Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
[ X ] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2019
OR
[ ] TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from
to
Commission
File No. 000-16435
Community
Bancorp.
(Exact
name of Registrant as Specified in its Charter)
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Vermont
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03-0284070
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(State
of Incorporation)
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(IRS
Employer Identification Number)
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Address
of Principal Executive Offices: 4811 US Route 5, Derby,
Vermont 05829
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Registrant's
telephone number, including area code: (802) 334-7915
Securities
registered pursuant to Section 12(b) of the Act: NONE
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Title
of Each Class
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Trading
Symbol(s)
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Name of
each exchange on which registered
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(Not
Applicable)
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Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock - $2.50 par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities
Act. YES
( ) NO (X)
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act. YES( ) NO
(X)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
YES
(X) NO ( )
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). YES (X) NO (
)
1
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See definitions of "large
accelerated filer”, “accelerated filer", “smaller
reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer ( )
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Accelerated
filer (X)
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Non-accelerated
filer ( )
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Smaller
reporting company (X)
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Emerging
growth company ( )
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
( )
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). YES
( ) NO(X)
As of
June 30, 2019 the aggregate market value of the voting stock held
by non-affiliates of the registrant was $78,876,887, based on a per
share trade price on June 28, 2019 of $16.35, as reported on the
OTC Link ATS® system maintained by the OTC Markets Group Inc.
For purposes of the calculation, all directors and executive
officers were deemed to be affiliates of the registrant. However,
such assumption is not intended as an admission of affiliate status
as to any such individual.
There
were 5,539,675 shares
outstanding of the issuer's common stock as of the close of
business on March 10, 2020.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Annual Report to Shareholders for the year ended December
31, 2019 (2019 Annual Report) are incorporated by reference to Part
I and Part II of this Report.
Portions
of the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 19, 2020 (2020
Annual Meeting) are incorporated by reference to Part III of this
report.
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FORM
10-K ANNUAL REPORT
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PART
I
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Page
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Item
1
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4
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Item
1A
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15
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Item
1B
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Item
2
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Item
3
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Item
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PART
II
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Item
5
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Item
6
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Item
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Item
7A
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Item
8
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Item
9
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Item
9A
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Item
9B
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PART
III
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Item
10
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Item
11
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Item
12
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Item
13
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Item
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PART
IV
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Item
15
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26
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27
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3
PART I
Note Regarding Definitions and Acronyms: Capitalized terms
and acronyms used in the discussion below and not otherwise defined
have the meaning ascribed to them in Note 1 of the Company’s
audited consolidated financial statements filed pursuant to Part
II, Item 8 of this Report.
Item
1. The Business
Organization and Operation
The Company. The Company was
organized under the laws of the State of Vermont in 1982 and became
a registered bank holding company under the Bank Holding Company
Act of 1956, as amended, in October 1983 when it acquired all of
the voting shares of the Bank, headquartered in Derby, Vermont. The
Bank is the only subsidiary of the Company and principally all of
the Company's business operations are presently conducted through
it. Therefore, the following narrative and the other information
about the Company contained in this report are based primarily on
the Bank's operations.
The Bank; Banking Services. Community National
Bank was organized in 1851 as the Peoples Bank, and was
subsequently reorganized as the National Bank of Derby Line in
1865. In 1975, after 110 continuous years of operation as the
National Bank of Derby Line, the Bank acquired the Island Pond
National Bank and changed its name to "Community National Bank." On
December 31, 2007, the Company completed its acquisition of
LyndonBank, a Vermont bank headquartered in Lyndonville, Vermont,
in a cash merger transaction. As a result of the merger, the
Company expanded its existing branch network in Caledonia and
Orleans Counties and extended it into Lamoille and Franklin
Counties. In addition to its main office in Derby, the Company
currently maintains eleven branch offices in northeastern and
central Vermont and a loan production office in Chittenden County,
in northwestern Vermont, and in 2019, the Company opened a loan
production office in Grafton County, in western New
Hampshire.
The
opportunities for growth continue to be primarily in the Central
Vermont and Chittenden County markets where economic activity is
more robust than in the Company’s Orleans and Caledonia
County markets, and where the Company is increasing its presence
and market share. The Company is also focusing on expanding its
presence in the neighboring state of New Hampshire through the
opening of its loan production office in Lebanon, New
Hampshire.
The
Company, through the Bank, provides a broad range of retail banking
services to the residents, businesses, nonprofit organizations and
municipalities in its northern and central Vermont markets.
Significant services offered by the Company include:
●
Business Banking – The Company
offers a range of credit products for a variety of general business
purposes, including financing for commercial business properties,
equipment, inventories and accounts receivable, as well as letters
of credit. The Company also offers business checking and other
deposit accounts, cash management services, repurchase agreements,
ACH and wire transfer services and remote deposit
capture.
●
Commercial Real Estate Lending –
The Company provides a range of products to meet the financing
needs of commercial developers and investors, residential builders
and developers and community development entities. Credit products
are available to facilitate the purchase of land and/or build
structures for business use and for investors who are developing
residential or commercial property, as well as for real estate
secured financing of existing businesses. The Bank was recognized
by the SBA as Vermont’s top Section 7(a) program lender for
2017, providing financing to startups and other small businesses
not eligible for more traditional financing, and as one of
Vermont’s top third party small business lenders under the
SBA’s Section 504 loan program.
●
Residential Real Estate Lending –
The Company provides products to help meet the home financing needs
of consumers, including conventional permanent and
construction/permanent (fixed, adjustable, or variable rate)
financing arrangements, and FHA/VA loan products. The Company
offers both fixed-rate and adjustable rate residential mortgage
(ARM) loans and home equity loans. A portion of the first lien
residential mortgage loans originated by the Company are sold into
the secondary market. The Company offers these products through its
network of banking offices. The Company does not originate subprime
residential real estate loans.
●
Retail Credit – The Company
provides a full-range of loan products to meet the needs of
consumers, including personal loans, automobile loans and
boat/recreational vehicle loans. In addition, through a marketing
alliance with a third party, the Company offers credit
cards.
4
●
Municipal and Institutional Banking
– The Company provides banking services to meet the
needs of state and local governments, schools, charities,
membership and not-for-profit associations including deposit
account services, tax-exempt loans, lines of credit and term loans.
In addition, through an arrangement with the FHLBB, the Company
offers a secured deposit product to its municipal customers,
collateralized by FHLBB letters of credit.
●
Retail Banking – The Company
provides a full-range of consumer banking services, including
checking accounts, savings programs, ATMs, debit/credit cards,
night deposit facilities and online, mobile and telephone
banking.
The
Company focuses on establishing and maintaining long-term
relationships with customers and is committed to providing for the
financial services needs of the communities it serves. In
particular, the Company continues to emphasize its relationships
with individual customers and small-to-medium-sized businesses. The
Company actively evaluates the banking needs of its markets,
including low- and moderate-income areas, and offers products that
are responsive to the needs of its customer base. The
Company’s markets provide a mix of real estate, commercial
and industrial, municipal and consumer lending opportunities, as
well as a stable core deposit base. Additional information about
our business, including the Company’s deposit-taking
activities, lending activities and credit and risk management
policies, is set forth under the caption “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” contained in the 2019 Annual Report filed as
Exhibit 13 to this Report and is incorporated herein by
reference.
Related Trust Company. In 2002, the Bank
transferred its trust operations to a newly formed
Vermont-chartered non-depository trust and investment management
company, CFSG, based in Newport, Vermont. The Bank's ownership
interest in CFSG is held indirectly, through CFS Partners, a
Vermont limited liability company, which owns 100% of the limited
liability company equity interests of CFSG. Immediately following
transfer of its trust operations to CFSG, the Bank sold a
two-thirds interest in CFS Partners, equally to the National Bank
of Middlebury, headquartered in Middlebury, Vermont and Guaranty
Bancorp Inc., the bank holding company parent of Woodsville
Guaranty Savings Bank, headquartered in Woodsville, New Hampshire.
CFSG offers fiduciary services throughout the market areas of the
three owner financial institutions and leases space from them in
some of their branch offices.
Statutory Business Trust. In 2007, the
Company formed CMTV Statutory Trust I (the Trust), a Delaware
statutory business trust, for the purpose of issuing $12.5 million
of trust preferred securities and lending the proceeds to the
Company. This funding provided a portion of the cash consideration
paid by the Company in the acquisition of LyndonBank and provided
additional regulatory capital. The Trust is a variable interest
entity for which the Company is not the primary beneficiary, within
the meaning of applicable accounting standards. Accordingly, the
Trust is not consolidated with the Company for financial reporting
purposes.
Tax Credit Entity. During the years
2011 through 2018, the Company was the sole owner of a LLC formed
to facilitate the Company’s purchase of federal NMTCs under
an investment structure designed by a local community development
entity. The NMTC financing matured in the fourth quarter of 2018
and the Company exited the investment and terminated its interest
in the LLC. The LLC was a variable interest entity for which, in
the context of the overall NMTC structure, the Company was not the
primary beneficiary, within the meaning of applicable accounting
standards. Accordingly, the LLC was not consolidated with the
Company for financial reporting purposes.
Competition
All of
the Bank's banking offices are located in northern and central
Vermont. The Bank’s main office is located in Derby, in
Orleans County. In addition to its main office, the Bank has four
other banking offices in Orleans County, one office in Essex
County, two offices in Caledonia County, two offices in Washington
County and one office each in Franklin and Lamoille Counties. The
Bank also maintains loan production offices in Chittenden County,
Vermont and Grafton County, New Hampshire. (See Part I, Item 2
(Properties) of this report.)
The
Bank competes in all aspects of its business with other banks and
credit unions in northern and central Vermont, including three of
the largest banks operating in the state, which maintain branch
offices throughout the Bank's service area. The Bank also competes
with bank and non-bank lenders in Chittenden County, Vermont and
Grafton County, New Hampshire where it maintains loan production
offices. Changes in the regulatory framework of the financial
services industry during the past decade have broadened the
competition for commercial bank products, such as deposits and
loans, to include not only traditional rivals such as banks,
savings banks and credit unions, but also many non-traditional
rivals such as insurance companies, brokerage firms, mutual funds
and consumer and commercial finance and leasing companies. In
addition, many out-of-market nationwide banks, nonbank lenders and
other financial service firms operate in the Company’s market
areas through mass marketing solicitations by mail, radio,
television, the internet and email. At the same time, technological
changes have facilitated remote delivery of financial services by
bank and nonbank competitors outside the context of a traditional
branch bank network, thereby intensifying competition from
out-of-market firms.
5
Competition
from the tax-exempt credit union industry has also intensified in
recent years. A number of the Bank’s credit union
competitors, including the largest state-chartered Vermont credit
union, have converted from an employment based common bond to a
community common bond, thereby significantly increasing their
fields of membership in the Bank’s market areas. Because
federal law subsidizes credit unions by giving them a general
exemption from federal income taxes, they have a significant
pricing advantage over commercial banks for their deposit and loan
products. This pricing advantage, coupled with the relaxing of
membership criteria and regulatory restrictions on product
offerings, has resulted in increased competition for the Bank from
this tax exempt sector of the financial services
industry.
In
order to compete with other bank and non-bank service providers,
the Company stresses the community orientation of its banking
operations and relies to a large extent upon personal relationships
established by its officers, directors and employees with their
customers and on their strong ties to the local community. In
addition, management's knowledge of the local community assists it
in tailoring the Company's products and services to meet the needs
of its customer base. Although competition is strong throughout the
Company's market area, management believes that the Company can
continue to compete effectively, in view of its local market
knowledge and community ties and its understanding of customer
needs.
Employees
As of
December 31, 2019, the Company did not have any employees at the
holding company level. However, as of such date, the Bank employed
123 full-time employees and 13 part-time employees. The Bank is not
a party to any collective bargaining agreement and management of
the Bank considers its employee relations to be good.
Regulation and Supervision
The
following discussion describes elements of an extensive regulatory
framework applicable to bank holding companies and banks, to which
the Company and the Bank are subject. Regulation of banks and bank
holding companies is intended primarily for the protection of
depositors and the Deposit Insurance Fund of the FDIC, rather than
for the protection of shareholders and creditors.
The
Company’s earnings are affected by general economic
conditions, management policies, changes in federal and state laws
and regulations and actions of various regulatory authorities,
including those referred to below. Banking is a highly regulated
business and proposals to change the laws and regulations to which
the Company and the Bank are subject are frequently introduced at
both the federal and state levels. The likelihood and timing of any
such changes and the impact such changes may have on the Company
and the Bank is impossible to predict with any
certainty.
