CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Six Months Ended June 30, 1999
Commission File Number 000-16435
COMMUNITY BANCORP.
(Exact Name of Registrant as Specified in its Chapter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification Number)
Derby Road, Derby, Vermont 05829
(Address of Principal Executive Offices) (zip code)
Registrant's Telephone Number: (802) 334-7915
Not Applicable
Former Name, Former Address and Formal Fiscal Year
(If Changed Since Last Report)
Indicate by 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 for such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ( X ) No ( )
At August 11, 1999, there were 3,332,143 shares outstanding of the
Corporation's common stock.
Total Pages - 24 Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
COMMUNITY BANCORP. AND SUBSIDIARIES
Consolidated Statement of Condition
( Unaudited ) June 30 December 31 June 30
1999 1998 1998
<S> <C> <C> <C>
Assets
Cash and due from banks 5,178,578 4,896,947 4,664,432
Federal funds sold and overnight deposits 4,367,936 5,527,141 9,187,903
Total cash and cash equivalents 9,546,514 20,424,088 13,852,335
Securities held-to-maturity (fair value
$35,775,636 at 06/30/99, $30,038,323 at
12/31/98, and $32,549,812 at 06/30/98) 35,939,979 29,877,851 32,529,187
Securities available-for-sale 29,311,563 20,590,000 17,151,875
Restricted equity securities 1,141,650 1,141,650 1,141,650
Loans 150,228,630 148,335,346 151,216,726
Allowance for loan losses (1,658,779) (1,658,967) (1,656,773)
Unearned net loan fees (856,598) (848,963) (856,900)
Net loans 147,713,253 145,827,416 148,703,053
Bank premises and equipment, net 4,386,258 3,010,041 3,162,125
Accrued interest receivable 1,817,373 1,460,671 1,616,553
Other real estate owned, net 732,974 541,903 526,881
Other assets 2,131,467 2,177,043 2,049,096
Total assets $232,721,031 $225,050,663 $220,732,755
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing 25,644,783 21,743,065 20,417,677
NOW and money market accounts 50,124,441 49,939,162 43,607,369
Savings 33,812,638 30,512,230 31,076,430
Time deposits, $100,000 and over 17,344,831 17,874,124 19,622,020
Other time deposits 77,740,288 77,728,713 79,955,239
Total deposits $204,666,981 $197,797,294 $194,678,735
Borrowed funds 4,060,000 4,060,000 4,060,000
Repurchase agreements 914,951 288,241 31,274
Accrued interest and other liabilities 958,899 883,069 882,321
Subordinated convertible debentures 20,000 20,000 51,000
Total liabilities $210,620,831 $203,048,604 $199,703,330
Stockholders' Equity
Common stock - $2.50 par value;
6,000,000 shares authorized and 3,340,156
shares issued at 06/30/99, 3,296,154
issued at 12/31/98, and 3,249,991 shares
issued at 06/30/98 8,350,391 7,851,516 7,741,603
Additional paid-in capital 10,581,481 8,756,453 8,396,006
Retained earnings 3,706,039 5,604,096 5,304,334
Accumulated other comprehensive income (89,632) 235,375 32,727
Less: treasury stock, at cost;
29,876 shares at 06/30/99, 29,646
shares at 12/31/98, and 29,636 shares
at 06/30/98 (448,079) (445,381) (445,245)
Total stockholders' equity $22,100,200 $22,002,059 $21,029,425
Total liabilities and
stockholders' equity $232,721,031 $225,050,663 $220,732,755
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statements of Income
( Unaudited )
For The Second Quarter Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Interest income
Interest and fees on loans 3,275,786 3,390,922 3,454,297
Interest and dividends on investment securities
U.S. Treasury securities 585,169 530,696 524,065
U.S. Government agencies 139,754 20,660 20,839
States and political subdivisions 138,058 148,978 143,179
Dividends 19,127 18,840 17,625
Interest on federal funds sold and
overnight deposits 45,386 97,326 11,798
Total interest income $4,203,280 $4,207,422 $4,171,803
Interest expense
Interest on deposits 1,832,086 2,001,602 1,865,780
Interest on borrowed funds 50,172 49,443 54,837
Interest on repurchase agreements 6,676 395 0
Interest on subordinated debentures 550 1,590 3,140
Total interest expense $1,889,484 $2,053,030 $1,923,757
Net interest income 2,313,796 2,154,392 2,248,046
Provision for loan losses (150,000) (160,000) (105,000)
Net interest income after provision $2,163,796 $1,994,392 $2,143,046
Other operating income
Trust department income 56,030 35,141 28,527
Service fees 178,513 171,032 176,173
Security gains (losses) 0 0 0
Other 215,548 307,600 421,904
Total other operating income $450,091 $513,773 $626,604
Other operating expenses
Salaries and wages 691,829 700,956 768,276
Pension and other employee benefits 221,398 177,422 183,159
Occupancy expenses, net 305,077 322,297 309,910
Trust Department Expenses 16,713 19,399 5,906
Other 593,698 541,167 670,777
Total other operating expenses $1,828,715 $1,761,241 $1,938,028
Income before income taxes 785,172 746,924 831,622
Applicable income taxes (credit) 218,683 188,982 219,983
Net Income $566,489 $557,942 $611,639
Earnings per share on weighted average $0.17 $0.17 $0.20
Weighted average number of common shares 3,310,283 3,214,624 3,112,793
Used in computing earnings per share
Dividends per share $0.16 $0.15 $0.14
Per share data for 1998 and 1997 restated to reflect a 100% stock dividend
paid on June 1, 1998, and a 5% stock dividend paid on February 1, 1999.
