CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996
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 March 6, 1997, the date of the latest known sale of the registrant's
stock, the aggregate market value of the voting stock held by non-affiliates of
the registrant, based on the sale price of the stock on that date, was
$28,641,015.
The number of shares outstanding of the issuer's class of common stock as of
the close of business on March 6, 1997, was 1,468,770.
DOCUMENTS INCORPORATED BY REFERENCE
Report of Independent Public Accountants
Financial Statements:
Consolidated Statements of Condition as of December 31, 1996 and 1995
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Financial Position for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Condensed Financial Information (Parent Company Only)
Portions of the Annual Report to Shareholders for fiscal year 1996
incorporated by reference to Part II.
Portions of the Proxy Statement for the Annual Meeting to be held May 6, 1997
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, 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 22
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 62% of its total deposits as of December 31, 1996 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, 1996, the Bank employed 95 full-time employees and 35 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% 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% of any outstanding class of voting securities of a
company other than a bank or a more than 5% 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
counseling; (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% 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, 1996 1995 1994
(Dollars in Thousands) Balance % Balance % Balance %
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Cash and Due from Banks 4,765 2.31% 4,320 2.21% 4,135 2.19%
Taxable Invest. Securities(1) 35,754 17.31% 30,667 15.68% 27,426 14.52%
Tax-exempt Investment
Securities(1) 14,179 6.86% 17,383 8.89% 19,035 10.08%
Other Securities(1) 1,168 0.59% 1,168 0.60% 1,159 0.61%
Total Invest. Securities 51,142 24.76% 49,218 25.16% 47,620 25.21%
Federal Funds Sold 4,711 2.28% 3,186 1.63% 3,069 1.62%
Loans, Net 138,635 67.12% 131,878 67.41% 127,394 67.45%
Premises and Equipment 3,431 1.66% 3,148 1.61% 2,946 1.56%
Other Real Estate Owned 767 0.37% 964 0.49% 864 0.46%
Other Assets 3,107 1.50% 2,921 1.49% 2,851 1.51%
Total Assets 206,517 100% 195,635 100% 188,879 100%
<CAPTION>
LIABILITIES
Demand Deposits 17,493 8.49% 16,082 8.22% 14,459 7.66%
Now and Money Market Accounts 41,383 20.03% 35,474 18.13% 36,690 19.43%
Savings Accounts 32,320 15.65% 33,535 17.14% 34,643 18.34%
Time Deposits 96,227 46.59% 93,314 47.70% 85,712 45.38%
Total Deposits 187,423 90.76% 178,405 91.19% 171,504 90.80%
Other Borrowed Funds 99 0.05% 117 0.06% 1,573 0.83%
Other Liabilities 522 0.25% 693 0.35% 440 0.23%
Subordinated Debentures 216 0.10% 328 0.17% 554 0.29%
Total Liabilities 188,260 91.16% 179,543 91.77% 174,071 92.16%
<CAPTION>
STOCKHOLDERS EQUITY
Common Stock 3,466 1.68% 3,247 1.66% 3,056 1.62%
Surplus 5,948 2.88% 4,561 2.33% 3,628 1.92%
Retained Earnings 9,273 4.49% 8,805 4.50% 8,856 4.69%
Less: Treasury Stock (440) -0.21% (440) -0.22% (436) -0.23%
Valuation Allowance for
Securities (1) 10 0.00% (81) -0.04% (296) -0.15%
Total Stockholders Equity 18,257 8.84% 16,092 8.23% 14,808 7.84%
Total Liabilities and
Stockholders Equity 206,517 100% 195,635 100% 188,879 100%
<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
rate/yield. (Dollars in Thousands)
<CAPTION>
1996 1995 1994
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)(5) 138,635 13,376 9.65% 131,878 12,451 9.44% 127,394 11,116 8.73%
Taxable Invest.
Securities 35,754 2,095 5.86% 30,667 1,758 5.73% 27,426 1,404 5.12%
Tax-exempt Invest.
Securities(1) 14,179 1,114 7.86% 17,383 1,417 8.15% 19,035 1,329 6.98%
Fed. Funds Sold 4,711 246 5.22% 3,186 180 5.65% 3,069 128 4.17%
Other
Securities(2) 1,168 78 6.68% 1,168 82 7.02% 1,159 81 6.99%
TOTAL 194,447 16,909 8.70% 184,282 15,888 8.62% 178,083 14,058 7.89%
INTEREST BEARING LIABILITIES
Savings Deposits 32,320 944 2.92% 33,535 1,003 2.99% 34,643 1,038 3.00%
NOW & Money
Market Funds 41,383 1,523 3.68% 35,474 1,348 3.80% 36,690 1,226 3.34%
Time Deposits 96,227 5,681 5.90% 93,314 5,858 6.28% 85,712 4,387 5.12%
Other Borrowed
Funds 99 7 7.07% 117 7 6.28% 1,573 105 6.68%
Subordinated
Debentures 216 21 9.72% 328 31 9.45% 554 52 9.39%
TOTAL 170,245 8,176 4.80% 162,768 8,247 5.07% 159,172 6,808 4.28%
Net Interest Income 8,733 7,641 7,250
Net Interest Spread(3) 3.90% 3.55% 3.61%
Interest Differential(4) 4.49% 4.15% 4.07%
<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 $378,876 in 1996, $481,863 in 1995, and $451,824 in 1994.
<F2> Included in other securities are taxable industrial development bonds
(VIDA),with income of $8,381 for 1996 and approximately $10,000 for
1995 and 1994.
<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.
<F5> Included in net loans are non-accrual loans with an average balance of
$1,655,907 for 1996, $1.826.515 for 1995 and $1,534,012 for 1994.
</TABLE>
<TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the years 1996,
1995, 1994 and 1993 resulting from volume changes in assets and liabilities and
fluctuations in rates earned and paid.
(Dollars in Thousands)
<CAPTION>
1996 vs. 1995 1995 vs. 1994 1994 vs. 1993
RATE VOLUME Variance(1) Variance(1) Variance(1)
Due to Total Due to Total Due to Total
Rate Volume Variance Rate Volume Variance Rate Volume Variance
Income Earning Assets
<S> <C> <C> <C> <C> <c > <C> <C> <C> <C>
Loans(2) 287 638 925 944 391 1,335 (500) 814 314
Taxable Invest.
Securities 45 292 337 188 166 354 (198) 204 6
Tax-exempt Invest.
Securities (3) (51)(252) (303) 203(115) 88 (183) 339 156
Fed. Funds Sold (20) 86 66 47 5 52 42 (7) 35
Other Securities (4) 0 (4) 0 1 1 (4) (12) (16)
Total Interest
Earnings 257 764 1,021 1,382 448 1,830 (843)1,338 495
Interest Bearing Liabilities
Savings Deposits (24) (35) (59) (2)(33) (35) (42) 97 55
NOW & Money
Market Funds (50) 225 175 163 (41) 122 33 165 198
Time Deposits (349) 172 (177) 1,082 389 1,471 61 237 298
Other Borrowed
Funds 1 (1) (0) (6)(91) (98) 2 98 100
Subordinated
Debentures 1 (11) (10) 0 (21) (21) 1 (2) (1)
Total Interest
Expense (421) 350 (71) 1,236 203 1,439 55 595 650
<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 portfolio 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>
1996 1995 1994
<S> <C> <C> <C>
U.S. Treasury Obligations:
Available-for-Sale 7,974 13,066 22,208
Held-to-Maturity 28,097 20,867 5,779
U.S. Agency Obligations 1,679 0 510
Obligations of State &
Political Subdivisions 8,192 11,736 16,568
Other Securities 1,063 1,039 962
Total Investment Securities 47,005 46,708 46,027
</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, 1996 1995 1994
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 0 0.00% 10,067 5.62% 11,403 4.78%
Due after 1 yr. within 5 yrs. 7,974 5.79% 2,999 6.13% 11,315 5.05%
Total 7,974 5.79% 13,066 5.74% 22,718 4.91%
<CAPTION>
Book Ave. Book Ave. Book Ave.
Held to Maturity Value Yield Value Yield Value Yield
Due within 1 year 6,956 5.93% 0 0.00% 0 0.00%
Due after 1 yr. within 5 yrs. 22,820 6.17% 20,867 5.97% 5,779 7.44%
Total 29,776 6.12% 20,867 5.97% 5,779 7.44%
<CAPTION>
Obligations of State &
Political Subdivisions (1)
Book Ave. Book Ave. Book Ave.
Value Yield Value Yield Value Yield
Due within 1 year 4,468 7.16% 7,468 8.01% 13,442 7.41%
Due after 1 yr. within 5 yrs. 1,718 7.88% 1,470 8.46% 941 8.18%
Due after 5 yrs. within 10 yrs. 458 7.83% 950 9.02% 774 9.19%
Due after 10 years 1,548 9.61% 1,848 9.79% 1,411 8.63%
Total 8,192 7.81% 11,736 8.43% 16,568 7.64%
Other Securities (2)
Due after 10 years 1,063 6.60% 1,039 6.72% 962 6.85%
Total 1,063 6.60% 1,039 6.72% 962 6.85%
<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 $150
thousand and an average yield of 5.60% as of December 31, 1996.
</TABLE>
<TABLE>
LOAN PORTFOLIO
The following table reflects the composition of the Corporation's loan
portfolio as of December 31, 1996, 1995 and 1994.
