2020 Annual Report
Community Bancorp. and Subsidiary
Table of Contents
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…………………………..................................... 51
Common Stock Performance by Quarter…………………………………………………………... ................................. 83
Other Shareholder Information ................................................................................................................................... 83
1
2020 Annual Report
Dear Shareholders and Friends:
Community Bancorp. and Community National Bank posted excellent results in 2020 under the most extraordinary
of circumstances. We grew both deposits and loans and improved profitability while contributing to the response
to the pandemic, providing access to relief funds and essential banking services. We are proud of our bankers and
grateful for their sacrifices in support of their communities during this difficult time.
As of year-end 2020, 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 are grateful for the opportunity to serve our communities and steward this organization. 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
2
Community Bancorp.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Community Bancorp. and Subsidiary
Opinions on the Financial Statements
We have audited the accompanying consolidated balance sheets of Community Bancorp. and Subsidiary (the
Company) as of December 31, 2020 and 2019, 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). In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019,
and the consolidated results of their operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
The financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with
the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that: (1)
relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective or complex judgments. The communication of the criticial audit matter does
not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Maine • New Hampshire • Massachusetts • Connecticut • West Virginia • Arizona
berrydunn.com
3
2020 Annual Report
Board of Directors and Shareholders
Community Bancorp. and Subsidiary
Page 2
Allowance for Loan Losses
As disclosed in Note 5 to the Company’s consolidated financial statements, the Company has a gross loan portfolio
of $709.4 million and related allowance for loan losses of $7.2 million as of December 31, 2020. As disclosed in Note
1, the Company’s allowance for loan losses is a material and complex estimate requiring significant management
judgment in the evaluation of the credit quality and the estimation of inherent losses within the loan portfolio. The
level of the allowance for loan losses is based on mangagement’s periodic evaluation of the loan portfolio, credit
concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired
loans and economic conditions. Changes in these assumptions could have a material effect on the Company’s
financial results.The allowance for loan losses includes a general reserve which is determined based on the results
of a quantitative and a qualitative analysis of all loans not measured for impairment at the reporting date. Impaired
loans are loan(s) to a borrower that in the aggregrate are greater than $100,000 and that are in non-accrual status
or are troubled debt restructurings regardless of amount.
In calculating the allowance for loan losses, the Company considers relevant credit quality indicators for each loan
segment, stratifies loans by risk rating, and estimates losses for each loan type based upon their nature and risk
profile. This process requires significant management judgment in the review of the loan portfolio and assignment
of risk ratings based upon the characteristics of loans. In addition, estimation of losses inherent within the portfolio
requires significant management judgment. Auditing these complex judgments and assumptions involves especially
challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these
matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
• Evaluating the design of controls relating to management’s review of loans, assignment of risk ratings, and
consistency of application of accounting policies.
• Evaluating the reasonableness of assumptions and sources of data used by management in forming the
qualitative loss factors by performing retrospective review of historic loan loss experience and analyzing
historical data used in developing the assumptions, including assessment of whether there were additional
qualitative considerations relevant to the portfolio.
• Evaluating the appropriateness of inputs and factors that the Company used in forming the qualitative loss
factors and assessing whether such inputs and factors were relevant, reliable, and reasonable for the purpose
used.
• Testing the appropriateness of the Company’s loan rating policy and the consistency of its application.
• Evaluating the appropriateness of specific reserves for impaired loans.
• Verifying the mathematical accuracy and computation of the allowance for loan losses by re-performing or
independently calculating significant elements of the allowance based on relevant source documents.
We have served as the Company’s auditor since 2003.
Portland, Maine
March 25, 2021
Vermont Registration No. 92-0000278
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 held-for-sale
Loans
Allowance for loan losses
Deferred net loan (fees) 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 shares issued and outstanding
at December 31, 2020 and 2019 ($100,000 liquidation value, per share)
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,527,380
and 5,449,857 shares issued at December 31, 2020 and 2019, respectively
(including 18,128 and 16,267 shares issued February 1, 2021 and 2020,
respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Less: treasury stock, at cost; 210,101 shares at December 31, 2020 and 2019
Total shareholders' equity
Total liabilities and shareholders' equity
December 31,
2020
December 31,
2019
$
10,850,787
104,199,133
115,049,920
60,705,178
1,446,550
130,400
709,355,330
(7,208,485)
(1,195,741)
700,951,104
10,209,869
2,987,977
4,988,236
11,574,269
0
10,189,781
$ 918,233,284
$
10,263,535
38,298,677
48,562,212
45,966,750
1,431,850
0
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
$ 185,954,976
242,902,715
115,546,064
124,555,124
16,488,963
96,842,998
782,290,840
2,800,000
38,727,312
12,887,000
4,239,419
840,944,571
$ 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
1,500,000
1,500,000
13,818,450
34,309,646
29,368,046
915,348
(2,622,777)
77,288,713
$ 918,233,284
13,624,643
33,464,381
22,667,949
260,483
(2,622,777)
68,894,679
$ 737,955,319
Book value per common share outstanding
$
14.25
$
12.86
The accompanying notes are an integral part of these consolidated financial statements.
5
2020 Annual Report
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 gain (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
2020
$
31,609,216
1,030,761
81,942
340,375
33,062,294
$
29,883,352
1,089,201
100,609
685,646
31,758,808
4,095,985
19,261
254,774
476,666
4,846,686
28,215,608
1,589,000
26,626,608
3,137,956
1,469,863
1,054,562
39,086
1,070,257
6,771,724
7,597,745
3,084,435
2,672,720
7,036,841
20,391,741
13,006,591
2,248,089
10,758,502
2.03
5,274,785
0.76
$
$
$
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
$
$
$
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, net of tax:
Unrealized holding gain on securities AFS arising during the period
Reclassification adjustment for (gain) loss realized in income
Unrealized gain during the period
Tax effect
Other comprehensive income, net of tax
Total comprehensive income
Years Ended December 31,
2020
2019
$ 10,758,502
$ 8,824,446
868,030
(39,086)
828,944
(174,079)
654,865
$ 11,413,367
1,122,961
26,490
1,149,451
(241,384)
908,067
$ 9,732,513
The accompanying notes are an integral part of these consolidated financial statements.
7
2020 Annual Report
Community Bancorp. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity
Years Ended December 31, 2020 and 2019
Common stock
Preferred stock
Shares
Amount
Shares
Amount
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
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
77,523
0
0
193,807
0
0
0
0
0
0
0
0
0
0
Balances, December 31, 2020
5,527,380 $ 13,818,450
15 $ 1,500,000
The accompanying notes are an integral part of these consolidated financial statements.
8
Community Bancorp. Community Bancorp. and Subsidiary
Consolidated Statements of Changes in Shareholders’ Equity (continued)
Years Ended December 31, 2020 and 2019
Additional
paid-in
capital
Retained
earnings
Accumulated
other
comprehensive
(loss) income
Treasury
stock
Total
shareholders’
equity
$
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
0
0
10,758,502
0
0
654,865
0
0
845,265
(4,004,030)
(54,375)
0
0
0
0
0
0
0
0
0
10,758,502
654,865
11,413,367
(4,004,030)
(54,375)
1,039,072
$
34,309,646
$ 29,368,046
$
915,348
$
(2,622,777)
$ 77,288,713
9
2020 Annual Report
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 (gain) loss on sale of securities AFS
Gain on sale of loans
Loss on sale of bank premises and equipment
(Gain) 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 in taxes payable
Increase in interest receivable
Decrease in mortgage servicing rights
Decrease in right-of-use assets
Decrease in operating lease liabilities
Decrease in other assets
Increase in cash surrender value of BOLI
Amortization of limited partnerships
Change in net deferred loan fees and costs
(Decrease) increase in interest payable
Increase in accrued expenses
Decrease 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
(Decrease) 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,
2020
2019
$ 10,758,502
$
8,824,446
894,687
1,589,000
(270,427)
(39,086)
(1,027,175)
174,470
(55,602)
(684,891)
92,662
0
37,899,464
(37,002,689)
61,285
(651,424)
17,431
132,778
(202,782)
5,728
(85,224)
336,686
1,558,156
(53,109)
174,154
(38,377)
13,584,217
22,804,241
(36,767,300)
522,400
(537,100)
(909,000)
0
(102,746,364)
(452,402)
1,022,340
72,965
(116,990,220)
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)
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 in money market and savings accounts
Net decrease in time deposits
Net increase in repurchase agreements
Proceeds from 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
2020
2019
118,665,955
51,469,875
(2,866,358)
5,537,464
150,000
(61,665)
0
(54,375)
(2,947,185)
169,893,711
9,945,514
10,239,753
(13,980,464)
2,668,283
1,100,000
(166,924)
(500,000)
(87,500)
(2,837,058)
6,381,604
Net increase (decrease) in cash and cash equivalents
66,487,708
(19,372,603)
Cash and cash equivalents:
Beginning
Ending
Supplemental Schedule of Cash Paid During the Period:
Interest
Income taxes, net of refunds
Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized gain (loss) on securities AFS
Loans transferred to OREO
Common Shares Dividends Paid:
Dividends declared
Increase in dividends payable attributable to dividends declared
Dividends reinvested
48,562,212
$ 115,049,920
67,934,815
48,562,212
$
$
$
$
$
$
$
4,899,795
$
6,116,917
2,120,542
$
1,381,000
828,944
0
4,004,030
(17,773)
(1,039,072)
2,947,185
$
$
$
$
1,149,451
966,738
3,951,279
(16,987)
(1,097,234)
2,837,058
The accompanying notes are an integral part of these consolidated financial statements.
11
2020 Annual Report
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:
ACBB:
ACBI:
ACH:
AFS:
Agency MBS: MBS issued by a US government agency
Asset backed security
Atlantic Community Bankers Bank
Atlantic Community Bancshares, Inc.
Automated Clearing House
Available-for-sale
ALCO:
ALL:
AML:
AOCI:
ASC:
ASU:
ATMs:
ATS:
Bancorp:
Bank:
BHG:
BIC:
Board:
BOLI:
bp or bps:
BSA:
CBLR:
CARES ACT:
CDARS:
or GSE
Asset Liability Committee
Allowance for loan losses
Anti-money laundering laws
Accumulated other comprehensive income
Accounting Standards Codification
Accounting Standards Update
Automatic teller machines
Automatic transfer service
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
Coronavirus Aid Relief and Economic
Security Act
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
CDs:
CDI:
CECL:
CEO:
CFPB:
CFSG:
CFS Partners: Community Financial Services Partners,
LLC
Community Bancorp. and Subsidiary
Coronavirus Disease 2019
Community Reinvestment Act
Commercial Real Estate
Company:
COVID-19:
CRA:
CRE:
DDA or DDAs: Demand Deposit Account(s)
DIF:
DTC:
DRIP:
Exchange Act: Securities Exchange Act of 1934
FASB:
FDIA:
FDIC:
FDICIA:
Deposit Insurance Fund
Depository Trust Company
Dividend Reinvestment Plan
Financial Accounting Standards Board
Federal Deposit Insurance Act
Federal Deposit Insurance Corporation
Federal Deposit Insurance Company
Improvement Act of 1991
12
FHA:
FHLBB:
FHLMC :
FICO:
FLA:
FOMC:
FRB:
FRBB:
GAAP:
GSE:
HMDA:
HTM:
ICS:
IRS:
JNE:
Jr:
LIBOR:
LLC:
MBS:
MPF:
MSAs
MSRs:
NII:
OAS:
OCI:
OFAC:
OREO:
OTTI:
PMI:
PPP:
PPPLF:
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
Other amortizing security
Other comprehensive income (loss)
Office of Foreign Asset Control
Other real estate owned
Other-than-temporary impairment
Private mortgage insurance
Paycheck Protection Program
Paycheck Protection Program Liquidity
Facility
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
Economic Growth, Regulatory Relief and
QM(s):
RD:
RESPA:
SBA:
SEC:
SERP:
SOX:
TDR:
TILA:
USDA:
VA:
VIE:
2017 Tax Act: Tax Cut and Jobs Act of 2017
2018
Regulatory Consumer Protection Act of 2018
Relief Act:
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. 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 was considered an accelerated filer under the financial reporting rules of the SEC. However,
these reporting rules were amended in 2020, causing the Company to be considered a non-accelerated file
beginning with this annual report.
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 13).
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
during the reporting period. These estimates and assumptions involve inherent uncertainties. Accordingly, actual
results could differ from those estimates and those differences could be material.
Material estimates that are particularly susceptible to significant change include those relating to the determination
of the ALL and the valuation of OREO. In connection with evaluating loans for impairment or assigning the carrying
value of OREO, management generally obtains independent evaluations or appraisals for significant properties.
While the ALL and the carrying value of OREO are determined using management’s best estimate of probable
13
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
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.
14
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Investment securities
Debt securities the Company has purchased with the possible intent to sell before maturity are classified as AFS,
and are carried at fair value, with unrealized gains and losses, net of tax and reclassification adjustments, reflected
as a net amount in the shareholders’ equity section of the consolidated balance sheets and in the statements of
changes in shareholders’ equity. Investment securities transactions are accounted for on a trade date basis. The
specific identification method is used to determine realized gains and losses on sales of debt securities AFS.
Premiums and discounts are recognized in interest income using the interest method over the period to maturity
or call date. As of the balance sheet dates, the Company did not hold any securities purchased for the purpose of
selling in the near term and classified as trading or any securities purchased with the positive intent and ability to
hold to maturity and classified as HTM.
For individual debt securities that the Company does not intend to sell and it is not more likely than not that the
Company will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary
decline in the fair value of the debt security related to (1) credit loss is recognized in earnings and (2) other
factors is recognized in other comprehensive income or loss. Credit loss is deemed to exist if the present value of
expected future cash flows using the interest rates at acquisition is less than the amortized cost basis of the debt
security. For individual debt securities where the Company intends to sell the security or more likely than not will be
required to sell the security before recovery of its amortized cost, the OTTI is recognized in earnings equal to the
entire difference between the security’s cost basis and its fair value at the balance sheet date.
Other investments
From time to time, the Company acquires partnership interests in limited partnerships for low income housing
projects. New investments in limited partnerships are amortized using the proportional amortization method. All
investments made before January 1, 2015 are amortized using the effective yield method.
The Company has a one-third ownership interest in CFS Partners, which in turn owns 100% of CFSG, a non-
depository trust company (see Note 10). The Company’s investment in CFS Partners is accounted for under the
equity method of accounting.
Restricted equity securities
The Company holds certain restricted equity securities acquired for non-investment purposes, and required as a
matter of law or as a condition to the receipt of certain financial products and services. These securities are carried
at cost. As a member of the FRBB, the Company is required to invest in FRBB stock in an amount equal to 6% of
the Bank’s capital stock and surplus.
As a member of the FHLBB, the Company is required to invest in $100 par value stock of the FHLBB in an amount
that approximates 1% of unpaid principal balances on qualifying loans, plus an additional amount to satisfy an
activity based requirement. The stock is nonmarketable and redeemable at par value, subject to the FHLBB’s right
to temporarily suspend such redemptions. Members are subject to capital calls in some circumstances to ensure
compliance with the FHLBB’s capital plan.
In order to access correspondent banking services from the ACBB, the Company is required to invest in a minimum
of 20 shares of the common stock of ACBB’s parent company, ACBI.
