CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Nine Months Ended September 30, 1995
Commission File Number 2-83166
COMMUNITY BANCORP.
(Exact Name of Registrant as Specified in its Chapter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification Number)
Derby Road, Derby, Vermont 05829
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number: (802) 334-7915
Not Applicable
------------------------------------------------------------
Former Name, Former Address and Formal Fiscal Year
(If Changed Since Last Report)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file for such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
At September 30, 1995, there were 1,318,056 shares of the
Corporation's $2.50 par value common stock issued and outstanding.
Total Pages - 19 Pages
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCORP. AND SUBSIDIARY
Consolidated Statement of Condition
( Unaudited )
<TABLE>
<CAPTION>
September 30 December 31 September 30
1995 1994 1994
<S> <C> <C> <C>
Assets
Cash and Due From Banks 4,714,224 4,167,717 5,101,064
Federal Funds Sold 575,000 3,225,000 2,725,000
Total Cash and Cash Equivalents 5,289,224 7,392,717 7,826,064
Securities Held-to-Maturity,
at Book Value 25,755,691 22,347,399 19,320,949
Securities Available-for-Sale,
at Market Value 21,604,594 23,679,988 24,938,425
Loans 135,800,230 133,426,385 131,795,091
Allowance for Loan Losses (1,557,312) (1,707,555) (1,678,668)
Unearned Net Loan Fees (908,884) (924,810) (921,487)
Net Loans 133,334,034 130,794,020 129,194,936
Bank Premises and Equipment, Net 3,328,594 3,137,447 3,005,728
Accrued Interest Receivable 1,594,661 1,387,000 1,356,042
Other Real Estate Owned 1,035,362 917,941 802,929
Other Assets 1,564,158 1,658,135 1,755,259
Total Assets 193,506,318 191,314,647 188,200,332
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, Non-Interest Bearing 15,826,684 14,535,679 15,614,723
NOW and Money Market Accounts 31,408,489 37,470,422 33,818,537
Savings 32,577,836 34,986,250 36,340,660
Time Deposits, $100,000 and Over 18,249,518 14,964,802 14,269,731
Other Time Deposits 77,599,517 72,718,856 71,873,388
Total Deposits 175,662,044 174,676,009 171,917,039
Other Borrowed Funds 65,000 65,000 75,000
Accrued Interest and Other Liabilities 590,139 504,124 382,581
Subordinated Debentures 287,000 551,000 555,000
Total Liabilities 176,604,183 175,796,133 172,929,620
Stockholders' Equity
2,000,000 shares authorized and 1,347,408
shares issued at 09/30/95, 1,295,412
issued at 12/31/94, and 1,287,096 issued
at 09/30/94 3,368,521 3,238,531 3,217,741
Surplus 5,134,335 3,954,284 3,850,534
Retained Earnings 8,876,568 9,212,710 8,965,021
Less: Treasury Stock,
(29,352 shares at 9/30/95, 29,099
at 12/31/94 and 29,095 at 9/30/94.) (439,974) (435,688) (435,610)
Valuation Allowance for Securities (37,315) (451,323) (326,974)
Total Stockholders' Equity 16,902,135 15,518,514 15,270,712
Total Liability and Stockholders' Equity 193,506,318 191,314,647 188,200,332
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For The Third Quarter Ended September 30 1995 1994 1993
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 3,186,035 2,789,907 2,736,370
Interest and Dividends on Invest. Securities
U.S. Treasury Securities 416,722 305,655 325,254
U.S. Treasury Agencies 21,975 5,857 5,857
Oblig. State and Political Subdivisions 250,205 224,473 172,696
Other Securities 18,404 17,943 25,241
Interest on Federal Funds Sold 35,148 26,804 15,655
Total Interest Income 3,928,489 3,370,639 3,281,073
Interest Expense
Interest on Deposits 2,090,354 1,669,164 1,490,928
Interest on Other Borrowed Funds 2,574 46,653 0
Interest on Subordinated Convert. Debentures 7,260 12,923 13,333
Total Interest Expense 2,100,188 1,728,740 1,504,261
Net Interest Income 1,828,301 1,641,899 1,776,812
Provision for Loan Losses (30,000) (45,000) (50,000)
Net Interest Income after Provision 1,798,301 1,596,899 1,726,812
Other Operating Income
Trust Department Income 23,104 26,916 11,919
Service Fees 142,870 130,086 119,412
Security Gains (losses) 0 8,734 2,436
Other 114,579 120,986 89,090
Total Other Operating Income 280,553 286,722 222,857
Other Operating Expenses
Salaries and Wages 562,241 542,229 480,100
Pension and Other Employee Benefits 181,654 119,780 124,459
Occupancy Expenses, Net 287,717 206,668 181,953
Other 430,902 518,729 464,673
Total Other Operating Expenses 1,462,514 1,387,406 1,251,185
Income Before Income Taxes 616,340 496,215 698,484
Applicable Income Taxes (Credit) 125,516 86,884 187,789
NET INCOME 490,824 409,331 510,695
Earnings Per Share on Weighted Average
Primary 0.37 0.33 0.42
Fully Diluted 0.37 0.32 0.40
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share
Primary 1,316,946 1,256,546 1,222,599
Fully Diluted 1,353,212 1,318,834 1,287,409
Dividends Per Share 0.24 0.22 0.20
All per share data has been restated to reflect a 5% stock dividend paid on
February 1, 1995.
