2019 Annual Report
Community Bancorp. and Subsidiary
Table of Contents
Management’s Report on Internal Controls Over Financial Reporting…………………………. .................................... 2
Independent Auditor’s Report………………………………………………………………………...................................... 3
Financial Statements:
Consolidated Balance Sheets…………………………………………………………………….................................... 5
Consolidated Statements of Income……………………………………………………………..................................... 6
Consolidated Statements of Comprehensive Income………………………………………….................................... 7
Consolidated Statements of Changes in Shareholders’ Equity……………………………….................................... 8
Consolidated Statements of Cash Flows………………………………………………………. .................................. 10
Notes to Consolidated Financial Statements………………………………………………….. .................................. 12
Management’s Discussion and Analysis of the Results of Operation…………………………..................................... 52
Common Stock Performance by Quarter…………………………………………………………... ................................. 83
Other Shareholder Information ................................................................................................................................... 83
Dear Shareholders and Friends:
Community Bancorp. and Community National Bank had another excellent year in 2019, posting loan and deposit
growth and improved profitability. As of year-end 2019, the Company’s capital ratios exceeded all regulatory
requirements, and we continue to be considered a “well-capitalized” institution. This designation is important to us,
to our regulators and to you. We are very pleased with these results.
We share our current success with the bankers who came before us and who taught us the fundamentals of
community banking that we continue to employ. We are grateful to our officers and employees for their competence
and commitment to our bank, our customers and our shareholders.
Thank you to our shareholders and friends whose confidence and support allow us to continue our work.
Sincerely,
Kathryn M. Austin
President and Chief Executive Officer
Community Bancorp. and Community National Bank
2019 Annual Report 1
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 Board of Directors’ Audit Committee.
Management has made a comprehensive review, evaluation, and assessment of the Company’s internal control
over financial reporting as of December 31, 2019. 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, 2019.
Berry Dunn McNeil & Parker, LLC, an independent registered public accounting firm, which has audited and
reported on the consolidated financial statements contained in this Form 10-K, has issued its written audit report
on the Company’s internal control over financial reporting which follows this report.
Ms. Kathryn M. Austin, President & Chief Executive Officer
(Principal Executive Officer)
Ms. Louise M. Bonvechio, Corporate Secretary & Treasurer
(Principal Financial Officer)
2
Community Bancorp. and SubsidiarySection TitleCommunity Bancorp.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Community Bancorp. and Subsidiary
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Community Bancorp. and Subsidiary (the
Company) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive
income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively
referred to as the financial statements). We have also audited the Company’s internal control over financial reporting
as of December 31, 2019, based on criteria established in the Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position
of Community Bancorp. and Subsidiary as of December 31, 2019 and 2018, and the results of their operations and
their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as
of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by
COSO.
Basis for Opinion
The Company’s management is responsible for these financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control
over financial reporting 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 audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
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. Our audit of
internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
2019 Annual Report 3
Board of Directors and Shareholders
Community Bancorp. and Subsidiary
Page 2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
We have served as the Company’s auditor since 2003.
Portland, Maine
March 16, 2020
Vermont Registration No. 92-0000278
Maine • New Hampshire • Massachusetts • Connecticut • West Virginia • Arizona
berrydunn.com
4
Community Bancorp.
Community Bancorp. and Subsidiary
Consolidated Balance Sheets
Assets
Cash and due from banks
Federal funds sold and overnight deposits
Total cash and cash equivalents
Securities available-for-sale
Restricted equity securities, at cost
Loans
Allowance for loan losses
Deferred net loan costs
Net loans
Bank premises and equipment, net
Accrued interest receivable
Bank owned life insurance
Goodwill
Other real estate owned
Other assets
Total assets
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing
Interest-bearing transaction accounts
Money market funds
Savings
Time deposits, $250,000 and over
Other time deposits
Total deposits
Borrowed funds
Repurchase agreements
Junior subordinated debentures
Accrued interest and other liabilities
Total liabilities
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 and 20 shares issued and
outstanding at December 31, 2019 and 2018, respectively
($100,000 liquidation value, per share)
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,449,857
and 5,382,103 shares issued at December 31, 2019 and 2018, respectively
(including 16,267 and 17,442 shares issued February 1, 2020 and 2019,
respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Less: treasury stock, at cost; 210,101 shares at December 31, 2019 and 2018
Total shareholders' equity
Total liabilities and shareholders' equity
December 31,
2019
December 31,
2018
$
$
10,263,535
38,298,677
48,562,212
45,966,750
1,431,850
606,988,937
(5,926,491)
362,415
601,424,861
10,959,403
2,336,553
4,903,012
11,574,269
966,738
9,829,671
737,955,319
$
14,906,529
53,028,286
67,934,815
39,366,831
1,749,450
578,450,517
(5,602,541)
363,614
573,211,590
9,713,455
2,300,841
4,814,099
11,574,269
201,386
9,480,762
$ 720,347,498
$ 125,089,403
185,102,333
91,463,661
97,167,652
14,565,559
101,632,760
615,021,368
2,650,000
33,189,848
12,887,000
5,312,424
669,060,640
$ 122,430,805
177,815,417
85,261,685
93,129,875
14,395,291
115,783,492
608,816,565
1,550,000
30,521,565
12,887,000
3,968,657
657,743,787
1,500,000
2,000,000
13,624,643
33,464,381
22,667,949
260,483
(2,622,777)
68,894,679
$ 737,955,319
13,455,258
32,536,532
17,882,282
(647,584)
(2,622,777)
62,603,711
$ 720,347,498
Book value per common share outstanding
$ 12.86
$
11.72
The accompanying notes are an integral part of these consolidated financial statements.
2019 Annual Report 5
Community Bancorp. and Subsidiary
Consolidated Statements of Income
Interest income
Interest and fees on loans
Interest on taxable debt securities
Dividends
Interest on federal funds sold and overnight deposits
Total interest income
Interest expense
Interest on deposits
Interest on borrowed funds
Interest on repurchase agreements
Interest on junior subordinated debentures
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Service fees
Income from sold loans
Other income from loans
Net realized loss on sale of securities AFS
Other income
Total non-interest income
Non-interest expense
Salaries and wages
Employee benefits
Occupancy expenses, net
Other expenses
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Earnings per common share
Weighted average number of common shares
used in computing earnings per share
Dividends declared per common share
Years Ended December 31,
2019
2018
$
29,883,352
1,089,201
100,609
685,646
31,758,808
$
27,609,505
895,165
125,973
483,960
29,114,603
5,124,651
24,550
299,347
694,573
6,143,121
25,615,687
1,066,167
24,549,520
3,313,833
706,306
904,156
(26,490)
1,048,261
5,946,066
7,271,722
3,118,631
2,605,995
6,884,932
19,881,280
10,614,306
1,789,860
8,824,446
1.68
5,204,768
0.76
$
$
$
3,547,798
95,936
190,993
650,361
4,485,088
24,629,515
780,000
23,849,515
3,238,954
780,622
879,887
(32,718)
1,314,563
6,181,308
7,203,001
2,880,048
2,545,959
7,266,018
19,895,026
10,135,797
1,738,265
8,397,532
1.61
5,139,297
0.74
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
6
Community Bancorp.
Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
Net income
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities AFS
arising during the period
Reclassification adjustment for loss realized in income
Unrealized gain (loss) during the period
Tax effect
Other comprehensive income (loss), net of tax
Total comprehensive income
Years Ended December 31,
2019
2018
$ 8,824,446
$ 8,397,532
1,122,961
26,490
1,149,451
(241,384)
908,067
$ 9,732,513
(505,487)
32,718
(472,769)
99,282
(373,487)
$ 8,024,045
The accompanying notes are an integral part of these consolidated financial statements.
2019 Annual Report 7
Community Bancorp. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2019 and 2018
Common stock
Preferred stock
Shares
Amount
Shares
Amount
Balances, December 31, 2017
5,322,320 $ 13,305,800
25 $ 2,500,000
Comprehensive income
Net income
Other comprehensive loss
Total comprehensive income
0
0
0
0
Cash dividends declared - common stock
Cash dividends declared - preferred stock
Issuance of common stock
0
0
59,783
0
0
149,458
0
0
0
0
0
0
0
0
0
0
Redemption of preferred stock
0
0
(5)
(500,000)
Balances, December 31, 2018
5,382,103 13,455,258
20
2,000,000
Comprehensive income
Net income
Other comprehensive income
Total comprehensive income
0
0
0
0
Cash dividends declared - common stock
Cash dividends declared - preferred stock
Issuance of common stock
0
0
67,754
0
0
169,385
0
0
0
0
0
0
0
0
0
0
Redemption of preferred stock
0
0
(5)
(500,000)
Balances, December 31, 2019
5,449,857 $ 13,624,643
15 $ 1,500,000
8
Community Bancorp.
Community Bancorp. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (continued)
Years Ended December 31, 2019 and 2018
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
(loss) income
Treasury
stock
Total
shareholders’
equity
$
31,639,189
$ 13,387,739
$
(274,097)
$
(2,622,777)
$ 57,935,854
0
0
8,397,532
0
0
(373,487)
0
0
897,343
(3,799,864)
(103,125)
0
0
0
0
0
0
0
0
0
0
0
0
0
8,397,532
(373,487)
8,024,045
(3,799,864)
(103,125)
1,046,801
(500,000)
32,536,532
17,882,282
(647,584)
(2,622,777)
62,603,711
0
0
8,824,446
0
0
908,067
0
0
927,849
(3,951,279)
(87,500)
0
0
0
0
0
0
0
0
0
0
0
0
0
8,824,446
908,067
9,732,513
(3,951,279)
(87,500)
1,097,234
(500,000)
$
33,464,381
$ 22,667,949
$
260,483
$
(2,622,777)
$ 68,894,679
The accompanying notes are an integral part of these consolidated financial statements.
2019 Annual Report 9
Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows
Cash Flows from Operating Activities:
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, bank premises and equipment
Provision for loan losses
Deferred income tax
Net realized loss on sale of securities AFS
Gain on sale of loans
Loss (gain) on sale of bank premises and equipment
Loss on sale of OREO
Income from CFS Partners
Amortization of bond premium, net
Write down of OREO
Proceeds from sales of loans held for sale
Originations of loans held for sale
Increase (decrease) in taxes payable
Increase in interest receivable
Decrease in mortgage servicing rights
Decrease in right-of-use assets
Decrease in operating lease liabilities
Decrease (increase) in other assets
Increase in cash surrender value of BOLI
Amortization of limited partnerships
Decrease (increase) in unamortized loan costs
Increase in interest payable
Increase in accrued expenses
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales
Purchases
Proceeds from redemption of restricted equity securities
Purchases of restricted equity securities
Increase in limited partnership contributions payable
Investments in limited liability entities
Increase in loans, net
Capital expenditures net of proceeds from sales of bank
premises and equipment
Proceeds from sales of OREO
Recoveries of loans charged off
Net cash used in investing activities
Years Ended December 31,
2018
2019
$
8,824,446
$
8,397,532
930,035
1,066,167
96,236
26,490
(290,116)
30,797
817
(588,696)
120,295
95,008
14,098,560
(13,808,444)
522
(35,712)
65,371
236,395
(227,606)
335,167
(88,913)
312,106
1,199
26,204
66,100
(45,772)
11,246,656
19,998,076
(25,595,329)
493,600
(176,000)
184,000
(811,000)
(30,365,217)
(952,396)
105,561
117,842
(37,000,863)
981,691
780,000
(11,359)
32,718
(345,780)
(260,013)
2,397
(514,485)
128,469
78,447
14,793,920
(13,410,853)
(23,758)
(248,923)
78,338
0
0
(790,320)
(92,317)
411,061
(44,963)
12,524
149,648
62,805
10,166,779
8,543,078
(10,093,214)
1,147,500
(1,193,300)
388,750
(877,000)
(27,835,972)
(90,957)
335,056
126,462
(29,549,597)
10 Community Bancorp.
Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows (continued)
Cash Flows from Financing Activities:
Net increase in demand and interest-bearing transaction accounts
Net increase (decrease) in money market and savings accounts
Net (decrease) increase in time deposits
Net increase in repurchase agreements
Proceeds from long-term borrowings
Repayments on long-term borrowings
Decrease in finance lease obligations
Redemption of preferred stock
Dividends paid on preferred stock
Dividends paid on common stock
Net cash provided by financing activities
2019
2018
9,945,514
10,239,753
(13,980,464)
2,668,283
1,100,000
0
(166,924)
(500,000)
(87,500)
(2,837,058)
6,381,604
50,367,124
(12,516,729)
10,331,190
1,873,717
0
(2,000,000)
(115,060)
(500,000)
(103,125)
(2,672,985)
44,664,132
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents:
Beginning
Ending
(19,372,603)
25,281,314
67,934,815
48,562,212
$
42,653,501
67,934,815
$
Supplemental Schedule of Cash Paid During the Period:
Interest
$ 6,116,917
$
4,472,564
Income taxes, net of refunds
$ 1,381,000
$
1,365,000
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized gain (loss) on securities AFS
$ 1,149,451
$
(472,769)
Loans transferred to OREO
$
966,738
$
333,051
Common Shares Dividends Paid:
Dividends declared
Increase in dividends payable attributable to dividends declared
Dividends reinvested
$
$
3,951,279
(16,987)
(1,097,234)
2,837,058
$
$
3,799,864
(80,078)
(1,046,801)
2,672,985
The accompanying notes are an integral part of these consolidated financial statements.
2019 Annual Report 11
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement
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 (US 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 and OAS: Asset backed or other amortizing security
ACBB:
ACBI:
ACH:
AFS:
Agency MBS: MBS issued by a US government agency
Atlantic Community Bankers Bank
Atlantic Community Bancshares, Inc.
Automated Clearing House
Available-for-sale
ALCO:
ALL:
AML:
AOCI:
ASC:
ASU:
ATMs:
Bancorp:
Bank:
BHG
BIC:
Board:
BOLI:
bp or bps:
BSA:
CBLR:
CDARS:
HMDA:
HTM:
ICS:
or GSE
Asset Liability Committee
Allowance for loan losses
Anti-money laundering laws
Accumulated other comprehensive income GSE:
Accounting Standards Codification
Accounting Standards Update
Automatic teller machines
Community Bancorp.
Community National Bank
Bankers Healthcare Group
Borrower-in-Custody
Board of Directors
Bank owned life insurance
Basis point(s)
Bank Secrecy Act
Community Bank Leverage Ratio
Certificate of Deposit Accounts Registry
Service of the Promontory Interfinancial
Network
Certificates of deposit
Core deposit intangible
Current Expected Credit Loss
Credit Enhancement Obligation
Consumer Financial Protection Bureau
Community Financial Services Group, LLC QM(s):
IRS:
JNE:
Jr:
LIBOR:
LLC:
MBS:
MPF:
MSAs
MSRs:
NII:
NMTC:
OCI:
OFAC:
OREO:
OTTI:
PMI:
CDs:
CDI:
CECL:
CEO:
CFPB:
CFSG:
CFS Partners: Community Financial Services
Partners, LLC
Community Bancorp. and Subsidiary
Community Reinvestment Act
Commercial Real Estate
Company:
CRA:
CRE:
DDA or DDAs: Demand Deposit Account(s)
DIF:
DTC:
DRIP:
Exchange Act: Securities Exchange Act of 1934
FASB:
FDIA:
FDIC:
FDICIA:
Financial Accounting Standards Board
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
Federal Deposit Insurance Company
Improvement Act of 1991
Deposit Insurance Fund
Depository Trust Company
Dividend Reinvestment Plan
FHA:
FHLBB:
FHLMC :
FICO:
FLA:
FOMC:
FRB:
FRBB:
GAAP:
Federal Housing Administration
Federal Home Loan Bank of Boston
Federal Home Loan Mortgage Corporation
Financing Corporation
First Loss Account
Federal Open Market Committee
Federal Reserve Board
Federal Reserve Bank of Boston
Generally Accepted Accounting Principles
in the United States
Government sponsored enterprise
Home Mortgage Disclosure Act
Held-to-maturity
Insured Cash Sweeps of the Promontory
Interfinancial Network
Internal Revenue Service
Jobs for New England
Junior
London Interbank Offered Rate
Limited liability corporation
Mortgage-backed security
Mortgage Partnership Finance
Metropolitan Statistical Areas
Mortgage servicing rights
Net interest income
New Market Tax Credits
Other comprehensive income (loss)
Office of Foreign Asset Control
Other real estate owned
Other-than-temporary impairment
Private mortgage insurance
Qualified Mortgage(s)
USDA Rural Development
Real Estate Settlement Procedures Act
U.S. Small Business Administration
U.S. Securities and Exchange Commission
Supplemental Employee Retirement Plan
Sarbanes-Oxley Act of 2002
Troubled-debt restructuring
Truth in Lending Act
U.S. Department of Agriculture
U.S. Veterans Administration
Variable interest entities
RD:
RESPA:
SBA:
SEC:
SERP:
SOX:
TDR:
TILA:
USDA:
VA:
VIE:
2017 Tax Act: Tax Cut and Jobs Act of 2017
2018
Regulatory
Relief Act:
Economic Growth, Regulatory Relief
and Consumer Protection Act
of 2018
12 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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” under the disclosure rules of the SEC, as amended in 2018. Accordingly, the
Company has elected to provide its audited consolidated statements of income, comprehensive income, cash
flows and changes in shareholders’ equity for a two year, rather than a three year, period, and intends to provide
smaller reporting company scaled disclosures where management deems it appropriate. Beginning with its periodic
reports filed in 2018, the Company is considered an accelerated filer under the financial reporting rules of the SEC.
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 11).
