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 Three Months Ended March 31, 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 March 31, 1995, there were 1,284,408 shares of the Corporation's $2.50
par value common stock issued and outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCORP. AND SUBSIDIARY
Consolidated Statement of Condition
<TABLE>
<CAPTION>
(Unaudited) March 31 December 31 March 31
1995 1994 1994
<S> <C> <C> <C>
Assets
Cash and Due From Banks 5,540,200 4,167,717 4,298,699
Federal Funds Sold 2,125,000 3,225,000 1,250,000
Total Cash and Cash Equivalents 7,665,200 7,392,717 5,548,699
Securities held-to-maturity (approximate market
value of $26,160,293 at 3/31/95, $22,317,808
at 12/31/94, and $19,832,078 at 3/31/94) 26,076,976 22,347,399 19,832,078
Securities available-for-sale, at market value 25,855,144 23,679,988 34,393,099
Loans 131,785,183 133,426,385 127,156,495
Allowance for loan losses (1,724,684) (1,707,555) (1,883,188)
Unearned net loan fees (909,922) (924,810) (859,363)
Net loans 129,150,577 130,794,020 124,413,944
Bank Premises and Equipment, Net 2,999,783 3,137,447 2,877,232
Accrued Interest Receivable 1,655,158 1,387,000 1,609,909
Other Real Estate Owned 1,050,371 917,941 819,582
Other Assets 1,510,268 1,658,135 1,603,233
Total Assets 195,963,477 191,314,647 191,097,776
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, Non-Interest Bearing 14,735,957 14,535,679 13,835,995
NOW and Money Market Accounts 38,118,527 37,470,422 38,964,214
Savings 34,923,118 34,986,250 33,844,136
Time Deposits, $100,000 and Over 17,371,509 14,964,802 12,943,117
Other Time Deposits 73,782,141 72,718,856 72,502,576
Total Deposits 178,931,252 174,676,009 172,090,038
Other Borrowed Funds 65,000 65,000 3,075,000
Accrued Interest and Other Liabilities 540,133 504,124 445,507
Subordinated Debentures 445,000 551,000 561,000
Total Liabilities 179,981,385 175,796,133 176,171,545
Stockholders' Equity
2,000,000 shares authorized and 1,313,756 shares
issued at 03/31/95, 1,233,726 issued at 12/31/94
and 1,210,652 issued at 03/31/94 3,284,391 3,084,315 3,026,629
Surplus 4,780,963 3,954,284 3,652,274
Retained Earnings 8,590,179 9,366,926 8,767,764
Less: Treasury Stock,
(29,348 Shares at 03/31/95, 29,099 Shares
at 12/31/94, and 29,092 shares at 03/31/94) (439,898) (435,688) (435,547)
Valuation Allowance for Securities, net of tax (233,543) (451,323) (84,889)
Total Stockholders' Equity 15,982,092 15,518,514 14,926,231
Total Liabilites and Stockholders' Equity 195,963,477 191,314,647 191,097,776
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
For The First Quarter Ended March 31, 1995 1994 1993
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 2,880,745 2,692,482 2,625,034
Interest and Dividends on Investment Securities
U.S. Treasury Securities 397,596 366,100 329,678
U.S. Treasury Agencies 5,867 5,851 26,852
Obligations of State and Political Subdivisions 243,559 212,808 192,480
Other Securities 19,930 16,831 38,250
Interest on Federal Funds Sold 46,069 37,407 31,494
Total Interest Income 3,593,766 3,331,479 3,243,788
Interest Expense
Interest on Deposits 1,949,053 1,563,978 1,546,523
Interest on Other Borrowed Funds 1,237 902 902
Interest on Subordinated Convertible Debentures 10,433 13,058 13,361
Total Interest Expense 1,960,723 1,577,938 1,560,786
Net Interest Income 1,633,043 1,753,541 1,683,002
Provision for Loan Losses (45,000) (45,000) (50,000)
Net Interest Income after Provision 1,588,043 1,708,541 1,633,002
Other Operating Income
Trust Department Income 21,820 16,253 11,285
Service Fees 134,094 123,309 100,625
Security Gains (losses) 0 0 52,960
Other 94,295 101,660 93,090
Total Other Operating Income 250,209 241,222 257,960
Other Operating Expenses
Salaries and Wages 573,140 523,108 457,863
Pension and Other Employee Benefits 143,714 109,897 118,410
Occupancy Expenses, Net 285,944 211,060 185,478
Other 490,567 463,014 504,697
Total Other Operating Expenses 1,493,365 1,307,079 1,266,448
Income Before Income Taxes 344,887 642,684 624,514
Applicable Income Taxes (Credit) 42,348 139,751 122,560
Extraordinary Gain (Loss) due to F.A.S.B. 109 N/A 35,000 N/A
NET INCOME 302,539 537,933 501,954
Earnings Per Share on Weighted Average
Primary 0.24 0.43 0.43
Fully Diluted 0.23 0.42 0.41
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share - Primary 1,280,415 1,237,166 1,173,950
Fully Diluted 1,335,734 1,300,035 1,243,804
Dividends Per Share 0.24 0.22 0.20
Book value per share on shares outstanding $12.44 $12.03 $10.81
</TABLE>
All per share data has been restated to reflect a 5% stock dividend paid on
February 1, 1995.
