Community Bancorp 10-Q/A, filed Sep 3, 2021
Community Bancorp (CMTV)
About this 10-Q/A
Community Bancorp filed this 10-Q/A on September 3, 2021, covering the quarter ended June 30, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
For the Quarterly Period Ended
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For the transition period from ______ to ______
Commission File Number
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Registrant's Telephone Number: ( | ||
Securities registered pursuant to Section 12(b) of the Act: NONE
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file for such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
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| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
At August 26, 2021, there were
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PART I | FINANCIAL INFORMATION |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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EXPLANATORY NOTE: The sole purpose of this Report on Form 10-Q/A is to replace the table previously included in Item 2. Part I (Management’s Discussion and Analysis of Financial Condition and Results of Operations) under the caption “RESULTS OF OPERATIONS” on page 34 of the original Report on Form 10-Q filed on Monday, August 16, 2021, with the appropriate table containing information on the Company’s return on average assets (ROA) and return on average equity (ROE). The corrected table appears on page 8 of this Report on Form 10-Q/A.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Period Ended June 30, 2021
The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly-owned subsidiary, Community National Bank, as of June 30, 2021 and December 31, 2020, and its consolidated results of operations for the three- and six-month interim periods presented. 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 the 2020 Annual Report on Form 10-K, 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 contained in its 2020 Annual Report on Form 10-K filed with the SEC. 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 continued 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; |
| · | 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; |
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| · | cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems; |
| · | higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements; |
| · | management’s risk management measures may not be completely effective; |
| · | changes in 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 and emerging variants of the virus on our Company, the communities where we have branches and loan production offices, the State of Vermont and the national and global economies and overall stability of the financial markets; |
| · | government and regulatory responses to the COVID-19 pandemic and emerging threats from variants of the virus; |
| · | 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 reduce our borrowers’ ability to repay their loans and reduce 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 and emerging variants of the virus, 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 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 on June 30, 2021 were $925,498,638 compared to $918,233,284 at December 31, 2020, an increase of 0.8%. Changes in the asset base included an increase of $30,850,957, or 50.8%, in securities AFS, which was partially offset by a decrease in cash and due from banks of $18,743,386, or 16.3% and a decrease in net loans of $7,268,217, or 1.0%. The growth in the securities AFS portfolio was due to purchases totaling $41.6 million during the first six months of 2021, which was funded in part by the decrease in cash and due from banks. The decrease in loans was primarily attributable to a seasonal decrease in the municipal loan portfolio related to the June 30 municipal fiscal year cycle. Approximately $16.5 million matured on June 30, 2021 and were replaced with approximately $18.0 million during the first two weeks of July, 2021.
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Total deposits on June 30, 2021 were $799,893,395 compared to $782,290,840 on December 31, 2020, an increase of $17.6 million, or 2.3%, reflecting the combined effect of increases in core deposits (demand deposit accounts, non-interest bearing) of $18.7 million, or 10.0%, and savings accounts of $19.2 million, or 15.4%, and partially offset by decreases of $10.8 million, or 4.4%, in interest-bearing transaction accounts due to municipal deposits that run off related to the maturing loans mentioned above. A decrease of $4.2 million, or 3.6%, is noted in money market funds, as well as a decrease of $5.3 million, or 4.7%, in time deposits. The increase in core deposits was 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.
Consolidated net income during the second quarter of 2021 increased $204,095, or 7.2%, while year to date consolidated net income increased $1.4 million, or 29.1%, from $4.7 million for the first six months of 2020 to $6.1 million for the same period in 2021. PPP loan processing fees from the SBA and a significant decrease in interest expense were the main drivers in the increase in net income for the three- and six-month comparison periods. Please refer to the Non-interest Income and Non-interest Expense sections for more information on these and other changes for the three- and six-month periods ended June 30, 2021.
Total interest income increased $85,699, or 1.1%, for the second quarter of 2021, compared to the same quarter in 2020, and increased $930,457, or 5.8%, year to date for June 30, 2021, compared to the same period in 2020. An increase in interest earned on the investment portfolio, and the recognition of PPP loan processing fees from the SBA of $835,999 for the second quarter and $2.1 million for the first six months of 2021 contributed to the increase in both periods. Those processing fees represented 91.0% and 93.4%, respectively, of the total of fees on loans of $918,304 for the second quarter of 2021, and $2.2 million for the six months ended June 30, 2021, compared to total fees on loans of $584,077 and $609,630, respectively, for the same periods in 2020. The opportunity for an increase in interest income from the loan growth was curbed by the mandated 1% interest rate on SBA PPP loans.
Significantly impacting earnings during the comparison periods were decreases in total interest expense of $440,942, or 36.5%, for the second quarter of 2021 compared to 2020, and $1.1 million, or 39.6%, for the first six months of 2021, compared to the same period in 2020, despite a 14.4% increase in total deposits year over year. The 150 basis point decrease in short-term rates initiated by the FRB in March, 2020 in response to the COVID-19 pandemic resulted in a decrease in most components of interest expense, as rates paid on deposit accounts were reduced to reflect the changes in market rates. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that FRB action and changes in the yield curve could have on net interest income.
The provision for loan losses for the second quarter of 2021 was $267,501 compared to $307,499 for the second quarter of 2020, and $534,998 for the first six months of 2021, compared to $684,002 for the same period in 2020, resulting in decreases of 13.0% and 21.8%, respectively, between periods. These decreases to the provision in both periods were primarily due to higher than anticipated loan charge off activity as well as loan growth during the first six months of 2020 while net charge off activity in 2021 has been negligible and much of the loan growth for the quarter was attributable to PPP loans, which bear a 100% SBA guarantee, subject to borrower eligibility requirements. Please refer to the ALL and provisions discussion in the Credit Risk section for more information on these decreases.
During 2020 and the first six months of 2021, the Company navigated through the new challenges presented by the COVID-19 pandemic, including the granting of loan payment deferrals to customers impacted by the pandemic. As of June 30, 2021, 525 business and retail customer portfolio loans, with unpaid principal balances of $111.0 million, remained 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 Note 6 to the accompanying unaudited interim consolidated financial statements for additional information).
As of June 30, 2021, the Company had originated 1,843 PPP loans totaling $163.6 million, and expects to earn approximately $7.0 million in loan fees over the life of the related loans, of which $4.2 million had been recognized as of June 30, 2021. These loans are eligible to be forgiven to the extent that the funds are used for payroll costs and other permissible expenses. 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 on PPP loans. These loans carry a fixed rate of 1.00% and are 100% guaranteed by the SBA, subject to borrower eligibility requirements. The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan. As of June 30, 2021, the Company had reviewed and submitted 939 PPP loans with total balances of approximately $102.3 million to the SBA for forgiveness consideration. Of these totals, 875 loans totaling $95.9 million had been forgiven as of June 30, 2021. Beginning in the second quarter of 2020, participation in the PPP has had a significant impact on our asset mix, liquidity position and net interest margin.
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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 June 30, 2021, the Company had no PPPLF advances. FRBB announced on June 25, 2021 that it was extending, for a final time, its PPPLF by an additional month to July 30, 2021. The Company did not exercise its right to use this facility before its expiration.
Equity capital grew to $80.7 million, with a book value per share of $14.81 as of June 30, 2021, compared to equity capital of $77.3 million and a book value of $14.25 as of December 31, 2020. On June 10, 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.22 per common share, payable on August 1, 2021 to shareholders of record on July 15, 2021, representing an increase of $0.03 per share over the quarterly dividend paid in recent quarters.
As of June 30, 2021, 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 resurgence of COVID-19, should one occur, our equity capital and regulatory capital ratios could be adversely impacted by credit losses and other adverse economic and operational impacts of the pandemic.
CRITICAL ACCOUNTING POLICIES
The Company’s significant accounting policies are fundamental to understanding the Company’s results of operations and financial condition because they require management to use estimates and assumptions that may affect the value of the Company’s assets or liabilities and financial results, sometimes in material respects. These policies are considered by management to be critical because they require subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. These policies, and others deemed less critical, are described in the Company’s Accounting Policy, which is updated yearly for review and approval by the Company’s Audit Committee, and then presented to the Company’s Board for final review and approval.
The Company’s critical accounting policies govern:
· | the ALL; |
· | OREO; |
· | OTTI of debt securities; |
· | valuation of residential MSRs; and |
· | the carrying value of goodwill. |
These policies are described in the Company’s 2020 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. There were no material changes during the first six months of 2021 in the Company’s critical accounting policies.
