CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 0-16435
COMMUNITY BANCORP.
(Exact name of registrant as specified in its charter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification No.)
Derby Road, Derby, Vermont 05829
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (802) 334-7915
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $2.50 par value per share
Indicate by check mark 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
such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES ( X ) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. ( X )
As of February 27, 1996, the date of the latest known sale of the
registrant's stock, the aggregate market value of the voting stockheld
by non-affiliates of the registrant, based on the sale price of the
stock on that date, was $22,184,184.
The number of shares outstanding of the issuer's class of common stock
as of the close of business on February 27, 1996, were 1,344,496.
DOCUMENTS INCORPORATED BY REFERENCE
Report of Independent Public Accountants
Financial Statements:
Consolidated Statements of Condition as of December 31, 1995 and 1994
Consolidated Statements of Income for the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Financial Position for the
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Condensed Financial Information (Parent Company Only)
Portions of the Annual Report to Shareholders for fiscal year 1995
incorporated by reference to Part II.
Portions of the Proxy Statement for the Annual Meeting to be held
May 7, 1996 are incorporated by reference to Part III.
Exhibit Index Begins on Page 22
FORM 10-K ANNUAL REPORT
Table of Contents
PART I Page
Item I The Corporation 4
Organization and Operation 4
Distribution of Assets, Liabilities & Stockholders' Investment 7
Interest Income, Interest Expense and Interest Differential 8
Rate Volume Analysis 9
Investment Portfolio 10
Loan Portfolio 11
Summary of Loan Loss Experience 12
Non-Accrual, Past Due, and Restructured Loans 13
Deposits 14
Return on Equity and Assets 14
Item 2 Properties 15
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 16
PART II
Item 5 Market for Registrant's Common Equity and
Related Stockholder Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8 Financial Statements and Supplementary Data 21
Item 9 Disagreements on Accounting and Financial Disclosures 21
PART III
Item 10 Directors and Executive Officers of the Registrant 21
Item 11 Executive Compensation 21
Item 12 Security Ownership of Certain Beneficial Owners and Management 21
Item 13 Certain Relationships and Related Transactions 21
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
Signatures 24
PART I
Item 1. The Corporation
Organization and Operation
Community Bancorp. (the Corporation) was organized under the laws
of the State of Vermont in 1982 and became a registered bank holding
company under the Bank Holding Company Act of 1956, as amended, in
October 1983 when it acquired all of the voting shares of Community
National Bank (the Bank). The Bank is the only subsidiary of the
Corporation and principally all of the Corporation's business
operations are presently conducted through it.
The Bank was organized in 1851 as the Peoples Bank, and was
subsequently reorganized as the National Bank of Derby Line in
1865. In 1975, after 110 continuous years of operation as the
National Bank of Derby Line, the Bank acquired the Island Pond
National Bank and changed its name to "Community National Bank."
Community National Bank provides a complete range of retail banking
services to the residents and businesses in northeastern Vermont.
These services include checking, savings and time deposit accounts,
mortgage, consumer and commercial loans, safe deposit and night
deposit services, credit card services, and a full line of personal
fiduciary services.
Competition
The Bank has five offices located in Orleans County, one office in
Essex County, and one office in Caledonia County, all in
northeastern Vermont. Its primary service area is in the towns of
Derby and Newport, Vermont, with approximately 64 percent of its
total deposits as of December 31, 1995 derived from that area.
The Bank competes in all aspects of its business with other banks
and credit unions in northern Vermont, including two of the largest
banks in the state, which maintain branch offices throughout the
Bank's service area. Historically, competition in Orleans and
Essex Counties has come from The Chittenden Trust Company and The
Howard Bank, N.A., a subsidiary of Bank North Group, Inc., based in
Burlington, Vermont. The Chittenden Trust Company maintains a
branch office in Newport, and The Howard Bank maintains one office
in Barton and one office in Orleans. The Bank also competes with
the Passumpsic Savings Bank, based in St. Johnsbury, and the
Lyndonville Savings Bank and Trust Company, based in Lyndonville,
and with two local credit unions for deposits and consumer loans.
With recent changes in the regulatory framework of the banking
industry, the competition for deposits and loans has broadened to
include not only traditional rivals such as the mutual savings
banks and stock savings banks, but also several non-traditional
rivals such as Sears Roebuck and Company and American Express.
Employees
As of December 31, 1995, the Bank employed 93 full-time employees
and 30 part-time employees. Management of the Bank considers its
employee relations to be good.
Regulation and Supervision
As a registered bank holding company, the Corporation is subject to
on-going regulation supervision and examination by the Board of
Governors of the Federal Reserve System, under the Bank Holding
Company Act of 1956, as amended (the "Act"). A bank holding company
for example, must obtain the prior approval of the Board before it
acquires all or substantially all of the assets of any bank, or
acquires ownership or control of more than 5 percent of the voting
shares of a bank. The Federal Reserve Board may not approve the
acquisition by the Corporation, or any subsidiary, of any voting
shares of, or any interest in all or substantially all of the assets
of, any bank located outside the State of Vermont unless such
acquisition is specifically authorized by the laws of the state in
which such bank is located. Prior Federal Reserve Board approval is
also required before a bank holding company may acquire more than 5
percent of any outstanding class of voting securities of a company
other than a bank or a more than 5 percent interest in its property.
The Act limits the activity in which the Corporation and its
subsidiaries may engage to certain specified activities, including
those activities which the Federal Reserve Board may find, by order
or regulation, to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Some of the
activities that the Federal Reserve Board has determined by
regulation to be closely related to banking are: (1) making, and
servicing loans that could be made by mortgage, finance, credit
card or factoring companies; (2) performing the functions of a
trust company; (3) certain leasing of real or personal property;
(4) providing certain financial, banking or economic data
processing services; (5) except as otherwise prohibited by law,
acting as an insurance agent or broker with respect to insurance
that is directly related to the extension of credit or the
provision of other financial services or, under certain
circumstances, with respect to insurance that is sold in certain
small communities in which the bank holding company system
maintains banking offices; (6) acting as an underwriter for credit
life insurance and credit health and accident insurance directly
related to extensions of credit by the holding company system; (7)
providing certain kinds of management consulting advice to
unaffiliated banks and non-bank depository institutions; (8)
performing real estate appraisals; (9) issuing and selling money
order and similar instruments and travelers checks and selling U.S.
Savings Bonds; (10) providing certain securities brokerage and
related services for the account of bank customers; (11)
underwriting and dealing in certain government obligations and
other obligations such as bankers' acceptances and certificates of
deposit; (12) providing consumer financial counselling; (13)
providing tax planning and preparation services; (14) providing
check guarantee services to merchants; (15) Operating a collection
agency; and (16) operating a credit bureau.
The Corporation does not at present engage, directly or indirectly,
in any non-banking activities, nor can any prediction be made as to
which such activities, if any, the Corporation may subsequently
engage in or when any such activities will be undertaken.
A bank holding company must also obtain prior Federal Reserve
approval in order to purchase or redeem its own stock if the gross
consideration to be paid, when added to the net consideration paid
by the company for all purchases or redemptions by the company of
its equity securities within the preceding 12 months, will equal 10
percent or more of the company's consolidated net worth.
The Corporation is required to file with the Federal Reserve Board
an annual report and such additional information as the Board may
require pursuant to the Act. The Board may also make examinations
of the Corporation and any direct or indirect subsidiary of the
Corporation.
The Corporation has registered its Common Stock under Section 12(g)
of the Securities Exchange Act of 1934 and is required to file
annual and periodic reports and proxy statements and other
information with the Securities and Exchange Commission.
Community Bancorp. and the Bank as its subsidiary are considered
"affiliates" for the purposes of Section 18(j) of the Federal
Deposit Insurance Act, as amended, and Section 23A of the Federal
Reserve Act, as amended. Accordingly, they are subject to
limitations with respect to the Bank's ability to make loans and
other extensions of credit to or investments in the Corporation or
in any other subsidiaries that the Corporation may acquire. The
Corporation and the Bank are prohibited from engaging in certain
tie-in arrangements in connection with any extension of credit or
lease or sale of any property of the furnishing of services.
The Bank is a national banking association and subject to the
provisions of the National Bank Act and federal and state statutes
and rules and regulations applicable to national banks. The
primary supervisory authority for the Bank is the Comptroller of
the Currency. The Comptroller's examinations are designed for the
protection of the Bank's depositors and not for its shareholders.
The Bank is subject to periodic examination by the Comptroller and
must file periodic reports with the Comptroller containing a full
and accurate statement of its affairs. The deposits of the Bank
are insured by the Federal Deposit Insurance Corporation ("FDIC").
Accordingly, the Bank is also subject to regulation by the FDIC.
Effects of Government Monetary Policy
The earnings of the Bank are affected by general and local economic
conditions and by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve Board regulates
money and credit conditions and interest rates in order to influence
general economic conditions, primarily through open market operations
and United States Government Securities, varying the discount rate
on member bank borrowings, setting reserve requirements against
member and nonmember bank deposits, and regulating interest rates
payable by member banks on time and savings deposits. Federal
Reserve Board monetary policies have had a significant effect on
the operating results of commercial banks, including the Bank, in
the past and are expected to continue to do so in the future.
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCKHOLDERS EQUITY
The following tables summarize various consolidated information and
provides a three year comparison relating to the average assets,
liabilities, and stockholders equity of the corporation and the bank.
<CAPTION>
Year ended December 31, 1995 1994 1993
(Dollars in Thousands) Balance % Balance % Balance %
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and Due from Banks 4,320 2.21% 4,135 2.19% 3,794 2.21%
Taxable Invest. Securities 30,667 15.68% 27,426 14.52% 23,934 13.92%
Tax-exempt Invest. Securities 17,383 8.89% 19,035 10.08% 14,772 8.59%
Other Securities 1,168 0.60% 1,159 0.61% 1,330 0.77%
Total Investment Securities 49,218 25.16% 47,620 25.21% 40,036 23.29%
Federal Funds Sold 3,186 1.63% 3,069 1.62% 3,312 1.93%
Loans, Net 131,878 67.41% 127,394 67.45% 118,470 68.92%
Premises and Equipment 3,148 1.61% 2,946 1.56% 1,544 0.90%
Other Real Estate Owned 964 0.49% 864 0.46% 1,533 0.89%
Other Assets 2,921 1.49% 2,851 1.51% 3,198 1.86%
Total Assets 195,635 100% 188,879 100% 171,887 100%
<CAPTION>
LIABILITIES
Demand Deposits 16,082 8.22% 14,459 7.66% 13,146 7.65%
Now and Money Market Account 35,474 18.13% 36,690 19.43% 31,628 18.40%
Savings Accounts 33,535 17.14% 34,643 18.34% 31,533 18.35%
Time Deposits 93,314 47.70% 85,712 45.38% 81,017 47.13%
Total Deposits 178,405 91.19% 171,504 90.80% 157,324 91.53%
Other Borrowed Funds 117 0.06% 1,573 0.83% 77 0.04%
Other Liabilities 693 0.35% 440 0.23% 716 0.42%
Subordinated Debentures 328 0.17% 554 0.29% 580 0.34%
Total Liabilities 179,543 91.77% 174,071 92.16% 158,697 92.33%
<CAPTION>
STOCKHOLDERS EQUITY
Common Stock 3,247 1.66% 3,056 1.62% 2,972 1.73%
Surplus 4,561 2.33% 3,628 1.92% 2,774 1.61%
Retained Earnings 8,805 4.50% 8,856 4.69% 7,879 4.58%
Less: Treasury Stock (440) -0.22% (436) -0.23% (435) -0.25%
Valuation Allowance for Sec. (81) -0.04% (296) -0.16% N/A 0.00%
Total Stockholders Equity 16,092 8.23% 14,808 7.84% 13,190 7.67%
Total Liabilities and
Stockholders Equity 195,635 100% 188,879 100% 171,887 100%
<FN>
<F1> FASB No. 115, an accounting method in which securities classified as
Held to Maturity are carried at book value and securities classified as
Available for Sale are carried at market value with the unrealized gain
(loss) reported as a separate component of equity net of taxes. The
bank does not carry, nor does it intend to carry, securities classified
as Trading Securities.
</TABLE>
<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. (Dollars in Thousands)
<CAPTION>
1995 1994 1993
AVE. INC./ RATE/ AVE. INC./ RATE/ AVE. INC./ RATE/
BAL. EXP. YIELD BAL. EXP. YIELD BAL. EXP. YIELD
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans (net) 131,878 12,451 9.44% 127,394 11,116 8.73% 118,470 10,802 9.12%
Taxable Invest.
Securities 30,667 1,758 5.73% 27,426 1,404 5.12% 23,934 1,398 5.84%
Tax-exempt Invest.
Securities(1) 17,383 1,417 8.15% 19,035 1,329 6.98% 14,772 1,173 7.94%
Fed. Funds Sold 3,186 180 5.65% 3,069 128 4.17% 3,312 94 2.82%
Other
Securities(2) 1,168 82 7.02% 1,159 81 6.99% 1,330 97 7.29%
TOTAL 184,282 15,888 8.62% 178,083 14,058 7.89% 161,818 13,564 8.38%
<CAPTION>
INTEREST BEARING LIABILITIES
Savings Deposits 33,535 1,003 2.99% 34,643 1,038 3.00% 31,533 983 3.12%
NOW & Money
Market Funds 35,474 1,348 3.80% 36,690 1,226 3.34% 31,628 1,028 3.25%
Time Deposits 93,314 5,858 6.28% 85,712 4,387 5.12% 81,017 4,089 5.05%
Other Borrowed
Funds 117 7 6.28% 1,573 105 6.68% 77 5 6.52%
Subordinated
Debentures 328 31 9.45% 554 52 9.39% 580 53 9.12%
TOTAL 162,768 8,247 5.07% 159,172 6,808 4.28% 144,835 6,158 4.25%
Net Interest Income 7,641 7,250 7,406
Net Interest Spread(3) 3.55% 3.62% 4.13%
Interest Differential(4) 4.15% 4.07% 4.58%
<FN>
<F1> Income on investment securities of state and political subdivisions is
stated on a tax equivalent basis (assuming a 34% rate). The amount of
adjustment was $481,863 in 1995, $451,824 in 1994, and $436,047 in 1993.
<F2> Included in other securities are taxable industrial development bonds
(VIDA), with income of approximately $10,000 for 1995 and 1994, and
approximately $11,000 for 1993.
