CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Six Months Ended June 30, 1996
Commission File Number 2-83166
COMMUNITY BANCORP.
(Exact Name of Registrant as Specified in its Chapter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification Number)
Derby Road, Derby, Vermont 05829
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number: (802) 334-7915
Not Applicable
------------------------------------------------------------
Former Name, Former Address and Formal Fiscal Year
(If Changed Since Last Report)
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file for such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes ( X ) No ( )
At June 30, 1996, there were 1,387,010 shares of the Corporation's
$2.50 par value common stock issued and 1,357,651 shares outstanding.
Total Pages - 19 Pages
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMUNITY BANCORP. AND SUBSIDIARY
Consolidated Statement of Condition
( Unaudited )
<TABLE>
<CAPTION>
June 30 December 31 June 30
1996 1995 1995
<S> <C> <C> <C>
Assets
Cash and due from banks 4,837,874 5,068,955 6,500,177
Federal funds sold 1,125,000 3,825,000 0
Total cash and cash equivalents 5,962,874 8,893,955 6,500,177
Securities held-to-maturity (approximate
market value of $49,231,423 at 6/30/96,
$32,925,570 at 12/31/95, and $25,783,109
at 6/30/95) 49,481,125 32,602,657 26,056,840
Securities available-for-sale,
at market value 6,015,550 14,105,688 25,125,218
Loans 141,763,996 137,240,198 134,129,308
Allowance for loan losses (1,464,293) (1,519,247) (1,552,311)
Unearned net loan fees (895,923) (908,731) (900,473)
Net loans 139,403,780 134,812,220 131,676,524
Bank premises and equipment, net 3,296,472 3,263,166 3,105,185
Accrued interest receivable 1,777,622 1,524,175 1,686,137
Other real estate owned 841,467 761,362 1,018,823
Other assets 1,622,351 1,418,576 1,478,852
Total assets 208,401,241 197,381,799 196,647,756
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing 17,934,874 15,777,469 16,687,917
NOW and money market accounts 42,742,879 34,450,952 33,612,922
Savings 32,576,703 31,395,227 33,584,341
Time deposits, $100,000 and over 18,158,112 18,616,586 17,733,434
Other time deposits 78,165,840 78,643,288 75,747,889
Total deposits 189,578,408 178,883,522 177,366,503
Other borrowed funds 65,000 65,000 65,000
Federal funds purchased 0 0 1,914,000
Accrued interest and other liabilities 368,250 587,860 454,755
Subordinated Debentures 208,000 265,000 316,000
Total liabilities 190,219,658 179,801,382 180,116,258
Stockholders' equity
Common stock - $2.50 par value;
2,000,000 shares authorized and
1,387,010 shares issued at 06/30/96,
1,359,869 issued at 12/31/95, and
1,335,296 issued at 06/30/95 3,467,525 3,399,674 3,338,239
Additional paid-in capital 5,817,612 5,513,703 4,992,556
Retained earnings 9,340,731 9,056,562 8,699,357
Unrealized gain (loss) on securities
available-for-sale, net of tax (4,179) 50,501 (58,729)
Less: treasury stock, at cost
(29,359 shares at 6/30/96, 29,355 shares
at 12/31/95, and 29,349 shares at
6/30/95.) (440,106) (440,023) (439,925)
Total stockholders' equity 18,181,583 17,580,417 16,531,498
Total liabilities and stockholders' equity 208,401,241 197,381,799 196,647,756
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For The Second Quarter Ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Interest income
Interest and fees on loans 3,331,846 3,055,752 2,712,776
Interest and dividends on investment securities
U.S. treasury securities 516,227 416,398 384,440
U.S. treasury agencies 20,660 22,341 5,748
Obligations of state and political subdivision 229,059 245,204 218,445
Other securities 18,658 18,795 21,227
Interest on federal funds sold 28,312 29,974 10,136
Total interest income 4,144,762 3,788,464 3,352,772
Interest expense
Interest on deposits 2,085,813 2,057,156 1,627,184
Interest on other borrowed funds 2,124 3,026 54,176
Interest on subordinated convertible debentures 6,251 7,530 12,923
Total interest expense 2,094,188 2,067,712 1,694,283
Net interest income 2,050,574 1,720,752 1,658,489
Provision for loan losses (122,500) (15,000) (45,000)
Net interest income after provision 1,928,074 1,705,752 1,613,489
Other operating income
Trust department income 24,874 23,511 16,401
Service fees 163,395 143,511 122,204
Security gains (losses) (1,928) 0 11,915
Other 177,556 148,023 130,902
Total other operating income 363,897 315,045 281,422
Other operating expenses
Salaries and wages 658,466 592,378 528,014
Pension and other employee benefits 169,909 144,569 131,317
Occupancy expenses, net 297,559 229,039 212,598
Other 504,515 543,792 453,103
Total other operating expenses 1,630,449 1,509,778 1,325,032
Income before income taxes 661,522 511,019 569,879
Applicable income taxes (credit) 148,667 93,396 106,970
Net Income 512,855 417,623 462,909
Earnings per share on weighted average
Primary 0.38 0.32 0.37
Fully diluted 0.37 0.31 0.36
Weighted average number of common shares
used in computing earnings per share
Primary 1,357,167 1,301,774 1,248,978
Fully diluted 1,384,138 1,343,916 1,311,265
Dividends per share 0.26 0.24 0.22
All 1994 per share data restated to reflect a 5% stock dividend paid on
February 1, 1995.