RESULTS OF OPERATIONS
Net income for the second quarter of 2021 was $3,046,406 or $0.57 per common share, compared to $2,842,311 for the same quarter of 2020. Net income for the first six months of 2021 was $6,072,107 or $1.13 per common share, compared to $4,703,550 or $0.89 per common share for the same period in 2020. Core earnings (NII) for the second quarter of 2021 was $7.5 million compared to $7.0 million for the same quarter in 2020 and $15.3 million for the first six months of 2021 compared to $13.3 million for the same period in 2020. Interest income during the second quarter and year to date period was supported by fees generated from administering PPP loans. Of the $7.0 million in fee income that the Company expects to receive from the SBA over the life of the related PPP loans, a total of $2.1 million was recognized during the first six months of 2021, including $835,999 recognized during the second quarter of 2021. These fees have offset a decrease in interest income due to the repricing of loans, new loans (other than PPP loans) booked at lower market rates and PPP loans booked at a mandated 1% annual interest rate. Despite a significant increase in deposits between periods, interest paid on deposits, which is the major component of total interest expense, decreased $440,942, or 36.5% for the second quarter of 2021 compared to the same quarter of 2020, and $1.1 million, or 39.6%, for the first six months of 2021 compared to the same period last year, reflecting the decreases in short-term rates initiated by the FRB beginning in March 2020 in response to the pandemic.
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The following tables summarize certain balance sheet data and the earnings performance of the Company as of the balance sheet dates and for the six month comparison periods.
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Balance Sheet Data |
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Net loans |
| $ | 693,682,887 |
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| $ | 700,951,104 |
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Total assets |
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| 925,498,638 |
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| 918,233,284 |
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Total deposits |
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| 799,893,395 |
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| 782,290,840 |
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Borrowed funds |
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| 2,300,000 |
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| 2,800,000 |
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Junior subordinated debentures |
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| 12,887,000 |
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| 12,887,000 |
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Total liabilities |
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| 844,771,549 |
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| 840,944,571 |
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Total shareholders' equity |
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| 80,727,089 |
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| 77,288,713 |
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Book value per common share outstanding |
| $ | 14.81 |
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| $ | 14.25 |
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Operating Data |
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Total interest income |
| $ | 16,894,051 |
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| $ | 15,963,594 |
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Total interest expense |
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| 1,620,389 |
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| 2,683,302 |
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Net interest income |
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| 15,273,662 |
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| 13,280,292 |
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Provision for loan losses |
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| 534,998 |
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| 684,002 |
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Net interest income after provision for loan losses |
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| 14,738,664 |
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| 12,596,290 |
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Non-interest income |
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| 3,340,766 |
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| 3,115,809 |
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Non-interest expense |
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| 10,634,447 |
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| 10,080,673 |
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Income before income taxes |
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| 7,444,983 |
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| 5,631,426 |
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Applicable income tax expense(1) |
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| 1,372,876 |
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| 927,876 |
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Net Income |
| $ | 6,072,107 |
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| $ | 4,703,550 |
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Per Common Share Data |
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Earnings per common share (2) |
| $ | 1.13 |
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| $ | 0.89 |
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Dividends declared per common share |
| $ | 0.44 |
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| $ | 0.38 |
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Weighted average number of common shares outstanding |
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| 5,330,497 |
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| 5,254,202 |
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Number of common shares outstanding, period end |
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| 5,349,766 |
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| 5,275,043 |
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(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. |
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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 tables show these ratios annualized for the comparison periods presented.
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Return on average assets |
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| 1.30 | % |
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| 1.40 | % |
Return on average equity |
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| 15.46 | % |
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| 16.01 | % |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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Return on average assets |
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| 1.32 | % |
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| 1.22 | % |
Return on average equity |
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| 15.60 | % |
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| 13.43 | % |
INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)
The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings). The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets and sources of funds (volume), and changes in the yield earned and costs of funds (rate). A portion of the Company’s income from loans to local municipalities is not subject to income taxes. Because the proportion of tax-exempt items in the Company's balance sheet varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. The Company’s corporate tax rate is 21%; therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.
The Company’s tax-exempt interest income of $254,467 and $396,590 for the three months ended June 30, 2021 and 2020, respectively, and $513,228 and $792,078 for the six months ended June 31, 2021 and 2020, respectively, was derived from loans to local municipalities of $35.8 million and $48.2 million at June 30, 2021 and 2020, respectively.
The following tables show the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.
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| 2020 |
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Net interest income as presented |
| $ | 7,511,174 |
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| $ | 6,984,533 |
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Effect of tax-exempt income |
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| 67,643 |
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| 105,423 |
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Net interest income, tax equivalent |
| $ | 7,578,817 |
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| $ | 7,089,956 |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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Net interest income as presented |
| $ | 15,273,662 |
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| $ | 13,280,292 |
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Effect of tax-exempt income |
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| 136,428 |
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| 210,552 |
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Net interest income, tax equivalent |
| $ | 15,410,090 |
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| $ | 13,490,844 |
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As a result of the adverse economic impacts and uncertainties from the COVID-19 pandemic, and from the FRB’s responsive monetary policies resulting in a prolonged low interest rate environment, the Company’s NII is likely to be adversely affected in future periods, although the duration and extent of such impacts cannot be predicted at this time.
The following tables present average interest-earning assets and average interest-bearing liabilities supporting earning assets for the respective comparison periods. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a rate/yield for the comparison periods presented.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans (1) |
| $ | 728,685,149 |
|
| $ | 7,956,066 |
|
|
| 4.38 | % |
| $ | 707,342,015 |
|
| $ | 7,947,820 |
|
|
| 4.52 | % |
Taxable investment securities |
|
| 87,692,593 |
|
|
| 293,731 |
|
|
| 1.34 | % |
|
| 43,254,956 |
|
|
| 253,178 |
|
|
| 2.35 | % |
Sweep and interest-earning accounts |
|
| 55,000,258 |
|
|
| 80,006 |
|
|
| 0.58 | % |
|
| 19,928,646 |
|
|
| 74,467 |
|
|
| 1.50 | % |
Other investments (2) |
|
| 1,833,946 |
|
|
| 14,981 |
|
|
| 3.28 | % |
