Community Bancorp. 2011 Form 10-K Summary
Business Context and Reporting Period
Community Bancorp. is a Vermont bank holding company whose primary operating subsidiary is Community National Bank. The filing covers the fiscal year ended December 31, 2011, including the quarter ended December 31, 2011. The Bank provides retail, commercial, municipal, mortgage and consumer banking services through branches located throughout northern and central Vermont. The Company had no holding-company employees; the Bank employed 136 full-time and 21 part-time employees at year-end.
The audited financial statements and management’s discussion are incorporated by reference from the 2011 Annual Report to Shareholders. The supplied filing text therefore does not provide clear values for annual revenue, net income, net interest income, operating expenses, assets, loans, deposits, cash flow, margins or earnings per share.
Financial Metrics, Capital and Liquidity
- Consolidated total capital to risk-weighted assets: 12.50% at December 31, 2011.
- Consolidated Tier 1 capital to risk-weighted assets: 10.78%.
- Consolidated leverage ratio: 7.28%.
- Management reported that the Company had sufficient consolidated regulatory capital to be considered well capitalized.
- Community National Bank was also considered well capitalized under FDICIA requirements.
- FDIC insurance assessments totaled $439,306 in 2011.
- At December 31, 2011, CDARS deposits were $1.1 million, and Insured Cash Sweep deposits were $10.9 million. The Company’s policy limits brokered deposits to 5% of total assets.
- The Bank held approximately $3.7 million of Federal Home Loan Bank of Boston stock and remained subject to potential future capital calls.
- The Company had 4,727,721 common shares outstanding as of March 26, 2012. The June 30, 2011 market value of voting stock held by non-affiliates was reported as $38.8 million.
Material Changes and Unusual Items
- In 2011, the Company formed an LLC to facilitate the purchase of federal New Markets Tax Credits. The LLC was treated as a variable interest entity that was not consolidated.
- The Company purchased 5,333 shares at an average price of $9.65 per share during November 2011. The shares were acquired for retirement-plan participants and were not part of a publicly announced repurchase plan.
- Implementation of the Dodd-Frank Act continued during 2011. Existing trust preferred securities issued in 2007 remained eligible for grandfathered Tier 1 capital treatment, but the Company cannot use new trust preferred securities to raise additional Tier 1 capital.
- The Federal Home Loan Bank of Boston resumed paying dividends in 2011 and lifted its stock-redemption moratorium in February 2012.
- The Bank received an “outstanding” Community Reinvestment Act rating in its 2011 examination.
- No material legal proceedings were reported other than routine litigation incidental to banking operations.
Guidance, Outlook, Commentary and Risks
Management emphasized a community-banking strategy focused on long-term customer relationships, local market knowledge and lending to individuals and small-to-medium-sized businesses. The filing does not provide formal earnings, revenue or balance-sheet guidance.
- Key business risks include intense competition from banks, credit unions, nonbank lenders, brokerage firms, finance companies and remote-service providers.
- Credit risk is linked to real estate, commercial and industrial, municipal and consumer lending in the Vermont markets served.
- Interest-rate changes and Federal Reserve monetary policy may materially affect earnings, credit conditions, funding costs and net interest margins.
- New legislation and regulation, including Dodd-Frank implementation, may increase compliance costs, alter competitive conditions and affect capital requirements, consumer lending and deposit pricing.
- FDIC insurance assessments, brokered-deposit restrictions, Federal Home Loan Bank requirements and potential capital calls may affect liquidity and funding flexibility.
- Dividend payments depend primarily on dividends from the Bank and remain subject to statutory limits, regulatory capital requirements and potential Federal Reserve consultation or approval.
- The Company reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2011. No external auditor attestation was included because the Company qualified as a smaller reporting company.
Most Important Facts to Verify
- Obtain the incorporated 2011 Annual Report to verify revenue, net income, net interest income, provision for loan losses, cash flow, assets, loans, deposits, liquidity, debt, margins and year-over-year changes.
- Review the detailed asset-quality disclosures, including nonperforming loans, charge-offs, allowance coverage and concentrations of credit risk.
- Confirm the terms, carrying value and capital treatment of the $12.5 million trust preferred securities issued through CMTV Statutory Trust I.
- Assess the effect of Dodd-Frank implementation and FDIC assessment changes on operating expenses, capital and deposit pricing.
- Review dividend history and the subsidiary Bank’s capacity to continue funding holding-company dividends.
- Verify the financial and tax effects of the 2011 New Markets Tax Credit investment structure.