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 Nine Months Ended September 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 November 4, 1999 there were 3,358,507 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 ) September 30 December 31 September 30
1999 1998 1998
<S> <C> <C> <C>
Assets
Cash and due from banks 6,347,127 4,896,947 4,862,928
Federal funds sold and
overnight deposits 5,078,454 15,527,141 3,574,757
Total cash and cash equivalents 11,425,581 20,424,088 8,437,685
Securities held-to-maturity (fair
value $36,875,241 at 09/30/99,
$30,038,323 at 12/31/98, and
$38,708,948 at 09/30/98) 37,137,179 29,877,851 38,465,409
Securities available-for-sale 29,260,313 20,590,000 20,714,375
Restricted equity securities 1,141,650 1,141,650 1,141,650
Loans 151,781,718 148,335,346 150,599,826
Allowance for loan losses (1,714,364) (1,658,967) (1,652,776
Unearned net loan fees (885,233) (848,963) (856,840)
Net loans 149,182,121 145,827,416 148,090,210
Bank premises and equipment, net 4,327,535 3,010,041 3,064,566
Accrued interest receivable 1,922,636 1,460,671 1,730,111
Other real estate owned, net 651,655 541,903 592,114
Other assets 2,214,908 2,177,043 2,002,537
Total assets $237,263,578 $225,050,663 $224,238,657
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Demand, non-interest bearing 24,955,211 21,743,065 22,273,432
NOW and money market accounts 54,785,715 49,939,162 44,774,125
Savings 34,403,769 30,512,230 31,525,967
Time deposits, $100,000 and over 16,952,292 17,874,124 19,191,274
Other time deposits 77,220,033 77,728,713 79,709,528
Total deposits $208,317,020 $197,797,294 $197,474,326
Borrowed funds 4,060,000 4,060,000 4,060,000
Repurchase agreements 1,459,358 288,241 78,320
Accrued interest and other liabilities 996,711 883,069 918,510
Subordinated convertible debentures 20,000 20,000 20,000
Total liabilities $214,853,089 $203,048,604 $202,551,156
Stockholders' Equity
Common stock - $2.50 par value;
6,000,000 shares authorized and
3,362,022 shares issued at 09/30/99,
3,296,154 issued at 12/31/98, and
3,278,036 issued at 09/30/98 8,405,054 7,851,516 7,808,378
Additional paid-in capital 10,766,836 8,756,453 8,584,444
Retained earnings 3,780,301 5,604,096 5,405,536
Accumulated other comprehensive income (93,490) 235,375 334,477
Less: treasury stock, at cost;
29,886 shares at 09/30/99, 29,646
shares at 12/31/98, and 29,643 shares
at 09/30/98 (448,212) (445,381) (445,334)
Total stockholders' equity $22,410,489 $22,002,059 $21,687,501
Total liabilities and
stockholders' equity $237,263,578 $225,050,663 $224,238,657
</TABLE>
<TABLE>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statements of Income
( Unaudited )
<CAPTION>
For The Third Quarter Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Interest income
Interest and fees on loans 3,294,974 3,483,609 3,504,235
Interest and dividends on investment securities
U.S. Treasury securities 554,450 537,196 509,578
U.S. Government agencies 133,946 42,301 21,192
States and political subdivisions 196,180 170,690 173,647
Dividends 20,556 18,162 17,921
Interest on federal funds sold and
overnight deposits 47,549 72,490 26,250
Total interest income $4,247,655 $4,324,448 $4,252,823
Interest expense
Interest on deposits 1,831,568 1,992,663 1,894,888
Interest on borrowed funds 51,495 51,124 101,016
Interest on repurchase agreements 13,647 929 0
Interest on subordinated debentures 550 229 2,584
Total interest expenses $1,897,260 $2,044,945 $1,998,488
Net interest income 2,350,395 2,279,503 2,254,335
Provision for loan losses (115,000) (150,000) (215,000)
Net interest income after provision $2,235,395 $2,129,503 $2,039,335
Other operating income
Trust department income 62,054 43,486 29,028
Service fees 176,797 170,762 181,434
Security gains (losses) 0 0 0
Other 165,765 167,946 141,124
Total other operating income $404,616 $382,194 $351,586
Other operating expenses
Salaries and wages 724,113 708,689 728,382