<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>
<TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the years 1995,
1994, 1993 and 1992 resulting from volume changes in assets and liabilities
and fluctuations in rates earned and paid.
(Dollars in Thousands)
<CAPTION>
1995 vs.1994 1994 vs. 1993 1993 vs. 1992
RATE VOLUME Variance(1) Variance(1) Variance(1)
Due to Total Due to Total Due to Total
Rate Volume Var. Rate Volume Var. Rate Volume Var.
Income Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(2) 912 423 1,335 (465) 779 314 (1,351) 994 (357)
Taxable Invest.
Securities 168 186 354 (173) 179 6 (211) 167 (44)
Tax-Exempt Invest.
Securities(3) 223 (135) 88 (142) 298 156 (103) 230 127
Fed. Funds Sold 45 7 52 45 (10) 35 (10) 17 7
Other Securities 0 1 1 (4) (12) (16) (41) (131) (172)
Total Interest
Earnings 1,348 482 1,830 (738) 1,232 495 (1,716) 1,277 (439)
<CAPTION>
Interest Bearing Liabilities
Savings Deposits (2) (33) (35) (38) 93 55 (305) 262 (43)
NOW & Money
Market Funds 168 (46) 122 29 169 198 (213) 189 (24)
Time Deposits 994 477 1,471 58 240 298 (859) 128 (731)
Other Borrowed
Fund (0) (97) (98) 0 100 100 1 4 5
Subordinated
Debentures 0 (21) (21) 2 (2) (1) (2) (12) (14)
Total Interest
Expense 1,160 279 1,439 50 600 650 (1,378) 571 (807)
<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
Variance due to volume = Change in volume x new rate
<F2> Total loans are stated net of unearned discount. Interest on
non-accrual loans is excluded from income. The principal balances
of non-accrual loans are included in calculations of the yield
on loans.
<F3> Income on tax-exempt securities is stated on a tax equivalent basis.
The assumed rate is 34%.
</TABLE>
<TABLE>
INVESTMENT PORTFOLIO
The following tables show the classification of the investment portfollio
by type of investment security based on book value for Held to Maturity
securities and market value for Available for Sale securities on
December 31 for each of the last 3 years.
(Dollars in Thousands)
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
U.S. Treasury Obligations:
Available-for-Sale 13,066 22,208 26,739
Held-to-Maturity 20,867 5,779 0
U.S. Agency Obligations 0 510 549
Obligations of State &
Political Subdivisions 11,736 16,568 13,310
Other Securities 1,039 962 876
Total Investment Securities 46,708 46,027 41,474
</TABLE>
<TABLE>
The following is an analysis of the maturities and yields of investment
securities as defined:
(Available for Sale; Market Value, Held to Maturity; Book Value)
<CAPTION>
December 31, 1995 1994 1993
U.S. Treasury & Agency
Obligations
Market Ave. Market Ave. Market Ave.
Available for Sale Value Yield Value Yield Value Yield
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year 10,067 5.62% 11,403 4.78% 10,033 6.03%
Due after 1 yr within 5 yrs 2,999 6.13% 11,315 5.05% 17,255 5.36%
Total 13,066 5.74% 22,718 4.91% 27,288 6.50%
<CAPTION>
Book Ave. Book Ave. Book Ave.
Held to Maturity Value Yield Value Yield Value Yield
Due within 1 year 0 0.00% 0 0.00% 0 0.00%
Due after 1 yr within 5 yrs 20,867 5.97% 5,779 7.44% 0 0.00%
Total 20,867 5.97% 5,779 7.44% 0 0.00%
<CAPTION>
Obligations of State &
Political Subdivisions (1)
Book Ave. Book Ave. Book Ave.
Value Yield Value Yield Value Yield
Due within 1 year 7,468 8.01% 13,442 7.41% 9,648 6.73%
Due after 1 yr within 5 yrs 1,470 8.46% 941 8.18% 1,393 7.73%
Due after 5 yrs within 10 yr 950 9.02% 774 9.19% 708 9.29%
Due after 10 years 1,848 9.79% 1,411 8.63% 1,561 8.54%
Total 11,736 8.43% 16,568 7.64% 13,310 7.93%
<CAPTION>
Other Securities
Due after 10 years 1,039 6.72% 962 6.85% 876 7.35%
Total 1,039 6.72% 962 6.85% 876 7.35%
<FN>
<F1>Income on Obligations of State and Political Subdivisions is stated
on a tax equivalent basis assuming a 34 percent tax rate. Also included
are taxable industrial development bonds (VIDA), with a market value of
almost $151,000 and an average yield of 5.91%.
</TABLE>
<TABLE>
LOAN PORTFOLIO
The following table reflects the composition of the Corporation's loan
portfolio as of December 31, 1995, 1994 and 1993.
(Dollars in Thousands)
<CAPTION>
1995 1994 1993
TOTAL % OF TOTAL % OF TOTAL % OF
LOANS TOTAL LOANS TOTAL LOANS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans
Construction & Land Development 912 0.66% 587 0.44% 782 0.62%
Farm Land 1,814 1.32% 1,115 0.84% 1,007 0.80%
1-4 Family Residential Property 91,104 66.38% 88,967 66.68% 81,573 64.54%
Commercial Real Estate 18,646 13.59% 18,094 13.56% 18,063 14.29%
Loans to Finance
Agricultural Production 1,127 0.82% 1,305 0.98% 1,552 1.23%
Commercial & Industrial Loans 6,749 4.92% 6,719 5.04% 6,692 5.29%
Loans to Individuals 16,578 12.08% 16,380 12.28% 16,434 13.00%
All Other Loans 310 0.23% 259 0.19% 296 0.23%
Gross Loans 137,240 100% 133,426 100% 126,399 100%
Less:
Reserve for Loan Losses (1,519) -1.11% (1,708)-1.28% (1,872) -1.48%
Deferred Loan Fees (909) -0.66% (924)-0.69% (841) -0.67%
Net Loans 134,812 98.23% 130,794 98.03% 123,686 97.85%
</TABLE>
<TABLE>
MATURITY OF LOANS
The following table shows the estimated maturity of loans (excluding
residential properties of 1-4 families, installment loans and other
loans) outstanding as of December 31, 1995.
<CAPTION>
Fixed Rate Loans Maturity Schedule
Within 1 - 5 After
1 Year Years 5 years Total
<S> <C> <C> <C> <C>
Real Estate
Construction & Land Development 912 0 0 912
Secured by Farm Land 0 48 17 65
Commercial Real Estate 227 337 2,972 3,536
Loans to Finance Agricultural Production 65 379 103 547
Commercial & Industrial Loans 377 2,004 526 2,907
Total 1,581 2,768 3,618 7,967
<CAPTION>
Variable Rate Loans
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
Construction & Land Development 0 0 0 0
Secured by Farm Land 1,141 393 215 1,749
Commercial Real Estate 12,770 1,840 498 15,108
Loans to Finance Agricultural Production 523 57 0 580
Commercial & Industrial Loans 3,473 36 115 3,624
Total 17,907 2,326 828 21,061
</TABLE>
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Corporation's loan loss experience
for each of the last five years.
(Thousands of Dollars)
<CAPTION>
December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loans Outstanding
End of Period 137,240 133,426 126,399 115,177 105,506
Ave. Loans Outstanding
During Period 131,879 127,394 118,470 108,780 102,323
Loan Loss Reserve,
Beginning of Period 1,708 1,872 1,782 1,619 1,224
Loans Charged Off:
Real Estate 198 187 12 33 51
Commercial 17 24 19 184 315
Loans to Individuals 238 250 138 148 270
Total 453 461 169 365 636
Recoveries:
Real Estate 5 43 2 0 13
Commercial 20 12 37 32 63
Loans to Individuals 119 62 70 96 70
Total 144 117 109 128 146
Net Charge Offs 309 344 60 237 490
Provision Charged to Income 120 180 150 400 885
Loan Loss Reserve,
End of Period 1,519 1,708 1,872 1,782 1,619
Net Losses as a Percent of
Average Loans 0.23% 0.27% 0.05% 0.22% 0.48%
Provision Charged to Income as
a Percent of Average Loans 0.09% 0.14% 0.13% 0.37% 0.86%
At End of Period:
Loan Loss Reserve as a Percent
of Outstanding Loans 1.11% 1.28% 1.48% 1.55% 1.52%
</TABLE>
<TABLE>
The following table shows an allocation of the allowance for loan losses,
as well as the percent to the total allowance for the last five years
(the corporation has no foreign loans, therefore, allocations for this
category are not necessary).
<CAPTION>
December 31, 1995 % 1994 % 1993 % 1992 % 1991 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Residential Real Estate 265 17% 200 12% 175 9% 175 10% 175 11%
Commercial 631 42% 950 56% 900 48% 800 45% 750 46%
Loans to Individuals 485 32% 400 23% 350 19% 250 14% 125 8%
Unallocated 138 9% 158 9% 447 24% 557 31% 569 35%
Total 1,519 100% 1,708 100% 1,872 100% 1,782 100% 1,619 100%
</TABLE>
<TABLE>
NON-ACCRUAL, PAST DUE, AND RESTRUCTURED LOANS
The following table summarizes the bank's past due, non-accrual, and
restructured loans.
(Dollars in Thousands)
<CAPTION>
December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Acruing Loans Past Due 90 Days or More:
Consumer 28 54 64 54 40
Commercial 15 11 45 3 254
Real Estate 249 271 391 265 557
Total Past Due 90 Days or More 292 336 500 322 851
Non-accrual Loans 1,389 1,791 500 895 1,300
Restructured Loans (incl. non-accrual) 359 347 717 222 0
Total Non-accrual, Past Due
and Restructured Loans 2,040 2,474 1,717 1,439 2,151
Other Real Estate Owned 761 918 910 1,854 1,808
Total Non-Performing Loans 2,958 3,392 2,627 3,293 3,959
Percent of Gross Loans 2.16% 2.54% 2.08% 2.86% 3.72%
Reserve Coverage of Non performing 51.35% 50.35% 71.26% 54.11% 40.89%
When a loan reaches non-accrual status, it is determined that future
collection of interest and principal is doubtful. At this point, the
Bank's policy is to reverse the accrued interest and to discontinue
the accrual of interest until the borrower clearly demonstrates the
ability to resume normal payments. Our portfolio of non-accrual loans
for the years ended 1995, 1994, and 1993 are made up primarily of
commercial real estate loans and residential real estate loans.
Management does not anticipate any substantial effect to future
operations if any of these loans are liquidated. Although interest
is included in income only to the extent received by the borrower,
deferred taxes are calculated monthly, based on the accrued interest
of all non-accrual loans. This accrued interest amounted to $256,754
in 1995, $181,930 in 1994, and $119,849 in 1993. The corporation had
total foreign loans of less than one percent in 1995, and has no loan
concentration in any industrial category.
</TABLE>
<TABLE>
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the last three years.
(Dollars in Thousands)
<CAPTION>
December 31, 1995 1994 1993
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Demand Deposits 16,082 0.00% 14,459 0.00% 13,146 0.00%
NOW & Money Market Funds 35,474 3.80% 36,690 3.34% 31,628 3.25%
Savings Deposits 33,535 2.99% 34,643 3.00% 31,533 3.12%
Time Deposits 93,314 6.28% 85,712 5.12% 81,017 5.05%
Total Deposits 178,405 4.60% 171,504 3.88% 157,324 3.88%
</TABLE>
<TABLE>
Maturities of time certificates of deposit and other time deposits of
$100,000 or more issued by domestic offices outstanding on December 31,
1995 are summarized as follows:
<CAPTION>
Time Certificates
Maturity Date of Deposit
<S> <C>
3 Months or Less 4,474
Over 3 through 12 Months 6,622
Over 12 Months 7,521
Total 18,617
</TABLE>
<TABLE>
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of
the Corporation for each of the last three years.
<CAPTION>
December 31, 1995 1994 1993
<S> <C> <C> <C>
Return on Average Assets 1.00% 1.00% 1.46%
Return on Average Equity 12.13% 12.74% 19.06%
Dividend Payout Ratio 63.66% 55.26% 36.60%
Ave. Equity to Ave. Asset Ratio 8.23% 7.84% 7.67%
</TABLE>
Item 2. Properties
Community Bancorp. does not own or lease real property. The
Corporation's offices are located at the main offices of the Bank.
The Bank's main offices are located in a two-story brick building
on U.S. Route 5 in Derby, Vermont. The main banking lobby and
adjacent offices were constructed in 1972, expanded in 1978, and the
most recent expansion was completed in July 1993, providing us with
a total of 15,000 square feet at this location. An Automatic Teller
Machine (ATM) added the final touch to the nine month long renovation.
The main office also has drive-up facilities. Computer and similar
support equipment is also located in the main office building. The
building which used to house our computer equipment is now being
used as a conference center for the Bank as well as various non-
profit organizations, free of charge, upon request.
All of the Bank's offices are located in Vermont. In addition to
the main office in Derby, the Bank maintains branch facilities
located in; City of Newport, Town of Barton and St. Johnsbury, and
Villages of Island Pond, Troy and Derby Line. The newest branch
office located in St. Johnsbury, Caledonia County, opened on
schedule in June of 1995.
The Bank's Derby Line branch office, which the bank owns, is
located on Main Street in a renovated bank building. The facility
consists of a small banking lobby containing approximately 200
square feet and a walk-up window accessible to pedestrians. Recent
renovations to the walk-up window area and updated signs have
helped to give this office a fresh new appearance.
The Bank's Island Pond branch office is located in the renovated
"Railroad Station" acquired by the town of Brighton in 1993. The
bank leases approximately two-thirds of the downstairs portion
which includes a banking lobby and a drive-up window. The other
portion of the downstairs is occupied by an information center, and
the upstairs section houses the Island Pond Historical Society.
The Barton branch office is located on Church Street, in a
renovated facility, which includes a banking lobby and a drive-up
window. An Automatic Teller Machine (ATM) was installed in 1994,
making most deposit and withdrawal transactions possible at this
branch 24 hours a day. The facility is leased from Dean M. Comstock,
who is a member of the Bank's Barton Advisory Committee. The lease,
which was entered into in 1985, provides for a fifteen-year term.
The Bank's Newport branch is located in a facility leased from Twin
Islands Realty, adjacent to RJ's Friendly Market (formerly Fedele's
Grocery). This facility consists of approximately 974 square feet
and includes a small banking lobby.
