Community Bancorp 10-Q for FY2020 Q3

Community Bancorp (CMTV)

10-Q 2020-11-09 For: 2020-09-30

Added on April 11, 2026

About this 10-Q

Community Bancorp filed this 10-Q on November 9, 2020, covering the quarter ended September 30, 2020 (FY2020 Q3).

Headline figures

Quarter ended September 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Net income: $2.88M; up 27.3% from net income of $2.26M a year earlier

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Vermont		03-0284070
(State of Incorporation)		(IRS Employer Identification Number)

4811 US Route 5, Derby, VT		05829
(Address of Principal Executive Offices)		(zip code)

Registrant's Telephone Number: (802) 334-7915

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

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

FORM 10-Q
Index
		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements	3
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3	Quantitative and Qualitative Disclosures About Market Risk	55
Item 4	Controls and Procedures	55

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	56
Item 1A	Risk Factors	56
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6	Exhibits	59
	Signatures	60
	Exhibit Index	61

Community Bancorp. and Subsidiary	September 30,			December 31,
Consolidated Balance Sheets	2020			2019
	(Unaudited)

Assets
Cash and due from banks	$	11,765,205		$	10,263,535
Federal funds sold and overnight deposits		39,735,821			38,298,677
Total cash and cash equivalents		51,501,026			48,562,212
Securities available-for-sale		45,187,971			45,966,750
Restricted equity securities, at cost		1,412,850			1,431,850
Loans held-for-sale		1,243,739			0
Loans		738,247,772			606,988,937
Allowance for loan losses		(6,788,108	)		(5,926,491	)
Deferred net loan (fees) costs		(2,253,038	)		362,415
Net loans		729,206,626			601,424,861
Bank premises and equipment, net		10,340,761			10,959,403
Accrued interest receivable		3,210,191			2,336,553
Bank owned life insurance		4,965,520			4,903,012
Goodwill		11,574,269			11,574,269
Other real estate owned		0			966,738
Other assets		10,210,139			9,829,671
Total assets	$	868,853,092		$	737,955,319

Liabilities and Shareholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing	$	183,583,813		$	125,089,403
Interest-bearing transaction accounts		217,659,947			185,102,333
Money market funds		106,051,718			91,463,661
Savings		119,973,153			97,167,652
Time deposits, $250,000 and over		16,339,635			14,565,559
Other time deposits		99,410,788			101,632,760
Total deposits		743,019,054			615,021,368
Borrowed funds		2,800,000			2,650,000
Repurchase agreements		30,597,648			33,189,848
Junior subordinated debentures		12,887,000			12,887,000
Accrued interest and other liabilities		4,619,085			5,312,424
Total liabilities		793,922,787			669,060,640

Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 09/30/20 and 12/31/19 ($100,000 liquidation value, per share)		1,500,000			1,500,000
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,510,312 shares issued at 09/30/20 and5,449,857 shares issued at 12/31/19		13,775,780			13,624,643
Additional paid-in capital		34,093,154			33,464,381
Retained earnings		27,212,350			22,667,949
Accumulated other comprehensive income		971,798			260,483
Less: treasury stock, at cost; 210,101 shares at 09/30/20 and 12/31/19		(2,622,777	)		(2,622,777	)
Total shareholders' equity		74,930,305			68,894,679
Total liabilities and shareholders' equity	$	868,853,092		$	737,955,319

Book value per common share outstanding	$	13.85		$	12.86

Community Bancorp. and Subsidiary	Three Months Ended September 30,
Consolidated Statements of Income	2020		2019
(Unaudited)

Interest income
Interest and fees on loans	$	7,742,914	$	7,452,084
Interest on taxable debt securities		249,341		302,063
Dividends		17,715		24,301
Interest on federal funds sold and overnight deposits		76,896		128,006
Total interest income		8,086,866		7,906,454

