UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-16435

Community Bancorp. /VT
(Exact name of Registrant as Specified in its Charter)
Vermont	03-0284070
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(State of Incorporation)	(IRS Employer Identification Number)
Address of Principal Executive Offices: 4811 US Route 5, Derby, Vermont 05829
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Registrant's telephone number, including area code:

(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)

Securities registered pursuant to Section 12(g) of the Act:

Common Stock - $2.50 par value per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ No ☒

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 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 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒

As of June 30, 2022, the aggregate market value of the voting stock held by non-affiliates of the registrant was $98,144,152, based on a per share trade price on June 30, 2022 of $20.01, as reported on the OTC Link ATS® system maintained by the OTC Markets Group Inc. For purposes of the calculation, all directors and executive officers were deemed to be affiliates of the registrant. However, such assumption is not intended as an admission of affiliate status as to any such individual.

There were 5,438,236 shares outstanding of the issuer's common stock as of the close of business on March 15, 2023.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Report to Shareholders for the year ended December 31, 2022 (2022 Annual Report) are incorporated by reference to Part I and Part II of this Report.

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 16, 2023 (2023 Annual Meeting) are incorporated by reference to Part III of this report.

FORM 10-K ANNUAL REPORT
Table of Contents
PART I		Page
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Item 1	Business	3
Item 1A	Risk Factors	13
Item 1B	Unresolved Staff Comments	20
Item 2	Properties	20
Item 3	Legal Proceedings	21
Item 4	Mine Safety Disclosures	21
PART II
Item 5	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6	[Reserved]	22
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	22
Item 8	Financial Statements and Supplementary Data	22
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A	Controls and Procedures	23
Item 9B	Other Information	23
Item 9C	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	23
PART III
Item 10	Directors, Executive Officers and Corporate Governance	24
Item 11	Executive Compensation	24
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	24
Item 13	Certain Relationships and Related Transactions, and Director Independence	24
Item 14	Principal Accountant Fees and Services	24
PART IV
Item 15	Exhibits and Financial Statement Schedules	25
Item 16	Form 10-K Summary	26
	Signatures	27
	Exhibit Index	28
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PART I

Note Regarding Definitions and Acronyms: Capitalized terms and acronyms used in the discussion below and not otherwise defined have the meaning ascribed to them in Note 1 of the Company’s audited consolidated financial statements filed pursuant to Part II, Item 8 of this Report and contained in Exhibit 13 to this report.

Item 1. The Business

Organization and Operation

The Company . The Company (“we”, “us”, “our”) was organized under the laws of the State of Vermont in 1982 and became a registered bank holding company under the Bank Holding Company Act of 1956, as amended, in October 1983 when Community National Bank, headquartered in Derby, Vermont, reorganized into a holding company structure. The Bank is the Company’s only subsidiary and principally all of our business operations are presently conducted through it. Therefore, the following narrative and the other information about the Company contained in this report are based primarily on the Bank's operations.

The Bank; Banking Services . Community National Bank was organized in 1851 as the Peoples Bank, and was subsequently reorganized as the National Bank of Derby Line in 1865. In 1975, after 110 continuous years of operation as the National Bank of Derby Line, the Bank acquired the Island Pond National Bank and changed its name to "Community National Bank." On December 31, 2007, the Company completed its acquisition of LyndonBank, a Vermont bank headquartered in Lyndonville, Vermont, in a cash merger transaction. As a result of the merger, we expanded our existing branch network in Caledonia and Orleans Counties and extended it into Lamoille and Franklin Counties. In addition to our main office in Derby, we currently maintain eleven branch offices in northeastern and central Vermont and loan production offices in Chittenden County, in northwestern Vermont, and Grafton County, in western New Hampshire.

The opportunities for growth continue to be primarily in the Central Vermont and Chittenden County markets where economic activity is more robust than in our Orleans and Caledonia County markets, and where we are increasing our presence and market share. We are also focusing on expanding our presence in the neighboring state of New Hampshire, as reflected in the opening of our loan production office in Lebanon, New Hampshire in 2019.

Through the Bank, we provide a broad range of loan and deposit services to individuals, businesses, nonprofit organizations and municipalities in our northern and central Vermont markets. The significant services we offer include:

·	Business Banking – We offer a range of credit products for a variety of general business purposes, including financing for commercial business properties, equipment, inventories and accounts receivable, as well as standby letters of credit. We also offer business checking and other deposit accounts, cash management services, repurchase agreements, ACH and wire transfer services, card processing and remote deposit capture.
·	Commercial Real Estate Lending – We provide a range of products to meet the financing needs of commercial developers and investors, residential builders and developers and community development entities. Credit products are available to facilitate the purchase of land and/or build structures for business use and for investors who are developing residential or commercial property, as well as for real estate secured financing of existing businesses. The Bank has previously been recognized by the SBA as Vermont’s top Section 7(a) program lender, providing financing to startups and other small businesses not eligible for more traditional financing, and as one of Vermont’s top third party small business lenders under the SBA’s Section 504 loan program.
·	Residential Real Estate Lending – We provide products to help meet the home financing needs of consumers, including conventional permanent and construction/permanent (fixed, adjustable, or variable rate) financing arrangements, and FHA/VA loan products. We offer both fixed-rate and adjustable rate residential mortgage (ARM) loans and home equity loans. A portion of the first lien residential mortgage loans that we originate are sold into the secondary market. We offer these products through our network of banking and loan production offices. We do not originate subprime residential real estate loans.
·	Retail Credit – We provide a full-range of loan products to meet the needs of consumers, including personal loans, automobile loans and boat/recreational vehicle loans. In addition, through a marketing alliance with a third party, we offer credit cards.
·	Municipal and Institutional Banking – We provide banking services to meet the needs of state and local governments, schools, charities, membership and not-for-profit associations including deposit account services, tax-exempt loans, lines of credit and term loans. In addition, through an arrangement with the FHLBB, we offer a secured deposit product to our municipal customers, collateralized by FHLBB letters of credit.
·	Retail Banking – We provide a full-range of consumer banking services, including checking accounts, savings programs, ATMs, debit/credit cards, night deposit facilities and online, mobile and telephone banking.
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We focus on establishing and maintaining long-term relationships with our customers and are committed to providing for the financial services needs of the communities we serve. In particular, we place particular emphasis on our relationships with individual customers and small-to-medium-sized businesses. We actively evaluate the banking needs of our markets, including low- and moderate-income areas, and offer products that are responsive to the needs of our customer base. Our markets provide a mix of real estate, commercial and industrial, municipal and consumer lending opportunities, as well as a stable core deposit base. Additional information about our business, including our deposit-taking activities, lending activities and credit and risk management policies, is contained under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2022 Annual Report filed as Exhibit 13 to this Report and is incorporated by reference in Part II, Item 7. of this report.

Related Trust Company . We offer trust and investment management services through CFSG, our affiliated non-depository trust company based in Newport, Vermont. Our ownership interest in CFSG is held indirectly, through CFS Partners, a Vermont limited liability company, which owns 100% of the limited liability company equity interests of CFSG. We own a one third interest in CFS Partners, with the remaining two-thirds interest owned in equal shares by the National Bank of Middlebury, headquartered in Middlebury, Vermont and Guaranty Bancorp Inc., the bank holding company parent of Woodsville Guaranty Savings Bank, headquartered in Woodsville, New Hampshire. CFSG offers fiduciary services throughout the market areas of the three owner financial institutions and leases space from them in some of their branch offices, including our facilities in Barre and Lyndonville, Vermont.

Statutory Business Trust . In 2007, we formed CMTV Statutory Trust I (the Trust), a Delaware statutory business trust, for the purpose of issuing $12.5 million of trust preferred securities. This funding provided a portion of the cash consideration we paid in our 2007 acquisition of LyndonBank and provided additional regulatory capital. The Trust is a variable interest entity for which the Company is not the primary beneficiary, within the meaning of applicable accounting standards. Accordingly, the Trust is not consolidated with the Company for financial reporting purposes.

Competition

All of our full-service banking offices are located in northern and central Vermont. Our main office is located in Derby, in Orleans County and we maintain four other banking offices in Orleans County, one office in Essex County, two offices in Caledonia County, two offices in Washington County and one office each in Franklin and Lamoille Counties. We also maintain loan production offices in Chittenden County, Vermont and Grafton County, New Hampshire. (See Part I, Item 2 (Properties) of this report.)

We compete in all aspects of our business with other banks and credit unions in northern and central Vermont, including three of the largest banks operating in the state, which maintain branch offices throughout our service area. We also compete with bank and non-bank lenders in Chittenden County, Vermont and Grafton County, New Hampshire where we maintain loan production offices. Changes in the regulatory framework of the financial services industry in recent decades have broadened the competition for commercial bank products, such as deposits and loans, to include not only traditional rivals such as banks, savings banks and credit unions, but also many non-traditional competitors such as insurance companies, brokerage firms, mutual funds and consumer and commercial finance and leasing companies. In addition, many out-of-market nationwide banks, nonbank lenders and other financial service firms operate in our market areas through mass marketing solicitations by mail, radio, television, the internet and email. At the same time, technological changes have facilitated remote delivery of financial services by bank and nonbank competitors outside the context of a traditional branch bank network, thereby intensifying competition from out-of-market firms.

Competition from the tax-exempt credit union industry has also intensified in recent years. A number of our credit union competitors, including the largest state-chartered Vermont credit union, have converted from an employment based common bond to a community common bond, thereby significantly increasing their fields of membership. Because federal law subsidizes credit unions by giving them a general exemption from federal income taxes, they have a significant pricing advantage over commercial banks for their deposit and loan products. This pricing advantage, coupled with the relaxing of membership criteria and regulatory restrictions on product offerings, has resulted in increased competition for us from this tax exempt sector of the financial services industry.

In order to compete with other bank and non-bank service providers, we stress the community orientation of our banking operations and rely to a large extent on personal relationships established by our officers, directors and employees with our customers and on strong ties to the local community. In addition, management's knowledge of the local community assists us in tailoring our products and services to meet the needs of our customer base. Although competition is strong throughout our market area, management believes that we can continue to compete effectively, in view of our local market knowledge and community ties and our understanding and response to customer needs.

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Employees

As of December 31, 2022, the Company did not have any employees at the holding company level. However, as of that date, the Bank employed 122 full-time employees and 8 part-time employees. The Bank provides our full-time and part-time employees with a comprehensive employee benefit package, including medical benefits, life insurance and a 401K retirement savings plan. Additionally, full-time employees also have disability insurance as part of their benefit package. The Bank is not a party to any collective bargaining agreement and management of the Bank considers our employee relations to be good.

Regulation and Supervision

The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies and commercial banks, to which we and the Bank are subject. Regulation of banks and bank holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund of the FDIC, rather than for the protection of shareholders and creditors.

Our earnings are affected by general economic conditions, management policies, changes in federal and state laws and regulations and actions of various regulatory authorities, including those referred to below. Banking is a highly regulated business and proposals to change the laws and regulations to which we are subject are frequently introduced at both the federal and state levels. The likelihood and timing of any such changes and the impact such changes may have on the Company and the Bank is impossible to predict with any certainty.

The following summary does not purport to be complete and is qualified by reference to the particular statutes and regulations.

Bank Holding Company Regulation. Permitted Acquisitions and Activities. As a registered bank holding company, the Company is subject to on-going regulation, supervision and examination by the FRB, under the Bank Holding Company Act of 1956, as amended (the Act). A bank holding company for example, must generally obtain the prior approval of the FRB before it acquires all or substantially all of the assets of any bank, or acquires ownership or control of more than 5% of the voting shares of a bank. FRB approval is also generally required before a bank holding company may acquire more than 5% of any outstanding class of voting securities of a company other than a bank or a more than 5% interest in its property.

The Act generally limits the activity in which we and our subsidiary may engage to certain specified activities, including those activities which the FRB may find, by order or regulation, to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the activities that the FRB has determined to be closely related to banking are: (1) making and servicing loans that could be made by mortgage, finance, credit card or factoring companies; (2) performing the functions of a trust company; (3) certain leasing of real or personal property; (4) providing certain financial, banking or economic data processing services; (5) except as otherwise prohibited by law, acting as an insurance agent or broker with respect to insurance that is directly related to the extension of credit or the provision of other financial services or, under certain circumstances, with respect to insurance that is sold in certain small communities in which the bank holding company system maintains banking offices; (6) acting as an underwriter for credit life insurance and credit health and accident insurance directly related to extensions of credit by the holding company system; (7) providing certain kinds of management consulting advice to unaffiliated banks and non-bank depository institutions; (8) performing real estate appraisals; (9) issuing and selling money order and similar instruments and travelers checks and selling U.S. Savings Bonds; (10) providing certain securities brokerage and related services for the account of bank customers; (11) underwriting and dealing in certain government obligations and other obligations such as bankers' acceptances and certificates of deposit; (12) providing consumer financial counseling; (13) providing tax planning and preparation services; (14) providing check guarantee services to merchants; (15) operating a collection agency; and (16) operating a credit bureau. Trust and investment management activities conducted through a non-depository trust company such as our affiliate, CFSG, are also considered by the FRB to be permissible nonbanking activities that are closely related to banking.

Except for CFSG’s trust and investment management operations, we do not presently engage, directly or indirectly through any affiliate, in any other permissible non-banking activities.

A bank holding company must obtain prior FRB approval in order to purchase or redeem its own stock if the gross consideration to be paid, when added to the net consideration paid by the company for all purchases or redemptions by the company of its equity securities within the preceding 12 months, will equal 10% or more of the company's consolidated net worth.

We are subject to examination and supervision by the FRB and are required to file annual and quarterly reports and such additional information as the FRB may require pursuant to the Act.

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Affiliate Transactions. The Company, the Bank, CFS Partners and CFSG are all considered "affiliates" of each other for the purposes of Section 18(j) of the FDIA, as amended, and Sections 23A and 23B of the Federal Reserve Act, as amended. In particular, section 23A limits loans or other extensions of credit to, asset purchases with and investments in affiliates of the Bank to 10% of the Bank’s capital and surplus. In addition, such loans and extensions of credit and certain other transactions must be collateralized in specified amounts. Section 23B requires, among other things, that certain transactions between the Bank and its affiliates must be on terms substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions with or involving non-affiliated persons. Further, we are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit or lease or sale of any property or the furnishing of services.

Source of Strength Doctrine. Under the Dodd-Frank Act, as a bank holding company we are required to serve as a source of financial strength to our subsidiary bank and may not conduct our operations in an unsafe or unsound manner. We must stand ready to use our available resources to provide adequate capital funds to our subsidiary bank during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting our subsidiary bank if needed. The FRB may consider a bank holding company’s failure to meet its obligations to serve as a source of strength to its subsidiary banks to be an unsafe and unsound banking practice, a violation of FRB regulations, or both.

Capital Adequacy Requirements. **** Under the Basel III regulatory capital rules adopted in 2013 by the federal banking regulators, as modified by certain provisions of the Dodd-Frank Act, the following minimum capital requirements apply to the Company and the Bank:

●	a common equity Tier 1 risk-based capital ratio of 4.5%;
●	a Tier 1 risk-based capital ratio of 6%;
●	a total risk-based capital ratio of 8%; and
●	a leverage ratio of 4%.

Under the rules, Tier 1 capital is redefined to include two components: Common Equity Tier 1 capital and additional Tier 1 capital. Common Equity Tier 1 capital consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital includes other perpetual instruments historically included in Tier 1 capital, such as noncumulative perpetual preferred stock. Tier 2 capital consists of instruments that currently qualify in Tier 2 capital plus instruments that the rule has disqualified from Tier 1 capital treatment. Cumulative perpetual preferred stock, formerly includable in Tier 1 capital, is now included only in Tier 2 capital. Although AOCI is presumptively included in Common Equity Tier 1 capital, the rule provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI. The Company and Bank made this opt-out election and, as a result, have retained the pre-existing regulatory capital treatment for AOCI.

In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of common equity equal to 2.5% of risk-weighted assets. The Company and the Bank met this capital conservation buffer requirement at December 31, 2022, with a capital conservation buffer of 7.03% for the Company and 6.89% for the Bank as of that date. Failure to maintain the required buffer would result in limitations on permissible shareholder distributions and discretionary bonus payments.

In general, the Basel III capital rules have had the effect of increasing capital requirements by increasing the risk weights on certain assets, including high volatility commercial real estate, certain loans past due 90 days or more or in nonaccrual status, mortgage servicing rights not includable in Common Equity Tier 1 capital, equity exposures, and claims on securities firms, that are used in the denominator of the three risk-based capital ratios.

The capital ratios of the Company and the Bank exceeded all applicable regulatory requirements at December 31, 2022. (See Note 22 to the Company’s audited consolidated financial statements included in Part II, Item 8 of this report for additional information about the Company’s and the Bank’s regulatory capital ratios.)

Under the 2018 Regulatory Relief Act, the above capital requirements have been simplified for qualifying community banks and bank holding companies. A joint rule of the federal banking regulators permits a qualifying community banking organization to opt in to a simplified regulatory capital framework. A qualifying institution that elects to utilize the simplified framework must maintain a CBLR in excess of 9%, and will thereby be deemed to have satisfied the generally applicable risk-based and other leverage capital requirements and (if applicable) the FDIC’s prompt corrective action framework. In order to utilize the CBLR framework, in addition to maintaining a CBLR of over 9%, a community banking organization must have less than $10 billion in total consolidated assets and must meet certain other criteria such as limitations on the amount of off-balance sheet exposures and on trading assets and liabilities. The CBLR is calculated by dividing tangible equity capital by average total consolidated assets. The Company and Bank do not utilize the CBLR framework.

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The Basel III capital standards also revised the FDIC’s “prompt corrective action” requirements (see “Prompt Corrective Action” below).

Sarbanes-Oxley Act. SOX was enacted to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. SOX and the SEC’s implementing regulations include provisions addressing, among other matters, the duties, functions and qualifications of audit committees for all public companies; certification of financial statements by the chief executive officer and the chief financial officer; the forfeiture of bonuses or other incentive-based compensation and profits from the sale of an issuer’s securities by directors and senior officers in the twelve month period following initial publication of any financial statements that later require restatement; disclosure of off-balance sheet transactions; a prohibition on personal loans to directors and officers, except (in the case of banking companies) loans in the normal course of business; expedited filing requirements for reports of beneficial ownership of company stock by insiders; disclosure of a code of ethics for senior officers, and of any change or waiver of such code; the formation of a public accounting oversight board; auditor independence; disclosure of fees paid to the company's auditors for non-audit services and limitations on the provision of such services; attestation requirements for company management and external auditors, relating to internal controls and procedures; and various increased criminal penalties for violations of federal securities laws.

Since 2007 Section 404 of SOX has required management of the Company to undertake a periodic assessment of the adequacy and effectiveness of the Company’s internal control over financial reporting. Management's report on internal control over financial reporting as of December 31, 2022 is contained in Part II, Item 9A of this Report. Effective December 31, 2020, as a non-accelerated filer for SEC reporting purposes, we are no longer required to obtain from our external auditors an attestation on the Company’s internal control over financial reporting and the operating effectiveness of these controls under Section 404(b) of SOX. Nevertheless, we have incurred, and expect to continue to incur, costs in connection with our on-going compliance with Section 404.

Information on the Company’s corporate governance practices, including committee charters, is available on the Company’s website at www.communitybancorpvt.com.

SEC Reporting and Disclosure Requirements. Under current SEC reporting and disclosure rules, as amended in 2018, and 2020, the Company is considered to be a non-accelerated filer and a smaller reporting company. As noted above, due to this change in filing status, we are no longer subject to the requirements in SOX section 404(b) to obtain an external auditor attestation of management’s assessment of the Company’s internal controls and their effectiveness. In addition, we are no longer required to file our periodic reports with the SEC on the accelerated timetable applicable to accelerated filers. Further, as a smaller reporting company, we are permitted to make certain reduced (or scaled) financial and other disclosures in our periodic reports and proxy statements filed with the SEC.

Dividends. The Company derives funds for payment of dividends to shareholders primarily from dividends received from our subsidiary, Community National Bank. Under the National Bank Act, prior approval from the OCC is required if the total of all dividends declared by a national bank in any calendar year will exceed the sum of such bank's net profits for that last year and its retained net profits for the preceding two calendar years, less any required transfers to surplus. Federal law also prohibits national banks from paying dividends greater than the bank's undivided profits after deducting statutory bad debt in excess of the bank's ALL.

The Company and the Bank are also subject to various general regulatory policies and requirements relating to the payment of dividends, including requirements to maintain adequate capital above regulatory minimums. The appropriate federal or state banking agency is authorized to determine under certain circumstances relating to the financial condition of a bank or bank holding company that the payment of dividends would be an unsafe or unsound practice and to prohibit such payment. In addition, under the Basel III capital requirements, failure to maintain the required capital conservation buffer would result in additional limitations on permissible shareholder distributions.

The FRB has issued supervisory guidance on the payment of dividends and redemption and repurchases of stock by bank holding companies reflecting the expectation that a bank holding company will inform and consult with FRB supervisory staff in advance of declaring and paying any dividend that could raise safety and soundness concerns. Examples of actions that might raise such concerns include declaration of a dividend exceeding current period earnings; redeeming or repurchasing regulatory capital instruments when the bank holding company is experiencing financial weakness; or redeeming or repurchasing common stock or perpetual preferred stock that would result in a net reduction in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. The guidance provides that a bank holding company should eliminate, defer or severely limit dividends if net income for the past four quarters is not sufficient to fully fund dividends; the prospective rate of earnings retention is not consistent with the holding company’s capital needs and overall current and prospective financial condition; or the holding company will not meet, or is in danger of not meeting, its minimum regulatory capital ratios.

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Dodd–Frank Act. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) comprehensively revised and restructured many aspects of the financial services industry. Many of the provisions of the Dodd-Frank Act were designed to reduce systemic risk from large, complex “systemically significant” financial institutions, and thus do not apply to a smaller banking organization such as the Company. Nevertheless, certain of its provisions do directly apply to us and others indirectly impact our operations, as the Dodd-Frank Act continues to reshape the financial services environment. Among other things, the Act:

·	Established a new independent agency, the CFPB, with centralized responsibility for implementing and (with respect to large organizations) enforcing and examining compliance with federal consumer financial laws. Although the CFPB does not have enforcement or examination authority over smaller banking organizations such as the Company, many of its regulatory standards and mandates apply to them, with enforcement authority vested in other regulatory agencies such as (with respect to the Bank) the OCC;
·	Applies the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, savings and loan holding companies and systemically important non-bank financial companies on a consolidated basis. These changes prohibit the use of additional trust preferred securities as Tier 1 capital, but our existing trust preferred securities are grandfathered;
·	Requires debit card interchange transaction fees charged by large financial institutions to be reasonable and proportional to the cost incurred by the issuer for the transaction. The FRB adopted regulations in 2011 establishing such fee standards, eliminating exclusivity arrangements between issuers and networks for debit card transactions and limiting restrictions on merchant discounting for use of certain payment forms and minimum or maximum amount thresholds as a condition for acceptance of credit cards. Although smaller institutions such as the Company are not subject to the interchange fee restrictions, it is possible that, over time, competitive pricing pressures in the marketplace may operate to make the restrictions applicable to them by default;
·	Requires public companies to periodically seek “say on executive pay” and “say on frequency” votes of shareholders, and in some circumstances, a “say on golden parachute” vote of shareholders. These vote requirements first became applicable for the Company’s 2013 annual meeting of shareholders, with the next “say on pay” and “say on frequency” votes scheduled to take place at our 2025 Annual Meeting of shareholders;
·	Allowed depository institutions to pay interest on demand deposits effective July 21, 2011;
·	Established by statute the FRB’s “source of strength” doctrine mandating holding company financial support of subsidiary insured depository institutions;
·	Eliminated state restrictions on de novo interstate branching;
·	Established new requirements related to residential mortgage lending, including prohibitions against payment of steering incentives and provisions relating to underwriting standards, disclosures, appraisals and escrows. Many of these provisions have been implemented through CFPB rulemakings;
·	Weakened federal preemption standards for national banks and federal savings associations and their operating subsidiaries by granting states greater authority to enforce consumer protection laws against them;
·	Provided permanent relief for non-accelerated filers, from the requirements of Section 404(b) of the Sarbanes-Oxley Act for auditor attestation of management’s assessment of internal controls and their effectiveness;
·	Requires a bank holding company to be well capitalized and well managed to receive regulatory approval of an interstate bank acquisition; and
·	Permanently increased the FDIC’s standard maximum deposit insurance amount to $250,000, changed the FDIC insurance assessment base to assets rather than deposits and increased the reserve ratio for the DIF to ensure the future strength of the fund.
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OCC Supervision. As a national banking association, the Bank is subject to the provisions of the National Bank Act and federal and state statutes and rules and regulations applicable to national banks. The primary supervisory authority for the Bank is the OCC. The Bank is subject to periodic examination by the OCC and must file periodic reports with the OCC containing a complete statement of its financial condition and results of operations. The OCC's examinations are designed for the protection of the Bank's depositors and not the Company’s shareholders.

In 2011, the CFPB, created by the Dodd-Frank Act, took over responsibility for implementing the principal federal consumer protection laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act and the Truth in Saving Act, among others. However, financial institutions that have assets of $10 billion or less, such as our Bank subsidiary, will continue to be supervised and examined in this area by their primary federal regulators (in the case of our Bank subsidiary, the OCC). The Dodd-Frank Act also gives the CFPB expanded data collecting powers for fair lending purposes for both small business and mortgage loans, as well as expanded authority to prevent unfair, deceptive and abusive practices.

Prompt Corrective Action. The Bank is subject to regulatory capital requirements established under FDICIA. Among other things, FDICIA identifies five capital categories for insured depository institutions (well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized) and requires the respective U.S. federal bank regulatory agencies to implement systems for "prompt corrective action" for insured depository institutions that do not meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive constraints on operations, management and capital distributions, depending on the category in which an institution is classified. Failure to meet the capital guidelines could also subject a banking institution to capital raising requirements. An "undercapitalized" bank must develop a capital restoration plan and its parent holding company must guarantee that bank's compliance with the plan. The liability of the parent holding company under any such guarantee is limited to the lessor of 5% of the bank's assets at the time it became undercapitalized or the amount needed to comply with the plan. Furthermore, in the event of the bankruptcy of the parent holding company, such guarantee would take priority over the parent's general unsecured creditors. In addition, FDICIA requires the various regulatory agencies to prescribe certain non-capital standards for safety and soundness related generally to operations and management, asset quality and executive compensation and permits regulatory action against a financial institution that does not meet such standards.

The Prompt Corrective Action Capital regulations establish various degrees of corrective action to be taken when an FDIC-insured depository institution is considered undercapitalized. In 2015, the FDIC’s Prompt Corrective Action regulations were revised in accordance with the Basel III capital standards. The enhanced requirements (i) introduced a Common Equity Tier 1 ratio requirement at each capital category (other than critically undercapitalized), and set the required Common Equity Tier 1 ratio at 6.5% for well-capitalized status; (ii) increased the minimum Tier 1 capital ratio requirement for each category (other than critically undercapitalized), and set the minimum Tier 1 capital ratio for well-capitalized status at 8.0% (as compared to 6.0% under the prior rule); and (iii) eliminated the provision that permitted a bank with a composite supervisory rating of 1 to have a 3% leverage ratio and still be considered adequately capitalized. The Basel III capital standards do not change the total risk-based capital requirement for any prompt corrective action category.

As of December 31, 2022, the Bank was considered "well capitalized" under FDICIA’s Prompt Corrective Action capital requirements. Those capital requirements do not apply to the Company. (See Note 22 to the Company’s audited consolidated financial statements included in Part II, Item 8 of this report for additional information about the Bank’s regulatory capital ratios.)

Safety and Soundness Regulations. **** Pursuant to the FDIA, the federal bank regulatory agencies have adopted safety and soundness guidelines establishing general standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation, fees and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify, monitor, and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the safety and soundness regulations include enforcement provisions, including authority for the bank regulatory agencies to require a financial institution in some circumstances to create and implement a compliance plan.

Deposit Insurance. The deposits of the Bank are insured by the Deposit Insurance Fund (DIF) of the FDIC up to applicable legal limits and are subject to the deposit insurance premium assessments of the DIF. The assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories determined by reference to its capital levels and supervisory ratings. In addition, in the case of those institutions in the lowest risk category, the FDIC further determines its assessment rate based on certain specified financial ratios or, if applicable, its long-term debt ratings. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits.

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The Dodd-Frank Act changed the assessment formula for determining deposit insurance premiums and modified certain insurance coverage provisions of the FDIA. The FDIC’s implementing rules, which became effective in 2011, redefined the base for FDIC insurance assessments from the amount of insured deposits to average consolidated total assets less average tangible equity. The Bank’s total FDIC insurance assessment for 2022 was $348,960.

