Community Bancorp. — 2021 Form 10-K Summary
Business context and reporting period
Community Bancorp. is a Vermont bank holding company whose principal operating subsidiary is Community National Bank. The Company provides commercial, commercial real estate, residential mortgage, consumer, municipal and retail banking services through 11 branches in northeastern and central Vermont and loan production offices in Vermont and New Hampshire. The filing covers the fiscal year ended December 31, 2021, and was filed March 24, 2022.
The Company had no holding-company employees at year-end; Community National Bank employed 123 full-time and 11 part-time employees. The common stock trades on the OTCQX market under symbol CMTV and is not listed on a national securities exchange.
Financial metrics and liquidity
- The supplied filing text incorporates the audited consolidated financial statements and management’s discussion from the 2021 Annual Report by reference, but does not include clear values for revenue, net income, net interest income, net interest margin, operating expenses, cash flow, total assets, deposits, loans, allowance for loan losses, or shareholders’ equity.
- Community Bancorp. and the Bank exceeded applicable regulatory capital requirements at December 31, 2021, and the Bank was classified as “well capitalized” under FDICIA prompt-corrective-action standards. The specific capital ratios are not provided in the supplied text.
- The Company and Bank qualified to use the community bank leverage ratio framework but had not elected it as of December 31, 2021.
- The Company had $12.887 million of junior subordinated debentures outstanding at year-end, bearing interest at three-month LIBOR plus 2.85% and maturing December 15, 2037.
- At December 31, 2021, CDARS reciprocal deposits were approximately $3.6 million, one-way CDARS deposits were zero, and purchased wholesale deposits were $249,000. The Company limits brokered deposits to 5% of total assets.
- The Bank’s 2021 FDIC insurance assessment was $352,056, and its investment in Federal Home Loan Bank of Boston stock was $756,300.
- Goodwill was approximately $11.6 million at year-end and was determined not to be impaired.
- The Company had 5,377,740 common shares outstanding as of March 16, 2022. No common stock repurchases occurred during the quarter ended December 31, 2021.
Material changes versus the prior comparable period
- The Bank originated $59.5 million of PPP loans during 2021, following $105.0 million originated during 2020. PPP loans outstanding totaled $10.3 million at December 31, 2021.
- The filing describes continued effects of COVID-19, including potential borrower payment difficulties, loan modifications, credit-quality pressure, operating disruptions and changes in allowance estimates. It does not provide a clear year-over-year quantified impact on earnings or asset quality in the supplied text.
- The Federal Reserve’s target federal funds rate remained at 0% to 0.25% through the end of 2021, creating continued pressure on asset yields and potential net interest margin compression.
- The Company’s three-month LIBOR-based debentures became subject to transition risk following the announced June 30, 2023 phaseout of U.S. dollar three-month LIBOR. The debenture trustee had not informed the Company how the fallback provisions would be implemented.
- CECL adoption was scheduled to become mandatory for the Company beginning with fiscal 2023 and could increase the allowance for credit losses and reduce regulatory capital.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021. No material changes in internal control were reported during the fourth quarter. No external auditor attestation was required because the Company is a non-accelerated filer.
Guidance, outlook, management commentary and risks
The filing does not provide formal earnings, revenue, balance-sheet or capital guidance. Management identifies Central Vermont and Chittenden County as primary growth opportunities and continues to focus on community banking relationships, small and medium-sized businesses and expansion in neighboring New Hampshire.
- Interest-rate risk: Changes in deposit and borrowing costs, loan yields, securities values, prepayments and mortgage production could materially affect net interest income and earnings.
- Credit risk: The loan portfolio is concentrated in northeastern and central Vermont. Economic weakness, declining collateral values, borrower defaults or higher-than-expected credit losses could require additional provisions and reduce capital.
- Liquidity risk: The Company relies primarily on core deposits. If deposit growth is insufficient, it may need to use more expensive wholesale deposits, Federal Home Loan Bank advances or capital-markets funding.
- COVID-19 and PPP exposure: The Company may face borrower stress, operational disruption, litigation, regulatory penalties or loss of SBA guaranty coverage if PPP loans were originated or serviced improperly.
- LIBOR transition: Replacement of LIBOR could increase interest costs on the subordinated debentures, although the magnitude cannot be predicted.
- Regulatory and compliance risk: The Company is subject to extensive FRB, OCC, FDIC, consumer-protection, BSA/AML, fair-lending, mortgage and capital regulations. Noncompliance could result in penalties, restrictions or reputational damage.
- Technology and cybersecurity: System failures, cyberattacks, fraud or breaches involving the Company or third-party vendors could interrupt operations and create financial and reputational losses.
- Common-stock liquidity: Trading is sporadic and the OTC market may produce greater price volatility and difficulty selling shares.
- Dividends: The holding company depends primarily on dividends from the Bank. Regulatory capital, earnings, statutory and supervisory limits may restrict dividends on preferred or common stock.
- No material pending legal proceedings were reported other than routine litigation incidental to banking operations.
Important facts for investors to verify
- Obtain the incorporated 2021 Annual Report and verify consolidated net income, net interest income, net interest margin, total assets, loans, deposits, liquidity, cash flow and year-over-year changes.
- Review Note 23 for the Company’s and Bank’s exact CET1, Tier 1, total risk-based and leverage capital ratios.
- Assess changes in nonperforming assets, criticized loans, charge-offs, the allowance for loan losses and COVID-19-related loan modifications.
- Review the maturity, repricing and fallback provisions of the $12.887 million LIBOR-based subordinated debentures.
- Evaluate the Company’s dividend history, preferred-stock obligations and regulatory limitations on holding-company distributions.
- Review PPP loan forgiveness status, remaining exposure and any SBA guaranty, litigation or compliance contingencies.
- Analyze deposit concentration, brokered or wholesale funding usage and available borrowing capacity.
- Consider the effects of CECL adoption beginning in 2023 on earnings, allowance levels and regulatory capital.