(Dollars in Thousands)
<CAPTION>
1996 1995 1994 1993 1992
TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF
LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans
Construction & Land
Development 1,432 0.98% 912 0.66% 587 0.44% 782 0.62% 587 0.51%
Farm Land 2,148 1.48% 1,814 1.32% 1,115 0.84% 1,007 0.80% 808 0.70%
1-4 Family
Residential 94,393 64.83% 91,104 66.38% 88,967 66.68% 81,573 64.54% 73,032 63.41%
Commercial RE 20,602 14.15% 18,646 13.59% 18,094 13.56% 18,063 14.29% 17,136 14.88%
Loans to Finance
Agric. Production 1,222 0.84% 1,127 0.82% 1,305 0.98% 1,552 1.23% 1,240 1.08%
Commercial &
Industrial 7,084 4.87% 6,749 4.92% 6,719 5.04% 6,692 5.29% 7,346 6.38%
Loans to
Individuals 18,556 12.74% 16,578 12.08% 16,380 12.28% 16,434 13.00% 14,838 12.88%
All Other Loans 166 0.11% 310 0.23% 259 0.19% 296 0.23% 190 0.16%
Gross Loans 145,603 100% 137,240 100% 133,426 100% 126,399 100% 115,177 100%
Less:
Reserve for
Loan Losses (1,401)-0.96% (1,519) -1.11% (1,708)-1.28% (1,872)-1.48% (1,782)-1.55%
Deferred Loan
Fees (904)-0.62% (909) -0.66% (924)-0.69% (841)-0.67% (723)-0.63%
Net Loans 143,298 98.42% 134,812 98.23% 130,794 98.03% 123,686 97.85% 112,672 97.83%
</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, 1996.
<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 1,336 0 0 1,336
Secured by Farm Land 5 0 98 103
Commercial Real Estate 370 425 2,499 3,294
Loans to Finance Agricultural Production 70 379 0 449
Commercial & Industrial Loans 759 1,788 506 3,053
Total 2,540 2,592 3,103 8,235
<CAPTION>
Variable Rate Loans
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
Construction & Land Development 96 0 0 96
Secured by Farm Land 1,272 773 0 2,045
Commercial Real Estate 13,318 3,990 0 17,308
Loans to Finance Agricultural Production 737 36 0 773
Commercial & Industrial Loans 3,242 789 0 4,031
Total 18,665 5,588 0 24,253
</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, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Loans Outstanding End of
Period 145,603 137,240 133,426 136,399 115,117
Ave. Loans Outstanding
During Period 138,635 131,879 127,394 118,470 108,780
Loan Loss Reserve, Beginning
of Period 1,519 1,708 1,872 1,782 1,619
Loans Charged Off:
Real Estate 116 198 187 12 33
Commercial 86 17 24 19 184
Loans to Individuals 383 238 250 138 148
Total 585 453 461 169 365
Recoveries:
Real Estate 18 5 43 2 0
Commercial 16 20 12 37 32
Loans to Individuals 68 119 62 70 96
Total 102 144 117 109 128
Net Charge Offs 483 309 344 60 237
Provision Charged to Income 365 120 180 150 400
Loan Loss Reserve, End of Period 1,401 1,519 1,708 1,872 1,782
Net Losses as a Percent of
Ave. Loans 0.35% 0.23% 0.27% 0.05% 0.22%
Provision Charged to Income as a
Percent of Average Loans 0.26% 0.09% 0.14% 0.13% 0.37%
At End of Period:
Loan Loss Reserve as a Percent
of Outstanding Loans 0.96% 1.11% 1.28% 1.48% 1.55%
</TABLE>
<TABLE>
Factors considered in the determination of the level of loan loss coverage
include, but are not limited to, historical loss ratios, composition of the
loan portfolio, overall economic conditions, as well as future potential losses.
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, 1996 % 1995 % 1994 % 1993 % 1992 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Residential Real Estate 490 35% 265 17% 200 12% 175 9% 175 10%
Commercial 307 22% 631 42% 950 56% 900 48% 800 45%
Loans to Individuals 395 28% 485 32% 400 23% 350 19% 250 14%
Unallocated 209 15% 138 9% 158 9% 447 24% 557 31%
Total 1,401 100% 1,519 100% 1,708 100% 1,872 100% 1,782 100%
</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, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Accruing Loans Past Due 90 Days or More:
Consumer 36 28 54 64 54
Commercial 5 15 11 45 3
Real Estate 360 249 271 391 265
Total Past Due 90 Days or More 401 292 336 500 322
Non-accrual Loans 1,255 1,389 1,791 500 895
Restructured Loans (incl. non-accrual) 506 359 347 717 222
Total Non-accrual, Past Due
and Restructured Loans 2,162 2,040 2,474 1,717 1,439
Other Real Estate Owned 663 761 918 910 1,854
Total Non-Performing Loans 2,825 2,801 3,392 2,627 3,293
Percent of Gross Loans 1.94% 2.04% 2.54% 2.08% 2.86%
Reserve Coverage of Non performing loans 49.59% 54.23% 50.35% 71.26% 54.11%
</TABLE>
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 1996, 1995, and 1994 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 $309,388 in 1996, $256,754
in 1995, and $181,930 in 1993. The corporation had total foreign loans of
less than one percent in 1996, and has no loan concentration in any
industrial category.
<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, 1996 1995 1994
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Demand Deposits 17,534 0.00% 16,082 0.00% 14,459 0.00%
NOW & Money Market Funds 41,383 3.68% 35,474 3.80% 36,690 3.34%
Savings Deposits 32,320 2.92% 33,535 2.99% 34,643 3.00%
Time Deposits 96,227 5.90% 93,314 6.28% 85,712 5.12%
Total Deposits 187,464 4.35% 178,405 4.60% 171,504 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, 1996 are
summarized as follows:
<CAPTION>
Time Certificates
Maturity Date of Deposit
<S> <C>
3 Months or Less 2,349
Over 3 through 6 Months 3,867
Over 6 through 12 Months 4,842
Over 12 Months 6,820
Total 17,878
</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, 1996 1995 1994
<S> <C> <C> <C>
Return on Average Assets 1.07% 1.00% 1.00%
Return on Average Equity 12.16% 12.13% 12.74%
Dividend Payout Ratio 63.29% 63.66% 55.26%
Ave. Equity to Ave. Assets Ratio 8.84% 8.23% 7.84%
</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. All of the Bank's
offices are located in Vermont. In addition to the main office in Derby,
the Bank maintains facilities located in; City of Newport, Town of Barton
and St. Johnsbury, and Villages of Island Pond, Troy and Derby Line.
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. The main office is equipped with a drive-up facility as well
as an Automated Teller Machine (ATM). 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.
The Bank's Derby Line 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 Island Pond 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.
An ATM is scheduled for installation in April-May of 1997. The other portion
of the downstairs is occupied by an information center, and the upstairs
section houses the Island Pond Historical Society.
The Barton office is located on Church Street, in a renovated facility. This
office is equipped with a banking lobby, a drive-up window, and an ATM, 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 office 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 lease on this facility has been extended to December 31,
1998 at which time the office will be moved into a condominium space in the
proposed state office building on Main Street in Newport. The Bank will
occupy approximately 3,084 square feet on the first floor of the building for
a full service banking lobby equipped with a remote drive-up facility, and
approximately 4,400 square feet on the second floor for future expansion.
The Bank's Troy office is located in a new facility, which was leased for a
few years and then purchased in 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 ATM was installed during 1994 to
provide the same type of limited 24-hour accessibility as our Derby and Barton
offices.
The St. Johnsbury office 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>
1996
First Second Third Fourth
<C> <C> <C> <C> <C>
Trade price
High $17.25 $18.00 $19.00 $18.75
Low $16.50 $17.50 $17.50 $18.50
Cash Dividends
Declared $ 0.26 $ 0.26 $ 0.26 $ 0.26
<CAPTION>
1995
First Second Third Fourth
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
</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, 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total Interest Income 16,532 15,406 13,605 13,127 13,578
Less:
Total Interest Expense 8,177 8,248 6,807 6,158 6,965
Net Interest Income 8,355 7,158 6,798 6,969 6,613
Less:
Provision for Loan Losses 365 120 180 150 400
Other Operating Income 1,281 1,181 1,057 1,260 1,076
Less:
Other Operating Expense 6,397 5,943 5,459 4,957 4,595
Income Before Income Taxes 2,874 2,276 2,216 3,122 2,694
Gain due to F.A.S.B. 109(1) N/A N/A N/A 35 N/A
Less:
Applicable Income Taxes (3) 654 324 329 643 751
Net Income 2,220 1,952 1,887 2,514 1,943
Per Share Data: (2)
Earnings per Share
Primary 1.63 1.49 1.51 2.07 1.68
Fully Diluted 1.61 1.46 1.46 1.99 1.59
Cash Dividends Declared 1.04 0.96 0.88 0.80 0.68
Weighted Average Number of
Common Shares Outstanding
Primary 1,363,194 1,307,552 1,251,960 1,212,832 1,157,959
Fully Diluted 1,389,699 1,348,968 1,313,632 1,278,576 1,246,196
Number of Common Shares
Outstanding 1,383,128 1,330,514 1,264,859 1,230,555 1,179,255
Balance Sheet Data:
Net Loans 143,298 134,812 130,794 123,686 112,672
Total Assets 205,536 197,382 191,315 178,649 164,635
Total Deposits 183,854 178,884 174,676 162,927 150,773
Total Liabilities 186,425 179,801 175,796 164,007 152,092
Subordinated Debentures 170 265 551 571 672
Total Shareholder Equity 19,111 17,580 15,518 14,642 12,543
<FN>
<F1> F.A.S.B. 109 was adopted in the first quarter of 1993 as required,
resulting in a one-time adjustment to income.