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Income
( Unaudited )
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Interest income
Interest and fees on loans 6,564,634 5,936,497 5,405,258
Interest and dividends on investment securities
U.S. treasury securities 1,007,963 813,994 750,540
U.S. treasury agencies 31,483 28,208 11,599
Obligations of state and political subdivision 423,354 486,361 431,253
Other securities 38,551 41,127 38,058
Interest on federal funds sold 110,913 76,043 47,543
Total interest income 8,176,898 7,382,230 6,684,251
Interest expense
Interest on deposits 4,170,636 4,006,209 3,191,162
Interest on other borrowed funds 4,039 4,263 55,078
Interest on subordinated convertible debentures 11,651 17,963 25,980
Total interest expense 4,186,326 4,028,435 3,272,220
Net interest income 3,990,572 3,353,795 3,412,031
Provision for loan losses (160,000) (60,000) (90,000)
Net interest income after provision 3,830,572 3,293,795 3,322,031
Other operating income
Trust department income 51,076 45,331 32,654
Service fees 274,464 277,605 245,513
Security gains (losses) (1,928) 0 11,915
Other 291,219 242,318 232,562
Total other operating income 614,831 565,254 522,644
Other operating expenses
Salaries and wages 1,298,896 1,165,518 1,051,122
Pension and other employee benefits 320,776 288,283 241,214
Occupancy expenses, net 598,676 514,983 423,658
Other 958,164 1,034,359 916,118
Total other operating expenses 3,176,512 3,003,143 2,632,112
Income before income taxes 1,268,891 855,906 1,212,563
Applicable income taxes (credit) 288,817 135,744 246,720
Net Income 980,074 720,162 965,843
Earnings per share on weighted average
Primary 0.73 0.56 0.78
Fully diluted 0.72 0.55 0.75
Weighted average number of common shares
used in computing earnings per share
Primary 1,350,848 1,291,154 1,243,104
Fully diluted 1,378,822 1,339,848 1,306,012
Book value per share on shares outstanding
on June 30, $13.39 $12.66 $12.04
All 1994 per share data restated to reflect a 5% stock dividend paid on
February 1, 1995.
</TABLE>
COMMUNITY BANCORP. AND SUBSIDIARY
Statement of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net Income 980,074 720,162 965,843
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 187,396 129,497 119,489
Provisions for possible loan losses 160,000 60,000 90,000
Provisions for deferred taxes (61,587) (72,878) 41,486
Securities (gains) losses 1,928 0 (11,915)
Losses (gains) on sales of oreo (8,710) (12,201) 0
Subsequent writedowns on oreo 12,320 30,000 5,859
Amortization of bond premium 49,142 249,734 248,788
Increase (decrease) in taxes payable (36,770) 33,866 102,065
(Increase) decrease in interest receivable (253,447) (299,137) (137,241)
(Increase) decrease in other assets (126,818) 32,981 (154,412)
Increase (decrease) in unamortized loan fees (12,808) (24,337) 74,890
Increase (decrease) in interest payable (35,495) (20,303) 4,594
Increase (decrease) in accrued expenses (175,893) (77,749) (197,181)
Increase (decrease) in other liabilities 41,347 31,189 15,968
Net cash provided by operating activities 720,679 780,824 1,168,233
Cash flows from investing activities:
Investments - held to maturity
Maturities and pay-downs 4,194,188 4,464,365 3,788,330
Purchases (21,093,137) (8,195,731) (8,116,960)
Investments - available for sale
Maturities and pay-downs 8,000,000 3,000,000 9,000,000
Purchases (23,300) (4,078,200) (8,085,500)
Investment in limited partnership 0 564 (85,750)
Increase in loans, net of payments (5,135,655) (1,251,753) (6,149,987)
Capital expenditures (220,702) (97,235) (258,582)
Recoveries of loans charged off 48,088 98,540 33,567
Proceeds from sales of oreo 265,100 116,365 90,000
Net cash used in investing activities (13,965,418) (5,943,085) (9,784,882)
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
now, money market and savings accounts 11,630,808 (3,107,171) 3,450,893
Net increase in certificates of deposit (935,922) 5,797,665 640,216
Net increase (decrease) in other borrowed fund 0 1,914,000 2,971,124
Payments to acquire treasury stock (82) (4,237) (68)
Dividends paid (381,146) (330,536) (289,789)
Net cash provided by financing activities 10,313,658 4,269,721 6,772,376
Net increase in cash and cash equivalents (2,931,081) (892,540) (1,844,273)
Cash and cash equivalents:
Beginning 8,893,955 7,392,717 7,242,958
Ending 5,962,874 6,500,177 5,398,685
Supplemental schedule of cash paid during
the year:
Interest paid 4,210,170 4,048,738 3,267,901
Income taxes 264,000 29,000 178,000
Supplemental schedule of noncash investing
and financing activities:
Unrealized loss on securities
available-for-sale $6,332 $88,984 $300,187
OREO / acquired in settlements of loans $384,779 $297,546 $5,991
Debentures converted to common stock $57,000 $235,000 $16,000
5% Stock dividend at market value $0 $1,019,716 $0
Dividends paid:
Dividends payable $695,906 $611,952 $517,896
Dividends reinvested ($314,760) ($281,416) ($228,107)
$381,146 $330,536 $289,789