Loans held-for-sale
Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair
value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to
income.
15
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Loans
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or
pay-off are reported at their outstanding principal balance, adjusted for any charge-offs, the ALL, loan premiums or
discounts for acquired loans and any unearned fees or costs on originated loans.
Loan interest income is accrued daily on the outstanding balances. For all loan segments, the accrual of interest
is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and
management believes, after considering collection efforts and other factors, that the borrower’s financial condition
is such that collection of interest is doubtful. Any unpaid interest previously accrued on those loans is reversed
from income. Interest income is generally not recognized on specific impaired loans unless the likelihood of further
loss is considered by management to be remote. Interest payments received on non-accrual loans are generally
applied as a reduction of the loan principal balance. Loans are returned to accrual status when principal and
interest payments are brought current and the customer has demonstrated the intent and ability to make future
payments on a timely basis. Loans are written down or charged off when collection of principal is considered
doubtful.
Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount is
amortized as an adjustment of the related loan’s yield. The Company generally amortizes these amounts over the
contractual life of the loans.
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.
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, municipal, residential real estate 1st
lien, residential real estate Jr lien and consumer loans. The Company does not disaggregate its portfolio segments
further into classes.
Loss ratios are calculated by loan segment using appropriate look back periods. Management uses an average
of historical losses based on a time frame appropriate to capture relevant loss data for each loan segment in the
16
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
current economic climate. During periods of economic stability, a relatively longer period (e.g., five years) may
be appropriate. During periods of significant expansion or contraction, the Company may appropriately shorten
the historical time period. Due primarily to the effects of COVID-19, beginning in the second quarter of 2020, the
Company shortened its look back period from five years to one year.
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. During the
third quarter of 2020, the Company adjusted its ALL analysis to begin applying qualitative factors to municipal loans
and certain purchased commercial loans, for which the Company does not have any historical loss data. Of the
third quarter 2020 provision for loan losses of $362,499, $106,821 was attributable to this change. 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.
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 – 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.
17
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Residential Real Estate – Jr Lien – Loans in this segment are collateralized by junior lien mortgages on 1 – 4
family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower.
The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit
quality of this segment.
Consumer – Loans in this segment are made to individuals for consumer and household purposes. This segment
includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured.
This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses
to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains
policies restricting the size and term of these extensions of credit. The overall health of the economy, including
unemployment rates, has an impact on the credit quality of this segment.
Specific component
The specific component of the ALL relates to loans that are impaired. Impaired loans are loans to a borrower that
in the aggregate are greater than $100,000 and that are in non-accrual status or are TDRs regardless of amount.
A specific allowance is established for an impaired loan when its estimated fair value or net present value of future
cash flows is less than the carrying value of the loan. For all loan segments, except consumer loans, a loan is
considered impaired when, based on current information and events, in management’s estimation it is probable
that the Company will be unable to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value and probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are
not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on
a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower,
including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and
the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan
basis, by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the
loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company, for economic
or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would
otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of
a troubled loan, a modification of a loan’s terms, or a combination of the two. As described in Note 3, under
March 2020 guidance from the federal banking agencies and concurrence by the FASB, certain short-term loan
accommodations made in good faith for borrowers experiencing financial difficulties due to the COVID-19 health
emergency are not considered TDRs.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the
Company does not separately identify individual consumer loans for impairment evaluation, unless such loans are
subject to a restructuring agreement.
Unallocated component
An unallocated component of the ALL is maintained to cover uncertainties that could affect management’s estimate
of probable losses. The unallocated component reflects management’s estimate of the margin of imprecision
inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the
portfolio.
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
18
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
otherwise disposed of, and the related accumulated depreciation, are eliminated from the accounts and the
resulting gains or losses are reflected in the consolidated statements of income. Maintenance and repairs are
charged to current expense as incurred and the cost of major renewals and betterments is capitalized.
Other real estate owned
Real estate properties acquired through or in lieu of loan foreclosure or properties no longer used for bank
operations are initially recorded at fair value less estimated selling cost at the date of acquisition, foreclosure or
transfer. Fair value is determined, as appropriate, either by obtaining a current appraisal or evaluation prepared
by an independent, qualified appraiser, by obtaining a broker’s market value analysis, and finally, if the Company
has limited exposure and limited risk of loss, by the opinion of management as supported by an inspection of the
property and its most recent tax valuation. During periods of declining market values, the Company will generally
obtain a new appraisal or evaluation. Any write-down based on the asset’s fair value at the date of acquisition or
institution of foreclosure is charged to the ALL. After acquisition through or in lieu of foreclosure, these assets are
carried at the lower of their new cost basis or fair value. Costs of significant property improvements are capitalized,
whereas costs relating to holding the property are expensed as incurred. Appraisals by an independent, qualified
appraiser are performed periodically on properties that management deems significant, or evaluations may be
performed by management or a qualified third party on OREO properties in the portfolio that are deemed less
significant or less vulnerable to market conditions. Subsequent write-downs are recorded as a charge to other
expense. Gains or losses on the sale of such properties are included in income when the properties are sold.
Intangible assets
Intangible assets include the excess of the purchase price over the fair value of net assets acquired (goodwill)
in the Company’s 2007 acquisition of LyndonBank. Goodwill is not amortizable and is reviewed for impairment
annually, or more frequently as events or circumstances warrant.
Income taxes
The Company recognizes income taxes under the asset and liability method. Under this method, deferred tax
assets and liabilities are established for the temporary differences between the accounting bases and the tax
bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when the amounts
related to such temporary differences are realized or settled. Adjustments to the Company’s deferred tax assets
are recognized as deferred income tax expense or benefit based on management’s judgments relating to the
outcome of such asset.
Mortgage servicing
Servicing assets are recognized as separate assets when rights are acquired through purchase or retained upon
the sale of loans. Capitalized servicing rights are reported in Other assets and initially recorded at fair value,
and are amortized against non-interest income in proportion to, and over the period of, the estimated future net
servicing income of the underlying loans. Servicing rights are periodically evaluated for impairment, based upon
the estimated fair value of the rights as compared to amortized cost. Impairment is determined by stratifying the
rights by predominant characteristics, such as interest rates and terms. Fair value is determined using prices for
similar assets with similar characteristics, when available, or based upon discounted cash flows using market-
based assumptions. Impairment is recognized through a valuation allowance and is recorded as amortization
of Other assets, to the extent that estimated fair value is less than the capitalized amount at the valuation date.
Subsequent improvement, if any, in the estimated fair value of impaired MSRs is reflected in a positive valuation
adjustment and is recognized in other income up to (but not in excess of) the amount of the prior impairment.
Pension costs
Pension costs are charged to salaries and employee benefits expense and accrued over the active service period.
19
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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 of
preferred stock outstanding as of December 31, 2020 and 2019. 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 5.50% was in effect 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 decreased to 4.75% for the dividend paid in the first quarter of 2020, followed by two
decreases with a rate of 3.25% in effect for the last three quarters of 2020, as well as the first quarter of 2021.
Partial redemptions of the Company’s preferred stock began in 2018, and are at the discretion of management and
voted on by the Board. The Company redeemed five shares of preferred stock on March 31, 2019 at a redemption
price of $500,000 plus accrued dividends. The Company chose to not redeem any additional preferred shares
during 2020, but may consider further redemptions in future periods.
Earnings per common share
Earnings per common share amounts are computed based on net income, net of dividends to preferred shareholders,
and on the weighted average number of shares of common stock issued during the period, including DRIP shares
issuable upon reinvestment of dividends (retroactively adjusted for stock splits and stock dividends, if any) and
reduced for shares held in treasury.
The following table illustrates the calculation of earnings per common share for the periods presented, as adjusted
for the cash dividends declared on the preferred stock:
Years Ended December 31,
2020
2019
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
$ 10,758,502
54,375
$ 10,704,127
5,274,785
2.03
$
$
$
$
8,824,446
87,500
8,736,946
5,204,768
1.68
20
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Off-balance-sheet financial instruments
In the ordinary course of business, the Company is a party to off-balance-sheet financial instruments consisting of
commitments to extend credit, commercial and municipal letters of credit, standby letters of credit, and risk-sharing
commitments on residential mortgage loans sold through the FHLBB’s MPF program. Such financial instruments
are recorded in the consolidated financial statements when they are funded (see Note 18).
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.
Note 2. Risks and Uncertainties
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, and
on March 13, 2020 President Trump declared the pandemic to be a national emergency. The COVID-19 pandemic
has adversely affected, and may continue to adversely affect, economic activity globally, nationally and locally.
Government actions taken to help mitigate the spread of COVID-19 include restrictions on travel, quarantines
in certain areas, and forced closures for certain types of public places and businesses. COVID-19 and actions
taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on financial
markets and the economy, including the local economy in the Company’s Vermont and New Hampshire markets,
with adverse effects on business and consumer confidence generally, and on the Company’s customers, and their
employees, suppliers, vendors and processors. Forced closures of businesses have resulted in sharp increases
in unemployment.
In addition, due to the COVID-19 pandemic, market interest rates have declined significantly, with the 10-year
Treasury bond falling below 1.00 percent on March 3, 2020 for the first time. On March 3, 2020, the FOMC reduced
the targeted federal funds interest rate range by 50 bps to a range of 1.00% to 1.25%. This range was further
reduced to a range of 0 percent to 0.25% on March 16, 2020. On April 29, 2020, the FOMC indicated that the
federal funds target rate range will remain unchanged until it is confident that the economy has weathered recent
events and is on track to achieve its maximum employment and price stability goals. The FOMC reiterated that
position throughout the remainder of 2020.
These reductions in interest rates and other effects of the COVID-19 pandemic adversely affect the Company’s
business, financial condition and results of operations and may continue to do so in future periods. It is unknown
how long the adverse economic conditions associated with the COVID-19 pandemic will last and what the
complete financial effect will be to the Company. Due to the inherent economic and other uncertainties related to
the COVID-19 pandemic, it is reasonably possible that estimates made in the Company’s consolidated financial
statements could be materially and adversely impacted in the near term as a result of the pandemic, including
expected credit losses on loan receivables.
Note 3. Recent Accounting Developments
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects
of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which
provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The
ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract
modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another
reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide
reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December
21
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
31, 2022. The Company is assessing ASU No. 2020-04 and its impact on the transition away from LIBOR for its
financial instruments.
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
those securities be recorded through an allowance for credit losses rather than a write-down. The ASU 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 anticipated 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, on October 16, 2019, the FASB approved an extended
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, 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 with a revised effective date
of January 1, 2023. The Company early adopted this ASU on January 1, 2020. Accordingly, the Company no longer
gives consideration to “Step 2” when performing its goodwill impairment test. 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 9). Adoption of this ASU did not have a material impact on the Company’s consolidated financial
statements.
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.
Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.
In March and April, 2020, federal banking regulators issued interagency guidance on accounting for loan modifications
in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards
and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term (that
is, six months or less) modifications are made in response to COVID-19, such as payment deferrals, fee waivers,
22
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
extensions of repayment terms, or other delays in payment that are insignificant, provided that the loan is less than
30 days past due at the time a modification program is implemented. The banking agencies confirmed with the staff
of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who
were current prior to any relief are not TDRs under ASC No. 310-40, Receivables – Troubled Debt Restructurings
by Creditors. Additionally, a provision of the CARES Act enacted in March 2020 provides that COVID-19 related
loan modifications (including modifications that are not short-term) made to a loan between March 1, 2020 and
the earlier of December 31, 2020 or the sixtieth day after the end of the COVID-19 emergency declared by the
President will not require the loan to be treated as a TDR under GAAP, so long as the modified loan was not past
due as of December 31, 2019. On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA) extended
the date for COVID-19 related loan modifications from December 31, 2020 to January 1, 2022.
Note 4. Investment Securities
Debt securities AFS consist of the following:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2020
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Total
December 31, 2019
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Total
$ 8,007,142 $
40,861,370
2,508,997
8,169,000
165,934 $
547,930
160,999
318,002
$ 59,546,509 $ 1,192,865 $
3,245 $
30,951
0
0
8,169,831
41,378,349
2,669,996
8,487,002
34,196 $ 60,705,178
$ 18,002,549 $
16,169,819
2,799,657
8,665,000
$ 45,637,025 $
99,743 $
86,874
55,418
181,846
423,881 $
40,672 $ 18,061,620
16,205,375
51,318
2,852,909
2,166
8,846,846
0
94,156 $ 45,966,750
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, 2020
December 31, 2019
Amortized
Cost
Fair
Value
$ 59,546,509
45,637,025
$
60,705,178
45,966,750
Proceeds from sales of debt securities AFS were $884,137 in 2020 and $6,553,118 in 2019 with gains of $39,086
and $1,570, respectively, and losses of $0 and $28,060, respectively.
23
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
The carrying amount and estimated fair value of securities by contractual maturity are shown below. Expected
maturities will differ from contractual maturities because issuers may call or prepay obligations with or without call
or prepayment penalties, pursuant to contractual terms. Because the actual maturities of Agency MBS usually
differ from their contractual maturities due to the right of borrowers to prepay the underlying mortgage loans,
usually without penalty, those securities are not presented in the following table by contractual maturity date.
The scheduled maturities of debt securities AFS at December 31, 2020 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
$
2,227,000 $
5,942,000
9,511,476
1,004,663
40,861,370
2,247,603
6,239,399
9,801,921
1,037,906
41,378,349
$ 59,546,509 $ 60,705,178
Debt securities with unrealized losses as of the balance sheet dates are presented in the tables below.
Less than 12 months
12 months or more
Totals
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized Number of
Securities
Loss
Fair
Value
Unrealized
Loss
December 31, 2020
U.S. GSE debt securities
$
1,999,234 $
3,245 $
0 $
0
2 $
1,999,234 $
3,245
Agency MBS
ABS and OAS
Other investments
Total
December 31, 2019
2,076,167
19,845
520,546
11,106
0
0
0
0
0
0
0
0
6
0
0
2,596,713
30,951
0
0
0
0
$
4,075,401 $ 23,090 $
520,546 $
11,106
8 $
4,595,947 $
34,196
U.S. GSE debt securities
$
7,964,192 $ 40,672 $
0 $
0
7 $
7,964,192 $
40,672
Agency MBS
ABS and OAS
Other investments
Total
5,273,683
24,648
2,920,091
26,670
1,000,490
2,166
0
0
0
0
0
0
13
1
0
8,193,774
1,000,490
0
51,318
2,166
0
$ 14,238,365 $ 67,486 $
2,920,091 $
26,670
21 $ 17,158,456 $
94,156
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.
24
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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 2020 and 2019, the Bank
was required to purchase additional FHLBB stock in aggregate totaling $537,100 and $176,000, 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 2020 and 2019, FHLBB exercised capital call options with redemptions
totaling $522,400 and $493,600, respectively, on the Company’s portfolio of FHLBB stock. As of December 31,
2020 and 2019, the Company’s investment in FHLBB stock was $768,400 and $753,700, 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, 2020.
The Company’s investment in FRBB Stock was $588,150 at December 31, 2020 and 2019.
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, 2020 and 2019.