The
following summary does not purport to be complete and is qualified
by reference to the particular statutes and
regulations.
Dodd–Frank Act. The Dodd-Frank Wall Street Reform and
Consumer Protection Act of 2010 (the Dodd-Frank Act) represents a
comprehensive revision and restructuring of many aspects of
financial services industry regulation and impacts practically all
aspects of a banking organization. Many of the provisions of the
Dodd-Frank Act are designed to reduce systemic risk from large,
complex “systemically significant” financial
institutions, and thus do not apply to a smaller banking
organization such as the Company. Nevertheless, certain of its
provisions do directly apply to the Company and others will
indirectly impact its operations, as the Dodd-Frank Act continues
to reshape the financial services environment. Among other things,
the Act:
●
Established a new
independent agency, the CFPB, with centralized responsibility for
implementing and (with respect to large organizations) enforcing
and examining compliance with federal consumer financial laws.
Although the CFPB does not have enforcement or examination
authority over smaller banking organizations such as the Company,
many of its regulatory standards and mandates apply to them, with
enforcement authority vested in other regulatory agencies such as
(with respect to the Bank) the OCC;
●
Applies the same
leverage and risk-based capital requirements that apply to insured
depository institutions to most bank holding companies, savings and
loan holding companies and systemically important non-bank
financial companies on a consolidated basis. These changes prohibit
the use of additional trust preferred securities as Tier 1 capital,
but the Company’s existing trust preferred securities are
grandfathered;
6
●
Requires debit card
interchange transaction fees charged by large financial
institutions to be reasonable and proportional to the cost incurred
by the issuer for the transaction. The FRB adopted regulations in
2011 establishing such fee standards, eliminating exclusivity
arrangements between issuers and networks for debit card
transactions and limiting restrictions on merchant discounting for
use of certain payment forms and minimum or maximum amount
thresholds as a condition for acceptance of credit cards. Although
smaller institutions such as the Company are not subject to the
interchange fee restrictions, it is possible that, over time,
competitive pricing pressures in the marketplace may operate to
make the restrictions applicable to them by default;
●
Requires public
companies to periodically seek “say on executive pay”
and “say on frequency” votes of shareholders, and in
some circumstances, a “say on golden parachute” vote of
shareholders. These vote requirements first became applicable for
the Company’s 2013 annual meeting of
shareholders;
●
Allowed depository
institutions to pay interest on demand deposits effective July 21,
2011;
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Established by
statute the FRB’s “source of strength” doctrine
mandating holding company financial support of subsidiary insured
depository institutions;
●
Eliminated state
restrictions on de novo interstate branching;
●
Established new
requirements related to residential mortgage lending, including
prohibitions against payment of steering incentives and provisions
relating to underwriting standards, disclosures, appraisals and
escrows. Many of these provisions have been implemented through
CFPB rulemakings;
●
Weakened federal
preemption standards for national banks and federal savings
associations and their operating subsidiaries by granting states
greater authority to enforce consumer protection laws against
them;
●
Provided permanent
relief for non-accelerated filers, from the requirements of Section
404 of the Sarbanes-Oxley Act for auditor attestation of
management’s assessment of internal controls and their
effectiveness. Effective with the Company’s periodic reports
filed in 2018, this relief was no longer available to the Company
as it became an accelerated filer for SEC reporting purposes (see
“SEC Reporting and Disclosure Requirements”
below);
●
Requires a bank
holding company to be well capitalized and well managed to receive
regulatory approval of an interstate bank acquisition;
and
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Permanently
increased the FDIC’s standard maximum deposit insurance
amount to $250,000, changed the FDIC insurance assessment base to
assets rather than deposits and increased the reserve ratio for the
deposit insurance fund to ensure the future strength of the
fund.
The
Company will continue to monitor the impact of ongoing regulatory
implementation of this significant legislation.
Bank Holding Company Act. As a registered bank holding
company, the Company is subject to on-going regulation, supervision
and examination by the Board of Governors of the Federal Reserve
System (FRB), under the Bank Holding Company Act of 1956, as
amended (the Act). A bank holding company for example, must
generally obtain the prior approval of the FRB before it acquires
all or substantially all of the assets of any bank, or acquires
ownership or control of more than 5% of the voting shares of a
bank. FRB approval is also generally required before a bank holding
company may acquire more than 5% of any outstanding class of voting
securities of a company other than a bank or a more than 5%
interest in its property.
The Act
generally limits the activity in which the Company and its
subsidiaries may engage to certain specified activities, including
those activities which the FRB may find, by order or regulation, to
be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Some of the activities that the
FRB has determined to be closely related to banking are: (1) making
and servicing loans that could be made by mortgage, finance, credit
card or factoring companies; (2) performing the functions of a
trust company; (3) certain leasing of real or personal property;
(4) providing certain financial, banking or economic data
processing services; (5) except as otherwise prohibited by law,
acting as an insurance agent or broker with respect to insurance
that is directly related to the extension of credit or the
provision of other financial services or, under certain
circumstances, with respect to insurance that is sold in certain
small communities in which the bank holding company system
maintains banking offices; (6) acting as an underwriter for credit
life insurance and credit health and accident insurance directly
related to extensions of credit by the holding company system; (7)
providing certain kinds of management consulting advice to
unaffiliated banks and non-bank depository institutions; (8)
performing real estate appraisals; (9) issuing and selling money
order and similar instruments and travelers checks and selling U.S.
Savings Bonds; (10) providing certain securities brokerage and
related services for the account of bank customers; (11)
underwriting and dealing in certain government obligations and
other obligations such as bankers' acceptances and certificates of
deposit; (12) providing consumer financial counseling; (13)
providing tax planning and preparation services; (14) providing
check guarantee services to merchants; (15) operating a collection
agency; and (16) operating a credit bureau. Trust and investment
management activities conducted through a non-depository trust
company such as the Company's affiliate, CFSG, are also considered
by the FRB to be permissible nonbanking activities that are closely
related to banking.
7
Except
for CFSG’s trust and investment management operations, the
Company does not presently engage, directly or indirectly through
any affiliate, in any other permissible non-banking
activities.
A bank
holding company must obtain prior FRB approval in order to purchase
or redeem its own stock if the gross consideration to be paid, when
added to the net consideration paid by the company for all
purchases or redemptions by the company of its equity securities
within the preceding 12 months, will equal 10% or more of the
company's consolidated net worth.
The
Company is required to file with the FRB annual and quarterly
reports and such additional information as the Board may require
pursuant to the Act. The Board may also make examinations of the
Company and any direct or indirect subsidiary of the
Company.
The
Company, the Bank, CFS Partners and CFSG are all considered
"affiliates" of each other for the purposes of Section 18(j) of the
FDIA, as amended, and Sections 23A and 23B of the Federal Reserve
Act, as amended. In particular, section 23A limits loans or other
extensions of credit to, asset purchases with and investments in
affiliates of the Bank to 10% of the Bank’s capital and
surplus. In addition, such loans and extensions of credit and
certain other transactions must be collateralized in specified
amounts. Section 23B requires, among other things, that certain
transactions between the Bank and its affiliates must be on terms
substantially the same, or at least as favorable to the Bank, as
those prevailing at the time for comparable transactions with or
involving non-affiliated persons. Further, the Company is
prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or lease or sale of any
property or the furnishing of services.
Capital Adequacy Requirements. Revised regulatory capital rules
were adopted in July 2013 by the federal banking regulators to
implement the Basel III capital standards and certain capital
requirements of the Dodd-Frank Act. The effect of the rules was to
impose higher minimum capital requirements for bank holding
companies and banks. The rules apply to all national and state
banks and savings associations regardless of size and bank holding
companies and savings and loan holding companies with $500 million
or more in total consolidated assets. More stringent requirements
apply to certain larger banking organizations. The requirements in
the rule were fully phased in on January 1, 2019, for the Company
and the Bank.
The
Basel III capital rules include certain new and higher risk-based
capital and leverage requirements than those previously in place.
Specifically, the following minimum capital requirements now apply
to the Company and the Bank:
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a new
common equity Tier 1 risk-based capital ratio of 4.5%;
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a Tier
1 risk-based capital ratio of 6% (increased from the former 4%
requirement);
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a total
risk-based capital ratio of 8% (unchanged from the former
requirement); and
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a
leverage ratio of 4% (also unchanged from the former
requirement).
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Under
the rules, Tier 1 capital is redefined to include two components:
Common Equity Tier 1 capital and additional Tier 1 capital. The new
and highest form of capital, Common Equity Tier 1 capital, consists
solely of common stock (plus related surplus), retained earnings,
accumulated other comprehensive income, and limited amounts of
minority interests that are in the form of common stock. Additional
Tier 1 capital includes other perpetual instruments historically
included in Tier 1 capital, such as noncumulative perpetual
preferred stock. Tier 2 capital consists of instruments that
currently qualify in Tier 2 capital plus instruments that the rule
has disqualified from Tier 1 capital treatment. Cumulative
perpetual preferred stock, formerly includable in Tier 1 capital,
is now included only in Tier 2 capital. Although AOCI is
presumptively included in Common Equity Tier 1 capital, the rule
provided a one-time opportunity at the end of the first quarter of
2015 for covered banking organizations to opt out of much of this
treatment of AOCI. The Company and Bank made this opt-out election
and, as a result, will retain the pre-existing regulatory capital
treatment for AOCI.
In
addition, in order to avoid restrictions on capital distributions
or discretionary bonus payments to executives, a covered banking
organization must maintain a “capital conservation
buffer” on top of its minimum risk-based capital
requirements. This buffer must consist solely of Tier 1 Common
Equity, but the buffer applies to all three measurements (Common
Equity Tier 1, Tier 1 capital and total capital). The capital
conservation buffer was phased in incrementally over time and
became fully effective on January 1, 2019, consisting of an
additional amount of common equity equal to 2.5% of risk-weighted
assets. The Company and the Bank satisfied this fully-phased in
capital conservation buffer. Failure to maintain the required
buffer would result in limitations on permissible shareholder
distributions and discretionary bonus payments.
8
In
general, the rules have had the effect of increasing capital
requirements by increasing the risk weights on certain assets,
including high volatility commercial real estate, certain loans
past due 90 days or more or in nonaccrual status, mortgage
servicing rights not includable in Common Equity Tier 1 capital,
equity exposures, and claims on securities firms, that are used in
the denominator of the three risk-based capital
ratios.
The
Company’s capital ratios exceeded all applicable regulatory
requirements at December 31, 2019. (See Note 21 to the
Company’s audited consolidated financial statements included
in Part II, Item 8 of this report for additional information about
the Company’s and the Bank’s regulatory capital
ratios.)
The
Basel III capital standards also revised the FDIC’s
“prompt corrective action” requirements (see
“Prompt Corrective Action” below).
Under
the 2018 Regulatory Relief Act, these capital requirements have
been simplified for qualifying community banks and bank holding
companies. In September 2019, the OCC and the other federal bank
regulators approved a final joint rule that permits a qualifying
community banking organization to opt in to a simplified regulatory
capital framework. A qualifying institution that elects to utilize
the simplified framework must maintain a CBLR in excess of 9%, and
will thereby be deemed to have satisfied the generally applicable
risk-based and other leverage capital requirements and (if
applicable) the FDIC’s prompt corrective action framework. In
order to utilize the CBLR framework, in addition to maintaining a
CBLR of over 9%, a community banking organization must have less
than $10 billion in total consolidated assets and must meet certain
other criteria such as limitations on the amount of off-balance
sheet exposures and on trading assets and liabilities. The CBLR
will be calculated by dividing tangible equity capital by average
total consolidated assets. The final rule became effective on
January 1, 2020, and as of that date the Company and Bank qualify
to utilize the CBLR framework.
