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, 1996
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, 1996, there were 1,344,787 shares of the Corporation's
$2.50 par value common stock issued and outstanding.
Total Pages - 16 Pages
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCORP. AND SUBSIDIARY
Consolidated Statement of Condition
( Unaudited)
<TABLE>
<CAPTION>
March 31 December 31 March 31
1996 1995 1995
<S> <C> <C> <C>
Assets
Cash and Due From Banks 4,765,265 5,068,955 5,540,200
Federal Funds Sold 2,075,000 3,825,000 2,125,000
Total Cash and Cash Equivalents 6,840,265 8,893,955 7,665,200
Securities held-to-maturity (approximate
market value of $46,224,018 at 3/31/96,
$32,925,570 at 12/31/95, and
$26,160,293 at 3/31/95 46,286,876 32,602,657 26,076,976
Securities available-for-sale,
at market value 11,055,550 14,105,688 25,855,144
Loans 137,553,629 137,240,198 131,785,183
Allowance for loan losses (1,472,095) (1,519,247) (1,724,684)
Unearned net loan fees (898,617) (908,731) (909,922)
Net loans 135,182,917 134,812,220 129,150,577
Bank Premises and Equipment, net 3,353,089 3,263,166 2,999,783
Accrued Interest Receivable 1,735,628 1,524,175 1,655,158
Other Real Estate Owned, net 610,925 761,362 1,050,371
Other Assets 1,473,781 1,418,576 1,510,268
Total Assets 206,539,031 197,381,799 195,963,477
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, Non-Interest Bearing 16,400,661 15,777,469 14,735,957
NOW and Money Market Accounts 42,042,007 34,450,952 38,118,527
Savings 32,356,009 31,395,227 34,923,118
Time Deposits, $100,000 and Over 18,665,791 18,616,586 17,371,509
Other Time Deposits 78,414,422 78,643,288 73,782,141
Total Deposits 187,878,890 178,883,522 178,931,252
Other Borrowed Funds 65,000 65,000 65,000
Accrued Interest and Other Liabilities 513,411 587,860 540,133
Subordinated Debentures 224,000 265,000 445,000
Total Liabilities 188,681,301 179,801,382 179,981,385
Stockholders' Equity
2,000,000 shares authorized and
1,374,143 shares issued at 03/31/96,
1,359,869 issued at 12/31/95, and
1,313,756 issued at 03/31/95 3,435,358 3,399,674 3,284,390
Surplus 5,673,737 5,513,703 4,780,963
Retained Earnings 9,177,847 9,056,562 8,590,179
Unrealized gain (loss) on securities
available-for-sale, net of tax 10,835 50,501 (233,542)
Less: Treasury Stock, at cost
(29,356 shares at 03/31/96, 29,355
shares at 12/31/95, and 29,348
shares at 03/31/95 (440,047) (440,023) (439,898)
Total Stockholders' Equity 17,857,730 17,580,417 15,982,092
Total Liabilites and Stockholders' Equity 206,539,031 197,381,799 195,963,477
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For The First Quarter Ended March 31 1996 1995 1994
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans 3,232,788 2,880,745 2,692,482
Interest and Dividends on Invest. Sec.