During the years 2011 through 2018, the Company was the sole owner of a LLC formed to facilitate the Company’s
purchase of federal NMTC under an investment structure designed by a local community development entity. The
NMTC financing matured in the fourth quarter of 2018 and the Company exited the investment and terminated its
interest in the LLC. Management evaluated the Company’s interest in the LLC under the ASC guidance relating
to VIEs in light of the overall structure and purpose of the NMTC financing transaction and concluded that the LLC
should not be consolidated in the Company’s financial statements for financial reporting purposes, as the Company
was not the primary beneficiary of the NMTC structure, did not exercise control within the overall structure and was
not obligated to absorb a majority of any losses of the NMTC structure (see Note 8).
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’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 attempts 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. 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.
Use of estimates
The preparation of consolidated financial statements in conformity with US 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
2019 Annual Report 13
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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 relate 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 are 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.
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.
14 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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
Change in Accounting Principle
Prior to 2019, the entire balance of the Company’s HTM investment portfolio consisted of Municipal notes.
Effective January 1, 2019, and in accordance with ASC 250 (Accounting Changes and Error Corrections), the
Company chose to reclassify these debt instruments from the investment portfolio into the loan portfolio. This
change represents a voluntary reclassification of municipal debt instruments from classification as investment
securities under ASC 320 (Investments – Debt and Equity Securities) to classification as loans under ASC 310
(Receivables). All periods presented have been restated to conform to this change. Accordingly, for all periods
presented below, the Company’s investment portfolio consists entirely of AFS investments and municipal debt
obligations are reported as a component of the Company’s loan portfolio (See Note 3). The reclassification of the
municipal debt instruments in this portfolio did not have a material impact on the Company’s consolidated financial
statements or results of operations.
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 and equity
securities. Premiums and discounts are recognized in interest income using the interest method over the period to
maturity or call date. The Company does not hold any securities purchased for the purpose of selling in the near term
and classified as trading. As a result of the reclassification noted in the first paragraph of this section, the Company
does not hold 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.
Other investments
In December 2011, the Company made an equity investment in a NMTC financing structure, which was fully
amortized in 2017 (see Note 8). The Company’s investment in the NMTC financing structure was amortized using
the effective yield method.
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 8). The Company’s investment in CFS Partners is accounted for under the
equity method of accounting.
2019 Annual Report 15
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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
As disclosed earlier in Note 1 under the heading “Investment Securities”, effective January 1, 2019 and in
accordance with ASC 250 (Accounting Changes and Error Corrections), the Company chose to reclassify its
municipal debt instruments from the investment portfolio into the loan portfolio. This change represents a voluntary
reclassification of municipal debt instruments by management from classification as investment securities under
ASC 320 (Investments – Debt and Equity Securities) to classification as loans under ASC 310 (Receivables). As
stated earlier in this section, the reclassification of this portfolio did not have a material impact on the Company’s
consolidated financial statements or results of operations.
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.
Loan premiums and discounts on loans acquired in the merger with LyndonBank were amortized as an adjustment
to yield on loans. At December 31, 2019, the remainder of these premiums and discounts were fully amortized.
16 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Allowance for loan losses
The ALL is established through a provision for loan losses charged to earnings. Loan losses are charged against
the allowance when management believes that future payments of a loan balance are unlikely. Subsequent
recoveries, if any, are credited to the allowance.
Unsecured loans, 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 consists of general, specific and unallocated components. However, the
entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocated
components considered in determining the amount of the allowance.
General component
The general component of the ALL is based on historical loss experience and various qualitative factors and is
stratified by the following loan segments: commercial and industrial, CRE, 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 for one year, two year, three year, four year and five year 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. The Company is currently using an extended look
back period of 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.
2019 Annual Report 17
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured
by either owner-occupied, or non-owner occupied CRE. A relatively small portion of this segment includes farm
loans secured by farm land and buildings. As with commercial and industrial loans, repayment of owner-occupied
CRE loans is expected from the cash flows of the business and the segment would be impacted by the same risk
factors as commercial and industrial loans. The non-owner occupied CRE portion includes both residential and
commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and
commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout;
the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan
origination. Real estate development loans are generally repaid from the sale of the subject real property as the
project progresses. Construction and development lending entail additional risks, including the project exceeding
budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not
meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the
cash flow generated by rental payments received from the individuals or businesses occupying the real estate.
CRE loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating
incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector
can be affected by weather conditions, such as unseasonably low winter snowfalls. CRE lending also carries a
higher degree of environmental risk than other real estate lending.
Municipal – Loans in this segment are made to local municipalities, attributable to municipal financing transactions
and backed by the full faith and credit of town governments or dedicated governmental revenue sources, with no
historical losses recognized by the Company.
Residential Real Estate - 1st Lien – All 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 – All 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 loan(s) 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 impaired basis 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
18 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
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.
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.
2019 Annual Report 19
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
Comprehensive income
US 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.
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 and
20 shares of preferred stock outstanding as of December 31, 2019 and 2018, respectively. 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 4.50% was in effect for the first quarter
of 2018, with increases during 2018 on a quarterly basis, to a rate of 5.25% for the fourth quarter of 2018. The
variable rate increased to 5.50% for the dividend payments due in each of the first three quarters of 2019, followed
by a decrease to a rate of 5.00% for the dividend payment in the fourth quarter of 2019. The rate that will be in
effect for the first quarter of 2020 is 4.75%. The Company redeemed five shares of preferred stock on March 31,
2019 and 2018, at a redemption price of $500,000 for each such partial redemption, plus accrued dividends.
20 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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,
Net income, as reported
Less: dividends to preferred shareholders
Net income available to common shareholders
Weighted average number of common shares
used in calculating earnings per share
Earnings per common share
Off-balance-sheet financial instruments
2019
2018
$
$
$
8,824,446
87,500
8,736,946
5,204,768
1.68
$
$
$
8,397,532
103,125
8,294,407
5,139,297
1.61
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.
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.
Impact of recently issued accounting standards
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The ASU was issued to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. In July 2018, the FASB amended the
updated guidance and provided an additional transition method for adoption of the guidance. The ASU is effective
for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The ASU
and related guidance became effective for the Company on January 1, 2019. The impact of adopting this ASU was
not material to the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. Under the new guidance, which will replace the existing incurred loss
model for recognizing credit losses, banks and other lending institutions will be required to recognize the full
amount of expected credit losses. The new guidance, which is referred to as the current expected credit loss, or
CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted
for at amortized cost be measured and recognized based on historical experience and current and reasonably
supportable forecasted conditions to reflect the full amount of expected credit losses. A modified version of these
requirements also applies to debt securities classified as available for sale, which will require that credit losses on
2019 Annual Report 21
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
those securities be recorded through an allowance for credit losses rather than a write-down. The ASU and related
guidance may have a material impact on the Company’s consolidated financial statements upon adoption as it will
require a change in the Company’s methodology for calculating its ALL and allowance on unused commitments.
The Company will transition from an incurred loss model to an expected loss model, which will likely result in an
increase in the ALL upon adoption and may negatively impact the Company’s and the Bank’s regulatory capital
ratios. The Company has formed a committee to assess the implications of this new pronouncement and transitioned
to a software solution for preparing the ALL calculation and related reports that management believes provides
the Company with stronger data integrity, ease and efficiency in ALL preparation. The new software solution also
provides numerous training opportunities for the appropriate personnel within the Company. The Company has
gathered and is continuing to analyze the historical data to serve as a basis for estimating the ALL under CECL
and continues to evaluate the impact of the adoption of the ASU on its consolidated financial statements. As
initially proposed, the ASU was to be effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years, with early adoption permitted for fiscal years beginning after December 15, 2018,
including interim periods within such years. However, in November 2019, the FASB issued ASU No. 2019-10,
Financial Instruments-Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842).
The ASU extends the effective date for compliance with the ASU by smaller reporting companies, which are now
required to comply with the ASU for fiscal years beginning after December 15, 2022, including interim periods
within those fiscal years, with early adoption permitted. The Company qualifies for this extension and does not
intend to early adopt the ASU at this time. Management will continue to evaluate the Company’s CECL compliance
and implementation timetable in light of the extension.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment. The ASU was issued to reduce the cost and complexity of the goodwill impairment
test. To simplify the subsequent measurement of goodwill, step two of the goodwill impairment test was eliminated.
Instead, a company will recognize an impairment of goodwill should the carrying value of a reporting unit exceed its
fair value (i.e., step one). As initially proposed, the ASU was to be effective for the Company on January 1, 2020;
however similar to ASU No. 2016-13, the effective date for this ASU was also extended and will be effective for the
Company on January 1, 2023. The Company has evaluated the impact of this ASU and as permitted, plans to early
adopt on January 1, 2020, with no material impact expected on its consolidated financial statements.
The Company has goodwill from its acquisition of LyndonBank in 2007 and performs an impairment test annually
or more frequently if circumstances warrant (see Note 7).
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—
Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies
certain disclosure requirements for fair value measurements as part of its disclosure framework project. The
standard is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within
those fiscal years. Early adoption is permitted. The ASU became effective for the Company on January 1, 2020.
The Company does not anticipate that adoption of this ASU will have any material impact on its consolidated
financial statements.
Note 2. Investment Securities
Change in Accounting Principle
Prior to 2019, the entire balance of the Company’s HTM investment portfolio consisted of Municipal notes.
Effective January 1, 2019, and in accordance with ASC 250 (Accounting Changes and Error Corrections), the
Company chose to reclassify these debt instruments from the investment portfolio into the loan portfolio. This
change represents a voluntary reclassification of municipal debt instruments from classification as investment
securities under ASC 320 (Investments – Debt and Equity Securities) to classification as loans under ASC 310
(Receivables). All periods presented have been restated to conform to this change. Accordingly, for all periods
presented below, the Company’s investment portfolio consists entirely of AFS investments and municipal debt
obligations are reported as a component of the Company’s loan portfolio (See Note 3). The reclassification of the
22 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
municipal debt instruments in this portfolio did not have a material impact on the Company’s consolidated financial
statements or results of operations.
Debt securities AFS consist of the following:
December 31, 2019
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Total
December 31, 2018
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Total
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$
$
$
$
18,002,549
16,169,819
2,799,657
8,665,000
45,637,025
14,010,100
16,020,892
1,988,565
8,167,000
40,186,557
$
$
$
$
99,743
86,874
55,418
181,846
423,881
394
2,701
3,806
8,472
15,373
$
$
$
$
40,672
51,318
2,166
0
94,156
259,391
449,068
6,242
120,398
835,099
$
$
$
$
18,061,620
16,205,375
2,852,909
8,846,846
45,966,750
13,751,103
15,574,525
1,986,129
8,055,074
39,366,831
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, ABS and OAS, and CDs. These
repurchase agreements mature daily. These investments as of the balance sheet dates were as follows:
December 31, 2019
December 31, 2018
Amortized
Cost
Fair
Value
$ 45,637,025
40,186,557
$ 45,966,750
39,366,831
Proceeds from sales of debt securities AFS were $6,553,118 in 2019 and $5,715,525 in 2018 with gains of $1,570
and $0, respectively, and losses of $28,060 and $32,718, respectively.
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.
2019 Annual Report 23
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The scheduled maturities of debt securities AFS at December 31, 2019 were as follows:
Amortized
Cost
Fair
Value
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Agency MBS
Total
$
2,760,515 $
9,674,948
15,042,170
1,989,573
16,169,819
2,766,254
9,862,450
15,147,201
1,985,470
16,205,375
$ 45,637,025 $ 45,966,750
Debt securities with unrealized losses as of the balance sheet dates are presented in the tables below.
December 31, 2019
U.S. GSE debt securities
Agency MBS
Other investments
Total
December 31, 2018
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Total
Less than 12 months
12 months or more
Totals
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Number of
Securities
Fair
Value
Unrealized
Loss
$
7,964,192 $
40,672 $
0
$
0
7
$
7,964,192 $
40,672
5,273,683
24,648
2,920,091
26,670
1,000,490
2,166
0
0
13
1
8,193,774
1,000,490
51,318
2,166
$
14,238,365 $
67,486 $
2,920,091
$
26,670
21
$
17,158,456 $
94,156
$
1,465,947 $
6,752 $
11,284,761
$ 252,639
11
$
12,750,708 $
259,391
2,317,838
22,029
12,223,386
427,039
976,226
6,242
0
0
1,956,914
20,086
4,113,688
100,312
24
1
25
14,541,224
449,068
976,226
6,242
6,070,602
120,398
$
6,716,925 $
55,109 $
27,621,835
$ 779,990
61
$
34,338,760 $
835,099
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.
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 2019 and 2018, the Bank was
24 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
required to purchase additional FHLBB stock in aggregate totaling $176,000 and $1,103,300, 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 2019 and 2018, FHLBB exercised capital call options with redemptions
totaling $493,600 and $1,147,500, respectively, on the Company’s portfolio of FHLBB stock. As of December 31,
2019 and 2018, the Company’s investment in FHLBB stock was $753,700 and $1,071,300, 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, 2019.
The Company’s investment in FRBB Stock was $588,150 at December 31, 2019 and 2018.
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’s 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, 2019 and 2018.
Note 3. Loans, Allowance for Loan Losses and Credit Quality
Change in Accounting Principle
As disclosed in Note 2 (Investment Securities), effective January 1, 2019 and in accordance with ASC 250
(Accounting Changes and Error Corrections), the Company chose to reclassify its municipal debt instruments from
the investment portfolio into the loan portfolio. This change represents a voluntary reclassification of municipal
debt instruments by management from classification as investment securities under ASC 320 (Investments –
Debt and Equity Securities) to classification as loans under ASC 310 (Receivables). As stated in Note 2, the
reclassification of this portfolio did not have a material impact on the Company’s consolidated financial statements
or results of operations.
The composition of net loans as of the balance sheet dates was as follows:
December 31,
Commercial & industrial
Commercial real estate
Municipal
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Total loans
Deduct (add):
ALL
Deferred net loan costs
Net loans
2019
2018
$
98,930,831 $
246,282,726
55,817,206
158,337,296
43,230,873
4,390,005
606,988,937
80,766,693
235,318,148
47,067,023
165,665,175
44,544,987
5,088,491
578,450,517
5,926,491
(362,415)
$ 601,424,861
5,602,541
(363,614)
$ 573,211,590
2019 Annual Report 25
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The following is an age analysis of loans (including non-accrual), as of the balance sheet dates, by portfolio
segment:
December 31, 2019
90 Days
30-89 Days or More
Total
Past Due
Current
Total Loans
90 Days or
Non-Accrual More and
Accruing
Loans
Commercial & industrial
Commercial real estate
Municipal
Residential real estate
- 1st lien
- Jr lien
Consumer
Totals
$
68,532 $ 44,503 $ 113,035 $ 98,817,796 $ 98,930,831 $ 480,083 $
1,690,307
0
151,723
0
1,842,030 244,440,696 246,282,726
55,817,206
55,817,206
0
1,600,827
0
0
0
0
3,871,045
331,416
49,607
530,046
5,088,143 153,249,153 158,337,296
112,386
43,230,873
42,751,481
0
4,390,005
4,340,398
$ 6,010,907 $ 1,561,300 $ 7,572,207 $ 599,416,730 $ 606,988,937 $ 4,433,930 $ 642,432
1,217,098
147,976
0
2,112,267
240,753
0
479,392
49,607
December 31, 2018
90 Days
30-89 Days or More
Total
Past Due
Current
Total Loans
90 Days or
Non-Accrual More and
Accruing
Loans
Commercial & industrial
Commercial real estate
Municipal
Residential real estate
- 1st lien
- Jr lien
Consumer
Totals
$ 217,385 $
1,509,839
0
0 $ 217,385 $ 80,549,308 $ 80,766,693 $
1,700,628 233,617,520 235,318,148
47,067,023
47,067,023
0
190,789
0
1,742,993
0
84,814 $
0
0
0
4,108,319
484,855
43,277
622,486
5,479,380 160,185,795 165,665,175
104,959
44,544,987
43,706,218
1,661
5,088,491
5,043,553
$ 6,363,675 $ 1,917,425 $ 8,281,100 $ 570,169,417 $ 578,450,517 $ 4,263,286 $ 729,106
2,026,939
408,540
0
1,371,061
353,914
1,661
838,769
44,938
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:
December 31, 2019
December 31, 2018
Number of loans
9
12
Balance
495,943
$
961,709
26 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The following summarizes changes in the ALL and select loan information, by portfolio segment:
As of or for the year ended December 31, 2019
Commercial Commercial
& Industrial Real Estate Municipal
Residential Residential
Real Estate Real Estate
1st Lien
Jr Lien
Consumer Unallocated
Total
ALL beginning balance
$
697,469 $ 3,019,868 $
0 $ 1,421,494 $
273,445 $
56,787 $
133,478 $ 5,602,541
Charge-offs
Recoveries
Provision
(175,815)
(116,186)
10,768
304,344
50,388
227,576
0
0
0
(242,244)
(222,999)
(102,815)
15,776
193,538
2,200
237,038
38,710
59,111
0
0
(860,059)
117,842
44,560
1,066,167
ALL ending balance
$
836,766 $
3,181,646 $
0 $ 1,388,564 $
289,684 $
51,793 $
178,038 $ 5,926,491
ALL evaluated for impairment
Individually
Collectively
Total
Loans evaluated for impairment
$
0 $
0 $
0 $
103,836 $
712 $
0 $
0 $
104,548
836,766
3,181,646
0
1,284,728
288,972
51,793
178,038
5,821,943
$
836,766 $
3,181,646 $
0 $ 1,388,564 $
289,684 $
51,793 $
178,038 $ 5,926,491
Individually
Collectively
Total
$
420,933 $
1,699,238 $
0 $
4,471,902 $
156,073 $
0
98,509,898
244,583,488
55,817,206
153,865,394
43,074,800
4,390,005
$ 98,930,831 $ 246,282,726 $ 55,817,206 $ 158,337,296 $ 43,230,873 $ 4,390,005
$ 6,748,146
600,240,791
$ 606,988,937
As of or for the year ended December 31, 2018
Commercial Commercial
& Industrial Real Estate Municipal
Residential
Real Estate
1st Lien
Residential
Real Estate
Jr Lien
Consumer Unallocated
Total
ALL beginning balance
$
675,687 $
2,674,029 $
0
$ 1,460,547 $
316,982 $
43,303 $
267,551 $
5,438,099
Charge-offs
Recoveries
Provision (credit)
ALL ending balance
(152,860)
(124,645)
60,192
114,450
0
470,484
0
0
0
(251,654)
(69,173)
(143,688)
0
(742,020)
26,832
185,769
1,420
24,216
38,018
119,154
0
(134,073)
126,462
780,000
$
697,469
$3,019,868 $
0 $
1,421,494 $
273,445 $
56,787 $
133,478 $ 5,602,541
ALL evaluated for impairment
Individually
Collectively
Total
Loans evaluated for impairment
$
0 $
0 $
0 $
112,969 $
1,757 $
0 $
0 $
114,726
697,469
3,019,868
0
1,308,525
271,688
56,787
133,478
5,487,815
$
697,469 $
3,019,868 $
0 $
1,421,494 $
273,445 $
56,787 $
133,478 $
5,602,541
Individually
Collectively
Total
$
60,846 $
1,746,894 $
0 $
4,392,060 $
319,321 $
0
80,705,847
233,571,254
47,067,023
161,273,115
44,225,666
5,088,491
$
80,766,693 $
235,318,148 $
47,067,023 $
165,665,175 $
44,544,987 $
5,088,491
$
6,519,121
571,931,396
$
578,450,517
2019 Annual Report 27
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Impaired loans as of the balance sheet dates, by portfolio segment were as follows:
As of December 31, 2019
Unpaid
Principal
Balance
Related
Allowance
Recorded
nvestment
I
2019
Average
Recorded
Investment
Interest
Income
Recognized
Related allowance recorded
Commercial & industrial
Commercial real estate
Residential real estate
- 1st lien
- Jr lien
Total with related allowance
No related allowance recorded
Commercial & industrial
Commercial real estate
Residential real estate
- 1st lien
- Jr lien
Total with no related allowance
$
0 $
0
0 $
0
0 $
0
32,466 $
97,720
878,439
6,121
884,560
902,000
6,101
908,101
103,836
712
104,548
982,158
6,869
1,119,213
420,933
1,699,772
445,509
2,031,764
3,614,960
149,972
5,885,637
4,273,884
157,754
6,908,911
307,208
1,812,836
3,778,822
224,938
6,123,804
0
0
86,039
648
86,687
6,396
21,591
212,883
4,524
245,394
Total impaired loans
$
6,770,197 $ 7,817,012 $
104,548 $ 7,243,017 $
332,081
In the table above, recorded investment in impaired loans as of December 31, 2019 includes accrued interest
receivable and deferred net loan costs of $22,051.