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
For the First Three Months Ended March 31, 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Interest received 3,537,462 3,192,505 3,082,068
Fees and commissions received 136,861 121,723 101,253
Other income 244,286 69,166 121,555
Interest paid (1,982,937) (1,576,294) (1,574,088)
Cash paid to suppliers and employees (1,497,104) (1,611,121) (1,272,230)
Income Taxes Paid 0 0 (41,500)
Net Cash Provided by Operating Activities 438,568 195,979 417,058
Cash Flows from investing activities:
Investments - available for sale
Sales and maturities 0 1,500,000 1,500,000
Purchases 2,000,000 8,000,000 (4,282,343)
Investments - held to maturity
Sales and maturities 875,181 737,887 1,342,430
Purchases (4,676,686) (7,310,505) (2,232,082)
Investment in limited partnership 0 (85,750) 0
Increase in Loans, Net of Payments 1,356,668 (808,004) (886,392)
Capital Expenditures 57,671 (94,199) (484,224)
Recoveries of loans charged off 39,117 17,360 16,377
Proceeds from sales of other real estate owned 89,463 90,000 163,503
Net Cash Used in Investing Activities (4,258,586) (13,953,211) (4,862,731)
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW, Money Mkt
and savings 785,251 8,009,938 1,431,278
Net increase in certificates of deposit 3,469,992 1,152,987 2,733,798
Net increase (decrease) in other borrowed funds 0 3,000,000 0
Payments to acquire treasury stock (4,210) (42) (2,179)
Dividends paid (158,532) (99,910) (127,380)
Net cash provided by financing activities 4,092,501 12,062,973 4,035,517
Net increase in cash and cash equivalents 272,483 (1,694,259) (410,156)
Cash and cash equivalents:
Beginning 7,392,717 7,242,958 7,171,239
Ending 7,665,200 5,548,699 6,761,083
Reconciliation of net income to net cash provided
by operating activities:
Net Income 302,539 537,933 501,954
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 79,993 59,463 45,398
Provisions for possible loan losses 45,000 45,000 50,000
Provisions for deferred taxes 3,864 77,239 0
Securities (gains) losses 0 0 (52,959)
(Gain)Loss on sales of other real estate owned (4,345) 0 (5,507)
Extraordinary (gain) loss on FASB 109 N/A 35,000 N/A
Amortization of bond premium 226,742 192,510 58,184
Increase (decrease) in taxes payable 17,708 216,990 128,163
(Increase) decrease in interest receivable (268,158) (349,511) (225,404)
(Increase) decrease in other assets 31,812 (352,621) (40,267)
Increase (decrease) in unamortized loan fees (14,888) 18,027 5,545
Interest (decrease) in interest payable (22,214) 1,919 (2,629)
Increase (decrease) in accrued expenses (25,300) (234,267) (55,987)
Increase (decrease) in other liabilities 65,815 18,297 10,567
Net cash provided by operating activities 438,568 195,979 417,058
Supplemental schedule of noncash investing and
financing activities:
Unrealized loss on securities available for sale $353,852 $326,974 N/A
Other real estate owned / acquired in settlements
of loans $217,546 $ 0 $ 588
Debentures converted to common stock $106,000 $ 10,000 $ 65,000
5% Stock dividend at market value $150,578 $ 0 $135,066
Dividends paid $303,507 $257,830 $226,618
Dividends payable ($144,975) ($114,190) ($ 99,238)
Dividends reinvested $158,532 $143,640 $127,380
</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 3 MONTHS FIRST 3 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) 132,438,951 2,880,745 8.82% 126,154,292 2,692,482 8.66%
Taxable Investment
Securities 29,397,299 403,463 5.57% 28,557,258 371,951 5.28%
Tax-exempt Investment
Securities(1) 18,970,923 365,392 7.81% 18,819,735 319,195 6.88%