Sarbanes-Oxley Act. SOX was enacted to increase corporate
responsibility, to provide for enhanced penalties for accounting
and auditing improprieties at publicly traded companies and to
protect investors by improving the accuracy and reliability of
corporate disclosures pursuant to the securities laws. SOX and the
SEC’s implementing regulations include provisions addressing,
among other matters, the duties, functions and qualifications of
audit committees for all public companies; certification of
financial statements by the chief executive officer and the chief
financial officer; the forfeiture of bonuses or other
incentive-based compensation and profits from the sale of an
issuer’s securities by directors and senior officers in the
twelve month period following initial publication of any financial
statements that later require restatement; disclosure of
off-balance sheet transactions; a prohibition on personal loans to
directors and officers, except (in the case of banking companies)
loans in the normal course of business; expedited filing
requirements for reports of beneficial ownership of company stock
by insiders; disclosure of a code of ethics for senior officers,
and of any change or waiver of such code; the formation of a public
accounting oversight board; auditor independence; disclosure of
fees paid to the company's auditors for non-audit services and
limitations on the provision of such services; attestation
requirements for company management and external auditors, relating
to internal controls and procedures; and various increased criminal
penalties for violations of federal securities laws.
Since
2007 Section 404 of SOX has required management of the Company to
undertake a periodic assessment of the adequacy and effectiveness
of the Company’s internal control over financial reporting.
Management's report on internal control over financial reporting
for 2019 is contained in Item 9A of this Report. The Company has
incurred, and expects to continue to incur, costs in connection
with its on-going compliance with Section 404.
Effective
December 31, 2017, as an accelerated filer for SEC reporting
purposes, the Company is required to obtain from its external
auditors an audit report on the Company’s internal control
over financial reporting and the operating effectiveness of these
controls.
Information
on the Company’s corporate governance practices, including
committee charters, is available on the Company’s website at
www.communitybancorpvt.com.
SEC Reporting and Disclosure Requirements. Under current SEC
reporting and disclosure rules, as amended in 2018, the Company is
considered to be both an accelerated filer and a smaller reporting
company. As an accelerated filer, the Company is subject to
SOX section 404(b) for external auditor attestation of
management’s assessment of the Company’s internal
controls and their effectiveness and is required to file its
periodic reports with the SEC on a more accelerated timetable than
applies to non-accelerated filers. As a smaller
reporting company, the Company is permitted to make certain reduced
(or scaled) financial and other disclosures in its periodic reports
and proxy statements filed with the SEC.
9
Dividends. The Company derives funds for payment of
dividends to its shareholders primarily from dividends received
from its subsidiary, Community National Bank. Under the National
Bank Act, prior approval from the OCC is required if the total of
all dividends declared by a national bank in any calendar year will
exceed the sum of such bank's net profits for that last year and
its retained net profits for the preceding two calendar years, less
any required transfers to surplus. Federal law also prohibits
national banks from paying dividends greater than the bank's
undivided profits after deducting statutory bad debt in excess of
the bank's ALL.
The
Company and the Bank are also subject to various general regulatory
policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above
regulatory minimums. The appropriate federal or state banking
agency is authorized to determine under certain circumstances
relating to the financial condition of a bank or bank holding
company that the payment of dividends would be an unsafe or unsound
practice and to prohibit such payment. In addition, under the Basel
III capital requirements, failure to maintain the required capital
conservation buffer would result in additional limitations on
permissible shareholder distributions.
The FRB
has issued supervisory guidance on the payment of dividends and
redemption and repurchases of stock by bank holding companies
reflecting the expectation that a bank holding company will inform
and consult with FRB supervisory staff in advance of declaring and
paying any dividend that could raise safety and soundness concerns.
Examples of actions that might raise such concerns include
declaration of a dividend exceeding current period earnings;
redeeming or repurchasing regulatory capital instruments when the
bank holding company is experiencing financial weaknesses; or
redeeming or repurchasing common stock or perpetual preferred stock
that would result in a net reduction in the amount of such equity
instruments outstanding compared with the beginning of the quarter
in which the redemption or repurchase occurred. The guidance
provides that a bank holding company should eliminate, defer or
severely limit dividends if net income for the past four quarters
is not sufficient to fully fund dividends; the prospective rate of
earnings retention is not consistent with the holding
company’s capital needs and overall current and prospective
financial condition; or the holding company will not meet, or is in
danger of not meeting, its minimum regulatory capital
ratios.
OCC Supervision. As a national banking
association, the Bank is subject to the provisions of the National
Bank Act and federal and state statutes and rules and regulations
applicable to national banks. The primary supervisory authority for
the Bank is the OCC. The Bank is subject to periodic examination by
the OCC and must file periodic reports with the OCC containing a
complete statement of its financial condition and results of
operations. The OCC's examinations are designed for the protection
of the Bank's depositors and not the Company’s
shareholders.
The
CFPB created by the Dodd-Frank Act took over responsibility for
enforcing the principal federal consumer protection laws, such as
the Truth in Lending Act, the Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act and the Truth in Saving Act,
among others, in 2011. Institutions that have assets of $10 billion
or less, such as our Bank subsidiary, will continue to be
supervised and examined in this area by their primary federal
regulators (in the case of our Bank subsidiary, the OCC). However,
the Dodd-Frank Act gives the CFPB expanded data collecting powers
for fair lending purposes for both small business and mortgage
loans, as well as expanded authority to prevent unfair, deceptive
and abusive practices.
Prompt Corrective Action. The Bank is subject to regulatory
capital requirements established under FDICIA. Among other things,
FDICIA identifies five capital categories for insured depository
institutions (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized) and requires the respective U.S. federal
regulatory agencies to implement systems for "prompt corrective
action" for insured depository institutions that do not meet
minimum capital requirements within such categories. FDICIA imposes
progressively more restrictive constraints on operations,
management and capital distributions, depending on the category in
which an institution is classified. Failure to meet the capital
guidelines could also subject a banking institution to capital
raising requirements. An "undercapitalized" bank must develop a
capital restoration plan and its parent holding company must
guarantee that bank's compliance with the plan. The liability of
the parent holding company under any such guarantee is limited to
the lessor of 5% of the bank's assets at the time it became
undercapitalized or the amount needed to comply with the plan.
Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the parent's
general unsecured creditors. In addition, FDICIA requires the
various regulatory agencies to prescribe certain non-capital
standards for safety and soundness related generally to operations
and management, asset quality and executive compensation and
permits regulatory action against a financial institution that does
not meet such standards.
The
federal bank regulatory agencies, including the OCC, have adopted
substantially similar regulations that define the five capital
categories identified by FDICIA. These regulations establish
various degrees of corrective action to be taken when an
FDIC-insured depository institution is considered undercapitalized.
Effective January 1, 2015, the FDIC’s Prompt Corrective
Action regulations were revised in accordance with the Basel III
capital standards. The enhanced requirements (i) introduce a Common
Equity Tier 1 ratio requirement at each capital category (other
than critically undercapitalized), and set the required Common
Equity Tier 1 ratio at 6.5% for well-capitalized status; (ii)
increase the minimum Tier 1 capital ratio requirement for each
category (other than critically undercapitalized), and set the
minimum Tier 1 capital ratio for well-capitalized status at 8.0%
(as compared to 6.0% under the prior rule); and (iii) eliminate the
provision that permitted a bank with a composite supervisory rating
of 1 to have a 3% leverage ratio and still be considered adequately
capitalized. The Basel III capital standards do not change the
total risk-based capital requirement for any prompt corrective
action category.
10
As of
December 31, 2019, the Bank was considered "well capitalized" under
FDICIA’s Prompt Corrective Action capital requirements. (See
Note 20 to the Company’s audited consolidated financial
statements included in Part II, Item 8 of this report for
additional information about the Bank’s regulatory capital
ratios.)
Deposit Insurance. The deposits of the Bank are insured by
the Deposit Insurance Fund (DIF) of the FDIC up to the limits set
forth under applicable law and are subject to the deposit insurance
premium assessments of the DIF. The FDIC imposes a risk-based
deposit premium assessments system, which was amended pursuant to
the Federal Deposit Insurance Reform Act of 2005 and further
amended by the Dodd-Frank Act. Under this system, as amended, the
assessment rates for an insured depository institution vary
according to the level of risk incurred in its activities. To
arrive at an assessment rate for a banking institution, the FDIC
places it in one of four risk categories determined by reference to
its capital levels and supervisory ratings. In addition, in the
case of those institutions in the lowest risk category, the FDIC
further determines its assessment rate based on certain specified
financial ratios or, if applicable, its long-term debt ratings. The
assessment rate schedule can change from time to time, at the
discretion of the FDIC, subject to certain limits. In addition,
previously all FDIC insured depository institutions were required
to pay a pro rata portion of the interest due on the obligations
issued by the FICO to fund the closing and disposal of failed
thrift institutions by the Resolution Trust Corporation. The FDIC
discontinued collection of these payments in March
2019.
The
Dodd-Frank Act changed the assessment formula for determining
deposit insurance premiums and modified certain insurance coverage
provisions of the FDIA. The FDIC’s implementing rules, which
redefined the base for FDIC insurance assessments from the amount
of insured deposits to average consolidated total assets less
average tangible equity, became effective April 1, 2011. Due to the
“Small Bank Assessment Credit issued by the FDIC during the
third quarter of 2019, the Bank’s total FDIC insurance
assessment decreased for 2019 to $64,079 compared to $274,772 for
2018.
The
Dodd-Frank Act also permanently increased from $100,000 to $250,000
the maximum per depositor FDIC insurance amount.
Brokered Deposits. Under FDICIA, an FDIC-insured
bank is prohibited from accepting brokered deposits without prior
approval of the FDIC unless it is well capitalized under the
FDICIA's prompt corrective actions guidelines. The Company
participates in the CDARS of the Promontory Interfinancial Network,
which uses a deposit-matching engine to match CDARS deposits in
other participating banks, dollar-for-dollar. This product, also
known as reciprocal deposits, is designed to provide deposit
insurance in excess of FDIC limits and thereby enhance customer
attraction and retention, build deposits and improve net interest
margins. Until recently reciprocal deposits were considered a form
of brokered deposits, which are treated less favorably than other
deposits for certain purposes; however, a provision of the 2018
Regulatory Relief Act provides that reciprocal deposits held by a
well-capitalized and well managed bank are no longer classified as
brokered deposits. CDARS also permits the “one-way”
purchase of deposits, which the Company utilizes from time to time
for liquidity management purposes. CDARS one-way deposits are
considered brokered deposits for certain purposes under the Federal
Deposit Insurance Act and FDIC regulations. As of December 31, 2019
the Company had CDARS deposits totaling approximately $6.8 million
in exchanged funds and $4.0 million in one-way funds. The Company
also relies from time to time on purchased wholesale deposit
funding, which is a form of brokered deposits. The Company had $7.1
million in purchased wholesale deposits outstanding at December 31,
2019. The Company’s Asset, Liability and Funds Management
Policy limits the use of brokered deposits to 5% of total
assets.
USA Patriot Act. The USA PATRIOT Act is intended to
strengthen the ability of U.S. law enforcement and the intelligence
community to work cooperatively to combat terrorism on a variety of
fronts. The Act contains extensive anti-money laundering and
financial transparency provisions and imposes various requirements,
including standards for verifying client identification at account
opening, and rules to promote cooperation among financial
institutions, regulators and law enforcement entities in
identifying parties that may be involved in terrorism or money
laundering. The Secretary of the Treasury and federal banking
regulators have adopted several regulations to implement these
provisions. The Act also amended the federal Bank Holding Company
Act and the Bank Merger Act to require the federal banking
regulatory authorities to consider the effectiveness of a bank
holding company or a financial institution’s anti-money
laundering activities when reviewing an application to expand
operations. As required by law, the Bank has in place a Bank
Secrecy Act and Anti-Money Laundering compliance program, as well
as a customer identification program. (See “BSA/AML
Requirements” below.)
BSA/AML Requirements. The Company is subject to a number of
AML and regulations as a result of being a U.S.-based financial
institution. AML requirements are primarily derived from the BSA,
as amended by the USA Patriot Act. These laws and regulations are
designed to prevent the financial system from being used by
criminals to hide illicit proceeds and to impede terrorists’
ability to access and move funds used in support of terrorist
activities. Among other things, BSA/AML laws and regulations
require financial institutions to establish AML programs that meet
certain standards, including, in some instances, expanded
reporting, particularly in the area of suspicious transactions, and
enhanced information gathering and recordkeeping
requirements. The Company maintains an AML program designed
to ensure that it is in compliance with all applicable laws, rules
and regulations related to AML and anti-terrorist financing
initiatives. The AML program provides for a system of internal
controls to ensure that appropriate due diligence and, when
necessary, enhanced due diligence, including obtaining and
maintaining appropriate documentation, is conducted at account
opening and updated, as necessary, through the course of the client
relationship. The AML program is also designed to ensure there are
appropriate methods of monitoring transactions and account
relationships to identify potentially suspicious activity and
report suspicious activity to governmental authorities in
accordance with applicable laws, rules and regulations. In
addition, the AML program requires the training of appropriate
personnel with regard to AML and anti-terrorist financing issues
and provides for independent testing to ensure that the AML program
is in compliance with all applicable laws and regulations.