As of December 31, 2018
Unpaid
Principal
Balance
Related
Allowance
Recorded
nvestment
I
2018
Average
Recorded
Investment
Interest
Income
Recognized
Related allowance recorded
Commercial real estate
Residential real estate
- 1st lien
- Jr lien
Total with related allowance
No related allowance recorded
Commercial & industrial
Commercial real estate
Residential real estate
- 1st lien
- Jr lien
Total with no related allowance
$
0 $
0 $
0 $
57,658 $
0
942,365
7,271
949,636
963,367
7,248
970,615
112,969
1,757
114,726
836,326
77,555
971,539
60,846
1,748,323
80,894
1,975,831
3,465,117
312,072
5,586,358
4,082,637
351,139
6,490,501
120,924
1,663,794
3,497,772
235,970
5,518,460
45,139
351
45,490
0
13,131
94,313
0
107,444
Total impaired loans
$
6,535,994 $ 7,461,116 $
114,726 $ 6,489,999 $
152,934
In the table above, recorded investment in impaired loans as of December 31, 2018 includes accrued interest
receivable and deferred net loan costs of $16,873.
28 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Credit Quality Grouping
In developing the ALL, management uses credit quality grouping to help evaluate trends in credit quality. The
Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping
is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the
portfolio is generally grouped by delinquency pool.
Group A loans - Acceptable Risk – are loans that are expected to perform as agreed under their respective terms.
Such loans carry a normal level of risk that does not require management attention beyond that warranted by the
loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial
purpose loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include
performing consumer and residential real estate loans. Residential real estate loans are loans to individuals
secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances
fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable
risk.
Group B loans – Management Involved - are loans that require greater attention than the acceptable risk loans
in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing
negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market
conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse
changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these
characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.
Group C loans – Unacceptable Risk – are loans that have distinct shortcomings that require a greater degree of
management attention. Examples of these shortcomings include a borrower’s inadequate capacity to service
debt, poor operating performance, or insolvency. These loans are more likely to result in repayment through
collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are
not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include
individually rated commercial purpose loans and retail loans adversely rated in accordance with the Federal
Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include
1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios
greater than 60%, home equity loans 90 days or more past due where the Bank does not hold first mortgage,
irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly
consumer loans that are 90 days or more past due.
Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex
commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk
rating is based on the borrower’s expected performance, i.e., the likelihood that the borrower will be able to service
its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record
history. Assessment of expected future payment performance requires consideration of numerous factors. While
past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower’s
financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash
flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality
of the borrower’s management. Other factors influencing the credit risk rating to a lesser degree include collateral
coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry
conditions. There are uncertainties inherent in this process.
Credit risk ratings are dynamic and require updating whenever relevant information is received. Risk ratings are
assessed on an ongoing basis and at various points, including at delinquency or at the time of other adverse
events. For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual
or periodic review. Lenders are required to make immediate disclosure to the Senior Credit Officer of any known
increase in loan risk, even if considered temporary in nature.
2019 Annual Report 29
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The risk ratings within the loan portfolio, by segment, as of the balance sheet dates were as follows:
As of December 31, 2019
Commercial Commercial
Residential Residential
Real Estate Real Estate
& Industrial Real Estate
Municipal
1st Lien
Jr Lien
Consumer
Total
Group A
Group B
Group C
Total
$ 93,774,871 $ 233,702,063 $ 55,817,206 $ 154,770,678 $ 42,725,543 $ 4,390,005 $ 585,180,366
3,295,223
4,517,811
1,860,737
8,062,852
0
0
0
0
3,566,618
505,330
0
0
7,813,034
13,995,537
$ 98,930,831 $ 246,282,726 $ 55,817,206 $ 158,337,296 $ 43,230,873 $ 4,390,005 $ 606,988,937
As of December 31, 2018
Commercial
Commercial
Residential
Residential
Real Estate
Real Estate
& Industrial
Real Estate
Municipal
1st Lien
Jr Lien
Consumer
Total
Group A
Group B
Group C
Total
$ 78,585,348 $ 226,785,919 $ 47,067,023 $ 161,293,233 $ 43,817,872 $ 5,086,830 $ 562,636,225
90,763
246,357
2,090,582
8,285,872
0
0
224,992
0
0
562,112
4,146,950
727,115
1,661
15,252,180
$ 80,766,693 $ 235,318,148 $ 47,067,023 $ 165,665,175 $ 44,544,987 $ 5,088,491 $ 578,450,517
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; or
• Performed a refinancing and deferred or forgiven principal on the original loan.
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.
30 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
New TDRs, by portfolio segment, for the periods presented were as follows:
Year ended December 31, 2019
Commercial & industrial
Commercial real estate
Residential real estate
- 1st lien
- Jr lien
Year ended December 31, 2018
Pre-
Post-
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
Investment
Investment
Number of
Contracts
6
1
6
1
14
$
371,358 $
19,266
372,259
21,628
755,476
55,557
798,800
57,415
$ 1,201,657 $ 1,250,102
Pre-
Post-
Modification Modification
Outstanding Outstanding
Commercial real estate
Residential real estate - 1st lien
1
10
11
$
406,920 $
406,920
1,142,089
$ 1,438,250 $ 1,549,009
1,031,330
Number of
Contracts
Recorded
Investment
Recorded
Investment
2019 Annual Report 31
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The TDRs for which there was a payment default during the twelve month periods presented were as follows:
Year ended December 31, 2019
Commercial & industrial
Residential real estate - 1st lien
Residential real estate - Jr lien
Year ended December 31, 2018
Commercial real estate
Residential real estate - 1st lien
Number of
Contracts
Recorded
Investment
2
1
1
4
$
$
27,818
227,907
55,010
310,735
Number of
Contracts
Recorded
Investment
1
3
4
$
$
400,646
518,212
918,858
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:
Specific Allowance
2019
104,548
$
2018
$
114,726
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 4. 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 $167,673,467 and $176,083,984 at December 31,
2019 and 2018, respectively. Net gain realized on the sale of loans was $290,116 and $345,780 for the years
ended December 31, 2019 and 2018, respectively.
The following table summarizes changes in MSRs for the years ended December 31,
Balance at beginning of year
MSRs capitalized
MSRs amortized
Balance at end of year
There was no valuation allowance in the periods presented.
32 Community Bancorp.
2019
2018
$ 1,004,948
114,580
(179,951)
939,577
$
$ 1,083,286
110,209
(188,547)
1,004,948
$
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 5. Bank Premises and Equipment
The major classes of bank premises and equipment and accumulated depreciation and amortization at December
31 were as follows:
Buildings and improvements
Land and land improvements
Furniture and equipment
Leasehold improvements
Finance lease
Operating leases
Other prepaid assets
Less accumulated depreciation and amortization
Net bank premises and equipment
Note 6. Leases
2019
2018
$ 10,575,514
2,650,671
6,848,263
1,161,073
588,347
1,490,779
159,914
23,474,561
(12,515,158)
$ 10,959,403
$ 10,555,868
2,586,373
6,460,625
1,155,284
991,014
0
55,406
21,804,570
(12,091,115)
$ 9,713,455
The Company adopted ASU No. 2016-02 (Leases) on January 1, 2019 with no required adjustment to prior periods
presented or cumulative-effect adjustment to retained earnings. The Company has operating and finance leases
for some of its bank premises, with remaining lease terms of one year to seven years. Some of the operating
leases have options to renew, which are reflected in the seven 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 other liabilities in the consolidated
balance sheet.
The components of lease expense for the periods presented were as follows:
Years Ended December 31,
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Variable rent expense
Total finance lease cost
2019
2018
$
255,475
$
230,888
$
$
70,667
16,705
33,940
121,312
$
$
70,667
26,399
33,940
131,006
Total rental expense not associated with operating lease costs above amounted to $16,601 and $16,924 for the
years ended December 31, 2019 and 2018, respectively.
2019 Annual Report 33
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Supplemental cash flow information related to right-of-use assets and for lease obligations recorded upon adoption
of ASU No. 2016-02 (Note 1) was as follows:
Year Ended December 31,
Operating Leases
2019
$
1,455,829
Supplemental balance sheet information related to leases was as follows:
December 31,
2019
2018
Operating Leases
Operating lease right-of-use assets
Operating lease liabilities
Finance Leases
Finance lease right-of-use assets
Finance lease liabilities
December 31,
Weighted Average Remaining Lease Term
Operating Leases
Finance Leases
Weighted Average Discount Rate
Operating Leases
Finance Leases
Operating lease obligations
$ 1,254,384
$
$ 1,263,173
$
0
0
$
124,347
$
213,679
$
99,823
$
266,747
2019
2018
4.4 Years
1.5 Years
5.9 Years
2.0 Years
1.28%
7.50%
N/A
7.86%
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, 2019 for each of the next five years and in aggregate are:
2020
2021
2022
2023
2024
Subsequent to 2024
Total
34 Community Bancorp.
$
$
257,039
210,350
207,380
210,232
186,448
249,424
1,320,873
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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, 2019:
2020
2021
Total minimum lease payments
Less amount representing interest
Present value of net minimum lease payments
$
$
67,060
39,119
106,179
(6,356)
99,823
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, 2019, is shown below:
Undiscounted cash flows
Discount effect of cash flows
Lease liabilities
Note 7. Goodwill and Other Intangible Asset
Operating Leases
Finance Leases
$
$
1,320,873
(57,700)
1,263,173
$
$
106,179
(6,356)
99,823
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, 2019 and 2018 and concluded that no impairment existed as of such
dates.
Note 8. Other Investments
In 2011, the Company established a single-member LLC to facilitate the purchase of federal NMTC through an
investment structure designed by a local community development entity. The equity investment was fully amortized
at December 31, 2017, and the Company exited the equity investment, including termination of its interest in
the LLC, during the last quarter of 2018.The LLC did not conduct any business apart from its role in the NMTC
financing structure.
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 $415,099 and $437,229 for the years ended December 31, 2019 and 2018,
respectively. Expenses related to amortization of the investments in the limited partnerships are recognized as
a component of income tax expense, and were $312,106 and $410,061 for 2019 and 2018, respectively. The
carrying values of the limited partnership investments were $2,762,406 and $2,263,512 at December 31, 2019 and
2018, 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 $3,535,527 and $2,946,831 as of December
31, 2019 and 2018, respectively. The Company recognized income of $588,696 and $514,485 for 2019 and 2018,
respectively, through CFS Partners from the operations of CFSG.
2019 Annual Report 35
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 9. Deposits
The following is a maturity distribution of time deposits at December 31, 2019:
2020
2021
2022
2023
2024
Total CDs
$ 55,256,906
31,341,156
12,249,473
7,319,609
10,031,175
$ 116,198,319
Total deposits in excess of the FDIC insurance level amounted to $178,997,035 as of December 31, 2019.
Note 10. Borrowed Funds
Outstanding advances for the Company as of the balance sheet dates presented were as follows:
Long-Term Advances(1)
FHLBB term advance, 0.00%, due February 26, 2021
FHLBB term advance, 0.00%, due November 22, 2021
FHLBB term advance, 0.00%, due September 22, 2023
FHLBB term advance, 0.00%, due November 12, 2025
FHLBB term advance, 0.00%, due November 13, 2028
2019
2018
$
$
350,000
1,000,000
200,000
300,000
800,000
2,650,000
$
$
350,000
1,000,000
200,000
0
0
1,550,000
(1) The FHLBB is providing a subsidy, funded by the FHLBB’s earnings, to write down interest rates to zero
percent 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 $135,672,471 and $148,323,822 as of December 31, 2019 and 2018,
respectively, and the Company’s gross potential borrowing capacity under this arrangement was $97,358,249 and
$108,736,234, 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, 2019, $14,425,000
in FHLBB letters of credit was utilized as collateral for these deposits compared to $2,625,000 at December 31,
2018. Total fees paid by the Company in connection with issuance of these letters of credit were $41,069 for 2019
and $46,620 for 2018.
The Company also maintained a $500,000 IDEAL Way Line of Credit with the FHLBB at December 31, 2019 and
2018, 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
36 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
not pledged to FHLBB and home equity loans, resulting in an available line of $56,896,877 and $50,913,351
as of December 31, 2019 and 2018, 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
225 basis points as of December 31, 2019. As of December 31, 2019 and 2018, the Company had no outstanding
advances against this line.
The Company has unsecured lines of credit with three correspondent banks, with aggregate available borrowing
capacity totaling $12,500,000 at December 31, 2019 and 2018. The Company had no outstanding advances
against these lines for the periods presented.
Note 11. Junior Subordinated Debentures
As of December 31, 2019 and 2018, 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 London Interbank Offered Rate plus 2.85%. During 2019, the floating rate averaged 5.33% per quarter
compared to an average rate of 4.95% per quarter for 2018. 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 2019 and 2018 was $694,573 and $650,361, respectively, and is deductible for tax purposes.
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 21).
Note 12. Repurchase Agreements
Securities sold under agreements to repurchase mature daily and consisted of the following as of the balance
sheet dates:
December 31,
Current balance
Average balance
Highest month-end balance
Weighted average interest rate
Pledged Investment (1)
Amortized Cost
Fair Value
2019
2018
$ 33,189,848
33,545,527
38,868,833
0.89%
$ 30,521,565
30,554,953
32,938,807
0.63%
45,637,025
45,966,750
40,186,557
39,366,831
(1) U.S. GSE securities, Agency MBS, ABS and OAS, and CDs were pledged as collateral for the periods presented.
2019 Annual Report 37
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 13. 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:
Currently paid or payable
Deferred expense (benefit)
Total income tax expense(1)
2019
2018
$ 1,693,624
96,236
$ 1,789,860
$
1,749,624
(11,359)
$ 1,738,265
(1) Due to an increase of loan activity in 2019 in the state of New Hampshire, the Company is now subject to sales
tax nexus on the income generated from this loan activity. An estimated tax payment of $10,000 was made to
the state of New Hampshire during the fourth quarter of 2019 in anticipation of tax due for the 2019 tax year.
