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FINANCIAL CONDITION AND RESULTS OF OPERATIONS
−Removed: Period Ended September 30, 2021
+Added: Period Ended March 31, 2022
The following discussion analyzes the consolidated financial condition of Community Bancorp.
−Removed: and its wholly-owned subsidiary, Community National Bank, as of September 30, 2021 and December 31, 2020, and its consolidated results of operations for the three- and nine-month interim periods presented.
−Removed: The Company is considered a “smaller reporting company” under the disclosure rules of the SEC.
+Added: and its wholly-owned subsidiary, Community National Bank, as of March 31, 2022 and December 31, 2021, and its consolidated results of operations for the three-month interim period and one year period presented.
+Added: The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC.
Accordingly, the Company has elected to provide its audited 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.
−Removed: 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 2021 Annual Report on Form 10-K filed with the SEC.
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They necessarily involve risks, uncertainties and assumptions.
−Removed: 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;
+Added: Examples of forward looking statements included in this discussion include, but are not limited to, statements regarding the potential effects of the COVID-19 pandemic on our business, financial condition, results of operations and prospects;
the estimated contingent liability related to assumptions made within the asset/liability management process;
management’s expectations as to the future interest rate environment and the Company’s related liquidity level;
−Removed: credit risk expectations relating to the Company’s loan portfolio and its participation in the FHLBB MPF program;
+Added: credit risk expectations relating to the Company’s loan portfolio;
and management’s general outlook for the future performance of the Company or the local or national economy.
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changes in the level of nonperforming assets and charge-offs;
−Removed: 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;
+Added: changes in applicable accounting policies, practices and standards, including, without limitation, implementation of pending changes to the measurement of credit losses in financial statements under U.S.
+Added: GAAP pursuant to the CECL model;
changes in consumer and business spending, borrowing and savings habits;
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the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%;
−Removed: 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;
−Removed: government and regulatory responses to the COVID-19 pandemic and emerging threats from variants of the virus;
+Added: continuing the effects of COVID-19 and emerging variants of the virus on our Company, the communities where we have branches and loan production offices, the State of Vermont and the national and global economies and overall stability of the financial markets;
+Added: the continuing effects of government and regulatory responses to the COVID-19 pandemic;
operational and internal system failures due to changes in normal business practices, including remote working for Company staff;
increased cybercrime and payment system risk due to increase usage by customers of online and other remote banking channels;
−Removed: 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;
−Removed: the short-term and long-term effects of government interventions in the U.S.
−Removed: 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.
+Added: the impact of inflation on the Company’s customers and on its financial results and performance;
+Added: the ongoing challenges to find qualified workers to maintain a stable workforce.
Readers are cautioned not to place undue reliance on such statements as they speak only as of the date they are made.
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However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.
−Removed: The Company’s consolidated assets on September 30, 2021 were $968,584,267 compared to $918,233,284 at December 31, 2020, an increase of 5.5%.
−Removed: Changes in the asset base included an increase of $49,970,961, or 82.3%, in securities AFS, and an increase in cash and cash equivalents of $14,702,116, or 12.8%, which was partially offset by a decrease in net loans of $17,281,314, or 2.5%.
−Removed: The growth in the securities AFS portfolio was due to purchases totaling $66.0 million during the first nine months of 2021.
−Removed: The decrease in loans was primarily attributable to forgiveness payments in the PPP portfolio, which had an aggregate principal balance of $35.7 million as of September 30, 2021, compared to $64.4 million at December 31, 2020.
−Removed: Net of the decrease in PPP loans, loans increased by $12MM, or 1.9% year to date.
−Removed: More discussion on the activity of this portfolio can be found in the Credit Risk section.
−Removed: Total deposits on September 30, 2021 were $840,094,760 compared to $782,290,840 on December 31, 2020, an increase of $57.8 million, or 7.4%, reflecting the combined effect of increases in core deposits (demand deposit accounts, non-interest bearing) of $15.5 million, or 8.30%, an increase in interest-bearing transaction accounts of $8.6 million, or 3.8%, an increase in money market funds totaling $9.2 million, or 8.0%, and an increase in savings accounts of $30.2 million, or 21.8%.
−Removed: These increases were partially offset by a decrease of $5.7 million, or 5.0%, in time deposits.
−Removed: 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.
−Removed: Consolidated net income during the third quarter of 2021 increased $818,760, or 28.4%, and year to date consolidated net income increased $2.2 million, or 28.8%, from $7.6 million for the first nine months of 2020 to $9.8 million for the same period in 2021.
−Removed: 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 nine-month comparison periods.
−Removed: Please refer to the Non-interest Income and Non-interest Expense sections for more information on these and other changes for the three- and nine-month periods ended September 30, 2021.
−Removed: Total interest income increased $1.1 million, or 13.9%, for the third quarter of 2021, compared to the same quarter in 2020, and increased $2.1 million, or 8.5%, year to date through September 30, 2021, compared to the same period in 2020.
−Removed: The increase in interest earned on the investment portfolio was due to an increase in volume, and the recognition of PPP loan processing fees from the SBA of $1.6 million for the third quarter and $3.7 million for the first nine months of 2021 contributed to the increase in both periods.
−Removed: Those processing fees represented 95.5% and 94.3%, respectively, of the total of fees on loans of $1.7 million for the third quarter of 2021, and $3.9 million for the nine months ended September 30, 2021, compared to 86.3% and 84.8%, respectively, of total fees on loans of $525,601 and $1.2 million, for the same periods in 2020.
−Removed: The opportunity for an increase in interest income from the loan growth was curbed by the mandated 1% interest rate on SBA PPP loans.
−Removed: Despite a 14.2% increase in total interest-bearing deposits year over year, a decrease in total interest expense of $322,086, or 30.7%, is noted for the third quarter of 2021 compared to 2020, and a decrease of $1.4 million, or 37.1%, is noted for the first nine months of 2021, compared to the same period in 2020.
−Removed: The 150 basis point decrease in short-term rates initiated by the FRB in March 2020 in response to the COVID-19 pandemic and sustained since then has 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.
−Removed: 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.
−Removed: The provision for loan losses for the third quarter of 2021 was $89,167 compared to $362,499 for the same quarter of 2020, and $624,165 for the first nine months of 2021, compared to just over $1.0 million for the same period in 2020, resulting in decreases of 75.4% and 40.4%, respectively, between periods.
−Removed: These decreases to the provision in both periods were primarily due to a negligible level of charge off activity, a decline in historical loss rates and a decrease in the amount of the loan portfolio during the first nine months of 2021, compared to higher than anticipated loan charge off activity as well as loan growth during the same period last year.
−Removed: Additionally, most of the loan growth during the first nine months of 2021 was attributable to PPP loans, which bear a 100% SBA guarantee, subject to borrower eligibility requirements.
−Removed: Please refer to the ALL and provisions discussion in the Credit Risk section for more information on these decreases.
−Removed: Equity capital grew to $83.2 million, with a book value per share of $15.23 as of September 30, 2021, compared to equity capital of $77.3 million and a book value of $14.25 as of December 31, 2020.
−Removed: On September 23, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $0.22 per common share, payable on November 1, 2021 to shareholders of record on October 15, 2021.
−Removed: As of September 30, 2021, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of all regulatory requirements.
−Removed: 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.
+Added: The Company’s consolidated assets on March 31, 2022 were $1,005,190,870 compared to $1,019,105,799 at December 31, 2021, a decrease of 1.4%.
+Added: Significant changes in the asset base were a decrease of $25.9 million, or 23.5%, in cash and cash equivalents, which was partially offset by an increase in net loans of $6.4 million, or 0.9%, and an increase in the available for sale investment portfolio of $3.4 million.
+Added: The decrease in cash also reflects deposit runoff, primarily in business and municipal accounts, in the first quarter.
+Added: The increase in the loan portfolio was primarily attributable to an increase of $7.8 million in commercial & industrial loans and $6.1 million in CRE loans, which was partially offset by a $7.0 million decrease in PPP loan balances.