U.S. Treasury Securities 491,736 397,596 366,100
U.S. Treasury Agencies 10,823 5,867 5,851
Obligations of State and Political Su 194,295 241,159 210,668
Other Securities 19,893 22,330 18,971
Interest on Federal Funds Sold 82,601 46,069 37,407
Total Interest Income 4,032,136 3,593,766 3,331,479
Interest Expense
Interest on Deposits 2,084,823 1,949,053 1,563,978
Interest on Other Borrowed Funds 1,915 1,237 902
Interest on Subordinated Convert. Deb. 5,400 10,433 13,058
Total Interest Expense 2,092,138 1,960,723 1,577,938
Net Interest Income 1,939,998 1,633,043 1,753,541
Provision for Loan Losses (37,500) (45,000) (45,000)
Net Interest Income after Provision 1,902,498 1,588,043 1,708,541
Other Operating Income
Trust Department Income 26,202 21,820 16,253
Service Fees 111,069 134,094 123,309
Security Gains (losses) 0 0 0
Other 113,663 94,295 101,660
Total Other Operating Income 250,934 250,209 241,222
Other Operating Expenses
Salaries and Wages 640,430 573,140 523,108
Pension and Other Employee Benefits 150,867 143,714 109,897
Occupancy Expenses, Net 301,117 285,944 211,060
Other 453,649 490,567 463,014
Total Other Operating Expenses 1,546,063 1,493,365 1,307,079
Income Before Income Taxes 607,369 344,887 642,684
Applicable Income Taxes (Credit) 140,151 42,348 139,751
NET INCOME 467,218 302,539 502,933
Earnings Per Share on Weighted Average
Primary 0.35 0.24 0.41
Fully Diluted 0.34 0.23 0.39
Weighted Average Number of Common Shares
Used in Computing Earnings Per Share
Primary 1,344,529 1,280,415 1,237,166
Fully Diluted 1,373,505 1,335,734 1,300,035
Dividends Per Share 0.26 0.24 0.22
Book value per share on shares outstanding $13.28 $12.44 $12.03
All 1994 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 First Three Months Ended March 31, 1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net Income 467,218 302,539 502,933
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 91,978 79,993 59,463
Provisions for possible loan losses 37,500 45,000 45,000
Provisions for deferred income taxes (21,123) (3,864) 77,239
(Gain)Loss on sales of OREO (1,516) (4,345) 0
Amortization of bond premium 4,616 182,289 192,510
Increase (decrease) in taxes payable 79,028 38,484 216,990
(Increase) decrease in interest receivable (211,453) (268,158) (349,511)
(Increase) decrease in other assets (28,574) 18,764 (308,891)
Increase (decrease) in unamortized loan fees (10,114) (14,888) 18,027
Interest (decrease) in interest payable (12,403) (22,214) 1,919
Increase (decrease) in accrued expenses (176,954) (25,300) (234,267)
Increase (decrease) in other liabilities 50,805 65,815 18,297
Net cash provided by operating activities 269,008 394,115 239,709
Cash Flows from Investing Activities:
Investments - held to maturity
Maturities and pay-downs 2,824,132 919,635 0
Purchases (16,499,629)(4,676,686) 0
Investments - available for sale
Sales and maturities 3,000,000 0 2,237,887
Purchases (23,300)(2,000,000) (15,310,505)
Investment in limited partnership 0 0 (85,750)
Increase in Loans, Net of Payments (477,832) 1,356,668 (808,004)
Capital Expenditures (181,900) 57,671 (94,199)
Recoveries of loans charged off 21,702 39,117 17,360
Proceeds from sales of OREO 210,000 89,463 90,000
Net Cash Used in Investing Activities (11,126,827)(4,214,132) (13,953,211)
Cash Flows from Financing Activities:
Net increase (decrease) in demand deposits,
NOW, money market, and savings accounts 9,175,029 785,251 8,009,938
Net increase in certificates of deposit (179,661) 3,469,992 1,152,987
Net increase in other borrowed funds 0 0 3,000,000
Payments to acquire treasury stock (23) (4,210) (42)
