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 Six Months Ended June 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 June 30, 1995, there were 1,305,946 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
( Unaudited )
<TABLE>
<CAPTION>
June 30 December 31 June 30
1995 1994 1994
<S> <C> <C> <C>
Assets
Cash and Due From Banks 6,500,177 4,167,717 4,892,694
Federal Funds Sold 0 3,225,000 500,000
Total Cash and Cash Equivalents 6,500,177 7,392,717 5,392,694
Securities held-to-maturity, at book value 26,056,840 22,347,399 17,636,909
Securities available-for-sale, at market value 25,125,218 23,679,988 26,559,207
Loans 134,129,308 133,426,385 132,238,522
Allowance for loan losses (1,552,311) (1,707,555) (1,684,439)
Unearned net loan fees (900,473) (924,810) (916,226)
Net loans 131,676,524 130,794,020 129,637,857
Bank Premises and Equipment, Net 3,105,185 3,137,447 2,981,589
Accrued Interest Receivable 1,686,137 1,387,000 1,397,639
Other Real Estate Owned 1,018,823 917,941 819,714
Other Assets 1,478,852 1,658,135 1,586,720
Total Assets 196,647,756 191,314,647 186,012,329
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, Non-Interest Bearing 16,687,917 14,535,679 14,550,299
NOW and Money Market Accounts 33,612,922 37,470,422 32,765,685
Savings 33,584,341 34,986,250 34,769,316
Time Deposits, $100,000 and Over 17,733,434 14,964,802 12,814,363
Other Time Deposits 75,747,889 72,718,856 72,118,559
Total Deposits 177,366,503 174,676,009 167,018,222
Other Borrowed Funds 65,000 65,000 3,046,124
Federal Funds Purchased 1,914,000 0 0
Accrued Interest and Other Liabilities 454,755 504,124 359,315
Subordinated Debentures 316,000 551,000 555,000
Total Liabilities 180,116,258 175,796,133 170,978,661
Stockholders' Equity
2,000,000 shares authorized and 1,335,296 shares
issued at 06/30/95, 1,233,726 issued at 12/31/94,
and 1,218,595 issued at 06/30/94 3,338,239 3,084,315 3,046,488
Surplus 4,992,556 3,954,284 3,752,331
Retained Earnings 8,699,357 9,366,926 8,970,609
Less: Treasury Stock,
(29,349 Shares at 6/30/95, 29,099 Shares
at 12/31/94, and 29,093 shares at 6/30/94.) (439,925) (435,688) (435,573)
Valuation Allowance for Securities (58,729) (451,323) (300,187)
Total Stockholders' Equity 16,531,498 15,518,514 15,033,668
Total Liabilites and Stockholders' Equity 196,647,756 191,314,647 186,012,329
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For The Second Quarter Ended June 30 1995 1994 1993
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 3,055,752 2,712,776 2,664,190
Interest and Dividends on Investment Securities
U.S. Treasury Securities 416,398 384,440 347,034
U.S. Treasury Agencies 22,341 5,748 18,953
Obligations of State and Political Subdivision 247,391 222,589 194,946
Other Securities 16,608 17,083 2,173
Interest on Federal Funds Sold 29,974 10,136 18,498
Total Interest Income 3,788,464 3,352,772 3,245,794
Interest Expense
Interest on Deposits 2,057,156 1,627,184 1,533,571
Interest on Other Borrowed Funds 3,026 54,176 407
Interest on Subordinated Convertible Debentures 7,530 12,923 12,849
Total Interest Expense 2,067,712 1,694,283 1,546,827
Net Interest Income 1,720,752 1,658,489 1,698,967
Provision for Loan Losses (15,000) (45,000) (50,000)
Net Interest Income after Provision 1,705,752 1,613,489 1,648,967
Other Operating Income
Trust Department Income 23,511 16,401 11,479
Service Fees 143,511 122,204 115,627
Security Gains (losses) 0 11,915 234,630
Other 148,023 130,902 141,268
Total Other Operating Income 315,045 281,422 503,004
Other Operating Expenses
Salaries and Wages 592,378 528,014 463,938
Pension and Other Employee Benefits 144,569 131,317 123,703
Occupancy Expenses, Net 229,039 212,598 181,486
Other 543,792 453,103 462,038
Total Other Operating Expenses 1,509,778 1,325,032 1,231,165