Brokered Deposits. Under FDICIA, an FDIC-insured bank is prohibited from accepting brokered deposits without prior approval of the FDIC unless it is well capitalized under the FDICIA's prompt corrective actions guidelines. The Company participates in the CDARS of the InterFi Network, which uses a deposit-matching engine to match CDARS deposits in other participating banks, dollar-for-dollar. This product, also known as reciprocal deposits, is designed to provide deposit insurance in excess of FDIC limits and thereby enhance customer attraction and retention, build deposits and improve net interest margins. Until recently reciprocal deposits were considered a form of brokered deposits, which are treated less favorably than other deposits for certain purposes; however, a provision of the 2018 Regulatory Relief Act provides that reciprocal deposits held by a well-capitalized and well managed bank are no longer classified as brokered deposits. CDARS also permits the “one-way” purchase of deposits, which the Company utilizes from time to time for liquidity management purposes. CDARS one-way deposits are considered brokered deposits for certain purposes under the Federal Deposit Insurance Act and FDIC regulations. As of December 31, 2022 we had CDARS deposits totaling approximately $2.8 million in exchanged funds and $0 in one-way funds. We also rely from time to time on purchased wholesale deposit funding, which is a form of brokered deposits. We had $249,000 in purchased wholesale deposits outstanding at December 31, 2022. Our Asset, Liability and Funds Management Policy limits the use of brokered deposits to 5% of total assets.

USA Patriot Act. The USA PATRIOT Act is intended to strengthen the ability of U.S. law enforcement and the intelligence community to work cooperatively to combat terrorism on a variety of fronts. The Act contains extensive anti-money laundering and financial transparency provisions and imposes various requirements, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. The Secretary of the Treasury and federal banking regulators have adopted several regulations to implement these provisions. The Act also amended the federal Bank Holding Company Act and the Bank Merger Act to require the federal banking regulatory authorities to consider the effectiveness of a bank holding company or a financial institution’s anti-money laundering activities when reviewing an application to expand operations. As required by law, the Bank has in place a Bank Secrecy Act and Anti-Money Laundering compliance program, as well as a customer identification program. (See “BSA/AML Requirements” below.)

BSA/AML and OFAC Requirements. BSA/AML. We are subject to a number of AML requirements, which are primarily derived from the BSA, as amended by the USA Patriot Act and subsequent legislation. These laws and regulations are designed to prevent the financial system from being used by criminals to hide illicit proceeds and to impede terrorists’ ability to access and move funds used in support of terrorist activities. Among other things, BSA/AML laws and regulations require financial institutions to establish AML programs that meet certain standards, including, in some instances, expanded reporting, particularly in the area of suspicious transactions, and enhanced information gathering and recordkeeping requirements. We maintain an AML program designed to ensure that we are in compliance with all applicable laws, rules and regulations related to AML and anti-terrorist financing initiatives. The AML program provides for a system of internal controls to ensure that appropriate due diligence and, when necessary, enhanced due diligence, including obtaining and maintaining appropriate documentation, is conducted at account opening and updated, as necessary, through the course of the client relationship. The AML program is also designed to ensure there are appropriate methods of monitoring transactions and account relationships to identify potentially suspicious activity and report suspicious activity to governmental authorities in accordance with applicable laws, rules and regulations. In addition, the AML program requires the training of appropriate personnel with regard to AML and anti-terrorist financing issues and provides for independent testing to ensure that the AML program is in compliance with all applicable laws and regulations. Non-compliance with BSA/AML laws or failure to maintain adequate policies and procedures can lead to significant monetary penalties and reputational damage, and federal regulators evaluate the effectiveness of an applicant in combating money laundering when determining whether to approve a bank merger, bank holding company acquisition or other certain other activities.

On January 1, 2021, Congress passed the National Defense Authorization Act, which represents the most significant overhaul of the BSA and related AML laws since the USA PATRIOT Act. The amendments include (1) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry, which requires corporate entities (generally, any corporation, LLC, or other similar entity with 20 or fewer employees and annual gross income of $5 million or less) to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), which will maintain the registry and make it available upon request to financial institutions; (2) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the AML laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million (including disgorgement and interest but excluding forfeiture, restitution, or compensation to victims) will receive up to 30 percent of the monetary sanctions collected and will receive increased protections; (3) increased penalties for violations of the BSA; (4) improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit financing risks; and (5) expanded duties and powers of FinCEN. Many of the amendments require the Department of Treasury and FinCEN to promulgate rules. On September 29, 2022, FinCEN issued final regulations implementing the amendments relating to beneficial ownership reporting.

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OFAC. The U.S. Treasury's OFAC rules prohibit U.S. persons from engaging in financial transactions with certain individuals, entities, or countries, identified as “Specially Designated Nationals,” such as terrorists and narcotics traffickers. These rules require the blocking of assets held by, and prohibit transfers of property to such individuals, entities or countries. Blocked assets, such as property or bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. We maintain an OFAC program designed to ensure compliance with OFAC requirements.

Cybersecurity. **** Federal regulators have issued various guidance relating to cybersecurity, including a statement indicating that banks should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing a bank’s internet-based services. Regulators have also issued guidance indicating that they expect a bank's management to maintain a sufficient business continuity planning process to ensure rapid recovery, resumption, and maintenance of the bank's operations after a cyber-attack involving destructive malware. A bank is also required to develop appropriate processes to enable recovery of data and business operations, address rebuilding network capabilities, and restore data if the bank or any of its critical service providers fall victim to this type of cyber-attack. If we do not comply with this regulatory guidance, we could be subject to various regulatory sanctions, as well as financial penalties.

In 2021, the federal bank regulatory agencies issued a final rule requiring banks that experience a computer-security incident to notify certain entities. A computer-security incident occurs when actual or potential harm to the confidentiality, integrity or availability of information or the information system occurs, or there is a violation or imminent threat of a violation to banking security policies and procedures. The affected bank must notify its respective federal regulator of the computer-security incident that has occurred. These notifications are intended to promote early awareness of threats to banks and to help contain them in a timely fashion. This rule also requires bank service providers to notify their customers of a computer-security incident.

Financial Privacy. Under the federal Gramm-Leach-Bliley Financial Modernization Act of 1999 all financial institutions, including the Company, are required to adopt privacy policies, restrict the sharing of nonpublic consumer customer data with nonaffiliated parties, and establish procedures and practices to protect customer data from unauthorized access. The Company is also subject to similar, but more stringent, requirements under state law, including the Vermont Financial Privacy Act. In addition, we are subject to the federal Fair Credit Reporting Act, including the amendments adopted in the federal Fair and Accurate Credit Transactions Act of 2003 (FACT Act). The FACT Act includes many provisions concerning national credit reporting standards and permits consumers to opt out of information sharing among affiliated companies for marketing purposes. It also requires financial institutions to notify their customers if they report negative information about them to a credit bureau or if they are granted credit terms less favorable than those generally available. The CFPB has extensive rulemaking authority under the FACT Act and has promulgated rules implementing the Act, including rules limiting information sharing for affiliate marketing and rules requiring programs to identify, detect and mitigate certain identity theft red flags. We are also subject to the requirements of the Vermont Fair Credit Reporting Act, which generally requires an individual's consent in order to obtain a credit report. In addition, the federal Right to Financial Privacy Act imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with federal administrative subpoenas of financial records.

Consumer Protection and Certain Other Banking Laws. State usury and other credit laws limit the amount of interest and various other charges collected or contracted by a bank on loans. The Bank is also subject to lending limits on loans to one borrower and regulatory guidance on concentrations of credit. The Bank’s loans, deposits and other products and services are also subject to numerous federal and state consumer financial protection laws, including, but not limited to, the following:

·	Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
·	Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
·	Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
·	Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
·	Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
·	Truth-in-Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts; and
·	Electronic Funds Transfer Act and its implementing Regulation E, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of ATMs and other electronic banking services
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Community Reinvestment Act. The federal CRA requires banks to define the communities they serve, identify the credit needs of those communities, collect and maintain data for each small business or small farm loan originated or purchased, and maintain a public file at each banking location. The federal banking regulators examine the institutions they regulate to assess their record of meeting the credit needs of the communities they serve, including low and moderate income neighborhoods, and assign one of the following four ratings: “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance”. As of the Bank’s last CRA examination, completed by the OCC during 2022, it received a rating of “Outstanding”.

Federal Home Loan Bank System. The Bank is a member of the FHLB System, which consists of 12 regional Federal Home Loan Banks. The FHLB provides a central credit facility primarily for member institutions. Member institutions are required to purchase and hold shares of capital stock in the applicable regional FHLB (the FHLBB, in the case of the Bank), in an amount at least equal to the sum of 0.35% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year and 4.5% of its advances (borrowings) from the FHLBB. The Bank was in compliance with this requirement with an investment in FHLBB stock at December 31, 2022 of $733,600. As a member, the Bank is subject to future capital calls by the FHLBB in order to maintain compliance with its capital plan.

FRB Executive Compensation Guidelines. The FRB has issued comprehensive guidance on executive compensation policies, intended to ensure that the incentive compensation practices of banking organizations do not undermine their safety and soundness by encouraging excessive risk-taking. The guidance covers all employees that have the ability to affect materially an institution's risk profile, either individually or as part of a group, and establishes that incentive compensation arrangements should (1) provide incentives that do not encourage risk-taking beyond the institution's ability to identify and manage effectively; (2) be compatible with effective internal controls and risk management; and (3) be supported by strong a corporate governance structure, including active and effective oversight by the board of directors. For institutions such as the Company that are not "large, complex banking organizations" as defined in the guidance, the FRB reviews the incentive compensation arrangements as part of its regular, risk-focused examination process and not in a separate examination. These examinations are tailored to the scope and complexity of the institution's activity and compensation arrangements. The findings are included in the FRB's examination report and deficiencies incorporated into the institution's supervisory ratings. Enforcement actions may be taken against an institution if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the institution's safety and soundness and the institution fails to take prompt and effective measures to correct the deficiencies.

LIBOR

. On March 15, 2022, Congress enacted the Adjustable Interest Rate (LIBOR) Act (the "LIBOR Act") to address references to LIBOR in contracts governed by U.S. law that do not have effective fallback provisions providing for a benchmark rate to replace LIBOR when LIBOR is no longer published. In December 2022, the FRB adopted a final rule implementing the LIBOR Act which establishes benchmark rates based on SOFR (Secured Overnight Financing Rate) for LIBOR contracts with ineffective fallback provisions. The applicable replacement will become effective as of the first London banking day after June 30, 2023 (the” LIBOR Replacement Date”). The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, 3-month, 6-month, and 12-month LIBOR and specifies a spread adjustment for each tenor of SOFR to reflect historical spreads between SOFR and LIBOR. In accordance with the LIBOR Act and regulations, effective on the LIBOR Replacement Date, the Company’s $12,887,000 principal amount of outstanding Junior Subordinated Debentures, which currently bear a quarterly floating rate equal to 3-month LIBOR, plus 2.85%, will bear interest at a quarterly floating rate equal to 3-month CME Term SOFR, as adjusted by a spread adjustment factor of 0.26161 percent, plus 2.85%.

Other Legislative and Regulatory Initiatives. In addition to the statutes, regulations and regulatory initiatives described above, new legislation and regulations affecting financial institutions are frequently proposed. If enacted or adopted, these measures could change banking statutes and our operating environment in substantial and unpredictable ways and could further increase our reporting and compliance requirements, governance structures and costs of doing business. We cannot predict whether any such additional legislation or other regulatory initiatives will be adopted or the effect they may have on our business, results of operations or financial condition.

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Effects of Government Monetary Policy

The earnings of the Company are affected by general and local economic conditions and by the policies of various governmental regulatory authorities. In particular, the FRB regulates money supply, credit conditions and interest rates in order to influence general economic conditions, primarily through open market operations in United States Government Securities, varying the discount rate on member bank borrowings, setting reserve requirements against member and nonmember bank deposits, regulating interest rates payable by member banks on time and savings deposits and expanding or contracting the money supply. FRB monetary policies have had a significant effect on the operating results of commercial banks, including the Company, in the past and are expected to continue to do so in the future.

Effects of Inflation and Changing Prices

Our consolidated financial statements have been prepared in accordance with GAAP and practices within the banking industry, which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike many other types of businesses, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. However, inflation also affects us by increasing the cost of goods and services purchased, as well as the cost of salaries and benefits, occupancy expense, and similar items and similarly impacts our customers. Inflation and related increases in interest rates generally decrease the market value of investments and loans held and may adversely affect liquidity, earnings, and shareholders’ equity. Loan originations and re-financings also tend to slow as interest rates increase, and higher interest rates may reduce earnings from such origination activities. Similarly, lower inflation and rate decreases increase the fair value of securities and loan origination and refinancing tend to accelerate.

Other Available Information

This annual report on Form 10-K is on file with SEC. We also file with the SEC quarterly reports on Form 10-Q and current reports on Form 8-K, as well as proxy materials for our meetings of shareholders. These reports and proxy materials are available without charge on the SEC’s website at http://www.sec.gov. Our SEC-filed reports and proxy statements are also available without charge through a link on our website at www.communitybancorpvt.com. We have also posted on our website our Code of Ethics for Senior Financial Officers and the Principal Executive Officer, our Insider Trading Policy and the charters of the Audit, Compensation and Nominating Committees of our Board of Directors. The information and documents contained on our website do not constitute part of this report. Copies of the reports we file with the SEC (other than exhibits) and proxy materials can also be obtained by contacting Melissa Tinker, Assistant Corporate Secretary, at our principal offices, which are located at 4811 U.S. Route 5, Derby, Vermont 05829 or by calling (802) 334-7915.

Item 1A. Risk Factors

Before deciding to invest in the Company or to maintain or increase an investment, investors should carefully consider the material risks and uncertainties described below that could negatively affect our business, financial condition or results of operations. The risks and uncertainties described below and in the Company’s other filings with the SEC are not the only ones the Company faces. Additional risks and uncertainties not presently known to management or that are currently deemed immaterial may emerge or evolve and also affect the Company’s business. If any of these known or unknown risks or uncertainties actually occurs, the Company’s business, financial condition and results of operations could be adversely affected, which in turn could result in a decline in the value of the Company’s capital stock.

Changes in interest rates could adversely affect our business, results of operations and financial condition.

Our results of operations depend substantially on our net interest income, which is the difference between the interest earned on loans, securities and other interest-earning assets and the interest paid on deposits and borrowings. These rates are highly sensitive to many factors beyond our control, including general economic conditions, inflation, recession, unemployment, money supply and the monetary policies of the FRB. If the interest rate we pay on deposits and other borrowings increases at a faster rate than the interest rate we earn on loans and other investments, our net interest income and therefore earnings, could be adversely affected. Conversely, our earnings could be adversely affected if the interest rate we earn on loans and other investments falls more quickly than the interest rate we pay on deposits and borrowings. While we have taken measures intended to manage the risks of operating in a changing interest rate environment, we cannot provide assurance that these measures will be effective in avoiding undue interest rate risk, particularly in an environment of rapidly changing rates.

In response to the COVID-19 pandemic, in March 2020 the FRB lowered the target federal funds rate to 0% to 0.25%, where it remained through the end of 2021. In response to the increase in inflationary pressures throughout 2021 and 2022, beginning in March 2022 the FOMC has engaged in a tightening of monetary policy, rapidly increasing the target federal funds range from a target of 0% to 0.25% to a target range of 4.25% to 4.50% by year end 2022, with further increases during the first quarter of 2023.

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Increases in interest rates can affect the value of our loans and other assets, such as investment securities, and may affect our ability to realize gains on the sale of assets. For example, we originate loans for sale to secondary market investors, and increasing interest rates may reduce residential mortgage lending activity and the volume of loans we originate for sale, resulting in a reduction in the fee income we earn on such sales. Increasing interest rates may also adversely affect the ability of borrowers to pay the principal or interest on loans, resulting in an increase in our non-performing assets and a reduction in our income. At the same time, the marketability of the property securing a loan may be adversely affected by any reduced demand resulting from higher interest rates.

In addition, increases in interest rates may increase our funding costs if we are required to pay higher rates on deposits in response to competitive pressures. Further, higher rates will increase the dividend rate on our Series A preferred stock, which is tied to the prime rate, and the interest rate on our debentures, which is currently tied to LIBOR and will become tied to SOFR in 2023, as discussed immediately below. Higher preferred stock dividend payments and debenture interest costs would decrease the amount of funds available for payment of dividends on our common stock.

Our interest costs may increase as a result of the retirement of LIBOR as a reference rate for interest payments on our Junior Subordinated Debentures.

In July 2017, the United Kingdom Financial Conduct Authority (FCA) announced that LIBOR would no longer be published, with an expected target date of December 31, 2021 for the phase out. On March 5, 2021, the FCA announced firm target dates for the phase out of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S. dollar deposits. LIBOR is used extensively in the U.S and globally as a “benchmark” or “reference rate” for various commercial and financial contracts, including our Junior Subordinated Debentures described below. In March 2022, the federal Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) was enacted, providing a statutory framework to replace various tenors of U.S. dollar LIBOR with an appropriate benchmark based on the Secured Overnight Financing Rate (SOFR) for certain contracts that lack effective fallback provisions if LIBOR is no longer published. In December 2022 the FRB adopted implementing regulations under the LIBOR Act. The LIBOR Act and regulations establish an appropriate rate spread adjustment for each of the LIBOR tenors which is designed to adjust for historical spreads between LIBOR and SOFR.

As of December 31, 2022, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which currently bear a quarterly floating rate of interest equal to the 3-month LIBOR, plus 2.85%. The Indenture Trustee has concluded that the Indenture governing the terms of our Debentures does not contain effective fallback provisions within the meaning of the LIBOR Act. Accordingly, pursuant to the LIBOR Act, effective on and after the first London banking day after June 30, 2023, our Debentures will bear interest at a quarterly floating rate equal to 3-month CME Term SOFR, as adjusted by a spread adjustment factor of 0.26161 percent, plus 2.85%. Phase out of LIBOR, including the replacement rate provisions of the LIBOR Act, could significantly impact the future interest costs on our Debentures.

Pandemics, epidemics, disease outbreaks and other public health crises, such as the COVID-19 pandemic, have disrupted our business and operations, and future outbreaks or reemergence of the COVID-19 pandemic could materially adversely impact our business, financial condition, liquidity and results of operations.

Pandemics, epidemics or disease outbreaks in the U.S. or globally, including the COVID-19 pandemic, have disrupted, and may in the future disrupt, our business, which could materially affect our results of operations, financial condition, liquidity and future expectations. The COVID-19 pandemic and the response to the pandemic by federal and state government, have adversely affected businesses, economies and financial markets worldwide, placed constraints on the operations of businesses, decreased consumer mobility and activity, and caused significant economic volatility in the United States and international capital markets. Any new pandemic or other public health crisis, or the reemergence of the COVID-19 pandemic, as well as ongoing or new governmental, regulatory and private sector responses to a pandemic, could materially disrupt banking and other economic activity generally and in the areas in which we operate. This could result in further decline in demand for our banking products and services, and could negatively impact, among other things, our asset quality, liquidity, regulatory capital, net income and growth prospects.

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OPERATIONAL RISKS

We are subject to liquidity risk because we rely primarily on deposit-gathering to satisfy our funding needs.

Our primary source of liquidity is through the growth of deposits, which provide low cost funding for our operations. If we are unable to attract enough deposits in our market area to fund loan growth and our other funding needs, then we may be forced to purchase deposits or to borrow through the FHLBB, the FRB’s discount window, correspondent banks or in the capital markets. Purchased deposits and borrowings would tend to be more expensive than funding through core deposits and therefore could have a negative impact on our results of operations, cash flow, liquidity and regulatory capital levels.

We are subject to credit risk and if our ALL is not adequate to cover actual losses, our earnings could decrease.

We are exposed to the risk that our borrowers may default on their obligations. A borrower's default on its obligations under one or more loans may result in lost principal and interest income and increased operating expenses as a result of the allocation of management time and resources to the collection and work-out of the credit. In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, we may have to write off the loan in whole or in part. In loan default situations, we may acquire real estate or other assets, if any, that secure the loan, through foreclosure or other similar available remedies, and the amount owed under the defaulted loan could exceed the value of the collateral acquired.

We periodically make a determination of the adequacy of our ALL based on available information, including, but not limited to, the quality of the loan portfolio as indicated by loan risk ratings, economic conditions, the value of the underlying collateral and the level of non-accruing and criticized loans. Management relies on its loan officers and credit quality reviews, its experience and its evaluation of economic conditions, among other factors, in determining the amount of the provision required for the allowance. Additions to this allowance result in a provision expense for the period. If, as a result of general economic conditions, previously incorrect assumptions, an increase in defaulted loans, or other pertinent factors, we determine that additional increases in the ALL are necessary, additional expenses may be incurred.

Determining the amount of the ALL inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and trends, all of which may undergo material changes. At any time, we are likely to have loans in our portfolio that will result in losses but that have not been identified as nonperforming or potential problem credits. We cannot be certain that we will be able to identify deteriorating credits before they become nonperforming assets or that we will be able to limit or correctly estimate losses on those loans that are identified. The OCC, our subsidiary Bank’s primary federal regulator, reviews the loan portfolio from time to time as part of its regulatory examination and may request that we increase the ALL. Changes in economic conditions or individual business or personal circumstances affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance. In addition, if charge-offs in future periods exceed the ALL, we will need to make additional provisions to restore the allowance. Any provisions to increase or restore the ALL would decrease our net income and, possibly, our capital, and could have an adverse effect on our results of operations and financial condition.

Prepayments of loans may negatively impact our business.

Generally, our customers may prepay the principal amount of their outstanding loans at any time. The speeds at which such prepayments occur, as well as the size of such prepayments, are within our customers’ discretion and may be affected by many factors beyond our control, including changes in prevailing interest rates. If customers prepay the principal amount of their loans, and we are unable to lend those funds to other borrowers or invest the funds at the same or higher interest rates, our interest income will be reduced. The prevailing low interest rates increase our prepayment risk. A significant reduction in interest income could have a negative impact on our results of operations and financial condition.

Our loans and deposits are geographically concentrated and adverse local economic conditions could negatively affect our business.

Unlike many larger banking institutions, our banking operations are not geographically diversified. Substantially all of our loans, deposits and fee income are generated in northeastern and central Vermont. As a result, poor economic conditions in northeastern and central Vermont could adversely and significantly impact the demand for loans and our other financial products and services and may cause us to incur losses associated with higher default rates and decreased collateral values in our loan portfolio. Much of our market area is located in the poorest region of the state. Economic conditions in northeastern and central Vermont are subject to various uncertainties, to a greater degree than certain other regions of the state. If economic conditions in our market area decline, we expect that our level of problem assets would increase and our prospects for growth would be impaired.

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Systems failures, interruptions, cyberattacks or other breaches of information security, including those affecting our vendors, could disrupt our business and have an adverse effect on our reputation, business, results of operations and financial condition.

We depend upon data processing, software, communication, and information access and exchange on a variety of computing platforms and networks and over the internet, and we rely on the services of a variety of third party vendors to meet our data processing and communication needs. Consequently, we are subject to certain related operational risks, both in our operations and through those of our service providers. These risks include, but are not limited to, data processing system failures and errors, inadequate or failed internal processes, customer or employee fraud, cyberattacks and catastrophic failures resulting from civil unrest, terrorist acts or natural disasters. Despite the safeguards we maintain, we cannot be certain that all of our systems are entirely free from vulnerability to attack or other technological difficulties or failures. Information security risks have increased significantly due to the use of online, telephone and mobile banking channels by customers and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties. Our technologies, systems and networks and those of certain of our service providers as well as our customers’ devices, may be the target of cyberattacks, computer viruses, malicious code, phishing attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our or our customers’ confidential, proprietary and other information, the theft of customer assets through fraudulent transactions or disruption of our or our customers’ or other third parties’ business operations. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and we could be exposed to claims from customers, any or all of which could adversely affect our reputation, business, results of operations or financial condition. While we have instituted safeguards and controls, we cannot provide assurance that they will be effective in all cases, and their failure in some circumstances could have a material adverse effect on our business, financial condition or results of operations.

We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements and other financial information. We also may rely on representations of clients and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors if made available. If this information is inaccurate or incomplete, we may suffer financial or reputational harm or other adverse effects with respect to the operation of our business, our financial condition and our results of operations.

Environmental liability associated with our lending activities could result in losses.

In the course of business, we may acquire, through foreclosure, properties securing loans originated or purchased that are in default. Particularly in commercial real estate lending, there is a risk that material environmental violations could be discovered on these properties. In this event, we might be required to remedy these violations at the affected properties at our sole cost and expense. The cost of remedial action could substantially exceed the value of affected properties. We may not have adequate remedies against the prior owner or other responsible parties and could find it difficult or impossible to sell the affected properties. These events could have an adverse effect on our results of operations and financial condition.

REGULATORY, LEGAL AND ACCOUNTING RISKS

Our ability to pay dividends on our capital stock and to service our debt depends primarily on dividends from our subsidiary and may be subject to regulatory and contractual limitations.

As a holding company, our cash flow typically comes from dividends that our bank subsidiary, Community National Bank, pays to us. Therefore, our ability to pay dividends on our common and preferred stock and to service our subordinated debentures, depends on the dividends we receive from the Bank. Dividend payments from the Bank are subject to federal statutory and regulatory limitations, generally based on net profits and retained earnings and may be subject to additional prudential considerations, such as capital planning needs. In addition, FRB policy, which applies to us as a registered bank holding company, provides that dividends by bank holding companies should generally be paid out of current earnings looking back over a one-year period and should not be paid if regulatory capital levels are deemed insufficient. Further, regulatory capital requirements could curtail our ability to pay dividends in some cases if we do not maintain a required capital conservation buffer. Our failure to pay dividends on our common or preferred stock or our failure to service our debt could have a material adverse effect on the market price of our common stock. Moreover, if sufficient dividend funding from the Bank is not available to cover all our requirements, we would be obligated first to pay interest and, if applicable, principal on our debentures and then to pay dividends on our preferred stock before making any dividend payments on our common stock.

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Although we have generally paid quarterly cash dividends on our common stock, we cannot provide any assurance that dividends will continue to be paid in the future or that the dividend rate will not be reduced in future periods.

Our banking business is highly regulated, and we may be adversely affected by changes in law and regulation.

We are subject to regulation and supervision by the FRB, and the Bank is subject to regulation and supervision by the OCC. Federal laws and regulations govern numerous matters affecting us, including changes in the ownership or control of banks and bank holding companies, maintenance of adequate capital, the permissible types, amounts and terms of loans and investments, permissible nonbanking activities, the level of reserves against deposits and restrictions on dividend payments. The OCC possesses the power to issue cease and desist orders to prevent or remedy unsafe or unsound practices or violations of law by banks subject to its supervision, and the FRB possesses similar powers with respect to bank holding companies. We are also subject to certain state laws, including certain Vermont laws designed to protect consumers of banking products and services. These and other federal and state laws and restrictions limit the manner in which we may conduct business and obtain financing.

Our business is highly regulated and the various federal and state laws, rules, regulations, and supervisory guidance, policies and interpretations applicable to us are subject to regular modification and change. It is impossible to predict the nature of such changes or their competitive impact on the banking and financial services industry in general or on our banking operations in particular. Such changes may, among other things, increase our cost of doing business, limit our permissible activities, or affect the competitive balance between banks and other financial institutions. In addition, failure to comply with applicable laws, regulations, policies or supervisory guidance could result in enforcement and other legal actions by federal or state authorities, including criminal and civil penalties, the loss of FDIC insurance, revocation of a banking charter, other sanctions by regulatory agencies, civil money penalties, litigation by private parties, and/or reputational damage, which could have a material adverse effect on our reputation, business, results of operations and financial condition.

The requirement to record certain assets and liabilities at fair value may adversely affect our financial results.

We report certain assets, including investment securities, at fair value. Generally, for assets that are reported at fair value we use quoted market prices or valuation models that utilize market data inputs to estimate fair value. Because we carry these assets on our books at their estimated fair value, we may incur losses even if the asset in question presents minimal credit risk. For example, we could be required to recognize OTTI in future periods with respect to investment securities in our portfolio. The amount and timing of any impairment recognized will depend on the severity and duration of the decline in fair value of our investment securities and our estimation of the anticipated recovery period.

Changes in accounting standards could materially affect our financial statements.

From time to time FASB and the SEC change the financial accounting and reporting standards that govern the preparation of our financial statements and applicable disclosures in our SEC filings. These changes can be very difficult to predict and can materially affect how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements. Implementation of accounting changes, with associated professional consultation and advice, can be costly, even if the change will not have any material effect on our financial statements.