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For the Nine Months Ended September 30 1995 1994 1993
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 9,122,532 8,195,165 8,025,593
Interest and Dividends on Invest. Securities
U.S. Treasury Securities 1,230,716 1,056,195 1,001,966
U.S. Treasury Agencies 50,183 17,456 51,661
Oblig. of State and Political Subdivision 741,155 659,870 560,122
Other Securities 54,942 51,857 65,665
Interest on Federal Funds Sold 111,191 74,347 65,647
Total Interest Income 11,310,719 10,054,890 9,770,654
Interest Expense
Interest on Deposits 6,096,563 4,860,326 4,571,022
Interest on Other Borrowed Funds 6,837 101,731 1,309
Interest on Subordinated Convert. Debentures 25,223 38,903 39,543
Total Interest Expense 6,128,623 5,000,960 4,611,874
Net Interest Income 5,182,096 5,053,930 5,158,780
Provision for Loan Losses (90,000) (135,000) (150,000)
Net Interest Income after Provision 5,092,096 4,918,930 5,008,780
Other Operating Income
Trust Department Income 68,435 59,570 34,683
Service Fees 420,475 375,599 335,664
Security Gains (Losses) 0 20,649 290,026
Other 356,897 353,548 323,447
Total Other Operating Income 845,807 809,366 983,820
Other Operating Expenses
Salaries and Wages 1,727,759 1,593,351 1,401,901
Pension and Other Employee Benefits 469,937 360,994 366,572
Occupancy Expenses, Net 802,700 630,326 548,916
Other 1,465,261 1,434,846 1,431,406
Total Other Operating Expenses 4,465,657 4,019,517 3,748,795
Income Before Income Taxes 1,472,246 1,708,779 2,243,805
Applicable Income Taxes (Credit) 261,260 333,605 485,803
NET INCOME 1,210,986 1,375,174 1,758,002
Earnings Per Share on Weighted Average
Primary 0.93 1.10 1.45
Fully Diluted 0.91 1.07 1.40
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share
Primary 1,299,846 1,247,634 1,208,705
Fully Diluted 1,344,351 1,310,334 1,275,369
Book Value Per Share on Shares Outstanding
on September 30, $12.82 $12.14 $11.45
All per share data has been restated to reflect a 5% stock dividend paid on
February 1, 1995.
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities
Interest received 11,428,376 10,377,785 10,109,702
Fees and commissions received 441,660 385,710 338,689
Other income 356,897 352,434 366,001
Interest paid (6,113,444) (5,024,630) (4,627,582)
Cash paid to suppliers and employees (4,221,693) (4,082,781) (3,434,499)
Income taxes paid (156,000) (309,000) (624,500)
Net Cash Provided by Operating Activities 1,735,796 1,699,518 2,127,811
Cash Flows from Investing Activities:
Investments - held to maturity
Sales and maturities 14,553,071 12,192,162 8,995,363
Purchases (18,021,728)(18,205,503)(13,227,798)
Investments - available for sale
Sales and maturities 6,500,000 10,500,000 8,051,379
Purchases (4,078,200) (8,085,500) (4,978,444)
Investment in limited partnership (103,476) (85,750) 0
Increase in loans, net of payments (3,017,541) (5,902,079) (9,715,766)
Capital expenditures (420,188) (343,514) (1,481,033)
Recoveries of loans charged off 130,211 87,210 52,101
Proceeds from sales of OREO 137,900 171,993 468,151
Net Cash Used in Investing Activities (4,319,951) (9,670,981)(11,836,047)
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW, money
market and savings (7,179,342) 7,139,513 3,156,262
Net increase in certificates of deposit 8,165,377 1,850,413 5,893,887
Payments to acquire treasury stock (4,286) (105) (2,231)
Dividends paid (501,087) (435,252) (385,092)
Net Cash Provided by Financing Activities 480,662 8,554,569 8,662,826
Net Increase in Cash and Cash Equivalents (2,103,493) 583,106 (1,045,410)
Cash and Cash Equivalents:
Beginning 7,392,717 7,242,958 7,171,239
Ending 5,289,224 7,826,064 6,125,829
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income 1,210,986 1,375,174 1,758,002
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation 229,041 180,282 140,014
Provisions for possible loan losses 90,000 135,000 150,000
Provisions for deferred taxes (82,893) (58,229) 0
Securities (gains) losses 0 (20,649) (290,026)
Losses on sales of OREO 2,921 0 25,912
Subsequent writedowns on OREO 15,000 25,769 25,412
Amortization of bond premium 341,244 338,388 208,975
Increase (decrease) in taxes payable 22,367 83,166 (80,600)
(Increase) decrease in interest receivable (207,661) (95,644) 29,333
(Increase) decrease in other assets 53,167 (209,437) (64,509)
Increase (decrease) in unamortized loan fees (15,926) 80,151 100,740
Interest (decrease) in interest payable 15,179 (23,395) (13,924)
Increase (decrease) in accrued expenses 49,284 (124,087) 148,036
Increase (decrease) in other liabilities 13,087 13,029 (9,554)
Net Cash Provided by Operating Activities 1,735,796 1,699,518 2,127,811
Supplemental Schedule of Noncash Investing and
Financing Activities:
Unrealized loss on securities
available-for-sale $56,538 $495,416 N/A
OREO / acquired in settlement of loans $431,138 $91,109 $588
Debentures converted to common stock $264,000 $16,000 $101,000
5% Stock dividend at market value $150,578 $0 $135,066
Dividends Paid:
Dividends payable $925,565 $517,896 $687,405
Dividends reinvested ($424,478) ($228,107) ($302,313)
$501,087 $289,789 $385,092
</TABLE>
AVERAGE BALANCES AND INTEREST RATES
The table below presents the following information: average earning
assets (including non-accrual loans) and average interest bearing liabilities
supporting earning assets and interest income and interest expense as a
yield/rate.
