CMTV — Q2 2026 Financial Report Analysis

Community Bancorp., the holding company for Vermont's Community National Bank, earned $4.7 million, or $0.84 per share, in the second quarter of 2026, up 15.5% from $4.1 million ($0.72) a year earlier. Nearly all of the gain came from lending: the bank earned more on its loans and paid less to borrow money, so net interest income rose 13.7% to $11.2 million. That was enough to absorb a 77% jump in the amount set aside for possible loan losses, much of it tied to one commercial borrower in workout. The quarter also showed the bank's balance sheet shrinking from year-end: deposits fell 8.3% and the bank used its spare cash to pay off $25 million of borrowings.

At a glance

• Net interest margin 3.95%, up from 3.64%. The bank kept 0.31 percentage points more of every dollar of earning assets as profit from lending, the main reason earnings rose.
• Credit loss expense $721 thousand, up 77%. Loans not paying interest rose to 0.85% of the book from 0.73% at year-end, and one commercial relationship needed an extra $127 thousand reserve. Actual losses remain negligible (net recoveries in the first half).
• Deposits down $89.0 million (8.3%) since December, to $981.7 million. Management calls this seasonal (tax payments and Vermont towns spending down before their June 30 fiscal year-end); the bank funded it from cash rather than new borrowing.

Results at a glance

Balance-sheet rows compare to December 31, 2025, because that is the comparison the 10-Q gives. The efficiency ratio is not stated in the filing; we calculated it as non-interest expense divided by net interest income plus non-interest income. The filing does not report a return on tangible common equity.

What drove the quarter: a wider lending spread

A bank like this one makes most of its money on the gap between what it earns on loans and securities and what it pays depositors and lenders. That gap, measured against the assets that earn interest, is the net interest margin (NIM). Community Bancorp's NIM (on a tax-equivalent basis, which grosses up its tax-free municipal loans and bonds so they compare with taxable ones) rose to 3.95% from 3.64%.

Both sides of that spread moved in the bank's favour, per the 10-Q:

• Earning more: the average yield on interest-earning assets rose 18 basis points (0.18 percentage points). Interest and fees on loans rose $1.1 million, or 7.7%, to $14.7 million. Management attributes this to "growth in the volume of the loan portfolio and origination of loans at higher interest rates, as well as adjustable-rate loans repricing to current market rates." Average loans for the first half were $982.8 million versus $945.0 million a year earlier, up 4.0%.
• Paying less: the average rate paid on interest-bearing liabilities fell 13 basis points. Interest on deposits was nearly flat (+0.9%, to $4.0 million) even though average time-deposit balances grew 17.8%, because the rate paid on money market accounts fell 42 basis points. Interest on borrowed funds fell 32.1% to $302 thousand as average borrowings dropped 30.8%. Management sums it up: "Market pressure on deposit rates has stabilized and a decrease in wholesale funding has resulted in an improved net interest margin."
• Cash earning a return: interest on federal funds and overnight deposits jumped to $424 thousand from $72 thousand. The bank started the year with $116 million parked overnight; by June 30 that was down to $5.8 million (more on this below), so this line will be much smaller from Q3.

Total interest expense fell 3.3% while total interest income rose 8.0%, which is what produced the 13.7% rise in net interest income.

Fees and costs

Non-interest income rose 12.3% to $2.3 million. The biggest single driver was "other income from loans," up $205 thousand to $537 thousand; the 10-Q says the year-to-date gain was mainly $355 thousand more in commercial loan documentation fees. Income from CFS Partners, the trust and investment-management business the company holds a stake in, rose 5.7% to $580 thousand.

Non-interest expense rose 7.5% to $7.2 million: salaries and wages up 10.0% (pay rises and newly filled positions), employee benefits up 4.4% (higher claims under the self-insured health plan) and other expenses up 9.3% (the core processing contract and other service contracts repricing). Because revenue grew faster than costs, the efficiency ratio (the share of revenue consumed by operating costs, where lower is better) improved to about 52.8% from 55.8%. Profit before credit losses and tax rose about 21%, to $6.4 million from $5.3 million.

Credit quality: one commercial loan, a bigger cushion

The amount set aside for expected loan losses (the credit loss expense) rose to $721 thousand from $407 thousand. The 10-Q gives three reasons for the loan portion ($563 thousand, up 42.6%): changes in the economic forecast, prepayment speeds and loan paydowns, and "an increase to the reserve for an individually analyzed commercial loan that is in workout," including $127 thousand added specifically for that relationship. The rest ($158 thousand versus $12 thousand) reserves against unused credit lines the bank has committed to, which grew.