</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 for the first six months of 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
AVERAGE INCOME/ RATE/ AVERAGE INCOME/ RATE/
BALANCE EXPENSE YIELD BALANCE EXPENSE YIELD
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans (gross) 138,117,879 6,564,634 9.56% 132,877,718 5,936,497 9.01%
Taxable Investment
Securities 35,696,926 1,039,446 5.86% 30,165,510 842,202 5.63%
Tax-Exempt Investment
Securities (1) 16,249,828 641,445 7.94% 18,943,430 736,912 7.84%
Federal Funds Sold 4,118,544 110,913 5.42% 2,753,591 76,043 5.57%
Other Securities (2) 1,204,964 38,551 6.43% 1,146,206 41,127 7.24%
TOTAL 195,388,141 8,394,989 8.66% 185,886,455 7,632,781 8.28%
INTEREST BEARING LIABILITIES
Savings Deposits 31,990,661 478,024 3.00% 34,380,682 510,233 2.99%
NOW & Money Market
Funds 40,403,300 774,027 3.85% 37,002,344 699,765 3.81%
Time Deposits 97,097,086 2,918,585 6.04% 90,968,240 2,796,212 6.20%
Other Borrowed Funds 95,233 3,214 6.79% 141,861 4,263 6.06%
Subordinated Debentures 237,000 11,651 9.89% 384,000 17,963 9.43%
TOTAL 169,823,280 4,185,501 4.97% 162,877,127 4,028,436 4.99%
Net Interest Income 4,209,488 3,604,345
Net Interest Spread(3) 3.69% 3.29%
Interest Differential(4) 4.34% 3.91%
<FN>
<F01> Income on investment securities of state and political subdivisions is
stated on a fully taxable basis (assuming a 34 percent tax rate).
<F02> Included in other securities are taxable industrial development bonds
(VIDA), with income of approximately $4,136 for 1996 and $4,588 for 1995.
<F03> Net interest Spread is the difference between the yield on earning assets
and the rate paid on interest bearing liabilities.
<F04> Interest differential is net interest income divided by average earning
assets.
</TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the first six
months of 1996 and 1995 resulting from volume changes in assets and
liabilities, and fluctuations in rates earned and paid.
<TABLE>
<CAPTION>
Variance Variance
RATE / VOLUME Due to Due Total
Rate(1) Volume(1) Variance
INCOME EARNING ASSETS
<S> <C> <C> <C>
Loans 393,375 234,762 628,137
Taxable Investment Securities 42,381 154,863 197,244
Tax-Exempt Investment Securities(2) 118,356 (213,823) (95,467)
Federal Funds Sold (2,929) 37,799 34,870
Other Securities (6,356) 3,780 (2,576)
Total Interest Earnings 544,827 217,381 762,208
INTEREST BEARING LIABILITIES
Savings Deposits 39,610 (71,819) (32,209)
NOW & Money Market Funds 9,767 64,495 74,262
Time Deposits (66,541) 188,914 122,373
Other Borrowed Funds 2,116 (3,165) (1,049)
Subordinated Debentures 8,221 (14,533) (6,312)
Total Interest Expense (6,828) 163,893 157,065
<FN>
<F01> Items which have shown a year-to-year increase in volume have
variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have
variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variances due to volume = Change in volume x new rate
<F02> Income on tax-exempt securities is stated on a fully taxable basis.
The assumed rate is 34%.
</TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
For The Second Quarter Ended June 30 1996 1995 1994
<S> <C> <C> <C>
Net Income 512,855 417,623 462,909
Average Number of Common Shares Outstanding. 1,357,167 1,301,774 1,248,978
Earnings Per Common Share 0.38 0.32 0.37
For The Six Months Ended June 30 1996 1995 1994
Net Income 980,074 720,162 965,843
Average Number of Common Shares Outstanding. 1,350,848 1,291,154 1,243,104
Earnings Per Common Share 0.73 0.56 0.78
</TABLE>
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
For The Second Quarter Ended June 30 1996 1995 1994
<S> <C> <C> <C>
Net Income 512,855 417,623 462,909
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 4,126 4,969 8,529
Adjusted Net Income 516,981 422,592 471,438
Average Number of Common Shares Outstanding. 1,357,167 1,301,774 1,248,978
Increase in Shares (Assuming Conversion of
Convertible Debentures). 26,971 42,142 62,287
Average Number of Common Shares Outstanding
(Fully Diluted). 1,384,138 1,343,916 1,311,265
Earnings Per Common Share Assuming
Full Dilution 0.37 0.31 0.36
For The Six Months Ended June 30 1996 1995 1994
Net Income 980,074 720,162 965,843
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 7,689 11,855 17,147
Adjusted Net Income 987,763 732,017 982,990
Average Number of Common Shares Outstanding. 1,350,848 1,291,154 1,243,104
Increase in Shares (Assuming Conversion of
Convertible Debentures). 27,974 48,694 62,908
Average Number of Common Shares Outstanding
(Fully Diluted). 1,378,822 1,339,848 1,306,012
Earnings Per Common Share Assuming Full Dilution 0.72 0.55 0.75
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
Six Months Ended June 30, 1996
Community Bancorp. is a one-bank holding company whose only
subsidiary is Community National Bank. The Bank's main office is
located in Derby, with branch offices located in Newport, Troy, Derby
Line, Barton, Island Pond, and St. Johnsbury. The addition of the St.