Federal Funds Sold 3,370,000 46,069 5.54% 4,580,278 37,407 3.31%
Other Securities 1,133,303 22,330 7.99% 1,124,483 18,971 6.84%
TOTAL 185,310,476 3,717,999 8.14% 179,236,046 3,440,006 7.78%
INTEREST BEARING
LIABILITIES
Savings Deposits 34,780,770 256,573 2.99% 32,852,682 242,522 2.99%
NOW & Money Market
Funds 38,318,874 355,082 3.76% 38,693,255 312,127 3.27%
Time Deposits 89,535,331 1,337,398 6.06% 84,771,279 1,009,330 4.83%
Other Borrowed Funds(2) 65,000 1,237 7.72% 1,241,667 902 0.29%
Debentures 450,000 10,433 9.40% 564,000 13,058 9.39%
TOTAL 163,149,975 1,960,723 4.87% 158,122,883 1,577,939 4.05%
Net Interest Income 1,757,276 1,862,067
Net Interest Spread(3) 3.26% 3.74%
Interest Differential(4) 3.85% 4.21%
<FN>
<F1> Income on investment securities of state and political subdivisions
is stated on a fully taxable basis (assuming a 34 percent tax rate).
<F2> Accrued interest for the first three months of 1994 in excess of
$17,000, was not expensed until after the end of the first quarter.
<F3> Net interest Spread is the difference between the yield on earning
assets and the rate paid on interest bearing liabilities.
<F4> 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
three 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
INCOME EARNING ASSETS
<S> <C> <C> <C>
Loans (366,134) 554,397 188,263
Taxable Investment Securities (15,245) 46,757 31,512
Tax-Exemt Invest. Securities(2) 34,387 11,810 46,197
Federal Funds Sold 75,761 (67,099) 8,662
Other Securities 2,654 705 3,359
Total Interest Earnings (268,577) 546,570 277,993
INTEREST BEARING LIABILITIES
Savings Deposits (43,632) 57,683 14,051
NOW & M.M. Funds 57,025 (14,070) 42,955
Time Deposits 39,470 288,598 328,068
Other Borrowed Funds 91,151 (90,816) 335
Sub. Debentures 8,079 (10,704) (2,625)
Total Interest Expense 152,092 230,692 382,784
<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 taxable
equivalent basis. The assumed rate is 34%.
</TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE FIRST QUARTER ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
NET INCOME 302,540 502,933 501,954
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 1,280,415 1,237,166 1,173,950
EARNINGS PER COMMON SHARE 0.24 0.41 0.43
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE
FOR THE FIRST QUARTER ENDED MARCH 31 1995 1994 1993
<S> <C> <C> <C>
NET INCOME 302,540 502,933 501,954
ADJUSTMENTS TO NET INCOME (ASSUMING
CONVERSION OF SUBORDINATED
CONVERTIBLE DEBENTURES) 6,885 8,618 8,818
ADJUSTED NET INCOME 309,425 511,551 510,772
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 1,280,415 1,237,166 1,173,950
INCREASE IN SHARES (ASSUMING CONVER-
SION OF CONVERTIBLE DEBENTURES) 51,324 62,869 69,854
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (FULLY DILUTED) 1,331,739 1,300,035 1,243,804
EARNINGS PER COMMON SHARE ASSUMING
FULL DILUTION. 0.23 0.39 0.41
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
Quarter Ended March 31, 1995
Community Bancorp. is a one-bank holding company whose only subsidiary
is Community National Bank. While the financial statements reflect
consolidated figures, the following discussion refers primarily to the
Bank's operations because most of the Bancorp's business is conducted
through the Bank. Many of the comparisons in this discussion refer to
various charts and tables, which precede this discussion, for a better
understanding of the financial information disclosed. The financial
statements also precede this discussion, and reference is made to those
documents as well.