The FASB has issued an accounting standard update that will result in a significant change in how we recognize credit losses and may have a material impact on our results of operations, financial condition or liquidity.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which replaces the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses. The new guidance, which is referred to as the 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. Adoption of the CECL model became mandatory for the Company effective January 1, 2023. Transition to CECL could result in additional uncertainty in estimating our credit losses.

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Our internal controls and procedures may fail or be circumvented.

Management has designed and implemented, and periodically reviews and updates, our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. However, any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Any failure or circumvention of our controls and procedures, or failure to comply with regulations related to controls and procedures, could have a material adverse effect on our business, results of operations and financial condition.

We are subject to detailed capital requirements that could limit our ability to pay dividends and to take certain other actions.

As of January 1, 2015, we were required to comply with the Basel III capital rules issued by the federal banking agencies that implemented the Basel III capital standards and established the minimum capital levels required under the Dodd-Frank Act. These capital rules require banks and bank holding companies to maintain a minimum common equity Tier I capital ratio of 4.5% of risk-weighted assets, a minimum Tier I capital ratio of 6.0% of risk-weighted assets, a minimum total capital ratio of 8.0% of risk-weighted assets, and a minimum leverage ratio of 4.0%. The capital rules require the Bank and the Company to maintain a 2.5% common equity Tier I capital conservation buffer above the minimum risk-based capital requirements for adequately capitalized institutions in order to avoid restrictions on the ability to pay dividends, discretionary bonuses, and to engage in share repurchases. The Company and the Bank met these requirements as of December 31, 2022. The Basel III capital rules permanently grandfathered trust preferred securities issued before May 19, 2010 for institutions with less than $15.0 billion in total assets as of December 31, 2009, subject to a limit of 25% of Tier I capital. Our trust preferred securities qualify for this grandfather treatment. The Basel III capital rules also increased the required capital for certain categories of assets, including high volatility construction real estate loans and certain exposures related to securitizations, but retained the previous capital treatment of residential mortgages. These standards could adversely affect our ability to pay dividends, or require us to reduce business levels or raise capital, including in ways that may adversely affect our results of operations or financial condition. Under the rules, we were permitted to make, and did make, a one-time, permanent election to continue to exclude accumulated other comprehensive income from capital.

We may be required to write down goodwill.

When we acquire a business, a portion of the purchase price of the acquisition may be allocated to goodwill and other identifiable intangible assets. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets acquired determines the amount of the purchase price that is allocated to goodwill acquired. At December 31, 2022, our goodwill totaled approximately $11.6 million, created in connection with the LyndonBank acquisition in 2007. Under current accounting standards, if we determine goodwill is impaired, we would be required to write down the value of this asset to fair value. We conduct a review each year, or more frequently if events or circumstances warrant such, to determine whether goodwill is impaired. We last completed a goodwill impairment analysis as of December 31, 2022, and concluded goodwill was not impaired. We cannot provide assurance that we will not be required to take an impairment charge in the future. Any impairment charge would have a negative effect on our shareholders’ equity and financial results and may cause a decline in our stock price.

RISKS RELATING TO OUR COMMON STOCK

Our common stock is not exchange-listed and our trading volume is less than that of larger public companies, which can contribute to volatility in our stock price and adversely affect the price and liquidity of an investment in our common stock.

Our common stock is included in the OTC QX market tier maintained by the OTC Markets Group, Inc. under the trading symbol CMTV, but is not traded on any securities exchange. Bid and ask quotations and trades in our stock made by certain brokerage firms are reported through the OTC Link® Alternative Trading System (ATS) maintained by a subsidiary of the OTC Markets Group, Inc. However, trading in our stock is sporadic. A public trading market for a particular class of stock having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of numerous buyers and sellers of that stock at any given time, which in turn depends on the individual decisions of investors and general economic and market conditions over which issuers have no control. The trading market in our stock does not exhibit these characteristics. The trading history of our common stock has been characterized by relatively low trading volume. This lack of an active public market means that the value of a shareholder’s investment in our common stock may be subject to sudden and exaggerated fluctuations, as individual trades have a greater effect on our reported trading price than would be the case in a broad public market with significant daily trading volume.

The market price of our common stock may also be subject to fluctuations in response to numerous other factors, including the other factors discussed in this report, regardless of our actual operating performance. The possibility of such fluctuations occurring is increased due to the illiquid nature of the trading market in our common stock. Therefore, a shareholder may be unable to sell our common stock at or above the price at which it was purchased, or at or above the current market price or at the time of his or her choosing. This illiquid trading market also makes it particularly difficult for a shareholder to dispose of a large number of shares of our stock at desired pricing or on a desired timetable.

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Our common stock is subordinate to our existing and future indebtedness and preferred stock.

Shares of our common stock are equity interests and do not constitute indebtedness. As such, our common stock ranks junior to all our customer deposits and other indebtedness, including our subordinated debentures, whether now existing or hereafter incurred, and other non-equity claims on us, with respect to assets available to satisfy claims. In addition, our common stock is junior in priority, including with respect to dividend and liquidation rights, to our outstanding shares of Series A Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock. Further, the common stock will be subject to the prior liquidation rights of the holders of any debt we may issue in the future and may be subject to the prior dividend and liquidation rights of any series of preferred stock we may issue in the future.

Securities issued by us, including our common stock, are not FDIC insured.

Securities issued by us, including our common stock, are not savings or other deposit accounts or obligations of any bank and are not insured by the FDIC, the DIF or any other governmental agency or instrumentality, or any private insurer, and are subject to investment risk, including the possible loss of principal.

Our organizational documents may have the effect of discouraging a third party from acquiring us.

Our Amended and Restated Articles of Association and By-Laws contain provisions, including a staggered board of directors and a supermajority vote requirement for certain acquisition transactions and other matters, that make it more difficult for a third party to gain control or acquire us without the consent of the board of directors. These provisions could also discourage proxy contests and may make it more difficult for dissident shareholders to elect representatives as directors and take other corporate actions. To the extent that these provisions make these actions more difficult and make us a less attractive takeover candidate, they may not always be in our best interests or in the best interests of our shareholders, and in some circumstances may prevent holders of our common stock from receiving a takeover premium.

GENERAL RISKS

Market changes in delivery of financial services may adversely affect demand for our services.

Channels for delivering financial products and services to our customers are evolving rapidly, with less reliance on traditional branch facilities and more use of online and mobile banking. We compete with larger providers that have significant resources to dedicate to improved technology and delivery channels. We periodically evaluate the profitability of our branch system and other office and operational facilities to improve efficiencies. However, identification and closure of unprofitable operations and facilities can lead to restructuring charges and introduce the risk of disruptions to revenues and customer relationships.

Substantial competition could adversely affect us.

Banking is a highly competitive business. We compete actively for loan, deposit, and other financial services business in northeastern and central Vermont. Our competitors include a number of state and national banks and tax-advantaged credit unions, as well as financial and nonfinancial firms that offer services similar to those that we offer. Some of our competitors are community or regional banks that have strong local market positions. Our large bank competitors, in particular, have substantial capital, technology and marketing resources that are well in excess of ours. These larger financial institutions may have greater access to capital at a lower cost and have a higher per-borrower lending limit than our Company, which may adversely affect our ability to compete with them effectively.

In addition, technology and other changes increasingly allow parties to complete financial transactions electronically, without the need for a physical presence in a market area. We are therefore likely to face increasing competition from out-of-market competitors, including national firms. Moreover, in many cases transactions may now be completed without the involvement of banks. For example, consumers can pay bills and transfer funds over the Internet and by telephone without banks. Many non-bank financial service providers have lower overhead costs and are subject to fewer regulatory constraints. If consumers do not use banks to complete their financial transactions, we could potentially lose fee income, deposits and income generated from those deposits.

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New products and services are essential to remain competitive but may subject us to additional risks.

We consistently attempt to offer new products and services to our customers to remain competitive. There can be risks and uncertainties associated with these new products and services especially if they are dependent on new technologies. We may spend significant time and resources in development of new products and services to market to customers. Through our development and implementation process we may incur risks associated with delivery timetables, pricing and profitability, compliance with regulations, technology failures and shifting customer preferences. Failure to successfully manage these risks could have a material effect on our financial condition, result of operations and business.

Changes in our tax rates could affect our future results.

Our future effective tax rates and tax liabilities could be unfavorably affected by increases in applicable tax rates and by other changes in federal or state tax laws, regulations and agency interpretations. Our effective tax rates could also be affected by changes in the valuation of our deferred tax assets and liabilities or by the outcomes of any examinations of our income tax returns by the IRS or our state income, franchise, sales and use or other tax returns by the Vermont Department of Taxes. Our results of operations and financial condition could also be adversely affected in the short-term by decreases in applicable tax rates that require us to revalue our deferred tax asset, as occurred in 2017 as a result of passage of the 2017 Tax Act.

Our business could suffer if we fail to attract and retain skilled personnel.

Our success depends, in large part, on our ability to attract and retain key personnel, including executives. Any of our current employees, including our senior management, may terminate their employment with us at any time. Competition for qualified personnel in our industry can be intense and our geographic market area might not be favorably perceived by potential executive management candidates. We may not be successful in attracting and retaining sufficient qualified personnel. We may also incur increased expenses and be required to divert the attention of other senior executives to recruit replacements for the loss of any key personnel.

We are not able to offer all of the financial services and products of a financial holding company.

Banks, securities firms, and insurance companies can now combine under a “financial holding company” umbrella. Financial holding companies can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting), and merchant banking. Some of our competitors have elected to become financial holding companies. We offer only traditional banking products and trust and investment management services indirectly through our affiliate, CFSG.

Our risk management framework may not be effective in mitigating risk and loss.

We maintain an enterprise risk management program that is designed to identify, quantify, monitor, report, and control the risks that the Company faces. These risks include, but are not limited to: strategic, interest-rate, credit, liquidity, operations, pricing, reputation, compliance, litigation, and cybersecurity. While management assesses and improves this program periodically, there can be no assurance that our approach and framework for risk management and related controls will effectively mitigate all risk and limit losses in our business. If conditions or circumstances arise that expose flaws or gaps in our risk-management program, or if our risk management systems or controls break down, our results of operations and financial condition may be adversely affected.

Item 1B. Unresolved Staff Comments

Not Applicable

Item 2. Properties

Although the Company does not itself own or lease real property, the Bank owns and leases various properties for its banking operations. All of the Bank’s offices are located in Vermont, other than its loan production office in Grafton County, New Hampshire.

The Company's administrative offices are located at the main offices of the Bank on U.S. Route 5 in Derby, Vermont, with total office space of approximately 34,000 square feet, including retail banking offices, an operations center as well as a community room used by the Bank for meetings and various functions. This community room has a secure outside access making it possible for the Bank to offer it to non-profit organizations after banking hours free of charge. This office is equipped with a remote drive-up facility and a drive-up ATM as well as an inside lobby ATM.

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In addition to its main office, the Company currently owns or leases the following premises in six Vermont counties and one New Hampshire County:

Office Location^1^	Owned	Leased	CFSG Office^2^
Caledonia County, VT
St. Johnsbury (Route 5)		X
Lyndon (Memorial Drive)		X	X
Chittenden County, VT
Burlington (Shelburne Road)^3^		X
Franklin County, VT
Enosburg Falls (Sampsonville Road)	X
Grafton County, NH
Lebanon, NH (367 Route 120)^3^		X
Lamoille County, VT
Morrisville (Route 15 West)		X
Orleans County, VT
Barton (Church Street)	X
Derby Line (Main Street)	X
Island Pond (Route 105)		X
Newport (Main Street)	X
Troy (Route 101)	X
Washington County, VT
Barre (North Main Street)	X		X
Montpelier (State Street)		X

^1^ All listed locations are operating bank branch offices, except as otherwise noted in footnote 3.

^2^ The Bank leases space at two of its branch locations to its affiliated trust and investment management affiliate, CFSG.

^3^ Loan production offices (LPO), in Chittenden County, in northwestern Vermont and Grafton County, in western New Hampshire.

The Company maintains ATMs at the main office and all branch locations.

All of the Company’s owned premises are free and clear of any mortgages or encumbrances and, in management’s view, all locations are suitable for conducting the Bank’s business.

Item 3. Legal Proceedings

There are no pending legal proceedings to which the Company or the Bank is a party or of which any of its property is the subject, other than routine litigation incidental to its banking business, none of which, in the opinion of management, is material to the Company's consolidated operations or financial condition.

Item 4. Mine Safety Disclosures

Not Applicable

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PART II.

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Information on the trading market in, market price of, and dividends paid on, the Company's common stock is incorporated by reference to the section of the 2022 Annual Report under the caption “Common Stock Performance by Quarter” immediately following the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, filed as Exhibit 13 to this report. The balance of the information required by item 201 of Regulation S-K is omitted in accordance with the regulatory relief available to smaller reporting companies under applicable SEC disclosure rules, as amended in 2018 Release Nos. 33-10513 and 34-83550.

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

	Total Number		Average
	of Shares		Price Paid
For the period:	Purchased(1)		Per Share
October 1 - October 31		0	$	0.00
November 1 - November 30		0		0.00
December 1 - December 31		5,020		19.00
Total		5,020	$	19.00
(1)	All 5,020 shares were purchased for the account of participants invested in the Company Stock Fund under the Company’s Retirement Savings Plan by or on behalf of the Plan Trustee, the Human Resources Committee of the Bank. Such share purchases were facilitated through CFSG, which provides certain investment advisory services to the Plan. Both the Plan Trustee and CFSG may be considered affiliates of the Company under Rule 10b-18.
---	---

Item 6. [Reserved]

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Incorporated by reference to the section of the 2022 Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," immediately following the “Notes to Consolidated Financial Statements”, filed as Exhibit 13 to this report.

Item 7A. 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 8. Financial Statements and Supplementary Data

The audited consolidated financial statements and related notes of Community Bancorp. and Subsidiary and the report thereon of the independent registered accounting firm of Berry Dunn McNeil & Parker, LLC are incorporated herein by reference from the 2022 Annual Report, filed as Exhibit 13 to this report.

In accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550, the Company has elected to present audited statements of income, comprehensive income, cash flows and changes in shareholders’ equity for each of the preceding two, rather than three, fiscal years.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

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Item 9A. 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 December 31, 2022, an evaluation was performed under the supervision and with the participation of management, including the principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, management concluded that its disclosure controls and procedures as of December 31, 2022 were effective in ensuring that material information required to be disclosed in the reports it files with the Commission under the Exchange Act was recorded, processed, summarized, and reported on a timely basis.

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

Management’s Report on Internal Control Over Financial Reporting

The Management of the Company is responsible for the preparation and fair presentation of the consolidated financial statements and other financial information contained in this Form 10-K. Management is also responsible for establishing and maintaining adequate internal control over financial reporting and for identifying the framework used to evaluate its effectiveness. Management has designed processes, internal control and a business culture that foster financial integrity and accurate reporting. The Company’s comprehensive system of internal control over financial reporting was designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of the consolidated financial statements of the Company in accordance with generally accepted accounting principles. The Company’s accounting policies and internal control over financial reporting, established and maintained by Management, are under the general oversight of the Company’s Board of Directors, including the Audit Committee of the Board.

Management has made a comprehensive review, evaluation, and assessment of the Company’s internal control over financial reporting as of December 31, 2022. The standard measures adopted by Management in making its evaluation are the measures in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon its review and evaluation, Management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2022.

In accordance with relief granted to non-accelerated filers as defined in SEC Release No. 34-88365, this Annual Report does not contain an attestation report of the Company’s independent registered public accounting firm regarding management’s internal control over financial reporting.

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 December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not Applicable

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PART III.

Item 10. Directors, Executive Officers and Corporate Governance

The following is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting.

Listing of the names, ages, principal occupations, business experience and specific qualifications of the incumbent directors and nominees under the caption "PROPOSAL I - ELECTION OF DIRECTORS."

Listing of the names, ages, titles and business experience of the executive officers under the caption EXECUTIVE OFFICERS."

Information regarding compliance with Section 16(a) of the Securities Exchange Act of 1934 under the caption "SHARE OWNERSHIP INFORMATION –Delinquent Section 16(a) Reports."

Information regarding changes in the Company’s procedures for submission of director nominations by shareholders under the caption “SHAREHOLDER NOMINATIONS AND OTHER PROPOSALS.”

Information regarding whether a member of the Audit Committee qualifies as an audit committee financial expert under applicable SEC rules, under the caption "CORPORATE GOVERNANCE - Board Committees."

The Code of Ethics for Senior Financial Officers and the Principal Executive Officer is available on the Company's website at www.communitybancorpvt.com. The Code is also listed as Exhibit 14 to this report and incorporated by reference to a prior filing with the SEC. There were no waivers of any provision of the Code during 2022.

Item 11. Executive Compensation

The following is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting:

Information regarding compensation of directors under the captions "PROPOSAL I - ELECTION OF DIRECTORS - Directors' Fees and Other Compensation" and "-Directors' Deferred Compensation Plan."

Information regarding executive compensation and benefit plans under the caption "EXECUTIVE COMPENSATION."

The information required under paragraphs (e)(4) and (e)(5) of Item 407 of Regulation S-K is omitted in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting:

Information regarding the share ownership of management and principal shareholders under the caption "SHARE OWNERSHIP INFORMATION."

The Company does not maintain any equity compensation plans for which disclosure is required under Item 201(d) of SEC Regulation S-K.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The following is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting:

Information regarding transactions with management under the caption "CORPORATE GOVERNANCE -Transactions with Management."

Information regarding the independence of directors under the caption “CORPORATE GOVERNANCE – Director Independence.”

Item 14. Principal Accountant Fees and Services

The following is incorporated by reference to the Company's Proxy Statement for the 2023 Annual Meeting under the caption "PROPOSAL 2 - RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS - Fees Paid to Independent Auditors":

Fees paid to the principal accountant for various audit functions including, but not limited to, the audit of the annual financial statements in the Company's Form 10-K Report and review of the financial statements in the Company's Form 10-Q Reports.

Description of the audit committee's pre-approval policies and procedures required by paragraph (c) (7)(I) of rule 2-01of Regulation S-X. ****

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PART IV.

Item 15. Exhibits and Financial Statement Schedules

(a) Financial Statements

The following are included in this report and are incorporated by reference to the 2022 Annual Report, filed as Exhibit 13 to this report:

Consolidated Balance Sheets at December 31, 2022 and 2021

Consolidated Statements of Income for the years ended December 31, 2022 and 2021

Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

Notes to Consolidated Financial Statements

Report of Berry Dunn McNeil & Parker, LLC, independent registered public accountants (PC AOB Reg. No. - 136)

(b) Exhibits

The following exhibits, previously filed with the Commission, are incorporated by reference:

Exhibit 3(i)	Amended and Restated Articles of Association, filed as Exhibit 3.1 to the Company's Form 10-Q Report filed on August 12, 2014.
Exhibit 3(ii)	Certificate of Creation, Designation, Powers, Preferences, Rights, Privileges, Qualifications, Limitations, Restrictions, Terms and Conditions of the Series A Fixed-to-Floating Non-Cumulative Perpetual Preferred Stock, filed as Exhibit 3(i) to the Company’s Form 8-K Report filed on December 31, 2007.
Exhibit 3(iii)	Amended and Restated By-laws of Community Bancorp. as amended and restated through July 15, 2020, filed as Exhibit 3.1 in the Company’s Form 8-K Report filed on July 20, 2020.
Exhibit 4(i)	Indenture dated as of October 31, 2007 between Community Bancorp., as issuer and Wilmington Trust Company, as indenture trustee, filed as Exhibit 4.1 to the Company’s Form 8-K Report filed on November 2, 2007.
Exhibit 4(ii)	Amended and Restated Declaration of Trust dated as of October 31, 2007 among Community Bancorp., as sponsor, Wilmington Trust Company, as Delaware and institutional Trustee, and the administrators named therein, filed as Exhibit 4.2 to the Company’s Form 8-K Report filed on November 2, 2007.
Exhibit 4(iii)	Description of Common Stock, filed as Exhibit 4(iii) to the Company’s Form 10-K Report filed on March 16, 2020.
Exhibit 10(i)	Guarantee Agreement dated as of October 31, 2007 between Community Bancorp., as guarantor and Wilmington Trust Company, as guarantee trustee, filed as Exhibit 10.1 to the Company’s Form 8-K Report filed on November 2, 2007.
Exhibit 10(ii)*	Amended and Restated Deferred Compensation Plan for Directors, filed as Exhibit 10.2 to the Company’s Form 8-K Report filed on December 15, 2008.
Exhibit 10(iii)*	Amended and Restated Officer Incentive Plan, filed as Exhibit 10.1 to the Company’s Form 8-K Report filed on March 13, 2015.
Exhibit 10(iv)*	Description of the Directors Retirement Plan, filed as Exhibit 10(iv) to the Company's Form 10-K Report filed on March 30, 2005; as such description was amended in the Company's Form 8-K Report filed on December 19, 2005.
Exhibit 10(v)*	Amended and Restated Change in Control Agreement for President and Chief Executive Officer (Company), filed as Exhibit 10.1 to the Company’s Form 8-K Report filed on September 7, 2021.
Exhibit 10(vi)*	Amended and Restated Change in Control Agreement for Secretary and Treasurer (Company), Executive Vice President and Chief Financial Officer (Bank), filed as Exhibit 10.2 to the Company’s Form 8-K Report filed on September 7, 2021.
Exhibit 10(vii)*	Change in Control Agreement for Vice President (Company), Executive Vice President and Chief Lending Officer (Bank), filed as Exhibit 10.3 to the Company’s Form 8-K Report filed on September 7, 2021.
Exhibit 10(viii)*	Change in Control Agreement for Vice President (Company) and Executive Vice President and Chief Operating and Innovation Officer (Bank), filed as Exhibit 10.4 to the Company’s Form 8-K Report filed on February 23, 2023, as amended by an Amendment on Form 8-K/A filed on March 1, 2023.
Exhibit 14	Amended Code of Ethics for Senior Financial Officers and the Principal Executive Officer, filed as Exhibit 14 to the Company’s Form 8-K Report on July 12, 2010.
25
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Table of Contents

The following exhibits are filed as part of this report:

Exhibit 13	Portions of the 2022 Annual Report, specifically incorporated by reference into this report.
Exhibit 21	Subsidiaries of Community Bancorp.
Exhibit 23	Consent of Berry Dunn McNeil & Parker, LLC
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 Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the audited consolidated balance sheets, (ii) the audited consolidated statements of income, (iii) the audited consolidated statements of comprehensive income; (iv) the audited consolidated statements of changes in shareholders’ equity, (v) the audited consolidated statements of cash flows and (vi) related notes, for the years ended December 31, 2022 and 2021.

* Denotes compensatory plan or arrangement.

Item 16. Form 10-K Summary

Not Applicable

26
Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMMUNITY BANCORP.
/s/Kathryn M. Austin	Date: March 27, 2023
Kathryn M. Austin, President and Chief
Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/Kathryn M. Austin	Date: March 27, 2023
Kathryn M. Austin, President and Chief
Executive Officer (Principal Executive Officer)
/s/Louise M. Bonvechio	Date: March 27, 2023
Louise M. Bonvechio, Corporate Secretary and
Treasurer (Principal Financial Officer)
/s/Candace A. Patenaude	Date: March 27, 2023
Candace A. Patenaude
(Principal Accounting Officer)
COMMUNITY BANCORP. DIRECTORS
/s/Thomas E. Adams	Date: March 27, 2023
Thomas E. Adams
/s/Kathryn M. Austin	Date: March 27, 2023
Kathryn M. Austin
/s/Bruce Baker	Date: March 27, 2023
Bruce Baker
/s/David M. Bouffard	Date: March 27, 2023
David M. Bouffard
/s/Aminta K. Conant	Date: March 27, 2023
Aminta K. Conant
/s/Jacques R. Couture	Date: March 27, 2023
Jacques R. Couture
/s/ David P. Laforce	Date: March 27, 2023
David P. Laforce
/s/Rosemary M. Lalime	Date: March 27, 2023
Rosemary M. Lalime
/s/Stephen P. Marsh	Date: March 27, 2023
Stephen P. Marsh, Board Chair
/s/Carol Martin	Date: March 27, 2023
Carol Martin
/s/Emma Marvin	Date: March 27, 2023
---	---
Emma Marvin
/s/Jeffrey L. Moore	Date: March 27, 2023
Jeffrey L. Moore
/s/Dorothy R. Mitchell	Date: March 27, 2023
Dorothy R. Mitchell
/s/Frederic Oeschger	Date: March 27, 2023
Fredric Oeschger
/s/James G. Wheeler, Jr.	Date: March 27, 2023
James G. Wheeler, Jr.
27
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Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022

COMMUNITY BANCORP.

EXHIBITS

EXHIBIT INDEX*

Exhibit 13	Portions of the 2022 Annual Report, specifically incorporated by reference into this report.
Exhibit 21	Subsidiaries of Community Bancorp.
Exhibit 23	Consent of Berry Dunn McNeil & Parker, LLC
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 Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the audited consolidated balance sheets, (ii) the audited consolidated statements of income, (iii) the audited consolidated statements of comprehensive income; (iv) the audited consolidated statements of changes in shareholders’ equity, (v) the audited consolidated statements of cash flows and (vi) related notes, for the years ended December 31, 2022 and 2021.

* Other than exhibits incorporated by reference to prior filings.

** This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, 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 Securities Exchange Act of 1934.

28

cmtv_ex13.htm EXHIBIT 13

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Community Bancorp. and Subsidiary

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Community Bancorp. and Subsidiary (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income, comprehensive (loss) income, changes in shareholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

We have also audited, in accordance with U.S. generally accepted auditing standards, the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 27, 2023, expressed an unmodified opinion.

Basis for Opinion

The financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

1

Board of Directors and Shareholders

Community Bancorp. and Subsidiary

Page 2

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the criticial audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses

As disclosed in Note 4 to the Company's consolidated financial statements, the Company has a gross loan portfolio of $749 million and related allowance for loan losses of $8.7 million as of December 31, 2022. As disclosed in Note 1, the Company's allowance for loan losses is a material and complex estimate requiring significant management judgment in the evaluation of the credit quality and the estimation of inherent losses within the loan portfolio. The level of the allowance for loan losses is based on management’s periodic evaluation of the loan portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. Changes in these assumptions could have a material effect on the Company’s financial results. The allowance for loan losses includes a general reserve which is determined based on the results of a quantitative and a qualitative analysis of all loans not measured for impairment at the reporting date. Impaired loans are loan(s) to a borrower that in the aggregate are greater than $100,000 and that are in non-accrual status or are troubled debt restructurings regardless of amount.

In calculating the allowance for loan losses, the Company considers relevant credit quality indicators for each loan segment, stratifies loans by risk rating, and estimates losses for each loan type based upon their nature and risk profile. This process requires significant management judgment in the review of the loan portfolio and assignment of risk ratings based upon the characteristics of loans. In addition, estimation of losses inherent within the portfolio requires significant management judgment. Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

·	Evaluating the design of controls relating to management's review of loans, assignment of risk ratings, and consistency of application of accounting policies.
·	Evaluating the reasonableness of assumptions and sources of data used by management in forming the qualitative loss factors by performing retrospective review of historic loan loss experience and analyzing historical data used in developing the assumptions, including assessment of whether there were additional qualitative considerations relevant to the portfolio.
·	Evaluating the appropriateness of inputs and factors that the Company used in forming the qualitative loss factors and assessing whether such inputs and factors were relevant, reliable, and reasonable for the purpose used.
·	Testing the appropriateness of the Company's loan rating policy and the consistency of its application.
·	Evaluating the appropriateness of specific reserves for impaired loans.
2
---

Board of Directors and Shareholders

Community Bancorp. and Subsidiary

Page 3

·	· Verifying the mathematical accuracy and computation of the allowance for loan losses by re-performing or independently calculating significant elements of the allowance based on relevant source documents.

We have served as the Company's auditor since 2003.