+Added: Total deposits on March 31, 2022 were $877,300,445 compared to $879,399,953 on December 31, 2021, a decrease of $2.1 million, or 0.2%, reflecting the combined effect of decreases in core deposits (demand deposit accounts, non-interest bearing) of $5.8 million, or 2.8%, and a decrease in interest-bearing transaction accounts of $7.1 million, or 2.7%, partially offset by an increase in money market funds totaling $1.0 million, or 0.8%, and an increase in savings accounts of $9.6 million, or 5.7%.
+Added: Consolidated net income for the first three months of 2022 decreased $620,159, or 20.5% compared to the same period in 2021.
+Added: A $927,248 decrease in the amortization of PPP loan processing fees from the SBA was partially offset by an increase of $407,954 in investment income from the Company’s debt securities portfolio and adjustments to interest income totaling $177,000, which is primarily from loans coming out of non-accrual status.
+Added: Also contributing to the offset was a decrease of $54,257 in interest expense on savings and money market deposits, and a decrease of $103,849 in interest expense from time deposits.
+Added: These changes and other significant changes are discussed in the appropriate income sections of this MD&A.
+Added: Total interest income decreased $365,364, or 4.2%, year over year, due to the changes discussed in the previous paragraph related to PPP loan processing fees and investment and loan income.
+Added: The investment portfolio has increased considerably year over year accounting for the increase in investment income.
+Added: The amortization of the SBA PPP fees was $295,769 for the first three months of 2022, compared to $1.2 million for the same period in 2021.
+Added: Those processing fees represented 73.2% and 92.9%, respectively, of the total of fees on loans of $404,326 for the first three months of 2022, and $1.3 million for the first three months of 2021.
+Added: Total interest expense decreased $161,106, or 18.9%, for the first three months of 2022 compared to the same period in 2021.
+Added: A decrease in time deposits year over year is a contributing factor to the decrease in interest expense, as well as the prolonged low interest rate environment that prevailed throughout 2021 and most of the first quarter of 2022.
+Added: 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 the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve could have on net interest income.
+Added: The provision for loan losses for the first quarter of 2022 was $862,500 compared to $267,497 for the same quarter of 2021, resulting in an increase of $595,003, or 222.4%, between periods.
+Added: This increase to the provision was driven primarily by a write-down on a non-performing CRE loan totaling $667,474 during March 2022.
+Added: Please refer to the ALL and provisions discussion in the Credit Risk section for more information.
+Added: Equity capital decreased to $77.4 million, with a book value per share of $14.08 as of March 31, 2022, compared to equity capital of $84.8 million and a book value of $15.48 as of December 31, 2021.
+Added: This decrease in equity is directly related to the increase of unrealized losses in the investment portfolio, reflecting rising bond rates, which resulted in an increase of $8,744,637, net of tax, in the accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet.
+Added: This position is considered temporary and does not impact the Company’s regulatory capital ratios.
+Added: On March 16, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on May 1, 2022 to shareholders of record on April 15, 2022.
+Added: As of March 31, 2022, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements.
+Added: While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of the pandemic or government monetary policy.
CRITICAL ACCOUNTING POLICIES
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: The Company’s consolidated financial statements are prepared according to U.S.
+Added: The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes.
+Added: The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.
+Added: Because of the significance of these estimates and assumptions, there is a high likelihood that materially different amounts would be reported for the Company under different conditions or using different assumptions or estimates.
+Added: Management evaluates on an ongoing basis its judgment as to which policies are considered to be critical.
The Company’s critical accounting policies govern:
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These policies are described in the Company’s 2021 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.
−Removed: There were no material changes during the first nine months of 2021 in the Company’s critical accounting policies.
+Added: There were no material changes during the first three months of 2022 in the Company’s critical accounting policies.
RESULTS OF OPERATIONS
−Removed: Net income for the third quarter of 2021 was $3,699,202 or $0.69 per common share, compared to $2,880,443 or $0.54 per common share for the same quarter of 2020.
−Removed: Net income for the first nine months of 2021 was $9,771,309 or $1.82 per common share, compared to $7,583,992 or $1.43 per common share for the same period in 2020.
−Removed: Core earnings (NII) for the third quarter of 2021 was $8.5 million compared to $7.0 million for the same quarter in 2020 and $23.8 million for the first nine months of 2021, compared to $20.3 million for the same period in 2020.
−Removed: As noted and discussed in the Overview, interest income during the third quarter and year to date period was supported by fees generated from administering PPP loans.
−Removed: 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.
−Removed: Despite the increase in deposits between periods, interest paid on deposits, which is the major component of total interest expense, decreased $283,139, or 32.3% for the third quarter of 2021 compared to the same quarter of 2020, and $1.2 million, or 38.8%, for the first nine months of 2021 compared to the same period last year, as rates paid on deposits continue to adjust downward, reflecting the decreases in short-term rates initiated by the FRB beginning in March 2020 in response to the pandemic.
−Removed: Non-interest income for the third quarter of 2021 was $1.7 million compared to $1.9 million for the same quarter of 2020, and non-interest income for the first nine months of 2021 was $5.0 million compared to $5.1 million for the first nine months of 2020.
−Removed: Proceeds from sales of sold loans decreased from $31.5 million for the first nine months of 2020 to $6.5 million for the same period in 2021.
−Removed: This resulted in decreases in gain on sale from these proceeds totaling $359,265, or 59.7% for the third quarter of 2021 compared to the same quarter of 2020, and $433,952, or 38.1% for the first nine months of 2021 compared to the same period in 2020.
−Removed: Non-interest expense for the third quarter of 2021 was $5.5 million compared to $5.1 million for the same quarter of 2020, and non-interest expense for the first nine months of 2021 was $16.2 million compared to $15.2 million for the same period of 2020.
−Removed: The following tables summarize certain balance sheet data and the earnings performance of the Company as of the balance sheet dates and for the nine month comparison periods.
−Removed: September 30,
−Removed: Balance Sheet Data
−Removed: $ 683,669,790
−Removed: $ 700,951,104
−Removed: Total deposits
−Removed: Borrowed funds
−Removed: Junior subordinated debentures
−Removed: Total liabilities
−Removed: Total shareholders’ equity
−Removed: Book value per common share outstanding
−Removed: Nine Months Ended September 30,
−Removed: Operating Data
−Removed: Total interest income
−Removed: Total interest expense
−Removed: Net interest income
−Removed: Provision for loan losses
−Removed: Net interest income after provision for loan losses
−Removed: Non-interest income
−Removed: Non-interest expense
−Removed: Income before income taxes
−Removed: Applicable income tax expense(1)
−Removed: Per Common Share Data
−Removed: Earnings per common share (2)
−Removed: Dividends declared per common share
−Removed: Weighted average number of common shares outstanding
−Removed: Number of common shares outstanding, period end
−Removed: Applicable income tax expense assumes a 21% tax rate for both periods.
−Removed: Computed based on the weighted average number of common shares outstanding during the periods presented.
+Added: Net income for the first three months of 2022 was $2,405,542 or $0.44 per common share, compared to $3,025,701 or $0.57 per common share for the same period of 2021.
+Added: Core earnings (NII) for the first three months of 2022 were $7.6 million compared to $7.8 million for the same period in 2021.
+Added: As noted in the Overview, the decrease year over year is attributable to a decrease in the amortization of fees from administering PPP loans.
+Added: Over the past year, the portfolio of PPP loans has decreased, as these loans are forgiven and paid in full by the SBA.
+Added: The PPP loan portfolio balance decreased from $92.6 million at the end of February 2021 to $12.2 million at December 31, 2021 and then to $5.1 million as of March 31, 2022.
+Added: As these loans are paid in full, the unamortized fees are taken to income, resulting in a decrease in income year over year.
+Added: Interest paid on deposits, which is the major component of total interest expense, decreased $153,284, or 21.7% in 2022, driven in part by a decrease in time deposits.
Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings.
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The following tables show these ratios annualized, as well as other equity ratios, for the comparison periods presented.