Pension and other employee benefits 205,874 192,326 203,274
Occupancy expenses, net 280,158 323,744 332,987
Trust Department Expenses 13,080 9,389 11,043
Other 603,047 533,566 539,341
Total other operating expenses $1,826,272 $1,767,714 $1,815,027
Income before income taxes 813,739 743,983 575,894
Applicable income taxes (credit) 209,833 181,844 124,725
Net Income $603,906 $562,139 $451,169
Earnings per share on weighted average $0.18 $0.17 $0.14
Weighted average number of common shares
Used in computing earnings per share 3,332,139 3,247,388 3,141,331
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>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statements of Income
( Unaudited )
<CAPTION>
For the Nine Months Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Interest income
Interest and fees on loans 9,748,162 10,352,917 10,283,050
Interest and dividends on investment securities
U.S. Treasury securities 1,684,898 1,525,088 1,568,142
U.S. Government agencies 401,999 83,380 62,758
States and political subdivisions 447,769 462,851 455,431
Dividends 59,405 55,566 52,724
Interest on federal funds sold and
overnight deposits 159,082 276,518 42,990
Total interest income $12,501,315 $12,756,320 $12,465,095
Interest expense
Interest on deposits 5,483,598 5,933,489 5,642,542
Interest on borrowed funds 150,567 147,367 168,533
Interest on repurchase agreements 22,957 3,122 0
Interest on subordinated debentures 1,650 4,047 9,007
Total interest expense $5,658,772 $6,088,025 $5,820,082
Net interest income 6,842,543 6,668,295 6,645,013
Provision for loan losses (415,000) (510,000) (525,000)
Net interest income after provision $6,427,543 $6,158,295 $6,120,013
Other operating income
Trust department income 167,563 109,326 85,452
Service fees 520,060 503,305 519,993
Security gains (losses) 0 0 0
Other 540,556 580,099 659,266
Total other operating income 1,228,179 1,192,730 1,264,711
Other operating expenses
Salaries and wages 2,131,401 2,117,596 2,125,586
Pension and other employee benefits 604,324 544,062 519,764
Occupancy expenses, net 923,954 967,674 933,466
Trust Department Expenses 41,082 36,805 22,797
Other 1,801,701 1,672,431 1,680,679
Total other operating expenses $5,502,462 $5,338,568 $5,282,292
Income before income taxes 2,153,260 2,012,457 2,102,432
Applicable income taxes (credit) 572,069 484,698 519,536
Net Income $1,581,191 $1,527,759 $1,582,896
Earnings per share on weighted average $0.48 $0.48 $0.51
Weighted average number of common shares
Used in computing earnings per share 3,292,879 3,217,343 3,111,702
Book value per share on shares outstanding $6.73 $6.68 $6.40
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>
COMMUNITY BANCORP. AND SUBSIDIARIES
Statement of Cash Flows
<CAPTION>
For the Nine Months Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net Income 1,581,191 1,527,759 1,582,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 304,786 303,012 299,171
Provisions for possible loan losses 415,000 510,000 525,000
Provisions for deferred income taxes (30,150) (70,245) 52,121
(Gain) loss on sale of loans (89,534) (118,886) (17,701)
Securities losses 0 0 0
Loss (gain) on sales of OREO 6,244 (2,712) (7,920)
OREO writedowns 19,590 26,592 29,446
Amortization of bond premium, net 240,582 35,412 11,111
Proceeds from sales of loans
held for sale 9,424,068 3,489,568 670,591
Originations of loans held for sale (9,467,687) (4,600,524) (921,532)
Increase (decrease) in taxes payable 28,240 15,944 (230,350)
(Increase) decrease in interest receivable (461,965) (269,813) (85,964)
Increase in mortgage service rights (32,119) (63,190) (16,715)
Decrease (Increase) in other assets 201,483 (126,978) (399,040)
(Decrease) increase in unamortized loan fees 36,270 (9,749) (35,441)
(Decrease) increase in interest payable (29,686) (9,725) 77,213
(Decrease) increase in accrued expenses 1,229 56,345 78,718