Portland, Maine

March 27, 2023

Vermont Registration No. 92-0000278

3
Community Bancorp. and Subsidiary			December 31,
---	---	---	---	---	---
Consolidated Balance Sheets			2021
Assets
Cash and due from banks	12,302,771		$	17,839,374
Federal funds sold and overnight deposits	58,837,557			92,519,552
Total cash and cash equivalents	71,140,328			110,358,926
Securities available-for-sale	192,918,109			182,342,459
Restricted equity securities, at cost	1,411,750			1,434,450
Loans held-for-sale	0			339,000
Loans	748,548,608			689,988,533
Allowance for loan losses	(8,709,225	)		(7,710,256	)
Deferred net loan costs (fees)	493,275			(37,972	)
Net loans	740,332,658			682,240,305
Bank premises and equipment, net	13,042,468			13,767,328
Accrued interest receivable	3,214,332			2,400,560
Bank owned life insurance	5,153,387			5,073,228
Goodwill	11,574,269			11,574,269
Other assets	17,244,846			9,575,274
Total assets	1,056,032,147		$	1,019,105,799
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	216,093,534		$	209,465,151
Interest-bearing transaction accounts	294,050,079			265,513,937
Money market funds	140,117,086			129,728,954
Savings	171,072,921			168,390,905
Time deposits, 250,000 and over	15,632,058			17,463,871
Other time deposits	86,006,601			88,837,135
Total deposits	922,972,279			879,399,953
Borrowed funds	1,300,000			1,300,000
Repurchase agreements	33,077,829			32,609,875
Junior subordinated debentures	12,887,000			12,887,000
Accrued interest and other liabilities	10,618,676			8,148,703
Total liabilities	980,855,784			934,345,531
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding
at December 31, 2022 and 2021 (100,000 liquidation value, per share)	1,500,000			1,500,000
Common stock - 2.50 par value; 15,000,000 shares authorized, 5,647,710
and 5,587,939 shares issued at December 31, 2022 and 2021, respectively
(including 16,850 and 14,337 shares issued February 1, 2023 and 2022,
respectively)	14,119,275			13,969,848
Additional paid-in capital	36,383,235			35,322,063
Retained earnings	46,464,447			37,758,105
Accumulated other comprehensive loss	(20,667,817	)		(1,166,971	)
Less: treasury stock, at cost; 210,101 shares at December 31, 2022 and 2021	(2,622,777	)		(2,622,777	)
Total shareholders' equity	75,176,363			84,760,268
Total liabilities and shareholders' equity	1,056,032,147		$	1,019,105,799
Book value per common share outstanding	13.55		$	15.48

All values are in US Dollars.

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

4
Community Bancorp. and Subsidiary	Years Ended December 31,
---	---	---	---	---
Consolidated Statements of Income	2022		2021
Interest income
Interest and fees on loans	$	32,558,005	$	33,067,230
Interest on taxable debt securities		3,111,860		1,304,902
Interest on tax-exempt debt securities		203,358		273
Dividends		82,989		56,116
Interest on federal funds sold and overnight deposits		1,158,444		362,018
Total interest income		37,114,656		34,790,539
Interest expense
Interest on deposits		3,203,696		2,568,158
Interest on borrowed funds		86,054		71,375
Interest on repurchase agreements		166,746		88,861
Interest on junior subordinated debentures		573,603		393,105
Total interest expense		4,030,099		3,121,499
Net interest income		33,084,557		31,669,040
Provision for loan losses		978,000		624,165
Net interest income after provision for loan losses		32,106,557		31,044,875
Non-interest income
Service fees		3,676,875		3,441,607
Income from sold loans		605,848		949,212
Other income from loans		1,377,494		982,295
Other income		982,831		1,361,023
Total non-interest income		6,643,048		6,734,137
Non-interest expense
Salaries and wages		8,347,000		8,027,000
Employee benefits		2,743,210		3,124,554
Occupancy expenses, net		2,806,830		2,808,068
Other expenses		7,977,299		7,697,964
Total non-interest expense		21,874,339		21,657,586
Income before income taxes		16,875,266		16,121,426
Income tax expense		3,135,326		2,983,088
Net income	$	13,739,940	$	13,138,338
Earnings per common share	$	2.53	$	2.45
Weighted average number of common shares
used in computing earnings per share		5,403,938		5,345,988
Dividends declared per common share	$	0.92	$	0.88

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

5
Community Bancorp. and Subsidiary
---	---	---	---	---	---	---
Consolidated Statements of Comprehensive (Loss) Income
	Years Ended December 31,
	2022			2021
Net income	$	13,739,940		$	13,138,338
Other comprehensive loss, net of tax:
Unrealized holding loss on securities AFS arising during the period		(24,684,615	)		(2,635,848	)
Tax effect		5,183,769			553,529
Other comprehensive loss, net of tax		(19,500,846	)		(2,082,319	)
Total comprehensive (loss) income	$	(5,760,906	)	$	11,056,019

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

6
Community Bancorp. and Subsidiary
---
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2022 and 2021
														Accumulated
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
									Additional					other						Total
	Common stock				Preferred stock				paid-in		Retained			comprehensive			Treasury			shareholders'
	Shares		Amount		Shares		Amount		capital		earnings			income (loss)			stock			equity
Balances, December 31, 2020		5,527,380	$	13,818,450		15	$	1,500,000	$	34,309,646	$	29,368,046		$	915,348		$	(2,622,777	)	$	77,288,713
Comprehensive income
Net income				0				0		0		13,138,338			0			0			13,138,338
Other comprehensive loss				0				0		0		0			(2,082,319	)		0			(2,082,319	)
Total comprehensive income																					11,056,019
Cash dividends declared - common stock				0				0		0		(4,699,529	)		0			0			(4,699,529	)
Cash dividends declared - preferred stock				0				0		0		(48,750	)		0			0			(48,750	)
Issuance of common stock		60,559		151,398				0		1,012,417		0			0			0			1,163,815
Balances, December 31, 2021		5,587,939		13,969,848		15		1,500,000		35,322,063		37,758,105			(1,166,971	)		(2,622,777	)		84,760,268
Comprehensive loss
Net income				0				0		0		13,739,940			0			0			13,739,940
Other comprehensive loss				0				0		0		0			(19,500,846	)		0			(19,500,846	)
Total comprehensive loss																					(5,760,906	)
Cash dividends declared - common stock								0		0		(4,967,035	)		0			0			4,967,035
Cash dividends declared - preferred stock				0				0		0		(66,563	)		0			0			66,563
Issuance of common stock		59,771		149,427				0		1,061,172		0			0			0			1,210,599
Balances, December 31, 2022		5,647,710	$	14,119,275		15	$	1,500,000	$	36,383,235	$	46,464,447		$	(20,667,817	)	$	(2,622,777	)	$	75,176,363

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

7
Community Bancorp. and Subsidiary
---	---	---	---	---	---	---
Consolidated Statements of Cash Flows
	Years Ended December 31,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	13,739,940		$	13,138,338
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, bank premises and equipment		1,141,727			1,104,918
Provision for loan losses		978,000			624,165
Deferred income tax		(118,587	)		(76,374	)
Gain on sale of loans		(237,881	)		(540,540	)
Gain on sale of bank premises and equipment		0			(7,559	)
Capital loss on leases		0			63,125
Income from CFS Partners		(584,971	)		(951,605	)
Amortization of bond premium, net		609,535			531,081
Proceeds from sales of loans held for sale		12,865,842			18,103,002
Originations of loans held for sale		(12,288,961	)		(17,771,062	)
Increase (decrease) in taxes payable		499,525			(258,585	)
(Increase) decrease in interest receivable		(813,772	)		587,417
Decrease in mortgage servicing rights		35,127			24,426
Decrease in right-of-use assets		198,682			196,172
Decrease in operating lease liabilities		(205,165	)		(196,825	)
Decrease in other assets		15,389			67,126
Increase in cash surrender value of BOLI		(80,159	)		(84,992	)
Amortization of limited partnerships		268,714			363,048
Change in net deferred loan fees and costs		(531,247	)		(1,157,769	)
Increase (decrease) in interest payable		15,143			(27,348	)
Increase in accrued expenses		267,655			310,996
(Decrease) increase in other liabilities		(39,291	)		3,525
Net cash provided by operating activities		15,735,245			14,044,681
Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		18,857,918			18,851,557
Purchases		(54,727,718	)		(143,655,767	)
Proceeds from redemption of restricted equity securities		43,500			141,500
Purchases of restricted equity securities		(20,800	)		(129,400	)
Increase (decrease) in limited partnership contributions payable		2,601,000			(150,000	)
Investment in limited liability entities		(2,601,000	)		0
Proceeds from distribution from CFS Partners		0			2,000,000
(Increase) decrease in loans, net		(59,368,049	)		19,139,595
Capital expenditures net of proceeds from sales of bank
premises and equipment		(615,549	)		(895,739	)
Recoveries of loans charged off		828,943			104,808
Net cash used in investing activities		(95,001,755	)		(104,593,446	)
8
---
	2022		2021
---	---	---	---	---
Cash Flows from Financing Activities:
Net increase in demand and interest-bearing transaction accounts
Net increase in money market and savings accounts
Net decrease in time deposits		)		)
Net increase (decrease) in repurchase agreements				)
Net decrease in short-term borrowings				)
Repayments on long-term borrowings				)
Decrease in finance lease obligations		)		)
Dividends paid on preferred stock		)		)
Dividends paid on common stock		)		)
Net cash provided by financing activities
Net decrease in cash and cash equivalents		)		)
Cash and cash equivalents:
Beginning
Ending
Supplemental Schedule of Cash Paid During the Period:
Interest
Income taxes, net of refunds
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized loss on securities AFS	(24,684,615	)	(2,635,848	)
Additions to finance lease obligations
Common Shares Dividends Paid:
Dividends declared
Increase in dividends payable attributable to dividends declared		)		)
Dividends reinvested		)		)
Total dividends paid

All values are in US Dollars.

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

9

COMMUNITY BANCORP. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

The accounting policies of Community Bancorp. and Subsidiary (the Company) are in conformity, in all material respects, with U.S. generally accepted accounting principles (U.S. GAAP) and general practices within the banking industry. The following is a description of the Company’s significant accounting policies.

Basis of presentation and consolidation

In addition to the definitions provided elsewhere in this Annual Report, the definitions, acronyms and abbreviations identified below are used throughout this Annual Report, including these “Notes to Consolidated Financial Statements” and the section labeled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” immediately following. These definitions are intended to aid the reader and provide a reference page when reviewing this Annual Report.

ABS:	Asset backed security	FDICIA:	Federal Deposit Insurance Company
ACBI:	Atlantic Community Bancshares, Inc.		Improvement Act of 1991
ACH:	Automated Clearing House	FHA:	Federal Housing Administration
ACL:	Allowance for credit losses	FHLBB:	Federal Home Loan Bank of Boston
AFS:	Available-for-sale	FHLMC:	Federal Home Loan Mortgage Corporation
Agency MBS:	MBS issued by a US government agency	FLA:	First Loss Account
	or GSE	FOMC:	Federal Open Market Committee
ALCO:	Asset Liability Committee	FRB:	Federal Reserve Board
ALL:	Allowance for loan losses	FRBB:	Federal Reserve Bank of Boston
AML:	Anti-money laundering laws	GAAP:	Generally Accepted Accounting Principles
AOCI:	Accumulated other comprehensive income		in the United States
ASC:	Accounting Standards Codification	GSE:	Government sponsored enterprise
ASU:	Accounting Standards Update	HMDA:	Home Mortgage Disclosure Act
ATMs:	Automatic teller machines	HTM:	Held-to-maturity
ATS:	Automatic transfer service	ICS:	Insured Cash Sweeps of the InterFi Network
Bancorp:	Community Bancorp.	IRS:	Internal Revenue Service
Bank:	Community National Bank	JNE:	Jobs for New England
BHG:	Bankers Healthcare Group	Jr:	Junior
BIC:	Borrower-in-Custody	LIBOR:	London Interbank Offered Rate
Board:	Board of Directors	LLC:	Limited liability corporation
BOLI:	Bank owned life insurance	MBS:	Mortgage-backed security
bp or bps:	Basis point(s)	MPF:	Mortgage Partnership Finance
BSA:	Bank Secrecy Act	MSAs	Metropolitan Statistical Areas
CBLR:	Community Bank Leverage Ratio	MSRs:	Mortgage servicing rights
CARES ACT:	Coronavirus Aid Relief and Economic	NII:	Net interest income
	Security Act	OAS:	Other amortizing security
CDARS:	Certificate of Deposit Accounts Registry	OCI:	Other comprehensive income (loss)
	Service of the InterFi Network	OFAC:	Office of Foreign Asset Control
CDs:	Certificates of deposit	OREO:	Other real estate owned
CDI:	Core deposit intangible	OTTI:	Other-than-temporary impairment
CECL:	Current Expected Credit Loss	PMI:	Private mortgage insurance
CEO:	Credit Enhancement Obligation	PPP:	Paycheck Protection Program
CFPB:	Consumer Financial Protection Bureau	QM(s):	Qualified Mortgage(s)
CFSG:	Community Financial Services Group, LLC	RD:	USDA Rural Development
CFS Partners:	Community Financial Services Partners, LLC	RESPA:	Real Estate Settlement Procedures Act
CMO:	Collateralized Mortgage Obligations	SBA:	U.S. Small Business Administration
Company:	Community Bancorp. and Subsidiary	SEC:	U.S. Securities and Exchange Commission
COVID-19:	Coronavirus Disease 2019	SOFR:	Secured Overnight Financing Rate
CRA:	Community Reinvestment Act	SERP:	Supplemental Employee Retirement Plan
CRE:	Commercial Real Estate	SOX:	Sarbanes-Oxley Act of 2002
DDA or DDAs:	Demand Deposit Account(s)	TDR:	Troubled-debt restructuring
DIF:	Deposit Insurance Fund	TILA:	Truth in Lending Act
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	VIE:	Variable interest entities
FASB:	Financial Accounting Standards Board	2017 Tax Act:	Tax Cut and Jobs Act of 2017
FDIA:	Federal Deposit Insurance Act	2018 Regulatory	Economic Growth, Regulatory Relief and
FDIC:	Federal Deposit Insurance Corporation	Relief Act:	Consumer Protection Act of 2018
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The consolidated financial statements include the accounts of the Bancorp. and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its audited consolidated statements of income, comprehensive (loss) income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period, and to provide smaller reporting company scaled disclosures where management deems it appropriate.

FASB ASC Topic 810, “Consolidation,” in part, addresses limited purpose trusts formed to issue trust preferred securities. It also establishes the criteria used to identify VIE, and to determine whether or not to consolidate a VIE. In general, ASC Topic 810 provides that the enterprise with the controlling financial interest, known as the primary beneficiary, consolidates the VIE. In 2007, the Company formed CMTV Statutory Trust I for the purposes of issuing trust preferred securities to unaffiliated parties and investing the proceeds from the issuance thereof and the common securities of the trust in junior subordinated debentures issued by the Company. The Company is not the primary beneficiary of CMTV Statutory Trust I; accordingly, the trust is not consolidated with the Company for financial reporting purposes. CMTV Statutory Trust I is considered an affiliate of the Company (see Note 12).

Nature of operations

The Company provides a variety of deposit and lending services to individuals, municipalities, and business customers through its branches, ATMs and telephone, mobile and internet banking capabilities in northern and central Vermont, which is primarily a small business and agricultural area. The Company also engages in lending activity outside the area of its branch network, through loan production offices in Burlington, Vermont and Lebanon, New Hampshire. The Company's primary deposit products are checking and savings accounts and certificates of deposit. Its primary lending products are commercial, real estate, municipal and consumer loans.

Concentration of risk

The Company's operations are affected by various risk factors, including interest rate risk, credit risk, and risk from geographic concentration of its deposit taking and lending activities. Management seeks to manage interest rate risk through various asset/liability management techniques designed to match maturities and repricing of assets and liabilities. Loan policies and administration are designed to provide assurance that loans will only be granted to creditworthy borrowers, although credit losses are expected to occur because of subjective factors inherent in management’s estimate of credit risk and factors beyond the control of the Company. While the Company has a diversified loan portfolio by loan type, most of its lending activities are conducted within the geographic area where its banking offices are located. As a result, the Company and its borrowers may be especially vulnerable to the consequences of changes in the local economy in northern and central Vermont or northern New England more generally. In addition, a substantial portion of the Company's loans are secured by real estate, which is susceptible to a decline in value, especially during times of adverse economic conditions and rising interest rates.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions involve inherent uncertainties. Accordingly, actual results could differ from those estimates and those differences could be material.

Material estimates that are particularly susceptible to significant change include those relating to the determination of the ALL and the valuation of OREO. In connection with evaluating loans for impairment or assigning the carrying value of OREO, management generally obtains independent evaluations or appraisals for significant properties. While the ALL and the carrying value of OREO were determined using management's best estimate of probable loan and OREO losses, respectively, as of the balance sheet date, the ultimate collection of a substantial portion of the Company's loan portfolio and the recovery of a substantial portion of the fair value of OREO are susceptible to uncertainties and changes in a number of factors, especially local real estate market conditions. The amount of the change that is reasonably possible cannot be estimated.

While management uses available information to recognize losses on loans and OREO, future additions to the allowance or write-downs of OREO may be necessary based on changes in local economic conditions or other relevant factors. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for losses on loans and the carrying value of OREO. Such agencies may require the Company to recognize additions to the allowance or write-downs of OREO based on their judgment about information available to them at the time of their examination.

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MSRs associated with loans originated and sold in the secondary market, where servicing is retained, are capitalized and included in Other assets in the consolidated balance sheets. MSRs are amortized against non-interest income in proportion to, and over the period of, estimated future net servicing income of the underlying loans. The value of capitalized servicing rights represents the present estimated value of the future servicing fees arising from the right to service loans for third parties. The carrying value of the MSRs is periodically reviewed for impairment based on management’s estimate of fair value as compared to amortized cost, and impairment, if any, is recognized through a valuation allowance and is recorded as a write down. Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of MSRs requires the development and use of estimates, including anticipated principal amortization and prepayments. Events that may significantly affect the estimates used are changes in interest rates and the payment performance of the underlying loans. Management uses a third party consultant to assist in estimating the fair value of the Company’s MSRs.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to various factors, including the length of time and the extent to which the fair value has been less than cost; the nature of the issuer and its financial condition and near-term prospects; and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. The evaluation of these factors is a subjective process and involves estimates and assumptions about matters that are inherently uncertain. Should actual factors and conditions differ materially from those used by management, the actual realization of gains or losses on investment securities could differ materially from the amounts recorded in the financial statements.

Accounting for a business combination that was completed prior to 2009 requires the application of the purchase method of accounting. Under the purchase method, the Company was required to record the assets and liabilities acquired through the LyndonBank merger in 2007 at fair market value, with the excess of the purchase price over the fair value of the net assets recorded as goodwill and evaluated annually for impairment. Management uses various assumptions in evaluating goodwill for impairment.

Management utilizes numerous techniques to estimate the carrying value of various other assets held by the Company, including, but not limited to, bank premises and equipment and deferred taxes. The assumptions considered in making these estimates are based on historical experience and on various other factors that are believed by management to be reasonable under the circumstances. Management acknowledges that the use of different estimates or assumptions could produce different estimates of carrying values.

Presentation of cash flows

For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks (including cash items in process of clearing), federal funds sold (generally purchased and sold for one day periods) and overnight deposits.

Investment securities

Debt securities the Company has purchased with the possible intent to sell before maturity are classified as AFS, and are carried at fair value, with unrealized gains and losses, net of tax and reclassification adjustments, reflected as a net amount in the shareholders’ equity section of the consolidated balance sheets and in the statements of changes in shareholders’ equity. Investment securities transactions are accounted for on a trade date basis. The specific identification method is used to determine realized gains and losses on sales of debt securities AFS. Premiums and discounts are recognized in interest income using the interest method over the period to maturity or call date. As of the balance sheet dates, the Company did not hold any securities purchased for the purpose of selling in the near term and classified as trading or any securities purchased with the positive intent and ability to hold to maturity and classified as HTM.

For individual debt securities that the Company does not intend to sell and it is not more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary decline in the fair value of the debt security related to (1) credit loss is recognized in earnings and (2) other factors is recognized in other comprehensive income or loss. Credit loss is deemed to exist if the present value of expected future cash flows using the interest rates at acquisition is less than the amortized cost basis of the debt security. For individual debt securities where the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost, the OTTI is recognized in earnings equal to the entire difference between the security’s cost basis and its fair value at the balance sheet date.

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Other investments

From time to time, the Company acquires partnership interests in limited partnerships for low income housing projects. New investments in limited partnerships are amortized using the proportional amortization method. All investments made before January 1, 2015 are amortized using the effective yield method.

The Company has a one-third ownership interest in CFS Partners, which in turn owns 100% of CFSG, a non-depository trust company (see Note 9). The Company's investment in CFS Partners is accounted for under the equity method of accounting.

Restricted equity securities

The Company holds certain restricted equity securities acquired for non-investment purposes, and required as a matter of law or as a condition to the receipt of certain financial products and services. These securities are carried at cost. As a member of the FRBB, the Company is required to invest in FRBB stock in an amount equal to 6% of the Bank's capital stock and surplus.

As a member of the FHLBB, the Company is required to invest in $100 par value stock of the FHLBB in an amount that approximates 1% of unpaid principal balances on qualifying loans, plus an additional amount to satisfy an activity based requirement. The stock is nonmarketable and redeemable at par value, subject to the FHLBB’s right to temporarily suspend such redemptions. Members are subject to capital calls in some circumstances to ensure compliance with the FHLBB’s capital plan.

In order to access correspondent banking services from the ACBB, the Company is required to invest in a minimum of 20 shares of the common stock of ACBB’s parent company, ACBI.

Loans held-for-sale

Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income.

Loans

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal balance, adjusted for any charge-offs, the ALL, loan premiums or discounts for acquired loans and any unearned fees or costs on originated loans.

Loan interest income is accrued daily on the outstanding balances. 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 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 non-accrual loans are generally applied as a reduction of the loan principal balance. Loans are returned to accrual status when principal and interest payments are brought current and the customer has demonstrated the intent and ability to make future payments on a timely basis. Loans are written down or charged off when collection of principal is considered doubtful.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount is amortized as an adjustment of the related loan's yield. The Company generally amortizes these amounts over the contractual life of the loans.

Allowance for loan losses

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

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Unsecured loans, primarily consumer loans, are charged off when they become uncollectible and no later than 120 days past due. Unsecured loans to customers who subsequently file bankruptcy are charged off within 30 days of receipt of the notification of filing or by the end of the month in which the loans become 120 days past due, whichever occurs first. For secured loans, both residential and commercial, the potential loss on impaired loans is carried as a loan loss reserve specific allocation; the loss portion is charged off when collection of the full loan appears unlikely. The unsecured portion of a real estate loan is that portion of the loan exceeding the "fair value" of the collateral less the estimated cost to sell. Value of the collateral is determined in accordance with the Company’s appraisal policy. The unsecured portion of an impaired real estate secured loan is charged off by the end of the month in which the loan becomes 180 days past due.

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

General component

The general component of the ALL is based on historical loss experience and various qualitative factors and is stratified by the following loan segments: commercial and industrial, 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.

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

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

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

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

Purchased Loans – Loans in this segment are loans purchased through a loan purchasing program with BHG. BHG originates commercial loans to medical 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 segment.

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

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

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

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

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

Specific component

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

Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two. Under March 2020 guidance from the federal banking agencies and concurrence by the FASB, certain short-term loan accommodations made in good faith prior to January 1, 2022 for borrowers experiencing financial difficulties due to the COVID-19 health emergency are not considered TDRs.

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

Unallocated component

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

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Bank premises and equipment

Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The cost of assets sold or otherwise disposed of, and the related accumulated depreciation, are eliminated from the accounts and the resulting gains or losses are reflected in the consolidated statements of income. Maintenance and repairs are charged to current expense as incurred and the cost of major renewals and betterments is capitalized.

Other real estate owned

Real estate properties acquired through or in lieu of loan foreclosure or properties no longer used for bank operations are initially recorded at fair value less estimated selling cost at the date of acquisition, foreclosure or transfer. Fair value is determined, as appropriate, either by obtaining a current appraisal or evaluation prepared by an independent, qualified appraiser, by obtaining a broker’s market value analysis, and finally, if the Company has limited exposure and limited risk of loss, by the opinion of management as supported by an inspection of the property and its most recent tax valuation. During periods of declining market values, the Company will generally obtain a new appraisal or evaluation. Any write-down based on the asset's fair value at the date of acquisition or institution of foreclosure is charged to the ALL. After acquisition through or in lieu of foreclosure, these assets are carried at the lower of their new cost basis or fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding the property are expensed as incurred. Appraisals by an independent, qualified appraiser are performed periodically on properties that management deems significant, or evaluations may be performed by management or a qualified third party on OREO properties in the portfolio that are deemed less significant or less vulnerable to market conditions. Subsequent write-downs are recorded as a charge to other expense. Gains or losses on the sale of such properties are included in income when the properties are sold.

Intangible assets

Intangible assets include the excess of the purchase price over the fair value of net assets acquired (goodwill) in the Company’s 2007 acquisition of LyndonBank. Goodwill is not amortizable and is reviewed for impairment annually, or more frequently as events or circumstances warrant.

Income taxes

The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are established for the temporary differences between the accounting bases and the tax bases of the Company's assets and liabilities at enacted tax rates expected to be in effect when the amounts related to such temporary differences are realized or settled. Adjustments to the Company's deferred tax assets are recognized as deferred income tax expense or benefit based on management's judgments relating to the outcome of such asset.

Mortgage servicing

Servicing assets are recognized as separate assets when rights are acquired through purchase or retained upon the sale of loans. Capitalized servicing rights are reported in Other assets and initially recorded at fair value, and are amortized against non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans. Servicing rights are periodically evaluated for impairment, based upon the estimated fair value of the rights as compared to amortized cost. Impairment is determined by stratifying the rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Impairment is recognized through a valuation allowance and is recorded as amortization of Other assets, to the extent that estimated fair value is less than the capitalized amount at the valuation date. Subsequent improvement, if any, in the estimated fair value of impaired MSRs is reflected in a positive valuation adjustment and is recognized in other income up to (but not in excess of) the amount of the prior impairment.

Pension costs

Pension costs are charged to salaries and employee benefits expense and accrued over the active service period.

Advertising costs

The Company expenses advertising costs as incurred.

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Comprehensive income or loss

U.S. GAAP generally requires recognized revenue, expenses, gains and losses to be included in net income. Certain changes in assets and liabilities, such as the after-tax effect of unrealized gains and losses on available-for-sale securities, are not reflected in the consolidated statement of income, but the cumulative effect of such items from period-to-period is reflected as a separate component of the shareholders’ equity section of the consolidated balance sheet (accumulated other comprehensive income or loss). Other comprehensive income or loss, along with net income, comprises the Company's total comprehensive income or loss.

Preferred stock

In December 2007, the Company issued 25 shares of fixed-to-floating rate non-cumulative perpetual preferred stock, without par value and having a liquidation preference of $100,000 per share. There were 15 shares of preferred stock outstanding as of December 31, 2022 and 2021. Under the terms of the preferred stock, the Company pays non-cumulative cash dividends quarterly, when, as and if declared by the Board. Dividends are payable at a variable dividend rate equal to the Wall Street Journal Prime Rate in effect on the first business day of each quarterly dividend period. A variable rate of 3.25% was in effect for the dividend payments due in the all four quarters of 2021, followed by several increases in 2022 with a rate of 6.25% in effect for the last quarter of 2022. Partial redemptions of the Company’s preferred stock began in 2018, and are at the discretion of management and voted on by the Board. Prior to 2020, the Company had redeemed 10 shares of preferred stock at an aggregate redemption price of $1,000,000 plus accrued dividends. The Company chose to not redeem any additional preferred shares during 2021 and 2022, but may consider further redemptions in future periods.

Earnings per common share

Earnings per common share amounts are computed based on net income, net of dividends to preferred shareholders, and on the weighted average number of shares of common stock issued during the period, including DRIP shares issuable upon reinvestment of dividends (retroactively adjusted for stock splits and stock dividends, if any) and reduced for shares held in treasury.

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

Years Ended December 31,	2022		2021
Net income, as reported	$	13,739,940	$	13,138,338
Less: dividends to preferred shareholders		66,563		48,750
Net income available to common shareholders	$	13,673,377	$	13,089,588
Weighted average number of common shares
used in calculating earnings per share		5,403,938		5,345,988
Earnings per common share	$	2.53	$	2.45

Off-balance-sheet financial instruments

In the ordinary course of business, the Company is a party to off-balance-sheet financial instruments consisting of commitments to extend credit, commercial and municipal letters of credit, standby letters of credit, and risk-sharing commitments on residential mortgage loans sold through the FHLBB’s MPF program. Such financial instruments are recorded in the consolidated financial statements when they are funded (see Note 17).