Dividends paid (191,216) (158,532) (143,640)
Net cash provided by financing activities 8,804,129 4,092,501 12,019,243
Net increase in cash and cash equivalents (2,053,690) 272,483 (1,694,259)
Cash and cash equivalents:
Beginning 8,893,955 7,392,717 7,242,958
Ending 6,840,265 7,665,200 5,548,699
Supplemental Schedule of Cash Paid During
the Year:
Interest paid 2,104,541 1,982,937 1,576,294
Income Taxes 40,000 0 0
Supplemental schedule of noncash investing
and financing activities:
Unrealized loss on available-for-sale $16,417 $353,852 $326,974
OREO / acquired in settlement of loans $58,047 $217,546 $0
Debentures converted to common stock $41,000 $106,000 $10,000
5% Stock dividend at market value $0 $1,019,716 $0
Dividends paid
Dividends payable $345,934 $303,507 $257,830
Dividends reinvested ($154,718) ($144,975) ($114,190)
$191,216 $158,532 $143,640
</TABLE>
AVERAGE BALANCES AND INTEREST RATES
The table below presents the following information: average earning assets
(icluding non-accrual loans) and average interest bearing liabilities
supporting earning assets and interest income and interest expense as a
yield/rate for the first three months of 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans (gross) 136,595,652 3,232,788 9.52% 132,438,951 2,880,745 8.82%
Taxable Investment
Securities 34,414,603 502,559 5.87% 29,397,299 403,463 5.57%
Tax-exempt Investment
Securities(1) 14,661,806 294,386 8.08% 18,970,923 365,392 7.81%
Federal Funds Sold 6,065,659 82,601 5.48% 3,370,000 46,069 5.54%
Other Securities(2) 1,196,652 19,893 6.69% 1,133,303 22,330 7.99%
TOTAL 192,934,372 4,132,227 8.61% 185,310,476 3,717,999 8.14%
INTEREST BEARING LIABILITIES
Savings Deposits 31,371,082 234,418 3.01% 34,780,770 256,573 2.99%
NOW & Money Market
Funds 38,904,950 367,975 3.80% 38,318,874 355,082 3.76%
Time Deposits 97,019,071 1,481,156 6.14% 89,535,331 1,337,398 6.06%
Other Borrowed Funds 65,000 1,245 7.70% 65,000 1,237 7.72%
Subordinated Debentu 226,000 5,400 9.61% 450,000 10,433 9.40%
TOTAL 167,586,103 2,090,194 5.02% 163,149,975 1,960,723 4.87%
Net Interest Income 2,042,033 1,757,276
Net Interest Spread(3) 3.60% 3.26%
Interest Differential(4) 4.29% 3.85%
<FN>
<F01> Income on investment securities of state and political subdivisions is
stated on a tax equivalent basis (assuming a 34 percent tax rate).
<F02> Included in other securities are taxable industrial development bonds
(VIDA), with income of approximately $2,100 for 1996, and $2,400 for 1995.
<F03> Net interest Spread is the difference between the yield on earning assets
and the rate paid on interest bearing liabilities.
<F04> 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 1996 and 1995 resulting from volume changes in assets and
liabilities and fluctuations in rates earned and paid.
<TABLE>
<CAPTION>
RATE VOLUME Variance Variance
Due to Due to Total
Rate(1) Volume(1) Variance
EARNING ASSETS
<S> <C> <C> <C>
Loans (gross) 260,874 91,169 352,043
Taxable Investment Securities 29,661 69,435 99,096
Tax-Exemt Investment Securities(2) 15,514 (86,520) (71,006)
Federal Funds Sold (626) 37,158 36,532
Other Securities (3,490) 1,053 (2,437)
Total Interest Earnings 301,933 112,295 414,228
INTEREST BEARING LIABILITIES
Savings Deposits 3,324 (25,479) (22,155)
NOW & Money Market Funds 7,417 5,476 12,893
Time Deposits 31,039 112,719 143,758
Other Borrowed Funds 8 0 8
Subordinated Debentures 319 (5,352) (5,033)
Total Interest Expense 42,107 87,364 129,471
<FN>
<F01> 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
<F02> Income on tax-exempt securities is stated on a tax equivalent basis.
The assumed rate is 34%.
</TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
For The First Quarter Ended March 31, 1996 1995 1994
<S> <C> <C> <C>
Net Income 467,218 302,539 502,933
Average Number of Common Shares Outstanding 1,344,529 1,280,415 1,237,166
Earnings Per Common Share 0.35 0.24 0.41
<CAPTION>
FULLY DILUTED EARNINGS PER SHARE
For The First Quarter Ended March 31, 1996 1995 1994
Net Income 467,218 302,539 502,933
Adjustments to Net Income (Assuming Conversion 3,564 6,885 8,618
of Subordinated Convertible Debentures).
Adjusted Net Income 470,782 309,424 511,551
Average Number of Common Shares Outstanding 1,344,529 1,280,415 1,237,166
Increase in Shares (Assuming Conversion of 28,976 55,319 62,869
Subordinated Convertible Debentures).
Average Number of Common Shares Outstanding 1,373,505 1,335,734 1,300,035
(Fully Diluted)
Earnings per Common Share Assuming Full Dilution 0.34 0.23 0.39
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
Quarter Ended March 31, 1996
Community Bancorp. is a one-bank holding company whose only subsidiary is
Community National Bank. Most of the Bancorp's business is conducted through
the Bank, therefore, the following narrative is based primarily on the Bank's
operations. The financial statements preceding this section are consolidated
figures, and can be used in conjunction with the other reports that follow
them to provide a more detailed comparison of the information disclosed in
the following narrative.
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 $1.3 million or 7.5% for
the first quarter of 1996 compared to 1995. Other time deposits increased
from $73.8 million at the end of the first quarter of 1995 to $78.4 million
at the end of the first quarter of 1996, an increase of 6.3%. 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 1.8% to end the three month
comparison period at $74.4 million for 1996 compared to $73 million for
1995. Our gross loan portfolio increased from $131.8 million for the first
quarter of 1995 to $137.6 million for the first quarter of 1996 or 4.4%.
Of this total portfolio of $137.6 million, $69.4 million are scheduled to
reprice within one year and $4.4 million are scheduled to mature within one
year. Federal funds sold decreased by $50 thousand from $2.13 million for
the first quarter of 1995 to $2.08 million for the same period in 1996, or
2.4%. At the end of the first quarter of 1996, the Bank reported other
short term investments or "Available-for-Sale" securities at a market price
of $11.1 million, compared to $25.8 million for the same period in 1995,
while securities classified as "Held-to-Maturity" increased to $46.3 million
from $26.1 million for the same comparison period. The approximate market
value of these securities was $46.2 million and $26.2 million for the first
quarter of 1996 and 1995, respectively.
RESULTS OF OPERATIONS
Net Income for the first quarter ended March 31, 1996 was $467 thousand
representing an increase of 54% compared to a net income of $303 thousand
for the first quarter ended March 31, 1995. The results of this are primary
earnings per share of $0.35 for the first quarter of 1996 compared to $0.24
for the first quarter of 1995, and fully diluted earnings per share of $0.34
and $0.23 respectively. The first quarter of 1996 was more profitable
compared to the same period in 1995, which was due in part to a greater
increase in interest income compared to interest expense. A new computer
system was purchased during the first quarter of 1995, which also had a
negative effect on earnings for that time period. A cash dividend of $0.26
per share was declared on January 12, 1996, payable on February 1, 1996, to
shareholders of record as of January 15, 1996. This represents an 8.3%
increase over last years quarterly dividends.
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 increased from $1.63 million
in 1995 to $1.94 million in 1996, or 18.8%. Interest income increased by
$438 thousand or 12.2% for the first quarter of 1996 from $3.59 million in
1995 to $4.03 million in 1996. Interest expense increased by $131 thousand
or 6.7% for the first quarter of 1996 compared to 1995, which is almost half
of the 12.2% increase in interest income and clearly supports the reason for
the increase 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 12.22% versus 6.97%,
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.
The average volume of loans increased by $4.16 million or 3.14%, and
the yield on those loans increased from 8.82% for the first three months of
1995 to 9.52% for the first three months of 1996, an increase of 70 basis
points. Income from loans for the first quarter of 1996 increased to $3.23
million or by 12.22% compared to $2.88 million for the same period in 1995.