The Bank's Troy office is located in a new facility, which was leased
for a few years and then purchased during 1992 from Tom and Eleanor
Watts. The bank currently leases space to two other tenants while
maintaining approximately 2,200 square feet for their own use. An
Automatic Teller Machine (ATM) was also added to this branch during
1994 to provide the same type of limited 24-hour accessibility as
our Barton and Derby offices.
The St. Johnsbury branch is located at the corner of the I-91
Access Road and Route 5 in the town of St. Johnsbury. The Bank
occupies approximately 2,250 square feet in the front of the Price
Chopper building, and is leased from Murphy Realty of St. Johnsbury.
Peter Murphy is President of Murphy Realty, and is a member of the
Bank's St. Johnsbury Advisory Committee. Fully equipped with an
Automatic Teller Machine and a drive-up window, this office operates
as a full service banking facility.
Item 3. Legal Proceedings
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Bank, to which
the Bank is a party or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Common Stock Performance by Quarter
<TABLE>
<CAPTION>
1995
First Second Third Fourth
<S> <C> <C> <C> <C>
Trade price
High $17.00 $17.50 $17.50 $17.50
Low $16.50 $16.75 $17.00 $17.00
Cash Dividends
Declared $0.24 $0.24 $0.24 $0.24
<CAPTION>
1994
First Second Third Fourth
Trade price
High $18.00 $18.50 $19.00 $18.50
Low $16.50 $17.00 $17.91 $16.25
Cash Dividends
Declared $0.22 $0.22 $0.22 $0.22
</TABLE>
Item 6. Selected Financial Data
Following Pages
<TABLE>
SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(Dollars in thousands, except per share data)
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total Interest Income 15,406 13,605 13,127 13,578 15,068
Less:
Total Interest Expense 8,248 6,807 6,158 6,965 8,779
Net Interest Income 7,158 6,798 6,969 6,613 6,289
Less:
Povision for Loan Losses 120 180 150 400 885
Other Operating Income 1,181 1,057 1,260 1,076 1,251
Less:
Other Operating Expense 5,943 5,459 4,957 4,595 4,757
Income Before Income Taxes 2,276 2,216 3,122 2,694 1,898
Gain due to FASB 109(1) N/A N/A 35 N/A N/A
Less:
Applicable Income Taxes(3) 324 329 643 751 412
Net Income 1,952 1,887 2,514 1,943 1,486
Per Share Data: (2)
Earnings per Share
Primary 1.49 1.51 2.07 1.68 1.29
Fully Diluted 1.46 1.46 1.99 1.59 1.26
Cash Dividends Declared 0.96 0.88 0.80 0.68 0.64
Weighted Average Number of
Common Shares Outstanding
Primary 1,307,552 1,251,960 1,212,832 1,157,959 1,147,764
Fully Diluted 1,348,968 1,313,632 1,278,576 1,246,196 1,214,564
Number of Common Shares
Outstanding 1,330,514 1,264,859 1,230,555 1,179,255 1,133,679
Balance Sheet Data:
Net Loans 134,812 130,794 123,686 112,672 104,309
Total Assets 197,382 191,315 178,649 164,635 149,135
Total Deposits 178,884 174,676 162,927 150,773 136,577
Total Liabilities 179,801 175,796 164,007 152,092 138,184
Subordinated Debentures 265 551 571 672 739
Total Shareholder Equity 17,580 15,518 14,642 12,543 10,951
<FN>
<F1>FASB 109 was adopted in the first quarter of 1993 as required,
resulting in a one-time adjustment to income.
<F2>Per share data restated to reflect 5% stock dividend in first quarter
of 1995.
<F3>Applicable Income Taxes above includes the income tax effect, assuming
a 34% tax rate, on securities gains (losses), which totaled $6,272 in
1995, $7,021 in 1994, ($7,128) in 1993, $9,901 in 1992, and ($4,316)
in 1991.
</TABLE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
The following is an unaudited summary of the quarterly results of
operations for the years ended December 31, 1995, 1994 and 1993.
(Dollars in thousands, except per share data)
<CAPTION>
1995 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Interest Income 3,594 3,788 3,928 4,096
Net Interest Income 1,633 1,721 1,828 1,976
Provisions For Loan Losses 45 15 30 30
Other Operating Expense 1,493 1,510 1,463 1,477
Income Before Taxes 345 511 616 804
Applicable Income Taxes 42 93 125 63
Net Income 303 418 491 741
Net Income Per Share:
Primary 0.24 0.32 0.37 0.56
Fully Diluted 0.23 0.31 0.37 0.55
<CAPTION>
1994
Interest Income 3,331 3,353 3,371 3,551
Net Interest Income 1,754 1,659 1,642 1,744
Provisions For Loan Losses 45 45 45 45
Other Operating Expense 1,307 1,325 1,387 1,440
Income Before Taxes 643 570 496 507
Applicable Income Taxes 140 107 87 (5)
Net Income 503 463 409 512
Net Income Per Share (2):
Primary 0.41 0.37 0.33 0.40
Fully Diluted 0.39 0.36 0.32 0.39
<CAPTION>
1993
Interest Income 3,244 3,246 3,281 3,356
Net Interest Income 1,683 1,699 1,777 1,810
Provisions For Loan Losses 50 50 50 0
Other Operating Expense 1,266 1,231 1,251 1,208
Income Before Taxes 625 921 699 912
Applicable Income Taxes 123 176 188 156
Net Income (1) 537 745 511 721
Net Income Per Share (2):
Primary 0.46 0.62 0.42 0.59
Fully Diluted 0.43 0.59 0.40 0.56
<FN>
<F1>Includes a one-time adjustment (a gain of $35,000), upon
implementation of FASB 109 in the first quarter of 1993.
<F2>Per share data restated to reflect 5% stock dividend in first
quarter of 1995.
</TABLE>
<TABLE>
The following table shows the repricing opportunities of the various
interest earning assets and interest bearing liabilities of the bank.
We assume that all payments on loans will be made as agreed, and that
all deposits will mature on schedule. The most important factor in
assuring liability liquidity is maintenance of confidence in the Bank
by depositors of funds. Such confidence, in turn, is based on
performance and reputation. The Company believes that its reputation,
its financial strength and numerous long-term customer relationships,
should enable it to raise funds as needed in many markets. To that
end, the Bank does not place all of it's "core" deposits in the
earliest time period presented as suggested, but places more emphasis
on the historical experience of the Bank. Funds are primarily
generated locally and regionally and the Bank has no brokered deposits.
The following table shows the interest sensitivity gaps for four
different time intervals as of December 31, 1995. The figures
shown are reported in thousands.
<CAPTION>
0-3 Months 4-12 Months 1-5 Years Over 5 Years
Rate Sensitive Assets:
<S> <C> <C> <C> <C>
Loans $28,802 $45,065 $54,916 $ 8,458
Investments - Taxable 4,007 6,059 23,866 0
Investments - Taxexempt 1,336 6,106 1,344 2,798
Other Investments 9 16 126 1,040
Federal funds sold 3,825 0 0 0
Total $37,979 $57,246 $80,252 $12,296
<CAPTION>
Rate Sensitive Liabilities:
NOW & super NOW accounts $ 0 $ 0 $17,858 $ 0
Savings deposits 0 31,395 0 0
Time deposits(1) 18,770 24,979 18,706 29
Variable rate time deposits 32,266 19,103 0 0
Other borrowed funds 65 0 0 0
Total $51,101 $75,477 $36,564 $ 29
Interest sensitivity gap $(13,122) $(18,231) $43,688 $12,267
GAP Ratio -6.99% -9.71% 23.27% 6.53%
Cumulative interest
sensitivity gap $(13,122) $(31,353) $12,335 $24,602
Cumulative GAP Ratio -6.99% -16.70% 6.57% 13.10%
<FN>
<F1>Included in the time deposits catagory are money market accounts
totaling $16.6 million. Due to the nature of some of these accounts
(i.e. Municipal Accounts) we do not deem it necessary to place all
of these accounts in the earliest time period as suggested.
</TABLE>
<TABLE>
CAPITAL RATIOS
(Dollars in Thousands)
<CAPTION>
ANNUAL
GROWTH RATE
At December 31, 1995 1994 1993 '95/'94 '94/'93
<S> <C> <C> <C> <C> <C>
Total Assets 197,382 191,315 178,626 3.17% 7.10%
Allowance for Possible Loan Losses 1,519 1,708 1,872 -11.03% -8.76%
Total Adjusted Assets 198,901 193,023 180,497 3.05% 6.94%
Gross Risk-Adjusted Assets 97,860 97,753 93,645 0.11% 4.39%
Allowance for Loan Loss over limit(2) 296 486 701 -39.05% -30.72%
Total Risk-Adjusted Assets 97,564 97,267 92,944 0.30% 4.65%
Total Shareholders' Equity (Tier l) 17,666 15,904 14,959 11.08% 6.32%
Valuation Allowance for Securities (51) 451 N/A 111.31% N/A
Total Adjusted Tier 1 Capital(1) 17,615 16,355 14,959 7.70% 9.33%
Max. Allowance for Possible Loan Losses(2) 1,223 1,222 1,171 0.11% 4.39%
Total Capital (Tier II) 18,838 17,577 16,130 7.18% 8.97%
<CAPTION>
1995 1994 1993
Tier l Capital/Total Adjusted Assets 8.86% 8.47% 8.29%
Tier ll Capital/Total Adjusted Assets 9.47% 9.11% 8.94%
Tier l Capital/Total Risk-Adjusted Assets 18.05% 16.81% 16.09%
Tier ll Capital/Total Risk-Adjusted Assets 19.31% 18.07% 17.35%
<FN>
<F1> Net unrealized holding gains and losses on available for sale
securities are excluded from common stockholders' equity for
regulatory capital purposes. However, National Banks continue
to deduct unrealized losses on equity securities in their
computation of Tier I Capital.
<F2> The maximum allowance for possible loan losses used in calculating
primary (Tier ll) capital is the lower of the period end allowance
for possible loan losses or 1.25% of gross risk-adjusted assets, as
implemented by requlatory capital guidelines in 1992.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated by reference to Pages 24-27 of the Annual Report to
Shareholders for fiscal year 1995.
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes of Community Bancorp.
and Subsidiary are incorporated herein by reference from the
Corporation annual report to shareholders for the year ended
December 31, 1995 Page 8 through Note 20 on Page 23.
Item 9. Disagreements on Accounting and Financial Disclosures
Inapplicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference to Pages 4-5 of the Corporation's Proxy
Statement for the Annual Meeting of Shareholders on May 7, 1996.
<TABLE>
<CAPTION>
Position with Has Served As
Name, Age and Community Officer/Director
Principal Occupation Bancorp. Since
_________________________________________________________________
<S> <S> <C>
Stephen P. Marsh, 48 Vice President 07/01/73
Senior V.P. & Cashier & Treasurer
Community National Bank
Rosemary M. Rowe, 54 Secretary 09/08/80
Vice President,
Community National Bank
Alan A. Wing, 51 Vice President 09/01/71
Sr. Vice President
Community National Bank
</TABLE>
Item 11. Executive Compensation
Incorporated by reference to the Corporation's Proxy Statement filed
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Corporation's Proxy Statement filed
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Corporation's Proxy Statement filed
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial Statements
Financial statements are incorporated by reference to the Annual
Report to the shareholders for the year ended December 31, 1995.
(a) (3) Exhibits
The following exhibits are incorporated by reference:
Exhibit 3 - Articles of Association and By-laws of Community Bancorp.
are incorporated by reference to Community Bancorp.'s Registration
Statement dated May 20, 1983 (Registration No.2-83166).
Exhibit 4 - Indenture dated August 1, 1984 between Community Bancorp.
and Community National Bank as trustee, relating to $750,000 in
principal amount of 11% Convertible Subordinated Debentures due 2004
is incorporated by reference to Community Bancorp.'s Registration
Statement dated July 11, 1984 (Registration No. 2-92147).
Exhibit 5 - Indenture dated August 1, 1986, relating to $500,000
in principal amount of 9% Convertible Subordinated Debentures due
1998 is incorporated by reference to Community Bancorp.'s
Registration Statement dated April 15, 1986 (Registration No. 33-4924).
Exhibit 13 - Portions of the Annula Report to Shareholders of Community
Bancorp. for year ended December 31, 1995, specifically mentioned in this
report.
The following exhibits are filed as part of this report:
Exhibit 22 - Subsidiaries of Community Bancorp.
Consent from A.M. Peisch & Company
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the
year ended December 31, 1995.
Exhibit 22
Community Bancorp.'s sole subsidiary is Community National Bank, a
banking corporation incorporated under the Banking Laws of The
United States.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY: /s/ Richard C. White Date: March 26, 1996
Richard C. White, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
BY: /s/ Stephen P. Marsh Date: March 26, 1996
Stephen P. Marsh, Treasurer
and Chief Financial and
Accounting Officer
COMMUNITY BANCORP. DIRECTORS
/s/ Thomas E. Adams Date: March 26, 1996
Thomas E. Adams
/s/ Francis Allard Date: March 26, 1996
Francis Allard
/s/ Jacques R. Couture Date: March 26, 1996
Jacques R. Couture
/s/ Elwood G. Duckless Date: March 26, 1996
Elwood G. Duckless
/s/ Rosemary M. Lalime Date: March 26, 1996
Rosemary M. Lalime
/s/ Marcel Locke Date: March 26, 1996
Marcel Locke
/s/ Anne T. Moore Date: March 26, 1996
Anne T. Moore
/s/ George B. Roy(Deceased 3/26/96) Date: March 26, 1996
George B. Roy
/s/ Richard C. White Date: March 26, 1996
Richard C. White
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report
(Form 10-KSB) of Community Bancorp. of our report dated January 3, 1996,
included in the 1995 Annual Report to Shareholders of Community Bancorp.
We also consent to the addition of the financial statement schedules,
listed in the accompanying index to financial statements, to the financial
statements covered by our report dated January 3, 1996, incorporated herein
by reference.
We also consent to the incorporation by reference in the
Registration Statement (Form S-3 No. 33-65393) pertaining to the Community
Bancorp. Dividend Reinvestment Plan and in the Registration Statement (Form
S-8 No. 33-44713) pertaining to the Community Bancorp. Retirement Savings Plan
of our report dated January 3, 1996, with respect to the consolidated
financial statements incorporated herein by reference and schedules of
Community Bancorp. included in the Annual Report (Form 10-KSB) for the year
ended December 31, 1995.