Interest expense
Interest on deposits		877,466		1,256,864
Interest on borrowed funds		1,806		6,304
Interest on repurchase agreements		67,327		74,510
Interest on junior subordinated debentures		104,181		171,355
Total interest expense		1,050,780		1,509,033

Net interest income		7,036,086		6,397,421
Provision for loan losses		362,499		412,499
Net interest income after provision for loan losses		6,673,587		5,984,922

Non-interest income
Service fees		794,381		867,688
Income from sold loans		601,825		203,175
Other income from loans		281,959		235,883
Net realized gain on sale of securities AFS		0		331
Other income		263,130		290,255
Total non-interest income		1,941,295		1,597,332

Non-interest expense
Salaries and wages		1,958,754		1,817,931
Employee benefits		791,172		785,187
Occupancy expenses, net		601,093		606,629
Other expenses		1,753,698		1,653,969
Total non-interest expense		5,104,717		4,863,716

Income before income taxes		3,510,165		2,718,538
Income tax expense		629,722		456,595
Net income	$	2,880,443	$	2,261,943

Earnings per common share	$	0.54	$	0.43
Weighted average number of common shares
used in computing earnings per share		5,285,771		5,212,162
Dividends declared per common share	$	0.19	$	0.19

Community Bancorp. and Subsidiary	Nine Months Ended September 30,
Consolidated Statements of Income	2020		2019
(Unaudited)

Interest income
Interest and fees on loans	$	22,951,272	$	22,491,903
Interest on taxable debt securities		787,275		820,197
Dividends		63,540		77,048
Interest on federal funds sold and overnight deposits		248,373		478,097
Total interest income		24,050,460		23,867,245

Interest expense
Interest on deposits		3,154,211		3,820,084
Interest on borrowed funds		18,335		21,310
Interest on repurchase agreements		185,868		220,411
Interest on junior subordinated debentures		375,669		532,722
Total interest expense		3,734,083		4,594,527

Net interest income		20,316,377		19,272,718
Provision for loan losses		1,046,501		766,668
Net interest income after provision for loan losses		19,269,876		18,506,050

Non-interest income
Service fees		2,322,112		2,478,711
Income from sold loans		1,138,579		434,951
Other income from loans		803,555		598,136
Net realized gain on sale of securities AFS		39,086		331
Other income		753,772		838,041
Total non-interest income		5,057,104		4,350,170

Non-interest expense
Salaries and wages		5,773,491		5,453,791
Employee benefits		2,324,055		2,367,866
Occupancy expenses, net		1,921,597		1,939,742
Other expenses		5,166,247		5,337,301
Total non-interest expense		15,185,390		15,098,700

Income before income taxes		9,141,590		7,757,520
Income tax expense		1,557,598		1,304,374
Net income	$	7,583,992	$	6,453,146

Earnings per common share	$	1.43	$	1.23
Weighted average number of common shares
used in computing earnings per share		5,264,802		5,196,630
Dividends declared per common share	$	0.57	$	0.57

Community Bancorp. and Subsidiary
Consolidated Statements of Comprehensive Income
(Unaudited)	Three Months Ended September 30,
	2020			2019

Net income	$	2,880,443		$	2,261,943

Other comprehensive income, net of tax:
Unrealized holding (loss) gain on securities AFS arising during the period		(49,737	)		199,767
Reclassification adjustment for gain realized in income		0			(331	)
Unrealized (loss) gain during the period		(49,737	)		199,436
Tax effect		10,444			(41,881	)
Other comprehensive (loss) income, net of tax		(39,293	)		157,555
Total comprehensive income	$	2,841,150		$	2,419,498

	Nine Months Ended September 30, 2020
					Additional											Total
	Common		Preferred		paid-in		Retained						Treasury			shareholders'
	Stock		Stock		capital		earnings			AOCI*			stock			equity

Balance As At December 31, 2020	$	13,624,643	$	1,500,000	$	33,464,381	$	22,667,949		$	260,483		$	(2,622,777	)	$	68,894,679