<F2> Per share data for prior years 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 ($656) in 1996,
$6,272 in 1995, $7,021 in 1994, ($7,128) in 1993, and $9,901 in 1992.
</TABLE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
The following is an unaudited summary of the quarterly results of operations
for the years ended December 31, 1996, 1995 and 1994.
(Dollars in thousands, except per share data)
<CAPTION>
1996 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Interest Income 4,032 4,145 4,163 4,192
Net Interest Income 1,940 2,051 2,122 2,243
Provisions For Loan Loss 37 122 80 125
Other Operating Expense 1,546 1,630 1,643 1,578
Income Before Taxes 607 662 721 884
Applicable Income Taxes 140 149 182 184
Net Income 467 513 539 700
Net Income Per Share:
Primary 0.35 0.38 0.40 0.50
Fully Diluted 0.34 0.38 0.39 0.50
1995
Interest Income 3,594 3,788 3,928 4,096
Net Interest Income 1,633 1,721 1,828 1,976
Provisions For Loan Loss 30 30 30 30
Other Operating Expense 1,508 1,495 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
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 Loss 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 (1):
Primary 0.41 0.37 0.33 0.40
Fully Diluted 0.39 0.36 0.32 0.39
<FN>
<F1> Per share data restated to reflect 5% stock dividend in first
quarter of 1995.
</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.
<TABLE>
The following table shows the interest sensitivity gaps for four different
time intervals as of December 31, 1996. 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 $ 32,317 $ 69,720 $ 39,399 $ 4,167
Investments - Taxable 1,003 5,953 30,794 0
Investments - Tax-exempt 1,503 2,815 1,718 2,006
Other Investments 30 120 0 1,063
Federal funds sold 0 0 0 0
Total $ 34,853 $ 78,608 $ 71,911 $ 7,236
<CAPTION>
Rate Sensitive Liabilities:
NOW & super NOW accounts $ 0 $ 0 $ 0 $ 17,399
Savings deposits 0 2,133 0 29,747
Time deposits(1) 33,938 28,163 13,136 0
Variable rate time deposits 26,439 14,801 0 0
Other borrowed funds 1,600 5 60 0
Total $ 61,977 $ 45,102 $ 13,196 $ 47,146
Interest sensitivity gap $(27,124) $ 33,506 $ 58,715 $(39,910)
GAP Ratio -14.08% 17.40% 30.48% -20.72%
Cumulative interest
sensitivity gap $(27,124) $ 6,382 $ 65,097 $ 25,187
Cumulative GAP Ratio -14.08% 3.31% 33.80% 13.08%
<FN>
<F1> Included in the time deposits category are money market accounts totaling
$22.6 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
Community Bancorp. and Subsidiary
(Dollars in Thousands)
<CAPTION>
ANNUAL
GROWTH RATE
At December 31, 1996 1995 1994 '96/'95 '95/'94
<S> <C> <C> <C> <C> <C>
Total Assets 205,536 197,382 191,315 4.13% 3.17%
Allowance for Possible Loan Losses 1,401 1,519 1,708 -7.77% -11.07%
Total Adjusted Assets 206,937 198,901 193,023 4.04% 3.05%
Gross Risk-Adjusted Assets 102,922 97,860 97,753 5.17% 0.11%
Allowance for Loan Loss over limit 114 296 486 -61.49% -39.09%
Total Risk-Adjusted Assets 102,808 97,564 97,267 5.37% 0.31%
Shareholders' Equity (Tier l) 19,111 17,580 15,518 8.71% 13.29%
Valuation Allowance for Securities (8) (51) 451 84.31% -111.31%
Total Adjusted Tier I Capital (1) 19,103 17,529 15,969 8.98% 9.77%
Eligible Discounted Subordinated Debt 85 150 364 -43.33% -58.79%
Max. Allow. for Possible Loan Losses(2) 1,287 1,223 1,222 5.23% 0.08%
Total Capital (Tier II) 20,475 18,902 17,555 8.32% 7.67%
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Tier I Capital/Total Adjusted Assets 9.23% 8.81% 8.27%
Tier II Capital/Total Adjusted Assets 9.89% 9.50% 9.09%
Tier I Capital/Total Risk-Adjusted Assets 18.58% 17.97% 16.42%
Tier II Capital/Total Risk-Adjusted Assets 19.92% 19.37% 18.05%
<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 II) capital is the lower of the period end allowance for possible
loan losses or 1.25% of gross risk - adjusted assets, as implemented by
regulatory 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 1996.
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, 1996 Page 8 through
Note 21 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 6, 1997.
<TABLE>
<CAPTION>
Position with Has Served As
Name, Age and Community Officer/Director
Principal Occupation Bancorp. Since
<S> <S> <C>
Stephen P. Marsh, 49 Vice President 07/01/73
Senior VP & Cashier & Treasurer
Community National Bank
Rosemary M. Rowe, 55 Secretary 09/08/80
Vice President,
Community National Bank
Alan A. Wing, 52 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, 1996.
(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 Annual Report to Shareholders of Community
Bancorp. for Year Ended December 31, 1996, specifically mentioned in this
report, incorporated by reference.
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, 1996.
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 27, 1997
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 27, 1997
Stephen P. Marsh, Treasurer
and Chief Financial and
Accounting Officer
COMMUNITY BANCORP. DIRECTORS
/s/ Thomas E. Adams Date: March 27, 1997
Thomas E. Adams
/s/ Francis Allard Date: March 27, 1997
Francis Allard
/s/ Jacques R. Couture Date: March 27, 1997
Jacques R. Couture
/s/ Elwood G. Duckless Date: March 27, 1997
Elwood G. Duckless
/s/ Rosemary M. Lalime Date: March 27, 1997
Rosemary M. Lalime
/s/ Marcel Locke Date: March 27, 1997
Marcel Locke
/s/ Anne T. Moore Date: March 27, 1997
Anne T. Moore
/s/ Dale Wells Date: March 27, 1997
Dale Wells
/s/ Richard C. White Date: March 27, 1997
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 Jamuary 3, 1997,
included in the 1996 Annual Report to Shareholders of Community Bancorp.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3. No. 33-18535) 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, 1997, with respect to the consolidated
financial statements incorporated herein by reference of Community Bancorp.
included in the Annual Report (Form 10-KSB) for the year ended December
31, 1996.
/s/A.M. Peisch & Company
March 27, 1997
St. Johnsbury, Vermont
<TABLE>
<CAPTION>
Consolidated Statements of Condition
Community Bancorp. And Subsidiary
December 31, 1996 1995
<S> <C> <C>
Assets
Cash and due from banks (Note 16) $ 8,245,398 $ 5,068,955
Federal funds sold -0- 3,825,000
Cash and cash equivalents 8,245,398 8,893,955
Securities held-to-maturity (approximate market
value $37,915,448 and $32,925,570 at December
31, 1996 and 1995) (Note 2) 37,967,786 32,602,657
Securities available-for-sale (Note 2) 9,037,113 14,105,688
Loans (Notes 1 and 3) 145,603,582 137,240,198
Allowance for loan losses (Note 4) (1,401,042) (1,519,247)
Unearned net loan fees (904,303) (908,731)
Net loans 143,298,237 134,812,220
Bank premises and equipment, net (Notes 1 and 5) 3,421,359 3,263,166
Accrued interest receivable 1,538,637 1,524,175
Other real estate owned, net (Note 1 and 6) 662,544 761,362
Other assets (Note 7) 1,365,129 1,418,576
Total assets $205,536,203 $197,381,799
Liabilities and stockholders' equity
LIABILITIES
Deposits:
Demand, non-interest bearing $ 18,098,323 $ 15,777,469
NOW and money market accounts 40,026,689 34,450,952
Savings 31,879,729 31,395,227
Time deposits, $100,000 and over (Note 8) 17,878,261 18,616,586
Other time (Note 8) 75,971,474 78,643,288
183,854,476 178,883,522
Short term borrowing (Note 9) 1,600,000 -0-
Borrowed funds (Note 9) 65,000 65,000
Accrued Interest and other liabilities 735,372 587,860
Subordinated debentures (Note 10) 170,000 265,000
186,424,848 179,801,382
Commitments and contingent liabilities (Notes 5, 12, 13 and 14)
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value;
2,000,000 shares authorized 1,412,493 shares
issued at 12/31/96 and 1,359,869 shares
issued at 12/31/95 3,531,233 3,399,674
Additional paid-in capital 6,140,962 5,513,703
Retained earnings (Note 17) 9,871,409 9,056,562
Unrealized gain on securities
available-for-sale, net of tax 7,963 50,501
Less treasury stock, at cost
(1996: 29,365 shares; 1995: 29,355 shares) (440,212) (440,023)
19,111,355 17,580,417
Total liabilities and stockholders' equity $205,536,203 $197,381,799
See Notes to Consolidate Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidate Statements of Income
Community Bancorp. and Subsidiary
Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
Interest income
Interest and fees on loans $13,376,352 $12,451,251 $11,116,122
Interest and dividends on investments
U.S. Treasury securities 2,016,787 1,691,913 1,380,154
U.S. Government agencies 78,177 66,674 23,485
Obligation of states and political
subdivisions 743,847 944,911 885,467
Dividends 70,229 72,080 72,452
Interest on federal funds sold 246,405 179,708 127,964
16,531,797 15,406,537 13,605,644
Interest expense
Interest on deposits 8,148,012 8,209,547 6,651,104
Interest on other borrowed funds 7,586 7,353 104,796
Interest on subordinated debentures 20,828 31,555 51,743
8,176,426 8,248,455 6,807,643
Net interest income 8,355,371 7,158,082 6,798,001
Provision for possible loan losses(Note 4) (365,000) (120,000) (180,000)
Net interest income after provision for
possible loan loss 7,990,371 7,038,082 6,618,001
Other income
Trust department income 113,187 107,463 85,221
Service fees 604,449 539,851 504,572
Security (losses) gains (1,928) 18,449 20,649
Other (Note 21) 564,894 514,889 447,180
Total other operating income 1,280,602 1,180,652 1,057,622
Other expenses