Johnsbury office expanded the Bank's service area to all three
counties in the Northeast Kingdom.
While the financial statements, which precede this narrative,
reflect consolidated figures, the following discussion refers
primarily to the Bank's operations, as most of the Bancorp's business
is conducted through the Bank. Many of the comparisons throughout the
following paragraphs refer to the preceding tables for a visual
comparison of the figures and percentages disclosed.
LIQUIDITY
Liquidity management refers to the ability of Community National
Bank to adequately cover fluctuations in assets and liabilities.
Meeting loan demand (assets) and covering the withdrawal of deposit
funds (liabilities) are two key components of the liquidity management
process. The repayment of loans and growth in deposits are two of the
major sources of liquidity. Our time deposits greater than $100,000
increased $425 thousand or 2.4 percent for the first six months of
1996 compared to 1995. Other time deposits increased from $75.7
million at the end of the first six months of 1995 to $78.2 million at
the end of the first six months of 1996, an increase of 3.2 percent.
A review of these deposits, primarily the time deposits over $100,000
indicates that the growth is notably generated locally and regionally
and are established customers of the Bank. The Bank has no brokered
deposits. All other interest bearing deposit accounts in total
increased 12 percent to end the six month comparison period at $75.3
million for 1996 compared to $67.1 million for 1995. Our gross loan
portfolio increased from $134.1 million for the first six months of
1995 to $141.7 million for the same period of 1996 or 5.7 percent. Of
this total portfolio of $141.7 million, $72.6 million are scheduled to
reprice within one year and $5.7 million are scheduled to mature
within one year. At the end of the first six months of 1996, the Bank
reported other short term investments of "Available-for-Sale"
securities at a market price of almost $6.1 million, compared to $25.1
million for the same period in 1995, while the book value of
securities classified as "Held-to-Maturity" increased to $49.5 million
from $26 million for the same comparison period.
RESULTS OF OPERATIONS
Net Income for the second quarter ended June 30, 1996 was $513
thousand representing an increase of almost 23 percent compared to a
net income of $418 thousand for the second quarter ended June 30,
1995. The results of this are primary earnings per share of $0.38 for
the second quarter of 1996 compared to $0.32 for the second quarter of
1995, and fully diluted earnings per share of $0.37 and $0.31
respectively. Net Income for the first six months of 1996 was $980
thousand compared to $720 thousand for the first six months of 1995,
an increase of 36 percent, resulting in primary earnings per share of
$0.73 and $0.56 were reported for 1996 and 1995, respectively, while
fully diluted earnings per share ended the six month period at $0.72
for 1996, compared to $0.55 for 1995. The first six months of 1996
were more profitable than the same period in 1995, due primarily to
the $194 thousand decrease in expense for FDIC insurance for 1996
compared to 1995.
A 5% stock dividend was declared on January 10, 1995, payable
February 1, 1995 to stockholders of record on January 15, 1995. All
1994 per share data was restated to reflect the 5% stock dividend.
The Board of Directors declared a cash dividend of $0.26 payable on
May 1, 1996 to stockholders of record on April 15, 1996, compared to a
cash dividend of $0.24 for the same period in 1995.
Net interest income, the difference between interest income and
expense, represents the largest portion of the Bank's earnings, and is
affected by the volume, mix, and interest rate sensitivity of earning
assets versus interest bearing liabilities.
Net interest income for the second quarter of 1996 increased to
$2.05 million from $1.72 million in 1995, or 19 percent, and net
interest income for the first six months increased from $3.4 million
in 1995 to $4 million in 1996, an increase of 19 percent. Interest
income increased by $356 thousand or 9.4 percent for the second
quarter of 1996 from $3.8 million in 1995 to $4.14 million in 1996.
Interest income for the first six months of 1996 increased to $8.2
million compared to $7.4 million in 1995, an increase of 10.7 percent.
Interest expense increased by just over $26 thousand or 1.3 percent
for the second quarter of 1996 compared to 1995. Interest expense for
the first six months increased to $4.2 million from $4 million in
1995, an increase of 4 percent. A review of the six month figures for
interest earned on loans, the major source of interest income, and
interest paid on deposits, the major source of interest expense, shows
increases of 11 percent versus 4 percent respectively. The result is
a tax equivalent spread of 4.34% for the first six months of 1996
versus 3.91% for the same period in 1995.
The following paragraphs are comparisons of average balances and
the respective average yield for interest earning assets and interest
bearing liabilities. Figures for these comparisons were obtained from
the table labeled "Average Balances and Interest Rates", which can be
found in the preceding section. Income on tax-exempt securities is
stated on a fully tax equivalent basis on this table, therefore,
figures presented are higher than those in the Statement of Income
included with the financial statements.