/s/A.M. Peisch & Company
March 26, 1996
St. Johnsbury, Vermont
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Community Bancorp. and Subsidiary
Derby, Vermont
We have audited the accompanying consolidated balance sheets of Community
Bancorp. and Subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity and cash flows for the
years ended December 31, 1995, 1994 and 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Community Bancorp. and Subsidiary at December 31, 1994 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted a new method of accounting for investment securities effective
January 1, 1994.
/s/ A. M. Peisch & Company
----------------------
January 3, 1996
St. Johnsbury, Vermont
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CONDITION
COMMUNITY BANCORP. AND SUBSIDIARY
<CAPTION>
DECEMBER 31,
1995 1994
ASSETS
<S> <C> <C>
Cash and due from banks (Note 15) ............. $ 5,068,955 $ 4,167,717
Federal funds sold ............................ 3,825,000 3,225,000
Total cash and cash equivalents ............. 8,893,955 7,392,717
Securities held-to-maturity (market value
$32,925,570 at 12/31/95, and $22,317,808
at 12/31/94) (Note 2) ........................ 32,602,657 22,347,399
Securities available-for-sale,
at market value (Note 2) ..................... 14,105,688 23,679,988
Loans (Notes 1 and 3) ......................... 137,240,198 133,426,385
Allowance for loan losses (Note 4) ............ (1,519,247) (1,707,555)
Unearned net loan fees ........................ (908,731) (924,810)
Net loans ................................... 134,812,220 130,794,020
Bank premises and equipment, net (Notes 1 and 5) 3,263,166 3,137,447
Accrued interest receivable ................... 1,524,175 1,387,000
Other real estate owned, net (Note 1) ......... 761,362 917,941
Other assets (Note 6) ......................... 1,418,576 1,658,135
Total assets .................................. $ 197,381,799 $ 191,314,647
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, non-interest bearing ................. $ 15,777,469 $ 14,535,679
NOW and money market accounts ................ 34,450,952 37,470,422
Savings ...................................... 31,395,227 34,986,250
Time deposits, $100,000 and over (Note 7) .... 18,616,586 14,964,802
Other time deposits (Note 7) ................. 78,643,288 72,718,856
Total deposits ............................. 178,883,522 174,676,009
Other borrowed funds (Note 8) ................. 65,000 65,000
Accrued interest and other liabilities ........ 587,860 504,124
Subordinated debentures (Note 9) .............. 265,000 551,000
Total liabilities ........................... $ 179,801,382 $ 175,796,133
COMMITMENTS AND CONTINGENT LIABILITIES
(NOTES 5, 11, 12 AND 13)
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value;
2,000,000 shares authorized and 1,359,869
shares issued at 12/31/95 and 1,233,726 shares
issued at 12/31/94 ........................... $ 3,399,674 $ 3,084,315
Additional paid-in capital .................... 5,513,703 3,954,284
Retained earnings (Note 16) ................... 9,056,562 9,366,926
Unrealized gain (loss) on securities
available-for-sale, net of tax ............... 50,501 (451,323)
Less treasury stock, at cost (29,355 shares
at 12/31/95 and 29,099 shares at 12/31/94) ... (440,023) (435,688)
Total stockholders' equity .................. $ 17,580,417 $ 15,518,514
Total liabilities and stockholders' equity .... $ 197,381,799 $ 191,314,647
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANCORP. AND SUBSIDIARY
<CAPTION>
YEARS ENDED DECEMBER 31,
1995 1994 1993
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans .......... $12,451,251 $11,116,122 $10,802,342
Interest and dividends on invest. sec.
U.S. Treasury securities ......... 1,691,913 1,380,154 1,330,380
U.S. Treasury agencies ........... 66,674 23,485 57,690
Obligation of states and political
subdivisions...................... 944,911 885,467 756,418
Other securities .................... 72,080 72,452 86,410
Interest on federal funds sold ...... 179,708 127,964 93,556
Total interest income ........... 15,406,537 13,605,644 13,126,796
INTEREST EXPENSE
Interest on deposits ................ 8,209,547 6,651,104 6,100,426
Interest on other borrowed funds .... 7,353 104,796 5,000
Interest on subordinated debentures . 31,555 51,743 52,875
Total interest expense ........... 8,248,455 6,807,643 6,158,301
NET INTEREST INCOME ................. 7,158,082 6,798,001 6,968,495
PROVISION FOR LOAN LOSSES (NOTE 4) .. (120,000) (180,000) (150,000)
Net interest income after provision. 7,038,082 6,618,001 6,818,495
OTHER OPERATING INCOME
Trust department income ............. 107,463 85,221 76,536
Service fees ........................ 539,851 504,572 460,581
Security gains ...................... 18,449 20,649 290,026
Other (Note 21) ..................... 514,889 447,180 432,995
Total other operating income ..... 1,180,652 1,057,622 1,260,138
OTHER OPERATING EXPENSES
Salaries and wages .................. 2,407,968 2,207,000 1,990,682
Pension and other employee benefits.. 616,388 463,965 410,376
Occupancy expenses, net ............. 1,098,731 887,208 726,688
Other (Note 21) ..................... 1,819,391 1,901,306 1,828,852
Total other operating expenses ... 5,942,478 5,459,479 4,956,598
Income before income taxes ......... 2,276,256 2,216,144 3,122,035
Applicable income taxes (Note 10) .. 324,307 329,016 607,571
NET INCOME ...................... $ 1,951,949 $ 1,887,128 $ 2,514,464
EARNINGS PER SHARE ON WEIGHTED AVERAGE
Primary ........................ $ 1.49 $ 1.51 $ 2.07
Fully diluted .................. $ 1.46 $ 1.46 $ 1.99
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
USED IN COMPUTING EARNINGS PER SHARE
Primary ........................ 1,307,552 1,251,960 1,212,832
Fully diluted .................. 1,348,968 1,313,631 1,278,576
BOOK VALUE PER SHARE ON SHARES
OUTSTANDING AT DECEMBER 31 ....... $ 13.21 $ 12.27 $ 11.90
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Unrealized
Gain(Loss)
on Sec.
Additional Available-
---Common Stock--- Paid-in Retained for-sale
Treasury
Shares Amount Capital Earnings Net of Tax
Stock
<S> <C> <C> <C> <C> <C>
<C>
Balance, December 31, 1992 1,069,618 $2,746,318 $2,652,933 $7,576,795 $ -0-
$(433,253)
Net income ............... -0- -0- -0- 2,514,464 -0-
- -0-
Dividends paid ........... -0- -0- -0- (920,282) -0-
- -0-
5% stock dividend ........ 54,026 135,066 513,251 (648,317) -0-
- -0-
Issuance of stock ........ 48,493 121,232 385,914 -0- -0-
- -0-
Purchase of treasury stock (180) -0- -0- -0- -0-
(2,252)
Balance, December 31, 1993 1,171,957 3,002,616 3,552,098 8,522,660 -0-
(435,505)
Net income ............... -0- -0- -0- 1,887,128 -0-
- -0-
Dividends paid ........... -0- -0- -0- (1,042,862) -0-
- -0-
Issuance of stock ........ 32,680 81,699 402,186 -0- -0-
- -0-
Purchase of treasury stock (10) -0- -0- -0- -0-
(183)
Net increase in unrealized
loss on securities
available-for-sale,
net of tax .............. -0- -0- -0- -0- (451,323)
- -0-
Balance, December 31, 1994 1,204,627 3,084,315 3,954,284 9,366,926 (451,323)
(435,688)
Net income ............... -0- -0- -0- 1,951,949 -0-
- -0-
Dividends paid ........... -0- -0- -0- (1,242,597) -0-
- -0-
5% stock dividend ........ 60,231 150,578 869,138 (1,019,716)
Issuance of stock ........ 65,912 164,781 690,281 -0- -0-
- -0-
Purchase of treasury stock (256) -0- -0- -0- -0-
(4,335)
Net increase in unrealized
gain on securities available-
for-sale, net of tax..... -0- -0- -0- -0- 501,824
- -0-
Balance, December 31, 1995 1,330,514 $3,399,674 $5,513,703 $9,056,562 $ 50,501
$ (440,023)
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANCORP. AND SUBSIDIARY
<CAPTION>
YEARS ENDED
DECEMBER 31,
1995 1994 1993
RECONCILIATION OF NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 1,951,949 $ 1,887,128 $ 2,514,464
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 326,702 250,469 181,976
Provision for possible
loan losses 120,000 180,000 150,000
Provision for deferred income taxes 135,655 (10,563) (147,819)
Securities (gains) (18,449) (20,649) (290,026)
Losses on sales of other
real estate owned 53,920 1,300 43,563
Subsequent write-downs on OREO 15,000 25,770 95,412
Amortization of bond premium 116,629 302,723 288,133
Increase (decrease) in taxes payable (83,790) 32,109 (132,823)
(Increase) decrease in int. receivable (137,175) (126,602) 121,559
(Increase) decrease in other assets (75,263) (68,233) 202,127
Increase (decrease) in unamortized
loan fees (16,079) 83,474 118,620
Increase (decrease) in interest payable 57,401 47,125 (7,150)
Increase (decrease) in accrued expenses 78,790 (92,775) 802
Increase (decrease) in other liabilities 39,281 (2,733) 819
Net cash provided by operating
activities 2,564,571 2,488,543 3,139,657
CASH FLOWS FROM INVESTING ACTIVITIES
Securities - held-to-maturity
Maturities and pay-downs 21,582,512 11,597,469 17,268,926
Purchases (34,727,953) (8,007,338) (14,269,648)
Securities - available-for-sale
Sales and maturities 17,084,687 19,324,024 4,506,953
Purchases (3,958,044) (28,433,750) (10,061,250)
Investments in limited partnership (87,295) (26,909) (101,682)
Increase in loans, net of payments (4,467,509) (7,714,132) (11,437,730)
Capital expenditures (452,421) (545,420) (1,571,506)
Recoveries of loans charged off 144,625 117,194 108,858
Costs incurred in acquiring OREO -0- -0- (16,910)
Proceeds from sales of other real
estate owned 288,422 190,342 868,362
Net cash used in investing
activities $ (4,592,976) $(13,498,520) $(14,705,627)
(continued)
</TABLE>
<PAGE>
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits, NOW, money market and
savings accounts $(5,368,703) $ 8,357,944 $ 4,790,731
Net increase in certificates
of deposit 9,576,216 3,390,952 7,363,346
Net decrease in other borrowed funds -0- (10,000) -0-
Payments to acquire treasury stock (4,335) (183) (2,252)
Dividends paid (673,535) (578,977) (514,136)
Net cash provided by financing
activities 3,529,643 11,159,736 11,637,689
Net increase in cash and cash
equivalents 1,501,238 149,759 71,719
Cash and cash equivalents
Beginning 7,392,717 7,242,958 7,171,239
Ending $ 8,893,955 $ 7,392,717 $ 7,242,958
SUPPLEMENTAL SCHEDULE OF
CASH PAID DURING THE YEAR
Interest $ 8,191,054 $ 6,760,518 $ 6,167,236
Income taxes $ 301,000 $ 356,000 $ 832,981
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized gain (loss) on securities
available-for-sale $ 760,340 $ (683,822) $ -0-
Other real estate owned/acquired
in settlement of loans $ 451,138 $ 293,743 $ 45,588
Debentures converted to common stock $ 286,000 $ 20,000 $ 101,000
5% stock dividend at market value $ 1,019,716 $ -0- $ 648,317
Dividends paid:
Dividends payable $ 1,242,597 $ 1,042,862 $ 920,282
Dividends reinvested (569,062) (463,885) (406,146)
$ 673,535 $ 578,977 $ 514,136
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Community Bancorp. and Subsidiary
- ------------------------------------------------------------------------------
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
The accounting policies of Community Bancorp. and Subsidiary are in conformity
with generally accepted accounting principles and general practices within the
banking industry. The following is a description of the more significant
policies.
NATURE OF OPERATIONS - The Bank provides a variety of financial services
to individuals and corporate customers through its branches in northeastern
Vermont, which is primarily a small business and agricultural area. The Bank's
primary deposit products are checking and savings accounts and certificates of
deposit. Its primary lending products are commercial, real estate and consumer
loans.
CONCENTRATION OF RISK - The Bank's operations are affected by various
risk factors, including interest rate risk, credit risk and risk from geographic
concentration of lending activities. Management attempts to manage interest rate
risk through various asset/liability management techniques designed to match
maturities of assets and liabilities. Loan policies and administration are
designed to provide assurance that loans will only be granted to credit-worthy
borrowers, although credit losses are expected to occur because of subjective
factors and factors beyond the control of the Bank. In addition, the Bank is a
community bank and, as such, is mandated by the Community Reinvestment Act and
other regulation to conduct most of its lending activities within the geographic
area where it is located. Although the Bank has a diversified loan portfolio and
economic conditions are stable, a substantial portion of its loan portfolio is
secured by real estate. As a result, the Bank and its borrowers may be
especially vulnerable to the consequences of changes in the local economy.
BASIS OF CONSOLIDATION - The consolidated financial statements include
the accounts of Community Bancorp. ("Company") and the Community National Bank
("Bank"), its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties. Accordingly, the ultimate collectibility
of a substantial portion of the Bank's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the Bank's
allowances for losses on loans and foreclosed real estate. Such agencies may
require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
PRESENTATION OF CASH FLOWS - For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks (including cash
items in process of clearing), federal funds sold (generally purchased and sold
for one-day periods) and overnight deposits. The statements of cash flows for
the years ended December 31, 1994 and 1993, have been restated using the
indirect method to conform with the December 31, 1995, presentation.
TRUST ASSETS - Assets of the Trust Department, other than trust cash on
deposit at the Bank, are not included in these consolidated financial statements
because they are not assets of the Company.
INVESTMENT SECURITIES - As of January 1, 1994, the Company adopted
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Under Statement 115 debt securities the Company has the positive
intent and ability to hold to maturity are classified as held-to-maturity and
reported at amortized cost. Debt and equity securities purchased and held
primarily for resale in the near future are classified as trading. Trading
securities are carried at fair value with unrealized gains and losses included
in earnings. Debt and equity securities not classified as either
held-to-maturity or trading are classified as available-for-sale. Investments
classified as available-for-sale are carried at market value with unrealized
gains and losses reported as a separate component of equity net of applicable
income taxes. The specific identification method is used to determine realized
gains and losses on sales of securities available-for-sale.
