CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File No. 000-16435
COMMUNITY BANCORP.
(Exact name of registrant as specified in its charter)
Vermont 03-0284070
(State of Incorporation) (IRS Employer Identification No.)
Derby Road, Derby, Vermont 05829
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (802) 334-7915
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $2.50 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES (X) NO ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
As of March 10, 2000, the date of the latest known sale of the registrant's
stock, the aggregate market value of the voting stock held by non-affiliates
of the registrant, based on the per share sale price of the stock on that
date, was $26,804,367.
There were 3,387,177 shares outstanding of the issuer's class of common stock
as of the close of business on March 10, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Report of Independent Public Accountants
Financial Statements:
Consolidated Statements of Condition as of December 31, 1999 and 1998
Consolidated Statements of Income for the fiscal years 1999, 1998 and 1997
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years 1999, 1998 and 1997
Consolidated Statements of Changes in Financial Position for the fiscal
years 1999, 1998 and 1997
Notes to Consolidated Financial Statements
Condensed Financial Information (Parent Company Only)
Portions of the Annual Report to Shareholders for fiscal year 1999
incorporated by reference to Part II.
Portions of the Proxy Statement for the Annual Meeting to be held May 2,
2000 are incorporated by reference to Part III.
Total Number of Pages - 35
Exhibit Index Begins on Page 24
FORM 10-K ANNUAL REPORT
Table of Contents
PART I Page
Item I The Business 4
Organization and Operation 4
Distribution of Assets, Liabilities & Stockholders' Investment 10
Interest Income, Interest Expense and Interest Differential 11
Rate Volume Analysis 12
Investment Portfolio 13
Loan Portfolio 14
Summary of Loan Loss Experience 15
Non-Accrual, Past Due, and Restructured Loans 16
Deposits, Return on Equity and Assets 17
Item 2 Properties 18
Item 3 Legal Proceedings 19
Item 4 Submission of Matters to a Vote of Security Holders 19
PART II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters 19
Item 6 Selected Financial Data 19
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 7A Qualitative and Quantitative Disclosures About Market Risk 23
Item 8 Financial Statements and Supplementary Data 23
Item 9 Disagreements on Accounting and Financial Disclosures 23
PART III
Item 10 Directors and Executive Officers of the Registrant 23
Item 11 Executive Compensation 23
Item 12 Security Ownership of Certain Beneficial Owners and Management 23
Item 13 Certain Relationships and Related Transactions 23
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 24
Signatures 35
PART I
Item 1. The Business
Organization and Operation
Community Bancorp. (The Corporation) was organized under the laws of the
State of Vermont in 1982 and became a registered bank holding company
under the Bank Holding Company Act of 1956, as amended, in October 1983
when it acquired all of the voting shares of Community National Bank (the
Bank). The Bank is one of two subsidiaries of the Corporation and
principally all of the Corporation's business operations are presently
conducted through it. Liberty Savings Bank (Liberty), a New Hampshire
guaranty savings bank, is the other subsidiary of Community Bancorp and is
presently inactive. On December 31, 1997, Community Bancorp. acquired all
of the outstanding stock of Liberty Savings Bank, as well as the assets
consisting of a U.S. Treasury Strip and a small amount of cash. Currently,
since no building was purchased at the time of acquisition, the main office
of Community National Bank serves as the mailing address for this bank.
Community National Bank was organized in 1851 as the Peoples Bank, and
was subsequently reorganized as the National Bank of Derby Line in 1865.
In 1975, after 110 continuous years of operation as the National Bank of
Derby Line, the Bank acquired the Island Pond National Bank and changed
its name to "Community National Bank."
Community National Bank provides a complete range of retail banking
services to the residents and businesses in northeastern Vermont. These
services include checking, savings and time deposit accounts, mortgage,
consumer and commercial loans, safe deposit and night deposit services,
automatic teller machine (ATM) facilities, credit card services, 24 hour
telephone banking and a full line of personal fiduciary services. The Bank
was among the first financial institutions to offer internet banking to the
Northeast Kingdom. This service was first offered to employees in order
for them to become more familiar with it, test the different uses, and work
out any potential problems. The Bank then began offering this service to
its customers near the end of the second quarter of 1999. Additionally, the
Bank maintains cash machines in three different businesses located in the
towns of Irasburg, West Danville and Concord, Vermont.
Competition
The Bank has five offices located in Orleans County, one office in Essex
County, and one office in Caledonia County, all in northeastern Vermont.
Its primary service area is in the towns of Derby and Newport, Vermont,
with approximately 59% of its total deposits as of December 31, 1999
derived from that area.
The Bank competes in all aspects of its business with other banks and
credit unions in northern Vermont, including two of the largest banks
in the state, which maintain branch offices throughout the Bank's
service area. Historically, competition in Orleans and Essex Counties
has come from The Chittenden Trust Company and The Howard Bank, N.A., a
subsidiary of Banknorth Group, Inc., based in Burlington, Vermont. The
Chittenden Trust Company maintains a branch office in Newport, and The
Howard Bank maintains one office in Barton, one office in Orleans, and
one office in St. Johnsbury. Competition in Caledonia County comprises
of the Passumpsic Savings Bank and Citizens Savings Bank, both based in
St. Johnsbury, Lyndonville Savings Bank and Trust Company, based in
Lyndonville, The Merchants Bank based in Burlington, and with two local
credit unions for deposits and consumer loans.
With recent changes in the regulatory framework of the banking industry,
the competition for deposits and loans has broadened to include not only
traditional rivals such as the mutual savings banks and stock savings
banks, but also several non-traditional rivals such as insurance companies,
brokerage firms, mutual funds and consumer finance companies.
Employees
As of December 31, 1999, the Bank employed 93 full-time employees and 25
part-time employees. Management of the Bank considers its employee
relations to be good.
Regulation and Supervision
Holding Company Regulations-As a registered bank holding company, the
Corporation is subject to on-going regulation supervision and examination
by the Board of Governors of the Federal Reserve System, under the Bank
Holding Company Act of 1956, as amended (the "Act"). A bank holding
company for example, must obtain the prior approval of the Board before
it acquires all or substantially all of the assets of any bank, or
acquires ownership or control of more than 5% of the voting shares of
a bank. Prior Federal Reserve Board approval is also required before
a bank holding company may acquire more than 5% of any outstanding
class of voting securities of a company other than a bank or a more
than 5% interest in its property.
The Act generally limits the activity in which the Corporation and its
subsidiaries may engage to certain specified activities, including those
activities which the Federal Reserve Board may find, by order or regulation,
to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto. Some of the activities that the Federal
Reserve Board has determined to be closely related to banking are: (1)
making, and servicing loans that could be made by mortgage, finance,
credit card or factoring companies; (2) performing the functions of a trust
company; (3) certain leasing of real or personal property; (4) providing
certain financial, banking or economic data processing services; (5) except
as otherwise prohibited by law, acting as an insurance agent or broker with
respect to insurance that is directly related to the extension of credit or
the provision of other financial services or, under certain circumstances,
with respect to insurance that is sold in certain small communities in which
the bank holding company system maintains banking offices; (6) acting as an
underwriter for credit life insurance and credit health and accident insurance
directly related to extensions of credit by the holding company system; (7)
providing certain kinds of management consulting advice to unaffiliated banks
and non-bank depository institutions; (8) performing real estate appraisals;
(9) issuing and selling money order and similar instruments and travelers
checks and selling U.S. Savings Bonds; (10) providing certain securities
brokerage and related services for the account of bank customers; (11)
underwriting and dealing in certain government obligations and other
obligations such as bankers' acceptances and certificates of deposit; (12)
providing consumer financial counseling; (13) providing tax planning and
preparation services; (14) providing check guarantee services to merchants;
(15) operating a collection agency; and (16) operating a credit bureau.
The Corporation does not presently engage, directly or indirectly, in any
non-banking activities.
A bank holding company must also obtain prior Federal Reserve approval in
order to purchase or redeem its own stock if the gross consideration to be
paid, when added to the net consideration paid by the company for all
purchases or redemptions by the company of its equity securities within the
preceding 12 months, will equal 10% or more of the company's consolidated
net worth.
The Corporation is required to file with the Federal Reserve Board an annual
report and such additional information as the Board may require pursuant to
the Act. The Board may also make examinations of the Corporation and any
direct or indirect subsidiary of the Corporation.
Community Bancorp. and its subsidiaries, Community National Bank and Liberty
Savings Bank, are considered "affiliates" for the purposes of Section 18(j)
of the Federal Deposit Insurance Act, as amended, and Section 23A of the
Federal Reserve Act, as amended. Accordingly, they are subject to limitations
with respect to the Bank's ability to make loans and other extensions of
credit to or investments in the Corporation or in any other subsidiaries that
the Corporation may acquire. The Company is prohibited from engaging in
certain tie-in arrangements in connection with any extension of credit or
lease or sale of any property of the furnishing of services.
Financial Modernization. On March 11, 2000 the federal Gramm-Leach-Bliley
financial modernization act ("Gramm-Leach-Bliley") became effective. Under
Gramm-Leach-Bliley, eligible bank holding companies will be permitted to
become financial holding companies and thereby affiliate with securities
firms and insurance companies and engage in a broader range of activities
than is otherwise permissible for bank holding companies. A bank holding
company is eligible to elect to become a financial holding company and to
engage in activities that are "financial in nature" if each of its
subsidiary banks is well capitalized for regulatory capital purposes, is
well managed and has at least a satisfactory rating under the Community
Reinvestment Act ("CRA"). Activities which are deemed "financial in
nature" under Gramm-Leach-Bliley would include securities underwriting,
dealing and market making; sponsoring mutual funds and investment companies;
insurance underwriting and agency; merchant banking activities; and activities
that the Federal Reserve Board has determined to be closely related to
banking. Gramm-Leach-Bliley also contains similar provisions authorizing
eligible national banks to engage indirectly through a financial subsidiary
and subject to limitations on investment, in activities that are financial
in nature, other than insurance underwriting, insurance company portfolio
investment, real estate development and real estate investment, through a
financial subsidiary of the bank. In order to be considered eligible for
these expanded activities, the bank must be well capitalized, well managed
and have at least a satisfactory CRA rating.
Implementation of Gramm-Leach-Bliley will likely result in structural changes
to the financial services industry, the full effect of which cannot be
predicted with any certainty.
The Corporation has registered its Common Stock under Section 12(g) of the
Securities Exchange Act of 1934 and is required to file annual and periodic
reports and proxy statements and other information with the Securities and
Exchange Commission.
Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994, a bank holding company became able to
acquire banks in states other than its home state beginning September 29,
1995, without regard to the permissibility of such acquisitions under state
law, but subject to any state requirement that the bank has been organized
and operating for a minimum period of time, not to exceed five years, and
the requirement that the bank holding company, prior to or following the
proposed acquisition, controls no more than 10% of the total amount of
deposits of insured depository institutions in the United States and less
than 30% of such deposits in that state (or such lesser or greater amount
set by state law).
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, subject to certain restrictions, thereby creating
interstate branches, and to open new branches in a state in which it does
not already have banking operations if the state enacts a law permitting
such de novo branching.
Capital and Operational Requirements. The Federal Reserve Board, the OCC
and other banking regulators have issued substantially similar risk-based
and leverage capital guidelines applicable to U.S. banking organizations.
In addition, those regulatory agencies may from time to time require that a
banking organization maintain capital above the minimum levels, whether
because of its financial condition or actual or anticipated growth. The
Federal Reserve Board risk-based guidelines define a three-tier capital
framework. "Tier 1 capital" generally consists of common and qualifying
preferred shareholders' equity, less certain intangibles and other
adjustments. "Tier 2 capital" and "Tier 3 capital" generally consist of
subordinated and other qualifying debt, preferred stock that does not
qualify as Tier 1 capital and the allowance for credit losses up to 1.25%
of risk-weighted assets.
The sum of Tier 1, Tier 2 and Tier 3 capital, less investments in
unconsolidated subsidiaries, represents qualifying "total capital," at
least 50% of which must consist of Tier 1 capital. Risk-based capital
ratios are calculated by dividing Tier 1 capital and total capital by risk-
weighted assets. Assets and off-balance sheet exposures are assigned to
one of four categories of risk weights, based primarily on relative credit
risk. The minimum Tier 1 capital ratio is 4% and the minimum total capital
ratio is 8%. The "leverage ratio" requirement is determined by dividing
Tier 1 capital by adjusted average total assets. Although the stated
minimum ratio is 3%, most banking organizations are required to maintain
ratios of at least 100 to 200 basis points above 3%.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), among other things, identifies five
capital categories for insured depository institutions (well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized
and critically undercapitalized) and requires the respective U.S. federal
regulatory agencies to implement systems for "prompt corrective action"
for insured depository institutions that do not meet minimum capital
requirements within such categories. FDICIA imposes progressively more
restrictive constraints on operations, management and capital distributions,
depending on the category in which an institution is classified. Failure to
meet the capital guidelines could also subject a banking institution to
capital raising requirements. An "undercapitalized" bank must develop a
capital restoration plan and its parent holding company must guarantee that
bank's compliance with the plan. The liability of the parent holding company
under any such guarantee is limited to the lesser of 5% of the bank's assets
at the time it became undercapitalized or the amount needed to comply with
the plan. Furthermore, in the event of the bankruptcy of the parent holding
company, such guarantee would take priority over the parent's general
unsecured creditors. In addition, FDICIA requires the various regulatory
agencies to prescribe certain non-capital standards for safety and soundness
related generally to operations and management, asset quality and executive
compensation and permits regulatory action against a financial institution
that does not meet such standards.
The various federal bank regulatory agencies have adopted substantially
similar regulations that define the five capital categories identified by
FDICIA, using the total risk-based capital, Tier 1 risk-based capital and
leverage capital ratios as the relevant capital measures. Such regulations
establish various degrees of corrective action to be taken when an
institution is considered undercapitalized. Under the regulations, a
"well capitalized" institution must have a Tier 1 capital ratio of at least
6%, a total capital ratio of at least 10% and a leverage ratio of at least
5% and not be subject to a capital directive order. An "adequately
capitalized" institution must have a Tier 1 capital ratio of at least 4%,
a total capital ratio of at least 8% and a leverage ratio of at least 4%,
or 3% in some cases. Under these guidelines, Community National Bank is
considered "well capitalized."
The Federal bank regulatory agencies also have adopted regulations which
mandate that regulators take into consideration concentrations of credit
risk and risks from non-traditional activities, as well as an institution's
ability to manage those risks, when determining the adequacy of an
institution's capital. That evaluation will be made as part of the
institution's regular safety and soundness examination. Banking agencies
also have adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its off-balance
sheet position) in the determination of a bank's capital adequacy.
Concurrently, banking agencies have proposed a methodology for evaluating
interest rate risk. The banking agencies do not intend to establish an
explicit risk-based capital charge for interest rate risk but will continue
to assess capital adequacy for interest rate risk under a risk assessment
approach based on a combination of quantitative and qualitative factors and
have provided guidance on prudent interest rate risk management practices.
Distributions. The Corporation derives funds for cash distributions to its
shareholders primarily from dividends received from its subsidiary, Community
National Bank. The Bank is subject to various general regulatory policies and
requirements relating to the payment of dividends, including requirements to
maintain capital above regulatory minimums. The prior approval of the
Comptroller of the Currency is required if the total of all dividends
declared by a national bank in any calendar year will exceed the sum of such
bank's net profits for that last year and its retained net profits for the
preceding two calendar years, less any required transfers to surplus.
Federal law also prohibits national banks from paying dividends which would
be greater than the bank's undivided profits after deducting statutory bad
debt in excess of the bank's allowance for loan losses.
In addition, the Corporation and the Bank are subject to various general
regulatory policies and requirements relating to the payment of dividends,
including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition
of a bank or bank holding company that the payment of dividends would be an
unsafe or unsound practice and to prohibit such payment. The federal bank
regulatory authorities have indicated that paying dividends that deplete a
bank's capital base to an inadequate level would be an unsound and unsafe
banking practice and that banking organizations should generally pay
dividends only out of current operating earnings.
"Source of Strength" Policy. According to Federal Reserve Board policy,
bank holding companies are expected to act as a source of financial strength
to each subsidiary bank and to commit resources to support each such
subsidiary. This support may be required at times when a bank holding company
may not be able to provide such support. Similarly, under the cross-guarantee
provisions of the Federal Deposit Insurance Act, in the event of a loss
suffered or anticipated by the FDIC--either as a result of default of a
banking subsidiary of a bank holding company or related to FDIC assistance
provided to a subsidiary in danger of default--the other banking subsidiaries
of such bank holding company may be assessed for the FDIC's loss, subject to
certain exceptions.
Bank Regulation. The Bank is a national banking association and subject
to the provisions of the National Bank Act and federal and state statutes
and rules and regulations applicable to national banks. The primary
supervisory authority for the Bank is the Comptroller of the Currency.
The Comptroller's examinations are designed for the protection of the
Bank's depositors and not for its shareholders. The Bank is subject to
periodic examination by the Comptroller and must file periodic reports
with the Comptroller containing a full and accurate statement of its
affairs. The deposits of the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC"). Accordingly, the Bank is also subject
to regulation by the FDIC.
Liberty is subject to similar banking regulations and provisions in the state
of New Hampshire.
Effects of Government Monetary Policy
The earnings of the Company are affected by general and local economic
conditions and by the policies of various governmental regulatory
authorities. In particular, the Federal Reserve Board regulates money
and credit conditions and interest rates in order to influence general
economic conditions, primarily through open market operations and United
States Government Securities, varying the discount rate on member bank
borrowings, setting reserve requirements against member and nonmember
bank deposits, and regulating interest rates payable by member banks on
time and savings deposits. Federal Reserve Board monetary policies have
had a significant effect on the operating results of commercial banks,
including the Company, in the past and are expected to continue to do so
in the future.
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
The following tables summarize various consolidated information and provides
a three year comparison relating to the average assets, liabilities, and
stockholders' equity.