<TABLE>
<CAPTION>
FIRST 9 MONTHS FIRST 9 MONTHS
1995 1994
AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans (gross) 133,686,836 9,122,532 9.12% 129,058,812 8,195,165 8.49%
Taxable Investment
Securities 30,481,850 1,280,899 5.62% 28,274,084 1,073,651 5.08%
Tax-Exempt Investment
Securities(1) 18,437,054 1,111,939 8.06% 19,201,307 990,483 6.90%
Federal Funds Sold 2,624,489 111,191 5.66% 2,686,355 74,347 3.70%
Other Securities 1,160,946 62,217 7.17% 1,161,666 58,008 6.68%
TOTAL 186,391,175 11,688,778 8.38% 180,382,224 10,391,654 7.70%
INTEREST BEARING LIABILITIES
Savings Deposits 34,029,818 761,764 2.99% 34,221,644 766,938 3.00%
NOW & Money Market
Funds 35,780,215 1,029,572 3.85% 36,652,869 921,520 3.36%
Time Deposits 92,105,325 4,305,227 6.25% 85,327,485 3,171,868 4.97%
Other Borrowed Funds 138,334 6,836 6.61% 2,077,835 101,731 6.55%
Sub. Debentures 371,000 25,223 9.09% 575,000 38,903 9.05%
TOTAL 162,424,692 6,128,622 5.04% 158,854,833 5,000,960 4.21%
Net Interest Income 5,560,156 5,390,694
Net Interest Spread(2) 3.34% 3.49%
Interest Differential(3) 3.99% 4.00%
<FN>
<F1> Income on investment securities of state and political subdivisions
is stated on a fully tax equivalent basis (assuming a 34 percent
tax rate).
<F2> Net interest spread is the difference between the yield on earning
assets and the rate paid on interest bearing liabilities.
<F3> Interest differential is net interest income divided by average
earning assets.
</TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the first
nine months of 1995 and 1994 resulting from volume changes in assets and
liabilities and fluctuations in rates earned and paid.
<TABLE>
<CAPTION>
1995 compared to 1994
RATE VOLUME Variance Variance
Due to Due to Total
Rate(1) Volume(1) Variance
EARNING ASSETS
<S> <C> <C> <C>
Loans 505,134 422,233 927,367
Taxable Investment Securities 83,209 124,039 207,248
Tax-Exempt Invest. Securities(2) 183,081 (61,625) 121,456
Federal Funds Sold 40,348 (3,504) 36,844
Other Securities 4,261 (52) 4,209
Total Interest Earnings 816,033 481,091 1,297,124
INTEREST BEARING LIABILITIES
Savings Deposits 574 (5,748) (5,174)
NOW & Money Market Funds 141,625 (33,573) 108,052
Time Deposits 709,782 423,577 1,133,359
Other Borrowed Funds 32,064 (126,959) (94,895)
Sub. Debentures 4,773 (18,453) (13,680)
Total Interest Expense 888,817 238,845 1,127,662
<FN>
<F1> Items which have shown a year-to-year increase in volume have
variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have
variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variances due to volume = Change in volume x new rate
<F2> Income on tax-exempt securities is stated on a fully tax
equivalent basis. The assumed rate is 34%.
</TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE THIRD QUARTER ENDED SEPTEMBER 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 490,824 409,331 510,695
Average Number of Common Shares Outstanding 1,316,946 1,256,546 1,222,599
Earnings Per Common Share 0.37 0.33 0.42
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 1,210,986 1,375,174 1,758,002
Average Number of Common Shares Outstanding 1,299,846 1,247,634 1,208,705
Earnings Per Common Share 0.93 1.10 1.45
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
FOR THE THIRD QUARTER ENDED SEPTEMBER 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 490,824 409,331 510,695
Adjustments to Net Income (Assuming
Conversion of Subordinated Convertible
Debentures) 4,792 8,529 8,799
Adjusted Net Income 495,616 417,860 519,494
Average Number of Common Shares Outstanding 1,316,946 1,256,546 1,222,599
Increase in Shares (Assuming Conversion of
Convertible Debentures ) 36,266 62,288 64,810
Average Number of Common Shares Outstanding
(Fully Diluted) 1,353,212 1,318,834 1,287,409
Earnings Per Common Share Assuming Full
Dilution 0.37 0.32 0.40
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 1,210,986 1,375,174 1,758,002
Adjustments to Net Income (Assuming
Conversion of Subordinated Convertible
Debentures) 16,647 25,676 26,098
Adjusted Net Income 1,227,633 1,400,850 1,784,100
Average Number of Common Shares Outstanding 1,299,846 1,247,634 1,208,705
Increase in Shares (Assuming Conversion of
Convertible Debentures) 44,505 62,700 66,664
Average Number of Common Shares Outstanding
(Fully Diluted) 1,344,351 1,310,334 1,275,369
Earnings Per Common Share Assuming Full
Dilution 0.91 1.07 1.40
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995
Community Bancorp. is a one-bank holding company whose only
subsidiary is Community National Bank. The Bank's main office is
located in Derby, with branch offices located in Newport, Troy, Derby
Line, Barton, and Island Pond. All these offices are located in
Orleans County with the exception of Island Pond, which is located in
Essex County. The Bank recently expanded its service area with the
opening of a full-service branch in the town of St. Johnsbury, located
in Caledonia County. This banking office occupies a section of a
building which also houses a major chain supermarket. An open house
was held on June 19, 1995 to familiarize customers with the new
facility. Both establishments opened for business on June 20, 1995.
As of September 30, 1995, total deposits of $1.74 million were
reported, with money market accounts totaling $561 thousand followed
closely by CD's at $520 thousand, and gross loans totaled $1.37
million of which $508 thousand are real estate loans. These figures
are increasing as steadily as management anticipated. This new office
is the Bank's only branch open seven days a week, all other branches
are open Monday through Saturday. The supermarket is open 24 hours a
day, seven days a week, therefore, extended hours at the bank were
deemed necessary to accommodate shoppers.
While the financial statements, which precede this narrative,
reflect consolidated figures, the following discussion refers
primarily to the Bank's operations, as most of the Bancorp's business
is conducted through the Bank. Many of the comparisons throughout the
following paragraphs refer to the preceding tables for a visual
comparison of the figures and percentages disclosed.
LIQUIDITY
Liquidity management refers to the ability of Community National
Bank to adequately cover fluctuations in assets and liabilities.
Meeting loan demand (assets) and covering the withdrawal of deposit
funds (liabilities) are two key components of the liquidity management
process. The repayment of loans and growth in deposits are two of the
major sources of liquidity. Our time deposits greater than $100,000
increased $3.9 million or 28 percent for the first nine months of 1995
compared to 1994. Other time deposits increased from $71.8 million at
the end of the first nine months of 1994 to $77.6 million at the end
of the first nine months of 1995, an increase of 8 percent. A review
of these deposits, primarily the time deposits over $100,000 indicates
that the growth is notably generated locally and regionally and are
established customers of the Bank. The Bank has no brokered deposits.
Now, money market, and savings accounts together decreased 8.8 percent
to end the nine month comparison period at $63.9 million for 1995
compared to $70.1 million for 1994. Our gross loan portfolio
increased from $131.8 million for the first nine months of 1994 to
$135.8 million for the same period of 1995 or 3 percent. Of this
total portfolio of $135.8 million, $69.2 million are scheduled to
reprice within one year and $7.6 million are scheduled to mature
within one year. At the end of the first nine months of 1995, the
Bank reported investments of "Available-for-Sale" securities at a
market price of $21.6 million, compared to $24.9 million for the same
period in 1994, while the book value of securities classified as
"Held-to-Maturity" increased to $25.7 million from $19.3 million for
the same comparison period.
RESULTS OF OPERATIONS
Net income for the third quarter ended September 30, 1995 was
$491 thousand, representing an increase of almost 20 percent compared
to a net income of $409 thousand for the third quarter ended September
30, 1994. The results of this are primary earnings per share of $0.37
for the third quarter of 1995 compared to $0.33 for the third quarter
of 1994, and fully diluted earnings per share of $0.37 and $0.32
respectively. Net income for the first nine months of 1995 was $1.2
million compared to $1.4 million for the first nine months of 1994, a
decrease of 12 percent. As a result, primary earnings per share of
$0.93 and $1.10 were reported for 1995 and 1994, respectively, while
fully diluted earnings per share ended the nine month period at $0.91
for 1995, compared to $1.07 for 1994. The expenses incurred during
the construction and opening of the St. Johnsbury office, as well as
the purchase of a new computer system, were the primary reasons for
the decrease in net income for the first nine months of 1995.
A 5% stock dividend was declared on January 10, 1995, payable
February 1, 1995 to stockholders of record on January 15, 1995. All
per share data has been restated for prior comparison periods to
reflect the 5% stock dividend. A cash dividend of $0.24 per share was
declared in each of the first three quarters of 1995, with the most
recent dividend reported as payable on August 1, 1995 to shareholders
of record as of July 15, 1995.
Net interest income, the difference between interest income and
expense, represents the largest portion of the Bank's earnings, and is
affected by the volume, mix, and interest rate sensitivity of earning
assets versus interest bearing liabilities.
Net interest income for the third quarter of 1995 increased to
$1.83 million from $1.64 million in 1994, or 11.4 percent, and net
interest income for the first nine months increased from $5.05 million
in 1994 to $5.18 million in 1995, an increase of 2.5 percent.
