Community Bancorp. 2016 Form 10-K Summary
Business context and reporting period
Community Bancorp. filed its annual report for the fiscal year ended December 31, 2016. The company is a Vermont bank holding company whose principal operations are conducted through Community National Bank, a national bank headquartered in Derby, Vermont. The Bank operated 12 offices, including its main office and 11 branches, across northern and central Vermont and employed 125 full-time and 10 part-time employees at year-end.
The Bank provides commercial, commercial real estate, residential mortgage, consumer, municipal and retail banking services. It also owns an indirect interest in Community Financial Services Group, LLC, a trust and investment management affiliate. The company’s common stock trades on the OTCQX market under the symbol CMTV and is not listed on a national securities exchange.
Financial metrics, liquidity and capital
- The 10-K incorporates the audited consolidated financial statements and management’s discussion and analysis from the separate 2016 Annual Report. The supplied filing text does not provide clear values for revenue, net income, earnings per share, total assets, loans, deposits, net interest margin, operating cash flow, or year-end shareholders’ equity.
- The filing states that the Company and the Bank exceeded all applicable regulatory capital requirements at December 31, 2016. Management also stated that both would satisfy the fully phased-in capital conservation buffer if it had applied at year-end.
- Community National Bank was classified as “well capitalized” under FDICIA’s prompt corrective action requirements at December 31, 2016. Specific capital ratios are incorporated by reference to Note 20 and are not included in the supplied text.
- Liquidity is primarily supported by core deposits, supplemented by Federal Home Loan Bank borrowings and purchased wholesale deposits when needed. At December 31, 2016, CDARS exchanged deposits totaled approximately $3.1 million, one-way CDARS funds were zero, and purchased wholesale deposits were $14.0 million.
- The Bank held approximately $2.2 million of Federal Home Loan Bank of Boston stock and remained subject to potential future capital calls by the FHLBB.
- The 2016 FDIC insurance assessment was $306,249.
- The Company had approximately $11.9 million of goodwill and other identifiable intangible assets at year-end, including approximately $11.6 million of goodwill and $273,000 of remaining core deposit intangible assets. Management concluded that goodwill was not impaired as of December 31, 2016.
Material changes versus the prior comparable period
- The supplied 10-K does not include the detailed year-over-year income statement, balance sheet, cash flow or margin comparisons; the filing incorporates those disclosures from the 2016 Annual Report.
- During the fourth quarter, 6,000 shares were purchased for the Company Stock Fund under the Company’s Retirement Savings Plan at an average price of $14.85 per share. No publicly announced repurchase plan shares were reported.
- The Company opened a loan production office in South Burlington during the first quarter of 2017, reflecting its stated focus on growth in Central Vermont and Chittenden County.
- The Company closed two Caledonia County banking offices in July 2015 to reduce overhead; the 2016 filing describes the resulting branch network and properties.
- Basel III capital requirements continued to phase in. The required capital conservation buffer was 0.625% beginning January 1, 2016, with full implementation scheduled for 2019.
Outlook, risks, contingencies and unusual items
- Management’s strategy emphasizes relationship banking, small and medium-sized businesses, municipal customers and expansion in Central Vermont and Chittenden County, where economic activity was described as more robust than in Orleans and Caledonia Counties.
- No quantitative earnings, revenue, margin or balance-sheet guidance is provided in the supplied filing text.
- Key risks include sensitivity of net interest income to interest-rate changes, reliance on deposit gathering for funding, credit losses and allowance adequacy, geographically concentrated lending and deposits, strong competition from banks and tax-exempt credit unions, and changing banking regulations.
- The Company also identifies risks from mortgage lending compliance requirements, cybersecurity and systems failures, third-party service providers, fair-value changes in securities, goodwill impairment, environmental liabilities on foreclosed property, changing tax laws and difficulties retaining qualified personnel.
- The Company’s ability to pay holding-company dividends and service subordinated debt depends primarily on dividends from the Bank, which are subject to statutory, regulatory and capital requirements. Failure to maintain capital buffers could restrict dividends, share repurchases and discretionary bonuses.
- No material pending legal proceedings were reported other than routine litigation incidental to banking operations. Management considered such matters immaterial to consolidated operations and financial condition.
- Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2016. The independent auditor was not required to provide an internal-control attestation because the Company qualifies as a smaller reporting company.
Important facts for investors to verify
- Obtain the incorporated 2016 Annual Report and verify net income, diluted and basic EPS, total assets, loans, deposits, net interest margin, provision for loan losses, nonperforming assets, allowance coverage and operating cash flow.
- Review Note 20 for the Company’s and Bank’s exact Common Equity Tier 1, Tier 1, total risk-based capital and leverage ratios.
- Assess the composition and performance of the Vermont loan portfolio, particularly commercial real estate, residential real estate and municipal lending, together with geographic concentration.
- Verify the level and maturity of FHLB borrowings, subordinated debentures, preferred stock obligations and other debt, including exposure to LIBOR- and prime-based rate changes.
- Confirm the Company’s dividend history, payout ratio and regulatory capacity to continue paying common-stock dividends.
- Evaluate the liquidity implications of the $14.0 million of purchased wholesale deposits and the Company’s 5% policy limit on brokered deposits.
- Review the separate Annual Report and incorporated proxy materials for executive compensation, related-party transactions, auditor fees and any additional material contingencies.