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statements of Income
( Unaudited )
For the First Six Months Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Interest income
Interest and fees on loans 6,453,188 6,869,308 6,778,815
Interest and dividends on investment securities
U.S. Treasury securities 1,130,449 987,892 1,058,564
U.S. Government agencies 268,053 41,079 41,566
States and political subdivisions 251,589 292,161 281,784
Dividends 38,849 37,404 34,803
Interest on federal funds sold
and overnight deposits 111,533 204,028 16,740
Total interest income $8,253,661 $8,431,872 $8,212,272
Interest expense
Interest on deposits 3,652,030 3,942,624 3,747,654
Interest on borrowed funds 99,072 96,243 67,517
Interest on repurchase agreements 9,310 395 0
Interest on subordinated debentures 1,100 3,818 6,423
Total interest expense $3,761,512 $4,043,080 $3,821,594
Net interest income 4,492,149 4,388,792 4,390,678
Provision for loan losses (300,000) (360,000) (310,000)
Net interest income after provisions $4,192,149 $4,028,792 $4,080,678
Other operating income
Trust department income 105,509 65,840 56,424
Service fees 343,263 332,543 338,559
Security gains (losses) 0 0 0
Other 374,791 412,153 518,142
Total other operating income 823,563 810,536 913,125
Other operating expenses
Salaries and wages 1,407,288 1,408,907 1,397,204
Pension and other employee benefits 398,450 351,736 316,490
Occupancy expenses, net 643,796 643,930 600,479
Trust Department Expenses 28,002 27,416 11,754
Other 1,198,654 1,138,864 1,141,338
Total other operating expenses $3,676,190 $3,570,853 $3,467,265
Income before income taxes 1,339,522 1,268,475 1,526,538
Applicable income taxes (credit) 362,236 302,855 394,811
Net Income $977,286 $965,620 $1,131,727
Earnings per share on weighted average $0.30 $0.30 $0.37
Weighted average number of common shares
Used in computing earnings per share 3,273,034 3,202,155 3,096,724
Book value per share on shares outstanding $6.68 $6.53 $6.37
Per share data for 1998 and 1997 restated to reflect a 100% stock dividend
paid on June 1, 1998, and a 5% stock dividend paid on February 1, 1999.
</TABLE>
<TABLE>
<CAPTION>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statement of Cash Flows
For the First Six Months Ended June 30, 1999 1998 1997
Reconciliation of net income to net cash
provided by operating activities:
<S> <C> <C> <C>
Net Income 977,286 965,620 1,131,727
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 209,439 201,563 188,341
Provisions for possible loan losses 300,000 360,000 310,000
Provisions for deferred income taxes (12,281) (65,717) 39,087
(Gain)loss on sale of loans (60,392) (88,853) (5,729)
Securities losses 0 0 0
Loss (gain) on sales of OREO (4,587) (2,112) (7,729)
OREO writedowns 19,590 26,592 129,446
Amortization of bond premium, net 163,816 (11,304) 9,591
Proceeds from sales of loans held for sale 7,128,347 3,459,535 658,619
Originations of loans held for sale (7,338,986) (4,600,524) (921,532)
Increase (decrease) in taxes payable 90,538 66,572 (102,041)
(Increase) decrease in interest receivable (356,702) (156,255) (101,752)
Increase in mortgage service rights (27,648) (38,174) (13,593)
Decrease (Increase) in other assets 253,871 (54,573) (199,183)
(Decrease) increase in unamortized loan fees 7,635 (9,689) (25,323)
(Decrease) increase in interest payable (9,667) (7,847) 15,834
(Decrease) increase in accrued expenses (41,436) (24,182) (70,879)
Increase (decrease) in other liabilities 49,587 99,885 (18,195)
Net cash provided by operating activities 1,348,410 120,537 1,016,689
Cash Flows from investing activities:
Investments - held to maturity
Sales and maturities 9,338,378 7,023,652 2,599,612
Purchases (15,487,110) (5,414,330) (4,437,879)
Investments - available for sale
Sales and maturities 0 2,000,000 0
Purchases (9,291,211)(11,115,703) 0
Purchase of restricted equity securities 0 (41,900) (36,700)
Investment in limited partnership (14,130) (40,312) 0
Increase in Loans, Net of Payments (2,315,420) (92,628) (3,180,460)
Capital Expenditures (1,585,656) (78,027) (130,121)
Recoveries of loans charged off 46,170 127,967 73,585
Proceeds from sales of OREO 140,735 425,706 149,838
Net Cash Used in Investing Activities (19,168,244) (7,205,575) (4,962,125)
Cash Flows from Financing Activities:
Net increase in demand deposits, NOW,
MMA and savings 7,387,405 4,188,224 (2,344,798)
Net increase in certificates of deposit (517,718) 2,910,110 (739,335)
Net increase (decrease) in short-term
Borrowings and repurchase agreements 626,710 0 0
Net increase in borrowed funds 0 0 3,338,000
Payments to acquire treasury stock (2,698) (108) (4,822)
Dividends paid (551,439) (468,463) (427,862)
Net cash provided by financing activities 6,942,260 6,629,763 (178,817)
Net increase in cash and
cash equivalents (10,877,574) (455,275) (4,124,253)
Cash and cash equivalents:
Beginning 20,424,088 14,307,610 8,245,398
Ending 9,546,514 13,852,335 4,121,145
Supplemental Schedule of Cash Paid During the Year
Interest paid 3,770,445 4,050,132 1,907,923
Income Taxes Paid 283,980 302,000 457,765
Supplemental Schedule of Noncash Investing and Financing Activities:
Net change in securities valuation ($492,436) ($1,488) ($20,076)
OREO acquired in settlements of loans $346,809 $126,466 $614,108
Debentures converted to common stock $0 $53,000 $52,000
Stock dividends $1,851,338 $3,823,576 $1,294,006
Dividends paid
Dividends payable $1,024,004 $908,153 $817,997
Dividends reinvested ($472,565) ($439,690) ($390,135)
$551,439 $468,463 $427,862
</TABLE>
<TABLE>
AVERAGE BALANCES AND INTEREST RATES
The table below presents the following information:
Average earning assets (including non-accrual loans)
Average interest bearing liabilities supporting earning assets
Interest income and interest expense as a rate/yield
<CAPTION>
For the First Six Months Ended:
1999 1998
Average Income/ Rate/ Average Income/ Rate/
Balance Expense Yield Balance Expense Yield
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Loans (gross) 148,999,833 6,453,188 8.73% 149,882,090 6,869,309 9.24%
Taxable Investment
Securities 50,152,224 1,379,225 5.55% 34,962,181 1,028,971 5.93%
Tax Exempt Investment
Securities(1) 10,974,783 376,918 6.93% 12,008,710 436,388 7.33%
Federal Funds Sold 2,799,862 56,684 4.08% 3,250,000 83,371 5.17%
Sweep Account 2,205,556 54,849 5.01% 5,558,029 120,657 4.38%
Other Securities(2) 1,261,210 41,672 6.66% 1,265,026 41,549 6.62%
TOTAL 216,393,468 8,362,536 7.79% 206,926,036 8,580,245 8.36%
INTEREST BEARING LIABILITIES
Savings Deposits 31,710,130 366,206 2.33% 30,431,567 413,532 2.74%
NOW & Money
Market Funds 49,254,424 784,878 3.21% 42,715,557 774,187 3.65%
Time Deposits 95,890,866 2,500,946 5.26% 98,535,190 2,753,108 5.63%
Other Borrowed
Funds 4,060,000 99,072 4.92% 4,060,000 96,244 4.78%
Repurchase Agreements 477,205 9,310 3.93% 17,686 395 4.50%
Subordinated
Debentures 20,000 1,100 11.09% 78,000 3,818 9.87%
TOTAL 181,412,625 3,761,512 4.18% 175,838,000 4,041,284 4.63%
Net Interest Income 4,601,024 4,538,961
Net Interest Spread(3) 3.61% 3.73%
Interest Differential(4) 4.29% 4.42%
<FN>
<f01> Income on investment securities of state and political subdivisions
is stated on a fully taxable basis (assuming a 34 percent tax rate).