Income Before Income Taxes 511,019 569,879 920,806
Applicable Income Taxes (Credit) 93,396 106,970 175,454
NET INCOME 417,623 462,909 745,352
Earnings Per Share on Weighted Average
Primary 0.32 0.37 0.62
Fully Diluted 0.31 0.36 0.59
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share - Primary 1,301,774 1,248,978 1,209,901
Fully Diluted 1,343,916 1,311,265 1,279,755
Dividends Per Share 0.24 0.22 0.20
</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 Income
( Unaudited )
<TABLE>
<CAPTION>
For the Six Months Ended June 30 1995 1994 1993
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 5,936,497 5,405,258 5,289,223
Interest and Dividends on Investment Securities
U.S. Treasury Securities 813,994 750,540 676,712
U.S. Treasury Agencies 28,208 11,599 45,804
Obligation of State and Political Subdivisions 490,950 435,397 387,426
Other Securities 36,538 33,914 40,424
Interest on Federal Funds Sold 76,043 47,543 49,992
Total Interest Income 7,382,230 6,684,251 6,489,581
Interest Expense
Interest on Deposits 4,006,209 3,191,162 3,080,094
Interest on Other Borrowed Funds 4,263 55,078 1,309
Interest on Subordinated Convertible Debentures 17,963 25,980 26,210
Total Interest Expense 4,028,435 3,272,220 3,107,613
Net Interest Income 3,353,795 3,412,031 3,381,968
Provision for Loan Losses (60,000) (90,000) (100,000)
Net Interest Income after Provision 3,293,795 3,322,031 3,281,968
Other Operating Income
Trust Department Income 45,331 32,654 22,764
Service Fees 277,605 245,513 216,252
Security Gains (Losses) 0 11,915 287,590
Other 242,318 232,562 234,357
Total Other Operating Income 565,254 522,644 760,963
Other Operating Expenses
Salaries and Wages 1,165,518 1,051,122 921,801
Pension and Other Employee Benefits 288,283 241,214 242,113
Occupancy Expenses, Net 514,983 423,658 366,963
Other 1,034,359 916,118 966,733
Total Other Operating Expenses 3,003,143 2,632,112 2,497,610
Income Before Income Taxes 855,906 1,212,563 1,545,321
Applicable Income Taxes (Credit) 135,744 246,720 298,014
NET INCOME 720,162 965,843 1,247,307
Earnings Per Share on Weighted Average
Primary 0.56 0.78 1.04
Fully Diluted 0.55 0.75 1.00
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share - Primary 1,291,154 1,243,104 1,201,643
Fully Diluted 1,339,848 1,306,012 1,269,248
Book Value Per Share on Shares Outstanding
on June 30, $12.66 $12.04 $11.29
</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 Six Months Ended June 30 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities
Interest received 7,308,490 6,870,688 6,642,087
Fees and commissions received 295,202 242,979 215,780
Other income 242,318 235,893 349,877
Interest paid (4,048,738) (3,267,901) (3,120,014)
Cash paid to suppliers and employees (2,987,448) (2,735,426) (2,198,833)
Income taxes paid (29,000) (178,000) (374,500)
Net Cash Provided by Operating Activities 780,824 1,168,233 1,514,397
Cash Flows from Investing Activities:
Investments - held to maturity
Sales and maturities 4,464,365 3,788,330 4,766,304
Purchases (8,195,731) (8,116,960) (3,356,251)
Investments - available for sale
Sales and maturities 3,000,000 9,000,000 6,051,378
Purchases (4,078,200) (8,085,500) (4,978,444)
Investment in limited partnership 564 (85,750) 0
Increase in loans, net of payments (1,251,753) (6,149,987) (8,060,006)
Capital expenditures (97,235) (258,582) (980,021)
Recoveries of loans charged off 98,540 33,567 38,011
Proceeds from sales of other real estate owned 116,365 90,000 224,873
Net Cash Used in Investing Activities (5,943,085) (9,784,882) (6,294,156)
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW, money mkt (3,107,171) 3,450,893 (1,806,415)
Net increase in certificates of deposit 5,797,665 640,216 4,138,806
Net increase (decrease) in other borrowed funds 1,914,000 2,971,124 0