Issuance of common stock		40,465				213,812											254,277
Cash dividends declared Common stock								(995,536	)								(995,536	)
Cash dividends declared Preferred stock								(17,813	)								(17,813	)
Net income								1,861,239									1,861,239
Other comprehensive income											586,646						586,646

Balance As At March 31, 2020	$	13,665,108	$	1,500,000	$	33,678,193	$	23,515,839		$	847,129		$	(2,622,777	)	$	70,583,492

Issuance of common stock		47,752				214,135											261,887
Cash dividends declared Common stock								(998,899	)								(998,899	)
Cash dividends declared Preferred stock								(12,187	)								(12,187	)
Net income								2,842,311									2,842,311
Other comprehensive income											163,962						163,962

Balance As At June 30, 2020	$	13,712,860	$	1,500,000	$	33,892,328	$	25,347,064		$	1,011,091		$	(2,622,777	)	$	72,840,566

Issuance of common stock		62,920				200,826											263,746
Cash dividends declared Common stock								(1,002,969	)								(1,002,969	)
Cash dividends declared Preferred stock								(12,188	)								(12,188	)
Net income								2,880,443									2,880,443
Other comprehensive loss											(39,293	)					(39,293	)

Balance As At September 30, 2020	$	13,775,780	$	1,500,000	$	34,093,154	$	27,212,350		$	971,798		$	(2,622,777	)	$	74,930,305

	Nine Months Ended September 30, 2019
						Additional											Total
	Common		Preferred			paid-in		Retained						Treasury			shareholders'
	Stock		Stock			capital		earnings			AOCI*			stock			equity

Balance As At December 31, 2018	$	13,455,258	$	2,000,000		$	32,536,532	$	17,882,282		$	(647,584	)	$	(2,622,777	)	$	62,603,711

Issuance of common stock		49,415					263,611											313,026
Cash dividends declared Common stock									(983,122	)								(983,122	)
Cash dividends declared Preferred stock									(27,500	)								(27,500	)
Redemption of preferred stock				(500,000	)													(500,000	)
Net income									1,771,905									1,771,905
Other comprehensive income												451,690						451,690

Balance As At March 31, 2019	$	13,504,673	$	1,500,000		$	32,800,143	$	18,643,565		$	(195,894	)	($2,622,777)			$	63,629,710

Issuance of common stock		41,825					234,664											276,489
Cash dividends declared Common stock									(986,368	)								(986,368	)
Cash dividends declared Preferred stock									(20,625	)								(20,625	)
Net income									2,419,298									2,419,298
Other comprehensive income												353,470						353,470

Balance As At June 30, 2019	$	13,546,498	$	1,500,000		$	33,034,807	$	20,055,870		$	157,576		($2,622,777)			$	65,671,974

Issuance of common stock		35,525					204,257											239,782
Cash dividends declared Common stock									(989,341	)								(989,341	)
Cash dividends declared Preferred stock									(20,625	)								(20,625	)
Net income									2,261,943									2,261,943
Other comprehensive income												157,555						157,555

Balance As At September 30, 2019	$	13,582,023	$	1,500,000		$	33,239,064	$	21,307,847		$	315,131		($2,622,777)			$	67,321,288

Community Bancorp. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Nine Months Ended September 30,
	2020			2019