(Dollars in Thousands)
<CAPTION>
Year ended December 31, 1999 1998 1997
ASSETS
Balance % Balance % Balance %
<S> <C> <C> <C>
Cash and Due from Banks
Non-Interest Bearing 5,212 2.25% 4,522 2.05% 4,979 2.37%
Taxable Investment
Securities(1) 49,832 21.54% 38,784 17.56% 35,649 17.00%
Tax-exempt Investment
Securities(1) 13,843 5.98% 13,060 5.91% 12,140 5.79%
Other Securities(1) 1,254 0.54% 1,270 0.57% 1,168 0.56%
Total Investment
Securities 64,929 28.06% 53,114 24.04% 48,957 23.35%
Overnight Deposits(2) 2,638 1.14% 3,339 1.51% 0 0.00%
Federal Funds Sold 2,897 1.25% 4,928 2.23% 2,583 1.23%
Loans, Net 147,128 63.59% 147,830 66.92% 145,778 69.53%
Premises and Equipment 4,144 1.79% 3,135 1.42% 3,328 1.59%
Other Real Estate Owned 678 0.29% 660 0.30% 997 0.48%
Other Assets 3,737 1.63% 3,368 1.46% 3,026 1.45%
Total Assets 231,363 100% 220,896 100% 209,648 100%
LIABILITIES
Demand Deposits 23,619 10.21% 20,857 9.44% 18,694 8.92%
Now and Money
Market Accounts 51,850 22.41% 44,916 20.34% 39,337 18.76%
Savings Accounts 32,748 14.15% 30,840 13.96% 31,907 15.22%
Time Deposits 94,694 40.93% 98,181 44.45% 94,751 45.19%
Total Deposits 202,911 87.70% 194,794 88.19% 184,689 88.09%
Other Borrowed Funds 4,059 1.75% 4,060 1.84% 4,061 1.94%
Repurchase Agreements(3) 1,305 0.56% 93 0.04% 0 0.00%
Other Liabilities 1,154 0.50% 1,020 0.46% 734 0.35%
Subordinated Debentures 20 0.02% 48 0.02% 107 0.05%
Total Liabilities 209,449 90.53% 200,015 90.55% 189,591 90.43%
STOCKHOLDERS' EQUITY
Common Stock 8,220 3.55% 6,174 2.79% 3,814 1.82%
Surplus 10,624 4.59% 8,293 3.75% 7,769 3.71%
Retained Earnings 3,654 1.58% 6,649 3.01% 8,916 4.25%
Less: Treasury Stock (447) -0.19% (445) -0.20% (445) -0.21%
Accumulated Other
Comprehensive Income(1) (137) -0.06% 210 0.10% 3 0.00%
Total Stockholders' Equity 21,914 9.47% 20,881 9.45% 20,057 9.57%
Total Liabilities and
Stockholders' Equity 231,363 100% 220,896 100% 209,648 100%
<FN>
<f01> FASB No. 115, an accounting method in which securities classified as Held
to Maturity are carried at book value and securities classified as
Available for Sale are carried at fair value with the unrealized gain
(loss), net of applicable income taxes, reported as a net amount in
accumulated other comprehensive income. The Company does not carry, nor
does it intend to carry, securities classified as Trading Securities.
<f02> Overnight deposits refers to the BankBoston sweep account established
during the first half of 1998 as another means of selling funds overnight.
<f03> Repurchase agreements were introduced during the second part of 1998 in an
effort to attract new business customers.
</TABLE>
<TABLE>
AVERAGE BALANCES AND INTEREST RATES
The table below presents the following information: average earning assets
(including non-accrual loans) and average interest-bearing liabilities
supporting earning assets; and interest income and interest expense as a
rate/yield.
(Dollars in Thousands)
<CAPTION>
1999 1998 1997
AVE. INC./ RATE/ AVE. INC./ RATE/ AVE. INC./ RATE/
BAL. EXP. YIELD BAL. EXP. YIELD BAL. EXP. YIELD
EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(net)(1) 147,128 13,036 8.86% 147,830 13,758 9.31% 145,778 13,868 9.51%
Taxable Investment
Securities 49,832 2,715 5.45% 38,784 2,196 5.66% 35,649 2,117 5.94%
Tax-exempt Investment
Securities(2) 13,843 924 6.67% 13,060 930 7.12% 12,140 929 7.65%
Federal Funds
Sold 2,897 143 4.94% 4,928 237 4.81% 2,583 140 5.42%
Overnight
Deposits(3) 2,638 133 5.04% 3,339 185 5.54% N/A
Other
Securities(4) 1,254 85 6.78% 1,270 82 6.46% 1,168 79 6.76%
TOTAL 217,592 17,036 7.83% 209,211 17,388 8.31% 197,318 17,133 8.68%
INTEREST-BEARING LIABILITIES
Savings
Deposits 32,748 756 2.31% 30,840 807 2.62% 31,907 877 2.75%
NOW and Money
Market Funds 51,850 1,656 3.19% 44,916 1,565 3.48% 39,337 1,397 3.55%
Time Deposits 94,694 4,865 5.14% 98,181 5,496 5.60% 94,751 5,304 5.60%
Other Borrowed
Funds 4,059 203 5.00% 4,060 198 4.88% 4,061 245 6.03%
Repurchase
Agreements(5) 1,305 52 3.98% 93 4 4.30% N/A
Subordinated
Debentures 20 2 11.00% 48 5 10.42% 107 11 10.28%
TOTAL 184,676 7,534 4.08% 178,138 8,075 4.53% 170,163 7,834 4.60%
Net Interest Income 9,502 9,313 9,299
Net Interest Spread(6) 3.75% 3.78% 4.08%
Interest Differential(7) 4.37% 4.45% 4.71%
<FN>
<f01> Included in net loans are non-accrual loans with an average balance of
$1,894,097 for 1999, $2,004,438 for 1998, and $1,750,037 for 1997.
<f02> Income on investment securities of state and political subdivisions is
stated on a tax equivalent basis (assuming a 34% rate). The amount of
adjustment was $314,301 in 1999, $316,232 in 1998, and $315,855 in 1997.
<f03> Overnight deposits refers to the BankBoston sweep account established
during the first half of 1998 as another means of selling funds
overnight.
<f04> Included in other securities are taxable industrial development bonds
(VIDA), with income of $5,443 for 1999, $7,549 for 1998, $8,440 for 1997.
<f05> Repurchase agreements were introduced during the second part of 1998
in an effort to attract new business customers.
<f06> Net interest spread is the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities.
<f07> Interest differential is net interest income divided by average
earning assets.
</TABLE>
<TABLE>
CHANGES IN INTEREST INCOME AND INTEREST EXPENSE
The following table summarizes the variances in income for the years 1999,
1998, 1997, and 1996 resulting from volume changes in assets and liabilities
and fluctuations in rates earned and paid.
(Dollars in Thousands)
<CAPTION>
1999 vs. 1998 1998 vs. 1997 1997 vs. 1996
RATE VOLUME Variance(1) Variance(1) Variance(1)
Due to Total Due to Total Due to Total
Rate Volume Variance Rate Volume Variance Rate Volume Variance
Income-Earning Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(2) (660) (62) (722) (305) 195 (110) (197) 689 492
Taxable
Investment
Securities (107) 626 519 (107) 186 79 28 (6) 22
Tax-Exempt
Investment
Securities (3) (62) 56 (6) (69) 70 1 (29) (156) (185)
Federal Funds
Sold 6 (100) (94) (30) 127 97 9 (115) (106)
Overnight
Deposits (17) (35) (52) 0 185 185 N/A
Other Securities 4 (1) 3 (4) 7 3 1 0 1
Total Interest
Earnings (836) 484 (352) (515) 770 255 (188) 412 224
Interest-Bearing Liabilities
Savings
Deposits (101) 50 (51) (42) (28) (70) (56) (11) (67)
NOW and Money
Market Funds (151) 242 91 (30) 198 168 (53) (73) (126)
Time Deposits (452) (179) (631) 0 192 192 (294) (83) (377)
Other Borrowed
Funds 5 0 5 (47) 0 (47) (42) 280 238
Repurchase
Agreements (4) 52 48 0 4 4 N/A
Subordinated
Debentures 0 (3) (3) 0 (6) (6) 1 (11) (10)
Total Interest
Expense (703) 162 (541) (119) 360 241 (444) 102 (342)
<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> Total loans are stated net of unearned discount and allowance for loan
losses. Interest on non-accrual loans is excluded from income. The
principal balances of non-accrual loans are included in calculations
of the yield on loans.
<f03> Income on tax-exempt securities is stated on a tax equivalent basis.
The assumed rate is 34%.
</TABLE>
<TABLE>
INVESTMENT PORTFOLIO
The following tables show the classification of the investment portfolio
by type of investment security based on book value for Held to Maturity
securities and fair value for Available for Sale securities on December 31
for each of the last 3 years.
(Dollars in Thousands)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
U.S. Treasury Obligations:
Available-for-Sale 28,982 20,590 8,039
Held-to-Maturity 6,650 15,562 22,491
U.S. Agency Obligations 11,127 4,582 1,631
Obligations of State &
Political Subdivisions 12,110 9,734 10,004
Restricted Equity Securities 1,142 1,142 1,100
Total Investment Securities 60,011 51,610 43,265
The following is an analysis of the maturities and yields of investment
securities as defined:
(Available for Sale; fair value, Held to Maturity; book value)
<CAPTION>
December 31, 1999 1998 1997
U.S. Treasury & Agency Obligations
Fair Ave. Fair Ave. Fair Ave.
Available for Sale Value Yield Value Yield Value Yield
<S> <C> <C> <C> <C> <C> <C>
Due within 1 year 9,993 5.96% 0 0.00% 2,993 6.08%
Due after 1 year within 5 years 18,989 6.27% 20,590 6.16% 5,046 6.12%
Total 28,982 6.17% 20,590 6.16% 8,039 6.10%
<CAPTION>
Book Ave. Book Ave. Book Ave.
Held to Maturity Value Yield Value Yield Value Yield
Due within 1 year 1,000 6.38% 14,634 6.51% 8,965 5.78%
Due after 1 year within 5 years 14,824 5.30% 5,510 5.78% 15,157 5.69%
Due after 5 years within 10 years 1,953 6.93% 0 0.00% 0 0.00%
Total 17,777 5.54% 20,144 6.31% 24,122 5.72%
<CAPTION>
Obligations of State &
Political Subdivisions(1)
Book Ave. Book Ave. Book Ave.
Value Yield Value Yield Value Yield
Due within 1 year 8,738 6.40% 6,473 6.58% 6,624 7.94%
Due after 1 year within 5 years 1,507 7.18% 1,522 7.58% 1,543 7.91%
Due after 5 years within 10 years 600 7.78% 392 8.03% 363 8.03%
Due after 10 years 1,265 9.76% 1,347 9.65% 1,474 9.67%
Total 12,110 6.92% 9,734 7.21% 10,004 8.19%
Restricted Equity Securities
Total Restricted Equity Securities 1,142 6.00% 1,142 6.00% 1,100 6.76%
<FN>
<f01> Income on Obligations of State and Political Subdivisions is stated
on a tax equivalent basis assuming a 34 percent tax rate. Also
included are taxable industrial development bonds (VIDA) with a fair
value of $92,828 as of December 31, 1999, $123,546 as of December 31,
1998, and $150,235 as of December 31, 1997 with respective yields of
5.23%, 4.76%, and 5.55%.
</TABLE>
<TABLE>
LOAN PORTFOLIO
The following table reflects the composition of the Company's loan portfolio
for years ended December 31:
(Dollars in Thousands)
<CAPTION>
1999 1998 1997 1996 1995
TOTAL % OF TOTAL % OF TOTAL % OF TOTAL % OF TOTAL
% OF
LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS TOTAL LOANS
TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Real Estate Loans
Construction & Land
Development 1,620 1.06% 2,025 1.37% 1,091 0.73% 1,432 0.98% 912
0.66%
Farm Land 3,229 2.11% 2,634 1.78% 2,093 1.39% 2,148 1.48% 1,814
1.32%
1-4 Family
Residential 98,439 64.22% 98,407 66.34% 98,743 65.78% 94,393 64.83% 91,104
66.38%
Commercial
Real Estate 21,223 13.85% 19,555 13.18% 19,992 13.32% 20,602 14.15% 18,646
13.59%
Loans to Finance
Agricultural
Production 661 0.43% 829 0.56% 1,354 0.90% 1,222 0.84% 1,127
0.82%
Commercial &
Industrial 11,527 7.52% 8,767 5.91% 7,759 5.17% 7,084 4.87% 6,749
4.92%
Consumer
Loans 16,344 10.66% 16,008 10.79% 18,943 12.62% 18,556 12.74% 16,578
12.08%
All Other Loans 236 0.15% 110 0.07% 141 0.09% 166 0.11% 310
0.23%
Gross Loans 153,279 100% 148,335 100% 150,116 100% 145,603 100% 137,240
100%
Less:
Reserve for
Loan Losses (1,715)-1.12% (1,659)-1.12% (1,502)-1.00% (1,401)-0.96% (1,519)
- -1.11%
Deferred
Loan Fees (891)-0.58% (849)-0.57% (867)-0.58% (904)-0.62% (909)
- -0.66%
Net Loans 150,673 98.30% 145,827 98.31% 147,747 98.42% 143,298 98.42% 134,812
98.23%
</TABLE>
<TABLE>
MATURITY OF LOANS
The following table shows the estimated maturity of loans (excluding
residential properties of 1 - 4 families, consumer loans and other
loans) outstanding as of December 31, 1999.
<CAPTION>
Fixed Rate Loans Maturity Schedule
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
<S> <C> <C> <C> <C>
Construction & Land Development 1,420 0 0 1,420
Secured by Farm Land 15 15 858 888
Commercial Real Estate 151 501 5,083 5,735
Loans to Finance
Agricultural Production 17 170 0 187
Commercial & Industrial Loans 323 5,587 1,257 7,167
Total 1,926 6,273 7,198 15,397
<CAPTION>
Variable Rate Loans
Within 1 - 5 After
1 Year Years 5 years Total
Real Estate
Construction & Land Development 200 0 0 200
Secured by Farm Land 2,063 278 0 2,341
Commercial Real Estate 10,202 5,286 0 15,488
Loans to Finance
Agricultural Production 283 191 0 474
Commercial & Industrial Loans 3,637 723 0 4,360
Total 16,385 6,478 0 22,863
</TABLE>
<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes the Company's loan loss experience for
each of the last five years.
(Thousands of Dollars)
<CAPTION>
December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Loans Outstanding
End of Period 153,279 148,335 150,116 145,603 137,240
Ave. Loans Outstanding
During Period 147,128 147,830 145,778 138,635 131,879
Loan Loss Reserve,
Beginning of Period 1,659 1,502 1,401 1,519 1,708
Loans Charged Off:
Real Estate 227 177 191 116 198
Commercial 41 41 104 86 17
Loans to Individuals 281 487 436 383 238
Total 549 705 731 585 453
Recoveries:
Real Estate 10 65 12 18 5
Commercial 8 17 27 16 20
Loans to Individuals 90 120 133 68 119
Total 108 202 172 102 144
Net Loans Charged Off 441 503 559 483 309
Provision Charged to Income 497 660 660 365 120
Loan Loss Reserve, End of Period 1,715 1,659 1,502 1,401 1,519
Net Losses as a Percent
of Ave. Loans 0.30% 0.34% 0.38% 0.35% 0.23%
Provision Charged to Income as
a Percent of Average Loans 0.34% 0.45% 0.45% 0.26% 0.09%
At End of Period:
Loan Loss Reserve as a Percent
of Outstanding Loans 1.12% 1.12% 1.00% 0.96% 1.11%
</TABLE>
Factors considered in the determination of the level of loan loss
coverage include, but are not limited to historical loss ratios,
composition of the loan portfolio, overall economic conditions as
well as future potential losses.
<TABLE>
The following table shows an allocation of the allowance for loan
losses, as well as the percent to the total allowance for the last
five years (the corporation has no foreign loans, therefore,
allocations for this category are not necessary).
<CAPTION>
December 31, 1999 % 1998 % 1997 % 1996 % 1995 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Residential
Real Estate 421 25% 559 33% 362 24% 490 35% 265 17%
Commercial 372 22% 475 29% 645 43% 307 22% 631 42%
Loans to
Individuals 356 21% 448 27% 487 32% 395 28% 485 32%
Unallocated 566 33% 177 11% 8 1% 209 15% 138 9%
Total 1,715 100% 1,659 100% 1,502 100% 1,401 100% 1,519 100%
</TABLE>
<TABLE>
NON-ACCURAL, PAST DUE, AND RESTRUCTURED LOANS
The following table summarizes the bank's past due, non-accrual,
and restructured loans:
(Dollars in Thousands)
<CAPTION>
December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Accruing Loans Past Due 90 Days or More:
Consumer 77 53 121 36 28
Commercial 0 119 19 5 15
Real Estate 732 246 211 360 249
Total Past Due 90 Days or More 809 418 351 401 292
Non-accrual Loans 1,758 2,228 1,486 1,255 1,389
Restructured Loans (incl. non-accrual) 0 126 136 506 359
Total Non-accrual, Past Due
and Restructured Loans 2,567 2,772 1,973 2,162 2,040
Other Real Estate Owned 435 542 1,089 663 761
Total Non Performing Loans 3,002 3,314 3,062 2,825 2,801
Percent of Gross Loans 1.96% 2.23% 2.04% 1.94% 2.04%
Reserve Coverage of Non performing Loans 57.13% 50.06% 49.05% 49.59% 54.23%
When a loan reaches non-accrual status, it is determined that future
collection of interest and principal is doubtful. At this point, the
Company's policy is to reverse the accrued interest and to discontinue
the accrual of interest until the borrower clearly demonstrates the
ability to resume normal payments. Our portfolio of non-accrual loans
for the years ended 1999, 1998, 1997, 1996, and 1995 are made up
primarily of commercial real estate loans and residential real estate
loans. Management does not anticipate any substantial effect to future
operations if any of these loans are liquidated. Although interest is
included in income only to the extent received by the borrower, deferred
taxes are calculated monthly, based on the accrued interest of all non-
accrual loans. This accrued interest amounted to $398,006 in 1999,
$363,713 in 1998, $216,770 in 1997, $309,388 in 1996, and $256,754 in
1995. The Company had total foreign loans of less than one percent in
1999, and has no concentration in any industrial category.
</TABLE>
<TABLE>
DEPOSITS
The average daily amount of deposits and rates paid on such deposits
is summarized for the last three years. (Dollars in Thousands)
<CAPTION>
December 31,
1999 1998 1997
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Demand Deposits 23,619 0.00% 20,857 0.00% 18,694 0.00%
NOW & Money Market Funds 51,850 3.19% 44,916 3.48% 39,337 3.55%
Savings Deposits 32,748 2.31% 30,840 2.62% 31,907 2.75%
Time Deposits 94,694 5.14% 98,181 5.60% 94,751 5.60%
Total Deposits 202,911 3.59% 194,794 4.04% 184,689 4.10%
Increments of maturity of time certificates of deposit and other time
deposits of $100,000 or more issued by domestic offices outstanding on
December 31, 1999 are summarized as follows:
<CAPTION>
Time Certificates
Maturity Date of Deposit
<S> <C>
3 Months or Less 1,679
Over 3 through 6 Months 5,190
Over 6 through 12 Months 3,814
Over 12 Months 5,211
Total 15,894
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios
of the Company for each of the last three years.
<CAPTION>
December 31,
1999 1998 1997
<S> <C> <C> <C>
Return on Average Assets 1.01% 0.99% 1.02%
Return on Average Equity 10.65% 10.49% 10.69%
Dividend Payout Ratio 89.40% 83.69% 77.02%
Ave. Equity to Ave. Assets Ratio 9.47% 9.45% 9.57%
</TABLE>
Item 2. Properties
Community Bancorp. does not own or lease real property. The Corporation's
offices are located at the main offices of the Bank. All of the Bank's
offices are located in Vermont. In addition to the main office in Derby,
the Bank maintains facilities located in; City of Newport, Towns of Barton
and St. Johnsbury, and Villages of Island Pond, Troy and Derby Line. As
mentioned earlier, the newly acquired Liberty Savings Bank shares the same
address as the main offices as it does not maintain a facility.