−Removed: Three Months Ended September 30,
−Removed: Return on average assets
−Removed: Return on average equity
−Removed: Dividend payout ratio (1)
−Removed: Average equity to average assets
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
Return on average assets
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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.
−Removed: The Company’s tax-exempt interest income of $246,627 and $319,697 for the three months ended September 30, 2021 and 2020, respectively, and $759,855 and $1.1 million for the nine months ended September 31, 2021 and 2020, respectively, was derived from loans to local municipalities of $53.8 million and $52.3 million at September 30, 2021 and 2020, respectively.
+Added: The Company’s tax-exempt interest income of $236,043 and $258,761 for the three months ended March 31, 2022 and 2021, respectively, was derived from loans to local municipalities of $48.7 million and $52.2 million, and tax-exempt municipal investments of $2.2 million and $0, at March 31, 2022 and 2021, respectively.
The following tables show the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.
−Removed: Three Months Ended
−Removed: September 30,
−Removed: Net interest income as presented
−Removed: Effect of tax-exempt income
−Removed: Net interest income, tax equivalent
−Removed: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended March 31,
Net interest income as presented
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Net interest income, tax equivalent
−Removed: 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.
−Removed: The following tables present average interest-earning assets and average interest-bearing liabilities supporting earning assets for the respective comparison periods.
+Added: The following tables present the daily average interest-earning assets and the daily 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.
−Removed: Three Months Ended September 30,
−Removed: Interest-Earning Assets
−Removed: $ 705,990,188
−Removed: $ 735,066,284
−Removed: Taxable investment securities
−Removed: Sweep and interest-earning accounts
−Removed: Other investments (2)
−Removed: $ 879,464,364
−Removed: $ 800,977,355
−Removed: Interest-Bearing Liabilities
−Removed: Interest-bearing transaction accounts
−Removed: $ 222,858,078
−Removed: $ 187,233,075
−Removed: Money market accounts
−Removed: Savings deposits
−Removed: Time deposits
−Removed: Borrowed funds
−Removed: Repurchase agreements
−Removed: Finance lease obligations
−Removed: Junior subordinated debentures
−Removed: $ 660,361,589
−Removed: $ 584,061,947
−Removed: Net interest income
−Removed: Net interest spread (3)
−Removed: Net interest margin (4)
−Removed: Included in gross loans are non-accrual loans with average balances of $5,274,531 and $4,677,752 for the three months ended September 30, 2021 and 2020, respectively.
−Removed: 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 $52,546,634 and $56,337,312 for the three months ended September 30, 2021 and 2020, respectively.
−Removed: Included in other investments is the Company’s FHLBB Stock with average balances of $769,000 and $734,700 for the three months ended September 30, 2021 and 2020, respectively, with a dividend rate of approximately 1.52% and 4.12%, respectively, per quarter.
−Removed: Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.
−Removed: Net interest margin is net interest income divided by average earning assets.
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
Interest-Earning Assets
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Taxable investment securities
+Added: Tax-exempt investment securities
Sweep and interest-earning accounts
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$ 214,680,380
−Removed: Money market accounts
+Added: Money market funds
Savings deposits
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Net interest margin (4)
−Removed: Included in gross loans are non-accrual loans with average balances of $4,388,561 and $4,706,338 for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: 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 $52,105,647 and $58,086,317 for the nine months ended September 30, 2021 and 2020, respectively.
−Removed: Included in other investments is the Company’s FHLBB Stock with average balances of $768,734 and $782,359, respectively, with a dividend rate of approximately 1.52% and 4.37%, respectively, for the nine months ended September 30, 2021 and 2020, respectively.
+Added: Included in gross loans are non-accrual loans with average balances of $5,736,827 and $4,087,346 for the three months ended March 31, 2022 and 2021, respectively.
+Added: 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 $49,022,025 and $52,232,117 for the three months ended March 31, 2022 and 2021, respectively.
+Added: Included in other investments is the Company’s FHLBB Stock with average balances of $714,250 and $768,400, respectively, with a dividend rate of approximately 2.66% and 1.54%, respectively, for the three months ended March 31, 2022 and 2021, respectively.
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.
Net interest margin is net interest income divided by average earning assets.
−Removed: The average volume of interest-earning assets for the three- and nine-month periods ended September 30, 2021 increased 9.8% and 17.3%, respectively, compared to the same periods last year, while the average yield on interest-earning assets increased 12 bps and decreased 34 bps, respectively.
−Removed: The increase in average yield in the three-month comparison periods is primarily due to activity within the PPP loan portfolio.
−Removed: When these loans are paid off, as part of the SBA forgiveness program, the remainder of the deferred loan fee associated with each loan is taken into income.
−Removed: These fees for the third quarter of 2021 amounted to $1.6 million, compared to $453,505 for the third quarter of 2020.
−Removed: The decrease in the average yield in all other categories reflects the persistent low federal funds rate.
−Removed: The average volume of loans decreased 4.0% over the three-month comparison periods of 2021 versus 2020 and increased 4.7% over the nine-month comparison periods of 2021 versus 2020, while the average yield on loans increased 73 bps and 15 bps, respectively.
−Removed: Loans accounted for 80.3% and 81.6%, respectively, of the average interest-earning asset portfolio for the three- and nine- month periods ended September 30, 2021 down from 91.8% and 91.4%, respectively, for the same periods last year.
−Removed: This percentage decline occurred despite the increase in the average volume of the loan portfolio and reflects the overall growth in the balance sheet, including in the significant increase in average volume of the taxable investment portfolio as a percentage of total assets between periods, as described below.
−Removed: Interest earned on the loan portfolio as a percentage of total interest income was 95.3% and 95.5%, respectively for the three- and nine-month periods in 2021 compared to 95.8% and 95.5%, respectively for the same periods in 2020.
−Removed: The average volume of the taxable investment portfolio (classified as AFS) increased 109.1% and 98.7% during the three- and nine-month periods ended September 30, 2021, compared to the same periods last year, while the average yield decreased 86 bps and 105 bps, respectively, between periods.
−Removed: The increase in volume for both periods reflects the excess liquidity resulting from the PPP loan program and other government mitigation measures adopted in response to the pandemic.
−Removed: The average volume of sweep and interest-earning accounts, which consists primarily of interest-bearing accounts at the FRBB and two correspondent banks, increased $59.9 million, or 293.0% during the three-month period ended September 30, 2021, compared to the same period last year, and $54.6 million, or 281.5%, for the nine-month period ended September 30, 2021, while the average yield on these funds decreased 104 bps and 124 bps, respectively.
−Removed: 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.
−Removed: The average volume of interest-bearing liabilities for the three- and nine month periods ended September 30, 2021 increased 13.5% and 15.8%, respectively, compared to the same periods last year, while the average rate paid on interest-bearing liabilities decreased 28 bps and 40 bps, respectively, reflecting the decrease in the federal funds rate beginning in March 2020.
−Removed: Customer deposits of PPP loan proceeds and stimulus payments were contributing factors to the increase in average volume.
−Removed: The average volume of interest-bearing transaction accounts increased 19.0% and 25.1%, respectively, during the three- and nine-month periods ended September 30, 2021 compared to the same periods last year, while the average rate paid on these accounts decreased 20 bps and 37 bps, respectively.
−Removed: Contributing factors to the increase in average volume were increases of $8.0 million, or 19.7%, and $9.8 million, or 23.6%, respectively, in the average volume of ICS DDAs, and $21.9 million or 24.0%, and $25.1 million, or 31.1%, respectively, in the average volume of other interest-bearing DDAs.
−Removed: Interest-bearing transaction accounts comprised 33.8% and 35.0%, respectively, of the average interest-bearing liabilities for the three- and nine-month periods ended September 30, 2021 compared to 32.1% and 32.4%, respectively, for the same periods last year.
−Removed: The average volume of money market accounts increased 19.4% and 20.1%, respectively, during the three- and nine-month periods ended September 30, 2021 compared to the same periods in 2020, while the average rate paid decreased 34 bps and 62 bps, respectively.
