COMMUNITY BANCORP annual report, FY2022

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Community Bancorp. — Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2022; filed March 27, 2023. The filing is an annual report, not a standalone fourth-quarter report. Community Bancorp. is a Vermont bank holding company whose primary operations are conducted through Community National Bank.

Business Context

Community National Bank provides commercial, commercial real estate, residential mortgage, consumer, municipal, institutional, retail banking, and trust-related services in northern and central Vermont, with loan production offices in Chittenden County, Vermont, and Grafton County, New Hampshire. The Bank operates eleven Vermont branches and employed 122 full-time and 8 part-time employees at year-end.

  • The company emphasizes relationship banking with individuals, nonprofit organizations, municipalities, and small-to-medium-sized businesses.
  • Growth opportunities are concentrated in Central Vermont, Chittenden County, and neighboring New Hampshire.
  • Trust and investment management services are provided through affiliated CFSG, in which the Company holds an indirect one-third interest.

Financial Metrics and Capital

The filing text provided does not include the consolidated income statement, balance sheet, cash flow statement, or the detailed Management’s Discussion and Analysis. Those financial statements are incorporated by reference from the 2022 Annual Report. Accordingly, the source text does not provide clear values for revenue, net income, earnings per share, net interest income, margins, assets, loans, deposits, cash flow, allowance for credit losses, nonperforming assets, liquidity ratios, or debt-to-capital measures.

  • Outstanding junior subordinated debentures totaled $12.887 million at December 31, 2022. The debentures were scheduled to transition from three-month LIBOR to three-month CME Term SOFR, plus a 0.26161% spread adjustment and 2.85%, after June 30, 2023.
  • Trust preferred securities of $12.5 million were issued in 2007 through CMTV Statutory Trust I; the trust is not consolidated with the Company.
  • CDARS exchanged deposits totaled approximately $2.8 million, while one-way CDARS funds were $0, at year-end.
  • Purchased wholesale deposits totaled $249,000 at year-end. Company policy limits brokered deposits to 5% of total assets.
  • FHLBB stock held by the Bank totaled $733,600 at year-end; the Bank remains subject to potential future FHLBB capital calls.
  • The Company and Bank exceeded applicable regulatory capital requirements. Capital conservation buffers were 7.03% for the Company and 6.89% for the Bank.
  • The Bank was classified as well capitalized under FDICIA prompt corrective action requirements.
  • Goodwill totaled approximately $11.6 million and was determined not to be impaired as of December 31, 2022.
  • The Bank’s FDIC insurance assessment for 2022 was $348,960.

Material Changes Versus the Prior Comparable Period

  • The filing identifies a significant change in the interest-rate environment: the Federal Funds target range increased from 0%–0.25% at the start of the tightening cycle to 4.25%–4.50% by year-end 2022, with further increases in early 2023.
  • The Company’s debentures were expected to transition from LIBOR to SOFR after June 30, 2023, potentially changing future interest expense.
  • The CECL credit-loss accounting model became mandatory for the Company on January 1, 2023, which could materially affect the allowance for credit losses, earnings, capital, and reported financial condition.
  • The filing does not provide sufficient financial statement data to quantify year-over-year changes in revenue, profitability, cash flow, loans, deposits, assets, or margins.

Guidance, Outlook, Commentary, and Risks

Management describes expansion opportunities in Central Vermont, Chittenden County, and New Hampshire but does not provide numerical earnings, revenue, balance-sheet, or capital guidance in the supplied text.

  • Interest-rate risk: Rising deposit and borrowing costs could compress net interest income, increase the cost of the preferred stock and debentures, reduce mortgage originations, and weaken borrower repayment capacity.
  • Liquidity risk: The Company relies primarily on core deposits. If deposit growth is insufficient, it may need to use more expensive wholesale deposits or borrowings from the FHLBB, the Federal Reserve, correspondent banks, or capital markets.
  • Credit risk: Deteriorating economic conditions, higher rates, falling collateral values, or increased defaults could require additional allowance provisions and reduce earnings and capital.
  • Geographic concentration: Loans, deposits, and fee income are concentrated substantially in northeastern and central Vermont, including areas management describes as economically less robust.
  • Operational and cybersecurity risk: System failures, cyberattacks, fraud, vendor disruptions, and breaches could interrupt operations, create liability, and damage the Company’s reputation.
  • Regulatory risk: Changes in banking, consumer-protection, capital, AML, cybersecurity, and accounting requirements could increase costs or restrict activities.
  • Dividend limitations: The holding company depends primarily on dividends from the Bank. Regulatory capital, earnings, and safety-and-soundness considerations could limit dividends to common or preferred shareholders.
  • Market liquidity: The common stock trades on OTCQX under symbol CMTV rather than on a national exchange, and trading is described as sporadic and relatively low volume.
  • The Bank received an “Outstanding” rating in its 2022 Community Reinvestment Act examination.
  • Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2022. No external auditor attestation under Section 404(b) was required because the Company is a non-accelerated filer.
  • The filing reports no material pending legal proceedings and no unresolved SEC staff comments.

Investor Verification Checklist

  1. Verify 2022 and 2021 consolidated revenue, net income, diluted earnings per share, net interest income, net interest margin, and return on equity in the incorporated 2022 Annual Report.
  2. Verify year-end total assets, loans, deposits, shareholders’ equity, liquidity measures, and cash flows.
  3. Review the detailed loan portfolio, nonperforming assets, charge-offs, allowance for credit losses, and the January 1, 2023 CECL adoption impact.
  4. Confirm all Company and Bank regulatory capital ratios, not only the disclosed capital conservation buffers.
  5. Assess sensitivity to deposit repricing, higher funding costs, SOFR-based debenture interest, and potential margin compression.
  6. Review the maturity, terms, and subordination of the $12.887 million junior subordinated debentures and the rights of the outstanding Series A preferred stock.
  7. Review dividend history and the legal, regulatory, and contractual restrictions affecting future common-stock dividends.
  8. Evaluate geographic and commercial real estate concentration, collateral quality, and local Vermont economic conditions.
  9. Review the 2022 Annual Report and incorporated financial statement notes because the supplied Form 10-K text does not include the detailed financial results.