Salaries and wages 2,618,632 2,407,968 2,207,000
Pension and other employee benefits 653,690 616,388 463,965
Occupancy expenses, net 1,221,080 1,098,731 887,208
Other operating expenses (Note 21) 1,903,675 1,819,391 1,901,306
6,397,077 5,942,478 5,459,479
Income before income taxes 2,873,896 2,276,256 2,216,144
Income taxes (Note 11) 654,092 324,307 329,016
Net income $2,219,804 $1,951,949 $1,887,128
Earnings per share on weighted average
Primary $1.63 $1.49 $1.51
Fully diluted $1.61 $1.46 $1.46
Weighted average number of common shares
used in computing earnings per share
Primary 1,363,194 1,307,552 1,251,960
Fully diluted 1,389,699 1,348,968 1,313,631
Book value per share on shares outstanding
at December 31 $13.82 $13.21 $12.27
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholder's Equity
Years Ended December 31, 1996, 1995 and 1994
Unrealized
gain(loss)
on securities
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 31,1993 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) -0-
-0-
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)
Net income -0- -0- -0- 2,219,804 -0-
-0-
Dividends paid -0- -0- -0- (1,404,957) -0-
-0-
Issuance of stock 52,624 131,559 627,259 -0- -0-
-0-
Purchase of
treasury stock (10) -0- -0- -0- -0-
(189)
Net decrease in unrealized
gain on securities
available-for-sale,
net of tax -0- -0- -0- -0- (42,538)
-0-
Balance,
December 31, 1996 1,383,128$3,531,233 $6,140,962 $9,871,409 $ 7,963
$(440,212)
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Community Bancorp. and Subsidiary
Years Ended December 31,
1996 1995 1994
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 2,219,804 $ 1,951,949 $ 1,887,128
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 392,775 326,702 250,469
Provision for possible loan losses 365,000 120,000 180,000
Provision for deferred income taxes 110,709 135,655 (10,563)
Securities losses(gains) 1,928 (18,449) (20,649)
(Gains)losses on sales of OREO (41,297) 53,920 1,300
OREO writedowns 38,712 15,000 25,770
Amortization of bond premium, net 53,626 116,629 302,723
(Increase)decrease in interest receivable (14,462) (137,175) (126,602)
(Increase)decrease in other assets 28,571 (75,263) (68,233)
Increase (decrease) in unamortized
loan fees (4,428) (16,079) 83,474
Increase(decrease) in taxes payable 65,337 (83,790) 32,109
Increase(decrease) in interest payable (29,119) 57,401 47,125
Increase(decrease) in accrued expenses (2,858) 78,790 (92,775)
Increase (decrease) in other liabilities 119,956 39,281 (2,733)
Net cash provided by operating
activities 3,304,254 2,564,571 2,488,543
Cash flows from investing activities
Securities held-to-maturity
Maturities and paydowns 20,893,071 21,582,512 11,597,469
Purchases (26,292,738) (34,727,953) (8,007,338)
Securities available-for-sale
Sales and maturities 10,004,844 17,084,687 19,324,024
Purchases (5,021,737) (3,958,044) (28,433,750)
Increase in loans, net (9,355,980) (4,467,509) (7,714,132)
Capital expenditures, net (550,968) (452,421) (545,420)
Investments in limited partnership (69,723) (87,295) (26,909)
Proceeds from sales of other real
estate owned 508,880 288,422 190,342
Recoveries of loans charged off 101,914 144,625 117,194
Net cash used in investing activities (9,782,437) (4,592,976) (13,498,520)
<CAPTION>
(continued)
1996 1995 1994
Cash flows from financing activities
Net increase (decrease) in demand,
NOW, money market and savings accounts 8,381,093 (5,368,703) 8,357,944
Net (decrease)increase in
certificates of deposit (3,410,139) 9,576,216 3,390,952
Net increase in short-term borrowings 1,600,000 -0- -0-
Net increase(decrease) in
borrowed funds -0- -0- (10,000)
Payments to acquire treasury stock (189) (4,335) (183)
Dividends paid (741,139) (673,535) (578,977)
Net cash provided by financing
activities 5,829,626 3,529,643 11,159,736
Net (decrease)increase in cash
and cash equivalents (648,557) 1,501,238 149,759
Cash and cash equivalents
Beginning 8,893,955 7,392,717 7,242,958
Ending $8,245,398 $8,893,955 $7,392,717
Supplemental schedule of cash
paid during the year
Interest $8,205,545 $8,191,054 $6,760,518
Income taxes $ 444,351 $ 301,000 $ 356,000
Supplemental schedule of noncash
investing and financing activities:
Unrealized gain(loss) on securities
available-for-sale $ (64,452) $ 760,340 $ (683,822)
Other real estate owned acquired
in settlement of loans $ 723,596 $ 451,138 $ 293,743
Debentures converted to common stock $ 95,000 $ 286,000 $ 20,000
5% Stock dividend at market value $ -0- $1,019,716 $ -0-
Dividends paid:
Dividends payable $1,404,957 $1,242,597 $1,042,862
Dividends reinvested (663,818) (569,062) (463,885)
$ 741,139 $ 673,535 $ 578,977
See Notes to Consolidated Financial Statements.
</TABLE>
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.
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.
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
creditworthy 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.
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 collectibil-
ity 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, period-
ically 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 includes 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 statement of cash
flows for the year ended December 31, 1994, has been restated using the
indirect method to conform with the December 31, 1996 and 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.
Interest on loans is accrued daily on the outstanding balances. The
Company places loans on non-accrual when any portion of the 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 non-accrual, 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
as to the ultimate collection of principal; otherwise, such payments are
recognized as interest income. Loans are removed from non-accrual when they
become current as to 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.
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.
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:
<CAPTION>
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 other income. 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 cost or fair market value minus estimated costs to sell. 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.
Income taxes-The Company 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.
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 Statement No. 122,
"Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement No.
65." The Company adopted this statement 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 cost of mortgage servicing rights is amortized in propor-
tion to, and over the period of, estimated net servicing revenues. Impairment
of mortgage servicing rights is assessed based on the fair value of those
rights. Fair values are estimated using discounted cash flows based on a
current market interest rate. 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 balance sheet. 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.
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.
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.
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.
Short-term borrowings: The carrying amounts reported in the balance sheets
for federal funds purchased approximate their fair values. These borrowings
are short-term and due on demand.
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 creditworthiness of the counterparties. For fixed-rate loan
commitments, fair value also considers the difference between current levels
of interest rates and the committed rates.
Accrued interest: The carrying amounts of accrued interest approximates
their fair values.
Reclassification-Certain amounts in the 1995 and 1994 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, 1996:
<CAPTION>
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U. S. Government and
agency securities $7,961,998 $ 19,251 $ 7,186 $7,974,063
Other securities 1,063,050 -0- -0- 1,063,050
$9,025,048 $ 19,251 $ 7,186 $9,037,113
<CAPTION>
Securities held-to-maturity at December 31, 1996, consisted of the following:
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U. S. Government and
agency securities $29,775,526 $ 79,118 $131,456 $29,723,188
States and political
subdivisions 8,192,260 -0- -0- 8,192,260
$37,967,786 $ 79,118 $131,456 $37,915,448
<CAPTION>
Securities available-for-sale consisted of the following at December 31, 1995:
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U. S. Government 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. Government 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
</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 $4,010,794 and $3,453,455
and a market value of $4,047,188 and $3,529,375 at December 31, 1996 and 1995,
respectively, were pledged as collateral on public deposits and for other
purposes as required or permitted by law.
Proceeds from the sale of securities available-for-sale amounted to
$2,004,844, $6,584,687 and $7,537,734 in 1996, 1995 and 1994, respectively.
Realized gains from sales of investments available-for-sale were $909, $58,762
and $23,041, with realized losses of $2,837, $40,313 and $2,392 for the years
1996, 1995 and 1994, respectively.
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.