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 $4.4 million or 34 percent for the first quarter of 1995
compared to 1994. Other time deposits increased from $72.5 million at
the end of the first quarter of 1994 to $73.8 million at the end of the
first quarter of 1995, an increase of 1.7 percent. A review of these
deposits, primarily the time deposits over $100,000 indicates that the
growth is primarily generated locally and regionally and are established
customers of the Bank. The Bank has no brokered deposits. All other
interest bearing deposit accounts in total increased less than one
percent to end the three month comparison period at $73 million for
1995 compared to $72.8 million for 1994. Our net loan portfolio
increased from $124.4 million for the first quarter of 1994 to $129.2
million for the first quarter of 1995 or 3.8 percent. Of this total
portfolio of $129.2 million, $73.2 million are scheduled to reprice
within one year and $4 million are scheduled to mature within one year.
Federal funds sold increased from $1.3 million for the first quarter of
1994 to $2.1 million for the same period in 1995, an increase of 70
percent. At the end of the first quarter of 1995, the Bank reported
other short term investments or "Available-for-Sale" securities at a
market price of $25.8 million, compared to $34.4 million for the same
period in 1994, while securities classified as "Held-to-Maturity"
increased to $26 million from $19.8 million for the same comparison
period.
RESULTS OF OPERATIONS
Net Income for the first quarter ended March 31, 1995 was $303 thousand
representing a decrease of 44 percent compared to a net income of $537
thousand for the first quarter ended March 31, 1994. The results of this
are primary earnings per share of $0.24 for the first quarter of 1995
compared to $0.43 for the first quarter of 1994, and fully diluted
earnings per share of $0.23 and $0.42 respectively. The first quarter of
1995 was not as profitable as the same period in 1994, which was due in
part to the purchase of a new computer system as well as a greater
increase in interest expense compared to interest income. A 5% stock
dividend and a $0.24 cash dividend was declared on January 10, 1995,
payable February 1, 1995 to stockholders of record on January 15, 1995.
Therefore, all per share data has been restated for prior periods to
reflect the 5% stock dividend.
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, rate sensitivity of earning assets as well as
interest bearing liabilities, market interest rates and the amount of
non-interest bearing funds which support earning assets.
Net interest income for the first quarter of 1995 decreased to $1.63
million from $1.75 million in 1994, or 6.8%. Interest income increased
by $262 thousand or 7.8% for the first quarter of 1995 from $3.3 million
in 1994 to $3.6 million in 1995. Interest expense increased by $383
thousand or 24% for the first quarter of 1995 compared to 1994, which,
when compared to the modest 7.8% increase in interest income depicts the
reason for the decrease in net interest income. A review of the interest
earned on loans, the major source of interest income, and interest paid
on deposits, the major source of interest expense, shows increases of 7%
versus 25% respectively.
The following paragraphs are comparisons of average balances and the
respective average yield, reference can be made to the tables labeled
"Average Balances and Interest Rates" and "Changes in Interest Income
and Interest Expense" for a more detailed look at these variances. Keep
in mind that income on securities is stated at the tax equivalent yield,
therefore, for these two tables the interest figures presented for these
securities are higher than those presented on the financial statements.
Income from loans for the first quarter of 1995 increased to almost $2.9
million or by 7% compared to $2.7 million for the same period in 1994.
The average volume of loans increased by 6.3%, or $6.3 million and the
yield on those loans increased from 8.66% for the first three months of
1994 to 8.82% for the first three months of 1995 an increase of 16 basis
points.
The average volume of taxable investments increased to $29.4 million or
by 3%, and the yield on these investments for the first three months of
1995 rose by 29 basis points, compared to the same period in 1994. Of
this total taxable investment of $29.4 million, $24.9 million are
investments classified as available-for-sale, with the remaining $4.5
million classified as held-to-maturity. A much lower increase is noted
in the average volume of tax-exempt investments increasing from $18.8
million for the first three months of 1994 to just under $19 million for
the same period in 1995, an increase of less than 1%, all of these
investments are classified as held-to-maturity. Other securities ended
the three month period in 1995 at an average volume of $1.13 million,
resulting in a .78% increase compared to the same period last year, of
this total, $962 are equity securities and are therefore under the
guidelines classified as available-for-sale, with the remaining $165
thousand classified as held-to-maturity. The Bank currently has no
investments classified as trading securities, and
due to the guidelines of its investment policy, 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 treasuries.