Cash Flows from Operating Activities:
Net income	$	7,583,992		$	6,453,146
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization, bank premises and equipment		677,086			689,813
Provision for loan losses		1,046,501			766,668
Deferred income tax		(128,103	)		56,925
Net realized gain on sale of securities AFS		(39,086	)		(331	)
Gain on sale of loans		(766,440	)		(158,201	)
(Gain) loss on sale of OREO		(55,602	)		817
Income from CFS Partners		(462,964	)		(482,185	)
Amortization of bond premium, net		55,568			81,354
Write-down of OREO		0			95,008
Proceeds from sales of loans held for sale		31,538,375			6,169,639
Originations of loans held for sale		(32,015,674	)		(7,333,776	)
Decrease in taxes payable		(145,105	)		(96,632	)
(Increase) decrease in interest receivable		(873,638	)		138,942
(Increase) decrease in mortgage servicing rights		(31,463	)		83,833
Decrease in right-of-use assets		182,475			176,361
Decrease in operating lease liabilities		(180,657	)		(169,761	)
(Increase) decrease in other assets		(54,430	)		279,923
Increase in cash surrender value of BOLI		(62,508	)		(66,714	)
Amortization of limited partnerships		252,513			234,081
Change in net deferred loan fees and costs		2,615,453			3,224
(Decrease) increase in interest payable		(34,364	)		33,148
(Decrease) increase in accrued expenses		(53,918	)		158,337
Decrease in other liabilities		(103,646	)		(89,035	)
Net cash provided by operating activities		8,944,365			7,024,584

Cash Flows from Investing Activities:
Investments - AFS
Maturities, calls, pay downs and sales		14,407,740			12,124,796
Purchases		(12,745,042	)		(14,199,656	)
Proceeds from redemption of restricted equity securities		522,400			493,600
Purchases of restricted equity securities		(503,400	)		(124,000	)
Decrease in limited partnership contributions payable		(288,000	)		0
Increase in loans, net		(131,508,927	)		(26,271,976	)
Capital expenditures net of proceeds from sales of bank premises and equipment		(240,919	)		(590,468	)
Proceeds from sales of OREO		1,022,340			105,561
Recoveries of loans charged off		65,208			56,190
Net cash used in investing activities		(129,268,600	)		(28,405,953	)
Cash Flows from Financing Activities:
Net increase (decrease) in demand and interest-bearing transaction accounts		91,052,024			(4,582,231	)
Net increase in money market and savings accounts		37,393,558			16,158,069
Net decrease in time deposits		(447,896	)		(14,005,155	)
Net (decrease) increase in repurchase agreements		(2,592,200	)		5,248,366
Proceeds from long-term borrowings		150,000			0
Decrease in finance lease obligations		(45,814	)		(92,614	)
Redemption of preferred stock		0			(500,000	)
Dividends paid on preferred stock		(42,188	)		(68,750	)
Dividends paid on common stock		(2,204,435	)		(2,112,571	)
Net cash provided by financing activities		123,263,049			45,114

Net increase (decrease) in cash and cash equivalents		2,938,814			(21,336,255	)
Cash and cash equivalents:
Beginning		48,562,212			67,934,815
Ending	$	51,501,026		$	46,598,560

Supplemental Schedule of Cash Paid During the Period:
Interest	$	3,768,447		$	4,561,379

Income taxes, net of refunds	$	1,578,293		$	1,110,000

Supplemental Schedule of Noncash Investing and Financing Activities:
Change in unrealized gain on securities AFS	$	900,400		$	1,218,627

Loans transferred to OREO	$	0		$	73,448

Common Shares Dividends Paid:
Dividends declared	$	2,997,403		$	2,958,831
Increase in dividends payable attributable to dividends declared		(13,058	)		(16,963	)
Dividends reinvested		(779,910	)		(829,297	)
	$	2,204,435		$	2,112,571

