COMMUNITY BANCORP annual report, FY2020

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Community Bancorp. — Fiscal 2020 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 company provides commercial, residential, consumer, municipal and retail banking services through 11 branches in northern and central Vermont and loan production offices in Vermont and New Hampshire. The report covers the fiscal year ended December 31, 2020 and was filed March 25, 2021.

The company had 126 full-time and 10 part-time bank employees at December 31, 2020. Its common stock trades on the OTC QX market under symbol CMTV and is not listed on a national securities exchange.

Financial metrics and capital position

  • The filing text provided does not include the consolidated income statement, balance sheet or cash flow statement amounts; those statements are incorporated by reference from the 2020 Annual Report.
  • The filing does not provide clear values in the supplied text for revenue, net income, earnings per share, net interest margin, operating margin, total assets, loans, deposits, liquidity ratios or operating cash flow.
  • The Bank originated $105.0 million of Paycheck Protection Program loans during 2020; $64.3 million remained outstanding at December 31, 2020.
  • Community Bancorp. had $12.887 million of junior subordinated debentures outstanding at December 31, 2020. The debentures bear interest at three-month LIBOR plus 2.85% and mature December 15, 2037.
  • At December 31, 2020, CDARS exchanged deposits totaled approximately $4.9 million, one-way CDARS funds were zero, and purchased wholesale deposits were $4.2 million.
  • The Bank’s investment in Federal Home Loan Bank of Boston stock was $768,400 at December 31, 2020.
  • The Bank paid $300,643 in FDIC insurance assessments during 2020.
  • Management stated that the Company and Bank exceeded applicable regulatory capital requirements and that the Bank was “well capitalized” under prompt corrective action rules. The specific capital ratios are not included in the supplied filing text.
  • Goodwill was approximately $11.6 million at December 31, 2020. Management concluded that goodwill was not impaired as of that date.
  • There were 5,316,160 common shares outstanding as of March 17, 2021. The aggregate market value of voting stock held by non-affiliates as of June 30, 2020 was $65.685 million, based on a $13.50 per-share price.

Material changes versus the prior comparable period

  • The filing incorporates the 2020 and 2019 financial statements, but the supplied text does not provide enough comparative financial data to quantify changes in revenue, net income, assets, deposits, loans, margins or cash flow.
  • COVID-19 materially affected operations during 2020, including branch and workplace procedures, remote work, customer payment capacity, loan-modification requests and credit-loss estimates.
  • The Bank participated in the PPP and generated $105.0 million of PPP originations during 2020, with $64.3 million outstanding at year-end.
  • Management adjusted credit-loss assumptions in response to the pandemic by downgrading certain qualitative factors and shortening the historical lookback period from five years to one year.
  • The Federal Reserve reduced the federal funds target range to 0%–0.25% in March 2020, increasing the risk of net interest margin compression and lower interest income.
  • The Company and Bank qualified for, but had not elected to use, the community bank leverage ratio framework as of December 31, 2020.
  • The Bank’s Montpelier lease expired December 31, 2020. The Bank moved to a newly remodeled branch at 99 State Street in February 2021.
  • During the fourth quarter, 1,367 shares were purchased at an average price of $13.00 per share for participants in the Company Stock Fund under the retirement savings plan; there was no publicly announced company repurchase program.

Guidance, outlook, management commentary, risks and unusual items

  • No formal earnings or financial guidance is provided in the supplied filing text.
  • Management expects growth opportunities to remain concentrated in Central Vermont, Chittenden County and the company’s New Hampshire market, where economic activity is viewed as more robust than in Orleans and Caledonia Counties.
  • COVID-19 remains the principal near-term uncertainty. Potential consequences include weaker borrower credit quality, higher charge-offs and allowance requirements, lower collateral values, reduced loan demand, unemployment, operational disruption and pressure on liquidity, capital and earnings.
  • PPP participation exposes the Company to SBA-guaranty, compliance, litigation, regulatory-enforcement and reputational risks. The SBA could deny or reduce a guaranty if it identifies deficiencies in loan origination, funding or servicing.
  • The Company is exposed to interest-rate risk. Prolonged low rates could compress net interest income, while rising rates could increase funding costs, preferred-stock dividends and interest expense on variable-rate debentures.
  • LIBOR transition creates uncertainty for the $12.887 million of LIBOR-based subordinated debentures. The filing states that the trustee had not informed the Company how it intended to proceed if LIBOR became unavailable, and the potential effect on interest expense could not be predicted.
  • The allowance for loan losses is highly judgmental and could require additional provisions if economic conditions or loan performance deteriorate. Adoption of the current expected credit loss model is mandatory for the Company beginning in fiscal 2023 and could materially affect credit-loss reserves, earnings and regulatory capital.
  • Funding depends primarily on core deposits. Greater reliance on purchased deposits or Federal Home Loan Bank borrowings could increase funding costs and affect liquidity, earnings and capital.
  • The company’s loans, deposits and fee income are geographically concentrated in northern and central Vermont, increasing sensitivity to local economic conditions.
  • Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2020. No external auditor attestation under Sarbanes-Oxley Section 404(b) was required because the Company was a non-accelerated filer.
  • The Bank received an “Outstanding” rating in its 2020 Community Reinvestment Act examination. No material pending legal proceedings were reported.

Most important facts for investors to verify

  • Retrieve the incorporated 2020 Annual Report to verify net income, revenue, earnings per share, net interest margin, asset quality, allowance coverage, total assets, loans, deposits, liquidity and cash-flow results.
  • Review the 2020-versus-2019 changes in net interest income, provision expense, nonperforming assets, charge-offs and securities gains or losses.
  • Confirm the Company’s and Bank’s specific regulatory capital ratios and capital conservation buffer at December 31, 2020.
  • Assess the remaining PPP portfolio, expected forgiveness timing, fee accretion and any SBA-guaranty or borrower-compliance exposures.
  • Review the terms and fallback provisions for the LIBOR-based subordinated debentures and quantify potential future interest-cost changes.
  • Evaluate deposit composition, wholesale funding limits, Federal Home Loan Bank borrowing capacity and other liquidity sources.
  • Review dividend payments, preferred-stock obligations and restrictions on the holding company’s ability to fund common-stock dividends.
  • Consider the company’s limited geographic diversification and OTC trading liquidity when assessing investment and valuation risk.