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:
Computed expense at statutory rates
Tax exempt interest and BOLI
Disallowed interest
Partnership rehabilitation and tax credits
Low income housing investment amortization expense
Other
2019
2018
$ 2,236,904
(306,073)
15,798
(415,099)
246,564
11,766
$ 1,789,860
$ 2,128,517
(291,550)
11,631
(437,229)
323,948
2,948
1,738,265
$
The deferred income tax expense (benefit) consisted of the following items for the years ended December 31:
Depreciation
MSRs
Deferred compensation
Bad debts
Limited partnership amortization
Investment in CFS Partners
Loan fair value
OREO write down
Prepaid expenses
Other
Change in deferred tax expense (benefit)
38 Community Bancorp.
2019
2018
$
$
126,734
(13,728)
3,701
(68,029)
60,588
(3,323)
(6,171)
0
(10,741)
7,205
96,236
$
$
25,782
(16,451)
3,681
(34,533)
(20,129)
(1,014)
(2,228)
13,860
(846)
20,519
(11,359)
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Listed below are the significant components of the net deferred tax asset at December 31:
Components of the deferred tax asset:
Bad debts
Deferred compensation
Contingent liability - MPF program
Finance lease
Unrealized loss on debt securities AFS
Other
Total deferred tax asset
Components of the deferred tax liability:
Depreciation
Limited partnerships
MSRs
Unrealized gain on debt securities AFS
Investment in CFS Partners
Operating lease
Prepaid expenses
Fair value adjustment on acquired loans
Total deferred tax liability
Net deferred tax asset
2019
2018
$
1,244,563
12,898
17,838
11,930
0
16,346
1,303,575
$
1,176,534
16,599
17,838
23,287
172,143
11,968
1,418,369
384,197
76,995
197,311
69,242
71,054
226
68,738
0
867,763
435,812
$
257,463
16,407
211,039
0
74,377
0
79,479
6,171
644,936
773,433
$
US 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, 2016 through 2018. The 2019 tax return has not yet been filed.
Note 14. 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 $624,000 and $617,800 for 2019 and 2018, 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 15. Deferred Compensation and Supplemental Employee Retirement Plans
The Company maintains a directors’ deferred compensation plan and, prior to 2005, maintained a retirement plan
for its directors. Participants are general unsecured creditors of the Company with respect to these benefits. The
benefits accrued under these plans were $61,421 and $79,045 at December 31, 2019 and 2018, respectively.
Expenses associated with these plans were $376 and $474 for the years ended December 31, 2019 and 2018,
respectively.
2019 Annual Report 39
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 16. 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:
Unused portions of home equity lines of credit
Residential and commercial construction lines of credit
Commercial real estate commitments
Commercial and industrial commitments
Other commitments to extend credit
Standby letters of credit and commercial letters of credit
Recourse on sale of credit card portfolio
MPF credit enhancement obligation, net (See Note 17)
Contract or Notional Amount
2019
2018
$
$
32,784,105
12,364,436
24,377,588
47,659,341
64,469,012
1,375,500
254,430
552,158
31,328,881
7,251,560
26,588,950
45,135,452
53,586,720
2,408,581
284,680
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,
2019 and 2018, the Company had binding loan commitments to sell residential mortgages at fixed rates totaling
$1,643,200 and $391,840, respectively (see Note 17). 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.
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.
40 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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 subsidiary, 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 11).
Note 17. 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, 2019 and 2018, the Company had $33,990,463 and $38,935,411, respectively, in loans sold through the MPF
program and on which the Company had a CEO. As of December 31, 2019 and 2018, the notional amount of
the maximum CEO related to this program was $637,102, and the accrued contingent liability for this CEO was
$84,944. 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 18. 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 19. 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:
Balance, beginning of year
Loans - New Directors
New loans to existing Principal Officers/Directors
Repayment
Balance, end of year
2019
2018
$ 6,730,842
0
4,491,524
(2,094,824)
$ 9,127,542
$
7,356,906
936,445
5,582,052
(7,144,561)
$ 6,730,842
Total funds of related parties on deposit with the Company were $8,942,886 and $6,179,453 at December 31, 2019
and 2018, respectively.
Prior to May 2018, the Company leased 2,253 square feet of condominium space in the state office building on
Main Street in Newport, Vermont to its trust company affiliate, CFSG, for its principal offices. In May 2018, CFSG
purchased the condominium space from the Company. CFSG also leases offices in the Company’s Barre and
Lyndonville branches. The amount of rental income received from CFSG for the years ended December 31, 2019
and 2018 was $9,821 and $30,365, respectively.
2019 Annual Report 41
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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. In addition, prior to liquidation of the SERP assets, CFSG served as investment advisor and
custodian of funds under the Company’s SERP. The Company pays monthly management fees to CFSG for its
services to the 401(k) plan amounting to $57,209 and $47,676, respectively, for the years ended December 31,
2019 and 2018.
Note 20. 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 contracted balances with a correspondent bank of $30,000 at December 31, 2019 and 2018.
Note 21. 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 2019 and $2.0 million in 2018) 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,
with the balance includable in Tier 2 capital. Management believes that, as of December 31, 2019, 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 will be calculated by dividing
tangible equity capital by average total consolidated assets. The final rule became effective on January 1, 2020.
Management believes that the Company and Bank would qualify to utilize the CBLR framework on a pro forma
basis as of December 31, 2019 had it been in effect on that date.
42 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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. The Company and the Bank were fully compliant with a capital conservation buffer
of 6.63% and 6.53%, respectively, in effect at December 31, 2019, and 6.08% and 5.97%, respectively, in effect at
December 31, 2018.
As of December 31, 2019, the Bank was considered well capitalized under the regulatory capital framework for
Prompt Corrective Action and the Company exceeded applicable consolidated regulatory guidelines for capital
adequacy.
2019 Annual Report 43
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The following table shows the regulatory capital ratios for the Company and the Bank as of December 31:
Minimum
For Capital
Adequacy
Purposes:
Actual
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions(1):
Ratio
Amount
Ratio
Amount
Ratio Amount
December 31, 2019
Common equity tier 1 capital
(to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to average assets)
Company
Bank
December 31, 2018:
Common equity tier 1 capital
(to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to average assets)
Company
Bank
(Dollars in Thousands)
$ 69,947
$ 69,330
13.48% $ 23,352
13.38% $ 23,325
4.50%
N/A
4.50% $ 33,691
$ 69,947
$ 69,330
13.48% $ 31,135
13.38% $ 31,099
6.00%
N/A
6.00% $ 41,466
N/A
6.50%
N/A
8.00%
$ 75,943
$ 75,326
14.63% $ 41,514
14.53% $ 41,466
8.00%
N/A
8.00% $ 51,832
N/A
10.00%
$ 69,947
$ 69,330
9.57% $ 29,223
9.50% $ 29,201
4.00%
N/A
4.00% $ 36,501
N/A
5.00%
$ 64,564
$ 63,960
12.94% $ 22,446
12.84% $ 22,419
4.50%
N/A
4.50% $ 32,384
$ 64,564
$ 63,960
12.94% $ 29,928
12.84% $ 29,893
6.00%
N/A
6.00% $ 39,857
N/A
6.50%
N/A
8.00%
$ 70,210
$ 69,606
14.08% $ 39,904
13.97% $ 39,857
8.00%
N/A
8.00% $ 49,821
N/A
10.00%
$ 64,564
$ 63,960
9.26% $ 27,890
9.18% $ 27,867
4.00%
N/A
4.00% $ 34,834
N/A
5.00%
(1) Applicable to banks, but not bank holding companies.
The Company’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay
dividends to the Company. The Bank is restricted by law as to the amount of dividends that can be paid. Dividends
declared by national banks that exceed net income for the current and preceding two years must be approved
by the Bank’s primary banking regulator, the Office of the Comptroller of the Currency. Regardless of formal
regulatory restrictions, the Bank may not pay dividends that would result in its capital levels being reduced below
the minimum requirements shown above.
44 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 22. 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. Treasury securities that are
traded by dealers or brokers in active over-the-counter markets. Level 2 securities include federal agency
securities.
Impaired loans: Impaired loans are reported based on one of three measures: the present value of expected
future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the
fair value of the collateral if the loan is collateral dependent. If the fair value is less than an impaired loan’s
recorded investment, an impairment loss is recognized as part of the ALL. Accordingly, certain impaired
loans may be subject to measurement at fair value on a non-recurring basis. Management has estimated
the fair values of collateral-dependent loans using Level 2 inputs, such as the fair value of collateral based
on independent third-party appraisals.
Loans held-for-sale: The fair value of loans held-for-sale is based upon an actual purchase and sale
agreement between the Company and an independent market participant. The sale is executed within a
reasonable period following quarter end at the stated fair value.
2019 Annual Report 45
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
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:
Level 2
Assets: (market approach)
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
2019
2018
$ 18,061,620
16,205,375
2,852,909
8,846,846
$ 45,966,750
$ 13,751,103
15,574,525
1,986,129
8,055,074
$ 39,366,831
There were no Level 1 or Level 3 assets or liabilities measured on a recurring basis as of the balance sheet dates
presented, nor were there any transfers of assets between Levels during either 2019 or 2018.
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
related specific ALL and are presented net of specific allowances as disclosed in Note 3, there were none for 2019
and 2018.
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:
Level 2
Assets: (market approach)
MSRs (1)
OREO
2019
2018
$
939,577
966,738
$
1,004,948
201,386
(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, 2019 and 2018.
There were no Level 1 or Level 3 assets or liabilities measured on a non-recurring basis as of the balance sheet
dates presented, nor were there any transfers of assets between Levels during either 2019 or 2018.
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
46 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
The carrying amounts and estimated fair values of the Company’s financial instruments were as follows:
December 31, 2019
Carrying
Amount
Fair
Value
Level 1
Fair
Value
Level 2
(Dollars in Thousands)
Fair
Value
Level 3
$ 48,562 $ 48,562 $
0 $
Financial assets:
Cash and cash equivalents
Debt securities AFS
Restricted equity securities
Loans and loans held-for-sale, net of ALL
Commercial & industrial
Commercial real estate
Municipal (1)
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
MSRs (2)
Accrued interest receivable
Financial liabilities:
Deposits
Other deposits
Brokered deposits
Long-term borrowings
Repurchase agreements
Operating lease obligations
Finance lease obligations
Subordinated debentures
Accrued interest payable
Fair
Value
Total
0 $ 48,562
45,967
0
1,432
0
97,356
242,735
55,867
156,520
42,950
4,306
0
0
97,356
242,735
55,867
156,520
42,950
4,306
1,250
2,337
0
0
0
0
0
0
0
0
604,267
11,153
2,427
33,190
1,263
100
12,831
139
45,967
1,432
98,062
243,022
55,817
156,897
42,927
4,337
940
2,337
603,872
11,149
2,650
33,190
1,263
100
12,887
139
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
45,967
1,432
0
0
0
0
0
0
1,250
2,337
604,267
11,153
2,427
33,190
1,263
100
12,831
139
(1) Prior to reclassification to the loan portfolio effective January 1, 2019, all loans in this category were reported
as HTM securities as a component of Investment Securities. All prior periods have been restated to conform
to the reclassification.
(2) Reported fair value represents all MSRs for loans serviced by the Company at December 31, 2019, regardless
of carrying amount.
2019 Annual Report 47
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
December 31, 2018
Carrying
Amount
Fair
Value
Level 1
Fair
Value
Level 2
(Dollars in Thousands)
Fair
Value
Level 3
Financial assets:
Cash and cash equivalents
Debt securities AFS
Restricted equity securities
Loans and loans held-for-sale, net of ALL
Commercial & industrial
Commercial real estate
Municipal (1)
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
MSRs (2)
Accrued interest receivable
Financial liabilities:
Deposits
Other deposits
Brokered deposits
Long-term borrowings
Repurchase agreements
Capital lease obligations
Subordinated debentures
Accrued interest payable
Fair
Value
Total
0 $ 67,935
39,367
0
1,749
0
79,773
230,532
47,228
161,068
44,127
5,063
0
0
79,773
230,532
47,228
161,068
44,127
5,063
1,481
2,301
0
0
0
0
0
0
0
571,952
35,247
1,425
30,522
267
12,807
113
$ 67,935 $ 67,935 $
0 $
39,367
1,749
80,049
232,239
47,067
164,202
44,260
5,031
1,005
2,301
573,525
35,292
1,550
30,522
267
12,887
113
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
39,367
1,749
0
0
0
0
0
0
1,481
2,301
571,952
35,247
1,425
30,522
267
12,807
113
(1) Prior to reclassification to the loan portfolio effective January 1, 2019, all loans in this category were reported
as HTM securities as a component of Investment Securities. All prior periods have been restated to conform
to the reclassification.
(2) Reported fair value represents all MSRs for loans serviced by the Company at December 31, 2018, 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, 2019 and 2018.
48 Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 23. 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)
Balance Sheets
December 31, December 31,
2019
2018
Assets
Cash
Investment in subsidiary - Community National Bank
Investment in Capital Trust
Income taxes receivable
Total assets
Liabilities and Shareholders’ Equity
Liabilities
Junior subordinated debentures
Dividends payable
Total liabilities
Shareholders’ Equity
Preferred stock, 1,000,000 shares authorized, 15 and 20 shares
issued and outstanding at December 31, 2019 and 2018,
respectively ($100,000 liquidation value, per share)
Common stock - $2.50 par value; 15,000,000 shares authorized,
5,449,857 and 5,382,103 shares issued at December 31, 2019
and 2018, respectively (including 16,267 and 17,442 shares
issued February 1, 2020 and 2019, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Less: treasury stock, at cost; 210,101 shares at December 31,
2019 and 2018
Total shareholders’ equity
$
744,687
81,164,447
387,000
213,071
$ 82,509,205
$
$
720,620
74,886,386
387,000
207,244
76,201,250
$
$ 12,887,000
727,526
13,614,526
12,887,000
710,539
13,597,539
1,500,000
2,000,000
13,624,643
33,464,381
22,667,949
260,483
13,455,258
32,536,532
17,882,282
(647,584)
(2,622,777)
68,894,679
(2,622,777)
62,603,711
Total liabilities and shareholders’ equity
$ 82,509,205 $
76,201,250
The investment in the subsidiary bank is carried under the equity method of accounting. The investment and cash,
which is on deposit with the Bank, have been eliminated in consolidation.
2019 Annual Report 49
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Community Bancorp. (Parent Company Only)
Condensed Statements of Income
Years Ended December 31,
2019
2018
Income
Bank subsidiary distributions
Dividends on Capital Trust
Total income
Expense
Interest on junior subordinated debentures
Administrative and other
Total expense
Income before applicable income tax benefit and equity in
undistributed net income of subsidiary
Income tax benefit
$ 4,256,000
20,858
4,276,858
$
4,137,000
19,530
4,156,530
694,573
340,904
1,035,477
650,361
356,055
1,006,416
3,241,381
213,071
3,150,114
207,244
Income before equity in undistributed net income of subsidiary
Equity in undistributed net income of subsidiary
Net income
3,454,452
5,369,994
8,824,446
$
3,357,358
5,040,174
$ 8,397,532
Community Bancorp. (Parent Company Only)
Condensed Statements of Cash Flows
Years Ended December 31,
2019
2018
Cash Flows from Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by
operating activities
Equity in undistributed net income of subsidiary
(Increase) decrease in income taxes receivable
Net cash provided by operating activities
Cash Flows from Financing Activities
Redemption of preferred stock
Dividends paid on preferred stock
Dividends paid on common stock
Net cash used in financing activities
Net increase in cash
Cash
Beginning
Ending
Cash Received for Income Taxes
Cash Paid for Interest
Dividends paid:
Dividends declared
Increase in dividends payable attributable to dividends declared
Dividends reinvested
50 Community Bancorp.
$ 8,824,446
$
8,397,532
(5,369,994)
(5,827)
3,448,625
(5,040,174)
82,980
3,440,338
(500,000)
(87,500)
(2,837,058)
(3,424,558)
24,067
(500,000)
(103,125)
(2,672,985)
(3,276,110)
164,228
720,620
744,687
207,244
694,573
3,951,279
(16,987)
(1,097,234)
2,837,058
$
$
$
$
$
556,392
720,620
290,224
650,361
3,799,864
(80,078)
(1,046,801)
2,672,985
$
$
$
$
$
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 24. Quarterly Financial Data (Unaudited)
A summary of financial data for the four quarters of 2019 and 2018 is presented below:
2019
March 31,
June 30,
September 30, December 31,
Interest income
Interest expense
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Earnings per common share
$
$
$
7,698,368
1,538,540
212,503
1,318,700
5,155,924
1,771,905
0.34
8,262,422
1,546,953
141,666
1,434,138
5,079,060
2,419,298
0.46
$
7,906,454
1,509,033
412,499
1,597,332
4,863,716
2,261,943
0.43
7,891,564
1,548,595
299,499
1,595,896
4,782,580
2,371,300
0.45
2018
March 31,
June 30,
September 30, December 31,
Interest income
Interest expense
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Earnings per common share
$
$
$
6,776,838
868,749
180,000
1,395,670
4,731,116
1,982,543
0.38
7,028,859
938,499
180,000
1,690,161
5,103,975
2,002,654
0.39
$
7,517,022
1,220,145
210,000
1,542,793
4,874,332
2,269,732
0.44
7,791,884
1,457,695
210,000
1,552,684
5,185,603
2,142,603
0.40
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:
Income
Income from investment in CFS Partners
Expenses
Outsourcing expense
Service contracts - administration
Marketing
State deposit tax
ATM fees
Note 26. Subsequent Events
Declaration of Cash Dividend
2019
2018
$588,696
$514,485
$428,668
539,510
450,533
669,502
434,270
$480,563
512,902
552,617
633,185
412,813
On December 16, 2019, the Company declared a cash dividend of $0.19 per share payable February 1, 2020 to
shareholders of record as of January 15, 2020. On March 11, 2020, the Company declared a cash dividend of
$0.19 per share payable May 1, 2020 to shareholders of record as of April 15, 2020. 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.