The Bank's main offices are located in a two-story brick building on U.S.
Route 5 in Derby, Vermont. The main banking lobby and adjacent offices
were constructed in 1972, expanded in 1978, and the most recent expansion
was completed in July 1993, providing us with a total of 15,000 square feet
at this location. The main office is equipped with a drive-up facility as
well as an Automated Teller Machine (ATM). Computer and similar support
equipment is also located in the main office building. The building
previously housing our computer equipment currently houses an office for
employees of the Bank's Administrative department, and also serves as a
conference center for the Bank as well as various non-profit organizations,
free of charge, upon request.
The Bank owns the Derby Line office located on Main Street in a renovated
bank building. The facility consists of a small banking lobby containing
approximately 200 square feet and a walk-up window area. Recently, the
walk-up window area was removed, and in its place, an ATM was installed.
Now all seven offices of the Bank are equipped with an ATM.
The Island Pond office is located in the renovated "Railroad Station"
acquired by the town of Brighton in 1993. The Bank leases approximately
two-thirds of the downstairs including a banking lobby, a drive-up window,
and an ATM. The other portion of the downstairs is occupied by an
information center, and the upstairs section houses the Island Pond
Historical Society.
The Barton office is located on Church Street, in a renovated facility.
This office is equipped with a banking lobby, a drive-up window, and an
ATM, making most deposit and withdrawal transactions possible at this
branch 24 hours a day. The facility is leased from Dean M. Comstock, who
is a member of the Bank's Barton Advisory Committee. The lease was entered
into in 1985 and provides a fifteen-year term. It is anticipated that the
lease will be renewed.
The Bank occupies condominium space in the state office building on Main
Street in Newport to house its Newport office. The Bank occupies approxi-
mately 3,084 square feet on the first floor of the building for a full
service banking facility equipped with a remote drive-up facility and an
ATM. In addition, the Bank owns approximately 4,400 square feet on the
second floor housing our trust department, marketing department, and an
office for our public relations coordinator, with room for future expansion.
The Bank's Troy office is located in a new facility, which was leased for
a few years and then purchased in 1992 from Tom and Eleanor Watts. The
bank currently occupies 2,200 square feet, and leases additional space to
another business. An ATM is available in this office to provide the same
type of limited 24-hour accessibility as all other offices.
The St. Johnsbury office is located at the corner of the I-91 Access Road
and Route 5 in the town of St. Johnsbury. The Bank occupies approximately
2,250 square feet in the front of the Price Chopper building. Fully
equipped with an Automatic Teller Machine and a drive-up window, this
office operates as a full service banking facility. The Bank leases this
space from Murphy Realty of St. Johnsbury. Peter Murphy is President of
Murphy Realty, and is a member of the Bank's St. Johnsbury Advisory
Committee.
Item 3. 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 material pending legal
proceedings, other than ordinary routine litigation incidental to the
business of the Bank, and the aforementioned to which the Bank is a party
or of which any of its property is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
Common Stock Performance by Quarter
Incorporated by reference to Page 40 of the Annual Report to Shareholders for
fiscal year 1999.
Item 6. Selected Financial Data
Following pages
<TABLE>
SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(Dollars in thousands, except per share data)
<CAPTION>
Year Ended December 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Total Interest Income 16,723 17,072 16,817 16,532 15,406
Less:
Total Interest Expense 7,535 8,077 7,834 8,177 8,248
Net Interest Income 9,188 8,995 8,983 8,355 7,158
Less:
Provision for Loan Losses 497 660 660 365 120
Other Operating Income 1,759 1,586 1,336 1,281 1,181
Less:
Other Operating Expense 7,330 7,021 6,759 6,397 5,943
Income Before Income Taxes 3,120 2,900 2,900 2,874 2,276
Less:
Applicable Income Taxes (1) 786 710 755 654 324
Net Income 2,334 2,190 2,145 2,220 1,952
Per Share Data: (2)
Earnings per Share 0.71 0.68 0.69 0.74 0.68
Cash Dividends Declared 0.64 0.60 0.56 0.52 0.48
Weighted Average Number of
Common Shares Outstanding 3,309,375 3,229,702 3,125,270 3,005,843 2,881,424
Number of Common Shares
Outstanding 3,358,507 3,266,508 3,165,821 3,049,798 2,933,784
Balance Sheet Data:
Net Loans 150,673 145,827 147,747 143,298 134,812
Total Assets 232,216 225,051 213,001 205,536 197,382
Total Deposits 201,843 197,797 187,580 183,854 178,884
Total Liabilities 210,035 203,049 192,521 186,425 179,801
Borrowed Funds 4,075 4,080 4,164 235 330
Total Shareholders' Equity 22,181 22,002 20,480 19,111 17,580
<FN>
<f01> Applicable Income Taxes above includes the income tax effect, assuming
a 34% tax rate, on securities gains (losses), which totaled $0 in each
1999, 1998, 1997, $(656) in 1996, and $6,272 in 1995.
<f02> All per share data for prior calendar years have been restated to
reflect a 5% stock dividend paid in the first quarter of 1999. A 100%
stock dividend was paid on June 1, 1998, requiring restatement of per
share data for the calendar years 1997, 1996, and 1995. Additionally,
a 5% stock dividend was declared payable during the first quarter of
1997, requiring restatement of per share data for the 1996 and 1995
calendar years.
</TABLE>
<TABLE>
QUARTERLY RESULTS OF OPERATIONS
The following is an unaudited summary of the quarterly results of operations
for the years ended December 31, 1999, 1998 and 1997.
(Dollars in thousands, except per share data)
<CAPTION>
1999 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
<S> <C> <C> <C> <C>
Interest Income 4,050 4,203 4,248 4,221
Interest Expense 1,872 1,889 1,897 1,876
Net Interest Income 2,178 2,314 2,351 2,345
Provisions For Loan Losses 150 150 115 82
Other Operating Expenses 1,847 1,829 1,826 1,827
Income Before Taxes 554 785 814 967
Applicable Income Taxes 143 219 210 214
Net Income 411 566 604 753
Net Income Per Share(1): 0.13 0.17 0.18 0.23
<CAPTION>
1998
<S> <C> <C> <C> <C>
Interest Income 4,225 4,207 4,325 4,315
Interest Expense 1,990 2,053 2,045 1,989
Net Interest Income 2,235 2,154 2,280 2,326
Provisions For Loan Losses 200 160 150 150
Other Operating Expenses 1,810 1,761 1,768 1,730
Income Before Taxes 522 747 744 888
Applicable Income Taxes 114 189 182 226
Net Income 408 558 562 662
Net Income Per Share(1): 0.13 0.17 0.17 0.21
<CAPTION>
1997
<S> <C> <C> <C> <C>
Interest Income 4,040 4,172 4,253 4,352
Interest Expense 1,897 1,924 1,999 2,014
Net Interest Income 2,143 2,248 2,254 2,338
Provisions For Loan Losses 205 105 215 135
Other Operating Expenses 1,529 1,685 1,815 1,761
Income Before Taxes 695 832 576 798
Applicable Income Taxes 175 220 125 236
Net Income 520 612 451 562
Net Income Per Share (1): 0.17 0.20 0.14 0.18
<FN>
<f01> All per share data for 1998 and 1997 restated to reflect a 5% stock
dividend paid during the first quarter of 1999. Per share data for
all 1997 quarters and the first quarter of 1998 restated to reflect
a 100% stock dividend paid on June 1, 1998.
</TABLE>
<TABLE>
CAPITAL RATIOS
Community Bancorp. and Subsidiaries
(Dollars in Thousands)
<CAPTION>
ANNUAL
GROWTH RATE
At December 31, 1999 1998 1997 99/'98 98/'97
<S> <C> <C> <C> <C> <C>
Total Assets 232,216 225,051 213,001 3.18% 5.66%
LESS: Goodwill (3) 297 320 343
Allowance for Possible Loan Losses 1,715 1,659 1,502 3.38% 10.45%
Total Adjusted Assets 233,634 226,390 214,160 3.20% 5.71%
Gross Risk-Adjusted Assets 111,995 107,450 106,298 4.23% 1.08%
Allowance for Loan Loss over limit (2) 315 316 173 -0.32% 82.66%
Total Risk-Adjusted Assets 111,680 107,134 106,125 4.24% 0.95%
Shareholders' Equity 22,181 22,002 20,480 0.81% 7.43%
LESS:
Valuation Allowance for Securities (247) 236 34
Intangible Assets(3) 319 339 352
Total Adjusted Tier 1 Capital (1) 22,109 21,427 20,094 3.18% 6.63%
Eligible Discounted Subordinated Debt 16 16 42 0.00% -61.90%
Max. Allowance for Possible
Loan Losses (2) 1,400 1,343 1,329 4.24% 1.05%
Total Capital (Tier II) 23,525 22,786 21,465 3.24% 6.15%
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Tier l Capital/Total Adjusted Assets 9.46% 9.46% 9.38%
Tier ll Capital/Total Adjusted Assets 10.07% 10.06% 10.02%
Tier l Capital/Total Risk-Adjusted Assets 19.80% 20.00% 18.93%
Tier ll Capital/Total Risk-Adjusted Assets 21.06% 21.27% 20.23%
<FN>
<f01> Net unrealized holding gains and losses on available-for-sale
securities are excluded from common stockholders' equity for
regulatory capital purposes. However, National Banks continue
to deduct unrealized losses on equity securities in their
computation of Tier I Capital.
<f02> The maximum allowance for possible loan losses used in calculating
primary (Tier ll) capital is the lower of the period end allowance
for possible loan losses or 1.25% of gross risk - adjusted assets,
as implemented by regulatory capital guidelines.
<f03> Included in the 1999, 1998 and 1997 balances of intangible assets
are $296,974, $319,818 and $342,662, respectively, in goodwill
associated with the acquisition of Liberty Savings Bank. Excess
mortgage servicing rights totaling $21,817, $18,706, and $9,452
for 1999, 1998, and 1997, respectively, comprise the balance of
intangible assets.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated by reference to Pages 27-35 of the Annual Report to
Shareholders for fiscal year 1999.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Incorporated by reference to Pages 29 - 31 of the Management's Discussion
of the Annual Report to Shareholders for the fiscal year 1999.
Item 8. Financial Statements and Supplementary Data
The financial statements and related notes of Community Bancorp. and
Subsidiaries are incorporated herein by reference from the Company's
annual report to shareholders for the fiscal year 1999, Page 12 through
Note 24 on Page 27.
Item 9. Disagreements on Accounting and Financial Disclosures
Inapplicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference to Pages 3, 4 and 9 of the Company's Proxy
Statement for the Annual Meeting of Shareholders on May 2, 2000.
Item 11. Executive Compensation
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 2, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 2, 2000.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders on May 2, 2000 and incorporated by reference to
the Annual Report to the shareholders for the fiscal year 1999, Page 23,
Note 16.
PART IV.
Item 14. Financial Statement Schedules, Exhibits and Reports on Form 8-K
(a) (1) and (2) Financial Statements
Financial statements are incorporated by reference to the Annual Report to
the shareholders for the fiscal year 1999.
(a) (3) Exhibits
The following exhibits are incorporated by reference:
Exhibit 3(i) - Restated Articles of Association filed as Exhibit 1 to the
Company's current report of Form 8-K filed with the Commission on September
8, 1998.
Exhibit 3(ii)- By-laws of Community Bancorp. are incorporated by reference
to Community Bancorp.'s Registration Statement dated May 20, 1983
(Registration No.2-83166).
Exhibit 4 - Indenture dated August 1, 1984 between Community Bancorp. and
Community National Bank as trustee, relating to $750,000 in principal amount
of 11% Convertible Subordinated Debentures due 2004 is incorporated by
reference to Community Bancorp.'s Registration Statement dated July 11,
1984 (Registration No. 2-92147).
Exhibit 10(iii) - Officer Incentive Plan* is incorporated by reference to page
11-12 of the Company's Proxy Statement for the Annual Meeting of Shareholders
on May 2, 2000.
Exhibit 13 - Portions of the Annual Report to Shareholders of Community
Bancorp. for Year Ended December 31, 1999, specifically mentioned in this
report, incorporated by reference.
Exhibit 27 - Financial Data Schedule is incorporated by reference to the EDGAR
Version of the form 10-K for the fiscal year 1999 filed with the SEC.
The following exhibits are filed as part of this report:
Exhibit 10(i) - Directors Deferred Compensation Plan*
Exhibit 10(ii) - Description of Supplemental Retirement Plan*
Exhibit 11 - Computation of Per Share Earnings
Exhibit 21 - Subsidiaries of Community Bancorp.
Exhibit 23 - Consent of A.M. Peisch & Company
(b) Reports on Form 8-K
None
[FN]
<f*>Denotes compensatory plan or arrangement.
Exhibit 10(i)
DEFERRED COMPENSATION PLAN
Pursuant to due authorization by their Boards of Directors, Community
Bancorp. and Community National Bank, hereby constitute, establish and adopt
the following Deferred Compensation Plan:
I. Definitions:
The following words and terms as used in this Plan shall have the meaning
set forth below, unless a different meaning is clearly required by the context:
(A) "Plan" means the Deferred Compensation Plan for Directors of Community
Bancorp. and/or Community National Bank as set forth herein, or as amended
from time to time.
(B) "Effective date of this Plan" means 01/01/95.
(C) The word "Bank" shall mean the Community National Bank.
(D) The words "Boards of Directors" shall mean the Board of Directors of
Community Bancorp. and/or the Bank.
(E) The word "Director" means any duly elected or appointed member of the
Board of Directors of Community Bancorp. or Community National Bank.
(F) The words "member" and "participant" shall mean any Director who has
chosen to participate and has qualified for membership in this Plan as
hereinafter provided.
(G) The word "compensation" shall mean the usual fees, as established from
time to time by Community Bancorp. and/or the Bank and paid to a Director in
consideration of services performed as a Director including attendance at
meetings of the Board of Directors, Advisory Boards, or other committees, but
shall not include fees for appraisals.
(H) "Election to defer" shall mean a written statement signed by a Director
indicating the desire to participate in the Plan and the extent to which he or
she intends to participate.
II. Eligibility:
Any duly elected or appointed member of the Board of Directors of Community
Bancorp. and/or Community National Bank shall be eligible for participation in
the Plan.
A Director shall become a participant in the Plan by signing an "Election to
Defer", a specimen of which is attached to and made a part of this Plan.
A participant's membership in the Plan shall take effect on:
(1) the effective date of the Plan, if the participant has executed an
Election to Defer before the effective date of the Plan;
(2) immediately, if a Director executes an Election to Defer before earning
any compensation as a Director; or
(3) in all other cases on the first day of the month following the month
in which the Election to Defer is executed.
Membership in the Plan shall continue from month to month unless and until
a member indicates in writing the desire to refrain from future participation
in the Plan. Notification of a desire to refrain from future participation in
the Plan shall apply only to fees and compensation to be earned by a Director
after receipt of such notification; in no event shall such notification have
the effect of altering the manner of payment of fees or compensation deferred
pursuant to the Plan prior to receipt by the Deferred Compensation Committee
of such notification.
A participant in the Plan may at any time execute an amended Election to
Defer, changing the percentage of compensation to be deferred in the future,
changing the beneficiary named to receive the deferred compensation in the
event of his or her death, or specifying a different time of payment or
schedule of payment of compensation.
III. Deferral of Compensation:
A participant in the Plan may elect to defer all or any portion of the
fees to be earned by his or her services as a Director, including attendance
at meetings of the Board of Directors, Advisory Boards, or of other committees,
(but not fees earned for appraisals, if any). The balance of any compensation
earned by the participant and not deferred shall be payable in the year earned.
The amounts deferred will be credited the participant at such time as they
would have been payable had the participant not elected to become a member of
the Plan but the account will not be funded. Neither the Bancorp. nor the
Bank will set aside any money, in trust or otherwise, to guarantee payment of
any credits to the participant's account, but shall make payments, when due,
out of the Company's or Bank's general corporate funds.
IV. Payment of Deferred Compensation:
Compensation and fees, deferred pursuant to the Plan, and interest
accumulated thereon, shall be paid to a participant or to the designated
beneficiary in the event of death, at the time specified by the participant
in the Election to Defer. Payments may be made in a lump sum, or in annual
installments, as specified in the Election to Defer. Interest shall
accumulate and be credited to each participant's account at the rate in
effect for the Bank's 3-year Certificate of Deposit, or if no such
Certificate of Deposit is offered, at a rate determined by the Boards of
Directors, which rate may be changed from time to time, at the discretion
of said Boards.
V. Amendment:
This Plan may be amended any time and from time to time by the Boards of
Directors, provided, however, that no amendment shall cause or permit any
amount already credited to a member's account to be reduced or diminished.
VI. Miscellaneous:
No credits made to the account of a member of this Plan shall be subject
in any way to anticipation, alienation, sale, transfer, pledge, or voluntary
or involuntary attachment or encumbrance of any kind by a creditor of a
participant hereof; and any attempts to anticipate, alienate, sell, transfer,
assign, pledge or otherwise encumber any such credit, whether presently or
thereafter payable, shall be void. Deferrals shall remain subject to the
claims of any general creditors of Community National Bank and/or Community
Bancorp.
This Plan shall take effect as of 01/01/95.
IN WITNESS WHEREOF, the Community Bancorp. and Community National Bank
have caused this Deferred Compensation Plan to be executed and attested on
their behalf by its officer thereunto duly authorized this 10th day of
January, 1995.
COMMUNITY BANCORP.
By:
COMMUNITY NATIONAL BANK
By:
ELECTION TO DEFER
The undersigned Director of Community Bancorp. and/or Community National
Bank hereby elects to participate in the Deferred Compensation Plan effective
as of January 1, 1995.
Percentage of total fees and compensation to be deferred: ____%.
Payment of deferred compensation to commence on the first to occur of the
following:
_____ Termination of duties as Director.
_____ Attainment of the age of __ years.
_____ Incapacitating disability.
_____ Personal financial hardship
(check any options elected)
Payment will commence at the participant's death in any event, whether or
not participant has elected any of the above options.
Payment to be made to participant as follows:
_____ Lump sum.
_____ in equal _________ installments of ________________________________,
commencing on the first day of the month after said sums first become payable
and thereafter _______ until paid in full.
(indicate option chosen)
Beneficiary:
Payments to be made to beneficiary as follows:
_____ Lump sum.
_____ in equal monthly installments of _____________________________,
commencing on the first day of the month after said sums first become payable
and thereafter monthly until paid in full.
(In the event the designated beneficiary has predeceased the participant,
payment will be made to the estate of the participant.)
Signed this _____ day ________________, 19____, at ______________, Vermont.
_______________________
Exhibit 10(ii)
Description of Supplemental Retirement Plan
The Board of Directors adopted a Supplemental Retirement Plan for Mr.
