BANCORP.

DATED:  May 15, 2024	/s/Kathryn M. Austin
	Kathryn M. Austin, President
	& Chief Executive Officer
	(Principal Executive Officer)
DATED:  May 15, 2024	/s/Louise M. Bonvechio
	Louise M. Bonvechio, Corporate
	Secretary & Treasurer
	(Principal Financial Officer)

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SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2024

COMMUNITY BANCORP.

EXHIBITS

EXHIBIT INDEX

Exhibit 31.1	Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2	Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.1	Certification from the Chief Executive Officer (Principal Executive Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 32.2	Certification from the Treasurer (Principal Financial Officer) of the Company pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002*
Exhibit 101	The following materials from the Company’s Quarterly Report on Form 10-Q for the three-months ended March 31, 2024 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the unaudited consolidated balance sheets, (ii) the unaudited consolidated statements of income for the three-month interim periods ended March 31, 2024 and 2023, (iii) the unaudited consolidated statements of comprehensive income, (iv) the unaudited consolidated statements of cash flows and (v) related notes.
Exhibit 104	Cover page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

*  This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.

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