LOANS AND ALLOWANCE FOR LOAN LOSSES - The Company adopted Statement of
Financial Accounting Standards No. 114 (as amended by SFAS No. 118), "Accounting
by Creditors for Impairment of a Loan," effective January 1, 1995. This
statement is considered the primary source of authoritative guidance for
determining allowances relating to specific loans. The effect of adoption of
this statement was immaterial to the Company's financial statements.
Loans are stated at the amount of unpaid principal, reduced by unearned
fees and an allowance for possible loan losses.
The allowance for possible loan losses is maintained at a level which, in
management's judgment, is adequate to absorb credit losses inherent in the loan
portfolio. The amount of the allowance is based on management's evaluation of
the collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance is increased by a provision for loan losses, which is
charged to expense and reduced by charge-offs, net of recoveries.
Interest on loans is accrued daily on the outstanding balances. The Company
places loans on nonaccrual when any portion of the
<PAGE>
principal or interest is 90 days past due, unless it is well secured and in the
process of collection, or earlier when concern exists as to the ultimate
collection of principal or interest. When loans are placed on nonaccrual, the
current year related interest receivable is reversed against interest income of
the current period while prior year interest is charged to the allowance for
possible loan losses. Interest income generally is not recognized on specific
impaired loans unless the likelihood of loss is remote. Interest payments
received on such loans are applied as a reduction of the principal balance when
concern exists about the ultimate collection of principal; otherwise, such
payments are recognized as interest income. Loans are removed from nonaccrual
when they become current in both principal and interest and when concern no
longer exists as to the collectibility of principal or interest.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and amortized as an adjustment of the related loan's
yield. The Bank is generally amortizing these amounts over the contractual life.
PENSION COSTS - Pension costs are charged to salaries and employee benefits
expense and are funded as accrued.
ADVERTISING COSTS - The Bank expenses advertising costs as incurred.
EARNINGS PER SHARE - Primary earnings per share are computed based on the
weighted average number of shares of common stock outstanding during the period
(retroactively adjusted for stock splits and stock dividends) and reduced for
shares held in treasury.
Fully diluted earnings per share amounts are based on an increased number
of shares that would be outstanding assuming conversion of the convertible
subordinated debentures. Net income has been adjusted for the interest expense
net after tax effect on the convertible debt.
<TABLE>
BANK PREMISES AND EQUIPMENT - Bank premises and equipment are stated at
cost, less accumulated depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
Years
<S> <C>
Buildings and improvements........ 8 - 40
Furniture and equipment........... 3 - 10
</TABLE>
The cost of assets sold or otherwise disposed of, and the related allowance
for depreciation, is eliminated from the accounts and the resulting gains or
losses are reflected in the income statement. Maintenance and repairs are
charged to current expense as incurred and the cost of major renewals and
betterments are capitalized.
OTHER REAL ESTATE OWNED - Other real estate owned includes property
acquired through foreclosure or forgiveness of debt. These properties are
carried at the lower of fair market value, minus estimated costs to sell, or
cost. Losses from the acquisition of property in full or partial satisfaction of
debt are treated as credit losses. Routine holding costs, subsequent declines in
value and gains or losses on disposition are included in other income and
expenses.
An allowance for possible losses is maintained for OREO that management
believes to be adequate to provide for potential losses. Additions to the
allowance are charged to operations; realized losses are charged to the
allowance. The allowance was $113,386 at December 31, 1995 and 1994.
INCOME TAXES - The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," effective January 1, 1993,
which recognizes income taxes under the asset and liability method. Under this
method deferred tax assets and liabilities are established for the temporary
differences between the accounting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates expected to be in effect when the
amounts related to such temporary differences are realized or settled.
Adjustments to the Company's deferred tax assets are recognized as deferred
income tax expense or benefit based on management's judgments relating to the
realizability of such asset. The cumulative effect of this change in accounting
method as of the effective date of adoption was immaterial to the Company's
financial statements.
FOREIGN CURRENCY TRANSACTIONS - Foreign currency (principally Canadian)
amounts are translated to U.S. dollars in accordance with FASB Statement No. 52,
"Foreign Currency Translation." The U.S. dollar is the functional currency and
therefore translation adjustments are recognized in income. Total translation
adjustments, including adjustments on foreign currency transactions, are
immaterial.
MORTGAGE SERVICING - In May 1995 the FASB issued SFAS No. 122, "Accounting
for Mortgage Servicing Rights, an Amendment of FASB Statement No. 65." The
Company elected to adopt this standard effective October 1, 1995. This statement
requires the Company to recognize as separate assets rights to service mortgage
loans for others, however those servicing rights are acquired. When the Company
acquires mortgage servicing rights through either the purchase or origination of
mortgage loans (originated mortgage loan servicing rights) and sells or
securitizes those loans with servicing rights retained, it allocates the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage loan servicing rights) based on their relative fair
values. To determine the fair value of the servicing rights created, the Company
uses the market prices under comparable servicing sales contracts. The effect of
adoption of this statement was immaterial to the Company's financial statements.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - In the ordinary course of
business, the Bank has entered into off-balance sheet financial instruments
consisting of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they become
payable.
FAIR VALUES OF FINANCIAL INSTRUMENTS - Statement of Accounting Standards
No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the statement of financial condition. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
<PAGE>
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and cash equivalents--The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Investment securities--Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments. Fair values for nonmarketable equity securities are based on their
carrying amounts. The carrying amount of accrued interest receivable
approximates its fair value.
Loans--For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real estate
and rental property mortgage loans and commercial and industrial loans) are
estimated using discounted cash flow analysis, based on interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Loan fair value estimates include judgments regarding future expected
loss experience and risk characteristics. The carrying amount of accrued
interest receivable approximates its fair value.
Deposits and Long-Term Debt--The fair values disclosed for demand deposits
(for example, checking and savings accounts) are by definition equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). The fair values for certificates of deposit and the related long-term
debt are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates and debt to a schedule of
aggregated contractual maturities on such time deposits and debt. The carrying
amount of accrued interest payable approximates fair value.
Other liabilities--Commitments to extend credit were evaluated and fair
value was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
present credit-worthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates.
RECLASSIFICATION - Certain amounts in the 1994 and 1993 financial
statements have been reclassified to conform to the current year presentation.
- --------------------------------------------------------------------------------
NOTE 2. INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
Securities available-for-sale consisted of the following at December 31, 1995:
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Govt. and agency securities $12,989,420 $ 89,265 $ 12,747 $13,065,938
Other securities 1,039,750 -0- -0- 1,039,750
$14,029,170 $ 89,265 $ 12,747 $14,105,688
<CAPTION>
Securities held-to-maturity at December 31, 1995, consisted of the following:
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Govt. and agency securities $20,867,087 $322,913 $ -0- $21,190,000
States and political subdivisions 11,735,570 -0- -0- 11,735,570
$32,602,657 $322,913 $ -0- 32,925,570
<CAPTION>
Securities available-for-sale consisted of the following at December 31, 1994:
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Govt. and agency securities $23,402,260 $ 7,606 $691,428 $22,718,438
Other securities 961,550 -0- -0- 961,550
$24,363,810 $ 7,606 $691,428 $23,679,988
<CAPTION>
Securities held-to-maturity at December 31, 1994, consisted of the following:
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
U.S. Govt. and agency securities $ 5,779,122 $ -0- $ 29,591 $ 5,749,531
States and political subdivisions 16,568,277 -0- -0- 16,568,277
$22,347,399 $ -0- $ 29,591 $22,317,808
</TABLE>
Other securities mentioned above consist of Federal Home Loan Bank and Federal
Reserve Bank stock which are required member holdings and, as such, are
considered restricted investments.
Investment securities with a carrying amount of $3,453,455 and $3,053,136
and a market value of $3,529,375 and $2,984,062 at December 31, 1995 and 1994,
respectively, were pledged as collateral on public deposits and for other
purposes as required or permitted by law.
No securities held to maturity were sold in 1995 and 1994. Proceeds from
the sale of securities available-for-sale amounted to $17,084,687 and $7,637,734
in 1995 and 1994, respectively. Realized gains from sales of investments
available-for-sale were $58,762 and $23,041 with realized losses of $40,313 and
$2,392 for the years 1995 and 1994, respectively.
<PAGE>
<TABLE>
Gross realized gains and gross realized losses on sales of securities prior to
adoption of SFAS 115 were:
<CAPTION>
1993
<S> <C>
Gross realized gains:
U. S. Government and agency securities $ 3,373
Other securities 310,990
$314,363
<CAPTION>
1993
Gross realized losses:
U. S. Government and agency securities $ 937
Other securities 23,400
$ 24,337
</TABLE>
The carrying amount and estimated market value of securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties. The Bank anticipates no losses on
these securities and expects to hold them to maturity.
<TABLE>
The maturities of securities available-for-sale at December 31, 1995, were as
follows:
<CAPTION>
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $10,052,011 $10,066,563
Due from one to five years 2,937,409 2,999,375
Other Securities 1,039,750 1,039,750
$14,029,170 $14,105,688
<CAPTION>
The maturities of securities held-to-maturity at December 31, 1995, were as
follows:
Carrying Market
Amount Value
Due in one year or less $ 6,907,110 $ 6,907,110
Due from one to five years 22,897,280 23,220,193
Due from five to ten years 950,357 950,357
Due after ten years 1,847,910 1,847,910
$32,602,657 $32,925,570
</TABLE>
Included in the caption "States and Political Subdivisions" are securities of
local municipalities carried at $11,735,570 and $16,568,277 at December 31, 1995
and 1994, respectively, which are attributable to private financing transactions
arranged by the Bank. There is no established trading market for these
securities and, accordingly, the carrying amount of these securities has been
reflected as their market value. The Bank anticipates no losses on these
securities and expects to hold them until their maturity.
The Financial Accounting Standards Board issued an implementation guide to
FASB No. 115 on "Accounting for Certain Investments in Debt and Equity
Securities." This guide allows the one-time transfer of securities in the
held-to-maturity classification to the available-for-sale classification between
the period November 15, 1995, and December 15, 1995. During this period the
Company transferred securities with an approximate cost and market value of
$2,990,000 from held-to-maturity to available-for-sale. This one-time transfer
will not call into question the intent of the Company to hold other debt
securities to maturity in the future.
- --------------------------------------------------------------------------------
NOTE 3. LOANS
- --------------------------------------------------------------------------------
<TABLE>
The composition of the net loans at December 31 is as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Commercial $ 7,875,715 $ 8,024,100
Real estate 112,475,913 108,764,002
Installment and other 16,888,570 16,638,283
$137,240,198 $133,426,385
Deduct:
Allowance for possible loan losses 1,519,247 1,707,555
Unearned net loan fees 908,731 924,810
2,427,978 2,632,365
$134,812,220 $130,794,020
</TABLE>
The Bank had loans amounting to approximately $1,351,000 that were specifically
classified as impaired at December 31, 1995. These loans were subject to
allowances for loan losses of approximately $120,000 which represented the total
allowance for loan losses related to impaired loans at December 31, 1995. The
average balance of these loans amounted to approximately $1,363,000. Cash
receipts on impaired loans amounted to $187,835 in 1995, $173,582 of which were
applied to the principal balances of the loans.
In addition, the Bank had other nonaccrual loans of approximately $542,000
for which impairment had not been recognized. If interest on these loans had
been recognized at the original interest rates, interest income would have
increased approximately $74,609 for the year ended December 31, 1995.
<PAGE>
Nonaccruing loans and restructured (principally commercial and real estate)
loans prior to the adoption of SFAS No. 114 (see Note 1) totalled $2,286,924 and
$1,964,015 at December 31, 1994 and 1993. If interest on these loans had been
recognized at the original interest rates, interest income would have increased
approximately $181,900 and $119,800 for the years ended December 31, 1994 and
1993.
The Bank is not committed to lending additional funds to debtors with
impaired, nonaccrual or modified loans.
- --------------------------------------------------------------------------------
NOTE 4. ALLOWANCE FOR POSSIBLE LOAN LOSSES
- --------------------------------------------------------------------------------
<TABLE>
Changes in the allowance for possible loan losses at December 31 are as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, beginning $1,707,555 $1,871,555 $1,782,248
Provision charged to operating expense 120,000 180,000 150,000
Recoveries of amounts charged off 144,625 117,194 108,858
1,972,180 2,168,749 2,041,106
Amounts charged off (452,933) (461,194) (169,551)
Balance, ending $1,519,247 $1,707,555 $1,871,555
</TABLE>
- --------------------------------------------------------------------------------
NOTE 5. BANK PREMISES AND EQUIPMENT
- --------------------------------------------------------------------------------
<TABLE>
The major classes of bank premises and equipment and the total accumulated
depreciation at December 31 are as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Land............................. $ 80,747 $ 80,747
Buildings and improvements....... 2,236,459 2,170,610
Furniture and equipment.......... 3,490,168 3,248,615
Leasehold improvements........... 325,105 180,821
6,132,479 5,680,793
Less accumulated depreciation.... (2,869,313) (2,543,346)
$ 3,263,166 $ 3,137,447
</TABLE>
Depreciation included in occupancy and equipment expense amounted to $326,702,
$250,469 and $181,976 for the years ended December 31, 1995, 1994 and 1993,
respectively.
The Bank occupies leased quarters at four branch office locations under
operating leases expiring in various years through 2013 with options to renew.
In addition, the Bank leases certain computer hardware under an operating lease
which expires in 1999.
<TABLE>
<CAPTION>
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year as of December 31, 1995, for each of the
next five years and in aggregate are:
<S> <C>
1996 ................. $ 284,660
1997 ................. 284,660
1998 ................. 269,660
1999 ................. 97,892
2000 ................. 79,353
Subsequent to 2000 ... 450,500
$1,466,725
</TABLE>
Total rental expense amounted to $323,372, $220,388 and $228,128 for the
years ended December 31, 1995, 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
NOTE 6. INVESTMENTS CARRIED AT EQUITY
- --------------------------------------------------------------------------------
The Bank has purchased partnership interests of 99% in the Derby Housing,
Peacham Housing and Gilman Housing Limited Partnerships. The Bank has an
additional 6% interest in the Waterbury Housing Partnership. These partnerships
were established to acquire, own and rent residential housing for low- and
moderate-income Vermonters located in northeastern Vermont. The investments are
accounted for under the equity method of accounting. These equity investments,
which are included in other assets, are recorded at cost and adjusted for the
Bank's proportionate share of the partnership's undistributed earnings or
losses. The carrying values of these investments were $215,886 and $128,591 at
December 31, 1995 and 1994, respectively. The provision for undistributed net
losses of the partnerships charged to earnings were $35,000, $60,024 and $9,792
for 1995, 1994 and 1993, respectively.
