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, 2025
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 decreased 6.6% to $1.17 billion from $1.25 billion at year-end 2024, primarily due to a significant reduction in overnight deposits and borrowed funds, partially offset by loan growth.
Key Financial Metrics
| Metric | Q2 2025 (Three Months) | Q2 2024 (Three Months) | YTD 2025 (Six Months) | YTD 2024 (Six Months) |
|---|---|---|---|---|
| Net Income | $4.06 million | $2.73 million | $7.59 million | $5.55 million |
| Earnings Per Share (Diluted) | $0.72 | $0.49 | $1.34 | $0.99 |
| Net Interest Income | $9.89 million | $8.10 million | $19.33 million | $16.46 million |
| Net Interest Margin (Tax-Equivalent) | 3.64% | 3.17% | 3.56% | 3.23% |
| Return on Average Assets | 1.38% | 0.99% | 1.29% | 1.01% |
| Return on Average Equity | 15.62% | 12.27% | 15.05% | 12.50% |
| Total Assets | $1.17 billion | $1.11 billion (Avg) | $1.17 billion | $1.11 billion (Avg) |
| Total Loans | $941.76 million | $864.88 million (Avg) | $941.76 million | $855.92 million (Avg) |
| Total Deposits | $932.97 million | $987.83 million (Dec 2024) | $932.97 million | $987.83 million (Dec 2024) |
| Cash & Equivalents | $14.53 million | $110.94 million (Dec 2024) | $14.53 million | $110.94 million (Dec 2024) |
| Allowance for Credit Losses (ACL) | $10.55 million | $9.81 million (Dec 2024) | $10.55 million | $9.81 million (Dec 2024) |
| Book Value Per Share | $18.69 | $17.24 (Dec 2024) | $18.69 | $17.24 (Dec 2024) |
Material Changes vs. Prior Period
- Profitability Surge: Net income increased 48.8% quarter-over-quarter and 36.6% year-to-date compared to 2024. This was driven by a 22% increase in net interest income and a 16% increase in non-interest income.
- Net Interest Margin Expansion: The tax-equivalent net interest margin improved by 47 basis points (bps) in Q2 and 34 bps YTD compared to the prior year. This resulted from a 31 bps increase in the yield on earning assets, while the cost of funds decreased by 18 bps (Q2) and 4 bps (YTD).
- Deposit Shifts: Total deposits declined $68.7 million (6.9%) from year-end 2024. Significant decreases occurred in interest-bearing transaction accounts (-14.5%) and money market funds (-23.1%), partially offset by growth in time deposits (+5.4%).
- Liquidity Reduction: Cash and cash equivalents dropped from $110.9 million at year-end 2024 to $14.5 million at June 30, 2025. This was primarily due to a $98.9 million decrease in overnight deposits and the payoff of borrowings that matured in Q1 2025.
- Loan Growth: The loan portfolio grew $13.8 million (1.5%) from year-end 2024, with increases in Commercial Real Estate (+$18.8M) and Residential Real Estate (+$11.9M), offset by a decrease in Municipal loans (-$24.7M).
- Non-Interest Income: Income from CFS Partners (a wealth management joint venture) increased 66.9% in Q2, driven by a strong equity market and an increase in the company's profit share from 33.3% to 50% effective March 1, 2025.
Guidance, Outlook, Risks, and Unusual Items
- Capital Position: The company remains "well capitalized" under regulatory standards. Common Equity Tier 1 capital ratio was 12.07% for the company and 13.60% for the bank as of June 30, 2025.
- Dividends: The Board declared a quarterly cash dividend of $0.24 per common share, payable August 1, 2025. A stock repurchase program is active, with 27,812 shares repurchased in Q2 2025.
- Interest Rate Risk: Management utilizes an Asset Liability Committee (ALCO) to monitor interest rate risk. Modeling suggests a 200 bps rate increase would decrease Net Interest Income (NII) by 3.5%, while a 100 bps decrease would increase NII by 0.2% over a 12-month horizon.
- Credit Quality: Non-accrual loans increased slightly to $8.67 million (0.92% of total loans). The ACL to total loans ratio increased to 1.12%. Management noted an increase in qualitative factors for residential loans due to economic uncertainty but a decrease for commercial/CRE loans due to strong review processes.
- Trade Policy Risk: Management highlighted potential risks to the local Vermont economy from trade policy developments between the U.S. and Canada, noting that Canada is Vermont's largest international trading partner.
- Unusual Items: The company received a recovery of $53,000 for a fraudulent check charged off in 2024, reducing current period expenses. Additionally, the company's ownership interest in CFS Partners increased to 50% effective March 1, 2025, boosting non-interest income.
Investor Verification Checklist
- Deposit Stability: Verify the sustainability of the deposit base given the 23% decline in money market funds and 14.5% decline in interest-bearing transaction accounts year-to-date.
- Liquidity Management: Confirm the strategy for maintaining liquidity given the sharp reduction in cash equivalents from $111M to $14.5M and the reliance on overnight borrowings ($19.7M) to cover fluctuations.
- CFS Partners Impact: Assess the long-term sustainability of the increased income from CFS Partners following the ownership stake increase to 50%.
- Commercial Real Estate Exposure: Review the concentration of CRE loans (52.1% of the portfolio) and the specific risk ratings within that segment, particularly regarding non-owner occupied properties.
- Interest Rate Sensitivity: Evaluate the company's ability to maintain NII growth if competitive pressures force deposit rates to rise faster than asset yields reprice.