Payments to acquire treasury stock (4,237) (68) (2,220)
Dividends paid (330,536) (289,789) (255,839)
Net Cash Provided by Financing Activities 4,269,721 6,772,376 2,074,332
Net Increase in Cash and Cash Equivalents (892,540) (1,844,273) (2,705,427)
Cash and Cash Equivalents:
Beginning 7,392,717 7,242,958 7,171,239
Ending 6,500,177 5,398,685 4,465,812
Reconciliation of net income to net cash provided
by operating activities:
Net Income 720,162 965,843 1,247,307
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 129,497 119,489 92,942
Provisions for possible loan losses 60,000 90,000 100,000
Provisions for deferred taxes (72,878) 41,486 0
Securities (gains) losses 0 (11,915) (287,590)
Losses on sales of other real estate owned (12,201) 0 10,899
Subsequent writedowns on OREO 30,000 5,859 5,804
Amortization of bond premium 249,734 248,788 132,902
Increase (decrease) in taxes payable 33,866 102,065 (22,921)
(Increase) decrease in interest receivable (299,137) (137,241) (27,845)
(Increase) decrease in other assets 32,981 (154,412) 121,322
Increase (decrease) in unamortized loan fees (24,337) 74,890 47,449
Interest (decrease) in interest payable (20,303) 4,594 (10,616)
Increase (decrease) in accrued expenses (77,749) (197,181) 103,574
Increase (decrease) in other liabilities 31,189 15,968 1,170
Net Cash Provided by Operating Activities 780,824 1,168,233 1,514,397
Supplemental schedule of noncash investing and
financing activities:
Unrealized loss on securities available for sale $88,984 $300,187 $0
Other real estate owned / acquired in settlements $297,546 $5,991 $588
of loans
Debentures converted to common stock $235,000 $16,000 $101,000
5% Stock dividend at market value $150,578 $0 $135,066
Dividends Paid:
Dividends payable $611,952 $517,896 $456,108
Dividends reinvested ($281,416) ($228,107) ($200,269)
$330,536 $289,789 $255,839
</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 6 MONTHS FIRST 6 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) 132,877,718 5,936,497 9.01% 127,701,555 5,405,258 8.54%
Taxable Investment 30,165,510 842,202 5.63% 29,733,030 766,283 5.20%
Securities
Tax-Exemt Investment(1) 18,943,430 736,912 7.84% 19,280,092 659,693 6.90%
Securities
Federal Funds Sold 2,753,591 76,043 5.57% 2,870,442 47,543 3.34%
Other Securities 1,146,206 41,127 7.24% 1,156,498 18,971 3.31%
TOTAL 185,886,455 7,632,781 8.28% 180,741,617 6,897,748 7.70%
INTEREST BEARING
LIABILITIES
Savings Deposits 34,380,682 510,233 2.99% 33,486,547 497,503 3.00%
NOW & Money Market 37,002,344 699,765 3.81% 38,086,013 632,491 3.35%
Funds
Time Deposits 90,968,240 2,796,212 6.20% 85,238,902 2,061,169 4.88%
Other Borrowed Funds 141,861 4,263 6.06% 2,201,209 55,078 5.05%
Sub. Debentures 384,000 17,963 9.43% 557,000 25,980 9.41%
TOTAL 162,877,127 4,028,436 4.99% 159,569,671 3,272,221 4.14%
Net Interest Income 3,604,345 3,625,527
Net Interest Spread(2) 3.29% 3.56%
Interest Differential(3) 3.91% 4.05%
<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> 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
six 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 64,902 466,337 531,239
Taxable Investment Securities 51,570 24,349 75,919
Tax-Exemt Invest. Securities(2) 103,629 (26,410) 77,219
Federal Funds Sold 35,007 (6,507) 28,500
Other Securities 22,901 (745) 22,156
Total Interest Earnings 278,008 457,025 735,033
INTEREST BEARING LIABILITIES
Savings Deposits (14,029) 26,759 12,730
NOW & Money Market Funds 108,601 (41,327) 67,274
Time Deposits 379,903 355,140 735,043
Other Borrowed Funds 53,096 (103,911) (50,815)
Sub. Debentures 8,255 (16,272) (8,017)
Total Interest Expense 535,826 220,389 756,215
<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
basis. The assumed rate is 34%.
</TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE SECOND QUARTER ENDED JUNE 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 417,623 462,909 754,352
Average Number of Common Shares Outstanding 1,301,774 1,248,978 1,209,901
Earnings Per Common Share 0.32 0.37 0.62
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 720,162 965,843 1,247,307
Average Number of Common Shares Outstanding 1,291,154 1,243,104 1,201,643
Earnings Per Common Share 0.56 0.78 1.04
</TABLE>
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
FOR THE SECOND QUARTER ENDED JUNE 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 417,623 462,909 754,352
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 4,969 8,529 8,480
Adjusted Net Income 422,592 471,438 762,832
Average Number of Common Shares Outstanding 1,301,774 1,248,978 1,209,901
Increase in Shares (Assuming Conversion of
Convertible Debentures). 42,142 62,287 69,854
Average Number of Common Shares Outstanding
(Fully Diluted). 1,343,916 1,311,265 1,279,755
Earnings Per Common Share Assuming Full Dilution 0.31 0.36 0.60
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1995 1994 1993
<S> <C> <C> <C>
Net Income 720,162 965,843 1,247,307
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 11,855 17,147 17,299
Adjusted Net Income 732,017 982,990 1,264,606
Average Number of Common Shares Outstanding 1,291,154 1,243,104 1,201,643
Increase in Shares (Assuming Conversion of
Convertible Debentures). 48,694 62,908 67,605
Average Number of Common Shares Outstanding
(Fully Diluted). 1,339,848 1,306,012 1,269,248
Earnings Per Common Share Assuming Full Dilution 0.55 0.75 1.00
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
Six Months Ended June 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 of these offices are located in Orleans County, with the
exception of the Island Pond office 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 June 30, 1995, total deposits of $836 thousand
were reported, with demand deposits comprising more than half of this
total, and gross loans totaled $164 thousand of which $129 thousand are
installment loans. Management anticipates a steady increase in these
figures. Unlike the other branches that are open Monday - Friday, 7:30 a.m.
to 6:00 p.m. and Saturday, 7:30 a.m. to 12:30 p.m., the St. Johnsbury office
is open Monday - Wednesday, 8:00 a.m. to 6:00 p.m.; Thursday & Friday,
8:00 a.m. to 8:00 p.m.; Saturday 9:00 a.m. to 6:00 p.m.; and Sunday
10:00 a.m. to 4:00 p.m. These hours will accommodate shoppers at the
supermarket, which is open 24 hours a day.
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 $4.9
million or 38.4 percent for the first six months of 1995 compared to 1994.
Other time deposits increased from $72.1 million at the end of the first
six months of 1994 to $75.7 million at the end of the first six months of
1995, an increase of 5 percent. A review of these deposits, primarily the
time deposits over $100,000 indicates that the growth is notable 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 decreased .5 percent to end the six month comparison period at $67.1
million for 1995 compared to $67.5 million for 1994. Our net loan portfolio
increased from $129.6 million for the first six months of 1994 to $131.7
million for the same period of 1995 or 1.6 percent. Of this total portfolio
of $131.7 million, $71.6 million are scheduled to reprice within one year
and almost $5 million are scheduled to mature within one year. At the end
of the first six months of 1995, the Bank reported other short term
investments of "Available-for-Sale" securities at a market price of $25.1
million, compared to $26.6 million for the same period in 1994, while the
book value of securities classified as "Held-to-Maturity" increased to $26
million from $17.6 million for the same comparison period.
RESULTS OF OPERATIONS
Net Income for the second quarter ended June 30, 1995 was $418
thousand representing a decrease of almost 10 percent compared to a net
income of $463 thousand for the second quarter ended June 30, 1994. The
results of this are primary earnings per share of $0.32 for the second
quarter of 1995 compared to $0.37 for the second quarter of 1994, and
fully diluted earnings per share of $0.31 and $0.36 respectively. Net
income for the first six months of 1995 was $720 thousand compared to
$966 thousand for the first six months of 1994, a decrease of 25 percent.
As a result, primary earnings per share of $0.56 and $0.78 were reported
for 1995 and 1994, respectively, while fully diluted earnings per share
ended the six month period at $0.55 for 1995, compared to $0.75 for 1994.
The first six months of 1995 were not as profitable as the same period in
1994, in view of a greater increase in operating expenses due to the
addition of the St. Johnsbury office and the purchase of a new computer
system.