<TABLE>
<CAPTION>
The maturities of securities available-for-sale at December 31, 1996, were as
follows:
Amortized Market
Cost Value
<S> <C> <C>
Due from one to five years $7,961,998 $7,974,063
Other securities 1,063,050 1,063,050
$9,025,048 $9,037,113
<CAPTION>
The maturities of securities held-to-maturity at December 31, 1996, were as
follows:
Amortized Market
Cost Value
<S> <C> <C>
Due in one year or less $11,424,589 $11,474,118
Due from one to five years 24,537,912 24,436,045
Due from five to ten years 458,104 458,104
Due after ten years 1,547,181 1,547,181
$37,967,786 $37,915,448
Included in the caption "States and Political Subdivisions" are securities of
local municipalities carried at $8,192,260 and $11,735,570 at December 31,
1996 and 1995, 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>
<TABLE>
<CAPTION>
The composition of net loans at December 31 is as follows:
1996 1995
<S> <C> <C>
Commercial $ 8,306,095 $ 7,875,715
Real estate - Construction 1,431,727 912,355
Real estate - Mortgage 117,143,767 111,563,558
Installment and other 18,721,993 16,888,570
145,603,582 137,240,198
Deduct:
Allowance for possible loan losses 1,401,042 1,519,247
Unearned net loan fees 904,303 908,731
2,305,345 2,427,978
$143,298,237 $134,812,220
</TABLE>
The total recorded investment in impaired loans as determined in accordance
with FASB Statements No. 114 and No. 118 approximated $1,096,208 and
$1,351,000 at December 31, 1996 and 1995, respectively. These loans were
subject to allowances for loan losses of approximately $70,017 and $120,000
which represented the total allowance for loan losses related to impaired
loans at December 31, 1996 and 1995, respectively. The average recorded
investment in impaired loans amounted to approximately $1,281,550 and
$1,363,000 for the years ended December 31, 1996 and 1995, respectively. Cash
receipts on impaired loans amounted to $160,755 and $187,835 in 1996 and 1995,
respectively, of which $98,000 and $173,582 were applied to the principal
balances of the loans.
In addition, the Bank had other non-accrual loans of approximately
$665,056 and $542,000 at December 31, 1996 and 1995, respectively, 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 $91,986 and $74,609 for the years ended December 31, 1996 and
1995, respectively.
The Bank is not committed to lending additional funds to debtors with
impaired, non-accrual or modified loans.
Residential real estate loans totaling $2,273,991 and $2,910,934 at
December 31, 1996 and 1995, respectively, were pledged as collateral on
deposits of municipalities.
Note 4. Allowance for Possible Loan Losses
<TABLE>
<CAPTION>
Changes in the allowance for possible loan losses at December 31 are as
follows:
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning $1,519,247 $1,707,555 $1,871,555
Provision charged to operating expense 365,000 120,000 180,000
Recoveries of amounts charged off 101,914 144,625 117,194
1,986,161 1,972,180 2,168,749
Amounts charged off ( 585,119) ( 452,933) ( 461,194)
Balance, ending $1,401,042 $1,519,247 $1,707,555
</TABLE>
Note 5. Bank Premises and Equipment
<TABLE>
<CAPTION>
The major classes of bank premises and equipment and the total accumulated
depreciation at December 31 are as follows:
1996 1995
<S> <C> <C>
Land $ 80,747 $ 80,747
Buildings and improvements 2,408,306 2,236,459
Furniture and equipment 3,804,909 3,490,168
Leasehold improvements 376,620 325,105
6,670,582 6,132,479
Less accumulated depreciation (3,249,223) (2,869,313)
$3,421,359 $3,263,166
</TABLE>
Depreciation included in occupancy and equipment expense amounted to $392,775,
$326,702 and $250,469 for the years ended December 31, 1996, 1995 and 1994,
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, 1996, for each
of the next five years and in aggregate are:
<S> <C>
1997 $ 276,437
1998 276,437
1999 89,669
2000 75,926
2001 66,110
Subsequent to 2001 384,390
$1,168,969
</TABLE>
Total rental expense amounted to $307,885, $323,372 and $220,388 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Note 6. Other Real Estate Owned
<TABLE>
<CAPTION>
A summary of foreclosed real estate at December 31 is as follows:
1996 1995
<S> <C> <C>
Other real estate owned $ 814,642 $ 874,748
Less allowance for losses on OREO (152,098) (113,386)
Other real estate owned, net $ 662,544 $ 761,362
</TABLE>
<TABLE>
<CAPTION>
Changes in the allowance for losses on OREO for the years ended December 31
were as follows:
1996 1995 1994
<S> <C> <C> <C>
Balance, beginning $113,386 $113,386 $ 93,476
Provision for losses 38,712 -0- 25,769
Charge-offs, net -0- -0- ( 5,859)
Balance, ending $152,098 $113,386 $113,386
</TABLE>
Note 7. Investments Carried at Equity
The Bank has purchased various partnership interests in limited partnerships.
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 $285,609 and $215,886 at December 31, 1996 and 1995, respectively. The
provision for undistributed net (gains) and losses of the partnerships charged
to earnings were ($16,126), $35,000 and $60,024 for 1996, 1995 and 1994,
respectively.
Note 8. Deposits
<TABLE>
<CAPTION>
The following is a maturity distribution of time certificates of deposit at
December 31:
<S> <C>
Maturing in 1997 $55,482,670
Maturing in 1998 20,741,261
Maturing in 1999 15,517,483
Maturing in 2000 1,425,126
Maturing in 2001 683,195
$93,849,735
</TABLE>
Note 9. 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, 1996, are as follows:
<S> <C>
1997 $ 5,000
1998 -0-
1999 5,000
2000 -0-
2001 -0-
Thereafter 55,000
$65,000
</TABLE>
The Bank also maintains a $3,947,000 IDEAL Way Line of Credit with the Federal
Home Loan Bank of Boston. Advances under this line were $1,600,000 and $0 at
December 31, 1996, and 1995, respectively. 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 10. 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, 1996 and 1995, $64,000
and $74,000, 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, 1996 and 1995, $106,000 and $191,000, 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, 1996 - July 31, 1998 101%
</TABLE>
Note 11. Income Taxes
The Bank prepares its federal income tax return on a consolidated basis (see
Note 1). Federal income taxes are allocated to members of the consolidated
group based on taxable income.
<TABLE>
<CAPTION>
Federal income tax expense for the years ended December 31 was as follows:
1996 1995 1994
<S> <C> <C> <C>
Currently paid or payable $543,383 $188,652 $339,579
Deferred 110,709 135,655 (10,563)
$654,092 $324,307 $329,016
</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 as a
result of the following at December 31:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Computed "expected" tax expense $ 977,125 $ 773,927 $ 753,489
Mark-to-market equities ( 73,345) ( 73,345) ( 73,345)
Tax exempt interest (250,140) (318,112) (301,059)
Disallowed interest 38,412 49,613 46,612
Partnership tax credits ( 69,000) (114,000) ( 42,684)
Other 31,040 6,224 ( 53,997)
$ 654,092 $ 324,307 $ 329,016
</TABLE>
<TABLE>
The deferred income tax provision consisted of the following items at
December 31:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Depreciation $ 14,515 $ 31,281 $ 30,464
Loan fees 37,180 33,493 53,716
Mortgage servicing 13,100 6,646 -0-
Deferred compensation (19,429) (8,777) -0-
Bad debts 40,190 64,025 55,759
Limited partnerships 21,000 44,000 (9,223)
Pension -0- -0- (34,240)
Non-accrual loan interest 17,135 (38,646) (54,787)
OREO (13,162) -0- 4,588
Other 180 3,633 (56,840)
$110,709 $135,655 $(10,563)
</TABLE>
<TABLE>
Listed below are the significant components of the net deferred tax asset at
December 31:
<CAPTION>
1996 1995
Components of the deferred tax asset:
<S> <C> <C>
Bad debts $339,188 $379,378
Unearned loan fees 161,666 198,846
Non-accrual loan interest 105,192 122,327
OREO writedowns 51,713 38,551
Deferred compensation 28,206 8,777
Capital loss carryover 55,556 55,556
Other 9,908 10,668
Total deferred tax asset 751,429 814,103
Valuation allowance (55,556) (55,556)
Total deferred tax asset, net of valuation allowance 695,873 758,547
<CAPTION>
Components of the deferred tax liability:
Depreciation 182,271 167,756
Limited partnerships 65,000 44,000
Mortgage servicing rights 19,746 6,646
Other -0- 580
Unrealized gain on securities available-for-sale 4,103 26,016
Total deferred tax liability 271,120 244,998
Net deferred tax asset $424,753 $513,549
</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, 1996, 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 12. Pension Plan
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 $188,000, $175,000 and $125,000 for 1996,
1995 and 1994, respectively.
Note 13. 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 nonperformance 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.
The Bank generally requires collateral or other security to support financial
instruments with credit risk.
<TABLE>
<CAPTION>
Contract or
-Notional Amount-
1996 1995
Financial instruments whose contract
amounts represent credit risk:
<S> <C> <C>
Commitments to extend credit $8,507,320 $7,035,973
Standby letters of credit and
commercial letters of credit $ 939,783 $ 204,180
Credit card arrangements $3,572,831 $3,334,808
</TABLE>
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
creditworthiness 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 counter-party. 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.
Note 14. 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 15. 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>
1996 1995
<S> <C> <C>
Balance, beginning $1,069,730 $1,184,810
New loans 454,720 329,096
Repayments (480,156) (461,176)
Other, net -0- 17,000
Balance, ending $1,044,294 $1,069,730
</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.
Total deposits with related parties approximated $600,653 at December 31,
1996.
Note 16. 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 $793,000 and
$899,000 at December 31, 1996 and 1995, respectively. In addition, the Bank was
required to maintain contracted clearing balances of $275,000 and $250,000 at
December 31, 1996 and 1995, respectively.
Note 17. Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the OCC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
<TABLE>
The Bank's actual capital amounts and ratios (000's Omitted) are also presented
in the table.
<CAPTION>
To be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective Action
Purposes: Provisions:
Actual
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $20,432 19.88% $8,224 8.0% $10,280 10.0%
Tier I capital
(to risk-weighted assets) $19,146 18.62% $4,112 4.0% $ 6,168 6.0%
Tier I capital
(to average assets) $19,146 9.20% $8,329 4.0% $10,411 5.0%
<CAPTION>
As of December 31, 1995:
Total capital
(to risk-weighted assets) $18,838 19.31% $7,803 8.0% $ 9,754 10.0%
Tier I capital
(to risk-weighted assets) $17,615 18.06% $3,901 4.0% $ 5,852 6.0%
Tier I capital
(to average assets) $17,615 8.89% $7,928 4.0% $ 9,910 5.0%
</TABLE>
The Bank is restricted as to the amount of dividends which can be paid.