−Removed: The average volume of savings accounts increased 24.6% and 20.7%, respectively, for the three- and nine-month periods ended September 30, 2021 versus the same periods in 2020, while the average rate paid increased one bps and decreased three bps, respectively.
−Removed: Savings accounts comprised 24.6% and 22.1% respectively, of the average interest-bearing liabilities for the three- and nine-month periods ended September 30, 2021 compared to 22.3% and 21.2%, respectively, for the same periods last year.
−Removed: The average volume of time deposits decreased 5.4% and 2.3%, respectively, during the three- and nine-month periods ended September 30, 2021, compared to the same periods last year, and the average rate paid on these accounts decreased 50 bps and 46 bps, respectively, between periods.
−Removed: 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 September 30, 2021.
−Removed: Time deposits represented 16.2% and 16.7%, respectively, of average interest-bearing liabilities for the three- and nine-month periods ended September 30, 2021, compared to 19.4% and 19.8%, respectively, for the same periods last year.
−Removed: Interest paid on time deposits represented 36.7% and 39.3%, respectively, of total interest expense for the three- and nine-month period in 2021, compared to 40.3% and 35.6%, respectively, for the same periods in 2020.
−Removed: The average volume of retail time deposits decreased 1.1% for the three-month period from $103.0 million at September 30, 2020 to $101.9 million at September 30, 2021, and increased 0.9% for the nine-month period from $101.9 million at September 30, 2020 to $102.8 million at September 30, 2021.
−Removed: The average volume of wholesale time deposits decreased 48.7% from an average volume of $10.3 million to $5.3 million for the three-month periods ended September 30, 2021 and 2020, respectively, and 35.3% for the nine-month periods from an average volume of $9.7 million at September 30, 2020 to $6.3 million at September 30, 2021.
−Removed: Refer to the “Liquidity and Capital Resources” section for more discussion on these changes.
−Removed: The average volume of borrowed funds decreased $1.4 million and $3.3 million, respectively, between the three- and nine-month comparison periods of 2021 and 2020, and the average rate paid on these borrowings decreased 6 bps and 33 bps, respectively, between periods.
−Removed: 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.
−Removed: The balance of borrowed funds at September 30, 2021 consists of only JNE funds at zero percent interest.
−Removed: The average volume of repurchase agreements decreased 22.5% for the three-month comparison periods and increased 5.0%, for the nine-month comparison periods of 2021 versus 2020, while the average rate paid decreased 60 bps and 55 bps, respectively.
−Removed: In summary, between the three- and nine month periods ended September 30, 2021 and 2020, the average yield on interest-earning assets increased 12 bps and decreased 34 bps, respectively, and the average rate paid on interest-bearing liabilities decreased 28 bps and 40 bps, respectively.
−Removed: Net interest spread increased 40 bps for the third quarter of 2021 versus 2020, and net interest margin increased 32 bps for the same comparison periods.
−Removed: Net interest spread increased six bps for the nine-month period of 2021 versus 2020, and net interest margin decreased three bps for the same comparison periods.
−Removed: While the Company’s net interest margin and net interest spread for the three month period ended September 30, 2021 increased compared to the same period last year, the prevailing low rate environment has continued to place pressure on both the net interest margin and 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.
−Removed: 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.
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
+Added: The average volume of interest-earning assets for the three-month period ended March 31, 2022 increased 9.0% compared to the three-month period ended March 31, 2021.
+Added: The average yield on interest-earning assets decreased 49 basis points for 2022 versus 2021.
+Added: The average volume of loans decreased 3.8% for the first three months of 2022 versus the same period in 2021, and the average yield on loans decreased 26 basis points to 4.42% for 2022 compared to 4.68% for 2021.
+Added: The decrease in the yield in 2022 was due primarily to the decrease in PPP fees year over year as discussed in the Overview.
+Added: The decrease in the average volume of loans is attributable to the forgiveness and payoff of PPP loans by the SBA between periods.
+Added: Interest earned on the loan portfolio as a percentage of total interest income decreased to 90.8% for the first three months of 2022, compared to 95.8% for the same period in 2021.
+Added: The average volume of the taxable investment portfolio (classified as AFS) increased 159.4% for the three-month period ended March 31, 2022 compared the same period last year, while the average yield decreased seven basis points.
+Added: The increase in average volume is due primarily to management’s effort to continue to grow the investment portfolio incrementally as the balance sheet grows in order to provide additional liquidity and pledge quality assets.
+Added: The average volume of the tax-exempt investment portfolio (classified as AFS) for the three-month period ended March 31, 2022 was $2.2 million, with a tax equivalent yield of 2.52%.
+Added: The Company began investing in these tax-exempt bonds during December 2021.
+Added: The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 12.8% for the three-month ended March 31, 2022 compared to the same period in 2021.
+Added: This decrease in volume is attributable to a need to fund investment and loan growth and also to a decrease in customer deposit accounts.
+Added: The average yield on these funds increased two basis points during the first three months of 2022 versus the same period in 2021.
+Added: The average volume of interest-bearing liabilities for the three-month period ended March 31, 2022 increased 10.9% compared to the same period in 2021.
+Added: The average rate paid on interest-bearing liabilities decreased 15 basis points during 2022 compared to 2021.
+Added: Although year to date volume shows an overall decrease in deposit accounts, most of the funds deposited through PPP loan proceeds and stimulus funds remained on deposit throughout 2021.
+Added: The average volume of interest-bearing transaction accounts increased 20.5% during the three-month period ended March 31, 2022 compared to the same period of 2021, reflecting strong deposit growth throughout 2021.
+Added: The average rate paid on these accounts decreased three basis points between comparison periods.
+Added: The average volume of money market accounts increased 8.1% during the three-month period ended March 31, 2022 compared to the same period of 2021, while the average rate paid on these deposits decreased 16 basis points.
+Added: The average volume of savings accounts increased 19.7% for the three-month period ended March 31, 2022 compared to the same period in 2021, while the average rate paid on these accounts decreased five basis points.
+Added: The average volume of time deposits decreased 4.2% during the three-month period ended March 31, 2022 compared to the same period in 2021, and the average rate paid decreased 37 basis points.
+Added: Interest paid on time deposits as a percentage of total interest expense was 34.7% and 41.4%, respectively for the three-month periods ended March 31, 2022 and 2021.
+Added: The decrease in the average volume of time deposits between periods reflects the maturity of brokered deposits in January and April of 2021 that had not been replaced as of March 31, 2022.
+Added: Management still considers the brokered deposit market to be a beneficial source of funding to help smooth out the fluctuations in core deposit balances without the need to disrupt deposit pricing in the Company’s local markets.
+Added: These funds can be obtained relatively quickly on an as-needed basis, making them a valuable alternative to traditional term borrowings from the FHLBB.
+Added: Refer to the “Liquidity and Capital Resources” section for more discussion on this topic.
+Added: The average volume of borrowed funds decreased $1.2 million, or 48.6% for the three-month period ended March 31, 2022 compared to the same period in 2021 and, for both periods, consisted of only JNE funds at zero percent interest.
+Added: The average volume of repurchase agreements decreased 22.7% for the three-month period ended March 31, 2022 compared to the same period in 2021 and the average rate paid decreased nine basis points.
+Added: In summary, between the three-month periods ended March 31, 2022 and 2021, the average yield on interest-earning assets decreased 49 basis points and the average rate paid on interest-bearing liabilities decreased 15 basis points.
+Added: Net interest spread decreased 34 basis points for the three-month period of 2022 versus 2021 and net interest margin decreased 39 basis points between periods.
+Added: The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 2022 and 2021 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.
+Added: Three Months Ended March 31,
Average Interest-Earning Assets
Taxable investment securities
+Added: Tax-exempt investment securities
Sweep and interest-earning accounts
2 unchanged sentences
Interest-bearing transaction accounts
−Removed: Money market accounts
+Added: Money market funds
Savings deposits
15 unchanged sentences
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Income from sold loans
Other income from loans
−Removed: Net realized gain on sale of securities AFS
Income from CFS Partners
−Removed: Exchange income
−Removed: VISA card commission
Other miscellaneous income
Total non-interest income
−Removed: Total non-interest income decreased $240,709, or 12.4%, for the third quarter of 2021 and $15,752, or 0.3% for the first nine months of 2021 compared to the same periods in 2020, with significant changes noted in the following:
−Removed: The increase in service fees during both comparison periods is mostly due to an increase in VISA check interchange income of $52,860, or 15.2% for the third quarter of 2021 compared to the same quarter of 2020, and $201,362, or 20.8%, year over year.