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 was declared on April 4, 1995,
payable on May 1, 1995 to stockholders of record on April 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 second quarter of 1995 increased to $1.72
million from $1.66 million in 1994, or 3.7 percent, while net interest
income for the first six months decreased from $3.4 million in 1994 to
$3.35 million in 1995, a decrease of 1.7 percent. Interest income increased
by $436 thousand or 13 percent for the second quarter of 1995 from $3.4
million in 1994 to $3.8 million in 1995. Interest income for the first six
months of 1995 increased to $7.5 million compared to $6.7 million in 1994,
an increase of 10.4 percent. Interest expense increased by $313 thousand or
22 percent for the second quarter of 1995 compared to 1994. Interest expense
for the first six months increased to $4 million from $3.3 million in 1994,
an increase of 23 percent. A review of the six 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 10 percent
versus 26 percent respectively. The result is a tax equivalent spread of
3.91% and 4.05% in 1995 and 1994, respectively.
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 six months of 1995 increased to
$5.9 million or by 10 percent compared to $5.4 million for the same
period in 1994. The average volume of loans increased by 4 percent,
or $5.2 million and the yield on those loans increased from 8.54% for
the first six months of 1994 to 9.01% for the first six months of 1995,
an increase of 47 basis points.
The average volume of taxable investments increased to $30.2 million
or by 1.5 percent, and the yield on these investments for the first six
months of 1995 rose by 43 basis points, from a yield of 5.20% in 1994 to
5.63% in 1995. Of the total taxable investment, approximately $22.4 million
are investments classified as available-for-sale, with the remaining
$7.8 million classified as held-to-maturity. A decrease is noted in the
average volume of tax-exempt investments from $19.3 million for the first
six months of 1994 to $18.9 million for the same period in 1995, a decrease
of 1.7 percent. All of these investments are classified as held-to-maturity.
Other securities ended the six month period in 1995 at an average volume of
$1.15 million, resulting in a decrease of less than 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 $76 thousand with an
average yield of 5.57% for the first six months of 1995, compared to income
of $47 thousand with an average yield of 3.34% for the first six months of
1994, an increase of 62 percent. The average volume decreased to $2.7
million from $2.8 million for the same comparison periods. A quick review of
the financial statements indicate actual federal funds sold on June 30, 1994
were $500 thousand compared to a purchase of $1.9 million on June 30, 1995.
In total, our average earning assets increased to $185.9 million or by
2.9 percent during the first six months of 1995, compared to the same period
in 1994, and the average yield on those earning assets increased by 58 basis
points to end the six month period in 1995 at 8.28% 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 3.29% for the first
six months of 1995, compared to 3.56% in 1994. This decrease in yield on
earning assets is attributable to a 58 basis point increase in yield on
assets, compared to an 85 basis point increase in the average rate paid on
interest bearing liabilities.
Our average time deposit volume increased to $90.9 million, or
6.7 percent during the first six months of 1995. Interest paid on time
deposits increased from $2.1 million in 1994 to $2.8 million for the first
six months of 1995, resulting in an increase of 132 basis points on the
average yield reported of 4.88% for 1994 to 6.20% for 1995.
Now and money market funds decreased to $37 million or 2.8 percent
in volume in 1995 while interest expense on these funds increased by
$67 thousand, or 10.6 percent to a six month expense figure for 1995 of
almost $700 thousand. The average rate on these funds rose 46 basis points
to a rate of 3.81% compared to 3.35% for the first six months of 1994.
Other borrowed funds decreased to an average volume of $142 thousand
with an average yield of 6.06%. Interest expense decreased by 92 percent
for the six month comparison period to end at just over $4 thousand as
of June 30, 1995.
Savings deposits increased by 2.7 percent from an average volume of
$33.5 million in 1994 to an average volume of $34.4 million for the same
period in 1995. Interest expense on savings deposits increased from $498
thousand to $510 thousand for the comparison period, an increase of 2.4
percent.
Subordinated debentures have been decreasing steadily in the first six
months of 1995. The 9% debentures are being redeemed more because it is to
the debenture holder's economic benefit.