• Non-accruing loans (loans no longer paying interest) rose to $8.2 million, or 0.85% of loans, from $7.0 million (0.73%) at year-end. The filing notes two non-accrual loans carrying a $607 thousand specific reserve at June 30, against none at December 31.
• The allowance for credit losses rose to $11.9 million, 1.22% of loans, from 1.13%. The commercial & industrial allowance roughly doubled, to $1.30 million from $627 thousand.
• Actual losses remain negligible: for the first six months the bank recorded $27 thousand of net recoveries (money recovered on loans written off earlier exceeded new write-offs), a 0.00% net charge-off ratio.

So far this is reserving ahead of a problem, not losses. Coverage of non-accruing loans by the allowance dipped to 144.7% from 155.0%, still more than enough to cover the entire non-accrual book.

What the headline numbers hide

• The balance sheet shrank by $115 million in six months. Total assets fell to $1.17 billion from $1.29 billion. Deposits fell $89.0 million, led by money market accounts (down $61.5 million, or 32.9%) and demand plus interest-bearing transaction accounts (down $35.2 million). Reciprocal ICS money market deposits (large balances the bank spreads across other banks so they stay FDIC-insured) fell to $6.9 million from $48.8 million. The bank also repaid $25 million of Federal Home Loan Bank advances that carried rates of 3.51% to 4.74%. All of this was paid from cash, which fell to $25.6 million from $128.1 million. Management describes the deposit drop as seasonal, and the timing fits Vermont municipalities' June 30 year-end. But the cash buffer that earned $1.1 million of interest in the first half is mostly gone. If deposits don't come back in the second half, the bank still has $140.9 million of unused FHLB borrowing capacity and a $59.9 million Federal Reserve line.
• Loan growth has slowed. Period-end loans grew only 0.5% year-to-date, against 4.0% growth in average loans year on year. Within commercial real estate, owner-occupied loans rose to $152.0 million from $138.1 million while non-owner-occupied loans fell to $170.6 million from $184.0 million, a shift toward the generally lower-risk type.
• Cash conversion is clean. Operating cash flow for the first half was $9.4 million against net income of $9.1 million (about 1.0x), versus $4.6 million on $7.6 million a year earlier.
• EPS growth is operational, not financial engineering. Weighted average shares fell only 0.3% (5.59 million versus 5.61 million), and the effective tax rate rose slightly, to 17.4% from 16.8%. There are no adjusted figures or one-off gains of note. The largest one-off is a $37 thousand gain on selling a foreclosed property. The filing does flag tax-equivalent NII and NIM as possible non-GAAP measures, and reported (non-tax-equivalent) net interest income is $193 thousand lower than the tax-equivalent figure.
• A minor inconsistency in the filing: the MD&A summary says equity rose to "$120.1 million", while the balance sheet and equity statement both show $120.9 million (book value $21.58 per share, up from $20.36 at year-end). We use the financial statements.

Takeaway: This was a margin quarter. Cheaper funding and repriced loans widened the NIM by 0.31 points and drove a 13.7% rise in net interest income, easily covering a 77% higher loss provision. The catch: over the same six months the balance sheet shrank by $115 million as the bank spent its $116 million cash cushion on deposit outflows and debt paydowns. Q3 shows whether deposits return as the seasonal pattern predicts.

Capital and dividends

Capital is well above regulatory minimums. The holding company's common equity tier 1 (CET1) ratio, the core measure of loss-absorbing capital against risk-weighted assets, was 13.46%, up from 12.77% at year-end, against a 7.00% minimum including the conservation buffer. The Tier 1 leverage ratio was 10.73%. The bank subsidiary is classified "well capitalized." The board declared a $0.25 quarterly dividend (up from $0.24), a payout of 29.8% of quarterly earnings.

Outlook

Management gives no earnings guidance. Its interest-rate model says net interest income over the next 12 months would change by -1.2% if rates rose 2 percentage points gradually, and by -0.1% if they fell 2 points. In other words, NII is not very sensitive to the rate path. That puts the focus on three things for the second half:

1. Whether deposits return. If municipal and seasonal balances flow back in Q3 and Q4, the bank can rebuild liquidity without borrowing. If they don't, replacing cheap deposits with wholesale funding would eat into the margin gains.
2. The commercial loan in workout. The bank is reserving for it now. Whether the next step is a recovery or a charge-off will show if the 77% provision increase was prudence or the start of a trend. Non-accruals at 0.85% of loans are still modest.
3. Margin with less cash. With overnight balances near $6 million, the Q2 benefit from interest on cash will mostly disappear. Repaying 3.5% to 4.7% FHLB advances should offset much of it. Average loan yields still repricing upward should help the NIM hold near 3.9%, but further widening at Q2's pace is less likely.

On the current run rate (ROA 1.53%, ROE 15.8%), Community Bancorp is a profitable small bank with strong capital. Its near-term earnings depend more on deposit behaviour and one credit relationship than on where interest rates go.