2019 Annual Report 51
Management’s Discussions And Analysis of Financial
Condition And Results of Operations
For the Years Ended December 31, 2019 and 2018
The following discussion analyzes the consolidated financial condition of the Company and its wholly-owned
subsidiary, Community National Bank, as of December 31, 2019 and 2018, 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 (as amended in 2018). Accordingly, the Company has elected to provide its audited statements of
income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three
year, period and intends to provide smaller reporting company scaled disclosures where management deems it
appropriate. Beginning with its periodic reports filed in 2018, the Company is also considered an accelerated filer
under the financial reporting rules of the SEC.
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 contains certain
forward-looking statements about the results of operations, financial condition and business of the Company and its
subsidiary. Words used in the discussion below such as “believes,” “expects,” “anticipates,” “intends,” “estimates,”
“plans,” “predicts,” or 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. Future results of the Company may differ materially from those expressed in these forward-
looking statements. Examples of forward looking statements included in this discussion include, but are not limited
to, estimated contingent liability related to assumptions made within the asset/liability management process,
management’s expectations as to the future interest rate environment and the Company’s related liquidity level,
credit risk expectations relating to the Company’s loan portfolio and its participation in the FHLBB MPF program,
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 current expectations and estimates, many of
the factors that could influence or determine actual results are unpredictable and not within the Company’s control.
In addition, the factors set forth in Part I, Item 1A-Risk Factors in this report and other cautionary statements
and information contained in this report should be carefully considered and understood as being applicable to
all related forward-looking statements contained in this report, when evaluating the business prospects of the
Company and its subsidiary.
Factors that may cause actual results to differ materially from those contemplated by these forward-looking
statements include, among others, the following possibilities:
•
•
•
•
•
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;
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;
interest rates change in such a way as to negatively affect the Company’s net income, asset valuations or
margins;
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;
changes in federal or state tax laws or policy;
52 Community Bancorp.
•
•
•
•
•
•
•
•
changes in the level of nonperforming assets and charge-offs;
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 US
GAAP pursuant to the CECL model;
changes in consumer and business spending, borrowing and savings habits;
reductions in deposit levels, which necessitate increased borrowings to fund loans and investments;
the geographic concentration of the Company’s loan portfolio and deposit base;
losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers,
customers and employees;
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 the United States monetary and fiscal policies, including the interest rate policies of the FRB
and its regulation of the money supply;
adverse changes in the credit rating of U.S. government debt; and
the planned phase out the London Interbank Offered Rate (LIBOR) by the end of 2021, 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 bear interest at a variable rate, adjusted
quarterly, equal to 3-month LIBOR, plus 2.85%.
•
•
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 2019 were $738.0 million compared to $720.3 million at year-
end 2018, an increase of 2.4%. Net loans increased 4.9% to $601.4 million, driven primarily by an increase in
commercial and municipal, loans with a combined increase of $29.1 million year over year, to $345.2 million.
Loan growth during 2019 was also enhanced with approximately $7.2 million in purchased commercial loans from
BHG and two commercial real estate loans participations totaling $5.4 million with the ACBB. Funding for these
2019 Annual Report 53
increases was provided, in part, by a $6.2 million net increase in deposits, primarily in the form of core non-maturity
deposits, as well as a decrease in cash of $19.4 million. The AFS portfolio increased $6.6 million, or 16.8% for
year over year. As noted in Note 1 to the accompanying audited consolidated financial statements, the Company
chose to reclassify its HTM investment portfolio, which is made up entirely of obligations to local municipalities,
into the loan portfolio, effective January 1, 2019. All prior period information has been adjusted accordingly. The
Company had no loans held-for-sale at either year-end reporting period. Average non-maturity deposit balances
increased year over year, offset in part by a modest 1.3% decline in retail CD balances as rate competition began
to increase during the year, drawing away some rate-sensitive accounts. Capital grew to $68.9 million with a book
value of $12.86 per common share on December 31, 2019, compared to $62.6 million in capital and a book value
of $11.72 per common share on December 31, 2018.
The purchased loan volume mentioned above was through a new 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 portfolio. Average loan size is approximately $200,000, with average term
of 100 months. With average duration expected to be slightly longer than the commercial portfolio average, the
Company’s participation in the BHG program reduces exposure to falling rates in the near term. In addition, this
portfolio supports asset growth and provides geographic diversification.
The Company’s net income of $8.8 million, or $1.68 per common share, for 2019 was up 5.1%, compared to net
income of $8.4 million, or $1.61 per common share, in 2018. Net interest income contributed significantly to the
Company’s increase in earnings. Average earning-assets increased $34.0 million, or 5.4%, in 2019, and tax-
equivalent interest income increased by $2.7 million, or 9.1%, resulting in an increase in average yield on interest-
earning assets of 16 basis points. The increase in interest income is due in part to a $440,000 prepayment penalty
received in the second quarter of 2019, as well as increases in short-term rates. While the increase in short-term
rates has had a positive impact on interest income earlier in the year, it later put upward pressure on interest rates
paid on deposit accounts and other borrowings. This pressure has lessened somewhat, at least in the near term,
as short-term rates later declined in the third quarter. 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 changes in
interest rates and in the yield curve could have on net interest income.
Average interest-bearing liabilities increased $23.2 million, or 4.6%, during the year, and the average rate paid on
interest-bearing liabilities increased 28 basis points, resulting in an increase in interest expense of $1.7 million.
The combined effect of the changes in average yield and in average rate paid resulted in an increase of $1.0 million
in tax-equivalent net interest income, and a slight decrease in net interest margin from 3.95% to 3.90% year over
year.
Growth of the loan portfolio combined with charge off activity related to write-down adjustments on several loans in
workout required a provision for loan losses of $1,066,167 for 2019 compared to $780,000 for 2018, an increase of
36.7%. Please refer to the ALL and provisions discussion in the Credit Risk section for more information on these
increases.
Non-interest income decreased $235,242, or 3.8%, year over year due mostly to a one-time gain during 2018 of
$263,118 from the sale of certain office premises to the Company’s affiliate CFSG. While increases are noted in
salaries, wages and employee benefits, both periods were positively impacted by a decrease in other expenses
due to the distribution of $164,007 in Small Bank deposit-insurance assessment credits issued by the FDIC,
representing 69.5% of the Company’s total FDIC assessment for 2019. Please refer to the Non-interest Income
and Non-interest Expense sections for more information on these changes.
According to the State of Vermont Department of Labor, Vermont’s unemployment rate for December, 2019 was
2.3%, compared to 2.7% in December, 2018, and remains well below the national average of 3.5%. General
business conditions remain stable to improving with improvements mainly in the Chittenden and Washington
Counties, offset by some continued weakness in rural markets. Of the Company’s primary market areas, Orleans,
Caledonia, and Essex Counties continue to have the highest unemployment rates in the state, while Washington
and Franklin Counties are showing some signs of improvement running slightly below the state average. While
54 Community Bancorp.
employment numbers continue to look good, business expansion is challenged by a lack of skilled workforce. In
response to the workforce challenges, the Vermont Department of Labor has placed labor force expansion at the
top of its priority list and has created a State Registered Apprenticeship Program, which is an employer-sponsored
training program that includes both work experience and industry-specific instruction. Travel and tourism continues
to be a focus of the Vermont economy with Orleans, Caledonia and Essex Counties, in particular, focusing on the
outdoor recreation economy. The 2019-2020 winter season has been favorable for outdoor recreation with plenty
of snowfall and relatively mild temperatures.
The Company declared dividends of $0.76 per common share in 2019 compared to $0.74 per common share in
2018. As of December 31, 2019, the Company reported retained earnings of $22.7 million, compared to $17.9
million as of December 31, 2018 and total shareholders’ equity of $68.9 million and $62.6 million, respectively.
The Company is committed to remaining a well-capitalized community bank, working to meet the needs of our
customers while providing a fair return to our shareholders.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared according to US 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.
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.
2019 Annual Report 55
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.
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 $426,914, or 5.1%, from 2018 to 2019, resulting in earnings per common
share of $1.68 for 2019 versus $1.61 for 2018. Net interest income (core earnings) increased $986,172, or 4.0%,
for 2019 compared to 2018. This increase in core earnings is attributable to an increase of $2.6 million, or 9.1%
in interest income, which included a $440,000 prepayment penalty, versus an increase of $1.7 million, or 37.0%,
in interest expense, year over year. The increase in interest expense is largely the result of higher rates paid on
deposit accounts, which have lagged behind increases in the Fed funds rate during the prior year.
56 Community Bancorp.
Non-interest income decreased $235,242, or 3.8%, from 2018 to 2019. A one-time gain of $263,118 in 2018, on
the Company’s sale of an office condominium unit to CFSG that it was renting prior to the one-time sale, accounted
for most of this decrease in 2019 versus 2018. The largest component of non-interest income for 2019 was deposit
service fee income, which noted a moderate increase of $74,879, or 2.3%, primarily from an increase in fee income
from interchange fees and overdraft charges. This increase was offset by a decrease in income from sold loans of
$74,316, or 9.5% year over year. Originations of residential mortgage loans sold in the secondary market totaled
$13.8 million in 2019 compared to $13.4 million in 2018, a 3.0% increase, with net gains from the sales of these
mortgages of $290,116 in 2019, compared to $345,780 in 2018, a decrease of $55,664, or 16.1%. Servicing
released loans, a component of secondary market loans, generate more income at origination due to the lack of
serving income over the life of the loan. The volume of originations of these loans decreased in 2019 compared to
2018, accounting for most of the $55,664 decrease in net gains from sales of loans. Income from fees related to
other loan activity increased $24,269, or 2.8%, and while increased commercial loan activity resulted in an increase
in commercial loan documentation fees of $43,297, or 8.8%, decreased residential mortgage loan volume resulted
in a decrease in residential loan related fees, including home equity loan related fees of $28,290, or 13.5%.
Non-interest expense decreased by $13,746, or 0.1%. While some operating expenses increased, most notably
an increase in employee benefits of $238,583, or 8.3%, however, increases were partially offset by a $205,320
decrease in FDIC Insurance due to the Small Bank deposit-insurance assessment credits issued by the FDIC in
the third quarter. Please refer to the non-interest income and non-interest expense section of this report for more
details on other significant changes.
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 three fiscal years:
December 31,
Return on average assets
Return on average equity
Dividend payout ratio (1)
Average equity to average assets ratio
2019
2018
2017
1.24%
13.91%
45.24%
8.92%
1.24%
14.08%
45.96%
8.83%
0.96%
11.16%
56.20%
8.58%
(1) Dividends declared per common share divided by earnings per common share.
2019 Annual Report 57
The following table summarizes the earnings performance and certain balance sheet and per share data of the
Company during each of the last five fiscal years:
As of December 31,
2019
2018
2017
2016
2015
Balance Sheet Data
Net loans (1)
Total assets
Total deposits
Borrowed funds
Junior subordinated debentures
Total liabilities
Total shareholders' equity
Years Ended December 31,
Operating Data
Total interest income
Total interest expense
Net interest income
Provision for loan losses
Net interest income after
provision for loan losses
$ 601,424,861
737,955,319
615,021,368
2,650,000
12,887,000
669,060,640
68,894,679
$ 573,211,590
720,347,498
608,816,565
1,550,000
12,887,000
657,743,787
62,603,711
$ 546,570,168
667,045,595
560,634,980
3,550,000
12,887,000
609,109,741
57,935,854
$ 532,167,542
637,653,665
504,735,032
31,550,000
12,887,000
583,202,148
54,451,517
$ 496,778,461
596,134,709
495,485,562
10,000,000
12,887,000
544,720,053
51,414,656
$ 31,758,808
6,143,121
$ 29,114,603
4,485,088
$ 26,440,949
3,068,390
$ 24,248,114
2,699,299
$ 23,406,689
2,645,650
25,615,687
24,629,515
23,372,559
21,548,815
20,761,039
Non-interest income
Non-interest expense
Income before income taxes
Applicable income tax expense (2)
Net income
Per Share Data
Earnings per common share (3)
Dividends declared per common
share
Book value per common share
outstanding
Weighted average number of
common shares outstanding
Number of common shares
outstanding, period end
$
$
$
$
1,066,167
780,000
650,000
500,000
510,000
24,549,520
23,849,515
22,722,559
21,048,815
20,251,039
5,946,066
19,881,280
6,181,308
19,895,026
5,584,392
19,166,323
5,501,899
19,142,524
10,614,306
1,789,860
8,824,446 $
10,135,797
1,738,265
8,397,532 $
9,140,628
2,909,330
6,231,298 $
7,408,190
1,923,912
5,484,278 $
5,150,155
18,810,973
6,590,221
1,764,630
4,825,591
1.68 $
1.61 $
1.21 $
1.07 $
0.96
0.76 $
0.74 $
0.68 $
0.64 $
0.64
12.86 $
11.72 $
10.84 $
10.27 $
9.79
5,204,768
5,139,297
5,084,102
5,024,270
4,961,972
5,239,756
5,172,002
5,112,219
5,058,952
4,994,416
(1) Net loans reflects reclassification of obligations of local municipalities from the investment portfolio into the
loan portfolio as of January 1, 2019 and conforming changes to the comparative information presented for all prior
periods. See Note 1 to the accompanying audited consolidated financial statements for additional information.
(2) Applicable income tax expense assumes a 21% tax rate for 2019 and 2018 and a 34% tax rate for 2017, 2016 and
2015.
(3) Computed based on the weighted average number of common shares outstanding during the periods presented.
58 Community Bancorp.
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 was 21% for 2019 and 2018, and 34% for previous
years. Therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by
79% for 2019 and 2018, and 66% for prior years, with the result that every tax-free dollar is equivalent to $1.27 and
$1.52 in taxable income, respectively.
Tax-exempt income is derived from municipal loans, amounting to $55.8 million, $47.1 million and $48.8 million, at
December 31, 2019, 2018 and 2017, respectively.
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 three years.
Years Ended December 31,
Net interest income as presented
Effect of tax-exempt income
Net interest income, tax equivalent
2019
2018
(Dollars in Thousands)
2017
$ 25,616 $
364
$ 25,980 $
24,630 $
344
24,974 $
23,373
684
24,057
2019 Annual Report 59
The following table presents average earning assets and average interest-bearing liabilities supporting earning
assets for each of the last three 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.
2019
2018
2017
Years Ended December 31,
Average
Average
Income/ Rate/
Average
Income/ Rate/
Balance Expense Yield Balance Expense Yield
(Dollars in Thousands)
Average
Average
Balance
Income/
Expense
Average
Rate/
Yield
Interest-Earning Assets
Loans (1)
Taxable investment securities
Sweep and interest-earning accounts
Other investments (2)
Total
Interest-Bearing Liabilities
$ 591,616 $ 30,247 5.11% $ 568,511 $ 27,954 4.92% $ 549,974 $ 26,116 4.75%
676 1.89%
160 1.30%
173 7.12%
$ 666,359 $ 32,123 4.82% $ 632,388 $ 29,459 4.66% $ 600,493 $ 27,125 4.52%
1,089 2.51%
686 2.32%
101 5.66%
895 2.33%
484 2.08%
126 5.60%
43,334
29,625
1,784
38,372
23,256
2,249
35,758
12,331
2,430
Interest-bearing transaction accounts $ 161,887 $ 1,523 0.94% $ 137,547 $
Money market accounts
Savings deposits
Time deposits
Borrowed funds
Repurchase agreements
Finance lease obligations
Junior subordinated debentures
91,641
98,154
122,499
5,462
30,555
320
12,887
$ 522,242 $ 6,143 1.18% $ 499,065 $ 4,485 0.90% $ 481,590 $
1,451 1.53%
162 0.17%
1,988 1.64%
8 0.40%
299 0.89%
17 8.63%
695 5.39%
1,057 1.15%
136 0.14%
1,489 1.22%
70 1.28%
191 0.63%
27 8.44%
650 5.04%
86,142
96,551
124,134
9,975
28,950
430
12,887
94,704
96,088
120,937
1,996
33,546
197
12,887
865 0.63% $ 122,521 $
324 0.26%
782 0.91%
124 0.13%
1,126 0.91%
65 0.65%
87 0.30%
35 8.14%
525 4.07%
3,068 0.64%
Total
Net interest income
Net interest spread (3)
Net interest margin (4)
$ 25,980
$ 24,974
$ 24,057
3.64%
3.90%
3.76%
3.95%
3.88%
4.01%
(1) Included in gross loans are non-accrual loans with an average balance of $5.1 million, $4.0 million and
$2.6 million for the years ended December 31, 2019, 2018 and 2017, respectively. Loans are stated before
deduction of unearned discount and ALL, less loans held-for-sale and includes tax-exempt loans to local
municipalities with average balances of $49.2 million, $48.8 million and $52.1 million for the years ended
December 31, 2019, 2018, 2017, respectively which were reclassified from the investment portfolio effective
January 1, 2019, and restated for the 2018 and 2017 comparison periods. See Note 1 to the accompanying
audited consolidated financial statements for additional information.
(2) Included in other investments is the Company’s FHLBB Stock with an average balance of $1.0 million, $1.2
million and $1.5 million, respectively, for 2019, 2018 and 2017 and a dividend rate of approximately 6.04%,
5.92% and 4.24%, respectively.
(3) Net interest spread is the difference between the average yield on average 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.
The average volume of interest-earning assets for the year ended December 31, 2019 increased 5.4% compared
to December 31, 2018, which increased 5.3% compared to December 31, 2017. Average yield on interest-earning
assets increased 16 basis points and 14 basis points for the respective comparison periods.