Interest income on federal funds sold increased to $46 thousand at an
average yield of 5.54% for the first quarter of 1995, compared to income
of $37 thousand with an average yield of 3.31% for the first quarter of
1994, in increase of 23%, while the average volume decreased to $3.4
million from $4.6 million for the comparison periods.
In total, our average earning assets increased to $185.3 million or by
3.4% during the first three months of 1995, compared to the same period
in 1994, and the average yield on those earning assets for first three
months increased by 36 basis points to end the three month period in
1995 at 8.14% compared to 7.78% for the same period last year. Our net
yield, or net interest spread as defined on the "Average Balances and
Interest Rates" report, was 3.26% for the first three months of 1995,
compared to 3.74% in 1994. This decrease in yield on earning assets is
attributable to a 36 basis point increase in yield on assets, compared
to an 82 basis point increase in the average rate paid on interest
earning liabilities.
Our average time deposits volume increased to $89.5 million, or 5.6%
during the first three months of 1995 and the average rate paid
increased to 6.06%, or by 123 basis points, compared to the same period
in 1994. Now and money market funds decreased to $38.3 million or .9% in
volume in 1995 while the average rate on these funds rose 49 basis
points to a rate of 3.76% compared to 3.27% for the first three months
of 1994. Federal funds sold decreased to an average volume of $65
thousand with an average yield of 7.72%. As indicated in the footnote
for federal funds sold, the accrued interest for the first three months
of 1994 was not expensed until after the end of the first quarter. If
the interest had been expensed during the first quarter, the result
would have been an effective average yield of 5.88%, which is clearly a
more accurate yield than the .29% which is presented on the report.
Interest expense for the first quarter of 1995 increased by $383
thousand or 24.25%, compared to the first quarter of 1994, with the
greatest increase of $328 thousand noted in time deposits. This increase
of 32.5% makes up almost 86% of the total increase for interest expense.
NOW and money market funds shows the second biggest increase with a
reported interest expense of $355 thousand compared to $312 thousand for
the 1994 three month period. Debentures notes the only decrease with an
expense figure of $10.4 thousand compared to $13 thousand last year.
This figure is expected to decrease every quarter due to the structure
of this liability.
Subordinated debentures have been decreasing more steadily in the first
quarter of 1995 than they have on the average in the past. The 9%
debentures are being redeemed more than the 11% debentures because the
redemption period, the period of time prior to maturity (August 1, 1998)
in which the redemption price is greater, has begun. The redemption
prices and time periods are as follows:
August 1, 1994 - July 31, 1995 103%
August 1, 1995 - July 31, 1996 102%
August 1, 1996 - July 31, 1998 101%
ALLOWANCE FOR POSSIBLE LOSSES ON LOANS
Management believes that due to the structured underwriting guidelines
as well as a very thorough loan-by-loan review policy, the level of
allowance for loan losses does not need to be determined primarily in
accordance with industry, type of loan, or geographic area. An
examination of the overall level of risk and concentrations within the
portfolio helps to insure the adequacy of the allowance. A continuing
review of the loan portfolio is conducted by the Executive Officers and
the Board of Directors, which meets to discuss, among other matters,
potential exposures. Factors considered are each borrower's financial
condition, the industry or sector for the economy in which the borrower
operates, and overall economic conditions. Existing or potential
problems are noted and reported to senior management which assesses the
risk of probable loss or delinquency on a loan-by-loan basis in
conjunction with a review of the regulatory authority and the
recommendations of independent accountants. The Bank also employs
a Loan Review and Compliance Officer whose duties include, among
others, a review of the loan portfolio including delinquent and non-
performing loans.
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 $1.7 million as of March 31,
1995 constitutes 1.34% of the total net loan portfolio, compared to
almost $1.9 million or 1.51% for the same period in 1994. In
management's opinion, this is adequate and reasonable, particularly in
view of the fact that $107.6 million of the total loan portfolio, or
81.6% consists of real estate mortgage loans; and of the total real
estate mortgage loans, $87.5 million or 66% constitute one to four
family residential mortgage loans. This large loan volume together with
the low historical loan loss experience help to prove our basis for loan
loss coverage. Furthermore, if the eligible loan portfolio base were
reduced by the aggregate of the residential mortgage loan sector of the
portfolio, the valuation allowance for loan losses of $1.7 million would
constitute 3.89% of the eligible loans, compared to 4.25% a year ago. In
management's opinion, a loan portfolio consisting of 81.6% 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 1995, although
earlier adoption was allowed. This statment will allow the Bank to
classify its in-substance foreclosures as loans and disclose them as
impaired loans, as long as requlatory 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 quarter.