Transfers of financial assets

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

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Note 2. Recent Accounting Developments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance replaces the incurred loss model for recognizing credit losses with a Current Expected Credit Loss (CECL) model, which requires recognition of the full amount of expected credit losses over the life of a loan. Under the CECL model ,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. CECL also applies to certain off-balance sheet items that represent credit risk, such loan commitments, standby letters of credit and financial guarantees. A modified version of these requirements also applies to debt securities classified as available for sale, which requires that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down. The ASU became effective for the Company on January 1, 2023 will require a change in the Company's methodology for calculating its ALL and allowance on unused commitments. That allowance will be referred to as the Allowance for Credit Losses (ACL). Following issuance of the ASU, the Company formed a committee to assess its implications and implemented a software solution to prepare for the transition to CECL, including assistance with the ACL calculation and preparing related management reports to facilitate the calculation. The new software solution has also provided numerous CECL training opportunities for the appropriate personnel within the Company. Parallel calculations under the ALL methodology and under the CECL model were run throughout 2022 in preparation for the transition to CECL. The initial adjustment for the transition to CECL will be made through a cumulative adjustment to retained earnings and will not be reported in net income. The Company does not expect that the adjustment to retained earnings from the transition to CECL, or the related impact to the regulatory capital ratios, will have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance amends Topic 326 (CECL) to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, under the CECL model creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to Topic 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance became effective for the Company on January 1, 2023. The Company does not expect that adoption of the ASU will have a material impact on the consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the sunset date of December 31, 2022 to December 31, 2024. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The Company is assessing ASU No. 2020-04 and its impact on the transition away from LIBOR for its Junior Subordinated Debentures due December 15, 2037, the Company’s only financial instruments that utilize LIBOR as a reference rate. That transition will become effective for the Debentures as of the first London banking day after June 30, 2023 (see Note 12).

18

Note 3. Investment Securities

Debt securities AFS consist of the following:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
December 31, 2022
U.S. GSE debt securities	$	12,000,000	$	0	$	1,624,709	$	10,375,291
U.S. Government securities		41,368,624		0		3,137,035		38,231,589
Taxable Municipal securities		300,000		0		65,142		234,858
Tax-exempt Municipal securities		12,042,410		40,513		759,356		11,323,567
Agency MBS		135,193,097		69,447		20,030,945		115,231,599
ABS and OAS		2,929,740		0		236,134		2,693,606
CMO		12,278,033		581		342,689		11,935,925
Other investments		2,968,000		0		76,326		2,891,674
Total	$	219,079,904	$	110,541	$	26,272,336	$	192,918,109
December 31, 2021
U.S. GSE debt securities	$	12,001,978	$	36,024	$	209,504	$	11,828,498
U.S. Government securities		32,374,935		0		333,894		32,041,041
Taxable Municipal securities		300,000		0		1,267		298,733
Tax-exempt Municipal securities		830,279		1,167		67		831,379
Agency MBS		128,291,487		184,002		1,342,968		127,132,521
ABS and OAS		2,131,610		82,414		0		2,214,024
CMO		1,451,349		0		30,891		1,420,458
Other investments		6,438,000		142,199		4,394		6,575,805
Total	$	183,819,638	$	445,806	$	1,922,985	$	182,342,459

There were no sales during 2022 or 2021 from the investment portfolio.

Investments pledged as collateral for larger dollar repurchase agreement accounts and for other purposes as required or permitted by law consisted of U.S. GSE debt securities, Agency MBS, and ABS and OAS. These repurchase agreements mature daily. These investments as of the balance sheet dates were as follows:

	Amortized		Fair
	Cost		Value
December 31, 2022	$	55,899,113	$	46,789,284
December 31, 2021		63,045,599		62,256,702
19
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The carrying amount and estimated fair value of securities by contractual maturity are shown below. Expected maturities will differ from contractual maturities because issuers may call or prepay obligations with or without call or prepayment penalties, pursuant to contractual terms. Because the actual maturities of Agency MBS usually differ from their contractual maturities due to the right of borrowers to prepay the underlying mortgage loans, usually without penalty, those securities are not presented in the following table by contractual maturity date.

The scheduled maturities of debt securities AFS at December 31, 2022 were as follows:

	Amortized		Fair
	Cost		Value
December 31, 2022
Due in one year or less	$	1,976,000	$	1,966,767
Due from one to five years		58,875,224		54,736,949
Due from five to ten years		8,631,626		7,591,761
Due after ten years		14,403,957		13,391,033
Agency MBS		135,193,097		115,231,599
Total	$	219,079,904	$	192,918,109

Debt securities with unrealized losses as of the balance sheet dates are presented in the tables 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
December 31, 2022
U.S. GSE debt securities	$	2,723,388	$	276,611	$	7,651,903	$	1,348,098		11	$	10,375,291	$	1,624,709
U.S. Government securities		4,837,891		169,501		33,393,698		2,967,534		54		38,231,589		3,137,035
Taxable Municipal securities		0		0		234,858		65,142		1		234,858		65,142
Tax-exempt Municipal securities		8,608,507		522,128		592,388		237,228		19		9,200,895		759,356
Agency MBS		14,541,901		810,356		97,718,436		19,220,589		120		112,260,337		20,030,945
ABS and OAS		2,693,606		236,134		0		0		4		2,693,606		236,134
CMO		8,954,323		232,398		1,014,910		110,291		9		9,969,233		342,689
Other investments		2,451,892		20,108		439,782		56,218		12		2,891,674		76,326
Total	$	44,811,508	$	2,267,236	$	141,045,975	$	24,005,100		230	$	185,857,483	$	26,272,336
December 31, 2021
U.S. GSE debt securities	$	5,869,117	$	130,883	$	1,921,379	$	78,621		7	$	7,790,496	$	209,504
U.S. Government securities		32,041,041		333,894		0		0		46		32,041,041		333,894
Taxable Municipal securities		298,733		1,267		0		0		1		298,733		1,267
Tax-exempt Municipal securities		330,212		67		0		0		1		330,212		67
Agency MBS		107,061,452		1,128,587		8,809,493		214,381		84		115,870,945		1,342,968
CMO		1,420,458		30,891		0		0		3		1,420,458		30,891
Other investments		491,606		4,394		0		0		2		491,606		4,394
Total	$	147,512,619	$	1,629,983	$	10,730,872	$	293,002		144	$	158,243,491	$	1,922,985

Management evaluates securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In analyzing an issuer's financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer's financial condition.

20

As the Company has the ability to hold its debt securities until maturity, or for the foreseeable future if classified as AFS, and it is more likely than not that the Company will not have to sell such securities before recovery of their cost basis, no declines in such securities were deemed to be other-than-temporary as of the balance sheet dates presented.

The Bank is a member of the FHLBB. The FHLBB is a cooperatively owned wholesale bank for housing and finance in the six New England States. Its mission is to support the residential mortgage and community-development lending activities of its members, which include over 450 financial institutions across New England. The Company obtains much of its wholesale funding from the FHLBB. As a requirement of membership in the FHLBB, the Bank must own a minimum required amount of FHLBB stock, calculated periodically based primarily on the Bank’s level of borrowings from the FHLBB. As a result of the Bank’s level of borrowings during 2022 and 2021, the Bank was required to purchase additional FHLBB stock in aggregate totaling $20,800 and $129,400, respectively. As a member of the FHLBB, the Company is also subject to future capital calls by the FHLBB in order to maintain compliance with its capital plan. During 2022 and 2021, FHLBB exercised capital call options with redemptions totaling $43,500 and $141,500, respectively, on the Company’s portfolio of FHLBB stock. As of December 31, 2022 and 2021, the Company’s investment in FHLBB stock was $733,600 and $756,300, respectively.

The Company periodically evaluates its investment in FHLBB stock for impairment based on, among other factors, the capital adequacy of the FHLBB and its overall financial condition. No impairment losses have been recorded through December 31, 2022.

The Company’s investment in FRBB Stock was $588,150 at December 31, 2022 and 2021.

In 2018, the Company purchased 20 shares of common stock in ACBI at a purchase price of $90,000, for the purpose of obtaining access to correspondent banking services from ABCI subsidiary, ACBB. These shares are subject to contractual resale restrictions and considered by management to be restricted and are recorded in the balance sheet at cost, amounting to $90,000 at December 31, 2022 and 2021.

Note 4. Loans, Allowance for Loan Losses and Credit Quality

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

	December 31, 2022					December 31, 2021
Commercial & industrial	$	112,951,873		15.09	%	$	111,125,622		16.10	%
Purchased loans		7,530,458		1.00	%		9,807,848		1.42	%
Commercial real estate		356,892,986		47.68	%		300,958,931		43.62	%
Municipal		34,633,055		4.63	%		47,955,231		6.95	%
Residential real estate - 1st lien		198,743,375		26.55	%		181,316,345		26.28	%
Residential real estate - Jr lien		33,756,872		4.51	%		34,359,864		4.98	%
Consumer		4,039,989		0.54	%		4,464,692		0.65	%
Total loans		748,548,608		100.00	%		689,988,533		100.00	%
ALL		(8,709,225	)				(7,710,256	)
Deferred net loan costs (fees)		493,275					(37,972	)
Net loans	$	740,332,658				$	682,240,305
21
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The following is an age analysis of loans (including non-accrual), as of the balance sheet dates, by portfolio segment:

											Non-		90 Days or
			90 Days		Total						Accrual		More and
December 31, 2022	30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing
Commercial & industrial	$	2,377,668	$	879,802	$	3,257,470	$	109,694,403	$	112,951,873	$	3,442,124	$	0
Purchased loans		0		0		0		7,530,458		7,530,458		0		0
Commercial real estate		1,395,444		353,842		1,749,286		355,143,700		356,892,986		3,180,478		324,927
Municipal		0		0		0		34,633,055		34,633,055		0		0
Residential real estate
1st lien		1,517,653		641,141		2,158,794		196,584,581		198,743,375		1,136,330		248,157
Jr lien		321,579		25,007		346,586		33,410,286		33,756,872		131,088		0
Consumer		18,745		0		18,745		4,021,244		4,039,989		0		0
Totals	$	5,631,089	$	1,899,792	$	7,530,881	$	741,017,727	$	748,548,608	$	7,890,020	$	573,084
											Non-		90 Days or
			90 Days		Total						Accrual		More and
December 31, 2021	30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing
Commercial & industrial	$	833,875	$	0	$	833,875	$	110,291,747	$	111,125,622	$	98,661	$	0
Purchased loans		0		0		0		9,807,848		9,807,848		0		0
Commercial real estate		49,450		2,400,514		2,449,964		298,508,967		300,958,931		4,517,839		0
Municipal		0		0		0		47,955,231		47,955,231		0		0
Residential real estate
1st lien		1,190,300		608,775		1,799,075		179,517,270		181,316,345		1,180,563		506,827
Jr lien		51,837		86,476		138,313		34,221,551		34,359,864		143,566		86,476
Consumer		9,741		0		9,741		4,454,951		4,464,692		0		0
Totals	$	2,135,203	$	3,095,765	$	5,230,968	$	684,757,565	$	689,988,533	$	5,940,629	$	593,303

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

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

		Balance
December 31, 2022	1	$	19,746
December 31, 2021	5		195,082
22
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The following summarizes changes in the ALL and select loan information, by portfolio segment:

As of or for the year ended December 31, 2022

													Residential		Residential
	Commercial			Purchased			Commercial						Real Estate		Real Estate
	& Industrial			Loans			Real Estate			Municipal			1st Lien		Jr Lien		Consumer			Unallocated			Total
ALL beginning balance	$	870,392		$	68,655		$	4,151,760		$	76,728		$	1,765,892	$	182,014	$	55,698		$	539,117		$	7,710,256
Charge-offs		(76,875	)		0			(667,474	)		0			0		0		(63,625	)		0			(807,974	)
Recoveries		14,112			0			667,474			0			111,763		5,089		30,505			0			828,943
Provision (credit)		308,693			(15,565	)		910,053			(14,389	)		124,181		54,847		47,108			(436,928	)		978,000
ALL ending balance	$	1,116,322		$	53,090		$	5,061,813		$	62,339		$	2,001,836	$	241,950	$	69,686		$	102,189		$	8,709,225
ALL evaluated for impairment
Individually	$	2,322		$	0		$	0		$	0		$	106,280	$	0	$	0		$	0		$	108,602
Collectively		1,114,000			53,090			5,061,813			62,339			1,895,556		241,950		69,686			102,189			8,600,623
Total	$	1,116,322		$	53,090		$	5,061,813		$	62,339		$	2,001,836	$	241,950	$	69,686		$	102,189		$	8,709,225
Loans evaluated for impairment
Individually	$	3,442,124		$	0		$	3,176,835		$	0		$	3,816,012	$	77,416	$	0					$	10,512,387
Collectively		109,509,749			7,530,458			353,716,151			34,633,055			194,927,363		33,679,456		4,039,989						738,036,221
Total	$	112,951,873		$	7,530,458		$	356,892,986		$	34,633,055		$	198,743,375	$	33,756,872	$	4,039,989					$	748,548,608

As of or for the year ended December 31, 2021

												Residential			Residential
	Commercial			Purchased		Commercial						Real Estate			Real Estate
	& Industrial			Loans		Real Estate			Municipal			1st Lien			Jr Lien			Consumer			Unallocated		Total
ALL beginning balance	$	778,287		$	64,260	$	3,854,153		$	82,211		$	1,735,304		$	234,896		$	60,461		$	398,913	$	7,208,485
Charge-offs		(18,847	)		0		(22,000	)		0			(98,704	)		0			(87,651	)		0		(227,202	)
Recoveries		4,761			0		27,160			0			7,636			10,821			54,430			0		104,808
Provision (credit)		106,191			4,395		292,447			(5,483	)		121,656			(63,703	)		28,458			140,204		624,165
ALL ending balance	$	870,392		$	68,655	$	4,151,760		$	76,728		$	1,765,892		$	182,014		$	55,698		$	539,117	$	7,710,256
ALL evaluated for impairment
Individually	$	0		$	0	$	0		$	0		$	79,978		$	0		$	0		$	0	$	79,978
Collectively		870,392			68,655		4,151,760			76,728			1,685,914			182,014			55,698			539,117		7,630,278
Total	$	870,392		$	68,655	$	4,151,760		$	76,728		$	1,765,892		$	182,014		$	55,698		$	539,117	$	7,710,256
Loans evaluated for impairment
Individually	$	93,362		$	0	$	4,553,734		$	0		$	3,720,503		$	88,563		$	0				$	8,456,162
Collectively		111,032,260			9,807,848		296,405,197			47,955,231			177,595,842			34,271,301			4,464,692					681,532,371
Total	$	111,125,622		$	9,807,848	$	300,958,931		$	47,955,231		$	181,316,345		$	34,359,864		$	4,464,692				$	689,988,533
23
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Impaired loans as of the balance sheet dates, by portfolio segment were as follows:

	As of December 31, 2022
			Unpaid
	Recorded		Principal		Related
	Investment(1)		Balance		Allowance
Related allowance recorded
Commercial & industrial	$	452,963	$	462,745	$	2,322
Residential real estate – 1st lien		1,041,730		1,073,350		106,280
Total with related allowance		1,494,693		1,536,095		108,602
No related allowance recorded
Commercial & industrial		2,989,161		3,078,769
Commercial real estate		3,176,962		3,671,196
Residential real estate - 1st lien		2,785,669		3,805,682
Residential real estate - Jr lien		77,419		126,250
Total with no related allowance		9,029,211		10,681,897
Total impaired loans	$	10,523,904	$	12,217,992	$	108,602
(1)	Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $11,517.
---	---
	As of December 31, 2022
---	---	---	---	---
	Year Ended
	Average		Interest
	Recorded		Income
	Investment		Recognized
Related allowance recorded
Commercial & industrial	$	281,412	$	0
Commercial real estate		49,942		0
Residential real estate - 1st lien		983,944		64,479
Residential real estate - Jr lien		506		0
Total with related allowance		1,315,804		64,479
No related allowance recorded
Commercial & industrial		1,180,935		204
Commercial real estate		3,680,783		115,651
Residential real estate - 1st lien		2,808,989		177,892
Residential real estate - Jr lien		82,261		314
Total with no related allowance		7,752,968		294,061
Total impaired loans	$	9,068,772	$	358,540
24
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	As of December 31, 2021
---	---	---	---	---	---	---
			Unpaid
	Recorded		Principal		Related
	Investment(1)		Balance		Allowance
Related allowance recorded
Residential real estate - 1st lien	$	702,586	$	716,118	$	79,978
Total with related allowance		702,586		716,118		79,978
No related allowance recorded
Commercial & industrial		93,362		115,414
Commercial real estate		4,554,074		5,108,557
Residential real estate - 1st lien		3,050,647		4,076,352
Residential real estate - Jr lien		88,570		132,802
Total with no related allowance		7,786,653		9,433,125
Total impaired loans	$	8,489,239	$	10,149,243	$	79,978
(1)	Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $33,077.
---	---
	As of December 31, 2021
---	---	---	---	---
	Year Ended
	Average		Interest
	Recorded		Income
	Investment		Recognized
Related allowance recorded
Residential real estate - 1st lien	$	858,124	$	60,769
Residential real estate - Jr lien		3,452		243
Total with related allowance		861,576		61,012
No related allowance recorded
Commercial & industrial		290,181		204
Commercial real estate		2,747,193		120,996
Residential real estate - 1st lien		3,331,971		205,514
Residential real estate - Jr lien		124,803		186
Total with no related allowance		6,494,148		326,900
Total impaired loans	$	7,355,724	$	387,912

Credit Quality Grouping

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

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

25

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

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

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

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

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

As of December 31, 2022

									Residential		Residential
	Commercial		Purchased		Commercial				Real Estate		Real Estate
	& Industrial		Loans		Real Estate		Municipal		1st Lien		Jr Lien		Consumer		Total
Group A	$	104,697,047	$	7,530,458	$	347,732,935	$	34,633,055	$	195,269,893	$	33,538,767	$	4,039,989	$	727,442,144
Group B		6,296,411		0		2,754,649		0		0		0		0		9,051,060
Group C		1,958,415		0		6,405,402		0		3,473,482		218,105		0		12,055,404
Total	$	112,951,873	$	7,530,458	$	356,892,986	$	34,633,055	$	198,743,375	$	33,756,872	$	4,039,989	$	748,548,608
26
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As of December 31, 2021

									Residential		Residential
	Commercial		Purchased		Commercial				Real Estate		Real Estate
	& Industrial		Loans		Real Estate		Municipal		1st Lien		Jr Lien		Consumer		Total
Group A	$	107,799,925	$	9,807,848	$	285,732,365	$	47,955,231	$	177,456,149	$	34,166,076	$	4,464,692	$	667,382,286
Group B		693,084		0		6,550,335		0		0		0		0		7,243,419
Group C		2,632,613		0		8,676,231		0		3,860,196		193,788		0		15,362,828
Total	$	111,125,622	$	9,807,848	$	300,958,931	$	47,955,231	$	181,316,345	$	34,359,864	$	4,464,692	$	689,988,533

Modifications of Loans and TDRs

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

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

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

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

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

The Company adopted the TDR guidance issued by the federal banking agencies in March and April 2020 regarding the treatment of certain short-term loan modifications relating to the COVID-19 pandemic. Under this guidance, qualifying concessions and modifications are not considered TDRs. In total, throughout the pandemic, the Company granted short term loan concessions and/or modifications within the terms of this guidance to 595 borrowers. Of those loans, 302 remained on the books with an aggregate principal balance of $84.5 million as of December 31, 2022. None of these loans were in a deferral status as of December 31, 2022; however, these loans may bear a higher risk of default in future periods.

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

Year ended December 31, 2022

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Residential real estate -1st lien		2	$	562,592	$	562,592
27
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Year ended December 31, 2021

			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment
Commercial & industrial		1	$	41,751	$	41,751
Commercial real estate		2		3,153,402		3,153,402
Residential real estate
1st lien		1		67,007		67,007
		4	$	3,262,160	$	3,262,160

There were no TDRs for which there was a payment default during the twelve month period ended December 31, 2022. The TDRs for which there was a payment default during the twelve month periods presented were as follows:

Year ended December 31, 2021

	Number of		Recorded
	Contracts		Investment
Commercial & industrial		1	$	38,001
Commercial real estate		2		3,081,810
		3	$	3,119,811

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

The specific allowances related to TDRs as of the balance sheet dates presented were as follows:

	2022		2021
Specific Allocation	$	106,280	$	79,978

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

Note 5. Loan Servicing

Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of mortgage loans serviced for others were $142,567,853 and $151,198,760 at December 31, 2022 and 2021, respectively. Proceeds on loan sales of $12,865,842 and $18,103,002 were realized for December 31, 2022 and 2021, with net gains of $237,881 and $540,540 for the respective periods. Most loan sales are with servicing rights retained.

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The following table summarizes changes in MSRs for the years ended December 31,

	Year Ended			Year Ended
	December 31, 2022			December 31, 2021
Balance at beginning of year	$	897,720		$	922,146
MSRs capitalized		120,629			147,328
MSRs amortized		(155,756	)		(225,404	)
Change in valuation allowance		0			53,650
Balance at end of year	$	862,593		$	897,720

Note 6. Bank Premises and Equipment

The major classes of bank premises and equipment and accumulated depreciation and amortization at December 31 were as follows:

	2022			2021
Buildings and improvements	$	10,674,714		$	10,503,322
Land and land improvements		2,856,017			2,663,549
Furniture and equipment		6,262,893			6,067,181
Leasehold improvements		875,797			824,605
Finance lease		4,018,377			4,018,377
Operating leases		1,417,859			1,417,859
Other prepaid assets		5,820			102,365
		26,111,477			25,597,258
Less accumulated depreciation and amortization		(13,069,009	)		(11,829,930	)
Net bank premises and equipment	$	13,042,468		$	13,767,328

Note 7. Leases

The Company has operating and finance leases for some of its bank premises, with remaining lease terms of one year to 18 years. Some of the operating leases have options to renew, which are reflected in the four years. The Company’s operating lease right-of-use assets and finance lease assets are included in “Bank premises and equipment, net” in the consolidated balance sheet and operating lease liabilities and finance lease liabilities are included in Accrued interest and other liabilities in the consolidated balance sheet.

The components of lease expense for the periods presented were as follows:

Years Ended December 31,	2022		2021
Operating lease cost	$	209,697	$	209,667
Finance lease cost:
Amortization of right-of-use assets	$	227,279	$	188,327
Interest on lease liabilities		86,028		71,337
Variable rent expense		0		19,798
Total finance lease cost	$	313,307	$	279,462

Total rental expense not associated with operating lease costs above amounted to $14,142 and $22,498 for the years ended December 31, 2022 and 2021, respectively.

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Supplemental information related to leases as of the balance sheet dates was as follows:

December 31,	2022		2021
Operating Leases
Operating lease right-of-use assets	$	653,832	$	852,514
Operating lease liabilities	$	658,401	$	863,566
Finance Leases
Finance lease right-of-use assets	$	3,625,326	$	3,852,605
Finance lease liabilities	$	3,644,828	$	3,857,883
December 31,	2022			2021
---	---	---	---	---	---	---
Weighted Average Remaining Lease Term (in Years)
Operating Leases		2.7			3.7
Finance Leases		15.7			16.7
Weighted Average Discount Rate
Operating Leases		1.28	%		1.28	%
Finance Leases		2.29	%		2.29	%

Operating lease obligations

The Company is obligated under non-cancelable operating leases for bank premises expiring in various years through 2026, with options to renew. Minimum future rental payments for these leases with original terms in excess of one year as of December 31, 2022 for each of the next four years and in aggregate are:

2023	$	223,432
2024		199,648
2025		154,659
2026		99,165
Total	$	676,904

Finance lease obligations

The following is a schedule by years of future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 2022:

2023	$	300,928
2024		302,819
2025		304,758
2026		311,451
2027		320,076
Subsequent to 2027		2,761,314
Total minimum lease payments		4,301,346
Less amount representing interest		(656,518	)
Present value of net minimum lease payments	$	3,644,828
30
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A reconciliation of the undiscounted cash flows in the maturity analysis above and the lease liability recognized in the consolidated balance sheet as of December 31, 2022, is shown below:

	Operating Leases			Finance Leases
Undiscounted cash flows	$	676,904		$	4,301,346
Discount effect of cash flows		(18,503	)		(656,518	)
Lease liabilities	$	658,401		$	3,644,828

Note 8. Goodwill

As a result of the acquisition of LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269. The goodwill is not amortizable and is not deductible for tax purposes. Management evaluated goodwill for impairment at December 31, 2022 and 2021 and concluded that no impairment existed as of such dates.

Note 9. Other Investments

The Company purchases, from time to time, interests in various limited partnerships established to acquire, own and rent residential housing for low and moderate income residents of northeastern and central Vermont. The tax credits from these investments were $389,911 and $468,054 for the years ended December 31, 2022 and 2021, respectively. Expenses related to amortization of the investments in the limited partnerships are recognized as a component of income tax expense, and were $268,714 and $363,048 for 2022 and 2021, respectively. The carrying values of the limited partnership investments were $4,394,959 and $2,062,673 at December 31, 2022 and 2021, respectively, and are included in Other assets.

The Bank has a one-third ownership interest in a non-depository trust company, CFSG, based in Newport, Vermont, which is held indirectly through CFS Partners, a Vermont LLC that owns 100% of the LLC equity interests of CFSG. The Bank accounts for its investment in CFS Partners under the equity method of accounting. The Company's investment in CFS Partners, included in Other assets, amounted to $3,756,994 and $3,172,023 as of December 31, 2022 and 2021, respectively. The Company recognized income of $584,971 and $951,605 for 2022 and 2021, respectively, through CFS Partners from the operations of CFSG.

Note 10. Deposits

The following is a maturity distribution of time deposits at December 31, 2022:

2023	$	65,651,974
2024		15,657,066
2025		4,605,036
2026		10,603,273
2027		5,121,310
Total time deposits	$	101,638,659

Total deposits in excess of the FDIC insurance level amounted to $331,530,619 as of December 31, 2022.

Note 11. Borrowed Funds

Outstanding advances for the Company as of the balance sheet dates presented were as follows:

	2022		2021
Long-Term Advances(1)
FHLBB term advance, 0.00%, due September 22, 2023	$	200,000	$	200,000
FHLBB term advance, 0.00%, due November 12, 2025		300,000		300,000
FHLBB term advance, 0.00%, due November 13, 2028		800,000		800,000
	$	1,300,000	$	1,300,000
31
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(1)	The FHLBB is providing a subsidy, funded by the FHLBB’s earnings, to write down interest rates to 0% on JNE 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.
---	---

Borrowings from the FHLBB are secured by a blanket lien on qualified collateral consisting primarily of loans with first mortgages secured by 1-4 family residential properties, as well as certain qualifying CRE loans. Qualified collateral for these borrowings totaled $160,543,731 and $134,211,623 as of December 31, 2022 and 2021, respectively, and the Company's gross potential borrowing capacity under this arrangement was $112,339,573 and $100,230,091, respectively, before reduction for outstanding advances and collateral pledges.

Under a separate agreement with the FHLBB, the Company has the authority to collateralize public unit deposits, up to its available borrowing capacity, with letters of credit issued by the FHLBB. At December 31, 2022, $52,400,000 in FHLBB letters of credit was utilized as collateral for these deposits compared to $59,875,000 at December 31, 2021. Total fees paid by the Company in connection with issuance of these letters of credit were $58,824 for 2022 and $60,606 for 2021.

The Company also maintained a $500,000 IDEAL Way Line of Credit with the FHLBB at December 31, 2022 and 2021, with no outstanding advances under this line at either year-end date. Interest on these borrowings is at a rate determined daily by the FHLBB and payable monthly.

The Company also has a line of credit with the FRBB, which is intended to be used as a contingency funding source. For this BIC arrangement, the Company pledged eligible commercial and industrial loans, CRE loans not pledged to FHLBB and home equity loans, resulting in an available line of $56,070,032 and $52,260,374 as of December 31, 2022 and 2021, respectively. Credit advances in the FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), which was 450 basis points as of December 31, 2022. As of December 31, 2022 and 2021, the Company had no outstanding advances against this line.

The Company has unsecured lines of credit with two correspondent banks at December 31, 2022 and 2021 with aggregate available borrowing capacity totaling $20,500,000. The Company had no outstanding advances against either of these lines for the periods presented.

Note 12. Junior Subordinated Debentures

As of December 31, 2022 and 2021, the Company had outstanding $12,887,000 principal amount of Junior Subordinated Debentures due in 2037 (the Debentures). The Debentures bear a floating rate equal to the 3-month LIBOR plus 2.85%. During 2022, the floating rate averaged 4.39% per quarter compared to an average rate of 3.01% per quarter for 2021. The Debentures mature on December 15, 2037 and are subordinated and junior in right of payment to all senior indebtedness of the Company, as defined in the Indenture dated as of October 31, 2007 between the Company and Wilmington Trust Company, as Trustee. The Debentures first became redeemable, in whole or in part, by the Company on December 15, 2012. Interest paid on the Debentures for 2022 and 2021 was $573,603 and $393,105, respectively, and is deductible for tax purposes.

In accordance with applicable provisions of the federal Adjustable Interest Rate (LIBOR) Act of 2022 and the implementing regulations of the FRB, effective on the first London banking day after June 30, 2023 (the last date upon which LIBOR will be quoted), the Debentures will bear a floating rate equal to 3-month CME Term SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%.