White and the other Executive Officers of the Bank to replace estimated
benefits lost as a result of the previous termination of the Bank's defined
benefit pension plan. The plan is intended to provide an annual benefit at
retirement approximating 75% of the average annual bonus received by the
officer. It is estimated that this benefit, combined with the projected
benefits under the Bank's 401(k) plan, will be approximately equal to the
benefit that would have been provided to the Executive Officers under the
terminated defined benefit pension plan. Benefit payments will be funded by
annual contributions to a rabbi trust.
<TABLE>
Exhibit 11
COMMUNITY BANCORP.
PRIMARY EARNINGS PER SHARE
For The Fourth Quarter Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Net Income $753,166 $662,614 $562,499
Average Number of Common
Shares Outstanding. 3,358,506 3,266,510 3,165,681
Earnings Per Common Share $0.23 $0.21 $0.18
For the Years Ended December 31, 1999 1998 1997
Net Income $2,334,358 $2,190,374 $2,145,395
Average Number of Common
Shares Outstanding. 3,309,375 3,229,702 3,125,270
Earnings Per Common Share $0.71 $0.68 $0.69
All 1998 and 1997 per share data restated to reflect a 5% stock dividend
paid on February 1, 1999, and a 100% stock dividend paid on June 1, 1998.
GRAPHICS GRAPHICS
</TABLE>
Exhibit 11 (cont'd.)
<TABLE>
COMMUNITY BANCORP.
FULLY DILUTED EARNINGS PER SHARE
<CAPTION>
For The Fourth Quarter Ended December 31, 1999 1998 1997
<S> <C> <C> <C>
Net Income $753,166 $662,614 $562,499
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 363 363 1,639
Adjusted Net Income $753,530 $662,978 $564,138
Average Number of Common Shares
Outstanding. 3,358,506 3,266,510 3,165,681
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). 8,557 8,557 28,167
Average Number of Common Shares Outstanding
(Fully Diluted). 3,367,063 3,275,067 3,193,848
Earnings Per Common Share
Assuming Full Dilution. $0.23 $0.21 $0.18
<CAPTION>
For the Years Ended December 31, 1999 1998 1997
Net Income $2,334,358 $2,190,374 $2,145,395
Adjustments to Net Income (Assuming Conversion
of Subordinated Convertible Debentures). 1,452 3,034 7,583
Adjusted Net Income $2,335,810 $2,193,408 $2,152,978
Average Number of Common
Shares Outstanding. 3,309,375 3,229,702 3,125,270
Increase in Shares (Assuming Conversion of
Subordinated Convertible Debentures). 8,557 16,691 33,933
Average Number of Common Shares Outstanding
(Fully Diluted). 3,317,933 3,246,393 3,159,203
Earnings Per Common Share Assuming
Full Dilution. $0.71 $0.68 $0.69
All 1998 and 1997 per share data restated to reflect a 5% stock dividend
paid on February 1, 1999, and a 100% stock dividend paid on June 1, 1998.
GRAPHICS GRAPHICS
</TABLE>
Exhibit 21
Community Bancorp.'s subsidiaries include Community National Bank, a
banking corporation incorporated under the Banking Laws of The United
States, and Liberty Savings Bank, a New Hampshire guaranty savings bank.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Community Bancorp. of our report dated January 6, 2000, included in the
1999 Annual Report to Shareholders of Community Bancorp.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-18535) pertaining to the Community Bancorp.
Dividend Reinvestment Plan and in the Registration Statement (Form S-8 No. 33-
44713) pertaining to the Community Bancorp. Retirement Savings Plan of our
Report dated January 6, 2000, with respect to the consolidated financial
statements incorporated herein by reference of Community Bancorp. included
In the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ A.M. Peisch & Company
March 28, 2000
St. Johnsbury, Vermont
VT Reg. No. 92-0000102
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
COMMUNITY BANCORP.
BY: /s/ Richard C. White Date: March 28, 2000
Richard C. White, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
BY: /s/ Stephen P. Marsh Date: March 28, 2000
Stephen P. Marsh, Treasurer
and Chief Financial and
Accounting Officer
COMMUNITY BANCORP. DIRECTORS
/s/ Thomas E. Adams Date: March 28, 2000
Thomas E. Adams
/s/ Jacques R. Couture Date: March 28, 2000
Jacques R. Couture
/s/ Elwood G. Duckless Date: March 28, 2000
Elwood G. Duckless
/s/ Michael H. Dunn Date: March 28, 2000
Michael H. Dunn
/s/ Rosemary M. Lalime Date: March 28, 2000
Rosemary M. Lalime
/s/ Marcel Locke Date: March 28, 2000
Marcel Locke
/s/ Stephen P. Marsh Date: March 28, 2000
Stephen P. Marsh
/s/ Anne T. Moore Date: March 28, 2000
Anne T. Moore
/s/ Dale Wells Date: March 28, 2000
Dale Wells
/s/ Richard C. White Date: March 28, 2000
Richard C. White
Community Bancorp. 1999 Annual Report
An eye toward the future.
A focus on people.
Community Bancorp.
4811 US Route 5
PO Box 259
Derby, Vermont 05829
(802) 334-7915
<TABLE>
Community Bancorp. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31,
1999 1998
Assets
<S> <C> <C>
Cash and due from banks (Note 18) $ 9,928,586 $ 4,896,947
Federal funds sold and overnight deposits 2,787,558 15,527,141
Cash and cash equivalents 12,716,144 20,424,088
Securities held-to-maturity (approximate fair value
$29,502,766 and $30,038,323 at December 31, 1999
and 1998) (Note 2) 29,887,821 29,877,851
Securities available-for-sale (Note 2) 28,982,188 20,590,000
Restricted equity securities (Note 2) 1,141,650 1,141,650
Loans held-for-sale 660,423 1,032,197
Loans (Note 3) 152,618,876 147,303,149
Allowance for loan losses (Note 4) (1,714,763) (1,658,967)
Unearned net loan fees (891,114) (848,963)
Net loans 150,012,999 144,795,219
Bank premises and equipment, net (Note 5) 4,322,697 3,010,041
Accrued interest receivable 1,484,192 1,460,671
Other real estate owned, net (Note 6) 434,694 541,903
Other assets (Notes 7 and 12) 2,572,994 2,177,043
Total assets $232,215,802 $225,050,663
Liabilities and stockholders' equity
Liabilities
Deposits:
Demand, non-interest bearing $ 25,727,709 $ 21,743,065
NOW and money market accounts 52,094,860 49,939,162
Savings 32,854,357 30,512,230
Time, $100,000 and over (Note 8) 15,894,363 17,874,124
Other time (Note 8) 75,271,591 77,728,713
201,842,880 197,797,294
Repurchase agreements (Note 10) 2,623,282 288,241
Borrowed funds (Note 9) 4,055,000 4,060,000
Accrued interest and other liabilities 1,493,486 883,069
Subordinated debentures (Note 11) 20,000 20,000
210,034,648 203,048,604
Commitments and contingent liabilities (Notes 5, 13, 14, 15 and 17)
STOCKHOLDERS' EQUITY
Common stock, $2.50 par value; 6,000,000 shares
authorized 3,388,394 shares issued at 12/31/99
and 3,140,606 shares issued at 12/31/98 8,470,985 7,851,516
Additional paid-in capital 10,942,510 8,756,453
Retained earnings (Note 19) 3,462,966 5,604,096
Accumulated other comprehensive (loss) income (247,086) 235,375
Less treasury stock, at cost
(1999: 29,887 shares; 1998: 29,646 shares) (448,221) (445,381)
22,181,154 22,002,059
Total liabilities and stockholders' equity $232,215,802 $225,050,663
See accompanying notes.
</TABLE>
<TABLE>
Community Bancorp.
and Subsidiaries Consolidated Statements of Income
Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Interest income
Interest and fees on loans $13,036,041 $13,758,226 $13,867,588
Interest and dividends on investment securities
U.S. Treasury securities 2,192,557 2,058,981 2,033,179
U.S. Government agencies 522,774 137,074 84,194
States and political subdivisions 615,557 621,411 621,571
Dividends 79,540 74,046 70,899
Interest on federal funds sold
and overnight deposits 276,322 421,972 140,163
16,722,791 17,071,710 16,817,594
Interest expense
Interest on deposits 7,277,456 7,868,323 7,577,571
Interest on borrowed funds and securities
sold under agreements to repurchase 254,884 203,702 245,103
Interest on subordinated debentures 2,200 4,597 11,489
7,534,540 8,076,622 7,834,163
Net interest income 9,188,251 8,995,088 8,983,431
Provision for loan losses (Note 4) (497,000) (660,000) (660,000)
Net interest income after provision
for loan losses 8,691,251 8,335,088 8,323,431
Other income
Trust Department income 247,001 185,877 119,144
Service fees 704,348 676,558 695,260
Security (losses) gains (Note 2) -0- -0- -0-
Other (Note 24) 808,014 771,947 553,027
1,759,363 1,634,382 1,367,431
Other expenses
Salaries and wages 2,839,193 2,795,987 2,795,732
Pension and other employee
benefits (Note 13 and 17) 792,328 744,715 681,030
Occupancy expenses 1,284,339 1,250,077 1,240,165
Other operating expenses (Note 24) 2,413,915 2,277,971 2,073,436
7,329,775 7,068,750 6,790,363
Income before income taxes 3,120,839 2,900,720 2,900,499
Income taxes (Note 12) 786,481 710,346 755,104
Net income $ 2,334,358 $ 2,190,374 $ 2,145,395
Earnings per common share on weighted average $0.71 $0.68 $0.69
Weighted average number of common shares
used in computing earnings per share 3,309,375 3,229,702 3,125,270
Book value per share on shares outstanding
at December 31 $6.60 $6.74 $6.47
See accompanying notes.
</TABLE>
<TABLE>
Community Bancorp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<CAPTION>
Accumulated
Additional other
Total
-Common Stock- paid-in Retained comprehensive
Treasury stockholders'
Shares Amount capital earnings income (loss)
Stock equity
<S> <C> <C> <C> <C> <C>
<C> <C>
Balances,
December 31, 1996 1,383,128 $3,531,233 $ 6,140,962 $9,871,409 $ 7,963
$(440,212) $19,111,355
Comprehensive income,
net of taxes
Net income -0- -0- -0- 2,145,395 -0-
-0- 2,145,395
Net unrealized holding
gains on securities
available-for-sale,
net of tax ($13,263) -0- -0- -0- -0- 25,746
-0- 25,746
Total comprehensive
Income 2,171,141
Dividends paid -0- -0- -0- (1,652,355) -0-
-0- (1,652,355)
5% stock dividend 69,161 172,903 1,121,103 (1,294,006) -0-
-0- -0-
Issuance of stock 55,509 138,771 716,370 -0- -0-
-0- 855,141
Purchase of
treasury stock (264) -0- -0- -0- -0-
(4,925) (4,925)
Balances,
December 31, 1997 1,507,534 3,842,907 7,978,435 9,070,443 33,709
(445,137) 20,480,357
Comprehensive income,
net of taxes
Net income -0- -0- -0- 2,190,374 -0-
-0- 2,190,374
Net unrealized holding
gains on securities
available-for-sale,
net of tax ($103,889) -0- -0- -0- -0- 201,666
-0- 201,666
Total comprehensive
Income 2,392,040
Dividends paid -0- -0- -0- (1,833,146) -0-
-0- (1,833,146)
100% stock split
effected in the
form of a dividend 1,529,430 3,823,575 -0- (3,823,575) -0-
-0- -0-
Issuance of stock 74,013 185,034 778,018 -0- -0-
-0- 963,052
Purchase of
treasury stock (17) -0- -0- -0- -0-
(244) (244)
Balances,
December 31, 1998 3,110,960 7,851,516 8,756,453 5,604,096 235,375
(445,381) 22,002,059
Comprehensive income,
net of taxes
Net income -0- -0- -0- 2,334,358 -0-
-0- 2,334,358
Net unrealized holding
losses on securities
available-for-sale,
net of tax ($248,541) -0- -0- -0- -0- (482,461)
-0- (482,461)
Total comprehensive
Income 1,851,897
Dividends declared -0- -0- -0- (2,624,150) -0-
-0- (2,624,150)
5% stock dividend 156,633 391,582 1,459,756 (1,851,338) -0-
-0- -0-
Issuance of stock 91,155 227,887 726,301 -0- -0-
-0- 954,188
Purchase of
treasury stock (241) -0- -0- -0- -0-
(2,840) (2,840)
Balances,
December 31, 1999 3,358,507 $8,470,985 $10,942,510 $3,462,966 $(247,086)
$(448,221) $22,181,154
See accompanying notes.
</TABLE>
<TABLE>
Community Bancorp. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31,
1999 1998 1997
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 2,334,358 $ 2,190,374 $ 2,145,395
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 516,824 407,226 407,238
Provision for loan losses 497,000 660,000 660,000
Provision (credit) for
deferred income taxes 21,068 (75,246) 37,392
Gain on sale of loans (108,389) (153,699) (19,680)
Losses on sales of fixed assets 1,675 -0- -0-
(Gains) losses on sales of OREO (96,318) 4,448 (225,343)
OREO write-downs 19,590 26,592 173,496
Amortization of bond premium, net 270,141 48,621 19,962
Proceeds from sales of loans
held for sale 10,790,620 18,780,207 6,547,719
Originations of loans held for sale (10,310,457) (19,658,705) (6,308,539)
(Increase) decrease in interest receivable (23,521) (373) 78,339
Increase in mortgage servicing rights (31,114) (92,544) (36,438)
Decrease (increase) in other assets 158,157 (261,297) (159,114)
Increase (decrease) in unamortized
loan fees 42,151 (17,626) (37,714)
(Decrease) increase in taxes payable (41,049) 20,628 19,947
(Decrease) increase in interest payable (38,366) (10,694) 41,597
Increase in accrued expenses 55,097 950 17,080
Increase (decrease) in other liabilities 103,265 55,359 (2,849)
Net cash provided by
operating activities 4,160,732 1,924,221 3,358,488
Cash flows from investing activities
Securities held-to-maturity
Maturities and paydowns 31,875,523 26,602,459 22,663,019
Purchases (31,987,612) (22,365,543) (18,866,987)
Securities available-for-sale
Sales and maturities -0- 3,000,000 -0-
Purchases (9,291,211) (15,282,969) -0-
Purchase of restricted equity securities -0- (41,900) (36,700)
(Increase) decrease in loans, net (6,589,397) 1,758,500 (6,304,459)
Capital expenditures, net (1,808,310) (108,756) (271,540)
Investments in limited partnership, net (324,258) 12,779 (29,106)
Premium paid on purchase of subsidiary -0- -0- (342,662)
Proceeds from sales of other
real estate owned 908,399 864,835 466,850
Recoveries of loans charged off 108,004 202,057 172,523
Net cash used in investing activities (17,108,862) (5,358,538) (2,549,062)
(continued)
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from financing activities
Net increase in demand, NOW, savings
and money market accounts 8,482,469 11,281,205 908,511
Net (decrease) increase in
certificates of deposit (4,436,883) (1,064,312) 2,817,414
Net increase (decrease) in short-term
borrowings and repurchase agreements 2,335,041 288,241 (1,600,000)
Net (decrease) increase in borrowed funds (5,000) -0- 3,995,000
Payments to acquire treasury stock (2,840) (244) (4,925)
Dividends paid (1,132,601) (954,095) (863,214)
Net cash provided by
financing activities 5,240,186 9,550,795 5,252,786
Net (decrease) increase in
cash and cash equivalents (7,707,944) 6,116,478 6,062,212
Cash and cash equivalents
Beginning 20,424,088 14,307,610 8,245,398
Ending $ 12,716,144 $ 20,424,088 $ 14,307,610
Supplemental schedule of cash paid during the year
Interest $ 7,572,906 $ 8,087,316 $ 7,792,566
Income taxes $ 806,462 $ 764,964 $ 697,765
Supplemental schedule of noncash investing and financing activities
Unrealized (loss) gain on securities
available-for-sale $ (731,001)$ 305,555 $ 39,009
Other real estate owned acquired
in settlement of loans $ 724,462 $ 348,911 $ 1,592,401
Debentures converted to common stock $ -0- $ 84,000 $ 66,000
Stock dividends $ 1,851,338 $ 3,823,575 $ 1,294,006
Dividends paid:
Dividends declared $ 2,624,150 $ 1,833,146 $ 1,652,355
(Increase) in dividends payable (537,361) -0- -0-
Dividends reinvested (954,188) (879,051) (789,141)
$ 1,132,601 $ 954,095 $ 863,214
See accompanying notes.
</TABLE>
Community Bancorp. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Significant Accounting Policies
The accounting policies of Community Bancorp. and Subsidiaries
("Company") are in conformity with generally accepted accounting
principles and general practices within the banking industry. The
following is a description of the more significant policies.
Basis of presentation and consolidation-The consolidated financial
statements include the accounts of Community Bancorp. and its wholly-
owned subsidiaries, Community National Bank (Community) and Liberty
Savings Bank (Liberty). All significant intercompany accounts and
transactions have been eliminated.
Nature of operations-The Company provides a variety of financial
services to individuals and corporate customers through its branches
in northeastern Vermont, which is primarily a small business and
agricultural area. The Company's primary deposit products are checking
and savings accounts and certificates-of-deposit. Its primary lending
products are commercial, real estate and consumer loans.
Concentration of risk-The Company's operations are affected by
various risk factors, including interest-rate risk, credit risk and risk
from geographic concentration of lending activities. Management attempts
to manage interest rate risk through various asset/liability management
techniques designed to match maturities of assets and liabilities. Loan
policies and administration are designed to provide assurance that loans
will only be granted to creditworthy borrowers, although credit losses are
expected to occur because of subjective factors and factors beyond the
control of the Company. Although the Company has a diversified loan
portfolio and economic conditions are stable, most of its lending activities
are conducted within the geographic area where it is located. As a result,
the Company and its borrowers may be especially vulnerable to the
consequences of changes in the local economy. In addition, a substantial
portion of the Company's loans are secured by real estate.
Use of estimates-The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans
and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans and deferred tax assets. In connection with
the determination of the allowances for losses on loans and foreclosed real
estate, management obtains independent appraisals for significant
properties. Accordingly, the ultimate collectibility of a substantial
portion of the Company's loan portfolio and the recovery of a substantial
portion of the carrying amount of foreclosed real estate are susceptible
to changes in local market conditions.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances may
be necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and
foreclosed real estate. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information
available to them at the time of their examination.
Presentation of cash flows-For purposes of presentation in the
consolidated statement of cash flows, cash and cash equivalents includes
cash on hand, amounts due from banks (including cash items in process of
clearing), federal funds sold (generally purchased and sold for one-day
periods) and overnight deposits.
Trust assets-Assets of the Trust Department, other than trust cash on
deposit at the Company, are not included in these consolidated financial
statements because they are not assets of the Company.
Investment securities-Investment securities purchased and held primarily
for resale in the near future are classified as trading. Trading securities
are carried at fair value with unrealized gains and losses included in
earnings. Debt securities the Company has the positive intent and ability
to hold to maturity are classified as held-to-maturity and reported at
amortized cost. Debt and equity securities not classified as either held-
to-maturity or trading are classified as available-for-sale. Investments
classified as available-for-sale are carried at fair value with unrealized
gains and losses net of tax and reclassification adjustment reported as a
net amount in other comprehensive income. The specific identification method
is used to determine realized gains and losses on sales of securities
available-for-sale. Premiums and discounts are recognized in interest income
using the interest method over the period to maturity.
