What changed in this filing

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Item 1. Financial Statements

2024-11-14 compared with 2024-08-14 · 202 added, 166 removed, 744 unchanged (33% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets

September 30,

Cash and due from banks

3 unchanged sentences

Restricted equity securities, at cost

Loans held-for-sale

Allowance for credit losses

45 unchanged sentences

and Subsidiary

Three Months Ended June 30,

Consolidated Statements of Income

Three Months Ended September 30,

Interest income

31 unchanged sentences

and Subsidiary

Six Months Ended June 30,

Consolidated Statements of Income

Nine Months Ended September 30,

Interest income

32 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended June 30,

Three Months Ended September 30,

Other comprehensive income (loss)

1 unchanged sentence

( 5,155,445 )

( 1,291,573 )

Other comprehensive income (loss), net of tax

( 4,072,800 )

Total comprehensive income

Six Months Ended June 30,

Other comprehensive (loss) income, net of tax:

Unrealized holding (loss) income on securities AFS arising during the period

Total comprehensive income (loss)

$ ( 710,291 )

Other comprehensive (loss) income, net of tax

Nine Months Ended September 30,

Other comprehensive income (loss), net of tax:

Unrealized holding income (loss) on securities AFS arising during the period

( 3,615,720 )

Other comprehensive income (loss), net of tax

( 2,856,418 )

Total comprehensive income

3 unchanged sentences

Consolidated Statements of Changes in Shareholders' Equity

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

shareholders'

24 unchanged sentences

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,278,030 )

Preferred stock

Comprehensive income

Other comprehensive income

September 30, 2024

$ ( 12,420,781 )

$ ( 2,622,777 )

*Accumulated other comprehensive loss

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Community Bancorp.

1 unchanged sentence

Consolidated Statements of Changes in Shareholders' Equity

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

shareholders'

3 unchanged sentences

Cumulative change in accounting principle

Balance at January 1, 2023 (as adjusted

for change in accounting principle)

Balance at January 1, 2023 (as adjusted for change in accounting principle)

Issuance of common stock

20 unchanged sentences

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,258,852 )

Preferred stock

Comprehensive income

Other comprehensive loss

( 4,072,800 )

September 30, 2023

$ ( 23,524,235 )

$ ( 2,622,777 )

*Accumulated other comprehensive loss

3 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

12 unchanged sentences

Decrease in taxes payable

(Increase) decrease in interest receivable

Increase in interest receivable

Decrease in mortgage servicing rights

Decrease in right-of-use assets

Increase (decrease) in operating lease liabilities

Decrease in operating lease liabilities

Increase in other assets

4 unchanged sentences

Decrease in accrued expenses

Increase in other liabilities

(Decrease) increase in other liabilities

Net cash provided by operating activities

2 unchanged sentences

Maturities, calls, pay downs and sales

( 3,991,124 )

Proceeds from redemption of restricted equity securities

2 unchanged sentences

( 3,528,300 )

Decrease in limited partnership contributions payable

( 1,823,301 )

Investments in limited liability entities

10 unchanged sentences

( 20,211,447 )

( 41,275,644 )

Net decrease in money market and savings accounts

2 unchanged sentences

Net increase in time deposits

Net (decrease) increase in repurchase agreements

Net decrease in repurchase agreements

( 3,651,802 )

( 1,497,403 )

Net increase in short-term borrowings

Proceeds from long-term borrowings

Repayments on long-term borrowings

Decrease in finance lease obligations

3 unchanged sentences

( 2,771,073 )

Net cash used in financing activities

( 3,216,430 )

( 31,836,771 )

Net decrease in cash and cash equivalents

( 2,005,566 )

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

( 53,607,986 )

3 unchanged sentences

Supplemental Schedule of Noncash Investing and Financing Activities:

Change in unrealized (loss) gain on securities AFS

Change in unrealized gain (loss) on securities AFS

$ ( 3,615,720 )

3 unchanged sentences

Dividends declared

(Increase) decrease in dividends payable attributable to dividends declared

Increase in dividends payable attributable to dividends declared

Dividends reinvested

( 1,058,472 )

Total dividends paid

8 unchanged sentences

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, contained in the Company's Annual Report on Form 10-K.

The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, 2024.

The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full annual period ending December 31, 2024.

The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC.