−Removed: The decrease in income from sold loans is due to a lower volume of loans sold into the secondary market during the first nine months of 2021 versus 2020.
−Removed: The decrease is partly due to lower volume of applications for residential mortgages and the strategic decision to hold some 15 and 30 year mortgages in portfolio.
−Removed: 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 in both comparison periods.
−Removed: There were no sales from the Company’s securities AFS portfolio during the first nine months of 2021, resulting in no net realized gains on sale of securities AFS during 2021 compared to a gain of $39,086 for the same period in 2020.
−Removed: 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 earlier in the year, as well as an increase in managed assets.
−Removed: Also, CFS Partners has a small portion of its equity capital invested in the stock market.
−Removed: 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.
−Removed: The shutdown of the US/Canadian border to all non-essential travel created less demand for an exchange of Canadian currency in the first half of 2020, accounting for the lack of exchange income .
−Removed: Although the border has re-opened to commerce related travel, subject to certain restrictions, the exchange of Canadian currency has not yet returned to normal levels.
−Removed: The increase in VISA card commission is attributable to an increase in transaction volume in the VISA card program.
+Added: Total non-interest income increased $114,198, or 7.3%, for the first three months of 2022 compared to the same period in 2021, with significant changes noted in the following:
+Added: The increase in service fees during the comparison period is mostly due to an increase in interchange income of $21,686, or 5% and overdraft charges of $53,280, or 29.3%, year over year.
+Added: The increase in income from sold loans is due to a higher volume of loans sold into the secondary market during the first three months of 2022 versus 2021.
+Added: An increase in CRE loan volume in 2022 resulted in a significant increase in documentation fees collected at origination, accounting for the increase in other income from loans when comparing the two periods.
+Added: Income from CFS Partners decreased between periods due in part to the impact of mark-to-market adjustments to CFS Partners equity portfolio during the first two months of 2022.
+Added: The capital markets rebounded during March, but not enough to offset the decrease during the first two months.
+Added: Included in Other miscellaneous income for the first three months of 2022 is income totaling $23,400 associated with a renegotiated contract with the Company’s check printing vendor.
Non-interest Expense
1 unchanged sentence
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Salaries and wages
3 unchanged sentences
Directors Fees
−Removed: Investor relations and shareholder services
−Removed: Outsourcing expense
Telephone expense
2 unchanged sentences
Collection & non-accruing loan expense
−Removed: Expense on OREO
+Added: Electronic banking expense
State deposit tax
1 unchanged sentence
Total non-interest expense
−Removed: Total non-interest expense increased $427,140, or 8.4% for the third quarter of 2021 and $980,914, or 6.5%, for the first nine months of 2021 compared to the same periods in 2020, with significant changes noted in the following:
−Removed: The increase in employee benefits in both periods was attributable to the increased cost of health insurance premiums.
−Removed: The increase in occupancy expense is primarily attributable to an increase in capital lease expense, which includes a write down of $63,125 at maturity of a capital lease during the third quarter of 2021.
−Removed: The increase in Directors fees is attributable to a change to the Director’s fee schedule as well as an additional Director for 2021 whose compensations totaled $9,624 for the third quarter of 2021 and $28,872 for the first nine months of 2021.
−Removed: The increase in Investor relations and shareholder services is due to a combination of engaging a new investor relations firm during the second half of 2020, a new service contract with the vendor that processes the Company’s SEC filings and the timing of the Company’s Annual Shareholder Meeting which was held in October, 2020 versus May, 2021.
−Removed: A moderate increase is noted in outsourcing expense due to a combination of annual increases in contract pricing and an increase in transactions.
−Removed: Telephone expense increased in the third quarter of 2021, but decreased for the first nine months of 2021 as a result of a renegotiated contract with the Company’s main connectivity vendor that was effective mid-year 2020.
−Removed: The increase in c onsultant services year over year is attributable in part to recruitment of a senior management position.
+Added: Total non-interest expense increased $88,537, or 1.7%, for the first three months of 2022 compared to the same period in 2021, with significant changes noted in the following:
+Added: The increase in salaries and wages is due to normal salary increases.
+Added: The decrease in employee benefits in was attributable to a decrease in health insurance claims year over year.
+Added: The increase in directors’ fees is attributable to a change to the Director’s fee schedule as well as an additional Director for 2022 whose quarterly compensation totaled $10,056.
+Added: Telephone expense increased due to a one-time fee charged in February 2022.
+Added: An increase was budgeted for audit fees in anticipation of increased audit services due to the Company surpassing the $1.0 billion asset size.
+Added: The decrease in consultant services year over year is attributable in part to recruitment of a senior management position in 2021.
FDIC insurance increased due primarily to an increase in assets as well as an increase in the assessment multiplier year over year.
−Removed: Collection & non-accruing loan expense are lower in all periods compared to historical activity, due primarily to the impact of a legislative moratorium on eviction and foreclosure actions during the COVID-19 emergency combined with borrowers seeking assistance through the Vermont COVID Emergency Mortgage Assistance Program funded through the CARES Act in order to bring their mortgages up to date and avoid foreclosure.
−Removed: ATM fees increased due to the ongoing cost to support the upgraded and enhanced technology being utilized for deposit automation.
−Removed: 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.
−Removed: State deposit tax increased year over year due primarily to a significant increase in deposits.
−Removed: The increase in o ther miscellaneous expense in both periods is attributable to fraudulent checks totaling $66,004 that were charged off during the third quarter of 2021.
+Added: Collection & non-accruing loan expense is higher year over year due to expenses associated with a commercial property in the Company’s non-accruing loan portfolio.
+Added: ATM fees increased due to the ongoing cost to support the upgraded and enhanced technology utilized for deposit automation.
+Added: The use of deposit automation replaces a manual process for required monitoring of cash deposits as well as providing fraud detection measures at ATMs.
+Added: State deposit tax increased year over year due primarily to the increase in deposits throughout 2021.
+Added: The calculation is based on an average of month-end deposit totals over a 12 month period.
+Added: The components of other miscellaneous expense are made up of several categories including outsourcing expense and service contracts – administration, but none with changes year over year greater than 5%.
APPLICABLE INCOME TAXES
−Removed: The provision for income taxes increased in both comparison periods, with an increase of $232,707, or 37.0% for the third quarter of 2021, and $677,707, or 43.5%, for the first nine months of 2021 compared to the respective periods in 2020.
−Removed: These increases are proportional to the increases in income before income taxes totaling $1.1 million for the third quarter of 2021 versus 2020, and $2.9 million for the first nine months of 2021 versus 2020.
−Removed: Tax credits related to limited partnership investments amounted to $117,015 and $108,492, respectively, for the third quarters of 2021 and 2020, and $351,045 and $325,476, respectively, for the first nine months of 2021 and 2020.
−Removed: 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 third quarters of 2021 and 2020, and $272,286 and $252,513, respectively, for the first nine months of 2021 and 2020.
+Added: The provision for income taxes decreased $153,441, or 22.7%, for the first three months of 2022 compared to the same period in 2021 and is proportional to the decrease in income before income taxes totaling $773,600 year over year.
+Added: Tax credits related to limited partnership investments amounted to $96,237 and $117,015, respectively, for the first three months of 2022 and 2021.
+Added: Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $67,092 and $90,762, respectively, for the first three months of 2022 and 2021.
These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 7% and 10%.