- --------------------------------------------------------------------------------
NOTE 7. DEPOSITS
- --------------------------------------------------------------------------------
<TABLE>
The following is a maturity distribution of time certificates of deposit at
December 31:
<CAPTION>
1995 1994
<S> <C> <C>
Maturing in one year or less........ $58,455,289 $42,012,516
Maturing from one to five years..... 38,753,073 45,665,293
Maturing from five to ten years..... 51,512 5,849
$97,259,874 $87,683,658
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
NOTE 8. BORROWED FUNDS
- -------------------------------------------------------------------------------
<TABLE>
The Bank was advanced $75,000 on November 16, 1992, from the Federal Home Loan
Bank of Boston as part of their Community Investment Program. Under the terms of
the agreement, these funds have been reloaned to a local nonprofit organization
providing low- income housing. The interest rate varies between 6.2% and 7.7%
based on the maturity dates. Principal maturities of borrowed funds as of
December 31, 1995, are as follows:
<S> <C>
1996 ................ $ -0-
1997 ................ 5,000
1998 ................ -0-
1999 ................ 5,000
2000 ................ -0-
Thereafter .......... 55,000
$65,000
</TABLE>
The Bank also maintains a $3,826,000 IDEAL Way Line of Credit with the Federal
Home Loan Bank of Boston which was unused at December 31, 1995. Interest on
these borrowings is chargeable at a rate determined daily by the Federal Home
Loan Bank and payable monthly. Collateral on these borrowings consists of
Federal Home Loan Bank stock purchased by the Bank, all funds placed in deposit
with the Federal Home Loan Bank, all first mortgages held by the Bank and any
additional holdings which may be pledged as security.
- -------------------------------------------------------------------------------
NOTE 9. SUBORDINATED DEBENTURES
- -------------------------------------------------------------------------------
On September 1, 1984, the Company issued $750,000 of 11% convertible debentures
due August 1, 2004. The notes are subordinated to all other indebtedness of the
Corporation. At December 31, 1995 and 1994, $74,000 and $84,000, respectively,
remained outstanding.
These debentures are convertible prior to maturity in whole or in part,
at the option of the holder, into common stock of the Company at a conversion
price of $5.15 per share.
<TABLE>
The debentures are redeemable, in whole or in any part, at the option of
the Company at any time after July 31, 1996, and prior to maturity, on not less
than 30 days prior notice to holders. The redemption price shall be equal to the
percentage set forth below:
<S> <C>
August 1, 1996 - July 31, 1998 ............. 104%
August 1, 1998 - July 31, 2000 ............. 103%
August 1, 2000 - July 31, 2002 ............. 102%
August 1, 2002 - July 31, 2004 ............. 101%
</TABLE>
On August 1, 1986, the Company issued $500,000 of 9% convertible debentures due
August 1, 1998. The notes are subordinated to all other indebtedness of the
Company. At December 31, 1995 and 1994, $191,000 and $467,000, respectively,
remained outstanding.
These debentures are convertible prior to maturity in whole or in part,
at the option of the holder, into common stock of the Company at a conversion
price of $10.31 per share.
<TABLE>
The debentures are redeemable, in whole or in any part, at the option of
the Company at any time after July 31, 1993, and prior to maturity, on not less
than 30 days prior notice to holders. The redemption price shall be equal to the
percentage set forth below:
<S> <C>
August 1, 1995 - July 31, 1996 ............. 102%
August 1, 1996 - July 31, 1998 ............. 101%
</TABLE>
- -------------------------------------------------------------------------------
NOTE 10. INCOME TAXES
- -------------------------------------------------------------------------------
As discussed in Note 1, the Company adopted FASB Statement of Financial
Accounting Standards No. 109 as of January 1, 1993. The cumulative effect of
this change was immaterial to the Company's financial statements.
<TABLE>
<CAPTION>
The components of income tax expense are as follows at December 31:
1995 1994 1993
<S> <C> <C> <C>
Currently paid or payable $188,652 $339,579 $ 755,390
Deferred 135,655 (10,563) (147,819)
$324,307 $329,016 $ 607,571
</TABLE>
<TABLE>
Total income tax expense differed from the amounts computed by applying the U.S.
federal income tax rates of 34% to income before income taxes and cumulative
effect of change in accounting for income taxes as a result of the following at
December 31:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Computed "expected" tax expense $ 773,927 $ 753,489 $1,061,492
Mark-to-market equities (73,345) (73,345) (73,345)
Security sales -0- -0- (61,710)
Tax exempt interest (318,112) (301,059) (253,591)
Dividend exclusion -0- -0- (8,330)
Disallowed interest 49,613 46,612 35,723
Partnership tax credits (114,000) (42,684) -0-
Other 6,224 (53,997) (92,668)
$ 324,307 $ 329,016 $ 607,571
</TABLE>
<PAGE>
<TABLE>
The deferred income tax provision consisted of the following items at December
31:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Depreciation ........... $ 31,281 $ 30,464 $ 30,251
Loan fees .............. 33,493 53,716 (40,351)
Bad debts .............. 64,025 55,759 (30,364)
Limited partnerships ... 44,000 (9,223) -0-
Pension ................ -0- (34,240) -0-
Nonaccrual loan
interest................ (38,646) (54,787) (11,552)
OREO ................... -0- 4,588 (29,417)
Other .................. 1,502 (56,840) (66,386)
$135,655 $(10,563) $(147,819)
</TABLE>
<TABLE>
Listed below are the significant components of the net deferred tax asset at
December 31:
<CAPTION>
<S> <C> <C>
1995 1994
Components of the deferred tax asset:
Bad debts $379,378 $ 443,403
Unearned loan fees 198,846 232,339
Nonaccrual loan interest 122,327 83,681
OREO write-downs 38,551 38,551
Unrealized loss on securities available-for-sale -0- 232,499
Capital loss carryover 55,556 55,556
Other 19,445 13,721
Total deferred tax asset 814,103 1,099,750
Valuation allowance (55,556) (55,556)
Total deferred tax asset, net of valuation allowance 758,547 1,044,194
Components of the deferred tax liability:
Depreciation 167,756 136,475
Limited partnerships 44,000 -0-
Other 7,226 -0-
Unrealized gain on securities available-for-sale 26,016 -0-
Total deferred tax liability 244,998 136,475
Net deferred tax asset $513,549 $ 907,719
</TABLE>
FASB Statement No. 109 allows for recognition and measurement of deductible
temporary differences (including general valuation allowances) to the extent
that it is more likely than not that the deferred tax asset will be realized.
At December 31, 1995, the Company has available $167,500 of capital loss
carryforward available for income tax purposes. The capital loss carryforward is
available only to offset capital gains and expires in 1997 if unused.
- --------------------------------------------------------------------------------
NOTE 11. PENSION PLANS
- --------------------------------------------------------------------------------
The Bank has a discretionary defined contribution plan covering all employees
who meet certain age and service requirements. Due to the nature of the plan,
defined contribution, there is no unfunded past service liability. The
provisions for pension expense were $175,000, $125,000 and $123,257 for 1995,
1994 and 1993, respectively.
- --------------------------------------------------------------------------------
NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
- --------------------------------------------------------------------------------
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit and
financial guarantees, interest rate caps and floors written on adjustable rate
loans and commitments to sell loans. Such instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual notional amount of those instruments. The Bank uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. For interest rate caps and floors written on
adjustable rate loans, the contract or notional amounts do not represent
exposure to credit loss. The Bank controls the credit risk of their interest
rate cap agreements through credit approvals, limits and monitoring procedures.
<TABLE>
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
<CAPTION>
Contract or Notional Amount
Financial instruments whose contract amount represent credit risk:
1995 1994
<S> <C> <C>
Commitments to extend credit $7,035,973 $5,100,314
Standby letters of credit and
commercial letters of credit $ 204,180 $ 472,494
Credit card arrangements $3,334,808 $3,277,861
</TABLE>
<PAGE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Bank upon extension of credit is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
real estate, accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Bank to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loans to customers.
The Bank enters into a variety of interest rate contracts, including
interest rate caps and floors written on adjustable rate loans, in managing its
interest rate exposure. Interest rate caps and floors on loans written by the
Bank enables customers to transfer, modify or reduce their interest rate risk.
- --------------------------------------------------------------------------------
NOTE 13. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
In the ordinary course of business, the Company is involved in various claims
and legal actions. The outcome of these claims and actions is not presently
determinable; however, in the opinion of the Company's management, after
consulting with the Company's legal counsel, the ultimate disposition of these
matters is not expected to have a material adverse effect on the Company's
financial condition.
- --------------------------------------------------------------------------------
NOTE 14. TRANSACTIONS WITH RELATED PARTIES
- --------------------------------------------------------------------------------
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they are
principal stockholders (commonly referred to as related parties), all of which
have been, in the opinion of management, on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with others.
<TABLE>
Aggregate loan transactions with related parties as of December 31 were as
follows:
<CAPTION>
1995 1994
<S> <C> <C>
Balance, beginning ...... $1,184,810 $1,312,817
New loans ........ 329,096 469,170
Repayments ....... (461,176) (731,784)
Other, net ....... 17,000 134,607
Balance, ending ......... $1,069,730 $1,184,810
</TABLE>
Other loan activity principally consists of borrowing related to directors who
have resigned or have been newly elected. Loan activity for these directors
during their terms is shown consistent with other directors' activity.
- --------------------------------------------------------------------------------
NOTE 15. RESTRICTIONS ON CASH AND DUE FROM BANKS
- --------------------------------------------------------------------------------
The Bank is required to maintain reserve balances in cash with Federal Reserve
Banks. The totals of those reserve balances were approximately $899,000 and
$865,000 at December 31, 1995 and 1994, respectively. In addition, the Bank was
required to maintain contracted clearing balances of $250,000 at December 31,
1995 and 1994, respectively.
- --------------------------------------------------------------------------------
NOTE 16. REGULATORY MATTERS
- --------------------------------------------------------------------------------
<TABLE>
The Bank, as a National Bank, is subject to the dividend restrictions set forth
by the Comptroller of the Currency. Under such restrictions the Bank may not,
without the prior approval of the Comptroller of the Currency, declare dividends
in excess of the sum of the current year's earnings (as defined) plus the
retained earnings (as defined) from the prior two years. The Bank is also
required to maintain minimum amounts of capital to total "risk weighted" assets,
as defined by the banking regulators. At December 31, 1995 and 1994, the Bank is
required to have minimum Tier 1 and Total Capital ratios of 4% and 8%,
respectively. The Bank's ratios at December 31 were as follows:
<CAPTION>
1995 1994
<S> <C> <C>
Tier 1 ratio ..................... 18% 17%
Capital ratio .................... 19% 18%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
<TABLE>
The estimated fair values of the institution's financial instruments are as
follows:
<CAPTION>
December 31, 1995
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents .... $ 8,893,955 $ 8,893,955
Securities held-to-maturity .. 32,602,657 32,925,570
Securities
available-for-sale.......... 14,105,688 14,105,688
Loans, net of allowance ...... 134,812,220 132,810,104
Accrued interest receivable .. 1,524,175 1,524,175
Financial liabilities:
Deposits ..................... 178,883,522 179,224,678
Long-term debt ............... 330,000 340,613
Accrued interest payable ..... 320,052 320,052
<CAPTION>
December 31, 1994
Carrying Fair
Amount Value
Financial assets:
Cash and cash equivalents ... $ 7,392,717 $ 7,392,717
Securities held-to-maturity . 22,347,399 22,317,808
Securities
available-for-sale......... 23,679,988 23,679,988
Loans, net of allowance ..... 130,794,020 128,315,971
Accrued interest receivable . 1,387,000 1,387,000
Financial liabilities:
Deposits .................... 174,676,009 175,972,967
Long-term debt .............. 616,000 631,827
Accrued interest payable .... 257,408 257,408
</TABLE>
The estimated fair values of commitments to extend credit and letters of
credit were immaterial at December 31, 1995 and 1994.
The carrying amounts in the preceding table are included in the balance
sheet under the applicable captions, except for long-term debt which consists of
borrowed funds and subordinated debentures.
- --------------------------------------------------------------------------------
NOTE 18. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
- --------------------------------------------------------------------------------
<TABLE>
The following financial statements are for Community Bancorp. (Parent Company
Only), and should be read in conjunction with the consolidated financial
statements of Community Bancorp. and Subsidiary.
<CAPTION>
COMMUNITY BANCORP. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEET, December 31,
ASSETS ..................................... 1995 1994
<S> <C> <C>
Cash ..................................... $ 162,476 $ 145,522
Investment in subsidiary - bank .......... 17,665,686 15,904,034
Other assets ............................. 20,543 28,489
Total assets ............................. $17,848,705 $16,078,045
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Other liabilities ...................... $ 3,288 $ 8,531
Subordinated convertible debentures .... 265,000 551,000
Total liabilities ...................... 268,288 559,531
Stockholders' equity
Common stock, $2.50 par value;
2,000,000 shares authorized, 1,359,869
shares issued in 1995 and
1,233,726 shares issued in 1994 ........ 3,399,674 3,084,315
Additional paid-in capital ............... 5,513,703 3,954,284
Retained earnings (Note 16) .............. 9,056,562 9,366,926
Unrealized gain (loss) on securities
available-for-sale, net of tax ......... 50,501 (451,323)
Less treasury stock, at cost (1995,
29,355 shares; 1994, 29,099 shares) .... (440,023) (435,688)
Total stockholders' equity ............... 17,580,417 15,518,514
Total liabilities and stockholders'
equity.................................. $17,848,705 $16,078,045
</TABLE>
<PAGE>
The investment in the Bank is carried under the equity method of accounting.
The investment and cash, which is on deposit with the Bank, has been eliminated
in consolidation.