ABS:	Asset backed security	FDIC:	Federal Deposit Insurance Corporation
ACBB:	Atlantic Community Bankers Bank	FHLBB:	Federal Home Loan Bank of Boston
AFS:	Available-for-sale	FHLMC:	Federal Home Loan Mortgage Corporation
Agency MBS:	MBS issued by a US government agency	FOMC:	Federal Open Market Committee
	or GSE	FRB:	Federal Reserve Board
ALCO:	Asset Liability Committee	FRBB:	Federal Reserve Bank of Boston
ALL:	Allowance for loan losses	GAAP:	Generally Accepted Accounting Principles
AOCI:	Accumulated other comprehensive income		in the United States
ASC:	Accounting Standards Codification	GSE:	Government sponsored enterprise
ASU:	Accounting Standards Update	HTM:	Held-to-maturity
ATS:	Automatic transfer service	ICS:	Insured Cash Sweeps of the Promontory
Bancorp:	Community Bancorp.		Interfinancial Network
Bank:	Community National Bank	IRS:	Internal Revenue Service
BHG	Bankers Healthcare Group	JNE:	Jobs for New England
BIC:	Borrower-in-Custody	Jr:	Junior
Board:	Board of Directors	MBS:	Mortgage-backed security
BOLI:	Bank owned life insurance	MPF:	Mortgage Partnership Finance
bp or bps:	Basis point(s)	MSRs:	Mortgage servicing rights
CARES ACT:	Coronavirus Aid Relief and Economic	NII:	Net interest income
	Security Act	NMTC:	New Market Tax Credits
CBLR:	Community Bank Leverage Ratio	OAS:	Other amortizing security
CDARS:	Certificate of Deposit Accounts Registry	OCI:	Other comprehensive income (loss)
	Service of the Promontory Interfinancial	OREO:	Other real estate owned
	Network	OTTI:	Other-than-temporary impairment
CDs:	Certificates of deposit	PMI:	Private mortgage insurance
CDI:	Core deposit intangible	PPP:	Paycheck Protection Program
CECL:	Current Expected Credit Loss	PPPLF:	PPP Liquidity Facility of the FRBB
CFSG:	Community Financial Services Group, LLC	RD:	USDA Rural Development
CFS Partners:	Community Financial Services Partners,	SBA:	U.S. Small Business Administration
	LLC	SEC:	U.S. Securities and Exchange Commission
Company:	Community Bancorp. and Subsidiary	SERP:	Supplemental Employee Retirement Plan
COVID-19:	Coronavirus Disease 2019	TDR:	Troubled-debt restructuring
CRE:	Commercial Real Estate	USDA:	U.S. Department of Agriculture
DDA or DDAs:	Demand Deposit Account(s)	VA:	U.S. Veterans Administration
DTC:	Depository Trust Company	2017 Tax Act:	Tax Cut and Jobs Act of 2017
DRIP:	Dividend Reinvestment Plan	2018	Economic Growth, Regulatory Relief and
Exchange Act:	Securities Exchange Act of 1934	Regulatory	Consumer Protection Act of 2018
FASB:	Financial Accounting Standards Board	Relief Act:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value

September 30, 2020
U.S. GSE debt securities	$	10,002,586	$	201,114	$	0	$	10,203,700
Agency MBS		21,298,090		547,242		36,044		21,809,288
ABS and OAS		2,509,172		147,847		0		2,657,019
Other investments		10,148,000		369,964		0		10,517,964
Total	$	43,957,848	$	1,266,167	$	36,044	$	45,187,971

December 31, 2019
U.S. GSE debt securities	$	18,002,549	$	99,743	$	40,672	$	18,061,620
Agency MBS		16,169,819		86,874		51,318		16,205,375
ABS and OAS		2,799,657		55,418		2,166		2,852,909
Other investments		8,665,000		181,846		0		8,846,846
Total	$	45,637,025	$	423,881	$	94,156	$	45,966,750

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Number of		Fair		Unrealized
	Value		Loss		Value		Loss		Securities		Value		Loss
September 30, 2020
Agency MBS	$	1,998,026	$	25,301	$	1,751,166	$	10,743		8	$	3,749,192	$	36,044

December 31, 2019
U.S. GSE debt securities	$	7,964,192	$	40,672	$	0	$	0		7	$	7,964,192	$	40,672
Agency MBS		5,273,683		24,648		2,920,091		26,670		13		8,193,774		51,318
ABS and OAS		1,000,490		2,166		0		0		1		1,000,490		2,166
Total	$	14,238,365	$	67,486	$	2,920,091	$	26,670		21	$	17,158,456	$	94,156

			90 Days		Total						Non-Accrual		90 Days or More and
September 30, 2020	30-89 Days		or More		Past Due		Current		Total Loans		Loans		Accruing