|
| 1,851,684 |
|
|
| 21,400 |
|
|
| 4.65 | % |
Total |
| $ | 873,211,946 |
|
| $ | 8,344,784 |
|
|
| 3.83 | % |
| $ | 772,377,301 |
|
| $ | 8,296,865 |
|
|
| 4.32 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction accounts |
| $ | 234,028,669 |
|
| $ | 132,107 |
|
|
| 0.23 | % |
| $ | 200,646,650 |
|
| $ | 251,549 |
|
|
| 0.50 | % |
Money market accounts |
|
| 124,192,217 |
|
|
| 160,288 |
|
|
| 0.52 | % |
|
| 105,396,324 |
|
|
| 296,856 |
|
|
| 1.13 | % |
Savings deposits |
|
| 140,040,599 |
|
|
| 36,310 |
|
|
| 0.10 | % |
|
| 109,987,298 |
|
|
| 37,575 |
|
|
| 0.14 | % |
Time deposits |
|
| 108,625,246 |
|
|
| 302,388 |
|
|
| 1.12 | % |
|
| 110,069,513 |
|
|
| 441,228 |
|
|
| 1.61 | % |
Borrowed funds |
|
| 2,301,330 |
|
|
| 12 |
|
|
| 0.00 | % |
|
| 5,475,396 |
|
|
| 2,238 |
|
|
| 0.16 | % |
Repurchase agreements |
|
| 29,185,028 |
|
|
| 20,509 |
|
|
| 0.28 | % |
|
| 29,066,422 |
|
|
| 59,006 |
|
|
| 0.82 | % |
Finance lease obligations |
|
| 2,395,094 |
|
|
| 14,437 |
|
|
| 2.41 | % |
|
| 74,678 |
|
|
| 1,495 |
|
|
| 8.01 | % |
Junior subordinated debentures |
|
| 12,887,000 |
|
|
| 99,916 |
|
|
| 3.11 | % |
|
| 12,887,000 |
|
|
| 116,962 |
|
|
| 3.65 | % |
Total |
| $ | 653,655,183 |
|
| $ | 765,967 |
|
|
| 0.47 | % |
| $ | 573,603,281 |
|
| $ | 1,206,909 |
|
|
| 0.85 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
| $ | 7,578,817 |
|
|
|
|
|
|
|
|
|
| $ | 7,089,956 |
|
|
|
|
|
Net interest spread (3) |
|
|
|
|
|
|
|
|
|
| 3.36 | % |
|
|
|
|
|
|
|
|
|
| 3.47 | % |
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
| 3.48 | % |
|
|
|
|
|
|
|
|
|
| 3.69 | % |
(1) | Included in gross loans are non-accrual loans with average balances of $3,803,807 and $4,677,752 for the three months ended June 30, 2021 and 2020, 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 $51,534,733 and $59,360,944 for the three months ended June 30, 2021 and 2020, respectively. |
|
|
(2) | Included in other investments is the Company’s FHLBB Stock with average balances of $768,796 and $786,534 for the three months ended June 30, 2021 and 2020, respectively, and a dividend rate of approximately 1.54% and 5.06%, 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. |
| 9 |
| Table of Contents |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
|
|
|
| 2021 |
|
|
|
|
|
| 2020 |
|
|
| ||||||||||
|
|
|
|
|
|
|
| Average |
|
|
|
|
|
|
|
| Average |
| ||||||
|
| Average |
|
| Income/ |
|
| Rate/ |
|
| Average |
|
| Income/ |
|
| Rate/ |
| ||||||
|
| Balance |
|
| Expense |
|
| Yield |
|
| Balance |
|
| Expense |
|
| Yield |
| ||||||
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Loans (1) |
| $ | 724,657,107 |
|
| $ | 16,278,147 |
|
|
| 4.53 | % |
| $ | 661,041,857 |
|
| $ | 15,418,910 |
|
|
| 4.69 | % |
Taxable investment securities |
|
| 80,190,706 |
|
|
| 558,844 |
|
|
| 1.41 | % |
|
| 43,299,623 |
|
|
| 537,934 |
|
|
| 2.50 | % |
Sweep and interest-earning accounts |
|
| 71,100,556 |
|
|
| 167,888 |
|
|
| 0.48 | % |
|
| 19,383,640 |
|
|
| 171,477 |
|
|
| 1.78 | % |
Other investments (2) |
|
| 1,833,749 |
|
|
| 25,600 |
|
|
| 2.82 | % |
|
| 1,871,601 |
|
|
| 45,825 |
|
|
| 4.92 | % |
Total |
| $ | 877,782,118 |
|
| $ | 17,030,479 |
|
|
| 3.91 | % |
| $ | 725,596,721 |
|
| $ | 16,174,146 |
|
|
| 4.48 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction accounts |
| $ | 231,959,383 |
|
| $ | 282,368 |
|
|
| 0.25 | % |
| $ | 190,359,362 |
|
| $ | 637,781 |
|
|
| 0.67 | % |
Money market accounts |
|
| 122,564,234 |
|
|
| 328,393 |
|
|
| 0.54 | % |
|
| 101,776,006 |
|
|
| 658,139 |
|
|
| 1.30 | % |
Savings deposits |
|
| 134,762,737 |
|
|
| 69,839 |
|
|
| 0.10 | % |
|
| 104,392,291 |
|
|
| 76,846 |
|
|
| 0.15 | % |
Time deposits |
|
| 109,968,712 |
|
|
| 655,737 |
|
|
| 1.20 | % |
|
| 110,725,171 |
|
|
| 903,979 |
|
|
| 1.64 | % |
Borrowed funds |
|
| 2,415,425 |
|
|
| 24 |
|
|
| 0.00 | % |
|
| 6,646,874 |
|
|
| 13,254 |
|
|
| 0.40 | % |
Repurchase agreements |
|
| 33,226,234 |
|
|
| 55,951 |
|
|
| 0.34 | % |
|
| 27,602,725 |
|
|
| 118,541 |
|
|
| 0.86 | % |
Finance lease obligations |
|
| 2,039,367 |
|
|
| 29,366 |
|
|
| 2.88 | % |
|
| 82,375 |
|
|
| 3,274 |
|
|
| 7.95 | % |
Junior subordinated debentures |
|
| 12,887,000 |
|
|
| 198,711 |
|
|
| 3.11 | % |
|
| 12,887,000 |
|
|
| 271,488 |
|
|
| 4.24 | % |
Total |
| $ | 649,823,092 |
|
| $ | 1,620,389 |
|
|
| 0.50 | % |
| $ | 554,471,804 |
|
| $ | 2,683,302 |
|
|
| 0.97 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
| $ | 15,410,090 |
|
|
|
|
|
|
|
|
|
| $ | 13,490,844 |
|
|
|
|
|
Net interest spread (3) |
|
|
|
|
|
|
|
|
|
| 3.41 | % |
|
|
|
|
|
|
|
|
|
| 3.51 | % |
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
| 3.54 | % |
|
|
|
|
|
|
|
|
|
| 3.74 | % |
(1) | Included in gross loans are non-accrual loans with average balances of $3,945,577 and $4,706,338 for the six months ended June 30, 2021 and 2020, 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 $51,881,498 and $58,970,429 for the six months ended June 30, 2021 and 2020, respectively. |
|
|
(2) | Included in other investments is the Company’s FHLBB Stock with average balances of $768,599 and $806,451, respectively, and a dividend rate of approximately 1.54% and 4.94%, respectively, for the six months ended June 30, 2021 and 2020, respectively. |
|
|
(3) | Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities. |
|
|
(4) | Net interest margin is net interest income divided by average earning assets. |
The average volume of interest-earning assets for the three- and six-month periods ended June 30, 2021 increased 13.1% and 21.0%, respectively, compared to the same periods last year, while the average yield on interest-earning assets decreased 49 bps and 57 bps, respectively. The decrease in the average yield in most categories reflects the decrease in the federal funds rate, with taxable investment securities reporting a decrease of 101 bps and 109 bps, respectively, and other investments reporting a decrease of 137 bps and 210 bps, respectively, for the three- and six-month periods ended June 30, 2021, compared to the same periods in 2020.
The average volume of loans increased over the three- and six-month comparison periods of 2021 versus 2020 by 3.0% and 9.6%, respectively, while the average yield on loans decreased 14 bps and 16 bps, respectively. Loans accounted for 83.5% and 82.6%, respectively, of the average interest-earning asset portfolio for the three- and six- month periods ended June 30, 2021 compared to 91.6% and 91.1%, respectively, for the same periods last year. Interest earned on the loan portfolio as a percentage of total interest income was 95.3% and 95.6%, respectively for the three- and six-month periods in 2021 compared to 95.6% and 95.3%, respectively for the same periods in 2020.
The average volume of the taxable investment portfolio (classified as AFS) increased 102.7% and 85.2% during the three- and six-month periods ended June 30, 2021, compared to the same periods last year, while the average yield decreased 101 bps and 109 bps, respectively, between periods.
| 10 |
| Table of Contents |
The average volume of sweep and interest-earning accounts, which consists primarily of interest-bearing accounts at the FRBB and two correspondent banks, increased $35.1 million, or 176.0% during the three-month period ended June 30, 2021, compared to the same period last year, and $51.7 million, or 266.8%, for the six-month period ended June 30, 2021, while the average yield on these funds decreased 92 bps and 130 bps, respectively. This increase in cash volume is attributable to significant increases in core deposits which 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.
The average volume of interest-bearing liabilities for the three- and six-month periods ended June 30, 2021 increased 14.4% and 17.2%, respectively, compared to the same periods last year, while the average rate paid on interest-bearing liabilities decreased 38 bps and 47 bps, respectively, reflecting the decrease in the federal funds rate beginning in March 2020. Customer deposits of PPP loan proceeds and stimulus payments were contributing factors to the increase in average volume.
The average volume of interest-bearing transaction accounts increased 16.6% and 21.9%, respectively, during the three- and six-month periods ended June 30, 2021 compared to the same periods last year, while the average rate paid on these accounts decreased 27 bps and 42 bps, respectively. Contributing factors to the increase in average volume were increases of $10.6 million, or 24.5%, and $10.7 million, or 25.6%, respectively, in the average volume of ICS DDAs, and $24.7 million or 30.1%, and $26.7 million, or 35.5%, respectively, in the average volume of other interest-bearing DDAs. Interest-bearing transaction accounts comprised 35.8% and 35.7%, respectively, of the interest-bearing liabilities for the three- and six-month periods ended June 30, 2021 compared to 35.0% and 34.3%, respectively, for the same periods last year.
The average volume of money market accounts increased 17.8% and 20.4%, respectively, during the three- and six-month periods ended June 30, 2021 compared to the same periods in 2020, while the average rate paid decreased 61 bps and 76 bps, respectively.
The average volume of savings accounts increased 27.3% and 29.1%, respectively, for the three- and six-month periods ended June 30, 2021 versus the same periods in 2020, while the average rate paid decreased four bps and five bps, respectively.
The average volume of time deposits decreased 1.3% and 0.7%, respectively, during the three- and six-month periods ended June 30, 2021, compared to the same periods last year, and the average rate paid on these accounts decreased 49 bps and 44 bps, respectively, between periods. The decrease in the average volume of time deposits between periods reflects the maturity of brokered deposits throughout the first three months of 2021 that had not been replaced as of June 30, 2021. Time deposits represented 16.6% and 16.9%, respectively, of average interest-bearing liabilities for the three- and six-month periods ended June 30, 2021, compared to 19.2% and 20.0%, respectively, for the same periods last year. Interest paid on time deposits represented 39.5% and 40.5%, respectively, of total interest expense for the three- and six-month period in 2021, compared to 36.6% and 33.7%, respectively, for the same periods in 2020. The average volume of retail time deposits increased 0.5% for the three-month period from $102.1 million at June 30, 2020 to $102.6 million at June 30, 2021, and 1.8% for the six-month period from $101.3 million at June 30, 2020 to $103.2 million at June 30, 2021. The average volume of wholesale time deposits decreased 24.7% from an average volume of $8.0 million to $6.0 million for the three-month periods ended June 30, 2021 and 2020, respectively, and 27.9% for the six-month periods from an average volume of $9.4 million at June 30, 2020 to $6.8 million at June 30, 2021. Refer to the “Liquidity and Capital Resources” section for more discussion on these changes.