Restricted equity securities-Restricted equity securities are comprised
of Federal Reserve Bank stock and Federal Home Loan Bank stock. These
securities are carried at cost. As a member of the Federal Reserve Bank
(FRB), the Company is required to invest in FRB stock in an amount equal to
3% of Community National Bank's capital stock and surplus.
As a member of the Federal Home Loan Bank, the Company is required to
invest in $100 par value stock of the Federal Home Loan Bank. The stock
is nonmarketable, and when redeemed, the Company would receive from the
Federal Home Loan Bank an amount equal to the par value of the stock.
Loans held for sale-Loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated fair value
in the aggregate. All sales are made without recourse. Net unrealized
losses are recognized through a valuation allowance by charges to income.
Loans-Loans receivable that management has the intent and ability to hold
for the foreseeable future or until maturity or pay-off are reported at
their outstanding principal adjusted for any charge-offs, the allowance for
loan losses and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Loan interest income is accrued daily on the outstanding balances. The
accrual of interest is discontinued when a loan is specifically determined
to be impaired or management believes, after considering collection efforts
and other factors, that the borrower's financial condition is such that
collection of interest is doubtful. Any unpaid interest previously accrued
on those loans is reversed from income. Interest income is generally not
recognized on specific impaired loans unless the likelihood of further loss
is remote. Interest payments received on such loans are generally applied
as a reduction of the loan principal balance. Interest income on other
nonaccrual loans is recognized only to the extent of interest payments
received.
Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of
the related loan's yield. The Company is generally amortizing these amounts
over the contractual life.
Allowance for loan losses-The allowance for loan losses is maintained
at a level which, in management's judgment, is adequate to absorb credit
losses inherent in the loan portfolio. The amount of the allowance is based
on management's periodic evaluation of the collectibility of the loan
portfolio, including the nature of the portfolio, credit concentrations,
trends in historical loss experience, specific impaired loans and economic
conditions. Allowances for impaired loans are generally determined based
on collateral values or the present value of estimated cash flows. The
allowance is increased by a provision for loan losses, which is charged to
expense and reduced by charge-offs, net of recoveries.
Bank premises and equipment-Bank premises and equipment are stated at
cost, less accumulated depreciation. Depreciation is computed principally
by the straight-line method over their estimated useful lives. The cost
of assets sold or otherwise disposed of, and the related allowance for
depreciation, are eliminated from the accounts, and the resulting gains
or losses are reflected in the income statement. Maintenance and repairs
are charged to current expense as incurred and the cost of major renewals
and betterments are capitalized.
Other real estate owned-Real estate properties acquired through or in
lieu of loan foreclosure are initially recorded at the lower of the
Company's carrying amount or fair value, less estimated selling cost at
the date of foreclosure. Any write-downs based on the asset's fair value
at the date of acquisition are charged to the allowance for loan losses.
After foreclosure, these assets are carried at the lower of their new cost
basis, or fair value less cost to sell. Costs of significant property
improvements are capitalized, whereas costs relating to holding property
are expensed. Valuations are periodically performed by management, and
any subsequent write-downs are recorded as a charge to operations, if
necessary, to reduce the carrying value of a property to the lower of its
cost or fair value less cost to sell.
Income taxes-The Company recognizes income taxes under the asset and
liability method. Under this method, deferred tax assets and liabilities
are established for the temporary differences between the accounting basis
and the tax basis of the Company's assets and liabilities at enacted tax
rates expected to be in effect when the amounts related to such temporary
differences are realized or settled. Adjustments to the Company's deferred
tax assets are recognized as deferred income tax expense or benefit based on
management's judgments relating to the realizability of such asset.
Foreign currency transactions-Foreign currency (principally Canadian)
amounts are translated to U.S. dollars in accordance with FASB Statement No.
52, "Foreign Currency Translation." The U.S. dollar is the functional
currency and therefore translation adjustments are recognized in income.
Total translation adjustments, including adjustments on foreign currency
transactions, are immaterial.
Mortgage servicing-Servicing assets are recognized as separate assets
when rights are acquired through purchase or through sale of financial
assets. Capitalized servicing rights are reported in other assets and are
amortized into non-interest income in proportion to, and over the period
of, the estimated future net servicing income of the underlying financial
assets. Servicing rights are evaluated for impairment based upon the fair
value of the rights as compared to amortized cost. Impairment is determined
by stratifying the rights by predominant characteristics, such as interest
rates and terms. Fair value is determined using prices for similar assets
with similar characteristics, when available, or based upon discounted cash
flows using market-based assumptions. Impairment is recognized through a
valuation allowance for an individual stratum, to the extent that fair value
is less than the capitalized amount for the stratum.
Pension costs-Pension costs are charged to salaries and employee benefits
expense and are funded as accrued.
Advertising costs-The Company expenses advertising costs as incurred.
Stock split effected in the form of a dividend-Effective June 1, 1998,
the shareholders authorized a two-for-one stock split of the Company's
$2.50 par value common stock. The stock split was effected in the form
of a dividend. All references in the accompanying financial statements
to the number of common shares and per-share amounts have been restated
to reflect the stock split.
Comprehensive income-The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," as of January 1, 1998. Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, are
reported as a separate component of the equity section of the balance
sheet, such items, along with net income, are components of comprehensive
income. The adoption of SFAS No. 130 had no effect on the Company's net
income or shareholders' equity.
<TABLE>
The components of other comprehensive income and related tax effects at
December 31 are as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Unrealized holding (losses) gains on
available-for-sale securities $(731,001) $ 305,555 $ 39,009
Reclassification adjustment for
gains realized in income -0- -0- -0-
Net unrealized (losses) gains (731,001) 305,555 39,009
Tax effect 248,540 (103,889) (13,263)
Net of tax amount $(482,461) $ 201,666 $ 25,746
</TABLE>
Earnings per common share-The FASB issued Statement No. 128, "Earnings
per Share," which became effective for the Company during December 1997.
The statement applies prospectively; earlier application is not permitted.
The adoption of this statement did not have a material effect on the
Company's financial statements.
Earnings per common share amounts are computed based on the weighted
average number of shares of common stock outstanding during the period
(retroactively adjusted for stock splits and stock dividends) and reduced
for shares held in treasury. The assumed conversion of subordinated
debentures does not result in material dilution.
Off-balance-sheet financial instruments-In the ordinary course of
business, the Company has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit and standby
letters of credit. Such financial instruments are recorded in the
financial statements when they become payable.
Fair values of financial instruments-The following methods and
assumptions were used by the Company in estimating its fair value
disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance
sheet for cash and cash equivalents approximate those assets' fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Restricted equity securities: The carrying amounts of these securities
approximate their fair values.
Loans and loans held for sale: For variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values
are based on carrying amounts. The fair values for other loans (for example,
fixed rate residential, commercial real estate, and rental property mortgage
loans, and commercial and industrial loans) are estimated using discounted
cash flow analysis, based on interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality. Loan fair
value estimates include judgments regarding future expected loss experience
and risk characteristics. The carrying amounts reported in the balance
sheet for loans that are held for sale approximate their market values.
Fair values for impaired loans are estimated using discounted cash flow
analyses or underlying collateral values, where applicable.
Deposits and borrowed funds: The fair values disclosed for demand
deposits (for example, checking and savings accounts) are by definition,
equal to the amount payable on demand at the reporting date (that is,
their carrying amount). The fair values for certificates of deposit and
debt are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates and debt to a
schedule of aggregated contractual maturities on such time deposits and
debt. Short-term borrowings: The carrying amounts reported in the
balance sheets for federal funds purchased approximate their fair values.
These borrowings are short-term and due on demand.
Other liabilities: Commitments to extend credit were evaluated and fair
value was estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present creditworthiness of the counterparties. For fixed rate loan
commitments, fair value also considers the difference between current
levels of interest rates and the committed rates.
Accrued interest: The carrying amounts of accrued interest approximates
their fair values.
Transfers of financial assets-Transfers of financial assets are accounted
for as sales when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from the Company, (2) the transferee obtains the right (free of
conditions that constrain it from taking advantage of that right) to pledge
or exchange the transferred assets, and (3) the Company does not maintain
effective control over the transferred assets through an agreement to
repurchase them before their maturity.
Business segments-In 1998 the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
standards relative to public companies for the reporting of certain
information about operating segments within their financial statements.
This Statement is effective for fiscal years beginning after December 15,
1997. Management has determined that the Company does not have reportable
segments as defined within the Statement.
Recent accounting pronouncements-In June 1998 FASB issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which becomes effective for quarters beginning after June 30, 2000. This
Statement establishes new accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the balance sheet and
measure those derivatives at fair value. The accounting for the gains or
losses resulting in the changes of value of those derivatives will depend
on the intended use of the derivatives and whether it qualifies for hedge
accounting. Management is currently evaluating the impact of this State-
ment on the Company's financial statements but does not anticipate it will
have a material impact.
Reclassification-Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform to the current year presentation.
Note 2. Investment Securities
Securities available-for-sale (AFS), held-to-maturity (HTM) and restricted
equity securities consist of the following:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities AFS, December 31, 1999
<S> <C> <C> <C> <C>
U. S. Government and
agency securities $29,356,560 $ 7,065 $381,437 $28,982,188
Securities AFS, December 31, 1998
U. S. Government
and agency securities $20,233,371 $357,237 $ 608 $20,590,000
Securities HTM, December 31, 1999
U. S. Government and
agency securities $17,777,541 $ 4,108 $389,163 $17,392,486
States and political
Subdivisions 12,110,280 -0- -0- 12,110,280
$29,887,821 $ 4,108 $389,163 $29,502,766
Securities HTM, December 31, 1998
U. S. Government and
agency securities $20,143,530 $160,472 $ -0- $20,304,002
States and political
subdivisions 9,734,321 -0- -0- 9,734,321
$29,877,851 $160,472 $ -0- $30,038,323
</TABLE>
Investment securities with a carrying amount of $8,133,750 and $6,036,736
and fair value of $7,949,063 and $6,097,500 at December 31, 1999 and 1998,
respectively, were pledged as collateral on public deposits and for other
purposes as required or permitted by law.
Proceeds from the sale of securities available-for-sale amounted to
$-0- in 1999, 1998 and 1997. Realized gains from sales of investments
available-for-sale were $-0- for each of the years 1999, 1998 and 1997.
The carrying amount and estimated fair value of securities by contractual
maturity are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
The scheduled maturities of securities available-for-sale at December 31,
1999, were as follows:
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $10,010,533 $ 9,992,814
Due from one to five years 19,346,027 18,989,374
$29,356,560 $28,982,188
</TABLE>
<TABLE>
The maturities of securities held-to-maturity at December 31, 1999,
were as follows:
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 9,737,875 $ 9,737,533
Due from one to five years 16,331,486 15,951,027
Due from five to ten years 2,553,164 2,548,910
Due after ten years 1,265,296 1,265,296
$29,887,821 $29,502,766
</TABLE>
Included in the caption "States and Political Subdivisions" are securities
of local municipalities carried at $12,017,452 and $9,610,774 at December 31,
1999 and 1998, respectively, which are attributable to private financing
transactions arranged by the Company. There is no established trading market
for these securities and, accordingly, the carrying amount of these securities
has been reflected as their fair value. The Company anticipates no losses on
these securities and expects to hold them until their maturity.
Note 3. Loans
<TABLE>
The composition of net loans at December 31 is as follows:
<CAPTION>
1999 1998
<S> <C> <C>
Commercial $ 12,187,872 $ 9,596,168
Real estate - Construction 1,619,793 2,024,545
Real estate - Mortgage 122,230,995 119,563,780
Installment and other 16,580,216 16,118,656
152,618,876 147,303,149
Deduct:
Allowance for loan losses 1,714,763 1,658,967
Unearned net loan fees 891,114 848,963
2,605,877 2,507,930
$150,012,999 $144,795,219
</TABLE>
Commercial and mortgage loans serviced for others are not included
in the accompanying balance sheets. The unpaid principal balances of
commercial and mortgage loans serviced for others were $50,638,724 and
$44,821,268 at December 31, 1999 and 1998, respectively. Mortgage
servicing rights of $77,926 and $122,533 were capitalized in 1999 and
1998, respectively.
The total recorded investment in impaired loans as determined in
accordance with FASB Statements No. 114 and No. 118 approximated
$717,801 and $1,102,661 at December 31, 1999 and 1998, respectively.
These loans were subject to allowances for loan losses of approximately
$56,372 and $30,512 which represented the total allowance for loan losses
related to impaired loans at December 31, 1999 and 1998, respectively.
The average recorded investment in impaired loans amounted to
approximately $895,365 and $1,065,049 for the years ended December 31,
1999 and 1998, respectively. Cash receipts on impaired loans amounted to
$444,327 and $173,694 in 1999 and 1998, respectively, of which $384,860
and $148,703 were applied to the principal balances of the loans.
In addition, the Company had other nonaccrual loans of approximately
$1,040,747 and $1,250,961 at December 31, 1999 and 1998, respectively, for
which impairment had not been recognized. If interest on these loans had
been recognized at the original interest rates, interest income would have
increased approximately $102,900 and $91,458 for the years ended December
31, 1999 and 1998, respectively.
The Company is not committed to lend additional funds to debtors with
impaired, nonaccrual or modified loans.
Residential real estate loans aggregating $-0- and $1,327,195 at December
31, 1999 and 1998, respectively, were pledged as collateral on deposits of
municipalities.
Note 4. Allowance for Loan Losses
<TABLE>
<CAPTION>
Changes in the allowance for loan losses for the years ended December 31
are as follows: 1999 1998 1997
<S> <C> <C> <C>
Balance, beginning $1,658,967 $1,502,202 $1,401,042
Provision for loan losses 497,000 660,000 660,000
Recoveries of amounts charged off 108,004 202,057 172,523
2,263,971 2,364,259 2,233,565
Amounts charged off (549,208) (705,292) (731,363)
Balance, ending $1,714,763 $1,658,967 $1,502,202
</TABLE>
Note 5. Bank Premises and Equipment
<TABLE>
The major classes of bank premises and equipment and accumulated depreciation
at December 31 are as follows:
<CAPTION>
1999 1998
<S> <C> <C>
Land $ 80,747 $ 80,747
Buildings and improvements 3,470,089 2,455,707
Furniture and equipment 4,832,027 4,089,860
Leasehold improvements 416,840 408,187
8,799,703 7,034,501
Less accumulated depreciation (4,477,006) (4,024,460)
$4,322,697 $3,010,041
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$493,979, $384,376 and $407,238 for the years ended December 31, 1999,
1998 and 1997, respectively.
The Company occupies leased quarters at four branch office locations
under operating leases expiring in various years through 2013 with
options to renew.
<TABLE>
Minimum future rental payments under non-cancelable operating leases
having original terms in excess of one year as of December 31, 1999,
for each of the next five years and in aggregate are:
<CAPTION>
<C> <C>
2000 $ 79,575
2001 66,110
2002 66,110
2003 66,110
2004 66,110
Subsequent to 2004 186,060
$530,075
</TABLE>
Total rental expense amounted to $150,865, $293,784 and $293,560 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Note 6. Other Real Estate Owned
<TABLE>
A summary of foreclosed real estate at December 31 is as follows:
<CAPTION>
1999 1998
<S> <C> <C>
Other real estate owned $ 686,240 $ 793,449
Less allowance for losses on OREO (251,546) (251,546)
Other real estate owned, net $ 434,694 $ 541,903
</TABLE>
<TABLE>
Changes in the allowance for losses on OREO for the years ended
December 31 were as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, beginning $251,546 $302,726 $152,098
Provision for losses 19,590 26,592 173,496
Charge-offs, net (19,590) (77,772) (22,868)
Balance, ending $251,546 $251,546 $302,726
</TABLE>
Note 7. Investments Carried at Equity
The Company purchased various partnership interests in limited partnerships.
These partnerships were established to acquire, own and rent residential
housing for low- and moderate-income Vermonters located in northeastern
Vermont. The investments are accounted for under the equity method of
accounting. These equity investments, which are included in other assets,
are recorded at cost and adjusted for the Company's proportionate share of
the partnership's undistributed earnings or losses. The carrying values of
these investments were $626,194 and $301,936 at December 31, 1999 and 1998,
respectively. The provision for undistributed net losses of the partnerships
charged to earnings were $28,992, $74,779 and $24,000 for 1999, 1998 and
1997, respectively.
Note 8. Deposits
<TABLE>
The following is a maturity distribution of time certificates of deposit at
December 31, 1999:
<S> <C>
Maturing in 2000 $63,618,380
Maturing in 2001 13,433,645
Maturing in 2002 12,611,866
Maturing in 2003 1,123,545
Maturing in 2004 and thereafter 378,518
$91,165,954
</table
</TABLE>
<TABLE>
A maturity distribution of time certificates of deposit in denominations of
$100,000 or more at December 31, 1999, is as follows:
<S> <C>
Three months or less $ 1,678,912
Over three months through six months 5,190,612
Over six months through twelve months 3,813,892
Over twelve months 5,210,947
$15,894,363
</TABLE>
Note 9. Borrowed Funds
<TABLE>
Borrowings from the Federal Home Loan Bank of Boston (FHLB) for the years ended
December 31 were as follows:
<CAPTION>
1999 1998
<S> <C> <C>
Community Investment Program borrowings,
fixed rate (vary 7.16% to 7.67%), payable
at various maturities through November, 2012 $ 55,000 $ 60,000
FHLB term borrowing, 4.89% fixed rate,
payable February 25, 2003 -0- 4,000,000
FHLB term borrowing, 5.39% fixed rate,
payable November 24, 2009 4,000,000 -0-
$4,055,000 $4,060,000
</TABLE>
<TABLE>
Principal maturities of borrowed funds as of December 31, 1999, are as follows:
<C> <C>
2000 $ -0-
2001 -0-
2002 15,000
2003 -0-
2004 -0-
Thereafter 4,040,000
$4,055,000
</TABLE>
The Company also maintains a $4,301,000 IDEAL Way Line of Credit with the
Federal Home Loan Bank of Boston. Outstanding advances under this line were
$-0- at both December 31, 1999 and 1998. Interest on these borrowings is
chargeable at a rate determined daily by the Federal Home Loan Bank and
payable monthly.
Collateral on these borrowings consists of Federal Home Loan Bank stock
purchased by the Company, all funds placed in deposit with the Federal Home
Loan Bank, qualified first mortgages held by the Company and any additional
holdings which may be pledged as security.
Note 10. Securities Sold Under Agreements to Repurchase Securities sold under
agreements to repurchase amounted to $2,623,282 and $288,241 as of December
31, 1999 and 1998, respectively. These agreements are collateralized by
U. S. Treasury notes with a carrying value of $4,095,514 and $1,008,393 and
a fair value of $3,967,812 and $1,012,188 at December 31, 1999 and 1998,
respectively. These securities pay interest at rates between 5.75% and
6.25% and mature at varying dates in 2002.