Increase (decrease) in other liabilities 120,326 148,160 (13,059)
Net cash provided by
operating activities 2,267,868 840,970 1,698,545
Cash Flows from investing activities:
Investments - held to maturity
Maturities and paydowns 18,936,104 12,861,980 8,675,068
Purchases (26,313,397) (17,220,197) (14,271,814)
Investments - available for sale
Maturities and paydowns 0 2,000,000 0
Purchases (9,291,211) (14,236,406) 0
Purchase of restricted equity securities 0 (41,900) (36,700)
Investment in limited partnership (14,130) (40,312) 282
Increase in Loans, Net of Payments (4,337,162) (78,380) (6,524,844)
Capital Expenditures (1,622,280) (81,917) (177,604)
Recoveries of loans charged off 74,913 165,911 108,837
Proceeds from sales of OREO 453,841 771,784 415,273
Net Cash Used in Investing Activities (22,113,322) (15,899,437) (11,811,502)
Cash Flows from Financing Activities:
Net increase in demand deposits,
NOW, MMA and savings 11,950,238 7,660,272 969,089
Net increase in certificates of deposit (1,430,512) 2,233,653 2,348,708
Net increase (decrease) in short-term
borrowings and repurchase agreements 1,171,117 0 0
Net increase in borrowed funds 0 0 6,400,000
Payments to acquire treasury stock (2,831) (197) (4,888)
Dividends paid (841,065) (705,186) (645,671)
Net cash provided by
financing activities 10,846,947 9,188,542 9,067,238
Net increase in cash and cash equivalents (8,998,507) (5,869,925) (1,045,719)
Cash and cash equivalents:
Beginning 20,424,088 14,307,610 8,245,398
Ending 11,425,581 8,437,685 7,199,679
Supplemental Schedule of Cash Paid During the Year
Interest paid 5,687,724 6,096,466 5,741,771
Income Taxes Paid 573,980 538,999 697,765
Supplemental schedule of noncash investing
and financing activities:
Net change in securities valuation (498,281) 455,709 30,873
OREO acquired in settlements of loans 589,427 318,577 1,438,812
Debentures converted to common stock 0 84,000 65,000
Stock dividends 1,851,338 3,823,576 1,294,006
Dividends paid
Dividends payable 1,553,648 1,369,090 1,233,310
Dividends reinvested (712,583) (663,904) (587,639)
841,065 705,186 645,671
</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 Nine Months Ended:
1999 1998
Average Income/ Rate/ Average Income/ Rate/
Earning Assets Balance Expense Yield Balance Expense Yield
<S> <C> <C> <C> <C> <C> <C>
Loans (gross) 148,626,379 9,748,162 8.77% 150,459,708 10,352,917 9.20%
Taxable Investment
Securities 51,170,109 2,086,899 5.45% 37,556,080 1,608,368 5.73%
Tax Exempt Investment
Securities (1) 13,349,015 672,198 6.73% 12,936,310 692,221 7.15%
Federal Funds Sold 2,271,978 75,689 4.45% 3,829,560 132,094 4.61%
Overnight Deposits 2,271,173 83,393 4.91% 3,197,058 144,424 6.04%
Other Securities(2) 1,257,359 63,523 6.75% 1,268,761 61,550 6.49%
TOTAL 218,946,013 12,729,864 7.77% 209,247,477 12,991,574 8.29%
Interest Bearing Liabilities
Savings Deposits 32,548,493 564,046 2.32% 30,763,292 616,294 2.68%
NOW & Money
Market Funds 50,786,777 1,225,765 3.23% 43,275,589 1,161,619 3.59%
Time Deposits 95,272,339 3,693,788 5.18% 98,425,080 4,150,058 5.64%
Other Borrowed
Funds 4,060,000 150,567 4.96% 4,060,000 147,367 4.85%
Repurchase
Agreements 774,618 22,957 3.96% 39,939 1,324 4.43%
Subordinated
Debentures 20,000 1,650 11.03% 50,000 4,047 10.82%
TOTAL 183,462,227 5,658,773 4.12% 176,613,900 6,080,709 4.60%
Net Interest Income 7,071,091 6,910,865
Net Interest Spread(3) 3.64% 3.69%
Interest Differential(4) 4.32% 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 approximately $4,119 for 1999 and $5,985 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 nine 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
Earning Assets
<S> <C> <C> <C>
Loans (gross) (484,510) (120,245) (604,755)
Taxable Investment Securities (104,500) 583,031 478,531
Tax Exempt Investment Securities (1) (42,107) 22,084 (20,023)
Federal Funds Sold (4,515) (51,890) (56,405)
Overnight Deposits (27,034) (33,997) (61,031)
Other Securities (2) 2,549 (576) 1,973