The average volume of taxable investments increased to $34.4 million
or by 17.07%, and the yield on these investments for the first three months
of 1996 rose by 30 basis points, compared to the same period in 1995. Of
this total taxable investment of $34.4 million, $10 million are investments
classified as available-for-sale, with the remaining $24.4 million classified
as held-to-maturity. Income for the first three months increase in 1996
compared to 1995 by almost $100 thousand to a reported $503 thousand income
figure.
A decrease is noted in the average volume of tax-exempt investments
reported at just under $19 million for the first three months of 1995 versus
$14.66 million for the same period in 1996, a decrease of 22.7%, all of
these investments are classified as held-to-maturity. Income also decreased
on these investments from $365 thousand for the first three months of 1995
to $294 thousand for the same period in 1996.
Other securities ended the three month period in 1996 at an average
volume of $1.2 million, resulting in a 5.6% increase compared to the same
period last year, and of this total almost $1.1 million are equity securities
and are therefore, under the guidelines, classified as available-for-sale
with the remaining $150 thousand classified as held-to-maturity. Income
decreased slightly for 1996 compared to 1995, with reported figures of $20
thousand and $22 thousand, respectively.
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.
The average volume of federal funds sold increased from $3.4 million to
$6.1 million for the comparison periods, an increase of 80%. Interest income
on federal funds sold increased to $83 thousand at an average yield of 5.48%
for the first quarter of 1996, compared to income of $46 thousand with an
average yield of 5.54% for the first quarter of 1995, an increase in income
of 79.3%, with a decrease in yield of 6 basis points.
In total, our average earning assets increased to $192.9 million or by
4.1% during the first three months of 1996, compared to the same period in
1995, and the average yield on those earning assets increased by 47 basis
points to end the three month period in 1996 at 8.61% compared to 8.14% for
the same period last year.
Interest expense on time deposits increase to $1.5 million at an
average yield of 6.14% for the first three months of 1996, compared to
almost $1.4 million with an average yield of 6.06% for the same time period
in 1995. Interest expense on NOW and money market funds increase to $368
thousand at an average yield of 3.80% for the first three months of 1996
compared to $355 thousand at an average yield of 3.76% for the first three
months of 1995. The biggest decrease was noted in savings deposits with an
expense figure of $234 thousand for the first three months of 1996 compared
to $257 thousand for the same period in 1995, a decrease of $23 thousand,
or 8.6%.
Our average time deposits volume increased to $97 million, or 8.4% for
the first three months of 1996 and the average rate paid increased to 6.14%,
or by a modest 8 basis points, compared to the same period in 1995. Now and
money market funds increased to $38.9 million or 1.5% in volume in 1996 with
the average rate on these funds increasing 4 basis points to a rate of 3.80%
compared to 3.76% for the first three months of 1995. Other borrowed funds
remained at an average volume of $65 thousand while the average yield
decreased to 7.70% from 7.72% for the first three months of 1996 and 1995,
respectively.
In summary, the tax equivalent net interest income increased from $1.76
million for the first three months of 1995 to $2.04 million for the first
three months of 1996, an increase of 16.2%. The net yield, or net interest
spread as defined on the "Average Balances and Interest Rates" report, was
3.60% for the first three months of 1996, compared to 3.26% for the same
period in 1995. This increase in yield is attributable to the 47 basis
point increase in yield on assets, compared to the 15 basis point increase
in the average rate paid on interest earning liabilities.