79 unchanged sentences

The following tables illustrate the calculation of earnings per common share for the periods presented, as adjusted for the cash dividends declared on the preferred stock:

Three Months Ended June 30,

Three Months Ended September 30,

Net income, as reported

1 unchanged sentence

Net income available to common shareholders

Weighted average number of common shares used in calculating earnings per share

Weighted average number of common shares

used in calculating earnings per share

Earnings per common share

Six Months Ended June 30,

Nine Months Ended September 30,

Net income, as reported

1 unchanged sentence

Net income available to common shareholders

Weighted average number of common shares used in calculating earnings per share

Weighted average number of common shares

used in calculating earnings per share

Earnings per common share

1 unchanged sentence

Debt securities AFS as of the balance sheet dates consisted of the following:

June 30, 2024

September 30, 2024

GSE debt securities

13 unchanged sentences

$ 190,706,019

The Company had investments in Agency MBS exceeding 10% of shareholders’ equity with a book value of $ 126.0 million and $ 132.0 million, respectively, and a fair value of $ 107.9 million and $ 115.9 million, respectively, as of June 30, 2024 and December 31, 2023.

The Company had investments in Agency MBS exceeding 10% of shareholders’ equity with a book value of $ 122.7 million and $ 132.0 million, respectively, and a fair value of $ 109.3 million and $ 115.9 million, respectively, as of September 30, 2024 and December 31, 2023.

Investment securities pledged as collateral for repurchase agreements consisted of certain U.S.

2 unchanged sentences

The aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates were as follows:

June 30, 2024

September 30, 2024

December 31, 2023

2 unchanged sentences

GSE debt securities with an aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates as follows:

June 30, 2024

September 30, 2024

December 31, 2023

There were no sales of debt securities during the first six months of 2024 or 2023.

There were no sales of debt securities during the first nine months of 2024 or 2023.

The scheduled maturities of debt securities as of the balance sheet dates were as follows:

June 30, 2024

September 30, 2024

Due in one year or less

15 unchanged sentences

12 months or more

June 30, 2024

September 30, 2024

GSE debt securities

15 unchanged sentences

2016-13 effective January 1, 2023, which requires credit losses on debt securities AFS to be recorded in an allowance for credit losses and eliminates the concept of OTTI for debt securities AFS.

Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security.

As of June 30, 2024 and December 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell, any of the debt securities AFS in an unrealized loss position as of such dates prior to recovery and determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

As of September 30, 2024 and December 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell, any of the debt securities AFS in an unrealized loss position as of such dates prior to recovery and determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

The Company concluded that the unrealized losses as of the balance sheet dates were primarily attributed to increases in market interest rates since these securities were purchased under other market conditions.

Accordingly, there was no ACL on AFS debt securities as of June 30, 2024 or December 31, 2023.

Accordingly, there was no ACL on AFS debt securities as of September 30, 2024 or December 31, 2023.

Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

The composition of net loans as of the balance sheet dates was as follows:

June 30, 2024

September 30, 2024

December 31, 2023

2 unchanged sentences

$ 121,705,707

Purchased (1)

Commercial real estate

441,804,609 51.24 % 414,880,621 49.07 %

34,101,293 3.96 % 54,466,988 6.44 %

Residential real estate - 1st lien

212,028,611 24.59 % 208,824,888 24.70 %

Residential real estate - Jr lien

1 unchanged sentence

( 9,842,725 )

862,172,136 100.00 % 845,429,854 100.00 %

( 10,335,715 ) ( 9,842,725 )

Deferred net loan costs

1 unchanged sentence

$ 836,160,298

As of June 30, 2024, purchased loans consisted of $4,868,823 in commercial loans and $ 4,339,981 in consumer loans, compared to $ 5,705,659 and $4,863,263, respectively, as of December 31, 2023.

Credit Loss Expense

Credit loss expense was made up of the following components for the periods indicated:

Three Months Ended June 30,

As of September 30, 2024, purchased loans consisted of $ 4,220,549 in commercial loans and $ 4,194,889 in consumer loans, compared to $ 5,705,659 and $ 4,863,263 , respectively, as of December 31, 2023.