Note 5. Loans, Allowance for Loan Losses and Credit Quality
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 fees (costs)
Net loans
2020
2019
$
161,067,501 $
280,544,550
54,807,367
170,507,263
38,147,659
4,280,990
709,355,330
98,930,831
246,282,726
55,817,206
158,337,296
43,230,873
4,390,005
606,988,937
7,208,485
1,195,741
700,951,104 $
5,926,491
(362,415)
601,424,861
$
25
2020 Annual Report
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, 2020
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
$ 119,413 $
127,343
0
0 $ 119,413 $ 160,948,088 $ 161,067,501 $ 434,196 $
567,957
0
695,300 279,849,250 280,544,550
54,807,367
54,807,367
0
1,875,942
0
0
0
0
1,872,439
18,322
14,388
390,288
2,700,783 167,806,480 170,507,263
98,889
38,147,659
37,948,626
0
4,280,990
4,266,602
$ 2,151,905 $1,577,012 $ 3,728,917 $ 705,626,413 $ 709,355,330 $ 4,674,764 $ 489,177
2,173,315
191,311
0
828,344
180,711
0
199,033
14,388
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
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, 2020
December 31, 2019
Number of loans
6
9
$
Balance
312,807
495,943
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, 2020
Commercial Commercial
& Industrial Real Estate Municipal
Residential Residential
Real Estate Real Estate
1st Lien
Jr Lien
Consumer Unallocated
Total
ALL beginning balance
$
836,766 $
3,181,646 $
0 $
1,388,564 $
289,684 $
51,793 $
178,038 $
5,926,491
Charge-offs
Recoveries
Provision (credit)
ALL ending balance
(39,148)
(34,200)
1,087
43,842
20,000
686,707
0
0
82,211
(203,623)
(28,673)
(74,327)
12,856
537,507
5,809
(31,924)
33,213
49,782
0
0
(379,971)
72,965
220,875
1,589,000
$
842,547 $
3,854,153 $
82,211 $
1,735,304
$234,896 $
60,461 $
398,913 $
7,208,485
ALL evaluated for impairment
Individually
Collectively
Total
$
$
Loans evaluated for impairment
0 $
0 $
0
$
108,474 $
307 $
0 $
0 $
108,781
842,547
3,854,153
82,211
1,626,830
234,589
60,461
398,913
7,099,704
842,547 $
3,854,153 $
82,211 $
1,735,304 $
234,896 $
60,461 $
398,913 $
7,208,485
Individually
Collectively
Total
$
414,266 $
1,943,723 $
0 $
4,657,050 $
135,053 $
0
160,653,235
278,600,827
54,807,367
165,850,213
38,012,606
4,280,990
$ 161,067,501 $ 280,544,550 $ 54,807,367 $ 170,507,263 $ 38,147,659 $
4,280,990
$
7,150,092
702,205,238
$ 709,355,330
As of or for the year ended December 31, 2019
Commercial Commercial
& Industrial Real Estate Municipal
Residential
Real Estate
1st Lien
Residential
Real Estate
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
27
2020 Annual Report
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, 2020
Unpaid
Principal
Balance
Recorded
Investment(1)
Related
Allowance
2020
Average
Recorded
Interest
Income
Investment(1)(2) Recognized(2)
Related allowance recorded
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
900,581 $ 950,063 $ 108,474 $
4,775
954,838
307
108,781
4,777
905,358
414,266
1,944,013
471,405
2,394,284
3,788,965
130,279
6,277,523
4,607,848
169,720
7,643,257
889,262 $
5,416
894,678
72,713
541
73,254
397,136
1,746,430
3,878,829
163,750
6,186,145
6,396
14,139
230,838
4,524
255,897
Total impaired loans
$
7,182,881 $ 8,598,095 $ 108,781 $
7,080,823 $
329,151
(1) Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred
net loan costs of $32,789.
(2) For the year ended December 31, 2020.
As of December 31, 2019
Unpaid
Principal
Balance
Recorded
Investment(1)
Related
Allowance
2019
Average
Recorded
Interest
Income
Investment(1)(2) Recognized(2)
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 $
32,466 $
0
0
0
97,720
878,439
6,121
884,560
902,000
6,101
908,101
103,836
712
104,548
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
982,158
6,869
1,119,213
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
(1) Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred
net loan costs of $22,051.
(2) For the year ended December 31, 2019.
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 groupings to help evaluate trends in credit quality. The
Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping
is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the
portfolio is generally grouped by delinquency pool.
Group A loans - Acceptable Risk – are loans that are expected to perform as agreed under their respective terms.
Such loans carry a normal level of risk that does not require management attention beyond that warranted by the
loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial
purpose loans that are individually risk rated and retail loans that are rated by pool. Group A retail loans include
performing consumer and residential real estate loans. Residential real estate loans are loans to individuals
secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances
fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable
risk.
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.
29
2020 Annual Report
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, 2020
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
$ 156,748,590 $ 261,932,833 $ 54,807,367 $ 167,478,918 $ 37,850,056 $
4,280,990 $ 683,098,754
998,641
12,784,078
3,320,270
5,827,639
0
0
0
0
3,028,345
297,603
0
0
13,782,719
12,473,857
$ 161,067,501 $ 280,544,550 $ 54,807,367 $ 170,507,263 $ 38,147,659 $
4,280,990 $ 709,355,330
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
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.
• Capitalized protective advance to pay delinquent real estate taxes.
• Capitalized delinquent accrued interest.
An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be
accounted for as a TDR. However, pursuant to regulatory guidance, any payment delay longer than three months
is generally not considered insignificant. Management’s assessment of whether a concession has been granted
also takes into account payments expected to be received from third parties, including third-party guarantors,
provided that the third party has the ability to perform on the guarantee.
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.
The Company has adopted the TDR guidance issued by the federal banking agencies in March and April 2020
regarding the treatment of certain short-term loan modifications relating to the COVID-19 pandemic (See Note 3).
Under this guidance, qualifying concessions and modifications are not considered TDRs. As of December 31,
2020, the Company had granted short term loan concessions and/or modifications within the terms of this guidance
to 514 borrowers, with respect to loans having an aggregate principal amount of $119.8 million. These loans may
bear a higher risk of default in future periods.
New TDRs, by portfolio segment, for the periods presented were as follows:
Year ended December 31, 2020
Pre-
Post-
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
Investment
Investment
Number of
Contracts
Residential real estate
1st lien
6
$
591,826 $
687,751
Year ended December 31, 2019
Commercial & industrial
Commercial real estate
Residential real estate
1st lien
Jr lien
Pre-
Post-
Modification Modification
Outstanding Outstanding
Recorded
Investment
Recorded
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
31
2020 Annual Report
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, 2020
Residential real estate - 1st lien
Year ended December 31, 2019
Commercial & industrial
Residential real estate - 1st lien
Residential real estate - Jr lien
Number of
Contracts
Recorded
Investment
1
$
165,168
Number of
Contracts
Recorded
Investment
2
1
1
4
$
$
27,818
227,907
55,010
310,735
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
2020
2019
$
108,781
$
104,548
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 6. 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 $164,610,868 and $167,673,467 at December 31,
2020 and 2019, respectively. Net gain realized on the sale of loans was $1,027,175 and $290,116 for the years
ended December 31, 2020 and 2019, respectively.
The following table summarizes changes in MSRs for the years ended December 31,
Balance at beginning of year
MSRs capitalized
MSRs amortized
Change in valuation allowance
Balance at end of year
32
2020
2019
$
$
939,577
292,654
(256,435)
(53,650)
922,146
$
$
1,004,948
114,580
(179,951)
0
939,577
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 7. 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 8. Leases
2020
2019
$ 10,421,580
2,663,549
5,307,533
824,605
588,347
1,417,859
181,627
21,405,100
(11,195,231)
$ 10,209,869
$ 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
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
2020
2019
$
259,954
$
255,475
$
$
38,667
5,396
33,940
78,003
$
$
70,667
16,705
33,940
121,312
Total rental expense not associated with operating lease costs above amounted to $15,872 and $16,601 for the
years ended December 31, 2020 and 2019, respectively.
33
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Supplemental information related to leases as of the balance sheet dates was as follows:
December 31,
2020
2019
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
$
$
$
$
1,048,686
1,060,391
$
$
1,254,384
1,263,173
85,680
$
124,347
38,159
$
99,823
2020
2019
4.0 Years
0.5 Years
4.4 Years
1.5 Years
1.28%
7.50%
1.28%
7.50%
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, 2020 for each of the next five years and in aggregate are:
2021
2022
2023
2024
2025
Subsequent to 2025
Total
Finance lease obligations
$
$
210,350
216,180
223,432
199,648
154,659
99,165
1,103,434
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, 2020:
2021
Less amount representing interest
Present value of net minimum lease payments
$
$
39,119
(960)
38,159
34
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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, 2020, is shown below:
Undiscounted cash flows
Discount effect of cash flows
Lease liabilities
Note 9. Goodwill
Operating Leases
Finance Leases
$
$
1,103,434
(43,043)
1,060,391
$
$
39,119
(960)
38,159
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, 2020 and 2019 and concluded that no impairment existed as of such
dates.
Note 10. Other Investments
The Company purchases, from time to time, interests in various limited partnerships established to acquire, own
and rent residential housing for low and moderate income residents of northeastern and central Vermont. The tax
credits from these investments were $433,970 and $415,099 for the years ended December 31, 2020 and 2019,
respectively. Expenses related to amortization of the investments in the limited partnerships are recognized as
a component of income tax expense, and were $336,686 and $312,106 for 2020 and 2019, respectively. The
carrying values of the limited partnership investments were $2,425,721 and $2,762,406 at December 31, 2020 and
2019, 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 $4,220,418 and $3,535,527 as of December
31, 2020 and 2019, respectively. The Company recognized income of $684,891 and $588,696 for 2020 and 2019,
respectively, through CFS Partners from the operations of CFSG.
Note 11. Deposits
The following is a maturity distribution of time deposits at December 31, 2020:
2021
2022
2023
2024
2025
Total
$
74,922,873
16,406,502
7,116,526
11,344,797
3,541,263
$ 113,331,961
Total deposits in excess of the FDIC insurance level amounted to $268,444,165 as of December 31, 2020.
35
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 12. 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 January 07, 2021
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
2020
2019
$
$
150,000
350,000
1,000,000
200,000
300,000
800,000
2,800,000
$
$
0
350,000
1,000,000
200,000
300,000
800,000
2,650,000
(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 $132,667,958 and $135,672,471 as of December 31, 2020 and 2019,
respectively, and the Company’s gross potential borrowing capacity under this arrangement was $93,052,713 and
$97,358,249, 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, 2020, $23,475,000
in FHLBB letters of credit was utilized as collateral for these deposits compared to $14,425,000 at December 31,
2019. Total fees paid by the Company in connection with issuance of these letters of credit were $46,748 for 2020
and $41,069 for 2019.
The Company also maintained a $500,000 IDEAL Way Line of Credit with the FHLBB at December 31, 2020 and
2019, with no outstanding advances under this line at either year-end date. Interest on these borrowings is at a
rate determined daily by the FHLBB and payable monthly.
The Company also has a line of credit with the FRBB, which is intended to be used as a contingency funding
source. For this BIC arrangement, the Company pledged eligible commercial and industrial loans, CRE loans
not pledged to FHLBB and home equity loans, resulting in an available line of $50,378,933 and $56,896,877
as of December 31, 2020 and 2019, 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
25 basis points as of December 31, 2020. As of December 31, 2020 and 2019, 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 $25,500,000 at December 31, 2020 and 2019. The Company had no outstanding advances
against these lines for the periods presented.
36
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 13. Junior Subordinated Debentures
As of December 31, 2020 and 2019, the Company had outstanding $12,887,000 principal amount of Junior
Subordinated Debentures due in 2037 (the Debentures). The Debentures bear a floating rate equal to the 3-month
LIBOR plus 2.85%. During 2020, the floating rate averaged 3.65% per quarter compared to an average rate of
5.33% per quarter for 2019. 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 2020 and 2019 was
$476,666 and $694,573, 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 23).
Note 14. Repurchase Agreements
Securities sold under agreements to repurchase mature daily and consisted of the following:
As of or for the year ended
December 31,
Period end balance
Average balance
Highest month-end balance
Weighted average interest rate
Pledged investment (1)
Amortized cost
Fair value
2020
2019
$ 38,727,312
29,687,950
38,727,312
0.86%
$
33,189,848
33,545,527
38,868,833
0.89%
59,546,509
60,705,178
45,637,025
45,966,750
(1) U.S. GSE securities, Agency MBS, ABS and OAS, and CDs were pledged as collateral for the periods presented.
37
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 15. 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 (benefit) expense
Total income tax expense (1)
2020
2019
$
$
2,518,516
(270,427)
2,248,089
$
$
1,693,624
96,236
1,789,860
(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. Estimated tax payments of $3,000 and $10,000
was made to the state of New Hampshire during 2020 and 2019, respectively, in anticipation of tax due for the
respective tax years.
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
2020
2019
$
$
2,731,384
(309,102)
12,917
(433,970)
265,982
(19,122)
2,248,089
$
$
2,236,904
(306,073)
15,798
(415,099)
246,564
11,766
1,789,860
The deferred income tax (benefit) expense consisted of the following items for the years ended December 31:
Depreciation
Mortgage servicing rights
Deferred compensation
Bad debts
Limited partnership amortization
Investment in CFSG Partners
Loan fair value
Prepaid expenses
Other
Change in deferred tax (benefit) expense
38
2020
2019
$
$
10,368
(3,661)
3,722
(269,219)
(39,430)
13,408
0
11,072
3,313
(270,427)
$
$
126,734
(13,728)
3,701
(68,029)
60,588
(3,323)
(6,171)
(10,741)
7,205
96,236
Community Bancorp.
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
Other
Total deferred tax asset
Components of the deferred tax liability:
Depreciation
Limited partnerships
Mortgage servicing rights
Unrealized gain on debt securities AFS
Investment in CFS Partners
Operating lease
Prepaid expenses
Total deferred tax liability
Net deferred tax asset
2020
2019
$
$
1,513,782
9,176
17,838
7,101
20,814
1,568,711
394,564
37,565
193,650
243,321
84,462
3,178
79,810
1,036,550
532,161
$
$
1,244,563
12,898
17,838
11,930
16,346
1,303,575
384,197
76,995
197,311
69,242
71,054
226
68,738
867,763
435,812
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, 2017 through 2019. The 2020 tax return has not yet been filed.
Note 16. 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 $648,405 and $624,000 for 2020 and 2019, 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 17. 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 $43,694 and $61,421 at December 31, 2020 and 2019, respectively.
Expenses associated with these plans were $274 and $376 for the years ended December 31, 2020 and 2019,
respectively.
39
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 18. 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 19)
Contract or Notional Amount
2020
2019
$
$
35,217,177
14,843,617
32,888,666
57,848,075
42,140,295
1,585,000
327,855
552,158
32,784,105
12,364,436
24,377,588
47,659,341
64,469,012
1,375,500
254,430
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,
2020 and 2019, the Company had binding loan commitments to sell residential mortgages at fixed rates totaling
$1,280,400 and $1,643,200, respectively. The recourse provision under the terms of the sale of the Company’s
credit card portfolio in 2007 is based on total lines, not balances outstanding. Based on historical losses, the
Company does not expect any significant losses from this commitment.