Income from loans for the first six months of 1996 increased to
$6.6 million or by almost 11 percent compared to $5.9 million for the
same period in 1995. The average volume of loans increased by 4
percent, or $5.2 million and the yield on those loans increased from
9.01% for the first six months of 1995 to 9.56% for the first six
months of 1996, an increase of 55 basis points.
The average volume of taxable investments increased to $35.7
million or by 18.3 percent, and the yield on these investments for the
first six months of 1996 rose by 23 basis points, from a yield of
5.63% in 1995 to 5.86% in 1996. Of the total taxable investment,
approximately $5 million are investments classified as available for
sale, with the remaining $30.7 million classified as held to maturity.
A decrease is noted in the average volume of tax-exempt investments
from $18.9 million for the first six months of 1995 to $16.2 million
for the same period in 1996, a decrease of 14.2 percent. All of these
investments are classified as held to maturity. Other securities
ended the six month period in 1996 at an average volume of $1.2
million, resulting in an increase of 5 percent compared to the same
period last year. The Bank currently has no investments classified as
trading securities, and does not intend to carry any of these
securities. The yield on treasuries remains above the yield on other
short term investments such as federal funds, therefore, the Bank
continues to invest more in these higher yielding securities. The
average volume of federal funds sold increased from $2.7 million for
the first six months of 1995 to $4.1 million for the same period in
1996, an increase of $1.4 million or almost 50 percent.
Interest income on loans for the first six months of 1996
increased 11 percent over the same period last year with an average
yield of 9.56%. Income on taxable investments increased from $842
thousand for the first six months of 1995 to $1.04 million for 1996
with a yield of 5.63% for 1995 compared to 5.86% for 1996. Income on
tax-exempt investments, stated on a fully tax equivalent basis of 34%,
was $641 thousand for the first six months of 1996, compared to $737
thousand for the same period in 1995, with a tax equivalent yield of
7.84% versus 7.94%, respectively. Income on federal funds sold
increased to $111 thousand with an average yield of 5.42% for the
first six months of 1996, compared to income of $76 thousand for the
first six months of 1995 with an average yield of 5.57%, an increase
in income of 46 percent with a decrease in yield of 15 basis points.
Income from other securities decreased marginally to end the first six
months of 1996 at almost $39 thousand compared to $41 thousand for the
same period in 1995.
In total, our average earning assets increased to $195.4 million
or by 5.1 percent during the first six months of 1996, compared to the
same period in 1995, and the average yield on those earning assets
increased by 38 basis points to end the six month period in 1996 at
8.66% compared to 8.28% a year ago.
Our average time deposit volume increased to $97.1 million, or
6.74 percent during the first six months of 1996 compared to $90.9
million a year ago. Interest paid on time deposits increased from
$2.8 million in 1995 to $2.9 million for the first six months of 1996,
while the yield decreased 16 basis points to an average yield of
6.04%.
Now and money market funds increased to $40.4 million or 9.2
percent in volume in 1996 and interest expense on these funds
increased by $74 thousand, or 10.6 percent to a six month expense
figure for 1996 of $774 thousand. The average rate on these funds
rose 4 basis points to a rate of 3.85% compared to 3.81% for the first
six months of 1995.
Other borrowed funds decreased to an average volume of $95
thousand while the average yield increased to 6.79%. Interest expense
decreased 25 percent for the six month comparison period to $3,214 as
of June 30, 1996, compared to $4,263 for the same period last year.
Savings deposits decreased by 7 percent from an average volume of
$34.4 million in 1995 to an average volume of $32 million for the same
period in 1996. Interest expense on savings deposits also decreased
from $510 thousand to $478 thousand for the comparison period, a
decrease of 6.3 percent.
Subordinated debentures also notes a decrease for the first six
months of 1996. The 9% debentures are being redeemed more because it
is to the debenture holder's economic benefit. As of June 30, 1996,
there are actual 9% debentures outstanding totaling $143,000 and 11%
debentures outstanding totaling $65,000, compared to June 30, 1995
totals of $232,000 and $84,000, respectively. This decrease in
debentures outstanding leads to the decrease in interest expense,
which was reported at $18 thousand for the first six months of 1995
and $12 thousand for the first six months of 1996.
In summary, our tax equivalent net interest income for the first
six months of 1996 was reported at $4.2 million compared to $3.6
million a year ago. Our net yield, or net interest spread as defined
on the "Average Balances and Interest Rates" table, was 3.69% for the
first six months of 1996, compared to 3.29% in 1995. This increase in
average net yield is attributable to a 38 basis point increase in
yield on assets, compared to a 2 basis point decrease in the average
rate paid on interest bearing liabilities.
ALLOWANCE FOR POSSIBLE LOSSES ON LOANS
In the opinion of management, adequate loan loss coverage is
considered to be one of the most crucial areas of financial safety and
profitability of the Bank. As a result, loans are typically reviewed
on a loan-by-loan basis, focusing more intently on potential problem
loans. A review of the overall level of risk within the portfolio
helps to insure adequate coverage in the event of future chargeoffs.