Interest income increased by $558 thousand or 16.5 percent for the
third quarter of 1995, from $3.4 million in 1994 to $3.9 million in
1995. Interest income for the first nine months of 1995 increased to
$11.3 million compared to $10.1 million in 1994, an increase of 12.5
percent. Interest expense increased by $371 thousand or 21.5 percent
for the third quarter of 1995 compared to 1994. Interest expense for
the first nine months increased to $6.1 million from $5 million in
1994, an increase of 22.5 percent. A review of the nine month figures
for interest earned on loans, the major source of interest income, and
interest paid on deposits, the major source of interest expense, shows
increases of 11 percent versus 25 percent, respectively. The result
is a tax equivalent spread of 3.99% in 1995, and 4.00% in 1994.
The following paragraphs are comparisons of average balances and
the respective average yield for interest earning assets and interest
bearing liabilities. Figures for these comparisons were obtained from
the table labeled "Average Balances and Interest Rates", which can be
found in the preceding section. Income on tax-exempt securities is
stated on a fully tax equivalent basis on this table, therefore,
figures presented are higher than those in the Statement of Income
included with the financial statements.
Income from loans for the first nine months of 1995 increased to
$9.1 million or by 11.3 percent compared to $8.2 million for the same
period in 1994. The average volume of loans increased by 3.6 percent,
or $4.6 million and the yield on those loans increased from 8.49% for
the first nine months of 1994 to 9.12% for the first nine months of
1995, an increase of 63 basis points.
The average volume of taxable investments increased to $30.5
million or by 7.8 percent, and the yield on these investments for the
first nine months of 1995 rose by 54 basis points, from a yield of
5.08% in 1994 to 5.62% in 1995. Of the total taxable investment,
approximately $20.6 million are investments classified as available-
for-sale, with the remaining $9.9 million classified as held-to-
maturity. A decrease is noted in the average volume of tax-exempt
investments from $19.2 million for the first nine months of 1994 to
$18.4 million for the same period in 1995, a decrease of almost 4
percent. All of these investments are classified as held-to-maturity.
Other securities ended the nine month period in 1995 at an average
volume of $1.16 million, resulting in a decrease of less than one-
tenth of one percent compared to the same period last year. The Bank
currently has no investments classified as trading securities, and
does not intend to carry any of these securities. The yield on
treasuries remains above the yield on other short term investments
such as federal funds, therefore, the Bank continues to invest more in
these higher yielding securities.
Interest income on federal funds sold increased to $111 thousand
with an average yield of 5.66% for the first nine months of 1995,
compared to income of $74 thousand with an average yield of 3.70% for
the first nine months of 1994, an increase of 50 percent. The average
volume decreased to $2.6 million from $2.7 million for the same
comparison periods. A quick review of the financial statements
indicate actual federal funds sold on September 30, 1994 of $3.2
million compared to $575 thousand on September 30, 1995.
In total, our average earning assets increased to $186.4 million
or by 3.3 percent during the first nine months of 1995, compared to
the same period in 1994, and the average yield on those earning assets
increased by 68 basis points to end the nine month period in 1995 at
8.38% compared to 7.70% for the same period last year. Our net yield,
or net interest spread as defined on the "Average Balances and
Interest Rates" table, was 3.34% for the first nine months of 1995,
compared to 3.49% for 1994. This decrease in yield on earning assets
is attributable to a 68 basis point increase in yield on assets,
compared to an 83 basis point increase in the average rate paid on
interest bearing liabilities.
Our average time deposit volume increased to $92.1 million, or by
7.9 percent at the end of the first nine months of 1995, compared to
the same period of 1994. Interest paid on time deposits increased
from $3.2 million in 1994 to $4.3 million for the first nine months of
1995, resulting in an increase of 128 basis points on the average
yield reported of 4.97% for 1994 to 6.25% for 1995.
Now and money market funds decreased to $35.8 million or by 2.4
percent in volume in 1995 while interest expense on these funds
increased by $108 thousand, or by 11.7 percent to a nine month expense
figure for 1995 of almost $1.1 million. The average rate on these
funds rose 49 basis points to a rate of 3.85% compared to 3.36% for
the first nine months of 1994.
Other borrowed funds decreased to an average volume of $138
thousand with an average yield of 6.61%. Interest expense decreased
by 93 percent for the nine month comparison period to end at just
under $7 thousand as of September 30, 1995.
Savings deposits decreased from an average volume of $34.2
million in 1994 to an average volume of $34 million, or just over one-
half of one percent, for the same period in 1995. Interest expense on
savings deposits decreased from $767 thousand to $762 thousand for the
comparison period, again, a decrease just over one-half of one
percent.
Subordinated debentures have been decreasing steadily in the
first nine months of 1995. The 9% debentures are being redeemed more
because it is to the debenture holder's economic benefit. As of
September 30, 1995, there are 9% debentures outstanding totaling
$203,000 and 11% debentures outstanding totaling $84,000, compared to
September 30, 1994 totals of $468,000 and $87,000, respectively. This
decrease in debentures outstanding leads to the decrease in interest
expense, which was reported at $39 thousand for the first nine months
of 1994 and $25 thousand for the first nine months of 1995.