<f02> Included in other securities are taxable industrial development bonds
(VIDA), with income of $2,823 for 1999 and $4,145 for 1998.
<f03> Net interest Spread is the difference between the yield on earning
assets and the rate paid on interest bearing liabilities.
<f04> Interest differential is net interest income divided by average
earning assets.
</TABLE>
<TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income
for the first six months of 1999 and 1998 resulting from
volume changes in assets and liabilities and fluctuations
in rates earned and paid.
<CAPTION>
Variance Variance
RATE / VOLUME Due to Due to Total
Rate(1) Volume(1) Variance
INCOME EARNING ASSETS
<S> <C> <C> <C>
Loans (377,927) (38,194) (416,121)
Taxable Investment Securities (96,429) 446,683 350,254
Tax Exempt Investment Securities(2) (23,939) (35,531) (59,470)
Federal Funds Sold (17,580) (9,107) (26,687)
Sweep Account 17,481 (83,289) (65,808)
Other Securities 249 (126) 123
Total Interest Earnings (498,145) 280,436 (217,709)
INTEREST BEARING LIABILITIES
Savings Deposits (64,698) 17,372 (47,326)
NOW & Money Market Funds (107,662) 118,353 10,691
Time Deposits (183,188) (68,974) (252,162)
Other Borrowed Funds 2,828 0 2,828
Repurchase Agreements (1,339) 10,254 8,915
Subordinated Debentures 472 (3,190) (2,718)
Total Interest Expense (353,587) 73,815 (279,772)
<FN>
<fo1> Items which have shown a year-to-year increase in volume have
variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have
variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variances due to volume = Change in volume x new rate
<f02> Income on tax exempt securities is stated on a fully taxable basis.
The assumed rate is 34%.
</TABLE>
<TABLE>
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
<CAPTION>
For The Second Quarter Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $566,489 $557,942 $611,639
Average Number of Common Shares Outstanding. 3,310,283 3,214,624 3,112,793
Earnings Per Common Share $0.17 $0.17 $0.20
<CAPTION>
For the First Six Months Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $977,286 $965,620 $1,131,727
Average Number of Common Shares Outstanding. 3,273,034 3,202,155 3,096,724
Earnings Per Common Share $0.30 $0.30 $0.37
All 1998 and 1997 per share data restated to reflect 100% stock dividend
paid on June 1, 1998, and a 5% stock dividend paid on February 1, 1999.
GRAPHICS GRAPHICS
</TABLE>
<TABLE>
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
For The Second Quarter Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $566,489 $557,942 $611,639
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 363 1,049 2,072
Adjusted Net Income $566,852 $558,991 $613,711
Average Number of Common Shares Outstanding. 3,310,283 3,214,624 3,112,793
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). 8,557 22,422 34,852
Average Number of Common Shares Outstanding
(Fully Diluted). 3,318,840 3,237,046 3,147,645
Earnings Per Common Share Assuming Full Dilution. $0.17 $0.17 $0.19
<CAPTION>
For the First Six Months Ended June 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $977,286 $965,620 $1,131,727
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 726 2,520 4,239
Adjusted Net Income $978,012 $968,140 $1,135,966
Average Number of Common Shares Outstanding. 3,273,034 3,202,155 3,096,724
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). 8,557 24,404 38,961
Average Number of Common Shares Outstanding
(Fully Diluted). 3,281,591 3,226,559 3,135,685
Earnings Per Common Share Assuming Full Dilution. $0.30 $0.30 $0.36
All 1998 and 1997 per share data restated to reflect 100% stock dividend
paid on June 1, 1998, and a 5% stock dividend paid on February 1, 1999.
GRAPHICS GRAPHICS
</TABLE>
PART I.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
For the Six Months Ended June 30, 1999
Community Bancorp. ("the Company")is a bank holding company whose
subsidiaries include Community National Bank and Liberty Savings Bank.
Community National Bank ("the Bank") is a full service institution operating
in the state of Vermont. The Bank has seven offices, five of which are
located in Orleans County, one in Essex County, and one in Caledonia County.
Liberty Savings Bank ("Liberty") is a New Hampshire guaranty savings bank
acquired by Community Bancorp. on December 31, 1997. Currently this bank is
inactive and does not have any offices or deposit taking authority, and
shares the mailing address of Community Bancorp. Once a suitable location
is identified, it is anticipated that Liberty will initially operate as a
lending facility, and may expand in the future into a full service financial
institution. Management is working with the board of directors to find a
suitable location in the northern part of New Hampshire for this endeavor.
Community National Bank has a small customer base in the state of New
Hampshire and hopes to broaden its base through Liberty Savings Bank.
Most of the Bancorp's business is conducted through the Bank, therefore,
the following narrative is based primarily on this Bank's operations.
The Balance Sheet and Statements of Income preceding this section are
consolidated figures for Community Bancorp. and subsidiaries ("the Company"),
and can be used in conjunction with the other reports following them
to provide a more detailed comparison of the information disclosed in the
following narrative.