Accrued interest receivable on loans totaled $ 3.8 million and $ 3.6 million as of September 30, 2024 and December 31, 2023, respectively, and was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

Three Months Ended September 30,

Credit loss expense - loans

Credit loss reversal - OBS credit exposure

Credit loss expense (reversal) - OBS credit exposure

Credit loss expense

Six Months Ended June 30,

Nine Months Ended September 30,

Credit loss expense - loans

Credit loss reversal - OBS credit exposure

Credit loss expense (reversal) - OBS credit exposure

Credit loss expense

The following tables present the activity in the ACL on loans for the periods presented.

As of or for the three months ended June 30, 2024

ACL beginning balance

$ 1,078,956 $ 35,623 $ 5,730,532 $ 142,321 $ 2,574,341 $ 442,394 $ 23,601 $ 10,027,768

As of or for the three months ended September 30, 2024

September 30,

Commercial & Industrial

$ ( 1,097,922 )

Commercial Real Estate

Residential Real Estate - 1st Lien

Residential Real Estate - Jr Lien

$ ( 1,224,434 )

Credit loss (reversal) expense

As of or for the nine months ended September 30, 2024

September 30,

Commercial & Industrial

$ ( 1,249,441 )

ACL ending balance

Commercial Real Estate

Residential Real Estate - 1st Lien

Residential Real Estate - Jr Lien

$ ( 1,454,855 )

As of or for the six months ended June 30, 2024

ACL beginning balance

Credit loss expense(reversal)

ACL ending balance

As of or for the year ended December 31, 2023

ACL beginning balance

Impact of adopting CECL

Credit loss expense (reversal)

ACL ending balance

As of or for the three months ended June 30, 2023

ACL beginning balance

Credit loss expense (reversal)

ACL ending balance

As of or for the six months ended June 30, 2023

ACL beginning balance

Impact of adopting CECL

Credit loss expense (reversal)

ACL ending balance

Commercial & Industrial

$ ( 164,115 )

$ ( 386,578 )

Commercial Real Estate

Residential Real Estate - 1st Lien

Residential Real Estate - Jr Lien

$ ( 519,535 )

As of or for the three months ended September 30, 2023

September 30,

Commercial & Industrial

Commercial Real Estate

Residential Real Estate - 1st Lien

Residential Real Estate - Jr Lien

As of or for the nine months ended September 30, 2023

September 30,

Commercial & Industrial

$ ( 164,115 )

$ ( 361,578 )

Commercial Real Estate

Residential Real Estate - 1st Lien

Residential Real Estate - Jr Lien

$ ( 474,004 )

Credit Quality Grouping

In developing the ACL, management uses credit quality groupings to help evaluate trends in credit quality.

The Company groups credit risk into Groups A, B and C.

The manner the Company utilizes to assign risk grouping is driven by loan purpose.

Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.

Group A loans - Pass – are loans that are expected to perform as agreed under their respective terms.

Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size.

Group A loans include commercial purpose loans that are individually risk rated, including purchased and retail loans that are rated by pool.

Group A retail loans include performing consumer and residential real estate loans.

Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans.

Loan balances fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable risk.

Group B loans – Special Mention - are loans that require greater attention than the acceptable risk loans in Group A.

Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management.

These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked.

Group B is limited to commercial purpose loans that are individually risk rated.

Group C loans – Substandard/Doubtful – are loans that have distinct shortcomings that require a greater degree of management attention.

Examples of these shortcomings include a borrower's inadequate capacity to service debt, poor operating performance, or insolvency.

These loans are more likely to result in repayment through collateral liquidation.

Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted.

Group C loans include individually rated commercial purpose loans and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy.

Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the Bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.

Commercial purpose loan ratings are assigned by the commercial account officer;

for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst.

The credit risk rating is based on the borrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms.

Credit risk ratings are meant to measure risk versus simply record history.

Assessment of expected future payment performance requires consideration of numerous factors.

While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management.

Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions.

There are uncertainties inherent in this process.

Credit risk ratings are dynamic and require updating whenever relevant information is received.

Risk ratings are assessed on an ongoing basis and at various points, including delinquency or at the time of other adverse events.

For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review.