The average volume of borrowed funds decreased $3.2 million and $4.2 million, respectively, between the three- and six-month comparison periods of 2021 and 2020, and the average rate paid on these borrowings decreased 16 bps and 40 bps, respectively, between periods. The average balances are reflective of the influx of cash throughout 2020 and into 2021 resulting from PPP lending activity, COVID stimulus payments and other government mitigation measures. The balance of borrowed funds at June 30, 2021 consists of only JNE funds at zero percent interest.
The average volume of repurchase agreements increased .04% and 20.4%, respectively, for the three- and six-month comparison periods of 2021 versus 2020, while the average rate paid decreased 54 bps and 52 bps, respectively.
In summary, between the three- and six month periods ended June 30, 2021 and 2020, the average yield on interest-earning assets decreased 49 bps and 57 bps, respectively, and the average rate paid on interest-bearing liabilities decreased 38 bps and 47 bps, respectively. Net interest spread decreased 11 bps for the second quarter of 2021 versus 2020, and 10 bps for the six-month period of 2021 versus 2020. Net interest margin decreased 21 bps and 20 bps, respectively, between the same comparison periods.
The reductions in the target federal funds rate, in response to the pandemic have placed pressure on the Company’s net interest margin and net interest spread and may continue to adversely affect them in future periods, although the extent and duration of such impacts cannot be predicted at this time.
| 11 |
| Table of Contents |
The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 2021 and 2020 resulting from volume changes in average assets and average liabilities and fluctuations in average rates earned and paid.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 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 |
| $ | (231,614 | ) |
| $ | 239,860 |
|
| $ | 8,246 |
|
| $ | (624,389 | ) |
| $ | 1,483,626 |
|
| $ | 859,237 |
|
Taxable investment securities |
|
| (219,091 | ) |
|
| 259,644 |
|
|
| 40,553 |
|
|
| (437,709 | ) |
|
| 458,619 |
|
|
| 20,910 |
|
Sweep and interest-earning accounts |
|
| (125,261 | ) |
|
| 130,800 |
|
|
| 5,539 |
|
|
| (461,354 | ) |
|
| 457,765 |
|
|
| (3,589 | ) |
Other investments |
|
| (6,274 | ) |
|
| (145 | ) |
|
| (6,419 | ) |
|
| (19,696 | ) |
|
| (529 | ) |
|
| (20,225 | ) |
Total |
| $ | (582,240 | ) |
| $ | 630,159 |
|
| $ | 47,919 |
|
| $ | (1,543,148 | ) |
| $ | 2,399,481 |
|
| $ | 856,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing transaction accounts |
| $ | (160,942 | ) |
| $ | 41,500 |
|
| $ | (119,442 | ) |
| $ | (494,012 | ) |
| $ | 138,599 |
|
| $ | (355,413 | ) |
Money market accounts |
|
| (189,376 | ) |
|
| 52,808 |
|
|
| (136,568 | ) |
|
| (464,131 | ) |
|
| 134,385 |
|
|
| (329,746 | ) |
Savings deposits |
|
| (11,726 | ) |
|
| 10,461 |
|
|
| (1,265 | ) |
|
| (29,660 | ) |
|
| 22,653 |
|
|
| (7,007 | ) |
Time deposits |
|
| (134,807 | ) |
|
| (4,033 | ) |
|
| (138,840 | ) |
|
| (243,741 | ) |
|
| (4,501 | ) |
|
| (248,242 | ) |
Borrowed funds |
|
| (2,226 | ) |
|
| 0 |
|
|
| (2,226 | ) |
|
| (13,230 | ) |
|
| 0 |
|
|
| (13,230 | ) |
Repurchase agreements |
|
| (38,739 | ) |
|
| 242 |
|
|
| (38,497 | ) |
|
| (86,639 | ) |
|
| 24,049 |
|
|
| (62,590 | ) |
Finance lease obligations |
|
| (33,270 | ) |
|
| 46,212 |
|
|
| 12,942 |
|
|
| (51,273 | ) |
|
| 77,365 |
|
|
| 26,092 |
|
Junior subordinated debentures |
|
| (17,046 | ) |
|
| 0 |
|
|
| (17,046 | ) |
|
| (72,777 | ) |
|
| 0 |
|
|
| (72,777 | ) |
Total |
| $ | (588,132 | ) |
| $ | 147,190 |
|
| $ | (440,942 | ) |
| $ | (1,455,463 | ) |
| $ | 392,550 |
|
| $ | (1,062,913 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net interest income |
| $ | 5,892 |
|
| $ | 482,969 |
|
| $ | 488,861 |
|
| $ | (87,685 | ) |
| $ | 2,006,931 |
|
| $ | 1,919,246 |
|
(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 |
| 12 |
| Table of Contents |
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest Income
The components of non-interest income for the periods presented were as follows:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| June 30, |
|
| Change |
|
| June 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Income |
|
| Percent |
|
| 2021 |
|
| 2020 |
|
| Income |
|
| Percent |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Service fees |
| $ | 856,631 |
|
| $ | 721,521 |
|
| $ | 135,110 |
|
|
| 18.73 | % |
| $ | 1,645,255 |
|
| $ | 1,527,732 |
|
| $ | 117,523 |
|
|
| 7.69 | % |
Income from sold loans |
|
| 277,061 |
|
|
| 396,291 |
|
|
| (119,230 | ) |
|
| -30.09 | % |
|
| 462,067 |
|
|
| 536,754 |
|
|
| (74,687 | ) |
|
| -13.91 | % |
Other income from loans |
|
| 246,716 |
|
|
| 301,129 |
|
|
| (54,413 | ) |
|
| -18.07 | % |
|
| 429,989 |
|
|
| 521,596 |
|
|
| (91,607 | ) |
|
| -17.56 | % |
Net realized gain on sale of securities AFS |
|
| 0 |
|
|
| 39,086 |
|
|
| (39,086 | ) |
|
| -100.00 | % |
|
| 0 |
|
|
| 39,086 |
|
|
| (39,086 | ) |
|
| -100.00 | % |
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from CFS Partners |
|
| 287,072 |
|
|
| 219,259 |
|
|
| 67,813 |
|
|
| 30.93 | % |
|
| 594,058 |
|
|
| 311,167 |
|
|
| 282,891 |
|
|
| 90.91 | % |
Exchange income |
|
| 15,300 |
|
|
| 0 |
|
|
| 15,300 |
|
|
| 100.00 | % |
|
| 32,100 |
|
|
| 0 |
|
|
| 32,100 |
|
|
| 100.00 | % |
VISA card commission |
|
| 25,404 |
|
|
| 18,662 |
|
|
| 6,742 |
|
|
| 36.13 | % |
|
| 50,808 |
|
|
| 37,324 |
|
|
| 13,484 |
|
|
| 36.13 | % |
Other miscellaneous income |
|
| 60,351 |
|
|
| 66,154 |
|
|
| (5,803 | ) |
|
| -8.77 | % |
|
| 126,489 |
|
|
| 142,150 |
|
|
| (15,661 | ) |
|
| -11.02 | % |
Total non-interest income |
| $ | 1,768,535 |
|
| $ | 1,762,102 |
|
| $ | 6,433 |
|
|
| 0.37 | % |
| $ | 3,340,766 |
|
| $ | 3,115,809 |
|
| $ | 224,957 |
|
|
| 7.22 | % |
Total non-interest income increased $6,433, or 0.4%, for the second quarter of 2021 and $224,957, or 7.2% for the first six months of 2021 compared to the same periods in 2020, with significant changes noted in the following:
| · | The increase in service fees during both comparison periods is mostly due to an increase in VISA check interchange income of $76,576, or 22.9% for the second quarter of 2021 compared to the same quarter of 2020, and $148,502, or 23.9%, year over year. |
|
|
|
| · | The decrease in income from sold loans is due to a lower volume of loans sold into the secondary market during the second quarter of 2021 versus 2020. |
|
|
|
| · | A decrease in CRE and residential mortgage loan volume resulted in decreases in documentation fees collected at origination accounting for the decrease in other income from loans. |
|
|
|
| · | There were no sales from the Company’s securities AFS portfolio during the first six months of 2021, resulting in no net realized gains on sale of securities AFS during 2021 compared to the same period in 2020. |
|
|
|
| · | Income from CFS Partners increased significantly between periods due in part to the impact of more favorable stock market valuations on the fee income of its trust and asset management subsidiary, as well as an increase in managed assets. Also, CFS Partners has a small portion of its equity capital invested in the stock market. 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 shutdown of the US/Canadian border to all non-essential travel created less demand for an exchange of Canadian cash in the first half of 2020, accounting for the lack of exchange income. After the shutdown, as the border opened to commerce related travel, the exchange of Canadian cash resumed but had not yet returned to normal levels by June 30, 2021. In July 2021, the US/Canadian border was again shut down to all non-essential travel. |
|
|
|
| · | The increase in VISA card commission is attributable to an increase in transaction volume in the VISA card program. |