OVERVIEW
Net income for the second quarter ended June 30, 1999 was $566,489,
representing an increase of 1.5% and a
decrease of 7.4%, respectively, over
the net income figures of $557,942 for
GRAPHICS the second quarter ended June 30, 1998,
and $611,639 for the same period in
1997. The results of this are earnings
per share of $0.17 for the second quarters
of 1999 and 1998 and $0.20 for the
second quarter of 1997. The
Company declared a cash dividend
of $0.16 per share payable May 1, GRAPHICS
1999 to shareholders of record as
of April 15, 1999. A two-for-one
stock split was declared in 1998,
to be accomplished by a 100% stock dividend, payable June 1, 1998, to
shareholders of record as of May 15, 1998. This transaction was contingent
upon the approval by the Company's shareholders of a proposal to increase
the number of shares the Company may issue. This proposal was voted on and
passed at the annual shareholders meeting held May 5, 1998. As a result of
the stock split, all per share data has been restated for all periods in 1997
and for the first six months of 1998. Net income for the first six months
of 1999 was $977,286 compared to $965,620 for the first six months of 1998,
and $1.13 million for the first six months of 1997, representing an increase
of 1.2% for 1999 versus 1998, and a decrease of 13.7% for 1999 versus 1997.
Earnings per share for the first six months were $0.30 for 1999 and 1998 and
$0.37 for 1997. The second quarter of 1999 was slightly better than 1998,
but not as profitable as 1997 due in part to a decrease in other income,
a component of other operating income. Net income for the six months
comparison periods followed the same trend as the second quarter comparison
periods with other income again accounting for the biggest decrease in other
operating income. A substantial gain on the sale of an OREO property in
1997 was a major factor in the decrease in other income for 1999 versus
1997.
Net interest income, the difference between interest income and expense,
represents the largest portion of the Company's earnings, and is affected by
the volume, mix, rate sensitivity of earning assets as well as interest
bearing liabilities, market interest rates and the amount of non-interest
bearing funds which support earning assets.
Net interest income for the second quarter comparison period started at
$2.25 million for 1997 and decreased to $2.15 million for 1998, and then
increased to $2.3 million for 1999, resulting in a decrease of 4.2% for 1998
versus 1997, and an increase of 7.4% for 1999 versus 1998. Total interest
income for the second quarter of 1999 decreased slightly compared to 1998,
with a decrease of $4,142 or .10%, while an increase of $31,477 or .75% is
noted for the second quarter of 1999 compared to 1997. Interest expense
decreased for the second quarter of 1999 compared to the second quarter of
1998 by $163,546 or just under 8% and a decrease of $34,273 or 1.8% was
recognized for 1999 versus 1997. Net interest income for the first six
months started at $4.4 million for 1997, and decreased to $4.39 million at
the end of the first six months of 1998, and then increased $103,357 or
2.4% to end the first six months of 1999 at $4.5 million. Total interest
income for the first six months increased $219,600 or 2.7% for 1998 versus
1997, while a decrease of $178,211 or 2.1% is noted for 1999 versus 1998.
Total interest expense increased $221,486 or 5.8% for the first six months
of 1998 compared to 1997 while a decrease of $281,568 or 7% is noted for
the first six months of 1999 versus 1998. A review of the six month figures
for interest earned on loans, the major source of interest income, reveals
an increase of 1.3% for 1998 compared to 1997, and a decrease of 6.1% for
1999 compared to 1998. In comparison, interest paid on deposits, the major
source of interest expense, shows an increase of 5.2%, and a decrease of 7.4%,
respectively. As the loan portfolio matures or reprices, decreases are noted
in the rates for these earning assets. Interest bearing deposit accounts
are also repricing at a lower rate creating less expense on these liabilities.
The result is a tax equivalent spread for the first six months equaling 3.6%
for 1999 versus 3.7% for 1998 and 4% for 1997.
CHANGES IN FINANCIAL CONDITION
The Company had total assets of $233 million at June 30, 1999 and $225
million at December 31, 1998. Average earning assets were $216 million for
the first six months ended June 30, 1999, including average loans of $149
million and average investment securities of $62 million. Average earning
assets were $209 million for the year ended December 31, 1998 including
average loans of $148 million and average investment securities of $53
million.
The Company attributes the desire to increase the investment portfolio
of available for sale securities for the substantial increase in average
investment securities. Taxable investments, which include available for
sale securities increased from an average volume of $38.8 million as of year
end 1998 to just over $50 million as of the end of the first six months of
1999, an increase of approximately $11.2 million or 29.3%. Available for
sale securities totaled $26.3 million and $16.2 million, respectively, as
of June 30, 1999 and December 31, 1998, accounting for most of the $11.2
million increase.
Average interest bearing liabilities at June 30, 1999 were $181 million,
with average time deposits reported totaling $96 million and NOW & money
market funds of $49 million. At December 31, 1998, average interest bearing
liabilities of $178 million were reported including average time deposits of
$98 million and NOW & money market funds at an average volume of $45 million.
Repurchase agreements have experienced a steady increase starting at an
average volume of $93 thousand at December 31, 1998, and increasing $384
thousand to end at a six month average balance of $477,205. These accounts
were introduced during the 1998 calendar year and have been successful in
attracting new business customers, and retaining current business customers.
RISK MANAGEMENT
Liquidity Risk - Liquidity management refers to the ability of the Company
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 $529,293 or 3% to end
the first six months of 1999 at a volume of $17.3 million compared to
$17.9 million at the end of the 1998 calendar year. Other time deposits
increased slightly from December 31, 1998 to June 30, 1999. A review of
these deposits, primarily the time deposits over $100,000 indicates that
they are primarily generated locally and regionally and are established
customers of the Company. The Company has no brokered deposits. Savings
accounts increased $3.3 million to end the first six months of 1999 at $33.8
million compared to $30.5 million as of the end 1998. Unfavorable rates on
time deposit generated a stronger demand for savings accounts as customers
wait for more favorable rates on these funds. Our gross loan portfolio
increased 1.3% from $148.3 million at the end of 1998 to $150.2 million at
the end of the first six months of 1999. More fixed rate "in-house" loans
were generated this year in an effort to increase our loan portfolio.