ALLOWANCE FOR POSSIBLE LOSSES ON LOANS
In the opinion of management, adequate loan loss coverage is
considered to be one of the most crucial areas of financial safety and
profitability of the Bank. As a result, loans are typically reviewed
on a loan-by-loan basis, focusing more intently on potential problem
loans. A review of the overall level of risk within the portfolio
helps to insure adequate coverage in the event of future chargeoffs.
Emphasis is placed on each borrower's financial condition, the
industry or sector for the economy in which the borrower operates, and
overall economic conditions. The Executive Officers and Board of
Directors review the loan portfolio on a monthly basis noting existing
and potential problems in the portfolio. The Bank also employs a Loan
Review and Compliance Officer whose duties, among others, include an
ongoing review of delinquent and non-performing loans. All findings
and recommendations are then brought to senior management for further
assessment and final judgement as to the appropriate action to follow.
Specific Allocations are made in situations management feels are
at a greater risk for loss. A quarterly review of the Qualitative
Factors, which, among others, are "Levels of, and Trends in,
Delinquencies and Non-Accruals" and "National and Local Economic
Trends and Conditions" helps to ensure that areas with potential risk
are noted and coverage increased to reflect upward trends in
delinquencies and non-accruals. Residential first mortgage loans make
up the largest part of the loan portfolio and have the lowest
historical loss ratio which helps to alleviate the overall risk.
The valuation allowance for loan losses of $1.6 million as of
September 30, 1995 constitutes 1.15 percent of the total loan
portfolio, compared to $1.7 million or 1.27 percent for the same
period in 1994. This allowance figure is sufficient in light of the
fact that of the total loan portfolio of $135.8 million, $110.7
million or 81.5 percent are real estate mortgage loans; and of this
total, $90 million or 81.3 percent constitute one to four family
residential mortgage loans. Increases are noted in all totals
compared to last years figures of $131.8 million in totals loans,
$107.4 million in real estate mortgage loans, which represents 81.5
percent of the total portfolio, and a further breakdown shows $88.5
million in one to four family residential mortgage loans, representing
82.4 percent of the real estate loan portfolio. Historically, the
Bank has experienced minimal loan loss with this particular portfolio
of loans which further help support the basis for managements opinion
of adequate loan loss coverage. Furthermore, a loan portfolio
consisting of 81.5 percent in residential and commercial real estate
secured mortgage loans is by far more stable and less vulnerable than
a portfolio with a higher concentration of unsecured commercial and
industrial loans or personal loans.
In May, 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." The Bank is required to adopt
this new rule effective as of the beginning of this calendar year,
although earlier adoption was allowed. This statement will allow the
Bank to classify its in-substance foreclosures as loans and disclose
them as impaired loans, as long as regulatory guidelines are followed.
Loans will generally be valued at the lower of either the present
value of expected future cash flows discounted at the loan's effective
interest rate or at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. As
anticipated in late 1994, this new rule has not had a significant
effect on the financial position or results of operation of the
Corporation as of the end of the first nine months of 1995.
Non-Performing assets for the bank are made up of three different
types of loans, "90 Days or More Past Due", "Other Real Estate Owned"
(OREO), and "Non-Accruing Loans". A comparison of these non-
performing assets for 1995 and 1994 reveals an increase of 34 percent
in non-accruing loans and combined decrease of 21 percent for the
other categories. Because the portfolio of non-accruing loans
consists of $1.6 million or 92 percent of real estate secured mortgage
loans, loss from this category of loans is eminently reduced.
Non-performing assets as of September 30, 1995 and 1994 were
made up of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Non-Accruing loans $1,701,860 $1,266,804
Loans past due 90 days or more and still accruing 379,842 453,493
Other real estate owned 1,035,362 1,335,534
Total $3,117,064 $3,055,831
</TABLE>
These totals of $3.12 million for 1995 and $3.06 million for 1994
equals 2.29 percent and 2.32 percent, respectively, of total gross
loans, as well as 1.61 percent and 1.62 percent, respectively, of
total assets. As of September 30, 1995, our reserve coverage of non-
performing loans was 50 percent compared to 55 percent a year ago and
51 percent at December 31, 1994.
These statistics show that non-performing loans have increased
slightly compared to the same period last year. As a result,
management continues to maintain the reserve requirement at a level of
approximately 1.15 percent of total eligible loans. The local economy
is still a bit unstable and is experiencing a slower recovery than
other areas which is typical in an area like ours, therefore, we will
continue our conservative approach to the reserve requirements and
adjust accordingly for any changes.
Other real estate owned is made up of property that the Bank owns
in lieu of foreclosure or through normal foreclosure proceedings, and
property that the Bank does not hold title to but is in actual control
of, known as in-substance foreclosure. It is the policy of the Bank
to value property in other real estate owned at the appraised value or
book value of the loan, whichever is lesser. Our policy is to
appraise the property to determine the value as well as to determine
if a write-down is necessary to bring the book value of the loan equal
to the appraised value, prior to including the property in other real
estate owned. Appraisals are then done annually thereafter with any
additional write-downs being made at that time.