Emphasis is placed on each borrower's financial condition, the
industry or sector for the economy in which the borrower operates, and
overall economic conditions. The Executive Officers and Board of
Directors review the loan portfolio on a monthly basis noting existing
and potential problems in the portfolio. The Bank also employs a Loan
Review and Compliance Officer whose duties, among others, include an
ongoing review of delinquent and non-performing loans. All findings
and recommendations are then brought to senior management for further
assessment and final judgement as to the appropriate action to follow.
Specific Allocations are made in situations management feels are
at a greater risk for loss. A quarterly review of the Qualitative
Factors, which, among others, are "Levels of, and Trends in,
Delinquencies and Non-Accruals" and "National and Local Economic
Trends and Conditions" helps to ensure that areas with potential risk
are noted and coverage increased or decreased accordingly, to reflect
the trends in delinquencies and non-accruals. Residential first
mortgage loans make up the largest part of the loan portfolio and have
the lowest historical loss ratio which helps to alleviate the overall
risk.
The valuation allowance for loan losses of $1.5 million as of
June 30, 1996 constitutes just over one percent of the total gross
loan portfolio, compared to $1.6 million or 1.2 percent for the same
period in 1995. This allowance figure is sufficient in light of the
fact that of the total loan portfolio of $141.2 million, $114.9
million or 81.04 percent are real estate mortgage loans; and of this
total, $91.6 million or 79.7 percent constitute one to four family
residential mortgage loans. Increases are noted in all volumes
compared to last years figures of $134.1 million in totals loans,
$109.2 million in real estate mortgage loans, which represents 81.4
percent of the total portfolio, and a further breakdown shows $88.5
million in one to four family residential mortgage loans, representing
81 percent of the real estate loan portfolio. Historically, the Bank
has experienced minimal loan loss with this particular portfolio of
loans which further help support the basis for managements opinion of
adequate loan loss coverage. Furthermore, a loan portfolio
consisting of 81.04 percent in residential and commercial real estate
secured mortgage loans is by far more stable and less vulnerable than
a portfolio with a higher concentration of unsecured commercial and
industrial loans or personal loans.
In May, 1993, the FASB issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." The Bank is required to adopt
this new rule effective as of the beginning of this calendar year,
although earlier adoption was allowed. This statement allows the Bank
to classify its in-substance foreclosures as loans and disclose them
as impaired loans, as long as regulatory guidelines are followed.
Loans will generally be valued at the lower of either the present
value of expected future cash flows discounted at the loan's effective
interest rate or at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. This new
rule continues to have minimal effect on the financial position or
results of operation of the Corporation as of the end of the first
half of 1996.
Non-Performing assets for the bank are made up of three different
types of loans, "90 Days or More Past Due", "Other Real Estate Owned"
(OREO), and "Non-Accrual Loans". A comparison of these non-performing
assets for 1996 and 1995 reveals a decrease in all three categories
with the most significant decrease of $293 thousand noted in Non-
accural loans.
Non-performing assets as of June 30, 1996 and 1995 were made
up of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Non-Accruing loans $1,611,743 $1,905,134
Loans past due 90 day or more and still accruing 266,234 311,404
Other real estate owned 841,467 1,018,823
Total $2,719,444 $3,235,361
</TABLE>
These totals of $2.7 million for 1996 and $3.2 million for 1995
equals 1.92 percent and 2.41 percent respectively, of total gross
loans, as well as 1.3 percent and 1.6 percent, respectively of total
assets. As of June 30, 1996, our reserve coverage of non-performance
loans was 54 percent compared to 48 percent a year ago.
Although these statistics show a decrease in non-performing loans
for the first six months of 1996 compared to the same period last
year, management will continue to maintain our reserve requirement at
a level of approximately one percent of total eligible loans. The
local economy is improving, however, the Northeast Kingdom is an area
known for its economic ups and downs. With this in mind, we continue
our conservative approach to the reserve requirements and adjust
accordingly for any changes.
Other real estate owned is made up of property that the Bank owns
in lieu of foreclosure or through normal foreclosure proceedings, and
property that the Bank does not hold title to but is in actual control
of, known as in-substance foreclosure. It is the policy of the Bank
to value property in other real estate owned at the appraised value or
book value of the loan, whichever is lesser. Our policy is to
appraise the property prior to including it in OREO 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. Periodic
appraisals are done thereafter with any additional write-downs being
made at such time.
Our current portfolio of other real estate owned equals $841,867
with three of the nine properties deeded in lieu of foreclosure, and
the rest were obtained through the normal foreclosure process. All of
our properties are located in Vermont and consist of the following; a
condominium project in Jay, five condominium units in Newport, land in
Albany, a single family residence in Newport, a farm in Irasburg, and
building lots in Irasburg. The single family residence was sold at
the end of July, and the Bank is actively attempting to sell all of
the other properties with no material loss expected on any of them.
Other real estate owned is by definition a non-earning asset, and as
such has a negative impact on the Bank's earnings.
OTHER OPERATING INCOME AND EXPENSES
Other operating income for the second quarter of 1996 was $364
thousand, compared to $315 thousand for the second quarter of 1995, an
increase of $49 thousand or 15.5 percent. The greatest increase of
almost $30 thousand was recognized in other income, with the next
significant increase of $20 thousand reported in service fees.