Federal funds sold and overnight deposits decreased dramatically to end
the first six months of 1999 at $4.4 million compared to $15.5 million
as of the end of the 1998 calendar year. An increase in the Company's
investment portfolio is a direct result of this decrease. As of the end
of the first six months of 1999, the Company held in it's investment
portfolio treasuries classified as "Available for Sale" at a market price
of $29.3 million, compared to just over $20 million as of December 31,
1998, an increase of $8.7 million or 42.4%. Treasuries classified as "Held
to Maturity" ended the first six months of 1999 at a balance of $35.9 million
compared to $29.9 million as of the end of the 1998 calendar year. Both of
these types of investments mature at monthly intervals as shown on the gap
report at the end of this section. Securities classified as "Restricted
Equity Securities" are made up of equity securities the Company is require
to maintain in the form Federal Home Loan Bank of Boston (FHLB) and Federal
Reserve stock. These securities remain at a balance totaling $1.14 million
as of June 30, 1999. The Company currently has an advance of just over $4
million against an available line of $96.4 million, with an additional $2
million and $4.1 million, respectively, at First Boston and FHLB.
Credit Risk - Management follows strict underwriting guidelines, and has
established a thorough loan-by-loan review policy. These measures help to
insure the adequacy of the loan loss coverage. 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 are each borrower's financial condition, the industry or
sector for the economy in which the borrower operates, and overall economic
conditions. Existing or potential problems are noted and addressed by senior
management in order to assess the risk of probable loss or delinquency.
A variety of loans are reviewed periodically by an independent firm in order
to assure accuracy and compliance with various policies and procedures set
by the regulatory authorities. The Company also employs a Credit
Administration Officer whose duties include, among others, a review of the
loan portfolio including delinquent and non-performing loans.
Specific Allocations are made in situations management feels are at a
greater risk for loss. A quarterly review of the Qualitative Factors, which
among others are "Levels of, and Trends in, Delinquencies and Non-Accruals"
and "National and Local Economic Trends and Conditions", helps to ensure
that areas with potential risk are noted and coverage increased or decreased
to reflect the trends in delinquencies and non-accruals. Residential first
mortgage loans make up the largest part of the loan portfolio and have the
lowest historical loss ratio helping to alleviate the overall risk.
Allowance for loan losses and provisions - The valuation allowance for loan
losses remained at $1.66 million as of June 30, 1999 composing 1.1% of the
total gross loan portfolio. A primary concern of management is to reduce
the exposure of credit loss within the portfolio. The Company maintains a
residential loan portfolio of approximately $98.6 million and a commercial
real estate portfolio of approximately $24.5 million accounting for 65.6%
and 16.3%, respectively, of the total loan portfolio. This large loan
volume together with the low historical loan loss experience help to support
our basis for loan loss coverage.
Non-Performing assets for the company are made up of three different types
of loans, "90 Days or More Past Due", "Other Real Estate Owned" (OREO), and
"Non-Accruing Loans". A comparison of these non-performing assets reveals
a decrease in non-accruing loans of $681,683 or 29%, and an increase of
$191,071 or 35.3% in our OREO portfolio as well as an increase in loans 90
days or more past due of $274,503 or 68.4%. The portfolio of non-accruing
loans makes up the biggest portion of the non-performing assets and consists
of $1.44 million or 86.4% of real estate secured mortgage loans for
the first six months of 1999, thereby reducing our exposure to loss.
<TABLE>
Non-performing assets as of June 30, 1999 and December 31, 1998 were as
follows:
<CAPTION>
06/30/1999 12/31/1998
<S> <C> <C>
Non-Accruing loans $1,671,940 $2,353,623
Loans past due 90 day or more and still accruing 675,804 401,301
Other real estate owned 732,974 541,903
Total $3,080,718 $3,296,827
</TABLE>
Other real estate owned is made up of property that the Company owns in
lieu of foreclosure or through normal foreclosure proceedings, and property
that the Company does not hold title to but is in actual control of, known
as in-substance foreclosure. The value of the property is determined prior
to transferring the balance to other real estate owned. The balance
transferred to OREO is the lesser of the appraised value of the property,
or book value of the loan. A write-down may be deemed necessary to bring
the book value of the loan equal to the appraised value. Appraisals are
then done periodically thereafter charging any additional write-downs to
the appropriate expense account.
Market Risk and Asset and Liability Management - Market risk is the risk
of loss in a financial instrument arising from adverse changes in market
prices and rates, foreign currency exchange rates, commodity prices and
equity prices. The Company's market risk arises primarily from interest
rate risk inherent in its lending and deposit taking activities. To that
end, management actively monitors and manages its interest rate risk
exposure. The Company does not have any market risk sensitive instruments
acquired for trading purposes. The Company attempts to structure its
balance sheet to maximize net interest income while controlling its exposure
to interest rate risk. The Company's Asset/Liability Committee formulates
strategies to manage interest rate risk by evaluating the impact on earnings
and capital of such factors as current interest rate forecasts and economic
indicators, potential changes in such forecasts and indicators, liquidity,
and various business strategies. The Asset/Liability Committee's methods
for evaluating interest rate risk include an analysis of the Company's
interest rate sensitivity "gap", which provides a static analysis of the
maturity and repricing characteristics of the entire balance sheet, and a
simulation analysis which calculates projected net interest income based
on alternative balance sheet and interest rate scenarios, including "rate
shock" scenarios involving immediate substantial increases or decreases in
market rates of interest.
Interest Rate Sensitivity "Gap" Analysis - An interest rate sensitivity
"gap" is defined as the difference between the interest-earning assets and
interest-bearing liabilities maturing or repricing within a given time
period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities.
A gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. During
a period of rising interest rates, a negative gap would tend to adversely
affect net interest income, while a positive gap would tend to result in
an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest
income, while a positive gap would tend to affect net interest income
adversely. Because different types of assets and liabilities with the
same or similar maturities may react differently to changes in overall
market interest rates or conditions, changes in interest rates may affect
net interest income positively or negatively even if an institution were
perfectly matched in each maturity category.
The following tables set forth the estimated maturity or repricing of the
Company's interest-earning assets and interest-bearing liabilities at June
30, 1999, and December 31, 1998. The Company prepares its interest rate
sensitivity "gap" analysis by scheduling assets and liabilities into
periods based upon the next date on which such assets and liabilities could
mature or reprice. The amounts of assets and liabilities shown within a
particular period were determined in accordance with the contractual term
of the assets and liabilities, except that:
* Adjustable-rate loans and certificates of deposit are included in the
period when they are first scheduled to adjust and not in the period in
which they mature;
* Fixed-rate loans reflect scheduled contractual amortization, with no
estimated prepayments;
and
* NOW, money markets, and savings deposits, which do not have contractual
maturities, reflect estimated levels of attrition, which are based on
detailed studies by the Company of the sensitivity of each such category
of deposit to changes in interest rates.