Total Interest Earnings (660,117) 398,407 (261,710)
Interest Bearing Liabilities
Savings Deposits (88,012) 35,764 (52,248)
NOW & Money Market Funds (137,472) 201,618 64,146
Time Deposits (334,036) (122,234) (456,270)
Other Borrowed Funds 3,200 0 3,200
Repurchase Agreements (2,722) 24,355 21,633
Subordinated Debentures 78 (2,475) (2,397)
Total Interest Expense (558,964) 137,028 (421,936)
<FN>
<f01> Items which have shown a year-to-year increase in volume have
variances allocated as follows:
Variance due to rate = Change in rate x new volume
Variance due to volume = Change in volume x old rate
Items which have shown a year-to-year decrease in volume have
variances allocated as follows:
Variance due to rate = Change in rate x old volume
Variance 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 Third Quarter Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $603,906 $562,139 $451,169
Average Number of Common Shares Outstanding. 3,332,139 3,247,388 3,141,331
Earnings Per Common Share $0.18 $0.17 $0.14
<CAPTION>
For the First Nine Months
Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $1,581,191 $1,527,759 $1,582,896
Average Number of Common Shares Outstanding. 3,292,879 3,217,343 3,111,702
Earnings Per Common Share $0.48 $0.48 $0.51
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 Third Quarter Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $603,906 $562,139 $451,169
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 363 151 1,705
Adjusted Net Income $604,269 $562,290 $452,874
Average Number of Common Shares Outstanding. 3,332,139 3,247,388 3,141,331
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). (230,277) (145,526) 29,752
Average Number of Common Shares Outstanding
(Fully Diluted). 3,101,862 3,101,862 3,171,083
Earnings Per Common Share Assuming Full Dilution.$0.19 $0.18 $0.14
<CAPTION>
For the First Nine Months
Ended September 30, 1999 1998 1997
<S> <C> <C> <C>
Net Income $1,581,191 $1,527,759 $1,582,896
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 1,089 2,671 5,945
Adjusted Net Income $1,582,280 $1,530,430 $1,588,841
Average Number of Common Shares Outstanding. 3,292,879 3,217,343 3,111,702
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). 8,557 19,422 35,868
Average Number of Common Shares Outstanding
(Fully Diluted). 3,301,436 3,236,765 3,147,570
Earnings Per Common Share Assuming Full Dilution.$0.48 $0.47 $0.50
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 Nine Months Ended September 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 third quarter ended September 30, 1999 was $603,906,
representing an increase of 7.4% and 33.9%, respectively, over the net income
figures of $562,139 for the third quarter ended September 30, 1998, and
$451,169 for the same period in 1997. The results of this are earnings per
share of $0.18 for the third quarter
of 1999, $0.17 for the third quarter
GRAPHICS of 1998 and $0.14 for the third
GRAPHICS
quarter of 1997. The Company declared
a cash dividend of $0.16 per share payable
November 1, 1999 to shareholders of
record as of October 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 quarter of 1998. Net income for the first nine months
of 1999 was $1.581 million compared to $1.528 million for the first nine
months of 1998, and $1.583 million for the first nine months of 1997,
representing an increase of 3.5% for 1999 versus 1998, and a decrease of
.11% for 1999 versus 1997. Earnings per share for the first nine months
were $0.48 for 1999 and 1998 and $0.51 for 1997. The third quarter of 1999
was better than 1998 and 1997 due in part to a decrease in the provision for
loan losses. Management felt that the level of the reserve for loan loss
was in line at the end of August, thereby reducing the amount expensed
during the month of September. A decrease in the interest paid on deposit
accounts serves as another reason for the overall increase in net income.