1 unchanged sentence
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:
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
4 unchanged sentences
Interest-bearing transaction accounts
−Removed: Money market accounts
+Added: Money market funds
Savings deposits
4 unchanged sentences
Percentage Change
−Removed: $ (16,716,955)
AFS securities
1 unchanged sentence
Interest-bearing transaction accounts
−Removed: Money market accounts
+Added: Money market funds
Savings deposits
Time deposits
−Removed: Long-term advances
−Removed: The decrease in the loan portfolio during the first nine months of 2021 was attributable to the paydowns or payoffs of certain PPP loans through the SBA’s forgiveness program totaling $125.3 million, which was offset in part by originations of new PPP loans and an increase in CRE loans.
−Removed: The Company booked a total of $58.6 million of PPP loans during the first six months of 2021.
−Removed: This program ended during the second quarter of 2021, so this portfolio will continue to decrease throughout the remainder of 2021.
−Removed: The increase in the securities AFS portfolio is attributable to the purchase of $66.0 million in securities AFS during the first nine months of 2021, consisting of $10.1 million in US Treasuries, $4.0 million in US Government Bonds, $50.4 million in MBS, $1.0 million in CMOs, and $0.5 million in Investment CDs.
−Removed: These purchases were reduced in part by maturities and calls exercised amounting to $3.7 million, as well as principal payments on MBS totaling $10.4 million, accounting for the year to date increase in the AFS portfolio noted in the tables above.
+Added: The increase in the loan portfolio during the first three months of 2022 was attributable to increases totaling $13.9 million in commercial & industrial and CRE loans, which was partially offset by payoffs of certain PPP loans through SBA’s forgiveness program totaling $7.0 million.
+Added: The SBA PPP program ended during the second quarter of 2021, so this portfolio will continue to decrease throughout the remainder of 2022 either through pay downs or payoffs initiated on behalf of SBA’s forgiveness program, or by regular amortization as borrowers begin to make scheduled monthly payments.
+Added: The increase in the securities AFS portfolio is attributable to the purchase of $19.1 million in securities AFS during the first three months of 2022, consisting of $7.2 million in US Treasuries, $3.8 million in Tax-exempt municipal bonds, and $8.1 million in MBS.
+Added: These purchases were reduced in part by maturities and calls exercised amounting to $291,500, as well as principal payments on MBS totaling $4.2 million, and by an increase of $11.1 million in unrealized losses arising during the first quarter of 2022 and reflected in OCI.
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.
−Removed: Most of the fluctuation in demand deposits is due to a year to date increase in business checking accounts of $14.9 million, or 10.7%, which the Company believes is a result of the distribution of funds generated through the PPP loans.
−Removed: The increase in interest-bearing transaction accounts reflects an increase of $17.2 million, or 17.2%, in consumer interest-bearing transaction accounts, offset by a decrease of $3.7 million, or 11.2% in the deposit account of the Company’s affiliate, CFSG, as well as a decrease of $3.3 million, or 6.2% in ICS deposit accounts, and $1.8 million, or 4.3%, in municipal deposit accounts.
−Removed: The increase of $20.8 million, or 26.9%, in consumer and business money market accounts year to date was offset, in part by decreases in ICS money market accounts of $7.9 million, or 34.0% and non-arbitrage borrowing accounts of $3.6 million, or 23.9%.
+Added: Most of the fluctuation in demand deposits is due to a decrease during the first quarter of 2022 in business checking accounts of $7.1 million, or 4.4%, which the Company believes primarily reflects the outflow of funds as customers are starting to spend some of the funds generated through the PPP loans.
+Added: The decrease in interest-bearing transaction accounts consists of a decrease of $10.8 million, or 25.7%, in municipal deposit accounts, as well as a decrease of $6.1 million, or 8.6%, in ICS deposit accounts, which was partially offset by an increase of $8.1 million, or 7.0%, in consumer interest-bearing transaction accounts.
The increase in savings deposits of $9.6 million, or 5.7%, is likely attributable in part to parked funds as customers await more favorable rates for time deposits, as well as deposits of stimulus payments and tax credits from the U.S.
−Removed: During the third quarter of 2021, the Company chose to reclassify its ATS deposits from interest-bearing transactions accounts into savings deposits, resulting in a change between deposit categories of approximately $18.5 million at September 30, 2021 and approximately $14.2 million at December 31, 2020.
−Removed: All appropriate sections of this quarterly report have been adjusted, including the Consolidated Balance Sheet found in the accompanying unaudited interim consolidated financial statements.
−Removed: The decrease in time deposits was split between a decrease in wholesale time deposits of $4.0 million, or 43.9%, and a decrease in retail time deposits of $1.7 million, or 1.6%.
−Removed: The decrease in long-term advances was due to maturities in the JNE advances.
−Removed: 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.
16 unchanged sentences
however further simulations are performed utilizing non-parallel changes in the yield curve.
−Removed: 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.
−Removed: 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.
−Removed: 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.
+Added: The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.
+Added: Under the Company’s interest rate sensitivity modeling, with the continued asset sensitive balance sheet, in a rising rate environment NII is expected to trend upward as the short-term asset base (cash and adjustable rate loans) quickly cycle upward while the retail funding base (deposits) lags the market.
+Added: If rates paid on deposits have to be increased more and/or more quickly than projected due to competitive pressures, the expected benefit to rising rates would be reduced.
In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs.
Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment.
−Removed: The slope of the yield curve will be very important to the Company’s margins going forward.
−Removed: 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 September 30, 2021:
−Removed: Percent Change
−Removed: The amounts shown in the table above are well within the ALCO Policy limits.
+Added: Management expects that the rising rate environment will have a positive impact to the Company’s NII in 2022.
+Added: 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 March 31, 2022:
+Added: Percent Change in NII
+Added: The estimated amounts shown in the table are within the ALCO Policy limits.
However, those amounts do not represent a forecast and should not be relied upon as indicative of future results.
−Removed: 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.
−Removed: As of September 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%.
−Removed: 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.
+Added: The ALCO model also provides alternate scenarios including a sustained flat, or inverted yield curve.
+Added: 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.
+Added: As the market rates continue to increase, the impact of a falling rate environment is more pronounced, and the possibility more plausible than during the last several years of near zero short rates.
+Added: As of March 31, 2022, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear a quarterly floating rate of interest equal to the 3-month London Interbank Offered Rate (LIBOR), plus 2.85%.
+Added: During 2017, the Financial Conduct Authority (FCA) in the United Kingdom that administers LIBOR announced that LIBOR will be phased out, with an expected target date of December 31, 2021 for the phase out.
On March 5, 2021, the FCA announced firm target dates for the phase out of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S.
dollar deposits.
−Removed: 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.
+Added: Under the terms of the Indenture, if 3-month LIBOR is not available, the Trustee may obtain substitute quotations from four leading banks in the London interbank market for their offered rate to prime banks in the London market for U.S.
dollar deposits having a three month maturity;
12 unchanged sentences
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.
−Removed: Residential mortgages represented 30.3% of the Company’s loan balances as of September 30, 2021, a level that has historically been on a gradual annual decline in recent years, consistent with the Company’s strategic shift to commercial lending.
+Added: Residential mortgages represented 30.8% of the Company’s loan balances as of March 31, 2022, compared to 31.3% at December 31, 2021, a level that has historically been on a gradual annual decline in recent years, consistent with the Company’s strategic shift to commercial lending.
The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not engage in higher risk loans such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates.
1 unchanged sentence
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.
−Removed: 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%.
+Added: As of March 31, 2022, junior lien home equity products made 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.
−Removed: Commercial & industrial and CRE loans together comprised 69.1% of the Company’s loan portfolio at September 30, 2021, compared to 70.0% at December 31, 2020.
−Removed: Those percentages included the Company’s portfolio of PPP loans which was $35.7 million at September 30, 2021, compared to $64.4 million at December 31, 2020.
−Removed: As of September 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 $5.8 million had been recognized.
−Removed: These loans are eligible to be forgiven to the extent that the funds are used for payroll costs and other permissible expenses.
−Removed: Borrowers can apply for forgiveness after a specified covered period.
−Removed: PPP loan forgiveness applications are processed by the lender, with forgiveness requests for loans in excess of $2.0 million reviewed by the SBA.
−Removed: Neither the government nor lenders are permitted to charge the borrowers any fees on PPP loans.