Subordinated debentures have been decreasing steadily in the first
quarter of 1996 to end the three month period at an average volume of
$226,000. Redemption activity is more frequent for the 9% debentures compared
to the 11% debentures because the redemption period, the period of time prior
to maturity (August 1, 1998) in which the redemption price is greater, is
now in it's second year. 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 continues to follow the same structured underwriting guide-
lines as well as the thorough loan-by-loan review policy. These measures
help to insure the adequacy of the loan loss coverage. 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 over-
all 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 or decreased to
reflect the 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 almost $1.5 million as of
March 31, 1996 constitutes 1.07% of the total gross loan portfolio, compared
to $1.7 million or 1.31% for the same period in 1995. In management's
opinion, this is adequate and reasonable, particularly in view of the fact
that $113.7 million of the total loan portfolio, or 82.65% consists of real
estate mortgage loans; and of the total real estate mortgage loans, $91.4
million or 66.4% constitute one to four family residential mortgage loans.
This large loan volume together with the low historical loan loss experience
help to support 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 almost $1.5 million would constitute 3.18% of the eligible loans,
compared to 3.89% a year ago. In management's opinion, a loan portfolio
consisting of 82.65% 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 was required to adopt this new rule
effective as of the beginning of the 1995 calendar year. This statement
allows 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 of the end of
the first quarter of 1996, 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 1996
and 1995 reveals a combined increase in non-accruing loans and loans 90 days
or more past due of 6.6% and a decrease in OREO of 42%. The portfolio of
non-accruing loans which make up the biggest portion of the non-performing
assets, consists of $1.8 million or 91.3% of real estate secured mortgage
loans for the first three months of 1996.
Non-performing assets as of March 31, 1996 and 1995 were made up
of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Non-Accruing loans $1,965,928 $1,950,688
Loans past due 90 day or more and still accruing 245,087 122,811
Other real estate owned 610,925 1,050,371
Total $2,821,940 $3,123,870
</TABLE>
These totals of $2.8 million for 1996 and $3.1 million for 1995 equal
2.05% and 2.36% respectively, of total gross loans, as well as 1.37% and
1.59%, respectively of total assets. As of March 31, 1996, our reserve
coverage of non-performance loans was 52% as compared to 55% a year ago.
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 $610,925 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, five commercial condominium units in
Newport, land in Albany, and a single family residence in Newport. The farm
equipment dealership, which was in OREO for several years was sold in February.
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 1996 was $250,934, compared
to $250,209 for the first quarter of 1995, an increase of $725 or .29%. A
decrease in service fees of $23,025 or 17.17% was outweighed by the increase in
trust department income of $4,382 and other income of $19,368, or a combined
20.5%. An increase in income from loans sold on the secondary market and more
foreign exchange activity are the major sources for the increase in other income
for the first quarter of 1996 compared to 1995.
Other operating expenses for the first quarter of 1996 was $1.55 million
compared to $1.49 million for 1995, an increase of 3.5%. Salaries, the largest
portion of other operating expenses, showed the biggest increase of $67,290, or
11.7%, while other expenses reported the only decrease totaling $36,918, or
7.5%. One of the major factors for the decrease in other expense is the
reduction in the premium charge for FDIC insurance. For the first three months
of 1995 the expense for this insurance was $99,207, compared to a current year
to date expense figure of $488. This sizeable decrease was offset by many
increases in other components of other expenses including advertising of
$10,497, telephone of almost $8,000, and outside consulting service fees of
$16,050.
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 increased from $344,887 for the first quarter of 1995
to $607,369 for the first quarter of 1996, an increase of $262,482 or 76%. As a
result of this increase, provisions for income taxes for the first quarter of
1996 increased $97,803 compared to the same period for 1995, ending the three
month period of 1996 at $140,151.
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. The Corporation depends primarily on a
strong net interest income to enable it's purchasing power to remain aggressive.
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 4.1% in the first three months of 1996 as
compared to the same period in 1995 to an average volume of $192.9 million.
Loans, which totaled $136.6 million in 1996 and $132.4 million in 1995,
comprised 70.8% and 71.5% respectively, of our earning assets with the average
volume of loans increasing $4.16 million or 3.14% in the first three months of
1996, compared to the same period in 1995. On March 31, 1996, residential real
estate mortgages made up 66% of our portfolio, commercial loans made up 22% and
personal loans made up 12%, compared to 67%, 21%, and 12% respectively in 1995.