Net income for the nine months comparison periods followed a different
pattern with an increase for 1999 versus 1998 and a decrease for 1999 versus
1997. Again, the decrease in the expense for provision for loan losses played
a role in the increase for 1999 versus 1998, and an increase in income from
our trust department contributed just over $58 thousand. A substantial gain
on the sale of an OREO property in 1997 was a major factor in the decrease
in other income for 1998 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 third quarter comparison period started at
$2.25 million for 1997 and increased to $2.28 million for 1998, and then
increased to $2.35 million for 1999, resulting in an increase of 3.1% for
1999 versus 1998, and 1.1% for 1998 versus 1997. Total interest income for
the third quarter of 1999 decreased $76,793 or 1.8% compared to 1998, while
an increase of $71,625 or 1.7% is noted for the third quarter of 1998
compared to 1997. Interest expense decreased for the third quarter of 1999
compared to the third quarter of 1998 by $147,685 or 7.2%, while an increase
of $46,457 or 2.3% was recognized for 1998 versus 1997. Net interest
income for the first nine months started at $6.65 million for 1997, and
increased to $6.67 million at the end of the first nine months of 1998, and
then increased $174,248 or 2.6% to end the first nine months of 1999 at $6.8
million. Total interest income for the first nine months increased $291,225
or 2.34% for 1998 versus 1997, while a decrease of $255,005 or 2% is noted
for 1999 versus 1998. Total interest expense increased $267,943 or 4.6% for
the first nine months of 1998 compared to 1997 while a decrease of $429,253
or 7.1% is noted for the first nine months of 1999 versus 1998. A review of
the nine month figures for interest earned on loans, the major source of
interest income, reveals an increase of just under 1% for 1998 compared to
1997, and a decrease of 5.8% 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 7.6% 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 nine months equaling 3.64% for 1999 versus
3.69% for 1998 and 3.96% for 1997.
CHANGES IN FINANCIAL CONDITION
The Company had total assets of $237 million at September 30, 1999 and
$225 million at December 31, 1998. Average earning assets were $219 million
for the first nine months ended September 30, 1999, including average loans
of $149 million and average investment securities of approximately $66
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 $51.2 million as of the end of the first nine months of
1999, an increase of approximately $12.4 million or 32%. Available for
sale securities averaged $27.3 million and $16.2 million, respectively,
as of September 30, 1999 and December 31, 1998, accounting for most of
the $12.2 million increase.
Average interest bearing liabilities at September 30, 1999 were $183.5
million, with average time deposits reported totaling $95 million and NOW &
money market funds of $51 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 $93,183 at December 31, 1998, and increasing $681,435
to end at a nine month average balance of $774,618. 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 $921,832 or 5.2% to end
the first nine months of 1999 at a volume of approximately $17 million
compared to $17.7 million at the end of the 1998 calendar year. Other time
deposits decreased $508,680 from December 31, 1998 to September 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 $3.9 million to end the first nine months of 1999
at $34.4 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 2.3% from $148.3 million at the end of 1998 to $151.8
million at the end of the first nine 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 nine months of 1999 at just over $5 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 nine 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 $20.6 million as of December 31, 1998, an increase
of $8.7 million or 42%. Securities classified as "Held to Maturity" ended
the first nine months of 1999 at a balance of $37 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 required to maintain in the
form of Federal Home Loan Bank of Boston (FHLB) and Federal Reserve stock.
These securities remain at a balance totaling $1.14 million as of September
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. The Executive Officers
and Board of Directors conduct an ongoing review of the loan portfolio,
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 increased to $1.7 million as of September 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 $98.8 million and a commercial
real estate portfolio of approximately $25 million accounting for 65% and
16.5%, respectively, of the total loan portfolio. This large loan volume
together with the low historical loan loss experience helps 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 $647,499 or 27.5%, and
an increase of $109,752 or 20.3% in our OREO portfolio as well as an
increase in loans 90 days or more past due of $276,626 or 69%. The
portfolio of on-accruing loans makes up the biggest portion of the non-
performing assets and consists of $1.6 million or 93.8% of real estate
secured mortgage loans for the first nine months of 1999, thereby reducing
our exposure to loss. Additionally, included in the loans past due 90
days or more is a loan totaling $118,879 carrying a 90% guarantee,
further decreasing the exposure to loss by $106,991.