Non-compliance with BSA/AML laws or failure to maintain adequate
policies and procedures can lead to significant monetary penalties
and reputational damage, and federal regulators evaluate the
effectiveness of an applicant in combating money laundering when
determining whether to approve a bank merger, bank holding company
acquisition or other certain other activities.
11
New AML
customer due diligence requirements became effective on May 11,
2018. Among other things, these new regulations require the Company
to collect information on the beneficial ownership and controlling
person of legal entity clients and to verify their
identity.
The
U.S. Treasury's OFAC rules prohibit U.S. persons from engaging in
financial transactions with certain individuals, entities, or
countries, identified as “Specially Designated
Nationals,” such as terrorists and narcotics traffickers.
These rules require the blocking of assets held by, and prohibit
transfers of property to such individuals, entities or countries.
Blocked assets, such as property or bank deposits, cannot be paid
out, withdrawn, set off or transferred in any manner without a
license from OFAC. The Company maintains an OFAC program designed
to ensure compliance with OFAC requirements.
Financial Privacy. Under the federal Gramm-Leach-Bliley
Financial Modernization Act of 1999 all financial institutions,
including the Company, are required to adopt privacy policies,
restrict the sharing of nonpublic consumer customer data with
nonaffiliated parties, and establish procedures and practices to
protect customer data from unauthorized access. The Company is also
subject to similar, but more stringent, requirements under state
law, including the Vermont Financial Privacy Act. In addition, the
Company is subject to the federal Fair Credit Reporting Act,
including the amendments adopted in the federal Fair and Accurate
Credit Transactions Act of 2003 (FACT Act). The FACT Act includes
many provisions concerning national credit reporting standards and
permits consumers to opt out of information sharing among
affiliated companies for marketing purposes. It also requires
financial institutions to notify their customers if they report
negative information about them to a credit bureau or if they are
granted credit terms less favorable than those generally available.
The FRB and the OCC have extensive rulemaking authority under the
FACT Act and have promulgated rules implementing the Act, including
rules limiting information sharing for affiliate marketing and
rules requiring programs to identify, detect and mitigate certain
identity theft red flags. The Company is also subject to the
requirements of the Vermont Fair Credit Reporting Act, which
generally requires an individual's consent in order to obtain a
credit report.
Qualified Mortgage Rules. Pursuant
to the Dodd-Frank Act, the CFPB adopted significant amendments to
the regulations that implement the Truth in Lending Act. These
amendments, which became effective January 10, 2014, address
mortgage origination practices by certain housing creditors,
including the Bank, and generally require mortgage lenders to
determine consumers’ ability to repay in one of two ways. The
first alternative requires the mortgage lender to consider eight
underwriting factors when making the credit decision.
Alternatively, the mortgage lender can originate so-called
qualified mortgages, or "QMs", which are entitled to a presumption
that the creditor making the loan satisfied the ability-to-repay
requirements. In general, a qualified mortgage is a residential
mortgage loan that does not have certain high risk features, such
as negative amortization, interest-only payments, balloon payments,
or a term exceeding 30 years. In addition, to be a qualified
mortgage, the points and fees paid by a consumer cannot exceed 3%
of the total loan amount and the borrower’s total
debt-to-income ratio must be no higher than 43% (subject to certain
limited exceptions for loans eligible for purchase, guarantee or
insurance by a government sponsored entity or a federal
agency).
A
lender originating a QM is protected against a legal claim that the
lender failed to comply with the ability-to-repay requirement. A
lender originating a mortgage that is not a QM is exposed to the
risk of a potential claim that the lender did not comply with the
ability-to-repay rules, which could require the lender to pay
damages to the borrower, and could impair the lender’s
ability to enforce the loan terms or foreclose on the real estate
collateral. The ability-to-repay requirement creates a new basis
for after-the-fact challenge of QM status by regulators and by
consumers and its future interpretation by the courts may create
substantial legal uncertainty. The CFPB’s mission is consumer
protection, not lender safety and soundness, and for that reason
the CFPB wrote the ability-to-repay rule with the goal of
preventing consumers from being steered by lenders into expensive
and unsustainable borrowing, rather than with the goal of assuring
loan repayment. Accordingly, typical credit-quality features such
as loan-to-value standards are not elements of the ability-to-repay
rule, and it will not necessarily be the case that QMs have a
higher probability or history of repayment than other
mortgages.
12
The
2018 Regulatory Relief Act creates a safe harbor for qualifying
community banks by providing qualified mortgage status for most
residential mortgage loans held in portfolio. The Bank qualifies
for this relief.
Integrated TILA/RESPA (TRID) Disclosures. As required by the
Dodd-Frank Act, the CFPB issued final rules in 2013 revising and
integrating previously separate disclosures required under the
RESPA and TILA in connection with certain closed-end consumer
mortgage loans. These final rules became effective in October 2015
and require lenders to provide a new Loan Estimate (which combines
content from the former Good Faith Estimate required under RESPA
and the initial disclosures required under TILA) not later than the
third business day after submission of a loan application, and a
new Closing Disclosure (which combines content of the former HUD-1
Settlement Statement required under RESPA and the final disclosures
required under TILA) at least three days prior to the loan closing.
Other significant changes included in the TRID rules include: (1)
expansion of the scope of loans that require RESPA early
disclosures, including bridge loans, vacant land loans, and
construction loans; (2) changes and additions to “waiting
period” requirements to close a loan; (3) reduced tolerances
for estimated fees and (4) the lender, rather than the closing
agent, is responsible for providing final disclosures. As with the
CFPB’s ability-to-repay/QM rules, compliance with the TRID
rules has increased the Company’s compliance costs and may
adversely affect the profitability of our routine residential
mortgage lending operations.
Community Reinvestment Act. The Federal CRA requires banks
to define the communities they serve, identify the credit needs of
those communities, collect and maintain data for each small
business or small farm loan originated or purchased by the Bank,
and maintain a Public File at each location. The federal banking
regulators examine the institutions they regulate for compliance
with the CRA and assign one of the following four ratings:
“outstanding,” “satisfactory,” “needs
to improve” or “substantial noncompliance”. The
rating assigned reflects the bank’s record of helping to meet
the credit needs of its entire community, including low- and
moderate-income neighborhoods, consistent with the safe and sound
operation of the bank. As of the Bank’s last CRA examination,
completed during 2017, it received a rating of
“Outstanding”.
Home Mortgage Disclosure Act. The federal HMDA, which is
implemented by CFPB’s Regulation C, requires mortgage lenders
that maintain offices within MSAs to report and make available to
the public specified information regarding their residential
mortgage lending activities, such as the pricing of home mortgage
loans, including the “rate spread” between the interest
rate on loans and certain treasury securities and other benchmarks.
The Bank became subject to HMDA reporting requirements as a result
of its merger with LyndonBank in 2007, as the former LyndonBank
branch in Enosburg Falls in Franklin County is included within the
Burlington, Vermont MSA. In July 2015, the CFPB implemented and
expanded new HMDA rules. The final rule adopts a dwelling-secured
standard for all loans or lines of credit that are for personal,
family, or household purposes. Thus, many consumer-purpose
transactions, including closed-end home-equity loans, home-equity
lines of credit, and reverse mortgages, are subject to the
regulation. Most commercial-purpose transactions (i.e., loans or
lines of credit not for personal, family, or household purposes)
are subject to the regulation only if they are for the purpose of
home purchase, home improvement, or refinancing. The final rule
excludes from coverage home improvement loans that are not secured
by a dwelling (i.e., home improvement loans that are unsecured or
that are secured by some other type of collateral) and all
agricultural-purpose loans and lines of credit. New HMDA rules that
became effective January 1, 2018 significantly increased the
overall amount of data required to be collected and submitted,
including additional data points about the applicable loans and
expanded data about the borrowers. However, the 2018 Regulatory
Relief Act provided an exemption from the requirement to collect
these additional data fields for banks that have at least a
“Satisfactory” CRA rating that originate fewer than 500
closed-end mortgage loans or fewer than 500 open-end lines of
credit per year. The Bank qualifies for this relief.
Flood Insurance Reform. The Biggert-Waters Flood
Insurance Reform Act of 2012 (Biggert-Waters Act), as amended by
the Homeowner Flood Insurance Affordability Act of 2014, modified
the National Flood Insurance Program by: (i) increasing the maximum
civil penalty for Flood Disaster Protection Act violations to
$2,000 and eliminating the annual penalty cap; (ii) requiring
certain lenders to escrow premiums and fees for flood insurance on
residential improved real estate; (iii) directing lenders to accept
private flood insurance and to notify borrowers of its
availability; (iv) amending the force placement requirement
provisions; and (v) permitting lenders to charge borrowers costs
for lapses in or insufficient coverage. The civil penalty and force
placed insurance provisions were effective
immediately.
In July
2015, certain federal agencies issued a joint final rule exempting:
(1) detached structures that are not used as a residence from the
mandatory flood insurance purchase requirements and (2) HELOCs,
business purpose loans, nonperforming loans, loans with terms of
less than one year, loans for co-ops and condominiums, and
subordinate loans on the same property from the mandatory escrow of
flood insurance premium requirements. Additionally, the final rule
requires certain lenders to escrow flood insurance payments and
offer the option to escrow flood insurance premiums on residential
improved real estate securing a loan, effective January 1, 2016.
New rules effective July 1, 2019, require banks and other regulated
financial institutions to accept certain private insurance policies
in addition to National Flood Insurance Program
policies.
13
Reserve Requirements. FRB Regulation D requires all
depository institutions to maintain reserves against their
transaction accounts (generally, demand deposits, NOW accounts and
certain other types of accounts that permit payments or transfers
to third parties) and non-personal time deposits (generally, money
market deposit accounts or other savings deposits held by
corporations or other depositors that are not natural persons, and
certain other types of time deposits), subject to certain
exemptions. Because required reserves must be maintained in the
form of either vault cash, a non-interest bearing account at the
FRBB or a pass through account (as defined by the FRB), the effect
of these reserve requirements is to reduce the amount of the
Company's interest-bearing assets.
Federal Home Loan Bank System. The Bank is a member of the
FHLB System, which consists of 12 regional Federal Home Loan Banks.
The FHLB provides a central credit facility primarily for member
institutions. Member institutions are required to purchase and hold
shares of capital stock in the applicable regional FHLB (the FHLBB,
in the case of the Bank), in an amount at least equal to the sum of
0.35% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each
year and 4.5% of its advances (borrowings) from the FHLBB. The Bank
was in compliance with this requirement with an investment in FHLBB
stock at December 31, 2019 of $753,700. As a member, the Bank is
subject to future capital calls by the FHLBB in order to maintain
compliance with its capital plan.
FRB Executive Compensation Guidelines. In 2009, the FRB issued
comprehensive guidance on executive compensation policies, intended
to ensure that the incentive compensation practices of banking
organizations do not undermine their safety and soundness by
encouraging excessive risk-taking. The guidance covers all
employees that have the ability to affect materially an
institution's risk profile, either individually or as part of a
group, and establishes that incentive compensation arrangements
should (1) provide incentives that do not encourage risk-taking
beyond the institution's ability to identify and manage
effectively; (2) be compatible with effective internal controls and
risk management; and (3) be supported by strong corporate
governance, including active and effective oversight by the board
of directors. The guidance instructed institutions to begin an
immediate review of their incentive compensation policies to ensure
that they do not encourage excessive risk-taking and implement
corrective programs as needed. Where deficiencies in incentive
compensation arrangements exist, they must be immediately
addressed. For institutions such as the Company that are not
"large, complex banking organizations" as defined in the guidance,
the FRB will review the incentive compensation arrangements as part
of its regular, risk-focused examination process and not in a
separate examination. These examinations will be tailored to the
scope and complexity of the institution's activity and compensation
arrangements. The findings will be included in the FRB's
examination report and deficiencies will be incorporated into the
institution's supervisory ratings. Enforcement actions may be taken
against an institution if its incentive compensation arrangements,
or related risk management control or governance processes, pose a
risk to the institution's safety and soundness and the institution
fails to take prompt and effective measures to correct the
deficiencies.