Our current portfolio of other real estate owned equals
$1,035,362, with all properties obtained through the normal
foreclosure process. All but one of the properties are located in
Vermont and consist of the following; a condominium project in Jay, a
former farm equipment dealership in Newport, three condominium units
in Newport, a residential property in Newport, a commercial property
in Island Pond, a farm in Westmore, and one residential property
located in West Stewartstown, New Hampshire. The farm equipment
dealership is under a lease agreement with the option to purchase.
The farm in Westmore was sold during the first part of October. The
Bank is actively attempting to sell all of the other real estate
owned, and expects no material loss on any of these properties. Other
real estate owned is by definition a non-earning asset, and as such
has a negative impact on the Bank's earnings.
OTHER OPERATING INCOME AND EXPENSES
Other operating income for the third quarter of 1995 was $281
thousand, compared to $287 thousand for the third quarter of 1994, a
decrease of $6 thousand or 2.2 percent. Service fees reports the
only increase with income figures of $143 thousand for the third
quarter of 1995, compared to $130 thousand for the same period in
1994. No securities were sold before maturity for either the third
quarter or the first nine months of 1995, therefore no gain (or loss)
was recognized. Other operating income for the first nine months
increased from $809 thousand in 1994 to $846 thousand in 1995, an
increase of $37 thousand or 4.5 percent. Service fees again showed
the biggest increase for the nine month comparison, reporting $420
thousand for 1995 compared to $376 thousand for 1994. Other income
from loans, a component of other income, increased $27 thousand or 17
percent, while foreign exchange decreased $16 thousand or 37 percent.
The exchange rate on the canadian dollar remains less than favorable
creating a negative impact on earnings generated through exchange.
Other operating expense for the third quarter of 1995 was $1.46
million compared to $1.38 million for 1994, an increase of $75
thousand or 5.4 percent. Salaries, the largest portion of other
operating expense, showed an increase $20 thousand or 3.7 percent, and
occupancy expenses show the greatest increase of $81 thousand or 39
percent, due in part to the additional expenses for the St. Johnsbury
office. Other expense decreased by $88 thousand or 17 percent due
primarily to a rebate for FDIC insurance. Other operating expense for
the first nine months increased by $446 thousand from $4 million in
1994 to $4.5 million in 1995. Topping the increase for this
comparison period was again occupancy expense with an increase of $172
thousand or 27 percent. Furniture and equipment, a component of
occupancy expenses, had the most sizeable increase contributing just
over $81 thousand to the overall increase. Salaries noted the second
biggest increase of just over $134 thousand or 8.4 percent. The
rebate for FDIC insurance of $112 thousand helped to offset increases
in other components of other expenses, resulting in a nine month
increase of just over $30 thousand for 1995 compared to 1994.
All components of other operating expenses are monitored by
management, however, a more diligent quarterly review is performed on
crucial components to assure that the accruals for these expenses are
accurate. This helps alleviate the need to make drastic adjustments
to these accounts that in turn effect the net income of the bank.
APPLICABLE INCOME TAXES
Income before taxes increased from $496 thousand for the third
quarter of 1994 to $616 thousand for the third quarter of 1995, an
increase of $120 thousand or 24 percent. As a result of this
increase, provision for income taxes for the third quarter of 1995
increased 45 percent compared to the same period for 1994, ending the
third quarter period at $126 thousand. Income before taxes for the
first nine months decreased from $1.7 million for 1994 to $1.5 million
for 1995, a decrease of just over $236 thousand or 14 percent. This
lead to a decrease in provision for income taxes of $72 thousand to
end the first nine months of 1995 at $261 thousand. A one time gain
of $35 thousand from the adoption of FASB 109 helped boost the net
income for the first nine months of 1994. This statement is based on
timing differences between the accounting basis and tax basis and is
carried as a deferred asset on our balance sheet.
EFFECTS OF INFLATION
Rates of inflation affect the reported financial condition and
results of operations of all industries, including the banking
industry. The effect of monetary inflation is generally magnified in
bank financial and operating statements as costs and prices rise
during periods of monetary inflation, cash and credit demands of
individuals and businesses increase, and the purchasing power of net
monetary assets declines. While high rates of inflation have in the
past strained the capital structure of financial institutions, in
recent months this trend has been somewhat alleviated by declining
rates of inflation, with a resulting relaxation of the erosion of the
purchasing power of monetary assets.
The Corporation's ability to preserve its purchasing power
depends primarily on its ability to manage net interest income.
Although net interest income was down for the first quarter of 1995,
the second and third quarter showed positive signs of improvement.
FINANCIAL CONDITION
Average earning assets grew by 3.3 percent in the first nine
months of 1995 compared to the same period in 1994 to an average
volume of $186.4 million. Loans, which totaled $133.7 million in 1995
and $129 million in 1994, comprised 71.7 percent and 71.5 percent,
respectively, of our earning assets with the average volume of loans
increasing $4.6 million or 3.6 percent in the first nine months of
1995, compared to the same period in 1994. On September 30, 1995,
residential real estate mortgages made up 67 percent of our portfolio,
commercial loans made up 22 percent, and personal loans made up 11
percent, which varies slightly from the nine month figures for last
year of 67%, 22%, and 13% respectively.
Taxable investments made up 16.4 percent of our average earning
assets in the first nine months of 1995, compared to 15.7 percent in
1994 to end the period at an average volume of $30.5 million. Tax-
exempt investments of $18.4 million made up 10 percent of our average
earning assets in the first nine months of 1995, compared to $19.2
million or 10.6 percent in 1994.