The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit, or a commitment to extend credit, is based
on management’s credit evaluation of the counter-party. Collateral or other security held varies but may include
real estate, accounts receivable, inventory, property, plant and equipment, and income-producing commercial
properties.
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 13).
Note 19. 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, 2020 and 2019, the Company had $28,137,890 and $33,990,463, respectively, in loans sold through the MPF
program and on which the Company had a CEO. As of December 31, 2020 and 2019, 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 20. 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 21. 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
2020
2019
$
9,127,542
9,769,951
3,330,226
(5,453,184)
$ 16,774,535
$
$
6,730,842
0
4,491,524
(2,094,824)
9,127,542
Total funds of related parties on deposit with the Company were $14,251,646 and $8,942,886 at December 31,
2020 and 2019, respectively.
The Company utilizes the services of CFSG as an investment advisor for the Company’s 401(k) plan. The Human
Resources committee of the Board of Directors is the Trustee of the plan, and CFSG provides investment advice
for the plan. CFSG also acts as custodian of the retirement funds and makes investments on behalf of the plan
and its participants. The Company pays monthly management fees to CFSG for its services to the 401(k) plan
amounting to $48,780 and $57,209, respectively, for the years ended December 31, 2020 and 2019.
41
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 22. 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, 2020 and 2019.
Note 23. 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 2020 and 2019) 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, 2020, the Company
and the Bank met all capital adequacy requirements to which they were subject.
Under the 2018 Regulatory Relief Act, these capital requirements have been simplified for qualifying community
banks and bank holding companies. In September 2019, the OCC and the other federal bank regulators approved
a final joint rule that permits a qualifying community banking organization to opt in to a simplified regulatory capital
framework. A qualifying institution that elects to utilize the simplified framework must maintain a CBLR in excess
of 9%, and will thereby be deemed to have satisfied the generally applicable risk-based and other leverage capital
requirements and (if applicable) the FDIC’s prompt corrective action framework. In order to utilize the CBLR
framework, in addition to maintaining a CBLR of over 9%, a community banking organization must have less than
$10 billion in total consolidated assets and must meet certain other criteria such as limitations on the amount of
off-balance sheet exposures and on trading assets and liabilities. The CBLR is calculated by dividing tangible
equity capital by average total consolidated assets. The final rule became effective on January 1, 2020 for capital
calculations as of March 31, 2020 and thereafter.
Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital
adequacy purposes, subject to a three year phase-in period. The capital conservation buffer was fully phased-in
on January 1, 2019 at 2.5% of risk-weighted assets. A banking organization with a conservation buffer of less than
2.5% is subject to limitations on capital distributions, including dividend payments and certain discretionary bonus
payments to executive officers. The Company and the Bank were fully compliant as of the periods presented in
the table below.
Pursuant to the CARES Act, the federal banking agencies adopted an interim rule temporarily lowering the CBLR
benchmark to in excess of 8%, rather than 9%, with a phased increase of the CBLR back to the 9% level by the
end of 2021. The Company and Bank continued to qualify to utilize the CBLR framework as of December 31, 2020,
but have not elected to do so.
42
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
As of December 31, 2020, the Bank was considered well capitalized under the regulatory capital framework for
Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for
capital adequacy. While we believe that the Company has sufficient capital to withstand an extended economic
downturn in the wake of the COVID-19 pandemic, our regulatory capital ratios could be adversely impacted by
future credit losses and other operational impacts related to COVID-19.
The following table shows the regulatory capital ratios for the Company and the Bank as of December 31:
Minimum
Minimum
Minimum For Capital
To Be Well
For Capital
Adequacy Purposes
Capitalized Under
Adequacy
Purposes:
with Conservation
Prompt Corrective
Buffer(1):
Action Provisions(2):
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
(Dollars in Thousands)
$ 77,594
14.15% $ 24,680
4.50% $ 38,391
7.00%
N/A
N/A
$ 77,017
14.06% $ 24,654
4.50% $ 38,351
7.00% $ 35,611
6.50%
$ 77,594
14.15% $ 32,907
6.00% $ 46,618
8.50%
N/A
N/A
$ 77,017
14.06% $ 32,872
6.00% $ 46,569
8.50% $ 43,829
8.00%
$ 84,455
15.40% $ 43,876
8.00% $ 57,587
10.50%
N/A
N/A
$ 83,871
15.31% $ 43,829
8.00% $ 57,526
10.50% $ 54,787
10.00%
$ 77,594
8.80% $ 35,273
$ 77,017
8.74% $ 35,252
4.00%
4.00%
N/A
N/A
N/A
N/A
N/A
N/A $ 44,065
5.00%
$ 69,947
13.48% $ 23,352
4.50% $ 36,325
7.00%
N/A
N/A
$ 69,330
13.38% $ 23,325
4.50% $ 36,283
7.00% $ 33,691
6.50%
$ 69,947
13.48% $ 31,135
6.00% $ 44,108
8.50%
N/A
N/A
$ 69,330
13.38% $ 31,099
6.00% $ 44,057
8.50% $ 41,466
8.00%
$ 75,943
14.63% $ 41,514
8.00% $ 54,487
10.50%
N/A
N/A
$ 75,326
14.53% $ 41,466
8.00% $ 54,424
10.50% $ 51,832
10.00%
$ 69,947
9.57% $ 29,223
$ 69,330
9.50% $ 29,201
4.00%
4.00%
N/A
N/A
N/A
N/A
N/A
N/A $ 36,501
5.00%
December 31, 2020
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, 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
(1) Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets.
(2) Applicable to banks, but not bank holding companies.
43
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
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.
Note 24. 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.
44
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Loans held-for-sale: The fair value of loans held-for-sale is based upon an actual purchase and sale
agreement between the Company and an independent market participant. The sale is executed within a
reasonable period following quarter end at the stated fair value.
MSRs: MSRs represent the value associated with servicing residential mortgage loans. Servicing
assets and servicing liabilities are reported using the amortization method and compared to fair value
for impairment. In evaluating the carrying values of MSRs, the Company obtains third party valuations
based on loan level data including note rate, and the type and term of the underlying loans. The Company
classifies MSRs as non-recurring Level 2.
OREO: Real estate acquired through or in lieu of foreclosure and bank properties no longer used as bank
premises are initially recorded at fair value. The fair value of OREO is based on property appraisals and an
analysis of similar properties currently available. The Company records OREO as non-recurring Level 2.
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
Total
2020
2019
$
8,169,831
41,378,349
2,669,996
8,487,002
$ 60,705,178
$ 18,061,620
16,205,375
2,852,909
8,846,846
45,966,750
$
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 2020 or 2019.
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 adjust-
ment since their initial recognition. Impaired loans measured at fair value only include impaired loans with a partial
write-down or with a related specific ALL and are presented net of the specific allowances as disclosed in Note 5.
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)
Impaired loans, net of related allowance
Loans held-for-sale
MSRs (1)
OREO
2020
2019
$
$
323,645
130,400
922,146
0
0
0
939,577
966,738
(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, 2020 and 2019.
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 2020 or 2019.
45
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
FASB ASC Topic 825, “Financial Instruments”, requires disclosures of fair value information about financial
instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair
value is best determined based upon quoted market prices. However, in many instances, there are no quoted
market prices for the Company’s various financial instruments. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other valuation techniques using observable
inputs when available. Those techniques are significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate
settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily
represent the underlying fair value of the Company.
The carrying amounts and estimated fair values of the Company’s financial instruments were as follows:
December 31, 2020
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
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
MSRs (1)
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 $ 115,050
60,705
0
1,447
0
160,371
279,281
55,601
170,385
37,991
4,238
0
0
160,371
279,489
55,601
170,501
37,991
4,238
922
2,988
0
0
0
0
0
0
0
0
779,824
4,208
2,724
38,727
1,060
38
12,876
86
$ 115,050 $ 115,050 $
0 $
60,705
1,447
158,601
276,476
54,694
169,201
37,892
4,218
922
2,988
778,085
4,206
2,800
38,727
1,060
38
12,887
86
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
60,705
1,447
0
208
0
116
0
0
922
2,988
779,824
4,208
2,724
38,727
1,060
38
12,876
86
(1) Reported fair value represents all MSRs for loans serviced by the Company at December 31, 2020, regardless
of carrying amount.of carrying amount.
46
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
December 31, 2019
Carrying
Amount
Fair
Value
Level 1
Fair
Value
Level 2
(Dollars in Thousands)
Fair
Value
Level 3
Fair
Value
Total
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
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
MSRs (1)
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
$
48,562 $ 48,562 $
45,967
1,432
0
0
0 $
45,967
1,432
0 $ 48,562
45,967
0
1,432
0
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
0
0
0
0
1,250
2,337
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
604,267
11,153
2,427
33,190
1,263
100
12,831
139
0
0
0
0
0
0
0
0
604,267
11,153
2,427
33,190
1,263
100
12,831
139
(1) 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, 2020 and 2019.
47
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 25. 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,
2020
December 31,
2019
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 shares issued
and outstanding at December 31, 2020 and 2019,
($100,000 liquidation value, per share)
Common stock - $2.50 par value; 15,000,000 shares authorized,
5,527,380 and 5,449,857 shares issued at December 31, 2020
and 2019, respectively (including 18,128 and 16,267 shares
issued February 1, 2021 and 2020, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Less: treasury stock, at cost; 210,101 shares at December 31,
2020 and 2019
Total shareholders’ equity
$
750,371
89,598,666
387,000
184,973
$ 90,921,010
$
744,687
81,164,447
387,000
213,071
$ 82,509,205
$ 12,887,000
745,297
13,632,297
$ 12,887,000
727,526
13,614,526
1,500,000
1,500,000
13,818,450
34,309,646
29,368,046
915,348
13,624,643
33,464,381
22,667,949
260,483
(2,622,777)
77,288,713
(2,622,777)
68,894,679
Total liabilities and shareholders’ equity
$ 90,921,010
$ 82,509,205
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.
48
Community Bancorp.
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Community Bancorp. (Parent Company Only)
Condensed Statements of Income
Years Ended December 31,
2020
2019
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
Income before equity in undistributed net income of subsidiary
Equity in undistributed net income of subsidiary
Net income
$
3,675,000
14,314
3,689,314
$
4,256,000
20,858
4,276,858
476,666
418,474
895,140
694,573
340,904
1,035,477
2,794,174
184,973
3,241,381
213,071
2,979,147
7,779,355
10,758,502
$
3,454,452
5,369,994
8,824,446
$
Community Bancorp. (Parent Company Only)
Condensed Statements of Cash Flows
Years Ended December 31,
2020
2019
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
Decrease (increase) 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
$ 10,758,502
$
8,824,446
(7,779,355)
28,097
3,007,244
(5,369,994)
(5,827)
3,448,625
0
(54,375)
(2,947,185)
(3,001,560)
5,684
(500,000)
(87,500)
(2,837,058)
(3,424,558)
24,067
744,687
750,371
213,071
476,666
4,004,030
(17,773)
(1,039,072)
2,947,185
$
$
$
$
$
720,620
744,687
207,244
694,573
3,951,279
(16,987)
(1,097,234)
2,837,058
$
$
$
$
$
49
2020 Annual Report
Community Bancorp. and Subsidiary
Notes to the Consolidated Financial Statement (continued)
Note 26. Quarterly Financial Data (Unaudited)
A summary of financial data for the four quarters of 2020 and 2019 is presented below:
2020
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
2019
Interest income
Interest expense
Provision for loan losses
Non-interest income
Non-interest expense
Net income
Earnings per common share
$
$
$
7,772,152
1,476,393
376,503
1,353,707
5,093,219
1,861,239
0.35
$
8,191,442
1,206,909
307,499
1,762,102
4,987,453
2,842,311
0.54
$
8,086,866
1,050,780
362,499
1,941,295
5,104,717
2,880,443
0.54
9,011,834
1,112,604
542,499
1,714,620
5,206,352
3,174,509
0.60
March 31,
June 30,
September 30, December 31,
$
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
Note 27. 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 28. Subsequent Events
Declaration of Cash Dividend
$
$
2020
2019
684,891 $
588,696
473,426 $
506,144
425,000
704,047
486,590
428,668
539,510
450,533
669,502
434,270
On December 9, 2020, the Company declared a cash dividend of $0.19 per share payable February 1, 2021 to
shareholders of record as of January 15, 2021. On March 17, 2021, the Company declared a cash dividend of
$0.22 per share payable May 1, 2021 to shareholders of record as of April 15, 2021. 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.
50
Community Bancorp.
Management’s Discussions And Analysis of Financial
Condition And Results of Operations
For the Years Ended December 31, 2020 and 2019
The following discussion analyzes the consolidated financial condition of the Company and its wholly-owned
subsidiary, Community National Bank, as of December 31, 2020 and 2019, and its consolidated results of operations
for the years then ended. The Company is considered a “smaller reporting company” under the disclosure rules
of the SEC. Accordingly, 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. Additionally,
beginning with this annual report, the Company is considered a non-accelerated filer under the amended disclosure
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 (MD&A) contains
certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
regarding the results of operations, financial condition and business of the Company and its subsidiary. Words
used in the discussion below such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects”, “plans,”
“assumes”, “predicts,” “may”, “might”, “will”, “could”, “should” and similar expressions, indicate that management of
the Company is making forward-looking statements.
Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties
and assumptions. Examples of forward looking statements included in this discussion include, but are not limited to,
statements regarding the potential effects of the COVID-19 pandemic on our business, financial condition, results
of operations and prospects; the estimated contingent liability related to assumptions made within the asset/liability
management process; management’s expectations as to the future interest rate environment and the Company’s
related liquidity level; credit risk expectations relating to the Company’s loan portfolio 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 expectations and
estimates as of the date they are made, many of the factors that could influence or determine actual results are
unpredictable and not within the Company’s control.
Factors that may cause actual results to differ materially from those contemplated by these forward-looking
statements include, among others, the following possibilities:
•
•
•
•
•
•
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;
changes in the level of nonperforming assets and charge-offs;
51
2020 Annual Report
•
•
•
•
•
•
•
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;
the planned phase out the 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 currently bear interest at a variable rate, adjusted quarterly, equal to 3-month
LIBOR, plus 2.85%;
the effect of COVID-19 on our Company, the communities where we have branches and loan production
offices, the State of Vermont and the national and global economies and overall stability of the financial
markets;
government and regulatory responses to the COVID-19 pandemic;
operational and internal system failures due to changes in normal business practices, including remote
working for Company staff;
increased cybercrime and payment system risk due to increase usage by customers of online and other
remote banking channels;
rising unemployment rates in our markets due to the COVID-19 related business shutdowns, delays and
setbacks in scheduled re-openings and other economic disruptions, which reduces our borrowers’ ability
to repay their loans and reduces customer demand for our products and services; and
the short-term and long-term effects of government interventions in the U.S. economy and financial system
in response to the COVID-19 pandemic, including the effects of recent legislative, tax, accounting and
regulatory actions and reforms, such as passage of the CARES Act, the actions of the Federal Reserve
affecting monetary policy, and the temporary moratorium on foreclosures imposed by the State of Vermont
in response to the COVID-19 emergency.
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
52
Community Bancorp.
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 2020 were $918.2 million compared to $738.0 million at year-end
2019, an increase of 24.4%. The asset growth was driven by an increase of $102.4 million, or 16.9%, in loans.