Other Legislative and Regulatory Initiatives. In addition to
the statutes, regulations and regulatory initiatives described
above, new legislation and regulations affecting financial
institutions are frequently proposed. If enacted or adopted, these
measures could change banking statutes and the Company's operating
environment in substantial and unpredictable ways and could further
increase reporting and compliance requirements, governance
structures and costs of doing business. The Company cannot predict
whether any such additional legislation or other regulatory
initiatives will be adopted or the effect they may have on the
Company's business, results of operations or financial
condition.
Tax Cuts and Jobs Act. The 2017 Tax Act
significantly changed corporate income tax law by reducing the
federal corporate income tax rate from 35% to 21%, effective
January 1, 2018, creating a territorial tax system, allowing for
immediate capital expensing of certain qualified property, and
eliminating the deductibility of DIF assessments. These tax laws
were generally effective for the 2018 tax year. However, as
permitted under the 2017 Tax Act, the Company recognized certain
effects of the changes in the tax laws in its 2017 consolidated
financial statements
Effects of Government Monetary Policy
The
earnings of the Company are affected by general and local economic
conditions and by the policies of various governmental regulatory
authorities. In particular, the FRB regulates money supply, credit
conditions and interest rates in order to influence general
economic conditions, primarily through open market operations in
United States Government Securities, varying the discount rate on
member bank borrowings, setting reserve requirements against member
and nonmember bank deposits, regulating interest rates payable by
member banks on time and savings deposits and expanding or
contracting the money supply. FRB monetary policies have had a
significant effect on the operating results of commercial banks,
including the Company, in the past and are expected to continue to
do so in the future.
Other Available Information
This
annual report on Form 10-K is on file with SEC. The Company also
files with the SEC quarterly reports on Form 10-Q and current
reports on Form 8-K, as well as proxy materials for its annual
meetings of shareholders. These reports and proxy materials are
available without charge on the SEC’s website at http://www.sec.gov. The
Company's SEC-filed reports and proxy statements are also available
without charge through a link on the Company's website at
www.communitybancorpvt.com. The
Company has also posted on its website the Company’s Code of
Ethics for Senior Financial Officers and the Principal Executive
Officer, the Insider Trading Policy and the charters of the Audit,
Compensation and Nominating Committees. The information and
documents contained on the Company's website do not constitute part
of this report. Copies of the Company's reports filed with the SEC
(other than exhibits) and proxy materials can also be obtained by
contacting Melissa Tinker, Assistant Corporate Secretary, at our
principal offices, which are located at 4811 U.S. Route 5, Derby,
Vermont 05829 or by calling (802) 334-7915.
14
Item 1A. Risk
Factors
Before deciding to invest in the Company or to maintain or increase
an investment, investors should carefully consider the material
risks described below, in addition to the other information
contained in this report and in the Company’s other filings
with the SEC. The risks and uncertainties described below and in
the Company’s other filings are not the only ones the Company
faces. Additional risks and uncertainties not presently known to
management or that are currently deemed immaterial may emerge or
evolve and also affect the Company’s business. If any of
these known or unknown risks or uncertainties actually occurs, the
Company’s business, financial condition and results of
operations could be adversely affected, which in turn could result
in a decline in the value of the Company’s capital
stock.
Our common stock is not exchange-listed and our trading volume is
less than that of larger public companies, which can contribute to
volatility in our stock price and adversely affect the price and
liquidity of an investment in our common stock.
Our common stock is included in the OTC QX market tier maintained
by the OTC Markets Group, Inc. under the trading symbol CMTV, but
is not traded on any securities exchange. Bid and ask quotations
and trades in our stock made by certain brokerage firms are
reported through the OTC Link®
Alternative Trading System (ATS)
maintained by a subsidiary of the OTC Markets Group, Inc. However,
trading in our stock is sporadic. A public trading market for a
particular class of stock having the desired characteristics of
depth, liquidity and orderliness depends on the presence in the
marketplace of numerous buyers and sellers of that stock at any
given time, which in turn depends on the individual decisions of
investors and general economic and market conditions over which
issuers have no control. The trading market in our stock does not
exhibit these characteristics. The trading history of our common
stock has been characterized by relatively low trading volume. This
lack of an active public market means that the value of a
shareholder’s investment in our common stock may be subject
to sudden fluctuations, as individual trades have a greater effect
on our reported trading price than would be the case in a broad
public market with significant daily trading
volume.
The market price of our common stock may also be subject to
fluctuations in response to numerous other factors, including the
factors discussed below, regardless of our actual operating
performance. The possibility of such fluctuations occurring is
increased due to the illiquid nature of the trading market in our
common stock. Therefore, a shareholder may be unable to sell our
common stock at or above the price at which it was purchased, or at
or above the current market price or at the time of his or her
choosing.
Our ability to pay dividends on our capital stock and to service
our debt depends primarily on dividends from our subsidiary and may
be subject to regulatory and contractual limitations.
As a holding company, our cash flow typically comes from dividends
that our bank subsidiary, Community National Bank, pays to
us. Therefore, our ability to pay dividends on our common
and preferred stock and to service our subordinated debentures,
depends on the dividends we receive from the Bank. Dividend
payments from the Bank are subject to federal statutory and
regulatory limitations, generally based on net profits and retained
earnings and may be subject to additional prudential
considerations, such as capital planning needs. In addition, FRB
policy, which applies to us as a registered bank holding company,
provides that dividends by bank holding companies should generally
be paid out of current earnings looking back over a one-year period
and should not be paid if regulatory capital levels are deemed
insufficient. Further, regulatory capital requirements could
curtail our ability to pay dividends in some cases if we do not
maintain a required capital conservation buffer. Our failure to pay
dividends on our common or preferred stock or our failure to
service our debt could have a material adverse effect on the market
price of our common stock. Moreover, if sufficient dividend funding
from the Bank is not available to cover all our requirements, we
would be obligated first to pay interest and, if applicable,
principal on our debentures and then to pay dividends on our
preferred stock before making any dividend payments on our common
stock.
Although
we have generally paid quarterly cash dividends on our common
stock, we cannot provide any assurance that dividends will continue
to be paid in the future or that the dividend rate will not be
reduced in future periods.
15
Our common stock is subordinate to our existing and future
indebtedness and preferred stock.
Shares
of our common stock are equity interests and do not constitute
indebtedness. As such, our common stock ranks junior to all our
customer deposits and indebtedness, whether now existing or
hereafter incurred, and other non-equity claims on us, with respect
to assets available to satisfy claims. In addition, our common
stock is junior in priority, including with respect to dividend and
liquidation rights, to our outstanding shares of Series A
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock.
Further, the common stock will be subject to the prior liquidation
rights of the holders of any debt we may issue in the future and
may be subject to the prior dividend and liquidation rights of any
series of preferred stock we may issue in the future.
Securities issued by us, including our common stock, are not FDIC
insured.
Securities issued by us, including our common stock, are not
savings or deposit accounts or other obligations of any bank and
are not insured by the FDIC, the DIF or any other governmental
agency or instrumentality, or any private insurer, and are subject
to investment risk, including the possible loss of
principal.
Our organizational documents may have the effect of discouraging a
third party from acquiring us.
Our Amended and Restated Articles of Association and By-Laws
contain provisions, including a staggered board of directors and a
supermajority vote requirement, that make it more difficult for a
third party to gain control or acquire us without the consent of
the board of directors. These provisions could also discourage
proxy contests and may make it more difficult for dissident
shareholders to elect representatives as directors and take other
corporate actions. To the extent that these provisions make
these actions more difficult and make us a less attractive takeover
candidate, they may not always be in our best interests or in the
best interests of our shareholders and in some circumstances may
prevent holders of our common stock from receiving a takeover
premium.
Changes in interest rates could adversely affect our business,
results of operations and financial condition.
Our
results of operations depend substantially on our net interest
income, which is the difference between the interest earned on
loans, securities and other interest-earning assets and the
interest paid on deposits and borrowings. These rates are highly
sensitive to many factors beyond our control, including general
economic conditions, inflation, recession, unemployment, money
supply and the monetary policies of the FRB. If the interest rate
we pay on deposits and other borrowings increases at a faster rate
than the interest rate we earn on loans and other investments, our
net interest income and therefore earnings, could be adversely
affected. Conversely, our earnings could be adversely affected if
the interest rate we earn on loans and other investments falls more
quickly than the interest rate we pay on deposits and borrowings.
While we have taken measures intended to manage the risks of
operating in a changing interest rate environment, we cannot
provide assurance that these measures will be effective in avoiding
undue interest rate risk.
Increases
in interest rates also can affect the value of loans and other
assets, such as investment securities, and may affect our ability
to realize gains on the sale of assets. For example, we originate
loans for sale to secondary market investors, and increasing
interest rates may reduce the volume of loans originated for sale,
resulting in a reduction in the fee income we earn on such sales.
Further, increasing interest rates may adversely affect the ability
of borrowers to pay the principal or interest on loans, resulting
in an increase in our non-performing assets and a reduction in our
income.
In addition, increases in interest rates will increase the dividend
rate on our Series A preferred stock, which is tied to the prime
rate, and the interest rate on our debentures, which is tied to
LIBOR. Furthermore, there is uncertainty about the continued
availability of LIBOR beyond 2021, due to changes proposed by the
United Kingdom regulatory entity that regulates LIBOR. Higher
preferred stock dividend payments and debenture interest costs
would decrease the amount of funds available for payment of
dividends on our common stock.
We may be impacted by the retirement of London Interbank Offered
Rate (“LIBOR”) as a reference rate.
In July 2017, the United Kingdom Financial Conduct Authority
announced that LIBOR may no longer be published after 2021. LIBOR
is used extensively in the U.S and globally as a
“benchmark” or “reference rate” for various
commercial and financial contracts. In response, the Alternative
Reference Rates Committee (“ARRC”), made up of financial and capital market
institutions, was convened to address the replacement of LIBOR in
the U.S. The ARRC identified a potential successor to LIBOR in the
Secured Overnight Financing Rate (“SOFR”) and crafted a plan to facilitate the
transition. However, there are significant conceptual and technical
differences between LIBOR and SOFR. The federal Financial Stability
Oversight Committee has stated that the end or waning use of LIBOR
has the potential to significantly disrupt trading in many
important types of financial contracts.
16
As of
December 31, 2019, 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 LIBOR, plus 2.85%. The Company has reviewed the pertinent
language in the Indenture governing the Debentures and believes
that the Debenture Trustee has sufficient authority under the
Indenture to establish a substitute interest rate benchmark
independent of any action or recommendation of the ARRC, and
without the need to amend the Indenture. Under the terms of the Indenture, if 3-month LIBOR
is not available, the Trustee may obtain substitute quotations from
four leading banks in the London interbank market for their offered
rate to prime banks in the London market for U.S. dollar deposits
having a three month maturity; if at least two such quotations are
provided, the quarterly rate on the Debentures will be the
arithmetic mean of such quotations. If fewer than two such
quotations are received, the Trustee will request substitute
quotations from four major New York City banks for their offered
rate to leading European banks for loans in U.S. dollars; if at
least two such quotations are provided, the quarterly rate on the
Debentures will be the arithmetic mean of such quotations.
The Debenture Trustee has not yet informed the Company as to how it
intends to proceed. Phase out of LIBOR could significantly impact
the Company’s interest costs on its Debentures.
We are subject to liquidity risk because we rely primarily on
deposit-gathering to satisfy our funding needs.
Our primary source of liquidity is through the growth of deposits,
which provide low cost funding for our operations. If we are unable
to attract enough deposits in our market area to fund loan growth
and our other funding needs, then we may be forced to purchase
deposits or to borrow through the FHLBB or in the capital markets.
Purchased deposits and borrowings would tend to be more expensive
than funding through core deposits and therefore could have a
negative impact on our results of operations, cash flow, liquidity
and regulatory capital levels.
We are subject to credit risk and if our ALL is not adequate to
cover actual losses, our earnings could decrease.
We are
exposed to the risk that our borrowers may default on their
obligations. A borrower's default on its obligations under one or
more loans may result in lost principal and interest income and
increased operating expenses as a result of the allocation of
management time and resources to the collection and work-out of the
credit. In certain situations, where collection efforts are
unsuccessful or acceptable work-out arrangements cannot be reached,
we may have to write off the loan in whole or in part. In loan
default situations, we may acquire real estate or other assets, if
any, that secure the loan, through foreclosure or other similar
available remedies, and the amount owed under the defaulted loan
could exceed the value of the collateral acquired.