Federal funds sold, which had an average volume of $2.6 million,
made up 1.4 percent of our earning assets in the first nine months of
1995 and 1.5 percent for the same period in 1994, with an average
volume of $2.7 million. And ending the list of earning assets, other
securities decreased less than $1 thousand, and made up .62 percent in
1995, compared to .64 percent in 1994.
Historically, the Bank has funded its growth by steady increases
in its core deposits. The Bank has no brokered deposits, nor does it
rely on large certificates or other forms of volatile deposits to fund
its growth in earning assets. As interest rates decline, there is a
shift to savings and money market accounts, as customers await an
opportunity to reinvest at higher rates. Conversely as rates
increase, funds shift from savings and money market accounts to
certificates of deposit to lock in higher yields. Rates on CD's are
continuing to rise slowly and we are now seeing a shift in accounts
with time deposits increasing approximately 7.9 percent to an average
volume of $92.1 million making up 57 percent of the total interest
bearing liabilities, while savings accounts made up 21 percent of the
total, decreasing less than one-half of one percent to an average
volume of $34 million. A decrease of 2.4 percent is noted in NOW and
money market funds with an average volume of $35.8 million, or 22
percent of the total interest bearing liabilities reported at the end
of the first nine months of 1995. Other borrowed funds decreased in
volume 93 percent, from $2.1 million at the end of September '94 to
$138 thousand at the end of September '95, comprising 1.3 percent of
the total interest bearing liabilities for 1994 compared to .08
percent for 1995. This decrease is attributed to the repayment of
funds borrowed through Federal Home Loan Bank of Boston.
CAPITAL RESOURCES
The Corporation's stockholders' equity, which started the year at
$15,518,514, was increased through earnings of $1,210,986 and sales of
common stock of $688,478 through dividend reinvestment and debenture
conversions, and adjustment of $414,008 for valuation of allowance for
securities. It was decreased by dividends of $925,565 and purchase of
treasury stock of $4,286 to end the first nine months of 1995 at
$16,902,135 with a book value of $12.82 per share. All stockholder's
equity is unrestricted. Additionally, it is noted that the net
unrealized loss on valuation allowance for securities has decreased. A
review of this activity shows that as the maturity date of the
investments gets closer, the market price becomes favorably better,
therefore, material loss is greatly reduced.
The Bank is required to maintain minimum amounts of capital to
"risk weighted" assets, as defined by the banking regulators. The
minimum requirements for Tier I and Total Capital are 4% and 8%,
respectively. As of September 30, 1995, the Bank continued to
maintain ratios far above the minimum requirements with reported
ratios of 17.5% for Tier I and 18.8% for Total Capital.
The Corporation intends to continue the Bank's past policy of
maintaining a strong capital resource position to support its asset
size and level of operations. Consistent with that policy, management
will continue to anticipate the Corporation's future capital needs.
PART II.
Item 1
Legal Proceedings
The Corporation is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal.
There are no pending legal proceedings to which the Bank is a
party or of which any of its property is the subject, other than
routine litigation incidental to its banking business.
Item 6
Exhibits and Reports on Form 8-K
Exhibits - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMUNITY BANCORP.
DATED: November 14, 1995 By:/s/Richard C. White
-------------------------------
Richard C. White, President
DATED: November 14, 1995 By:/s/Stephen P. Marsh
--------------------------------
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 4,714,224
<INT-BEARING-DEPOSITS> 159,835,360
<FED-FUNDS-SOLD> 575,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,604,594
<INVESTMENTS-CARRYING> 25,755,691
<INVESTMENTS-MARKET> 25,933,841
<LOANS> 135,800,230
<ALLOWANCE> 1,557,312
<TOTAL-ASSETS> 193,506,318
<DEPOSITS> 175,662,044
<SHORT-TERM> 65,000
<LIABILITIES-OTHER> 590,139
<LONG-TERM> 287,000
<COMMON> 3,368,521
0
0
<OTHER-SE> 13,533,614
<TOTAL-LIABILITIES-AND-EQUITY> 193,506,318
<INTEREST-LOAN> 9,122,532
<INTEREST-INVEST> 2,076,996
<INTEREST-OTHER> 111,191
<INTEREST-TOTAL> 11,310,719
<INTEREST-DEPOSIT> 6,096,563
<INTEREST-EXPENSE> 32,060
<INTEREST-INCOME-NET> 5,182,096
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,465,657
<INCOME-PRETAX> 1,472,246
<INCOME-PRE-EXTRAORDINARY> 1,472,246
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,210,986
<EPS-PRIMARY> .93
<EPS-DILUTED> .91
<YIELD-ACTUAL> 8.23
<LOANS-NON> 1,701,860
<LOANS-PAST> 379,842
<LOANS-TROUBLED> 300,803
<LOANS-PROBLEM> 8,808,757
<ALLOWANCE-OPEN> 1,707,555
<CHARGE-OFFS> 370,454
<RECOVERIES> 130,211
<ALLOWANCE-CLOSE> 1,557,312
<ALLOWANCE-DOMESTIC> 1,379,933
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 177,379
</TABLE>