Management believes that these assumptions approximate actual experience
and considers them reasonable. However, the interest rate sensitivity of
the Company's assets and liabilities in the tables could vary substantially
if different assumptions were used or actual experience differs from the
historical experiences on which the assumptions are based.
<TABLE>
<CAPTION>
GAP ANALYSYS
Community Bancorp. & Subsidiaries
June 30, 1999
Cumulative repriced within:
Dollars in thousands, 3 Months 4 to 12 1 to 3 3 to 5 Over 5
by repricing date or less Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Federal funds sold 1,500 0 0 0 0 1,500
Overnight deposits 2,868 0 0 0 0 2,868
Investments -
Available for Sale(1) 0 3,018 20,243 6,051 0 29,312
Held to Maturity 6,329 11,371 12,777 3,558 1,905 35,940
Restricted equity
securities 0 0 0 0 1,142 1,142
Loans(2) 22,863 53,349 43,331 6,764 22,249 148,556
Total interest sensitive
assets 33,560 67,738 76,351 16,373 25,296 219,318
Interest sensitive liabilities:
Certificates of
deposit 20,118 56,946 16,373 1,648 0 95,085
Money markets 33,004 0 0 0 0 33,004
Regular savings 2,705 0 0 0 31,108 33,813
Now accounts 0 0 0 0 17,120 17,120
Borrowed funds 0 5 0 15 4,040 4,060
Repurchase agreements 915 0 0 0 0 915
Subordinated debentures 0 0 0 0 20 20
Total interest sensitive
Liabilities 56,742 56,951 16,373 1,663 52,288 184,017
Net interest rate
sensitivity gap (23,182) 10,787 59,978 14,710 (26,992)
Cumulative net interest
rate sensitivity gap (23,182) (12,395) 47,583 62,293 35,301
Cumulative net interest
rate sensitivity gap
as a percentage of
total assets -9.96% -5.33% 20.45% 26.77% 15.17%
Cumulative interest
Sensitivity gap as a
percentage of total
interest-earning
assets -10.57% -5.65% 21.70% 28.40% 16.10%
Cumulative interest
earning assets as a
percentage of cumulative
interest-bearing
liabilities 59.14% 89.10% 136.58% 147.29% 119.18%
<FN>
<f01> Investments available for sale with a fair value of $29,447,369 may
be sold by the Company at any time.
<f02> Loan totals exclude non-accruing loans amounting to $1,671,940.
</TABLE>
<TABLE>
<CAPTION>
GAP ANALYSYS
Community Bancorp. & Subsidiaries
December 31, 1998
Cumulative repriced within:
Dollars in thousands, 3 Months 4 to 12 1 to 3 3 to 5 Over 5
by repricing date or less Months Years Years Years Total
<S> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Federal funds sold 7,025 0 0 0 0 7,025
Overnight deposits 8,502 0 0 0 0 8,502
Investments -
Available for Sale(1) 0 0 19,546 1,044 0 20,590
Held to Maturity 5,860 15,246 4,068 1,482 1,741 28,397
Restricted equity
Securities 0 0 0 0 1,142 1,142
Loans(2) 22,240 56,570 46,124 6,146 14,901 145,981
Total interest sensitive
Assets 43,627 71,816 69,738 8,672 17,784 211,637
Interest sensitive liabilities:
Certificates of
Deposit 18,044 62,790 13,486 1,283 0 95,603
Money markets 30,817 0 0 0 0 30,817
Regular savings 2,512 0 0 0 28,000 30,512
Now accounts 0 0 0 0 19,122 19,122
Borrowed funds 0 5 0 15 4,040 4,060
Repurchase agreements 288 0 0 0 0 288
Subordinated debentures 0 0 0 0 20 20
Total interest sensitive
Liabilities 51,661 62,795 13,486 1,298 51,182 180,422
Net interest rate
sensitivity gap (8,034) 9,021 56,252 7,374 (33,398)
Cumulative net interest
rate sensitivity gap (8,034) 987 57,239 64,613 31,215
Cumulative net interest
rate sensitivity gap
as a percentage of
total assets -3.57% 0.44% 25.43% 28.71% 13.87%
Cumulative interest
sensitivity gap as a
percentage of total
interest-earning
assets -3.80% 0.47% 27.05% 30.53% 14.75%
Cumulative interest
earning assets as a
percentage of cumulative
interest-bearing
liabilities 84.45% 100.86% 144.74% 149.99% 117.30%
<FN>
<f01> Investments available for sale with a fair value of $20,233,371 may
be sold by the Company at any time.
<f02> Loan totals exclude non-accruing loans amounting to $2,353,623.
</TABLE>
OTHER OPERATING INCOME AND EXPENSES
Total other operating income for the second quarter of 1999 was
$450,091 compared to $513,773 for the second quarter of 1998 and $626,604
for the second quarter of 1997, a decrease of $63,682 or 12.4% for 1999
versus 1998 and $112,831 or 18% for 1998 versus 1997. Other income reports
the only decrease for both 1999 versus 1998 and 1998 versus 1997 at a
reported $92,052 and $114,304, respectively. Income from sold loans for
the second quarter of 1999 was $36,700 compared to $101,344 for the same
quarter in 1998, contributing to the decrease in other income for 1999
versus 1998. A gain from the sale of inventory associated with an OREO
property was recognized during the second quarter of 1997, contributing
immensely to the decrease for 1998 versus 1997. Total other operating
income for the first six months of 1999 ended at $823,563 compared to
$810,536 for the same period in 1998 and $913,125 for the same period in
1997. The results are an increase of $13,027 or 1.6% for 1999 versus
1998, and a decrease of $102,589 or 11.2% for 1998 versus 1997. Other
income recognized the biggest decrease reported at $37,362 or 9.1% for 1999
versus 1998 and $105,989 or 20.5% for 1998 versus 1997. Income generated
through our trust department continues to grow each year with an increase
of $39,669 or 60.3% for the first six months of 1999 versus the first six
months of 1998.