The average volume of loans increased 4.1% for 2019 versus 2018, and 3.4% for 2018 versus 2017, while the
average yield on loans increased 19 basis points to 5.11% for 2019 compared to an increase of 17 basis points,
to 4.92% for 2018 versus 2017. The increase in yield during 2019 was partially due to a $440 thousand loan
prepayment penalty which added 6 basis points to the annual yield. The remaining increase was due to loans
60 Community Bancorp.
repricing higher during the year, and a shift in asset mix toward commercial loans; however, this increase was
partially offset by continued pressure on medium term (5-10 year) fixed rates. The growth in the average volume
of loans during each of the last three years, along with the increase in average yield on loans, were reflected in
increases in interest earned on the loan portfolio of $2.3 million in 2019 compared to 2018 and $1.8 million in 2018
compared to 2017. Interest earned on the loan portfolio as a percentage of total interest income was approximately
94.2%, 94.9% and 96.3%, respectively for 2019, 2018 and 2017.
The average volume of the taxable investment portfolio (classified as AFS) increased 21.7% for 2019 versus 2018
and 7.3% for 2018 versus 2017, and the average yield on the taxable investment portfolio increased 18 basis
points and 44 basis points, respectively. The increase in both comparison periods 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 sweep and interest-earning accounts, which consists primarily of an interest-bearing
account at the FRBB and two correspondent banks, increased 27.4% during 2019 and 88.6% during 2018. This
increase in volume is attributable to a higher balance of cash periodically held on hand in anticipation of funding
loan growth and other liquidity needs. The average yield on these funds increased 24 basis points and 78 basis
points, respectively, reflecting the changes in Fed Funds rate throughout the comparison periods.
The average volume of interest-bearing liabilities for the year ended December 31, 2019 increased 4.6% compared
to December 31, 2018, and increased 3.6% at December 31, 2018 compared to December 31, 2017. The average
rate paid on interest-bearing liabilities increased 28 basis points during 2019 and 26 basis points during 2018.
The average volume of interest-bearing transaction accounts increased 17.7% for 2019 versus 2018 and 12.3% for
2018 versus 2017, reflecting strong deposit growth during both periods. The average rate paid on these accounts
increased 31 basis points for 2019 versus 2018 and 37 basis points for 2018 versus 2017, reflecting the rising rate
environment and competitive pressures on deposit pricing.
The average volume of money market accounts increased 3.4% during 2019 and 6.4% during 2018, and the
average rate paid on these deposits increased 38 basis points during 2019 and 24 basis points during 2018.
The average volume of savings accounts decreased by 2.1% for 2019 versus 2018, but increased by 1.7% for
2018 versus 2017, while the average rate paid on these accounts remained relatively stable. With the recovery in
market CD rates, funds have begun migrating back toward CDs, which typically impacts savings account balances.
The average volume of time deposits decreased 1.3% for 2019 and 2018, while the average rate paid increased
42 basis points and 31 basis points, respectively. Interest paid on time deposits as a percentage of total interest
expense was 32.4%, 33.2% and 36.7%, respectively for 2019, 2018 and 2017. Following the increase in short
term rates, there was pressure for higher rates from the more rate sensitive deposit holders with the local market
willing to pay higher rates on deposit products. This pressure has lessened with the reduction in interest rates in
the third quarter of 2019. Management still considers the brokered deposit market to be a beneficial source of
funding to help smooth out the fluctuations in core deposit balances without the need to disrupt deposit pricing in
the Company’s local markets. These funds can be obtained relatively quickly on an as-needed basis, making them
a valuable alternative to traditional term borrowings from the FHLBB.
The average volume of borrowed funds decreased 63.5% for 2019 versus 2018 and 45.2% for 2018 versus
2017, reflecting an increase in core deposits and brokered deposits to fund loan growth during both periods. The
average rate paid on these accounts decreased 88 basis points during 2019 to 0.40%, but increased 63 basis
points to 1.28% during 2018 compared 0.65% for 2017.
The average volume of repurchase agreements increased 9.8% during 2019 and 5.5% during 2018, and the
average rate paid on repurchase agreements increased 26 basis points to 0.89% for 2019 versus 2018 and 33
basis points to 0.63% for 2018 versus 2017.
2019 Annual Report 61
In summary, the average yield on interest-earning assets increased 16 basis points during 2019, while the average
rate paid on interest-bearing liabilities increased 28 basis points. During 2018, the average yield on interest-
earning assets increased 14 basis points, while the average rate paid on interest-bearing liabilities increased
26 basis points. Net interest spread decreased 12 basis points in both comparison periods with 3.64% for 2019
compared to 3.76% for 2018, and 3.88% for 2017. Net interest margin decreased five basis points during 2019 to
3.90%, and six basis points to 3.95% for 2018, compared to 4.01% for 2017.
The following table summarizes the variances in income for the years presented, resulting from volume changes
in interest-earning assets and interest-bearing liabilities and fluctuations in rates earned and paid compared to the
prior year.
2019 versus 2018
2018 versus 2017
Variance Variance
Variance Variance
Due to
Due to
Rate (1) Volume (1) Variance Rate (1) Volume (1) Variance
(Dollars in Thousands)
Due to
Due to
Total
Total
Average Interest-Earning Assets
Loans (2)
Taxable investment securities
Sweep and interest-earning accounts
Other investments
Total
Average Interest-Bearing Liabilities
Interest-bearing transaction accounts
Money market accounts
Savings deposits
Time deposits
Borrowed funds
Repurchase agreements
Finance lease obligations
Junior subordinated debentures
Total
$ 1,156
78
70
1
$ 1,305
$ 1,137
116
132
(26)
$ 1,359
$ 2,293
194
202
(25)
$ 2,664
$
957
170
182
(37)
$ 1,272
$ 881
49
142
(10)
$ 1,062
$ 1,838
219
324
(47)
$ 2,334
$ 505
359
30
525
(48)
89
1
45
$ 1,506
$
$
153
35
(4)
(26)
(14)
19
(11)
0
152
$
658
394
26
499
(62)
108
(10)
45
$ 1,658
$ 502
225
10
383
63
99
1
125
$ 1,408
$
$
39
50
2
(20)
(58)
5
(9)
0
9
$
541
275
12
363
5
104
(8)
125
$ 1,417
Changes in net interest income
$
(201) $ 1,207
$ 1,006
$
(136) $ 1,053
$
917
(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
(2) Reflects reclassification of obligations of local municipalities from investment securities to loans effective
January 1, 2019, and restated for the 2018 and 2017 comparison periods. See Note 1 to the accompanying
audited consolidated financial statements for additional information.
62 Community Bancorp.
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest Income
The components of non-interest income for the annual periods presented are as follows:
Service fees
Income from sold loans
Other income from loans
Net realized loss on sale of securities AFS
Other income
Income from CFS Partners
Rental income
Gain on sale of property
VISA card commission
Service fee NMTC
Other miscellaneous income
Total non-interest income
Year Ended
December 31,
Change
2019
2018
Income
Percent
$ 3,313,833 $ 3,238,954 $
706,306
904,156
(26,490)
588,696
9,821
0
70,994
0
378,750
780,622
879,887
(32,718)
514,486
30,365
263,118
93,377
43,602
369,615
$ 5,946,066 $ 6,181,308 $
74,879
(74,316)
24,269
6,228
74,210
(20,544)
(263,118)
(22,383)
(43,602)
9,135
(235,242)
2.31%
-9.52%
2.76%
19.04%
14.42%
-67.66%
100.00%
-23.97%
-100.00%
2.47%
-3.81%
Total non-interest income decreased by $235,242 for the year ended December 31, 2019 compared to the same
period 2018, with significant changes noted in the following:
•
•
Interchange fees, a component of Service Fees, increased $55,279 for the year due to an increase in debit
card transaction activity, accounting for most of the increase year over year.
Income from sold loans decreased $74,316, or 9.5% as a result of a slowdown in residential mortgage
lending activity, as well as the decrease in originations of servicing released loans as mentioned earlier in
the Results of Operations section.
• Realized losses on the sale of debt securities AFS of $26,490 for 2019 and $32,718 for 2018, resulted
in a 19.0% reduction in net realized loss on sale of such securities between periods. During 2019, the
Company continued to sell off low-yielding, short-duration securities held in the Company’s AFS portfolio,
which were replaced with higher-yielding investments available in the current market.
•
Income from the Company’s trust and investment management affiliate, CFS Partners, increased $74,210,
or 14.4%, for the year. This increase was mostly due to strong new business development during the year
that provided an increase in fee income.
• Rental income decreased $20,544, or 67.7%, for 2019 due to the Company’s sale of an office condominium
unit to CFS Partner’s subsidiary, CFSG, during the second quarter of 2018. Prior to the sale, CFSG had
rented this unit from the Company since its formation in 2002.
• Gain on sale of property of $263,118 during 2018 was attributable to the sale of an office condominium unit
to the Company’s affiliate, CFSG, during the second quarter of 2018. There was no activity in 2019 that
resulted in a gain on sale of property.
• VISA card commission income decreased $22,383 in 2019. The incentive premium program began in
2018, and included a higher “1st year” incentive premium.
• A servicing fee of $43,602, related to a NMTC investment, was recorded in 2018. There was no servicing
fee in 2019 as the Company exited this investment in 2018.
2019 Annual Report 63
Non-interest Expense
The components of non-interest expense for the annual periods presented are as follows:
Salaries and wages
Employee benefits
Occupancy expenses, net
Other expenses
Outsourcing expense
Service contracts - administrative
Marketing expense
FDIC insurance
Audit fees
Consultant services
Collection & non-accruing loan expense
Subsequent write downs on OREO
Other miscellaneous expenses
Total non-interest expense
Year Ended
December 31,
Change
2019
2018
Expense
Percent
$ 7,271,722 $ 7,203,001 $
3,118,631
2,605,995
2,880,048
2,545,959
428,668
539,510
450,533
69,452
407,303
217,352
185,963
95,008
4,491,143
480,563
512,902
552,617
274,772
448,439
276,972
145,009
78,447
4,496,297
$ 19,881,280 $ 19,895,026 $
68,721
238,583
60,036
(51,895)
26,608
(102,084)
(205,320)
(41,136)
(59,620)
40,954
16,561
(5,154)
(13,746)
0.95%
8.28%
2.36%
-10.80%
5.19%
-18.47%
-74.72%
-9.17%
-21.53%
28.24%
21.11%
-0.11%
-0.07%
Total non-interest expense decreased $13,746, or 0.1%, for the year 2019 compared to the same period in 2018,
with significant changes in “Other expenses” categories noted in the following:
• Employee benefits increased $238,583, or 8.3%, due to an increase in the cost of the employee health
insurance plan.
• Outsourcing expense decreased $51,895, or 10.8%, year over year primarily due to credits received from
the company core processing system toward current year expense.
• Marketing expense decreased $102,084, or 18.5%, year over year due to a delay in the scheduled creation
of promotional television commercials.
• FDIC insurance decreased $205,320, or 74.7%, due in part to the “Small Bank Assessment Credit” issued
during the third quarter of 2019, as well as a reduction in the multiplier used to calculate the quarterly
assessments. This credit eliminated the assessments due during the third and fourth quarters of 2019,
and the remainder of the credit ($56,113) will be applied to the assessment due in the first quarter of 2020.
• Audit fees decreased $41,136, or 9.2%, year over year due mostly to increased audit requirements in 2018
on internal control over financial reporting as the Company transitioned to accelerated filer status for SEC
reporting purposes, as well as multiple audits during the 2018 calendar year resulting from a change in
Information Security audit vendors.
• Consultant services decreased $59,620, or 21.5%, year over year mostly due to the completion of some
technology projects in 2018.
• Collections & non-accruing loan expense increased $40,954, or 28.2%, year over year mostly due to an
increase in the non-performing assets portfolio and the length of time, and the associated costs, it takes to
go through the foreclosure process.
• The Company recorded write downs of two OREO properties in 2019 compared to one OREO property in
2018, all of which were subsequently sold.
64 Community Bancorp.
APPLICABLE INCOME TAXES
Income before income taxes increased $478,509, or 4.7% for 2019 compared to 2018, accounting for the increase
in the provision for income taxes of $51,595, or 3.0%. Tax credits from affordable housing investments decreased
$22,130, or 5.1%, from $437,229 in 2018 to $415,099 in 2019.
Amortization expense related to limited partnership investments is included as a component of income tax expense
and amounted to $312,106 and $410,061 for 2019 and 2018, respectively. These investments provide tax benefits,
including tax credits, and are designed to provide an effective yield between 7% and 10%.
2019 Annual Report 65
CHANGES IN FINANCIAL CONDITION
The following table provides a visual comparison of the breakdown of average assets and average liabilities as well
as 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,
2019
2018
2017
Balance
%
Balance
%
Balance
%
(Dollars in Thousands)
Average Assets
Cash and due from banks
Non-interest bearing
Federal funds sold and overnight deposits
Taxable investment securities
Other securities
Total investment securities
Gross loans (1)
ALL and deferred net loan costs
Premises and equipment
OREO
Investment in Capital Trust
BOLI
CDI
Goodwill
Other assets
Total average assets
Average Liabilities
Demand deposits
Interest-bearing transaction accounts
Money market funds
Savings accounts
Time deposits
Total average deposits
Borrowed funds
Repurchase agreements
Junior subordinated debentures
Other liabilities
Total average liabilities
$ 11,043
29,625
43,591
1,397
44,988
591,908
(5,444)
10,973
188
387
4,855
0
11,574
11,067
$ 711,164
1.55%
$ 10,838
4.17%
23,256
6.13%
38,372
0.20%
1,862
6.33%
40,234
83.23%
568,860
(5,176)
-0.77%
1.54%
9,958
0.03%
278
0.05%
387
0.68%
4,765
0.00%
0
1.63%
11,574
1.56%
9,835
100% $ 674,809
1.61%
$ 16,427
3.44%
12,331
5.69%
35,758
0.28%
2,043
5.97%
37,801
84.29%
550,490
(5,073)
-0.77%
1.47%
10,619
0.04%
377
0.06%
387
0.71%
4,670
0.00%
129
1.71%
11,574
1.46%
10,574
100% $ 650,306
$ 120,689
161,887
94,704
96,088
120,937
594,305
16.97% $ 113,412
22.76%
137,547
13.32%
91,642
13.51%
98,154
17.01%
122,499
83.57%
563,254
16.81% $ 109,920
20.38%
122,521
13.58%
86,141
14.55%
96,551
18.15%
124,134
83.47%
539,267
1,996
33,546
12,887
4,998
647,732
0.28%
4.72%
1.81%
0.70%
91.08%
5,462
30,555
12,887
3,019
615,177
0.81%
4.53%
1.91%
0.45%
91.17%
9,975
28,950
12,887
3,408
594,487
Average Shareholders' Equity
1,618
Preferred stock
13,527
Common stock
32,925
Additional paid-in capital
18,061
Retained earnings
(2,623)
Less: Treasury stock
(76)
Accumulated other comprehensive loss
Total average shareholders' equity
63,432
Total average liabilities and shareholders' equity $ 711,164
0.23%
2,119
1.90%
13,367
4.63%
32,000
2.54%
15,563
(2,623)
-0.37%
(794)
-0.01%
8.92%
59,632
100% $ 674,809
0.31%
2,500
1.98%
13,230
4.74%
31,159
2.31%
11,623
(2,623)
-0.39%
(70)
-0.12%
8.83%
55,819
100% $ 650,306
2.53%
1.90%
5.50%
0.31%
5.81%
84.65%
-0.78%
1.63%
0.06%
0.06%
0.72%
0.02%
1.78%
1.63%
100%
16.90%
18.84%
13.25%
14.85%
19.09%
82.93%
1.53%
4.45%
1.98%
0.53%
91.42%
0.38%
2.03%
4.79%
1.79%
-0.40%
-0.01%
8.58%
100%
(1) Gross loans reflects reclassification of obligations of local municipalities from the investment portfolio into the
loan portfolio as of January 1, 2019 and conforming changes to the comparative 2018 and 2017 information
presented. See Note 1 to the accompanying audited consolidated financial statements for additional information.