| 13 |
| Table of Contents |
Non-interest Expense
The components of non-interest expense for the periods presented were as follows:
|
| Three Months Ended |
|
|
|
|
|
|
|
| Six Months Ended |
|
|
|
|
|
|
| ||||||||||||||
|
| June 30, |
|
| Change |
|
| June 30, |
|
| Change |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Expense |
|
| Percent |
|
| 2021 |
|
| 2020 |
|
| Expense |
|
| Percent |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Salaries and wages |
| $ | 1,944,999 |
|
| $ | 1,928,421 |
|
| $ | 16,578 |
|
|
| 0.86 | % |
| $ | 3,920,002 |
|
| $ | 3,814,737 |
|
| $ | 105,265 |
|
|
| 2.76 | % |
Employee benefits |
|
| 824,210 |
|
|
| 734,441 |
|
|
| 89,769 |
|
|
| 12.22 | % |
|
| 1,655,420 |
|
|
| 1,532,882 |
|
|
| 122,538 |
|
|
| 7.99 | % |
Occupancy expenses, net |
|
| 652,202 |
|
|
| 637,269 |
|
|
| 14,933 |
|
|
| 2.34 | % |
|
| 1,396,922 |
|
|
| 1,320,504 |
|
|
| 76,418 |
|
|
| 5.79 | % |
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outsourcing expense |
|
| 122,389 |
|
|
| 116,685 |
|
|
| 5,704 |
|
|
| 4.89 | % |
|
| 251,900 |
|
|
| 235,362 |
|
|
| 16,538 |
|
|
| 7.03 | % |
Telephone expense |
|
| 33,804 |
|
|
| 65,687 |
|
|
| (31,883 | ) |
|
| -48.54 | % |
|
| 65,929 |
|
|
| 131,465 |
|
|
| (65,536 | ) |
|
| -49.85 | % |
Consultant services |
|
| 64,519 |
|
|
| 57,361 |
|
|
| 7,158 |
|
|
| 12.48 | % |
|
| 143,308 |
|
|
| 114,340 |
|
|
| 28,968 |
|
|
| 25.33 | % |
FDIC insurance |
|
| 78,708 |
|
|
| 54,690 |
|
|
| 24,018 |
|
|
| 43.92 | % |
|
| 161,565 |
|
|
| 120,132 |
|
|
| 41,433 |
|
|
| 34.49 | % |
Collection & non-accruing loan expense |
|
| 11,600 |
|
|
| 8,824 |
|
|
| 2,776 |
|
|
| 31.46 | % |
|
| 23,200 |
|
|
| 37,648 |
|
|
| (14,448 | ) |
|
| -38.38 | % |
ATM fees |
|
| 141,349 |
|
|
| 117,737 |
|
|
| 23,612 |
|
|
| 20.05 | % |
|
| 270,295 |
|
|
| 233,500 |
|
|
| 36,795 |
|
|
| 15.76 | % |
State deposit tax |
|
| 218,328 |
|
|
| 170,912 |
|
|
| 47,416 |
|
|
| 27.74 | % |
|
| 425,261 |
|
|
| 332,137 |
|
|
| 93,124 |
|
|
| 28.04 | % |
Other miscellaneous expenses |
|
| 1,177,288 |
|
|
| 1,095,426 |
|
|
| 81,862 |
|
|
| 7.47 | % |
|
| 2,320,645 |
|
|
| 2,207,966 |
|
|
| 112,679 |
|
|
| 5.10 | % |
Total non-interest expense |
| $ | 5,269,396 |
|
| $ | 4,987,453 |
|
| $ | 281,943 |
|
|
| 5.65 | % |
| $ | 10,634,447 |
|
| $ | 10,080,673 |
|
| $ | 553,774 |
|
|
| 5.49 | % |
Total non-interest expense increased $281,943, or 5.7% for the second quarter of 2021 and $553,774, or 5.5%, for the six months ended June 30, 2021 compared to the same periods in 2020, with significant changes noted in the following:
| · | The increase in employee benefits in both periods was attributable to the increased cost of health insurance premiums. |
|
|
|
| · | The moderate increase in occupancy expense is primarily attributable to an increase in capital lease expense. |
|
|
|
| · | A moderate increase is also noted in outsourcing expense due to a combination of annual increases in contract pricing and an increase in transactions. |
|
|
|
| · | Telephone expense decreased as a result of a renegotiated contract with the Company’s main connectivity vendor that was effective mid-year 2020. |
|
|
|
| · | The increase in Consultant services year over year is attributable in part to recruitment of a senior management position. |
|
|
|
| · | FDIC insurance increased due primarily to an increase in assets as well as an increase in the assessment multiplier year over year. |
|
|
|
| · | Collection & non-accruing loan expense are lower in all periods compared to historical activity, due primarily to the impact of a legislative moratorium on ejectment and foreclosure actions during the COVID-19 emergency. |
|
|
|
| · | ATM fees increased due to the ongoing cost to support the upgraded and enhanced technology being utilized for deposit automation. The use of deposit automation replaces a manual process for BSA required monitoring of cash deposits as well as providing fraud detection measures at ATMs. |
|
|
|
| · | State deposit tax increased year over year due primarily to a significant increase in deposits. |
APPLICABLE INCOME TAXES
The provision for income taxes increased in both comparison periods, with an increase of $87,034, or 14.3% for the second quarter of 2021, and $445,000, or 48.0%, for the first six months of 2021 compared to the respective periods in 2020. These increases are proportional to the increases in income before income taxes totaling $291,129 for the second quarter of 2021 versus 2020, and $1.8 million for the first six months of 2021 versus 2020. Tax credits related to limited partnership investments amounted to $117,015 and $108,492, respectively, for the second quarters of 2021 and 2020, and $234,030 and $216,984, respectively, for the first six months of 2021 and 2020.
| 14 |
| Table of Contents |
Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $90,762 and $84,171, respectively, for the second quarters of 2021 and 2020, and $181,524 and $168,342, respectively, for the first six months of 2021 and 2020. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 7% and 10%.
CHANGES IN FINANCIAL CONDITION
The following table reflects the composition of the Company's major categories of assets and liabilities as a percentage of total assets or liabilities and shareholders’ equity, as the case may be, as of the balance sheet dates:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Loans |
| $ | 704,201,276 |
|
|
| 76.09 | % |
| $ | 709,355,330 |
|
|
| 77.25 | % |
Securities AFS |
|
| 91,556,135 |
|
|
| 9.89 | % |
|
| 60,705,178 |
|
|
| 6.61 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 204,616,899 |
|
|
| 22.11 | % |
|
| 185,954,976 |
|
|
| 20.25 | % |
Interest-bearing transaction accounts |
|
| 232,134,055 |
|
|
| 25.08 | % |
|
| 242,902,715 |
|
|
| 26.45 | % |
Money market accounts |
|
| 111,345,535 |
|
|
| 12.03 | % |
|
| 115,546,064 |
|
|
| 12.58 | % |
Savings deposits |
|
| 143,739,953 |
|
|
| 15.53 | % |
|
| 124,555,124 |
|
|
| 13.56 | % |
Time deposits |
|
| 108,056,953 |
|
|
| 11.68 | % |
|
| 113,331,961 |
|
|
| 12.34 | % |
Long-term advances |
|
| 2,300,000 |
|
|
| 0.25 | % |
|
| 2,800,000 |
|
|
| 0.30 | % |
The following table reflects the changes in the composition of the Company's major categories of assets and liabilities between the balance sheet dates, as disclosed in the table above:
|
| Change in Volume |
|
| Percentage Change |
| ||
Assets |
|
|
|
|
|
| ||
Loans |
| $ | (5,154,054 | ) |
|
| -0.73 | % |
Securities AFS |
|
| 30,850,957 |
|
|
| 50.82 | % |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Demand deposits |
|
| 18,661,923 |
|
|
| 10.04 | % |
Interest-bearing transaction accounts |
|
| (10,768,660 | ) |
|
| -4.43 | % |
Money market accounts |
|
| (4,200,529 | ) |
|
| -3.64 | % |
Savings deposits |
|
| 19,184,829 |
|
|
| 15.40 | % |
Time deposits |
|
| (5,275,008 | ) |
|
| -4.65 | % |
Long-term advances |
|
| (500,000 | ) |
|
| -17.86 | % |
The decrease in loan growth during the first six months of 2021 was attributable to the seasonal maturities of municipal loans, which was offset in part by an increase in PPP loans and CRE loans. The Company booked a total of $58.6 million of PPP loans during the first six months of 2021, which was offset in part by paydowns or payoffs of certain PPP loans through the SBA’s forgiveness program totaling $47.4 million. Also included in the commercial loan growth were originations of $2.4 million in commercial loans purchased through BHG. This portfolio has served well to support asset growth and provide geographic diversification, and with average duration expected to be slightly longer than the Company’s loan portfolio average, it is expected to reduce exposure to falling rates in the near term. The Company has established conservative credit parameters and expects a low risk of default in this portfolio.