Service fees on sold loans, a component of other income increased 37.3
percent for the second quarter of 1996 with income of $23 thousand
compared to $17 thousand for the same quarter in 1995. Other
operating income for the first six months increased from $565 thousand
in 1995 to $615 thousand in 1996, an increase of almost $50 thousand
or 8.8 percent. Other income again topped the list with an increase
of $49 thousand or 20 percent, followed only by a $6 thousand increase
in trust department income. Service fees and security gains (losses)
noted year to date decreases totaling $5 thousand, having
significantly no effect on the total increase of $50 thousand.
Foreign exchange increased in both comparisons with an increase of $5
thousand or 48 percent over second quarter figures for 1996 versus
1995, and a more favorable increase of $31 thousand or 192 percent
when comparing the 1995 six months figure of $16 thousand to the 1996
six months figure of almost $47 thousand. Year to date income of $13
thousand is recognized with the implementation of FASB 122.
In May 1995, the FASB issued SFAS No. 122 "Accounting for
Mortgage Servicing Rights, an Amendment of FASB Statement #65". The
statement requires the Bank to recognize as separate assets the rights
to service mortgage loans for others, however those rights are
acquired. The Bank 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 value. This value is
determined through use of market prices under comparable servicing
sales contracts.
Other operating expense for the second quarter of 1996 was $1.6
million compared to $1.5 million for 1995, an increase of 8 percent.
Salaries, the largest portion of other operating expense, showed an
increase $66 thousand or 11 percent. Occupancy expense increased
almost $69 thousand or 30 percent. Depreciation on furniture and
equipment, a component of Occupancy expense, contributes to this
increase, directly resulting from the increase of furniture and
equipment through the addition of the St. Johnsbury office last year.
Other operating expense for the first six months increased by $173
thousand from $3 million in 1995 to $3.17 million in 1996. Topping
the increase for this comparison period was salaries with an increase
of $133 thousand or 11.4 percent and Occupancy expense noted an
increase of $84 thousand or 16.3 percent. Other expense decreased for
both the second quarter and the year to date comparison due mainly to
the decrease in expense for FDIC insurance. Expense for this
insurance for the first six months of 1996 is reported at $986
compared to $194,919 for the same period in 1995. As noted in prior
reports, the level of insurance required by law is fully funded,
thereby reducing the premium paid by banks to the "minimum due" or
$2,000 per year.
All components of other operating expenses are monitored by
management, however, a more diligent quarterly review is performed on
crucial components to assure that the accruals for these expenses are
accurate. This helps alleviate the need to make drastic adjustments
to these accounts that in turn effect the net income of the bank.
APPLICABLE INCOME TAXES
Income before taxes increased from $511 thousand for the second
quarter of 1995 to $662 thousand for the second quarter of 1996, an
increase of $151 thousand or 29.5 percent. As a result of this
increase, provision for income taxes for the second quarter of 1996
increased 59 percent compared to the same period for 1995, ending the
three month period at almost $149 thousand. Income before taxes for
the first six months increased from $856 thousand for 1995 to $1.3
million for 1996, an increase of $413 thousand or 48 percent. This
lead to an increase in provision for income taxes of $153 thousand to
end the first six months of 1996 at $289 thousand.
EFFECTS OF INFLATION
Rates of inflation affect the reported financial condition and
results of operations of all industries, including the banking
industry. The effect of monetary inflation is generally magnified in
bank financial and operating statements as costs and prices rise
during periods of monetary inflation, cash and credit demands of
individuals and businesses increase, and the purchasing power of net
monetary assets declines. While high rates of inflation have in the
past strained the capital structure of financial institutions, in
recent months this trend has been somewhat alleviated by declining
rates of inflation, with a resulting relaxation of the erosion of the
purchasing power of monetary assets.
The Corporation's ability to preserve its purchasing power
depends primarily on its ability to manage net interest income. Net
interest income increased for the second quarter as well as the first
six months of 1996 compared to the same time periods in 1995.
FINANCIAL CONDITION
Average earning assets grew by 5.1 percent in the first six
months of 1996 compared to the same period in 1995 to an average
volume of $195.4 million. Loans, which totaled $138.1 million in 1996
and $132.8 million in 1995, comprised 70.7 percent and 71.5 percent
respectively, of our earning assets with the average volume of loans
increasing $5.2 million or 4 percent from June 30, 1995 to June 30,
1996. As of June 30, 1996, residential real estate mortgages made up
65 percent of our portfolio, commercial loans made up 23 percent, and
personal loans made up 12 percent, compared to the six month figures
for last year of 66%, 21%, and 13% respectively.
Taxable investments made up 18.3 percent of our average earning
assets in the first six months of 1996, compared to 16.2 percent in
1995 to end the period at an average volume of $35.7 million. Tax-
exempt investments of $16.2 million made up 8.3 percent of our average
earning assets in the first six months of 1996, compared to $18.9
million or 10.1 percent in 1995.
Federal funds sold, which had an average volume of $4.1 million,
made up 2.1 percent of our earning assets in the first six months of
1996 and 1.5 percent in 1995. And ending the list of earning assets,
other securities, increased by about $59 thousand, and made up .62% in
1996, compared to .61% in 1995.