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 in all three categories with the
most significant increase of 72% noted in non-accruing loans. Because
the portfolio of non-accruing loans consists of $1.9 million or 98% of
real estate secured mortgage loans, loss from this category of loans is
eminently reduced.
Non-performing assets as of March 31, 1995 were made up of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Non-Accruing loans $1,950,688 $1,136,187
Loans past due 90 day or more and still accruing 770,436 672,707
Other real estate owned 1,050,371 819,582
Total $3,771,495 $2,628,476
</TABLE>
These totals of $3.7 million for 1995 and $2.6 million for 1994 equals
2.8% and 2.07% respectively, of total gross loans, as well as 1.9% and
1.4%, respectively of total assets. As of March 31, 1995, our reserve
coverage of non-performance loans was 46% as compared to 72% a year ago
and 51% at December 31, 1994.
Because these statistics show that non-performing loans increased during
the first three months of 1995 compared to the same period last year,
management will continue to maintain our reserve requirement at a level
of approximately 1.34% 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 appraisal policy is to
appraise the property to determine the value as well as to determine if
a "writedown" 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 writedowns being made at that time.
Our current portfolio of other real estate owned equals $1,050,371 and
with the exception of one property, all properties were obtained through
the normal foreclosure process, with the other property having been
deeded "In lieu of foreclosure". All of our properties are located in
Vermont and consist of the following; a condominium project in Jay, a
former farm equipment dealership in Newport, a commercial property in
Derby Line, a condominium unit in Newport, a commercial property in
Island Pond, land in Jay, land in Derby, a farm in Brownington, a bed-
and-breakfast in North Troy, and a farm in Westmore. The farm equipment
dealership and bed-and-breakfast are both under lease agreements with
options to purchase. 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 first quarter of 1995 was $250 thousand,
compared to $241 thousand for the first quarter of 1994, an increase of
almost $9 thousand or 3.7%. Although the decrease in other income of $7
thousand was outweighed by the increase in both trust department income
of $6 thousand and service fees of $11 thousand, it still had an impact
on the bottom line increase of just under 4% Two key factors to the
decrease in other income are a decrease in both misc. sales and foreign
exchange. Due to the decreasing value of the Canadian dollar, the bank
has noticed a sizeable decrease in foreign exchange income over the past
year.
Other operating expenses for the first quarter of 1995 were $1.5 million
compared to $1.3 million for 1994, an increase of 14.25%. Salaries, the
largest portion of other operating expenses, showed an increase second
only to occupancy expense, with increases of $50 thousand or 9.56% and
$75 thousand or 35.47% respectively. As mentioned earlier, the
contributing factor for the increase in occupancy expense was the
purchase of a new computer. Speed, efficiency and a steadily growing
computer work load were key factors in the determination of this major
purchase. Unlike the comparison for 1994 to 1993, which showed decreases
in two categories, all aspects of other operating expenses increased
from 1994 to 1995.
All components of other operating expenses are monitored by management,
however, a 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 decreased from $643 thousand for the first quarter
of 1994 to $345 thousand for the first quarter of 1995, a decrease of
$298 thousand or 46%. As a result of this decrease, provisions for
income taxes for the first quarter of 1995 decreased almost 70% compared
to the same period for 1994, ending the three month period at $42
thousand. A one time gain of $35 thousand from the adoption of FASB 109
helped boost the net income for 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. Adjustments are made on a monthly
basis that effect the net income of the bank.
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 stable due to the Federal Reserve's policy of raising
interest rates, which they did six times in the past calendar year and
have done once this year. Unfortunately, this action has driven up our
interest costs.
The Corporation depends primarily on a strong net interest income to
enable it's purchasing power to remain aggressive. Although net interest
income was down for the first quarter of 1995, we anticipate an
improvement throughout the rest of the year as loans reprice at higher
rates.