Commercial & industrial	$	311,106	$	8,559	$	319,665	$	197,317,548	$	197,637,213	$	402,287	$	8,559
Commercial real estate		227,285		604,522		831,807		279,664,100		280,495,907		1,735,572		0
Municipal		0		0		0		52,332,802		52,332,802		0		0
Residential real estate
1st lien		439,313		1,133,026		1,572,339		163,432,406		165,004,745		2,243,632		741,610
Jr lien		47,007		157,496		204,503		38,399,493		38,603,996		217,844		74,900
Consumer		24,215		0		24,215		4,148,894		4,173,109		0		0
Totals	$	1,048,926	$	1,903,603	$	2,952,529	$	735,295,243	$	738,247,772	$	4,599,335	$	825,069

	Amortized		Fair
	Cost		Value
September 30, 2020
Due in one year or less	$	4,709,546	$	4,735,438
Due from one to five years		7,438,000		7,785,822
Due from five to ten years		9,506,876		9,809,923
Due after ten years		1,005,336		1,047,500
Agency MBS		21,298,090		21,809,288
Total	$	43,957,848	$	45,187,971

December 31, 2019
Due in one year or less	$	2,760,515	$	2,766,254
Due from one to five years		9,674,948		9,862,450
Due from five to ten years		15,042,170		15,147,201
Due after ten years		1,989,573		1,985,470
Agency MBS		16,169,819		16,205,375
Total	$	45,637,025	$	45,966,750

	Number of loans		Balance

September 30, 2020		7	$	356,070
December 31, 2019		9		495,943

									Residential			Residential
	Commercial			Commercial					Real Estate			Real Estate
	& Industrial			Real Estate			Municipal		1st Lien			Jr Lien		Consumer			Unallocated			Total

ALL beginning balance	$	886,546		$	3,406,502		$	0	$	1,511,897		$	319,749	$	48,653		$	342,337		$	6,515,684
Charge-offs		(34,565	)		(2,200	)		0		(56,500	)		0		(7,560	)		0			(100,825	)
Recoveries		0			0			0		4,742			533		5,475			0			10,750
Provision (credit)		90,770			222,268			41,866		36,383			6,434		8,709			(43,931	)		362,499
ALL ending balance	$	942,751		$	3,626,570		$	41,866	$	1,496,522		$	326,716	$	55,277		$	298,406		$	6,788,108

	As of September 30, 2020
			Unpaid				Average		Average		Interest
	Recorded		Principal		Related		Recorded		Recorded		Income
	Investment(1)		Balance		Allowance		Investment(1)(2)		Investment(1)(3)		Recognised(3)

Related allowance recorded
Residential real estate
1st lien	$	1,166,549	$	1,207,778	$	111,435	$	1,015,521	$	969,485	$	81,313
Jr lien		5,083		5,079		361		5,249		5,576		415
Total with related allowance		1,171,632		1,212,857		111,796		1,020,770		975,061		81,728

No related allowance recorded
Commercial & industrial		374,558		410,356				379,147		392,854		4,077
Commercial real estate		1,823,015		2,213,788				1,718,560		1,697,035		10,989
Residential real estate
1st lien		3,592,591		4,378,079				3,911,876		3,818,241		148,099
Jr lien		142,829		180,016				114,830		172,117		0
Total with no related allowance		5,932,993		7,182,239				6,124,413		6,080,247		163,165

Total impaired loans	$	7,104,625	$	8,395,096	$	111,796	$	7,145,183	$	7,055,308	$	244,893

1)	Recorded investment in impaired loans as of September 30, 2020 includes accrued interest receivable and deferred net loan costs of $34,909.
2)	For the three months ended September 30, 2020
3)	For the nine months ended September 30, 2020

	As of December 31, 2019
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment(1)		Balance		Allowance		Investment(1)(2)		Recognized(2)