The increase in the securities AFS portfolio is attributable to the purchase of $41.6 million in securities AFS during the first six months of 2021, consisting of $5.6 million in US Treasuries, $3.0 million in US Government Bonds, $32.1 million in MBS and $1.0 million in CMOs. These purchases were reduced in part by maturities and calls exercised amounting to $2.7 million, as well as principal payments on MBS totaling $6.8 million, accounting for the year to date increase in the AFS portfolio noted in the tables above. In management’s view, the size of the securities AFS portfolio is appropriate and proportional to the overall asset base, as this portfolio serves an important role in the Company’s liquidity position.
| 15 |
| Table of Contents |
Most of the fluctuation in demand deposits is due to a year to date increase in business checking accounts of $17.2 million, or 12.38%, which the Company believes is a result of the distribution of funds generated through the PPP loans. The overall decrease in interest-bearing transaction accounts reflects the combined effect of an increase of $10.2 million, or 10.0%, in consumer interest-bearing transaction accounts, and $4.4 million, or 30.7% in ATS accounts, offset by a decrease of $19.1 million, or 46.4%, in municipal deposit accounts and $5.5 million, or 16.8% in the deposit account of the Company’s affiliate, CFSG. The increase of $16.9 million, or 22.0%, in consumer and business money market accounts year to date was offset, in part by decreases in the ICS money market accounts of $8.3 million, or 35.9% and non-arbitrage borrowing accounts of $12.9 million, or 84.6%. The increase in savings deposits of $19.2 million, or 15.4%, is attributable in part to parked funds as customers await more favorable rates for time deposits, as well as deposits through the stimulus payments and tax credits from the U.S. Government. The decrease in time deposits was split between a decrease in wholesale time deposits of $3.5 million, or 38.5%, and a decrease in retail time deposits of $1.8 million, or 1.7%. The decrease in long-term advances was due to maturities in the JNE advances. See “Liquidity and Capital Resources” section for additional information on these advances.
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 bps shift upward and a 100 bps 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, interest income is expected to trend upward as the short-term asset base (cash and adjustable rate loans) quickly cycle upward. However, as rates continue to rise, the cost of wholesale funds increases and pressure to increase rates paid on the retail funding base likewise increases, putting pressure on NII and reducing the benefit to rising rates. In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs. Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment. The slope of the yield curve will be very important to the Company’s margins going forward.
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 June 30, 2021:
Rate Change |
| Percent Change in NII |
| |
|
|
|
| |
Down 100 bps |
|
| -0.7 | % |
Up 200 bps |
|
| 4.4 | % |
| 16 |
| Table of Contents |
The amounts shown in the table above are well 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, or the measures that the FRB may take in managing monetary policy in response to external events such as the COVID-19 pandemic or emerging threats from variants of the virus.
As of June 30, 2021, 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 reference rates will be phased out, beginning at the end of 2021. 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 Company’s Indenture, if 3-month LIBOR is not available, the Debenture 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 interests, loans to industry segments, and the geographic distribution of commercial real estate loans. Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the Company's internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.
Residential mortgages represented 29.3% of the Company’s loan balances as of June 30, 2021, a level that has been on a gradual decline in recent years, consistent with the Company’s strategic shift to commercial lending. The Company maintains a mortgage loan portfolio of traditional mortgage products and does not engage in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-values exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. Junior lien home equity products make up 17.6% 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 & industrial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial and CRE loans together comprised 70.1% of the Company’s loan portfolio at June 30, 2021, compared to 70.0% at December 31, 2020. Those percentages included the Company’s portfolio of PPP loans which was $71.6 million at June 30, 2021, compared to $64.4 at December 31, 2020.
Growth in the CRE portfolio in recent years has enhanced the geographic diversification of the loan portfolio as it has been driven by new loan volume outside the Company’s primary market area, principally in Chittenden County and in northern Windsor County around the White River Junction, Vermont 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 who know the area well, while Windsor County is being served through a loan production office in Lebanon, New Hampshire by a commercial lender from the St. Johnsbury office with previous lending experience serving the greater White River Junction-Lebanon area. Larger transactions continue to be centrally underwritten and monitored through the Company’s commercial credit department. The types of transactions driving the growth in the CRE portfolio 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 $284.9 million CRE portfolio at June 30, 2021 were approximately $98.0 million in owner-occupied CRE and $97.3 million in non-owner occupied CRE.
| 17 |
| Table of Contents |
The following table reflects the composition of the Company's loan portfolio, by portfolio segment, as a percentage of total loans as of the dates indicated:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & industrial |
| $ | 172,804,158 |
|
|
| 24.54 | % |
| $ | 161,067,501 |
|
|
| 22.70 | % |
Commercial real estate |
|
| 284,946,461 |
|
|
| 40.46 | % |
|
| 280,544,550 |
|
|
| 39.55 | % |
Municipal |
|
| 35,807,161 |
|
|
| 5.09 | % |
|
| 54,807,367 |
|
|
| 7.73 | % |
Residential real estate - 1st lien |
|
| 170,113,951 |
|
|
| 24.16 | % |
|
| 170,507,263 |
|
|
| 24.04 | % |
Residential real estate - Jr lien |
|
| 36,355,567 |
|
|
| 5.16 | % |
|
| 38,147,659 |
|
|
| 5.38 | % |
Consumer |
|
| 4,173,978 |
|
|
| 0.59 | % |
|
| 4,280,990 |
|
|
| 0.60 | % |
Total loans |
|
| 704,201,276 |
|
|
| 100.00 | % |
|
| 709,355,330 |
|
|
| 100.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL |
|
| (7,719,257 | ) |
|
|
|
|
|
| (7,208,485 | ) |
|
|
|
|
Deferred net loan fees |
|
| (2,799,132 | ) |
|
|
|
|
|
| (1,195,741 | ) |
|
|
|
|
Net loans |
| $ | 693,682,887 |
|
|
|
|
|
| $ | 700,951,104 |
|
|
|
|
|
Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. At June 30, 2021, the Company had $101.1 million in guaranteed loans with guaranteed balances of $99.7 million, compared to $93.4 million in guaranteed loans with guaranteed balances of $86.1 million at December 31, 2020. Included in the totals are the PPP loans disclosed earlier in this discussion, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.
At June 30, 2021, loan balances in the retail, restaurant and bars, hotels and lodging, and breweries totaled $31.7 million, $5.9 million, $28.0 million, and $16.6 million, respectively. These segments of the economy have been particularly impacted by the COVID-19 business shutdowns and re-opening restrictions. While the Company has performed additional stress testing and oversight of these loan portfolios, the credit quality may deteriorate in future periods should COVID-19 business restrictions persist or be reimposed in response to the emergence of variants of the virus.
The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months. Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.
The Company’s non-performing assets decreased $281,467 or 5.5%, during the first six months of 2021. Increases in CRE and residential mortgage loan delinquencies in the 90 days or more past due, were offset in part by decreases in the same loan segments within the non-accrual loan portfolio. There were no claims receivable on related government guaranteed loans at June 30, 2021 compared to claims of $1,939 at December 31, 2020. Non-performing loans as of June 30, 2021 carried RD and SBA guarantees totaling $274,162, compared to $316,752 at December 31, 2020.
| 18 |
| Table of Contents |
The following table reflects the composition of the Company's non-performing assets, by portfolio segment, as a percentage of total non-performing assets as of the dates indicated:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
Loans past due 90 days or more |
|
|
|
|
|
|
|
|
|
|
|
| ||||
and still accruing (1) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
| $ | 623,734 |
|
|
| 12.77 | % |
| $ | 0 |
|
|
| 0.00 | % |
Residential real estate - 1st lien |
|
| 533,391 |
|
|
| 10.92 | % |
|
| 390,288 |
|
|
| 7.56 | % |
Residential real estate - Jr lien |
|
| 35,098 |
|
|
| 0.72 | % |
|
| 98,889 |
|
|
| 1.91 | % |
Total |
|
| 1,192,223 |
|
|
| 24.41 | % |
|
| 489,177 |
|
|
| 9.47 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 394,901 |
|
|
| 8.09 | % |
|
| 434,196 |
|
|
| 8.41 | % |
Commercial real estate |
|
| 1,836,177 |
|
|
| 37.61 | % |
|
| 1,875,942 |
|
|
| 36.33 | % |
Residential real estate - 1st lien |
|
| 1,274,249 |
|
|
| 26.10 | % |
|
| 2,173,315 |
|
|
| 42.09 | % |
Residential real estate - Jr lien |
|
| 184,924 |
|
|
| 3.79 | % |
|
| 191,311 |
|
|
| 3.70 | % |
Total |
|
| 3,690,251 |
|
|
| 75.59 | % |
|
| 4,674,764 |
|
|
| 90.53 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Performing Assets |
| $ | 4,882,474 |
|
|
| 100.00 | % |
| $ | 5,163,941 |
|
|
| 100.00 | % |
(1) | No commercial and industrial loans, municipal loans or consumer loans were past due 90 days or more and accruing, and no municipal loans or consumer loans were in non-accrual status as of the consolidated balance sheet dates presented. In accordance with Company policy, delinquent consumer loans are charged off at 120 days past due. There were no OREO properties as of the balance sheet dates presented. |
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 below the current market rate. 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.