This loan growth during 2020 was primarily due to the origination of $105.0 million in PPP loans, of which $64.3
million remained outstanding at December 31, 2020. Community National Bank, the subsidiary of the Company,
participated in the PPP administered by the SBA as part of the CARES Act. The AFS securities portfolio increased
$14.7 million, or 32.1% year over year, also contributing to the increase in consolidated assets.
Throughout 2020, the Company navigated through the new challenges presented by the COVID-19 pandemic.
Starting in late March and throughout the remainder of the year, the Company continued to grant loan payment
deferrals to customers impacted by the pandemic. As of December 31, 2020, 514 business and retail customer
portfolio loans, with unpaid principal balances of $119.8 million, remain modified to provide temporary debt relief
to customers impacted by the COVID-19 pandemic. These short term concessions were made in accordance with
guidance from the federal banking regulators, confirmed by them with the FASB, and are therefore not considered
to be impaired under GAAP (see Notes 3 and 5 to the accompanying audited consolidated financial statements for
additional information).
Total deposits on December 31, 2020 were $782.3 million compared to $615.0 million on December 31, 2019, an
increase of $167.3 million, or 27.2%, reflecting the combined effect of increases in core deposits (demand deposit
accounts, both interest bearing and non-interest bearing) of $118.7 million, or 38.3%, money market funds of $24.1
million, or 26.3%, and savings accounts of $27.4 million, or 28.2%. The significant increases in core deposits
were driven in part by PPP loan funds that were deposited in business checking accounts as well as increases in
customer checking accounts likely from stimulus payments, unemployment benefits and deferral or forbearance
agreements on residential mortgage and student loans.
Interest income increased $1.3 million, or 4.1%, year over year. The opportunity for an increase in interest income
from the loan growth was offset by the impact of the decrease in the prime rate on new loan originations and
interest rate adjustments on adjustable rate loans, as well as the mandated 1% interest rate on SBA PPP loans.
The low interest rate environment also resulted in a decrease in interest earned on the investment portfolio and
federal funds sold. The origination of the PPP loans resulted in processing fees from the SBA of approximately
$2.2 million, representing 81.4% of the total of fees on loans of $2.6 million for the year ended December 31, 2020,
compared to total fees on loans of $624,686 for the same period in 2019.
Despite the increase in interest-bearing deposits, interest expense decreased $1.3 million, or 21.1%, for the year
ended December 31, 2020 compared to the same period in 2019. The decrease in interest expense is due to
a reduction of rates paid on interest-bearing transaction accounts, money market accounts and time deposits,
following the 150 basis point decrease in short-term rates initiated by the FRB in March in response to the COVID-19
pandemic. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability
Management section for more information on the impact that FRB action and changes in the yield curve could have
on net interest income.
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2020 Annual Report
The provision for loan losses for the year ended 2020 was $1.6 million compared to $1.1 million for 2019, resulting
in an increase of 49.0% between years. The year over year increase to the provision was partially due to loan
growth early in the year as well as adjustments to the qualitative factors used to estimate the allowance for loan
losses, particularly factors related to the economic impact to borrowers from the COVID pandemic. PPP loans
bear a 100% SBA guarantee and therefore had little impact on the calculation of the provision. Please refer to the
ALL and provisions discussion in the Credit Risk section for more information on these increases.
Consolidated net income in 2020 increased $1.9 million, or 21.9%, from $8.8 million for 2019 to $10.8 million for
2020. Non-interest income increased $825,658, or 13.9%, and non-interest expense increased $510,461, or
2.6%, contributing to a portion of the increase in net income for 2020 versus 2019. Despite the pandemic, the low
rate environment during 2020 provided for an increase in mortgage business, both in refinancing of existing loans
and new home purchases. Income from sold loans increased substantially by $763,557, or 108.1%, year over year.
Loan originations that were subsequently sold in the secondary market were $37.0 million for 2020 compared to
$13.8 million in 2019, resulting in gains on sale of loans of $1,027,175 and $290,116, respectively. Commercial and
residential loan documentation fees made up the biggest portion of other income from loans, with combined figures
$795,363 and $661,262, respectively, for 2020 and 2019.
The COVID-19 pandemic has impacted some of the Company’s sources of non-interest income differently. For
instance the unusually high balances maintained in customer deposit accounts have resulted in a decrease in
overdraft fees. These fees were $844,259 for 2020 compared to $1.1 million for 2019, a 25.3% decrease year over
year. Conversely, interchange fee income related to customers’ use of debit cards increased $159,714, or 10.9%
between the 2020 and 2019. This customer behavior of choosing to use debit or credit cards as a payment method
has also had an impact on the circulation of coin and currency.
Total non-interest expenses increased by $510,461, or 2.6%, year over year. A portion of the increase is attributable
to an increase in wages and benefits of $291,827, or 2.8%. Increases in occupancy expenses were modest at
2.6%. The increase in other expense is made up of several components, with FDIC insurance accounting for
$231,191 year over year. This increase is due to the effect of the Small Bank deposit-insurance assessment
credits issued by the FDIC in the amount of $164,000 in 2019 while no credits were issued in 2020. Offsetting a
portion of these increases were decreases in OREO expense of $158,777 as well as decreases in collection and
non-accruing loan expenses of $154,149 for 2020 versus 2019. Please refer to the Non-interest Income and Non-
interest Expense sections for more information on these and other changes.
Equity capital grew to $77.3 million, with a book value per share of $14.25 as of December 31, 2020, compared
to equity capital of $68.9 million and a book value of $12.86 as of December 31, 2019. On December 9, 2020,
the Company’s Board of Directors declared a quarterly cash dividend of $0.19 per common share, payable on
February 1, 2021 to shareholders of record on January 15, 2021.
Throughout the COVID-19 pandemic management has followed protocols from the Company’s Pandemic and
Business Continuity Plan and guidance from State and Federal governments to ensure continued safe access
to banking services while focusing on the health and safety of our employees and customers. Members of the
Company’s Pandemic Team meet as needed to address COVID-19 issues and developments. Management has
conducted a risk situation analysis in each business unit and stress tested areas most vulnerable to be impacted,
such as liquidity and asset quality.
Although the longer term impacts of the COVID-19 pandemic are expected to be adverse, in the short term the
pandemic has had a net positive impact on the Company’s consolidated financial results. The Federal Reserve’s
reaction to lower rates resulted in lower interest expense and the market reaction lowering long term rates fueled
refinancing and home purchases providing strong fee income for the Company. The fees from the origination of
PPP loans also provided unanticipated fee income. The extent to which the pandemic impacts our business,
operations and financial results in the future will depend on numerous factors that we may not be able to accurately
predict, although adverse impacts are likely in future periods. The ultimate extent of the impact of the COVID-19
pandemic on our business, financial condition and results of operations is currently uncertain and will depend on
various developments and other factors, including, among others, the duration and scope of the pandemic, as well
as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the
economy, financial markets and our customers, employees and vendors.
54
Community Bancorp.
Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay
their loans, the value of collateral underlying our secured loans, and the demand for loans and other products and
services we offer, which are highly dependent on the business environment in our local banking markets and in the
country as a whole. Recent economic reports for the state of Vermont show employment in the hardest hit industries
such as leisure and hospitality has risen but still below pre-pandemic levels. The Vermont unemployment rate,
seasonally adjusted, in December was reported at 3.1% compared to the high of 16.8% in April. Other impacts of
this pandemic, such as childcare and remote schooling, pose additional challenges to the workforce. In September,
public schools reopened with a hybrid of in-school and remote learning options. Throughout the summer, with lifted
restrictions on indoor dining, gathering size limits and travel, the local economy continued to reopen. For the most
part, Vermont has fared better than other states in the number of cases to date. A spike in cases due to large
gatherings during the fall led to the reimposition of several temporary limitations on social gatherings and business
operations. These restrictions included the closure of bars and clubs for in-person service and imposed a curfew
for in-person dining in restaurants. Vermont is still under a state of emergency order until March 15, 2021 and
that order may be extended, as has been the case with prior orders. The rollout of the COVID-19 vaccine is well
underway in the State. The full health and economic effect of the pandemic is still unclear as new information
continues to become available. The Company continues to use its best efforts to remain focused on providing for
the safety and health of its employees, customers and communities through the hardships of this pandemic.
As of December 31, 2020, the Company had originated 879 PPP loans totaling $105.0 million, and expects to earn
approximately $3.7 million in related fees over the life of the related loans. These loans are eligible to be forgiven
to the extent that the funds are used for payroll costs, interest on mortgages, rent, or utilities as long as at least 60%
of the forgiven amount was used for payroll. Borrowers can apply for forgiveness after a specified covered period.
PPP loan forgiveness applications are processed by the lender, with forgiveness requests for loans in excess of
$2.0 million reviewed by the SBA. Neither the government nor lenders are permitted to charge the borrowers any
fees. PPP loans carry a fixed rate of 1.00% and are 100% guaranteed by the SBA. The SBA pays the originating
bank a processing fee ranging from 1% to 5%, based on the size of the loan. As of December 31, 2020, the
Company had reviewed and submitted 373 PPP loans with total balances of approximately $46.0 million to the
SBA for forgiveness consideration. Participation in the PPP has had a significant impact on our asset mix and net
interest margin during 2020.
In December, 2020, the Congress passed and the President approved legislation to supply additional COVID-19
relief, authorizing more than $900 billion in economic aid to small business and consumers. This bill included an
additional $284.6 billion in PPP funding for loans to small businesses, including for borrowers who have previously
received a PPP loan.
We maintain access to multiple sources of liquidity, including access to the PPPLF of the FRB, which was
established by the FRB to facilitate funding of PPP lending activity by banks and other eligible lenders. Under
the PPPLF lenders may pledge pools of PPP loans having the same maturity date, with the maturity date of the
lender’s advance matching the maturity date of the pool. There are no fees for PPPLF advances, which bear an
annual rate of 35 bps. As of December 31, 2020, the Company had no PPPLF advances. Use of the PPPLF will
depend on liquidity needs should the Company experience a decline in deposit balances or other funding sources.
As of December 31, 2020, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of
all regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn
from a second wave of the COVID-19 pandemic, should one occur, our equity capital and regulatory capital ratios
could be adversely impacted by credit losses and other adverse impacts of the pandemic.
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
55
2020 Annual Report
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.
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.
56
Community Bancorp.
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 $1.9 million, or 21.9%, from 2019 to 2020, resulting in earnings per common
share of $2.03 for 2020 versus $1.68 for 2019. Core earnings (NII) increased $2.6 million, or 10.2%, in 2020
compared to 2019. Interest income was supported with fees generated from administering the PPP loans. Of the
$3.7 million that the Company received in fee income from the SBA, approximately $2.2 million was recognized
in 2020. These fees have offset a decrease in interest income due to the repricing of loans into the prevailing
low interest rate environment, new loans being booked at lower market rates and PPP loans being booked at
a mandated 1% annual interest rate. Interest paid on deposits, which is the major component of total interest
expense, decreased $1.0 million, or 20.1% in 2020, reflecting the decreases in short-term rates initiated by the
FRB in March in response to the pandemic.
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
2020
2019
2018
1.31%
14.74%
37.44%
8.89%
1.24%
13.91%
45.24%
8.92%
1.24%
14.08%
45.96%
8.83%
(1) Dividends declared per common share divided by earnings per common share.
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2020 Annual Report
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,
2020
2019
2018
2017
2016
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
$ 700,951,104 $ 601,424,861 $ 573,211,590 $ 546,570,168 $ 532,167,542
637,653,665
504,735,032
31,550,000
12,887,000
583,202,148
54,451,517
737,955,319
615,021,368
2,650,000
12,887,000
669,060,640
68,894,679
667,045,595
560,634,980
3,550,000
12,887,000
609,109,741
57,935,854
918,233,284
782,290,840
2,800,000
12,887,000
840,944,571
77,288,713
720,347,498
608,816,565
1,550,000
12,887,000
657,743,787
62,603,711
$ 33,062,294 $
4,846,686
31,758,808 $
6,143,121
29,114,603 $ 26,440,949 $ 24,248,114
2,699,299
3,068,390
4,485,088
28,215,608
25,615,687
24,629,515
23,372,559
21,548,815
1,589,000
1,066,167
780,000
650,000
500,000
26,626,608
24,549,520
23,849,515
22,722,559
21,048,815
Non-interest income
Non-interest expense
6,771,724
20,391,741
5,946,066
19,881,280
6,181,308
19,895,026
5,584,392
19,166,323
Income before income taxes
Applicable income tax expense (2)
Net income
13,006,591
2,248,089
$ 10,758,502 $
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 $
5,501,899
19,142,524
7,408,190
1,923,912
5,484,278
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
$
$
$
2.03 $
1.68 $
1.61 $
1.21 $
1.07
0.76 $
0.76 $
0.74 $
0.68 $
0.64
14.25 $
12.86 $
11.72 $
10.84 $
10.27
5,274,785
5,204,768
5,139,297
5,084,102
5,024,270
5,317,279
5,239,756
5,172,002
5,112,219
5,058,952
(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.
(2) Applicable income tax expense assumes a 21% tax rate for 2020, 2019 and 2018 and a 34% tax rate for 2017
and 2016.
(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 is 21%, therefore, to equalize tax-free and taxable income in
the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to
$1.27 in taxable income.
Tax-exempt income is derived from municipal loans, amounting to $54.8 million, $55.8 million and $47.1 million, at
December 31, 2020, 2019 and 2018, 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
2020
2019
(Dollars in Thousands)
2018
$
$
28,216
369
28,585
$
$
25,616 $
364
25,980 $
24,630
344
24,974
59
2020 Annual Report
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.
2020
Years Ended December 31,
2019
2018
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
$ 695,491 $ 31,978 4.60% $ 591,616 $ 30,247 5.11% $ 568,511 $ 27,954 4.92%
895 2.33%
484 2.08%
126 5.60%
$ 775,744 $ 33,431 4.31% $ 666,359 $ 32,123 4.82% $ 632,388 $ 29,459 4.66%
1,089 2.51%
686 2.32%
101 5.66%
1,031 2.31%
340 1.01%
82 4.45%
44,642
33,768
1,843
38,372
23,256
2,249
43,334
29,625
1,784
Interest-bearing transaction accounts $ 203,951 $ 1,135 0.56% $ 161,887 $
Money market accounts
Savings deposits
Time deposits
Borrowed funds
Repurchase agreements
Finance lease obligations
Junior subordinated debentures
1,089 1.03%
148 0.13%
1,724 1.54%
14 0.28%
255 0.86%
5 7.46%
477 3.70%
105,280
111,779
112,235
4,930
29,688
67
12,887
94,704
96,088
120,937
1,996
33,546
197
12,887
1,523 0.94% $ 137,547 $
1,451 1.53%
162 0.17%
1,988 1.64%
8 0.40%
299 0.89%
17 8.63%
695 5.39%
91,641
98,154
122,499
5,462
30,555
320
12,887
Total
$ 580,817 $ 4,847 0.83% $ 522,242 $
6,143 1.18% $ 499,065 $
865 0.63%
1,057 1.15%
136 0.14%
1,489 1.22%
70 1.28%
191 0.63%
27 8.44%
650 5.04%
4,485 0.90%
Net interest income
Net interest spread (3)
Net interest margin (4)
$ 28,584
$ 25,980
$ 24,974
3.48%
3.68%
3.64%
3.90%
3.76%
3.95%
(1) Included in gross loans are non-accrual loans with an average balance of $4.6 million, $5.1 million and $4.0
million for the years ended December 31, 2020, 2019 and 2018, 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 $56.5 million, $49.2 million and $48.8 million for the years ended December 31,
2020, 2019, 2018, respectively which were reclassified from the investment portfolio effective January 1, 2019,
and restated for the 2018 comparison period.