Related allowance recorded
Commercial & industrial	$	0	$	0	$	0	$	32,466	$	0
Commercial real estate		0		0		0		97,720		0
Residential real estate
1st lien		878,439		902,000		103,836		982,158		86,039
Jr lien		6,121		6,101		712		6,869		648
Total with related allowance		884,560		908,101		104,548		1,119,213		86,687

No related allowance recorded
Commercial & industrial		420,933		445,509				307,208		6,396
Commercial real estate		1,699,772		2,031,764				1,812,836		21,591
Residential real estate
1st lien		3,614,960		4,273,884				3,778,822		212,883
Jr lien		149,972		157,754				224,938		4,524
Total with no related allowance		5,885,637		6,908,911				6,123,804		245,394

Total impaired loans	$	6,770,197	$	7,817,012	$	104,548	$	7,243,017	$	332,081

1)	Recorded investment in impaired loans as of December 31, 2019 includes accrued interest receivable and deferred net loan costs of $22,051.
2)	For the year ended December 31, 2019

	As of September 30, 2019
			Unpaid				Average		Average		Interest
	Recorded		Principal		Related		Recorded		Recorded		Income
	Investment		Balance		Allowance		Investment (1)(2)		Investment (1)(3)		Recognized(3)

Related allowance recorded
Commercial & industrial	$	162,330	$	162,330	$	95,945	$	81,165	$	40,583	$	0
Commercial real estate		0		0		0		0		122,150		0
Residential real estate
1st lien		1,114,686		1,135,476		107,526		1,089,372		1,008,088		70,281
Jr lien		7,346		109,333		1,709		7,010		7,056		495
Total with related allowance		1,284,362		1,407,139		205,180		1,177,547		1,177,877		70,776

No related allowance recorded
Commercial & industrial		407,841		426,051				507,336		278,776		4,077
Commercial real estate		1,849,859		2,273,987				1,951,505		1,841,103		13,223
Residential real estate
1st lien		4,035,429		4,808,932				4,108,857		3,819,787		164,274
Jr lien		173,184		222,339				183,283		243,679		0
Total with no related allowance		6,466,313		7,731,309				6,750,981		6,183,345		181,574

Total impaired loans	$	7,750,675	$	9,138,448	$	205,180	$	7,928,528	$	7,361,222	$	252,350

	•	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.

	Year ended December 31, 2019
			Pre-		Post-
			Modification		Modification
			Outstanding		Outstanding
	Number of		Recorded		Recorded
	Contracts		Investment		Investment

Commercial & industrial		6	$	371,358	$	372,259
Commercial real estate		1		19,266		21,628
Residential real estate
1st lien		6		755,476		798,800
Jr lien		1		55,557		57,415
		14	$	1,201,657	$	1,250,102

	Three months ended September 30, 2019						Nine months ended September 30, 2019
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number of		Recorded		Recorded		Number of		Recorded		Recorded
	Contracts		Investment		Investment		Contracts		Investment		Investment

Commercial & industrial		1	$	288,912	$	288,912		3	$	338,129	$	338,129
Commercial real estate		0		0		0		1		19,265		21,628
Residential real estate
1st lien		1		20,984		31,598		5		530,330		569,800
Total		2	$	309,896	$	320,510		9	$	887,724	$	929,557

Level 1	Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets.

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

	September 30,		December 31,
Level 2	2020		2019
Assets: (market approach)
U.S. GSE debt securities	$	10,203,700	$	18,061,620
Agency MBS		21,809,288		16,205,375
ABS and OAS		2,657,019		2,852,909
Other investments		10,517,964		8,846,846
Total	$	45,187,971	$	45,966,750

	Nine Months Ended			Year Ended
	September 30, 2020			December 31, 2019

Balance at beginning of year	$	939,577		$	1,004,948
MSRs capitalized		248,305			114,580
MSRs amortized		(185,264	)		(179,951	)
Change in valuation allowance		(31,578	)		0
Balance at end of period	$	971,040		$	939,577

	•	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;
	•	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
	•	government intervention 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.