<TABLE>
<CAPTION>
COMMUNITY BANCORP. (PARENT COMPANY ONLY) December 31,
CONDENSED STATEMENTS OF INCOME 1995 1994 1993
<S> <C> <C> <C>
REVENUES
Dividends
Bank subsidiary $ 832,000 $ 546,000 $ 731,000
Total revenues 832,000 546,000 731,000
EXPENSES
Interest on long-term debt 31,555 51,743 52,875
Administrative and other 28,866 32,047 15,095
Total expenses 60,421 83,790 67,970
Income before applicable income tax and equity
in undistributed net income of subsidiary 771,579 462,210 663,030
Applicable income tax (benefit) (20,543) (28,488) (23,110)
Income before equity in undistributed net
income of subsidiary 792,122 490,698 686,140
Equity in undistributed net income--subsidiary
bank 1,159,827 1,396,430 1,828,324
NET INCOME $1,951,949 $1,887,128 $2,514,464
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP. (PARENT COMPANY ONLY) December 31,
CONDENSED STATEMENTS OF CASH FLOWS 1995 1994 1993
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities
Net income $1,951,949 $1,887,128 $2,514,464
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Equity in undistributed net income of
subsidiary. (1,259,828) (1,396,430) (1,828,324)
Amortization -0- -0- 2,550
(Increase) decrease in income taxes
receivable 7,946 (5,379) 11,913
Decrease in other liabilities (5,243) (357) (1,785)
Net cash provided by operating activities 694,824 484,962 698,818
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,335) (183) (2,252)
Dividends paid (673,535) (578,977) (514,136)
Net cash used for financing activities (677,870) (579,160) (516,388)
Net increase (decrease) in cash 16,954 (94,198) 182,430
Cash beginning 145,522 239,720 57,290
Cash ending $ 162,476 $ 145,522 $ 239,720
SUPPLEMENTAL SCHEDULE OF CASH PAID
(RECEIVED) DURING THE YEAR
Interest $ 36,798 $ 52,100 $ 54,660
Income taxes $ (28,488) $ (23,110) $ (35,023)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Unrealized (gain) loss on securities
available-for-sale $ 760,340 $ (683,822) $ -0-
Debentures converted to common stock $ 286,000 $ 20,000 $ 101,000
Dividends paid
Dividends payable $1,242,597 $1,042,862 $ 920,282
Dividends reinvested (569,062) (463,885) (406,146)
$ 673,535 $ 578,977 $ 514,136
</TABLE>
<PAGE>
<TABLE>
NOTE 19. QUARTERLY FINANCIAL DATA (UNAUDITED)
COMMUNITY BANCORP. AND SUBSIDIARY
A summary of financial data for the four quarters of 1995, 1994 and 1993 is
presented below:
<CAPTION>
Quarters in 1995 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $3,593,766 $3,788,464 $3,928,489 $4,095,818
Interest expense 1,960,723 2,067,712 2,100,188 2,119,832
Provision for loan losses 30,000 30,000 30,000 30,000
Securities gains -0- -0- -0- 18,449
Other operating expenses 1,508,365 1,494,778 1,462,514 1,476,821
Net income 302,539 417,623 490,824 740,963
Earnings per common share
primary $.24 $.32 $.37 $.56
fully diluted $.23 $.31 $.37 $.55
</TABLE>
<TABLE>
<CAPTION>
Quarters in 1994 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $3,331,479 $3,352,772 $3,370,639 $3,550,754
Interest expense 1,577,938 1,694,283 1,728,740 1,806,682
Provision for loan losses 45,000 45,000 45,000 45,000
Securities gains -0- 11,915 8,734 -0-
Other operating expenses 1,307,079 1,325,032 1,387,406 1,439,962
Net income 502,933 462,909 409,331 511,955
Earnings per common share
primary $.41 $.37 $.33 $.40
fully diluted $.39 $.36 $.32 $.39
</TABLE>
<TABLE>
<CAPTION>
Quarters in 1993 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $3,243,787 $3,245,794 $3,281,073 $3,356,142
Interest expense 1,560,786 1,546,827 1,504,260 1,546,428
Provision for loan losses 50,000 50,000 50,000 -0-
Securities gains 52,960 234,630 2,436 -0-
Other operating expenses 1,266,447 1,231,164 1,251,185 1,207,802
Net income 536,955 745,353 510,695 721,461
Earnings per common share
primary $.46 $.62 $.42 $.59
fully diluted $.43 $.59 $.40 $.56
</TABLE>
<TABLE>
NOTE 20. OTHER INCOME AND OTHER EXPENSES
The components of other income and other expenses which are in excess of 1% of
total revenues in any of the three years disclosed are as follows:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income
Exchange (Note 1) ......... $ 50,858 $ 54,856 $ 79,010
Other ..................... 464,031 392,324 353,985
$ 514,889 $ 447,180 $ 432,995
Expenses
Printing and supplies ...... $ 142,546 $ 119,283 $ 108,429
FDIC insurance ............. 201,474 372,524 341,702
Other ...................... 1,475,371 1,409,499 1,378,721
$1,819,391 $1,901,306 $1,828,852
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS
For the Year Ended December 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.
Community National Bank has experienced a great deal of change over the past
few years, ranging from an addition to the main office which was completed in
July of 1993 to the installations of ATM's at the main office in Derby, the
Barton office and the Troy office. The most recent occasion was the broadening
of the Bank's servicing area through the construction of a new branch office
located in Caledonia County in the town of St. Johnsbury. This office, which is
housed in a building with a major chain supermarket, opened for business in
June of 1995 as a full service banking office complete with an ATM. Unlike any
of the other offices, this branch is open seven days a week in anticipation of
serving the needs of the shoppers at the supermarket, which is open 24 hours a
day. The bank now has offices in three counties in the state of Vermont,
thereby increasing its servicing capabilities.
At the end of this narrative there are several financial tables
relating to the information disclosed throughout this discussion. These tables,
when used in conjunction with the following facts and figures, should give a
better understanding of the overall performance and condition of Community
National Bank and Community Bancorp.
LIQUIDITY--Liquidity 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 from $15 million at
the end of 1994 to $18.6 million at the end of 1995, an increase of $3.6
million or 24.4%. Other time deposits increased to $78.6 million from $72.7
million for the same time period, an increase of 8.14%. A review of these
deposits indicates that the growth is primarily generated locally and
regionally by established customers of the Bank. The Bank has no brokered
deposits.
Our gross loan portfolio increased by $3.8 million or 2.86% to end the
1995 year at $137.2 million. Of this total loan portfolio of $137.2 million,
$70.8 million or 52% is scheduled to reprice within one year and $5.4 million
or 4% is scheduled to mature within one year. The bank has two credit lines
with available balances totaling $5.8 million to further help with liquidity.
As of the end of 1995, the Bank maintained short-term investments of
$15.1 million, and of this total, $3.8 million or 25% was federal funds sold,
which compares to $3.2 million or 14% for the prior year. As of December 31,
1995, the Bank also had $20.8 million in "held-to-maturity" treasuries, which
are not included in the $15.1 million because they are not considered
short-term investments under new regulations governing the classification of
securities.
All other interest-bearing accounts in total decreased by $6.6 million,
or just over 9% in 1995, and demand deposit accounts increased to $15.7 million
from $14.5 million for the same time period, an increase of 8.5%. Short-term
investments exceeded short-term liabilities by $9.5 million in 1995 and almost
$17.2 million in 1994, thereby providing the bank with ample liquidity.
FINANCIAL SUMMARY--The calendar year of 1995, while not quite as good as 1993,
proved more profitable for Community Bancorp., than the 1994 year, with total
earning of $1.95 million compared to $1.9 million in 1994. The 1993 earnings of
$2.5 million have yet to be exceeded over the past two years. The results of
these figures are primary earnings per share of $1.49 and fully diluted
earnings per share of $1.46 for 1995, compared to $1.51 and $1.46 respectively
for the year ended 1994, and $2.07 and $1.99 respectively for 1993.
Return on average assets (ROA), which measures how effectively a
corporation uses its assets to produce earnings, was 1.00% for both 1995 and
1994 versus 1.46% for 1993. Return on equity (ROE), which is the ratio of
income earned to average shareholder's equity, was 12.13% for 1995 compared to
12.43% in 1994 and 19.06% in 1993.
INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)--Net interest
income represents the difference between interest earned on loans an
investments versus the interest paid on deposits and other sources of funds
(i.e., other borrowings). Changes in net interest income result from changes in
the level and mix of earning assets and sources of funds (volume) and from
changes in the yield earned and costs paid (rate). The table labeled "Average
Balances and Interest Rates" provides the visual analysis for the comparison of
interest income versus interest expense. These figures, which include earnings
on tax-exempt investment securities, are stated on a tax equivalent basis.
Interest income rose from $14.06 million at the end of 1994 to $15.88
million for 1995, an increase of 13%. Interest expense rose from $6.81 million
to $8.25 million, or 21% for the same period. The overall effect, or net
interest income, was $7.64 million for the year ended 1995 versus a 1994
year-end net interest income of $7.25 million. The net interest income for
year-end 1993 was $7.4 million, which is $157,000 more than 1994 and $233,000
less than 1995.
Net interest spread, the difference between the yield on
interest-earning assets versus interest-bearing liabilities, at the end of 1995
was 3.55%, compared to 3.62% for 1994 and 4.13% for 1993. Interest differential,
defined as net interest income dividend by average earning assets, for the
years ended 1995, 1994 and 1993, was reported at 4.15%, 4.07% and 4.58%
respectively.
Income from loans for the year was $12.5 million for 1995, $11.1
million for 1994 and $10.8 million for 1993. The average volume of loans
steadily increased from $118.5 million in 1993 to $127.4 million in 1994 and
$131.8 million in 1995, while the yields on these loans started at 9.12% for
1993, fell to 8.73% for 1994 and then rose to an average yield of 9.44% for
1995.
The average volume of taxable investments gradually increased from
$23.4 million to $27.4 million and finally to $30.7 million for the years ended
1993, 1994 and 1995, respectively. The yields on these investments took the
same course as the loans, with rates of 5.84% for 1993, 5.12% for 1994 and
5.73% for 1995. The income on these investments went from $1.39 million in 1993
to $1.41 million in 1994 and further increased to end at $1.7 million for 1995.
The volume of tax-exempt securities took a different course for the same
comparison periods, revealing a 29% increase from 1993 to 1994 and an 8.7%
decrease from 1994 to 1995, while the tax equivalent yields on these
investments fell by 103 basis points from 1993 to 1994 and rose 117 basis
points from 1994 to 1995. "Other securities" followed the opposite trend with
average volume starting at $1.33 million for 1993, falling to $1.16 million for
1994 and ending at $1.17 million for 1995. The income on other securities
decreased from $97,000 in 1993 to $81,000 in 1994, and then increased to
$82,000 in 1995.
Federal funds sold also showed a consistent increase in income for the
comparison period. While the average volume went from $3.3 million at the end of
1993 to $3.1 million for 1994, and then increased to $3.2 million for 1995, the
interest income started at $94,000, increasing to $128,000 and then to $180,000
for the same respective year-end comparisons.
<PAGE>
Overall, our average earning assets increased by 10.1% from 1993 to
1994 and increased by 3.5% from 1994 to 1995. Our average yield on total
average earning assets had a roller coaster effect, decreasing from 8.38% for
1993 to 7.89% for 1994 and then increasing to 8.62% for 1995.
Average volume on interest-bearing liabilities increased steadily only
in time deposits, which started at $81 million in 1993, increased to $85.7
million in 1994 and then increased to end 1995 at an average volume of $93.3
million. A steady decrease is noted in subordinated debentures, which went from
$580,000 in 1993 to $554,000 at the end of 1994 and ended at $328,000 for 1995.
The other three categories, savings deposits, NOW and money market funds and
other borrowed funds, followed each other with consolidated volumes starting at
$63.3 million for 1993, then rising to $72.9 million for 1994 and decreasing to
$69 million in 1995. Interest expense on these consolidated liabilities was
reported at $2.02 million for 1993, $2.37 million for 1994 and $2.36 million
for 1995.
In total, the average volume of interest-bearing liabilities started the
year-end comparison periods at $144.8 million for 1993, increased to $159.2
million for 1994 and ended 1995 at an average volume of $162.8 million with
average yields of 4.25%, 4.28% and 5.07%, respectively.
ALLOWANCE FOR POSSIBLE LOSSES ON LOANS - Management believes that its policies
and procedures that have been established for the underwriting of its loan
portfolio help to alleviate many of the problems that could exist within the
portfolio. Loans are typically reviewed on a loan-by-loan basis with more
emphasis placed on larger loans and/or loans that have the potential for a
higher level of risk. These measures help to ensure the adequacy of the
allowance. An ongoing review of the loan portfolio is conducted by the
Executive Officers and the Board of Directors, who meet to discuss, among other
matters, potential exposures. Factors considered include, but are not limited
to, historical loss ratios, each borrower's financial condition, the industry
or sector of the economy in which the borrower operates, if applicable, and
overall economic conditions. Existing or potential problems are noted and
reviewed by senior management to ensure that adequate loan-to-value ratios
exist to help cover any cost that might be associated with these loans. The
Bank also employs a full-time loan review and compliance officer whose duties
include, but are not limited to, a review of the loan portfolio including
delinquent and non-accrual loans. Results are then reported to senior
management for further review and additional action if necessary.
Specific allocations are made in situations management feels are at a
greater risk for loss. A quarterly review of certain qualitative factors, which
include "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. First mortgage loans make up the largest
part of the loan portfolio and have the lowest historical loss ratio, which
helps to alleviate overall risk.
The valuation allowance for loan losses as of December 31, 1995, of
$1.5 million constitutes 1.1% of the total loan portfolio which compares to
almost $1.7 million or 1.3% a year ago. In management's opinion, this is both
adequate and reasonable due to the fact that $112.5 million of the total loan
portfolio, or 82%, is made up of real estate mortgage loans. This figure is
slightly higher than the year-end figure for last year, which was $108.7
million or 81.5%. Included in the 1995 total is $91 million, or 66.3%, of loans
secured by 1-4-family residences, which is an increase of $2.2 million or 2.4%
over last year's figure of $88.8 million or 66.6%. This number of home loans,
together with the low historical loan loss experience, helps to establish our
basis for loan loss coverage. If the Bank were to reduce its loan portfolio by
the residential mortgage loan portfolio, the valuation allowance of $1.5
million would comprise 3.3% of eligible loans, which is slightly lower than it
was a year ago. In management's opinion, a loan portfolio consisting of 82% in
residential and commercial real estate secured mortgage loans is more stable
and less vulnerable than a portfolio with a higher concentration of unsecured
commercial and industrial loans or personal loans.