We
periodically make a determination of the adequacy of our ALL based
on available information, including, but not limited to, the
quality of the loan portfolio as indicated by loan risk ratings,
economic conditions, the value of the underlying collateral and the
level of non-accruing and criticized loans. Management relies on
its loan officers and credit quality reviews, its experience and
its evaluation of economic conditions, among other factors, in
determining the amount of the provision required for the allowance.
Provisions to this allowance result in an expense for the period.
If, as a result of general economic conditions, previously
incorrect assumptions, an increase in defaulted loans, or other
pertinent factors, we determine that additional increases in the
ALL are necessary, additional expenses may be
incurred.
Determining
the amount of the ALL inherently involves a high degree of
subjectivity and requires us to make significant estimates of
current credit risks and trends, all of which may undergo material
changes. At any time, we are likely to have loans in our portfolio
that will result in losses but that have not been identified as
nonperforming or potential problem credits. We cannot be certain
that we will be able to identify deteriorating credits before they
become nonperforming assets or that we will be able to limit or
correctly estimate losses on those loans that are identified. The
OCC, our subsidiary Bank’s primary federal regulator, reviews
the loan portfolio from time to time as part of its regulatory
examination and may request that we increase the ALL. Changes in
economic conditions or individual business or personal
circumstances affecting borrowers, new information regarding
existing loans, identification of additional problem loans and
other factors, both within and outside of our control, may require
an increase in the allowance. In addition, if charge-offs in
future periods exceed the ALL, we will need to make additional
provisions to restore the allowance. Any provisions to increase or
restore the ALL would decrease our net income and, possibly, our
capital, and could have an adverse effect on our results of
operations and financial condition.
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments. Under the new guidance, which will replace the
existing incurred loss model for recognizing credit losses, banks
and other lending institutions will be required to recognize the
full amount of expected credit losses. The new guidance, which is referred
to as the CECL model, requires that expected credit losses for
financial assets held at the reporting date that are accounted for
at amortized cost be measured and recognized based on historical
experience and current and reasonably supportable forecasted
conditions to reflect the full amount of expected credit losses.
Implementation of CECL could have a material impact on the
Company’s results of operations and consolidated financial
statements upon adoption as it may result in the recording of an
increased ALL amount, with a related adverse impact on the
calculation of the Company’s regulatory capital ratios.
Adoption of the CECL model will become mandatory for the Company
beginning with the 2023 fiscal year.
17
Prepayments of loans may negatively impact our
business.
Generally, our customers may prepay the principal amount of their
outstanding loans at any time. The speeds at which such prepayments
occur, as well as the size of such prepayments, are within our
customers’ discretion and may be affected by many factors
beyond our control, including changes in prevailing interest rates.
If customers prepay the principal amount of their loans, and we are
unable to lend those funds to other borrowers or invest the funds
at the same or higher interest rates, our interest income will be
reduced. A significant reduction in interest income could have a
negative impact on our results of operations and financial
condition.
Our loans and deposits are geographically concentrated and adverse
local economic conditions could negatively affect our
business.
Unlike many larger banking institutions, our banking operations are
not geographically diversified. Substantially all of our loans,
deposits and fee income are generated in northeastern and central
Vermont. As a result, poor economic conditions in northeastern and
central Vermont could adversely impact the demand for loans and our
other financial products and services and may cause us to incur
losses associated with higher default rates and decreased
collateral values in our loan portfolio. Much of our market area is
located in the poorest region of the state. Economic conditions in
northeastern and central Vermont are subject to various
uncertainties, to a greater degree than other regions of the state.
If economic conditions in our market area decline, we expect that
our level of problem assets would increase and our prospects for
growth would be impaired.
Our banking business is highly regulated, and we may be adversely
affected by changes in law and regulation.
We are subject to regulation and supervision by the FRB, and the
Bank is subject to regulation and supervision by the OCC and the
FDIC. Federal laws and regulations govern numerous matters
affecting us, including changes in the ownership or control of
banks and bank holding companies, maintenance of adequate capital,
the permissible types, amounts and terms of loans and investments,
permissible nonbanking activities, the level of reserves against
deposits and restrictions on dividend payments. The OCC possesses
the power to issue cease and desist orders to prevent or remedy
unsafe or unsound practices or violations of law by banks subject
to their regulation, and the FRB possesses similar powers with
respect to bank holding companies. We are also subject to certain
state laws, including certain Vermont laws designed to protect
consumers of banking products and services. These and other federal
and state laws and restrictions limit the manner in which we may
conduct business and obtain financing.
Our business is highly regulated and the various federal and state
laws, rules, regulations, and supervisory guidance, policies and
interpretations applicable to us are subject to regular
modification and change. It is impossible to predict the nature of
such changes or their competitive impact on the banking and
financial services industry in general or on our banking operations
in particular. Such changes may, among other things, increase our
cost of doing business, limit our permissible activities, or affect
the competitive balance between banks and other financial
institutions. In addition, failure to comply with applicable laws,
regulations, policies or supervisory guidance could result in
enforcement and other legal actions by federal or state
authorities, including criminal and civil penalties, the loss of
FDIC insurance, revocation of a banking charter, other sanctions by
regulatory agencies, civil money penalties, litigation by private
parties, and/or reputational damage, which could have a material
adverse effect on our business, results of operations and financial
condition.
The requirement to record certain assets and liabilities at fair
value may adversely affect our financial results.
We report certain assets, including investment securities, at fair
value. Generally, for assets that are reported at fair value we use
quoted market prices or valuation models that utilize market data
inputs to estimate fair value. Because we carry these assets on our
books at their estimated fair value, we may incur losses even if
the asset in question presents minimal credit risk. For example, we
could be required to recognize OTTI in future periods with respect
to investment securities in our portfolio. The amount and timing of
any impairment recognized will depend on the severity and duration
of the decline in fair value of our investment securities and our
estimation of the anticipated recovery period.
Market changes in delivery of financial services may adversely
affect demand for our services.
Channels for delivering financial products and services to our
customers are evolving rapidly, with less reliance on traditional
branch facilities and more use of online and mobile banking. We
compete with larger providers that have significant resources to
dedicate to improved technology and delivery channels. We
periodically evaluate the profitability of our branch system and
other office and operational facilities to improve efficiencies.
However, identification and closure of unprofitable operations and
facilities can lead to restructuring charges and introduce the risk
of disruptions to revenues and customer relationships.
18
Substantial competition could adversely affect us.
Banking is a highly competitive business. We compete actively for
loan, deposit, and other financial services business in
northeastern and central Vermont. Our competitors include a number
of state and national banks and tax-advantaged credit unions, as
well as financial and nonfinancial firms that offer services
similar to those that we offer. Some of our competitors are
community or regional banks that have strong local market
positions. Our large bank competitors, in particular, have
substantial capital, technology and marketing resources that are
well in excess of ours. These larger financial institutions may
have greater access to capital at a lower cost and have a higher
per-borrower lending limit than our Company, which may adversely
affect our ability to compete with them effectively.
In addition, technology and other changes increasingly allow
parties to complete financial transactions electronically, without
the need for a physical presence in a market area. We are therefore
likely to face increasing competition from out-of-market
competitors, including national firms. Moreover, in many cases
transactions may now be completed without the involvement of banks.
For example, consumers can pay bills and transfer funds over the
Internet and by telephone without banks. Many non-bank financial
service providers have lower overhead costs and are subject to
fewer regulatory constraints. If consumers do not use banks to
complete their financial transactions, we could potentially lose
fee income, deposits and income generated from those
deposits.
Systems failures, interruptions, cyberattacks or other breaches of
information security could disrupt our business and have an adverse
effect on our business, results of operations and financial
condition.
We depend upon data processing, software, communication, and
information access and exchange on a variety of computing platforms
and networks and over the internet, and we rely on the services of
a variety of third party vendors to meet our data processing and
communication needs. Consequently, we are subject to certain
related operational risks, both in our operations and through those
of our service providers. These risks include, but are not limited
to, data processing system failures and errors, inadequate or
failed internal processes, customer or employee fraud, cyberattacks
and catastrophic failures resulting from terrorist acts or natural
disasters. Despite the safeguards we maintain, we cannot be certain
that all of our systems are entirely free from vulnerability to
attack or other technological difficulties or failures. Information
security risks have increased significantly due to the use of
online, telephone and mobile banking channels by customers and the
increased sophistication and activities of organized crime,
hackers, terrorists and other external parties. Our technologies,
systems and networks and those of certain of our service providers
as well as our customers’ devices, may be the target of
cyberattacks, computer viruses, malicious code, phishing attacks or
information security breaches that could result in the unauthorized
release, gathering, monitoring, misuse, loss or destruction of our
or our customers’ confidential, proprietary and other
information, the theft of customer assets through fraudulent
transactions or disruption of our or our customers’ or other
third parties’ business operations. If information security
is breached or other technology difficulties or failures occur,
information may be lost or misappropriated, services and operations
may be interrupted and we could be exposed to claims from
customers. While we have instituted safeguards and controls, we
cannot provide assurance that they will be effective in all cases,
and their failure in some circumstances could have a material
adverse effect on our business, financial condition or results of
operations.
We depend on the accuracy and completeness of information about
customers and counterparties.
In
deciding whether to extend credit or enter into other transactions
with customers and counterparties, we may rely on information
furnished by or on behalf of customers and counterparties,
including financial statements and other financial information. We
also may rely on representations of clients and counterparties as
to the accuracy and completeness of that information and, with
respect to financial statements, on reports of independent auditors
if made available. If this information is inaccurate, we may suffer
financial or reputational harm or other adverse effects with
respect to the operation of our business, our financial condition
and our results of operations.
New products and services are essential to remain competitive but
may subject us to additional risks.
We
consistently attempt to offer new products and services to our
customers to remain competitive. There can be risks and
uncertainties associated with these new products and services
especially if they are dependent on new technologies. We may spend
significant time and resources in development of new products and
services to market to customers. Through our development and
implementation process we may incur risks associated with delivery
timetables, pricing and profitability, compliance with regulations,
technology failures and shifting customer preferences. Failure to
successfully manage these risks could have a material effect on our
financial condition, result of operations and
business.
19
Changes in accounting standards could materially affect our
financial statements.
From time to time FASB and the SEC change the financial accounting
and reporting standards that govern the preparation of our
financial statements and applicable disclosures in our SEC filings.
These changes can be very difficult to predict and can materially
affect how we record and report our financial condition and results
of operations. In some cases, we could be required to apply a new
or revised standard retroactively, resulting in our restating prior
period financial statements. Implementation of accounting changes,
with associated professional consultation and advice, can be
costly, even if the change will not have any material effect on our
financial statements.
Our internal controls and procedures may fail or be
circumvented.
Management periodically reviews and updates our internal controls,
disclosure controls and procedures, and corporate governance
policies and procedures. However, any system of controls, no matter
how well designed and operated, is based in part on certain
assumptions and can provide only reasonable, not absolute,
assurance that the objectives of the system are met. Any failure or
circumvention of our controls and procedures, or failure to comply
with regulations related to controls and procedures, could have a
material adverse effect on our business, results of operations and
financial condition.
Changes in our tax rates could affect our future
results.
Our future effective tax rates and tax liabilities could be
unfavorably affected by increases in applicable tax rates and by
other changes in federal or state tax laws, regulations and agency
interpretations. Our effective tax rates could also be affected by
changes in the valuation of our deferred tax assets and liabilities
or by the outcomes of any examinations of our income tax returns by
the IRS or our state income, franchise, sales and use or other tax
returns by the Vermont Department of Taxes. Our results of
operations and financial condition could also be adversely affected
in the short-term by decreases in applicable tax rates that require
us to revalue our deferred tax asset, as occurred in 2017 as a
result of passage of the 2017 Tax Act.
Our business could suffer if we fail to attract and retain skilled
personnel.
Our success depends, in large part, on our ability to attract and
retain key personnel, including executives. Any of our current
employees, including our senior management, may terminate their
employment with us at any time. Competition for qualified personnel
in our industry can be intense and our geographic market area might
not be favorably perceived by potential executive management
candidates. We may not be successful in attracting and retaining
sufficient qualified personnel. We may also incur increased
expenses and be required to divert the attention of other senior
executives to recruit replacements for the loss of any key
personnel.
Environmental liability associated with our lending activities
could result in losses.