(2) Included in other investments is the Company’s FHLBB Stock with an average balance of $1.0 million, $1.0
million and $1.2 million, respectively, for 2020, 2019 and 2018 and a dividend rate of approximately 4.13%,
6.04% and 5.92%, 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, 2020 increased 16.4% compared
to December 31, 2019, which increased 5.4% compared to December 31, 2018. Average yield on interest-earning
assets decreased 51 basis points for 2020 versus 2019 and increased 16 basis points for 2019 versus 2018.
The average volume of loans increased 17.6% for 2020 versus 2019, and 4.1% for 2019 versus 2018, while the
average yield on loans decreased 51 basis points to 4.60% for 2020 compared to an increase of 19 basis points, to
5.11% for 2019 versus 2018. The decrease in the yield in 2020 is due in part to decreases in the prime rate during
2020, as well as the average volume of the PPP loans of $65.5 million, with a mandated fixed rate of 1%. The
increase in yield during 2019 was partially due to a $440 thousand loan prepayment penalty which added 6 basis
60
Community Bancorp.
points to the annual yield. The remaining increase was due to loans 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 changes in average yield on loans, were reflected in increases in interest earned on the loan portfolio of
$1.7 million in 2020 compared to 2019 and $2.3 million in 2019 compared to 2018. Interest earned on the loan
portfolio as a percentage of total interest income was approximately 95.7%, 94.2% and 94.9%, respectively for
2020, 2019 and 2018.
The average volume of the taxable investment portfolio (classified as AFS) increased 3.0% for 2020 versus 2019
and 12.9% for 2019 versus 2018, and the average yield on the taxable investment portfolio decreased 20 basis
points for 2020 versus 2019 and increased 18 basis points for 2019 versus 2018. The increase in average volume
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 14.0% during 2020 and 27.4% during 2019. 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 decreased 131 basis points in 2020
versus 2019 reflecting the decrease in the federal funds rate during 2020, while an increase of 24 basis points is
noted in 2019 versus 2018, reflecting the changes in federal funds rate throughout this comparison period.
The average volume of interest-bearing liabilities for the year ended December 31, 2020 increased 11.2% compared
to the year ended December 31, 2019, and increased 4.6% during 2019 compared to 2018. The average rate paid
on interest-bearing liabilities decreased 35 basis points during 2020 and increased 28 basis points during 2019
compared to 2018. The deposit of PPP loan proceeds was a contributing factor to the increase in average volume
in 2020, while the decline in the Prime Rate accounts for the decrease in yields for all components of interest-
bearing liabilities.
The average volume of interest-bearing transaction accounts increased 26.0% for 2020 versus 2019 and 17.7% for
2019 versus 2018, reflecting strong deposit growth during both periods. The average rate paid on these accounts
decreased 38 basis points for 2020 versus 2019 and increased 31 basis points for 2019 versus 2018.
The average volume of money market accounts increased 11.2% during 2020 and 3.4% during 2019, and the average
rate paid on these deposits decreased 50 basis points during 2020 and increased 38 basis points during 2019.
The average volume of savings accounts increased 16.3% for 2020 versus 2019, but decreased 2.1% for 2019
versus 2018. Conversely, the average rate paid on these accounts decreased four basis points during 2020 and
increased three basis points in 2019.
The average volume of time deposits decreased 7.2% for 2020 versus 2019 and 1.3% for 2019 versus 2018,
while the average rate paid decreased 10 basis points during 2020 and increased 42 basis points during 2019.
Interest paid on time deposits as a percentage of total interest expense was 35.6%, 32.4% and 33.2%, respectively
for 2020, 2019 and 2018. The decrease in the average volume of time deposits between the 2020 and 2019
comparison periods reflects the maturity of brokered deposits during the first month of 2020 that were only partially
replaced during the third quarter of 2020. In 2019 and 2018 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
abated with the reduction in interest rates in the first quarter of 2020. 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.
Refer to the “Liquidity and Capital Resources” section for more discussion on this topic.
The average volume of borrowed funds increased $2.9 million, or 147.0% for 2020 versus 2019, but decreased
63.5% for 2019 versus 2018, and in 2020 and 2019 consisted of only JNE funds at zero percent interest, resulting in
decreases in the average rate paid on these funds of 12 basis points during 2020 and 88 basis points during 2019.
61
2020 Annual Report
The average volume of repurchase agreements decreased 11.5% during 2020 and increased 9.8% during 2019.
The average rate paid on repurchase agreements decreased three basis points for 2020 versus 2019 and increased
26 basis points for 2019 versus 2018.
In summary, the average yield on interest-earning assets decreased 51 basis points during 2020, while the average
rate paid on interest-bearing liabilities decreased 35 basis points. During 2019, the average yield on interest-
earning assets increased 16 basis points, while the average rate paid on interest-bearing liabilities increased 28
basis points. Net interest spread decreased 16 basis points for 2020 and 12 basis points for 2019 with a net interest
spread of 3.48% for 2020 compared to 3.64% for 2019, and 3.76% for 2018. Net interest margin decreased 21
basis points during 2020 to 3.68%, and five basis points to 3.90% for 2019, compared to 3.95% for 2018.
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.
2020 versus 2019
2019 versus 2018
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
$ (3,577) $ 5,308
33
96
3
$ (4,132) $ 5,440
(91)
(442)
(22)
$ 1,731
(58)
(346)
(19)
$ 1,308
$ 1,156
78
70
1
$ 1,305
$ 1,137
116
132
(26)
$ 1,359
$ 2,293
194
202
(25)
$ 2,664
$
(783) $
(524)
(41)
(130)
(6)
(11)
(2)
(218)
$ (1,715) $
395
162
27
(134)
12
(33)
(10)
0
419
$
(388) $
(362)
(14)
(264)
6
(44)
(12)
(218)
505
359
30
525
(48)
89
1
45
$ (1,296) $ 1,506
$
$
153
35
(4)
(26)
(14)
19
(11)
0
152
$
658
394
26
499
(62)
108
(10)
45
$ 1,658
Changes in net interest income
$ (2,417) $ 5,021
$ 2,604
$
(201) $ 1,207
$ 1,006
(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 comparison period.
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:
Year Ended
December 31,
Change
2020
2019
Income
Percent
Service fees
Income from sold loans
Other income from loans
Net realized gain (loss) on sale of securities AFS
Other income
Income from CFS Partners
Exchange income
Other miscellaneous income
Total non-interest income
$ 3,137,956 $ 3,313,833 $
1,469,863
1,054,562
39,086
706,306
904,156
(26,490)
(175,877)
763,557
150,406
65,576
684,891
31,000
354,366
$6,771,724
588,696
66,400
393,165
$5,946,066 $
96,195
(35,400)
(38,799)
825,658
-5.31%
108.11%
16.63%
-247.55%
16.34%
-53.31%
-9.87%
13.89%
Total non-interest income increased $825,658 for the year ended December 31, 2020 compared to the same
period 2019, with significant changes noted in the following:
• As noted and discussed in the Overview, overdraft charges, a component of service fees, decreased year
over year, which was offset in part by an increase in interchange fees, also a component of service fees.
•
Income from sold loans increased year over year as a result of an uptick in residential mortgage lending
activity which was spurred primarily by the drop in interest rates due to the action of the FRB early in 2020 in
response to the pandemic, resulting in a higher volume of loans being sold into the secondary market.
• The higher volume of commercial and residential loan activity resulted in an increase in documentation fees
collected at origination accounting for the increase in other income from loans.
• The Company sold a MBS from its investment portfolio with a realized gain in 2020, compared to sales the prior
year with a realized net loss for 2019. The sales in 2019 were mostly low-yielding, short-duration securities
held in the Company’s AFS portfolio, which were replaced with higher-yielding investments available in the
current market.
• CFS Partners has a small portion of its equity capital invested in the stock market. While it was necessary to
mark-to-market the portfolio to reflect the stock market decline during the first quarter of 2020 at the outset of
the COVID-19 pandemic, resulting in a $106,000 mark down, the stock market rebounded somewhat favorably
during the third and fourth quarters accounting for the modest increase year over year.
• The decrease in exchange income is directly related to the COVID-19 mandated shutdown of the US/
Canadian border to all non-essential travel, creating less demand for an exchange of Canadian currency.
• The combination of a decrease in Community Circle income and a decrease in VISA merchant program income
accounts for the reduction in other miscellaneous income between 2019 and 2020.
63
2020 Annual Report
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
Service contracts - administrative
Outsourcing expense
Telephone expense
Marketing expense
Audit fees
Consultant services
Travel, entertainment and meals expense
FDIC insurance
Collection & non-accruing loan expense
Expense on OREO
ATM Fees
Overdraft Privilege Program Expense
State deposit tax
Other miscellaneous expenses
Total non-interest expense
Year Ended
December 31,
Change
2020
2019
Expense
Percent
$ 7,597,745 $ 7,271,722 $
3,084,435
2,672,720
3,118,631
2,605,995
506,144
473,426
189,700
425,000
386,839
269,444
107,162
300,643
31,814
(38,192)
486,590
0
704,047
3,194,224
539,510
428,668
265,372
450,533
407,303
217,352
128,150
69,452
185,963
120,585
434,270
46,302
669,502
2,921,970
$ 20,391,741 $ 19,881,280 $
326,023
(34,196)
66,725
(33,366)
44,758
(75,672)
(25,533)
(20,464)
52,092
(20,988)
231,191
(154,149)
(158,777)
52,320
(46,302)
34,545
272,254
510,461
4.48%
-1.10%
2.56%
-6.18%
10.44%
-28.52%
-5.67%
-5.02%
23.97%
-16.38%
332.88%
-82.89%
-131.67%
12.05%
-100.00%
5.16%
9.32%
2.57%
Total non-interest expense increased $510,461, or 2.6%, for the year ended December 31, 2020 compared to the
same period in 2019, with significant changes noted in the following:
• Salaries and wages increased primarily due to normal salary increases and an increase in lender commissions
related to the strong mortgage business and the PPP loan program.
• There was a slight decrease in employee benefits due to a decrease in claims during the pandemic related
shutdown when hospitals and medical providers were not scheduling non-essential appointments.
• The decrease in service contracts – administrative in 2020 is attributable to increased costs in 2019 to
support information technology and branch infrastructure. Additionally, some projects that were scheduled for
2020, were not finalized, and are expected to be completed in 2021.
• Outsourcing expense increased year over year primarily due to credits received from the Company’s core
processing system that were applied towards 2019 expenses.
• The decrease in telephone expense is due to the renegotiation of carrier contracts for connectivity.
• Marketing activity increased during the second half of 2020, however, due to continued delays in the scheduled
creation of promotional television commercials due to the pandemic, marketing expenses for 2020 were still
under budget for the year, accounting for the decrease year over year.
64
Community Bancorp.
• The increase in consultant services is partially due to recruiting expenses in preparation for retirements in the
area of lending in 2021.
• FDIC insurance increased year over year mostly due to the “Small Bank Assessment Credit” of $164,000
issued by the FDIC during the third quarter of 2019. This credit eliminated the assessments due during the
third and fourth quarters of 2019, and the remainder of the credit was applied to a portion of the assessment
due in the first quarter of 2020, with full assessments paid for the remaining three quarters of 2020.
• Collections & non-accruing loan expense decreased year over year due in part to the recovery of collection
expenses from the resolution of secondary market foreclosures earlier in the year. Collection expenses were
also lower due to the impact of a legislative moratorium on ejectment and foreclosure actions during the
COVID-19 emergency.
• A property held in OREO was sold in the third quarter of 2020 resulting in a recovery of a subsequent write
down that was recorded in 2019, accounting for the decrease in expense on OREO year over year.
• ATM fees increased year over year due to the addition of enhanced technology being utilized for deposit
automation. Use of deposit automation replaces a manual process for BSA required monitoring of cash
deposits as well as providing fraud detection measures at the ATM.
• The decrease in overdraft privilege program expense was due to the end of a contract obligation at year-
end 2019, with no renewal of the obligation in 2020.
• Other miscellaneous expenses increased in 2020 due to the recording of a payment to employees working
through the pandemic in the amount of $156,000, which was determined to be a qualified disaster relief
payment as defined by section 139(b) of the IRS Code. Disaster relief payments are not includable in gross
wages or subject to payroll taxes for either the employee or the employer.
APPLICABLE INCOME TAXES
Income before income taxes increased $2.4 million, or 22.5% for 2020 compared to 2019, accounting for the
increase in the provision for income taxes of $458,229, or 25.6%. Tax credits from affordable housing investments
increased $18,871, or 4.6%, from $415,099 in 2019 to $433,970 in 2020.
Amortization expense related to limited partnership investments is included as a component of income tax expense
and amounted to $336,686 and $312,106 for 2020 and 2019, respectively. These investments provide tax benefits,
including tax credits, and are designed to provide an effective yield between 7% and 10%.
65
2020 Annual Report
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,
2020
2019
2018
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 fees (costs)
Premises and equipment
OREO
Investment in Capital Trust
BOLI
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
$
10,372
33,768
44,642
1,456
46,098
697,626
(7,417)
10,614
537
387
4,942
11,574
12,455
$820,956
11,043
1.27% $
29,625
4.11%
43,591
5.44%
1,397
0.18%
44,988
5.62%
591,908
84.98%
(5,444)
-0.90%
10,973
1.29%
188
0.07%
387
0.05%
4,855
0.60%
11,574
1.41%
1.52%
11,067
100% $ 711,164
1.55% $ 10,838
23,256
4.17%
38,372
6.13%
1,862
0.20%
40,234
6.33%
568,860
83.23%
(5,176)
-0.77%
9,958
1.54%
278
0.03%
387
0.05%
4,765
0.68%
11,574
1.62%
1.56%
9,835
100% $ 674,809
$ 162,631
203,951
105,280
111,779
112,236
695,877
19.81% $ 120,689
161,887
24.84%
94,704
12.82%
96,088
13.62%
120,937
13.67%
594,305
84.76%
16.97% $ 113,412
137,547
22.76%
91,642
13.32%
98,154
13.51%
122,499
17.01%
563,254
83.57%
4,930
29,688
12,887
4,592
747,974
0.60%
3.62%
1.57%
0.56%
91.11%
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
1.61%
3.44%
5.69%
0.28%
5.97%
84.29%
-0.77%
1.47%
0.04%
0.06%
0.71%
1.71%
1.46%
100%
16.81%
20.38%
13.58%
14.55%
18.15%
83.47%
0.81%
4.53%
1.91%
0.45%
91.17%
Average Shareholders' Equity
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Less: Treasury stock
Accumulated other comprehensive income (loss)
1,500
13,704
33,817
25,810
(2,623)
774
Total average shareholders' equity
72,982
Total average liabilities and shareholders' equity $ 820,956
1,618
0.18%
13,527
1.67%
32,925
4.12%
18,061
3.15%
(2,623)
-0.32%
(76)
0.09%
8.89%
63,432
100% $ 711,164
2,119
0.23%
13,367
1.90%
32,000
4.63%
15,563
2.54%
(2,623)
-0.37%
(794)
-0.01%
8.92%
59,632
100% $ 674,809
0.31%
1.98%
4.74%
2.31%
-0.39%
-0.12%
8.83%
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 information presented.