	•	branch lobbies have reopened, but customers are required to wear protective masks, and may still transact business through drive-up windows if they do not feel comfortable entering the branch lobbies;
	•	customers are encouraged to use ATM and electronic banking as options to avoid close contact with others;
	•	while the work-from-home protocol is still available for employees, all employees have returned to work;
	•	all of the 14 retail staff that were previously placed on furlough have returned to their respective branch office;
	•	employees are instructed to continue to practice social distancing when working in areas requiring multiple workers;
	•	in-person meetings are being accomplished with use of video conferencing and conference calls; and
	•	the Company’s annual meeting originally scheduled for May 12, 2020 took place on October 6, 2020 in a virtual meeting format.

•	the ALL;
•	OREO;
•	OTTI of debt securities;
•	valuation of residential MSRs; and
•	the carrying value of goodwill.

(1)	Applicable income tax expense assumes a 21% tax rate for both periods.
(2)	Computed based on the weighted average number of common shares outstanding during the periods presented.

	1)	Included in gross loans are non-accrual loans with average balances of $4,677,752 and $5,550,793 for the three months ended September 30, 2020 and 2019, respectively. Loans are stated before deduction of unearned discount and ALL, less loans held-for-sale and include tax-exempt loans to local municipalities with average balances of $56,337,312 and $48,357,864 for the three months ended September 30, 2020 and 2019, respectively.

	2)	Included in other investments is the Company’s FHLBB Stock with average balances of $734,700 and $699,265 for the three months ended September 30, 2020 and 2019, respectively, and a dividend rate of approximately 4.12% and 6.04%, respectively, per quarter.

	3)	Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.

	4)	Net interest margin is net interest income divided by average earning assets.

	Three Months Ended September 30,									Nine Months Ended September 30,
	Variance			Variance						Variance			Variance
	Due to			Due to			Total			Due to			Due to			Total
	Rate (1)			Volume (1)			Variance			Rate (1)			Volume (1)			Variance
Average Interest-Earning Assets
Loans	$	(1,529,683	)	$	1,811,799		$	282,116		$	(3,382,926	)	$	3,878,471		$	495,545
Taxable investment securities		(45,422	)		(7,300	)		(52,722	)		(45,015	)		12,093			(32,922	)
Sweep and interest-earning accounts		(55,505	)		4,395			(51,110	)		(153,533	)		(76,191	)		(229,724	)
Other investments		(7,074	)		488			(6,586	)		(16,311	)		2,803			(13,508	)
Total	$	(1,637,684	)	$	1,809,382		$	171,698		$	(3,597,785	)	$	3,817,176		$	219,391

Average Interest-Bearing Liabilities
Interest-bearing transaction accounts	$	(235,814)		$	115,533		$	(120,281)		$	(549,584)		$	287,899		$	(261,685)
Money market accounts		(200,585	)		40,107			(160,478	)		(322,167	)		99,044			(223,123	)
Savings deposits		(12,430	)		7,756			(4,674	)		(24,810	)		16,159			(8,651	)
Time deposits		(62,029	)		(31,936	)		(93,965	)		(33,762	)		(138,652	)		(172,414	)
Borrowed funds		(4,574	)		2,735			(1,839	)		(8,911	)		14,936			6,025
Repurchase agreements		(1,380	)		(5,802	)		(7,182	)		(6,607	)		(27,936	)		(34,543	)
Finance lease obligations		(89	)		(2,571	)		(2,660	)		(549	)		(8,451	)		(9,000	)
Junior subordinated debentures		(67,174	)		0			(67,174	)		(157,053	)		0			(157,053	)
Total	$	(584,075	)	$	125,822		$	(458,253	)	$	(1,103,443	)	$	242,999		$	(860,444)

Changes in net interest income	$	(1,053,609	)	$	1,683,560		$	629,951		$	(2,494,342	)	$	3,574,177		$	1,079,835