The average daily balance of this repurchase agreement approximated
$1,304,828 and $93,282 during 1999 and 1998, respectively. The maximum
borrowings outstanding on this agreement at any month-end reporting period
of the Company was $3,000,471 and $367,459 in 1999 and 1998, respectively.
These repurchase agreements mature daily. The securities underlying these
agreements are held in safekeeping by the Institution.
Note 11. Subordinated Debentures
On September 1, 1984, the Company issued $750,000 of 11% convertible
debentures due August 1, 2004. The notes are subordinated to all other
indebtedness of the Company. At December 31, 1999 and 1998, $20,000
remained outstanding.
These debentures are convertible prior to maturity in whole or in part,
at the option of the holder, into common stock of the Company at a
conversion price of $2.34 per share.
The debentures are redeemable, in whole or in any part, at the option
of the Company at any time after July 31, 1996, and prior to maturity, on
not less than 30 days prior notice to holders. The redemption price shall
be equal to the percentage set forth below:
<TABLE>
<S> <C>
August 1, 1998 - July 31, 2000 103%
August 1, 2000 - July 31, 2002 102%
August 1, 2002 - July 31, 2004 101%
</TABLE>
Note 12. Income Taxes
The Company prepares its federal income tax return on a consolidated
basis (see Note 1). Federal income taxes are allocated to members of
the consolidated group based on taxable income.
<TABLE>
Federal income tax expense for the years ended December 31 was as follows:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Currently paid or payable $765,413 $785,592 $717,712
Deferred 21,068 (75,246) 37,392
$786,481 $710,346 $755,104
</TABLE>
<TABLE>
Total income tax expense differed from the amounts computed at the
statutory federal income tax rate of 34% primarily due to the following
at December 31:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Computed "expected" tax expense $1,061,085 $ 986,245 $ 986,170
Tax exempt interest (207,439) (208,713) (208,465)
Disallowed interest 30,736 32,786 30,893
Partnership tax credits (109,749) (64,405) (66,300)
Other 11,848 (35,567) 12,806
$ 786,481 $ 710,346 $ 755,104
</TABLE>
<TABLE>
The deferred income tax provision consisted of the following items for the
years ended December 31:
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Depreciation $(23,241) $(16,003) $ (9,040)
Loan fees 25,175 30,689 28,523
Mortgage servicing 10,579 31,465 12,389
Deferred compensation (42,985) (23,984) (22,542)
Bad debts 4,566 (53,300) (34,394)
Limited partnerships 47,344 42,958 16,248
Nonaccrual loan interest (11,660) (49,960) 31,490
OREO -0- 17,401 (51,214)
Other 11,290 (54,512) 65,932
$ 21,068 $(75,246) $ 37,392
</TABLE>
<TABLE>
<CAPTION>
Listed below are the significant components of the net deferred tax asset at
December 31: 1999 1998
Components of the deferred tax asset:
<S> <C> <C>
Bad debts $ 422,316 $426,882
Unearned loan fees 77,279 102,454
Nonaccrual loan interest 135,322 123,662
OREO writedowns 85,526 85,526
Deferred compensation 117,717 74,732
Other 44,691 125
Unrealized loss on securities available-for-sale 127,286 -0-
Total deferred tax asset 1,010,137 813,381
Valuation allowance -0- -0-
Total deferred tax asset, net of valuation allowance 1,010,137 813,381
Components of the deferred tax liability:
Depreciation 133,987 157,228
Limited partnerships 171,550 124,206
Mortgage servicing rights 74,179 63,600
Other -0- 12,307
Unrealized gain on securities available-for-sale -0- 121,254
Total deferred tax liability 379,716 478,595
Net deferred tax asset $ 630,421 $334,786
</TABLE>
FASB Statement No. 109 allows for recognition and measurement of deductible
temporary differences (including general valuation allowances) to the extent
that it is more likely than not that the deferred tax asset will be realized.
Net deferred tax assets are included in the caption "Other assets" on the
balance sheets at December 31, 1999 and 1998, respectively.
Note 13. Pension Plan
The Company has a discretionary defined contribution plan covering all
employees who meet certain age and service requirements. Due to the
nature of the plan, defined contribution, there is no unfunded past
service liability. The provisions for pension expense were $280,650,
$287,788 and $240,000 for 1999, 1998 and 1997, respectively.
Note 14. Financial Instruments with Off-Balance-Sheet Risk
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include commitments to extend credit, standby letters
of credit and financial guarantees, interest rate caps and floors written on
adjustable rate loans and commitments to sell loans. Such instruments involve,
to varying degrees, elements of credit and interest rate risk in excess of
the amount recognized in the balance sheet. The contract or notional amounts
of those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by
the contractual notional amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments. For interest rate caps and floors
written on adjustable rate loans, the contract or notional amounts do not
represent exposure to credit loss. The Company controls the credit risk of
their interest rate cap agreements through credit approvals, limits and
monitoring procedures.
The Company generally requires collateral or other security to support
financial instruments with credit risk.
<TABLE>
<CAPTION>
-Contract or Notional Amount-
1999 1998
Financial instruments whose contract
amount represent credit risk:
<S> <C> <C>
Commitments to extend credit $19,234,830 $11,593,014
Standby letters of credit and
commercial letters of credit $ 316,000 $ 869,746
Credit card arrangements $ 3,268,057 $ 2,912,747
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation of the
counter-party. Collateral held varies but may include real estate,
accounts receivable, inventory, property, plant and equipment and income-
producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to support private
borrowing arrangements. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loans to
customers.
The Company enters into a variety of interest rate contracts, including
interest rate caps and floors written on adjustable rate loans in managing
its interest rate exposure. Interest rate caps and floors on loans written
by the Company enable customers to transfer, modify or reduce their interest
rate risk.
Note 15. Commitments and Contingencies
In the normal course of business, the Company is involved in various
claims and legal proceedings. In the opinion of the Company's management,
after consulting with the Company's legal counsel, any liabilities
resulting from such proceedings would not have a material adverse effect
on the Company's financial statements.
Note 16. Transactions with Related Parties
The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, principal
officers, their immediate families and affiliated companies in which they
are principal stockholders (commonly referred to as related parties), all
of which have been, in the opinion of management, on the same terms,
including interest rates and collateral, as those prevailing at the time
for comparable transactions with others.
<TABLE>
Aggregate loan transactions with related parties as of December 31 were as
follows:
<CAPTION>
1999 1998
<S> <C> <C>
Balance, beginning $ 544,764 $ 906,811
New loans 292,671 448,280
Repayments (441,096) (778,182)
Other, net -0- (32,145)
Balance, ending $ 396,339 $ 544,764
</TABLE>
Other loan activity consists of borrowings related to a director who has
retired.
Total deposits with related parties approximated $678,697 and $920,194
at December 31, 1999 and 1998, respectively.
Note 17. Deferred Compensation Plans
The Company has a deferred compensation and retirement program for directors
and key employees of the Company. These employees and directors are general
creditors of the Company with respect to these benefits. The benefits
accrued under these plans aggregated $346,227 and $219,800 at December 31,
1999 and 1998, respectively. The expense associated with these deferred
compensation plans was $131,426, $76,592 and $66,301 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Note 18. Restrictions on Cash and Due from Banks
The Company is required to maintain reserve balances in cash with Federal
Reserve Banks. The totals of those reserve balances were approximately
$1,043,000 and $992,000 at December 31, 1999 and 1998, respectively.
The nature of the Bank's business requires that it maintain amounts due
from banks which, at times, may exceed federally insured limits.
<TABLE>
The balance in these accounts at December 31 is as follows:
<CAPTION>
1999 1998
<S> <C> <C>
Non-interest-bearing accounts $ 262,578 $ 512,979
Federal Reserve Bank $6,813,899 $ 3,017,839
Federal funds sold $2,787,558 $15,527,141
</TABLE>
No losses have been experienced in these accounts. In addition, the
Company was required to maintain contracted clearing balances of $275,000
at December 31, 1999 and 1998.
Note 19. Regulatory Matters
The Bank (Community National Bank) is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the OCC
categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum total risk-based, Tier 1 risk-based and Tier 1
leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Bank's category.
<TABLE>
The Bank's actual capital amounts and ratios (000's omitted) are also
presented in the table.
<CAPTION>
Minimum to be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1999:
<S> <C> <C> <C> <C> <C> <C>
Total capital
(to risk-weighted assets) $22,466 20.12% $8,935 8.0% $11,168 10.0%
Tier I capital
(to risk-weighted assets) $21,066 18.86% $4,467 4.0% $ 6,701 6.0%
Tier I capital
(to average assets) $21,066 8.98% $9,382 4.0% $11,727 5.0%
As of December 31, 1998:
Total capital
(to risk-weighted assets) $21,021 19.62% $8,570 8.0% $10,713 10.0%
Tier I capital
(to risk-weighted assets) $19,678 18.37% $4,285 4.0% $ 6,428 6.0%
Tier I capital
(to average assets) $19,678 8.72% $9,028 4.0% $11,286 5.0%
</TABLE>
The Bank is restricted as to the amount of dividends which can be paid.
Dividends declared by national banks that exceed net income for the current
and preceding two years must be approved by the OCC. Regardless of formal
regulatory restrictions, the Bank may not pay dividends that would result in
its capital levels being reduced below the minimum requirements shown above.
Note 20. Fair Value of Financial Instruments
<TABLE>
The estimated fair values of the Company's financial instruments are as follows:
<CAPTION>
December 31, 1999
Carrying Amount Fair Value
Financial assets:
<S> <C> <C>
Cash and cash equivalents $ 12,716,144 $ 12,716,144
Securities held-to-maturity 29,887,821 29,502,766
Securities available-for-sale 28,982,188 28,982,188
Restricted equity securities 1,141,650 1,141,650
Loans and loans held-for-sale, net 150,673,422 150,174,039
Accrued interest receivable 1,484,192 1,484,192
Financial liabilities:
Deposits 201,842,880 202,091,623
Repurchase agreements 2,623,282 2,623,282
Borrowed funds 4,075,000 3,754,291
Accrued interest payable 286,757 286,757
<CAPTION>
December 31, 1998
Carrying Amount Fair Value
Financial assets:
<S> <C> <C>
Cash and cash equivalents $ 20,424,088 $ 20,424,088
Securities held-to-maturity 29,877,851 30,038,323
Securities available-for-sale 20,590,000 20,590,000
Restricted equity securities 1,141,650 1,141,650
Loans and loans held-for-sale, net 145,827,416 147,709,582
Accrued interest receivable 1,460,671 1,460,671
Financial liabilities:
Deposits 197,797,294 198,544,164
Repurchase agreements 288,241 288,241
Borrowed funds 4,080,000 3,967,755
Accrued interest payable 325,122 325,122
</TABLE>
The estimated fair values of deferred fees on commitments to extend
credit and letters of credit were immaterial at December 31, 1999 and
1998.
The carrying amounts in the preceding table are included in the balance
sheet under the applicable captions, except for long-term debt, which
consists of borrowed funds and subordinated debentures.
Note 21. Acquisition
On December 31, 1997, the Company purchased 100% of the stock of Liberty
Savings Bank, a New Hampshire guaranty savings bank, for $1,746,538. The
assets of the Bank, principally a U. S. government security, have been
included in the consolidated financial statements. The excess of the
purchase price over the assets of the Bank is being amortized on a
straight-line basis over 15 years. Unamortized goodwill amounted to
$296,972 and $319,817 as of December 31, 1999 and 1998, respectively,
and is included in "Other Assets" on the balance sheet. Amortization
expense was $22,845 for the years ended December 31, 1999 and 1998,
respectively.
Liberty Savings Bank does not currently maintain any branches and does
not have authority to take bank deposits. The Company is planning to
acquire full deposit taking capabilities for Liberty Savings Bank.
Note 22. Condensed Financial Information (Parent Company Only)
The following financial statements are for Community Bancorp. (Parent
Company Only), and should be read in conjunction with the consolidated
financial statements of Community Bancorp. and Subsidiaries.
<TABLE>
Community Bancorp. (Parent Company Only)
Condensed Balance Sheets
<CAPTION>
December 31,
Assets 1999 1998
<S> <C> <C>
Cash $ 55,122 $ 276,634
Investment in subsidiary - Community National Bank 20,840,821 19,932,481
Investment in subsidiary - Liberty Savings Bank 1,825,340 1,789,822
Other assets 17,599 23,489
Total assets $22,738,882 $22,022,426
Liabilities and stockholders' equity
Liabilities
Other liabilities $ 367 $ 367
Dividends payable 537,361 -0-
Subordinated convertible debentures 20,000 20,000
Total liabilities 557,728 20,367
Stockholders' equity
Common stock, $2.50 par value: 6,000,000 shares
authorized, 3,388,394 shares issued at 12/31/99,
and 3,140,606 shares issued at 12/31/98 8,470,985 7,851,516
Additional paid-in capital 10,942,510 8,756,453
Retained earnings (Note 19) 3,462,966 5,604,096
Accumulated other comprehensive (loss) income (247,086) 235,375
Less treasury stock, at cost
(1999: 29,887 shares; 1998: 29,646 shares) (448,221) (445,381)
Total stockholders' equity 22,181,154 22,002,059
Total liabilities and stockholders' equity $22,738,882 $22,022,426
</TABLE>
The investment in the subsidiary banks is carried under the equity method of
accounting. The investment and cash, which is on deposit with the Bank, has
been eliminated in consolidation.
<TABLE>
Community Bancorp. (Parent Company Only)
Condensed Statements of Income
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues
Dividends
Bank subsidiaries $ 942,200 $ 903,000 $ 2,913,800
Total revenues 942,200 903,000 2,913,800
Expenses
Interest on long-term debt 2,200 4,597 11,489
Administrative and other 49,560 64,490 24,000
Total expenses 51,760 69,087 35,489
Income before applicable income tax
and equity in undistributed net
income of subsidiaries 890,440 833,913 2,878,311
Applicable income tax (benefit) (17,599) (23,489) (12,066)
Income before equity in undistributed
net income of subsidiaries 908,039 857,402 2,890,377
Equity (deficit) in undistributed
net income - subsidiaries 1,426,319 1,332,972 (744,982)
Net income $ 2,334,358 $ 2,190,374 $ 2,145,395
</TABLE>
<TABLE>
Community Bancorp. (Parent Company Only)
Condensed Statements of Cash Flows
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 2,334,358 $ 2,190,374 $ 2,145,395
Adjustments to reconcile net income to
net cash provided by operating activities
(Equity) deficit in undistributed net
income of subsidiaries (1,426,319) (1,332,972) 744,982
Decrease (increase) in income
taxes receivable 5,890 (11,423) 2,673
Decrease in other liabilities -0- (1,283) (1,114)
Net cash provided by operating activities 913,929 844,696 2,891,936
Cash flows from investing activities
Purchase of stock in subsidiary -
Liberty Savings Bank -0- -0- (1,746,538)
Net cash used for investing activities -0- -0- (1,746,538)
Cash flows from financing activities
Purchase of treasury stock (2,840) (244) (4,925)
Dividends paid (1,132,601) (954,095) (863,214)
Net cash used for financing activities (1,135,441) (954,339) (868,139)
Net (decrease) increase in cash (221,512) (109,643) 277,259
Cash
Beginning 276,634 386,277 109,018
Ending $ 55,122 $ 276,634 $ 386,277
Supplemental schedule of cash paid (received) during the year
Interest $ 2,200 $ 5,880 $ 12,602
Income taxes $ (23,489) $ (12,066)$ (14,739)
Supplemental schedule of noncash investing and financing activities
Unrealized (loss) gain on securities
available-for-sale $ (731,001) $ 305,555 $ 39,009
Debentures converted to common stock $ -0- $ 84,000 $ 66,000
Stock dividends $ 1,851,338 $ 3,823,575 $ 1,294,006
Dividends paid
Dividends declared $ 2,624,151 $ 1,833,146 $ 1,652,355
Increase in dividends payable (537,361) -0- -0-
Dividends reinvested (954,188) (879,051) (789,141)
$ 1,132,602 $ 954,095 $ 863,214
</TABLE>
Note 23. Quarterly Financial Data (Unaudited)
<TABLE>
A summary of financial data for the four quarters of 1999, 1998 and 1997 is
presented below:
Community Bancorp. and Subsidiaries
<CAPTION>
Quarters in 1999 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $4,050,380 $4,203,280 $4,247,655 $4,221,476
Interest expense 1,872,028 1,889,484 1,897,260 1,875,768
Provision for loan losses 150,000 150,000 115,000 82,000
Securities gains (loss) -0- -0- -0- -0-
Other operating expenses 1,847,475 1,828,715 1,826,272 1,827,313
Net income 410,797 566,489 603,906 753,166
Earnings per common share $.13 $.17 $.18 $.23
<CAPTION>
Quarters in 1998 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $4,224,450 $4,207,422 $4,324,448 $4,315,390
Interest expense 1,990,049 2,053,030 2,044,945 1,988,598
Provision for loan losses 200,000 160,000 150,000 150,000
Securities gains (loss) -0- -0- -0- -0-
Other operating expenses 1,809,612 1,761,241 1,767,714 1,730,183
Net income 407,679 557,942 562,139 662,614
Earnings per common share $.13 $.17 $.17 $.21
Quarters in 1997 ended
March 31 June 30 Sept. 30 Dec. 31
<S> <C> <C> <C> <C>
Interest income $4,040,469 $4,171,803 $4,252,823 $4,352,499
Interest expense 1,897,836 1,923,757 1,998,488 2,014,082
Provision for loan losses 205,000 105,000 215,000 135,000
Securities gains (loss) -0- -0- -0- -0-
Other operating expenses 1,529,237 1,684,904 1,815,027 1,761,195
Net income 520,088 611,639 451,169 562,499
Earnings per common share $.17 $.20 $.14 $.18
</TABLE>
Note 24. Other Income and Other Expenses
<TABLE>
The components of other income and other expenses which are in excess of 1%
of total revenues in any of the three years disclosed are as follows:
<CAPTION>
1999 1998 1997
Income
<S> <C> <C> <C>
Other $ 808,014 $ 771,947 $ 553,027
Expenses
Printing and supplies $ 204,707 $ 198,008 $ 225,318
State deposit tax 230,000 205,354 145,000
Other 1,979,208 1,874,609 1,703,118
$2,413,915 $2,277,971 $2,073,436
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
THE RESULTS OF OPERATIONS
For the Year Ended December 31, 1999
Community Bancorp. is a holding company whose subsidiaries include Community
National Bank ("The Bank") and Liberty Savings Bank ("Liberty"). Community
National Bank is a full service institution operating in the state of Vermont,
with seven branch offices located throughout three counties in northern
Vermont. Liberty Savings Bank is a New Hampshire guaranty savings bank
acquired by Community Bancorp. on December 31, 1997. Acquired were the
assets; primarily a U.S. Treasury Strip with a fair value of approximately
$1.4 million, and all of the outstanding stock of Liberty Savings Bank.