GRAPHICS GRAPHICS
<TABLE>
Non-performing assets as of September 30, 1999 and December 31, 1998 were
as follows:
<CAPTION>
09/30/1999 12/31/1998
<S> <C> <C>
Non-Accruing loans $1,706,124 $2,353,623
Loans past due 90 day or more and still accruing 677,927 401,301
Other real estate owned 651,655 541,903
Total $3,035,706 $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 September 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>
GAP ANALYSYS
Community Bancorp. & Subsidiaries
September 30, 1999
Cumulative repriced within:
<CAPTION>
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 1,725 0 0 0 0 1,725
Overnight deposits 3,353 0 0 0 0 3,353
Investments -
Available for Sale(1) 0 6,029 20,228 3,003 0 29,260
Held to Maturity 11,651 7,041 13,948 2,581 1,916 37,137
Restricted equity securities 0 0 0 0 1,142 1,142
Loans(2) 23,290 52,366 42,250 7,746 24,424 150,076
Total interest
sensitive assets 40,019 65,436 76,426 13,330 27,482 222,693
Interest sensitive liabilities:
Certificates of deposit 21,998 58,568 12,094 1,512 0 94,172
Money markets 35,642 0 0 0 0 35,642
Regular savings 2,752 0 0 0 31,652 34,404
Now accounts 0 0 0 0 19,143 19,143
Borrowed funds 0 5 0 15 4,040 4,060
Repurchase agreements 1,459 0 0 0 0 1,459
Subordinated debentures 0 0 0 20 0 20
Total interest
sensitive liabilities 61,851 58,573 12,094 1,547 54,835 188,900
Net interest rate
sensitivity gap (21,832) 6,863 64,332 11,783 (27,353)
Cumulative net interest
rate sensitivity gap (21,832) (14,969) 49,363 61,146 33,793
Cumulative net interest
rate sensitivity gap
as a percentage
of total assets -9.20% -6.31% 20.81% 25.77% 14.24%
Cumulative interest
Sensitivity gap as a
percentage of total
interest-earning assets-9.80% -6.72% 22.17% 27.46% 15.17%
Cumulative interest
earning assets as a
percentage of cumulative
interest-bearing
liabilities 64.70% 87.57% 137.25% 145.61% 117.89%
<FN>
<f01> The Company may sell investments available for sale with a fair
value of $29,260,313 at any time.
<f02> Loan totals exclude non-accruing loans amounting to $1,706,124.
</TABLE>
<TABLE>
GAP ANALYSYS
Community Bancorp. & Subsidiaries
December 31, 1998
Cumulative repriced within:
<CAPTION>
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 asset 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> The Company may sell investments available for sale with a fair
value of $20,233,371 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 third quarter of 1999 was $404,616
compared to $382,194 for the third quarter of 1998 and $351,586 for the
third quarter of 1997, an increase of $22,422 or 5.9% for 1999 versus
1998 and $30,608 or 8.7% for 1998 versus 1997. Trust department income
reported the biggest increase at $18,568 for the third quarter of 1999
versus 1998. Other income reported the only increase for the same 1999
versus 1998 comparison period while reporting the biggest increase at
$26,822 for 1998 versus 1997. Income from sold loans for the third
quarter of 1998 was $30,033, contributing to the increase in other income
for the third quarter of 1998 versus 1997. Total other operating income
for the first nine months of 1999 ended at $1.23 million compared to $1.19
million for the same period in 1998 and $1.26 million for the same period
in 1997. The results are an increase of $35,449 or 3% for 1999 versus
1998, and a decrease of $71,981 or 5.7% for 1998 versus 1997. Trust
department again reported the biggest increase ending at $167,563 the
first nine months of 1999 versus $109,326 for the same period in 1998.
Other income reported the biggest decrease for the 1998 versus 1997
comparison periods reporting $580,099 for the first nine months of 1998
compared to $659,266 for the first nine months of 1997. A substantial gain
was recognized in 1997 through the sale of inventory associated with an
OREO property contributing to most of the decrease for 1998 versus 1997.
