CMTV

Business Context and Reporting Period

Company: Community Bancorp. (Community National Bank)

Filing Type: Form 10-Q (Unaudited)

Reporting Period: Three months ended March 31, 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. As of March 31, 2025, total assets were $1.19 billion, a decrease of 4.9% from the prior year-end.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: Net income increased by $702,554 (24.9%) compared to Q1 2024, driven primarily by a $1.08 million increase in net interest income.
• Interest Income: Total interest income rose 13.0% year-over-year to $14.5 million, supported by loan growth and higher yields on adjustable-rate loans.
• Interest Expense: Total interest expense increased 13.0% to $5.1 million. Interest on deposits rose 35.9% due to competitive pricing, partially offset by a 60.8% decrease in interest on borrowed funds as Bank Term Funding Program (BTFP) loans matured.
• Asset Composition: Loans increased by $12.3 million (1.3%), led by growth in residential real estate and commercial real estate (CRE). Conversely, overnight deposits decreased by $85.6 million, significantly reducing total cash and cash equivalents.
• Deposit Trends: Total deposits declined $22.0 million (2.2%) from year-end 2024. Interest-bearing transaction accounts and money market funds decreased, while time deposits increased slightly.
• Non-Interest Income/Expense: Non-interest income decreased 3.4% to $1.6 million, largely due to lower income from CFS Partners. Non-interest expense increased 3.2% to $6.5 million, driven by higher employee benefits and FDIC insurance costs, partially offset by lower salaries and wages.

Guidance, Outlook, and Risks

• Capital Position: The company remains well-capitalized. Common Equity Tier 1 capital ratio was 12.07% for the Company and 13.69% for the Bank, exceeding regulatory requirements.
• Dividends: The Board declared a quarterly cash dividend of $0.24 per common share, payable May 1, 2025.
• Stock Repurchase: The company repurchased 2,000 shares for $35,380 under its existing program, with 273,000 shares remaining available.
• Interest Rate Risk: Management utilizes an Asset Liability Committee (ALCO) to monitor interest rate sensitivity. Modeling suggests Net Interest Income (NII) would decrease by 3.5% in a 200 basis point rate rise scenario and increase by 0.1% in a 100 basis point rate decline scenario.
• Credit Risk: Non-accrual loans increased to $8.9 million (0.95% of total loans). Management adjusted qualitative factors in the ACL calculation to reflect uncertainty regarding inflation and potential recession impacts on customer ability to pay.
• External Risks: Management is assessing risks related to trade policy developments between the U.S. and Canada, Vermont's largest trading partner, which could impact local business customers.
• Liquidity: The company repaid all BTFP borrowings during Q1 2025. Borrowing capacity of $106.8 million remains available through the Federal Home Loan Bank of Boston (FHLBB).

Investor Verification Checklist

• Deposit Stability: Verify the sustainability of the $22 million deposit outflow and the shift away from overnight deposits.
• Non-Performing Assets: Monitor the trend of non-accrual loans, which rose to $8.9 million, and the adequacy of the ACL coverage ratio (114.21% of non-accruals).
• Interest Rate Sensitivity: Review the ALCO's assumptions regarding deposit repricing lags in a rising rate environment.
• Regional Economic Exposure: Assess the potential impact of U.S.-Canada trade tensions on the commercial and CRE loan portfolios.
• Cost Management: Track employee benefit costs, which increased 13.2% year-over-year due to self-insured health plan claims.