66 Community Bancorp.
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,
2019
2018
2017
Average Assets
Cash and due from banks
Non-interest bearing
Federal funds sold and overnight deposits
Taxable investment securities
Other securities
Total investment securities
Gross loans (1)
ALL and deferred net loan costs
Premises and equipment
OREO
Investment in Capital Trust
BOLI
CDI
Goodwill
Other assets
Total average assets
Average Liabilities
Demand deposits
Interest-bearing transaction accounts
Money market funds
Savings accounts
Time deposits
Total average deposits
Borrowed funds
Repurchase agreements
Junior subordinated debentures
Other liabilities
Total average liabilities
Average Shareholders' Equity
Average Average Average Volume
Balance Balance Balance Change Change Change Change
(Dollars in Thousands)
Volume
2019 vs 2018
% of
2018 vs 2017
% of
$ 11,043 $ 10,838 $ 16,427 $
23,256
38,372
1,862
40,234
568,860
(5,176)
9,958
278
387
4,765
0
11,574
9,835
205
6,369
5,219
(465)
4,754
23,048
(268)
1,015
(90)
0
90
0
0
1,232
$ 711,164 $ 674,809 $ 650,306 $ 36,355
12,331
35,758
2,043
37,801
550,490
(5,073)
10,619
377
387
4,670
129
11,574
10,574
29,625
43,591
1,397
44,988
591,908
(5,444)
10,973
188
387
4,855
0
11,574
11,067
1.89% $
27.39%
13.60%
-24.97%
11.82%
4.05%
5.18%
10.19%
-32.37%
0.00%
1.89%
0.00%
0.00%
12.53%
(5,589)
10,925
2,614
(181)
2,433
18,370
(103)
(661)
(99)
0
95
-34.02%
88.60%
7.31%
-8.86%
6.44%
3.34%
2.03%
-6.22%
-26.26%
0.00%
2.03%
(129) -100.00%
0.00%
-6.99%
3.77%
0
(739)
5.39% $ 24,503
$ 120,689
161,887
94,704
96,088
120,937
594,305
$ 113,412
137,547
91,642
98,154
122,499
563,254
$ 109,920
122,521
86,141
96,551
124,134
539,267
$ 7,277
24,340
3,062
(2,066)
(1,562)
31,051
6.42% $
17.70%
3.34%
-2.10%
-1.28%
5.51%
1,996
33,546
12,887
4,998
647,732
5,462
30,555
12,887
3,019
615,177
9,975
28,950
12,887
3,408
594,487
(3,466)
2,991
0
1,979
32,555
-63.46%
9.79%
0.00%
65.55%
5.29%
3,492
15,026
5,501
1,603
(1,635)
23,987
(4,513)
1,605
0
(389)
20,690
3.18%
12.26%
6.39%
1.66%
-1.32%
4.45%
-45.24%
5.54%
0.00%
-11.41%
3.48%
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Less: Treasury stock
Accumulated other comprehensive loss
Total average shareholders' equity
Total average liabilities and shareholders' equity
1,618
13,527
32,925
18,061
(2,623)
(76)
63,432
$ 711,164
2,119
13,367
32,000
15,563
(2,623)
(794)
59,632
$ 674,809
2,500
13,230
31,159
11,623
(2,623)
(70)
55,819
$ 650,306 $
(501)
160
925
2,498
0
718
3,800
36,355
-23.64%
1.20%
2.89%
16.05%
0.00%
-90.43%
6.37%
5.39% $
(381)
137
841
3,940
0
(724)
3,813
24,503
-15.24%
1.04%
2.70%
33.90%
0.00%
1034.29%
6.83%
3.77%
(1) Gross loans reflects reclassification of obligations of local municipalities from the investment portfolio into the
loan portfolio as of January 1, 2019 and conforming changes to the comparative 2018 and 2017 information
presented. See Note 1 to the accompanying audited consolidated financial statements for additional information.
2019 Annual Report 67
CERTAIN TIME DEPOSITS
Increments of maturity of time CDs of $100,000 or more outstanding on December 31, 2019 are summarized as
follows:
3 months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
RISK MANAGEMENT
$ 13,658,775
6,910,082
9,390,244
34,613,090
$ 64,572,191
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 recent decreases in the federal funds rate, including three 25 basis point cuts in
2019, will continue to generate a negative impact to the Company’s NII in 2020 as variable rate loans reprice during
the year; This, coupled with the downward pressure on the long end of the yield curve, will continue to adversely
impact margins going forward.
68 Community Bancorp.
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, 2019:
One Year Horizon
Two Year Horizon
Rate Change
Percent Change in NII
Rate Change
Percent Change in NII
Down 100 basis points
Up 200 basis points
-1.4%
1.8%
Down 100 basis points
Up 200 basis points
-5.3%
9.8%
The 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 is more pronounced, and the possibility
more plausible than during the last several years of near zero short rates.
As of December 31, 2019, 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%. During 2017, the financial authorities in the United Kingdom that
administer LIBOR announced that LIBOR will be phased out by the end of 2021. The Company has reviewed
the pertinent language in the Indenture governing the Debentures and believes that the Debenture Trustee has
sufficient authority under the Indenture to establish a substitute interest rate benchmark without the need to
amend the Indenture. However, the Debenture Trustee has not yet informed the Company as to how it intends to
proceed. 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.
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 33.2% of the Company’s loan balances at December 31, 2019. 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 21.5% 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.
2019 Annual Report 69
Consistent with the strategic focus on commercial lending, the commercial and CRE loan portfolios have seen solid
growth over recent years. Commercial & industrial, CRE and Municipal loans collectively comprised 59.8% of the
Company’s loan portfolio at December 31, 2019, compared to 54.3% at December 31, 2018.
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, non-arbitrage borrowing. The portfolio increased $8.8
million, or 18.6%, to $55.8 million as of December 31, 2019 compared to $47.1 million at December 31, 2018.
During 2019, term lending increased $2.3 million, or 9.3%, tax anticipation lending decreased $3.1 million, or
93.5%, and non-arbitrage borrowing increased $9.6 million, or 49.5%. 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-I93 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. On May 1,
2019, the Company opened 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 $246 million CRE portfolio at December 31, 2019 were approximately $93 million in owner-occupied CRE
and $85 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. The Wall Street Journal
Prime index fell to 3.25% in 2008 and remained there until December 2015. Since 2015 numerous rate hikes have
increased the Wall Street Journal Prime index by 225 percentage points to 5.5%, before falling 75 percentage
points in 2019 to 4.75%. The home equity portfolio and commercial line of credit portfolio have weathered these
increases 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, again usually tied to Wall Street Prime. Approximately
$163 million of CRE loans are scheduled to reprice over the next five years with sizeable rate increases projected
based on the current Prime rate index. Many of these loans will ultimately refinance or renegotiate pricing, while
the increase may adversely impact the repayment capacity of those CRE loans of lesser credit quality and may
ultimately result in higher non-performing loans and losses.
70 Community Bancorp.
The following table reflects the composition of the Company’s loan portfolio, by portfolio segment, as a percentage
of total loans as of December 31,
2019
2018
2017
(Dollars in Thousands)
2016
2015
Real estate loans
Construction & land
development
Farm land
1-4 Family residential -
1st lien
Jr lien
Commercial real estate
Loans to finance
agricultural production
Commercial & industrial
Municipal
Consumer
Gross loans
Less:
ALL and deferred net
loan costs
Net loans
$ 21,085 3.47% $ 26,826 4.64% $ 21,968 3.98% $ 14,991 2.79% $ 21,445 4.28%
12,570 2.51%
13,054 2.15%
10,209 1.76%
10,477 1.90%
13,011 2.42%
158,337 26.09% 165,665 28.64% 168,184 30.48% 166,692 31.03% 162,760 32.46%
43,231 7.12%
45,257 8.20%
44,720 8.92%
212,145 34.95% 198,283 34.28% 174,599 31.65% 173,727 32.34% 144,192 28.75%
44,545 7.70%
42,927 7.99%
3,675 0.61%
95,255 15.69%
55,817 9.20%
4,390 0.72%
2,508 0.50%
62,683 12.50%
43,354 8.64%
7,241 1.44%
606,989 100% 578,450 100% 551,690 100% 537,136 100% 501,473 100%
2,797 0.48%
77,970 13.48%
47,067 8.14%
5,088 0.88%
996 0.19%
67,734 12.61%
49,887 9.29%
7,171 1.34%
887 0.16%
76,224 13.82%
48,825 8.85%
5,269 0.96%
(5,564)
(5,238)
(5,120)
(4,968)
(4,695)
$601,425
$573,212
$546,570
$532,168
$496,778
(1) Gross loans reflects reclassification of obligations of local municipalities from the investment portfolio into
the loan portfolio as of January 1, 2019 and conforming changes to the comparative prior period information
presented. See Note 1 to the accompanying audited consolidated financial statements for additional information.
The following table shows the estimated maturity of the Company’s commercial loan portfolio as of December 31,
2019.
Fixed Rate Loans
After
Years 5 Years
2 - 5
Within
1 Year
Total
Variable Rate Loans
After
Years 5 Years
2 - 5
Within
1 Year
Total
Real estate
Construction & land
development
Secured by farm land
Commercial real estate
Loans to finance agricultural
production
Commercial & industrial
Municipal
(Dollars in Thousands)
$ 1,226 $
294 $ 2,943 $ 4,463 $ 1,320 $
253 $ 15,049 $ 16,622
0
643
146
459
2,715
205
47
16,390
506
19,748
116
7,266
471
12,548
11,961
3,961 181,170 192,397
33
384
608
1,365
1,318
3,291
1,215
33,085
52,664
11,224
$ 36,315 $ 30,490 $ 45,480 $112,285 $ 35,278 $ 24,403 $229,065 $288,746
18,353
0
25,968
0
19,730
6,337
21,646
5,171
42,591
44,593
8,343
11,224
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, 2019 and 2018, although the mix of loans by category
varied, in total, the Company had approximately $28.4 million in guaranteed loans with guaranteed balances of
approximately $21.0 million.
2019 Annual Report 71
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.
During the five year period presented in the following table, the level of non-performing assets fluctuated, with the
highest level reported in 2015, followed by a substantial decrease in 2016 in large part due to the restoration to
accrual status of one large CRE relationship and another commercial relationship secured by multiple residential
properties. Other reductions occurred through the foreclosure process or through borrower initiated payments
and payoffs. 2017 increases in non-performing assets generally resulted from numerous smaller loans across the
CRE and residential 1st lien portfolios. The increase in 2018 was primarily attributable to higher delinquency in
the residential portfolio, and the decline of credit quality in two CRE loans, while the increase in 2019 was primarily
due to a large CRE loan being transferred into the Company’s OREO portfolio.
72 Community Bancorp.
Non-performing assets at the end of each of the last five fiscal years consisted of the following:
December 31,
Accruing loans past due 90 days or more(1):
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Total past due 90 days or more
Non-accrual loans(1):
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Total non-accrual loans
Total non-accrual and past due loans
Other real estate owned
Total non-performing assets
2018
(Dollars in Thousands)
2017
2016
$
$
0 $
0
622
105
2
729
0 $
0
1,249
0
1
1,250
26
0
1,068
28
2
1,124
85
1,743
2,027
408
4,263
99
1,065
1,585
347
3,096
143
766
1,227
339
2,475
2015
14
45
801
63
0
923
441
2,401
2,009
386
5,237
$
2019
0
0
530
112
0
642
480
1,601
2,112
241
4,434
5,076
967
4,992
201
5,193
4,346
284
$ 4,630
3,599
394
$ 3,993 $
6,160
262
6,422
$
6,043 $
Percentage by segment of non-performing loans:
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
9.46%
31.54%
52.05%
6.95%
0.00%
100.00%
1.70%
34.92%
53.06%
10.28%
0.04%
100.00%
2.28%
24.51%
65.21%
7.98%
0.02%
100.00%
4.70%
21.28%
63.77%
10.20%
0.06%
100.00%
7.39%
39.71%
45.62%
7.29%
0.00%
100.00%
Percent of gross loans
Reserve coverage of non-performing assets
1.00%
98.07%
0.90%
107.87%
0.84%
117.45%
0.74%
132.18%
1.28%
78.04%
(1) No municipal loans were past due 90 days or more, and no municipal or consumer loans were in non-accrual
status as of any of the consolidated balance sheet dates. In accordance with Company policy, delinquent
consumer loans are charged off at 120 days past due.
The Company’s OREO portfolio at December 31, 2019 consisted of one residential and three commercial properties
compared to two commercial properties at December 31, 2018. The residential property was acquired through
the normal foreclosure process. Both properties held at December 31, 2018 were sold during 2019, and all the
properties transferred to OREO in 2019 remain in the portfolio and are listed for sale.
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.
2019 Annual Report 73
The Non-Performing Assets in the preceding table include the following TDRs that were past due 90 days or more
or in non-accrual status as of the dates presented:
December 31, 2019
Number of
Loans
Principal
Balance
December 31, 2018
Number of
Loans
Principal
Balance
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Total
$
6
4
14
1
331,767
772,894
1,468,415
55,011
25 $ 2,628,085
$
1
4
12
0
24,685
862,713
1,082,187
0
17 $ 1,969,585
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:
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Total
December 31, 2019
December 31, 2018
Number of
Loans
Principal
Balance
Number of
Loans
Principal
Balance
2
30
1
33
$
$
106,913
2,459,649
6,101
2,572,663
1
31
1
33
$
$
102,292
2,544,728
7,248
2,654,268
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.
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 3 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, and
consumer loan portfolios. The Company’s municipal portfolio has no historical losses, therefore no allocation is
calculated on this portfolio. Other than the municipal portfolio, 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 will review 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 3 to the accompanying audited consolidated financial statements for information
on the recorded investment in impaired loans and their related allocations.
74 Community Bancorp.
The following table summarizes the Company’s loan loss experience for each of the last five years.
As of or Years Ended December 31,
2019
2018
2016
2017
(Dollars in Thousands)
2015
Loans outstanding, end of year (1)
Average loans outstanding during year (1)
Non-accruing loans, end of year
Non-accruing loans, net of government guarantees
$606,989 $578,450 $551,690 $537,136 $501,473
$591,616 $568,511 $549,974 $521,973 $499,309
$ 4,434 $ 4,263 $ 3,096 $ 2,475 $ 5,237
$ 4,074 $ 3,887 $ 3,037 $ 2,328 $ 4,551
ALL, beginning of year
Loans charged off:
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Recoveries:
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Net loans charged off
Provision charged to income
ALL, end of year
$ 5,602 $ 5,438 $ 5,278 $ 5,012 $ 4,906
(176)
(116)
(242)
(223)
(103)
(860)
11
50
16
2
39
118
(153)
(124)
(252)
(69)
(144)
(742)
60
0
27
1
38
126
(20)
(160)
(160)
(118)
(124)
(582)
27
0
27
1
37
92
(49)
0
(244)
0
(16)
(309)
25
0
24
0
26
75
(201)
(15)
(151)
(66)
(69)
(502)
59
0
6
0
33
98
(742)
1,066
(404)
510
$ 5,926 $ 5,602 $ 5,438 $ 5,278 $ 5,012
(234)
500
(616)
780
(490)
650
Net charge offs to average loans outstanding
Provision charged to income as a percent of
average loans
ALL to average loans outstanding
ALL to non-accruing loans
ALL to non-accruing loans, net of government
guarantees
0.13%
0.11%
0.09%
0.04%
0.08%
0.18%
1.00%
133.65%
0.14%
0.99%
131.41%
0.12%
0.99%
175.65%
0.10%
1.01%
213.25%
0.10%
1.00%
95.70%
145.46%
144.12%
179.06%
226.72%
110.13%
(1) Reflects reclassification of obligations of local municipalities from the investment portfolio into the loan portfolio
as of January 1, 2019 and conforming changes to the comparative 2018 – 2015 information presented. See
Note 1 to the accompanying audited consolidated financial statements for additional information.
The 2015 provision was maintained at a level consistent with portfolio growth and higher levels of non-performing
loans. Despite lower net losses during 2016 and sharply lower non-performing loans, the 2016 provision held steady
at $500,000 to support the strong loan growth, particularly in the CRE portfolio. The 2017 provision increased
to $650,000, principally to cover higher loan losses experienced during the year, some qualitative adjustment
increases related to classified loan levels, along with solid loan portfolio growth. As in 2017, the 2018 provision
was increased principally to support strong CRE loan growth along with the higher dollar volume of losses in the
Company’s growing loan portfolio. The 2019 provision increased significantly due to increase in the loan portfolio
combined with higher than anticipated loan charge off activity during the third quarter of 2019 related to write-down
2019 Annual Report 75
adjustments on several loans in workout. The Company has an experienced collections department that continues
to work actively with borrowers to resolve problem loans and manage the OREO portfolio, and management
continues to monitor the loan portfolio closely.
The fourth quarter ALL analysis indicates that the reserve balance of $5.9 million at December 31, 2019 is sufficient
to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of
approximately $178,000. Management believes that 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 in light of the
Company’s continued growth strategy and shift in the portfolio from residential loans to commercial 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.
The following table shows the allocation of the ALL, as well as the percent of each loan category to the total loan
portfolio, as of the balance sheet dates for each of the last five years:
December 31,
2019
%
2018
2017
%
(Dollars in Thousands)
%
2016
%
2015
%
Domestic
Commercial & industrial
Commercial real estate
Municipal (1)
Residential real estate
1st lien
Jr lien
Consumer
Unallocated
$ 837 16% $ 697 14% $ 676 14% $ 726 13% $ 713 13%
2,152 36%
9%
0
3,181 41%
9%
3,020 41%
8%
2,674 38%
9%
2,496 38%
9%
0
0
0
0
1,388 26%
7%
1%
0%
1,368 32%
9%
1%
0%
$ 5,926 100% $ 5,602 100% $ 5,438 100% $ 5,278 100% $ 5,012 100%
1,461 30%
8%
1%
0%
1,422 28%
8%
1%
0%
1,370 31%
8%
1%
0%
290
52
178
317
43
267
273
57
133
371
84
231
423
76
280
(1) Gross loans reflects reclassification of obligations of local municipalities from the investment portfolio into the
loan portfolio as of January 1, 2019 and conforming changes to the comparative 2018 – 2015 information
presented. See Note 1 to the accompanying audited consolidated financial statements for additional information.
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.
76 Community Bancorp.
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 $6.6 million, or 16.8% in 2019 to $46.0 million at December
31, 2019 from $39.4 million at December 31, 2018, and increased just under $1.0 million, or 2.4%, during 2018
from $38.5 million at December 31, 2017.
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. As noted
previously, effective as of January 1, 2019, tax-exempt loans to municipalities, which were previously classified as
securities HTM and constituted the entire HTM portfolio, were reclassified to the loan portfolio, with prior period
information restated accordingly. Therefore, the Company did not hold any securities HTM as of December 31,
2019, 2018 or 2017.
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 income net of taxes of $260,483 in 2019, compared to accumulated unrealized loss net of taxes of
$647,584 in 2018, and $274,097 in 2017. Included in the 2017 accumulated unrealized loss is a reclassification
adjustment of $45,106 for the deferred tax asset revaluation beginning in 2018. Other than the 2017 deferred
tax asset reclassification adjustment, 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, we anticipate holding these securities until maturity. The unrealized loss
positions within the investment portfolio as of the balance sheet dates presented are considered by management
to be temporary.