Presently, since no building was involved in the transaction, the address for
Liberty Savings Bank is C/O Community Bancorp., Derby, Vermont. The future
goal of Community Bancorp. is to operate Liberty as a lending facility
primarily serving the north country of New Hampshire. Management is working
closely with the Board of Directors to find a suitable location for this
endeavor. Once an ideal location is found, the goal of expanding the
operations of Community Bancorp. and subsidiaries, ("The Company"), to
include the northern portion of the state of New Hampshire will be achieved.
As mentioned above, this transaction occurred on December 31, 1997, resulting
in no business activity for the 1997 fiscal year, and moderate income for the
1998 and 1999 fiscal years. With that in mind, the following discussion refers
primarily to the operations of the Bank, with consolidated balance sheets
and income statement figures for the Company.
FINANCIAL SUMMARY
The calendar year of 1999 ended with a 6.6% increase over the calendar year
of 1998, and an 8.8% increase over the calendar year of 1997. Total earnings
of $2.33 million were reported for 1999 compared to $2.19 million in 1998, and
$2.15 million for 1997. The results of these figures are earnings per share of
$0.71, $0.68, and $0.69, respectively. A cash dividend of $0.16 per share was
paid in each of the four quarters of 1999 with the most recent paid on November
1, 1999 to shareholders of record as of October 15, 1999. This dividend of
$0.16 per share is a 6% increase over the cash dividends paid in 1998. A 5%
stock dividend was declared in 1999, payable on February 1, 1999 to
shareholders of record as of the same date. In 1998, a two for one stock
split was announced on March 13, 1998, payable on June 1, 1998, to shareholders
of record as of May 15, 1998. This was accomplished through a 100% stock
dividend. In order for this to occur, the Company's shareholders needed to
approve a proposal to increase the number of shares the Company may issue.
This was voted on and approved at the annual shareholders meeting held on May
5, 1998. As a result of both of these stock dividends, per share data for all
comparison periods have been restated to reflect the applicable dividend.
CHANGES IN FINANCIAL CONDITION
The financial condition of the Company should be examined in light of its
sources and uses of funds. The table entitled "Average Balances and Interest
Rates" is a comparison of daily average balances and is indicative of how
sources and uses of funds have been managed.
The average volume of earning assets grew from $197.3 million at the end of
1997, to $209.2 million at December 31, 1998, and then increased to $217.6
million as of December 31, 1999. The results are an increase of $11.9 million
from 1997 to 1998 and an increase of $8.4 million from 1998 to 1999. The
average volume of loans grew from $145.8 million at year-end 1997 to $147.8
million at year-end 1998, and then decreased to $147.1 million at year-end
1999. This translates into an increase of $2.1 million or 1.4% for 1997
versus 1998, and a decrease of $702 thousand or just under .50% for 1998
versus 1999. Taxable investment securities increased to $38.8 million as of
December 31, 1998, and further increased to end 1999 at an average volume of
$49.8 million, resulting in an increase of $3.14 million or 8.8% and $11.05
million or 28.5%, respectively. Tax-exempt securities started at $12.2 million
at year-end 1997 and then increased to $13.1 million as of December 31, 1998,
with an additional increase reported in 1999, ending the year at an average
volume of $13.8 million. Federal funds sold started the comparison period at
$2.6 million as of December 31, 1997, increasing $2.35 million to a volume of
$4.9 million as of December 31, 1998, and then decreased to an average volume
of $2.9 million, or just over $2 million as of December 31, 1999. The Bank-
Boston sweep account, established during the first half of 1998, reported an
average volume of $3.34 million as of the end of 1998 compared to an average
volume of $2.6 million for the 1999 comparison period. The average volume of
other securities ended the 1997 comparison period at $1.17 million increasing
8.7% to $1.27 million as of the end of the 1998 fiscal year, and then decreased
1.3% to end at an average volume of $1.25 million as of December 31, 1999.
Average interest-bearing liabilities began the comparison period at an
average volume of $170.2 million for 1997, increasing to $178.14 million as of
the end of 1998, and then increased to an average volume of $184.7 million as
of December 31, 1999. A review of the areas that comprise this total shows a
decrease then an increase in savings deposits. These funds started at $31.9
million at year-end 1997, decreased 3.34% to an average volume of $30.8
million, and then increased 6.2% to close the 1999 calendar year at an
average volume of $32.7 million. NOW and money market funds set a different
trend by starting year-end 1997 at an average volume of $39.3 million,
increasing to $44.9 million or by 14.2% as of year-end 1998, further
increasing by 15.4% to $51.9 million as of year-end 1999. Subordinated
debentures reported a steady decrease starting at an average volume of $107
thousand as of year-end 1997, decreasing 55% to an average volume of $48
thousand as of year-end 1998 and then decreasing 58% to end the 1999 year at
an average volume of $20 thousand. Time deposits set it's own course be-
ginning at an average volume of $94.8 million, increasing to $98.2 million
or by 3.6% for the 1998 comparison period, and then decreasing to $94.7
million or by 3.6% as of December 31, 1999. Repurchase agreements have
proved to be very popular for our business customers, reporting an average
volume of $1.3 million as of December 31, 1999 compared to $93 thousand a year
ago. Other borrowed funds noted minimal decreases for each comparison period
to end 1999 at an average volume of approximately $4.1 million.
The average volume of subordinated debentures has been steadily decreasing
as noted over the last three years. The 9% debentures were all converted as
of December 31, 1998, and the redemption period for the 11% debentures is in
the second phase with a price of 103%, translating into 427.85 shares of
Community Bancorp. stock for each debenture redeemed. The redemption price
decreases 1% every two years beginning July 31, 1998, with a maturity date of
July 31, 2004. Actual debentures outstanding of $20,000 were reported for
December 31, 1998 and 1999.
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 from $17.9 million at the end of 1998
to $15.9 million at the end of 1999, a decrease of approximately $2 million
or 11.1%. Other time deposits decreased from $77.7 million to $75.3 million
for the same time period, a decrease of 3.2%. A review of these deposits
indicates that changes are generated locally and regionally by established
customers of the Company. The Company has no brokered deposits. Savings
deposits increased to $32.9 million at December 31, 1999 from $30.5 million
at the end of December 1998, an increase of $2.3 million or 7.7%. NOW and
money market funds followed closely with an increase of $2.2 million or 4.3%
to end the '99 calendar year at $52 million. Unfavorable rates on time
deposits generated a stronger demand for other interest-bearing accounts as
customers wait for higher yields before investing in long-term deposit
accounts.
Our gross loan portfolio increased $4.9 million or by 3.3% to end the 1999
calendar year at $153.3 million compared to $148.3 million a year ago. More
fixed rate "in-house" loans were generated this year in an effort to increase
our loan portfolio. Of this total loan portfolio of $153.3 million, $74.5
million, or 49% is scheduled to reprice or mature within one year. Federal
funds sold and overnight deposits decreased dramatically from December 31, 1998
to end at a balance of $2.8 million as of December 31, 1999. An increase of
$8.4 million in the Company's investment portfolio made up the decrease in
these overnight funds. As of year-end 1999, the Company held in it's investment
portfolio treasuries classified as "Available for Sale" with a fair value of
almost $29 million compared to almost $21 million a year ago. The Company also
carried investments classified as "Held to Maturity" with a book value of
almost $30 million, which is comparable to the balances as of December 31,
1998. Both of these types of investments mature at monthly intervals as
shown on the gap report enclosed in this discussion. 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 Bank stock. These securities remain at a balance totaling
$1.14 million as of December 31, 1999.
The Company has two credit lines with available balances totaling $6.1
million and additional borrowing capacity of approximately $106 million
through the Federal Home Loan Bank of Boston, which is secured by the
Company's qualifying 1-4 family residential loan portfolio. As of December
31, 1999, the Company has an advance of just over $4 million against the $105
million line at the Federal Home Loan Bank of Boston.
Credit Risk - Management believes that the policies and procedures established
for the underwriting of its loan portfolio are both accurate and up-to-date
helping to alleviate many of the problems that could exist within the portfolio
in a changing environment. Loans are typically reviewed on a loan-by-loan basis
with more emphasis placed on larger loans and loans that have the potential for
a higher level of risk. These measures also help to ensure the adequacy of the
allowance. The Executive Officers and Board of Directors perform periodic
reviews of the loan portfolio. Among the topics discussed during their review
are potential exposures that exist within the loan portfolio. Factors
considered include, but are not limited to, historical loss ratios, each
borrower's financial condition, the industry or sector of the economy in which
the borrower operates, and overall economic conditions. Existing or potential
problems are noted and reviewed by senior management to ensure that adequate
loan-to-value ratios exist to help cover any cost associated with these loans.
The Company employs both a full-time loan review and credit administration
officer staffed with a department whose duties include, but are not limited
to, a review of the loan portfolio including delinquent and non-accrual loans.
Also on staff are personnel whose primary duties are to monitor non-performing
loans. Included in the duties of this department are the tracking of payments
by delinquent loan customers, and management of the Company's OREO portfolio.
A quick review of the OREO portfolio shows positive results since the
establishment of this department. Results from both departments mentioned
are reported to senior management for further review and additional action
if necessary.
Specific allocations are made in situations management feels are at a
greater risk for loss. A quarterly review of certain qualitative factors,
which include "Levels of, and Trends in, Delinquencies and Non-Accruals"
and "National and Local Economic Trends and Conditions", helps to ensure that
areas with potential risk are noted and coverage adjusted to reflect current
trends in delinquencies and non-accruals. First mortgage loans make up the
largest part of the loan portfolio and have the lowest historical loss ratio
helping to alleviate overall risk.
Allowance for Loan Losses and Provisions - The valuation allowance for loan
losses as of December 31, 1999 of $1.7 million constitutes one percent of the
total loan portfolio compared to $1.66 million or just over one percent a year
ago. In management's opinion, this is both adequate and reasonable in view of
the fact that $124.5 million of the total loan portfolio, or 81.2% consists of
real estate mortgage loans, compared to $122.6 million or 82.7%, as of December
31, 1998. Of this total for 1999 $98.4 million or 64.2% are loans secured by
1-4 family residences. This volume of home loans, together with the low
historic loan loss experience, helps to support our basis for loan loss
coverage. Additionally, in management's opinion, a loan portfolio consisting
of 81.2% in residential and commercial real estate secured mortgage loans is
more stable and less vulnerable than a portfolio with a higher concentration
of unsecured commercial and industrial loans or personal loans.
A comparison of non-performing assets for 1999 and 1998 reveals an overall
decrease of $313,074 or 9.5% from a figure of $3.3 million to $3 million.
Decreases of 19.78% and 25.28%, respectively, are noted in the Company's OREO
portfolio and non-accruing loan portfolio, while an increase of almost 100%
is recognized in loans 90 days or more past due and still accruing. This
portfolio increased from $401,301 as of December 31, 1998 to $790,510 as of
December 31, 1999. Of the total non-accrual loan portfolio of $1.8 million,
approximately $1.6 million, or 93%, are real estate secured mortgage loans on
which the Company has suffered relatively few losses. The portfolio of Other
Real Estate Owned (OREO) decreased from a figure of $541,903 as of year-end
1998 to $434,694 for the same period in 1999.
<TABLE>
Non-performing assets as of December 31, 1999 and 1998 were made up of the
following:
<CAPTION>
1999 1998
<S> <C> <C>
Non-accruing loans $1,758,549 $2,353,623
Loans past due 90 days or more and still accruing 790,510 401,301
Other real estate owned 434,694 541,903
Total $2,983,753 $3,296,827
</TABLE>
Management continues to monitor the allowance for loan and lease losses
very carefully and maintains the reserve at a level of approximately one
percent of total eligible loans. The Northeast Kingdom is known for being
on the lower end of the economic scale, and as such suffers greatly in times
of economic uncertainty. In view of this, the Company will always maintain
its conservative approach to the review process for reserve requirements and
adjust accordingly for any changes.
Other Real Estate Owned consists of properties that the Company has acquired
in lieu of foreclosure or through normal foreclosure proceedings. The policy
of the Company is to value property in other real estate owned at the lesser
of appraised value or book value. An appraisal is necessary to determine the
value of the property. If the book value of the property is less than the
appraised value, a "write-down" is necessary to bring the loan balance to a
level equal to the appraised value prior to including it in OREO. Any such
write-down is charged to the reserve for loan losses. Once the property is
in OREO, any additional write-downs are charged to earnings.
Our current portfolio of Other Real Estate Owned consists of $109,083 in
properties deeded in lieu with the remaining $325,611 acquired through the
normal foreclosure process. All properties are located in Vermont, and are
as follows: land in Jay; two commercial condominium units in Newport; one
commercial building in Newport; a single family residence in the towns of
Averill, Irasburg, Jay, East Burke and one in the city of Newport. The
Company is actively attempting to sell all of these properties, and expects
no material loss on any of them. Other Real Estate Owned is by definition
a non-earning asset, and as such does have a negative impact on the Company's
earnings.
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 December
31, 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
December 31, 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
Interest-sensitive assets:
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold 600 0 0 0 0 600
Overnight deposits 2,188 0 0 0 0 2,188
Investments
Available for Sale(1) 0 9,993 18,989 0 0 28,982
Held to Maturity 3,057 6,680 14,910 1,426 3,814 29,887
Restricted equity
Securities 0 0 0 0 1,142 1,142
Loans(2) 23,254 51,250 41,673 8,317 27,027 151,521
Total interest-sensitive
assets 29,099 67,923 75,572 9,743 31,983 214,320
Interest-sensitive liabilities:
Certificates of deposit 13,405 65,237 11,072 1,452 0 91,166
Money markets 32,299 0 0 0 0 32,299
Regular savings 0 2,854 0 0 30,000 32,854
NOW accounts 0 0 0 0 19,796 19,796
Borrowed funds 0 0 15 0 4,040 4,055
Repurchase agreements 2,623 0 0 0 0 2,623
Subordinated debentures 0 0 0 20 0 20
Total interest-sensitive
liabilities 48,327 68,091 11,087 1,472 53,836 182,813
Net interest rate
sensitivity gap (19,228) (168) 64,485 8,271 (21,853)
Cumulative net interest
rate sensitivity gap (19,228) (19,396) 45,089 53,360 31,507
Cumulative net interest
rate sensitivity gap
as a percentage of
total assets -8.28% -8.35% 19.42% 22.98% 13.57%
Cumulative interest rate
sensitivity gap as a
percentage of total
interest-earning assets -8.97% -9.05% 21.04% 24.90% 14.70%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities 60.21% 83.34% 135.36% 141.37% 117.23%
<FN>
<f01> The Company may sell investments available for sale with a fair value
of $28,982,188 at any time.
<f02> Loan totals exclude non-accruing loans amounting to $1,758,549.
</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
Interest-sensitive assets:
<S> <C> <C> <C> <C> <C> <C>
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 5,549 1,482 1,741 29,878
Restricted equity
Securities 0 0 0 0 1,142 1,142
Loans(2) 22,240 56,570 46,12 6,146 14,901 145,981
Total interest-sensitive
assets 43,627 71,816 71,219 8,672 17,784 213,118
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 0 2,512 0 0 28,000 30,512
NOW accounts 0 0 0 0 19,122 19,122
Borrowed funds 4,000 5 0 15 40 4,060
Repurchase agreements 288 0 0 0 0 288
Subordinated debentures 0 0 0 0 20 20
Total interest-sensitive
Liabilities 53,149 65,307 13,486 1,298 47,182 180,422
Net interest rate
sensitivity gap (9,522) 6,509 57,733 7,374 (29,398)
Cumulative net interest
rate sensitivity gap (9,522) 3,013 54,720 62,094 32,696
Cumulative net interest
rate sensitivity gap
as a percentage of
total assets -4.23% -1.34% 24.31% 27.59% 14.53%
Cumulative interest
Sensitivity gap as a
percentage of total
interest-earning asset s -4.47% -1.41% 25.68% 29.14% 15.34%
Cumulative interest-
earning assets as a
percentage of cumulative
interest-bearing
liabilities 82.08% 97.46% 141.47% 146.60% 118.12%
<FN>
<f01> The Company may sell investments available for sale with a fair value
of $20,590,000 at any time.
<f02> Loan totals exclude non-accruing loans amounting to $2,353,623.
</TABLE>
INVESTMENT SECURITIES
The adoption of FASB No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", has had an impact on our investment portfolio. This
new accounting standard, effective for 1994 statements, requires banks to
recognize all appreciation or depreciation of the investment portfolio either
on the balance sheet or through the income statement even though a gain or
loss had not been realized. These changes require securities classified as
"trading securities" to be marked to market with any gain or loss charged to
income. Securities classified as "available-for-sale" are marked to market
with any gain or loss after taxes charged to the equity portion of the balance
sheet. Securities classified as "held-to-maturity" are to be held at book
value.
The Company does not own any trading securities as our investment policy
prohibits active trading in our investment account. The Company had $1.14
million in equity securities classified as available-for-sale for both the 1999
and 1998 comparison periods. In addition, at December 31, 1999, the Company had
almost $30 million in U.S. Government securities classified as available-for-
sale, compared to $20.6 million at December 31, 1998. These securities have
been marked to market, with a resulting unrealized loss after taxes of $247,086
for 1999 compared to an unrealized gain of $235,375 for 1998. These figures are
presented in the equity section of our financial statement as "accumulated other
comprehensive income". As adjusted for this item, our investment portfolios at
the respective years' ends were as follows:
<TABLE>
<CAPTION>
December 31, 1999: Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government & agency securities
<S> <C> <C> <C> <C>
Available-for-sale $29,356,560 $ 7,065 $381,437 $28,982,188
Held-to-maturity(1) 17,777,541 4,108 389,163 17,392,486
States & political subdivisions
Held-to-Maturity 12,110,280 0 0 12,110,280
Restricted equity securities
Available-for-Sale 1,141,650 0 0 1,141,650
$60,386,031 $ 11,173 $770,600 $59,626,604
<CAPTION>
December 31, 1998: Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government & agency securities
Available-for-sale $20,233,371 $357,237 $608 $20,590,000
Held-to-maturity 20,143,530 160,472 0 20,304,002
States & political subdivisions
Held-to-maturity 9,734,321 0 0 9,734,321
Restricted equity securities
Available-for-sale 1,141,650 0 0 1,141,650
$51,252,872 $517,709 $608 $51,769,973
<FN>
<f01> Included in this portfolio is the U.S. Treasury Strip for Liberty
Savings Bank with an amortized cost of $1,569,196 and fair value of $1,546,319
as of December 31, 1999; and an amortized cost of $1,480,767 and a fair value
of $1,519,752 as of December 31, 1998.