Total other operating expenses followed a different path for the third
quarter comparisons with figures of $1.83 million for 1999, an increase of
$58,558 over the 1998 figure of $1.77 million which decreased $47,313 over
the 1997 figure of $1.82 million. Expenses associated with the Company's
non-performing assets were higher for the third quarter of 1999 compared to
the same quarter in 1998, contributing $46,085 to the increase in other
expenses for this comparison period. All major components of other
operating expenses were lower for the third quarter of 1998 compared to
1997, clearly supporting the decrease from 1997 to 1998. Total other
operating expense for the nine month comparison periods increased from
$5.28 million for 1997 to $5.34 million for 1998, and then increased to
$5.5 million for 1999, resulting in increases of 1.1% for 1998 versus 1997
and 3.1% for 1999 versus 1998. Expenses totaling $176,175 on non-performing
loans for the first nine months of 1999 supported the increase in other
expenses for the 1999 versus 1998 period, while occupancy expenses reported
an increase of $34,208, or 3.7% 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.
Management monitors all components of other operating expenses; 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 increased from $575,894 for the third quarter of
1997 to $743,983 for the third quarter of 1998, and then increased to
$813,739 for the third quarter of 1999, an increase of $168,089 or 29.2%
for 1998 versus 1997 and $69,756 or 9.4% for 1999 versus 1998. As a result,
provisions for income taxes increased $57,119 for the third quarter of 1998
compared to the third quarter of 1997 and $27,989 or 15.4% for the 1999
versus 1998 comparison period ending the third quarter period of 1999 at
$209,833. Income before taxes for the first nine months decreased from
$2.1 million for 1997 to just over $2 million for 1998 and then increased
to $2.2 million as of September 30, 1999, with income taxes calculated at
$519,536, $484,698, and $572,069, 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 $1,581,191 and sales of common stock of
$712,584 through dividend reinvestment. It was decreased by dividends of
$1,553,648, purchase of treasury stock of $2,831 and adjustment of $328,866
for valuation of allowance for securities to end the first nine months of
1999 at $22,410,489 with a book value of $6.73 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 September 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) were tested for Y2K compliance. Systems that were deemed
mission-critical were tested first. We have finished 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>
The following timetable identifies the testing phases:
<C> <S>
12/31/98 testing of internal mission-critical systems completed
03/31/99 testing with service providers for mission-critical systems
completed
06/30/99 testing of non-mission-critical systems completed
</TABLE>
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 third quarter
of 1999, total expenses of approximately $70,000 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 no customers deemed as
high risk.
The worst case scenario relating to Y2K is that we would not have
electrical power. In an effort to mitigate this risk, as well as to
protect us in the event of other power outages, a generator has been
purchased for the main office in Derby, and will be installed during
November. Our contingency plan is to operate all branch offices in a
manual mode if we are without power. 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
NONE
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: November 10, 1999 By: /s/ Richard C. White
Richard C. White, President
DATED: November 10, 1999 By: /s/ Stephen P. Marsh
Stephen P. Marsh,
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 6,347
<INT-BEARING-DEPOSITS> 3,353
<FED-FUNDS-SOLD> 1,725
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,402
<INVESTMENTS-CARRYING> 37,137
<INVESTMENTS-MARKET> 36,875
<LOANS> 151,782
<ALLOWANCE> 1,714
<TOTAL-ASSETS> 237,264
<DEPOSITS> 208,317
<SHORT-TERM> 1,459
<LIABILITIES-OTHER> 997
<LONG-TERM> 4,080
0
0
<COMMON> 8,405
<OTHER-SE> 14,006
<TOTAL-LIABILITIES-AND-EQUITY> 237,264
<INTEREST-LOAN> 9,748
<INTEREST-INVEST> 2,594
<INTEREST-OTHER> 159
<INTEREST-TOTAL> 12,501
<INTEREST-DEPOSIT> 5,484
<INTEREST-EXPENSE> 175
<INTEREST-INCOME-NET> 6,842
<LOAN-LOSSES> 415
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5,502
<INCOME-PRETAX> 2,153
<INCOME-PRE-EXTRAORDINARY> 2,153
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,581
<EPS-BASIC> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 7.45
<LOANS-NON> 1,706
<LOANS-PAST> 678
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,476
<ALLOWANCE-OPEN> 1,659
<CHARGE-OFFS> 435
<RECOVERIES> 75
<ALLOWANCE-CLOSE> 1,714
<ALLOWANCE-DOMESTIC> 1,714
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 459
</TABLE>