Lenders are required to make immediate disclosure to the Senior Lender of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio and current period gross charge-offs, by loan segment and origination year, were as follows:

As of or for the nine months ended,

September 30, 2024

Term Loans Amortized Cost Basis by Origination Year

(In thousands)

Commercial & Industrial:

Special mention

Substandard/Doubtful

Commercial real estate:

Special mention

Substandard/Doubtful

Residential real estate - 1st lien:

Special mention

Substandard/Doubtful

Residential real estate - Jr lien:

Substandard/Doubtful

Current period gross charge-offs

Commercial & Industrial

Commercial real estate

Total current period gross charge-offs

As of or for the nine months ended September 30, 2024, there were (i) no current period gross charge-offs within the Purchased, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments, (ii) no Special mention loans within the Purchased, Municipal, Residential real estate Jr lien and Consumer loan segments, and (iii) no Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

The Company did not purchase any loans during the nine months ended September 30, 2024.

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented.

There were no nonaccrual loans with an ACL as of September 30, 2024 or December 31, 2023.

September 30, 2024

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Residential real estate - Jr lien

December 31, 2023

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Residential real estate - Jr lien

The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment:

June 30, 2024

September 30, 2024

Commercial & industrial

16 unchanged sentences

For all loan segments, loans over 30 days past due are considered delinquent.

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented.

There were no nonaccrual loans with an ACL as of June 30, 2024 or December 31, 2023.

June 30, 2024

The following table presents the amortized cost basis of collateral-dependent loans (e.g.

repayment expected through underlying collateral, no other expected sources of repayment) as of the balance sheet dates, by collateral type:

September 30, 2024

Commercial & industrial

1 unchanged sentence

Residential real estate - 1st lien

Residential real estate - Jr lien

December 31, 2023

2 unchanged sentences

Residential real estate - 1st lien

Residential real estate - Jr lien

Residential real estate loans in process of foreclosure as of the balance sheet dates comprised of the following:

(1) Including, but not limited to, inventory, equipment, and accounts receivable, but excluding real estate.

Residential real estate loans in process of foreclosure as of the balance sheet dates were comprised of the following:

Number of loans

June 30, 2024

September 30, 2024

December 31, 2023

20 unchanged sentences

The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are not statistically meaningful loss events for a loan segment, or it does not have default and loss data that covers a full economic cycle.

As of June 30, 2024, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP).

As of September 30, 2024, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP).

Management monitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter, or more frequently as circumstances warrant) to determine whether they continue to be the most predictive indicator of losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.

3 unchanged sentences

Management monitors and assesses the forecast and reversion period at least annually, or more frequently as circumstances warrant.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of June 30, 2024.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of September 30, 2024.

When the DCF method is used to determine the ACL, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

15 unchanged sentences

This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

During the first quarter of 2024, the qualitative factor for delinquencies in the C&I and CRE portfolios was adjusted to reflect improving trends in those portfolios.

Also, the qualitative factors for collateral in the residential portfolios were adjusted to reflect stabilization of real estate values in that sector.

There were no adjustments to the qualitative factors made in the second quarter of 2024.

The qualitative factors are determined by management based on the various risk characteristics of each loan segment.

During the third quarter of 2024, after review and analysis, management adjusted the qualitative factors for economic trends in all portfolios to reflect improving trends.

The qualitative factors for volume and terms in the commercial and industrial, CRE, and residential portfolios were adjusted to reflect the absence of new or changed risks in those portfolios from new or increasing types of loans, industries, or collateral.

The qualitative factors for concentrations in the commercial and industrial, CRE, and residential portfolios were adjusted to reflect concentrations within policy as well adjust to the appropriate level for the residential portfolios where the concentration policy does not apply.

The qualitative factor for delinquencies and non-performing loans in the consumer and residential portfolios was adjusted to reflect low past due levels and a decrease year to date.

The qualitative factors are reviewed periodically and determined by management based on the various risk characteristics of each loan segment.

The Company has policies, procedures, and internal controls that management believes are commensurate with the risk profile of each of these segments.

37 unchanged sentences

However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The following table presents the amortized cost basis of collateral-dependent loans (e.g.

repayment expected through underlying collateral, no other expected sources of repayment) as of the balance sheet dates, by collateral type:

June 30, 2024

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

December 31, 2023

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Including, but not limited to, inventory, equipment, and accounts receivable, but excluding real estate.

For all loan segments, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is considered by management to be doubtful.

3 unchanged sentences

Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and a satisfactory payment performance of six or more months has occurred.