</TABLE>
<TABLE>
Gross realized gains and gross realized losses on actual sales of securities
were:
<CAPTION>
Gross realized gains: 1999 1998 1997
<S> <C> <C> <C>
U.S. Government & agency securities $ 0 $ 0 $ 0
Other Securities 0 0 0
$ 0 $ 0 $ 0
<CAPTION>
Gross realized losses: 1999 1998 1997
<S> <C> <C> <C>
U.S. Government & agency securities $ 0 $ 0 $ 0
Other Securities 0 0 0
$ 0 $ 0 $ 0
</TABLE>
BANK PREMISES AND EQUIPMENT
<TABLE>
Major classes of bank premises and equipment and the total accumulated
depreciation are as follows:
<CAPTION>
December 31,
1999 1998
<S> <C> <C>
Land $ 80,747 $ 80,747
Buildings and improvements 3,470,089 2,455,707
Furniture and equipment 4,832,027 4,089,860
Leasehold improvements 416,840 408,187
8,799,703 7,034,501
Less accumulated depreciation (4,477,006) (4,024,460)
$4,322,697 $3,010,041
</TABLE>
Depreciation included in occupancy and equipment expense amounted to
$493,979, $384,376, and $407,238 for the years ended December 31, 1999, 1998
and 1997, respectively.
The Company currently leases four of the seven offices it occupies. These
leased offices are in Island Pond, Newport, Barton, and St. Johnsbury, Vermont.
During the first part of 1999, the Company moved it's Newport office to a
condominium space of approximately 3,084 square feet in the new state office
building at the opposite end of Main Street from the Company's former office.
The operating leases for the three other locations expire in various years
through 2013 with options to renew.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of one year, as of December 31, 1999, for each of the
next five years and in aggregate are:
<TABLE>
<CAPTION>
<C> <C>
2000 $79,575
2001 66,110
2002 66,110
2003 66,110
2004 66,110
Subsequent to 2004 186,060
Total $530,075
</TABLE>
EFFECTS OF INFLATION
Rates of inflation effect the reported financial condition and results of
operations of all industries, including the banking industry. The effect of
monetary inflation is generally magnified in bank financial and operating
statements because, as costs and prices rise, cash and credit demands of
individuals and businesses increase, and the purchasing power of net monetary
assets declines.
The Company's ability to preserve its purchasing power depends primarily on
its ability to manage net interest income. The Company's net interest income
improved slightly during 1999, in light of the fact that the spread decreased
from 1998 to 1999. An increase is noted in the volume of loans, the biggest
source of interest income, and a decrease is noted in the volume of time
deposits, which accounts for the biggest source of interest expense.
INTEREST INCOME VERSUS INTEREST EXPENSE
(NET INTEREST INCOME)
Net interest income represents the difference between interest earned on
loans and investments versus the interest paid on deposits and other sources of
funds (i.e. other borrowings). Changes in net interest income result from
changes in the level and mix of earning assets and sources of funds (volume)
and from changes in the yield earned and costs paid (rate). The table labeled
"Average Balances and Interest Rates" provides the visual analysis for the
comparison of interest income versus interest expense. These figures, which
include earnings on tax-exempt investment securities, are stated on a tax
equivalent basis with an assumed rate of 34%.
Net interest income was $9.3 million, $9.31 million and $9.5 million,
respectively for the years ended 1997, 1998 and 1999. Net interest spread, the
difference between the yield on interest earning assets versus interest bearing
liabilities, at the end of 1999 was 3.75% versus 3.78% for 1998 and 4.08% for
1997. Interest differential, defined as net interest income divided by average
earning assets, for the years ended 1999, 1998 and 1997, was reported at 4.37%,
4.45%, and 4.71% respectively.
Interest income rose from $17.13 million at the end of 1997, to $17.39
million for 1998, and then decreased to $17.04 million for the year ended 1999,
an increase of 1.5% and a decrease of 2%, respectively. Interest expense rose
from $7.8 million at the end of 1997 to $8.1 million as of year-end 1998, and
then decreased to $7.5 million as of December 31, 1999. This translates to an
increase of 3.1% for 1997 versus 1998 and a decrease of 6.7% for 1998 versus
1999.
Income from loans for the year was $13.9 million for 1997, $13.8 million for
1998, and $13.04 million for 1999, resulting in yields of 9.51%, 9.31%, and
8.86%, respectively.
The income on taxable investments went from $2.12 million for 1997 to $2.2
million for 1998, and then increased to $2.7 million at year-end 1999. The
respective yields on these investments are 5.94% for 1997, 5.66% for 1998, and
5.45% for 1999. The income on tax-exempt securities took a different course for
the same comparison periods, revealing a tax equivalent interest income figure
for the twelve months of 1997 of $929 thousand versus $930 thousand for the
twelve months of 1998, and $924 thousand for the same period in 1999. The tax-
equivalent yield for these investments started at 7.65% at the end of 1997, and
decreased 53 basis points to 7.12% for 1998, and then decreased 45 basis points
to a 1999 year-end yield of 6.67%. The income on other securities increased
from $79 thousand for 1997, to $82 thousand for 1998, and then increased to $85
thousand for 1999, with average yields reported at 6.76%, 6.46%, and 6.78%,
respectively.
Interest income for federal funds sold was reported at $140 thousand with a
yield of 5.42% for the twelve-month comparison period of 1997, compared to
income of $237 thousand with a yield of 4.81% for 1998, and income of $143
thousand yielding 4.94% for the same period of 1999.
Interest income on overnight deposits of $185 thousand yielding 5.54% was
reported for the twelve months of 1998 compared to $133 thousand yielding 5.04%
for the twelve months of 1999.
Interest expense associated with total interest bearing liabilities
began the year-end comparison periods at $7.8 million for 1997, increased to
$8.1 million for 1998, and ended 1999 at a figure of $7.5 million, with average
yields of 4.60%, 4.53%, and 4.08%, respectively.
Interest expense associated with our savings accounts decreased for each
comparison year starting at $877 thousand as of year-end 1997, decreasing $70
thousand or 8.0% to a 1998 year-end expense figure of $807 thousand, and then
decreasing $51 thousand or 6.3% to end 1999 at a figure of $756 thousand. The
average yield decreased accordingly throughout the three year-end comparison
periods to end at 2.31% as of December 31, 1999.
Interest expense on NOW and money market funds began the comparison period
at $1.4 million as of year-end 1997 increasing 12% to end 1998 at $1.6 million,
and then increased 5.8% to end 1999 at a reported expense figure of $1.7
million. The average yield started the comparison period at a rate of 3.55%
as of December 31, 1997, then decreased seven basis points to a rate of 3.48%
as of December 31, 1998, and then decreased 29 basis points to end at 3.19%
as of December 31, 1999.
Interest expense on time deposits reported a year-end 1997 expense figure of
$5.3 million, increasing $192 thousand or 3.6% to a year-end 1998 expense figure
of $5.5 million, then decreasing by $631 thousand or 11.5% to a reported expense
figure of $4.9 million as of year-end 1999. The average yield on these funds
tracked its own course, reporting 5.60% for both 1997 and 1998 with a decrease
of
46 basis points to end the 1999 fiscal year at an average yield of 5.14%.
Interest expense for other borrowed funds began the year-end comparison
periods at a figure of $245 thousand for year-end 1997, decreasing $47 thousand
to end the 1998 fiscal year at $198 thousand, and then increased to $203
thousand or by 2.5% as of year-end 1999. The average yields followed accordingly
from 6.03% to 4.88%, and then to 5.00%, respectively, for December 31, 1997,
1998, and 1999.
Repurchase agreements reported an increase in interest expense with figures
Of $4 thousand for 1998, increasing $48 thousand to end 1999 at a total expense
figure of $52 thousand, with respective yields of 4.30% and 3.98%.
As the volume of subordinated debentures decreases, so does the associated
expense. Interest expense of $11 thousand, $5 thousand and $2 thousand was
noted for the 12 months ended 1997, 1998, and 1999, respectively, which
transforms into a decrease of 54.6% and 56%, respectively. The results are
average yields of 10.28% for 1997, 10.42% for 1998, and 11% for 1999.
OTHER OPERATING INCOME AND EXPENSES
Other operating income for the fourth quarter was reported at $531,185 for
1999, $441,652 for 1998, and $355,844 for 1997. Other income reports the
biggest increase for both comparison periods with income of $267,459 for 1999
versus $191,848 for 1998 and $146,886 for 1997, an increase of $75,611 or 39.4%
for 1999 versus 1998 and an increase of $44,962 or 30.6% for 1998 versus 1997.
A gain of $108,605 on the sale of an OREO property helped to boost other income
for the fourth quarter of 1999 compared to 1998. Income from sold loans, a
component of other income, reported income of $34,813 for the fourth quarter of
1998 versus income of $1,879 for the same period in 1997, clearly supporting the
total increase for that quarter. Additionally, trust department income
increased $42,860 for the fourth quarter of 1998 versus 1997 further supporting
the total increase from 1997 to 1998. The portfolio of trust account customers
increased dramatically during 1998, helping to increase the income associated
with this department. Other operating income for the 12 months of 1999 reported
at $1.8 million is an increase of 7.7% over the 1998 figure of $1.6 million,
which is an increase of almost 20% over the 1997 figure of $1.4 million. Trust
department income reported the biggest increase for 1999 versus 1998 at $61,124
or 32.9% ending 1999 with total income of $247,001 compared to $185,877. Other
income again reported the biggest increase for 1998 versus 1997, to end 1998 at
a figure of $771,947, an increase of $218,920, or almost 40% over the 1997
figure of $553,027. The trust department continued to grow throughout 1999
generating favorable income for the Company. Income from sold loans again
contributed to the overall increase in other income with reported income for the
1998 year of $153,699, compared to income of $19,580 for 1997.
Other operating expenses for the fourth quarter of 1999 was reported at $1.83
million, resulting in an increase of 5.6% over the 1998 fourth quarter figure
of $1.73 million, which decreased almost 2% compared to the 1997 fourth quarter
figure of $1.76 million. Occupancy expense accounts for the biggest increase
for 1999 versus 1998, with a reported figure of $360,385 compared to $282,403,
respectively. The expense for furniture and equipment was greater this year
than anticipated, resulting in an increase in depreciation on these assets.
Pension and other employee benefits accounts for the biggest increase for 1998
versus 1997 created by additional funds that were needed to cover a shortfall
for the 1997 fiscal year. Other expenses for the fourth quarter ended 1997 were
greater than the same period in 1998 and 1999 by $56,808 and $59,222,
respectively. OREO expenses, a component of other expenses, showed expenses
totaling $95,753 for the fourth quarter of 1997 compared to $27,937 for 1998 and
$39,003 for 1999. An auction was held during the last quarter of 1997 in an
attempt to decrease our OREO portfolio. Most of the properties that sold did so
at a loss, increasing overall expenses associated with these properties.
Additionally, a substantial write-down was taken in 1997 on a property the
Company has held for several years. Total other operating expenses ended the
1999 fiscal year at $7.33 million, an increase of $261,026 or 3.7% over the 1998
fiscal year of $7.07 million. The 1998 fiscal year total of $7.07 million is an
increase of $278,387 or 4.1% over the 1997 fiscal year figure of $6.8 million.
Other expenses tallied the biggest increase for both 1999 versus 1998 and 1998
versus 1997 with increases of $135,944 and $204,535, respectively. Expenses
associated with our ATMs increased $42,879 contributing to the increase in other
expenses for the 1999 fiscal year. Loss on limited partnership, a component of
other expense, reported an expense figure of $74,779 for the fiscal year 1998
compared to $24,000 for 1997. This increase is the result of a change in the
way the loss for this partnership is booked from year to year.
Many of the components of other operating expenses are estimated on a yearly
basis and accrued in monthly installments. In an attempt to present accurate
figures on the statement of income for any interim period, these expenses are
reviewed quarterly by senior management to ensure that monthly accruals are
accurate, and any necessary adjustments are made at that time.
APPLICABLE INCOME TAXES
Income before taxes of $967,578 are reported for the fourth quarter of 1999
compared to $888,262for the fourth quarter of 1998, and $798,066 for the same
period in 1997, translating to increases of $79,316 or 8.9% for 1999 versus
1998 and $90,196or 11.3% for 1998 versus 1997. As a result, provisions for
income taxes for the fourth quarters ended 1999, 1998, and 1997 are reported at
$214,411, $225,647, and $235,567, respectively. Figures presented at the end of
1999 for income before taxes show an increase of $220,119 or 7.6% for 1999
versus 1998 and a tiny increase of $221 for 1998 compared to the same period in
1997. Provisions for income taxes for each fiscal year are reported as an
increase of $76,135 or 10.7% from $710, 346 for 1998 to $786,481 for 1999 and a
decrease of $44,758 or 5.9%, from $755,104 for 1997 to $710,346for 1998. This
decrease in income tax expense for 1998 compared to 1997 is due in part to the
absence of an anticipated tax credit for 1997, part of which was booked in 1998.
Return on average assets (ROA), which measures how effectively a corporation
uses its assets to produce earnings, increased to 1.02% for 1999 versus 1.00%
for 1998 and 1.02% for 1997. Return on average equity (ROE), which is the ratio
of income earned to average shareholders' equity was 10.54% for 1999 compared to
10.35% for 1998 and 10.69% for 1997.
CAPITAL RESOURCES
Stockholders' equity at December 31, 1998 was $22,002,059, with a book
value of $6.74 per share. It increased through earnings of $2,334,358, the sale
of common stock of $954,188 through our dividend reinvestment program. It
decreased through purchases of treasury stock of $2,840, dividends paid totaling
$2,086,789, and $482,461 through adjustments for the valuation allowance of
securities. Stockholders' equity also decreased due to an adjustment of
$537,361 for a cash dividend that was declared in December of 1999, payable in
February of 2000. As of December 31, 1999, stockholders' equity was $22,181,154
with a book value of $6.60 per share. All stockholders' equity is unrestricted.
Additionally, it is noted that as the maturity date on securities classified as
available for sale draws near, the market price on these securities becomes more
favorable, thereby greatly reducing the material loss associated with these
investments through the valuation allowance.
The Bank, as a National Bank, is subject to the dividend restrictions set
forth by the Comptroller of the Currency. Under such restrictions, the Bank may
not, without the prior approval of the Comptroller of the Currency, declare
dividends in excess of the sum of the current year's earnings (as defined) plus
the retained earnings (as defined) from the prior two years. The Bank is
required to maintain minimum amounts of capital to total "risk weighted" assets,
as defined by the banking regulators. At December 31, 1999, the Bank is
required to have minimum Tier I and Total Capital ratios of 4.00% and 8.00%,
respectively. The Company's consolidated risk weighted assets were reported at
$112 million with reported ratios, at December 31, 1999, of approximately 20%
for Tier I capital and 21% for Total capital. The report labeled "Capital
Ratios" provides a better understanding of the components of each the Tier I and
Tier II capital ratios as well as a three-year comparison of the growth of these
ratios.
The Company intends to continue the past policy of maintaining a strong
capital resource position to support its asset size and level of operations.
Consistent with that policy, management will continue to anticipate the
Company's future capital needs.
From time to time the Company may make contributions to the capital of either
of its subsidiaries, Community National Bank or Liberty Savings Bank. At
present, regulatory authorities have made no demand on the Company to make
additional capital contributions to either the Bank's or Liberty's capital.
YEAR 2000
Now that the century (and millennium) date change has come and gone, we are
pleased to report that we experienced no significant difficulties as the new
year began. The power stayed on, the phone lines worked, our ATMs were
operable, and our computer systems worked fine. Furthermore, no unusual demands
were placed on us for large cash withdrawals. Apparently our customers fully
realized that the safest place for their money was in the bank.
There are some key dates to watch throughout the year 2000, including
February 29th (leap year day), March 31 (the end of the first quarter) and of
course December 31st. We will continue to monitor our systems on these dates
and throughout the year, but we expect no real problems to develop.
The Company worked 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 met on a regular basis to keep executive management and the Board of
Directors informed of our progress towards Y2K compliance. The committee
developed strategic, customer awareness, customer risk assessment, test and
contingency plans. In accordance with FFEIC guidelines, the Y2K committee
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 defined 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 replaced
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 was a processing day. We detected no failures in our mission-
critical systems.
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>
During 1999, we did not install any major upgrades to our systems after
testing was completed.
The costs involved in addressing potential problems did not have a material
impact on the Company's financial position or cash flows. 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 did
not calculate the personnel costs relating to Y2K, however, we did not have to
hire additional personnel in our Y2K efforts.
For 1999, we budgeted and spent $77,000. Expenses included the replacement
of additional PCs, PC software upgrades, consulting services, testing, travel
and education. Y2K costs were expensed from current earnings.
No new projects were deferred due to the Y2K effort. The yearly software
update to our core system provided by one of our vendors was postponed by the
vendor until 2000 in an effort to minimize changes to an already compliant
system. This did 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. It may be that some of our small business customers may yet experience
Y2K related difficulties, but none has appeared so far, and we believe our
exposure to these kinds of problems is minimal.
The worst case scenario relating to Y2K would have been the loss of
electrical power. In an effort to mitigate this risk, as well as to protect us
in the event of other power outages, a generator was purchased and installed
at our main office in Derby.
The next worst case scenario would have been the loss of our telephones. If
this had happened, the Derby branch would have been fully operational. Other
branches would have had to service deposits in an off-line mode. Requests for
account and loan origination would have been directed to the Derby branch.
Our Y2K contingency plan was 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 third-
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 third-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.
<TABLE>
COMMON STOCK PERFORMANCE BY QUARTER
<CAPTION>
1999
First Second Third Fourth
Trade price
<S> <C> <C> <C> <C>
High $13.00 $12.50 $11.00 $10.88
Low $11.88 $12.00 $ 9.25 $ 8.63
Cash Dividends Declared $0.16 $0.16 $0.16 $0.16
<CAPTION>
1998
First Second Third Fourth
Trade price
<S> <C> <C> <C> <C>
High $13.00 $13.75 $15.00 $13.75
Low $11.75 $13.00 $13.75 $11.50
Cash Dividends Declared $0.15 $0.15 $0.15 $0.15
Trade price information for the first quarter of 1998 has been restated to
reflect the 100% stock dividend paid on June 1, 1998.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 9,929
<INT-BEARING-DEPOSITS> 2,187
<FED-FUNDS-SOLD> 600
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 30,124
<INVESTMENTS-CARRYING> 29,888
<INVESTMENTS-MARKET> 29,503
<LOANS> 153,279
<ALLOWANCE> 1,715
<TOTAL-ASSETS> 232,216
<DEPOSITS> 201,843
<SHORT-TERM> 2,623
<LIABILITIES-OTHER> 1,493
<LONG-TERM> 4,075
0
0
<COMMON> 8,471
<OTHER-SE> 14,606
<TOTAL-LIABILITIES-AND-EQUITY> 232,216
<INTEREST-LOAN> 13,036
<INTEREST-INVEST> 3,411
<INTEREST-OTHER> 276
<INTEREST-TOTAL> 16,723
<INTEREST-DEPOSIT> 7,277
<INTEREST-EXPENSE> 257
<INTEREST-INCOME-NET> 9,188
<LOAN-LOSSES> 497
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,330
<INCOME-PRETAX> 3,121
<INCOME-PRE-EXTRAORDINARY> 3,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,334
<EPS-BASIC> .71
<EPS-DILUTED> .71
<YIELD-ACTUAL> 7.74
<LOANS-NON> 1,759
<LOANS-PAST> 791
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,284
<ALLOWANCE-OPEN> 1,659
<CHARGE-OFFS> 549
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 1,715
<ALLOWANCE-DOMESTIC> 1,715
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 566
</TABLE>