Dividends declared by national banks that exceed net income for the preceding
two years must be approved by the OCC. Regardless of formal regulatory
restrictions, the Bank may not pay dividends that would result in its capital
levels being reduced below the minimum requirements shown above.
Note 18. Fair Value of Financial Instruments
<TABLE>
The estimated fair values of the institution's financial instruments are as
follows:
<CAPTION>
December 31, 1996
Carrying Fair
Amount Value
Financial assets:
<S> <C> <C>
Cash and cash equivalents $ 8,245,398 $ 8,245,398
Securities held-to-maturity 37,967,786 37,915,448
Securities available-for-sale 9,037,113 9,037,113
Loans, net of allowance 143,298,237 143,093,232
Accrued interest receivable 1,538,637 1,538,637
<CAPTION>
Financial liabilities:
Short-term borrowings 1,600,000 1,600,000
Deposits 183,854,476 184,135,696
Long-term debt 235,000 242,720
Accrued interest payable 291,458 291,458
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Carrying Fair
Amount Value
Financial assets:
<S> <C> <C>
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
<CAPTION>
Financial liabilities:
Deposits 178,883,522 179,224,678
Long-term debt 330,000 340,613
Accrued interest payable 320,052 320,052
</TABLE>
The estimated fair values of commitments to extend credit and letters of credit
were immaterial at December 31, 1996 and 1995.
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 19. Condensed Financial Information (Parent Company Only)
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.
<TABLE>
<CAPTION>
Community Bancorp. (Parent Company Only)
Condensed Balance Sheet
December 31,
Assets 1996 1995
<S> <C> <C>
Cash $ 109,018 $ 162,476
Investment in subsidiary - Bank 19,160,361 17,665,686
Other assets 14,739 20,543
Total assets $19,284,118 $17,848,705
<CAPTION>
Liabilities and stockholders' equity
Liabilities
Other liabilities $ 2,763 $ 3,288
Subordinated convertible debentures 170,000 265,000
Total liabilities 172,763 268,288
Stockholders' equity
Common stock, $2.50 par value:
2,000,000 shares authorized, 1,412,493
shares issued at 12/31/96 and 1,359,869
shares issued at 12/31/95 3,531,233 3,399,674
Additional paid-in capital 6,140,962 5,513,703
Retained earnings (Note 16) 9,871,409 9,056,562
Unrealized gain on securities
available-for-sale, net of tax 7,963 50,501
Less treasury stock, at cost
(1996, 29,365 shares; 1995, 29,355 shares) (440,212) (440,023)
Total stockholders' equity 19,111,355 17,580,417
Total liabilities and stockholders' equity $19,284,118 $17,848,705
</TABLE>
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)
Condensed Statements of Income Years Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues
Dividends
Bank subsidiary $ 711,200 $ 832,000 $ 546,000
Total revenues 711,200 832,000 546,000
Expenses
Interest on long-term debt 20,828 31,555 51,743
Administrative and other 22,522 28,866 32,047
Total expenses 43,350 60,421 83,790
Income before applicable income
tax and equity in undistributed
net income of subsidiary 667,850 771,579 462,210
Applicable income tax (benefit) (14,739) (20,543) (28,488)
Income before equity in undistributed
net income of subsidiary 682,589 792,122 490,698
Equity in undistributed net
income - Subsidiary bank 1,537,215 1,159,827 1,396,430
Net income $2,219,804 $1,951,949 $1,887,128
</TABLE>
<TABLE>
<CAPTION>
Community Bancorp. (Parent Company Only)
Condensed Statements of Cash Flows
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities
Net income $2,219,804 $1,951,949 $1,887,128
Cash flows from operating activities
Equity in undistributed net
income of subsidiary (1,537,215) (1,259,828) (1,396,430)
Decrease(increase) in income
taxes receivable 5,806 7,946 (5,379)
Decrease in other liabilities (525) (5,243) (357)
Net cash provided by operating activities 687,870 694,824 484,962
Cash flows from financing activities
Purchase of treasury stock (189) (4,335) (183)
Dividends paid (741,139) (673,535) (578,977)
Net cash used for financing activities (741,328) (677,870) (579,160)
Net (decrease)increase in cash (53,458) 16,954 (94,198)
Cash beginning 162,476 145,522 239,720
Cash ending $ 109,018 $ 162,476 $ 145,522
Supplemental schedule of cash paid
(received) during the year
Interest $ 21,353 $ 36,798 $ 52,100
Income taxes $ (20,543) $ (28,488) $ (23,110)
Supplemental schedule of noncash
investing and financing activities
Unrealized (gain)loss on securities
available-for-sale $ (64,452) $ 760,340 $ (683,822)
Debentures converted to common stock $ 95,000 $ 286,000 $ 20,000
Dividends paid
Dividends payable $1,404,957 $1,242,597 $1,042,862
Dividends reinvested (663,818) (569,062) (463,885)
$ 741,139 $ 673,535 $ 578,977
</TABLE>
Note 20. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
A summary of financial data for the four quarters of 1996, 1995 and 1994 is
presented below:
Community Bancorp. and Subsidiary
Quarters in 1996 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $4,032,136 $4,144,762 $4,162,822 $4,192,077
Interest expense 2,092,138 2,094,188 2,041,045 1,949,055
Provision for loan losses 37,500 122,500 80,000 125,000
Securities gains(losses) -0- ( 1,928) -0- -0-
Other operating expenses 1,546,063 1,630,449 1,642,657 1,577,908
Net income 467,218 512,855 539,485 700,246
Earnings per common share
primary $.35 $.38 $.40 $.50
fully diluted $.34 $.38 $.39 $.50
<CAPTION>
Quarters in 1995 ended
March 31 June 30 Sept. 30 Dec. 31
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
<CAPTION>
Quarters in 1994 ended
March 31 June 30 Sept. 30 Dec. 31
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>
Note 21. Other Income and Other Expenses
<TABLE>
<CAPTION>
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:
1996 1995 1994
<S> <C> <C> <C>
Income
Exchange (Note 1) $ 104,500 $ 50,858 $ 54,856
Other 460,394 464,031 392,324
$ 564,894 $ 514,889 $ 447,180
Expenses
Printing and supplies $ 183,831 $ 142,546 $ 119,283
FDIC insurance 2,000 201,474 372,524
Other 1,717,844 1,475,371 1,409,499
$1,903,675 $1,819,391 $1,901,306
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS
For the Year Ended December 31, 1996
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 a major addition to the main office completed in July
of 1993 to the installation of Automatic Teller Machines (ATM) at the main
office in Derby, the Barton office and the Troy office. The most recent
expansion was the broadening of the Bank's service area through the
construction of a new office located in Caledonia County, in the town of St.
Johnsbury. This office, which is located in a building that also houses 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. 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 decreased from $18.6 million at
the end of 1995 to $17.8 million at year end 1996, a decrease just under $1
million, or 4%. Other time deposits decreased to $76 million from $78.6 million
for the same time period, a decrease of 3.31%. A review of these deposits
indicates that our deposits are primarily generated locally and regionally and
are established customers of the Bank. The Bank has no brokered deposits.
Our gross loan portfolio increased by $8.4 million or by 6% to end the
1996 year at $145.6 million. Of this total loan portfolio of $145.6 million,
$73.8 million, or 51% is scheduled to reprice within one year and $5.3 million
or 3.6% is scheduled to mature within one year. The bank has two credit lines
with available balances totaling $5.9 million and additional borrowing capacity
of approximately $72 million through the Federal Home Loan Bank of Boston,
which is secured by the Bank's 1-4-family residential loan portfolio, to
further help with liquidity.
As of year end 1996, the Bank maintained short-term assets of $8.6
million, and of this total, $8 million or 93% are treasuries classified as
"available-for-sale". As of December 31, 1996, the Bank had $29.8 million in
"held-to-maturity" treasuries, less $4 million pledged, netting $25.8 million
compared to $20.8 million a year ago. These treasuries are not considered
short-term investments under new regulations governing the classification of
securities.
All other interest-bearing accounts in total increased by $6 million, or
just over 9% in 1996, and demand deposit accounts increased to $18 million from
$15.7 million for the same time period, an increase of 14.7%.
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.
The bank doesn't own any trading securities as our investment policy
prohibits active trading in our investment account. At the end of 1996 the
bank had $1.06 million in equity securities classified as available-for-sale,
compared to $1.04 million at the end of 1995. In addition, at December 31,
1996, the Bank had $8 million in U.S. Government securities available-for-sale,
compared to $13 million at December 31, 1995; these have been marked to market
with a resulting gain after taxes of $7,963 for 1996, compared to $50,501 for
1995. These figures are presented in the equity section of our financial
statement as "Unrealized gain on securities available-for-sale, net of tax".