The Debentures were issued and sold to CMTV Statutory Trust I (the Trust). The Trust is a special purpose trust funded by a capital contribution of $387,000 from the Company, in exchange for 100% of the Trust’s common equity. The Trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable Capital Securities (Capital Securities) in the principal amount of $12.5 million to third-party investors and using the proceeds from the sale of such Capital Securities and the Company’s initial capital contribution to purchase the Debentures. The Debentures are the sole asset of the Trust. Distributions on the Capital Securities issued by the Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Trust on the Debentures. The Capital Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Debentures. The Company has entered into an agreement which, taken collectively, fully and unconditionally guarantees the payments on the Capital Securities, subject to the terms of the guarantee.

The Debentures are currently includable in the Company’s Tier 1 capital up to 25% of core capital elements (see Note 22).

32

Note 13. Repurchase Agreements

Securities sold under agreements to repurchase mature daily and consisted of the following:

As of or for the year ended December 31,

	2022			2021
Current balance	$	33,077,829		$	32,609,875
Average balance		31,285,927			28,349,896
Highest month-end balance		34,974,510			39,288,875
Weighted average interest rate		0.53	%		0.31	%
Pledged investment (1)
Amortized cost		55,899,113			63,045,599
Fair value		46,789,284			62,256,702
(1)	U.S. GSE debt securities, Agency MBS, ABS and OAS, were pledged as collateral for the periods presented.
---	---

Note 14. Income Taxes

The Company prepares its income tax return on a consolidated basis. Income taxes are allocated to members of the consolidated group based on taxable income.

The components of the Provision for income taxes for the years ended December 31 were as follows:

	2022			2021
Currently paid or payable	$	3,253,913		$	3,059,462
Deferred benefit		(118,587	)		(76,374	)
Total income tax expense	$	3,135,326		$	2,983,088

Total income tax expense differed from the amounts computed at the statutory federal income tax rate of 21% primarily due to the following for the years ended December 31:

	2022			2021
Computed expense at statutory rates	$	3,543,806		$	3,385,499
Tax exempt interest and BOLI		(243,121	)		(228,773	)
Disallowed interest		6,205			6,290
Partnership rehabilitation and tax credits		(389,911	)		(468,054	)
Low income housing investment amortization expense		212,284			286,808
Other		6,063			1,318
Total income tax expense	$	3,135,326		$	2,983,088
33
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The deferred income tax benefit consisted of the following items for the years ended December 31:

	2022			2021
Depreciation	$	22,316		$	66,603
Mortgage servicing rights		(7,377	)		(5,129	)
Deferred compensation		0			2,246
Bad debts		(209,783	)		(105,372	)
Limited partnership amortization		61,442			57,387
Investment in CFS Partners		(90,527	)		35,651
Deferred SBA PPP fees		102,702			(108,668	)
Prepaid expenses		34,467			(5,384	)
Other		(31,827	)		(13,708	)
Change in deferred tax benefit	$	(118,587	)	$	(76,374	)

Listed below are the significant components of the net deferred tax asset at December 31:

	2022		2021
Components of the deferred tax asset:
Bad debts	$	1,828,937	$	1,619,154
Deferred compensation		6,930		6,930
Contingent liability - MPF program		17,838		17,838
Finance lease		47,305		19,044
Operating lease		959		0
Deferred SBA PPP fees		5,966		108,668
Unrealized loss on debt securities AFS		5,493,977		310,208
Other		22,008		22,716
Total deferred tax asset	$	7,423,920	$	2,104,558
Components of the deferred tax liability:
Depreciation	$	483,484	$	461,168
Limited partnerships		156,394		94,952
Mortgage servicing rights		181,144		188,521
Investment in CFS Partners		29,586		120,113
Operating lease		0		3,315
Prepaid expenses		108,893		74,426
Total deferred tax liability		959,501		942,495
Net deferred tax asset	$	6,464,419	$	1,162,063

U.S. GAAP provides for the recognition and measurement of deductible temporary differences (including general valuation allowances) to the extent that it is more likely than not that the deferred tax asset will be realized.

The net deferred tax asset is included in Other assets in the consolidated balance sheets.

ASC Topic 740, Income Taxes, defines the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company's financial statements. Topic 740 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the consolidated financial statements. The Company has adopted these provisions and there was no material effect on the consolidated financial statements. The Company is currently open to audit under the statute of limitations by the IRS for the years ended December 31, 2019 through 2021. The 2022 tax return has not yet been filed.

34

Note 15. 401(k) and Profit-Sharing Plan

The Company has a defined contribution plan covering all employees who meet certain age and service requirements. The pension expense was $698,000 and $692,804 for 2022 and 2021, respectively. These amounts represent discretionary matching contributions of a portion of the voluntary employee salary deferrals under the 401(k) plan and discretionary profit-sharing contributions under the plan.

Note 16. Deferred Compensation Plan for Certain Directors

The Company maintains a directors’ deferred compensation plan. Participants are general unsecured creditors of the Company with respect to these benefits. The benefits accrued under this plan were $33,000 at December 31, 2022 and 2021 and consist of funds for three directors. These funds do not accrue interest, and will be paid out upon retirement from the Board.

Note 17. Financial Instruments with Off-Balance-Sheet Risk

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees, commitments to sell loans 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 maximum extent of involvement the Company has in particular classes of financial instruments.

The Company's maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual notional amount of those instruments. The Company applies the same credit policies and underwriting criteria in making commitments and conditional obligations as it does for on-balance-sheet instruments.

The Company generally requires collateral or other security to support financial instruments with credit risk. At December 31, the following off-balance-sheet financial instruments representing credit risk were outstanding:

	Contract or Notional Amount
	2022		2021
Unused portions of home equity lines of credit	$	37,621,050	$	36,281,001
Residential and commercial construction lines of credit		21,388,121		6,731,575
Commercial real estate commitments		63,719,882		47,804,534
Commercial and industrial commitments		64,482,470		56,382,838
Other commitments to extend credit		45,724,309		43,227,424
Standby letters of credit and commercial letters of credit		5,343,050		2,108,050
Recourse on sale of credit card portfolio		310,805		305,305
MPF credit enhancement obligation, net (See Note 18)		267,408		552,158

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future funding requirements. At December 31, 2022 and 2021, the Company had binding loan commitments to sell residential mortgages at fixed rates totaling $629,550 and $1,906,200, respectively. The recourse provision under the terms of the sale of the Company’s credit card portfolio in 2007 is based on total lines, not balances outstanding. Based on historical losses, the Company does not expect any significant losses from this commitment.

The Company evaluates each customer's credit-worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit, or a commitment to extend credit, is based on management's credit evaluation of the counter-party. Collateral or other security held varies but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

35

Standby letters of credit and financial guarantees written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. The credit risk involved in issuing letters of credit or providing reimbursement guarantees for the benefit of the Company’s commercial customers is essentially the same as that involved in extending loans to customers. The fair value of standby letters of credit and reimbursement guarantees on letters of credit has not been included in the balance sheets as the fair value is immaterial.

In connection with its 2007 trust preferred securities financing, the Company guaranteed the payment obligations under the $12,500,000 of capital securities of its affiliate, the CMTV Statutory Trust I (the Trust). The source of funds for payments by the Trust on its capital trust securities is payments made by the Company on its debentures issued to the Trust. The Company's obligation under those debentures is fully reflected in the Company's consolidated balance sheet, in the gross amount of $12,887,000 as of the dates presented, of which $12,500,000 represents external financing through the issuance to investors of capital securities by the Trust (see Note 12).

Note 18. Contingent Liability

The Company sells first lien 1-4 family residential mortgage loans under the MPF program with the FHLBB. Under this program the Company shares in the credit risk of each mortgage loan, while receiving fee income in return. The Company is responsible for a CEO based on the credit quality of these loans. FHLBB funds a FLA based on the Company's outstanding MPF mortgage balances. This creates a laddered approach to sharing in any losses. In the event of default, homeowner's equity and private mortgage insurance, if any, are the first sources of repayment; the FHLBB's FLA funds are then utilized, followed by the participant’s CEO, with the balance of losses absorbed by FHLBB. These loans must meet specific underwriting standards of the FHLBB. As of December 31, 2022 and 2021, the Company had $19,961,469 and $22,916,680, respectively, in loans sold through the MPF program and on which the Company had a CEO. As of December 31, 2022 and 2021, the notional amount of the maximum CEO related to this program was $352,352 and $637,102, respectively, and the accrued contingent liability for this CEO was $84,944 for 2022 and 2021. The contingent liability is calculated by management based on the methodology used in calculating the ALL, adjusted to reflect the risk sharing arrangements with the FHLBB.

Note 19. Legal Proceedings

In the normal course of business, the Company is involved in various claims and legal proceedings. In the opinion of the Company's management, any liabilities resulting from such proceedings are not expected to be material to the Company's consolidated financial condition or results of operations.

Note 20. Transactions with Related Parties

Aggregate loan transactions of the Company with directors, principal officers, their immediate families and affiliated companies in which they are principal owners (commonly referred to as related parties) as of December 31 were as follows:

	2022			2021
Balance, beginning of year	$	16,072,431		$	16,774,535
Loans - new Directors		2,274,378			0
New loans to existing Principal Officers/Directors		5,091,531			1,902,000
Repayment*		(7,720,758	)		(2,604,104	)
Balance, end of year	$	15,717,582		$	16,072,431

*Includes loans sold to the secondary market

Total funds of related parties on deposit with the Company were $17,015,285 and $9,220,641 at December 31, 2022 and 2021, respectively.

The Company utilizes the services of CFSG as an investment advisor for the Company’s 401(k) plan. The Human Resources committee of the Board of Directors is the Trustee of the plan, and CFSG provides investment advice for the plan. CFSG also acts as custodian of the retirement funds and makes investments on behalf of the plan and its participants. The Company pays monthly management fees to CFSG for its services to the 401(k) plan amounting to $53,231 and $65,550, respectively, for the years ended December 31, 2022 and 2021. ****

36

Note 21. Restrictions on Cash and Due From Banks

In the ordinary course of business, the Company may, from time to time, maintain amounts due from correspondent banks that exceed federally insured limits. However, no losses have occurred in these accounts and the Company believes it is not exposed to any significant risk with respect to such accounts. The Company was required to maintain a targeted balance with a correspondent bank of $500,000 and $9.0 million at December 31, 2022 and 2021, respectively.

Note 22. Regulatory Capital Requirements

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Additional prompt corrective action capital requirements are applicable to banks, but not to bank holding companies.

Under current banking rules governing required regulatory capital, the Company and the Bank are required to maintain minimum amounts and ratios (set forth in the table on the following page) of Common equity tier 1, Tier 1 and Total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). The Company’s non-cumulative Series A preferred stock ($1.5 million liquidation preference in 2022 and 2021) is includable without limitation in its Common equity tier 1 and Tier 1 capital. The Company is allowed to include in Common equity tier 1 and Tier 1 capital an amount of trust preferred securities equal to no more than 25% of the sum of all core capital elements, which is generally defined as shareholders’ equity, less certain intangibles, including goodwill, net of any related deferred income tax liability or asset, with the balance includable in Tier 2 capital. Management believes that, as of December 31, 2022, the Company and the Bank met all capital adequacy requirements to which they were subject.

Under the 2018 Regulatory Relief Act, these capital requirements have been simplified for qualifying community banks and bank holding companies. In September 2019, the OCC and the other federal bank regulators approved a final joint rule that permits a qualifying community banking organization to opt in to a simplified regulatory capital framework. A qualifying institution that elects to utilize the simplified framework must maintain a CBLR in excess of 9%, and will thereby be deemed to have satisfied the generally applicable risk-based and other leverage capital requirements and (if applicable) the FDIC’s prompt corrective action framework. In order to utilize the CBLR framework, in addition to maintaining a CBLR of over 9%, a community banking organization must have less than $10 billion in total consolidated assets and must meet certain other criteria such as limitations on the amount of off-balance sheet exposures and on trading assets and liabilities. The CBLR is calculated by dividing tangible equity capital by average total consolidated assets. The final rule became effective on January 1, 2020 for capital calculations as of March 31, 2020 and thereafter.

Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased-in on January 1, 2019 at 2.5% of risk-weighted assets. A banking organization with a conservation buffer of less than 2.5% is subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. As of December 31, 2022 and 2021, the Company and the Bank were fully compliant, with capital conservation buffers of 7.03% and 7.50%, respectively, for the Company and 6.89% and 7.42%, respectively, for the Bank.

Pursuant to the CARES Act, the federal banking agencies adopted an interim rule temporarily lowering the CBLR benchmark to in excess of 8%, rather than 9%, with a phased increase of the CBLR back to the 9% level by the end of 2021. The Company and Bank qualified to utilize the CBLR framework, but did not elect to do so.

As of December 31, 2022, the Bank was considered well capitalized under the regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy.

37

The following table shows the regulatory capital ratios for the Company and the Bank as of December 31:

											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)
December 31, 2022
Common equity tier 1 capital
(to risk-weighted assets)
Company	$	82,770		11.74	%	$	31,731		4.50	%	$	49,359		7.00	%		N/A		N/A
Bank	$	96,112		13.64	%	$	31,703		4.50	%	$	49,315		7.00	%	$	45,793		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	97,157		13.78	%	$	42,308		6.00	%	$	59,936		8.50	%		N/A		N/A
Bank	$	96,112		13.64	%	$	42,270		6.00	%	$	59,883		8.50	%	$	56,361		8.00	%
Total capital (to risk-weighted assets)
Company	$	105,971		15.03	%	$	56,410		8.00	%	$	74,038		10.50	%		N/A		N/A
Bank	$	104,918		14.89	%	$	56,361		8.00	%	$	73,973		10.50	%	$	70,451		10.00	%
Tier 1 capital (to average assets)
Company	$	97,157		9.24	%	$	42,047		4.00	%		N/A		N/A			N/A		N/A
Bank	$	96,112		9.15	%	$	42,025		4.00	%		N/A		N/A		$	52,531		5.00	%
December 31, 2021:
Common equity tier 1 capital
(to risk-weighted assets)
Company(3)	$	72,853		11.90	%	$	27,548		4.50	%	$	42,853		7.00	%		N/A		N/A
Bank	$	86,654		14.17	%	$	27,522		4.50	%	$	42,812		7.00	%	$	39,754		6.50	%
Tier 1 capital (to risk-weighted assets)
Company	$	87,240		14.25	%	$	36,731		6.00	%	$	52,036		8.50	%		N/A		N/A
Bank	$	86,654		14.17	%	$	36,696		6.00	%	$	51,986		8.50	%	$	48,928		8.00	%
Total capital (to risk-weighted assets)
Company	$	94,894		15.50	%	$	48,975		8.00	%	$	64,279		10.50	%		N/A		N/A
Bank	$	94,301		15.42	%	$	48,928		8.00	%	$	64,218		10.50	%	$	61,160		10.00	%
Tier 1 capital (to average assets)
Company	$	87,240		8.79	%	$	39,719		4.00	%		N/A		N/A			N/A		N/A
Bank	$	86,654		8.73	%	$	39,698		4.00	%		N/A		N/A		$	49,622		5.00	%
(1)	Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets.
---	---
(2)	Applicable to banks, but not bank holding companies.
(3)	Reflects recalculation of the Company’s previously reported common equity tier I capital ratio. The previously reported calculation for December 31, 2021 and prior annual and interim periods incorrectly included the Company’s outstanding preferred stock and trust preferred securities in the equity component of the calculation.

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.

38

Note 23. Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings. 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, other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes MSRs, collateral-dependent impaired loans and OREO.

Level 3

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

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

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

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

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

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

*OREO:*Real estate acquired through or in lieu of foreclosure and bank properties no longer used as bank premises are initially recorded at fair value. The fair value of OREO is based on property appraisals and an analysis of similar properties currently available. The Company records OREO as non-recurring Level 2.

39

Assets 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 December 31, segregated by fair value hierarchy, are summarized below:

	December 31,		December 31,
Assets: (market approach)	2022		2021
Level 1
U.S. Government securities	$	38,231,589	$	32,041,041
Level 2
U.S. GSE debt securities	$	10,375,291	$	11,828,498
Taxable Municipal securities		234,858		298,733
Tax-exempt Municipal securities		11,323,567		831,379
Agency MBS		115,231,599		127,132,521
ABS and OAS		2,693,606		2,214,024
CMO		11,935,925		1,420,458
Other investments		2,891,674		6,575,805
Level 2 Total	$	154,686,520	$	150,301,418
Grand Total	$	192,918,109	$	182,342,459

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 the periods presented.

Assets Recorded at Fair Value on a Non-Recurring Basis

The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a partial write-down or with a related specific ALL and are presented net of the specific allowances as disclosed in Note 4.

Assets measured at fair value on a non-recurring basis and reflected in the consolidated balance sheets at December 31, segregated by fair value hierarchy, are summarized below:

	December 31,		December 31,
Level 2	2022		2021
Assets: (market approach)
Impaired loans, net of related allowance	$	94,458	$	177,523
Loans held-for-sale		0		339,000
MSRs (1)		862,593		897,720
(1)	Represents MSRs at lower of cost or fair value, including MSRs deemed to be impaired and for which a valuation allowance was established to carry at fair value at December 31, 2022 and 2021.
---	---

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 the periods presented.

FASB ASC Topic 825, “Financial Instruments”, requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

40

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

December 31, 2022			Fair		Fair		Fair		Fair
	Carrying		Value		Value		Value		Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and cash equivalents	$	71,140	$	71,140	$	0	$	0	$	71,140
Debt securities AFS		192,918		38,232		154,686		0		192,918
Restricted equity securities		1,412		0		1,412		0		1,412
Loans and loans held-for-sale, net of ALL
Commercial & industrial		111,792		0		0		109,534		109,534
Purchased loans		7,476		0		0		7,119		7,119
Commercial real estate		351,738		0		29		340,254		340,283
Municipal		34,566		0		0		34,558		34,558
Residential real estate - 1st lien		197,281		0		65		180,879		180,944
Residential real estate - Jr lien		33,510		0		0		33,218		33,218
Consumer		3,970		0		0		3,949		3,949
MSRs (1)		863		0		1,287		0		1,287
Accrued interest receivable		3,214		0		3,214		0		3,214
Financial liabilities:
Deposits
Other deposits		922,723		0		918,882		0		918,882
Brokered deposits		249		0		225		0		225
Long-term borrowings		1,300		0		1,025		0		1,025
Repurchase agreements		33,078		0		33,078		0		33,078
Operating lease obligations		658		0		658		0		658
Finance lease obligations		3,645		0		3,645		0		3,645
Subordinated debentures		12,887		0		12,740		0		12,740
Accrued interest payable		74		0		74		0		74
(1)	Reported fair value represents all MSRs for loans serviced by the Company at December 31, 2022, regardless of carrying amount.
---	---
41
---
December 31, 2021			Fair		Fair		Fair		Fair
---	---	---	---	---	---	---	---	---	---	---
	Carrying		Value		Value		Value		Value
	Amount		Level 1		Level 2		Level 3		Total
	(Dollars in Thousands)
Financial assets:
Cash and cash equivalents	$	110,359	$	110,359	$	0	$	0	$	110,359
Debt securities AFS		182,342		32,041		150,301		0		182,342
Restricted equity securities		1,434		0		1,434		0		1,434
Loans and loans held-for-sale, net of ALL
Commercial & industrial		109,574		0		0		110,284		110,284
Purchased loans		9,808		0		0		9,862		9,862
Commercial real estate		296,528		0		29		297,339		297,368
Municipal		47,841		0		0		49,419		49,419
Residential real estate - 1st lien		180,271		0		149		180,302		180,451
Residential real estate - Jr lien		34,151		0		0		34,189		34,189
Consumer		4,406		0		0		4,436		4,436
MSRs (1)		898		0		995		0		995
Accrued interest receivable		2,401		0		2,401		0		2,401
Financial liabilities:
Deposits
Other deposits		879,151		0		879,545		0		879,545
Brokered deposits		249		0		246		0		246
Long-term borrowings		1,300		0		1,179		0		1,179
Repurchase agreements		32,610		0		32,610		0		32,610
Operating lease obligations		864		0		864		0		864
Finance lease obligations		3,858		0		3,858		0		3,858
Subordinated debentures		12,887		0		12,868		0		12,868
Accrued interest payable		59		0		59		0		59
(1)	Reported fair value represents all MSRs for loans serviced by the Company at December 31, 2021, regardless of carrying amount.
---	---

The estimated fair values of commitments to extend credit, letters of credit and financial guarantees for the benefit of customers were immaterial at December 31, 2022 and 2021.

42

Note 24. Condensed Financial Information (Parent Company Only)

The following condensed financial statements are for Community Bancorp. (Parent Company Only), and should be read in conjunction with the consolidated financial statements of the Company.

Community Bancorp. (Parent Company Only)			December 31,
Balance Sheets			2021
Assets
Cash	1,372,381		$	908,042
Investment in subsidiary - Community National Bank	87,018,360			97,061,296
Investment in Capital Trust	387,000			387,000
Income taxes receivable	223,816			185,439
Total assets	89,001,557		$	98,541,777
Liabilities and Shareholders' Equity
Liabilities
Junior subordinated debentures	12,887,000		$	12,887,000
Dividends payable	938,194			894,509
Total liabilities	13,825,194			13,781,509
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding
at December 31, 2022 and 2021 (100,000 liquidation value, per share)	1,500,000			1,500,000
Common stock - 2.50 par value; 15,000,000 shares authorized, 5,647,710
and 5,587,939 shares issued at December 31, 2022 and 2021, respectively
(including 16,850 and 14,337 shares issued February 1, 2023 and 2022,
respectively)	14,119,275			13,969,848
Additional paid-in capital	36,383,235			35,322,063
Retained earnings	46,464,447			37,758,105
Accumulated other comprehensive loss	(20,667,817	)		(1,166,971	)
Less: treasury stock, at cost; 210,101 shares at December 31, 2022 and 2021	(2,622,777	)		(2,622,777	)
Total shareholders' equity	75,176,363			84,760,268
Total liabilities and shareholders' equity	89,001,557		$	98,541,777

All values are in US Dollars.

The investment in the subsidiary bank is carried under the equity method of accounting. The investment and cash on deposit with the Bank have been eliminated in consolidation.

43
Community Bancorp. (Parent Company Only)	Years Ended December 31,
---	---	---	---	---
Condensed Statements of Income	2022		2021
Income
Bank subsidiary distributions	$	5,124,000	$	4,291,000
Dividends on Capital Trust		17,225		11,805
Total income		5,141,225		4,302,805
Expense
Interest on junior subordinated debentures		573,603		393,105
Administrative and other		509,409		501,749
Total expense		1,083,012		894,854
Income before applicable income tax benefit and equity in
undistributed net income of subsidiary		4,058,213		3,407,951
Income tax benefit		223,816		185,439
Income before equity in undistributed net income of subsidiary		4,282,029		3,593,390
Equity in undistributed net income of subsidiary		9,457,911		9,544,948
Net income	$	13,739,940	$	13,138,338
Community Bancorp. (Parent Company Only)	Years Ended December 31,
---	---	---	---	---	---	---
Condensed Statements of Cash Flows	2022			2021
Cash Flows from Operating Activities
Net income	$	13,739,940		$	13,138,338
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed net income of subsidiary		(9,457,911	)		(9,544,948	)
Increase in income taxes receivable		(38,377	)		(467	)
Net cash provided by operating activities		4,243,652			3,592,923
Cash Flows from Financing Activities
Dividends paid on preferred stock		(66,563	)		(48,750	)
Dividends paid on common stock		(3,712,750	)		(3,386,502	)
Net cash used in financing activities		(3,779,313	)		(3,435,252	)
Net increase in cash		464,339			157,671
Cash
Beginning		908,042			750,371
Ending	$	1,372,381		$	908,042
Cash Received for Income Taxes	$	185,439		$	184,973
Cash Paid for Interest	$	573,603		$	393,105
Dividends paid:
Dividends declared	$	4,967,035		$	4,699,529
Increase in dividends payable attributable to dividends declared		(43,686	)		(149,212	)
Dividends reinvested		(1,210,599	)		(1,163,815	)
	$	3,712,750		$	3,386,502
44
---

Note 25. Other Income and Other Expenses

The components of other income and other expenses which are in excess of one percent of total revenues in either of the two years disclosed are as follows:

	2022		2021
Income
Income from investment in CFS Partners	$	584,971	$	951,605
Expenses
Outsourcing expense	$	539,123	$	506,563
Service contracts - administration		579,956		520,310
Marketing		499,000		470,000
State deposit tax		992,333		884,492
ATM fees		616,900		562,779

Note 26. Subsequent Events

Declaration of Cash Dividend

On December 22, 2022, the Company declared a cash dividend of $0.23 per share payable February 1, 2023 to shareholders of record as of January 15, 2023. On March 15, 2023, the Company declared a cash dividend of $0.23 per share payable May 1, 2023 to shareholders of record as of April 15, 2023. These dividends have been recorded as of each declaration date, including shares issuable under the DRIP.

For purposes of accrual or disclosure in these financial statements, the Company has evaluated subsequent events through the date of issuance of these financial statements.

45

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

For the Years Ended December 31, 2022 and 2021

The following discussion analyzes the consolidated financial condition of the Company and its wholly-owned subsidiary, Community National Bank, as of December 31, 2022 and 2021, and its consolidated results of operations for the years then ended. The Company is considered a “smaller reporting company” under the disclosure rules of the SEC. Accordingly, we have elected to provide our audited statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period and to provide smaller reporting company scaled disclosures where management deems it appropriate.

The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes. Please refer to Note 1 in the accompanying audited consolidated financial statements for a listing of acronyms and defined terms used throughout the following discussion.

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the consolidated results of operations, financial condition and business of the Company and its subsidiary. Words used in the discussion below such as "believes," "expects," "anticipates," "intends," "estimates," “projects”, "plans," “assumes”, "predicts," “may”, “might”, “will”, “could”, “should” and similar expressions, indicate that management of the Company is making forward-looking statements.

Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties and assumptions. Examples of forward looking statements included in this discussion include, but are not limited to, statements regarding the potential residual effects of the COVID-19 pandemic on our business, financial condition, results of operations and prospects; the estimated contingent liability related to assumptions made within the asset/liability management process; management's expectations as to the future interest rate environment and the Company's related liquidity level; credit risk expectations relating to the Company's loan portfolio, participation in the FHLBB MPF program and transition to the CECL model for estimating expected credit losses; and management's general outlook for the future performance of the Company or the local or national economy. Although forward-looking statements are based on management's expectations and estimates as of the date they are made, many of the factors that could influence or determine actual results are unpredictable and not within the Company's control.

Factors that may cause our 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 on the Company’s customers and on its financial results and performance;
·	changes in the United States monetary and fiscal policies, including the interest rate policies of the FRB and its regulation of the money supply;
·	changes in applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to the measurement of credit losses in financial statements under U.S. GAAP pursuant to the CECL model, which became effective for the Company as of January 1, 2023;
·	the geographic concentration of the Company’s loan portfolio and deposit base;
·	the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
·	reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;
·	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;
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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;
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·	cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems;
·	higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements;
·	management’s risk management measures may not be completely effective;
·	changes in consumer and business spending, borrowing and savings habits;
·	the continuing effects of COVID-19 and emerging variants of the virus on our Company, the communities where we have branches and loan production offices, the State of Vermont and the national and global economies and overall stability of the financial markets;
·	the continuing effects of government and regulatory responses to the COVID-19 pandemic;
·	operational and internal system failures due to changes in normal business practices, including remote working for Company staff;
·	increased cybercrime and payment system risk due to 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 at year-end 2022 were $1.06 billion compared to $1.02 billion at year-end 2021, an increase of 3.6%. Asset growth in 2022 was driven by increases in loans of $58.6 million, or 8.5% and $10.6 million, or 5.8%, in AFS securities and $7.7 million, or 80.1% in other assets. These increases were partially offset by a decrease of $39.2 million, or 35.5%, in cash on deposit at FRBB. The increase of $7.7 million in other assets is attributable in part to a new partnership interest in a limited partnership investment of $2.6 million, as well as an increase of $5.2 million in the deferred tax asset associated with the unrealized loss of the AFS securities portfolio. Loan growth was attributable to increases in the CRE portfolio of $55.9 million, or 18.6%, the commercial and industrial loan portfolio of $12.3 million, or 11.5% and the residential real estate portfolio of $17.4 million, or 9.6%. These increases were partially offset by a decrease in the municipal loan portfolio of $13.3 million, or 27.8%. The portfolio of PPP loans also decreased, from $12.2 million at December 31, 2021 to $199,964 at December 31, 2022.