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, 2019, 2018 and 2017, the Company held $588,150 in FRBB stock and $753,700, $1.1 million and $1.1 million,
respectively, in FHLBB stock.
In addition, as disclosed in Note 2 of the accompanying audited consolidated
financial statements, during 2018 the Company purchased $90,000 in stock in ACBI, a holding company for ACBB,
a correspondent bank. The purchase of 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 2019, there were ten call features exercised by the
issuer, compared to no calls exercised during 2018 or 2017.
2019 Annual Report 77
The Company’s debt securities AFS as of December 31 in each of the last three fiscal years were as follows:
Amortized Unrealized
Gross
Gross
Unrealized
Losses
Gains
(Dollars in Thousands)
Cost
Fair
Value
December 31, 2019
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
$ 18,003
16,169
2,800
8,665
$ 45,637
$
$
100
87
55
182
424
$
$
41
51
2
0
94
$
$
18,062
16,205
2,853
8,847
45,967
Restricted Equity Securities (1)
$
1,432
$
0
$
0
$
1,432
Total
$ 47,069
$
424
$
94
$
47,399
Amortized Unrealized
Gross
Gross
Unrealized
Losses
Gains
(Dollars in Thousands)
Cost
Fair
Value
December 31, 2018
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
$ 14,010
16,021
1,988
8,167
$ 40,186
$
$
0
3
4
8
15
$
$
259
449
6
120
834
$
$
13,751
15,575
1,986
8,055
39,367
Restricted Equity Securities (1)
$
1,749
$
0
$
0
$
1,749
Total
$ 41,935
$
15
$
834
$
41,116
Amortized Unrealized
Gross
Gross
Unrealized
Losses
Gains
(Dollars in Thousands)
Cost
Fair
Value
December 31, 2017
U.S. GSE debt securities
Agency MBS
Other investments
$ 17,308
16,782
4,707
$ 38,797
$
$
0
11
0
11
$
$
149
180
29
358
$
$
17,159
16,613
4,678
38,450
Restricted Equity Securities (1)
$
1,704
$
0
$
0
$
1,704
Total
$ 40,501
$
11
$
358
$
40,154
(1) Required equity purchases for membership in the FRB System and the FHLB System and for access to
correspondent banking services from ACBB.
The Company did not have investments totaling more than 10% of Shareholders’ equity in any one issuer during
any of the periods presented.
78 Community Bancorp.
Realized gains and losses in the Company’s AFS portfolio are presented in the table below for 2019, 2018 and
2017.
2019
Realized gains
2018
2017
U.S. GSE debt securities
Agency MBS
Other investments
Total
$
$
0 $
1,570
0
1,570 $
0 $
0
0
0 $
2019
Realized losses
2018
7,200 $ 32,718 $
2,021 $
20,860
0
6,366
0
8,387 $ 28,060 $ 32,718 $
0
0
2017
1,804
0
3,199
5,003
The following is an analysis of the maturities and yields of the debt securities in the Company’s investment portfolio
for each of the last three fiscal years:
December 31,
U.S. GSE debt securities
Due in one year or less
Due from one to five years
Due from five to ten years
Due after ten years
Total
ABS/AOS
Due from five to ten years
Other Investments
Due in one year or less
Due from one to five years
Due from five to ten years
Total
Agency MBS (1)
FRBB Stock (2)
FHLBB Stock (2)
ACBI Stock (2)(3)
2019
2018
2017
Weighted
Average
Yield
Fair
Value
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
(Dollars in Thousands)
$ 2,020
2,007
12,049
1,986
$ 18,062
1.81% $
0
2.25%
4,944
2.81%
8,807
2.70%
0
2.63% $ 13,751
0.00% $ 3,740
1.69%
6,978
2.84%
6,441
0.00%
0
2.42% $ 17,159
1.30%
1.64%
2.62%
0.00%
1.93%
$ 2,853
2.94% $ 1,986
3.33% $
0
0.00%
$
746
7,856
245
$ 8,847
2.03% $
0
2.72%
7,575
2.50%
480
2.65% $ 8,055
0.00% $
0
2.63%
4,190
2.50%
488
2.62% $ 4,678
0.00%
2.25%
2.50%
2.28%
$ 16,205
2.55% $ 15,575
2.33% $ 16,613
2.08%
$
588
6.00% $
588
6.00% $
588
6.00%
$
754
6.04% $ 1,071
5.92% $ 1,116
5.53%
$
90
1.16% $
90
0.00% $
0
0.00%
(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.
(3) The Company’s holdings of ACBI stock were purchased during the fourth quarter of 2018 and the first declared
dividend was paid during the first quarter of 2019, accounting for the absence in yield for 2018.
2019 Annual Report 79
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 2019, 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 16 to the
accompanying audited consolidated financial statements.
EFFECTS OF INFLATION
Rates of inflation affect the reported financial condition and results of operations of all industries, including the
banking industry. The effect of monetary inflation is generally magnified in bank financial and operating statements
because most of a bank’s assets and liabilities are monetary in nature and, as costs and prices rise, cash and credit
demands of individuals and businesses increase, while the purchasing power of net monetary assets declines.
During the economic downturn that began in 2008, the capital and credit markets experienced significant volatility
and disruption, with the federal government taking unprecedented steps to deal with the economic situation. These
measures included significant deficit spending as well as quantitative easing of the money supply by the FRB. With
the improvement in the economy during the last three years, the FOMC took steps to increase interest rates in
2018 but the second half of 2019 brought a decrease in interest rates as the economy showed signs of slowing.
The impact of inflation on the Company’s financial results is affected by management’s ability to react to changes
in interest rates in order to reduce inflationary effect on performance. Interest rates do not necessarily move in
conjunction with changes in the prices of other goods and services. As discussed above, management seeks to
manage the relationship between interest-sensitive assets and liabilities in order to protect against significant
interest rate fluctuations, including those resulting from inflation. With inflation holding under or near the 2% target
despite the unemployment rate remaining at cycle lows, the Fed has recently softened its intentions to further
tighten policy during 2020, in an effort to avoid possibly creating a recession, which has typically been the case in
past cycles.
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 one-way CDARS outstanding totaling $4.0 million and $723,774 at December 31, 2019
80 Community Bancorp.
and 2018, respectively. 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. Until
2018, these 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. At
December 31, 2019 and 2018, the Company reported $6.8 million and $3.5 million, respectively, in reciprocal
CDARS deposits. The balance in ICS reciprocal money market deposits was $22.6 million and $23.9 million at
December 31, 2019 and 2018, respectively, and the balance in ICS reciprocal demand deposits as of those dates
was $39.7 million and $45.7 million, respectively.
During 2019 and 2018, the Company continued its use of brokered deposits outside of the CDARS program to
satisfy a portion of its short-term funding needs. These are typically short term certificates of deposit with maturity
less than one year purchased through a prominent broker of public and institutional funds from across the country,
along with the addition of DTC Brokered CD issuance during 2018. During the third quarter of 2018, the Company
issued two blocks of DTC Brokered CDs totaling $30 million, with maturities in January 2019 and August 2019.
During the first quarter of 2019, the Company partially replaced the $20.0 million block that matured in January
with purchases of two blocks of DTC Brokered CDs totaling $15.0 million and having maturities in July, 2019 and
January, 2020. The Company did not replace the blocks that matured in July and August of 2019, leaving $6.2
million outstanding as of December 31, 2019. Additionally, the Company had brokered deposits from another
source totaling approximately $1.0 million and $4.6 million at December 31, 2019 and 2018, respectively. These
relationships have provided increased access to short term funding that is easily accessible without any detrimental
effect on the pricing of the core deposit base. In total, the Company had $11.1 million and $35.3 million of brokered
CDs outstanding at December 31, 2019 and December 31, 2018, respectively.
At December 31, 2019 and 2018, gross borrowing capacity of approximately $97.4 million and $108.7 million,
respectively, was available through the FHLBB, secured by the Company’s qualifying loan portfolio (generally,
residential mortgage and commercial loans), reduced by outstanding advances and collateral pledges. The
Company also has an unsecured Federal Funds line with the FHLBB with an available balance of $500,000,
with no advances against it at December 31, 2019 or 2018. Interest is chargeable at a rate determined daily
approximately 25 basis points higher than the rate paid on federal funds sold.
Under a separate agreement with the FHLBB, the Company has the authority to collateralize public unit deposits
up to its FHLBB borrowing capacity ($97.4 million and $108.7 million at December 31, 2019 and 2018, respectively,
less outstanding advances and collateral pledges) with letters of credit issued by the FHLBB. The Company offers
a Government Agency Account to its municipal customers collateralized with these FHLBB letters of credit. At
December 31, 2019 and 2018, approximately $14.4 million and $2.6 million, respectively, of qualifying residential
real estate loans were pledged as collateral to the FHLBB for these collateralized governmental unit deposits,
which reduced dollar-for-dollar the available borrowing capacity under the FHLBB line of credit. Total fees paid by
the Company to the FHLBB in connection with these letters of credit were $41,069 for 2019 and $46,620 for 2018.
The Company has a BIC arrangement with the FRBB secured by eligible commercial loans, CRE loans and home
equity loans, resulting in an available line of $56.9 million and $50.9 million, respectively, at December 31, 2019
and 2018. 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 225 basis points at December 31, 2019.
At December 31, 2019 and 2018, the Company had no outstanding advances against this line.
The Company has unsecured lines of credit with three correspondent banks with aggregate available borrowing
capacity of $12.5 million at December 31, 2019 and 2018. The Company had no outstanding advances against
these lines for the periods presented.
Securities sold under agreements to repurchase amounted to $33.2 million, $30.5 million and $28.6 million as of
December 31, 2019, 2018 and 2017, respectively. The average daily balance of these repurchase agreements was
$33.5 million, $30.6 million and $28.9 million during 2019, 2018, and 2017, respectively. The maximum borrowings
2019 Annual Report 81
outstanding on these agreements at any month-end reporting period of the Company were $38.9 million, $32.9
million and $31.7 million during 2019, 2018 and 2017, respectively. These repurchase agreements mature daily
and carried a weighted average interest rate of 0.89% during 2019, 0.63% during 2018 and 0.33% during 2017.
The following table illustrates the changes in shareholders’ equity from December 31, 2018 to December 31, 2019:
Balance at December 31, 2018 (book value $11.72 per common share)
Net income
Issuance of stock through the DRIP
Redemption of preferred stock
Dividends declared on common stock
Dividends declared on preferred stock
Change in AOCI on AFS securities, net of tax
Balance at December 31, 2019 (book value $12.86 per common share)
$ 62,603,711
8,824,446
1,097,234
(500,000)
(3,951,279)
(87,500)
908,067
$ 68,894,679
In December, 2019, the Board of the Company declared a $0.19 per common share cash dividend, payable
February 1, 2020 to shareholders of record as of January 15, 2020, requiring the Company to accrue a liability of
$727,526 for this dividend in the fourth quarter of 2019. In March, 2020, the Board of the Company approved a
cash dividend of $0.19 per common share, payable on May 1, 2020 to shareholders of record as of April 15, 2020.
The declaration of this dividend required the Company to accrue a liability of $995,538 in the first quarter of 2020.
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 21 to the accompanying audited consolidated financial statements.)
82 Community Bancorp.
Common Stock Performance by Quarter*
Trade Price
High
Low
First
$ 17.20
$ 15.94
Third
Second
$ 17.95 $ 17.00
$ 16.34 $ 15.07
Fourth
$ 17.90
$ 15.15
First
$ 18.50
$ 16.55
Third
Second
$ 18.25 $ 18.90
$ 16.50 $ 16.91
Fourth
$ 19.39
$ 16.00
2019
2018
2019
2018
Bid Price
High
Low
Cash Dividends
Declared
First
Second
Fourth
$ 17.20 $ 17.40 $ 16.88 $ 17.00 $ 18.10 $ 17.55 $ 18.80 $ 18.25
$ 16.12 $ 16.34 $ 15.14 $ 15.40 $ 16.55 $ 16.60 $ 16.95 $ 16.00
Second
Fourth
Third
Third
First
$
0.19 $ 0.19 $ 0.19 $ 0.19 $ 0.17 $ 0.19 $ 0.19 $ 0.19
*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, 2020, there were 5,239,675 shares of the Corporation’s common stock ($2.50 par value)
outstanding, owned by 832 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 2020 Annual Shareholders’ Meeting, which had previously been scheduled for May 19, 2020, has been
postponed due to mandated COVID-19 response measures. We will notify you when the rescheduled date has
been determined.
2019 Annual Report 83
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Board of Directors
Community Bancorp. and
Community National Bank
Thomas E. Adams, President, NPC Realty, Inc.
Kathryn M. Austin, President and Chief Executive Officer,
Community Bancorp. and Community National Bank
David Bouffard, Co-Owner, Derby Village Store
Aminta K. Conant, Business Consulting, USA and Europe
Jacques R. Couture, Owner, Dairy Farm/Maple Products
David P. Laforce, President and Owner, Built by Newport
Rosemary Lalime, Owner and Partner, RE/MAX All Seasons
Realty
Stephen P. Marsh, Board Chair, Community Bancorp.
and Community National Bank
Hope K. Colburn, Vice President, Commercial Loan Officer and
CRA Officer
Robin Coulter, Newport Officer Manager
Jennifer J. Daigle, Vice President and Senior Credit Officer
Lorilee Drown, Central Vermont Offices Manager
Janet C. Gratton, Electronic Banking Officer
Laurie Gray, Information Security Officer
William Hamilton, Vice President and Commercial Loan Officer
Regan Howard, Vice President and Commercial Loan Officer
Penelope L. Johnson, Assistant Vice President and Residential
Lending Officer
Cindy L. LaGue, Senior Vice President, Retail Banking
Rosemary Lalime, Vice President and Lead Outside Director
Emma L. Marvin, Co-Owner, Butternut Mountain Farm
Shelly Morey, Community Circle Director
Dorothy R. Mitchell, Board Chair, Vermont Student Assistance
Corporation
Theresa B. Morin, Vice President, Senior Loan Operations
Officer
Jeffrey L. Moore, President and Owner, Quest Industries, Inc.
Candace A. Patenaude, Financial Officer and Controller
Fredric Oeschger, President and Principal, Fred’s Energy, Inc.
and D&C Transportation, Inc.
Kelly A. Paul, Vice President, Compliance, BSA and Security
Officer, Enterprise Risk Manager and Audit Committee Liaison
James G. Wheeler, Jr., Attorney and Principal, Downs Rachlin
Martin, PLLC.
Amanda Pepin, Credit Administration Officer
Kimico Perry, Vice President, Human Resources
Executive Officers
Community Bancorp. and
Community National Bank
Kathryn M. Austin, President and Chief Executive Officer,
Community Bancorp., and Community National Bank
Louise M. Bonvechio, Corporate Secretary and Treasurer,
Community Bancorp., and Executive Vice President, Chief
Financial Officer, Cashier and Corporate Secretary, Community
National Bank
Other Officers
Community National Bank
Sarah Barrup, Special Asset Officer
Laura J. Bennett, Derby Office Manager
Justin Bourgeois, Regional Vice President and Commercial
Loan Officer
Nikole B. Brainard, Asset Liability Manager
Timothy B. Bronson, Senior Vice President and Senior Lender
Theresa P. Carpenter, Assistant Vice President and Retail Loan
Underwriting Officer
Jane P. Clark, Vice President, Deposit Operations and Training
Director
Michelle Cleveland, Price Chopper Office Manager
Mark S. Clough, Vice President and Commercial Loan Officer
Brandon Poginy, Vice President and Commercial Loan Officer
Tracy D. Roberts, Vice President and Marketing Director
Edward Ropple, Vice President and Chief Technology Officer
Dave Rubel, Commercial Loan Officer
Lori Wells, Barton Office Manager
4811 US Route 5 • Newport, Vermont 05855
(802) 334-7915
TRADING SYMBOL: CMTV
(tradedonthe OTCQX)
www.communitynationalbank.com
Derby (Main Office):
Physical Location:
4811 US Route 5
Derby, Vermont 05829
Mailing Address:
4811 US Route 5, Newport, VT 05855
(802) 334-7915
derby@communitynationalbank.com
Barre:
316 North Main Street
Barre, Vermont 05641
(802) 476-6565
tellers-barre@communitynationalbank.com
Barton:
103 Church Street
Barton, Vermont 05822
(802) 525-3524
tellers-barton@communitynationalbank.com
Derby Line:
69 Main Street
Derby Line, Vermont 05830
(802) 873-3101
tellers-derbyline@communitynationalbank.com
Enosburg Falls:
49 Sampsonville Road
Enosburg Falls, Vermont 05450
(802) 933-8500
tellers-enosburg@communitynationalbank.com
Island Pond:
23 US Route 105
Island Pond, Vermont 05846
(802) 723-4356
tellers-islandpond@communitynationalbank.com
Lyndonville:
467 Broad Street
Lyndonville, Vermont 05851
(802) 626-1200
tellers-lyndonmemorial@communitynationalbank.com
Montpelier:
95 State Street
Montpelier, Vermont 05602
(802) 223-0598
tellers-montpelier@communitynationalbank.com
Morrisville:
116 VT Rte. 15 West
Morrisville, Vermont 05661
(802) 888-4633
tellers-morrisville@communitynationalbank.com
Newport:
100 Main Street
Newport, Vermont 05855
(802) 334-7915
tellers-newport@communitynationalbank.com
St. Johnsbury:
857 Memorial Drive
St. Johnsbury, Vermont 05819
(802) 748-3605
tellers-stjpricechopper@communitynationalbank.com
Troy:
4245 US Route 101
Troy, Vermont 05868
(802) 744-2287
tellers-troy@communitynationalbank.com