As adjusted for this unrealized gain or loss, our investment portfolios at the
respective years' ends were as follows:
<TABLE>
<CAPTION>
December 31, 1996: Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Government and
agency securities
Available-for-sale $ 7,961,998 $19,251 $ 7,186 $ 7,974,063
Held-to-maturity 29,775,526 79,118 131,456 29,723,188
States and political
subdivisions
Held-to-maturity 8,192,260 -0- -0- 8,192,260
Other Securities
Available-for-sale 1,063,050 -0- -0- 1,063,050
$46,992,834 $98,369 $138,642 $46,952,561
<CAPTION>
December 31, 1995: Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government 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 $412,178 $12,747 $47,031,258
</TABLE>
<TABLE>
<CAPTION>
Gross realized gains and gross realized losses on actual sales of securities
were:
1996 1995 1994
Gross realized gains:
<S> <C> <C> <C>
U.S. Government and agency securities $ 909 $58,762 $23,041
Other securities -0- -0- -0-
$ 909 $58,762 $23,041
<CAPTION>
Gross realized losses:
U.S. Government and agency securities $2,837 $40,313 $ 2,392
Other securities -0- -0- -0-
$2,837 $40,313 $ 2,392
</TABLE>
Allowance for Possible Losses on Loans-Management believes that the policies
and procedures established for the underwriting of its loan portfolio
are not only up-to-date but also help to alleviate many of the problems that
could exist within the portfolio in a changing environment. 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,
which meets 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 and the Risk Management Committee 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, 1996, of $1.4
million constitutes 1% of the total loan portfolio which compares to almost
$1.5 million or 1.1% a year ago. In management's opinion, this is both adequate
and reasonable due to the fact that $118.6 million of the total loan portfolio,
or 81.4%, is made up of real estate mortgage loans. This figure is higher than
the year-end figure for last year of $112.5 million. Included in the 1996 total
is $94.4 million, or 64.8%, of loans secured by 1-4-family residences, which is
an increase of $3.4 million or 3.6% over last year's figure of $91 million, or
66.3%. This number of home loans, together with the low historical loan loss
experience, helps to support 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 $1.4 million would comprise 2.7% of eligible loans,
which is slightly lower than it was a year ago. In management's opinion, a loan
portfolio consisting of 81.4% 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 1996 and 1995 shows a decrease
of 7.3% in loans classified as non-accrual and a decrease of 13% in OREO (Other
Real Estate Owned). Significantly, $324,736 of these non accruing loans carries
a 90% FmHA guarantee, thereby reducing our loss exposure by $292,262 or 18%.
Additionally, of the remaining $1.33 million in non-accrual loans, $1.29
million, or 97%, consists of real estate secured mortgage loans on which the
bank historically suffers relatively few losses. Loans "90 Days or More Past
Due" notes the only increase, which ended 1995 at a figure of $291,486, and
increased to $394,446 as of December 31, 1996.
<TABLE>
<CAPTION>
Non-performing assets as of December 31, 1996 and 1995 were made up of the
following:
1996 1995
<S> <C> <C>
Non-accruing loans $1,621,132 $1,748,376
Loans past due 90 days or more and still accruing 394,446 291,486
Other real estate owned 662,544 761,362
Total $2,678,122 $2,801,224
</TABLE>
In summary, non-performing assets decreased 4.4% from last year's figure
at year end of $2,801,224. In light of this moderate decrease, management
continues to monitor the allowance for loan and lease losses very carefully and
maintain the reserve at a level of approximately 1% of total eligible loans.
The Northeast Kingdom is known for being on the lower end of the economic
scale, and as such suffers greatly in times of economic uncertainty. In view of
this, the Bank will always maintain its 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 is made up of $232,771 in
properties deeded in lieu and $429,773 acquired through the normal foreclosure
process. All properties are located in Vermont, and are as follows: a
condominium project in Jay; six condominium units in Newport; building lots in
Irasburg and a single-family residence as well as a commercial building located
in Island Pond. The Bank is actively attempting to sell all of these properties
and expects no material loss on any of them. 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
was made effective for fiscal years beginning after December 15, 1994, and is
considered the primary source of authoritative guidance for determining
allowances relating to specific loans. The Bank adopted this standard as
required for calendar year 1995. The impact of this accounting standard has
been determined by the Board of Directors to be immaterial to the bank's
performance.
Bank Premises and Equipment-The major classes of bank premises and equipment
and the total accumulated depreciation are as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Land $ 80,747 $ 80,747
Buildings and improvements 2,408,306 2,236,459
Furniture and equipment 3,804,909 3,490,168
Leasehold improvements 376,620 325,105
6,670,582 6,132,479
Less accumulated depreciation (3,249,223) (2,869,313)
$ 3,421,359 $ 3,263,166
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$392,775, $326,702 and $250,469 for the years ended December 31, 1996,
1995 and 1994, respectively.
The Bank currently leases four of the seven offices it occupies. These leased
offices are located in Island Pond, Newport, Barton and St. Johnsbury, Vermont.
The lease for the Newport office was scheduled to expire December 31, 1997, but
a one-year extension was granted in May of 1996 extending the lease to December
31, 1998. This office will then be relocated to a condominium space of
approximately 3,084 square feet in the proposed state office building soon to
be erected at the opposite end of Main Street from the Bank's current office.
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>
<CAPTION>
Minimum future rental payments under non-cancelable operating leases
having remaining terms in excess of one year as of December 31, 1996, for each
of the next five years and in aggregate are:
<S> <C>
1997 $ 276,437
1998 276,437
1999 89,669
2000 75,926
2001 66,110
Subsequent to 2000 384,390
Total $1,168,969
</TABLE>
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 $184.3 million in 1995 to $194.4 million
for 1996. This 5.5% increase is made up of increases in the following areas:
loan volume of $6.7 million, or 5.1%, taxable investments of $5 million, or
16.6%, federal funds sold of $1.5 million, or 47.8%. Other securities
maintained an average volume of $1.2 million while a decrease is noted in the
volume of tax-exempt investments of almost $3.2 million or 18.4%. Loans make up
most of the total earning assets at 71.3% down slightly from 71.6% for year end
1995, and other securities make up the least at .60%, also down from last
year's figure of .63%.
Average interest-bearing liabilities grew from $162.7 million in 1995 to
$170.3 million for 1996. This 4.6% increase is slightly less than the increase
in average earning assets. A review of the areas that comprise this total show
decreases in most interest-bearing liabilities except time deposits and NOW and
money market accounts. Time deposits increased from $93.3 million to $96.2
million, or 3%, and NOW and money market accounts increased from $35.5 million
to $41.4 million, or by 16.6%. All others in total decreased from $34 million
in 1995 to $32.6 million for 1996, a decrease of $1.4 million or 4%.
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. The Corporation's net
interest income improved during 1996, due to an increase in the spread as loans
repriced at slightly higher rates and the interest rates paid on deposit
accounts decreased.
Interest Income versus Interest Expense (Net Interest Income)-Net interest
income represents the difference between interest earned on loans and
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 include earnings on
tax-exempt investment securities, which are stated on a tax equivalent basis
with an assumed rate of 34%.
Interest income rose from $15.88 million at the end of 1995 to $16.91
million for 1996, an increase of 6.4%, while interest expense decreased from
$8.25 million to $8.17 million, or just under 1% for the same time period. The
overall effect, or net interest income, was $8.7 million for the year ended
1996 versus a 1995 year end net interest income of $7.6 million and net
interest income for year end 1994 of $7.3 million.
Net interest spread, the difference between the yield on interest earning
assets versus interest bearing liabilities, at the end of 1996 was 3.90%
compared to 3.55% for 1995, and 3.61% for 1994. Interest differential, defined
as net interest income divided by average earning assets, for the years ended
1996, 1995 and 1994, was reported at 4.49%, 4.15% and 4.07%, respectively.
Income from loans for the year was $13.4 million for 1996, $12.5 million
for 1995 and $11.1 million for 1994. The average volume of loans steadily
increased from $127.4 million in 1994 to $131.8 million in 1995, to end 1996 at
$138.6 million with yields on these volumes starting at 8.73% for year end
1994, increasing to 9.44% for 1995 and ending at an average yield of 9.65% for
1996.
The average volume of taxable investments gradually increased from $27.4
million to $30.7 million and finally to $35.7 million for the years ended 1994,
1995 and 1996, respectively. The yields on these investments took a little
different course from the loans, with rates of 5.12% for 1994, 5.73% for 1995
and 5.86% for 1996. The income on these investments went from $1.4 million in
1994 to $1.7 million in 1995 and further increased to end at $2.1 million for
1996. The volume of tax-exempt securities took the opposite course for the same
comparison periods revealing an 8.7% decrease from 1994 to 1995, and an 18.4%
decrease from 1995 to 1996, while the tax equivalent yields on these
investments rose by 117 basis points from 1994 to 1995 and then fell 29 basis
points from 1995 to 1996. Other securities charted its own course with average
volume starting at $1.16 million for 1994, increasing to $1.17 million for
1995 and remaining at $1.17 million for year end 1996. The income on other
securities increased from $81 thousand in 1994 to $82 thousand in 1995, and
then decreased to $78 thousand in 1996.
Although no federal funds were sold on December 31, 1996, a consistent
increase in income as well as volume was reported for the comparison period.
The average volumes went from $3.1 million at year end 1994 to $3.2 million
for 1995, and then increased to $4.7 million for 1996, the interest income
started at $128 thousand increasing to $180 thousand and then to $246 thousand
for the same respective year-end comparisons.
Overall, our average earning assets increased by 3.5% from 1994 to 1995
and increased by 5.5% from 1995 to 1996 to end the 1996 year at an average
volume of $194.4 million. The average yield on total average earning assets
increased from 7.89% for 1994 to 8.62% for 1995, and ended the 1996 calendar
year at 8.70%.