Taxable investments made up 17.8% of our average earning assets in the
first three months of 1996 compared to 15.8% in 1995 to end the period at an
average volume of $34.4 million.
Tax-exempt investments of $14.66 million made up 7.6% of our average
earning assets in the first three months of 1996, compared to $18.9 million or
10.2% in 1995.
Federal funds sold, which had an average volume of $6.06 million, made up
3.14% of our earning assets in the first three months of 1996 and 1.8% in 1995.
And ending the list of earning assets, other securities, which increased by $63
thousand, made up .62% in 1996, compared to .61% in 1995.
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.
Currently, rates on CD's are slightly lower than they were last year at this
time, however, they are favorably better than the other interest bearing
accounts. Time deposits increased approximately 8.36% to an average volume of
$97 million, accounting for 57.9% of the total interest bearing accounts for the
first quarter of 1996, compared to $89.5 million in average volume and 54.9% of
total interest bearing accounts for the first quarter of 1995. Savings accounts
decreased 9.8% to an average volume of $31.4 million accounting for 22.3% of the
total interest bearing accounts for the first quarter of 1996, compared to an
average volume of $34.8 million and 21.3% of total interest bearing accounts for
the first quarter of 1995. A slight increase of 1.5% is noted in NOW and money
market funds with an average volume of $38.9 million reported at the end of the
first quarter of 1996 compared to $38.3 million at the end of the first quarter
of 1995, with these volumes accounting for 23.2% and 23.5% respectively, of the
total interest bearing liability accounts.
CAPITAL RESOURCES
The Corporation's stockholders' equity, which started the year at
$17,580,417, was increased through earnings of $467,218 and sales of common
stock of $195,718 through dividend reinvestment and debenture conversions. It
was decreased by dividends of $345,934, purchase of treasury stock of $23 and
adjustment of $39,666 for valuation of allowance for securities to end the first
quarter of 1996 at $17,857,730 with a book value of $13.28 per share. All
stockholder's equity is unrestricted. Additionally, it is noted that the net
unrealized gain 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, 1996, the Bank continued to maintain ratios far above the minimum
requirements with reported ratios of 18% for Tier I and 19% 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 15, 1996 By:/s/ Richard C. White
-------------------------------
Richard C. White, President
DATED: May 15, 1996 By:/s/ Stephen P. Marsh
-------------------------------
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,765
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,055
<INVESTMENTS-CARRYING> 46,287
<INVESTMENTS-MARKET> 46,224
<LOANS> 137,554
<ALLOWANCE> 1,472
<TOTAL-ASSETS> 206,539
<DEPOSITS> 187,879
<SHORT-TERM> 65
<LIABILITIES-OTHER> 513
<LONG-TERM> 224
0
0
<COMMON> 3,435
<OTHER-SE> 14,423
<TOTAL-LIABILITIES-AND-EQUITY> 206,539
<INTEREST-LOAN> 3,233
<INTEREST-INVEST> 716
<INTEREST-OTHER> 83
<INTEREST-TOTAL> 4,032
<INTEREST-DEPOSIT> 2,084
<INTEREST-EXPENSE> 2,092
<INTEREST-INCOME-NET> 1,940
<LOAN-LOSSES> 37
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,546
<INCOME-PRETAX> 607
<INCOME-PRE-EXTRAORDINARY> 607
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 467
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
<YIELD-ACTUAL> 8.11
<LOANS-NON> 1,966
<LOANS-PAST> 252
<LOANS-TROUBLED> 394
<LOANS-PROBLEM> 8,255
<ALLOWANCE-OPEN> 1,519
<CHARGE-OFFS> 106
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 1,472
<ALLOWANCE-DOMESTIC> 1,472
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
