Business Context and Reporting Period
Company: Community Bancorp. (Community National Bank)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2024
Overview: Community Bancorp. is a smaller reporting company and non-accelerated filer headquartered in Derby, Vermont. The company operates as a bank holding company with a primary focus on commercial and residential lending in northern New England. Total assets remained relatively stable at approximately $1.10 billion as of June 30, 2024, compared to December 31, 2023.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income | $2,728,186 | $3,196,339 | $5,551,087 | $6,535,101 |
| Earnings Per Share (Diluted) | $0.49 | $0.58 | $0.99 | $1.19 |
| Net Interest Income | $8,101,293 | $8,268,863 | $16,458,939 | $16,792,229 |
| Net Interest Margin (Tax-Equivalent) | 3.17% | 3.47% | 3.23% | 3.53% |
| Total Assets | $1,100,437,227 | $1,099,344,934 | As of June 30, 2024 | |
| Total Loans | $862,172,136 | $845,429,854 | As of June 30, 2024 | |
| Total Deposits | $848,732,146 | $896,967,782 | As of June 30, 2024 | |
| Allowance for Credit Losses (ACL) | $10,335,715 | $9,842,725 | As of June 30, 2024 | |
| Book Value Per Share | $16.17 | $15.87 | As of June 30, 2024 |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased 14.6% year-over-year for the quarter and 15.1% for the six-month period. This was primarily driven by a significant increase in interest expense (up 73.0% for the quarter) outpacing the growth in interest income (up 17.7% for the quarter), alongside higher non-interest expenses.
- Deposit Outflows: Total deposits decreased by $48.2 million (5.4%) from year-end 2023. Non-interest-bearing demand deposits fell by $43.0 million, and interest-bearing transaction accounts dropped by $25.7 million. This was partially offset by a $33.5 million increase in time deposits.
- Increased Borrowing: To fund loan growth and cover deposit outflows, the company significantly increased borrowed funds. Borrowed funds rose from $54.6 million at year-end 2023 to $106.7 million at June 30, 2024. This included increased utilization of FHLBB advances and the Federal Reserve's Bank Term Funding Program (BTFP).
- Loan Growth: The loan portfolio grew by $16.7 million (2.0%), driven by increases in Commercial Real Estate (CRE) and Commercial & Industrial (C&I) loans, partially offset by a seasonal decrease in municipal loans.
- Investment Portfolio: Securities available-for-sale decreased by $16.4 million due to maturities, paydowns, and an increase in unrealized losses attributed to higher interest rates.
Guidance, Outlook, and Risks
- Interest Rate Environment: Management notes that the higher rate environment has increased borrowing costs and pressured deposit pricing, compressing the net interest margin. The balance sheet is currently liability-sensitive in a rising rate environment due to the prolonged inverted yield curve.
- Capital Actions: On July 23, 2024, the Board announced a stock repurchase program for up to 275,000 shares (approx. 5% of outstanding shares). A quarterly dividend of $0.23 per share was declared on June 12, 2024.
- Credit Quality: Non-accrual loans decreased to $5.8 million (0.67% of total loans) from $7.0 million at year-end 2023. The ACL to total loans ratio increased slightly to 1.20%. Management adjusted qualitative factors in Q1 2024 to reflect improving delinquency trends in CRE and stable real estate values in residential portfolios.
- Regional Risks: The filing notes catastrophic flash flooding in northern Vermont in July 2024. While no branches sustained damage, the company is monitoring the impact on customers in Lamoille, Caledonia, Essex, and Orleans counties.
- Liquidity: The company maintains significant borrowing capacity ($109.8 million at FHLBB) and liquid assets to meet funding needs. However, reliance on wholesale funding has increased due to deposit outflows.
Investor Verification Checklist
- Deposit Stability: Verify the sustainability of the shift from low-cost demand deposits to higher-cost time deposits and wholesale funding.
- Net Interest Margin (NIM) Trajectory: Monitor future quarters to see if NIM compression stabilizes as loan yields fully reprice against funding costs.
- Wholesale Funding Costs: Track the cost of FHLBB and BTFP borrowings, as these are more expensive than core deposits and impact profitability.
- Credit Trends in CRE: Given the high concentration in Commercial Real Estate (51.2% of loans), monitor delinquency rates and charge-offs in this sector closely.
- Stock Repurchase Execution: Observe the pace and pricing of the newly authorized stock repurchase program.