FINANCIAL CONDITION
The Financial Condition of the Corporation should be examined in terms
and trends in sources and uses of funds. The table entitled "Average
Balances and Interest Rates" is a comparison of daily average balances
and is indicative of how sources and uses of funds have been managed.
Reference to this table can once again be made to follow the comparative
figures in the paragraphs below.
Average earning assets grew by 3.4% in the first three months of 1995 as
compared to the same period in 1994 to an average volume of $185.3
million. Loans, which totaled $132.4 million in 1995 and $126.2 million
in 1994, comprised 71.5% and 70.4% respectively, of our earning assets
with the average volume of loans increasing $6.3 million or 5% in the
first three months of 1995, compared to the same period in 1994. On
March 31, 1995, residential real estate mortgages made up 67% of our
portfolio, commercial loans made up 21% and personal loans made up 12%,
compared to 82%, 6%, and 12% respectively in 1994.
Taxable investments made up 15.8% of our average earning assets in the
first three months of 1995, compared to 15.9% in 1994 to end the period
at an average volume of $29.4 million.
Tax-exempt investments of $18.9 million made up 10.2% of our average
earning assets in the first three months of 1995, compared to $18.4
million or 10.5% in 1994.
Federal funds sold, which had an average volume of $3.4 million, made up
1.8% of our earning assets in the first three months of 1995 and 2.6% in
1994. And ending the list of earning assets, other securities, which
increased by just under $9 thousand, made up .61% in 1995, compared to
.63% in 1994.
Historically, the Bank has funded its growth by steady increases in its
core deposits. The Bank has no brokered deposits as mentioned earlier,
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 5.62% to an average volume of
$89.5 million while savings accounts increased 5.87% to an average
volume of $34.7 million. A decrease of .97% is noted in NOW and money
market funds with an average volume of $38.3 million reported at the end
of the first quarter of 1995.
CAPITAL RESOURCES
The Corporation's stockholders' equity, which started the year at
$15,518,514, was increased through earnings of $302,539 and sales of
common stock of $250,975 through dividend reinvestment and debenture
conversions, and adjustment of $217,780 for valuation of allowance
for securities. It was decreased by dividends of $303,507 and purchase
of treasury stock of $4,209 to end the first quarter of 1995 at
$15,982,092 with a book value of $12.44 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 March 31, 1995, the Bank continued to maintain ratios far above
the minimum requirements with reported ratios of 17% for Tier I and 18%
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.
From time to time the Corporation may make contributions to the capital
of its subsidiary, the Bank. At present, regulatory authorities have
made no demand on the Corporation to make additional capital
contributions to the Bank's capital.
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: May 05, 1995 By:/s/ Richard C. White
----------------------------------
Richard C. White, President
DATED: May 05, 1995 By:/s/ Stephen P. Marsh
----------------------------------
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 5,540,200
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,125,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,855,144
<INVESTMENTS-CARRYING> 26,076,976
<INVESTMENTS-MARKET> 26,160,293
<LOANS> 131,785,183
<ALLOWANCE> 1,724,684
<TOTAL-ASSETS> 195,963,477
<DEPOSITS> 178,931,252
<SHORT-TERM> 65,000
<LIABILITIES-OTHER> 540,133
<LONG-TERM> 445,000
<COMMON> 3,284,391
0
0
<OTHER-SE> 12,697,701
<TOTAL-LIABILITIES-AND-EQUITY> 195,963,477
<INTEREST-LOAN> 2,880,745
<INTEREST-INVEST> 666,772
<INTEREST-OTHER> 46,069
<INTEREST-TOTAL> 3,593,766
<INTEREST-DEPOSIT> 1,949,053
<INTEREST-EXPENSE> 11,670
<INTEREST-INCOME-NET> 1,633,043
<LOAN-LOSSES> 45,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,493,365
<INCOME-PRETAX> 344,887
<INCOME-PRE-EXTRAORDINARY> 344,887
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302,539
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
<YIELD-ACTUAL> 7.95
<LOANS-NON> 1,950,688
<LOANS-PAST> 770,436
<LOANS-TROUBLED> 335,477
<LOANS-PROBLEM> 9,923,029
<ALLOWANCE-OPEN> 1,707,555
<CHARGE-OFFS> 66,988
<RECOVERIES> 39,117
<ALLOWANCE-CLOSE> 1,724,684
<ALLOWANCE-DOMESTIC> 1,522,164
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 202,520
</TABLE>