Total other operating expenses followed a different path for the second
quarter comparisons with figures of $1.8 million for 1999, an increase of
$67,474 over the 1998 figure of $1.76 million which decreased $176,787 over
the 1997 figure of $1.94 million. Expenses associated with the Company's
non-performing assets were higher for the second quarter of 1999 compared
to the same quarter in 1998, contributing $31,299 to the increase in other
expenses for this comparison period. A write-down of $119,000 on an OREO
property during the second quarter of 1997 took most of the responsibility
for the decrease in other expense for 1998 compared to 1997. Total other
operating expense for the six month comparison periods increased from $3.5
million for 1997 to $3.6 million for 1998, and then increased to $3.7
million for 1999, resulting in increases of 3% for each of the comparison
periods. Expenses of $61,500 on non-accrual loans for the first six months
of 1999 supported the increase in other income for the 1999 versus 1998
period, while occupancy expenses reported an increase of $43,451, or 7.24%
helping to support the overall increase for 1998 versus 1997. An increase
in the expense for depreciation and taxes on bank property was a primary
reason for this increase.
All components of other operating expenses are monitored by management,
however, a quarterly review is performed on crucial components to assure
that the accruals for these expenses are accurate. This helps alleviate
the need to make drastic adjustments to these accounts that in turn effect
the net income of the Company.
APPLICABLE INCOME TAXES
Income before taxes decreased from $831,622 for the second quarter of
1997 to $746,924 for the second quarter of 1998, and then increased to
$785,172 for the second quarter of 1999, a decrease of $84,698 or 10.2%
for 1998 versus 1997 and an increase of $38,248 or just over 5% for 1999
versus 1998. As a result, provisions for income taxes decreased $31,001
for the second quarter of 1998 compared to the second quarter of 1997 and
increased $29,701 or 15.7% for the 1999 versus 1998 comparison period ending
the second quarter period of 1999 at $218,683. Income before taxes for the
first six months decreased from $1.53 million for 1997 to $1.27 million
for 1998 and then increased to $1.34 million as of June 30, 1999, with
income taxes calculated at $394,811, $302,855, and $362,236, respectively.
EFFECTS OF INFLATION
Rates of inflation affect the reported financial condition and results
of operations of all industries, including the banking industry. The effect
of monetary inflation is generally magnified in bank financial and operating
statements. As costs and prices rise during periods of monetary inflation,
cash and credit demands of individuals and businesses increase, and the
purchasing power of net monetary assets declines. The Company depends
primarily on a strong net interest income to enable their purchasing power
to remain aggressive.
CAPITAL RESOURCES
The Company's stockholders' equity, which started the year at
$22,002,059, was increased through earnings of $977,286 and sales of
common stock of $472,564 through dividend reinvestment and debenture
conversions. It was decreased by dividends of $1,024,004, purchase of
treasury stock of $2,698 and adjustment of $325,007 for valuation of
allowance for securities to end the first six months of 1999 at
$22,100,200 with a book value of $6.68 per share. All stockholders'
equity is unrestricted. Additionally, it is noted that the net
unrealized gain on valuation allowance for securities has decreased
since the beginning of the year. A review of this activity shows that
as the maturity date of the investments gets closer, the market price
becomes favorably better, therefore, material loss is greatly reduced.
The Company is required to maintain minimum amounts of capital to
"risk weighted" assets, as defined by the banking regulators. The minimum
requirements for Tier I and Total Capital are 4% and 8%, respectively. As
of June 30, 1999, the Company continued to maintain ratios far above the
minimum requirements with reported ratios of approximately 20% for Tier I
and 21% for Total Capital.
The Company intends to continue 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 Company's future
capital needs.
From time to time the Company may make contributions to the capital
of its subsidiaries, Community National Bank and Liberty Savings Bank. At
present, regulatory authorities have made no demand on the Company to
make additional capital contributions to either Bank's capital.
YEAR 2000
The Company is currently working to resolve the potential impact of the
year 2000 (Y2K) on the processing of date-sensitive information by the
Company's computerized information systems. The Y2K problem is the result
of computer programs being written using two digits (rather than four) to
define the applicable year. Any of the Company's systems that have date-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000 which could result in miscalculations or systems
failures. The Federal Reserve Board and other federal banking regulators
(together known as the Federal Financial Institutions Examination Council,
or "FFEIC") have developed joint guidelines and benchmarks for assessing
Y2K risk, remediation of non-compliant systems and components and post-
remediation testing and implementation.
In an effort to correctly assess the effect of Y2K on the financial
position of the Company and assess our readiness for Y2K, a Y2K committee
was organized which meets on a regular basis to keep executive management
and the Board of Directors informed of our progress towards Y2K compliance.
The committee has developed strategic, customer awareness, customer risk
assessment, test and contingency plans. In accordance with FFEIC
guidelines, the Y2K committee has defined five phases in the Y2K project
management:
Phase I - Awareness Phase
In this phase we defined the problem and gained executive level commitment.
The Y2K committee developed an overall strategy.
This phase has been completed.
Phase II - Assessment Phase
During this phase, we assessed the size and complexity of the Y2K issues
and identified both information technology (IT) and non-IT systems that
could be affected by the change. At this time, we also identified mission-
critical and non-mission-critical systems.
We define mission-critical systems as vital to the successful
continuation of our core business activities. Our core business
activities include servicing deposits, servicing loans, item processing
and accounting, originating deposits, originating loans, investments, and
trust. The mission-critical systems that support our core business
activities include our AS/400 (mainframe computer) and operating system;
check processing software; check sorters; loan, deposit and account
origination software; Fedline (interface to the Federal Reserve Bank); and
trust accounting software. Other systems not deemed mission-critical, but
important, include human resources; payroll; ATM networks; voice banking
system; heating and faxes.
We also evaluated the Y2K effect on strategic business initiatives.
We assessed the risk exposure of our customers as funds providers, funds
takers, and capital market/asset counter-parties. This phase has been
completed, however, we continue to monitor our exposure on an on-going
basis.
Phase III - Renovation Phase
This phase includes hardware and software upgrades or replacements and other
changes.
No mission-critical hardware or software needed to be replaced. All our
software applications are provided by vendors and these applications were
already Y2K compliant when we began the renovation phase. We are however
replacing several PCs supporting non-mission critical applications. This
phase has been completed.
Phase IV - Validation Phase
This is the testing phase. During this phase, the systems identified in
Phase II (Assessment) are tested for Y2K compliance. Systems that were
deemed mission-critical were tested first. We have now started testing the
remaining systems.
All mission-critical systems were tested by 12/31/98 and were in compliance.
Non-mission-critical systems were tested by 6/30/99 and were in compliance.
Phase V - Implementation Phase
January 1, 2000 will be a processing day. If we detect any failures of
our mission-critical systems, we will implement our contingency plans as
appropriate.