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:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| Number of |
|
| Principal |
|
| Number of |
|
| Principal |
| ||||
|
| Loans |
|
| Balance |
|
| Loans |
|
| Balance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & industrial |
|
| 7 |
|
| $ | 272,039 |
|
|
| 6 |
|
| $ | 270,695 |
|
Commercial real estate |
|
| 4 |
|
|
| 660,298 |
|
|
| 4 |
|
|
| 711,816 |
|
Residential real estate - 1st lien |
|
| 15 |
|
|
| 1,314,242 |
|
|
| 18 |
|
|
| 1,892,695 |
|
Residential real estate - Jr lien |
|
| 1 |
|
|
| 45,179 |
|
|
| 1 |
|
|
| 48,456 |
|
Total |
|
| 27 |
|
| $ | 2,291,758 |
|
|
| 29 |
|
| $ | 2,923,663 |
|
The remaining TDRs were performing in accordance with their modified terms as of the dates presented and consisted of the following:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| Number of |
|
| Principal |
|
| Number of |
|
| Principal |
| ||||
|
| Loans |
|
| Balance |
|
| Loans |
|
| Balance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
| 2 |
|
| $ | 50,227 |
|
|
| 2 |
|
| $ | 74,757 |
|
Residential real estate - 1st lien |
|
| 32 |
|
|
| 2,507,226 |
|
|
| 31 |
|
|
| 2,417,563 |
|
Residential real estate - Jr lien |
|
| 1 |
|
|
| 4,174 |
|
|
| 1 |
|
|
| 4,775 |
|
Total |
|
| 35 |
|
| $ | 2,561,627 |
|
|
| 34 |
|
| $ | 2,497,095 |
|
| 19 |
| Table of Contents |
As of the balance sheet dates, the Company evaluates whether it is contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans. The Company is contractually committed to lend on one SBA guaranteed line of credit to a borrower whose lending relationship was previously 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 6 to the accompanying unaudited interim 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 to loan segments, including residential first and junior lien mortgages, CRE, commercial & industrial, and consumer loan portfolios, other than the municipal loans as there has never been a loss recorded in that loan segment. The Company applies numerous qualitative factors to each segment of the loan portfolio. Those factors include the levels of and trends in delinquencies and non-accrual loans, criticized and classified assets, volumes and terms of loans, and the impact of any loan policy changes. Experience, ability and depth of lending personnel, levels of policy and documentation exceptions, national and local economic trends, the competitive environment, and concentrations of credit are also factors considered.
Specific allocations to the ALL are made for certain impaired loans. Impaired loans include all troubled debt restructurings regardless of amount, and all loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement. The Company reviews all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements. See Note 6 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.
The following table summarizes the Company's loan loss experience for the periods presented:
As of or for the Six Months Ended June 30, |
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
Loans outstanding, end of period |
| $ | 704,201,276 |
|
| $ | 720,914,799 |
|
Average loans outstanding during period |
| $ | 724,657,107 |
|
| $ | 661,041,857 |
|
Non-accruing loans, end of period |
| $ | 3,690,251 |
|
| $ | 4,808,846 |
|
Non-accruing loans, net of government guarantees |
| $ | 3,416,089 |
|
| $ | 4,484,089 |
|
|
|
|
|
|
|
|
|
|
ALL, beginning of period |
| $ | 7,208,485 |
|
| $ | 5,926,491 |
|
Loans charged off: |
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| (18,847 | ) |
|
| 0 |
|
Residential real estate - 1st lien |
|
| 0 |
|
|
| (77,695 | ) |
Residential real estate - Jr lien |
|
| 0 |
|
|
| (28,673 | ) |
Consumer |
|
| (37,373 | ) |
|
| (42,898 | ) |
Total loans charged off |
|
| (56,220 | ) |
|
| (149,266 | ) |
Recoveries: |
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 4,761 |
|
|
| 1,087 |
|
Commercial real estate |
|
| 7,000 |
|
|
| 20,000 |
|
Residential real estate - 1st lien |
|
| 2,326 |
|
|
| 5,810 |
|
Residential real estate - Jr lien |
|
| 960 |
|
|
| 4,747 |
|
Consumer |
|
| 16,947 |
|
|
| 22,813 |
|
Total recoveries |
|
| 31,994 |
|
|
| 54,457 |
|
Net loans charged off |
|
| (24,226 | ) |
|
| (94,809 | ) |
Provision charged to income |
|
| 534,998 |
|
|
| 684,002 |
|
ALL, end of period |
| $ | 7,719,257 |
|
| $ | 6,515,684 |
|
|
|
|
|
|
|
|
|
|
Net charge offs to average loans outstanding |
|
| 0.003 | % |
|
| 0.014 | % |
Provision charged to income as a percent of average loans |
|
| 0.074 | % |
|
| 0.103 | % |
ALL to average loans outstanding |
|
| 1.065 | % |
|
| 0.986 | % |
ALL to non-accruing loans |
|
| 209.180 | % |
|
| 135.494 | % |
ALL to non-accruing loans net of government guarantees |
|
| 225.968 | % |
|
| 145.307 | % |
| 20 |
| Table of Contents |
The ALL increased $1.2 million, or 18.5%, as of June 30, 2021 compared to June 30, 2020, while the provision for loan losses decreased $149,004, or 21.8%, for the six months ended June 30, 2021, compared to the same period last year. The decrease in the provision between periods reflects the growth during the first six months of 2020 in the loan portfolio and higher than anticipated charge off activity, compared to a decrease of $12.4 million in the loan portfolio other than SBA guaranteed PPP loans and negligible charge off activity during the first six months of 2021. Increases in the provision in future periods may be necessary if economic conditions and credit quality continue to deteriorate due to the continuing impacts of the COVID-19 pandemic.
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.
Based on the six month ALL analysis, in management’s view the reserve balance of $7.7 million at June 30, 2021 is appropriate to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $912,420 compared to $398,913 at December 31, 2020. 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 credit 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 uncertainties as to the full 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.
In addition to credit risk in the Company’s loan portfolio and liquidity risk in its loan and deposit-taking operations, the Company’s business activities also generate market risk. Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Declining capital markets can result in fair value adjustments necessary to record decreases in the value of the investment portfolio for other-than-temporary-impairment. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending and deposit taking activities. During recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to loan prepayment risks, early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product. As discussed above under "Interest Rate Risk and Asset and Liability Management", the Company actively monitors and manages its interest rate risk through the ALCO process. However, sudden and dramatic changes in prevailing interest rates, such as those adopted by the FRB in response to the COVID-19 pandemic, create challenges for the Company’s interest rate risk management, as does the current prolonged low interest rate environment.
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 the first six months of 2021, the Company did not engage in any activity that created any additional types of off-balance sheet risk.
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 rollover risk on deposits and limits reliance on volatile short-term borrowed funds. Short-term funding needs arise from declines in deposits or other funding sources and from funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and low-cost funds.
| 21 |
| Table of Contents |
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. At June 30, 2021 and December 31, 2020, the Company had no one-way CDARS outstanding. In addition, two-way (that is, reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, allow the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits by exchanging deposits with other participating FDIC-insured financial institutions. At June 30, 2021 and December 31, 2020, the Company reported $5.1 million and $4.9 million, respectively, in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was $14.8 million at June 30, 2021, compared to $23.1 million at December 31, 2020, and the balance in ICS reciprocal demand deposits as of those dates was $52.3 million and $53.1 million, respectively.
During July, 2020, the Company issued $5.0 million of DTC Brokered CDs in three blocks of $1.3 million, $2.3 million, and $1.4 million with maturities in October, 2020, January, 2021 and April, 2021, respectively. The block that matured in October, 2020 was not replaced, leaving a total outstanding at December 31, 2020 of $3.7 million. The blocks that matured in January and April of 2021 were also not replaced, leaving no DTC Brokered CDs outstanding at June 30, 2021. Although wholesale deposit funding through DTC is an important supplemental source of liquidity that has proven efficient, flexible and cost-effective when compared with other borrowing methods, the growth in deposits during 2020 and the first six months of 2021 has reduced the Company’s need for supplementary funding sources in the near term.
At June 30, 2021 and December 31, 2020, borrowing capacity of $96.4 million and $93.1 million, respectively, was available through the FHLBB, secured by the Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances and by collateral pledges securing FHLBB letters of credit collateralizing public unit deposits. The Company also has an unsecured Federal Funds credit line with the FHLBB with an available balance of $500,000 and no outstanding advances during any of the respective comparison periods. Interest is chargeable at a rate determined daily, approximately 25 bps higher than the rate paid on federal funds sold.
The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of $52.2 million and $50.4 million, respectively, at June 30, 2021 and December 31, 2020. Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 25 bps. The Company had no outstanding advances through this facility at June 30, 2021 or December 31, 2020.
On April 20, 2020, the Company became eligible to borrow through the FRB’s PPPLF under a lending arrangement with the FRBB to support its PPP lending activities. Under the PPPLF, advances from the FRBB carry a fixed interest rate of 35 bps and must be secured by pledges of loans to small businesses guaranteed by the SBA. The Company had no PPPLF advances as of June 30, 2021 or December 31, 2020. On June 25, 2021, the FRBB announced that it would extend for a final time its PPPLF by an additional month to July 30, 2021. The Company did not exercise its right to borrow during the additional time period.