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Funding of the asset growth was provided primarily by an increase in customer deposits. Total deposits on December 31, 2022 were $923.0 million compared to $879.4 million on December 31, 2021, an increase of $43.6 million, or 5.0%, reflecting the combined effect of increases in core deposits (demand deposit accounts, both interest bearing and non-interest bearing) of $35.2 million, or 7.4%, money market funds of $10.4 million, or 8.0%, and savings accounts of $2.7 million, or 1.6%. These increases were only partially offset by a decrease in CDs of $4.7 million, or 4.4%

Total interest income increased $2.3 million, or 6.7%, year over year as a result of increases in the volume of both the investment and loan portfolios. The increases in the prime rate throughout 2022 also contributed to the increase. Participation in the PPP had a significant impact on our asset mix and net interest margin during 2021. The origination of the PPP loans resulted in processing fees from the SBA of approximately $489 thousand for 2022 compared to $4.7 million for 2021. These loan fees are amortized over the projected life of the loan, but are recognized in full as the PPP loans payoff. At year-end 2022 the balance of deferred PPP fees was $28 thousand, and is anticipated to amortize over the remaining life of the outstanding loans.

Total interest expense increased $909 thousand, or 29.1%, for the year ended December 31, 2022 compared to 2021, due in part to the increase in interest-bearing deposits and savings and money market accounts, as well as the 425 basis point increase in short-term rates initiated by the FRB in 2022. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that FRB action and changes in the yield curve could have on net interest income.

The provision for loan losses for the year ended 2022 was $978 thousand compared to $624 thousand for 2021, resulting in an increase of 56.7% year over year. Due to low levels of loan charge offs in 2021, the provision for loan losses was decreased accordingly. Although 2022 was another year of low charges offs; the provision was increased in order to accommodate loan growth. Please refer to the ALL and provisions discussion in the Credit Risk section for more information on these increases.

Consolidated net income in 2022 increased $602 thousand, or 4.6%, from $13.1 million for 2021 to $13.7 million for 2022. Non-interest income decreased $91 thousand, or 1.4%, while non-interest expense increased $216 thousand, or 1.0%. Although an increase is noted in the residential loan portfolio, secondary market activity slowed accounting for the $343 thousand decrease in income from sold loans. Loans originated and subsequently sold in the secondary market were $12.3 million for 2022 compared to $17.6 million for 2021. Strong commercial loan growth during 2022 provided a lift in related fees, contributing to the increase in other income from loans of $395 thousand. A decrease of $378 thousand is also noted in other income mostly due to a decrease in income from CFS Partners. Other noninterest expense increased $279 thousand, or 3.6%, year over year, which was offset in part by a decrease in wages and benefits of $61,344, or 0.6%. Please refer to the Non-interest Income and Non-interest Expense sections for more granular information on significant changes.

Equity capital decreased to $75.2 million, with a book value per share of $13.55 as of December 31, 2022, compared to equity capital of $84.8 million and a book value of $15.48 as of December 31, 2021. This decrease in equity capital is directly related to the increase of unrealized losses in the investment portfolio, reflecting rising bond rates, which resulted in an increase of $19.5 million, net of tax, in the accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet. This position is considered temporary and does not impact the Company’s regulatory capital ratios.

On December 22, 2022, the Company's Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on February 1, 2023 to shareholders of record on January 15, 2023.

Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and the demand for loans and other products and services we offer, which are highly dependent on the business environment in our local banking markets and in the country as a whole. Recent economic reports for the state of Vermont show employment in the hardest hit industries such as leisure and hospitality has risen but is still below pre-pandemic levels. The Vermont unemployment rate, seasonally adjusted, in December of 2022 was reported at 2.5% compared to the low of 2.1% in July of 2022.

As of December 31, 2022, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of all regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of the pandemic or government monetary policy.

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CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared according to U.S. GAAP. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Because of the significance of these estimates and assumptions, there is a high likelihood that materially different amounts would be reported for the Company under different conditions or using different assumptions or estimates. Management evaluates on an ongoing basis its judgment as to which policies are considered to be critical.

ALL - Management believes that the calculation of the ALL 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 ALL, management considers historical experience as well as other qualitative factors, including the effect of 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 ALL may increase or decrease based on changes in these factors, which in turn will affect the amount of the Company’s provision for loan 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.

As stated in Note 2 of the accompanying notes to the Company’s audited consolidated financial statements, effective January 1, 2023, the Company is 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. The new guidance, which is referred to as the current expected credit loss (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 initial adjustment from the transition to CECL will be recorded as an adjustment to retained earnings. Based on an unaudited parallel calculation as of December 31, 2022 the required adjustment would have an immaterial impact to retained earnings and regulatory capital.

OREO – Real estate properties acquired through or in lieu of foreclosure or properties no longer used for bank operations, are initially recorded at fair value less estimated selling cost at the date of acquisition, foreclosure or transfer. Fair value is determined, as appropriate, either by obtaining a current appraisal or evaluation prepared by an independent, qualified appraiser, by obtaining a broker’s market value analysis, and finally, if the Company has limited exposure and limited risk of loss, by the opinion of management as supported by an inspection of the property and its most recent tax valuation. During periods of declining market values, the Company will generally obtain a new appraisal or evaluation. The amount, if any, by which the recorded amount of the loan exceeds the fair value, less estimated cost to sell, is a loss which is charged to the allowance for loan losses at the time of foreclosure or repossession. The recorded amount of the loan is the loan balance adjusted for any unamortized premium or discount and unamortized loan fees or costs, less any amount previously charged off, plus recorded accrued interest. After acquisition through or in lieu of foreclosure, these assets are carried at the lower of their new cost basis or fair value. Costs of significant property improvements are capitalized, whereas costs relating to holding the property are expensed as incurred. Appraisals by an independent, qualified appraiser are performed periodically on properties that management deems significant, or evaluations may be performed by management or a qualified third party on properties in the portfolio that are deemed less significant or less vulnerable to market conditions. Subsequent write-downs are recorded as a charge to other expense. Gains or losses on the sale of such properties are included in income when the properties are sold.

Investment Securities - Management performs quarterly reviews of individual debt securities in the investment portfolio to determine whether a decline in the fair value of a security is other than temporary. A review of OTTI requires management to make certain judgments regarding the materiality of the decline and the probability, extent and timing of a valuation recovery, the Company’s intent to continue to hold the security and, in the case of debt securities, the likelihood that the Company will not have to sell the security before recovery of its cost basis. Management assesses fair value declines to determine the extent to which such changes are attributable to fundamental factors specific to the issuer, such as financial condition and business prospects, or to market-related or other external factors, such as interest rates, and in the case of debt securities, the extent to which the impairment relates to credit losses of the issuer, as compared to other factors. Declines in the fair value of debt securities below their cost that are deemed to be other than temporary, and declines in fair value of debt securities below their cost that are related to credit losses, are recorded in earnings as realized losses, net of tax effect. The non-credit loss portion of an other than temporary decline in the fair value of debt securities below their cost basis (generally, the difference between the fair value and the estimated net present value of expected future cash flows from the debt security) is recognized in other comprehensive income as an unrealized loss, provided that the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its reduced basis.

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MSRs - MSRs associated with loans originated and sold, where servicing is retained, are required to be capitalized and initially recorded at fair value on the acquisition date and are subsequently accounted for using the “amortization method”. Mortgage servicing rights are amortized against non-interest income in proportion to, and over the period of, estimated future net servicing income of the underlying financial assets. The value of capitalized servicing rights represents the estimated present value of the future servicing fees arising from the right to service loans for third parties. The carrying value of the mortgage servicing rights is periodically reviewed for impairment based on a determination of estimated fair value compared to amortized cost, and impairment, if any, is recognized through a valuation allowance and is recorded as a reduction of non-interest income. Subsequent improvement (if any) in the estimated fair value of impaired mortgage servicing rights is reflected in a positive valuation adjustment and is recognized in non-interest income up to (but not in excess of) the amount of the prior impairment. Critical accounting policies for mortgage servicing rights relate to the initial valuation and subsequent impairment tests. The methodology used to determine the valuation of mortgage servicing rights requires the development and use of a number of estimates, including anticipated principal amortization and prepayments. Factors that may significantly affect the estimates used are changes in interest rates and the payment performance of the underlying loans. The Company analyzes and accounts for the value of its servicing rights with the assistance of a third party consultant.

Goodwill - Goodwill from an acquisition accounted for under the purchase accounting method, such as the Company’s 2007 acquisition of LyndonBank, is subject to ongoing periodic impairment evaluation, which includes an analysis of the ongoing assets, liabilities and revenues from the acquisition and an estimation of the impact of business conditions. This evaluation is inherently subjective.

Other - Management utilizes numerous techniques to estimate the carrying value of various assets held by the Company, including, but not limited to, bank premises and equipment and deferred taxes. The assumptions considered in making these estimates are based on historical experience and on various other factors that are believed by management to be reasonable under the circumstances. The use of different estimates or assumptions could produce different estimates of carrying values and those differences could be material in some circumstances.

RESULTS OF OPERATIONS

The Company’s net income increased $602 thousand, or 4.6%, from 2021 to 2022, resulting in earnings per common share of $2.53 for 2022 versus $2.45 for 2021. Core earnings (NII) increased $1.4 million, or 4.5%, in 2022 compared to 2021. Interest income in 2022 was supported by increases in the volume of the loan portfolio and rising interest rates, while interest income in 2021 was supported by the fees generated from originating PPP loans. Of the $7.4 million that the Company received in PPP fee income from the SBA, approximately $489 thousand and $4.7 million was recognized in 2022 and 2021, respectively. In 2021, these fees helped to offset a decrease in interest income due to the repricing of loans into the prevailing low interest rate environment, as new loans were booked at lower market rates and PPP loans were booked at a mandated 1% annual interest rate. Interest paid on deposits, which is the major component of total interest expense, increased $636 thousand, or 24.8% in 2022, reflecting the increase in short-term rates during 2022, after the low rate environment that had prevailed since March of 2020.

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, as well as other equity ratios, for each of the last two fiscal years:

December 31,	2022
Return on average assets		1.35	%	1.38	%
Return on average equity		18.01	%	16.18	%
Dividend payout ratio (1)		36.36	%	35.92	%
Average equity to average assets ratio		7.49	%	8.51	%
(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 net interest income, which is the difference between interest earned on loans and investments versus the interest paid on deposits and other sources of funds (i.e., other 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 from changes in the yield earned and the cost of funds (rate paid). A portion of the Company’s income from municipal loans is not subject to income taxes. Because the proportion of tax-exempt items in the Company's portfolio varies from year-to-year, to improve comparability of information across years, 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.

Tax-exempt income was derived from $34.6 million and $48.0 million of municipal loans, at December 31, 2022 and 2021, respectively, and from $11.3 million and $831 thousand of tax-exempt municipal securities in our investment portfolio, respectively, as of such dates.

The following table provides the reconciliation between net interest income presented in the consolidated statements of income and the non-GAAP tax equivalent net interest income presented in the table immediately following for each of the last two years.

Years Ended December 31,	2022		2021
Net interest income as presented	$	33,084,557	$	31,669,040
Effect of tax-exempt income		286,440		267,066
Net interest income, tax equivalent	$	33,370,997	$	31,936,106
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The following table presents the daily average interest-earning assets and the daily average interest-bearing liabilities supporting earning assets for each of the last two fiscal years. Interest income (excluding interest on non-accrual loans) and interest expense are both expressed on a tax equivalent basis, both in dollars and as a rate/yield.

	Years Ended December 31,
	2022							2021
					Average							Average
	Average		Income/		Rate/			Average		Income/		Rate/
	Balance		Expense		Yield			Balance		Expense		Yield
Interest-Earning Assets
Loans (1)	$	713,097,126	$	32,790,388		4.60	%	$	712,453,828	$	33,334,223		4.68	%
Taxable investment securities		182,184,739		3,111,860		1.71	%		99,075,022		1,304,902		1.32	%
Tax-exempt investment securities		6,954,312		257,415		3.70	%		16,806		346		2.06	%
Sweep and interest-earning accounts		65,817,367		1,158,444		1.76	%		88,544,302		362,018		0.41	%
Other investments (2)		1,781,776		82,989		4.66	%		1,844,046		56,116		3.04	%
Total	$	969,835,320	$	37,401,096		3.86	%	$	901,934,004	$	35,057,605		3.89	%
Interest-Bearing Liabilities
Interest-bearing transaction accounts	$	263,632,834	$	1,378,421		0.52	%	$	237,055,299	$	606,392		0.26	%
Money market funds		133,732,022		779,113		0.58	%		125,339,723		621,584		0.50	%
Savings deposits		177,947,216		107,339		0.06	%		150,311,147		165,630		0.11	%
Time deposits		105,361,424		938,823		0.89	%		108,518,120		1,174,552		1.08	%
Borrowed funds		1,301,129		26		0.00	%		2,256,479		38		0.00	%
Repurchase agreements		31,285,927		166,746		0.53	%		28,349,896		88,861		0.31	%
Finance lease obligations		3,742,662		86,028		2.30	%		2,589,477		71,337		2.75	%
Junior subordinated debentures		12,887,000		573,603		4.45	%		12,887,000		393,105		3.05	%
Total	$	729,890,214	$	4,030,099		0.55	%	$	667,307,141	$	3,121,499		0.47	%
Net interest income			$	33,370,997						$	31,936,106
Net interest spread (3)						3.31	%						3.42	%
Net interest margin (4)						3.44	%						3.54	%
(1)	Included in gross loans are non-accrual loans with average balances of $6,668,862 and $4,724,180 for the years ended December 31, 2022 and 2021, respectively. Loans are stated before deduction of unearned discount and ALL, less loans held-for-sale and include tax-exempt loans to local municipalities with average balances of $43,514,790 and $52,298,379 for the years ended December 31, 2022 and 2021, respectively.
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(2)	Included in other investments is the Company’s FHLBB Stock with average balances of $716,626 and $778,896, respectively, with a dividend rate of approximately 4.2% and 2.05%, respectively, for the years ended December 31, 2022 and 2021, respectively.
(3)	Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.
(4)	Net interest margin is net interest income divided by average earning assets.
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The average volume of interest-earning assets for the year ended December 31, 2022 increased 7.5% compared to December 31, 2021. The average yield on interest-earning assets decreased three basis points for 2022 versus 2021.

The average volume of loans increased 0.1% for 2022 versus 2021, while the average yield on loans decreased eight basis points to 4.60% for 2022, compared to 4.68% for 2021. The decrease in the yield in 2022, despite a rising rate environment, was due to the $4.2 million decrease in PPP fees year over year. Interest earned on the loan portfolio as a percentage of total interest income was approximately 87.7% and 95.1%, respectively for 2022 and 2021. This percentage has decreased as the investment securities portfolio has increased as a percentage of average earning assets.

The average volume of the taxable investment portfolio (classified as AFS) increased 83.9% for 2022 versus 2021. The average yield on the taxable investment portfolio increased 39 basis points for 2022 versus 2021. The increase in average volume is due primarily to an effort to continue to grow the investment portfolio incrementally as the balance sheet grows in order to provide additional liquidity and pledge quality assets.

The average volume of the tax-exempt municipal investment portfolio increased $6.9 million and the tax-equivalent yield increased 164 basis points to 3.70% for 2022 compared to 2.06% for 2021.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB and two correspondent banks, decreased 26.7% during 2022 compared to 2021. This decrease in volume is attributable to the funding of loan growth and the purchase of investment securities during 2022. The average yield on these funds increased 135 basis points in 2022 versus 2021, reflecting the numerous increases in the federal funds rate initiated by the FRB during 2022.

The average volume of interest-bearing liabilities for the year ended December 31, 2022 increased 9.4% compared to the year ended December 31, 2021. The average rate paid on interest-bearing liabilities increased eight basis points during 2022 compared to 2021. An increase in customer account balances together with an increase in rates paid on the accounts resulted in an increase in interest expense in various components of interest-bearing liabilities.

The average volume of interest-bearing transaction accounts increased 11.2% for 2022 versus 2021 reflecting strong deposit growth during 2022. The average rate paid on these accounts increased 26 basis points for 2022 versus 2021.

The average volume of money market accounts increased 6.7% during 2022 compared to 2021, and the average rate paid on these deposits increased eight basis points during 2022.

The average volume of savings accounts increased 18.2% for 2022 versus 2021, while the average rate paid on these accounts decreased five basis points during 2022.

The average volume of time deposits decreased 2.9% for 2022 versus 2021, and the average rate paid decreased 19 basis points during 2022. Interest paid on time deposits as a percentage of total interest expense was 23.6% and 37.6%, respectively for 2022 and 2021. The decrease in the average volume of time deposits between comparison periods reflects the maturity of brokered deposits during 2022 that were not replaced, as well as a decrease in retail time deposits.

The average volume of repurchase agreements increased 10.4% during 2022 and the average rate paid increased 22 basis points for 2022 versus 2021.

In summary, the average yield on interest-earning assets decreased three basis points during 2022, while the average rate paid on interest-bearing liabilities increased eight basis points. Net interest spread decreased 11 basis points for 2022 with a net interest spread of 3.31% for 2022 compared to 3.42% for 2021. Net interest margin decreased 10 basis points during 2022 to 3.44% from 3.54% for 2021.

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The following table summarizes the variances in income between 2022 and 2021, resulting from volume changes in interest-earning assets and interest-bearing liabilities and fluctuations in rates earned and paid between periods.

	Years Ended December 31,
	Variance			Variance
	Due to			Due to			Total
	Rate (1)			Volume (1)			Variance
Average Interest-Earning Assets
Loans	$	(573,941	)	$	30,106		$	(543,835	)
Taxable investment securities		709,910			1,097,048			1,806,958
Tax-exempt investment securities		114,156			142,913			257,069
Sweep and interest-earning accounts		1,196,420			(399,994	)		796,426
Other investments		29,775			(2,902	)		26,873
Total	$	1,476,320		$	867,171		$	2,343,491
Average Interest-Bearing Liabilities
Interest-bearing transaction accounts	$	702,927		$	69,102		$	772,029
Money market funds		115,568			41,961			157,529
Savings deposits		(88,691	)		30,400			(58,291	)
Time deposits		(207,634	)		(28,095	)		(235,729	)
Borrowed funds		(12	)		0			(12	)
Repurchase agreements		68,783			9,102			77,885
Finance lease obligations		(17,022	)		31,713			14,691
Junior subordinated debentures		180,498			0			180,498
Total	$	754,417		$	154,183		$	908,600
Changes in net interest income	$	721,903		$	712,988		$	1,434,891
(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

54

NON-INTEREST INCOME AND NON-INTEREST EXPENSE

Non-interest Income

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

	Year Ended
	December 31,				Change
	2022		2021		Income			Percent
Service fees	$	3,676,875	$	3,441,607	$	235,268			6.84	%
Income from sold loans		605,848		949,212		(343,364	)		-36.17	%
Other income from loans		1,377,494		982,295		395,199			40.23	%
Other income
Income from CFS Partners		584,971		951,605		(366,634	)		-38.53	%
Other miscellaneous income		397,860		409,418		(11,558	)		-2.82	%
Total non-interest income	$	6,643,048	$	6,734,137	$	(91,089	)		-1.35	%

Total non-interest income decreased $91,089 for the year ended December 31, 2022 compared to the same period 2021, with significant changes noted in the following:

·	Overdraft charges, a component of service fees, increased $173,640, or 21.1%, year over year, and interchange fees, also a component of service fees, increased $42,381, or 2.2%, between periods.
·	Income from sold loans decreased year over year as a result of a decrease in secondary market activity, due in part to a lower volume of applications for residential mortgages as well as a strategic decision to hold some 15 and 30 year mortgages in the portfolio.
·	The increased volume of commercial loan activity resulted in an increase in documentation fees collected at origination accounting for the increase in other income from loans.
·	CFS Partners has a small portion of its equity capital invested in the stock market. While the stock market rebounded somewhat favorably during 2021, less favorable market conditions were experienced in 2022 requiring negative mark to market adjustments to CFGS’s equity portfolio, resulting in a substantial decrease in income year over year.
55
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Non-interest Expense

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

	Year Ended
	December 31,					Change
	2022			2021		Expense			Percent
Salaries and wages	$	8,347,000		$	8,027,000	$	320,000			3.99	%
Employee benefits		2,743,210			3,124,554		(381,344	)		-12.20	%
Occupancy expenses, net		2,806,830			2,808,068		(1,238	)		-0.04	%
Other expenses
Service contracts - administrative		579,956			520,310		59,646			11.46	%
Directors fees		576,928			514,916		62,012			12.04	%
Travel, entertainment and meals expense		117,593			81,848		35,745			43.67	%
Audit fees		429,892			407,457		22,435			5.51	%
Collection & non-accruing loan expense		(72,727	)		123,269		(195,996	)		-159.00	%
ATM fees		616,900			562,779		54,121			9.62	%
Electronic banking expense		269,255			238,108		31,147			13.08	%
State deposit tax		992,333			884,492		107,841			12.19	%
Other miscellaneous expenses		4,467,169			4,364,785		102,384			2.35	%
Total non-interest expense	$	21,874,339		$	21,657,586	$	216,753			1.00	%

Total non-interest expense increased $217 thousand, or 1.0%, for the year ended December 31, 2022 compared to 2021, with significant changes noted in the following:

·	Salaries and wages increased due to normal salary increases of 3%, retention bonuses to all employees under the vice president level, higher production commissions and incentive plan payments, offset by several unfilled positions during the year.
·	The decrease in employee benefits is attributable to a decrease in health insurance claims year over year under the Company’s self-funded health insurance plan.
·	The increase in service contracts – administrative is due to annual increases in pricing, impacted by growth in the Company’s assets and by inflation.
·	The increase in Directors fees is attributable to an additional Director for 2022.
·	In 2022, as COVID restrictions began to ease, more seminars and conferences returned to in-person attendance accounting for the increase in travel, entertainment and meals expense for 2022 compared to 2021.
·	The increase in audit fees is attributable to increase audit services due to the Company surpassing the $1.0 billion asset size.
·	Collections & non-accruing loan expense decreased year over year due to the recovery of expenses associated with properties in the Company’s non-accruing loan portfolio.
·	ATM fees increased year over year due to the ongoing cost to support the upgraded and enhanced technology being utilized for deposit automation. Use of deposit automation replaces a manual process for required monitoring of cash deposits as well as providing fraud detection measures at the ATM.
·	The increase in electronic banking expense is partly attributable to a new mobile banking platform which includes security and functionality enhancements and other technical upgrades. The increase also reflects higher transaction fees, resulting from increased electronic banking transaction volumes.
·	State deposit tax increased year over year due to a significant increase in deposits. The calculation is based on an average of month-end deposit totals over a 12 month period.
56
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APPLICABLE INCOME TAXES

Income before income taxes increased $753 thousand, or 4.7% for 2022 compared to 2021, accounting for the increase in the provision for income taxes of $152 thousand or 5.1% between periods from $2.98 million in 2021 to $3.14 million in 2022. Tax credits from affordable housing investments decreased $78 thousand, or 16.7%, from $468 thousand in 2021 to $390 thousand in 2022.

Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $269 thousand and $363 thousand for 2022 and 2021, respectively. These investments provide tax benefits, including tax credits, and are designed to provide an effective yield between 7% and 10%.

CHANGES IN FINANCIAL CONDITION

The following table provides a visual comparison of the breakdown of the daily average assets and the daily average liabilities as well as the daily average shareholders' equity for the comparison periods and should be reviewed in conjunction with the table on the following page which provides volume changes and percent of change by category.

Years Ended December 31,	2022						2021
	Balance			%			Balance			%
Average Assets
Cash and due from banks
Non-interest bearing	$	10,931,084			1.07	%	$	18,973,102			1.99	%
Federal funds sold and overnight deposits		65,817,367			6.46	%		88,544,302			9.29	%
Taxable investment securities		182,184,739			17.89	%		99,075,022			10.39	%
Tax-exempt investment securities		6,954,312			0.68	%		16,806			0.00	%
Other securities		1,394,776			0.14	%		1,457,046			0.15	%
Gross loans		713,273,710			70.02	%		712,806,479			74.78	%
ALL		(8,174,643	)		-0.80	%		(7,657,621	)		-0.80	%
Deferred net loan cost (fees)		347,038			0.03	%		(1,622,871	)		-0.17	%
Premises and equipment		13,348,366			1.31	%		12,725,945			1.34	%
BOLI		5,110,510			0.50	%		5,027,731			0.53	%
Goodwill		11,574,269			1.14	%		11,574,269			1.21	%
Other assets		15,839,596			1.56	%		12,275,102			1.29	%
Total average assets	$	1,018,601,124			100	%	$	953,195,312			100	%
Average Liabilities
Demand deposits	$	208,367,458			20.46	%	$	201,107,470			21.10	%
Interest-bearing transaction accounts		263,632,834			25.88	%		237,055,299			24.87	%
Money market funds		133,732,022			13.13	%		125,339,723			13.15	%
Savings accounts		177,947,216			17.47	%		150,311,147			15.76	%
Time deposits		105,361,424			10.34	%		108,518,120			11.38	%
Total average deposits		889,040,954			87.28	%		822,331,759			86.26	%
Borrowed funds		1,301,129			0.13	%		2,256,479			0.24	%
Repurchase agreements		31,285,927			3.07	%		28,349,896			2.97	%
Junior subordinated debentures		12,887,000			1.27	%		12,887,000			1.35	%
Other liabilities		7,813,707			0.77	%		6,191,484			0.65	%
Total average liabilities		942,328,717			92.52	%		872,016,618			91.47	%
Average Shareholders' Equity
Preferred stock		1,500,000			0.15	%		1,500,000			0.16	%
Common stock		14,024,620			1.38	%		13,881,464			1.46	%
Additional paid-in capital		35,731,983			3.51	%		34,711,117			3.64	%
Retained earnings		41,473,345			4.07	%		33,672,406			3.53	%
Less: Treasury stock		(2,622,777	)		-0.26	%		(2,622,777	)		-0.28	%
Accumulated other comprehensive (loss) income		(13,834,764	)		-1.36	%		36,484			0.01	%
Total average shareholders' equity		76,272,407			7.49	%		81,178,694			8.52	%
Total average liabilities and shareholders' equity	$	1,018,601,124			100	%	$	953,195,312			100	%
57
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The following table provides a breakdown of volume changes and percent of change by category for the table on the preceding page. Please refer to the sections labeled “Interest Income and Interest Expense (Net Interest Income)” and “Liquidity and Capital Resources” for more in-depth discussion of significant changes.

Years Ended December 31,	2022			2021			2022 vs 2021
	Average			Average			Volume			% of
Average Assets	Balance			Balance			Change			Change
Cash and due from banks
Non-interest bearing	$	10,931,084		$	18,973,102		$	(8,042,018	)		-42.39	%
Federal funds sold and overnight deposits		65,817,367			88,544,302			(22,726,935	)		-25.67	%
Taxable investment securities		182,184,739			99,075,022			83,109,717			83.89	%
Tax-exempt investment securities		6,954,312			16,806			6,937,506			41279.94	%
Other securities		1,394,776			1,457,046			(62,270	)		-4.27	%
Gross loans		713,273,710			712,806,479			467,231			0.07	%
ALL		(8,174,643	)		(7,657,621	)		(517,022	)		6.75	%
Deferred net loan cost (fees)		347,038			(1,622,871	)		1,969,909			-121.38	%
Premises and equipment		13,348,366			12,725,945			622,421			4.89	%
BOLI		5,110,510			5,027,731			82,779			1.65	%
Goodwill		11,574,269			11,574,269			0			0.00	%
Other assets		15,839,596			12,275,102			3,564,494			29.04	%
Total average assets	$	1,018,601,124		$	953,195,312		$	65,405,812			6.86	%
Average Liabilities
Demand deposits	$	208,367,458		$	201,107,470		$	7,259,988			3.61	%
Interest-bearing transaction accounts		263,632,834			237,055,299			26,577,535			11.21	%
Money market funds		133,732,022			125,339,723			8,392,299			6.70	%
Savings accounts		177,947,216			150,311,147			27,636,069			18.39	%
Time deposits		105,361,424			108,518,120			(3,156,696	)		-2.91	%
Total average deposits		889,040,954			822,331,759			66,709,195			8.11	%
Borrowed funds		1,301,129			2,256,479			(955,350	)		-42.34	%
Repurchase agreements		31,285,927			28,349,896			2,936,031			10.36	%
Junior subordinated debentures		12,887,000			12,887,000			0			0.00	%
Other liabilities		7,813,707			6,191,484			1,622,223			26.20	%
Total average liabilities		942,328,717			872,016,618			70,312,099			8.06	%
Average Shareholders' Equity
Preferred stock		1,500,000			1,500,000			0			0.00	%
Common stock		14,024,620			13,881,464			143,156			1.03	%
Additional paid-in capital		35,731,983			34,711,117			1,020,866			2.94	%
Retained earnings		41,473,345			33,672,406			7,800,939			23.17	%
Less: Treasury stock		(2,622,777	)		(2,622,777	)		0			0.00	%
Accumulated other comprehensive (loss) income		(13,834,764	)		36,484			(13,871,248	)		-38020.09	%
Total average shareholders' equity		76,272,407			81,178,694			(4,906,287	)		-6.04	%
Total average liabilities and shareholders' equity	$	1,018,601,124		$	953,195,312		$	65,405,812			6.86	%
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CERTAIN TIME DEPOSITS

Increments of maturity of time CDs of $250,000 or more outstanding on December 31, 2022 are summarized as follows:

3 months or less	$	3,125,361
Over 3 through 6 months		4,519,073
Over 6 through 12 months		3,918,524
Over 12 months		4,069,100
Total	$	15,632,058

INVESTMENT SECURITIES

The Company maintains an investment portfolio of various securities to diversify its revenue sources, as well as to provide interest rate risk and credit risk diversification and to provide for its liquidity and funding needs. The Company’s portfolio of AFS debt securities increased throughout the reporting periods as deposit growth exceeded loan growth and the Company sought ways to invest the excess cash on hand.