−Removed: These loans carry a fixed rate of 1.00% and are 100% guaranteed by the SBA, subject to borrower eligibility requirements.
−Removed: The SBA pays the originating bank a processing fee ranging from 1% to 5%, based on the size of the loan.
−Removed: As of September 30, 2021, the Company had reviewed and submitted 1,438 PPP loans with total balances of $125.6 million to the SBA for forgiveness consideration, with 33 loans with total balances of $1.5 million pending forgiveness.
−Removed: One loan in the amount of $965 thousand was delinquent as of September 30, 2021.
−Removed: A claim was processed with the SBA and full payment was received on October 5, 2021.
−Removed: 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.
−Removed: 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.
−Removed: Johnsbury office with previous lending experience serving the greater White River Junction-Lebanon area.
+Added: Commercial & industrial and CRE loans together comprised 68.7% of the Company’s loan portfolio at March 31, 2022, compared to 68.1% at December 31, 2021.
+Added: Those percentages included the Company’s portfolio of PPP loans, which have been steadily decreasing, and totaled $5.1 million at March 31, 2022, compared to $12.2 million at December 31, 2021.
+Added: Growth in the CRE portfolio in recent years has been principally driven by new loan volume in Chittenden County and northern Windsor County around the White River Junction, I91-I93 interchange area.
+Added: Credits in the Chittenden County market are being managed by two commercial lenders out of the Company’s Burlington loan production office that know the area well , while Windsor County is being served by a commercial lender from the St.
+Added: Johnsbury office with previous lending experience serving the greater White River Junction area.
+Added: The Company has a loan production office in Lebanon, New Hampshire to provide a presence in the greater White River Junction area including Grafton County, New Hampshire.
Larger transactions continue to be centrally underwritten and monitored through the Company’s commercial credit department.
−Removed: 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.
−Removed: The largest components of the $285.9 million CRE portfolio at September 30, 2021 were approximately $101.0 million in owner-occupied CRE and $100.7 million in non-owner occupied CRE.
−Removed: 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:
−Removed: September 30, 2021
−Removed: December 31, 2020
−Removed: Commercial & industrial
−Removed: $ 139,061,736
−Removed: $ 161,067,501
−Removed: Commercial real estate
−Removed: Residential real estate - 1st lien
−Removed: Residential real estate - Jr lien
−Removed: Deferred net loan fees
−Removed: $ 683,669,790
−Removed: $ 700,951,104
+Added: The types of CRE transactions driving the growth have been a mix of construction, land and development, multifamily, and other non-owner occupied CRE properties including hotels, retail, office, and industrial properties.
+Added: The largest components of the $308.3 million CRE portfolio at March 31, 2022 were $105.6 million in owner-occupied CRE and $110.0 million in non-owner occupied CRE.
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.
−Removed: At September 30, 2021, the Company had $64.7 million in guaranteed loans with guaranteed balances of $57.2 million, compared to $93.4 million in guaranteed loans with guaranteed balances of $86.1 million at December 31, 2020.
+Added: At March 31, 2022, the Company had $36.8 million in guaranteed loans with guaranteed balances of $28.8 million, compared to $42.9 million in guaranteed loans with guaranteed balances of $35.4 million at December 31, 2021.
PPP loans are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.
−Removed: At September 30, 2021, loan balances in the retail, restaurant and bars, hotels and lodging, and breweries totaled $30.4 million, $6.0 million, $28.3 million, and $16.4 million, respectively.
−Removed: Breweries have weathered well, but the other three segments of the economy have been particularly impacted by the COVID-19 business shutdowns and re-opening restrictions.
−Removed: 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.
6 unchanged sentences
Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.
−Removed: The Company’s non-performing assets increased $754,679 or 14.6%, during the first nine months of 2021.
−Removed: An increase in residential mortgage loan delinquencies in the 90 days or more past due, together with a substantial increase in CRE non-accrual loans was partially offset by decreases in the commercial & industrial and residential mortgage loan portfolios within the non-accrual loan portfolio.
−Removed: There were no claims receivable on related government guaranteed loans at September 30, 2021 compared to claims of $1,939 at December 31, 2020.
−Removed: Non-performing loans as of September 30, 2021 carried RD and SBA guarantees totaling $274,162, compared to $316,752 at December 31, 2020.
−Removed: 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:
−Removed: September 30, 2021
−Removed: December 31, 2020
−Removed: Loans past due 90 days or more
−Removed: and still accruing (1)
−Removed: Residential real estate - 1st lien
−Removed: Residential real estate - Jr lien
−Removed: Non-accrual loans (1)
−Removed: Commercial & industrial
−Removed: Commercial real estate
−Removed: Residential real estate - 1st lien
−Removed: Residential real estate - Jr lien
−Removed: Total Non-Performing Assets
−Removed: No commercial and industrial loans, CRE 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.
−Removed: In accordance with Company policy, delinquent consumer loans are charged off at 120 days past due.
−Removed: 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.
2 unchanged sentences
Management evaluates each TDR situation on its own merits and does not foreclose the granting of any particular type of concession.
−Removed: 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:
−Removed: September 30, 2021
+Added: The Company’s TDRs that were past due 90 days or more or in non-accrual status as of the dates presented:
+Added: March 31, 2022
December 31, 2021
4 unchanged sentences
The remaining TDRs were performing in accordance with their modified terms as of the dates presented and consisted of the following:
−Removed: September 30, 2021
+Added: March 31, 2022
December 31, 2021
2 unchanged sentences
Residential real estate - Jr lien
−Removed: During 2020 and the first nine 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.
−Removed: As of September 30, 2021, 593 business and retail customer portfolio loans, with unpaid principal balances of $109.5 million, were granted loan payment deferrals to provide temporary debt relief to those customers impacted by the COVID-19 pandemic.
−Removed: Of these total loan payment deferrals, only 6 loans totaling $3.4 million are still in deferral as of September 30, 2021.
−Removed: 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 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.
12 unchanged sentences
See Note 5 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.
−Removed: The following table summarizes the Company’s loan loss experience for the periods presented:
−Removed: As of or for the Nine Months Ended September 30,
−Removed: Loans outstanding, end of period
+Added: The following table summarizes the Company’s credit risk ratios for the balance sheet dates presented:
+Added: ALL to total loans outstanding
+Added: Loans outstanding
$ 696,293,182
$ 689,988,533
−Removed: Average loans outstanding during period
+Added: Non-accruing loans to loans outstanding
+Added: Non-accruing loans
+Added: Loans outstanding
$ 696,293,182
$ 689,988,533
−Removed: Non-accruing loans, end of period
−Removed: Non-accruing loans, net of government guarantees
−Removed: ALL, beginning of period
−Removed: Loans charged off:
−Removed: Commercial & industrial
−Removed: Commercial real estate
−Removed: Residential real estate - 1st lien
−Removed: Residential real estate - Jr lien
−Removed: Total loans charged off
+Added: ALL to non-accruing loans
+Added: Non-accruing loans
+Added: The provision for loan losses for the first quarter ended March 31, 2022 was $862,500, compared to $267,497 for the same period in 2021.
+Added: The $595,003 year over year increase was driven primarily by a write-down on a single non-performing loan, which is in foreclosure, totaling $667,474.
+Added: The first quarter ALL analysis indicates that the reserve balance of $7.9 million at March 31, 2022 is sufficient to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $90,276.
+Added: Management believes the reserve balance continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite.
+Added: The portion of the ALL termed “unallocated” is established to absorb inherent losses that exist as of the measurement date although not specifically identified through management’s process for estimating credit losses.
+Added: While the ALL is described as consisting of separate allocated portions, the entire ALL is available to support loan losses, regardless of category.
+Added: Due to the charge off activity during the first quarter of 2022, the unallocated reserves are lower than historical levels.
+Added: It is expected that the provision would be increased in future periods, if loan growth or additional charge-offs warrants an increase.
+Added: 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.