The following table reflects the Company’s outstanding FHLBB and FRBB advances against the respective lines as of the dates indicated:
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
Long-Term Advances(1) |
|
|
|
|
|
| ||
FHLBB term advance, 0.00%, due January 07, 2021 |
| $ | 0 |
|
| $ | 150,000 |
|
FHLBB term advance, 0.00%, due February 26, 2021 |
|
| 0 |
|
|
| 350,000 |
|
FHLBB term advance, 0.00%, due November 22, 2021 |
|
| 1,000,000 |
|
|
| 1,000,000 |
|
FHLBB term advance, 0.00%, due September 22, 2023 |
|
| 200,000 |
|
|
| 200,000 |
|
FHLBB term advance, 0.00%, due November 12, 2025 |
|
| 300,000 |
|
|
| 300,000 |
|
FHLBB term advance, 0.00%, due November 13, 2028 |
|
| 800,000 |
|
|
| 800,000 |
|
|
| $ | 2,300,000 |
|
| $ | 2,800,000 |
|
(1) | All long-term advances are pursuant to the JNE program, through which the FHLBB provides a subsidy, funded by the FHLBB’s earnings, to write down interest rates to zero percent on advances that finance qualifying loans to small businesses. JNE advances must support small business in New England that create and/or retain jobs, or otherwise contribute to overall economic development activities. |
The Company has unsecured lines of credit with three correspondent banks with aggregate available borrowing capacity totaling $25.5 million as of the balance sheet dates presented in this quarterly report. The Company had no outstanding advance against these credit lines as of the balance sheet dates presented.
Securities sold under agreements to repurchase provide another funding source for the Company. At June 30, 2021 and December 31, 2020, the Company had outstanding repurchase agreement balances of $23.5 million and $38.7 million, respectively. These repurchase agreements mature and are repriced daily.
| 22 |
| Table of Contents |
The following table illustrates the changes in shareholders' equity from December 31, 2020 to June 30, 2021:
Balance at December 31, 2020 (book value $14.25 per common share) |
| $ | 77,288,713 |
|
Net income |
|
| 6,072,107 |
|
Issuance of common stock through the DRIP |
|
| 554,915 |
|
Dividends declared on common stock |
|
| (2,342,808 | ) |
Dividends declared on preferred stock |
|
| (24,375 | ) |
Change in AOCI on AFS securities, net of tax |
|
| (821,463 | ) |
Balance at June 30, 2021 (book value $14.81 per common share) |
| $ | 80,727,089 |
|
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.
As described in more detail in Note 23 to the audited consolidated financial statements contained in the Company’s 2020 Annual Report on Form 10-K and under the caption “LIQUIDITY AND CAPITAL RESOURCES” in the MD&A section of that report, the Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies pursuant to which they must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
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 Tier 1 leverage ratio, or 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.
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 June 30, 2021, but have not elected to do so.
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.
As of June 30, 2021, 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 or emerging variants of the virus.
| 23 |
| Table of Contents |
The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Minimum |
|
| Minimum |
| ||||||||||||||
|
|
|
|
|
|
|
| Minimum |
|
| For Capital |
|
| To Be Well |
| |||||||||||||||||
|
|
|
|
|
|
|
| For Capital |
|
| Adequacy Purposes |
|
| Capitalized Under |
| |||||||||||||||||
|
|
|
|
|
|
|
| Adequacy |
|
| with Conservation |
|
| Prompt Corrective |
| |||||||||||||||||
|
| Actual |
|
| Purposes: |
|
| Buffer(1): |
|
| Action Provisions(2): |
| ||||||||||||||||||||
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
|
| Amount |
|
| Ratio |
| ||||||||
|
| (Dollars in Thousands) |
| |||||||||||||||||||||||||||||
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common equity tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
(to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Company |
| $ | 81,882 |
|
|
| 14.78 | % |
| $ | 24,935 |
|
|
| 4.50 | % |
| $ | 38,787 |
|
|
| 7.00 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 81,274 |
|
|
| 14.68 | % |
| $ | 24,913 |
|
|
| 4.50 | % |
| $ | 38,753 |
|
|
| 7.00 | % |
| $ | 35,985 |
|
|
| 6.50 | % |
Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 81,882 |
|
|
| 14.78 | % |
| $ | 33,246 |
|
|
| 6.00 | % |
| $ | 47,099 |
|
|
| 8.50 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 81,274 |
|
|
| 14.68 | % |
| $ | 33,217 |
|
|
| 6.00 | % |
| $ | 47,058 |
|
|
| 8.50 | % |
| $ | 44,290 |
|
|
| 8.00 | % |
Total capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 88,820 |
|
|
| 16.03 | % |
| $ | 44,328 |
|
|
| 8.00 | % |
| $ | 58,181 |
|
|
| 10.50 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 88,201 |
|
|
| 15.93 | % |
| $ | 44,290 |
|
|
| 8.00 | % |
| $ | 58,130 |
|
|
| 10.50 | % |
| $ | 55,362 |
|
|
| 10.00 | % |
Tier 1 capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 81,882 |
|
|
| 8.84 | % |
| $ | 37,062 |
|
|
| 4.00 | % |
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 81,274 |
|
|
| 8.78 | % |
| $ | 37,044 |
|
|
| 4.00 | % |
|
| N/A |
|
|
| N/A |
|
| $ | 46,305 |
|
|
| 5.00 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 77,594 |
|
|
| 14.15 | % |
| $ | 24,680 |
|
|
| 4.50 | % |
| $ | 38,391 |
|
|
| 7.00 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 77,017 |
|
|
| 14.06 | % |
| $ | 24,654 |
|
|
| 4.50 | % |
| $ | 38,351 |
|
|
| 7.00 | % |
| $ | 35,611 |
|
|
| 6.50 | % |
Tier 1 capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 77,594 |
|
|
| 14.15 | % |
| $ | 32,907 |
|
|
| 6.00 | % |
| $ | 46,618 |
|
|
| 8.50 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 77,017 |
|
|
| 14.06 | % |
| $ | 32,872 |
|
|
| 6.00 | % |
| $ | 46,569 |
|
|
| 8.50 | % |
| $ | 43,829 |
|
|
| 8.00 | % |
Total capital (to risk-weighted assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 84,455 |
|
|
| 15.40 | % |
| $ | 43,876 |
|
|
| 8.00 | % |
| $ | 57,587 |
|
|
| 10.50 | % |
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 83,871 |
|
|
| 15.31 | % |
| $ | 43,829 |
|
|
| 8.00 | % |
| $ | 57,526 |
|
|
| 10.50 | % |
| $ | 54,787 |
|
|
| 10.00 | % |
Tier 1 capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
| $ | 77,594 |
|
|
| 8.80 | % |
| $ | 35,273 |
|
|
| 4.00 | % |
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
|
| N/A |
|
Bank |
| $ | 77,017 |
|
|
| 8.74 | % |
| $ | 35,252 |
|
|
| 4.00 | % |
|
| N/A |
|
|
| N/A |
|
| $ | 44,065 |
|
|
| 5.00 | % |
(1) | Conservation Buffer is calculated based on risk-weighted assets and does not apply to calculations of average assets. |
(2) | Applicable to banks, but not bank holding companies. |
The Company's ability to pay dividends to its shareholders is largely dependent on the Bank's ability to pay dividends to the Company. In general, a national bank may not pay dividends that exceed net income for the current and preceding two years regardless of statutory restrictions, as a matter of regulatory policy, banks and bank holding companies should pay dividends only out of current earnings and only if, after paying such dividends, they remain adequately capitalized.
| 24 |
| Table of Contents |
ITEM 6. Exhibits
The following exhibits are filed with, or incorporated by reference in, this report:
|
|
| 25 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMMUNITY BANCORP.
DATED: September 3, 2021 | /s/Kathryn M. Austin |
|
| Kathryn M. Austin, President |
|
| & Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
|
DATED: September 3, 2021 | /s/Louise M. Bonvechio |
|
| Louise M. Bonvechio, Corporate |
|
| Secretary & Treasurer |
|
| (Principal Financial Officer) |
|
| 26 |
| Table of Contents |
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2021
COMMUNITY BANCORP.
EXHIBITS
EXHIBIT INDEX
|
|
| 27 |
EXHIBIT 31.1
CERTIFICATION
I, Kathryn M. Austin, President and Chief Executive Officer (Principal Executive Officer), certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Community Bancorp.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| Community Bancorp. |
| |
|
|
|
|
|
| September 3, 2021 | By: | /s/ Kathryn M. Austin |
|
|
| Name: | Kathryn M. Austin |
|
|
| Title: | President & Chief Executive Officer |
|
|
|
| (Principal Executive Officer) |
|
CERTIFICATION
I, Louise M. Bonvechio, Corporate Secretary and Treasurer (Principal Financial Officer), certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Community Bancorp.; |
|
|
|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
| Community Bancorp. |
| |
|
|
|
|
|
| September 3, 2021 | By: | /s/ Louise M. Bonvechio |
|
|
| Name: | Louise M. Bonvechio |
|
|
| Title: | Corporate Secretary and Treasurer |
|
|
|
| (Principal Financial Officer) |
|