In the course of business, we may acquire, through foreclosure,
properties securing loans originated or purchased that are in
default. Particularly in commercial real estate lending, there is a
risk that material environmental violations could be discovered on
these properties. In this event, we might be required to remedy
these violations at the affected properties at our sole cost and
expense. The cost of remedial action could substantially exceed the
value of affected properties. We may not have adequate remedies
against the prior owner or other responsible parties and could find
it difficult or impossible to sell the affected properties. These
events could have an adverse effect on our results of operations
and financial condition.
We are subject to detailed capital requirements and cannot ensure
that we will qualify for simplified capital calculations in any
future period.
As of January 1, 2015, we were required to comply with new capital
rules issued by the federal banking agencies that implemented the
Basel III capital standards and established the minimum capital
levels required under the Dodd-Frank Act. These new capital rules
require banks and bank holding companies to maintain a minimum
common equity Tier I capital ratio of 4.5% of risk-weighted assets,
a minimum Tier I capital ratio of 6.0% of risk-weighted assets, a
minimum total capital ratio of 8.0% of risk-weighted assets, and a
minimum leverage ratio of 4.0%. Subject to a transition period, the
new capital rules require banks and bank holding companies to
maintain a 2.5% common equity Tier I capital conservation buffer
above the minimum risk-based capital requirements for adequately
capitalized institutions to avoid restrictions on the ability to
pay dividends, discretionary bonuses, and to engage in share
repurchases. The Company and the Bank met these requirements as of
December 31, 2019. The new rules permanently grandfathered trust
preferred securities issued before May 19, 2010 for institutions
with less than $15.0 billion in total assets as of December 31,
2009, subject to a limit of 25% of Tier I capital. Our trust
preferred securities qualify for this grandfather treatment. The
new rules increased the required capital for certain categories of
assets, including high volatility construction real estate loans
and certain exposures related to securitizations, but retained the
previous capital treatment of residential mortgages. Under the new
rules, we were permitted to make, and did make, a one-time,
permanent election to continue to exclude accumulated other
comprehensive income from capital.
20
These standards could adversely affect our ability to pay
dividends, or require us to reduce business levels or raise
capital, including in ways that may adversely affect our results of
operations or financial condition.
Under
the 2018 Regulatory Relief Act, these capital requirements have
been simplified for qualifying community banks and bank holding
companies. In September 2019, the OCC and the other federal bank
regulators approved a final joint rule that permits a qualifying
community banking organization to opt in to a simplified regulatory
capital framework. A qualifying institution that elects to utilize
the simplified framework must maintain a CBLR in excess of 9%, and
will thereby be deemed to have satisfied the generally applicable
risk-based and other leverage capital requirements and (if
applicable) the FDIC’s prompt corrective action framework. In
order to utilize the CBLR framework, in addition to maintaining a
CBLR of over 9%, a community banking organization must have less
than $10 billion in total consolidated assets and must meet certain
other criteria such as limitations on the amount of off-balance
sheet exposures and on trading assets and liabilities. The CBLR
will be calculated by dividing tangible equity capital by average
total consolidated assets. The final rule became effective on
January 1, 2020. Although management believes that the Company and
Bank would have qualified to utilize the CBLR framework on a pro
forma basis as of December 31, 2019 had it been in effect on that
date, no assurance can be given that they will continue to qualify
as of any future date.
We may be required to write down goodwill and other identifiable
intangible assets.
When we acquire a business, a portion of the purchase price of the
acquisition may be allocated to goodwill and other identifiable
intangible assets. The excess of the purchase price over the fair
value of the net identifiable tangible and intangible assets
acquired determines the amount of the purchase price that is
allocated to goodwill acquired. At December 31, 2019, our goodwill
totaled approximately $11.6 million, created in connection with the
LyndonBank acquisition in 2007. Under current accounting standards,
if we determine goodwill is impaired, we would be required to write
down the value of these assets to fair value. We conduct a review
each year, or more frequently if events or circumstances warrant
such, to determine whether goodwill is impaired. We last completed
a goodwill impairment analysis as of December 31, 2019, and
concluded goodwill was not impaired. We cannot provide assurance
that we will not be required to take an impairment charge in the
future. Any impairment charge would have a negative effect on our
shareholders’ equity and financial results and may cause a
decline in our stock price.
We are not able to offer all of the financial services and products
of a financial holding company.
Banks, securities firms, and insurance companies can now combine
under a “financial holding company” umbrella. Financial
holding companies can offer virtually any type of financial
service, including banking, securities underwriting, insurance
(both agency and underwriting), and merchant banking. Some of our
competitors have elected to become financial holding companies. We
offer only traditional banking products and, trust and investment
management services indirectly through, our affiliate,
CFSG.
Item
1B. Unresolved Staff Comments
Not
Applicable
Item
2. Properties
Although
the Bancorp. does not itself own or lease real property, the Bank
owns and leases various properties for its banking operations. All
of the Bank’s offices are located in Vermont, other than its
loan production office in Grafton County, New
Hampshire.
The
Company's administrative offices are located at the main offices of
the Bank on U.S. Route 5 in Derby, Vermont, with total office space
of approximately 34,000 square feet, including retail banking
offices, an operations center as well as a community room used by
the Bank for meetings and various functions. This community room
has a secure outside access making it possible for the Bank to
offer it to non-profit organizations after banking hours free of
charge. This office is equipped with a remote drive-up facility and
a drive-up ATM as well as an inside lobby ATM.
21
In
addition to its main office, the Company currently owns or leases
the following premises in six Vermont counties and one New
Hampshire County:
|
Office Location1
|
Owned
|
Leased
|
CFSG Office2
|
|
|
|
|
|
|
Caledonia County, VT
|
|
|
|
|
St.
Johnsbury (Railroad Street)3
|
|
X
|
|
|
St.
Johnsbury (Route 5)
|
|
X
|
|
|
Lyndon
(Memorial Drive)
|
|
X
|
X
|
|
|
|
|
|
|
Chittenden County, VT
|
|
|
|
|
Burlington
(Shelburne Road)4
|
|
X
|
|
|
|
|
|
|
|
Franklin County, VT
|
|
|
|
|
Enosburg
Falls (Sampsonville Road)
|
X
|
|
|
|
|
|
|
|
|
Grafton County, NH
|
|
|
|
|
Lebanon,
NH (367 Route 120) 4
|
|
X
|
|
|
|
|
|
|
|
Lamoille County, VT
|
|
|
|
|
Morrisville
(Route 15 West)
|
|
X
|
|
|
|
|
|
|
|
Orleans County, VT
|
|
|
|
|
Barton
(Church Street)
|
X
|
|
|
|
Derby
Line (Main Street)
|
X
|
|
|
|
Island
Pond (Route 105)
|
|
X
|
|
|
Newport
(Main Street)
|
X
|
|
|
|
Troy
(Route 101)
|
X
|
|
|
|
|
|
|
|
|
Washington County, VT
|
|
|
|
|
Barre
(North Main Street)
|
X
|
|
X
|
|
Montpelier
(State Street)
|
|
X
|
|
1 All
listed locations are operating bank branch offices, except as
otherwise noted in footnotes 3 and 4.
2 The Bank
leases space at two of its branch locations to its affiliated trust
and investment management affiliate, CFSG.
3 These
premises consist of approximately 1,600 square feet on the southern
end of Railroad Street and were formerly used as a branch office,
now closed and currently vacant. The lease was scheduled to expire
in 2020, however the Company negotiated a termination agreement
during the last quarter of 2019, thereby paying the lease in full
as of December 31, 2019.
4 Loan production offices (LPO), opened in the first quarter
of 2017 in Chittenden County and the second quarter of 2019 in
Grafton County, in western New Hampshire.
The
Company maintains ATMs at the main office and all branch locations.
A complete listing of the Company’s banking offices is
contained on the Bank’s website at www.communitynationalbank.com.
All of
the Company’s owned premises are free and clear of any
mortgages or encumbrances and, in management’s view, all
locations are suitable for conducting the Bank’s
business.
22
Item
3. Legal Proceedings
There
are no pending legal proceedings to which the Company or the Bank
is a party or of which any of its property is the subject, other
than routine litigation incidental to its banking business, none of
which, in the opinion of management, is material to the Company's
consolidated operations or financial condition.
Item
4. Mine Safety Disclosures
Not
Applicable
PART II.
Item
5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
Information
on the trading market in, market price of, and dividends paid on,
the Company's common stock is incorporated by reference to the
section of the 2019 Annual Report under the caption “Common
Stock Performance by Quarter” immediately following the
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations”, filed as Exhibit 13 to
this report. The balance of the information required by item 201 of
Regulation S-K is omitted in accordance with the regulatory relief
available to smaller reporting companies under applicable SEC
disclosure rules, as amended in 2018 Release Nos. 33-10513 and
34-83550.
There
were no purchases of the Company’s common stock during the
three months ended December 31, 2019, by the Company or by any
affiliated purchaser (as defined in SEC Rule 10b-18). During the
monthly periods presented, the Company did not have any publicly
announced repurchase plans or programs.
Item
6. Selected Financial Data
Omitted,
in accordance with the regulatory relief available to smaller
reporting companies in SEC Release Nos. 33-10513 and
34-83550.
Item
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated
by reference to the section of the 2019 Annual Report under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations," immediately following the
“Notes to Consolidated Financial Statements”, filed as
Exhibit 13 to this report.
Item
7A. Quantitative and Qualitative Disclosures About
Market Risk
Omitted,
in accordance with the regulatory relief available to smaller
reporting companies in SEC Release Nos. 33-10513 and
34-83550.
Item
8. Financial Statements and Supplementary
Data
The
audited consolidated financial statements and related notes of
Community Bancorp. and Subsidiary and the report thereon of the
independent registered accounting firm of Berry Dunn McNeil &
Parker, LLC are incorporated herein by reference from the 2019
Annual Report, filed as Exhibit 13 to this report.
In
accordance with the regulatory relief available to smaller
reporting companies in SEC Release Nos. 33-10513 and 34-83550, the
Company has elected to present audited statements of income,
comprehensive income, cash flows and changes in shareholders’
equity for each of the preceding two, rather than three, fiscal
years.
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
23
Item
9A. Controls and Procedures
Disclosure Controls and Procedures
Management
is responsible for establishing and maintaining effective
disclosure controls and procedures, as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act). As of
December 31, 2019, an evaluation was performed under the
supervision and with the participation of management, including the
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures. Based on that evaluation,
management concluded that its disclosure controls and procedures as
of December 31, 2019 were effective in ensuring that material
information required to be disclosed in the reports it files with
the Commission under the Exchange Act was recorded, processed,
summarized, and reported on a timely basis.
Management’s Report on Internal Control Over Financial
Reporting
Management
is responsible for establishing and maintaining effective internal
control over financial reporting, as defined in Rule 13a-15(f)
under the Exchange Act. As of December 31, 2019, an evaluation was
performed under the supervision and with the participation of
management, including the principal executive officer and principal
financial officer, of the effectiveness of the design and operation
of the Company’s internal control over financial reporting.
Management assessed the Company’s system of internal control
over financial reporting as of December 31, 2019, in relation to
criteria for effective internal control over financial reporting as
described in “Internal Control – Integrated
Framework,” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 2019, its system of
internal control over financial reporting met those criteria and is
effective.
This
report includes an audit report of the Company’s independent
registered public accounting firm regarding the Company’s
internal control over financial reporting. The audit report is
contained in the 2019 Annual Report, filed as Exhibit 13 to this
report.
Changes in Internal Control Over Financial Reporting
There
were no changes in the Company’s internal control over
financial reporting that occurred during the quarter ended December
31, 2019 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
Item
9B. Other Information
None
PART III.
Item
10. Directors, Executive Officers and Corporate
Governance
The
following is incorporated by reference to the Company's Proxy
Statement for the 2020 Annual Meeting.
Listing
of the names, ages, principal occupations, business experience and
specific qualifications of the incumbent directors and nominees
under the caption "PROPOSAL I - ELECTION OF
DIRECTORS."
Listing
of the names, ages, titles and business experience of the executive
officers under the caption “INFORMATION ABOUT OUR EXECUTIVE
OFFICERS."
Information
regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 under the caption "SHARE OWNERSHIP INFORMATION
–Delinquent Section 16 Filings."
Information
regarding changes in the Company’s procedures for submission
of director nominations by shareholders under the caption
“SHAREHOLDER NOMINATIONS AND OTHER
PROPOSALS.”
Information
regarding whether a member of the Audit Committee qualifies as an
audit committee financial expert under applicable SEC rules, under
the caption "CORPORATE GOVERNANCE - Board Committees."