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,
2020
2019
2018
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 fees (costs)
Premises and equipment
OREO
Investment in Capital Trust
BOLI
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
2020 vs 2019
% of
2019 vs 2018
% of
$ 10,372 $ 11,043 $ 10,838 $
29,625
43,591
1,397
33,768
44,642
1,456
23,256
38,372
1,862
(671)
4,143
1,051
59
-6.08% $
13.98%
2.41%
4.22%
205
6,369
5,219
(465)
46,098
697,626
(7,417)
10,614
537
387
4,942
11,574
12,455
1,110
105,718
(1,973)
(359)
349
0
87
0
1,388
$ 820,956 $ 711,164 $ 674,809 $ 109,792
40,234
568,860
(5,176)
9,958
278
387
4,765
11,574
9,835
44,988
591,908
(5,444)
10,973
188
387
4,855
11,574
11,067
2.47%
4,754
17.86%
23,048
36.24%
(268)
-3.27%
1,015
185.64%
(90)
0.00%
0
1.79%
90
0.00%
0
1,232
12.54%
15.44% $ 36,355
1.89%
27.39%
13.60%
-24.97%
11.82%
4.05%
5.18%
10.19%
-32.37%
0.00%
1.89%
0.00%
12.53%
5.39%
$ 162,631 $ 120,689 $ 113,412 $ 41,942
42,064
10,576
15,691
(8,701)
101,572
137,547
91,642
98,154
122,499
563,254
161,887
94,704
96,088
120,937
594,305
203,951
105,280
111,779
112,236
695,877
34.75% $
25.98%
11.17%
16.33%
-7.19%
17.09%
7,277
24,340
3,062
(2,066)
(1,562)
31,051
6.42%
17.70%
3.34%
-2.10%
-1.28%
5.51%
4,930
29,688
12,887
4,592
747,974
1,996
33,546
12,887
4,998
647,732
5,462
30,555
12,887
3,019
615,177
2,934
(3,858)
0
(406)
100,242
146.99%
-11.50%
0.00%
-8.12%
15.48%
(3,466)
2,991
0
1,979
32,555
-63.46%
9.79%
0.00%
65.55%
5.29%
Preferred stock
Common stock
Additional paid-in capital
Retained earnings
Less: Treasury stock
Accumulated other comprehensive income (loss)
(118)
177
892
7,749
0
850
Total average shareholders' equity
9,550
Total average liabilities and shareholders' equity $ 820,956 $ 711,164 $ 674,809 $ 109,792
1,618
13,527
32,925
18,061
(2,623)
(76)
63,432
2,119
13,367
32,000
15,563
(2,623)
(794)
59,632
1,500
13,704
33,817
25,810
(2,623)
774
72,982
2.71%
1.31%
-7.29%
42.90%
(501)
160
925
2,498
0
718
3,800
15.06%
15.44% $ 36,355
0.00%
-1118.42%
-23.64%
1.20%
2.89%
16.05%
0.00%
-90.43%
6.37%
5.39%
(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 information presented.
67
2020 Annual Report
CERTAIN TIME DEPOSITS
Increments of maturity of time CDs of $100,000 or more outstanding on December 31, 2020 are summarized as
follows:
3 months or less
Over 3 through 6 months
Over 6 through 12 months
Over 12 months
RISK MANAGEMENT
$ 15,450,597
14,067,145
11,840,417
19,250,478
$ 60,608,637
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 ongoing low rate environment will continue to generate a negative impact to the
Company’s NII in 2021. With no projection for a rate increase in the coming year, margins will remain challenged.
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, 2020:
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
0.0%
4.2%
Down 100 basis points
Up 200 basis points
-9.5%
6.3%
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, 2020, 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 Conduct Authority (FCA) in the United
Kingdom that administers LIBOR announced that LIBOR will be phased out, with an expected target date of
December 31, 2021 for the phase out. On March 5, 2021, the FCA announced firm target dates for the phase out
of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S. dollar deposits..
Under the terms of the Indenture, if 3-month LIBOR is not available, the Trustee may obtain substitute quotations
from four leading banks in the London interbank market for their offered rate to prime banks in the London market
for U.S. dollar deposits having a three month maturity; if at least two such quotations are provided, the quarterly
rate on the Debentures will be the arithmetic mean of such quotations. If fewer than two such quotations are
received, the Trustee will request substitute quotations from four major New York City banks for their offered rate
to leading European banks for loans in U.S. dollars; if at least two such quotations are provided, the quarterly rate
on the Debentures will be the arithmetic mean of such quotations. 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, but cannot predict the magnitude of the impact on the Company’s interest expense at this time.
Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss
stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations. The Company’s
Board of Directors prescribes policies for managing credit risk, including Loan, Appraisal and Environmental
policies. These policies are supplemented by comprehensive underwriting standards and procedures. The
Company maintains a Credit Administration department whose function includes credit analysis and monitoring
of and reporting on the status of the loan portfolio, including delinquent and non-performing loan trends. The
Company also monitors concentration of credit risk in a variety of areas, including portfolio mix, the level of loans
to individual borrowers and their related interest, loans to industry segments, and the geographic distribution of
CRE loans. Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the
Company’s internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.
Residential mortgages represented 29.4% and 33.2% of the Company’s loan balances at December 31, 2020 and
2019, respectively. The percentage of residential mortgage loans to total loans has been on a gradual decline in
recent years, with a strategic shift to commercial lending. The Company maintains a residential mortgage loan
69
2020 Annual Report
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
18.3% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The
Company also originates some home equity loans greater than 80% under an insured loan program with stringent
underwriting criteria.
Consistent with the strategic focus on commercial lending, the commercial and CRE loan portfolios have seen solid
growth over recent years. Commercial & industrial, CRE and Municipal loans collectively comprised 70.0% of the
Company’s loan portfolio at December 31, 2020, compared to 66.1% at December 31, 2019.
The Municipal loan portfolio consists of tax-exempt obligations of local municipalities, and is made up of three
types of borrowings; term lending, tax anticipation lending, and non-arbitrage borrowing. The portfolio decreased
$1.0 million, or 1.8%, to $54.8 million as of December 31, 2020 compared to $55.8 million at December 31, 2019.
During 2020, term lending increased $5.1 million, or 19.0%, tax anticipation lending increased $3.0 million, from
$215,264 to $3.2 million, and non-arbitrage borrowing decreased $9.1 million, or 31.5%. 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 $280.5 million CRE portfolio at December 31, 2020 were $102.2 million in owner-occupied CRE and $92.8
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 increased the Wall Street Journal Prime index by 225 percentage points to 5.5%, before falling 225
percentage points in total between 2019 and 2020 to 3.25% as of December 31, 2020. The home equity portfolio
and commercial line of credit portfolio have weathered these fluctuations and continue to perform well. Commercial
and industrial term loans are generally written on a fixed rate basis with limited risk associated with rising interest
rates. CRE loans generally have included an initial fixed rate period typically of 5 years, then enter a variable rate
period, usually tied to Wall Street Prime. Approximately $153 million of CRE loans are scheduled to reprice over
the next five years. Rates based on the current Prime Rate Index are not projected to increase significantly over
the near term. Management expects that those loans that may experience rate increases will ultimately refinance
or renegotiate pricing, while the increase may adversely impact the repayment capacity of those CRE loans of
lesser credit quality and 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,
2020
2019
2018
(Dollars in Thousands)
2017
2016
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 (1)
Consumer
Gross loans
Less:
ALL and deferred net
loan fees (costs)
Net loans
$ 29,359 4.14% $ 21,085 3.47% $ 26,826 4.64% $ 21,968 3.98% $ 14,991 2.79%
13,011 2.42%
13,054 2.15%
15,244 2.15%
10,209 1.76%
10,477 1.90%
170,507 24.05% 158,337 26.09% 165,665 28.64% 168,184 30.48% 166,692 31.03%
42,927 7.99%
44,545 7.70%
235,941 33.25% 212,145 34.95% 198,283 34.28% 174,599 31.65% 173,727 32.34%
43,231 7.12%
38,148 5.38%
45,257 8.20%
2,172 0.31%
158,896 22.40%
54,807 7.72%
4,281 0.60%
996 0.19%
67,734 12.61%
49,887 9.29%
7,171 1.34%
709,355 100% 606,989 100% 578,450 100% 551,690 100% 537,136 100%
3,675 0.61%
95,255 15.69%
55,817 9.20%
4,390 0.72%
2,797 0.48%
77,970 13.48%
47,067 8.14%
5,088 0.88%
887 0.16%
76,224 13.82%
48,825 8.85%
5,269 0.96%
(8,404)
(5,564)
(5,238)
(5,120)
(4,968)
$700,951
$601,425
$573,212
$546,570
$532,168
(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 prior period information presented.
The following table shows the estimated maturity of the Company’s commercial loan portfolio as of December 31,
2020.
Fixed Rate Loans
After
2 - 5
Years 5 Years
Within
1 Year
Variable Rate Loans
Total
Within
1 Year
2 - 5
Years 5 Years
After
Total
(Dollars in Thousands)
Real estate
Construction & land
development
Secured by farm land
Commercial real estate
Loans to finance agricultural
production
Commercial & industrial
Municipal
$ 1,844 $ 3,949 $ 2,905 $ 8,698 $ 1,319 $ 1,136 $ 18,206 $ 20,661
14,632
14,103
5,168 205,559 216,548
64
13,571
612
19,393
0
5,821
225
3,259
323
2,563
529
23
2,091
27,761
171
88,791
7,375
1,466
1,660
18,255 109,137
40,440
5,304
342
19,944
0
170
20,909
0
0
8,906
14,367
512
49,759
14,367
$ 34,605 $103,770 $ 41,565 $179,940 $ 27,426 $ 27,912 $261,141 $316,479
71
2020 Annual Report
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, 2020 and 2019, the Company had approximately
$93.4 million and $28.4 million, respectively, in guaranteed loans with guaranteed balances of approximately $86.1
million and $21.0 million, respectively. Included in the totals for 2020 are the PPP loans amounting to $64.4 million,
which carry a 100% SBA guarantee.
The Company works actively with customers early in the delinquency process to help them to avoid default and
foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is
deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/
or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-
accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity
loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The
Company obtains current property appraisals or market value analyses and considers the cost to carry and sell
collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in
non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual
status, the Company reverses the accrued interest against current period income and discontinues the accrual
of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically
demonstrated by regular timely payments for a period of not less than six months. Interest payments received on
non-accrual or impaired loans are generally applied as a reduction of the loan book balance.
During the five year period presented below, the level of non-performing assets increased yearly through 2019
and then decreased during 2020. The 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. The increase
in 2019 was primarily due to a large CRE loan being transferred into the Company’s OREO portfolio, while the
decrease in 2020 was mostly attributable to the decrease in the OREO portfolio due to the sale of the properties
held at 2019 and no new properties transferred during 2020, as a government mandated moratorium on residential
mortgage foreclosures remained in effect in Vermont due to the COVID-19 pandemic throughout the second, third
and fourth quarters of 2020.
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)(2):
Commercial & industrial
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
2020
0
390
99
0
489
434
1,876
2,173
191
4,674
5,163
0
2019
(Dollars in Thousands)
2018
2017
$
0 $
0 $
530
112
0
642
480
1,601
2,112
241
4,434
5,076
967
622
105
2
729
85
1,743
2,027
408
4,263
4,992
201
$
0
1,249
0
1
1,250
99
1,065
1,585
347
3,096
4,346
284
$ 5,163 $ 6,043 $ 5,193 $ 4,630 $
2016
26
1,068
28
2
1,124
143
766
1,227
339
2,475
3,599
394
3,993
Percentage by segment of non-performing loans:
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
8.41%
36.34%
49.64%
5.62%
0.00%
100.00%
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%
Percent of gross loans
Reserve coverage of non-performing assets
0.73%
119.01%
1.00%
98.07%
0.90%
107.87%
0.84%
117.45%
0.74%
132.18%
(1) No CRE or 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.
(2) Loan data 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 – 2016 information
presented.
The Company’s OREO portfolio at December 31, 2019 consisted of one residential and three commercial properties.
These properties were all sold during 2020 and there were no properties transferred to OREO in 2020, resulting in
the balance of $0 at December 31, 2020.
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.
73
2020 Annual Report
The Non-Performing Assets in the table above include the following TDRs that were past due 90 days or more or
in non-accrual status as of the dates presented:
Commercial & industrial
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Total
December 31, 2020
Number of
Loans
Principal
Balance
December 31, 2019
Number of
Loans
Principal
Balance
6 $
4
18
1
270,695
711,816
1,892,695
48,456
29 $ 2,923,663
6 $
4
14
1
331,767
772,894
1,468,415
55,011
25 $ 2,628,085
The remainder of the Company’s TDRs were performing in accordance with their modified terms as of the date
presented and consisted of the following:
December 31, 2020
Number of
Loans
Principal
Balance
December 31, 2019
Number of
Loans
Principal
Balance
Commercial real estate
Residential real estate - 1st lien
Residential real estate - Jr lien
Total
2 $
74,757
2,417,563
4,775
34 $ 2,497,095
31
1
2 $
30
1
106,913
2,459,649
6,101
33 $ 2,572,663
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 5 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 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 5 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,
2020
2019
2017
2018
(Dollars in Thousands)
2016
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
$709,355 $606,989 $578,450 $551,690 $537,136
$695,491 $591,616 $568,511 $549,974 $521,973
$ 4,675 $ 4,434 $ 4,263 $ 3,096 $ 2,475
$ 4,358 $ 4,074 $ 3,887 $ 3,037 $ 2,328
ALL, beginning of year
Loans charged off:
Commercial & industrial
Commercial real estate
Municipal
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Recoveries:
Commercial & industrial
Commercial real estate
Municipal
Residential real estate - 1st lien
Residential real estate - Jr lien
Consumer
Net loans charged off
Provision charged to income
ALL, end of year
$ 5,926 $ 5,602 $ 5,438 $ 5,278 $ 5,012
(39)
(34)
0
(204)
(29)
(74)
(380)
1
20
0
13
6
33
73
(176)
(116)
0
(242)
(223)
(103)
(860)
11
50
0
16
2
39
118
(153)
(124)
0
(252)
(69)
(144)
(742)
60
0
0
27
1
38
126
(20)
(160)
0
(160)
(118)
(124)
(582)
27
0
0
27
1
37
92
(49)
0
0
(244)
0
(16)
(309)
25
0
0
24
0
26
75
(307)
1,589
(234)
500
$ 7,208 $ 5,926 $ 5,602 $ 5,438 $ 5,278
(742)
1,066
(490)
650
(616)
780
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
0.04%
0.13%
0.11%
0.09%
0.04%
0.23%
1.04%
154.19%
0.18%
1.00%
133.65%
0.14%
0.99%
131.41%
0.12%
0.99%
175.65%
0.10%
1.01%
213.25%
165.40%
145.46%
144.12%
179.06%
226.72%
(1) Loan data 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 – 2016 information
presented.