As of June 30, 1995, there are 9% debentures outstanding totaling
$232,000 and 11% debentures outstanding totaling $84,000, compared to June
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 $26 thousand for the first six months of 1994 and $18
thousand for the first six 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 June 30,
1995 constitutes 1.2 percent of the total loan portfolio, compared to $1.7
million or 1.3 percent for the same period in 1994. This allowance figure
is sufficient in light of the fact that of the total loan portfolio of
$134.1 million $109.2 million or 81.4 percent are real estate mortgage loans;
and of this total, $88.5 million or 81 percent constitute one to four family
residential mortgage loans. Increases are noted in all totals compared to
last years figures of $132.2 million in totals loans, $107.6 million in real
estate mortgage loans, which represents 81 percent of the total portfolio,
and a further breakdown shows $86.8 million in one to four family residential
mortgage loans, representing almost 81 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 81.4 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 half 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 in all three categories with the most
significant increase of 24 percent noted in non-accruing loans. Because the
portfolio of non-accruing loans consists of $1.8 million or 92 percent of
real estate secured mortgage loans, loss from this category of loans is
eminently reduced.
Non-performing assets as of June 30, 1995 and 1994 were made up of
the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Non-Accruing loans $1,905,134 $1,595,115
Loans past due 90 day or more and still accruing 311,404 296,441
Other real estate owned 1,018,823 819,714
Total $3,235,361 $2,711,270
</TABLE>
These totals of $3.2 million for 1995 and $2.7 million for 1994 equals
2.41 percent and 2.05 percent respectively, of total gross loans, as well
as 1.6 percent and 1.5 percent, respectively of total assets. As of June
30, 1995, our reserve coverage of non-performance loans was 48 percent
compared to 62 percent a year ago and 51 percent at December 31, 1994.
Because these statistics show that non-performing loans continues to
increase during the first half of 1995 compared to the same period last
year, management will continue to maintain our reserve requirement at a
level of approximately 1.2 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 $1,018,823 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, three condominium units in Newport, a farm
in Brownington, a commercial property in Island Pond, a farm in Westmore, and
bed-and-breakfast in North Troy. 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 second quarter of 1995 was $315 thousand,
compared to $281 thousand for the second quarter of 1994, an increase of
$34 thousand or 12 percent. The greatest increase of just over $21 thousand
was recognized in service fees, with the next significant increase of $17
thousand reported in other income. Other operating income for the first
six months increased from $523 thousand in 1994 to $565 thousand in 1995,
an increase of $42 thousand or 8 percent. Service fees again topped the list
with an increase of $32 thousand or 13 percent, followed by a $13 thousand
increase in trust department income. Income from sold loans, a component of
other income, increased 100 percent to a six month income figure for 1995 of
$43 thousand, while foreign exchange income decreased by $8 thousand to end
June 1995 at $16 thousand compared to $24 thousand for the same period last
year. 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 second quarter of 1995 were $1.5
million compared to $1.3 million for 1994, an increase of 14 percent.
Salaries, the largest portion of other operating expense, showed an increase
of $64 thousand or 12 percent. Other expense increased by $91 thousand or
20 percent. Other operating expense for the first six months increased by
$371 thousand from $2.6 million in 1994 to $3 million in 1995. Topping the
increase for this comparison period also was other expense with an increase
of $118 thousand or 13 percent and salaries noting an increase of just over
$114 thousand or 11 percent. Other real estate expense, a component of
other expenses, had the most sizeable increase contributing almost $60
thousand to the overall increase. This increase coincides with the increase
in OREO properties for the comparison period. Liability insurance ends the
six month period in 1995 at a figure of almost $23 thousand which is less
than last years figure of just over $34 thousand by about $11 thousand, or
33 percent. The rate charged on liability insurance for the Bank dropped
this year creating a positive effect on the expenses of the Bank.
All components of other operating expenses are monitored by management,
with 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 decreased from almost $570 thousand for the second
quarter of 1994 to $511 thousand for the second quarter of 1995, a decrease
of $59 thousand or 10.4 percent. As a result of this decrease, provision
for income taxes for the second quarter of 1995 decreased by 13 percent
compared to the same period for 1994, ending the three month period at $93
thousand. Income before taxes for the first six months decreased from $1.2
million for 1994 to $856 thousand for 1995, a decrease of just over $356
thousand or 29 percent. This lead to a decrease in provision for income
taxes of $111 thousand to end the first six months of 1995 at $136 thousand.
A one time gain of $35 thousand from the adoption of FASB 109 helped boost
the net income for the first quarter 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 result
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 quarter
showed positive signs of improvement.