A comparison of non-performing assets for 1995 and 1994 shows a
decrease of 18.2% in loans classified as non-accrual and a decrease of 17% in
OREO (Other Real Estate Owned). Significantly, $355,000 of these non-accruing
loans carries a 90% FmHA guarantee, thereby reducing our loss exposure by 58%.
Additionally, 90% of the non-accruing loan portfolio consists of real
estate-secured mortgage loans on which the bank historically suffers relatively
few losses. Furthermore, a decrease of 9.4% is noted in loans "90 Days or More
Past Due."
<TABLE>
<CAPTION>
Non-performing assets as of December 31, 1995, were made up of the following:
<S> <C>
Non-accruing loans $1,748,376
Loans past due 90 days or more and still accruing 291,486
Other real estate owned 761,362
Total $2,801,224
</TABLE>
Non-performing assets decreased 17% from last year's figure of
$3,377,600. Despite this decrease, management continues to monitor our
allowance for loan and lease losses very carefully and maintains our reserve at
a level of approximately 1.1% of total eligible loans. The local economy has
seen some encouraging signs of recovery; however, due to the historical "ups
and downs" in the Northeast Kingdom, we will continue our conservative approach
to the review process of our reserve requirements and adjust accordingly for
any changes.
Other real estate owned is made up of properties that the Bank has
acquired in lieu of foreclosure or through normal foreclosure proceedings.
Because the policy of the Bank is to value property in other real estate owned
at the lesser of appraised value or book value, an appraisal is performed 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 it in OREO; any such write-down is charged to the reserve for loan
losses. Appraisals are then done periodically thereafter, with any additional
write-downs being made at that time and charged to earnings.
Our current portfolio of other real estate owned equals $761,362 and
consists of properties all located in Vermont. These properties are as follows:
a condominium project in Jay; a former farm equipment dealership, three
condominium units, and a single family residence all located in Newport; and
farmland in Albany. The Bank is actively attempting to sell all of these
properties and expects no material loss on any of them. The bank has a contract
of sale on the farm equipment dealership and anticipates a closing within the
first two months of 1996. Other real estate owned is by definition a
non-earning asset, and as such does have a negative impact on the Bank's
earnings.
Financial Accounting Standards Board (FASB) has issued Statement #114,
"Accounting by Creditors for Impairment of a Loan." This accounting standard is
effective for fiscal years beginning after December 15, 1994. The Bank adopted
this standard as required for calendar year 1995. This statement is considered
the primary source of authoritative guidance for determining allowances relating
to specific loans. The impact of this accounting standard has been determined
by the Board of Directors to be immaterial to the bank's performance.
OTHER OPERATING INCOME AND EXPENSES - A strong fourth quarter in 1995 helped to
boost earnings for the year, with a total other operating income figure of
$335,000, compared to $248,000 for 1994 and $276,000 for 1993. Other income
again reports the biggest increase, with income of $158,000 for the fourth
quarter of 1995, compared to $94,000 for the fourth quarter of 1994 and almost
$110,000 for the fourth quarter of 1993. Income of almost $20,000 was reported
this quarter due to the implementation of FASB #122, "Accounting for Mortgage
Servicing Rights." This new accounting standard was to be
<PAGE>
effective for fiscal years beginning after December 15, 1995; however, early
adoption was permitted. Other operating income for 1995 was almost $1.2
million, which increased from the 1994 figure of almost $1.1 million, an
increase of 11.6%, but decreased 6.3% compared to 1993 figures of $1.3 million.
Other income of $515,000 for 1995 shows the biggest increase, compared to
$447,000 for 1994 and $433,000 for 1993. Miscellaneous loan income, which
includes service income from sold loans, contributes almost $300,000 to the
$515,000 or 58% for 1995, compared to $209,000 or 47% for 1994 and $178,000 or
41% for 1993. As more loans are sold to the secondary mortgage market as well
as state housing agencies, service income on these loans will continue to
increase. Service fees of almost $540,000 as of the end of 1995 notes the
second biggest increase over 1994 and 1993 year-end figures of $505,000 and
$461,000, respectively. As mentioned in prior reports, the sale of the Sallie
Mae Stock in 1993 had a major impact on the security gains (losses) figures,
contributing to a reported overall capital gain in 1993 of $290,000 versus a
gain of only $21,000 in 1994 and $18,000 in 1995. This stock, which was sold
during the first six months of 1993, had been written down over a period of
about three years to a price of $33.75 per share. At the time of sale, we
received prices of $38.00 to $39.00 a share, resulting in the exceptional gain
for 1993.
Other operating expenses ended the 1995 year at $5.9 million, an
increase of $483,000 over the 1994 figure of $5.5 million, and an increase of
$986,000 or 20% over the 1993 figure of almost $5 million. Occupancy expense
showed the biggest increase in comparison with the 1994 figures, with a reported
increase of $212,000 or 24%, and an increase of $161,000 or 22% over the 1993
expense figure. The expenses associated with the establishment of the St.
Johnsbury office in 1995, which include the furnishings for this office, played
a vital role in these increases. Other expense for the year ended 1995 shows
the only decrease in comparison with both 1994 and 1993 figures which is
primarily due to the rebate for F.D.I.C. insurance. Expenses for this
insurance, which in past years usually qualified as one of the biggest
expenses, totaled $342,000 for 1993 and $373,000 for 1994, compared to $201,000
for 1995.
Many of the components of other operating expenses are estimated on a
yearly basis and accrued in monthly installments. In order to accurately
present the statement of income for any interim period, these expenses are
reviewed quarterly by senior management to ensure that monthly accruals are
accurate, and any necessary adjustments are made at that time.
<TABLE>
BANK PREMISES AND EQUIPMENT - The major classes of bank premises and equipment
and the total accumulated depreciation are as follows:
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Land $ 80,747 $ 80,747
Buildings and improvements 2,236,459 2,170,610
Furniture and equipment 3,490,168 3,248,615
Leasehold improvements 325,105 180,821
6,132,479 5,680,793
Less accumulated depreciation (2,869,313) (2,543,346)
$ 3,263,166 $ 3,137,447
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$326,702, $250,469 and $181,976 for the years ended December 31, 1995, 1994 and
1993, respectively.
The Bank currently leases four of the six branch offices it occupies.
These leased offices are located in Island Pond, Newport, Barton and St.
Johnsbury, Vermont. The lease for the Newport office was renegotiated last year
and is in effect for the next two years with the option to renew at that time.
The operating leases for the three other locations expire in various years
through 2013 with options to renew. In addition, the Bank leases certain
computer hardware under an operating lease which expires in the first quarter
of 1999.
<TABLE>
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 1995, for each
of the next five years and in aggregate are:
<S> <C>
1996.......................................... $ 284,660
1997.......................................... 284,660
1998.......................................... 269,660
1999.......................................... 97,892
2000.......................................... 79,353
Subsequent to 2000............................ 450,500
Total......................................... $1,466,725
</TABLE>
APPLICABLE INCOME TAXES - Figures presented at the end of 1995 for income
before taxes show an increase of 2.7% over 1994, with income figures of $2.3
million reported for 1995 and $2.2 million for 1994. These figure are
encouraging when compared to the 29% decrease reported last year over the prior
1993 income figure of $3.1 million. Provisions for income taxes decreased by
1.4% from $329,000 for 1994 to $324,000 for 1995. This decrease is less than
the decrease noted for 1994 versus 1993, which was almost $279,000 or 46%,
attributable to lower taxable income in 1994. A one-time gain of $35,000 was
recognized in 1993 upon implementation of F.A.S.B. 109, a one-time tax
accounting change.
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 because, as costs and prices rise, cash and
credit demands of individuals and businesses increase, and the purchasing power
of net monetary assets declines.
The Corporation's ability to preserve its purchasing power depends
primarily on its ability to manage net interest income. As noted above, the
Corporation's net interest income deteriorated during 1994, due to rapidly
rising interest rates. However, as anticipated in 1994, our net interest income
improved throughout 1995 to end the year more favorably than 1994.
FINANCIAL CONDITION - The financial condition of the Corporation should be
examined in light of its 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.
Average earning assets grew from $178 million in 1994 to $184 million
for 1995. This 3.5% increase is made up of increases in the following areas:
loan volume of $4.5 million or 3.5%, taxable investments of $3.2 million or
11.8%, federal funds sold of $117,000 or 3.8%, other securities of $9,000 or
.77%, and is offset by a decrease in tax-exempt investments of almost $1.7
million or 8.7%. Loans make up most of the total earning assets at 71.6%, and
other securities make up the least at .63%. These figures are similar to last
year's comparative figures of 71.5% in loan volume and .65% in other securities
volume.
Average interest-bearing liabilities grew from $159.2 million in 1994
to $162.7 million for 1995. This 2.3% increase is less than the increase in
average earning assets. A review of the areas that comprise this total shows
decreases in all interest-bearing liabilities except time deposits, which
increased from
<PAGE>
$85.7 million to $93.3 million, or almost 9%. All others in total decreased
from $73.5 million in 1994 to $69.5 million for 1995, a decrease of $4 million
or 5.5%.
INVESTMENT SECURITIES - The adoption of FASB No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," has had an impact on our
investment portfolio. This new accounting standard, effective for 1994
statements, requires banks to recognize all appreciation or depreciation of the
investment portfolio either on the balance sheet or through the income
statement even though a gain or loss had not been realized. These changes
require securities classified as "trading securities" to be marked to market
with any gain or loss charged to income. Securities classified as
"available-for-sale" are to be marked to market with any gain or loss charged
to the equity portion of the balance sheet. Securities classified as
"held-to-maturity" are to be held at book value.
<TABLE>
The bank doesn't own any trading securities as our investment policy
prohibits active trading in our investment account. At the end of 1995 the bank
had $14.1 million in securities available-for-sale, compared to $23.7 million
in 1994; these have been marked to market with a resulting gain after taxes of
$51,000 for 1995, compared to a loss after taxes of $451,000 for 1994. These
figures are presented on our financial statement as "Valuation allowance for
securities." As adjusted for this unrealized gain or loss, our investment
portfolios at the respective years' ends were as follows:
<CAPTION>
December 31, 1995: Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Govt. and agency securities:
Available-for-sale $12,989,420 $ 89,265 $12,747 $13,065,938
Held-to-maturity 20,867,087 322,913 -0- 21,190,000
States and political subdivisions:
Held-to-maturity 11,735,570 -0- -0- 11,735,570
Other securities:
Available-for-sale 1,039,750 -0- -0- 1,039,750
$46,631,827 $412,177 $12,747 $47,031,258
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994: Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Govt. and agency securities:
Available-for-sale $23,402,260 $ 7,606 $691,428 $22,718,438
Held-to-maturity 5,779,122 -0- 29,591 5,749,531
State and political subdivisions:
Held-to-maturity 16,568,277 -0- -0- 16,568,277
Other securities:
Available-for-sale 961,550 -0- -0- 961,550
$46,711,209 $ 7,606 $721,019 $45,997,796
</TABLE>
<TABLE>
Gross realized gains and gross realized losses on actual sales of
securities were:
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gross realized gains:
U.S. Government and agency securities $58,762 $23,041 $ 3,373
Other securities -0- -0- 310,990
$58,762 $23,041 $314,363
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Gross realized losses:
U.S. Government and agency securities $40,313 $ 2,392 $ 937
Other securities -0- -0- 23,400
$40,313 $ 2,392 $ 24,337
</TABLE>
Realized gains and losses in 1993 of $314,000 and $24,000,
respectively, were primarily the result of our desire to eliminate our
holdings in Sallie Mae Preferred Stock and our wish to shorten the
investment portfolio due to the implementation of FASB 115 IN 1994.
CAPITAL RESOURCES - Stockholders' equity at December 31, 1994, was $15,518,514,
with a book value of $12.27 per share. It increased through earnings of
$1,951,949 and the sale of common stock of $855,062, through our dividend
reinvestment program, and adjustments for the valuation of securities as
discussed above of $501,824. It decreased by purchases of treasury stock of
$4,335 and dividends paid totaling $1,242,597. At year's end shareholders'
equity was $17,580,417 with a book value of $13.21 per share. All Stockholders'
equity is unrestricted.
The Bank, as a National Bank, is subject to the dividend restrictions
set forth by the Comptroller of the Currency. Under such restrictions, the Bank
may not, without the prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings (as defined) plus
the retained earnings (as defined) from the prior two years. The Bank is also
required to maintain minimum amounts of capital to total "risk weighted"
assets, as defined by the banking regulators. At December 31, 1995, the Bank is
required to have minimum Tier I and Total Capital ratios of 4.00% and 8.00%,
respectively. The Bank's risk weighted ratios rose to reported ratios at
December 31, 1995, of approximately 18% for Tier I capital and 19% for Total
Capital. The report labeled "Capital Ratios" provides a better understanding
of the components of each the Tier I and Tier II capital ratios as well as a
three-year comparison of the growth of these ratios.
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.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5,069
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,825
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,106
<INVESTMENTS-CARRYING> 32,602
<INVESTMENTS-MARKET> 32,926
<LOANS> 137,240
<ALLOWANCE> 1,519
<TOTAL-ASSETS> 197,382
<DEPOSITS> 178,884
<SHORT-TERM> 65
<LIABILITIES-OTHER> 588
<LONG-TERM> 265
<COMMON> 3,399
0
0
<OTHER-SE> 14181
<TOTAL-LIABILITIES-AND-EQUITY> 197,382
<INTEREST-LOAN> 12,451
<INTEREST-INVEST> 2,776
<INTEREST-OTHER> 179
<INTEREST-TOTAL> 15,407
<INTEREST-DEPOSIT> 8,209
<INTEREST-EXPENSE> 8,248
<INTEREST-INCOME-NET> 7,158
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 5,942
<INCOME-PRETAX> 2,276
<INCOME-PRE-EXTRAORDINARY> 2,276
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1952
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 8.21
<LOANS-NON> 1,748
<LOANS-PAST> 292
<LOANS-TROUBLED> 289
<LOANS-PROBLEM> 8,580
<ALLOWANCE-OPEN> 1,708
<CHARGE-OFFS> 453
<RECOVERIES> 144
<ALLOWANCE-CLOSE> 1,519
<ALLOWANCE-DOMESTIC> 1,381
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 138
</TABLE>