Despite lower net charge-offs during 2016 and sharply lower non-performing loans, the 2016 provision of $500,000
was somewhat consistent with the prior year provision in order to support the strong loan growth during 2016,
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
75
2020 Annual Report
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 adjustments on several loans in workout. The
increase in the 2020 provision was again due to loan growth, as well as adjustments to the qualitative factors used
to estimate the ALL particularly factors related to the economic impact to borrowers from the COVID-19 pandemic.
Further increases in the provision in future periods will be necessary if economic conditions and credit quality
continue to deteriorate due to the impacts of the COVID-19 pandemic, or other factors. 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 $7.2 million at December 31, 2020 is sufficient
to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of
$398,913. Management believes the reserve balance and unallocated amount continue to be directionally
consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. The portion of the
ALL termed “unallocated” is established to absorb inherent losses that exist as of the measurement date although
not specifically identified through management’s process for estimating credit losses. While the ALL is described
as consisting of separate allocated portions, the entire ALL is available to support loan losses, regardless of
category. Unallocated reserves are considered by management to be appropriate in light of the unknown impact
to borrowers due to COVID-19, the Company’s continued growth strategy and shift in the portfolio from residential
loans to commercial and industrial and CRE loans and the risk associated with the relatively new, unseasoned
loans in those portfolios. The adequacy of the ALL is reviewed quarterly by the risk management committee of the
Board and then presented to the full Board for approval.
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,
2020
%
2019
2018
%
(Dollars in Thousands)
%
2017
%
2016
%
Domestic
Commercial & industrial
Commercial real estate
Municipal (1)
Residential real estate
1st lien
Jr lien
Consumer
Unallocated
$
843 23% $
837 16% $
3,854 39%
8%
82
3,181 41%
9%
0
697 14% $ 676 14% $ 726 13%
2,496 38%
2,674 38%
9%
0
9%
3,020 41%
8%
0
0
1,735 24%
5%
1%
0%
1,370 31%
8%
1%
0%
$ 7,208 100% $ 5,926 100% $ 5,602 100% $ 5,438 100% $ 5,278 100%
1,461 30%
8%
1%
0%
1,422 28%
8%
1%
0%
1,388 26%
7%
1%
0%
235
60
399
290
52
178
273
57
133
317
43
267
371
84
231
(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 – 2016 information
presented.
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,
76
Community Bancorp.
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.
INVESTMENT SECURITIES
The Company maintains an investment portfolio of various securities to diversify its revenue sources, as well as
to provide interest rate risk and credit risk diversification and to provide for its liquidity and funding needs. The
Company’s portfolio of AFS debt securities increased throughout the reporting periods as deposit growth exceeded
loan growth and the Company sought ways to invest the excess cash on hand.
Accounting standards require banks to recognize all appreciation or depreciation of investments classified as
either trading securities or AFS, either through the income statement or on the balance sheet even though a gain
or loss has not been realized. Securities classified as trading securities are marked to market with any gain or
loss net of tax effect, charged to income. The Company’s investment policy does not permit the holding of trading
securities. Debt securities classified as HTM are recorded at book value, subject to adjustment for OTTI. 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,
2020, 2019 or 2018.
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 $915,348 in 2020 and $260,483 in 2019, compared to accumulated unrealized
loss net of taxes of $647,584 in 2018. 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, 2020, 2019 and 2018, the Company held $588,150 in FRBB stock and $768,400, $753,700 and $1.1 million,
respectively, in FHLBB stock.
In addition, as disclosed in Note 4 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 2020, there were 14 call features exercised by the
issuer, compared to 10 call features in 2019 and no calls exercised during 2018.
77
2020 Annual Report
The Company’s debt securities AFS 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, 2020
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Restricted Equity Securities (1)
Total
December 31, 2019
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Restricted Equity Securities (1)
Total
December 31, 2018
U.S. GSE debt securities
Agency MBS
ABS and OAS
Other investments
Restricted Equity Securities (1)
Total
$
$
$
$
8,007
40,861
2,509
8,169
59,546
1,447
60,993
$
$
$
$
166
548
161
318
1,193
0
1,193
$
$
$
$
3
31
0
0
34
0
34
$
$
$
$
8,170
41,378
2,670
8,487
60,705
1,447
62,152
Amortized Unrealized
Gross
Gross
Unrealized
Losses
Gains
(Dollars in Thousands)
Cost
Fair
Value
$
$
$
$
18,003
16,169
2,800
8,665
45,637
1,432
47,069
$
$
$
$
100
87
55
182
424
0
424
$
$
$
$
41
51
2
0
94
0
94
$
$
$
$
18,062
16,205
2,853
8,847
45,967
1,432
47,399
Amortized Unrealized
Gross
Gross
Unrealized
Losses
Gains
(Dollars in Thousands)
Cost
Fair
Value
$
$
$
$
14,010
16,021
1,988
8,167
40,186
1,749
41,935
$
$
$
$
$
$
0
3
4
8
15
0
$
$
259
449
6
120
834
$0
13,751
15,575
1,986
8,055
39,367
$1,749
15
$
834
$ 41,116
(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 2020, 2019 and
2018.
2020
Realized gains
2019
2018
2020
Realized losses
2019
2018
U.S. GSE debt securities
Agency MBS
Total
$
$
0 $
39,086
39,086 $
0 $
1,570
1,570 $
0 $
0
0 $
7,200 $
0 $
0
0 $ 28,060 $
20,860
32,718
0
32,718
The following is an analysis of the maturities and yields of the debt securities AFS 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)
2020
2019
2018
Weighted
Average
Yield
Fair
Value
Fair
Value
Weighted
Average
Yield
Fair
Value
Weighted
Average
Yield
(Dollars in Thousands)
$
0
0
7,132
1,038
$ 8,170
0.00% $ 2,020
2,007
0.00%
12,049
2.28%
2.41%
1,986
2.29% $ 18,062
0
1.81% $
4,944
2.25%
8,807
2.81%
2.70%
0
2.63% $ 13,751
0.00%
1.69%
2.84%
0.00%
2.42%
$ 2,670
2.89% $ 2,853
2.94% $ 1,986
3.33%
$ 2,248
6,239
0
$ 8,487
746
2.18% $
7,856
2.74%
245
0.00%
2.59% $ 8,847
0
2.03% $
7,575
2.72%
480
2.50%
2.65% $ 8,055
0.00%
2.63%
2.50%
2.62%
$ 41,378
1.69% $ 16,205
2.55% $ 15,575
2.33%
$
$
$
588
6.00% $
588
6.00% $
588
6.00%
769
4.13% $
754
6.04% $ 1,071
5.92%
90
0.22% $
90
1.16% $
90
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 difference in the yields between 2020 and
2019 and the absence in yield for 2018.
79
2020 Annual Report
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 2020, 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 18 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.
As the economy improved, 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 U.S. economy was in a good
position early in 2020, however was dramatically altered with the onset of the COVID-19 pandemic. In response,
the FOMC quickly lowered the target range for the federal funds rate by 1.5%, dropping it to near zero, where they
remain today. The core inflation rate for January 2021 was reported at 1.4%, year over year.
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.
LIQUIDITY AND CAPITAL RESOURCES
Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity
management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting
loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity
management process. The Company’s principal sources of funds are deposits, amortization and prepayment of
loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds
provided from operations. Maintaining a relatively stable funding base, which is achieved by diversifying funding
sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the
Company’s exposure to roll over risk on deposits and limits reliance on volatile short-term borrowed funds. Short-
term funding needs arise from declines in deposits or other funding sources and funding requirements for loan
commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that
provide a sizable source of relatively stable and low-cost funds.
The Company recognizes that, at times, when loan demand exceeds deposit growth or the Company has other
liquidity demands, it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and
borrowings. One-way deposits acquired through the CDARS program provide an alternative funding source when
needed. The Company had no one-way CDARS outstanding at December 31, 2020, compared to $4.0 million at
December 31, 2019. In addition, two-way (that is, reciprocal) CDARS deposits, as well as reciprocal ICS money
80
Community Bancorp.
market and demand deposits, allow the Company to provide FDIC deposit insurance to its customers in excess
of account coverage limits by exchanging deposits with other participating FDIC-insured financial institutions. At
December 31, 2020 and 2019, the Company reported $4.9 million and $6.8 million, respectively, in reciprocal
CDARS deposits. The balance in ICS reciprocal money market deposits was $23.1 million and $22.6 million at
December 31, 2020 and 2019, respectively, and the balance in ICS reciprocal demand deposits as of those dates
was $53.1 million and $39.7 million, respectively.
During 2019 and into 2020, 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. At December 31, 2018, the Company had 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, with a maturity of January 2020. Upon maturity in January 2020, this block was not replaced.
In July, 2020, the Company purchased three blocks with maturities in October 2020, January 2021 and April
2021, leaving two blocks totaling $3.8 million outstanding at December 31, 2020. Additionally, the Company had
brokered deposits from another source totaling approximately $449,000 and $1.0 million at December 31, 2020
and 2019, 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 $4.2
million and $11.1 million of brokered CDs outstanding at December 31, 2020 and December 31, 2019, respectively.
At December 31, 2020 and 2019, gross borrowing capacity of approximately $93.1 million and $97.4 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, 2020 or 2019. 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 ($93.1 million and $97.4 million at December 31, 2020 and 2019, 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, 2020 and 2019, approximately $23.5 million and $14.4 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 $46,748 for 2020 and $41,069 for 2019.
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 $50.4 million and $56.9 million, respectively, at December 31, 2020
and 2019. 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 25 basis points at December 31, 2020.
At December 31, 2020 and 2019, 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 $25.5 million at December 31, 2020 and 2019. The Company had no outstanding advances against
these lines for the periods presented.
Securities sold under agreements to repurchase amounted to $38.7 million, $33.2 million and $30.5 million as of
December 31, 2020, 2019 and 2018, respectively. The average daily balance of these repurchase agreements was
$29.7 million, $33.5 million and $30.6 million during 2020, 2019, and 2018, respectively. The maximum borrowings
outstanding on these agreements at any month-end reporting period of the Company were $38.7 million, $38.9
million and $32.9 million during 2020, 2019 and 2018, respectively. These repurchase agreements mature daily
and carried a weighted average interest rate of 0.86% during 2020, 0.89% during 2019 and 0.63% during 2018.
81
2020 Annual Report
The following table illustrates the changes in shareholders’ equity from December 31, 2019 to December 31, 2020:
Balance at December 31, 2019 (book value $12.86 per common share)
Net income
Issuance of stock through the DRIP
Dividends declared on common stock
Dividends declared on preferred stock
Change in AOCI on AFS securities, net of tax
Balance at December 31, 2020 (book value $14.25 per common share)
$ 68,894,679
10,758,502
1,039,072
(4,004,030)
(54,375)
654,865
$ 77,288,713
The primary objective of the Company’s capital planning process is to balance appropriately the retention of
capital to support operations and future growth, with the goal of providing shareholders an attractive return on their
investment. To that end, management monitors capital retention and dividend policies on an ongoing basis.
In December, 2020, the Company’s Board of Directors declared a $0.19 per common share cash dividend, payable
February 1, 2021 to shareholders of record as of January 15, 2021, requiring the Company to accrue a liability of
$1,006,626 for this dividend in the fourth quarter of 2020. In March, 2021, the Board of the Company approved a
cash dividend of $0.22 per common share, payable on May 1, 2021 to shareholders of record as of April 15, 2021.
The declaration of this dividend required the Company to accrue a liability of $1,169,555 in the first quarter of 2021.
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 23 to the accompanying audited consolidated financial statements.)
82
Community Bancorp.
Common Stock Performance by Quarter*
2020
2019
Trade Price
High
Low
Bid Price
High
Low
Cash Dividends
Declared
First
Second
Fourth
$ 16.39 $ 14.00 $ 14.24 $ 15.76 $ 17.20 $ 17.95 $ 17.00 $ 17.90
9.55 $ 10.40 $ 12.60 $ 13.00 $ 15.94 $ 16.34 $ 15.07 $ 15.15
$
Second
Fourth
Third
Third
First
2020
2019
First
Second
Fourth
$ 16.30 $ 13.99 $ 13.50 $ 15.40 $ 17.20 $ 17.40 $ 16.88 $ 17.00
9.55 $ 11.25 $ 12.50 $ 13.15 $ 16.12 $ 16.34 $ 15.14 $ 15.40
$
Second
Fourth
Third
Third
First
$
0.19 $
0.19 $ 0.19 $ 0.19 $
0.19 $ 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, 2021, there were 5,316,160 shares of the Corporation’s common stock ($2.50 par value)
outstanding, owned by 822 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 2021 Annual Shareholders’ Meeting, will be a Virtual Annual Meeting to be held on May 18, 2021, at 2:00 PM
due to mandated COVID-19 response measures.
83
2020 Annual Report
Notes
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Board of Directors
Community Bancorp. and
Community National Bank
Thomas E. Adams, Owner, NPC Realty Co., Inc.
Kathryn M. Austin, President and Chief Executive Officer,
Community Bancorp. and Community National Bank
Bruce Baker, Founding Member and Principal, Clarke
Demas & Baker PLLC.
David Bouffard, Former Co-Owner, Derby Village Store
Aminta K. Conant, Part Owner and Special Projects Manager,
Caledonia Spirits, Inc. / Barr Hill
Michelle Cleveland, Price Chopper Office Manager
Mark S. Clough, Vice President and Commercial Loan Officer
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, Barre and Montpelier Offices Manager
Janet C. Gratton, Electronic Banking Officer
Laurie Gray, Information Security Officer
William Hamilton, Vice President and Commercial Loan Officer
Jacques R. Couture, Owner, Dairy Farm/Maple Products
Regan Howard, Vice President and Commercial Loan Officer
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
Emma L. Marvin, Owner, Butternut Mountain Farm
Dorothy R. Mitchell, Board Chair, Vermont Student Assistance
Corporation
Jeffrey L. Moore, President and Owner, Quest Industries, Inc.
Fredric Oeschger, President and Principal, Fred’s Energy, Inc.
and D&C Transportation, Inc.
James G. Wheeler, Jr., Attorney and Principal, Downs Rachlin
Martin, PLLC.
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
Sylvia Jean Brewster, Systems Administrator
Timothy B. Bronson, Senior Vice President and Senior Lender
Theresa P. Carpenter, Assistant Vice President and Retail Loan
Underwriting Officer
Sarah Chadburn, Portfolio Manager
Jane P. Clark, Vice President, Deposit Operations and Training
Director
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
Shelly Morey, Community Circle Director
Theresa B. Morin, Vice President, Senior Loan Operations
Officer
Candace A. Patenaude, Financial Officer and Controller
Kelly A. Paul, Vice President, Compliance, BSA and Security
Officer, Enterprise Risk Manager and Audit Committee Liaison
Amanda Pepin, Credit Administration Officer
Kimico Perry, Vice President, Human Resources
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, Assistant Vice President and Commercial Loan
Officer
Lori Wells, Barton Office Manager
4811 US Route 5 • Newport, Vermont 05855
(802) 334-7915
TRADING SYMBOL: CMTV
(tradedonthe OTCQX)
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:
99 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 VT Route 101
Troy, Vermont 05868
(802) 744-2287
tellers-troy@communitynationalbank.com