The Company does not write any source programming code and is therefore
dependent upon external vendors and service providers to alter their programs
to become Y2K compliant. We have received certification from our vendors as
to their product compliance, however, we tested all mission-critical and non-
mission-critical systems identified in Phase II.
<TABLE>
We have identified the following timetable for the testing phase:
<C> <S>
12/31/98 testing of internal mission-critical systems was completed
03/31/99 testing with service providers for mission-critical systems
was completed
06/30/99 testing of non-mission-critical systems was completed.
</TABLE>
As of 12/31/98, we had completed the testing of all mission-critical
systems and noted only a few minor date formatting errors in loan
documentation for which we received corrections and was installed during
the second quarter of 1999. These minor errors do not affect any
calculations and do not affect our ability to process loans. We began
testing of the non-mission-critical systems during the first quarter of
1999 and testing was substantially completed by 3/31/99. All our mission-
critical and non-mission-critical systems were deemed Y2K compliant by
6/30/99. We do not anticipate any major upgrades to existing systems before
year 2000.
The costs involved in addressing potential problems are not currently
expected to have a material impact on the Company's financial position,
results of operations, or cash flows in future periods. During 1998, we
budgeted $63,750 and actually spent $67,000 for Y2K testing and upgrades.
The costs included testing of our contingency site, replacement of 10 PCs
not Y2K compliant, and proxy testing of some of our mission-critical
systems. We have not calculated the personnel costs relating to Y2K,
however, we did not have to hire additional personnel in our Y2K efforts.
For 1999, we have budgeted $77,000. As of the end of the second quarter
of 1999, total expenses of approximately $61,000 were reported. Projected
expenses include the replacement of additional PCs, PC software upgrades,
consulting services, testing, travel and education. Y2K costs are expensed
from current earnings.
No new projects have been deferred due to the Y2K effort. The yearly
software update to our core system provided by one of our vendors has been
postponed by the vendor until 2000 in an effort to minimize changes to an
already compliant system. This will not have an effect on our operations.
We have reviewed the credit risk our commercial borrowers may pose to
us if they are not Y2K compliant. At this time, we have identified only a
small number of customers deemed as high risk customers, and their inability
or failure to repay their loans as scheduled would not have a material impact
on the Company.
The worst case scenario relating to Y2K is that we would not have
electrical power. If this were the case, our contingency plan is to operate
in a manual mode. We have plans for hiring temporary help in this situation.
The next worst case scenario is that telephones would be unavailable.
If this were the case, the Derby branch could be fully operational. Other
branches would need to service deposits in an off-line mode. Requests for
account and loan origination could be directed to the Derby branch.
Assuming we have electricity and telephones, we anticipate our core
systems to be functional.
Our Y2K contingency plan is based on our disaster recovery plan written
to respond to a complete core system outage. Our contingency plan also
outlines manual processes in the event of individual component failures.
During the second quarter of 1999, outside consultants reviewed the
feasibility of our contingency plans. This review did not constitute a 3rd
party review as outlined by the FFIEC guidelines. After reviewing our plan,
they made recommendations that, if implemented, would further enhance our
Business Resumption Contingency Plan (BRCP).
The 3rd party review as outlined by the FFIEC guidelines was performed
by an officer of Community National Bank who was not involved with developing
the plan.
PART II.
Item 1
Legal Proceedings
Community National Bank is currently involved in a lawsuit against the
State of Vermont. The issue involves OREO property that is on "filled land"
on the shores of Lake Memphremagog in the City of Newport. According to a
so-called "public trust doctrine", the State of Vermont might have ownership
of any lands created by filling any portion of the navigable waters of the
state. The result of this is that the Bank has been unable to sell these
properties because some attorneys will not clear title to the property. The
suit filed is an attempt to clear title to said properties by seeking
judicial clarification of the public trust doctrine. The outcome of the suit
is not likely to have a material impact on the financial statements of the
Bank or consolidated Company.
There are no pending legal proceedings to which the Company is a party
or of which any of its property is the subject, other than routine litigation
incidental to its banking business.
Item 4
Submission of Matters to a Vote of Security Holders
The following matters were submitted to a vote of security holders at the
Annual Meeting of Shareholders of Community Bancorp. on May 4, 1999:
1. To elect three directors to serve until the Annual Meeting of Shareholders
in 2002;
2. To ratify the selection of the independent public accounting firm of A.M.
Peisch & Company as the Corporation's external auditors for the fiscal year
ending December 31, 1999;
The results are as follows:
<TABLE>
<CAPTION>
AUTHORITY
WITHHELD/ BROKER
MATTER FOR AGAINST ABSTAIN NON-VOTE
<S> <C> <C> <C> <S>
Election of Directors:
Thomas E. Adams 2,531,556.3744 57.7802 1,528.7469 -0-
Jacques R. Couture 2,515,668.4305 15,945.7241 1,528.7469 -0-
Richard C. White 2,531,614.1546 -0- 1,528.7469 -0-
Selection of Auditors
A.M. Peisch & Company 2,520,066.9038 1,509.8240 11,566.1737 -0-
</TABLE>
Item 5
Other Information
NONE
Item 6
Exhibits and Reports on Form 8-K
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
COMMUNITY BANCORP.
DATED: August 10, 1999 By: /s/ Richard C. White
Richard C. White, President
DATED: August 10, 1999 By: /s/ Stephen P. Marsh
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,179
<INT-BEARING-DEPOSITS> 2,868
<FED-FUNDS-SOLD> 1,500
<TRADING-ASSETS> 0
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<DEPOSITS> 204,667
<SHORT-TERM> 915
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<LONG-TERM> 4,080
0
0
<COMMON> 8,350
<OTHER-SE> 13,750
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<INTEREST-LOAN> 6,453
<INTEREST-INVEST> 1,689
<INTEREST-OTHER> 112
<INTEREST-TOTAL> 8,254
<INTEREST-DEPOSIT> 3,652
<INTEREST-EXPENSE> 3,762
<INTEREST-INCOME-NET> 4,492
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,676
<INCOME-PRETAX> 1,440
<INCOME-PRE-EXTRAORDINARY> 1,440
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 7.53
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<RECOVERIES> 47
<ALLOWANCE-CLOSE> 1,659
<ALLOWANCE-DOMESTIC> 1,659
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 322
</TABLE>