Average volume on interest-bearing liabilities increased steadily only in
time deposits, which started at $85.7 million in 1994, increased to $93.3
million in 1995, and then increased to end 1996 at an average volume of $96.2
million. A steady decrease is noted in subordinated debentures, which went
from $554,000 in 1994 to $328,000 at the end of 1995 and ended at $216,000
for 1996. Savings deposits decreased from $34.6 million for 1994 to $33.5
million for 1995 to $32.3 million for 1996. NOW and money market funds
started the comparison period at an average volume of $36.7 million at year
end 1994, then decreased to $35.5 million by year end 1995, and then increased
almost $6 million to end 1996 at an average volume of $41.4 million. Interest
expense on NOW and money market funds was reported at $1.2 million, $1.3
million and $1.5 million for year end 1994, 1995 and 1996, respectively.
In total, the average volume of interest-bearing liabilities began the
year-end comparison periods at $159.2 million for 1994, increased to $162.8
million for 1995 and ended 1996 at an average volume of $170.3 million with
average yields of 4.28%, 5.07% and 4.80%, respectively.
Other Operating Income and Expense-A strong fourth quarter in 1996 helped to
boost earnings for the year. Other operating income for this quarter was
reported at $343,572 for 1996, compared to $334,845 for 1995 and $248,256 for
1994. Service fees reports the only increase for the fourth quarter of 1996
compared to the same period of 1995 of almost 40%, with income of $166,847
versus $119,376, respectively, and $128,973 for the fourth quarter of 1994.
Additionally, a change in the structure of overdraft fees has helped to create
more income for both the fourth quarter and the 12-month period of 1996. Other
operating income for 1996 of $1.3 million is an 8.5% increase over the 1995
figure of almost $1.2 million, and an increase of 21% compared to 1994 figures
of $1.1 million. Service fees ended the year at $604,449, an increase of
$64,598, or 12%, over the 1995 year end figure, compared to an increase of
$99,877, or 20% over the 1994 year end figure. Other income increased to
$564,894 at year end 1996 from $514,889 for year end 1995, and $447,180 at
year end 1994, or increases of 9.7% and 26.3% respectively. Exchange income, a
component of other income, increased 51.3% from $50,858 for the calendar year
1995 to $104,500 at year end 1996. The Bank's servicing area is dependent upon
income generated from Canadian traffic. In the past few years, this area has
seen a decline in such traffic. The fact that our exchange income more than
doubled in 1996 compared to 1995 is a positive step towards gaining back this
traffic and ultimately the income it generates. Another component of other
income is Mortgage Servicing Rights. Through the implementation of FASB #122,
"Accounting for Mortgage Servicing Rights", the Bank has reported income of
$38,531 for the 12 months ended December 31, 1996, versus $19,547 a year ago.
In May 1995 the FASB issued SFAF No. 122 "Accounting for Mortgage
Servicing Rights, an Amendment of FASB Statement #65". This standard was
effective for fiscal years beginning after December 15, 1995; however, early
adoption was permitted. This 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 deter-
mined through use of market prices under comparable servicing sales contracts.
Other operating expenses ended the 1996 year at $6.4 million, an increase
of $454,600 over the 1995 figure of $5.9 million, and an increase of $937,598,
or 17%, over the 1994 figure of almost $5.5 million. Salaries and wages showed
the biggest increase in comparison with the 1995 figures with a reported
increase of $210,664 or almost 9%, and an increase of $411,632, or almost 19%
over the 1994 expense figure. Other operating expenses for the fourth quarter
ended at $1.6 million for 1996 compared to $1.5 million for 1995 and $1.4
million for 1994, increases of 6.8% and 9.6%, respectively. Other expenses,
included in total other operating expenses, reported the biggest increase for
the fourth quarter ended 1996 versus the same period in 1995 with an expense
figure of $466,580 for 1996, compared to $354,129 for 1995, an increase of 32%.
OREO expenses, a component of other expenses, showed expenses totaling almost
$90,000 for this fourth quarter comparison period in 1996. An auction was held
during the last quarter in an attempt to decrease our OREO portfolio, and as a
result, most of the properties were sold at a loss, increasing overall expenses
associated with these properties. Salaries notes the only decrease for the
fourth quarter of 1996 versus the same quarter of 1995, with reported figures
of $637,994 and $680,209, for each of the fourth quarters respectively. The
major reason for this decrease was timing differences in the payment of profit-
sharing.
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 assure that monthly accruals are
accurate, and any necessary adjustments are made at that time.
Applicable Income Taxes-Figures presented at the end of 1996 for income before
taxes show an increase of 26% over 1995, with income figures of $2.87
million reported for 1996 and $2.27 million for 1995. These figures are
encouraging when compared to the 2.7% increase reported last year over the
prior 1994 income figure of $2.22 million. Provisions for income taxes
increased by 102% from $324,307 for 1995 to $654,093 for 1996. Income before
taxes for the fourth quarter of 1996 was reported at $883,686, compared to
$804,010 for the same period in 1995, an increase of $79,676 or almost 10%,
resulting in an increase in income taxes payable of $120,394. These increases
in income tax expense, while due in part to an increase in income for both
comparison periods, was also due to timing differences leading to a decrease in
deferred tax assets and an increase in the tax expense associated with them.
Financial Summary-The calendar year of 1996 ended with a 13.7% increase over
the calendar year of 1995, as well as a 17.6% increase for the same period in
1994. Total earnings of $2.2 million were reported for 1996 compared to $1.95
million in 1995, and $1.9 million for 1994. The results of these figures are
primary earnings per share of $1.63 and fully diluted earnings per share of
$1.61 for 1996, compared to $1.49 and $1.46 respectively for the year ended
1995, and $1.51 and $1.46 respectively for 1994.
Return on average assets (ROA), which measures how effectively a
corporation uses its assets to produce earnings, increased to 1.07% for 1996
versus 1.00% for both 1995 and 1994. Return on equity (ROE), which is the
ratio of income earned to average shareholders' equity, was 12.16% for 1996,
compared to 12.13% for 1995 and 12.74% for 1994.
Capital Resources-Stockholders' equity at December 31, 1995 was $17,580,417,
with a book value of $13.21 per share. It increased through earnings of
$2,219,804 and the sale of common stock of $758,818, through our dividend
reinvestment program. It decreased through adjustments for the valuation of
securities as discussed above of $42,538, purchases of treasury stock of $189
and dividends paid totaling $1,404,957. At year's end stockholders' equity was
$19,111,355 with a book value of $13.82 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, 1996, the Bank is
required to have minimum Tier I and Total Capital ratios of 4.00% and 8.00%,
respectively. The Bank's consolidated risk-weighted ratios rose to reported
ratios at December 31, 1996, of approximately 18.6% for Tier I capital and
19.9% 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.
Form 10-KSB
A copy of the Form 10-KSB Report filed with the Securities and Exchange
Commission may be obtained without charge upon written
request to:
Stephen P. Marsh, Vice President and Treasurer
Community Bancorp.
PO Box 259
Derby, Vermont 05829
The report for the year 1996 is expected to be available about April 1, 1997.
Shareholder Services
For shareholder services or information contact:
Chris Bumps, Executive Secretary
Community National Bank
PO Box 259
Derby, Vermont 05829
(802) 334-7915
Annual Shareholders Meeting
The 1997 Annual Shareholders Meeting will be held at 5:30 p.m., May 6, 1997,
at the Elks Club in Derby. We hope to see many of our shareholders there.
Community Bancorp. Stock
As of January 15, 1997, the Corporation's common stock ($2.50 par value) was
owned by approximately 775 shareholders of record. Although there is no
established public trading market in the Corporation's common stock, several
brokerage firms follow the stock and maintain a minor market in it. Trading in
the Corporation's stock, however, is not active. You can contact these firms at
the following addresses:
First Albany Corp. A.G. Edwards
PO Box 387 PO Box 1690
Burlington, Vermont 05402 Burlington, Vermont 05402
(800) 451-3249 (800) 639-8000
Dean Witter Reynolds Smith Barney
PO Box C 1062 PO Box 1095
Burlington, Vermont 05402 Burlington, Vermont 05402
(800) 869-9660 (800) 446-0193
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,245
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 9,037
<INVESTMENTS-CARRYING> 37,968
<INVESTMENTS-MARKET> 37,915
<LOANS> 145,604
<ALLOWANCE> 1,401
<TOTAL-ASSETS> 205,536
<DEPOSITS> 183,854
<SHORT-TERM> 1,665
<LIABILITIES-OTHER> 735
<LONG-TERM> 170
0
0
<COMMON> 3,531
<OTHER-SE> 15,580
<TOTAL-LIABILITIES-AND-EQUITY> 205,536
<INTEREST-LOAN> 13,376
<INTEREST-INVEST> 2,910
<INTEREST-OTHER> 246
<INTEREST-TOTAL> 16,532
<INTEREST-DEPOSIT> 8,148
<INTEREST-EXPENSE> 8,176
<INTEREST-INCOME-NET> 8,355
<LOAN-LOSSES> 365
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 6,397
<INCOME-PRETAX> 2,874
<INCOME-PRE-EXTRAORDINARY> 2,874
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,220
<EPS-PRIMARY> 1.63
<EPS-DILUTED> 1.61
<YIELD-ACTUAL> 8.58
<LOANS-NON> 1,761
<LOANS-PAST> 401
<LOANS-TROUBLED> 506
<LOANS-PROBLEM> 1,890
<ALLOWANCE-OPEN> 1,519
<CHARGE-OFFS> 585
<RECOVERIES> 102
<ALLOWANCE-CLOSE> 1,401
<ALLOWANCE-DOMESTIC> 1,192
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 209
</TABLE>