Accounting standards require banks to recognize all appreciation or depreciation of investments classified as either trading securities or AFS, either through the income statement or on the balance sheet even though a gain or loss has not been realized. Securities classified as trading securities are marked to market with any gain or loss net of tax effect, charged to income. The Company's investment policy does not permit the holding of trading securities. Debt securities classified as HTM are recorded at book value, subject to adjustment for OTTI. The Company did not hold any securities HTM during 2022 or 2021.

Debt securities classified as AFS are marked to market with any gain or loss after taxes charged to shareholders’ equity in the consolidated balance sheets. These adjustments in the AFS portfolio resulted in an accumulated unrealized loss net of taxes of $20.7 million at December 31, 2022, compared to an accumulated unrealized loss net of taxes of $1.2 million at December 31, 2021. The fluctuations in unrealized gains and losses are due to market interest rate changes, and are not based on any deterioration in credit quality of the underlying issuers. The Company’s investment portfolio includes Agency MBS in order to realize a more favorable yield in the portfolio and diversify the holdings. Although classified as AFS, the Company anticipates holding these securities until maturity. The unrealized loss positions within the investment portfolio as of the balance sheet dates are considered by management to be temporary and do not affect the calculation of regulatory capital ratios.

The restricted equity securities comprise the Company’s membership stock in the FRBB, FHLBB and ACBI. Membership in the FRBB and FHLBB requires the purchase of their stock in specified amounts. On December 31, 2022 and 2021, the Company held $588,150 in FRBB stock and $733,600 and $756,300, respectively, in FHLBB stock, and $90,000 in ACBI stock. The ACBI stock is required for receipt of correspondent banking services from ACBB at more favorable pricing. These restricted securities in the FRBB, FHLBB and ACBI are typically held for an extended period of time and are subject to strict limitations on resales. FRBB stock may only be sold back to the issuer, while FHLBB stock may only be repurchased by the FHLBB or resold to a member institution and ACBI stock may only be resold to other depository institutions or their holding companies or subsidiaries, or to the FDIC. Restricted equity stock is generally sold and redeemed at par. Due to the unique nature of the restricted equity stock, including the non-investment purpose for owning it, the ownership structure and restrictions and the absence of a trading market for the stock, these securities are not marked to market, but carried at par. The FHLBB stock is subject to capital call provisions.

Some of the Company’s debt securities have a call feature, meaning that the issuer may call in the investment before maturity, at predetermined call dates and prices. In 2022, there were no call features exercised by the issuer, compared to two call features exercised in 2021.

The Company had investments in Agency MBS exceeding 10% of stockholders equity with a book value of $135.2 million and $128.3 million, respectively, and a fair value of $115.2 million and $127.1 million, respectively, at December 31, 2022 and 2021.

59

The following is an analysis of the maturities and the daily average yields of the debt securities AFS in the Company’s investment portfolio for each of the last two fiscal years:

December 31,	2022					2021
			Weighted					Weighted
	Fair		Average			Fair		Average
	Value		Yield			Value		Yield
U.S. GSE debt securities
Due from one to five years	$	4,333,400		1.15	%	$	2,975,634		1.31	%
Due from five to ten years		5,246,398		2.01	%		7,843,475		1.73	%
Due after ten years		795,493		2.69	%		1,009,389		2.42	%
Total	$	10,375,291		1.70	%	$	11,828,498		1.68	%
U.S. Government securities
Due from one to five years	$	38,231,589		1.08	%	$	30,080,264		0.87	%
Due from five to ten years		0		0.00	%		1,960,777		1.14	%
Total	$	38,231,589		1.08	%	$	32,041,041		0.89	%
Taxable Municipal securities
Due after ten years	$	234,858		2.17	%	$	298,733		2.17	%
Tax-exempt Municipal securities
Due after ten years	$	11,323,567		3.79	%	$	831,379		2.35	%
ABS/AOS
Due from five to ten years	$	1,421,632		2.71	%	$	2,214,024		2.84	%
Due after ten years		1,271,974		3.22	%		0		0.00	%
	$	2,693,606		2.95	%	$	2,214,024		2.84	%
CMO
Due from one to five years	$	11,247,053		3.76	%	$	496,008		1.30	%
Due from five to ten years		688,872		0.99	%		924,450		1.01	%
Total	$	11,935,925		3.60	%	$	1,420,458		1.11	%
Other Investments
Due in one year or less	$	1,966,766		3.14	%	$	3,508,582		2.49	%
Due from one to five years		924,908		1.96	%		3,067,223		2.75	%
Total	$	2,891,674		2.77	%	$	6,575,805		2.61	%
Agency MBS (1)	$	115,231,599		1.87	%	$	127,132,521		1.49	%
FRBB Stock (2)	$	588,150		6.00	%	$	588,150		6.00	%
FHLBB Stock (2)	$	733,600		4.20	%	$	756,300		2.05	%
ACBI Stock (2)	$	90,000		0.42	%	$	90,000		0.33	%
(1)	Agency MBS are not due at a single maturity date and have not been allocated to maturity groupings for purposes of the maturity table.
---	---
(2)	Required equity purchases for membership in the FRB System and FHLB System and for access to correspondent banking services from ACBB.
60
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RISK MANAGEMENT

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

Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the Company's net interest income, as well as a variety of other analyses. It is the ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.

Under the Company’s interest rate sensitivity modeling, with the continued asset sensitive balance sheet, in a rising rate environment NII is expected to trend upward as the short-term asset base (cash and adjustable rate loans) quickly cycle upward while the retail funding base (deposits) lags the market. If rates paid on deposits have to be increased more and/or more quickly than projected due to competitive pressures, the expected benefit to rising rates would be reduced. In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs. Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment. Management expects that the current rising rate environment will continue to have a positive impact to the Company’s NII, however some of the benefit will be offset by pressure to increase pricing on the funding side.

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 December 31, 2022:

One Year Horizon		Two Year Horizon
Rate Change	Percent Change in NII	Rate Change	Percent Change in NII
Down 100 basis points	-0.7%	Down 100 basis points	4.4%
Up 200 basis points	-0.5%	Up 200 basis points	9.0%

The estimated amounts shown in the table are within the ALCO Policy limits. However, those amounts do not represent a forecast and should not be relied upon as indicative of future results. While assumptions used in the ALCO process, including the interest rate simulation analyses, are developed based upon current economic and local market conditions, and expected future conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. As the market rates continue to increase, the impact of a falling rate environment would be more pronounced, and the possibility of change in NII becomes more plausible than during the last several years of near zero short rates.

61

As of December 31, 2022, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear a quarterly floating rate of interest equal to the 3-month London Interbank Offered Rate (LIBOR), plus 2.85%. As previously announced by the Financial Conduct Authority in the United Kingdom, the entity that administers LIBOR, 3-month LIBOR for U.S. dollar denominated deposits will be phased out as of June 30, 2023. The Indenture governing the terms of the Company’s Debentures contains detailed fallback provisions in the event 3-month LIBOR is not available, empowering the Trustee to obtain substitute quotations from other leading banks. However, under the federal Adjustable Interest Rate (LIBOR) Act enacted in March 2022 (the “LIBOR Act”), fallback provisions like those in the Company’s Indenture that are based on a “determining person” (such as an indenture trustee) obtaining quotations of interbank lending or deposit rates are deemed “ineffective” and will be replaced as a matter of law, without need to amend contract documents, with a benchmark interest rate that will be identified in final regulations to be promulgated by the Federal Reserve. As required under the LIBOR Act, the Federal Reserve-identified benchmark rates specified in the final regulations for various tenors of LIBOR are based on the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York and each includes an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The replacement benchmark rate for ineffective fallback provisions will take effect on the first London banking day after June 30, 2023, (the “LIBOR Replacement Date”). The Indenture Trustee has informed the Company that it views the fallback provisions in the Indenture as ineffective under the LIBOR Act, and that,, absent an amendment to the Indenture and related Debenture documents to adopt a new interest rate or a change in applicable law, effective on and after the LIBOR Replacement Date, 3-month LIBOR will be replaced by 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161 percent, as specified in the LIBOR Act and FRB regulations. The company does not intend to seek an amendment of the Indenture or other Debenture documents. Accordingly, as of the LIBOR Replacement Date, the Debentures will bear interest at a quarterly floating rate equal to 3-month SOFR, as adjusted by a spread adjustment of 0.26161, plus 2.85%.

Aside from the Debentures, the Company does not have any other exposures to the phase out of LIBOR. The Company has not generally utilized LIBOR as an interest rate benchmark for its variable rate commercial, residential or other loans and does not utilize derivatives or other financial instruments tied to LIBOR for hedging or investment purposes. Accordingly, management expects that the Company’s exposure to the phase out of LIBOR will be limited to the effect on the interest rate paid on its Debentures, but cannot predict with certainty the magnitude of the impact on the Company’s interest expense at this time.

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

Residential mortgages represented 31.1% and 31.3% of the Company’s loan balances at December 31, 2022 and 2021, respectively. The percentage of residential mortgage loans to total loans has been on a gradual decline in recent years, with a strategic shift to commercial lending. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not engage in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-values exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. Junior lien home equity products make up 14.5% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans greater than 80% under an insured loan program with stringent underwriting criteria.

Consistent with the strategic focus on commercial lending, the commercial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial, Purchased, CRE and Municipal loans collectively comprised 68.4% of the Company’s loan portfolio at December 31, 2022, compared to 68.1% at December 31, 2021.

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The Municipal loan portfolio consists of tax-exempt obligations of local municipalities, and is made up of three types of borrowings; term lending, tax anticipation lending, and non-arbitrage borrowing. The portfolio decreased $13.3 million, or 27.8%, to $34.6 million as of December 31, 2022 compared to $48.0 million at December 31, 2021. During 2022, term lending decreased $4.9 million, or 17.6%, tax anticipation lending decreased $251 thousand, or 12.1%, and non-arbitrage borrowing decreased $8.1 million, or 45.5%. The non-arbitrage and tax anticipation loans to municipalities are issued annually on a competitive bid basis; as a result the portfolio can fluctuate considerably from year to year based on changes in competitive pressures.

Growth in the CRE portfolio in recent years has been principally driven by new loan volume in Chittenden County and northern Windsor County around the White River Junction, I91-I89 interchange area. Credits in the Chittenden County market are being managed by two commercial lenders out of the Company’s Burlington loan production office that know the area well*,* while Windsor County is being served by a commercial lender from the St. Johnsbury office with previous lending experience serving the greater White River Junction area. The Company has a loan production office in Lebanon, New Hampshire to provide a presence in the greater White River Junction area including Grafton County, New Hampshire. Larger transactions continue to be centrally underwritten and monitored through the Company’s commercial credit department. The types of CRE transactions driving the growth have been a mix of construction, land and development, multifamily, and other non-owner occupied CRE properties including hotels, retail, office, and industrial properties. The largest components of the $356.9 million CRE portfolio at December 31, 2022 were $102.4 million in owner-occupied CRE and $124.9 million in non-owner occupied CRE.

The Company’s home equity and commercial line of credit portfolios contain for the most part variable rate loans with the Wall Street Journal Prime rate as the underlying index and rates repricing monthly. After a series of rate hikes and decreases over the last 10 years, the Wall Street Journal Prime index ended at 3.25% as of December 31, 2020 and remained constant throughout 2021. In 2022, there were seven rate hikes to end the year at 7.50%. The home equity portfolio and commercial line of credit portfolio have weathered these fluctuations and continue to perform well. Commercial and industrial term loans are generally written on a fixed rate basis with limited risk associated with rising interest rates. CRE loans generally have included an initial fixed rate period typically of 5 years, then enter a variable rate period, usually tied to Wall Street Prime. Approximately $200.2 million of CRE loans are scheduled to reprice over the next five years. Rates based on the current Prime Rate Index will be subject to increases as the fed funds rate increases. Management expects that those loans that may experience rate increases will ultimately refinance or renegotiate pricing, while the increase may adversely impact the repayment capacity of those CRE loans of lesser credit quality and could ultimately result in higher non-performing loans and losses.

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The following tables show the estimated maturity of the Company's loan portfolio as of December 31, 2022.

	Fixed Rate Loans
	Within		2 - 5		6 - 15		Over
	1 Year		Years		Years		15 Years		Total
Commercial & industrial	$	696,242	$	28,735,682	$	17,405,149	$	0	$	46,837,073
Purchased Loans		0		1,451,179		6,079,279		0		7,530,458
Commercial real estate		4,509,870		15,012,858		20,940,608		268,286		40,731,622
Municipal		12,443,656		4,388,381		5,807,412		244,915		22,884,364
Residential real estate - 1st lien		31,830		3,456,678		27,222,257		63,898,056		94,608,821
Residential real estate - Jr lien		6,945		360,497		2,189,373		0		2,556,815
Consumer		704,328		2,348,090		135,189		0		3,187,607
Total Loans	$	18,392,871	$	55,753,365	$	79,779,267	$	64,411,257	$	218,336,760
	Variable Rate Loans
---	---	---	---	---	---	---	---	---	---	---
	Within		2 - 5		6 - 15		Over
	1 Year		Years		Years		15 Years		Total
Commercial & industrial	$	21,487,258	$	29,702,299	$	9,747,850	$	5,177,393	$	66,114,800
Commercial real estate		6,527,917		5,259,024		82,446,817		221,927,606		316,161,364
Municipal		0		0		11,748,691		0		11,748,691
Residential real estate - 1st lien		431,249		1,747,641		18,761,093		83,194,571		104,134,554
Residential real estate - Jr lien		165,408		888,223		11,911,647		18,234,779		31,200,057
Consumer		122,247		408,837		272,674		48,624		852,382
Total Loans	$	28,734,079	$	38,006,024	$	134,888,772	$	328,582,973	$	530,211,848

Risk in the Company’s commercial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. At December 31, 2022 and 2021, the Company had approximately $27.0 million and $42.9 million, respectively, in guaranteed loans with guaranteed balances of approximately $18.3 million and $35.4 million, respectively. Included in the totals are the PPP loans amounting to $200 thousand and $12.2 million, at December 31, 2022 and 2021, respectively, which carry a 100% SBA guarantee.

The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months. Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.

The Company’s TDRs are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only infrequently reduced interest rates for borrowers below the current market rates. The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings. Management evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.

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TDRs that were past due 90 days or more or in non-accrual status as of the dates presented, consisted of the following:

	December 31, 2022				December 31, 2021
	Number of		Principal		Number of		Principal
	Loans		Balance		Loans		Balance
Commercial & industrial		4	$	39,841		6	$	71,128
Commercial real estate		4		1,279,480		5		3,642,073
Residential real estate - 1st lien		8		809,917		12		977,961
Residential real estate - Jr lien		1		35,347		1		41,901
Total		17	$	2,164,585		24	$	4,733,063

The remainder of the Company’s TDRs were performing in accordance with their modified terms as of the date presented and consisted of the following:

	December 31, 2022				December 31, 2021
	Number of		Principal		Number of		Principal
	Loans		Balance		Loans		Balance
Commercial real estate		0	$	0		2	$	41,228
Residential real estate - 1st lien		32		2,679,681		31		2,473,767
Residential real estate - Jr lien		1		2,194		1		3,537
Total		33	$	2,681,875		34	$	2,518,532

ALL and provisions - The Company maintains an ALL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the measurement date (See Note 4 to the accompanying audited consolidated financial statements). Although the Company, in establishing the ALL, considers the inherent losses in individual loans and pools of loans, the ALL is a general reserve available to absorb all credit losses in the loan portfolio. No part of the ALL is segregated to absorb losses from any particular loan or segment of loans.

When establishing the ALL each quarter, the Company applies a combination of historical loss factors and qualitative factors to loan segments, including residential first and junior lien mortgages, CRE, commercial & industrial, purchased loans, and consumer loan portfolios. The Company applies numerous qualitative factors to each segment of the loan portfolio. Those factors include the levels of and trends in delinquencies and non-accrual loans, criticized and classified assets, volumes and terms of loans, and the impact of any loan policy changes. Experience, ability and depth of lending personnel, levels of policy and documentation exceptions, national and local economic trends, the competitive environment, and concentrations of credit are also factors considered.

Specific allocations to the ALL are made for certain impaired loans. Impaired loans include all troubled debt restructurings regardless of amount, and all loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement. The Company reviews all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements. See Note 4 to the accompanying audited consolidated financial statements for information on the recorded investment in impaired loans and their related allocations, the allocation of the ALL, as well as the percent of each loan category to the total loan portfolio. Additionally, the Company does not have any foreign loans in its loan portfolio.

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The following tables summarize the Company's loan loss experience and other credit risk ratios for the dates presented.

	December 31,			December 31,
	2022			2021
ALL to total loans outstanding		1.16	%		1.12	%
ALL	$	8,709,225		$	7,710,256
Loans outstanding	$	748,548,608		$	689,988,533
Non-accruing loans to loans outstanding		1.05	%		0.86	%
Non-accruing loans	$	7,890,020		$	5,940,629
Loans outstanding	$	748,548,608		$	689,988,533
ALL to non-accruing loans		110.38	%		129.79	%
ALL	$	8,709,225		$	7,710,256
Non-accruing loans	$	7,890,020		$	5,940,629

The increase in non-accruing loans in 2022 is attributable to two commercial relationships with significant balances being placed on non-accrual status.

For the Years Ended December 31,	2022			2021
Net recoveries (charge-offs) during the period to average loans outstanding:
Commercial & industrial		-0.05	%		-0.01	%
Net charge-offs during the period	$	(62,763	)	$	(14,086	)
Average amount outstanding	$	116,091,523		$	150,294,275
Purchased loans		0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0
Average amount outstanding	$	8,505,512		$	10,578,453
Commercial real estate		0.00	%		0.00	%
Net recoveries during the period	$	0		$	5,160
Average amount outstanding	$	320,521,501		$	287,099,645
Municipal		0.00	%		0.00	%
Net charge-offs during the period	$	0		$	0
Average amount outstanding	$	43,514,790		$	52,298,379
Residential real estate - 1st lien		0.06	%		-0.05	%
Net recoveries (charge-offs) during the period	$	111,763		$	(91,068	)
Average amount outstanding	$	187,505,201		$	172,144,846
Residential real estate - Jr lien		0.02	%		0.03	%
Net recoveries during the period	$	5,089		$	10,821
Average amount outstanding	$	33,330,146		$	36,121,958
Consumer		-0.91	%		-0.85	%
Net charge-offs during the period	$	(33,120	)	$	(33,221	)
Average amount outstanding	$	3,628,454		$	3,916,272
Total loans		0.00	%		-0.02	%
Net recoveries (charge-offs) during the period	$	20,969		$	(122,394	)
Average amount outstanding	$	713,097,126		$	712,453,828
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---

The fourth quarter ALL analysis indicated that the reserve balance of $8.7 million at December 31, 2022 is sufficient to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $102 thousand. Management believes the reserve balance and unallocated amount continue to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. The portion of the ALL termed "unallocated" is established to absorb inherent losses that exist as of the measurement date although not specifically identified through management's process for estimating credit losses. While the ALL is described as consisting of separate allocated portions, the entire ALL is available to support loan losses, regardless of category. Unallocated reserves are considered by management to be appropriate as of the measurement date in light of the Company’s continued growth strategy and shift in the portfolio from residential loans to commercial and industrial and CRE loans and the risk associated with the relatively new, unseasoned loans in those portfolios. The adequacy of the ALL is reviewed quarterly by the risk management committee of the Board and then presented to the full Board for approval.

As of January 1, 2023, the Company transitioned from the incurred loss model for recognizing credit losses to the current expected credit (CECL) model. (See Note 2 to the accompanying audited consolidated financial statements.)

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

COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and risk-sharing commitments on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. During 2022, the Company did not engage in any activity that created any additional types of off-balance-sheet risk.

The Company generally requires collateral or other security to support financial instruments with credit risk. The Company's financial instruments whose contract amount represents credit risk are disclosed in Note 17 to the accompanying audited consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations. Maintaining a relatively stable funding base, which is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Company’s exposure to roll over 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 funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and low-cost funds.

The Company recognizes that, at times, when loan demand exceeds deposit growth or the Company has other liquidity demands, it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and borrowings. One-way deposits acquired through the CDARS program provide an alternative funding source when needed. The Company had no one-way CDARS outstanding at December 31, 2022 or 2021. In addition, two-way (that is, reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, allow the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits by exchanging deposits with other participating FDIC-insured financial institutions. At December 31, 2022 and 2021, the Company reported $2.8 million and $3.6 million, respectively, in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was $29.5 million and $15.3 million at December 31, 2022 and 2021, respectively, and the balance in ICS reciprocal demand deposits as of those dates was $85.3 million and $70.8 million, respectively.

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The Company had two blocks of DTC Brokered CDs totaling $2.3 million and $1.4 million, which matured in January, 2021 and April, 2021, respectively. These blocks were not replaced, leaving no DTC Brokered CDs outstanding at the balance sheet dates. Although wholesale deposit funding through DTC is an important supplemental source of liquidity that has proven efficient, flexible and cost-effective when compared with other borrowing methods, the growth in deposits during 2021 and 2022 has reduced the Company’s need for supplementary funding sources in the near term.

To further manage liquidity, the Company has borrowing capacity through the FHLBB and the FRB secured by the Company’s qualifying loan portfolio, as well as unsecured lines of credit through correspondent banks. (See Note 11 to the accompanying audited consolidated financial statements.)

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

Balance at December 31, 2021 (book value $15.48 per common share)	$	84,760,268
Net income		13,739,940
Issuance of common stock through the DRIP		1,210,599
Dividends declared on common stock		(4,967,035	)
Dividends declared on preferred stock		(66,563	)
Change in AOCI on AFS securities, net of tax		(19,500,846	)
Balance at December 31, 2022 (book value $13.55 per common share)	$	75,176,363

The primary objective of the Company’s capital planning process is to balance appropriately the retention of capital to support operations and future growth, with the goal of providing shareholders an attractive return on their investment. To that end, management monitors capital retention and dividend policies on an ongoing basis.

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Company's and the Bank's financial statements. Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items, as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Additional Prompt Corrective Action capital requirements are applicable to banks, but not bank holding companies. (See Note 22 to the accompanying audited consolidated financial statements.)

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Common Stock Performance by Quarter*

	2022								2021
Trade Price	First		Second		Third		Fourth		First		Second		Third		Fourth
High	$	24.99	$	25.00	$	20.26	$	19.50	$	19.99	$	22.90	$	22.60	$	20.64
Low	$	21.00	$	19.25	$	18.25	$	17.40	$	14.50	$	18.50	$	18.30	$	19.00
	2022								2021
---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---	---
Bid Price	First		Second		Third		Fourth		First		Second		Third		Fourth
High	$	22.98	$	23.15	$	20.25	$	19.10	$	18.18	$	21.00	$	21.00	$	20.20
Low	$	20.25	$	19.55	$	18.00	$	17.40	$	14.55	$	18.50	$	18.35	$	19.00
Cash Dividends Declared	$	0.23	$	0.23	$	0.23	$	0.23	$	0.22	$	0.22	$	0.22	$	0.22

*The Company's common stock is not traded on any exchange. However, the Company’s common stock is included in the OTCQX® marketplace tier maintained by the OTC Markets Group Inc. Trade and bid information for the stock appears in the OTC’s interdealer quotation system, OTC Link ATS®. The trade price and bid information in the table above is based on information reported by participating FINRA-registered brokers in the OTC Link ATS® system and may not represent all trades or high and low bids during the relevant periods. Such price quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and bid prices do not necessarily represent actual transactions. The OTC trading symbol for the Company’s common stock is CMTV.

As of February 1, 2023, there were 5,421,386 shares of the Corporation's common stock ($2.50 par value) outstanding, owned by 801 shareholders of record.

Form 10-K

A copy of the Form 10-K Report filed with the Securities and Exchange Commission may be obtained without charge upon written request to:

Kathryn M. Austin, President & CEO

Community Bancorp.

4811 US Route 5

Newport, Vermont 05855

Shareholder Services

For shareholder services or information contact:

Melissa Tinker, Assistant Corporate Secretary

Community Bancorp.

4811 US Route 5

Newport, Vermont 05855

(802) 334-7915

Transfer Agent:

Computershare Investor Services

PO Box 43078

Providence, RI 02940-3078

www.computershare.com

Annual Shareholders' Meeting

The 2023 Annual Shareholders' Meeting, will be a Virtual Annual Meeting to be held on May 16, 2023, at 2:00 PM.

69

cmtv_ex21.htm EXHIBIT 21

Subsidiaries of the Company

The wholly-owned subsidiary of Community Bancorp. is Community National Bank, a national banking association incorporated under the Banking Laws of The United States. Community National Bank is considered to be a "significant subsidiary" of Community Bancorp., within the meaning of Rule 1-02(w) of SEC Regulation S-X.

The unconsolidated subsidiary of Community Bancorp. is CMTV Statutory Trust I, a Delaware statutory business trust.

cmtv_ex23.htm EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the inclusion in this Annual Report (Form 10-K) of Community Bancorp. and Subsidiary of our report dated March 27, 2023 with respect to the consolidated financial statements as of December 31, 2022, included in the 2022 Annual Report to Shareholders of Community Bancorp. and Subsidiary.

We also consent to the incorporation by reference in the Registration Statement (Form S-3 No. 333-160875 and No. 333-214340) pertaining to the Community Bancorp Dividend Reinvestment Plan and in the Registration Statement (Form S-8 No. 333-133631 and No. 333-212977) pertaining to the Community Bancorp Retirement Savings Plan of our report dated March 27, 2023, with respect to the consolidated financial statements, incorporated therein by reference, of Community Bancorp. and Subsidiary included in the Annual Report (Form 10‑K) for the year ended December 31, 2022.

Portland, Maine

March 27, 2023

Vermont Registration No. 92-0000278

cmtv_ex311.htm EXHIBIT 31.1

CERTIFICATION

I, Kathryn M. Austin, President and Chief Executive Officer (Principal Executive Officer), certify that:

1.	I have reviewed this annual report on Form 10-K of Community Bancorp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	Community Bancorp.
March 27, 2023	/s/ Kathryn M. Austin

| | Kathryn M. Austin, |

| | President & Chief Executive Officer |

| | (Principal Executive Officer) |

cmtv_ex312.htm EXHIBIT 31.2

CERTIFICATION

I, Louise M. Bonvechio, Corporate Secretary and Treasurer (Principal Financial Officer), certify that:

1.	I have reviewed this annual report on Form 10-K of Community Bancorp.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	Community Bancorp.
March 27, 2023	/s/ Louise M. Bonvechio

| | Louise M. Bonvechio |

| | Corporate Secretary and Treasurer |

| | (Principal Financial Officer) |

cmtv_ex321.htm EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U. S. C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Community Bancorp. (the Company) on Form 10-K for the period ended December 31, 2022, filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Principal Executive Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

A signed original of this written statement required by Section 906 has been provided to Community Bancorp. and will be retained by Community Bancorp. and furnished to the Securities and Exchange Commission or its staff upon request.

	Community Bancorp.
March 27, 2023	/s/ Kathryn M. Austin

| | Kathryn M. Austin, |

| | President & Chief Executive Officer |

| | (Principal Executive Officer) |

cmtv_ex322.htm EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U. S. C. SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Community Bancorp. (the Company) on Form 10-K for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned Principal Financial Officer of the Company hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and 2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods covered in the Report.

	Community Bancorp.
March 27, 2023	/s/ Louise M. Bonvechio

| | Louise M. Bonvechio |

| | Corporate Secretary and Treasurer |

| | (Principal Financial Officer) |