FINANCIAL CONDITION
Average earning assets grew by 2.8 percent in the first six months of
1995 as compared to the same period in 1994 to an average volume of $185.9
million. Loans, which totaled $132.8 million in 1995 and $127.7 million in
1994, comprised 71.5 percent and 70.6 percent respectively, of our earning
assets with the average volume of loans increasing $5.2 million or 4 percent
in the first six months of 1995, compared to the same period in 1994. On
June 30, 1995, residential real estate mortgages made up 66 percent of our
portfolio, commercial loans made up 21 percent, and personal loans made up
13 percent, which almost mirrors the six month figures for last year of
66%, 22%, and 12% respectively.
Taxable investments made up 16.2 percent of our average earning assets
in the first six months of 1995, compared to 16.5 percent in 1994 to end
the period at an average volume of $30.2 million. Tax-exempt investments
of $18.9 million made up 10.1 percent of our average earning assets in the
first six months of 1995, compared to $19.3 million or 10.7 percent in 1994.
Federal funds sold, which had an average volume of $2.7 million, made
up 1.5 percent of our earning assets in the first six months of 1995 and
1.6 percent in 1994. And ending the list of earning assets, other securities,
decreased by about $10 thousand, and made up .61% in 1995, compared to .64%
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 6.6 percent to an
average volume of $90.9 million making up 56 percent of the total interest
bearing liabilities, while savings accounts made up 21 percent of the total
increasing 2.7 percent to an average volume of $34.4 million. A decrease
of 2.8 percent is noted in NOW and money market funds with an average volume
of $37 million, or 23 percent of the total interest bearing liabilities
reported at the end of the first six months of 1995. Other borrowed funds
decreased in volume 94 percent, from $2.2 million at the end of June '94 to
$142 thousand at the end of June '95, comprising .08 percent of the total
interest bearing liabilities. 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 $720,162 and sales of common
stock of $516,416 through dividend reinvestment and debenture conversions,
and adjustment of $392,594 for valuation of allowance for securities. It
was decreased by dividends of $611,952 and purchase of treasury stock of
$4,236 to end the first six months of 1995 at $16,531,498 with a book value
of $12.66 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 June 30, 1995, the Bank continued to maintain ratios
far above the minimum requirements with reported ratios of 17.3% for Tier I
and 18.6% 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: July 31, 1995 By:/s/ Richard C. White
-------------------------
Richard C. White, President
DATED: July 31, 1995 By:/s/ Stephen P. Marsh
-------------------------
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> JUN-30-1995
<CASH> 6,500,177
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 25,125,218
<INVESTMENTS-CARRYING> 26,056,840
<INVESTMENTS-MARKET> 26,256,584
<LOANS> 134,129,308
<ALLOWANCE> 1,552,311
<TOTAL-ASSETS> 196,647,756
<DEPOSITS> 177,366,503
<SHORT-TERM> 1,979,000
<LIABILITIES-OTHER> 454,755
<LONG-TERM> 316,000
<COMMON> 3,338,239
0
0
<OTHER-SE> 13,193,259
<TOTAL-LIABILITIES-AND-EQUITY> 196,647,756
<INTEREST-LOAN> 5,936,497
<INTEREST-INVEST> 1,369,690
<INTEREST-OTHER> 76,043
<INTEREST-TOTAL> 7,382,230
<INTEREST-DEPOSIT> 4,006,209
<INTEREST-EXPENSE> 22,226
<INTEREST-INCOME-NET> 3,353,795
<LOAN-LOSSES> 60,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,003,143
<INCOME-PRETAX> 855,906
<INCOME-PRE-EXTRAORDINARY> 855,906
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 720,162
<EPS-PRIMARY> .56
<EPS-DILUTED> .55
<YIELD-ACTUAL> 8.14
<LOANS-NON> 1,905,134
<LOANS-PAST> 311,404
<LOANS-TROUBLED> 323,917
<LOANS-PROBLEM> 9,209,723
<ALLOWANCE-OPEN> 1,724,684
<CHARGE-OFFS> 246,796
<RECOVERIES> 59,424
<ALLOWANCE-CLOSE> 1,552,311
<ALLOWANCE-DOMESTIC> 1,193,432
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 358,879
</TABLE>