The
Code of Ethics for Senior Financial Officers and the Principal
Executive Officer is available on the Company's website at
www.communitybancorpvt.com. The
Code is also listed as Exhibit 14 to this report and incorporated
by reference to a prior filing with the SEC. There were no waivers
of any provision of the Code during 2019.
24
Item
11. Executive Compensation
The
following is incorporated by reference to the Company's Proxy
Statement for the 2020 Annual Meeting:
Information
regarding compensation of directors under the captions "PROPOSAL I
- ELECTION OF DIRECTORS - Directors' Fees and Other Compensation"
and "-Directors' Deferred Compensation Plan."
Information
regarding executive compensation and benefit plans under the
caption "EXECUTIVE COMPENSATION."
The
information required under paragraphs (3)(4) and (e)(5) of Item 407
of Regulation S-K is omitted in accordance with the regulatory
relief available to smaller reporting companies in SEC Release Nos.
33-10513 and 34-83550.
Item
12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
The
following is incorporated by reference to the Company's Proxy
Statement for the 2020 Annual Meeting:
Information
regarding the share ownership of management and principal
shareholders under the caption "SHARE OWNERSHIP
INFORMATION."
The
Company does not maintain any equity compensation plans for which
disclosure is required under Item 201(d) of SEC Regulation
S-K.
Item
13. Certain Relationships and Related Transactions, and
Director Independence
The
following is incorporated by reference to the Company's Proxy
Statement for the 2020 Annual Meeting:
Information
regarding transactions with management under the caption "CORPORATE
GOVERNANCE -Transactions with Management."
Information
regarding the independence of directors under the caption
“CORPORATE GOVERNANCE – Director
Independence.”
Item
14. Principal Accounting Fees and Services
The
following is incorporated by reference to the Company's Proxy
Statement for the 2020 Annual Meeting under the caption "PROPOSAL 2
- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS - Fees Paid to
Independent Auditors":
Fees
paid to the principal accountant for various audit functions
including, but not limited to, the audit of the annual financial
statements in the Company's Form 10-K Report and review of the
financial statements in the Company's Form 10-Q
Reports.
Description of the
audit committee's pre-approval policies and procedures required by
paragraph (c) (7)(I) of rule 2-01of Regulation S-X.
PART IV.
Item
15. Exhibits and Financial Statement
Schedules
(a) Financial Statements
The
following are included in this report and are incorporated by
reference to the 2019 Annual Report, filed as Exhibit 13 to this
report:
Consolidated
Balance Sheets at December 31, 2019 and 2018
Consolidated
Statements of Income for the years ended December 31, 2019 and
2018
Consolidated
Statements of Comprehensive Income for the years ended December 31,
2019 and 2018
Consolidated
Statements of Changes in Shareholders’ Equity for the years
ended December 31, 2019 and 2018
Consolidated
Statements of Cash Flows for the years ended December 31, 2019 and
2018
Notes
to Consolidated Financial Statements
Report
of Berry Dunn McNeil & Parker, LLC, independent registered
public accountants
25
(b) Exhibits
The
following exhibits, previously filed with the Commission, are
incorporated by reference:
Exhibit 3(i) - Amended and Restated Articles of
Association, filed as Exhibit 3.1 to the Company's Form 10-Q Report
filed on August 12, 2014.
Exhibit 3(ii) – Certificate of Creation,
Designation, Powers, Preferences, Rights, Privileges,
Qualifications, Limitations, Restrictions, Terms and Conditions of
the Series A Fixed-to-Floating Non-Cumulative Perpetual Preferred
Stock, filed as Exhibit 3(i) to the Company’s Form 8-K Report
filed on December 31, 2007.
Exhibit 3(iii) - Amended and Restated By-laws of
Community Bancorp. as amended and restated through March 12, 2013,
filed as Exhibit 3.1 in the Company’s Form 8-K Report filed
on March 14, 2013.
Exhibit 4(i) – Indenture dated as of October 31,
2007 between Community Bancorp., as issuer and Wilmington Trust
Company, as indenture trustee, filed as Exhibit 4.1 to the
Company’s Form 8-K Report filed on November 2,
2007.
Exhibit 4(ii) – Amended and Restated Declaration
of Trust dated as of October 31, 2007 among Community Bancorp., as
sponsor, Wilmington Trust Company, as Delaware and institutional
Trustee, and the administrators named therein, filed as Exhibit 4.2
to the Company’s Form 8-K Report filed on November 2,
2007.
Exhibit 10(i) – Guarantee Agreement dated as of
October 31, 2007 between Community Bancorp., as guarantor and
Wilmington Trust Company, as guarantee trustee, filed as Exhibit
10.1 to the Company’s Form 8-K Report filed on November 2,
2007.
Exhibit 10(ii)* - Amended and Restated Deferred
Compensation Plan for Directors, filed as Exhibit 10.2 to the
Company’s Form 8-K Report filed on December 15,
2008.
Exhibit 10(iii)* - Amended and Restated Supplemental
Retirement Plan, filed as Exhibit 10.1 to the Company’s Form
8-K Report filed on December 15, 2008.
Exhibit 10(iv)* - Amended and Restated Officer Incentive
Plan, filed as Exhibit 10.1 to the Company’s Form 8-K Report
filed on March 13, 2015.
Exhibit 10(v)* - Description of the Directors
Retirement Plan, filed as Exhibit 10(iv) to the Company's Form 10-K
Report filed on March 30, 2005; plan terminated in 2005 with
respect to future accruals, as disclosed in the Company's Form 8-K
Report filed on December 19, 2005.
Exhibit 10(vi)* - Change in Control Agreement for
Executive Vice President (Company), Chief Operating Officer (Bank),
filed as Exhibit 10.1 to the Company’s Form 8-K Report filed
on June 23, 2015.
Exhibit 10(vii)* - Change in Control Agreement for
Treasurer (Company), Senior Vice President and Chief Financial
Officer (Bank), filed as Exhibit 10.2 to the Company’s Form
8-K Report filed on June 23, 2015.
Exhibit 10(viii) * - Change in Control Agreement for
Vice President (Company), Senior Vice President and Chief Credit
Officer (Bank), filed as Exhibit 10.3 to the Company’s Form
8-K Report filed on June 23, 2015.
Exhibit 14 – Amended Code of Ethics for Senior
Financial Officers and the Principal Executive Officer, filed as
Exhibit 14 to the Company’s Form 8-K Report on July 12,
2010.
The
following exhibits are filed as part of this report:
Exhibit 4(iii)
– Description of Common Stock.
Exhibit 13 -
Portions of the 2019 Annual Report, specifically incorporated by
reference into this report.
Exhibit 21 -
Subsidiaries of Community Bancorp.
Exhibit 23 - Consent
of Berry Dunn McNeil & Parker, LLC
Exhibit 31(i) -
Certification from the Chief Executive Officer (Principal Executive
Officer) of the Company pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 31(ii) -
Certification from the Treasurer (Principal Financial Officer) of
the Company pursuant to section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 32(i) -
Certification from the Chief Executive Officer (Principal Executive
Officer) of the Company pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
Exhibit 32(ii) -
Certification from the Treasurer (Principal Financial Officer) of
the Company pursuant to section 906 of the Sarbanes-Oxley Act of
2002
Exhibit 101--The following materials
from the Company’s Annual Report on Form 10-K for the year
ended December 31, 2019 formatted in eXtensible Business Reporting
Language (XBRL): (i) the audited consolidated balance sheets, (ii)
the audited consolidated statements of income, (iii) the audited
consolidated statements of comprehensive income; (iv) the audited
consolidated statements of changes in shareholders’ equity,
(v) the audited consolidated statements of cash flows and (vi)
related notes, for the years ended December 31, 2019 and
2018.
* Denotes
compensatory plan or arrangement.
26
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
|
COMMUNITY
BANCORP.
|
|||
|
/s/Kathryn
M. Austin
|
|
Date:
March 16, 2020
|
|
|
Kathryn
M. Austin, President and Chief
|
|
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated.
|
/s/Kathryn
M. Austin
|
|
Date:
March 16, 2020
|
|
Kathryn
M. Austin, President and Chief
|
|
|
|
Executive
Officer (Principal Executive Officer)
|
|
|
|
|
|
|
|
/s/Louise
M. Bonvechio
|
|
Date:
March 16, 2020
|
|
Louise
M. Bonvechio, Corporate Secretary and
|
|
|
|
Treasurer
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/s/Candace
A. Patenaude
|
|
Date:
March 16, 2020
|
|
Candace
A. Patenaude
|
|
|
|
(Principal
Accounting Officer)
|
|
|
|
|
|
|
|
COMMUNITY
BANCORP. DIRECTORS
|
||
|
/s/Thomas
E. Adams
|
|
Date:
March 16, 2020
|
|
Thomas
E. Adams
|
|
|
|
|
|
|
|
/s/Kathryn
M. Austin
|
|
Date:
March 16, 2020
|
|
Kathryn
M. Austin
|
|
|
|
|
|
|
|
/s/David
M. Bouffard
|
|
Date:
March 16, 2020
|
|
David
M. Bouffard
|
|
|
|
|
|
|
|
/s/Aminta
K. Conant
|
|
Date:
March 16, 2020
|
|
Aminta
K. Conant
|
|
|
|
|
|
|
|
/s/Jacques
R. Couture
|
|
Date:
March 16, 2020
|
|
Jacques
R. Couture
|
|
|
|
|
|
|
|
/s/David P.
Laforce
|
|
Date:
March 16, 2020
|
|
David
P. Laforce
|
|
|
|
|
|
|
|
/s/Rosemary
M. Lalime
|
|
Date:
March 16, 2020
|
|
Rosemary
M. Lalime
|
|
|
|
|
|
|
|
/s/Stephen
P. Marsh
|
|
Date:
March 16, 2020
|
|
Stephen
P. Marsh, Board Chair
|
|
|
|
|
|
|
|
/s/Emma
Marvin
|
|
Date:
March 16, 2020
|
|
Emma
Marvin
|
|
|
|
|
|
|
|
/s/Jeffrey
L. Moore
|
|
Date:
March 16, 2020
|
|
Jeffrey
L. Moore
|
|
|
|
|
|
|
|
/s/Dorothy
R. Mitchell
|
|
Date:
March 16, 2020
|
|
Dorothy
R. Mitchell
|
|
|
|
|
|
|
|
/s/Frederic
Oeschger
|
|
Date:
March 16, 2020
|
|
Fredric
Oeschger
|
|
|
|
|
|
|
|
/s/James
G. Wheeler, Jr.
|
|
Date:
March 16, 2020
|
|
James
G. Wheeler, Jr.
|
|
|
27
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-K
[ X ] ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2019
COMMUNITY BANCORP.
EXHIBITS
EXHIBIT INDEX*
|
Description
of Common Stock.
|
|
|
|
|
|
Portions
of the 2019 Annual Report, specifically incorporated by reference
into this report.
|
|
|
|
|
|
Subsidiaries
of Community Bancorp.
|
|
|
|
|
|
Consent
of Berry Dunn McNeil & Parker, LLC
|
|
|
|
|
|
Certification
from the Chief Executive Officer (Principal Executive Officer) of
the Company pursuant to section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
from the Treasurer (Principal Financial Officer) of the Company
pursuant to section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
from the Chief Executive Officer (Principal Executive Officer) of
the Company pursuant to 18 U.S.C., Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of
2002**
|
|
|
|
|
|
Certification
from the Treasurer (Principal Financial Officer) of the Company
pursuant to 18 U.S.C., Section 1350, as adopted pursuant to section
906 of the Sarbanes-Oxley Act of 2002**
|
|
|
|
|
|
|
|
|
Exhibit
101
|
The
following materials from the Company’s Annual Report on Form
10-K for the year ended December 31, 2019 formatted in eXtensible
Business Reporting Language (XBRL): (i) the audited consolidated
balance sheets, (ii) the audited consolidated statements of income,
(iii) the audited consolidated statements of comprehensive income;
(iv) the audited consolidated statements of changes in
shareholders’ equity, (v) the audited consolidated statements
of cash flows and (vi) related notes, for the years ended December
31, 2019 and 2018.
|
* Other
than exhibits incorporated by reference to prior
filings.
** This
exhibit shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, or otherwise
subject to the liability of that section, and shall not be deemed
to be incorporated by reference into any filing under the
Securities Act of 1933 or the Securities Exchange Act of
1934.
28