Historically, the Bank has funded its growth by steady increases
in its core deposits. The Bank has no brokered deposits, nor does it
rely on large certificates or other forms of volatile deposits to fund
its growth in earning assets. As interest rates decline, there is a
shift to savings and money market accounts, as customers await an
opportunity to reinvest at higher rates. Conversely as rates
increase, funds shift from savings and money market accounts to
certificates of deposit to lock in higher yields. Rates on CD's are
favorable and we are seeing a shift in accounts with time deposits
increasing approximately 6.74 percent to an average volume of $97.1
million making up 57.2 percent of the total interest bearing
liabilities, while savings accounts made up 18.8 percent of the total
decreasing 7 percent to an average volume of $32 million. An increase
of 9.2 percent is noted in NOW and money market funds with an average
volume of $40.4 million, or 23.8 percent of the total interest bearing
liabilities reported at the end of the first six months of 1996.
Other borrowed funds decreased in volume 33 percent, from $142
thousand at the end of June '95 to $95 thousand at the end of June
'96, comprising .06 percent of the total interest bearing liabilities.
Subordinated debentures also decreased from June '95 to June '96 from
an average volume of $384 thousand or .24 percent to $237 thousand or
.14 percent of interest bearing liabilities, a decrease of 38 percent.
As of June 30, 1996, our newest branch, the St. Johnsbury office
reported total deposits of $6.2 million were reported, with money
market accounts comprising more than half of this total, compared to
$836 thousand in deposits a year ago, with demand deposits comprising
more than half at that time. Gross loans totaled almost $5.9 million
of which $2.3 million are installment loans, and $2.6 million are real
estate loans, compared to $164 thousand a year ago with $129 thousand
reported in installment loans. As mentioned in prior reports, the St.
Johnsbury office is the only office to be open seven days a week in
order to serve the need of shoppers in the adjacent supermarket.
These hours have proved to be both effective and profitable.
CAPITAL RESOURCES
The Corporation's stockholders' equity, which started the year at
$17,580,417, was increased through earnings of $980,074 and sales of
common stock of $371,760 through dividend reinvestment and debenture
conversions. It was decreased by dividends of $695,906, the purchase
of treasury stock of $82, and adjustments for valuation of allowance
for securities of $54,680 to end the first six months of 1996 at
$18,181,583 with a book value of $13.39 per share. All stockholder's
equity is unrestricted. Additionally, it is noted that the net
unrealized loss on valuation allowance for securities has decreased
compared to June 30, 1995. A review of this activity shows that as the
maturity date of the investments gets closer, the market price becomes
favorably better, therefore, material loss is greatly reduced.
The Bank is required to maintain minimum amounts of capital to
"risk weighted" assets, as defined by the banking regulators. The
minimum requirements for Tier I and Total Capital are 4% and 8%,
respectively. As of June 30, 1996, the Bank continued to maintain
ratios far above the minimum requirements with reported ratios of
17.53% for Tier I and 18.78% for Total Capital.
The Corporation intends to continue the Bank's past policy of
maintaining a strong capital resource position to support its asset
size and level of operations. Consistent with that policy, management
will continue to anticipate the Corporation's future capital needs.
PART II.
Item 1
Legal Proceedings
The Corporation is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal.
There are no pending legal proceedings to which the Bank is a
party or of which any of its property is the subject, other than
routine litigation incidental to its banking business.
Item 6
Exhibits and Reports on Form 8-K
Exhibits - None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
COMMUNITY BANCORP.
DATED: July 30, 1996 By:/s/ Richard C. White
-------------------------------
Richard C. White, President
DATED: July 30, 1996 By:/s/ Stephen P. Marsh
-------------------------------
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,838
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,125
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,016
<INVESTMENTS-CARRYING> 49,481
<INVESTMENTS-MARKET> 49,231
<LOANS> 141,764
<ALLOWANCE> 1,464
<TOTAL-ASSETS> 208,401
<DEPOSITS> 189,578
<SHORT-TERM> 65
<LIABILITIES-OTHER> 368
<LONG-TERM> 208
0
0
<COMMON> 3,467
<OTHER-SE> 14,715
<TOTAL-LIABILITIES-AND-EQUITY> 208,401
<INTEREST-LOAN> 6,565
<INTEREST-INVEST> 1,501
<INTEREST-OTHER> 111
<INTEREST-TOTAL> 8,177
<INTEREST-DEPOSIT> 4,170
<INTEREST-EXPENSE> 4,186
<INTEREST-INCOME-NET> 3,991
<LOAN-LOSSES> 160
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 3,177
<INCOME-PRETAX> 1,269
<INCOME-PRE-EXTRAORDINARY> 1,269
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 980
<EPS-PRIMARY> .73
<EPS-DILUTED> .72
<YIELD-ACTUAL> 8.29
<LOANS-NON> 1,612
<LOANS-PAST> 494
<LOANS-TROUBLED> 383
<LOANS-PROBLEM> 1,706
<ALLOWANCE-OPEN> 1,519
<CHARGE-OFFS> 260
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 1,464
<ALLOWANCE-DOMESTIC> 1,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 108
</TABLE>