+Added: Net charge-offs during the period to average loan outstanding were as follows:
+Added: For the Three Months Ended March 31,
Commercial & industrial
+Added: Net charge-off during the period
+Added: Average amount outstanding
+Added: $ 120,804,935
+Added: $ 177,158,060
Commercial real estate
+Added: Net (charge-off) recovery during the period
+Added: Average amount outstanding
+Added: $ 304,057,825
+Added: $ 280,029,141
+Added: Net charge-off during the period
+Added: Average amount outstanding
Residential real estate - 1st lien
+Added: Net recovery during the period
+Added: Average amount outstanding
+Added: $ 182,305,338
+Added: $ 170,036,028
Residential real estate - Jr lien
−Removed: Total recoveries
−Removed: Net loans charged off
−Removed: Provision charged to income
−Removed: ALL, end of period
−Removed: Net charge offs to average loans outstanding
−Removed: Provision charged to income as a percent of average loans
−Removed: ALL to average loans outstanding
−Removed: ALL to non-accruing loans
−Removed: ALL to non-accruing loans net of government guarantees
−Removed: The ALL increased $1.0 million, or 15.2%, as of September 30, 2021 compared to September 30, 2020, while the provision for loan losses decreased $422,336, or 40.4%, for the nine months ended September 30, 2021, compared to the same period last year.
−Removed: The decrease in the provision between periods reflects the growth during the first nine months of 2020 in the loan portfolio and higher than anticipated charge off activity, compared to a decrease of $17.3 million in the loan portfolio and negligible charge off activity during the first nine months of 2021.
−Removed: 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.
−Removed: 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.
−Removed: Based on the nine month ALL analysis, in management’s view the reserve balance of $7.8 million at September 30, 2021 is appropriate to cover losses that are probable and estimable as of the measurement date, with an unallocated reserve of $1.0 million compared to $398,913 at December 31, 2020.
−Removed: 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.
−Removed: 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.
−Removed: While the ALL is described as consisting of separate allocated portions, the entire ALL is available to support loan losses, regardless of category.
−Removed: 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.
−Removed: 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.
+Added: Net recovery during the period
+Added: Average amount outstanding
+Added: Net charge-off during the period
+Added: Average amount outstanding
+Added: Net charge-off during the period
+Added: Average amount outstanding
+Added: $ 693,001,033
+Added: $ 720,584,311
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.
6 unchanged sentences
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.
−Removed: 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
3 unchanged sentences
The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
−Removed: During the first nine months of 2021, the Company did not engage in any activity that created any additional types of off-balance sheet risk.
+Added: During the first three months of 2022, the Company did not engage in any activity that created any additional types of off-balance sheet risk.
LIQUIDITY AND CAPITAL RESOURCES
8 unchanged sentences
One-way deposits acquired through the CDARS program provide an alternative funding source when needed.
−Removed: At September 30, 2021 and December 31, 2020, the Company had no one-way CDARS outstanding.
−Removed: 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.
−Removed: At September 30, 2021 and December 31, 2020, the Company reported $4.6 million and $4.9 million, respectively, in reciprocal CDARS deposits.
−Removed: The balance in ICS reciprocal money market deposits was $15.2 million at September 30, 2021, compared to $23.1 million at December 31, 2020, and the balance in ICS reciprocal demand deposits as of those dates was $49.8 million and $53.1 million, respectively.
−Removed: 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.
−Removed: The block that matured in October, 2020 was not replaced, leaving a total outstanding at December 31, 2020 of $3.7 million.
−Removed: The blocks that matured in January and April of 2021 were also not replaced, leaving no DTC Brokered CDs outstanding at September 30, 2021.
−Removed: 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 nine months of 2021 has reduced the Company’s need for supplementary funding sources in the near term.
−Removed: At September 30, 2021 and December 31, 2020, borrowing capacity of $96.6 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.
+Added: At March 31, 2022 and December 31, 2021, the Company had no one-way CDARS outstanding.
+Added: In addition, two-way (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.
+Added: At March 31, 2022 and December 31, 2021, the Company reported $3.6 million in reciprocal CDARS deposits.
+Added: The balance in ICS reciprocal money market deposits was $17.2 million at March 31, 2022, compared to $15.3 million at December 31, 2021, and the balance in ICS reciprocal demand deposits as of those dates was $64.6 million and $70.8 million, respectively.
+Added: The Company had two blocks of DTC Brokered CDs totaling $2.3 million and $1.4 million with maturities in January, 2021 and April, 2021, respectively.
+Added: These blocks were not replaced, leaving no DTC Brokered CDs outstanding at December 31, 2021 or March 31, 2022.
+Added: Although wholesale deposit funding through DTC is an important supplemental source of liquidity that has proven efficient, flexible and cost-effective when compared with other borrowing methods, the growth in deposits during 2021 has reduced the Company’s need for supplementary funding sources in the near term.
+Added: At March 31, 2022 and December 31, 2021, borrowing capacity of $95.3 million and $100.2 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.
−Removed: 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 $51.7 million and $50.4 million, respectively, at September 30, 2021 and December 31, 2020.
+Added: 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 $65.1 million and $52.3 million, respectively, at March 31, 2022 and December 31, 2021.
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 40 bps.
−Removed: The Company had no outstanding advances through this facility at September 30, 2021 or December 31, 2020.
+Added: The Company had no outstanding advances through this facility at March 31, 2022 or December 31, 2021.
The following table reflects the Company’s outstanding FHLBB and FRBB advances against the respective lines as of the dates indicated:
−Removed: September 30,
Long-Term Advances(1)
−Removed: FHLBB term advance, 0.00%, due January 07, 2021
−Removed: FHLBB term advance, 0.00%, due February 26, 2021
−Removed: FHLBB term advance, 0.00%, due November 22, 2021
FHLBB term advance, 0.00%, due September 22, 2023
3 unchanged sentences
JNE advances must support small business in New England that create and/or retain jobs, or otherwise contribute to overall economic development activities.
−Removed: 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.
−Removed: The Company had no outstanding advance against these credit lines as of the balance sheet dates presented.
−Removed: Securities sold under agreements to repurchase provide another funding source for the Company.
−Removed: At September 30, 2021 and December 31, 2020, the Company had outstanding repurchase agreement balances of $22.4 million and $38.7 million, respectively.
−Removed: These repurchase agreements mature and are repriced daily.
−Removed: The following table illustrates the changes in shareholders’ equity from December 31, 2020 to September 30, 2021:
+Added: The Company has unsecured lines of credit with two correspondent banks with aggregate available borrowing capacity totaling $20.5 million as of the balance sheet dates presented in this quarterly report.
+Added: The Company had no outstanding advances against these credit lines as of the balance sheet dates presented.
+Added: The following table illustrates the changes in shareholders’ equity from December 31, 2021 to March 31, 2022:
Balance at December 31, 2021 (book value $15.48 per common share)
3 unchanged sentences
Change in AOCI on AFS securities, net of tax
−Removed: Balance at September 30, 2021 (book value $15.23 per common share)
+Added: Balance at March 31, 2022 (book value $14.08 per common share)
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.
2 unchanged sentences
Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.
−Removed: Under the 2018 Regulatory Relief Act, these capital requirements have been simplified for qualifying community banks and bank holding companies.
−Removed: 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.
−Removed: 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.
−Removed: 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.
−Removed: The CBLR is calculated by dividing tangible equity capital by average total consolidated assets.
−Removed: The final rule became effective on January 1, 2020 for capital calculations as of March 31, 2020 and thereafter.
−Removed: 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.
−Removed: The Company and Bank continued to qualify to utilize the CBLR framework as of September 30, 2021, but have not elected to do so.
−Removed: 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.
−Removed: The capital conservation buffer was fully phased-in on January 1, 2019 at 2.5% of risk-weighted assets.
−Removed: 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.
−Removed: The Company and the Bank were fully compliant as of the periods presented in the table below.
−Removed: As of September 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.
+Added: As of March 31, 2022, the Bank was considered well capitalized under the standard 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.
6 unchanged sentences
(Dollars in Thousands)
−Removed: September 30, 2021
+Added: March 31, 2022
Common equity tier 1 capital
17 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.